FIRST NORTHERN COMMUNITY BANCORP

Previous wording

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Current wording

ITEM 2.** –** MANAGEMENT**’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

Significant results and developments during the second quarter and year-to-date 2025 included:

Current wording

Significant results and developments during the third quarter and year-to-date 2025 included:

Previous wording

The Company recorded net income of $9,137,000 for the six months ended June 30, 2025, representing an increase of $437,000, or 5.0%, from net income of $8,700,000 for the same period in 2024. The Company recorded net income of $5,466,000 for the three months ended June 30, 2025, representing an increase of $1,042,000, or 23.6%, from net income of $4,424,000 for the same period in 2024.

Current wording

The Company recorded net income of $15,150,000 for the nine months ended September 30, 2025, representing an increase of $962,000, or 6.8%, from net income of $14,188,000 for the same period in 2024. The Company recorded net income of $6,013,000 for the three months ended September 30, 2025, representing an increase of $525,000, or 9.6%, from net income of $5,488,000 for the same period in 2024.

Previous wording

The following tables present a summary of the results for the three and six months ended June 30, 2025 and 2024, and a summary of financial condition at June 30, 2025 and December 31, 2024.

Current wording

The following tables present a summary of the results for the three and nine months ended September 30, 2025 and 2024, and a summary of financial condition at September 30, 2025 and December 31, 2024.

Previous wording

Following is an analysis of changes in interest income and expense (dollars in thousands) for the three months ended June 30, 2025 over the three months ended June 30, 2024, the six months ended June 30, 2025 over the six months ended June 30, 2024, and the three months ended June 30, 2025 over the three months ended March 31, 2025. Changes not solely due to interest rate or volume have been allocated proportionately to interest rate and volume.

Current wording

Following is an analysis of changes in interest income and expense (dollars in thousands) for the three months ended September 30, 2025 over the three months ended September 30, 2024, the nine months ended September 30, 2025 over the nine months ended September 30, 2024, and the three months ended September 30, 2025 over the three months ended June 30, 2025. Changes not solely due to interest rate or volume have been allocated proportionately to interest rate and volume.

Previous wording

The assets of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a $7,403,000, or 6.2%, increase in cash and cash equivalents, a $1,498,000, or 9.3%, decrease in certificates of deposit, a $40,303,000, or 6.4%, decrease in investment securities available-for-sale, and a $16,606,000, or 1.6%, increase in net loans held-for-investment from December 31, 2024 to June 30, 2025. The increase in cash and cash equivalents was primarily due to a decrease in investment securities due to net proceeds from calls, maturities, and sales of available-for-sale securities and principal repayments on available-for-sale securities, which was partially offset by an increase in loans due to net loan originations coupled with a decrease in deposit balances. The decrease in certificates of deposits was due to net maturities and repayments of certificates of deposit. The increase in loans held-for-investment was primarily due to net originations of commercial loans, which was partially offset by net payoffs of commercial real estate, agriculture, and residential mortgage loans.

Current wording

The assets of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a $30,062,000, or 25.2%, increase in cash and cash equivalents, a $3,184,000, or 19.8%, decrease in certificates of deposit, a $32,351,000, or 5.1%, decrease in investment securities available-for-sale, a $9,119,000, or 0.9%, increase in net loans held-for-investment, and a $12,521,000, or 23.9%, increase in interest receivable and other assets from December 31, 2024 to September 30, 2025. The increase in cash and cash equivalents was primarily due to a decrease in investment securities due to net proceeds from calls, maturities, and sales of available-for-sale securities and principal repayments on available-for-sale securities, which was partially offset by an increase in loans due to net loan originations coupled with a decrease in deposit balances. The decrease in certificates of deposits was due to net maturities and repayments of certificates of deposit. The increase in loans held-for-investment was primarily due to net originations of commercial loans, which was partially offset by net payoffs of commercial real estate and residential mortgage loans. The increase in interest receivable and other assets was primarily due to an increase in current tax receivable associated with the purchase of investment tax credits during the third quarter of 2025.

Previous wording

The liabilities of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a decrease in total deposits of $36,812,000, or 2.2%, from December 31, 2024 to June 30, 2025. The overall decrease in total deposits was primarily due to seasonal fluctuations due to changes in market conditions and monetary policy coupled with the payoff of brokered CDs.

Current wording

The liabilities of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a decrease in total deposits of $13,673,000, or 0.8%, from December 31, 2024 to September 30, 2025. The overall decrease in total deposits was primarily due to seasonal fluctuations due to changes in market conditions and monetary policy coupled with the payoff of brokered CDs.

Previous wording

The Federal Open Market Committee kept the Federal Reserve's benchmark rate range at 4.25% to 4.50% during the six months ended June 30, 2025.

Current wording

The Federal Open Market Committee decreased the Federal Reserve's benchmark rate by 25 basis points to a range of 4.00% to 4.25% during the nine months ended September 30, 2025.

Previous wording

Interest income on loans for the six months ended June 30, 2025 was up 3.4% from the same period in 2024, increasing from $27,305,000 to $28,231,000, and was up 5.8% for the three months ended June 30, 2025 over the same period in 2024, increasing from $13,830,000 to $14,629,000. The increase in interest income on loans for the six months ended June 30, 2025 as compared to the same period a year ago was primarily due to a 20 basis point increase in yield on loans, which was partially offset by a decrease in average balance of loans. The increase in interest income on loans for the three months ended June 30, 2025 as compared to the same period a year ago was primarily due to a 28 basis point increase in yield on loans coupled with an increase in average balance of loans. The increase in yield on loans for the three and six months ended June 30, 2025 was also partially due to the payoff of a nonaccrual loan and related interest recovery.

Current wording

Interest income on loans for the nine months ended September 30, 2025 was up 2.9% from the same period in 2024, increasing from $41,620,000 to $42,820,000 and was up 1.9% for the three months ended September 30, 2025 over the same period in 2024, increasing from $14,315,000 to $14,589,000. The increase in interest income on loans for the nine months ended September 30, 2025 as compared to the same period a year ago was primarily due to a 14 basis point increase in yield on loans coupled with an increase in average balance of loans. The increase in interest income on loans for the three months ended September 30, 2025 as compared to the same period a year ago was primarily due to a 5 basis point increase in yield on loans coupled with an increase in average balance of loans.

Previous wording

Interest income on certificates of deposit for the six months ended June 30, 2025 was down 10.2% from the same period in 2024, decreasing from $354,000 to $318,000, and was down 8.2% for the three months ended June 30, 2025 over the same period in 2024, decreasing from $171,000 to $157,000. The decrease in interest income on certificates of deposit for the six months ended June 30, 2025 as compared to the same period a year ago was primarily due to a decrease in average balances of certificates of deposit, which was partially offset by a 16 basis point increase in yield on certificates of deposit. The decrease in interest income on certificates of deposit for the three months ended June 30, 2025 as compared to the same period a year ago was primarily due to a decrease in average balances of certificates of deposit, which was partially offset by a 14 basis point increase in yield on certificates of deposit.

Current wording

Interest income on certificates of deposit for the nine months ended September 30, 2025 was down 13.3% from the same period in 2024, decreasing from $542,000 to $470,000, and was down 19.1% for the three months ended September 30, 2025 over the same period in 2024, decreasing from $188,000 to $152,000. The decrease in interest income on certificates of deposit for the nine months ended September 30, 2025 as compared to the same period a year ago was primarily due to a decrease in average balances of certificates of deposit, which was partially offset by a 12 basis point increase in yield on certificates of deposit. The decrease in interest income on certificates of deposit for the three months ended September 30, 2025 as compared to the same period a year ago was primarily due to a decrease in average balances of certificates of deposit, which was partially offset by a 7 basis point increase in yield on certificates of deposit.

Previous wording

Interest income on interest-bearing due from banks for the six months ended June 30, 2025 was down 49.6% from the same period in 2024, decreasing from $3,445,000 to $1,737,000, and was down 47.2% for the three months ended June 30, 2025 over the same period in 2024, decreasing from $1,913,000 to $1,010,000. The decrease in interest income on interest-bearing due from banks for the six months ended June 30, 2025 as compared to the same period a year ago was primarily due to a decrease in average balances of interest-bearing due from banks, coupled with a 97 basis point decrease in yield on interest-bearing due from banks. The decrease in interest income on interest-bearing due from banks for the three months ended June 30, 2025 as compared to the same period a year ago was primarily due to a decrease in average balances of interest-bearing due from banks, coupled with a 115 basis point decrease in yield on interest-bearing due from banks.

Current wording

Interest income on interest-bearing due from banks for the nine months ended September 30, 2025 was down 44.7% from the same period in 2024, decreasing from $5,077,000 to $2,808,000, and was down 34.4% for the three months ended September 30, 2025 over the same period in 2024, decreasing from $1,632,000 to $1,071,000. The decrease in interest income on interest-bearing due from banks for the nine months ended September 30, 2025 as compared to the same period a year ago was primarily due to a decrease in average balances of interest-bearing due from banks, coupled with a 104 basis point decrease in yield on interest-bearing due from banks. The decrease in interest income on interest-bearing due from banks for the three months ended September 30, 2025 as compared to the same period a year ago was primarily due to a decrease in average balances of interest-bearing due from banks, coupled with a 109 basis point decrease in yield on interest-bearing due from banks.

Previous wording

Interest income on investment securities available-for-sale for the six months ended June 30, 2025 was up 43.8% from the same period in 2024, increasing from $6,446,000 to $9,269,000, and was up 35.2% for the three months ended June 30, 2025 over the same period in 2024, increasing from $3,349,000 to $4,528,000. The increase in interest income on investment securities for the six months ended June 30, 2025 as compared to the same period a year ago was primarily due to an increase in average investment securities, coupled with a 69 basis point increase in investment yields. The increase in interest income on investment securities for the three months ended June 30, 2025 as compared to the same period a year ago was primarily due to an increase in average investment securities, coupled with a 57 basis point increase in investment yields.

Current wording

Interest income on investment securities available-for-sale for the nine months ended September 30, 2025 was up 33.0% from the same period in 2024, increasing from $10,344,000 to $13,756,000, and was up 15.1% for the three months ended September 30, 2025 over the same period in 2024, increasing from $3,898,000 to $4,487,000. The increase in interest income on investment securities for the nine months ended September 30, 2025 as compared to the same period a year ago was primarily due to an increase in average investment securities, coupled with a 57 basis point increase in investment yields. The increase in interest income on investment securities for the three months ended September 30, 2025 as compared to the same period a year ago was primarily due to an increase in average investment securities, coupled with a 37 basis point increase in investment yields.

Previous wording

decreasing from $267,000 to $250,000. This income is primarily derived from dividends received from the Federal Home Loan Bank. The decrease in interest income on other earning assets for the six months ended June 30, 2025 as compared to the same period a year ago was primarily due to a 13 basis point decrease in yield on other earning assets, which was partially offset by an increase in average balances of other earning assets. The decrease in interest income on other earning assets for the three months ended June 30, 2025 as compared to the same period a year ago was due to a 93 basis point decrease in yield on other earning assets, which was partially offset by an increase in average balances of other earning assets.

Current wording

Interest income on other earning assets for the nine months ended September 30, 2025 was down 2.2% from the same period in 2024, decreasing from $784,000 to $767,000, and was down 6.1% for the three months ended September 30, 2025 over the same period in 2024, decreasing from $261,000 to $245,000. This income is primarily derived from dividends received from the Federal Home Loan Bank. The decrease in interest income on other earning assets for the nine months ended September 30, 2025 as compared to the same period a year ago was primarily due to a 41 basis point decrease in yield on other earning assets, which was partially offset by an increase in average balances of other earning assets. The decrease in interest income on other earning assets for the three months ended September 30, 2025 as compared to the same period a year ago was due to a 93 basis point decrease in yield on other earning assets, which was partially offset by an increase in average balances of other earning assets.

Previous wording

The Company had no Federal Funds sold balances during the three and six months ended June 30, 2025 and June 30, 2024.

Current wording

The Company had no Federal Funds sold balances during the three and nine months ended September 30, 2025 and September 30, 2024.

Previous wording

Interest expense on interest-bearing liabilities for the six months ended June 30, 2025 was up 6.7% from the same period in 2024, increasing from $6,733,000 to $7,181,000, and was up 1.9% for the three months ended June 30, 2025 over the same period in 2024, increasing from $3,552,000 to $3,621,000. The increase in interest expense for the six months ended June 30, 2025 as compared to the same period a year ago was primarily due to a 6 basis point increase in average interest-bearing liabilities yield, coupled with an increase in average balance of interest-bearing liabilities. The increase in interest expense for the three months ended June 30, 2025 as compared to the same period a year ago was primarily due to an increase in average balance of interest-bearing liabilities, which was partially offset by a 1 basis point decrease in average interest-bearing deposit yield.

Current wording

Interest expense on interest-bearing liabilities for the nine months ended September 30, 2025 was up 3.3% from the same period in 2024, increasing from $10,531,000 to $10,878,000, and was down 2.7% for the three months ended September 30, 2025 over the same period in 2024, decreasing from $3,798,000 to $3,697,000. The increase in interest expense for the nine months ended September 30, 2025 as compared to the same period a year ago was primarily due to a 1 basis point increase in average interest-bearing liabilities yield, coupled with an increase in average balance of interest-bearing liabilities. The decrease in interest expense for the three months ended September 30, 2025 as compared to the same period a year ago was primarily due to a 7 basis point decrease in average interest-bearing deposit yield, which was partially offset by an increase in average balance of interest-bearing liabilities.

Previous wording

Provision for credit losses for the six months ended June 30, 2025 was up 13.3% from the same period in 2024, increasing from $750,000 to $850,000. There was no provision for credit losses for the three months ended June 30, 2025, compared to $1,050,000 for the same period last year. Negative trends in forecast factors coupled with an increase in loans receivable contributed to an increase in reserves for collectively evaluated loans during the quarter ended June 30, 2025. This was offset by a decrease in specific reserves due to a decrease in nonaccrual loans requiring specific reserves. Specific reserves recorded during the quarter ended March 31, 2025 were released during the quarter ended June 30, 2025 primarily due to securing additional collateral and receiving a paydown on a nonaccrual loan relationship. The provision recorded for the six months ended June 30, 2025 was primarily due to increases in loans receivable and unfunded commitments coupled with the negative trends in forecast factors.

Current wording

Provision for credit losses for the nine months ended September 30, 2025 was up 325.0% from the same period in 2024, increasing from $200,000 to $850,000. There was no provision for credit losses for the three months ended September 30, 2025, compared to a reversal of provision of $550,000 for the same period last year. Negative trends in forecast factors coupled with an increase in loans receivable contributed to an increase in reserves for collectively evaluated loans during the quarter ended September 30, 2025. This was offset by a decrease in specific reserves due to a decrease in nonaccrual loans requiring specific reserves. Specific reserves recorded during the quarter ended June 30, 2025 were released during the quarter ended September 30, 2025 primarily due to charge-offs of nonaccrual loans and paydowns on a nonaccrual loan relationship. The provision recorded for the nine months ended September 30, 2025 was primarily due to increases in loans receivable and unfunded commitments coupled with the negative trends in forecast factors.

Previous wording

Non-interest income was up 3.6% for the three months ended June 30, 2025 from the same period in 2024, increasing from $1,484,000 to $1,537,000. The increase was primarily due to increases in other income, primarily bank owned life insurance income, which was partially offset by decreases in service charges on deposit accounts.

Current wording

Non-interest income was up 2.6% for the nine months ended September 30, 2025 from the same period in 2024, increasing from $4,529,000 to $4,648,000. The increase was primarily driven by increases in other income, primarily merchant fees and bank owned life insurance income, which was partially offset by decreases in service charges on deposit accounts, mortgage brokerage income and debit card income.

Previous wording

Non-interest income was down 0.03% for the six months ended June 30, 2025 from the same period in 2024, decreasing from $2,991,000 to $2,990,000. The decrease was primarily driven by decreases in service charges on deposit accounts and mortgage brokerage income, which was partially offset by increases in gains on sales of loans held-for-sale and investment and brokerage services income.

Current wording

Non-interest income was up 7.8% for the three months ended September 30, 2025 from the same period in 2024, increasing from $1,538,000 to $1,658,000. The increase was primarily due to increases in other income, primarily merchant fees and bank owned life insurance income, which was partially offset by decreases in gains on sales of loans held-for-sale and debit card income.

Previous wording

Total non-interest expenses were up 4.5% for the six months ended June 30, 2025 from the same period in 2024, increasing from $21,526,000 to $22,483,000. The increase was primarily due to increases in salaries and employee benefits, occupancy and equipment, data processing and other expenses. The increase in salaries and employee benefits is primarily due to an increase in full-time equivalent employees. The increase in occupancy and equipment was primarily due to an increase in service contracts related to maintaining facilities. The increase in data processing was primarily due to an increase in costs of service contracts. The increase in other expenses is primarily due to increases in legal and consulting fees.

Current wording

Total non-interest expenses were up 6.0% for the nine months ended September 30, 2025 from the same period in 2024, increasing from $32,460,000 to $34,406,000. The increase was primarily due to increases in salaries and employee benefits, occupancy and equipment, data processing and other expenses. The increase in salaries and employee benefits is primarily due to an increase in full-time equivalent employees. The increase in occupancy and equipment was primarily due to an increase in service contracts related to maintaining facilities. The increase in data processing was primarily due to an increase in costs of service contracts. The increase in other expenses is primarily due to increases in contributions, legal and consulting fees.

Previous wording

Total non-interest expenses were up 5.8% for the three months ended June 30, 2025 from the same period in 2024, increasing from $10,299,000 to $10,893,000. The increase was primarily due to increases in salaries and employee benefits, occupancy and equipment and data processing, which was partially offset by a decrease in other expenses. The increase in salaries and employee benefits is primarily due to an increase in full-time equivalent employees. The increase in occupancy and equipment was primarily due to an increase in service contracts. The increase in data processing was primarily due to an increase in costs of service contracts. The decrease in other expenses was primarily due to decreases in loan collection expenses, debit card expenses, and sundry losses.

Current wording

Total non-interest expenses were up 9.0% for the three months ended September 30, 2025 from the same period in 2024, increasing from $10,934,000 to $11,923,000. The increase was primarily due to increases in salaries and employee benefits, occupancy and equipment, data processing and other expenses. The increase in salaries and employee benefits is primarily due to an increase in full-time equivalent employees. The increase in occupancy and equipment was primarily due to an increase in service contracts related to maintaining facilities. The increase in data processing was primarily due to an increase in costs of service contracts. The increase in other expenses was primarily due to increases in contributions and loan origination expense.

Previous wording

The following table sets forth other non-interest expenses by category for the three and six months ended June 30, 2025 and 2024.

Current wording

The following table sets forth other non-interest expenses by category for the three and nine months ended September 30, 2025 and 2024.

Previous wording

The Company’s tax rate, the Company’s income before taxes and the amount of tax relief provided by non-taxable earnings affect the Company’s provision for income taxes. Provision for income taxes increased 1.8% for the six months ended June 30, 2025 from the same period in 2024, increasing from $3,355,000 to $3,416,000, and increased 26.2% for the three months ended June 30, 2025 from the same period in 2024, increasing from $1,689,000 to $2,131,000. The effective tax rate was 27.2% and 27.8% for the six months ended June 30, 2025 and June 30, 2024, respectively. The effective tax rate was 28.1% and 27.6% for the three months ended June 30, 2025 and June 30, 2024, respectively.

Current wording

The Company’s tax rate, the Company’s income before taxes and the amount of tax relief provided by non-taxable earnings affect the Company’s provision for income taxes. Provision for income taxes decreased 27.8% for the nine months ended September 30, 2025 from the same period in 2024, decreasing from $5,517,000 to $3,985,000, and decreased 73.7% for the three months ended September 30, 2025 from the same period in 2024, decreasing from $2,162,000 to $569,000. The effective tax rate was 20.8% and 28.0% for the nine months ended September 30, 2025 and September 30, 2024, respectively. The effective tax rate was 8.6% and 28.3% for the three months ended September 30, 2025 and September 30, 2024, respectively. The reduction in provision for income taxes and effective tax rate for the three and nine months ended September 30, 2025 as compared to the same periods a year ago was due to the execution of a tax planning strategy that involved purchasing investment tax credits tied to alternative energy projects. The investment tax credits were acquired at a discount and recognized as a reduction to income tax expense in the quarter ended September 30, 2025.

Previous wording

The reserve for unfunded lending commitments amounted to $1,150,000 and $700,000 as of June 30, 2025 and December 31, 2024, respectively. The reserve for unfunded lending commitments is included in other liabilities on the Condensed Consolidated Balance Sheets. See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q, "Commitments and Contingencies," for additional information.

Current wording

The reserve for unfunded lending commitments amounted to $1,050,000 and $700,000 as of September 30, 2025 and December 31, 2024, respectively. The reserve for unfunded lending commitments is included in other liabilities on the Condensed Consolidated Balance Sheets. See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q, "Commitments and Contingencies," for additional information.

Previous wording

It is generally the Company’s policy to discontinue interest accruals once a loan is past due for a period of 90 days as to interest or principal payments unless the loan is well secured and in process of collection. When a loan is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collectedor there is an extended period of positive performance and a high probability that the loan will continue to pay according to original terms.

Current wording

It is generally the Company’s policy to discontinue interest accruals once a loan is past due for a period of 90 days as to interest or principal payments unless the loan is well secured and in process of collection. When a loan is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected or there is an extended period of positive performance and a high probability that the loan will continue to pay according to original terms.

Previous wording

Non-accrual loans amounted to $8,896,000 at June 30, 2025 and were comprised of three commercial loans totaling $243,000, one commercial real estate loan totaling $686,000, eight agriculture loans totaling $7,169,000, three residential mortgage loans totaling $190,000 and four consumer loans totaling $608,000. Non-accrual loans amounted to $11,212,000 at December 31, 2024 and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $7,993,000, two agriculture loans totaling $2,336,000, three residential mortgage loans totaling $202,000 and four consumer loans totaling $642,000.

Current wording

Non-accrual loans amounted to $6,803,000 at September 30, 2025 and were comprised of two commercial loans totaling $401,000, one commercial real estate loan totaling $672,000, four agriculture loans totaling $4,942,000, three residential mortgage loans totaling $180,000 and four consumer loans totaling $608,000. Non-accrual loans amounted to $11,212,000 at December 31, 2024 and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $7,993,000, two agriculture loans totaling $2,336,000, three residential mortgage loans totaling $202,000 and four consumer loans totaling $642,000.

Previous wording

As the following table illustrates, total non-performing assets, net of guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored agencies, decreased $2,140,000, or 19.3%, to $8,933,000 during the first six months of 2025. Non-performing assets, net of guarantees, represented 0.5% of total assets at June 30, 2025.

Current wording

As the following table illustrates, total non-performing assets, net of guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored agencies, decreased $4,255,000, or 38.4%, to $6,818,000 during the first nine months of 2025. Non-performing assets, net of guarantees, represented 0.4% of total assets at September 30, 2025.

Previous wording

Excluding non-performing loans, loans totaling $17,551,000 and $11,643,000 were classified as substandard or doubtful loans, representing potential problem loans at June 30, 2025 and December 31, 2024, respectively. Management believes that the allowance for credit losses at June 30, 2025 and December 31, 2024 appropriately reflected expected credit losses in the loan portfolio at that date. The ratio of the allowance for credit losses to total loans was 1.49% at each of the periods ended June 30, 2025 and December 31, 2024.

Current wording

Excluding non-performing loans, loans totaling $18,533,000 and $11,643,000 were classified as substandard or doubtful loans, representing potential problem loans at September 30, 2025 and December 31, 2024, respectively. Management believes that the allowance for credit losses at September 30, 2025 and December 31, 2024 appropriately reflected expected credit losses in the loan portfolio at that date. The ratio of the allowance for credit losses to total loans was 1.47% at each of the periods ended September 30, 2025 and December 31, 2024.

Previous wording

Other real estate owned (“OREO”) consists of property that the Company has acquired by deed in lieu of foreclosure or through foreclosure proceedings, and property that the Company does not hold title to but is in actual control of, known as in-substance foreclosure. OREO also consists of property held by the Company that is no longer intended for future development. The estimated fair value of the property is determined prior to transferring the balance to OREO. The balance transferred to OREO during the six months ended June 30, 2025 was transferred at the lower of the carrying amount of the property as compared to the fair value less costs to sell. The Company had OREO totaling $1,241,000 and $0 as of June 30, 2025 and December 31, 2024, respectively. OREO as of June 30, 2025 represented land, transferred from premises and equipment, that the Company determined is no longer intended for future development and is listed for sale.

Current wording

Other real estate owned (“OREO”) consists of property that the Company has acquired by deed in lieu of foreclosure or through foreclosure proceedings, and property that the Company does not hold title to but is in actual control of, known as in-substance foreclosure. OREO also consists of property held by the Company that is no longer intended for future development. The estimated fair value of the property is determined prior to transferring the balance to OREO. The balance transferred to OREO during the nine months ended September 30, 2025 was transferred at the lower of the carrying amount of the property as compared to the fair value less costs to sell. The Company had OREO totaling $1,241,000 and $0 as of September 30, 2025 and December 31, 2024, respectively. OREO as of September 30, 2025 represented land, transferred from premises and equipment, that the Company determined is no longer intended for future development and is currently under contract for a sales price in excess of carrying value and is expected to close in 2026.

Previous wording

The following table summarizes the ACL of the Company during the six months ended June 30, 2025 and 2024, and for the year ended December 31, 2024:

Current wording

The following table summarizes the ACL of the Company during the nine months ended September 30, 2025 and 2024, and for the year ended December 31, 2024:

Previous wording

Approximately 41% and 40% of our deposits were uninsured as of June 30, 2025 and December 31, 2024, respectively.

Current wording

Approximately 42% and 40% of our deposits were uninsured as of September 30, 2025 and December 31, 2024, respectively.

Previous wording

Asset liquidity sources consist of the repayments and maturities of loans, selling of loans, short-term money market investments, maturities of securities and sales of securities from the available-for-sale portfolio. These activities are generally summarized as investing activities in the Condensed Consolidated Statements of Cash Flows. For the six months ended June 30, 2025, net liquidity provided by investing activities totaled $40,410,000.

Current wording

Asset liquidity sources consist of the repayments and maturities of loans, selling of loans, short-term money market investments, maturities of securities and sales of securities from the available-for-sale portfolio. These activities are generally summarized as investing activities in the Condensed Consolidated Statements of Cash Flows. For the nine months ended September 30, 2025, net liquidity provided by investing activities totaled $47,693,000.

Previous wording

The Company’s available-for-sale investment securities plus cash and cash equivalents in excess of reserve requirements and certificates of deposit totaled $734,977,000 on June 30, 2025, which was 39.3% of assets at that date. This was a decrease of $34,398,000 from $769,375,000 and 40.7% of assets as of December 31, 2024. The Company’s investment securities are generally shorter term in nature to provide ongoing cash flows for liquidity needs and/or reinvestment for interest rate risk management. On June 30, 2025, the effective duration of our investment securities was 3.16 with projected principal cashflow of $85,074,000 for the remainder of 2025 available for reinvestment or liquidity needs. The Company had no held-to-maturity securities as of June 30, 2025 and December 31, 2024.

Current wording

The Company’s available-for-sale investment securities plus cash and cash equivalents in excess of reserve requirements and certificates of deposit totaled $763,902,000 on September 30, 2025, which was 40.0% of assets at that date. This was a decrease of $5,473,000 from $769,375,000 and 40.7% of assets as of December 31, 2024. The Company’s investment securities are generally shorter term in nature to provide ongoing cash flows for liquidity needs and/or reinvestment for interest rate risk management. On September 30, 2025, the effective duration of our investment securities was 3.10 with projected principal cashflow of $46,442,000 for the remainder of 2025 available for reinvestment or liquidity needs. The Company had no held-to-maturity securities as of September 30, 2025 and December 31, 2024.

Previous wording

Liquidity may also be impacted from liabilities through changes in deposits and borrowings outstanding. These activities are included under financing activities in the Condensed Consolidated Statements of Cash Flows. As of June 30, 2025, the Company had $0 in borrowings outstanding. For the six months ended June 30, 2025, net liquidity used in financing activities totaled $38,970,000, primarily due to a net decrease in deposits. While these sources of funds are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market conditions.

Current wording

Liquidity may also be impacted from liabilities through changes in deposits and borrowings outstanding. These activities are included under financing activities in the Condensed Consolidated Statements of Cash Flows. As of September 30, 2025, the Company had $0 in borrowings outstanding. For the nine months ended September 30, 2025, net liquidity used in financing activities totaled $16,951,000, primarily due to a net decrease in deposits and repurchases of common stock. While these sources of funds are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market conditions.

Previous wording

Liquidity is also provided or used through the results of operating activities. For the six months ended June 30, 2025, operating activities provided cash of $5,963,000.

Current wording

Liquidity is also provided or used through the results of operating activities. For the nine months ended September 30, 2025, net cash used in operating activities totaled $680,000, primarily as a result of an increase in other assets due to the increase in current tax receivable associated with the tax planning strategy implemented in the third quarter of 2025.

Previous wording

Liquidity is measured by various ratios, in management’s opinion, the most common being the ratio of net loans to deposits (including loans held-for-sale). This ratio was 63.9% and 61.6% as of June 30, 2025 and December 31, 2024, respectively.

Current wording

Liquidity is measured by various ratios, in management’s opinion, the most common being the ratio of net loans to deposits (including loans held-for-sale). This ratio was 62.6% and 61.6% as of September 30, 2025 and December 31, 2024, respectively.

Previous wording

To meet unanticipated funding requirements, the Company maintains short-term unsecured lines of credit with other banks which totaled $130,000,000 at June 30, 2025. Additionally, the Company has a line of credit with the FHLB, with a remaining borrowing capacity at June 30, 2025 of $393,327,000; credit availability is subject to certain collateral requirements.

Current wording

To meet unanticipated funding requirements, the Company maintains short-term unsecured lines of credit with other banks which totaled $130,000,000 at September 30, 2025. Additionally, the Company has a line of credit with the FHLB, with a remaining borrowing capacity at September 30, 2025 of $393,040,000; credit availability is subject to certain collateral requirements.