COMMUNITY BANCORP /VT

Previous wording

The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly owned subsidiary, Community National Bank, as of March 31, 2025 and December 31, 2024, and its consolidated results of operations for the three-month interim period and one year period presented. The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two-year, rather than a three-year, period and provide certain other smaller reporting company scaled disclosures where management deems it appropriate.

Current wording

The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly owned subsidiary, Community National Bank, as of June 30, 2025 and December 31, 2024, and its consolidated results of operations for the three-month and six-month interim periods presented. The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two-year, rather than a three-year, period and provide certain other smaller reporting company scaled disclosures where management deems it appropriate.

Previous wording

The Company’s consolidated assets as of March 31, 2025, were $1.19 billion compared to $1.25 billion as of December 31, 2024, a decrease of 4.9%. Changes in the asset base included an increase in loans of $12.3 million, or 1.3%, an increase in investment securities AFS of $8.6 million, or 5.4%, and an increase in cash of $3.5 million, or 35.5%, which more than offset by a decrease in overnight deposits of $85.6 million, or 84.7%. The increase in the loan portfolio was primarily attributable to an increase of $7.6 million in residential first and Jr. lien loans, $4.6 million in CRE loans, and $3.4 million in municipal loans, which was partially offset by a decrease of $3.2 million, collectively, in commercial & industrial and purchased loans. The increase in the investment portfolio was due to the purchase of MBS classified as AFS. The decrease in overnight deposits is partly due to the increase in the loan and investment securities portfolios, as well as reflecting decreases in deposit balances and payoff of BTFP advances that matured during the first quarter of 2025.

Current wording

The Company’s consolidated assets as of June 30, 2025, were $1.17 billion compared to $1.25 billion as of December 31, 2024, a decrease of 6.6%. Changes in the asset base included an increase in loans of $13.8 million. however, there was a substantial decrease in overnight deposits of $98.9 million, or 97.9%. The increase in the loan portfolio was primarily attributable to increases of $11.9 million in residential first and Jr. lien loans, $18.8 million in CRE loans, $4.1 million in commercial & industrial and $3.8 million in purchased loans, which was partially offset by a decrease of $24.7 million in municipal loans. While cash funded the increase in the loan portfolio, the decrease in overnight deposits reflects decreases in deposit balances and payoff of borrowings that matured during the first quarter of 2025.

Previous wording

Total deposits as of March 31, 2025, were $979.7 million compared to $1.0 billion as of December 31, 2024, a decrease of approximately $22.0 million, or 2.2%. Year to date, time deposits increased $2.5 million, or 1.4% and savings accounts increased $387 thousand, or 0.3%, while interest-bearing demand deposits decreased $17.9 million, or 5.9%, and money market funds decreased $6.8 million, or 4.0%. A decrease in deposit balances is typical in the first and second quarters of the calendar year, due in part to the timing of customers income tax obligations and the spend down of deposited funds by Vermont municipal customers prior to their June 30 fiscal year end. The decrease in borrowed funds was the result of maturities in the BTFP funds.

Current wording

Total deposits as of June 30, 2025, were $933.0 million compared to $1.0 billion as of December 31, 2024, a decrease of approximately $68.7 million, or 6.9%. Year to date, time deposits increased $10.1 million, or 5.4% and savings accounts increased $419 thousand, or 0.3%, while interest-bearing demand deposits decreased $44.2 million, or 14.5%, and money market funds decreased $39.1 million, or 23.1%. A decrease in deposit balances is typical in the first and second quarters of the calendar year, due in part to the timing of customers income tax obligations and the spend down of deposited funds by Vermont municipal customers prior to their June 30 fiscal year end. Borrowed funds decreased $16.8 million, or 23.1%, from December 31, 2024, due primarily to maturities in the BTFP funds, partially offset by new long-term FHLBB advances and overnight borrowings.

Previous wording

Total interest income increased approximately $1.7 million, or 13.0%, for the first three months of 2025, compared to the same period in 2024. The growth in the volume of the loan portfolio and origination of loans at higher interest rates, as well as adjustable-rate loans repricing to current market rates, helped to support the year-over-year increase in interest income.

Current wording

Total interest income increased approximately $1.7 million, or 12.5%, for the second quarter of 2025, and increased $3.3 million, or 12.7%, for the first six months of 2025, compared to the respective periods in 2024. The growth in the volume of the loan portfolio and origination of loans at higher interest rates, as well as adjustable-rate loans repricing to current market rates, helped to support the increase in interest income in both comparison periods.

Previous wording

Total interest expense increased $585 thousand, or 13.0%, for the first three months of 2025, compared to the same period in 2024. The higher rate environment put more pressure on competitive deposit pricing, resulting in an increase in the rates paid on the Company’s money market and time deposit accounts. The increase of $1.1 million, or 35.9%, in interest on deposits was partially offset by a decrease of $575 thousand, or 60.8% in interest on borrowed funds due to the decrease in borrowed funds. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section for more information on the impact that the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve, could have on our net interest income.

Current wording

Total interest expense decreased $140 thousand, or 2.8%, for the second quarter of 2025, and increased $444 thousand, or 4.6%, for the first six months of 2025, compared to the respective periods in 2024. While the rate environment continues to put pressure on the Company’s funding costs, including competitive deposit pricing, the year-over-year increase of $1.7 million, or 26.7%, in interest expense on the Company’s interest bearing deposit accounts was partially offset by a decrease of $1.4 million, or 63.3% in interest expense on borrowed funds due to the decrease in the average volume of borrowed funds. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section of this Management’s Discussion and Analysis for more information on the impact that the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve, could have on our net interest income.

Previous wording

The credit loss expense for the first three months of 2025 was $325,054 compared to $313,579 for the same period in 2024, resulting in an increase of $11,475, or 3.7%. The current period credit loss expense considers a number of factors, including loan growth and changes in balances of the loan categories within the current portfolio, changes in forecasts, historical loss rate and qualitative factors. During the first quarter of 2025, certain qualitative factors used in the ACL calculation were adjusted to better reflect expected credit losses in the loan portfolio. Please refer to Note 5 of the unaudited consolidated financial statements as well as the ACL and credit loss expense discussion in the Credit Risk section of this MD&A.

Current wording

The credit loss expense for the second quarter of 2025 was $407,046 compared to $331,582 for the same quarter of 2024 and $732,100 for the first six months of 2025 compared to $645,161 for the same period in 2024, resulting in increases between periods of $75,464, or 22.8% and $86,939, or 13.5%, respectively. In determining the current period credit loss expense management considers a number of factors, including loan growth and changes in balances of the loan categories within the current portfolio, changes in forecasts, historical loss rates and various qualitative factors, which management reviews and adjusts, as appropriate, in its ACL calculation to better reflect expected credit losses in the loan portfolio. Please refer to Note 5 of the unaudited consolidated financial statements as well as the ACL and credit loss expense discussion in the Credit Risk section of this MD&A.

Previous wording

Consolidated net income for the first three months of 2025 increased $703 thousand to $3.5 million compared to $2.8 million for the same period in 2024. The $1.1 million increase in net interest income after credit loss expense was a contributing factor to the increase in net income. This change, along with other significant changes in non-interest income and non-interest expense are discussed in the appropriate sections of this MD&A.

Current wording

Consolidated net income for the second quarter of 2025 increased $1.3 million, or 48.8%, to $4.1 million compared to $2.7 million for the same quarter of 2024, and increased $2.0 million, or 36.6%, to $7.6 million for the first six months of 2025 compared to $5.6 million for the same period in 2024. The increases in net interest income after credit loss expense of $1.7 million for the second quarter of 2025 and $2.8 million for the first six months of 2025, compared to the respective periods in 2024, were contributing factors to the increases in net income. This change, along with significant changes in non-interest income and non-interest expense, are discussed in the appropriate sections of this Management’s Discussion and Analysis.

Previous wording

Equity capital increased to $102.9 million, with a book value per share of $18.05 as of March 31, 2025, compared to $98.0 million and a book value per share of $17.24 as of December 31, 2024. Please refer to the section of this Management’s Discussion and Analysis titled “LIQUIDITY AND CAPITAL RESOURCES” for a discussion in of the changes in the Company’s equity capital for the three months ended March 31, 2025.

Current wording

Equity capital increased to $106.3 million, with a book value per share of $18.69 as of June 30, 2025, compared to $98.0 million and a book value per share of $17.24 as of December 31, 2024. Please refer to the section of this Management’s Discussion and Analysis titled “LIQUIDITY AND CAPITAL RESOURCES” for a discussion in of the changes in the Company’s equity capital for the six months ended June 30, 2025.

Previous wording

During the first quarter of 2025, CFS Partners, in which the Company currently holds a one-third ownership interest, agreed to redeem all of the limited liability company membership interest of Guaranty Bancorp, Inc., representing a one-third ownership interest, contingent upon, and just prior to, consummation of the pending merger of Guaranty Bancorp with and into Bar Harbor Bankshares. Under the terms of the redemption agreement, beginning March 1, 2025, Guaranty Bancorp has agreed to forego its distributional interest in CFS Partners through the closing date of the redemption. Accordingly, beginning March 1, 2025, the Company’s share of the profit and loss from the operations of CFS Partners’ sole subsidiary, CFSG, has increased from one-third to one-half. The redemption of Guaranty Bancorp’s membership interest in CFS Partners is expected to occur before year end 2025. The Company does not have a controlling interest in the partnership and will still remain accounting for the investment using the equity method.

Current wording

During the first quarter of 2025, CFS Partners, in which the Company held a one-third ownership interest, agreed to redeem all the limited liability company membership and distributional interests of Guaranty Bancorp, Inc. (“Guaranty”), representing a one-third ownership interest, contingent upon, and just prior to, consummation of Guaranty’s merger with and into Bar Harbor Bankshares. That merger, and the related redemption of Guaranty’s ownership interest by CFS Partners, were completed on July 31, 2025. Under the terms of the redemption agreement, beginning March 1, 2025, Guaranty Bancorp agreed to forego its distributional interest in CFS Partners through the closing date of the redemption. Accordingly, beginning March 1, 2025, the Company’s share of the profit and loss from the operations of CFS Partners’ sole subsidiary, CFSG, increased from one-third to 50%, and effective on July 31, 2025, the Company’s non-economic membership (governance) interest in CFS Partners likewise increased to 50%. The Company does not have a controlling interest in CFS Partners and will continue to account for its investment using the equity method.

Previous wording

Considering recent trade policy developments between Canada and the United States, management is assessing the potential risk to the local economy. Canada is Vermont’s largest international trading partner; many businesses who rely on trade with Canada are now at risk of experiencing increased costs, reduced sales, and a sense of uncertainty about the future. Management is evaluating the impact on the bank’s customers, however the impact on profits for many of these businesses remains uncertain. In light of these challenges, the Company’s own strategic focus will be to safeguard its balance sheet while supporting clients.

Current wording

Given the Company’s northern Vermont market area, management is assessing the potential risk to the local economy from recent trade policy developments between the United States and Canada. Canada is Vermont’s largest international trading partner; many businesses that rely on trade with Canada are now at risk of experiencing increased costs, reduced sales, and a sense of uncertainty about the future. Although management continues to evaluate the potential impact on the Company’s customers, trade negotiations are on-going, and the ultimate effect on these businesses remains uncertain. In light of these challenges, the Company’s own strategic focus will be to safeguard its balance sheet while supporting its customers and communities.

Previous wording

These policies are described in the Company’s 2024 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the audited consolidated financial statements. There were no material changes during the first three months of 2025 in the Company’s critical accounting policies.

Current wording

These policies are described in the Company’s 2024 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the audited consolidated financial statements. There were no material changes during the first six months of 2025 in the Company’s critical accounting policies.

Previous wording

The Company’s net income for the first three months of 2025 was $3.5 million, or $0.62 per common share, compared to $2.8 million, or $0.51 per common share, for the same period in 2024. Core earnings (NII) were $9.4 million for the first three months of 2025 compared to $8.4 million for the same period in 2024. Interest and fees on loans, the major component of interest income, increased $1.5 million, or 13.2% for the first three months of 2025 compared to the same period in 2024. Interest paid on deposits, which is the major component of total interest expense, increased $1.1 million, or 35.9% for the first three months of 2025 compared to the same period in 2024, driven primarily by the increases in the fed funds rate. Interest on borrowed funds decreased $575 thousand, or 60.8%, for the first three months of 2025 compared to the same period in 2024. Market pressures on deposit rates have stabilized and a decrease in wholesale funding has resulted in an improved net interest margin and net interest spread.

Current wording

The Company’s net income for the second quarter of 2025 was $4.1 million, or $0.72 per common share, compared to $2.7 million, or $0.49 per common share for the same quarter of 2024, and for the first six months of 2025 was $7.6 million, or $1.34 per common share, compared to $5.6 million, or $0.99 per common share, for the same period in 2024. Core earnings (NII) were $9.9 million for the second quarter of 2025, compared to $8.1 million for the same period of 2024 and $19.3 million for the first six months of 2025, compared to $16.5 million for the same period in 2024. Interest and fees on loans, the major component of interest income, increased $1.6 million, or 13.5% for the second quarter of 2025 compared to the same period of 2024 and increased $3.2 million, or 13.3% for the first six months of 2025 compared to the same period in 2024. Interest paid on deposits, which is the major component of total interest expense, increased $612 thousand, or 18.2% for the second quarter of 2025 and increased $1.7 million, or 26.7% for the first six months of 2025, compared to the respective periods in 2024, driven primarily by increased deposit balances. Interest on borrowed funds decreased $830 thousand, or 65.1%, for the second quarter of 2025 compared to the same quarter of 2024 and decreased $1.4 million, or 63.3%, for the first six months of 2025 compared to the same period in 2024, primarily due to a decrease in average volume of borrowed funds in both comparison periods. Market pressure on deposit rates has stabilized and a decrease in wholesale funding has resulted in an improved net interest margin and net interest spread.

Previous wording

INTEREST INCOME VERSUS INTEREST EXPENSE (NET INTEREST INCOME)

Current wording

INTEREST INCOME VERSUS INTEREST EXPENSE (NII)

Previous wording

The Company’s tax-exempt interest income of $818,363 and $575,470 for the three months ended March 31, 2025 and 2024, respectively, was derived from loans to local municipalities of $70.4 million and $56.9 million, and tax-exempt municipal investment securities of $10.0 million and $10.4 million as of March 31, 2025 and 2024, respectively.

Current wording

The Company’s tax-exempt interest income of $827,746 and $617,843 for the three months ended June 30, 2025 and 2024, respectively, and $1.6 million and $1.2 million for the six months ended June 30, 2025 and 2024, respectively, was derived from loans to local municipalities of $42.4 million and $34.1 million, and tax-exempt municipal investment securities of $9.9 million and $10.3 million, as of June 30, 2025 and 2024, respectively.

Previous wording

The following table presents the daily average assets and the daily average liabilities, including the yields on interest-earning assets and interest-bearing liabilities for the comparison periods presented. Interest income (excluding interest on non-accrual loans) is expressed on a tax equivalent basis, both in dollars and as a yield/rate for the comparison periods presented. Net interest income, net interest spread, and net interest margin are also expressed on a tax equivalent basis.

Current wording

The following tables present the daily average assets and the daily average liabilities, including the average yields on interest-earning assets and average expense on interest-bearing liabilities for the comparison periods presented. Interest income (excluding interest on non-accrual loans) is expressed on a tax equivalent basis, both in dollars and as a yield/rate for the comparison periods presented. Net interest income, net interest spread, and net interest margin are also expressed on a tax equivalent basis.

Previous wording

The average volume of interest-earning assets for the three-month period ended March 31, 2025 increased 7.8% compared to the same period last year, and the average yield on interest-earning assets increased 29 bps.

Current wording

The average volume of interest-earning assets for the three-and six-month periods ended June 30, 2025 increased 6.2% and 7.0%, respectively, compared to the same periods last year, and the average yield on interest-earning assets increased 31 bps in both periods.

Previous wording

The average volume of loans increased over the three-month comparison period of 2025 versus 2024 by 9.8%, and the average yield on loans increased 24 bps. Loans accounted for 82.8% of the average interest-earning asset portfolio for the three-month period ended March 31, 2025, compared to 81.3% for the same period last year. Interest earned on the loan portfolio as a percentage of total interest income was 91.0% for the three-month period in 2025 compared to 90.8% for the same period in 2024.

Current wording

The average volume of loans increased over the three- and six-month comparison periods of 2025 versus 2024 by 8.9% and 9.3%, respectively, and the average yield on loans increased 24 bps in both periods. Loans accounted for 84.5% and 83.7% of the average interest-earning asset portfolio for the three- and six-month periods ended June 30, 2025, compared to 82.4% and 81.9%, respectively, for the same periods last year. Interest earned on the loan portfolio as a percentage of total interest income was 92.2% and 91.6%, respectively, for the three- and six-month periods in 2025 compared to 91.4% and 91.1%, respectively, for the same periods in 2024.

Previous wording

The average volume of the taxable investment portfolio (classified as AFS) decreased 14.6% during the three-month period ended March 31, 2025, compared to the same period last year, while the average yield increased 10 bps between periods. There were purchases of taxable AFS investment securities during the first three months of 2025, however maturities and paydowns on this portfolio in 2024 and into 2025 outweighed purchases during the same time period, accounting for the decrease in average volume year over year.

Current wording

The average volume of the taxable investment portfolio (classified as AFS) decreased 8.1% and 11.4%, respectively, during the three- and six-month periods ended June 30, 2025, compared to the same periods last year, while the average yield increased 23 bps and 17 bps, respectively, between periods. There were purchases of taxable AFS investment securities during the first three months of 2025, however maturities and paydowns on this portfolio in 2024 and into 2025 exceeded purchases during the same time period, accounting for the decrease in average volume year over year.

Previous wording

The average volume of the tax-exempt investment portfolio (classified as AFS) for the three-month period ended March 31, 2025 decreased 0.1% and the tax equivalent yield increased nine bps. There were no tax-exempt bond purchases during the first three months of 2025, accounting for the decrease in average volume in this portfolio.

Current wording

The average volume of the tax-exempt investment portfolio (classified as AFS) for the three- and six-month periods ended June 30, 2025 decreased 0.2% in both periods, while the tax equivalent yield increased 13 bps and 11 bps, respectively. There were no tax-exempt bond purchases during the first six months of 2025, accounting for the decrease in average volume in this portfolio.

Previous wording

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, increased 368.9% for the three-month period ended March 31, 2025, compared to the same periods in 2024. The average volume grew steadily throughout 2024 with the influx of customer deposit accounts, primarily municipal deposit accounts. The average yield on these funds decreased 104 bps for the three-month period ended March 31, 2025, versus the same period in 2024.

Current wording

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, increased 42.0% and 236.2%, respectively, for the three- and six-months ended June 30, 2025, compared to the same periods in 2024. The average volume grew steadily during the last half of 2024 with the influx of customer deposit accounts, primarily municipal deposit accounts. The average yield on these funds decreased 37 bps and 86 bps, respectively, for the three- and six-month periods ended June 30, 2025, versus the same periods in 2024.

Previous wording

The average volume of interest-bearing liabilities for the three-month period ended March 31, 2025 increased 8.7% compared to the same period in 2024, and the average rate paid on interest-bearing liabilities increased 11 bps.

Current wording

The average volume of interest-bearing liabilities for the three- and six-month periods ended June 30, 2025 increased 4.9% and 6.8%, respectively, compared to the same periods in 2024, while the average rate paid on interest-bearing liabilities decreased 18 bps and four bps, respectively.

Previous wording

The average volume of interest-bearing transaction accounts increased 2.9% for the three-month period ended March 31, 2025, compared to the same period in 2024, reflecting moderate growth year over year, while the average rate paid on these accounts decreased two bps between comparison periods. Interest-bearing transaction accounts comprised 33.3% of the average interest-bearing liabilities portfolio for the three-month period ended March 31, 2025, compared to 35.2% for the same period last year. Interest paid on these funds accounted for 27.2% of total interest expense for the three-month period of 2025 compared to 30.4% for the same period in 2024.

Current wording

The average volume of interest-bearing transaction accounts increased 3.9% and 3.4%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods of 2024, reflecting moderate growth year over year. The average rate paid on these accounts decreased three bps and two bps, respectively, between comparison periods. Interest-bearing transaction accounts comprised 32.0% and 32.6% of the average interest-bearing liabilities portfolio for the three- and six-month periods ended June 30, 2025, compared to 32.3% and 33.7%, respectively, for the same periods last year. Interest paid on these funds accounted for 26.2% and 26.7%, respectively, of total interest expense for the three- and six-month periods of 2025 compared to 24.9% and 27.5%, respectively, for the same periods in 2024.

Previous wording

The average volume of money market accounts increased 37.2% for the three-month period ended March 31, 2025, compared to the same period in 2024, and the average rate paid on these deposits increased 52 bps. The increase was driven primarily by increases in the average volume of municipal deposit accounts during the third and fourth quarter of 2024.

Current wording

The average volume of money market accounts increased 24.9% and 30.9%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods in 2024, while the average rate paid on these deposits increased seven bps and 30 bps, respectively.

Previous wording

The average volume of savings accounts decreased 5.2% for the three-month period ended March 31, 2025, compared to the same period in 2024, with no change in the average rate paid on these accounts.

Current wording

The average volume of savings accounts decreased 3.3% and 4.3%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods in 2024. There was no change in the average rate paid on these accounts in the three-month period ended June 30, 2025 compared to 2024, while the average rate paid on these accounts decreased one bp in the six-month period ended June 30, 2025 compared to 2024.

Previous wording

The average volume of time deposits increased 44.8% for the three-month period ended March 31, 2025, compared to the same period in 2024, and the average rate paid increased 42 bps. The increase in both the average volume and average rate paid are attributable to CD promotional rates offered throughout 2024 and into 2025.

Current wording

The average volume of time deposits increased 33.7% and 39.0%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods in 2024, and the average rate paid decreased 17 bps and increased 11 bps, respectively.

Previous wording

The average volume of repurchase agreements increased 37.3% for the three-month period ended March 31, 2025, compared to the same period in 2024, and the average rate paid increased 14 bps between comparison periods.

Current wording

The average volume of repurchase agreements increased 60.1% and 47.9%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods in 2024, and the average rate paid increased 10 bps and 13 bps, respectively, between comparison periods.

Previous wording

The Company utilized borrowed funds to fund loan growth and cover deposit outflows during 2023 and into the first and second quarters of 2024, but as deposit accounts began to increase, the need for these funds decreased, accounting for the 57.8% decrease in average volume of borrowed funds during the three-month period ended March 31, 2025, compared to the same period in 2024. The average rate paid on borrowed funds decreased as well by 43 bps for the three-month period ended March 31, 2025, compared to the same period in 2024.

Current wording

The Company utilized borrowed funds to fund loan growth and cover deposit outflows during 2023 and into the first and second quarters of 2024, but as deposit accounts began to increase, the need for these funds decreased, accounting for the 60.5% and 59.3% decrease in average volume of borrowed funds during the three- and six-month periods ended June 30, 2025, respectively, compared to the same periods in 2024. The average rate paid on borrowed funds decreased as well by 69 bps and 58 bps for the three- and six-month periods ended June 30, 2025, respectively, compared to the same periods in 2024.

Previous wording

In summary, between the three-month periods ended March 31, 2025 and 2024, the average yield on interest-earning assets increased 29 bps and the average rate paid on interest-bearing liabilities increased 11 bps. Net interest spread increased 18 bps for the three-month period ended March 31, 2025 versus the same period in 2024, and the net interest margin increased 20 bps between comparison periods.

Current wording

In summary, between the three- and six-month periods ended June 30, 2025 and 2024, the average yield on interest-earning assets increased 31 bps in both periods and the average rate paid on interest-bearing liabilities decreased 18 bps and four bps, respectively. Net interest spread increased 49 bps and 35 bps, respectively, for the three- and six-month periods ended June 30, 2025 versus the same periods in 2024, and the net interest margin increased 47 bps and 34 bps, respectively.

Previous wording

Total non-interest income decreased $55,298, or 3.4%, for the three months ended March 31, 2025, compared to the same period in 2024, with significant changes noted in the following:

Current wording

Total non-interest income increased $286,294, or 16.2%, and $230,996 or 6.8%, respectively, for the three and six months ended June 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:

Previous wording

Total non-interest expense increased $203,468, or 3.2% for the three months ended March 31, 2025, compared to the same period in 2024, with significant changes noted in the following:

Current wording

Total non-interest expense increased $395,829, or 6.3%, and $599,294 or 4.8%, for the three and six months ended June 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:

Previous wording

The provision for income taxes increased $107,884, or 19.4%, for the first three months of 2025 compared to the same period in 2024, which is consistent with the increase in income before income taxes. Tax credits, which consist of credits from affordable housing investments and NMTC, amounted to $249,612 and $174,612, respectively for the first three months of 2025 and 2024. The Company’s investment in a project during the last quarter of 2024 generated NMTC for the first quarter of 2025, accounting for the increase in tax credits between comparison periods.

Current wording

The provision for income taxes increased $276,660, or 51.0%, for the second quarter of 2025 and $384,544, or 35.0%, for the first six months of 2025 compared to the same periods in 2024, which is consistent with the increase in income before income taxes. Tax credits, which consist of credits from affordable housing investments and NMTC, amounted to $249,612 and $174,612, for the second quarter of 2025 and 2024, and $499,224 and $349,224, respectively, for the first six months of 2025 and 2024. The Company’s investment in a project during the last quarter of 2024 generated NMTC for that quarter and for the six months of 2025, accounting for the increase in tax credits between comparison periods.

Previous wording

Amortization expense related to the affordable housing investments and NMTC is included as a component of income tax expense and amounted to $212,868 and $149,202, respectively for the first three months of 2025 and 2024. These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 5% and 7%.

Current wording

Amortization expense related to the affordable housing investments and NMTC is included as a component of income tax expense and amounted to $148,890 and $149,202, for the second quarter of 2025 and 2024 and $297,780 and $298,404, respectively, for the first six months of 2025 and 2024. These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 5% and 7%.

Previous wording

The increase in the loan portfolio during the first three months of 2025 was primarily attributable to increases in CRE loans, municipal loans and residential real estate 1 st lien loans.

Current wording

The increase in the loan portfolio during the first six months of 2025 was primarily attributable to increases in CRE loans, and residential real estate 1 st lien loans.

Previous wording

The increase in the securities AFS portfolio at March 31, 2025 is attributable to the combined effect during the first three months of the year of purchases totaling $15.0 million and a decrease of $3.0 million in unrealized losses reflected in OCI, which was partially offset by maturities of $5.5 million and principal payments on MBS, ABS and CMO investments totaling $3.9 million. In management’s view, the size of the AFS securities portfolio is appropriate and proportional to the overall asset base, as this portfolio serves a significant role in the Company’s liquidity position.

Current wording

The decrease in the securities AFS portfolio at June 30, 2025 is attributable to the combined effect during the first six months of the year of purchases totaling $17.1 million and a decrease of $4.2 million in unrealized losses reflected in OCI, which was more than offset by maturities of $11.3 million and principal payments on MBS, ABS and CMO investments totaling $9.9 million. In management’s view, the size of the AFS securities portfolio is appropriate and proportional to the overall asset base, as this portfolio serves a significant role in the Company’s liquidity position.

Previous wording

The decrease in interest-bearing transactions accounts is attributable to a decrease of $12.9 million, or 29.9% in government agency accounts for our municipal customers, and a decrease of $4.7 million, or 4.5% in retail deposit accounts. The decrease in money market funds was driven by a decrease of $12.5 million, or 28.2%, in ICS accounts, which was partially offset by an increase in retail money market funds of $2.8 million, or 2.3%, and an increase in municipal deposits of $3.0 million, or 71.7%. The increase in time deposits is attributable to an increase in retail time deposits. The Company used overnight deposits to cover maturities in borrowed funds during the first three months of 2025 and used those funds to cover fluctuations in aggregate deposits during the same period, enabling the Company to rely less on other sources of funding, including brokered deposits.

Current wording

The decrease in interest-bearing transactions accounts at June 30, 2025 from year end 2024 is attributable to a cyclical decrease of $15.8 million, or 36.8% in government agency accounts for our municipal customers, a decrease of $17.4 million or 15.9%, in ICS accounts, and a decrease of $11.0 million, or 10.2% in retail deposit accounts. The decrease in money market accounts was driven by a decrease of $36.9 million, or 83.1%, in ICS accounts, and a decrease in retail money market accounts of $862 thousand, or 0.7%, as well as a decrease in municipal money market deposits of $1.4 million, or 33.8%. The increase in time deposits is attributable to an increase in brokered time deposits. In addition to the brokered time deposits, the Company used overnight deposits to cover maturities in borrowed funds during the first six months of 2025 and used those funds to cover fluctuations in aggregate deposits during the same period, enabling the Company to rely less on other sources of funding.

Previous wording

Estimated deposits in excess of the FDIC insurance level amounted to $244.6 million as of March 31, 2025 and $258.0 million as of December 31, 2024. The estimated balance of $40.5 million of uninsured time deposits as of March 31, 2025 was made up of time CDs of $37.2 million and retirement accounts of $3.3 million. Increments of maturity of these time deposits are summarized as follows:

Current wording

Estimated deposits in excess of the FDIC insurance level amounted to $228.3 million as of June 30, 2025 and $258.0 million as of December 31, 2024. The estimated balance of $41.1 million of uninsured time deposits as of June 30, 2025 was made up of time CDs of $37.4 million and retirement accounts of $3.7 million. Increments of maturity of these time deposits are summarized as follows:

Previous wording

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, thereby impacting NII, the primary component of the Company’s earnings. Fluctuations in interest rates can also have an impact on liquidity. The ALCO uses an outside consultant to perform rate shock simulations to the Company's net interest income, as well as a variety of other analyses. It is ALCO’s function to provide the assumptions used in the modeling process. Assumptions used in prior period simulation models are regularly tested by comparing projected NII with actual NII. The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustained interest rate changes. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company’s balance sheet. The model also simulates the balance sheet’s sensitivity to a prolonged flat rate environment. All rate scenarios are simulated, assuming a parallel shift of the yield curve; however further simulations are performed utilizing non-parallel changes in the yield curve, including an inverted yield curve. The results of this sensitivity analysis are compared to the ALCO policy limits which specify a maximum tolerance level for NII exposure over a 1-year horizon, assuming no balance sheet growth, given a 200 bp shift upward and a 100 bp shift downward in interest rates.

Current wording

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, thereby impacting NII, the primary component of the Company’s earnings. Fluctuations in interest rates can also have an impact on liquidity. The ALCO uses an outside consultant to perform rate shock simulations to the Company's net interest income, as well as a variety of other analyses. It is ALCO’s function to provide the assumptions used in the modeling process. Assumptions used in prior period simulation models are regularly tested by comparing projected NII with actual NII. The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustain interest rate changes. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company’s balance sheet. The model also simulates the balance sheet’s sensitivity to a prolonged flat rate environment. All rate scenarios are simulated, assuming a parallel shift of the yield curve; however further simulations are performed utilizing non-parallel changes in the yield curve, including an inverted yield curve. The results of this sensitivity analysis are compared to the ALCO policy limits which specify a maximum tolerance level for NII exposure over a 1-year horizon, assuming no balance sheet growth, given a 200 bp shift upward and a 100 bp shift downward in interest rates.

Previous wording

As of March 31, 2025, the Company had $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear interest at a quarterly floating rate equal to 3-month CME SOFR, as adjusted by a spread adjustment factor of 0.26161, plus 2.85%. The quarterly floating rate in effect on the debentures was 7.47% for the March 2025 payment, compared to a floating rate of 8.50% for the March 2024 payment.

Current wording

As of June 30, 2025, the Company had $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear interest at a quarterly floating rate equal to 3-month CME SOFR, as adjusted by a spread adjustment factor of 0.26161, plus 2.85%. The quarterly floating rate in effect on the debentures was 7.41% for the June 2025 payment, compared to a floating rate of 8.44% for the June 2024 payment.

Previous wording

Residential mortgage loans represented 27.8% of the Company’s loan balances as of March 31, 2025, compared to 27.4% as of December 31, 2024. The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not offer higher risk loan products, such as option adjustable-rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. Residential mortgages with loan-to-value ratios exceeding 80% are generally covered by PMI. A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated. As of March 31, 2025, junior lien home equity products made up 13.8% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%. The Company also originates some home equity loans with loan-to-value ratios greater than 80% under an insured loan program with stringent underwriting criteria.

Current wording

Residential mortgage loans represented 28.2% of the Company’s loan balances as of June 30, 2025, compared to 27.4% as of December 31, 2024. The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not offer higher risk loan products, such as option adjustable-rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. Residential mortgages with loan-to-value ratios exceeding 80% are generally covered by PMI. A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated. As of June 30, 2025, junior lien home equity products made up 14.4% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%. The Company also originates some home equity loans with loan-to-value ratios greater than 80% under an insured loan program with stringent underwriting criteria.

Previous wording

The following tables show the estimated maturity of the Company’s loan portfolio as of March 31, 2025.

Current wording

The following tables show the estimated maturities within the Company’s loan portfolio as of June 30, 2025.