FRANKLIN FINANCIAL SERVICES CORP /PA/

Previous wording

For the Three Months Ended March 31, 2025 and 2024

Current wording

For the Three and Six Months Ended June 30, 2025 and 2024

Previous wording

A summary of operating results for Franklin Financial Services Corporation for the three months ended March 31, 2025 are as follows:

Current wording

A summary of operating results for Franklin Financial Services Corporation for the three and six months ended June 30, 2025 are as follows:

Previous wording

Net income for the first quarter of 2025 was $3.9 million ($0.88 per diluted share) compared to $3.4 million ($0.77 per diluted share) for the first quarter of 2024, an increase of 16.7%.

Current wording

Net income for the second quarter of 2025 was $5.9 million ($1.32 per diluted share) compared to $3.0 million ($0.66 per diluted share) forthe second quarter of 2024 (an increase of 94.8%).

Previous wording

For the first quarter of 2025, the provision for credit losses was $779 thousand compared to $452 thousand for the first quarter of 2024. The increase in the provision expense was due primarily to loan growth of $57.3 million since year-end 2024.

Current wording

For the second quarter of 2025, the provision for credit losses was $635 thousand compared to $546 thousand for the second quarter of 2024. Year-to-date the provision for credit losses was $1.4 million for the first six months of 2025 compared to $998 thousand for the same period in 2024. The increase in the provision expense was due primarily to loan growth.

Previous wording

Total assets at March 31, 2025 were $2.257 billion, compared to $2.198 billion at year-end 2024, an increase of 2.7%.

Current wording

Total assets were $2.287 billion as of June 30, 2025 compared to $2.198 billion at year-end 2024, an increase of 4.1%.

Previous wording

Total net loans increased $57.3 million (4.2%) from December 31, 2024.

Current wording

Total net loans increased $119.6 million (8.7%) to $1.500 billion on June 30, 2025 from December 31, 2024.

Previous wording

Return on Average Assets (ROA) was 0.72%, Return on Average Equity (ROE) was 10.80% and the Net Interest Margin (NIM) was 3.05% on an annualized basis for the first quarter of 2025, compared to an ROA of 0.67%, ROE of 10.21%, and NIM of 2.88%for the same period in 2024.

Current wording

Return on Average Assets (ROA) was 0.89%, Return on Average Equity (ROE) was 13.27% and the Net Interest Margin (NIM) was 3.13% on an annualized basis for the first six months of 2025, compared to an ROA of 0.63%, ROE of 9.71%, and NIM of 2.94%for the same period in 2024.

Previous wording

On April 10, 2025, the Board of Directors declared a $0.33 per share regular quarterly cash dividend for the second quarter of 2025 to be paid on May 28, 2025, toshareholdersof record at the close of business on May 2, 2025. This represents a 3.1% increase over the dividend for the fourth quarter of 2024.

Current wording

On July 17, 2025, the Board of Directors declared a $0.33 per share regular quarterly cash dividend for the third quarter of 2025 to be paid on August 28, 2025, toshareholdersof record at the close of business on August 1, 2025. This represents a 3.1% increase over the dividend for the third quarter of 2024.

Previous wording

GAAP versus non-GAAP Presentations – The Corporation supplements its traditional GAAP measurements with certain non-GAAP measurements to evaluate its performance and to eliminate the effect of intangible assets. By eliminating intangible assets (Goodwill), the Corporation believes it presents a measurement that is comparable to companies that have no intangible assets or to companies that have eliminated intangible assets in similar calculations. However, not all companies may use the same calculation method for each measurement. The non-GAAP measurements are not intended to be used as a substitute for the related GAAP measurements. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. In the event of such a disclosure or release, the Securities and Exchange Commission’s Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. The following table shows the calculation of the non-GAAP measurements as of, or for the three months ended March 31, 2025 and 2024 and the year ended December 31, 2024.

Current wording

GAAP versus non-GAAP Presentations – The Corporation supplements its traditional GAAP measurements with certain non-GAAP measurements to evaluate its performance and to eliminate the effect of intangible assets. By eliminating intangible assets (Goodwill), the Corporation believes it presents a measurement that is comparable to companies that have no intangible assets or to companies that have eliminated intangible assets in similar calculations. However, not all companies may use the same calculation method for each measurement. The non-GAAP measurements are not intended to be used as a substitute for the related GAAP measurements. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. In the event of such a disclosure or release, the Securities and Exchange Commission’s Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. The following table shows the calculation of the non-GAAP measurements as of, or for the six months ended June 30, 2025 and 2024 and the year ended December 31, 2024.

Previous wording

Tax equivalent net interest income increased $2.1 million to $15.9 million in the first quarter of 2025 compared to $13.8 million for the same period in 2024. Tax equivalent net interest income increased $467 thousand from balance sheet volume changes and $1.6 million from interest rate changes.

Current wording

Tax equivalent net interest income increased $3.0 million to $17.5 million in the second quarter of 2025 compared to $14.5 million for the same period in 2024. Tax equivalent net interest income increased $1.6 million from balance sheet volume changes and $1.4 million from interest rate changes.

Previous wording

For the first quarter of 2025, the provision for credit losses on loans was $750 thousand and the provision for unfunded commitments was $29 thousand, resulting in a total provision for credit loss expense of $779 thousand. The loan provision expense increase was due primarily to growth in the loan portfolio as the historical credit loss rate and the qualitative loss factor have not materially changed during the first quarter of 2025.

Current wording

For the second quarter of 2025, the provision for credit losses on loans was $704 thousand and the provision for unfunded commitments was a reversal of $69 thousand, resulting in a total provision for credit loss expense of $635 thousand. The loan provision expense increase was due primarily to growth in the loan portfolio.

Previous wording

The Allowance for Credit Losses (ACL) ratio for loans was 1.27% at March 31, 2025 compared to 1.26% at December 31, 2024. The ACL for unfunded commitments was $2.1 million at March 31, 2025 compared to $2.0 million at December 31, 2024. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.

Current wording

The Allowance for Credit Losses (ACL) ratio for loans was 1.26% at June 30, 2025 unchanged from December 31, 2024. The ACL for unfunded commitments was $2.0 million at June 30, 2025 and December 31, 2024. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.

Previous wording

For the first quarter of 2025, noninterest income increased $374 thousand from the same period in 2024. Wealth Management fees increased, primarily because of growth in assets under management. Gains on sale of loans increased due to volume of mortgage sales. Other income increased from swap referral fees.

Current wording

For the second quarter of 2025, noninterest income increased $753 thousand from the same period in 2024. Wealth Management fees increased, primarily because of growth in assets under management. Loan service charges increased due to commercial loan prepayment penalties. Other income increased from swap referral fees and a state sales tax refund.

Previous wording

For the first quarter of 2025, the Corporation recorded a Federal income tax expense of $917 thousand and state tax credit of $27 thousand compared to $624 thousand for federal income tax and $20 thousand for state income tax in the same quarter in 2024. The effective tax rate for the first quarter of 2025 was 18.5% compared to 15.7% for the same period in 2024. The federal statutory tax rate is 21% for 2025 and 2024.

Current wording

For the second quarter of 2025, the Corporation recorded a Federal income tax expense of $1.4 million and state tax expense of $59 thousand compared to $646 thousand for federal income tax and $100 thousand for state income tax in the same quarter in 2024. The effective tax rate for the second quarter of 2025 was 19.3% compared to 17.6% for the same period in 2024. The federal statutory tax rate is 21% for 2025 and 2024.

Previous wording

Noninterest expense for the first quarter of 2025 increased $1.3 million compared to the same period in 2024. Salaries and benefits increased $779 thousand primarily in salaries ($246 thousand), an increase in health insurance costs ($292 thousand) and an increase in commissions ($110 thousand) from an increase in mortgage volume. Data processing costs increased due to software expenses. FDIC insurance increased due to growth in the balance sheet. The increase in other expense is due, in part, to an increase in armored car expense from the addition of new services.

Current wording

Noninterest expense for the first six months of 2025 increased $1.3 million compared to the same period in 2024. Salaries and benefits increased $1.2 million primarily in health insurance ($507 thousand), salaries ($407 thousand) and an increase in pay for performance ($187 thousand). Advertising decreased due to the timing of several campaigns and FDIC insurance increased due to growth in the balance sheet. Other expense decreased due to the amortization of solar tax credits in 2024.

Previous wording

Cash and cash equivalents totaled $225.0 million at March 31, 2025, an increase of $21.3 million from the prior year-end balance of $203.6 million. Short-term interest-earning deposits are held primarily at the Federal Reserve ($196.2 million). At March 31, 2025, the Corporation had posted cash collateral of $5.2 million to a counterparty in a derivative transaction.

Current wording

Cash and cash equivalents totaled $207.8 million at June 30, 2025, an increase of $4.2 million from the prior year-end balance of $203.6 million. Short-term interest-earning deposits are held primarily at the Federal Reserve ($168.6 million). At June 30, 2025, the Corporation had posted cash collateral of $5.6 million to a counterparty in a derivative transaction.

Previous wording

Available for Sale (AFS) Securities: At March 31, 2025, the AFS securities portfolio had an amortized cost of $534.4 million, a decrease of $19.6 million from the prior year-end, and a fair value of $495.5 million, a decrease of $13.1 million from the prior year-end. During the first three months of 2025, the portfolio returned $19.6 million of principal and there were no new purchases. The Bank did not sell any investments in the first three months of 2025. The AFS portfolio had a net unrealized loss of $38.9 million at March 31, 2025 compared to a net unrealized loss of $45.4 million at the prior year-end. The AFS portfolio averaged $512.7 million with a tax equivalized yield of 4.23% for the three months ended March 31, 2025. This compares to an average of $476.9 million and a tax-equivalized yield of 3.61% for the same period in 2024.

Current wording

Available for Sale (AFS) Securities: At June 30, 2025, the AFS securities portfolio had an amortized cost of $518.2 million, a decrease of $35.8 million from the prior year-end, and a fair value of $481.3 million, a decrease of $27.3 million from the prior year-end. During the first six months of 2025, the portfolio returned $35.7 million of principal and there were no new purchases. The Bank did not sell any investments in the first six months of 2025. The AFS portfolio had a net unrealized loss of $37.0 million at June 30, 2025 compared to a net unrealized loss of $45.4 million at the prior year-end. The AFS portfolio averaged $496.7 million with a tax equivalized yield of 4.07% for the six months ended June 30, 2025. This compares to an average of $461.9 million and a tax-equivalized yield of 3.69% for the same period in 2024.

Previous wording

Restricted Stock at Cost: The Bank held $8.8 million of restricted stock at March 31, 2025 and December 31, 2024. Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum membership amount plus a variable activity amount. FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations. There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low-cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.

Current wording

Restricted Stock at Cost: The Bank held $8.9 million of restricted stock at June 30, 2025 and $8.8 million at December 31, 2024. Except for $30 thousand, this investment represents stock in FHLB Pittsburgh (the FHLB). The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum membership amount plus a variable activity amount. FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations. There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low-cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.

Previous wording

Total residential real estate loans increased by $6.5 million over year-end 2024, primarily in consumer first lien loans. For the first three months of 2025, the Bank originated $23.0 million in mortgages compared to $11.7 million for the same period in 2024, including $7.0 million for sale through the secondary market. The Bank does not originate or hold any loans that would be considered sub-prime or Alt-A and does not generally originate mortgages outside of its primary market area.

Current wording

Total residential real estate loans increased by $28.9 million over year-end 2024, primarily in consumer first lien loans. For the first six months of 2025, the Bank originated $54.8 million in mortgages compared to $51.6 million for the same period in 2024, including $15.9 million for sale through the secondary market. The Bank does not originate or hold any loans that would be considered sub-prime or Alt-A and does not generally originate mortgages outside of its primary market area.

Previous wording

Residential real estate construction: This category contains loans for the vertical construction of 1-4 family residential properties. The largest component of this category ($26.6 million) represents loans for individuals to construct personal residences, while loans to residential real estate developers totaled $22.3 million at March 31, 2025. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania. Real estate construction loans, including residential real estate and land development loans, occasionally provide an interest reserve in order to assist the developer during the development stage when minimal cash flow is generated. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve.

Current wording

Residential real estate construction: This category contains loans for the vertical construction of 1-4 family residential properties. The largest component of this category ($25.6 million) represents loans for individuals to construct personal residences, while loans to residential real estate developers totaled $22.1 million at June 30, 2025. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania. Real estate construction loans, including residential real estate and land development loans, occasionally provide an interest reserve in order to assist the developer during the development stage when minimal cash flow is generated. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve.

Previous wording

Commercial real estate (CRE): This category includes commercial, industrial, farm and agricultural loans and land development loans, where real estate serves as the primary collateral for the loans. Total commercial real estate loans increased to $831.8 million from $803.4 million at the end of 2024. Included in commercial real estate are approximately $508 million of nonowner occupied loans located primarily in the Bank’s market area of south-central Pennsylvania.

Current wording

Commercial real estate (CRE): This category includes commercial, industrial, farm and agricultural loans and land development loans, where real estate serves as the primary collateral for the loans. Total commercial real estate loans increased to $872.2 million from $803.4 million at the end of 2024. Included in commercial real estate are approximately $709 million of nonowner occupied loans located primarily in the Bank’s market area of south-central Pennsylvania. The Bank’s CRE concentration ratio is 349.6% at June 30, 2025 compared to 332.9% at December 31, 2024.

Previous wording

Also included in CRE are real estate construction loans totaling $161.7 million. At March 31, 2025, the Bank had $72.9 million in real estate construction loans funded with an interest reserve and capitalized $920 thousand of interest in the first three months of 2025 from these reserves on active projects for commercial construction. Real estate construction loans are monitored on a regular basis by either an independent first-party inspector or the assigned loan officer depending on loan amount or complexity of the project. This monitoring process includes at a minimum, the submission of invoices and American Institute of Architects (AIA) documents (depending on the complexity of the project) detailing costs incurred by the borrower, on-site inspections, and a signature by the assigned loan officer for disbursement of funds.

Current wording

Also included in CRE are real estate construction loans totaling $195.3 million. At June 30, 2025, the Bank had $87.2 million in real estate construction loans funded with an interest reserve and capitalized $1.8 million of interest in the first six months of 2025 from these reserves on active projects for commercial construction. Real estate construction loans are monitored on a regular basis by either an independent first-party inspector or the assigned loan officer depending on loan amount or complexity of the project. This monitoring process includes at a minimum, the submission of invoices and AIA documents (depending on the complexity of the project) detailing costs incurred by the borrower, on-site inspections, and a signature by the assigned loan officer for disbursement of funds.

Previous wording

Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans increased $7.4 million to $238.0 million at March 31, 2025, compared to $230.6 million at the end of 2024. At March 31, 2025, the Bank had $105.1 million in tax-free loans.

Current wording

Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans increased $8.5 million to $239.1 million at June 30, 2025, compared to $230.6 million at the end of 2024. At June 30, 2025, the Bank had $104.0 million in tax-free loans compared to $105.0 million at December 31, 2024.

Previous wording

Participations: The Bank may supplement its own commercial loan production by purchasing loan participations. These participations are primarily located in south-central Pennsylvania. At March 31, 2025, the outstanding commercial participations were $111.5 million, or 9.6%, of commercial purpose loans and 7.7% of total gross loans compared to $107.2 million at December 31, 2024, or 9.6%, of commercial purpose loans and 7.7% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $132.7 million, compared to $133.1 million at December 31, 2024. The commercial loan participations are comprised of $30.3 million of Commercial loans and $81.2 million of CRE loans, reported in the respective loan class.

Current wording

Participations: The Bank may supplement its own commercial loan production by purchasing loan participations. These participations are primarily located in south-central Pennsylvania. At June 30, 2025, the outstanding commercial participations were $114.0 million, or 9.5%, of commercial purpose loans and 7.5% of total gross loans compared to $107.2 million at December 31, 2024, or 9.6%, of commercial purpose loans and 7.7% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $133.0 million, compared to $133.1 million at December 31, 2024. The commercial loan participations are comprised of $30.0 million of commercial loans and $84.0 million of CRE loans, reported in the respective loan class.

Previous wording

Consumer loans: This category had a balance of $8.1 million at March 31, 2025, compared to $8.9 million at prior year-end and is comprised primarily of installment loans and personal lines of credit.

Current wording

Consumer loans: This category had a balance of $8.3 million at June 30, 2025, compared to $8.9 million at prior year-end and is comprised primarily of installment loans and personal lines of credit.

Previous wording

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated 6–Other Assets Especially Mentioned or worse and obtains a new appraisal or asset valuation for any loans placed on nonaccrual and rated 7 - Substandard or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. When determining the ACL, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Board Enterprise Risk Management Committee of the Board of Directors. Management believes the ACL at March 31, 2025 is adequate.

Current wording

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated 6–Other Assets Especially Mentioned or worse and obtains a new appraisal or asset valuation for any loans placed on nonaccrual and rated 7 - Substandard or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. When determining the ACL, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Board Enterprise Risk Management Committee of the Board of Directors. Management believes the ACL at June 30, 2025 is adequate based on currently available information.

Previous wording

Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list totaled $31.4 million at March 31, 2025 compared to $21.5 million at December 31, 2024. The increase was primarily due to credit downgrades on two hotel loans__ during the first quarter of 2025. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $253 thousand of nonaccrual loans as of March 31, 2025 and $266 thousand as of December 31, 2024. The credit composition of the watch list (loans rated 6, 7, or 8), by primary collateral is shown in Note 6 of the accompanying financial statements.

Current wording

Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list totaled $45.2 million at June 30, 2025 compared to $21.5 million at December 31, 2024. The increase was primarily due to credit downgrades on a mixed-use construction project and two hotel loans during the first six months of 2025. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $10.8 million of nonaccrual loans as of June 30, 2025 and $266 thousand as of December 31, 2024. The credit composition of the watch list (loans rated 6, 7, or 8), by primary collateral is shown in Note 6 of the accompanying financial statements.

Previous wording

The Bank’s Loan Management Committee reviews these loans and risk ratings on a quarterly basis in order to proactively identify and manage problem loans. In addition, a committee meets monthly to discuss possible workout strategies for all credits rated 7-Substandard or worse. Management also tracks other commercial loan risk measurements including high loan to value loans, concentrations, participations and policy exceptions and reports these to the Board Enterprise Risk Management Committee of the Board of Directors. The Bank also uses an external loan review consultant to assist with internal loan review with a goal of reviewing up to 80% of commercial loans each year. The FDIC defines certain supervisory loan-to-value lending limits. The Bank’s internal loan–to-value limits are all equal to or have a lower loan-to-value limit than the supervisory limits. However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At March 31, 2025, the Bank had loans of $12.7 million (0.9% of gross loans) that exceeded the supervisory limit, compared to 1.0% at year-end 2024.

Current wording

The Bank’s Loan Management Committee reviews these loans and risk ratings on a quarterly basis in order to proactively identify and manage problem loans. In addition, a committee meets monthly to discuss possible workout strategies for all credits rated 7-Substandard or worse. Management also tracks other commercial loan risk measurements including high loan to value loans, concentrations, participations and policy exceptions and reports these to the Board Enterprise Risk Management Committee of the Board of Directors. The Bank also uses an external loan review consultant to assist with internal loan review with a goal of reviewing up to 80% of commercial loans each year. The FDIC defines certain supervisory loan-to-value lending limits. The Bank’s internal loan–to-value limits are all equal to or have a lower loan-to-value limit than the supervisory limits. However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At June 30, 2025, the Bank had loans of $12.7 million (0.8% of gross loans) that exceeded the supervisory limit, compared to 1.0% at year-end 2024.

Previous wording

Loan quality, as measured by nonaccrual loans, totaled $253 thousand at March 31, 2025 compared to $266 thousand at December 31, 2024 and the nonperforming loan to gross loans ratio was 0.02% at March 31, 2025 and December 31, 2024. Loans past due 90-days or more, but still accruing, totaled $20 thousand at March 31, 2025.

Current wording

Loan quality, as measured by nonaccrual loans, totaled $10.8 million at June 30, 2025 compared to $266 thousand at December 31, 2024 and the nonperforming loan to gross loans ratio was 0.71% at June 30, 2025 compared to 0.02% at December 31, 2024. Loans past due 90-days or more, but still accruing, totaled $0 at June 30, 2025. The nonaccrual loans are comprised primarily of two loans: 1) a $7.4 million construction loan on a mixed-use project, and 2) a $2.9 million hotel loan. The construction loan is current on payments as of June 30, 2025. The Bank is in discussion with the developer to determine the additional sources of funding needed, including additional equity contributions, to bring the project to completion. In addition, the Bank has ordered a new appraisal and has engaged a construction expert to review the status of the project. The hotel was sold at auction in July 2025 and, pending a successful closing on the sale, the net proceeds are expected to fully satisfy the loan.

Previous wording

The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates. At March 31, 2025, the pooled loan reserve was $18.4 million and approximately 69% of the pooled reserve was from the qualitative component, unchanged from year-end 2024. The was no specific reserve as of March 31, 2025 or December 31, 2024.

Current wording

The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates. At June 30, 2025, the pooled loan reserve was $19.1 million and approximately 69% of the pooled reserve was from the qualitative component, unchanged from year-end 2024. The was no specific reserve as of June 30, 2025 or December 31, 2024.

Previous wording

The ACL for unfunded commitments is recorded in other liabilities on the consolidated balance sheet. The ACL represents management’s estimate of expected losses from unfunded commitments and is determined by estimating future usage of the commitments, based on historical usage. The estimated loss is calculated in a manner similar to that used for the ACL for loans, previously described. The ACL is increased or decreased through the provision for credit losses. At March 31, 2025, the ACL for unfunded commitments totaled $2.1 million, compared to $2.0 million at December 31, 2024.

Current wording

The ACL for unfunded commitments is recorded in other liabilities on the consolidated balance sheet. The ACL represents management’s estimate of expected losses from unfunded commitments and is determined by estimating future usage of the commitments, based on historical usage. The estimated loss is calculated in a manner similar to that used for the ACL for loans, previously described. The ACL is increased or decreased through the provision for credit losses. At June 30, 2025 and December 31, 2024, the ACL for unfunded commitments totaled $2.0 million.

Previous wording

The following table shows the allocation of the allowance for credit losses and other loan performance ratios, by class, as of March 31, 2025 and December 31, 2024:

Current wording

The following table shows the allocation of the ACL and other loan performance ratios, by class, as of June 30, 2025 and December 31, 2024:

Previous wording

Total deposits increased $51.9 million during the first three months of 2025 to $1.868 billion. Noninterest checking increased $8.6 million, primarily in municipal and small business accounts. Interest-bearing checking decreased by $9.9 million, primarily in municipal deposits, while the Bank’s Money Management product increased $57.3 million. Time deposits decreased $4.4 million. The Bank has $87.5 million of brokered CDs at March 31, 2025 and December 31, 2024.

Current wording

Total deposits increased $77.8 million during the first six months of 2025 to $1.893 billion. Noninterest checking increased $3.7 million, primarily in municipal and small business accounts. Interest-bearing checking decreased by $9.2 million, primarily in municipal deposits, while the Bank’s Money Management product increased $80.5 million. Time deposits increased $3.9 million.

Previous wording

As of March 31, 2025, the Bank had deposits of $303.2 million placed in the IntraFi Network reciprocal deposit program ($106.3 million in interest-bearing checking and $196.9 million in money management) and $29.7 million in reciprocal time deposits in the CDARS program included in time deposits. These programs allow the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank. The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit. Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At March 31, 2025, the Bank’s reciprocal deposits were 15.9% of the Bank’s total liabilities compared to 16.2% at year-end 2024.

Current wording

As of June 30, 2025, the Bank had deposits of $328.0 million placed in the IntraFi Network reciprocal deposit program ($110.1 million in interest-bearing checking and $186.4 million in money management) and $31.5 million in reciprocal time deposits in the CDARS program included in time deposits. These programs allow the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank. The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit. Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At June 30, 2025, the Bank’s reciprocal deposits were 15.5% of the Bank’s total liabilities compared to 16.2% at year-end 2024.

Previous wording

On August 4, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $15.0 million of subordinated debt notes with a maturity date of September 1, 2030. These notes are noncallable for 5 years and carry a fixed interest rate of 5.00% per year for 5 years and then convert to floating rate of SOFR plus 4.93% per year for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The Corporation also sold $5.0 million of subordinated debt notes with a maturity date of September 1, 2035. These notes are noncallable for 10 years and carry a fixed interest rate of 5.25% per year for 10 years and then convert to a floating rate of SOFR plus 4.92% per year 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. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to maturity date of each issue on a pro-rata basis. The proceeds are intended to be used for general corporate purposes.

Current wording

On August 4, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $15.0 million of subordinated debt notes with a maturity date of September 1, 2030. These notes are noncallable for 5 years and carry a fixed interest rate of 5.00% per year for 5 years and on June 30, 2025, converted to floating rate of SOFR plus 4.93% per year and will reset quarterly. The notes can be redeemed at par beginning 5 years prior to maturity. The Corporation also sold $5.0 million of subordinated debt notes with a maturity date of September 1, 2035. These notes are noncallable for 10 years and carry a fixed interest rate of 5.25% per year for 10 years and then convert to a floating rate of SOFR plus 4.92% per year 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. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to maturity date of each issue on a pro-rata basis. The proceeds are intended to be used for general corporate purposes.

Previous wording

Total shareholders’ equity increased $6.7 million to $151.4 million as of March 31, 2025 from December 31, 2024. Retained earnings increased $2.5 million in 2025 and accumulated other comprehensive income/(loss) (AOCI) improved $3.7 million since year-end 2024. The increase in retained earnings was from net income of $3.9 million partially offset by cash dividends of $1.4 million. The Corporation’s Dividend Reinvestment Plan (DRIP) added $190 thousand in new capital from optional cash contributions and $254 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 36.16% for the first three months of 2025 compared to 41.62% for the same period in 2024.

Current wording

Total shareholders’ equity increased $12.6 million to $157.4 million as of June 30, 2025 from December 31, 2024. Retained earnings increased $6.9 million in 2025, with net income of $9.8 million partially offset by cash dividends of $2.9 million. Accumulated other comprehensive income/(loss) (AOCI) improved $4.7 million since year-end 2024. The Corporation’s Dividend Reinvestment Plan (DRIP) added $203 thousand in new capital from optional cash contributions and $511 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 29.39% for the first six months of 2025 compared to 43.88% for the same period in 2024.

Previous wording

As part of its quarterly dividend decision, the Corporation considers, among other factors, current and future income projections, dividend yield, payout ratio, current and future capital ratios, reserves and allocations. For the first quarter of 2025, the Corporation paid a $0.32 per share dividend, compared to $0.32 paid in the first quarter of 2024. On April 10, 2025, the Board of Directors declared a $0.33 per share regular quarterly dividend for the second quarter of 2025, which will be paid on May 28, 2024. This represents a 3.1% increase over the second quarter 2024 dividend.

Current wording

As part of its quarterly dividend decision, the Corporation considers, among other factors, current and future income projections, dividend yield, payout ratio, current and future capital ratios, reserves and allocations. For the second quarter of 2025, the Corporation paid a $0.33 per share dividend, compared to $0.32 paid in the first quarter of 2025. On July 17, 2025, the Board of Directors declared a $0.33 per share regular quarterly dividend for the third quarter of 2025, which will be paid on August 27, 2024. This represents a 3.1% increase over the third quarter 2024 dividend.

Previous wording

In January 2025, the Board of Directors authorized a repurchase plan for the repurchase of up to 150,000 shares of the Corporation’s $1.00 par value common stock at market prices in open market or privately negotiated transactions over a one-year period. No shares were purchased during the first three months of 2025.

Current wording

In January 2025, the Board of Directors authorized a repurchase plan for the repurchase of up to 150,000 shares of the Corporation’s $1.00 par value common stock at market prices in open market or privately negotiated transactions over a one-year period. During the first six months of 2025, 6,700 shares were purchased to fund the dividend reinvestment plan.

Previous wording

Capital adequacy for the Bank is currently defined by regulatory agencies through the use of several minimum required ratios. The capital ratios to be considered “well capitalized” are: (1) Common Equity Tier 1 (CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3) Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%. In addition, a capital conservation buffer of 2.5% is applicable to all of the capital ratios except for the Tier 1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement. The Bank’s capital conservation buffer at March 31, 2025 was 4.69% compared to the regulatory buffer of 2.5%. Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions and is in addition to the minimum required capital requirements. As of March 31, 2025, the Bank was “well capitalized.”

Current wording

Capital adequacy for the Bank is currently defined by regulatory agencies through the use of several minimum required ratios. The capital ratios to be considered “well capitalized” are shown in the table below. In addition, a capital conservation buffer of 2.5% is applicable to all of the capital ratios except for the Tier 1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement. The Bank’s capital conservation buffer at June 30, 2025 was 4.75% compared to the regulatory buffer of 2.5%. Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions and is in addition to the minimum required capital requirements. As of June 30, 2025, the Bank was “well capitalized.”

Previous wording

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, marketable securities that are unencumbered ($276.7 million fair value) are an additional source of readily available liquidity, either by selling the security or, more preferably, to provide collateral for additional borrowing. The Bank also has access to other wholesale funding via the brokered CD market.

Current wording

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, marketable securities that are unencumbered ($108.1 million fair value) are an additional source of readily available liquidity, either by selling the security or, more preferably, to provide collateral for additional borrowing. The Bank also has access to other wholesale funding via the brokered CD market.