ORRSTOWN FINANCIAL SERVICES INC

Previous wording

The Company, headquartered in Harrisburg, Pennsylvania, is a one-bank holding company that has elected status as a financial holding company. The consolidated financial information presented herein reflects the Company and its wholly-owned subsidiary, the Bank. At June 30, 2025, the Company had total assets of $5.4 billion, total liabilities of $4.8 billion and total shareholders’ equity of $548.4 million as reported in the unaudited consolidated balance sheets.

Current wording

The Company, headquartered in Harrisburg, Pennsylvania, is a one-bank holding company that has elected status as a financial holding company. The consolidated financial information presented herein reflects the Company and its wholly-owned subsidiary, the Bank. At September 30, 2025, the Company had total assets of $5.5 billion, total liabilities of $4.9 billion and total shareholders’ equity of $571.9 million as reported in the unaudited consolidated balance sheets.

Previous wording

For the three months ended June 30, 2025 and 2024, the Company had net income of $19.4 million and $7.7 million, respectively. For the six months ended June 30, 2025 and 2024, the Company had net income of $37.5 million and $16.3 million, respectively. Diluted earnings per share were $1.01 and $0.73 for the three months ended June 30, 2025 and 2024, respectively. Diluted earnings per share were $1.94 and $1.55 for the six months ended June 30, 2025 and 2024, respectively. For the three months ended June 30, 2025 and 2024, the Company incurred merger-related expenses of $1.0 million and $1.1 million, respectively. For the six months ended June 30, 2025 and 2024, the Company incurred merger-related expenses of $2.6 million and $1.8 million, respectively. The merger-related expenses are included in non-interest expenses in the unaudited consolidated statements of income.

Current wording

For the three months ended September 30, 2025 and 2024, the Company incurred merger-related expenses of zero and $17.0 million, respectively. For the nine months ended September 30, 2025 and 2024, the Company incurred merger-related expenses of $2.6 million and $18.8 million, respectively. The merger-related expenses are included in non-interest expenses in the unaudited consolidated statements of operations.

Previous wording

Certain statements appearing herein, which are not historical in nature, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications, from time to time, that contain such statements. Such forward-looking statements reflect the current views of the Company's management with respect to, among other things, future events and the Company's financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. Forward-looking statements are statements that include projections, predictions, expectations, estimates or beliefs about events or results or otherwise are not statements of historical facts, many of which, by their nature, are inherently uncertain and beyond the Company's control, and include, but are not limited to, statements related to new business development, new loan opportunities, growth in the balance sheet and fee-based revenue lines of business, merger and acquisition activity, cost savings initiatives, reducing risk assets, and mitigating losses in the future. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will achieve the desired level of new business development and new loans, growth in the balance sheet and fee-based revenue lines of business, cost savings initiatives, and continued reductions in risk assets or mitigate losses in the future. Factors which could cause the actual results to differ from those expressed or implied by the forward-looking statements include, but are not limited to, the following: interest rate changes or volatility; general economic conditions (including inflation and concerns about liquidity) on a national basis or in the local markets in which the Company operates; ineffectiveness of the Company’s strategic growth plan due to changes in current or future market conditions; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products a…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Certain statements appearing herein, which are not historical in nature, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications, from time to time, that contain such statements. Such forward-looking statements reflect the current views of the Company's management with respect to, among other things, future events and the Company's financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. Forward-looking statements are statements that include projections, predictions, expectations, estimates or beliefs about events or results or otherwise are not statements of historical facts, many of which, by their nature, are inherently uncertain and beyond the Company's control, and include, but are not limited to, statements related to new business development, new loan opportunities, growth in the balance sheet and fee-based revenue lines of business, merger and acquisition activity, cost savings initiatives, reducing risk assets, and mitigating losses in the future. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will achieve the desired level of new business development and new loans, growth in the balance sheet and fee-based revenue lines of business, cost savings initiatives, and continued reductions in risk assets or mitigate losses in the future. Factors which could cause the actual results to differ from those expressed or implied by the forward-looking statements include, but are not limited to, the following: interest rate changes or volatility; general economic conditions (including inflation and concerns about liquidity) on a national basis or in the local markets in which the Company operates; ineffectiveness of the Company’s strategic growth plan due to changes in current or future market conditions; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products a…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Preliminary real GDP increased by 3.0% on an annualized basis for the second quarter of 2025, compared to a decrease of 0.5% for the first quarter of 2025 and an increase of 2.8% during the second quarter of 2024. The increase during the second quarter of 2025 compared to the prior periods was primarily driven by consumer spending and a decrease in imports. There continues to be concerns regarding the potential impact of wide-ranging tariffs on the U.S. economy and the potential of a recession. The personal consumption expenditures ("PCE") price index increased by 2.1% in the second quarter of 2025 compared to an increase of 3.7% for first quarter of 2025 and 2.5% for the second quarter of 2024. Excluding food and energy prices, the PCE price index increased by 2.5% in the second quarter of 2025 compared to 3.5% in the first quarter of 2025 and 3.7% in the second quarter of 2024.

Current wording

Preliminary real GDP for the second quarter of 2025 increased by 3.8% on an annualized basis compared to an increase of 2.8% during the third quarter of 2024. The increase during the second quarter of 2025 compared to the prior periods was primarily driven by consumer spending and a decrease in imports. There continues to be concerns regarding the potential impact of wide-ranging tariffs on the U.S. economy, the impact on inflation, signs of slowing in the job labor market and the potential of a recession. The personal consumption expenditures ("PCE") price index increased by 2.1% in the second quarter of 2025 compared to an increase of 1.5% for the third quarter of 2024. Excluding food and energy prices, the PCE price index increased by 2.6% in the second quarter of 2025 compared to 2.2% in the third quarter of 2024.

Previous wording

The national unemployment rate was 4.1% in June 2025 compared to 4.2% in March 2025 and 4.1% in June 2024. Within the Company's geographic footprint, the unemployment rate in Pennsylvania was 4.0% in June 2025 compared to 3.8% in March 2025 and 3.4% in June 2024. The unemployment rate increased in Maryland from 2.8% in June 2024 and 3.0% in March 2025 to 3.3% in June 2025; however, it remains below the national level. These state-wide unemployment rates are consistent with those experienced by the counties in which the Company operates branches and other corporate offices. There were notable job gains nationally in healthcare and state government, which includes education, during the second quarter of 2025.

Current wording

The national unemployment rate was 4.3% in August 2025 compared to 4.1% in June 2025 and 4.1% in September 2024. Within the Company's geographic footprint, the unemployment rate in Pennsylvania was 4.0% in August 2025 compared to 4.0% in March 2025 and 3.4% in September 2024. The unemployment rate increased in Maryland from 2.9% in September 2024 and 3.3% in June 2025 to 3.6% in August 2025; however, it remains below the national level. These state-wide unemployment rates are consistent with those experienced by the counties in which the Company operates branches and other corporate offices. There were job gains nationally in healthcare during the third quarter of 2025.

Previous wording

The majority of the assets and liabilities of a financial institution are monetary in nature and, therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an impact on the Company, particularly with respect to the growth of total assets and noninterest expenses, which tend to rise during periods of general inflation. Risks also exist due to supply and demand imbalances, employment shortages, the interest rate environment, geopolitical tensions and uncertainty related to the scope and timing of changes to fiscal, regulatory and trade policies. It is possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans and the fair value of financial instruments that are carried at fair value.

Current wording

The majority of the assets and liabilities of a financial institution are monetary in nature and, therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an impact on the Company, particularly with respect to the growth of total assets and noninterest expenses, which tend to rise during periods of general inflation. Risks also exist due to supply and demand imbalances, the interest rate environment, geopolitical tensions, uncertainty related to the impact of tariffs and the shutdown of the U.S. government, the scope and timing of changes to fiscal, regulatory and trade policies.

Previous wording

Utilizing a third-party vendor, the ACL for loans collectively evaluated is measured using a lifetime expected loss rate model under the vendor's neutral scenario that considers historical loss performance and past events in addition to forecasts of future economic conditions. The Company elected to use the DCF methodology for the quantitative analysis for the majority of its loan segments, which applies the probability of default to future cash flows, using a loss driver model and loss given default factors, and then adjusts to the net present value to derive the required reserve. The probability of default estimates are derived through the application of reasonable and supportable economic forecasts to the regression models, which incorporates the Company's and peer loss-rate data, unemployment rate and GDP and can be obtained from the Federal Reserve Economic Database. The reasonable and supportable forecasts of the selected economic metrics are then input into the regression model to calculate an expected default rate. The expected default rates are then applied to expected loan balances estimated through the consideration of contractual repayment terms and expected prepayments. The prepayment and curtailment assumptions adjust the contractual terms of the loan to arrive at the expected cash flows, which are obtained from the third-party vendor. The model incorporates an annualized prepayment rate and a twelve-month rate for curtailment based on a "statistical tendency to repay." Changes in the prepayment and curtailment speeds that vary from the current model inputs could result in an inaccurate forecast of expected credit losses. The development and validation of credit models also included determining the length of the reasonable and supportable forecast and regression period and utilizing national peer group historical loss rates, which a four-quarter forecast period followed by a four-quarter straight-line reversion period were applied.

Current wording

Utilizing a third-party vendor, the ACL for loans collectively evaluated is measured using a lifetime expected loss rate model. The model applies the neutral scenario, which incorporates historical loss performance and past events in addition to forecasted future economic conditions. The Company elected to use the DCF methodology for the quantitative analysis for the majority of its loan segments, which applies the probability of default to future cash flows, using a loss driver model and loss given default factors, and then adjusts to the net present value to derive the required reserve. The probability of default estimates are derived from the application of reasonable and supportable economic forecasts to the regression models, which incorporates the Company's and peer loss-rate data, unemployment rate and GDP sourced from the Federal Reserve Economic Database. The reasonable and supportable forecasts of the selected economic metrics are then input into the regression model to calculate an expected default rate. The expected default rates are then applied to expected loan balances estimated from contractual repayment terms and expected prepayments. The prepayment and curtailment assumptions adjust the contractual terms of the loan to arrive at the expected cash flows, which are obtained from the third-party vendor. The model incorporates an annualized prepayment rate and a twelve-month rate for curtailment based on a "statistical tendency to repay." Changes in the prepayment and curtailment speeds that vary from the current model inputs could result in an inaccurate forecast of expected credit losses. The development and validation of credit models also included determining the length of the reasonable and supportable forecast and regression period and utilizing national peer group historical loss rates, applying a four-quarter forecast period followed by a four-quarter straight-line reversion period.

Previous wording

The Company is subject to federal and state income taxes in the jurisdictions in which it operates. Due to the complexity of the tax laws, management may make judgments in computing income tax expense, which are subject to varying interpretations by management and the taxing authorities, and could result in changes upon final determination. Income tax expense is based upon income before taxes, adjusted for the effect of certain tax-exempt income, non-deductible expenses and credits. Temporary differences may occur as a result of certain income and expense items being reported in different periods for financial reporting and tax purposes. Deferred taxes are calculated, using the applicable enacted marginal tax rate, based on the differences between the tax basis and carrying value of the asset or liability on the financial statement. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of income. Under FASB ASC 740, Income Taxes, the Company must apply a more likely than not probability threshold on its tax positions before a financial statement benefit is recognized. A valuation allowance would be recognized if any deferred tax assets were determined to be more likely than not unrecoverable.

Current wording

The Company is subject to federal and state income taxes in the jurisdictions in which it operates. Due to the complexity of the tax laws, management may make judgments in computing income tax expense, which are subject to varying interpretations by management and the taxing authorities, and could result in changes upon final determination. Income tax expense is based upon income before taxes, adjusted for the effect of certain tax-exempt income, non-deductible expenses and credits. Temporary differences may occur as a result of certain income and expense items being reported in different periods for financial reporting and tax purposes. Deferred taxes are calculated, using the applicable enacted marginal tax rate, based on the differences between the tax basis and carrying value of the asset or liability on the financial statement. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of operations. Under FASB ASC 740, Income Taxes, the Company must apply a more likely than not probability threshold on its tax positions before a financial statement benefit is recognized. A valuation allowance would be recognized if any deferred tax assets were determined to be more likely than not unrecoverable.

Previous wording

Net income totaled $19.4 million for the three months ended June 30, 2025 compared to net income of $7.7 million for the same period in 2024. Diluted earnings per share for the three months ended June 30, 2025 totaled $1.01 compared to diluted earnings per share of $0.73 for the three months ended June 30, 2024. The 2025 period reflects the impact of the Merger completed on July 1, 2024. The net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $5.2 million for the three months ended June 30, 2025 compared to $152 thousand for the three months ended June 30, 2024. For the three months ended June 30, 2025 and 2024, the Company incurred merger-related expenses of $1.0 million and $1.1 million, respectively, which were included in non-interest expenses of the unaudited condensed consolidated statements of income. Excluding these non-recurring expenses, net income and diluted earnings per share totaled $20.2 million and $1.04, respectively, for the three months ended June 30, 2025 compared to net income and diluted earnings per share of $8.7 million and $0.83, respectively, for the three months ended June 30, 2024. See “Supplemental Reporting of Non-GAAP Measures” for additional information.

Current wording

Net income totaled $21.9 million for the three months ended September 30, 2025 compared to net loss of $7.9 million for the same period in 2024. Diluted earnings per share for the three months ended September 30, 2025 totaled $1.13 compared to diluted loss per share of $0.41 for the three months ended September 30, 2024. The net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $5.8 million for the three months ended September 30, 2025 compared to $6.8 million for the three months ended September 30, 2024. For the three months ended September 30, 2024, the Company incurred merger-related expenses of $17.0 million, provision for credit losses on acquired non-PCD loans of $15.5 million and retirement expenses for one executive of $4.8 million, which were included in non-interest expenses in the unaudited condensed consolidated statements of operations. The Company did not incur merger-related or other non-recurring expenses for the three months ended September 30, 2025. Excluding these non-recurring expenses, net income and diluted earnings per share totaled $21.4 million and $1.11, respectively, for the three months ended September 30, 2024. See “Supplemental Reporting of Non-GAAP Measures” for additional information.

Previous wording

Noninterest expenses totaled $37.6 million for the three months ended June 30, 2025 compared to $22.6 million for the three months ended June 30, 2024. The increase of $15.0 million primarily reflects the impact from the Merger.

Current wording

Noninterest income totaled $13.4 million for the three months ended September 30, 2025 compared to $12.4 million for the three months ended September 30, 2024. Noninterest expenses totaled $36.3 million for the three months ended September 30, 2025 compared to $60.3 million for the three months ended September 30, 2024. The decrease of $24.0 million primarily reflects the impact from the Merger.

Previous wording

Taxable-equivalent net interest margin increased by 53 basis points to 4.07% for the three months ended June 30, 2025 from 3.54% for the three months ended June 30, 2024. The taxable-equivalent yield on interest-earning assets increased by 29 basis points from 5.84% for the three months ended June 30, 2024 to 6.13% for the three months ended June 30, 2025 due primarily to the accretion recognized on fair value marks to loans and securities assumed in the Merger, the impact of which was partially offset by the impact of a decline in the Fed Funds rate from late 2024. The net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $5.2 million, which represented 50 basis points of net interest margin during the second quarter of 2025. This increase in net interest margin also benefited from a decrease of 17 basis points in the cost of interest-bearing liabilities from 2.81% for the three months ended June 30, 2024 to 2.64% for the three months ended June 30, 2025, reflecting the impact of deposit rate reductions implemented in the first quarter of 2025 and the runoff of higher rate time deposits and money market balances.

Current wording

Taxable-equivalent net interest margin decreased by three basis points to 4.11% for the three months ended September 30, 2025 from 4.14% for the three months ended September 30, 2024. The taxable-equivalent yield on interest-earning assets decreased by 42 basis points from 6.61% for the three months ended September 30, 2024 to 6.19% for the three months ended September 30, 2025 due to the accretion recognized on fair value marks to loans and securities assumed in the Merger, the impact of which was partially offset by the impact of a decline in the Fed Funds rate since late 2024. The net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $5.8 million, which represented 52 basis points of net interest margin during the third quarter of 2025 compared to net accretion of $6.8 million and 57 basis points of net interest margin during the third quarter of 2024. Net interest margin benefited from a decrease of 40 basis points in the cost of interest-bearing liabilities from 3.07% for the three months ended September 30, 2024 to 2.67% for the three months ended September 30, 2025, reflecting the impact of deposit rate reductions over that time period and the runoff of higher rate time deposits and money market balances partially offset by the impact of the accelerated amortization of remaining debt issuance costs totaling $298 thousand from the redemption of subordinated notes.

Previous wording

The yield on loans increased by 35 basis points to 6.52% for the three months ended June 30, 2025 compared to 6.17% for the three months ended June 30, 2024. Taxable-equivalent interest income earned on loans increased by $27.6 million primarily due to an increase in the average balances, which was attributed to the acquired loans from the Merger and from the impact of the accretion of the fair value marks on loans.

Current wording

The yield on loans decreased by 49 basis points to 6.58% for the three months ended September 30, 2025 compared to 7.07% for the three months ended September 30, 2024. Taxable-equivalent interest income earned on loans decreased by $4.9 million primarily due to a decrease in the accretion of the fair value marks on loans and a decline in market interest rates.

Previous wording

The average balance of commercial loans increased by $1.3 billion to $3.1 billion for the three months ended June 30, 2025 from $1.8 billion for the three months ended June 30, 2024. Average residential mortgage loans increased by $196.3 million from $276.7 million during the three months ended June 30, 2024 to $473.0 million during the three months ended June 30, 2025. Average home equity loans increased by $92.9 million from $197.2 million for the three months ended June 30, 2024 to $290.1 million for the three months ended June 30, 2025. Average installment and other consumer loans increased by

Current wording

The average balance of commercial loans decreased by $59.2 billion to $3.1 billion for the three months ended September 30, 2025 from $3.2 billion for the three months ended September 30, 2024. Average residential mortgage loans increased by $45.5 million from $455.0 million during the three months ended September 30, 2024 to $500.5 million during the three months ended September 30, 2025. Average home equity loans decreased by $4.3 million from $301.5 million for the three months ended September 30, 2024 to $297.2 million for the three months ended September 30, 2025. Average installment and other consumer loans increased by $7.8 million from $34.2 million for the three months ended September 30, 2024 to $42.0 million for the three months ended September 30, 2025.

Previous wording

Accretion of purchase accounting adjustments on loans included in interest income was $4.9 million and $152 thousand for the three months ended June 30, 2025 and 2024, respectively. The increase in accretion was due to recognition of fair value marks from the Merger in the three months ended June 30, 2025. Accelerated accretion totaled $1.3 million and $72 thousand for the three months ended June 30, 2025 and 2024, respectively. Prepayment fee income on loans increased from $201 thousand for the three months ended June 30, 2024 to $507 thousand for the three months ended June 30, 2025.

Current wording

Accretion of purchase accounting adjustments on loans included in interest income was $5.3 million and $7.3 million for the three months ended September 30, 2025 and 2024, respectively. Accelerated accretion on loans totaled $1.4 million and $2.2 million for the three months ended September 30, 2025 and 2024, respectively. Prepayment fee income on loans decreased from $620 thousand for the three months ended September 30, 2024 to $318 thousand for the three months ended September 30, 2025.

Previous wording

Interest income on investment securities on a tax-equivalent basis increased by $4.5 million to $10.6 million for the three months ended June 30, 2025 from $6.1 million for the three months ended June 30, 2024, with the taxable equivalent yield increasing from 4.54% for the three months ended June 30, 2024 to 4.70% for the three months ended June 30, 2025. The 16 basis point increase primarily reflects the impact fromthe accretion of discounts recorded on investment securities assumed from the Merger. Accretion on acquired investment securities was $795 thousand for the three months ended June 30, 2025. The average balance of investment securities increased by $365.6 million to $904.1 million for the three months ended June 30, 2025 from $538.5 million for the three months ended June 30, 2024 due primarily to the Merger and purchases during 2025. There were no security sales during the three months ended June 30, 2025.

Current wording

Interest income on investment securities on a tax-equivalent basis increased by $470 thousand to $10.6 million for the three months ended September 30, 2025 from $10.1 million for the three months ended September 30, 2024, with the taxable equivalent yield decreasing from 4.77% for the three months ended September 30, 2024 to 4.67% for the three months ended September 30, 2025. The 10 basis point decrease reflects the impact fromthe decrease in accretion of discounts recorded on investment securities assumed from the Merger and a decline in the market interest rates. Accretion on acquired investment securities was $806 thousand for the three months ended September 30, 2025 compared to $950 thousand for the three months ended September 30, 2024. The average balance of investment securities increased by $56.7 million to $906.4 million for the three months ended September 30, 2025 from $849.7 million for the three months ended September 30, 2024 due primarily to purchases during 2025. During the three months ended September 30, 2025, the Company sold $41.6 million in GSE residential MBS securities, which resulted in a gain of $44 thousand, compared to sales of $162.7 million for no gain or loss during the three months ended September 30, 2024.

Previous wording

Interest income on federal funds sold and interest-bearing bank balances on a tax-equivalent basis decreased by $351 thousand to $1.5 million for the three months ended June 30, 2025 from $1.9 million for the three months ended June 30, 2024. The average balance of federal funds sold and interest-bearing bank balances decreased by $6.8 million from $142.9 million for the three months ended June 30, 2024 to $136.1 million for the three months ended June 30, 2025. The FOMC cut the Federal Funds rate by 50 basis points in September 2024 and 25 basis points in December 2024. The Federal Funds rate had remained unchanged from the prior rate increase of 25 basis points in July 2023.

Current wording

Interest income on federal funds sold and interest-bearing bank balances on a tax-equivalent basis decreased by $1.4 million to $1.1 million for the three months ended September 30, 2025 from $2.5 million for the three months ended September 30, 2024. The average balance of federal funds sold and interest-bearing bank balances decreased by $82.7 million from $184.5 million for the three months ended September 30, 2024 to $101.7 million for the three months ended September 30, 2025, which was impacted by a decrease in deposits. The FOMC cut the Federal Funds rate by 50 basis points in September 2024, 25 basis points in December 2024 and 25 basis points in September 2025. The Federal Funds rate had remained unchanged from the prior rate increase of 25 basis points in July 2023.

Previous wording

The subordinated notes assumed from the Merger have a fixed rate of interest equal to 4.50% until December 31, 2025. The interest rate on Orrstown Financial Services, Inc.'s subordinated notes was 7.72% at June 30, 2025 compared to 8.72% at June 30, 2024. The trust preferred debt has a variable rate of three-month CME term SOFR rate, plus a spread adjustment and margin. For the three months ended June 30, 2025, the cost of the trust preferred debt was 6.30%. Amortization of fair value marks on acquired borrowings was $150 thousand for the three months ended June 30, 2025.

Current wording

The subordinated notes assumed from the Merger have a fixed rate of interest equal to 4.50% until December 31, 2025. The interest rate on the Company's subordinated notes was 7.72% at September 30, 2025 compared to 8.75% at September 30, 2024. The trust preferred debt has a variable rate of three-month CME term SOFR rate plus a spread adjustment and margin. For the three months ended September 30, 2025 and 2024, the cost of the trust preferred debt, excluding the fair value mark, was 6.33% and 7.42%, respectively. Amortization of fair value marks on acquired borrowings was $153 thousand and $147 thousand for the three months ended September 30, 2025 and 2024, respectively.

Previous wording

The ACL to total loan ratio was 1.22% at June 30, 2025 and 1.27% at June 30, 2024. The Company recorded a provision for credit losses of $109 thousand for the three months ended June 30, 2025 compared to $812 thousand for the same period in 2024. Included in the provision for credit losses was a recovery of credit losses for unfunded commitments of $100 thousand during the three months ended June 30, 2025. No recovery or provision expense was recorded during the three months ended June 30, 2024.

Current wording

The ACL to total loan ratio was 1.21% at September 30, 2025 and 1.25% at September 30, 2024. The Company recorded a provision for credit losses of $396 thousand for the three months ended September 30, 2025 compared to $13.7 million for the same period in 2024.

Previous wording

Net charge-offs for the three months ended June 30, 2025 totaled $115 thousand compared to net charge-offs of $113 thousand for the three months ended June 30, 2024. Nonaccrual loans were 0.57% of gross loans at June 30, 2025, compared with 0.36% of gross loans at June 30, 2024. Nonaccrual loans increased by $14.1 million from $8.4 million at June 30, 2024 to $22.4 million at June 30, 2025. This increase reflects $12.8 million of nonaccrual loans assumed in the Merger and other additions of $6.4 million, partially offset by repayments and charge-offs totaling $5.2 million.

Current wording

Net charge-offs for the three months ended September 30, 2025 totaled $189 thousand compared to net charge-offs of $269 thousand for the three months ended September 30, 2024. Nonaccrual loans were 0.66% of gross loans at September 30, 2025, compared with 0.68% of gross loans at September 30, 2024. Nonaccrual loans decreased by $874 thousand from $27.1 million at September 30, 2024 to $26.2 million at September 30, 2025. During the fourth quarter of 2024, the Company sold $2.6 million of nonaccrual loans, consisting mostly of commercial and industrial loans. During the nine months ended September 30, 2025, there were additions of $12.5 million, primarily consisting of commercial construction and land development loans, residential mortgage and in commercial real estate loans, partially offset by repayments of $9.2 million and charge offs of $1.2 million.

Previous wording

Noninterest income increased by $10.7 million from $13.8 million for the six months ended June 30, 2024 to $24.5 million for the six months ended June 30, 2025. The primary driver of the overall increase was the impact of the Merger. The following were significant components of the change in this line item that did not result from the Merger:

Current wording

Noninterest income increased by $1.0 million from $12.4 million for the three months ended September 30, 2024 to $13.4 million for the three months ended September 30, 2025. The following were significant components of the change in this line item:

Previous wording

•Mortgage banking income increased by $109 thousand. Mortgage loans sold totaled $14.2 million in the second quarter of 2025 compared to $8.4 million in the second quarter of 2024.

Current wording

•Mortgage banking income increased by $31 thousand. Mortgage loans sold totaled $9.4 million in the third quarter of 2025 compared to $10.0 million in the third quarter of 2024.

Previous wording

Noninterest expense increased by $30.7 million from $45.1 million for the six months ended June 30, 2024 to $75.8 million for the six months ended June 30, 2025. The primary driver of the overall increase was the impact of the Merger. The following were additional significant components of the change in this line item:

Current wording

Noninterest expense decreased by $24.0 million from $60.3 million for the three months ended September 30, 2024 to $36.3 million for the three months ended September 30, 2025. The following were additional significant components of the change in this line item:

Previous wording

Income tax expense totaled $5.3 million, an effective tax rate of 21.3%, for the three months ended June 30, 2025 compared with income tax expense of $2.1 million and an effective tax rate of 21.2% for the three months ended June 30, 2024. The Company’s effective tax rate is greater than the 21% federal statutory rate due to disallowed interest expenses, partially offset by interest earned on tax-exempt loans and investment securities, income from life insurance policies and tax credits.

Current wording

Income tax expense totaled $5.8 million, an effective tax rate of 21.0%, for the three months ended September 30, 2025 compared with an income tax benefit of $2.0 million and an effective tax rate of 20.1% for the three months ended September 30, 2024. The Company’s effective tax rate is aligned with the 21% federal statutory rate due to disallowed interest expenses, partially offset by interest earned on tax-exempt loans and investment securities, income from life insurance policies and tax credits.

Previous wording

Net income totaled $37.5 million for the six months ended June 30, 2025 compared to $16.3 million for the same period in 2024. Diluted earnings per share for the six months ended June 30, 2025 totaled $1.94 compared to $1.55 for the six months ended June 30, 2024. The 2025 period reflects the impact of the Merger completed on July 1, 2024. The net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $12.1 million for the six months ended June 30, 2025. For the six months ended June 30, 2025 and 2024, the Company incurred merger-related expenses of $2.6 million and $1.8 million, respectively, which were included in non-interest expenses of the unaudited condensed consolidated statements of income. Excluding these non-recurring expenses, net income and diluted earnings per common share totaled $39.5 million and $2.04, respectively, for the six months ended June 30, 2025. For the six months ended June 30, 2024, excluding these non-recurring expenses, net income and diluted earnings per common share totaled $17.9 million and $1.71, respectively. See “Supplemental Reporting of Non-GAAP Measures” for additional information.

Current wording

Net income totaled $59.4 million for the nine months ended September 30, 2025 compared to $8.4 million for the same period in 2024. Diluted earnings per share for the nine months ended September 30, 2025 totaled $3.07 compared to $0.62 for the nine months ended September 30, 2024. The 2025 period reflects the full year impact of the Merger completed on July 1, 2024. The net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $17.9 million and $6.8 million for the nine months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025 and 2024, the Company incurred merger-related expenses of $2.6 million and $18.8 million, respectively, which were included in non-interest expenses of the unaudited condensed consolidated statements of operations. In addition, the Company recorded a provision for credit losses on acquired non-PCD loans of $15.5 million and retirement expenses for one executive of $4.8 million during the nine months ended September 30, 2024. Excluding merger-related expenses, net income and diluted earnings per common share totaled $61.4 million and $3.17, respectively, for the nine months ended September 30, 2025. For the nine months ended September 30, 2024, excluding these non-recurring expenses, net income and diluted earnings per common share totaled $39.4 million and $2.93, respectively. See “Supplemental Reporting of Non-GAAP Measures” for additional information.

Previous wording

Income tax expense totaled $10.0 million and $4.3 million for the six months ended June 30, 2025 and 2024, respectively. The Company's effective tax rate was 21.0% for the six months ended June 30, 2025 compared to 20.9% for the six months ended June 30, 2024.

Current wording

Income tax expense totaled $15.8 million and $2.3 million for the nine months ended September 30, 2025 and 2024, respectively. The Company's effective tax rate was 21.0% for the nine months ended September 30, 2025 compared to 21.6% for the nine months ended September 30, 2024.

Previous wording

Net interest income increased by $45.3 million from $53.0 million for the six months ended June 30, 2024 to $98.3 million for the six months ended June 30, 2025. Interest income on loans increased by $54.7 million from $71.8 million for the six months ended June 30, 2024 to $126.5 million for the six months ended June 30, 2025. Interest income on investment securities increased by $8.8 million from $11.3 million for the six months ended June 30, 2024 to $20.1 million for the six months ended June 30, 2025. Total interest expense increased by $19.2 million from $32.9 million for the six months ended June 30, 2024 to $52.1 million for the six months ended June 30, 2025. Interest expense on deposits increased by $18.3 million from $28.8 million for the six months ended June 30, 2024 to $47.1 million for the six months ended June 30, 2025. Interest expense on borrowings increased by $798 thousand from $4.2 million in the six months ended June 30, 2024 to $5.0 million for the six months ended June 30, 2025. Each of these increases was primarily the result of the Merger.

Current wording

2024 to $30.4 million for the nine months ended September 30, 2025. Total interest expense increased by $14.0 million from $64.2 million for the nine months ended September 30, 2024 to $78.2 million for the nine months ended September 30, 2025. Interest expense on deposits increased by $12.4 million from $57.4 million for the nine months ended September 30, 2024 to $69.8 million for the nine months ended September 30, 2025. Interest expense on borrowings increased by $1.6 million from $6.9 million in the nine months ended September 30, 2024 to $8.5 million for the nine months ended September 30, 2025. Each of these increases was primarily affected by the Merger.

Previous wording

The following table presents net interest income, net interest spread and net interest margin for the six months ended June 30, 2025 and 2024 on a taxable-equivalent basis:

Current wording

The following table presents net interest income, net interest spread and net interest margin for the nine months ended September 30, 2025 and 2024 on a taxable-equivalent basis:

Previous wording

The following table presents the impact of rate and volume on the change in taxable-equivalent net interest income from the six months ended June 30, 2024 to six months ended June 30, 2025:

Current wording

The following table presents the impact of rate and volume, primarily due to the Merger, on the change in taxable-equivalent net interest income from the nine months ended September 30, 2024 compared to the nine months ended September 30, 2025:

Previous wording

Taxable-equivalent net interest margin increased by 39 basis points to 4.04% for the six months ended June 30, 2025 from 3.65% for the six months ended June 30, 2024. The taxable-equivalent yield on interest-earning assets increased by 25 basis points from 5.90% for the six months ended June 30, 2024 to 6.15% for the six months ended June 30, 2025 due primarily to the accretion recognized on fair value marks to loans and securities assumed in the Merger, the impact of which was partially offset by the impact of a decline in the Fed Funds rate. The net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $12.1 million, which represented 57 basis points of net interest margin during the six months ended June 30, 2025. The increase in net interest margin also benefited from the decrease of six basis points in the cost of interest-bearing liabilities from 2.76% to 2.70%, which reflects the impact of deposit rate reductions implemented in the first quarter of 2025 and the runoff of higher rate time deposits and money market balances. The recognition of interest income previously applied to principal of $1.6 million from the payoff of a commercial real estate loan on nonaccrual status contributed five basis points to the Company's net interest margin during the six months ended June 30, 2024.

Current wording

Taxable-equivalent net interest margin increased by 18 basis points to 4.06% for the nine months ended September 30, 2025 from 3.88% for the nine months ended September 30, 2024. The taxable-equivalent yield on interest-earning assets decreased by six basis points from 6.23% for the nine months ended September 30, 2024 to 6.17% for the nine months ended September 30, 2025 due primarily to the impact of a decline in the Fed Funds rate partially offset by the accretion recognized on fair value marks to loans and securities assumed in the Merger. The recognition of interest income previously applied to principal of $1.6 million from the payoff of a commercial real estate loan on nonaccrual status contributed five basis points to the Company's net interest margin during the nine months ended September 30, 2024. The net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $17.9 million, which represented 55 basis points of net interest margin during the nine months ended September 30, 2025 compared to $6.7 million in net accretion and 30 basis points of net interest margin during the nine months ended September 30, 2024. The increase in net interest margin also benefited from the decrease of 21 basis points in the cost of interest-bearing liabilities from 2.90% to 2.69%, reflecting the impact of deposit rate reductions over that time period and the runoff of higher rate time deposits and money market balances.

Previous wording

Average loans increased by $1.6 billion to $3.9 billion for the six months ended June 30, 2025 compared to $2.3 billion for the six months ended June 30, 2024. Average investment securities increased by $355.5 million from $529.2 million for the six months ended June 30, 2024 to $884.7 million for the six months ended June 30, 2025. Average interest-bearing liabilities increased by $1.5 billion to $3.9 billion for the six months ended June 30, 2025 from $2.4 billion for the six months ended June 30, 2024.

Current wording

Average loans increased by $1.0 billion to $3.9 billion for the nine months ended September 30, 2025 compared to $2.9 billion for the nine months ended September 30, 2024. Average investment securities increased by $255.2 million from $636.8 million for the nine months ended September 30, 2024 to $892.0 million for the nine months ended September 30, 2025. Average interest-bearing liabilities increased by $922.8 million to $3.9 billion for the nine months ended September 30, 2025 from $3.0 billion for the nine months ended September 30, 2024.

Previous wording

The average yield on loans increased by 31 basis points to 6.56% for the six months ended June 30, 2025 compared to 6.25% for the six months ended June 30, 2024. Taxable-equivalent interest income earned on loans increased by $54.8 million primarily due to an increase in the average balances, which was attributed to the acquired loans from the Merger and from the impact of the accretion of the fair value marks on loans.

Current wording

The average yield on loans decreased by seven basis points to 6.56% for the nine months ended September 30, 2025 compared to 6.63% for the nine months ended September 30, 2024. Taxable-equivalent interest income earned on loans increased by $49.9 million primarily due to an increase in the average balances, which was attributed to the acquired loans from the Merger and from the impact of the accretion of the fair value marks on loans partially offset by a decline in market interest rates.

Previous wording

The average balance of commercial loans increased by $1.3 billion from $1.8 billion for the six months ended June 30, 2024 to $3.1 billion for the six months ended June 30, 2025. Average residential mortgage loans increased by $192.3 million from $275.1 million during the six months ended June 30, 2024 to $467.4 million during the six months ended June 30, 2025. Average home equity loans increased by $94.8 million from $194.6 million for the six months ended June 30, 2024 to $289.4 million for the six months ended June 30, 2025. Average installment and other consumer loans increased by $28.1 million from $16.8 million for the six months ended June 30, 2024 to $44.9 million for the six months ended June 30, 2025.

Current wording

The average balance of commercial loans increased by $824.1 million from $2.3 billion for the nine months ended September 30, 2024 to $3.1 billion for the nine months ended September 30, 2025. Average residential mortgage loans increased by $143.1 million from $335.5 million during the nine months ended September 30, 2024 to $478.6 million during the nine months ended September 30, 2025. Average home equity loans increased by $61.5 million from $230.5 million for the nine months ended September 30, 2024 to $292.0 million for the nine months ended September 30, 2025. Average installment and other consumer loans increased by $21.2 million from $22.7 million for the nine months ended September 30, 2024 to $43.9 million for the nine months ended September 30, 2025.

Previous wording

Accretion of purchase accounting adjustments included in interest income was $11.5 million and $298 thousand for the six months ended June 30, 2025 and 2024, respectively. The increase in accretion was due to the recognition of fair value marks from the Merger. Accelerated accretion totaled $2.7 million and $138 thousand during the six months ended June 30, 2025 and 2024, respectively. Prepayment income on loans increased from $257 thousand for the six months ended June 30, 2024 to $807 thousand for the six months ended June 30, 2025.

Current wording

Accretion of purchase accounting adjustments on loans included in interest income was $16.7 million and $7.6 million for the nine months ended September 30, 2025 and 2024, respectively. The increase in accretion was due to the recognition of fair value marks on loans from the Merger. Accelerated accretion totaled $4.1 million and $2.3 million during the nine months ended September 30, 2025 and 2024, respectively. Prepayment income on loans increased from $878 thousand for the nine months ended September 30, 2024 to $1.1 million for the nine months ended September 30, 2025.

Previous wording

Interest income on investment securities on a tax-equivalent basis increased by $9.0 million to $20.8 million for the six months ended June 30, 2025 from $11.8 million for the six months ended June 30, 2024, with the taxable equivalent yield increasing from 4.47% for the six months ended June 30, 2024 to 4.70% for the six months ended June 30, 2025. The 23 basis point increase reflects the impact from the higher interest rates as well as the accretion of discounts recorded on investment securities assumed from the Merger. Accretion on acquired investment securities was $1.6 million for the six months ended June 30, 2025. The average balance of investment securities increased by $355.5 million to $884.7 million for the six months ended June 30, 2025 from $529.2 million for the six months ended June 30, 2024 due primarily to the Merger. There were no security sales during the six months ended June 30, 2025.

Current wording

Interest income on investment securities on a tax-equivalent basis increased by $9.5 million to $31.4 million for the nine months ended September 30, 2025 from $21.9 million for the nine months ended September 30, 2024, with the taxable equivalent yield increasing from 4.60% for the nine months ended September 30, 2024 to 4.69% for the nine months ended September 30, 2025. The nine basis point increase reflects the impact from the accretion of discounts recorded on investment securities assumed from the Merger. Accretion on acquired investment securities was $2.4 million for the nine months ended September 30, 2025 compared to $950 thousand for the nine months ended September 30, 2024. The average balance of investment securities increased by $255.2 million to $892.0 million for the nine months ended September 30, 2025 from $636.8 million for the nine months ended September 30, 2024 due primarily to the Merger and additional investment security purchases of $147.3 million. During the nine months ended September 30, 2025, the Company sold $41.6 million in GSE residential MBS securities, which resulted in a gain of $44 thousand, compared to sales of $162.7 million for no gain or loss during the nine months ended September 30, 2024.

Previous wording

Interest income on federal funds sold and interest-bearing bank balances on a tax-equivalent basis increased by $1.0 million to $3.8 million for the six months ended June 30, 2025 from $2.8 million for the six months ended June 30, 2024. The average balance of federal funds sold and interest-bearing bank balances increased by $60.8 million from $108.7 million for the six months ended June 30, 2024 to $169.5 million for the six months ended June 30, 2025. The FOMC cut the Federal Funds rate by 50 basis points in September 2024 and 25 basis points in December 2024. The Federal Funds rate had remained unchanged from the prior rate increase of 25 basis points in July 2023.

Current wording

Interest income on federal funds sold and interest-bearing bank balances on a tax-equivalent basis decreased by $368 thousand to $4.9 million for the nine months ended September 30, 2025 from $5.3 million for the nine months ended September 30, 2024. The average balance of federal funds sold and interest-bearing bank balances increased by $12.6 million from $134.1 million for the nine months ended September 30, 2024 to $146.7 million for the nine months ended September 30, 2025; however, the decrease in interest income was impacted by a decline in the interest rate environment. The FOMC cut the Federal Funds rate by 50 basis points in September 2024, 25 basis points in December 2024 and 25 basis points in September 2025. The Federal Funds rate had remained unchanged from the prior rate increase of 25 basis points in July 2023.

Previous wording

Interest expense on interest-bearing liabilities increased by $19.2 million from $32.9 million for the six months ended June 30, 2024 to $52.1 million for the six months ended June 30, 2025. The cost of interest-bearing liabilities decreased by six basis points from 2.76% for the six months ended June 30, 2024 to 2.70% for the six months ended June 30, 2025 due to the impact of deposit rate reductions implemented in the first quarter of 2025 and the runoff of higher rate time deposits and money market balances. The average balance of interest-bearing deposits increased by $1.5 billion to $3.7 billion for the six months ended June 30, 2025 from $2.2 billion for the six months ended June 30, 2024. Average interest-bearing demand deposits increased by $858.4 million, average time deposits increased by $486.7 million and average savings deposits increased by $104.0 million for the six months ended June 30, 2025 in relation to the comparable prior period due primarily to the impact of the Merger. Amortization of fair value marks on acquired time deposits was $707 thousand for the six months ended June 30, 2025.

Current wording

Interest expense on interest-bearing liabilities increased by $14.0 million from $64.2 million for the nine months ended September 30, 2024 to $78.2 million for the nine months ended September 30, 2025. The cost of interest-bearing liabilities decreased by 21 basis points from 2.90% for the nine months ended September 30, 2024 to 2.69% for the nine months ended September 30, 2025 reflecting the impact of deposit rate reductions implemented in the first quarter of 2025 and the runoff of higher rate time deposits and money market balances. The average balance of interest-bearing deposits increased by $881.7 million to $3.7 billion for the nine months ended September 30, 2025 from $2.8 billion for the nine months ended September 30, 2024. Average interest-bearing demand deposits increased by $535.0 million, average time deposits increased by $284.3 million and average savings deposits increased by $62.4 million for the nine months ended September 30, 2025 in relation to the comparable prior period due primarily to the impact of the Merger. Amortization of fair value marks on acquired time deposits was $845 thousand for the nine months ended September 30, 2025 compared to $1.4 million for the nine months ended September 30, 2024.

Previous wording

The subordinated notes assumed from the Merger have a fixed rate of interest equal to 4.50% until December 30, 2025. The interest rate on Orrstown Financial Services, Inc.'s subordinated notes was 7.72% at June 30, 2025 compared to 8.72% at June 30, 2024. The trust preferred debt has a variable rate of three-month CME term SOFR rate, plus a spread adjustment and margin. For the six months ended June 30, 2025, the cost of the trust preferred debt was 6.34%. Amortization of fair value marks on acquired borrowings was $302 thousand for the six months ended June 30, 2025.

Current wording

The subordinated notes assumed from the Merger have a fixed rate of interest equal to 4.50% until December 30, 2025. The interest rate on the Company's subordinated notes was 7.72% at September 30, 2025 compared to 8.75% at September 30, 2024. The trust preferred debt has a variable rate of three-month CME term SOFR rate, plus a spread adjustment and margin. For the nine months ended September 30, 2025 and 2024, the cost of the trust preferred debt, excluding the fair value mark, was 6.33% and 7.42%, respectively. Amortization of fair value marks on acquired borrowings was $455 thousand for the nine months ended September 30, 2025 compared to $147 thousand for the nine months ended September 30, 2024.

Previous wording

The ACL as a percentage of the total loan portfolio was 1.22% at June 30, 2025 compared to 1.27% at June 30, 2024. The Company recorded a recovery of credit losses on loans of $445 thousand for the six months ended June 30, 2025 compared to provision expense of $1.1 million for the same period in 2024. Included in the provision for credit losses was a recovery of credit losses for unfunded commitments of $100 thousand and $123 thousand during the six months ended June 30, 2025 and 2024, respectively.

Current wording

The ACL as a percentage of the total loan portfolio was 1.21% at September 30, 2025 compared to 1.25% at September 30, 2024. The Company recorded a recovery of credit losses on loans of $49 thousand for the nine months ended September 30, 2025 compared to provision expense of $14.8 million for the same period in 2024. Included in the provision for credit losses was a recovery of credit losses for unfunded commitments of $100 thousand and $557 thousand during the nine months ended September 30, 2025 and 2024, respectively.

Previous wording

For the six months ended June 30, 2025, the provision for credit losses was primarily impacted by the changes in certain qualitative factors as loan balances were relatively flat over that period. During the first quarter of 2025, a qualitative factor was added for Other External Factorsat a minor level for all loan classes due to the uncertainty created within the global and domestic markets from changes in U.S. economic policy, including the recently implemented tariffs. The Economic Conditions qualitative factor, at a minor level, and the Delinquency and Classified Loan Trends qualitative factor, at a moderate level, were added for the residential senior liens loan class. The Delinquency and Classified Loan Trends qualitative factor was added for the home equity loan class at a moderate level. The addition of the Economic Conditions qualitative factor was based on current market interest rates and prepayment speeds, and the addition of the Delinquency and Classified Loan Trends was based on delinquencies and downgrades within the aforementioned loan classes. During the second quarter of 2025, the Other External Factors qualitative factor was removed for all loan classes as the impact from the changes in U.S. economic policy was then reflected in the macroeconomic conditions within the quantitative ACL model.

Current wording

For the nine months ended September 30, 2025, the provision for credit losses was primarily impacted by the changes in certain qualitative factors and loan growth of $48.5 million. During the first quarter of 2025, a qualitative factor was added for Other External Factorsat a minor level for all loan classes due to the uncertainty created within the global and domestic markets from changes in U.S. economic policy, including the recently implemented tariffs. The Economic Conditions qualitative factor, at a minor level, and the Delinquency and Classified Loan Trends qualitative factor, at a moderate level, were added for the residential senior liens loan class. The Delinquency and Classified Loan Trends qualitative factor was added for the home equity loan class at a moderate level. The addition of the Economic Conditions qualitative factor was based on current market interest rates and prepayment speeds, and the addition of the Delinquency and Classified Loan Trends was based on delinquencies and downgrades within the aforementioned loan classes. During the second quarter of 2025, the Other External Factors qualitative factor was removed for all loan classes as the impact from the changes in U.S. economic policy was then reflected in the macroeconomic conditions within the quantitative ACL model. There was no change in qualitative factors during the third quarter of 2025.

Previous wording

Net charge-offs for the six months ended June 30, 2025 totaled $446 thousand compared to net charge-offs of $71 thousand for the six months ended June 30, 2024. Nonaccrual loans were 0.57% of gross loans at June 30, 2025 compared with 0.36% of gross loans at June 30, 2024. Nonaccrual loans increased by $14.1 million from $8.4 million at June 30, 2024 to $22.4 million at June 30, 2025. This increase reflects $12.8 million of nonaccrual loans assumed in the Merger and other additions of $6.4 million, partially offset by repayments and charge-offs totaling $5.2 million.

Current wording

Net charge-offs for the nine months ended September 30, 2025 totaled $635 thousand compared to net charge-offs of $340 thousand for the nine months ended September 30, 2024. Nonaccrual loans were 0.66% of gross loans at September 30, 2025 compared with 0.68% of gross loans at September 30, 2024. Nonaccrual loans decreased by $874 thousand from $27.1 million at September 30, 2024 to $26.2 million at September 30, 2025. During the fourth quarter of 2024, the Company sold $2.6 million of nonaccrual loans, consisting mostly of commercial and industrial loans. During the nine months ended September 30, 2025, there were additions of $12.5 million, primarily consisting of commercial construction and land development loans, residential mortgage and in commercial real estate loans, partially offset by repayments of $9.2 million and charge offs of $1.2 million.