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 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.

Current wording

The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly owned subsidiary, Community National Bank, as of September 30, 2025 and December 31, 2024, and its consolidated results of operations for the three-month and nine-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 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.

Current wording

The Company’s consolidated assets as of September 30, 2025, were $1.23 billion compared to $1.25 billion as of December 31, 2024, a decrease of 1.8%. Changes in the asset base included an increase in loans of $33.9 million, however, there was a decrease in overnight deposits of $52 million, or 51.5%. The increase in the loan portfolio was primarily attributable to increases of $18.7 million in residential first and Jr. lien loans, $9.2 million in CRE loans, $3.0 million in municipal loans and $3.0 million in purchased loans. While cash funded the increase in the loan portfolio, the decrease in overnight deposits reflects decreases in deposit balances, payoff of borrowings that matured during the first quarter of 2025, as well as the purchase of approximately $30.0 million in brokered time deposits.

Previous 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.

Current wording

Total deposits as of September 30, 2025, were $1.01 billion compared to $1.0 billion as of December 31, 2024, an increase of approximately $6.7 million, or 0.7%. Year to date, time deposits increased $32.4 million, or 17.3% and savings accounts increased $812 thousand, or 0.6%, while demand and interest-bearing transaction accounts collectively decreased $12.5 million, or 2.5%, and money market funds decreased $14.0 million, or 8.3%. Borrowed funds decreased $26.3 million, or 36.3%, from December 31, 2024, due primarily to maturities in the BTFP funds, partially offset by new FHLBB advances.

Previous 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.

Current wording

Total interest income increased approximately $1.4 million, or 10.4%, for the third quarter of 2025, and $4.8 million, or 11.9%, for the first nine 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 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.

Current wording

Total interest expense decreased $400 thousand, or 7.5%, for the third quarter of 2025, and increased $45 thousand, or 0.3%, for the first nine 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 $1.8 million, or 17.9%, in interest expense on the Company’s interest bearing deposit accounts was more than offset by a decrease of $1.9 million, or 56.2% 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 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.

Current wording

The credit loss expense for the third quarter of 2025 was $258,753 compared to $460,745 for the same quarter of 2024 and $990,853 for the first nine months of 2025 compared to $1,105,906 for the same period in 2024, resulting in decreases between periods of $201,992, or 43.8% and $115,053, or 10.4%, 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 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.

Current wording

Consolidated net income for the third quarter of 2025 increased $1.6 million, or 52.4%, to $4.7 million compared to $3.1 million for the same quarter of 2024, and increased $3.7 million, or 42.3%, to $12.3 million for the first nine months of 2025 compared to $8.7 million for the same period in 2024. The increases in net interest income after credit loss expense of $2.1 million for the third quarter of 2025 and $4.8 million for the first nine months of 2025, compared to the respective periods in 2024, were significant 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 $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.

Current wording

Equity capital increased to $111.9 million, with a book value per share of $19.64 as of September 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 nine months ended September 30, 2025.

Previous wording

On July 16, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per common share, payable on August 1, 2025, to shareholders of record on July 15, 2025.

Current wording

On September 18, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share, payable on November 1, 2025, to shareholders of record on October 15, 2025, an increase of 4% from the previous quarterly cash dividend and the fourth annual increase since 2020.

Previous 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.

Current wording

Effective July 31, 2025, the Company’s affiliate, CFS Partners, redeemed the one third limited liability company membership and distributional interests of Guaranty Bancorp, Inc. (“Guaranty”), immediately prior to consummation of Guaranty’s merger with and into Bar Harbor Bankshares. 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

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.

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. Aside from adjustments in qualitative factors and other economic indicators in the calculation of the ACL, there were no material changes during the first nine months of 2025 in the Company’s critical accounting policies.

Previous 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.

Current wording

The Company’s net income for the third quarter of 2025 was $4.7 million, or $0.84 per common share, compared to $3.1 million, or $0.55 per common share for the same quarter of 2024, and for the first nine months of 2025 was $12.3 million, or $2.18 per common share, compared to $8.7 million, or $1.55 per common share, for the same period in 2024. Core earnings (NII) were $10.5 million for the third quarter of 2025, compared to $8.7 million for the same period of 2024 and $29.8 million for the first nine months of 2025, compared to $25.1 million for the same period in 2024. Interest and fees on loans, the major component of interest income, increased $1.5 million, or 11.5% for the third quarter of 2025 compared to the same period of 2024 and increased $4.6 million, or 12.7% for the first nine months of 2025 compared to the same period in 2024. Interest paid on deposits, which is the major component of total interest expense, increased $89 thousand, or 2.4% for the third quarter of 2025 and increased $1.8 million, or 17.9% for the first nine months of 2025, compared to the respective periods in 2024, driven primarily by increased deposit balances. Interest on borrowed funds decreased $496 thousand, or 42.8%, for the third quarter of 2025 compared to the same quarter of 2024 and decreased $1.9 million, or 56.2%, for the first nine months of 2025 compared to the same period in 2024, primarily due to a decrease in the 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

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.

Current wording

The Company’s tax-exempt interest income of $746,706 and $762,126 for the three months ended September 30, 2025 and 2024, respectively, and $2.4 million and $2.0 million for the nine months ended September 30, 2025 and 2024, respectively, was derived from loans to local municipalities of $70.1 million and $65.5 million, and tax-exempt municipal investment securities of $10.1 million and $10.5 million, as of September 30, 2025 and 2024, respectively.

Previous 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.

Current wording

The average volume of interest-earning assets for the three- and nine-month periods ended September 30, 2025 increased 4.7% and 6.2%, respectively, compared to the same periods last year, and the average yield on interest-earning assets increased 26 bps and 28 bps in the respective periods.

Previous 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.

Current wording

The average volume of loans increased over the three- and nine-month comparison periods of 2025 versus 2024 by 7.8% and 8.8%, respectively, and the average yield on loans increased 18 bps and 22 bps, respectively. Loans accounted for 84.6% and 84.0% of the average interest-earning asset portfolio for the three- and nine-month periods ended September 30, 2025, compared to 82.2% and 82.0%, respectively, for the same periods last year. Interest earned on the loan portfolio as a percentage of total interest income was 92.1% and 91.8%, respectively, for the three- and nine-month periods in 2025 compared to 91.2% and 91.1%, respectively, for the same periods in 2024.

Previous 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.

Current wording

The average volume of the taxable investment portfolio (classified as AFS) decreased 10.1% and 11.0%, respectively, during the three- and nine-month periods ended September 30, 2025, compared to the same periods last year, while the average yield increased 32 bps and 21 bps, respectively, between periods. There were purchases of taxable AFS investment securities during the first nine 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- 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.

Current wording

The average volume of the tax-exempt investment portfolio (classified as AFS) for the three- and nine-month periods ended September 30, 2025 decreased 0.4% and 0.2% respectively, while the average tax equivalent yield increased 21 bps and 15 bps, respectively. There were no tax-exempt bond purchases during the first nine 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 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.

Current wording

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, decreased 10.6% and increased 91.3%, respectively, for the three- and nine-months ended September 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 80 bps and 86 bps, respectively, for the three- and nine-month periods ended September 30, 2025, versus the same periods in 2024.

Previous 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.

Current wording

The average volume of interest-bearing liabilities for the three- and nine-month periods ended September 30, 2025 increased 3.5% and 5.6%, respectively, compared to the same periods in 2024, while the average rate paid on interest-bearing liabilities decreased 27 bps and 11 bps, respectively.

Previous 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.

Current wording

The average volume of interest-bearing transaction accounts decreased 5.4% and increased 0.4%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods of 2024, reflecting moderate growth year over year. The average rate paid on these accounts decreased 24 bps and 10 bps, respectively, between comparison periods. Interest-bearing transaction accounts comprised 30.2% and 31.8% of the average interest-bearing liabilities portfolio for the three- and nine-month periods ended September 30, 2025, compared to 33.0% and 33.5%, respectively, for the same periods last year. Interest paid on these funds accounted for 23.7% and 25.7%, respectively, of total interest expense for the three- and nine-month periods of 2025 compared to 26.3% and 27.1%, respectively, for the same periods in 2024.

Previous 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.

Current wording

The average volume of money market accounts increased 30.7% and 30.8%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, while the average rate paid on these deposits decreased 11 bps and increased 17 bps, respectively.

Previous 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.

Current wording

The average volume of savings accounts decreased 1.0% and 3.2%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024. There was no change in the average rate paid on these accounts in the three- and nine- month periods ended September 30, 2025 compared to 2024.

Previous 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.

Current wording

The average volume of time deposits increased 27.0% and 34.5%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, while the average rate paid decreased 53 bps and 12 bps, respectively.

Previous 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.

Current wording

The average volume of repurchase agreements increased 14.4% and 36.6%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, and the average rate paid increased 14 bps and 12 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 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.

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 38.1% and 51.9% decrease in average volume of borrowed funds during the three- and nine-month periods ended September 30, 2025, respectively, compared to the same periods in 2024. The average rate paid on borrowed funds decreased as well by 41 bps and 52 bps for the three- and nine-month periods ended September 30, 2025, respectively, compared to the same periods in 2024.

Previous 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.

Current wording

In summary, between the three- and nine-month periods ended September 30, 2025 and 2024, the average yield on interest-earning assets increased 26 bps and 28 bps for the three- and nine-month periods and the average rate paid on interest-bearing liabilities decreased 27 bps and 11 bps, respectively. Net interest spread increased 53 bps and 39 bps, respectively, for the three- and nine-month periods ended September 30, 2025 versus the same periods in 2024, and the net interest margin increased 50 bps and 39 bps, respectively.

Previous 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:

Current wording

Total non-interest income increased $88,380, or 4.4%, and $319,376 or 5.9%, respectively, for the three and nine months ended September 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:

Previous 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:

Current wording

Total non-interest expense increased $84,840, or 1.3%, and $684,135 or 3.6%, for the three and nine months ended September 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:

Previous 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.

Current wording

The provision for income taxes increased $422,063, or 72.2%, for the third quarter of 2025 and $806,607 or 48.0%, for the first nine 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 third quarter of 2025 and 2024, and $748,836 and $523,836, respectively, for the first nine 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 nine 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 $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%.

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 third quarter of 2025 and 2024 and $446,670 and $447,606, respectively, for the first nine 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 six months of 2025 was primarily attributable to increases in CRE loans, and residential real estate 1 st lien loans.

Current wording

The increase in the loan portfolio during the first nine months of 2025 was primarily attributable to increases in CRE loans, residential real estate 1 st lien loans, residential junior lien loans as well as purchased loans.

Previous 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.

Current wording

The decrease in the securities AFS portfolio at September 30, 2025 is attributable to the combined effect during the first nine months of the year of purchases totaling $18.1 million and a decrease of $6.6 million in unrealized losses reflected in OCI, which was more than offset by maturities of $16.5 million and principal payments on MBS, ABS and CMO investments totaling $15.0 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 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.

Current wording

The decrease in interest-bearing transactions accounts at September 30, 2025 from year end 2024 is attributable to a decrease of $10.1 million, or 22.7% in a CFSG deposit account, and a decrease of $13.7 million or 12.5%, in ICS accounts. The decrease in money market accounts was primarily driven by a decrease of $26.3 million, or 59.2% in ICS accounts. 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 nine 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 $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:

Current wording

Estimated deposits in excess of the FDIC insurance level amounted to $262.7 million as of September 30, 2025 and $258.0 million as of December 31, 2024. The estimated balance of $43.1 million of uninsured time deposits as of September 30, 2025 was made up of time CDs of $39.6 million and retirement accounts of $3.5 million. Increments of maturity of these time deposits are summarized as follows:

Previous 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.

Current wording

As of September 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 7.43% for the September 2025 payment, compared to a floating rate of 8.45% for the September 2024 payment.

Previous 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.

Current wording

Residential mortgage loans represented 28.3% of the Company’s loan balances as of September 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 September 30, 2025, junior lien home equity products made up 15.7% 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 Company experienced solid growth in the CRE loan portfolios, which is consistent with its strategic focus on commercial lending. Commercial & industrial, purchased, CRE and municipal loans collectively comprised 71.5% of the Company’s loan portfolio as of June 30, 2025, compared to 72.3% as of December 31, 2024. The largest components of the CRE portfolio were $131.5 million in owner-occupied CRE and $165.1 million in non-owner occupied CRE as of June 30, 2025, compared to $125.5 million and 154.6 million, respectively, as of December 31, 2024.

Current wording

The Company experienced solid growth in the CRE loan portfolios, which is consistent with its strategic focus on commercial lending. Commercial & industrial, purchased, CRE and municipal loans collectively comprised 71.4% of the Company’s loan portfolio as of September 30, 2025, compared to 72.3% as of December 31, 2024. The largest components of the CRE portfolio were $131.5 million in owner-occupied CRE and $165.8 million in non-owner occupied CRE as of September 30, 2025, compared to $125.5 million and $154.6 million, respectively, as of December 31, 2024.

Previous wording

Risk in the Company’s commercial & industrial and CRE loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the SBA and RD. As of June 30, 2025, the Company had $28.1 million in guaranteed loans with guaranteed balances of $19.1 million, compared to $25.5 million in guaranteed loans with guaranteed balances of $17.2 million as of December 31, 2024. PPP loans with outstanding balances of $24 thousand as of June 30, 2025, and $43 thousand as of December 31, 2024, are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.

Current wording

Risk in the Company’s commercial & industrial and CRE loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the SBA and RD. As of September 30, 2025, the Company had $29.0 million in guaranteed loans with guaranteed balances of $19.8 million, compared to $25.5 million in guaranteed loans with guaranteed balances of $17.2 million as of December 31, 2024. PPP loans with outstanding balances of $15 thousand as of September 30, 2025, and $43 thousand as of December 31, 2024, are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.

Previous wording

The increase in the credit loss expense on loans in both periods of 2025 compared to the same periods of 2024, was due in part to changes in the economic forecast, prepayments speeds, loan curtailments and adjustments to certain qualitative factors used in the model, as well as an increase in the volume of the loan portfolio. The increase in the OBS credit exposure for the three months ended June 30, 2025 is attributable to an increase in unfunded loan commitments under contract and the decrease in the six months ended June 30, 2025 is attributable to a decrease in unfunded loan commitments under contract.

Current wording

The decrease in the credit loss expense on loans in both periods of 2025 compared to the same periods of 2024, was due in part to changes in the economic forecast, prepayments speeds, loan curtailments and adjustments to certain qualitative factors used in the model, despite the increase in the volume of the loan portfolio. The increase in the OBS credit exposure for the three months ended September 30, 2025 is attributable to an increase in unfunded loan commitments under contract and the decrease in the nine months ended September 30, 2025 is attributable to a decrease in unfunded commitments.

Previous wording

The second quarter ACL analysis indicated that the reserve balance of $10.5 million as of June 30, 2025, was sufficient to cover expected credit losses that are probable and estimable as of the measurement date. Included in the ACL calculation for the second quarter of 2025 are adjustments to certain qualitative factors made by management, including a decrease in the risk status of the qualitative factors for loan review in the commercial and CRE segments to reflect the strong loan review system that is in place, as discussed in Note 5 of the accompanying unaudited interim consolidated financial statements.

Current wording

The third quarter ACL analysis indicated that the reserve balance of $10.8 million as of September 30, 2025, was sufficient to cover expected credit losses that are probable and estimable as of the measurement date. As discussed in Note 5 of the accompanying unaudited interim consolidated financial statements, included in the ACL calculation for the third quarter of 2025 are adjustments to certain qualitative factors made by management, including an increase in the risk status of the qualitative factors for external factors in the purchased loan and residential Jr. lien segments to reflect uncertainty regarding the impact of the government shutdown as well as an increase in the risk status of volume and terms in the residential Jr. lien segment to reflect the increase in volume of these loans.