FIRST NORTHERN COMMUNITY BANCORP

The accompanying unaudited condensed consolidated financial statements of First Northern Community Bancorp (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Articles 9 and 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for any interim period are not necessarily indicative of results expected for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the Securities and Exchange Commission. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. All material intercompany balances and transactions have been eliminated in consolidation.

The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”). These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Among other things, these amendments provide additional transparency into an entity’s income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The standard requires that public business entities disclose, on an annual basis, specific categories in the rate reconciliation and additional information for reconciling items meeting a certain quantitative threshold. The amendments also require that entities disclose on an annual basis: 1) income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and 2) the income taxes paid (net of refunds received) disaggregated by individual jurisdictions exceeding 5% of total income taxes paid (net of refunds received). The amendments are effective for public business entities for annual periods beginning after December 15, 2024. The Company has evaluated this ASU and does not expect the adoption to have a material impact on the Company’s consolidated financial statements.

In March 2024, the FASB issued guidance within ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The amendments in the ASU apply to companies that provide employees and non-employees with profits interest and similar awards to align compensation with a company’s operating performance and provide those holders with the opportunity to participate in future profits and/or equity appreciation of the company. The purpose of the ASU is to clarify the application of the scope guidance in Accounting Standards Codification (ASC) paragraph 718-10-15-3 in determining if a profit interest award should be accounted for in accordance with Topic 718: Compensation—Stock Compensation. The amendment in ASC paragraph 718-10-15-3 is solely intended to improve the overall clarity and does not change the guidance. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If a company adopts the amendments in an interim period, it should adopt them as of the beginning of the annual period that includes the interim period. The amendments should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) on a prospective basis. The Company has evaluated this ASU and does not expect the adoption to have a material impact on the Company’s consolidated financial statements, as the Company does not typically provide these types of awards.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation

Disclosures (Subtopic 220-40): Clarifying the Effective Date. ASU 2025-01 amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. The Company is evaluating the accounting and disclosure requirements of this update and the impact of adopting the new guidance on the consolidated financial statements.

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The amortized cost, unrealized gains and losses, estimated fair values, and allowance for credit losses (ACL) of investments in debt and other securities at March 31, 2025 are summarized as follows:

The amortized cost, unrealized gains and losses and estimated fair values of investments in debt and other securities at December 31, 2024 are summarized as follows:

The Company had $3,367,000 and $971,000 proceeds from sales of available-for-sale securities for the three months ended March 31, 2025 and March 31, 2024, respectively. There wereno gross realized gains on sales/calls of available-for-sale securities for the three months ended March 31, 2025 and March 31, 2024. Gross realized losses on sales of available-for-sale securities were $53,000 and $42,000 for the three months ended March 31, 2025 and March 31, 2024, respectively.

The amortized cost and estimated fair value of debt and other securities at March 31, 2025, by contractual maturity, are shown in the following table:

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. In addition, factors such as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities.

An analysis of gross unrealized losses of the investment securities available-for-sale portfolio as of March 31, 2025, follows:

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Ninety-six securities, all considered investment grade, which had an aggregate fair value of $133,489,000 and a total unrealized loss of $3,444,000, have been in an unrealized loss position for less than twelve months as of March 31, 2025. Three hundred and seventy-eight securities, all considered investment grade, which had an aggregate fair value of $326,275,000 and a total unrealized loss of $33,800,000, have been in an unrealized loss position for more than twelve months as of March 31, 2025. The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The decline in fair value is attributable to changes in interest rates and not credit quality, and the Company does not intend to sell the securities. The Company has concluded it is not more likely than not that the Company will be required to sell these securities prior to recovery of their anticipated cost basis. Therefore, as of March 31, 2025 and December 31, 2024, the Company hadnot recorded an allowance for credit losses on these securities and the unrecognized or unrealized losses on these securities have not been recognized into income.

The fair value of investment securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, an allowance for credit loss on the investment securities may occur in the future.

An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of December 31, 2024, follows:

Investment securities carried at $55,022,000 and $53,589,000 at March 31, 2025 and December 31, 2024, respectively, were pledged to secure public deposits or for other purposes as required or permitted by law.

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The composition of the Company’s loan portfolio, by loan class, as of March 31, 2025 and December 31, 2024, was as follows:

At March 31, 2025 and December 31, 2024, all loans were pledged under a blanket collateral lien to secure actual and potential borrowings from the Federal Home Loan Bank (“FHLB”).

Allowance for Credit Losses (ACL)

The following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the condensed consolidated balance sheet within other liabilities as of March 31, 2025 and March 31, 2024.

The Company utilizes three economic variables, forecasted unemployment, gross domestic product and single-family home prices, as loss drivers for its allowance for credit losses. During the quarter ended March 31, 2025, the levels of forecasted national unemployment remained relatively stable. The GDP forecast called for a generally slowing trend, but still positive economic growth. Forecasted median single-family home prices called for lower home price growth, slowing close to zero. During the quarter ended March 31, 2025, there was an increase in nonaccrual loans requiring specific reserves. This was partially offset by a decrease in total reserve required due to a decrease in calculated loss rates as of March 31, 2025. As a result, the Company recorded provision for credit losses of $850,000 for the three months ended March 31, 2025. Management believes the allowance for credit losses at March 31, 2025 appropriately reflected expected credit losses in the loan portfolio at that date.

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Collateral-Dependent Loans

In accordance with ASC 326, a loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. All loans individually analyzed were collateral-dependent loans as of March 31, 2025 and December 31, 2024. The following table presents the amortized cost basis of collateral-dependent loans by class, which are individually evaluated to determine expected credit losses as of March 31, 2025 and December 31, 2024:

Foreclosure Proceedings

The Company hadno residential real estate property in the process of foreclosure at March 31, 2025 and December 31, 2024.

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Non-accrual and Past Due Loans

The Company’s loans by delinquency and non-accrual status, as of March 31, 2025 and December 31, 2024, was as follows:

The Company recognized $0 and $5,000 of interest income on nonaccrual loans during the three months ended March 31, 2025 and March 31, 2024, respectively.

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Loan Modifications

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, payment delays or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following tables present the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods ended March 31, 2025 and March 31, 2024 by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

The Company had commitments totaling $0 and $835,000 to lend additional funds to borrowers whose loans were modified at March 31, 2025 and March 31, 2024, respectively.

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The following tables present the financial effect of the loan modifications to borrowers experiencing financial difficulty for the three-month periods ended March 31, 2025 and March 31, 2024:

Loans that were modified within the previous twelve months were current on payments as of March 31, 2025 and March 31, 2024. There wereno loans modified within the previous twelve months and for which there was a payment default during each of the three-month periods ended March 31, 2025 and March 31, 2024.

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.

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Credit Quality Indicators

All loans are rated using the credit risk ratings and criteria adopted by the Company. Risk ratings are adjusted as future circumstances warrant. All credits risk rated 1, 2, 3 or 4 equate to a Pass as indicated by Federal and State bank regulatory agencies; a 5 equates to a Special Mention; a 6 equates to Substandard; a 7 equates to Doubtful; and an 8 equates to a Loss. For the definitions of each risk rating, see Note 4 to our consolidated financial statements included in our 2024 Form 10-K.

The following tables present the loan portfolio by loan class, origination year, and internal risk rating as of March 31, 2025 and December 31, 2024. Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to permanent loans, are presented by year of origination. Revolving loans converted to term loans totaled $124,000 during the three months ended March 31, 2025. Revolving loans converted to term loans totaled $3,121,000 during the year ended December 31, 2024.

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Transfers and servicing of financial assets and extinguishments of liabilities are accounted for and reported based on consistent application of a financial-components approach that focuses on control. Transfers of financial assets that are sales are distinguished from transfers that are secured borrowings. Retained servicing rights on loans sold are measured by allocating the previous carrying amount of the transferred assets between the loans sold and retained interest, if any, based on their relative fair value at the date of transfer. Fair values are estimated using discounted cash flows based on a current market interest rate.

The Company recognizes a gain or loss and a related asset for the fair value of the rights to service loans for others when loans are sold and servicing is retained. The Company sold a substantial portion of its portfolio of conforming long-term residential mortgage loans originated during the three months ended March 31, 2025 on a servicing retained basis, for cash proceeds equal to the fair value of the loans. At March 31, 2025, and December 31, 2024, the Company serviced real estate mortgage loans for others totaling $172,144,000 and $174,464,000, respectively.

The recorded value of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. The Company assesses capitalized mortgage servicing rights for impairment based upon the fair value of those rights at each reporting date. For purposes of measuring impairment, the rights are stratified based upon the product type, term and interest rates. Fair value is determined by discounting estimated net future cash flows from mortgage servicing activities using discount rates that approximate current market rates and estimated prepayment rates, among other assumptions. The amount of impairment recognized, if any, is the amount by which the capitalized mortgage servicing rights for a stratum exceeds their fair value. Impairment, if any, is recognized through a valuation allowance for each individual stratum. Changes in the carrying amount of mortgage servicing rights are reported in earnings under other operating income on the condensed consolidated statements of income.

Key assumptions used in measuring the fair value of mortgage servicing rights as of March 31, 2025 and December 31, 2024 were as follows:

The following table summarizes the Company’s mortgage servicing rights asset as of March 31, 2025 and December 31, 2024. Mortgage servicing rights are included in Interest Receivable and Other Assets on the condensed consolidated balance sheets.

At March 31, 2025 and December 31, 2024, the estimated fair market value of the Company’s mortgage servicing rights asset was $1,880,000 and $1,910,000, respectively. The changes in fair value of mortgage servicing rights during 2025 was primarily due to changes in prepayment speeds.

The Company received contractually specified servicing fees of $109,000 and $115,000 for the three months ended March 31, 2025 and March 31, 2024, respectively. Loan servicing income on the condensed consolidated statements of income include contractually specified servicing fees, mortgage servicing rights additions, amortization and changes in the valuation allowance.

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The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale and trading securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a non-recurring basis, such as loans held-for-sale, loans held-for-investment and certain other assets. These non-recurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process.

Assets Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024.

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Assets Recorded at Fair Value on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are included in the table below by level within the fair value hierarchy as of March 31, 2025 and December 31, 2024.

There wereno liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2025 and December 31, 2024.

Key methods and assumptions used in measuring the fair value of collateral dependent loans as of March 31, 2025 were as follows:

The following section describes the valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, if available. If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets where valuations include significant unobservable assumptions.

Individually Evaluated Loans

The Company does not record loans at fair value on a recurring basis. Loans that do not share similar risk characteristics are individually evaluated by management for potential impairment. Included in loans individually evaluated are collateral dependent loans. A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are considered to have unique risk characteristics and are individually evaluated. The ACL on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. If the value of underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken. Collateral dependent loans where a charge-off is recorded based on the fair value of collateral require classification in the fair value hierarchy. When a loan is evaluated based on the fair value of the underlying collateral securing the loan, the Company records the collateral dependent loan as non-recurring Level 3 given the valuation includes significant unobservable assumptions.

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Disclosures about Fair Value of Financial Instruments

The estimated fair values of the Company’s financial instruments for the periods ended March 31, 2025 and December 31, 2024 were approximately as follows:

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument and expected exit prices. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include deferred tax liabilities and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

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The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit in addition to entering into commitments to sell loans in conjunction with our mortgage banking activities. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Financial instruments, whose contract amounts represent credit risk at the indicated periods, were as follows:

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank issues both financial and performance standby letters of credit. The financial standby letters of credit are primarily to guarantee payment to third parties. At March 31, 2025 and December 31, 2024, there wereno financial standby letters of credit outstanding. The performance standby letters of credit are typically issued to municipalities as specific performance bonds. Performance standby letters of credit totaled $469,000 and $922,000 at March 31, 2025 and December 31, 2024, respectively. The Bank has experiencedno draws on outstanding letters of credit, resulting in no related liability included on its balance sheet; however, should a triggering event occur, the Bank either has collateral in excess of the letter of credit or imbedded agreements of recourse from the customer. The Bank has set aside a reserve for unfunded commitments in the amount of $950,000 and $700,000 at March 31, 2025 and December 31, 2024, respectively, which is recorded in “interest payable and other liabilities” on the condensed consolidated balance sheets.

Commitments to extend credit and standby letters of credit bear similar credit risk characteristics as outstanding loans. As of March 31, 2025 and December 31, 2024, the Company hadno off-balance sheet derivatives requiring additional disclosure.

The Company may enter into interest rate lock commitments in connection with its mortgage banking activities to fund residential mortgage loans within specified times in the future. These commitments expose the Company to the risk that the price of the loan underlying the interest rate lock commitment might decline from the inception of the interest rate lock to the funding of the mortgage loan. To protect against this risk, the Company may enter into commitments to sell loans to economically hedge the risk of potential changes in the value of the loans that would result from the commitment. Commitments to sell loans totaled $980,000 and $0 at March 31, 2025 and December 31, 2024, respectively. Mortgage loans sold to investors may be sold with servicing rights retained, for which the Company makes only standard legal representations and warranties as to meeting certain underwriting and collateral documentation standards.

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On January 23, 2025, the Board of Directors of the Company declared a 5% stock dividend paid on March 25, 2025 to shareholders of record as of February 28, 2025. All stock options and restricted stock outstanding have been adjusted to give retroactive effect to stock dividends.

The following table presents the activity related to stock options for the three months ended March 31, 2025:

The intrinsic value of options exercised was $179,000 and $73,000 during the three months ended March 31, 2025 and March 31, 2024, respectively. The fair value of awards vested was $25,000 and $88,000 during the three months ended March 31, 2025 and March 31, 2024, respectively.

As of March 31, 2025, there was $25,000 of total unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted average period of approximately 0.99 years.

There was $6,000 of recognized compensation cost related to stock options granted for the three months ended March 31, 2025.

The following table presents the activity related to non-vested restricted stock for the three months ended March 31, 2025:

The weighted average fair value of restricted stock granted during the three months ended March 31, 2025 was $9.51 per share.

As of March 31, 2025, there was $1,402,944 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a weighted average period of approximately 2.97 years.

There was $184,000 of recognized compensation cost related to restricted stock awards for the three months ended March 31, 2025.

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The Company has an Employee Stock Purchase Plan (“ESPP”). There are 395,699 shares authorized under the ESPP. The total number of shares authorized has been adjusted to give retroactive effect to stock dividends and stock splits, including the 5% stock dividend declared on January 23, 2025, and paid on March 25, 2025 to shareholders of record as of February 28, 2025. The ESPP will expire on March 16, 2026.

The ESPP is implemented by participation periods of not more than twenty-seven months each. The Board of Directors determines the commencement date and duration of each participation period. The Board of Directors approved the current participation period of November 24, 2024 to November 23, 2025. An eligible employee is one who has been continually employed for at least 90 days prior to commencement of a participation period. Under the terms of the ESPP, employees can choose to have up to 10 percent of their compensation withheld to purchase the Company’s common stock each participation period. The purchase price of the stock is 85 percent of the lower of the fair value on the last trading day before the date of participation or the fair value on the last trading day during the participation period.

As of March 31, 2025, there was $26,000 of unrecognized compensation cost related to ESPP issuances. This cost is expected to be recognized over a weighted average period of approximately 0.75 years.

There was $8,000 of recognized compensation cost related to ESPP issuances for the three months ended March 31, 2025.

The weighted average fair value at issuance date during the three months ended March 31, 2025 was $2.19.

A summary of the weighted average assumptions used in valuing ESPP issuances during the three months ended March 31, 2025 is presented below:

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The following table details activity in accumulated other comprehensive income (loss) for the three months ended March 31, 2025:

The following table details activity in accumulated other comprehensive loss for the three months ended March 31, 2024:

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On January 23, 2025, the Board of Directors of the Company declared a 5% stock dividend payable on March 25, 2025 to shareholders of record as of February 28, 2025. All income per share amounts have been adjusted to give retroactive effect to stock dividends.

Earnings Per Share (EPS)

Basic EPS includes no dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding, excluding non-vested restricted shares, for the respective period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding plus dilutive shares for the quarter. Diluted shares include all common stock equivalents (“in-the-money” stock options, unvested restricted stock, stock units, warrants and rights, convertible bonds and preferred stock), which reflects the potential dilution of securities that could share in the earnings of the Company.

The following table presents a reconciliation of basic and diluted EPS for the three months ended March 31, 2025 and 2024:

Stock options which were not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect amounted to 28,241 shares and 565,605 shares for the three months ended March 31, 2025 and March 31, 2024, respectively. Restricted stock grants outstanding which were not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect amounted to 1,167 shares and 8,193 shares for the three months ended March 31, 2025 and March 31, 2024, respectively.

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The Company leasesten branch and administrative locations under operating leases expiring on various dates through 2031. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASU 2016-02, Leases (Topic 842), the Company combines lease and nonlease components. The Company had no financing leases as of March 31, 2025.

Most leases include options to renew, with renewal terms that can extend the lease term from 3 to 10 years. The exercise of lease renewal options is at the Company’s sole discretion. Most leases are currently in the extension period. For the remaining leases with options to renew, the Company has not included the extended lease terms in the calculation of lease liabilities as the options are not reasonably certain of being exercised. Certain lease agreements include rental payments that are adjusted periodically for inflation. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

The Company uses its FHLB advance fixed rates, which are its incremental borrowing rates for secured borrowings, as the discount rates to calculate lease liabilities.

The Company had right-of-use assets totaling $2,937,000 and $3,155,000 as of March 31, 2025 and December 31, 2024, respectively. Right-of-use assets are included in interest receivable and other assets on the condensed consolidated balance sheets. The Company had lease liabilities totaling $3,405,000 and $3,645,000 as of March 31, 2025 and December 31, 2024, respectively. Lease liabilities are included in interest payable and other liabilities on the condensed consolidated balance sheets. The Company recognized lease expenses totaling $283,000 and $301,000 for the three months ended March 31, 2025 and March 31, 2024, respectively. Lease expense is included in occupancy and equipment expense on the condensed consolidated statements of income.

The table below summarizes the maturity of remaining lease liabilities:

The following table presents supplemental cash flow information related to leases for the three months ended March 31, 2025 and March 31, 2024:

The following table presents the weighted average operating lease term and discount rate as of March 31, 2025 and December 31, 2024:

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The Company evaluated its operating segments in accordance with ASC 280, Segment Reporting, and determined it hasone reportable segment, banking operations. The Company is engaged in a single line of business, indicative of a traditional banking institution, gathering deposits and originating loans in its primary market areas.

The Company manages its operations, allocates resources and monitors and reports its financials as a single operating segment. The Company’s Chief Executive Officer is considered the Chief Operating Decision Maker. The Chief Operating Decision Maker evaluates segment performance using consolidated net income.

Loans, interest bearing accounts, investment securities, deposits, and non-interest income provide the revenues in banking operations and are presented in the Company’s consolidated balance sheets. Interest expense, provisions for credit losses, salaries and employee benefits, occupancy and equipment, and data processing provide significant expenses in banking operations and are presented in the Company’s consolidated statements of income. Segment performance is evaluated using consolidated net income with the majority of the Company’s net income derived from net interest income.

The accounting policies for the segment is consistent with those described in Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements in the Company’s 2024 Form 10-K.

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