MUNCY COLUMBIA FINANCIAL Corp

Previous wording

The following discussion and analysis should be read in conjunction with the detailed information and consolidated financial statements, including notes thereto, included elsewhere in this report. Our consolidated financial condition and results of operations are essentially those of our subsidiary, the Bank. Therefore, the analysis that follows is directed to the performance of the Bank.

Current wording

The following discussion and analysis should be read in conjunction with the detailed information and consolidated financial statements, including notes thereto, included elsewhere in this report. Our consolidated financial condition and results of operations are essentially those of our subsidiary, Journey Bank. Therefore, the analysis that follows is directed to the performance of the Bank.

Previous wording

The Corporation’s financial statements have been prepared in accordance with U.S. GAAP and conform to general practices within the banking industry. In the preparation of its financial statements, the Corporation is required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The Corporation’s critical accounting policies are fundamental to understanding this MD&A and are more fully described in Note 1 (“Summary of Significant Accounting Policies”) within the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The Corporation’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and conform to general practices within the banking industry. In the preparation of its financial statements, the Corporation is required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The Corporation’s critical accounting policies are fundamental to understanding this MD&A and are more fully described in Note 1 (“Summary of Significant Accounting Policies”) within the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

The Corporation defines its critical accounting policies, in accordance with U.S. GAAP. U.S. GAAP requires the Corporation to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which those principles are applied. Application of assumptions different than those used by the Corporation could result in material changes in the Corporation’s financial position or results of operations. The Corporation believes its policies governing the determination of the allowance for credit/loan losses, the fair value of available-for-sale debt securities and the fair values of assets acquired and liabilities assumed in business combinations are critical accounting policies. The Corporation’s management has reviewed and approved these critical accounting policies and has discussed these policies with its Audit Committee. The Corporation believes the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments are as follows:

Current wording

The Corporation defines its critical accounting policies, in accordance with U.S. GAAP. U.S. GAAP requires the Corporation to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which those principles are applied. Application of assumptions different than those used by the Corporation could result in material changes in the Corporation’s financial position or results of operations. The Corporation believes its policies governing the determination of the allowance for credit losses, the fair value of available-for-sale debt securities and the fair values of assets acquired and liabilities assumed in business combinations are critical accounting policies. The Corporation’s management has reviewed and approved these critical accounting policies and has discussed these policies with its Audit Committee. The Corporation believes the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments are as follows:

Previous wording

As of January 1, 2023, the Corporation adopted Accounting Standards Update (“ASU”) 2016-13,Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” which replaced the current loss impairment methodology under U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13, commonly referred to as Current Expected Credit Losses (“CECL”), requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. The amendments in this update affect financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Upon adoption of ASU 2016-13 on January 1, 2023, the Corporation recorded an incremental decrease in the ACL through a cumulative effect adjustment to equity, net of tax, with subsequent adjustments charged to earnings through a provision for credit losses.

Current wording

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326,Financial Instruments – Credit Losses, provides guidance on the accounting for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASC 326 requires consideration of a broad range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. Commonly referred to as Current Expected Credit Losses (“CECL”), requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. ASC 326 affects financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

Previous wording

Although the Corporation’s management uses the best information available, the level of the ACL remains an estimate which is subject to significant judgment and short-term change which could have a significant impact on the Corporation’s financial condition or results of operations. From January 1, 2024 to September 30, 2024, the level of the ACL increased from $9.3 million to $9.4 million and the ACL to total loans decreased from at 0.87% to 0.85%. The Corporation’s ACL is highly sensitive to the methods, assumptions and estimates underlying its calculation. See Note 4 “Loans and Allowance for Credit Losses” within the Corporation’s Notes to the Unaudited Consolidated Financial Statements which are included in Part I of this Quarterly Report on Form 10-Q for additional qualitative and quantitative information about the Corporation’s ACL.

Current wording

Although the Corporation’s management uses the best information available, the level of the ACL remains an estimate which is subject to significant judgment and short-term change which could have a significant impact on the Corporation’s financial condition or results of operations. From January 1, 2025 to March 31, 2025, the level of the ACL increased from $9.9 million to $10.0 million and the ACL to total loans decreased from 0.88% to 0.87%. The Corporation’s ACL is highly sensitive to the methods, assumptions and estimates underlying its calculation. See Note 3 “Loans and Allowance for Credit Losses” within the Corporation’s Notes to the Unaudited Consolidated Financial Statements which are included in Part I of this Quarterly Report on Form 10-Q for additional qualitative and quantitative information about the Corporation’s ACL.

Previous wording

Total assets at September 30, 2024, were $1.607 billion, a decrease of $32.5 million, or 2.0% from $1.640 billion at December 31, 2023. The change in total assets primarily reflected decreases in available-for-sale debt securities, restricted investment in bank stocks and deferred tax assets, net, partially offset by increases in cash and cash equivalents and loans receivable. Available-for-sale debt securities decreased $77.8 million, restricted investment in bank stocks decreased $2.9 million and deferred tax assets, net, decreased $3.7 million. Cash and cash equivalents increased $9.7 million and gross loans receivable increased $44.2 million. Total liabilities at September 30, 2024, were $1.438 billion, a decrease of $47.9 million, or 3.2% from $1.486 billion at December 31, 2023. Deposit balances increased by $139.8 million, short-term borrowings decreased $179.5 million and long-term borrowings decreased $10.0 million since December 31, 2023.

Current wording

Total assets at March 31, 2025, were $1.602 billion, an increase of $6.4 million, or 0.4% from $1.596 billion at December 31, 2024. The change in total assets primarily reflected increases in cash and cash equivalents and loans receivable, partially offset by a decrease in available-for-sale debt securities. Cash and cash equivalents increased $6.4 million and gross loans receivable increased $18.2 million. Available-for-sale debt securities decreased $15.8 million. Total liabilities at March 31, 2025, were $1.431 billion, an increase of $1.4 million, or 0.1% from $1.430 billion at December 31, 2024. Deposit balances increased by $46.2 million, short-term borrowings decreased $40.7 million and long-term borrowings decreased $5.2 million since December 31, 2024.

Previous wording

Total average assets increased 66.0% from $965.3 million for the three months ended September 30, 2023, to $1.602 billion for the three months ended September 30, 2024, primarily related to the MBF merger. Average earning assets were $1.493 billion for the three months ended September 30, 2024 and $898.2 million for the three months ended September 30, 2023. Average interest-bearing liabilities were $1.162 billion for the three months ended September 30, 2024 and $697.6 million for the three months ended September 30, 2023.

Current wording

Total average assets increased 0.7% from $1.590 billion for the three months ended March 31, 2024, to $1.601 billion for the three months ended March 31, 2025. Average earning assets were $1.499 billion for the three months ended March 31, 2025 and $1.493 billion for the three months ended March 31, 2024. Average interest-bearing liabilities were $1.154 billion for the three months ended March 31, 2025 and $1.171 billion for the three months ended March 31, 2024.

Previous wording

Gross loans not held for sale increased 4.1% to $1.113 billion at September 30, 2024 from $1.068 billion at December 31, 2023. This increase is related to strong loan demand in the first nine months of 2024.

Current wording

Gross loans receivable not held for sale increased $18.2 million or 1.6% to $1.144 billion at March 31, 2025 from $1.126 billion at December 31, 2024. This increase is related to strong loan demand during the three months ended March 31, 2025.

Previous wording

Available-for-sale debt securities decreased $77.8 million to $335.5 million at September 30, 2024 from $413.3 million at December 31, 2023. On January 17, 2024, the Corporation sold available-for-sale debt securities with a total market value of $50.3 million, the proceeds of which were utilized to paydown short-term FHLB borrowings. Securities sold included $34.2 million of US government agency securities, $15.5 million of mortgaged-backed securities and $563,000 of collateralized mortgage obligations. In addition to the securities sold, the Corporation received proceeds from paydowns, calls and maturities of available-for-sale debt securities of $35.9 million during the nine months ended September 30, 2024. Partially offsetting these changes was an increase in fair value of available-for-sale debt securities of $7.9 million for the nine months ended September 30, 2024.

Current wording

Available-for-sale debt securities decreased $15.8 million to $307.5 million at March 31, 2025 from $323.2 million at December 31, 2024. The Corporation received proceeds from paydowns, calls and maturities of available-for-sale debt securities of $18.8 million during the three months ended March 31, 2025. Partially offsetting this activity was an increase in fair value of available-for-sale debt securities of $2.8 million for the three months ended March 31, 2025.

Previous wording

Interest-bearing deposits increased $136.3 million to $1.021 billion at September 30, 2024 from $884.7 million at December 31, 2023. Noninterest-bearing deposits increased 1.3% from $266.0 million at December 31, 2023 to $269.5 million at September 30, 2024. The increase in interest-bearing deposits during the nine months ended September 30, 2024 was as a result of a strategic initiative to reposition customer repurchase agreements, which are classified as short-term borrowings, into core deposit accounts. The Bank anticipates a continued migration of customer repurchase accounts from short-term borrowings to interest bearing deposits throughout the remainder of 2024. The increase in noninterest-bearing deposits was as a result of overall organic deposit growth for the nine months ended September 30, 2024.

Current wording

Interest-bearing deposits increased $32.1 million to $1.065 billion at March 31, 2025 from $1.033 billion at December 31, 2024. Noninterest-bearing deposits increased 5.4% from $259.7 million at December 31, 2024 to $273.8 million at March 31, 2025. The increase in total deposits during the three months ended March 31, 2025 was a result of strong organic deposit growth in combination with a strategic initiative to reposition customer repurchase agreements, which are classified as short-term borrowings, into core deposit accounts.

Previous wording

Short-term borrowings decreased $179.5 million to $73.0 million at September 30, 2024 from $252.5 million at December 31, 2023. This change was primarily related to the migration of customer repurchase agreements as well as a paydown in short-term FHLB borrowings during the quarter as discussed above.

Current wording

Short-term borrowings decreased $40.7 million to $27.7 million at March 31, 2025 from $68.4 million at December 31, 2024. This change was primarily related to the migration of customer repurchase agreements described above as well as a paydown in short-term FHLB borrowings during the three months ended March 31, 2025.

Previous wording

Long-term borrowings were $60.5 million at September 30, 2024 compared to $70.5 million at December 31, 2023. This decrease is primarily related to $10.2 million in long-term borrowing maturities during the nine months ended September 30, 2024.

Current wording

Long-term borrowings were $50.4 million at March 31, 2025 compared to $55.5 million at December 31, 2024. This decrease is primarily related to $5.2 million in repayments on long-term borrowings during the three months ended March 31, 2025.

Previous wording

Total stockholder’s equity increased by $15.5 million, or 10.1%, from $153.8 million at December 31, 2023, to $169.3 million at September 30, 2024. The increase is primarily attributable to earnings, net of cash dividends, along with a decrease in accumulated other comprehensive loss due to changes in the fair values of available-for-sale debt securities. Accumulated other comprehensive loss amounted to $8.8 million as of September 30, 2024 and $15.0 million as of December 31, 2023.

Current wording

Total stockholder’s equity increased by $5.0 million, or 3.0%, from $166.4 million at December 31, 2024, to $171.4 million at March 31, 2025. This increase is primarily attributable to earnings, net of cash dividends, along with a decrease in accumulated other comprehensive loss due to changes in the fair values of available-for-sale debt securities. Accumulated other comprehensive loss amounted to $11.7 million as of March 31, 2025 and $13.9 million as of December 31, 2024.

Previous wording

The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio decreased from 92.0% as of December 31, 2023 to 85.5% as of September 30, 2024 due to the asset/liability mix changes noted above, and remains within internal policy limits.

Current wording

The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio decreased from 86.4% as of December 31, 2024 to 84.7% as of March 31, 2025 due to the asset/liability mix changes noted above, and remains within internal policy limits.

Previous wording

The majority of the Corporation’s debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuates with changes in interest rates. Generally, a security’s value reacts inversely with changes in interest rates. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in the accumulated other comprehensive income or loss component of stockholder’s equity, net of deferred income taxes. At September 30, 2024, the Corporation reported a net unrealized loss, included in accumulated other comprehensive loss, of $8.8 million, net of deferred income taxes of $2.4 million, a decrease of $3.8 million compared to the net unrealized holding loss of $15.0 million, net of deferred income taxes of $4.0 million, at December 31, 2023. Any future changes in interest rates could result in changes in the fair value of the Corporation’s securities portfolio and capital position. However, accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital and does not have an impact on the Corporation’s regulatory capital ratios.

Current wording

The majority of the Corporation’s debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuates with changes in interest rates. Generally, a security’s value reacts inversely with changes in interest rates. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in the accumulated other comprehensive income or loss component of stockholder’s equity, net of deferred income taxes. At March 31, 2025, the Corporation reported a net unrealized loss, included in accumulated other comprehensive loss, of $11.7 million, net of deferred income taxes of $3.1 million, a decrease of $2.2 million compared to the net unrealized holding loss of $13.9 million, net of deferred income taxes of $3.7 million, at December 31, 2024. Any future changes in interest rates could result in changes in the fair value of the Corporation’s securities portfolio and capital position. However, accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital and does not have an impact on the Corporation’s regulatory capital ratios.

Previous wording

At September 30, 2024 and December 31, 2023, the Corporation had $1.3 million in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and nine months ended September 30, 2024 and 2023:

Current wording

At March 31, 2025 and and December 31, 2024, the Corporation held $1.3 and $1.4 million, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2025 and 2024:

Previous wording

Gross loans receivable increased 4.1% from $1.068 billion at December 31, 2023 to $1.113 billion at September 30, 2024. The percentage distribution in the loan portfolio is shown in the tables below:

Current wording

Gross loans receivable increased 1.6% from $1.126 billion at December 31, 2024 to $1.144 billion at March 31, 2025. The percentage distribution in the loan portfolio is shown in the tables below:

Previous wording

Banking regulators have established guidelines of less than 100% of tier 1 capital plus allowance for credit losses in construction lending and less than 300% of tier 1 capital plus allowance for credit losses in commercial real estate lending that management monitors as part of the risk management process. The construction concentration ratio is a percentage of the outstanding construction and land development loans to total tier 1 capital plus allowance for credit losses. The commercial real estate concentration ratio is a percentage of the outstanding balance of non-owner occupied commercial real estate, multifamily, and construction and land development loans to tier 1 capital plus allowance for credit losses. At September 30, 2024, the Bank’s exposure to commercial real estate was well below these guidelines.

Current wording

Banking regulators have established guidelines of less than 100% of tier 1 capital plus allowance for credit losses in construction lending and less than 300% of tier 1 capital plus allowance for credit losses in commercial real estate lending that management monitors as part of the risk management process. The construction concentration ratio is a percentage of the outstanding construction and land development loans to total tier 1 capital plus allowance for credit losses. The commercial real estate concentration ratio is a percentage of the outstanding balance of non-owner occupied commercial real estate, multifamily, and construction and land development loans to tier 1 capital plus allowance for credit losses. At March 31, 2025 and December 31, 2024, the Bank’s exposure to commercial real estate was well below these guidelines.

Previous wording

As of September 30, 2024, commercial real estate loans totaled $360.3 million or 32.3% of total gross loans. Of this amount commercial mortgage loans represented $319.7 million or 28.7% of total gross loans and student housing loans represented $40.6 million or 3.6% of total gross loans. The following table presents the distribution of commercial mortgage loans and related percentage of the total loan portfolio as of September 30, 2024 and December 31, 2023:

Current wording

As of March 31, 2025, commercial real estate loans totaled $377.9 million or 33.0% of total gross loans. Of this amount commercial mortgage loans represented $332.4 million or 29.0% of total gross loans and student housing loans represented $45.5 million or 4.0% of total gross loans. The following table presents the distribution of commercial mortgage loans and related percentage of the total loan portfolio as of March 31, 2025 and December 31, 2024:

Previous wording

The allowance for credit losses was $9.4 million at September 30, 2024, compared to $9.3 million at December 31, 2023. The allowance equaled 0.85% of total loans, net of unearned fees and costs and unamortized fair value adjustments, at September 30, 2024 as compared to 0.87% of total loans at December 31, 2023. The allowance for credit losses was analyzed quarterly and reviewed by the Corporation’s Board of Directors. No concentration or apparent deterioration in classes of loans or pledged collateral was evident. Regular loan meetings with the Corporation’s Board of Directors reviewed new loans. Delinquent loans, loan exceptions and certain large loans are addressed by the full Board no less than monthly to determine compliance with policies.

Current wording

The allowance for credit losses was $10.0 million at March 31, 2025, compared to $9.9 million at December 31, 2024. The allowance equaled 0.87% of total loans, net of unearned fees and costs and unamortized fair value adjustments, at March 31, 2025 as compared to 0.88% of total loans at December 31, 2024. The allowance for credit losses is analyzed quarterly and reviewed by the Corporation’s Board of Directors. Regular loan meetings with the Corporation’s Board of Directors reviewed new loans over specified thresholds. Delinquent loans, loan exceptions and certain large loans are addressed by the full Board no less than monthly to determine compliance with policies.

Previous wording

The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for the three and nine month periods ending September 30, 2024 and 2023, respectively:

Current wording

The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for three months ended March 31, 2025 and 2024, respectively:

Previous wording

The Corporation believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of interest-bearing deposits for the three months ended September 30, 2024, and 2023, was 1.92% and 0.54%, respectively. The increased cost was primarily attributable to the increases in rates and increased pricing competition. The average cost of interest-bearing deposits for the nine months ended September 30, 2024, and 2023, was 1.79% and 0.46%, respectively. The increased cost was primarily attributable to the increases in rates and increased pricing competition.

Current wording

The Corporation believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of interest-bearing deposits for the three months ended March 31, 2025 and 2024, was 2.25% and 2.06%, respectively.

Previous wording

At September 30, 2024, estimated uninsured deposits, or the portion of deposit accounts which exceeded the Federal Deposit Corporation insurance limit, totaled $366.0 million. Of this amount, $155.1 million was collateralized by securities pledged by the Corporation or letters of credit issued through the Federal Home Loan Bank of Pittsburgh. Time deposits of $250,000 or more totaled approximately $109.5 million at September 30, 2024.

Current wording

At March 31, 2025, estimated uninsured deposits, or the portion of deposit accounts which exceeded the Federal Deposit Corporation insurance limit, totaled $350.9 million. Of this amount, $131.0 million was collateralized by securities pledged by the Corporation or letters of credit issued through the Federal Home Loan Bank of Pittsburgh. Time deposits of $250,000 or more totaled approximately $104.4 million at March 31, 2025.

Previous wording

Short-term borrowings consist primarily of securities sold under agreements to repurchase and periodic overnight or short-term Federal Home Loan Bank advances. Average short-term borrowings amounted to 7.9% and 11.8% of total interest-bearing liabilities for the three and nine months ended September 30, 2024, respectively, as compared to 27.7% and 27.2% for the three and nine months ended September 30, 2023, respectively. This change was primarily related to the migration of customer repurchase agreements as well as a paydown in short-term FHLB borrowings during 2024 as discussed above.

Current wording

Short-term borrowings consist primarily of securities sold under agreements to repurchase and periodic overnight or short-term Federal Home Loan Bank advances. Average short-term borrowings amounted to 4.7% and 17.3% of total interest-bearing liabilities for the three months ended March 31, 2025 and 2024, respectively. This change was primarily related to the migration of customer repurchase agreements as well as a paydown in short-term FHLB borrowings during 2024 and 2025.

Previous wording

Long-term borrowings consist of advances due to the FHLB - Pittsburgh. Under terms of a blanket agreement, the loans are secured by certain qualifying assets of the Bank which consist principally of first mortgage loans. The carrying value of these collateralized items was $820.8 million at September 30, 2024. The Bank has lines of credit with the Federal Reserve Bank Discount Window, FHLB – Pittsburgh, and Atlantic Community Bankers Bank in the aggregate amount of $587.3 million at September 30, 2024. The unused portion of these lines of credit was $469.9 million at September 30, 2024.

Current wording

Long-term borrowings consist of advances due to the FHLB - Pittsburgh. Under terms of a blanket agreement, the loans are secured by certain qualifying assets of the Bank which consist principally of first mortgage loans. The carrying value of these collateralized items was $825.9 million at March 31, 2025. The Bank has lines of credit with the Federal Reserve Bank Discount Window, FHLB – Pittsburgh, and Atlantic Community Bankers Bank in the aggregate amount of $591.0 million at March 31, 2025. The unused portion of these lines of credit was $517.0 million at March 31, 2025.

Previous wording

Net income for the quarter ended September 30, 2024 was $5,056,000, or $1.42 per share compared to net income of $1,171,000, or $0.56 per share for the same period in 2023. Net income for the nine months ended September 30, 2024 was $13,799,000, or $3.86 per share compared to $4,573,000, or $2.20 per share for the same period in 2023. The increase in net income for the three and nine months ended September 30, 2024, compared to the same periods in 2023, was primarily attributable to the MBF merger.

Current wording

Net income for the three months ended March 31, 2025 amounted to $4.3 million, or $1.23 per share, an increase of $0.3 million compared to $4.0 million, or $1.13 per share for the three months ended March 31, 2024. The increase in net income for the three months ended March 31, 2025, compared to the same period in 2024, was primarily attributable to a significant increase in net interest income partially offset by an increase in non-interest expense.

Previous wording

For the three and nine months ended September 30, 2024, the annualized return on average assets was 1.26% and 1.13%, respectively, compared to 0.63% and 0.69% for the respective periods of 2023. The annualized return on average equity was 12.34% and 11.39%, respectively, for the three and nine months ended September 30, 2024, and 6.78% and 7.35%, respectively, for the comparable periods of 2023. The Corporation declared and paid dividends to holders of common stock of $0.44 per share for the third quarter of 2024 and $1.32 per share for the nine months ended September 30, 2024, compared to $0.43 and $1.28 per share, respectively, for the quarter-to-date and year-to-date periods of 2023.

Current wording

The annualized return on average assets was 1.10% for the three months ended March 31, 2025, compared to 1.02% for the same period in 2024. The annualized return on average equity was 10.33% for the three months ended March 31, 2025, compared to 10.52% for the same period in 2024. The Corporation declared and paid dividends to holders of common stock of $0.45 per share during the three months ended March 31, 2025 and $0.44 per share for the same period in 2024.

Previous wording

Net interest income on a tax-equivalent basis increased $8.1 million, or 161.9%, to $13.1 million for the three months ended September 30, 2024 from $5.0 million for the comparable period of 2023. The increase in tax-equivalent net interest income primarily reflected an increase in tax equivalent interest income of $12.6 million, or 148.5%, to $21.1 million from $8.5 million, comparing the third quarters of 2024 and 2023, respectively, partially offset by an increase in interest expense of $4.5 million, to $8.0 million for the third quarter of 2024 from $3.5 million for the same quarter of 2023. The tax-equivalent net interest margin, a key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. The Corporation’s tax-equivalent net interest margin increased 127 basis points to 3.48% for the third quarter of 2024 from 2.21% for the same quarter of 2023. Additionally, rate spread, the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities shown on a fully tax-equivalent basis, increased 110 basis points to 2.87% for the three months ended September 30, 2024 from 1.77% for the same three months of 2023.

Current wording

Tax-equivalent net interest income increased $2.0 million, or 16.0%, to $14.2 million for the three months ended March 31, 2025 compared to $12.2 million for the same period in 2024. The increase in tax-equivalent net interest income was due to an increase in tax-equivalent interest income reflecting higher earning asset volumes and yields, along with a decrease in interest expense which resulted primarily from a significant decrease in average borrowings coupled with a decrease in the average rate paid on total interest-bearing liablities. Tax-equivalent net interest margin, a key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. The Corporation’s tax-equivalent net interest margin increased 51 basis points to 3.83% for the three months ended March 31, 2025 compared to 3.32% for the same period of 2024, which was largely caused by increases in yields on earning assets along with a decrease in total in cost of funds. Additionally, interest rate spread, the difference between the average yield on interest-earning assets, shown on a fully tax-equivalent basis, and the average cost of interest-bearing liabilities, increased 57 basis points to 3.27% for the three months ended March 31, 2025 compared to 2.70% for the same period in 2024.

Previous wording

The following Average Balance Sheet and Rate Analysis tables presents the average assets, actual income or expense and the average yield on assets, liabilities and stockholders' equity for the three and nine months ended September 30, 2024 and 2023.

Current wording

The following Average Balance Sheet and Rate Analysis tables presents the average assets, actual income or expense and the average yield on assets, liabilities and stockholders’ equity for the three months ended March 31, 2025 and 2024.

Previous wording

To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the Consolidated Balance Sheets as it pertains to net interest income, the table below reflects these changes for the three and nine months ended September 30, 2024 versus the three and nine months ended September 30, 2023:

Current wording

To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the Consolidated Balance Sheets as it pertains to net interest income, the table below reflects these changes for the three months ended March 31, 2025 versus March 31, 2024:

Previous wording

For the nine months ended September 30, 2024, total non-interest income increased $2.8 million or 57.9% to $7.7 million, compared to $4.9 million for the nine months ended September 30, 2023. Similar to the quarterly period, increases in service charges and fees, earnings on bank-owned life insurance and interchange fees of $493,000, $357,000 and $676,000, respectively, were all related to the MBF merger. Gains (losses) on marketable equity securities increased $273,000 or 103.0% due to an increase in the fair value of equity securities held during the nine months ended September 30, 2024. Other non-interest income increased $746,000 or 100.4% due primarily to incentives received in conjunction with the launch of a debit card reissuance project as well as a governmental grant recorded in the first quarter in conjunction with the completion of a solar energy project.

Current wording

Total non-interest income decreased $87,000 to $2,445,000 for the three months ended March 31, 2025, compared to $2,532,000 for the same period of 2024. Service charges and fees increased $107,000 due primarily to higher overdraft fee income, and losses on marketable equity securities decreased $83,000 due to market value changes comparing the three months ended March 31, 2025 to same period of 2024. Other non-interest income decreased $341,000 due to one-time events in the three months ended March 31, 2024 including incentives received in conjunction with the launch of a debit card reissuance project as well as a governmental grant recorded in conjunction with the completion of a solar energy project.

Previous wording

One standard to measure non-interest expense is to express annualized non-interest expense as a percentage of average total assets. For the three and nine months ended September 30, 2024 this percentage was 2.50% and 2.53%, respectively, compared to 2.35% and 2.24%, respectively, for the three and nine months ended September 30, 2023.

Current wording

One standard to measure non-interest expense is to express annualized non-interest expense as a percentage of average total assets. For the three months ended March 31, 2025 this percentage was 2.81% compared to 2.44% for the three months ended March 31, 2024.

Previous wording

The Bank strives to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. The Bank is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. The Bank attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of its business management. The Bank manages its liquidity in accordance with a board of directors-approved asset liability policy, which is administered by its asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Bank’s board of directors.

Current wording

The Bank strives to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. The Bank is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. The Bank attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of its business management. The Bank manages its liquidity in accordance with a board of directors-approved asset liability policy and liquidity contingency plan, which are administered by its asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Bank’s board of directors.

Previous wording

The Bank reviews cash flow projections regularly and updates them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. While deposits and securities sold under agreements to repurchase are its primary source of funds, when needed it is also able to generate cash through borrowings from the FHLB. At September 30, 2024, the Bank had remaining available capacity with FHLB, subject to certain collateral restrictions, of $451.1 million.

Current wording

The Bank reviews cash flow projections regularly and updates them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. While deposits and securities sold under agreements to repurchase are its primary source of funds, when needed it is also able to generate cash through borrowings from the FHLB. At March 31, 2025, the Bank had remaining available capacity with FHLB, subject to certain collateral restrictions, of $498.1 million.

Previous wording

The statement of cash flows presents the change in cash and cash equivalents from operating, investing and financing activities. Cash and due from banks and interest-bearing deposits in other banks, which comprise cash and cash equivalents, are the Corporation’s most liquid assets. Cash and cash equivalents totaled $28.1 million at September 30, 2024, an increase of $9.7 million, or 52.7%, from $18.4 million at December 31, 2023, as net cash inflows from operating and investing activities were greater than net cash outflows from financing activities.

Current wording

The statement of cash flows presents the change in cash and cash equivalents from operating, investing and financing activities. Cash and due from banks and interest-bearing deposits in other banks, which comprise cash and cash equivalents, are the Corporation’s most liquid assets. Cash and cash equivalents totaled $23.8 million at March 31, 2025, an increase of $6.4 million, or 36.7%, from $17.4 million at December 31, 2024, as net cash inflows from operating and investing activities were more than net cash outflows from financing activities.

Previous wording

Net cash inflows from investing activities provided $52.8 million of cash and cash equivalents during the nine months ended September 30, 2024. Accounting for the majority of the net cash inflows was $86.2 million related to proceeds from sales, paydowns, calls and maturities of available-for-sale debt securities. This was partially offset by a net increase in loans and leases of $36.5 million, which reflected strong demand. Financing activities used $55.5 million in net cash, which resulted primarily from a decrease in short-term borrowings, consisting of customer repurchase agreements and short-term FHLB borrowings, of $179.5 million. These outflows were offset by a $138.8 million increase in deposits. These changes were primarily related to a strategic initiative to reposition customer repurchase agreements into core deposit accounts. Operating activities include net income, adjusted for the effects of non-cash transactions including, among others, depreciation and amortization and the provision for credit losses, and is the primary source of cash flows from operations. For the nine months ended September 30, 2024, operating activities provided the Corporation with $12.4 million in net cash, which primarily reflected net income of $13.8 million.

Current wording

Net cash inflows from investing activities provided $3.0 million of cash and cash equivalents during the three months ended March 31, 2025. Accounting for the majority of the net cash inflows was $18.8 million related to proceeds from sales, paydowns, calls and maturities of available-for-sale debt securities. This was partially offset by a net increase in loans of $15.7 million, which reflected strong loan demand. Financing activities used $1.4 million in net cash, which resulted primarily from a decrease in short-term borrowings, consisting of customer repurchase agreements and short-term FHLB borrowings, of $40.7 million along with a repayment of long-term borrowings of $5.2 million. These outflows were offset by a $46.1 million increase in deposits. Operating activities include net income, adjusted for the effects of non-cash transactions including, among others, depreciation and amortization and the provision for credit losses, and is the primary source of cash flows from operations. For the three months ended March 31, 2025, operating activities provided the Corporation with $4.7 million in net cash, which primarily reflected net income of $4.3 million.

Previous wording

One major objective of the Bank when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Bank's ALCO, which is comprised of senior management and Board members. ALCO meets quarterly to monitor the ratio of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk management is a regular part of management of the Bank. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of noncontractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the Board of Directors which includes limits on the impact to earnings from shifts in interest rates.

Current wording

One major objective of the Bank when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Bank’s ALCO, which is comprised of senior management and Board members. ALCO meets quarterly to monitor the ratio of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk is a regular part of management of the Bank. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of noncontractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the Board of Directors which includes limits on the impact to earnings from shifts in interest rates.

Previous wording

To manage the interest sensitivity position, an asset/liability model called "gap analysis" is used to monitor the difference in the volume of the Bank's interest sensitive assets and liabilities that mature or reprice within given periods. A positive gap (asset sensitive) indicates that more assets reprice during a given period compared to liabilities, while a negative gap (liability sensitive) has the opposite effect. The Bank employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest sensitive assets and liabilities in order to determine what impact these rate changes will have upon our net interest spread. At Setptember 30, 2024, our cumulative gap positions were within the internal risk management guidelines.

Current wording

To manage the interest sensitivity position, an asset/liability model called “gap analysis” is used to monitor the difference in the volume of the Bank’s interest sensitive assets and liabilities that mature or reprice within given periods. A positive gap (asset sensitive) indicates that more assets reprice during a given period compared to liabilities, while a negative gap (liability sensitive) has the opposite effect. The Bank employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest sensitive assets and liabilities in order to determine what impact these rate changes will have upon our net interest spread. At March 31, 2025, our cumulative gap positions were within the internal risk management guidelines.

Previous wording

Model results from the simulation at September 30, 2024 indicated that the Bank was projected to see an increase in net interest income over a one-year horizon in any of the rate shock scenarios, with the exception of the +300 scenario, which showed a 2.74% decrease. The percent change in EVE is expected to decrease in all rates up scenarios and increase in all rates down scenarios. All modeled exposures to net interest income and EVE for the next twelve-month horizon are within internal ALCO policy guidelines.

Current wording

Model results from the simulation at March 31, 2025 indicated that the Bank was projected to see an increase in net interest income over a one-year horizon in any of the rate shock scenarios, with the exception of the +200 and +300 scenarios, which showed 0.24% and 5.33% decreases, respectively. The percent change in EVE is expected to decrease in all rates up scenarios and increase in all rates down scenarios. All modeled exposures to net interest income and EVE for the next twelve-month horizon are within internal ALCO policy guidelines.

Previous wording

The preparation of financial statements in conformity with U.S. GAAP requires management to measure the Corporation’s financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on the Corporation's operations is primarily related to increases in operating expenses. Management considers changes in interest rates to impact our financial condition and results of operations to a far greater degree than changes in prices due to inflation. Although interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. The Corporation manages interest rate risk in several ways. There can be no assurance that the Corporation will not be materially adversely affected by future changes in interest rates, as interest rates are highly sensitive to many factors that are beyond its control. Additionally, inflation may adversely impact the financial condition of the Corporation's borrowers and could impact their ability to repay their loans, which could negatively affect the Corporation's asset quality through higher delinquency rates and increased charge-offs. Management will carefully consider the impact of inflation and rising interest rates on the Corporation’s borrowers in managing credit risk related to the loan portfolio.

Current wording

The preparation of financial statements in conformity with U.S. GAAP requires management to measure the Corporation’s financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The effect of inflation on the Corporation’s operations is primarily related to increases in operating expenses. Management considers changes in interest rates to impact our financial condition and results of operations to a far greater degree than changes in prices due to inflation. Although interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. The Corporation manages interest rate risk in several ways. There can be no assurance that the Corporation will not be materially adversely affected by future changes in interest rates, as interest rates are highly sensitive to many factors that are beyond its control. Additionally, inflation may adversely impact the financial condition of the Corporation’s borrowers and could impact their ability to repay their loans, which could negatively affect the Corporation’s asset quality through higher delinquency rates and increased charge-offs. Management will carefully consider the impact of inflation and rising interest rates on the Corporation’s borrowers in managing credit risk related to the loan portfolio.