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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025
or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number: 001-34292

ORRSTOWN FINANCIAL SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)

Pennsylvania |  | 23-2530374
(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
| 4750 Lindle Road |  | Harrisburg | Pennsylvania | 17111
| (Address of Principal Executive Offices) | (Zip Code)
| Registrant’s Telephone Number, Including Area Code: | (717) | 532-6114 |

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading symbol(s) |  | Name of each exchange on which registered
Common Stock, no par value |  | ORRF |  | Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ¨ |  | Accelerated filer |  | ☒
Non-accelerated filer |  | ¨ |  | Smaller reporting company |  | ☐
|  |  |  | Emerging growth company |  | ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.). Yes ☐ No x
Number of shares outstanding of the registrant’s Common Stock as of May 5, 2025: 19,508,545.

Table of Contents
ORRSTOWN FINANCIAL SERVICES, INC.
INDEX

|  | Page
Part I – FINANCIAL INFORMATION |
| Glossary of Defined Terms | 3
Item 1. | Financial Statements | 4
| Condensed Consolidated Balance Sheets (Unaudited) | 4
| Condensed Consolidated Statements of Income (Unaudited) | 5
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) | 7
| Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) | 8
| Condensed Consolidated Statements of Cash Flows (Unaudited) | 9
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 11
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 52
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 76
Item 4. | Controls and Procedures | 78
PART II – OTHER INFORMATION |
Item 1. | Legal Proceedings | 79
Item 1A. | Risk Factors | 79
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 79
Item 3. | Defaults upon Senior Securities | 79
Item 4. | Mine Safety Disclosures | 79
Item 5. | Other Information | 79
Item 6. | Exhibits | 80
SIGNATURES | 81

2

Table of Contents
Glossary of Defined Terms
The following terms may be used throughout this Report, including the unaudited condensed consolidated financial statements and related notes.

Term | Definition
ACL | Allowance for credit losses
AFS | Available-for-sale
AOCI | Accumulated other comprehensive income (loss)
ASC | Accounting Standards Codification
ASU | Accounting Standards Update
Bank | Orrstown Bank, the commercial banking subsidiary of Orrstown Financial Services, Inc.
CECL | Current expected credit losses
CMO | Collateralized mortgage obligation
Codorus Valley or CVB | Codorus Valley Bancorp, Inc.
DCF | Discounted cash flow
ERM | Enterprise Risk Management
Exchange Act | Securities Exchange Act of 1934, as amended
FASB | Financial Accounting Standards Board
FDIC | Federal Deposit Insurance Corporation
FDM | Financial difficulty modification
FHLB | Federal Home Loan Bank
FOMC | Federal Open Market Committee
FRB | Board of Governors of the Federal Reserve System
GAAP | Accounting principles generally accepted in the United States of America
GDP | Gross Domestic Product
GSE | U.S. government-sponsored enterprise
IEL | Individually evaluated loan
IRC | Internal Revenue Code of 1986, as amended
LHFS | Loans held for sale
MBS | Mortgage-backed securities
MSR | Mortgage servicing right
OCI | Other comprehensive income (loss)
OREO | Other real estate owned (foreclosed real estate)
2011 Plan | 2011 Orrstown Financial Services, Inc. Incentive Stock Plan
PACE | Property Assessed Clean Energy loans
PCD loans | Purchased credit deteriorated loans
PCE | Personal Consumption Expenditures
ReRemic | Re-securitization of Real Estate Mortgage Investment Conduits
ROU | Right of use (leases)
SBA | U.S. Small Business Administration
SEC | Securities and Exchange Commission
Securities Act | Securities Act of 1933, as amended
SOFR | Secured Overnight Financing Rate
Unless the context otherwise requires, the terms “Orrstown,” “we,” “us,” “our,” and “Company” refer to Orrstown Financial Services, Inc. and its subsidiaries.

3

Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
ORRSTOWN FINANCIAL SERVICES, INC.

(Dollars in thousands, except per share amounts) | March 31, 2025 |  | December 31, 2024
Assets |  |  |
Cash and due from banks | $ | 64,376 |  |  | $ | 51,026 |
Interest-bearing deposits with banks | 222,744 |  |  | 197,848 |
Cash and cash equivalents | 287,120 |  |  | 248,874 |
Restricted investments in bank stocks | 19,693 |  |  | 20,232 |
Securities available for sale (amortized cost of $886,782 and $864,920 at March 31, 2025 and December 31, 2024, respectively) | 855,456 |  |  | 829,711 |
Loans held for sale, at fair value | 5,261 |  |  | 6,614 |
Loans | 3,875,985 |  |  | 3,931,214 |
Less: Allowance for credit losses | (47,804) |  |  | (48,689) |
Net loans | 3,828,181 |  |  | 3,882,525 |
Premises and equipment, net | 51,729 |  |  | 50,217 |
Cash surrender value of life insurance | 144,798 |  |  | 143,854 |
Goodwill | 68,106 |  |  | 68,106 |
Other intangible assets, net | 45,230 |  |  | 47,765 |
Accrued interest receivable | 19,893 |  |  | 21,058 |
Deferred tax assets, net | 36,206 |  |  | 42,647 |
Other assets | 79,913 |  |  | 79,986 |
Total assets | $ | 5,441,586 |  |  | $ | 5,441,589 |
Liabilities |  |  |
Deposits: |  |  |
Noninterest-bearing | $ | 932,152 |  |  | $ | 894,176 |
Interest-bearing | 3,701,564 |  |  | 3,728,920 |
Total deposits | 4,633,716 |  |  | 4,623,096 |
Securities sold under agreements to repurchase and federal funds purchased | 23,131 |  |  | 25,863 |
FHLB advances and other borrowings | 100,349 |  |  | 115,364 |
Subordinated notes and trust preferred debt | 68,850 |  |  | 68,680 |
Other liabilities | 82,604 |  |  | 91,904 |
Total liabilities | 4,908,650 |  |  | 4,924,907 |
Commitments and contingencies |  |  |
Shareholders’ Equity |  |  |
Preferred stock, $1.25 par value per share; 500,000 shares authorized; no shares issued or outstanding | — |  |  | — |
Common stock, no par value—$0.05205 stated value per share; 50,000,000 shares authorized; 19,721,340 shares issued and 19,509,642 outstanding at March 31, 2025; 19,722,640 shares issued and 19,389,967 outstanding at December 31, 2024 | 1,026 |  |  | 1,027 |
Additional paid - in capital | 421,445 |  |  | 423,274 |
Retained earnings | 139,547 |  |  | 126,540 |
Accumulated other comprehensive loss | (24,024) |  |  | (26,316) |
Treasury stock—211,698 and 332,673 shares, at cost at March 31, 2025 and December 31, 2024, respectively | (5,058) |  |  | (7,843) |
Total shareholders’ equity | 532,936 |  |  | 516,682 |
Total liabilities and shareholders’ equity | $ | 5,441,586 |  |  | $ | 5,441,589 |

The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
4

Table of Contents
Condensed Consolidated Statements of Income (Unaudited)
ORRSTOWN FINANCIAL SERVICES, INC.

|  |  | Three Months Ended
(Dollars in thousands, except per share amounts) |  |  |  |  | March 31, 2025 |  | March 31, 2024
Interest income |  |  |  |  |  |  |
Loans |  |  |  |  | $ | 63,432 |  |  | $ | 36,233 |
Investment securities - taxable |  |  |  |  | 8,944 |  |  | 4,584 |
Investment securities - tax-exempt |  |  |  |  | 875 |  |  | 877 |
Short-term investments |  |  |  |  | 2,268 |  |  | 956 |
Total interest income |  |  |  |  | 75,519 |  |  | 42,650 |
Interest expense |  |  |  |  |  |  |
Deposits |  |  |  |  | 24,260 |  |  | 13,516 |
Securities sold under agreements to repurchase and federal funds purchased |  |  |  |  | 84 |  |  | 25 |
FHLB advances and other borrowings |  |  |  |  | 1,118 |  |  | 1,474 |
Subordinated notes and trust preferred debt |  |  |  |  | 1,296 |  |  | 754 |
Total interest expense |  |  |  |  | 26,758 |  |  | 15,769 |
Net interest income |  |  |  |  | 48,761 |  |  | 26,881 |
(Recovery of) Provision for credit losses - loans |  |  |  |  | (554) |  |  | 421 |
(Recovery of) Provision for credit losses - unfunded loan commitments |  |  |  |  | — |  |  | (123) |
Net interest income after (recovery of) provision for credit losses |  |  |  |  | 49,315 |  |  | 26,583 |
Noninterest income |  |  |  |  |  |  |
Service charges on deposit accounts |  |  |  |  | 1,911 |  |  | 1,005 |
Interchange income |  |  |  |  | 1,427 |  |  | 911 |
Other service charges, commissions and fees |  |  |  |  | 484 |  |  | 195 |
Swap fee income |  |  |  |  | 394 |  |  | 199 |
Trust and investment management income |  |  |  |  | 3,976 |  |  | 2,024 |
Brokerage income |  |  |  |  | 1,439 |  |  | 1,078 |
Mortgage banking activities |  |  |  |  | 302 |  |  | 458 |
Income from life insurance |  |  |  |  | 1,289 |  |  | 634 |
Investment securities gains (losses) |  |  |  |  | 13 |  |  | (5) |
Other income |  |  |  |  | 389 |  |  | 131 |
Total noninterest income |  |  |  |  | 11,624 |  |  | 6,630 |
Noninterest expenses |  |  |  |  |  |  |
Salaries and employee benefits |  |  |  |  | 20,388 |  |  | 13,752 |
Occupancy |  |  |  |  | 1,989 |  |  | 1,201 |
Furniture and equipment |  |  |  |  | 2,686 |  |  | 1,438 |
Data processing |  |  |  |  | 924 |  |  | 1,265 |
Automated teller and interchange fees |  |  |  |  | 677 |  |  | 351 |
Advertising and bank promotions |  |  |  |  | 499 |  |  | 398 |
FDIC insurance |  |  |  |  | 824 |  |  | 441 |
Professional services |  |  |  |  | 1,826 |  |  | 631 |
Directors' compensation |  |  |  |  | 211 |  |  | 251 |
Taxes other than income |  |  |  |  | 942 |  |  | 494 |
Intangible asset amortization |  |  |  |  | 2,535 |  |  | 225 |
Merger-related expenses |  |  |  |  | 1,649 |  |  | 672 |
Restructuring expenses |  |  |  |  | 91 |  |  | — |
Other operating expenses |  |  |  |  | 2,935 |  |  | 1,350 |
Total noninterest expenses |  |  |  |  | 38,176 |  |  | 22,469 |
continued

5

Table of Contents

|  |  | Three Months Ended
|  |  |  |  | March 31, 2025 |  | March 31, 2024
Income before income tax expense |  |  |  |  | 22,763 |  |  | 10,744 |
Income tax expense |  |  |  |  | 4,712 |  |  | 2,213 |
Net income |  |  |  |  | $ | 18,051 |  |  | $ | 8,531 |
Per share information: |  |  |  |  |  |  |
Basic earnings per share |  |  |  |  | $ | 0.94 |  |  | $ | 0.82 |
Diluted earnings per share |  |  |  |  | 0.93 |  |  | 0.81 |
Dividends paid per share |  |  |  |  | 0.26 |  |  | 0.20 |

The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
6

Table of Contents
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
ORRSTOWN FINANCIAL SERVICES, INC.

|  |  | Three Months Ended
(Dollars in thousands) |  |  |  |  | March 31, 2025 |  | March 31, 2024
Net income |  |  |  |  | $ | 18,051 |  |  | $ | 8,531 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |
Unrealized gains (losses) on securities available for sale arising during the period |  |  |  |  | 3,883 |  |  | (1,676) |
Reclassification adjustment for gains (losses) on securities available for sale realized in net income |  |  |  |  | — |  |  | — |
Net unrealized gains (losses) on securities available for sale |  |  |  |  | 3,883 |  |  | (1,676) |
Tax effect |  |  |  |  | (883) |  |  | 374 |
Total other comprehensive income (loss), net of tax and reclassification adjustments on securities available for sale |  |  |  |  | 3,000 |  |  | (1,302) |
Unrealized (losses) gains on interest rate swaps used in cash flow hedges |  |  |  |  | (916) |  |  | 1,428 |
Reclassification adjustment for gains (losses) realized in net income |  |  |  |  | — |  |  | — |
Net unrealized (losses) gains on interest rate swaps used in cash flow hedges |  |  |  |  | (916) |  |  | 1,428 |
Tax effect |  |  |  |  | 208 |  |  | (318) |
Total other comprehensive (loss) income, net of tax and reclassification adjustments on interest rate swaps used in cash flow hedges |  |  |  |  | (708) |  |  | 1,110 |
Total other comprehensive income (loss), net of tax and reclassification adjustments |  |  |  |  | 2,292 |  |  | (192) |
Total comprehensive income |  |  |  |  | $ | 20,343 |  |  | $ | 8,339 |

The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
7

Table of Contents
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
ORRSTOWN FINANCIAL SERVICES, INC.

| Three Months Ended March 31, 2025
(Dollars in thousands, except per share amounts) | Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Treasury Stock |  | Total Shareholders’ Equity
Balance, January 1, 2025 | $ | 1,027 |  |  | $ | 423,274 |  |  | $ | 126,540 |  |  | $ | (26,316) |  |  | $ | (7,843) |  |  | $ | 516,682 |
Net income | — |  |  | — |  |  | 18,051 |  |  | — |  |  | — |  |  | 18,051 |
Total other comprehensive income, net of taxes | — |  |  | — |  |  | — |  |  | 2,292 |  |  | — |  |  | 2,292 |
Cash dividends ($0.26 per share) | — |  |  | — |  |  | (5,044) |  |  | — |  |  | — |  |  | (5,044) |
Share-based compensation plans: |  |  |  |  |  |  |  |  |  |  |
1,300 net common shares acquired and 120,975 net treasury shares issued, including compensation expense totaling $1,358 | (1) |  |  | (1,829) |  |  | — |  |  | — |  |  | 2,785 |  |  | 955 |
Balance, March 31, 2025 | $ | 1,026 |  |  | $ | 421,445 |  |  | $ | 139,547 |  |  | $ | (24,024) |  |  | $ | (5,058) |  |  | $ | 532,936 |

| Three Months Ended March 31, 2024
(Dollars in thousands, except per share amounts) | Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Treasury Stock |  | Total Shareholders’ Equity
Balance, January 1, 2024 | $ | 583 |  |  | $ | 189,027 |  |  | $ | 117,667 |  |  | $ | (28,476) |  |  | $ | (13,745) |  |  | $ | 265,056 |
Net income | — |  |  | — |  |  | 8,531 |  |  | — |  |  | — |  |  | 8,531 |
Total other comprehensive loss, net of taxes | — |  |  | — |  |  | — |  |  | (192) |  |  | — |  |  | (192) |
Cash dividends ($0.20 per share) | — |  |  | — |  |  | (2,123) |  |  | — |  |  | — |  |  | (2,123) |
Share-based compensation plans: |  |  |  |  |  |  |  |  |  |  |
1,378 net common shares acquired and 94,065 net treasury shares issued, including compensation expense totaling $967 | — |  |  | (1,760) |  |  | — |  |  | — |  |  | 2,170 |  |  | 410 |
Balance, March 31, 2024 | $ | 583 |  |  | $ | 187,267 |  |  | $ | 124,075 |  |  | $ | (28,668) |  |  | $ | (11,575) |  |  | $ | 271,682 |

The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
8

Table of Contents
Condensed Consolidated Statements of Cash Flows (Unaudited)
ORRSTOWN FINANCIAL SERVICES, INC.

| Three Months Ended
(Dollars in thousands) | March 31, 2025 |  | March 31, 2024
Cash flows from operating activities |  |  |
Net income | $ | 18,051 |  |  | $ | 8,531 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Net (discount accretion) premium amortization | (7,100) |  |  | 450 |
Depreciation and amortization expense | 4,244 |  |  | 1,072 |
(Recovery of) Provision for credit losses - loans | (554) |  |  | 421 |
(Recovery of) Provision for credit losses - unfunded loan commitments | — |  |  | (123) |
Share-based compensation | 1,358 |  |  | 967 |
Gains on sales of loans originated for sale | (225) |  |  | (268) |
Fair value adjustments on loans held for sale | (8) |  |  | (18) |
Mortgage loans originated for sale | (11,225) |  |  | (7,697) |
Proceeds from sales of loans originated for sale | 12,811 |  |  | 13,264 |
Net gain on sale of OREO and premises held for sale | (6) |  |  | — |
Deferred income tax expense | 5,766 |  |  | 891 |
Investment securities (gains) losses | (13) |  |  | 5 |
Return on investments in limited partnerships | (13) |  |  | (16) |
Net losses (gains) on derivatives | 180 |  |  | (130) |
Income from life insurance | (1,289) |  |  | (634) |
Increase in accrued interest receivable and other assets | (578) |  |  | (1,139) |
Decrease in accrued interest payable and other liabilities | (10,805) |  |  | (3,092) |
Other, net | 359 |  |  | 186 |
Net cash provided by operating activities | 10,953 |  |  | 12,670 |
Cash flows from investing activities |  |  |
Maturities, repayments and calls of AFS securities | 18,432 |  |  | 18,134 |
Purchases of AFS securities | (39,613) |  |  | (21,784) |
Net purchases of restricted investments in bank stocks | 539 |  |  | 539 |
Net decrease (increase) in loans | 61,262 |  |  | (6,185) |
Investment in limited partnerships | (369) |  |  | (21) |
Purchases of bank premises and equipment | (2,315) |  |  | (63) |
Proceeds from disposal of OREO and premises held for sale | 1,931 |  |  | — |
Net cash provided by (used in) investing activities | 39,867 |  |  | (9,380) |
Cash flows from financing activities |  |  |
Net increase in deposits | 10,620 |  |  | 137,137 |
Net decrease in borrowings with original maturities less than 90 days | (2,733) |  |  | (20,186) |
Payments on FHLB advances with original maturities greater than 90 days | (15,000) |  |  | — |
Dividends paid | (5,044) |  |  | (2,123) |
Shares repurchased as treasury stock for employee taxes associated with restricted stock vesting | (467) |  |  | (637) |
Proceeds from issuance of employee stock purchase plan shares | 66 |  |  | 80 |
Other | (16) |  |  | — |
Net cash (used in) provided by financing activities | (12,574) |  |  | 114,271 |
Net increase in cash and cash equivalents | 38,246 |  |  | 117,561 |
Cash and cash equivalents at beginning of period | 248,874 |  |  | 65,161 |
Cash and cash equivalents at end of period | $ | 287,120 |  |  | $ | 182,722 |

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| Three Months Ended
| March 31, 2025 |  | March 31, 2024
Supplemental disclosures of cash flow information: |  |  |
Cash paid during the period for: |  |  |
Interest | $ | 26,643 |  |  | $ | 15,894 |
Supplemental schedule of noncash activities: |  |  |
Lease liabilities arising from obtaining ROU assets | 831 |  |  | — |

The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
(All dollar amounts presented in the tables, except per share amounts, are in thousands)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Glossary of Defined Terms at the beginning of this Report for terms used throughout the unaudited condensed consolidated financial statements and related notes of this Form 10-Q.
Nature of Operations – Orrstown Financial Services, Inc. is a financial holding company that operates Orrstown Bank, a commercial bank providing banking and financial advisory services in Berks, Cumberland, Dauphin, Franklin, Lancaster, Perry and York Counties, Pennsylvania, and in Anne Arundel, Baltimore, Harford, Howard and Washington Counties, Maryland. The Company operates in the community banking segment and engages in lending activities, including commercial, residential, commercial mortgages, construction, municipal, and various forms of consumer lending, and deposit services, including checking, savings, time, and money market deposits. The Company’s lending area also includes counties in Pennsylvania, Maryland, Delaware, Virginia and West Virginia within a 75-mile radius of the Company's executive and administrative offices as well as the District of Columbia. The Company also provides fiduciary services, investment advisory, insurance and brokerage services. The Company and the Bank are subject to regulation by certain federal and state agencies and undergo periodic examinations by such regulatory authorities.
Basis of Presentation – The accompanying unaudited condensed consolidated financial statements include the accounts of Orrstown Financial Services, Inc. and its wholly owned subsidiary, the Bank. The Company has prepared these unaudited condensed consolidated financial statements in accordance with GAAP for interim financial information, SEC rules that permit reduced disclosure for interim periods, and Article 10 of Regulation S-X. In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair statement are reflected in the unaudited condensed consolidated financial statements. There have been no material changes to the Company's significant accounting policies for the three months ended March 31, 2025. The December 31, 2024 consolidated balance sheet information contained in this Quarterly Report on Form 10-Q was derived from the Company's 2024 audited consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. All significant intercompany transactions and accounts have been eliminated. Certain reclassifications have been made to prior years' amounts to conform with current year classifications. These reclassifications did not have a material impact on the Company's consolidated financial condition, results of operations or statement of consolidated cash flows.
The Company's management has evaluated all activity of the Company and concluded that subsequent events are properly reflected in the Company's unaudited condensed consolidated financial statements and notes as required by GAAP.
To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.
Acquisition Accounting
The Company accounts for its mergers and acquisitions using the acquisition method of accounting under the provisions of the FASB ASC Topic 805, Business Combinations ("805"). Under ASC 805, all of the assets acquired and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The determination of fair values involves significant judgment regarding methods and assumptions, including discount rates, future expected cash flows, market conditions and other future events. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The results of operations of the acquired entity are included in the consolidated statements of income from the acquisition date. In accordance with business combination accounting guidance, the Company's review of the fair values of the assets and liabilities acquired is ongoing and management will continue to evaluate these fair values for up to one year following the merger date of July 1, 2024. Any such adjustments would be recorded to goodwill during the current reporting period.
Allowance for Credit Losses - Loans
On January 1, 2023, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), the current expected credit losses accounting
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standard commonly referred to as "CECL," which replaced the incurred loss model with the lifetime expected loss model. The CECL methodology requires an organization to measure all expected credit losses over the contractual term for financial assets measured at amortized cost, including loan receivables and held-to-maturity securities, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The CECL methodology also applies to off-balance sheet credit exposures not accounted for as insurance (e.g., loan commitments, standby letters of credit, financial guarantees and other similar instruments), net investments in leases recognized by a lessor in accordance with ASC Topic 842 on leases and AFS debt securities.
The Company calculates credit losses over the estimated life of the applicable financial assets using the DCF methodology for the quantitative analysis for the majority of its loan segments, which applies the probability of default and loss given default factors to future cash flows, and then adjusts to the net present value to derive the required reserve. Reasonable and supportable macroeconomic conditions include unemployment and GDP. Model assumptions include the discount rate, prepayments and curtailments. The validation of credit models also included determining the length of the reasonable and supportable forecast and regression period and utilizing national peer group historical loss rates. For the consumer loan segments, the remaining life methodology is applied as a practical expedient based on the risk characteristics.
The ACL represents the amount that, in management's judgment, appropriately reflects credit losses inherent in the loan portfolio at the balance sheet date. Loans deemed to be uncollectible are charged against the ACL on loans and subsequent recoveries, if any, are credited to the ACL on loans when received. Changes to the ACL are recorded through the provision for credit losses on loans in the unaudited condensed consolidated statements of income.
The ACL is maintained at a level considered appropriate to absorb credit losses over the expected life of the loan. The ACL for expected credit losses is determined based on a quantitative assessment of two categories of loans: collectively evaluated loans and individually evaluated loans. In addition, the ACL includes a qualitative component which adjusts the CECL model results for risk factors that are not considered within the CECL model but are relevant in assessing the expected credit losses within the loan classes.
The ACL on loans is measured on a collective basis when similar risk characteristics exist within the Company's loan segments between commercial and consumer. For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code, which represents the loan classes based upon U.S. regulatory loan classification rules, in order to group loans with similar risk characteristics. Each of these loan segments are broken down into multiple loan classes, which are characterized by loan type, collateral type, risk attributions and the manner in which management monitors the performance of the borrower. The risks associated with lending activities differ and are subject to the impact of change in interest rates, market conditions and the impact of economic conditions on the collateral securing the loans, and general economic conditions. The commercial loan segment includes commercial real estate, acquisition and development, commercial and industrial, agricultural and municipal loan classes. The consumer loan segment includes residential mortgage, installment and other consumer loans.
Loans collectively evaluated includes loans on accrual status, except for loans previously restructured that do not share similar risk characteristics, which are individually evaluated. The ACL for loans collectively evaluated is measured using a lifetime expected loss rate model that considers historical loss performance and past events in addition to forecasts of future economic conditions. The Company elected to use the DCF methodology for the quantitative analysis for the majority of its loan segments, which applies the probability of default to future cash flows, using a loss driver model and loss given default factors, and then adjusts to the net present value to derive the required reserve. The probability of default estimates are derived through the application of reasonable and supportable economic forecasts to the regression models, which incorporates the Company's and peer loss-rate data, unemployment rate and GDP. The reasonable and supportable forecasts of the selected economic metrics are then input into the regression model to calculate an expected default rate. The expected default rates are then applied to expected loan balances estimated through the consideration of contractual repayment terms and expected prepayments. The prepayment and curtailment assumptions adjust the contractual terms of the loan to arrive at the expected cash flows. The development and validation of credit models also included determining the length of the reasonable and supportable forecast and regression period and utilizing national peer group historical loss rates. Management selected the national unemployment rate and GDP as the drivers of the quantitative portion of collectively evaluated reserves on loan classes reliant upon the DCF methodology. For the consumer loan segment, the quantitative reserve was calculated using the remaining life methodology where the average historical bank-specific and peer loss rates are applied to expected loan balances over an estimated remaining life of loans. The estimated remaining life is calculated using historical bank-specific loan attrition data.
Loans that do not share similar risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation for the ACL. Loans identified to be individually evaluated under CECL include loans on nonaccrual status and may include accruing loans that do not share similar risk characteristics to other accruing loans collectively evaluated. A specific reserve analysis is applied to the individually evaluated loans, which considers collateral value, an observable market
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price or the present value of expected future cash flows. A specific reserve may be assigned if the measured value of the loan using one of the before mentioned methods is less than the current carrying value of the loans.
A loan is considered collateral-dependent when the Company determines foreclosure is probable or the borrower is experiencing financial difficulty and the Company expects repayment to be provided substantially through the operation or sale of the collateral. Collateral could be in the form of real estate, equipment or business assets. An ACL may result for a collateral-dependent loan if the fair value of the underlying collateral, as of the reporting date, adjusted for expected costs to repair or sell, was less than the amortized cost basis of the loan. If repayment of the loan is instead dependent only on the operation, rather than the sale of the collateral, the measure of the ACL does not incorporate estimated costs to sell. For loans evaluated on the basis of projected future principal and interest cash flows, the Company discounts the expected cash flows at the effective interest rate of the loan. An ACL will result if the present value of expected cash flows is less than the amortized cost basis of the loan.
Based on management's analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the quantitatively calculated reserve on collectively evaluated loans. As the quantitative reserve calculation incorporates historical conditions, management may consider an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions. These qualitative risk factors include significant or unexpected changes in:
•Lending policies, procedures, underwriting standards and recovery practices;
•Nature and volume of loans;
•Concentrations of credit;
•Collateral valuation trends;
•Delinquency and classified loan trends;
•Experience, ability and depth of management and lending staff;
•Quality of loan review system; and
•Economic conditions and other external factors.
For PCD loans, the nonaccrual status is determined in the same manner as for other loans. In accordance with the CECL standard, the Company accounts for its PCD loans under ASC 310-20, Receivables - Nonrefundable Fees and Other Asset s ("ASC 310-20"). These loans are initially recorded at fair value and include credit and interest rate marks associated with acquisition accounting adjustments. Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. Under ASC 310-20, the acquired loans are evaluated on an individual asset level, and not maintained in pools and accounted for as units of accounts, which would permit treating each pool as a single asset.
Purchased loans that do not qualify as PCD assets are accounted for similar to originated loans, whereby an ACL is recognized with a corresponding increase to the provision for credit losses in the consolidated statements of income. PCD loans are recorded at their purchase price plus the ACL expected at the time of acquisition resulting in a gross up of the amortized cost of the loans. Subsequent changes in the ACL from the initial ACL estimate are recorded as provision for credit losses in the consolidated statements of income.
Following its merger with Codorus Valley, the Company evaluated and classified the acquired loans as PCD if the loans had experienced more-than-insignificant credit deterioration since origination or as non-PCD if the loans had not experienced a more-than-insignificant amount of credit deterioration since origination. PCD loans included loans on nonaccrual status, loans with historical delinquency since loan origination or having a risk rating of watch, special mention, substandard, doubtful or loss based on the Company's internal risk rating system. At acquisition, the fair value of the PCD loans was recorded to the ACL, but not as a charge to the provision for credit losses in the consolidated statements of operations. The initial allowance was instead established by grossing up the amortized cost of the PCD loan. Subsequent to the acquisition, changes in the expected credit losses on PCD loans were recorded to the provision for credit losses. The ACL for non-PCD loans is recorded to the provision for credit losses in the same period as the acquisition.
In accordance with ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), the Company evaluates, based on the guidance for accounting for loan modifications, whether the borrower is experiencing financial difficulty, if the modification results in a more-than-insignificant direct change in the contractual cash flows and whether the modifications represent terms that would result in a new loan or a continuation of an existing loan. The Company refers to these loans as "financial difficulty modifications" or "FDMs." All loan modifications are accounted for under the general loan modification guidance in ASC 310-20, Receivables – Nonrefundable
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Fees and Other Costs. If a modification occurs while the loan is on accrual status, it will continue to accrue interest under the modified terms. After the initial modification and recognition of a FDM, the Company will monitor the performance of the borrower. If no subsequent qualifying modifications are made to the FDM, the loan does not require disclosure in the current period's disclosures after the one-year period has elapsed.
A comprehensive analysis of the ACL is performed by the Company on a quarterly basis. Management evaluates the adequacy of the ACL utilizing a defined methodology to determine if it properly addresses the current and expected risks in the loan portfolio, which considers the performance of borrowers and specific evaluation of individually evaluated loans including historical loss experiences, trends in delinquencies, nonperforming loans and other risk assets, and the qualitative factors. Risk factors are continuously reviewed and adjusted, as needed, by management when conditions support a change. Management believes its approach properly addresses relevant accounting and bank regulatory guidance for loans both collectively and individually evaluated. The results of the comprehensive analysis, including recommended changes, are governed by the Company's Reserve Adequacy Committee.
See Note 4, Loans and Allowance for Credit Losses, to the unaudited condensed consolidated financial statements under Part I, Item 1, "Financial Information," for a description of the Company’s loan classes and differing levels of associated credit risk.
Allowance for Credit Losses on AFS Securities
The Company is required to conduct an impairment evaluation on AFS securities to determine whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before recovery. If these situations apply, the guidance continues to require the Company to reduce the security's amortized cost basis down to its fair value through earnings. The Company also evaluates the unrealized losses on AFS securities to determine if a security's decline in fair value below its amortized cost basis is due to credit factors. The evaluation is based upon factors such as the creditworthiness of the underlying borrowers, performance of the underlying collateral, if applicable, and the level of credit support in the security structure. Management also evaluates other factors and circumstances that may be indicative of a decline in the fair value of the security due to a credit factor. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost and near-term prospects of the issuer. If this assessment indicates that a credit loss exists, the present value of the expected cash flows of the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost, an ACL is recorded for the credit loss, which is limited by the amount that the fair value is less than the amortized cost basis. Any additional amount of loss would be due to non-credit factors and is recorded in AOCI, net of taxes. If a credit loss is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL. If the fair value of the security increases above its amortized cost, the unrealized gain will be recorded in AOCI, net of taxes, on the unaudited condensed consolidated statements of financial condition. Accrued interest receivable on AFS securities is excluded from the estimate of credit losses.
See Note 3, Investment Securities, to the unaudited condensed consolidated financial statements under Part I, Item 1, "Financial Information," for a description of the Company’s investment securities and impairment evaluation.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which will require updates to the disclosures of the income tax rate reconciliation and income taxes paid. The income tax rate reconciliation will require expanded disclosure, using percentages and reporting currency amounts, to include specific categories, including state and local income tax, net of the federal income tax effect, tax credits and nontaxable and nondeductible items, with additional qualitative explanations of individually significant reconciling items. The amount of income taxes paid will require disaggregation by jurisdictional categories: federal, state and foreign. This guidance for income tax disclosures is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the updated guidance; however, management does not expect it will have a significant impact on its consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public business entities to disclose specified information about certain costs and expenses in the notes to the financial statements. The amendments require that at each interim and annual reporting period an entity disclose:
•(a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities included in each relevant expense caption;
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•certain amounts that are already required to be disclosed under current GAAP in the same disclosures as other disaggregation requirements;
•qualitative descriptions of amounts remaining in relevant expense captions that are not separately disaggregated quantitatively and
•the total amount of selling expenses and, in annual reporting periods, the entity's definition of selling expenses.
In January 2025, the FASB issued ASU No. 2025-01 clarifying the effective date for public business entities for fiscal years beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating ASU 2024-03 and its impact on its disclosures.
NOTE 2. MERGER
On July 1, 2024, Orrstown completed a merger of equals (the “Merger”) with Codorus Valley, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 12, 2023, by and between Orrstown and Codorus Valley. At the effective time of the Merger (the “Effective Time”), Codorus Valley was merged with and into Orrstown, with Orrstown as the surviving corporation, which was promptly followed by the merger of Codorus Valley’s wholly-owned bank subsidiary, PeoplesBank, A Codorus Valley Company, with and into Orrstown Bank, a wholly-owned subsidiary of Orrstown, with Orrstown Bank as the surviving bank.
Pursuant to the terms of the Merger Agreement, each share of Codorus Valley common stock, $2.50 par value per share (“Codorus Common Stock”), outstanding immediately prior to the Effective Time was canceled and converted into the right to receive 0.875 shares (the “Exchange Ratio”) of Orrstown common stock, no par value per share (“Orrstown Common Stock”), with an amount in cash, without interest, to be paid in lieu of fractional shares.
In addition, at the Effective Time, (i) each option to purchase Codorus Valley common stock issued under Codorus Valley’s 2007 Long-Term Incentive Plan, as amended, 2017 Long-Term Incentive Plan, as amended, and any other similar plan (collectively, the “Codorus Valley Equity Plans”), outstanding immediately prior to the Effective Time was automatically converted into an option to purchase a number of shares of Orrstown common stock equal to the product of the number of shares of Codorus Valley common stock subject to such stock option immediately prior to the Effective Time and the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (a) the exercise price per share of Codorus Valley common stock of such stock option immediately prior to the Effective Time divided by (b) the Exchange Ratio; (ii) all time-based restricted stock awards and time-based restricted stock unit awards granted under the Codorus Valley Equity Plans were vested in full; and (iii) all performance-based restricted stock awards and performance-based restricted stock unit awards granted under the Codorus Valley Equity Plans were vested in full. In addition, the 2007 Codorus Valley Bancorp, Inc. Restated Employee Stock Purchase Plan was terminated prior to the closing date of the Merger. Each outstanding share of Orrstown Common Stock remained outstanding and was unaffected by the Merger.
PeoplesBank operated 22 full-service branches and eight limited purpose branches in Pennsylvania and Maryland. Following the Merger, Orrstown operated 51 branches as of July 1, 2024. On August 5, 2024, Orrstown announced the Bank intends to close six of its branches, including three branches owned by the Bank, for which the land and buildings were transferred to held-for-sale. These branch closures were completed in the fourth quarter of 2024. After these branch closures were completed, the Bank had 38 full-service branches and seven limited purpose branches.
The total aggregate consideration delivered to holders of Codorus Valley common stock was 8,532,038 shares of Orrstown common stock. The issuance of shares of Orrstown common stock in connection with the Merger was registered under the Securities Act on a registration statement initially filed by Orrstown with the SEC on March 29, 2024 and declared effective on April 23, 2024 (the “Registration Statement”). The consideration transferred at the close of the transaction was $233.4 million based on the closing market price of Orrstown common stock of $27.36 on June 28, 2024.
The Merger accomplishes the Company’s objectives of providing increased market opportunities and expanding its branch network through a contiguous footprint in Central and Eastern Pennsylvania and the Greater Baltimore, Maryland area. Further, the Merger creates an expanded product suite based on the complementary nature of the products and customers of both companies and increases lending capacity, which will support growth of the existing client base and is expected to provide an opportunity to mitigate risks and increase potential returns.
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The following tables summarize the purchase price consideration paid for Codorus Valley and the fair value of the assets acquired and liabilities assumed recognized at the acquisition date.

(dollars are in thousands, except per share data) |  |
Number of shares of Codorus Valley common stock outstanding |  | 9,751,323 |
Per common share exchange ratio |  | 0.875
Expected shares of Codorus Valley common stock to be issued |  | 8,532,408 |
Fractional shares of common stock paid in cash |  | (370) |
Number of shares of Orrstown common stock - as exchanged |  | 8,532,038 |
Orrstown common stock price per common share - closing stock price as of June 28, 2024 |  | $ | 27.36 |
Purchase price merger consideration for Codorus Valley |  | $ | 233,437 |

Under the acquisition method of accounting, the total merger consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Codorus Valley based on their estimated fair value as of the closing of the Merger. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The Company recorded goodwill of $49.4 million in connection with the Merger, which is not amortized for financial reporting purposes, but is subject to annual impairment testing.

| Codorus Valley Book Value |  | Fair Value Adjustment |  | Codorus Valley Fair Value
| July 1, 2024 |  |  |  | July 1, 2024
Total purchase price consideration |  |  |  |  | $ | 233,437 |
Recognized amounts of identifiable assets acquired and liabilities assumed |  |
Cash and cash equivalents | $ | 45,290 |  |  | $ | — |  |  | $ | 45,290 |
Restricted investments in bank stocks | 1,168 |  |  | — |  |  | 1,168 |
Securities available for sale | 331,032 |  |  | (4,532) |  |  | 326,500 |
Loans, net of allowance for credit losses ("ACL") | 1,715,761 |  |  | (72,368) |  |  | 1,643,393 |
Premises and equipment, net | 17,553 |  |  | 6,551 |  |  | 24,104 |
Cash surrender value of life insurance | 62,817 |  |  | — |  |  | 62,817 |
Accrued interest receivable | 8,138 |  |  | 79 |  |  | 8,217 |
Goodwill | 2,301 |  |  | (2,301) |  |  | — |
Other intangible assets, net | — |  |  | 50,719 |  |  | 50,719 |
Deferred income tax asset, net | 16,969 |  |  | 2,139 |  |  | 19,108 |
Other assets | 21,024 |  |  | (218) |  |  | 20,806 |
Total identifiable assets acquired | 2,222,053 |  |  | (19,931) |  |  | 2,202,122 |
Deposits | 1,948,467 |  |  | (3,218) |  |  | 1,945,249 |
Securities sold under agreements to repurchase | 7,943 |  |  | — |  |  | 7,943 |
FHLB advances and other borrowings | 1,195 |  |  | (803) |  |  | 392 |
Subordinated notes and trust preferred debt | 41,195 |  |  | (4,983) |  |  | 36,212 |
Other liabilities | 25,030 |  |  | 3,241 |  |  | 28,271 |
Total liabilities assumed | 2,023,830 |  |  | (5,763) |  |  | 2,018,067 |
Total identifiable net assets | $ | 198,223 |  |  | $ | (14,168) |  |  | $ | 184,055 |
Goodwill |  |  |  |  | $ | 49,382 |

The following are descriptions of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed from the Merger. The Company used independent valuation specialists to assist with the determination of fair values for certain acquired assets and assumed liabilities. As permitted under GAAP, the Company has up to twelve months following the date of the Merger to finalize the fair values of the acquired assets and assumed liabilities related to the merger of Codorus Valley. During this measurement period, the Company may record subsequent adjustments to goodwill for provisional amounts recorded at the merger date, with provisional merger-related tax adjustments.
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The Company acquired core deposit intangibles of $40.1 million and customer relationship intangible assets associated with its wealth and brokerage businesses totaling $10.6 million from the Merger. Both were valued utilizing the income approach, which is based on the present value of the cash flows that can be expected to be generated in the future. The core deposit intangible and customer relationship intangible assets are amortized based on the sum-of-the-years digits method over the expected life of 10 years.
The Company increased the fair value of premises by $6.6 million with a corresponding decrease to goodwill based upon updated independent market-based appraisals for buildings, land and land improvements. The fair value adjustments will be depreciated based on the estimated useful life of 40 years.
Pursuant to the Merger, the Company acquired operating lease assets and operating lease liabilities both with a fair value of $5.1 million based on the income approach, which considered the lease contracts current rental rates, escalation terms and expiration periods. The Company also acquired a finance lease asset and liability with a fair value of $392 thousand. At July 1, 2024, the Company recorded negative fair value adjustments of $1.1 million and $133 thousand to acquired operating lease assets and finance lease assets, respectively, which are amortized over the remaining lease terms.
An adjustment of $3.2 million was recorded to reflect the fair value of the time deposits assumed, which was determined using a discounted cash flow approach that utilized a discount rate equal to current market interest rates for instruments with similar terms and maturities. The fair value adjustment for time deposits will be amortized over the remaining maturities.
Subordinated notes and trust preferred debt were valued using a discounted cash flow approach, which applied a discount rate based upon other issuances with comparable terms. Fair value adjustments of $2.4 million and $2.7 million were recorded for the acquired subordinated notes and trust preferred debt, respectively, which will be amortized over their remaining maturities.
The Company evaluated and classified the acquired loans between non-PCD or PCD. The PCD loans include loans which experienced more-than-insignificant credit deterioration since origination. PCD loans included loans on nonaccrual status, past due 60 days or greater at any time since loan origination or having a risk rating of watch, special mention, substandard, doubtful or loss based on the Company's internal risk rating system. For PCD loans, an ACL is recorded on day 1 and added to the fair value of the loan for its amortized cost. At day 1, a provision for credit loss is not recorded on PCD loans. The following table presents details related to the fair value of acquired PCD loans at the acquisition date:

| Unpaid Principal Balance |  | PCD ACL |  | Non-Credit Discount |  | Fair Value of Acquired Loans
Commercial real estate | $ | 74,319 |  |  | $ | (1,321) |  |  | $ | (5,531) |  |  | $ | 67,467 |
Acquisition and development | 24,232 |  |  | (2,535) |  |  | (781) |  |  | 20,916 |
Agricultural | 7,129 |  |  | (2) |  |  | (895) |  |  | 6,232 |
Commercial and industrial | 26,325 |  |  | (1,947) |  |  | (4,059) |  |  | 20,319 |
Residential mortgage | 16,720 |  |  | (105) |  |  | (1,936) |  |  | 14,679 |
Installment and other loans | 117 |  |  | (10) |  |  | (11) |  |  | 96 |
| $ | 148,842 |  |  | $ | (5,920) |  |  | $ | (13,213) |  |  | $ | 129,709 |

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NOTE 3. INVESTMENT SECURITIES
At March 31, 2025 and December 31, 2024, all investment securities were classified as AFS. The following table summarizes amortized cost and fair value of investment securities, the corresponding amounts of gross unrealized gains and losses recognized in AOCI and the ACL at March 31, 2025 and December 31, 2024:

| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Allowance for Credit Losses |  | Fair Value
March 31, 2025 |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 20,040 |  |  | $ | — |  |  | $ | 1,623 |  |  | $ | — |  |  | $ | 18,417 |
U.S. Government Agencies | 2,712 |  |  | 88 |  |  | — |  |  | — |  |  | 2,800 |
States and political subdivisions | 219,924 |  |  | 93 |  |  | 22,911 |  |  | — |  |  | 197,106 |
GSE residential MBSs | 160,852 |  |  | 941 |  |  | 2,805 |  |  | — |  |  | 158,988 |
GSE commercial MBSs | 7,415 |  |  | 84 |  |  | 2 |  |  | — |  |  | 7,497 |
GSE residential CMOs | 354,375 |  |  | 2,634 |  |  | 5,602 |  |  | — |  |  | 351,407 |
Non-agency CMOs | 33,241 |  |  | 185 |  |  | 1,910 |  |  | — |  |  | 31,516 |
Asset-backed | 86,077 |  |  | 429 |  |  | 962 |  |  | — |  |  | 85,544 |
Corporate debt | 1,939 |  |  | 35 |  |  | — |  |  | — |  |  | 1,974 |
Other | 207 |  |  | — |  |  | — |  |  | — |  |  | 207 |
Totals | $ | 886,782 |  |  | $ | 4,489 |  |  | $ | 35,815 |  |  | $ | — |  |  | $ | 855,456 |
December 31, 2024 |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 20,043 |  |  | $ | — |  |  | $ | 1,980 |  |  | $ | — |  |  | $ | 18,063 |
U.S. Government Agencies | 2,953 |  |  | 100 |  |  | — |  |  | — |  |  | 3,053 |
States and political subdivisions | 220,418 |  |  | 10 |  |  | 20,400 |  |  | — |  |  | 200,028 |
GSE residential MBSs | 155,793 |  |  | 52 |  |  | 4,297 |  |  | — |  |  | 151,548 |
GSE commercial MBSs | 8,570 |  |  | 243 |  |  | 21 |  |  | — |  |  | 8,792 |
GSE residential CMOs | 331,016 |  |  | 485 |  |  | 6,809 |  |  | — |  |  | 324,692 |
Non-agency CMOs | 35,548 |  |  | 202 |  |  | 2,466 |  |  | — |  |  | 33,284 |
Asset-backed | 88,450 |  |  | 655 |  |  | 1,002 |  |  | — |  |  | 88,103 |
Corporate bonds | 1,935 |  |  | 19 |  |  | — |  |  | — |  |  | 1,954 |
Other | 194 |  |  | — |  |  | — |  |  | — |  |  | 194 |
Totals | $ | 864,920 |  |  | $ | 1,766 |  |  | $ | 36,975 |  |  | $ | — |  |  | $ | 829,711 |

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The following table summarizes investment securities with unrealized losses at March 31, 2025 and December 31, 2024, aggregated by major investment security type and the length of time in a continuous unrealized loss position.

| Less Than 12 Months |  | 12 Months or More |  | Total
| # of Securities |  | Fair Value |  | Unrealized Losses |  | # of Securities |  | Fair Value |  | Unrealized Losses |  | # of Securities |  | Fair Value |  | Unrealized Losses
March 31, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities | — |  |  | $ | — |  |  | $ | — |  |  | 3 |  |  | $ | 18,417 |  |  | $ | 1,623 |  |  | 3 |  |  | $ | 18,417 |  |  | $ | 1,623 |
States and political subdivisions | 5 |  |  | 5,104 |  |  | 32 |  |  | 42 |  |  | 186,328 |  |  | 22,879 |  |  | 47 |  |  | 191,432 |  |  | 22,911 |
GSE residential MBSs | 6 |  |  | 7,087 |  |  | 16 |  |  | 15 |  |  | 55,334 |  |  | 2,789 |  |  | 21 |  |  | 62,421 |  |  | 2,805 |
GSE commercial MBS | 1 |  |  | 669 |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | 669 |  |  | 2 |
GSE residential CMOs | 19 |  |  | 131,523 |  |  | 426 |  |  | 18 |  |  | 70,080 |  |  | 5,176 |  |  | 37 |  |  | 201,603 |  |  | 5,602 |
Non-agency CMOs | 2 |  |  | 8,660 |  |  | 127 |  |  | 4 |  |  | 16,837 |  |  | 1,783 |  |  | 6 |  |  | 25,497 |  |  | 1,910 |
Asset-backed | 3 |  |  | 11,071 |  |  | 91 |  |  | 9 |  |  | 43,085 |  |  | 871 |  |  | 12 |  |  | 54,156 |  |  | 962 |
Totals | 36 |  |  | $ | 164,114 |  |  | $ | 694 |  |  | 91 |  |  | $ | 390,081 |  |  | $ | 35,121 |  |  | 127 |  |  | $ | 554,195 |  |  | $ | 35,815 |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities | — |  |  | $ | — |  |  | $ | — |  |  | 3 |  |  | $ | 18,063 |  |  | $ | 1,980 |  |  | 3 |  |  | $ | 18,063 |  |  | $ | 1,980 |
States and political subdivisions | 13 |  |  | 10,080 |  |  | 131 |  |  | 42 |  |  | 189,448 |  |  | 20,269 |  |  | 55 |  |  | 199,528 |  |  | 20,400 |
GSE residential MBSs | 68 |  |  | 85,836 |  |  | 1,117 |  |  | 15 |  |  | 55,579 |  |  | 3,180 |  |  | 83 |  |  | 141,415 |  |  | 4,297 |
GSE commercial MBS | 3 |  |  | 2,963 |  |  | 21 |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | 2,963 |  |  | 21 |
GSE residential CMOs | 52 |  |  | 158,439 |  |  | 729 |  |  | 15 |  |  | 56,443 |  |  | 6,080 |  |  | 67 |  |  | 214,882 |  |  | 6,809 |
Non-agency CMOs | 2 |  |  | 8,816 |  |  | 218 |  |  | 4 |  |  | 16,636 |  |  | 2,248 |  |  | 6 |  |  | 25,452 |  |  | 2,466 |
Asset-backed | 4 |  |  | 11,964 |  |  | 17 |  |  | 9 |  |  | 44,130 |  |  | 985 |  |  | 13 |  |  | 56,094 |  |  | 1,002 |
Totals | 142 |  |  | $ | 278,098 |  |  | $ | 2,233 |  |  | 88 |  |  | $ | 380,299 |  |  | $ | 34,742 |  |  | 230 |  |  | $ | 658,397 |  |  | $ | 36,975 |

On a quarterly basis, the Company conducts an impairment evaluation on AFS securities to determine whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before recovery. If these situations apply, the guidance requires the Company to reduce the security's amortized cost basis down to its fair value through earnings. The Company also evaluates the unrealized losses on AFS securities to determine if a security's decline in fair value below its amortized cost basis is due to credit factors. The evaluation is based upon factors such as the creditworthiness of the underlying issuers, performance of the underlying collateral, if applicable, and the level of credit support in the security structure. Management also evaluates other factors and circumstances that may be indicative of a decline in the fair value of the security due to a credit factor. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost and near-term prospects of the issuer. If this assessment indicates that a credit loss exists, the present value of the expected cash flows of the security is compared to the amortized cost basis of the security. Under the CECL standard, if the present value of the cash flows expected to be collected is less than the amortized cost, an ACL is recorded for the credit loss, which is limited by the amount that the fair value is less than the amortized cost basis. Any additional amount of loss would be due to non-credit factors and is recorded in AOCI, net of taxes. If a credit loss is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL. If the fair value of the security increases above its amortized cost, the unrealized gain will be recorded in AOCI, net of taxes, on the unaudited condensed consolidated balance sheets.
The Company did not record an ACL on the AFS securities at March 31, 2025 and December 31, 2024. As of these periods, the Company considers the unrealized losses on the AFS securities to be related to fluctuations in market conditions, primarily interest rates, and not reflective of deterioration in credit. In addition, the Company maintains that it has the intent and ability to hold these AFS securities until the amortized cost is recovered and it is more likely than not that any of AFS securities in an unrealized loss position would not be required to be sold. At March 31, 2025 and December 31, 2024, unrealized losses were due to market uncertainty resulting from inflation and higher interest rates from the time of the security purchase.
U.S. Treasury Securities. The unrealized losses presented in the table above have been caused by an increase in rates from the time these securities were purchased. Management considers the full faith and credit of the U.S. government in determining whether declines in fair value are due to credit factors.
States and Political Subdivisions. The unrealized losses presented in the table above have been caused by a rise in interest rates from the time these securities were purchased. Management evaluates the financial performance of the issuers, including the investment rating, the state of the issuer of the security and other credit support in determining whether declines in fair value are due to credit factors.
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GSE Residential CMOs, GSE Residential MBS and GSE Commercial MBS. The unrealized losses presented in the table above have been caused by a widening of spreads and a rise in interest rates from the time these securities were purchased. The contractual terms of these securities do not permit the issuer to settle the securities at a price less than its par value basis.
Non-Agency CMOs. The unrealized losses presented in the table above were caused by a widening of spreads and a rise in interest rates from the time the securities were purchased. Management considers the investment rating and other credit support in its evaluation, including delinquencies and credit enhancements, in determining whether declines in fair value are due to credit factors.
Asset-backed. The unrealized losses presented in the table above were caused by a widening of spreads and a rise in interest rates from the time the securities were purchased. Management considers the investment rating and other credit support in its evaluation, including delinquencies and credit enhancements, in determining whether declines in fair value are due to credit factors.
The Company does not intend to sell the aforementioned investment securities with unrealized losses and it is more likely than not that the Company will not be required to sell them before recovery of their amortized cost basis, which may be maturity. In addition, the unrealized losses are not credit related. Therefore, the Company has concluded that the unrealized losses for these investment securities do not require an ACL at March 31, 2025.
The following table summarizes amortized cost and fair value of investment securities by contractual maturity at March 31, 2025. Expected maturities may differ from contractual maturities if issuers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

| Amortized Cost |  | Fair Value
Due in one year or less | $ | — |  |  | $ | — |
Due after one year through five years | 42,378 |  |  | 39,808 |
Due after five years through ten years | 51,456 |  |  | 47,411 |
Due after ten years | 150,988 |  |  | 133,285 |
CMOs and MBSs | 555,883 |  |  | 549,408 |
Asset-backed | 86,077 |  |  | 85,544 |
Totals | $ | 886,782 |  |  | $ | 855,456 |

The following table summarizes proceeds from sales of investment securities and gross gains and gross losses for the three months ended March 31, 2025 and 2024:

|  |  | Three months ended March 31,
|  |  |  |  | 2025 |  | 2024
Proceeds from sale of investment securities |  |  |  |  | $ | — |  |  | $ | — |
Gross gains |  |  |  |  | 13 |  |  | — |
Gross losses |  |  |  |  | — |  |  | 5 |

During the three months ended March 31, 2025, the Company recorded a gain of $13 thousand compared to losses of $5 thousand for the three months ended March 31, 2024 from mark-to-market activity on an equity security. During the three months ended March 31, 2025 and 2024, the Company did not sell any investment securities. Investment securities with a fair value of $704.1 million and $669.2 million at March 31, 2025 and December 31, 2024, respectively, were pledged to secure public funds and for other purposes as required or permitted by law.
NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The Company’s loan portfolio is grouped into segments, which are further broken down into classes to allow management to monitor the performance by the borrower and to monitor the yield on the portfolio. The risks associated with lending activities differ among the various loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. All of these factors may adversely impact both the borrower’s ability to repay its loans and the value of its associated collateral.
The Company has various types of commercial real estate loans, which have differing levels of credit risk. Owner-occupied commercial real estate loans are generally dependent upon the successful operation of the borrower’s business, with the cash flows generated from the business being the primary source of repayment of the loan. If the business suffers a downturn in sales or profitability, the borrower’s ability to repay the loan could be in jeopardy.
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Non-owner occupied and multi-family commercial real estate loans and non-owner occupied residential loans present a different credit risk to the Company than owner-occupied commercial real estate loans, as the repayment of the loan is dependent upon the borrower’s ability to generate a sufficient level of occupancy to produce rental income that exceeds debt service requirements and operating expenses. Lower occupancy or lease rates may result in a reduction in cash flows, which hinders the ability of the borrower to meet debt service requirements and may result in lower collateral values. The Company generally recognizes that greater risk is inherent in these credit relationships compared to owner-occupied loans mentioned above.
Acquisition and development loans consist of 1-4 family residential construction and commercial and land development loans. The risk of loss on these loans is largely dependent on the Company’s ability to assess the property’s value at the completion of the project, which should exceed the property’s construction costs. During the construction phase, a number of factors could potentially negatively impact the collateral value, including cost overruns, delays in completing the project, competition, and real estate market conditions, which may change based on the supply of similar properties in the area. In the event the collateral value at the completion of the project is not sufficient to cover the outstanding loan balance, the Company must rely upon other repayment sources, if any, including the guarantors of the project or other collateral securing the loan.
Commercial and industrial loans include advances to businesses for general commercial purposes and include permanent and short-term working capital, machinery and equipment financing, and may be either in the form of lines of credit or term loans. Although commercial and industrial loans may be unsecured to our highest-rated borrowers, the majority of these loans are secured by the borrower’s accounts receivable, inventory and machinery and equipment. In a significant number of these loans, the collateral also includes the business real estate or the business owner’s personal real estate or assets. Commercial and industrial loans present credit exposure to the Company, as they are more susceptible to risk of loss during a downturn in the economy as borrowers may have greater difficulty in meeting their debt service requirements and the value of the collateral may decline. The Company attempts to mitigate this risk through its underwriting standards, including evaluating the creditworthiness of the borrower and, to the extent available, credit ratings on the business. Additionally, monitoring of the loans through annual renewals and meetings with the borrowers is typical. However, these procedures cannot eliminate the risk of loss associated with commercial and industrial lending.
Agricultural loans include advances to individuals or businesses to finance agricultural production or loans secured by farmland. Agricultural production may include the growing or storing of crops, the purchase and carrying of livestock, the purchase of farm machinery and equipment or the operations of a farm, including vehicles and consumer goods. The collateral securing these loans may include the real estate for agricultural production, the borrower's business or personal assets, inventory or equipment.
Municipal loans consist of extensions of credit to municipalities and school districts within the Company’s market area. These loans generally present a lower risk than commercial and industrial loans, as they are generally secured by the municipality’s full taxing authority, by revenue obligations, or by its ability to raise assessments on its clients for a specific utility.
The Company originates loans to its retail clients, including fixed-rate and adjustable first lien mortgage loans, with the underlying 1-4 family owner occupied residential property securing the loan. The Company’s risk exposure is minimized in these types of loans through the evaluation of the creditworthiness of the borrower, including credit scores and debt-to-income ratios, and underwriting standards, which limit the loan-to-value ratio to generally no more than 80% upon loan origination, unless the borrower obtains private mortgage insurance.
Home equity loans, including term loans and lines of credit, present a slightly higher risk to the Company than 1-4 family first liens, as these loans can be first or second liens on 1-4 family owner occupied residential property, but can have loan-to-value ratios of no greater than 85% of the value of the real estate taken as collateral. The creditworthiness of the borrower is considered, including credit scores and debt-to-income ratios.
Installment and other loans’ credit risk is mitigated through prudent underwriting standards, including evaluation of the creditworthiness of the borrower through credit scores and debt-to-income ratios and, if secured, the collateral value of the assets. These loans can be unsecured or secured by assets the value of which may depreciate quickly or may fluctuate and may present a greater risk to the Company than 1-4 family residential loans.
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The following table presents the loan portfolio by segment and class, excluding residential LHFS, at March 31, 2025 and December 31, 2024:

| March 31, 2025 |  | December 31, 2024
Commercial real estate: |  |  |
Owner occupied | $ | 617,854 |  |  | $ | 633,567 |
Non-owner occupied | 1,157,383 |  |  | 1,160,238 |
Multi-family | 257,724 |  |  | 274,135 |
Non-owner occupied residential | 168,354 |  |  | 179,512 |
Acquisition and development: |  |  |
1-4 family residential construction | 40,621 |  |  | 47,432 |
Commercial and land development | 227,434 |  |  | 241,424 |
Agricultural | 134,916 |  |  | 125,156 |
Commercial and industrial | 455,494 |  |  | 451,384 |
Municipal | 30,780 |  |  | 30,044 |
Residential mortgage: |  |  |
First lien | 464,642 |  |  | 460,297 |
Home equity - term | 9,224 |  |  | 5,988 |
Home equity - lines of credit | 295,820 |  |  | 303,561 |
Installment and other loans | 15,739 |  |  | 18,476 |
Total loans | $ | 3,875,985 |  |  | $ | 3,931,214 |

In order to monitor ongoing risk associated with its loan portfolio and specific loans within the segments, management uses an internal grading system. The first several rating categories, representing the lowest risk to the Bank, are combined and given a “Pass” rating. Management generally follows regulatory definitions in assigning criticized ratings to loans, including "Special Mention," "Substandard," "Doubtful" or "Loss." The Special Mention category includes loans that have potential weaknesses that may, if not monitored or corrected, weaken the asset or inadequately protect the Bank's position at some future date. These assets pose elevated risk, but their weakness does not yet justify a more severe, or classified rating. Substandard loans are classified as they have a well-defined weakness, or weaknesses that jeopardize liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans include loans that management may determine to be either individually evaluated, referred to as "Substandard - Individually Evaluated Loan," or collectively evaluated, referred to as "Substandard Non-Individually Evaluated Loan." A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as Loss is deferred. Loss loans are considered uncollectible, as the borrowers are often in bankruptcy, have suspended debt repayments, or have ceased business operations. Once a loan is classified as Loss, there is little prospect of collecting the loan’s principal or interest and it is charged off.
The Company has a loan review policy and program, which is designed to identify and monitor risk in the lending function. The Management ERM Committee, comprised of executive officers, senior officers and loan department personnel, is charged with the oversight of overall credit quality and risk exposure of the Company's loan portfolio. This includes the monitoring of the lending activities of all Company personnel with respect to underwriting and processing new loans and the timely follow-up and corrective action for loans showing signs of deterioration in quality. A loan review program provides the Company with an independent review of the commercial loan portfolio on an ongoing basis. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as extended delinquencies, bankruptcy, repossession or death of the borrower occurs, which heightens awareness as to a possible credit event.
Internal loan reviews are completed annually on all commercial relationships with a committed loan balance in excess of $2.0 million, which includes confirmation of risk rating by an independent credit officer. In addition, all commercial relationships greater than $500 thousand rated special mention, substandard, doubtful or loss are reviewed quarterly and corresponding risk ratings are reaffirmed by the Company's Problem Loan Committee, with subsequent reporting to the Management ERM Committee and the Board of Directors.
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The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of March 31, 2025 and December 31, 2024. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan and payment activity. Residential mortgage, installment and other consumer loans are presented below based on payment performance: performing or nonperforming.

| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of March 31, 2025 | 2025 |  | 2024 |  | 2023 |  | 2022 |  | 2021 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 10,969 |  |  | $ | 53,350 |  |  | $ | 90,088 |  |  | $ | 104,618 |  |  | $ | 97,914 |  |  | $ | 169,641 |  |  | $ | 12,407 |  |  | $ | 1,578 |  |  | $ | 540,565 |
Special mention | — |  |  | — |  |  | 136 |  |  | 15,651 |  |  | 14,734 |  |  | 11,459 |  |  | 320 |  |  | — |  |  | 42,300 |
Substandard - Non-IEL | — |  |  | — |  |  | 1,522 |  |  | 12,572 |  |  | 4,177 |  |  | 6,999 |  |  | 3,854 |  |  | 217 |  |  | 29,341 |
Substandard - IEL | — |  |  | — |  |  | 694 |  |  | 206 |  |  | 1,082 |  |  | 3,666 |  |  | — |  |  | — |  |  | 5,648 |
Total owner-occupied loans | $ | 10,969 |  |  | $ | 53,350 |  |  | $ | 92,440 |  |  | $ | 133,047 |  |  | $ | 117,907 |  |  | $ | 191,765 |  |  | $ | 16,581 |  |  | $ | 1,795 |  |  | $ | 617,854 |
Current period gross charge offs - owner-occupied | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 75 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 75 |
Non-owner occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 10,367 |  |  | $ | 82,873 |  |  | $ | 145,771 |  |  | $ | 192,518 |  |  | $ | 323,602 |  |  | $ | 372,363 |  |  | $ | 2,449 |  |  | $ | 378 |  |  | $ | 1,130,321 |
Special mention | — |  |  | — |  |  | 10,077 |  |  | 2,989 |  |  | 1,136 |  |  | 9,782 |  |  | — |  |  | — |  |  | 23,984 |
Substandard - Non-IEL | — |  |  | 466 |  |  | — |  |  | 1,045 |  |  | — |  |  | 207 |  |  | — |  |  | — |  |  | 1,718 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,360 |  |  | — |  |  | — |  |  | 1,360 |
Total non-owner occupied loans | $ | 10,367 |  |  | $ | 83,339 |  |  | $ | 155,848 |  |  | $ | 196,552 |  |  | $ | 324,738 |  |  | $ | 383,712 |  |  | $ | 2,449 |  |  | $ | 378 |  |  | $ | 1,157,383 |
Current period gross charge offs - non-owner occupied | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Multi-family: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 548 |  |  | $ | 7,232 |  |  | $ | 9,919 |  |  | $ | 96,057 |  |  | $ | 52,973 |  |  | $ | 84,242 |  |  | $ | 1,409 |  |  | $ | 214 |  |  | $ | 252,594 |
Special mention | — |  |  | — |  |  | — |  |  | 1,082 |  |  | 776 |  |  | — |  |  | — |  |  | — |  |  | 1,858 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | 569 |  |  | 2,468 |  |  | 235 |  |  | — |  |  | — |  |  | 3,272 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total multi-family loans | $ | 548 |  |  | $ | 7,232 |  |  | $ | 9,919 |  |  | $ | 97,708 |  |  | $ | 56,217 |  |  | $ | 84,477 |  |  | $ | 1,409 |  |  | $ | 214 |  |  | $ | 257,724 |
Current period gross charge offs - multi-family | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Non-owner occupied residential: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 213 |  |  | $ | 9,291 |  |  | $ | 19,935 |  |  | $ | 28,486 |  |  | $ | 27,625 |  |  | $ | 78,606 |  |  | $ | 1,113 |  |  | $ | 652 |  |  | $ | 165,921 |
Special mention | — |  |  | — |  |  | — |  |  | — |  |  | 147 |  |  | 381 |  |  | 40 |  |  | 40 |  |  | 608 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | 51 |  |  | 131 |  |  | 1,256 |  |  | — |  |  | 109 |  |  | 1,547 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | 154 |  |  | — |  |  | 124 |  |  | — |  |  | — |  |  | 278 |
Total non-owner occupied residential loans | $ | 213 |  |  | $ | 9,291 |  |  | $ | 19,935 |  |  | $ | 28,691 |  |  | $ | 27,903 |  |  | $ | 80,367 |  |  | $ | 1,153 |  |  | $ | 801 |  |  | $ | 168,354 |
Current period gross charge offs - non-owner occupied residential | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
continued

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| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of March 31, 2025 | 2025 |  | 2024 |  | 2023 |  | 2022 |  | 2021 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential construction: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 8,151 |  |  | $ | 22,936 |  |  | $ | 4,235 |  |  | $ | 1,524 |  |  | $ | 1,138 |  |  | $ | 848 |  |  | $ | 880 |  |  | $ | — |  |  | $ | 39,712 |
Special mention | — |  |  | 74 |  |  | 222 |  |  | — |  |  | — |  |  | 613 |  |  | — |  |  | — |  |  | 909 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total 1-4 family residential construction loans | $ | 8,151 |  |  | $ | 23,010 |  |  | $ | 4,457 |  |  | $ | 1,524 |  |  | $ | 1,138 |  |  | $ | 1,461 |  |  | $ | 880 |  |  | $ | — |  |  | $ | 40,621 |
Current period gross charge offs - 1-4 family residential construction | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial and land development: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 1,653 |  |  | $ | 67,323 |  |  | $ | 51,414 |  |  | $ | 73,373 |  |  | $ | 10,598 |  |  | $ | 5,422 |  |  | $ | 8,106 |  |  | $ | 150 |  |  | $ | 218,039 |
Special mention | — |  |  | — |  |  | — |  |  | 4,748 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,748 |
Substandard - Non-IEL | — |  |  | 734 |  |  | 271 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,005 |
Substandard - IEL | — |  |  | — |  |  | 18 |  |  | 3,274 |  |  | 350 |  |  | — |  |  | — |  |  | — |  |  | 3,642 |
Total commercial and land development loans | $ | 1,653 |  |  | $ | 68,057 |  |  | $ | 51,703 |  |  | $ | 81,395 |  |  | $ | 10,948 |  |  | $ | 5,422 |  |  | $ | 8,106 |  |  | $ | 150 |  |  | $ | 227,434 |
Current period gross charge offs - commercial and land development | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 5,219 |  |  | $ | 14,567 |  |  | $ | 14,206 |  |  | $ | 21,127 |  |  | $ | 19,446 |  |  | $ | 44,101 |  |  | $ | 13,130 |  |  | $ | 1,336 |  |  | $ | 133,132 |
Special mention | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 256 |  |  | $ | 81 |  |  | $ | — |  |  | $ | 337 |
Substandard - Non-IEL | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 450 |  |  | $ | — |  |  | $ | 207 |  |  | $ | — |  |  | $ | — |  |  | $ | 657 |
Substandard - IEL | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 790 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 790 |
Total agricultural loans | $ | 5,219 |  |  | $ | 14,567 |  |  | $ | 14,206 |  |  | $ | 22,367 |  |  | $ | 19,446 |  |  | $ | 44,564 |  |  | $ | 13,211 |  |  | $ | 1,336 |  |  | $ | 134,916 |
Current period gross charge offs - agricultural | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 25 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 25 |
Commercial and Industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 22,580 |  |  | $ | 81,474 |  |  | $ | 52,806 |  |  | $ | 51,298 |  |  | $ | 48,462 |  |  | $ | 24,931 |  |  | $ | 130,512 |  |  | $ | 7,126 |  |  | $ | 419,189 |
Special mention | — |  |  | 4,376 |  |  | 927 |  |  | 2,361 |  |  | 235 |  |  | — |  |  | 9,603 |  |  | 61 |  |  | 17,563 |
Substandard - Non-IEL | — |  |  | — |  |  | 2,214 |  |  | 2,100 |  |  | — |  |  | — |  |  | 8,607 |  |  | 2,813 |  |  | 15,734 |
Substandard - IEL | — |  |  | 397 |  |  | 559 |  |  | 128 |  |  | 169 |  |  | 1,602 |  |  | — |  |  | 153 |  |  | 3,008 |
Total commercial and industrial loans | $ | 22,580 |  |  | $ | 86,247 |  |  | $ | 56,506 |  |  | $ | 55,887 |  |  | $ | 48,866 |  |  | $ | 26,533 |  |  | $ | 148,722 |  |  | $ | 10,153 |  |  | $ | 455,494 |
Current period gross charge offs - commercial and industrial | $ | — |  |  | $ | — |  |  | $ | 381 |  |  | $ | — |  |  | $ | 41 |  |  | $ | 95 |  |  | $ | — |  |  | $ | — |  |  | $ | 517 |
Municipal: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 2,497 |  |  | $ | 562 |  |  | $ | — |  |  | $ | 9,816 |  |  | $ | 2,877 |  |  | $ | 13,555 |  |  | $ | — |  |  | $ | — |  |  | $ | 29,307 |
Special mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,473 |  |  | — |  |  | — |  |  | 1,473 |
Total municipal loans | $ | 2,497 |  |  | $ | 562 |  |  | $ | — |  |  | $ | 9,816 |  |  | $ | 2,877 |  |  | $ | 15,028 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,780 |
Current period gross charge offs - municipal | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
continued

24

Table of Contents

| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of March 31, 2025 | 2025 |  | 2024 |  | 2023 |  | 2022 |  | 2021 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 20,302 |  |  | $ | 59,611 |  |  | $ | 97,877 |  |  | $ | 100,981 |  |  | $ | 49,771 |  |  | $ | 130,429 |  |  | $ | — |  |  | $ | — |  |  | $ | 458,971 |
Nonperforming | — |  |  | 673 |  |  | 577 |  |  | 237 |  |  | 250 |  |  | 3,934 |  |  | — |  |  | — |  |  | 5,671 |
Total first lien loans | $ | 20,302 |  |  | $ | 60,284 |  |  | $ | 98,454 |  |  | $ | 101,218 |  |  | $ | 50,021 |  |  | $ | 134,363 |  |  | $ | — |  |  | $ | — |  |  | $ | 464,642 |
Current period gross charge offs - first lien | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 79 |  |  | $ | 1,422 |  |  | $ | 1,245 |  |  | $ | 1,451 |  |  | $ | 1,028 |  |  | $ | 3,770 |  |  | $ | 160 |  |  | $ | — |  |  | $ | 9,155 |
Nonperforming | — |  |  | — |  |  | — |  |  | 35 |  |  | — |  |  | 34 |  |  | — |  |  | — |  |  | 69 |
Total home equity - term loans | $ | 79 |  |  | $ | 1,422 |  |  | $ | 1,245 |  |  | $ | 1,486 |  |  | $ | 1,028 |  |  | $ | 3,804 |  |  | $ | 160 |  |  | $ | — |  |  | $ | 9,224 |
Current period gross charge offs - home equity - term | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Home equity - lines of credit: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 196,120 |  |  | $ | 97,289 |  |  | $ | 293,409 |
Nonperforming | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,086 |  |  | 325 |  |  | 2,411 |
Total residential real estate - home equity - lines of credit loans | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 198,206 |  |  | $ | 97,614 |  |  | $ | 295,820 |
Current period gross charge offs - home equity - lines of credit | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Installment and other loans: |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 578 |  |  | $ | 1,469 |  |  | $ | 2,355 |  |  | $ | 1,849 |  |  | $ | 666 |  |  | $ | 410 |  |  | $ | 8,371 |  |  | $ | 27 |  |  | $ | 15,725 |
Nonperforming | — |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  | 11 |  |  | — |  |  | — |  |  | 14 |
Total Installment and other loans | $ | 578 |  |  | $ | 1,469 |  |  | $ | 2,358 |  |  | $ | 1,849 |  |  | $ | 666 |  |  | $ | 421 |  |  | $ | 8,371 |  |  | $ | 27 |  |  | $ | 15,739 |
Current period gross charge offs - installment and other | $ | — |  |  | $ | 232 |  |  | $ | — |  |  | $ | 3 |  |  | $ | 2 |  |  | $ | 8 |  |  | $ | 31 |  |  | $ | — |  |  | $ | 276 |

25

Table of Contents

| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of December 31, 2024 | 2024 |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 55,068 |  |  | $ | 86,255 |  |  | $ | 106,696 |  |  | $ | 112,278 |  |  | $ | 31,495 |  |  | $ | 155,543 |  |  | $ | 14,653 |  |  | $ | 280 |  |  | $ | 562,268 |
Special mention | — |  |  | 1,674 |  |  | 18,563 |  |  | 1,895 |  |  | 7,946 |  |  | 5,422 |  |  | 165 |  |  | — |  |  | 35,665 |
Substandard - Non-IEL | — |  |  | 694 |  |  | 14,572 |  |  | 4,204 |  |  | 2,477 |  |  | 4,899 |  |  | 4,510 |  |  | — |  |  | 31,356 |
Substandard - IEL | — |  |  | 9 |  |  | — |  |  | 1,110 |  |  | 245 |  |  | 2,914 |  |  | — |  |  | — |  |  | 4,278 |
Total owner-occupied loans | $ | 55,068 |  |  | $ | 88,632 |  |  | $ | 139,831 |  |  | $ | 119,487 |  |  | $ | 42,163 |  |  | $ | 168,778 |  |  | $ | 19,328 |  |  | $ | 280 |  |  | $ | 633,567 |
Current period gross charge offs - owner-occupied | $ | — |  |  | $ | 217 |  |  | $ | 13 |  |  | $ | 313 |  |  | $ | — |  |  | $ | 12 |  |  | $ | — |  |  | $ | — |  |  | $ | 555 |
Non-owner occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 82,441 |  |  | $ | 146,020 |  |  | $ | 193,131 |  |  | $ | 326,586 |  |  | $ | 123,646 |  |  | $ | 256,212 |  |  | $ | 2,335 |  |  | $ | — |  |  | $ | 1,130,371 |
Special mention | — |  |  | 10,081 |  |  | 2,985 |  |  | 334 |  |  | 7,920 |  |  | 1,919 |  |  | — |  |  | — |  |  | 23,239 |
Substandard - Non-IEL | 482 |  |  | — |  |  | 1,049 |  |  | — |  |  | 1,043 |  |  | 2,588 |  |  | — |  |  | — |  |  | 5,162 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,466 |  |  | — |  |  | — |  |  | 1,466 |
Total non-owner occupied loans | $ | 82,923 |  |  | $ | 156,101 |  |  | $ | 197,165 |  |  | $ | 326,920 |  |  | $ | 132,609 |  |  | $ | 262,185 |  |  | $ | 2,335 |  |  | $ | — |  |  | $ | 1,160,238 |
Current period gross charge offs - non-owner occupied | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 65 |  |  | $ | — |  |  | $ | — |  |  | $ | 65 |
Multi-family: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 7,269 |  |  | $ | 12,679 |  |  | $ | 105,883 |  |  | $ | 54,028 |  |  | $ | 30,968 |  |  | $ | 54,676 |  |  | $ | 1,351 |  |  | $ | — |  |  | $ | 266,854 |
Special mention | — |  |  | — |  |  | 1,094 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,094 |
Substandard - Non-IEL | — |  |  | — |  |  | 571 |  |  | 4,658 |  |  | — |  |  | 237 |  |  | — |  |  | — |  |  | 5,466 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 721 |  |  | — |  |  | — |  |  | 721 |
Total multi-family loans | $ | 7,269 |  |  | $ | 12,679 |  |  | $ | 107,548 |  |  | $ | 58,686 |  |  | $ | 30,968 |  |  | $ | 55,634 |  |  | $ | 1,351 |  |  | $ | — |  |  | $ | 274,135 |
Current period gross charge offs - multi-family | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 7 |  |  | $ | — |  |  | $ | — |  |  | $ | 7 |
Non-owner occupied residential: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 9,322 |  |  | $ | 22,771 |  |  | $ | 29,681 |  |  | $ | 29,729 |  |  | $ | 19,410 |  |  | $ | 64,851 |  |  | $ | 1,257 |  |  | $ | — |  |  | $ | 177,021 |
Special mention | — |  |  | — |  |  | — |  |  | 147 |  |  | 42 |  |  | 478 |  |  | 39 |  |  | — |  |  | 706 |
Substandard - Non-IEL | — |  |  | — |  |  | 166 |  |  | 133 |  |  | — |  |  | 1,311 |  |  | — |  |  | — |  |  | 1,610 |
Substandard - IEL | — |  |  | — |  |  | 43 |  |  | — |  |  | — |  |  | 132 |  |  | — |  |  | — |  |  | 175 |
Total non-owner occupied residential loans | $ | 9,322 |  |  | $ | 22,771 |  |  | $ | 29,890 |  |  | $ | 30,009 |  |  | $ | 19,452 |  |  | $ | 66,772 |  |  | $ | 1,296 |  |  | $ | — |  |  | $ | 179,512 |
Current period gross charge offs - non-owner occupied residential | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 29 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 29 |
continued

26

Table of Contents

| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of December 31, 2024 | 2024 |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential construction: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 30,908 |  |  | $ | 7,079 |  |  | $ | 2,295 |  |  | $ | 598 |  |  | $ | 935 |  |  | $ | 762 |  |  | $ | 3,921 |  |  | $ | — |  |  | $ | 46,498 |
Special mention | 74 |  |  | 717 |  |  | — |  |  | — |  |  | — |  |  | 143 |  |  | — |  |  | — |  |  | 934 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total 1-4 family residential construction loans | $ | 30,982 |  |  | $ | 7,796 |  |  | $ | 2,295 |  |  | $ | 598 |  |  | $ | 935 |  |  | $ | 905 |  |  | $ | 3,921 |  |  | $ | — |  |  | $ | 47,432 |
Current period gross charge offs - 1-4 family residential construction | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial and land development: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 60,420 |  |  | $ | 57,563 |  |  | $ | 74,893 |  |  | $ | 14,107 |  |  | $ | 372 |  |  | $ | 6,928 |  |  | $ | 7,280 |  |  | $ | — |  |  | $ | 221,563 |
Special mention | 734 |  |  | — |  |  | 4,557 |  |  | 998 |  |  | 1,841 |  |  | 3,451 |  |  | — |  |  | — |  |  | 11,581 |
Substandard - Non-IEL | 2,966 |  |  | 1,656 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,622 |
Substandard - IEL | — |  |  | 18 |  |  | 3,282 |  |  | 358 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,658 |
Total commercial and land development loans | $ | 64,120 |  |  | $ | 59,237 |  |  | $ | 82,732 |  |  | $ | 15,463 |  |  | $ | 2,213 |  |  | $ | 10,379 |  |  | $ | 7,280 |  |  | $ | — |  |  | $ | 241,424 |
Current period gross charge offs - commercial and land development | $ | — |  |  | $ | 23 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 23 |
Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 14,663 |  |  | $ | 14,507 |  |  | $ | 21,782 |  |  | $ | 19,486 |  |  | $ | 10,463 |  |  | $ | 28,095 |  |  | $ | 13,891 |  |  | $ | 164 |  |  | $ | 123,051 |
Special mention | — |  |  | — |  |  | — |  |  | 25 |  |  | — |  |  | 902 |  |  | 161 |  |  | — |  |  | 1,088 |
Substandard - Non-IEL | — |  |  | — |  |  | 13 |  |  | — |  |  | — |  |  | 207 |  |  | — |  |  | — |  |  | 220 |
Substandard - IEL | — |  |  | — |  |  | 797 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 797 |
Total agricultural loans | $ | 14,663 |  |  | $ | 14,507 |  |  | $ | 22,592 |  |  | $ | 19,511 |  |  | $ | 10,463 |  |  | $ | 29,204 |  |  | $ | 14,052 |  |  | $ | 164 |  |  | $ | 125,156 |
Current period gross charge offs - agricultural | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 18 |  |  | $ | — |  |  | $ | 18 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 38 |
Commercial and Industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 82,924 |  |  | $ | 55,109 |  |  | $ | 53,482 |  |  | $ | 49,937 |  |  | $ | 15,405 |  |  | $ | 17,215 |  |  | $ | 137,379 |  |  | $ | 2,768 |  |  | $ | 414,219 |
Special mention | 485 |  |  | 2,000 |  |  | 2,477 |  |  | 293 |  |  | 2 |  |  | 23 |  |  | 10,516 |  |  | — |  |  | 15,796 |
Substandard - Non-IEL | — |  |  | 1,037 |  |  | 2,547 |  |  | 3,409 |  |  | — |  |  | 490 |  |  | 8,386 |  |  | — |  |  | 15,869 |
Substandard - IEL | 409 |  |  | 2,772 |  |  | 140 |  |  | 191 |  |  | 884 |  |  | 921 |  |  | 183 |  |  | — |  |  | 5,500 |
Total commercial and industrial loans | $ | 83,818 |  |  | $ | 60,918 |  |  | $ | 58,646 |  |  | $ | 53,830 |  |  | $ | 16,291 |  |  | $ | 18,649 |  |  | $ | 156,464 |  |  | $ | 2,768 |  |  | $ | 451,384 |
Current period gross charge offs - commercial and industrial | $ | — |  |  | $ | 335 |  |  | $ | 212 |  |  | $ | 60 |  |  | $ | 1,739 |  |  | $ | 60 |  |  | $ | 571 |  |  | $ | — |  |  | $ | 2,977 |
Municipal: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 1,565 |  |  | $ | — |  |  | $ | 10,006 |  |  | $ | 3,124 |  |  | $ | 269 |  |  | $ | 15,080 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,044 |
Total municipal loans | $ | 1,565 |  |  | $ | — |  |  | $ | 10,006 |  |  | $ | 3,124 |  |  | $ | 269 |  |  | $ | 15,080 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,044 |
Current period gross charge offs - municipal | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
continued

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| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of December 31, 2024 | 2024 |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 62,970 |  |  | $ | 101,901 |  |  | $ | 103,347 |  |  | $ | 52,420 |  |  | $ | 25,303 |  |  | $ | 109,113 |  |  | $ | — |  |  | $ | — |  |  | $ | 455,054 |
Nonperforming | 672 |  |  | 308 |  |  | 241 |  |  | 483 |  |  | 218 |  |  | 3,321 |  |  | — |  |  | — |  |  | 5,243 |
Total first lien loans | $ | 63,642 |  |  | $ | 102,209 |  |  | $ | 103,588 |  |  | $ | 52,903 |  |  | $ | 25,521 |  |  | $ | 112,434 |  |  | $ | — |  |  | $ | — |  |  | $ | 460,297 |
Current period gross charge offs - first lien | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |
Home equity - term: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 395 |  |  | $ | 752 |  |  | $ | 1,040 |  |  | $ | 201 |  |  | $ | 462 |  |  | $ | 3,068 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,918 |
Nonperforming | — |  |  | — |  |  | 36 |  |  | — |  |  | — |  |  | 34 |  |  | — |  |  | — |  |  | 70 |
Total home equity - term loans | $ | 395 |  |  | $ | 752 |  |  | $ | 1,076 |  |  | $ | 201 |  |  | $ | 462 |  |  | $ | 3,102 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,988 |
Current period gross charge offs - home equity - term | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Home equity - lines of credit: |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 200,886 |  |  | $ | 100,331 |  |  | $ | 301,217 |
Nonperforming | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,048 |  |  | 296 |  |  | 2,344 |
Total residential real estate - home equity - lines of credit loans | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 202,934 |  |  | $ | 100,627 |  |  | $ | 303,561 |
Current period gross charge offs - home equity - lines of credit | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 63 |  |  | $ | — |  |  | $ | 63 |
Installment and other loans: |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 2,197 |  |  | $ | 2,764 |  |  | $ | 2,209 |  |  | $ | 830 |  |  | $ | 119 |  |  | $ | 496 |  |  | $ | 9,817 |  |  | $ | 19 |  |  | $ | 18,451 |
Nonperforming | 9 |  |  | 3 |  |  | — |  |  | — |  |  | — |  |  | 13 |  |  | — |  |  | — |  |  | 25 |
Total Installment and other loans | $ | 2,206 |  |  | $ | 2,767 |  |  | $ | 2,209 |  |  | $ | 830 |  |  | $ | 119 |  |  | $ | 509 |  |  | $ | 9,817 |  |  | $ | 19 |  |  | $ | 18,476 |
Current period gross charge offs - installment and other | $ | 209 |  |  | $ | 12 |  |  | $ | — |  |  | $ | 32 |  |  | $ | — |  |  | $ | 33 |  |  | $ | 21 |  |  | $ | — |  |  | $ | 307 |

For commercial real estate, acquisition and development, commercial and industrial and municipal segments, a loan is evaluated individually when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining expected credit losses, and whether the loan will be individually evaluated, include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not individually evaluated. Generally, loans that are more than 90 days past due will be individually evaluated for a specific reserve. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed to determine if the loan should be placed on nonaccrual status. Nonaccrual loans are, by definition, deemed to be individually evaluated under CECL. A specific reserve allocation for individually evaluated loans is measured on a loan-by-loan basis for commercial and construction loans by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For loans that are experiencing financial difficulty for extended periods of time, periodic updates on fair values are obtained, which may include updated appraisals. Updated fair values are incorporated into the analysis in the next reporting period.
Loan charge-offs, which may include partial charge-offs, are taken on an individually evaluated loan that is collateral dependent if the carrying balance of the loan exceeds the appraised value of the collateral, the loan has been placed on nonaccrual status or identified as uncollectible, and it is deemed to be a confirmed loss. Typically, loans with a charge-off or
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partial charge-off will continue to be individually evaluated. Generally, an individually evaluated loan with a partial charge-off may continue to have a specific reserve on it after the partial charge-off, if factors warrant.
At March 31, 2025 and December 31, 2024, the Company’s individually evaluated loans were measured based on the estimated fair value of the collateral securing the loan, except for purchased auto loans on nonaccrual status and accruing loans accounted for as TDRs prior to the adoption of ASU 2022-02. For real estate loans, collateral generally consists of commercial or residential real estate, but in the case of commercial and industrial loans, it could also consist of accounts receivable, inventory, equipment or other business assets. Commercial and industrial loans may also have real estate collateral.
Updated appraisals are generally required every 18 months for classified commercial loans, secured by commercial real estate, in excess of $250 thousand. The “as is" value provided in the appraisal is often used as the fair value of the collateral in determining impairment, unless circumstances, such as subsequent improvements, approvals, or other circumstances, dictate that another value than that provided by the appraiser is more appropriate.
Generally, commercial loans secured by real estate that are evaluated individually are measured at fair value using certified real estate appraisals that had been completed within the last 18 months. Appraised values are discounted for estimated costs to sell the property and other selling considerations to arrive at the property’s fair value. In those situations in which it is determined an updated appraisal is not required for loans individually evaluated for credit expected losses, fair values are based on either an existing appraisal or a DCF analysis as determined by management. The approaches are discussed below:
•Existing appraisal – if the existing appraisal provides a strong loan-to-value ratio (generally 70% or lower) and, after consideration of market conditions and knowledge of the property and area, it is determined by the Credit Administration staff that there has not been a significant deterioration in the collateral value, the existing certified appraised value may be used. Discounts to the appraised value, as deemed appropriate for selling costs, are factored into the fair value.
•Discounted cash flows – in limited cases, DCF may be used on projects in which the collateral is liquidated to reduce the borrowings outstanding and is used to validate collateral values derived from other approaches.
Collateral on loans evaluated individually is not limited to real estate, and may consist of accounts receivable, inventory, equipment or other business assets. Estimated fair values are determined based on borrowers’ financial statements, inventory ledgers, accounts receivable aging or appraisals from individuals with knowledge in the business. Stated balances are generally discounted for the age of the financial information or the quality of the assets. In determining fair value, liquidation discounts are applied to this collateral based on existing loan evaluation policies.
The Company distinguishes substandard loans for both loans individually and collectively evaluated, as it places less emphasis on a loan’s classification, and increased reliance on whether the loan was performing in accordance with the contractual terms. A substandard classification does not automatically meet the definition of an individually evaluated loan. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual extensions of credit classified as substandard. As a result, the Company’s methodology includes an evaluation of certain accruing commercial real estate, acquisition and development, commercial and industrial and municipal loans rated substandard to be collectively evaluated for credit expected losses. Although the Company believes these loans meet the definition of substandard, they are generally performing and management has concluded that it is likely the Company will be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.
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The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without reserves on individually evaluated loans as of March 31, 2025 and December 31, 2024. The Company did not recognize interest income on nonaccrual loans during the three months ended March 31, 2025 and 2024.

| March 31, 2025 |  | December 31, 2024
| Nonaccrual loans with a related ACL |  | Nonaccrual loans with no related ACL |  | Total nonaccrual loans |  | Loans Past Due 90+ Accruing |  | Nonaccrual loans with a related ACL |  | Nonaccrual loans with no related ACL |  | Total nonaccrual loans |  | Loans Past Due 90+ Accruing
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied | $ | 232 |  |  | $ | 5,416 |  |  | $ | 5,648 |  |  | $ | — |  |  | $ | 232 |  |  | $ | 4,046 |  |  | $ | 4,278 |  |  | $ | — |
Non-owner occupied | — |  |  | 1,360 |  |  | 1,360 |  |  | — |  |  | — |  |  | 1,466 |  |  | 1,466 |  |  | — |
Multi-family | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 721 |  |  | 721 |  |  | 237 |
Non-owner occupied residential | — |  |  | 278 |  |  | 278 |  |  | — |  |  | — |  |  | 175 |  |  | 175 |  |  | — |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and land development | 3,006 |  |  | 636 |  |  | 3,642 |  |  | — |  |  | 3,282 |  |  | 376 |  |  | 3,658 |  |  | — |
Agricultural | — |  |  | 790 |  |  | 790 |  |  | — |  |  | — |  |  | 797 |  |  | 797 |  |  | — |
Commercial and industrial | 1,460 |  |  | 1,548 |  |  | 3,008 |  |  | 109 |  |  | 2,822 |  |  | 2,678 |  |  | 5,500 |  |  | 113 |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien | 20 |  |  | 5,487 |  |  | 5,507 |  |  | 272 |  |  | — |  |  | 5,077 |  |  | 5,077 |  |  | 243 |
Home equity – term | — |  |  | 69 |  |  | 69 |  |  | 19 |  |  | 36 |  |  | 34 |  |  | 70 |  |  | 18 |
Home equity – lines of credit | — |  |  | 2,411 |  |  | 2,411 |  |  | — |  |  | — |  |  | 2,344 |  |  | 2,344 |  |  | 30 |
Installment and other loans | 14 |  |  | — |  |  | 14 |  |  | — |  |  | 15 |  |  | 10 |  |  | 25 |  |  | — |
Total | $ | 4,732 |  |  | $ | 17,995 |  |  | $ | 22,727 |  |  | $ | 400 |  |  | $ | 6,387 |  |  | $ | 17,724 |  |  | $ | 24,111 |  |  | $ | 641 |

A loan is considered to be collateral-dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. At March 31, 2025 and December 31, 2024, substantially all individually evaluated loans were collateral-dependent and consisted primarily of commercial real estate, acquisition and development and residential mortgage loans, which were primarily secured by commercial or residential real estate.
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The following table presents the amortized cost basis of collateral-dependent loans by class as of March 31, 2025 and December 31, 2024:

| Type of Collateral
March 31, 2025 | Business Assets |  | Commercial Real Estate |  | Equipment |  | Land |  | Residential Real Estate |  |  |  | Other |  | Total
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied | $ | — |  |  | $ | 5,648 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | — |  |  | $ | 5,648 |
Non-owner occupied | — |  |  | 1,360 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |  |  | 1,360 |
Non-owner occupied residential | — |  |  | 278 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |  |  | 278 |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and land development | — |  |  | 3,642 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |  |  | 3,642 |
Agricultural | — |  |  | — |  |  | — |  |  | 790 |  |  | — |  |  |  |  | — |  |  | 790 |
Commercial and industrial | 1,726 |  |  | — |  |  | 1,287 |  |  | — |  |  | — |  |  |  |  | — |  |  | 3,013 |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien | — |  |  | — |  |  | — |  |  | — |  |  | 5,297 |  |  |  |  | — |  |  | 5,297 |
Home equity - term | — |  |  | — |  |  | — |  |  | — |  |  | 69 |  |  |  |  | — |  |  | 69 |
Home equity - lines of credit | — |  |  | — |  |  | — |  |  | — |  |  | 2,411 |  |  |  |  | — |  |  | 2,411 |
Installment and other loans | — |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  |  |  | — |  |  | 3 |
Total | $ | 1,726 |  |  | $ | 10,928 |  |  | $ | 1,290 |  |  | $ | 790 |  |  | $ | 7,777 |  |  |  |  | $ | — |  |  | $ | 22,511 |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied | $ | — |  |  | $ | 4,269 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | — |  |  | $ | 4,269 |
Non-owner occupied | — |  |  | 1,463 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |  |  | 1,463 |
Multi-family | — |  |  | 721 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |  |  | 721 |
Non-owner occupied residential | — |  |  | 175 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |  |  | 175 |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and land development | — |  |  | 3,381 |  |  | — |  |  | 277 |  |  | — |  |  |  |  | — |  |  | 3,658 |
Agricultural | — |  |  | — |  |  | — |  |  | 797 |  |  | — |  |  |  |  | — |  |  | 797 |
Commercial and industrial | 1,919 |  |  | — |  |  | 3,515 |  |  | — |  |  | — |  |  |  |  | — |  |  | 5,434 |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien | — |  |  | — |  |  | — |  |  | — |  |  | 5,007 |  |  |  |  | — |  |  | 5,007 |
Home equity - term | — |  |  | — |  |  | — |  |  | — |  |  | 70 |  |  |  |  | — |  |  | 70 |
Home equity - lines of credit | — |  |  | — |  |  | — |  |  | — |  |  | 2,344 |  |  |  |  | — |  |  | 2,344 |
Installment and other loans | — |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  |  |  | 9 |  |  | 12 |
Total | $ | 1,919 |  |  | $ | 10,009 |  |  | $ | 3,518 |  |  | $ | 1,074 |  |  | $ | 7,421 |  |  |  |  | $ | 9 |  |  | $ | 23,950 |

The Company may modify loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, interest rate reduction or an other-than-insignificant payment delay. When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL. The Company may also provide multiple types of modifications on an individual loan. During the three months ended March 31, 2025, the Company extended modifications to three borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan. The Company did not extend modifications to borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan during the three months ended March 31, 2024. For loans previously modified to borrowers experiencing financial difficulty, there were FDMs totaling $1.0 million that were 90 days or more past due and accruing. The Company had committed to lend additional amounts to one commercial client, who was experiencing financial difficulty, with a loan previously modified that was a FDM. At March 31, 2025, the total commitment was $350 thousand and the outstanding loan balance was $50 thousand.
The following tables presents the amortized cost of loans at March 31, 2025 that were both experiencing financial difficulty and modified during the three months ended March 31, 2025, by loan class and by type of modification. The
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percentage of the amortized cost of loans that were modified to borrowers experiencing difficulty as compared to the amortized cost of loan class is also presented below.

Three Months Ended March 31, 2025 | Principal Forgiveness |  | Payment Delay |  | Term Extension |  | Interest Rate Reduction |  | Combination Term Extension and Principal Forgiveness |  | Combination Term Extension and Interest Rate Reductions |  | Total Class of Financing Receivable
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied | — |  |  | — |  |  | 8 |  |  | — |  |  | — |  |  | — |  |  | — | %
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and land development | — |  |  | — |  |  | 5,016 |  |  | — |  |  | — |  |  | — |  |  | 2.21 | %
Total: | — |  |  | — |  |  | 5,024 |  |  | — |  |  | — |  |  | — |  |  |

The Company monitors the performance of the modified loans to borrowers experiencing financial difficulty to determine the effectiveness of its modification efforts. The following table presents the performance of the loans modified during the three months ended March 31, 2025, which includes loans that remain on nonaccrual status:

March 31, 2025 | Current |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days or More Past Due |  | Total |  | Non-Accrual
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Owner-occupied | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 8 |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |
1-4 family residential construction | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial and land development | 4,747 |  |  | — |  |  | — |  |  | — |  |  | 4,747 |  |  | 269 |
Total: | 4,747 |  |  | — |  |  | — |  |  | — |  |  | 4,747 |  |  | 277 |

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three and three months ended March 31, 2025:

March 31, 2025 | Principal Forgiveness |  | Weighted Average Interest Rate Reduction |  | Weighted Average Term Extension (in years)
Commercial real estate: |  |  |  |  |
Owner-occupied | $ | — |  |  | — | % |  | 0.3
Acquisition and development: |  |  |  |  |
Commercial and land development | — |  |  | — | % |  | 0.5

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Management further monitors the performance and credit quality of the loan portfolio by analyzing the length of time a portfolio is past due by aggregating loans based on its delinquencies. The following table presents the classes of the loan portfolio summarized by aging categories at March 31, 2025 and December 31, 2024:

| 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90+ Days Past Due |  | Total Past Due |  | Loans Not Past Due |  | Total Loans
March 31, 2025 |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Owner occupied | $ | 1,546 |  |  | $ | 899 |  |  | $ | 1,345 |  |  | $ | 3,790 |  |  | $ | 614,064 |  |  | $ | 617,854 |
Non-owner occupied | 146 |  |  | — |  |  | — |  |  | 146 |  |  | 1,157,237 |  |  | 1,157,383 |
Multi-family | 938 |  |  | — |  |  | — |  |  | 938 |  |  | 256,786 |  |  | 257,724 |
Non-owner occupied residential | 140 |  |  | 74 |  |  | 178 |  |  | 392 |  |  | 167,962 |  |  | 168,354 |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |
1-4 family residential construction | 2,095 |  |  | — |  |  | — |  |  | 2,095 |  |  | 38,526 |  |  | 40,621 |
Commercial and land development | 734 |  |  | — |  |  | 3,005 |  |  | 3,739 |  |  | 223,695 |  |  | 227,434 |
Agricultural | 185 |  |  | — |  |  | 845 |  |  | 1,030 |  |  | 133,886 |  |  | 134,916 |
Commercial and industrial | 245 |  |  | 76 |  |  | 2,089 |  |  | 2,410 |  |  | 453,084 |  |  | 455,494 |
Municipal | — |  |  | — |  |  | — |  |  | — |  |  | 30,780 |  |  | 30,780 |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |
First lien | 22,834 |  |  | 2,108 |  |  | 1,780 |  |  | 26,722 |  |  | 437,920 |  |  | 464,642 |
Home equity - term | 27 |  |  | — |  |  | 88 |  |  | 115 |  |  | 9,109 |  |  | 9,224 |
Home equity - lines of credit | 1,690 |  |  | 413 |  |  | 1,263 |  |  | 3,366 |  |  | 292,454 |  |  | 295,820 |
Installment and other loans | 67 |  |  | — |  |  | 3 |  |  | 70 |  |  | 15,669 |  |  | 15,739 |
| $ | 30,647 |  |  | $ | 3,570 |  |  | $ | 10,596 |  |  | $ | 44,813 |  |  | $ | 3,831,172 |  |  | $ | 3,875,985 |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Owner occupied | $ | 1,753 |  |  | $ | 2,070 |  |  | $ | 1,433 |  |  | $ | 5,256 |  |  | $ | 628,311 |  |  | $ | 633,567 |
Non-owner occupied | 1,251 |  |  | 148 |  |  | 72 |  |  | 1,471 |  |  | 1,158,767 |  |  | 1,160,238 |
Multi-family | 124 |  |  | — |  |  | 237 |  |  | 361 |  |  | 273,774 |  |  | 274,135 |
Non-owner occupied residential | 1,383 |  |  | 115 |  |  | 65 |  |  | 1,563 |  |  | 177,949 |  |  | 179,512 |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |
1-4 family residential construction | 1,540 |  |  | 532 |  |  | — |  |  | 2,072 |  |  | 45,360 |  |  | 47,432 |
Commercial and land development | 818 |  |  | — |  |  | 3,301 |  |  | 4,119 |  |  | 237,305 |  |  | 241,424 |
Agricultural | 466 |  |  | 845 |  |  | — |  |  | 1,311 |  |  | 123,845 |  |  | 125,156 |
Commercial and industrial | 410 |  |  | 280 |  |  | 4,459 |  |  | 5,149 |  |  | 446,235 |  |  | 451,384 |
Municipal | 237 |  |  | — |  |  | — |  |  | 237 |  |  | 29,807 |  |  | 30,044 |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |
First lien | 17,534 |  |  | 4,827 |  |  | 2,822 |  |  | 25,183 |  |  | 435,114 |  |  | 460,297 |
Home equity - term | 37 |  |  | 69 |  |  | 18 |  |  | 124 |  |  | 5,864 |  |  | 5,988 |
Home equity - lines of credit | 3,612 |  |  | 318 |  |  | 1,208 |  |  | 5,138 |  |  | 298,423 |  |  | 303,561 |
Installment and other loans | 94 |  |  | 11 |  |  | 12 |  |  | 117 |  |  | 18,359 |  |  | 18,476 |
| $ | 29,259 |  |  | $ | 9,215 |  |  | $ | 13,627 |  |  | $ | 52,101 |  |  | $ | 3,879,113 |  |  | $ | 3,931,214 |

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The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the consolidated statements of income. Management calculates the quantitative portion of collectively evaluated loans for all loan categories, with the exception of the consumer loan segment, using DCF methodology. For purposes of calculating the quantitative portion of collectively evaluated reserves on the consumer loan segment, the remaining life methodology is utilized. For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code, which represents the loan classes based upon U.S. regulatory loan classification rules, in order to group loans with similar risk characteristics.
Loans that do not share similar risk characteristics are evaluated on an individual loan basis, and are excluded from the collective evaluation for the ACL. Loans identified to be individually evaluated under CECL include loans on nonaccrual status and may include accruing loans that do not share similar risk characteristics to other accruing loans that are collectively evaluated on a loan pool basis. A specific analytical method is applied to the individually evaluated loans, which considers collateral value, an observable market price or the present value of expected future cash flows. A specific reserve is assigned if the measured value of the loan using one of the before mentioned methods is less than the current carrying value of the loan.
Based on management's analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the quantitatively calculated reserve calculated on collectively evaluated loans. As the quantitative reserve calculation incorporates historical conditions, management may consider an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions, which may be assigned at different levels of significance: minor, moderate or major. These qualitative risk factors considered by management include significant or unexpected changes in:
Nature and Volume of Loans – including loan growth in the current and subsequent quarters based on the Company’s targeted growth and strategic plan, coupled with the types of loans booked based on risk management and credit culture; the number of exceptions to loan policy; and supervisory loan to value exceptions.
Concentrations of Credit and Changes within Credit Concentrations – including the composition of the Company’s overall portfolio makeup and management's evaluation related to concentration risk management and the inherent risk associated with the concentrations identified.
Lending Policies and Procedures, Underwriting Standards and Recovery Practices – including changes to credit policies and procedures, underwriting standards and perceived impact on anticipated losses, trends in the number of exceptions to loan policy, supervisory loan to value exceptions; and administration of loan recovery practices.
Delinquency and Classified Loan Trends – including delinquency percentages and internal loan ratings noted in the portfolio relative to economic conditions, severity of the delinquencies and the ratings and whether the ratios are trending upwards or downwards.
Collateral Valuation Trends – including underlying market conditions and impact on the collateral values securing the loans.
Experience, Ability and Depth of Management/Lending staff – including the level of experience of senior and middle management and the lending staff, turnover of the staff, and instances of repeat criticisms.
Quality of Loan Review System – including the level of experience of the loan review staff, in-house versus outsourced provider of review, turnover of the staff and instances of repeat criticisms from independent testing, which includes the evaluation of internal loan ratings of the portfolio.
Economic Conditions – including trends in the international, national, regional and local conditions that monitor the interest rate environment, inflationary pressures, the consumer price index, the housing price index, housing statistics, and bankruptcy rates.
Other External Factors - including regulatory and legal environment risks and competition.
All factors noted above were deemed appropriate at March 31, 2025. For the three months ended March 31, 2025, a qualitative factor was added at a minor level for Other External Factors for all loan classes due to the uncertainty created within the global and domestic markets from changes in U.S. economic policy, including the recently implemented tariffs, the Economic Conditions qualitative factor at a minor level and the Delinquency and Classified Loan Trends qualitative factor at a moderate level were added for the residential senior liens loan class and the Delinquency and Classified Loan Trends qualitative factor at a moderate level was added for the home equity loan class. An adjustment to the Economic Conditions qualitative factor was based on current market interest rates and prepayment speeds, and the adjustment to Delinquency and Classified Loan Trends was based on delinquencies and downgrades within the aforementioned loan classes.
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The following table presents the activity in the ACL for the three months ended March 31, 2025 and 2024:

| Commercial |  | Consumer |  |  |  |
| Commercial Real Estate |  | Acquisition and Development |  | Agricultural |  | Commercial and Industrial |  | Municipal |  | Total |  | Residential Mortgage |  | Installment and Other |  | Total |  |  |  | Total
Three Months Ended |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period | $ | 29,551 |  |  | $ | 6,601 |  |  | $ | 110 |  |  | $ | 6,190 |  |  | $ | 320 |  |  | $ | 42,772 |  |  | $ | 5,240 |  |  | $ | 677 |  |  | $ | 5,917 |  |  |  |  | $ | 48,689 |
Provision for credit losses | (3,587) |  |  | (452) |  |  | 78 |  |  | 1,236 |  |  | 107 |  |  | (2,618) |  |  | 1,998 |  |  | 66 |  |  | 2,064 |  |  |  |  | (554) |
Charge-offs | (75) |  |  | — |  |  | (25) |  |  | (517) |  |  | — |  |  | (617) |  |  | — |  |  | (276) |  |  | (276) |  |  |  |  | (893) |
Recoveries | 4 |  |  | 1 |  |  | — |  |  | 453 |  |  | — |  |  | 458 |  |  | 74 |  |  | 30 |  |  | 104 |  |  |  |  | 562 |
Balance, end of period | $ | 25,893 |  |  | $ | 6,150 |  |  | $ | 163 |  |  | $ | 7,362 |  |  | $ | 427 |  |  | $ | 39,995 |  |  | $ | 7,312 |  |  | $ | 497 |  |  | $ | 7,809 |  |  |  |  | $ | 47,804 |
March 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period | $ | 17,873 |  |  | $ | 2,241 |  |  | $ | 437 |  |  | $ | 5,369 |  |  | $ | 157 |  |  | $ | 26,077 |  |  | $ | 2,424 |  |  | $ | 201 |  |  | $ | 2,625 |  |  |  |  | $ | 28,702 |
Provision for loan losses | 78 |  |  | (9) |  |  | (44) |  |  | (417) |  |  | 7 |  |  | (385) |  |  | 763 |  |  | 43 |  |  | 806 |  |  |  |  | 421 |
Charge-offs | — |  |  | — |  |  | — |  |  | (46) |  |  | — |  |  | (46) |  |  | — |  |  | (53) |  |  | (53) |  |  |  |  | (99) |
Recoveries | 24 |  |  | 1 |  |  | — |  |  | 90 |  |  | — |  |  | 115 |  |  | 6 |  |  | 20 |  |  | 26 |  |  |  |  | 141 |
Balance, end of period | $ | 17,975 |  |  | $ | 2,233 |  |  | $ | 393 |  |  | $ | 4,996 |  |  | $ | 164 |  |  | $ | 25,761 |  |  | $ | 3,193 |  |  | $ | 211 |  |  | $ | 3,404 |  |  |  |  | $ | 29,165 |

NOTE 5. LEASES
A lease provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. The Company has primarily entered into operating leases for branches and office space. Most of the Company's leases contain renewal options, which the Company is reasonably certain to exercise. Including renewal options, the Company's leases range from 3 to 28 years. Operating and finance lease right-of-use assets are included in other assets, operating lease liabilities are included in other liabilities and the finance lease liability is included in other borrowings on the Company's unaudited condensed consolidated balance sheets.
The Company uses its incremental borrowing rate to determine the present value of the lease payments, as the rate implicit in the Company's leases is not readily determinable. Lease agreements that contain non-lease components are generally accounted for as a single lease component, while variable costs, such as common area maintenance expenses and property taxes, are expensed as incurred.
The following table summarizes the Company's operating leases at March 31, 2025 and December 31, 2024.

| March 31, 2025 |  | December 31, 2024
Operating lease ROU assets | $ | 13,439 |  |  | $ | 13,438 |
Operating lease ROU liabilities | 14,234 |  |  | 14,270 |
Weighted-average remaining lease term (in years) | 15.4 |  | 15.6
Weighted-average discount rate | 4.9 | % |  | 4.8 | %

The following table summarizes the Company's finance lease at March 31, 2025 and December 31, 2024.

| March 31, 2025 |  | December 31, 2024
Financing lease assets | $ | 346 |  |  | $ | 362 |
Weighted-average remaining lease term (in years) | 4.9 |  | 5.2
Weighted-average discount rate | 5.0 | % |  | 5.0 | %

The following table presents information related to the Company's operating leases for the three months ended March 31, 2025 and 2024:

|  |  | Three Months Ended
|  |  |  |  | March 31, 2025 |  | March 31, 2024
Cash paid for operating lease liabilities |  |  |  |  | $ | 393 |  |  | $ | 335 |
Cash paid for finance lease liabilities |  |  |  |  | 19 |  |  | n/a
Operating lease expense |  |  |  |  | 856 |  |  | 356 |

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The following table presents expected future maturities of the Company's operating lease liabilities as of March 31, 2025:

2025 | $ | 1,188 |
2026 | 1,610 |
2027 | 1,644 |
2028 | 1,377 |
2029 | 1,295 |
Thereafter | 13,955 |
| 21,069 |
Less: imputed interest | 6,835 |
Total operating lease liabilities | $ | 14,234 |

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
At both March 31, 2025 and December 31, 2024, goodwill was $68.1 million. During 2024, $49.4 million of goodwill was added through the Merger with Codorus Valley. As permitted under GAAP, the Company has up to twelve months following the date of the merger to finalize the fair values of the acquired assets and assumed liabilities related to the merger of Codorus Valley. During this measurement period, the Company may record subsequent adjustments to goodwill for provisional amounts recorded at the merger date.

| March 31, 2025 |  | December 31, 2024
Balance, beginning of year | $ | 68,106 |  |  | $ | 18,724 |
Acquired goodwill | — |  |  | 49,382 |
Balance, end of period | $ | 68,106 |  |  | $ | 68,106 |

Goodwill is not amortized, but is reviewed for potential impairment on at least an annual basis, with testing between annual tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit. The Company conducted its last annual goodwill impairment test as of November 30, 2024 using generally accepted valuation methods. As a result of that impairment test, no goodwill impairment was identified. No changes occurred that would impact the results of that analysis through March 31, 2025. No impairment charges were recorded in the three months ended March 31, 2025 and 2024.
The Company acquired core deposit intangibles of $40.1 million and customer relationship intangible assets associated with wealth and brokerage businesses totaling $10.6 million from the Merger. The core deposit intangible and customer relationship intangible assets are amortized based on the sum-of-the-years digits method over the expected life of 10 years. The Company also acquired an investment advisory business and related accounts with assets under management of $85.0 million on July 1, 2024. In connection with this acquisition, the Company recorded an intangible asset totaling $374 thousand associated with the customer list, which will be amortized based on the sum-of-the-years digits method over the expected life of seven years.
The following table presents changes in and components of other intangible assets for the three months ended March 31, 2025 and 2024. No impairment charges were recorded on other intangible assets during the three months ended March 31, 2025 and 2024.

|  |  | Three Months Ended March 31,
|  |  |  |  | 2025 |  | 2024
Beginning of period |  |  |  |  | $ | 47,765 |  |  | $ | 2,414 |
Amortization expense |  |  |  |  | (2,535) |  |  | (225) |
Balance, end of period |  |  |  |  | $ | 45,230 |  |  | $ | 2,189 |

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The following table presents the components of other identifiable intangible assets at March 31, 2025 and December 31, 2024:

| March 31, 2025 |  | December 31, 2024
| Gross Amount |  | Accumulated Amortization |  | Gross Amount |  | Accumulated Amortization
Amortized intangible assets: |  |  |  |  |  |  |
Core deposit intangible | $ | 48,530 |  |  | $ | 12,950 |  |  | $ | 48,530 |  |  | $ | 10,911 |
Customer relationship intangibles | 11,242 |  |  | 1,592 |  |  | 11,242 |  |  | 1,096 |
Total | $ | 59,772 |  |  | $ | 14,542 |  |  | $ | 59,772 |  |  | $ | 12,007 |

The following table presents future estimated aggregate amortization expense for other identifiable intangible assets at March 31, 2025:

2025 | $ | 7,233 |
2026 | 8,587 |
2027 | 7,407 |
2028 | 6,228 |
2029 | 5,127 |
Thereafter | 10,648 |
Total other identifiable intangible assets | $ | 45,230 |

NOTE 7. SHARE-BASED COMPENSATION PLANS
The Company maintains share-based compensation plans under the shareholder-approved 2011 Plan. The purpose of the share-based compensation plans is to provide officers, employees, and non-employee members of the Board of Directors of the Company with additional incentive to further the success of the Company, and awards may consist of grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, deferred stock units and performance shares. All employees and members of the Board of Directors of the Company and its subsidiaries are eligible to participate in the 2011 Plan. The 2011 Plan allows for the Compensation Committee of the Board of Directors to determine the type of incentive to be awarded, its term, manner of exercise, vesting and restrictions on shares. Generally, awards are nonqualified under the IRC, unless the awards are deemed to be incentive awards to employees at the Compensation Committee’s discretion.
At March 31, 2025, 1,281,920 shares of the common stock of the Company were reserved, of which 14,384 shares were available to be issued.
The following table presents a summary of nonvested restricted shares activity for the three months ended March 31, 2025:

| Shares |  | Weighted Average Grant Date Fair Value
Nonvested shares, beginning of year | 264,328 |  |  | $ | 26.73 |
Granted | 96,689 |  |  | 33.43 |
Forfeited | (1,300) |  |  | 33.80 |
Vested | (43,263) |  |  | 26.80 |
Nonvested shares, at period end | 316,454 |  |  | $ | 28.74 |

The following table presents restricted share compensation expense, with tax benefit information, and fair value of shares vested, for the three months ended March 31, 2025 and 2024:

|  |  | Three months ended March 31,
|  |  |  |  | 2025 |  | 2024
Restricted share award expense |  |  |  |  | $ | 1,354 |  |  | $ | 945 |
Restricted share award tax benefit |  |  |  |  | 284 |  |  | 198 |
Fair value of shares vested |  |  |  |  | 1,475 |  |  | 2,888 |

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The unrecognized compensation expense related to the share awards totaled $5.3 million at March 31, 2025 and $3.6 million at December 31, 2024. The unrecognized compensation expense at March 31, 2025 is expected to be recognized over a weighted-average period of 1.9 years.
The following table presents the summary of stock option activity as of March 31, 2025. The weighted average of remaining contractual term of shares exercisable is 1.3 years.

| Shares |  | Weighted Average Exercise Price |  |
Outstanding at December 31, 2024 | 50,007 |  |  | $ | 23.13 |  |  |
Exercised | (9,458) |  |  | 26.63 |  |  |
Outstanding at end of period | 40,549 |  |  | 22.31 |  |  |
Fully vested and expected to vest | 40,549 |  |  | 22.31 |  |  |
Exercisable, at period end | 40,549 |  |  | $ | 22.31 |  |  |

The following table presents information about stock options exercised for the three months ended March 31, 2025:

| March 31, 2025 |  |
Total intrinsic value of options exercised | $ | 42 |  |  |
Cash received from options exercised | 252 |  |  |
Tax benefit realized from stock options exercised | 9 |  |  |

The Company maintains an employee stock purchase plan to provide employees of the Company with an opportunity to purchase Company common stock. Eligible employees may purchase shares in an amount that does not exceed the lesser of the IRS limit of $25,000 or 10% of their annual salary at the lower of 95% of the fair market value of the shares on the semi-annual offering date, or related purchase date. The purchases occur in March and September of each year. The Company reserved 350,000 shares of its common stock to be issued under the employee stock purchase plan. At March 31, 2025, 125,647 shares were available to be issued.
The following table presents information for the employee stock purchase plan for the three months ended March 31, 2025 and 2024:

|  |  | Three months ended March 31,
|  |  |  |  | 2025 |  | 2024
Shares purchased |  |  |  |  | 2,080 |  |  | 3,850 |
Weighted average price of shares purchased |  |  |  |  | $ | 31.83 |  |  | $ | 20.67 |
Compensation expense recognized |  |  |  |  | $ | 3 |  |  | $ | 22 |

The Company issues new shares or treasury shares, depending on market conditions, in its share-based compensation plans.
NOTE 8. DEPOSITS
The following table summarizes deposits by type at March 31, 2025 and December 31, 2024.

| 2025 |  | 2024
Noninterest-bearing demand deposits | $ | 932,152 |  |  | $ | 894,176 |
Interest-bearing demand deposits | 1,207,227 |  |  | 1,154,761 |
Money market and savings | 1,548,898 |  |  | 1,581,267 |
Time ($250,000 or less) | 780,848 |  |  | 822,781 |
Time (over $250,000) | 164,591 |  |  | 170,111 |
Total | $ | 4,633,716 |  |  | $ | 4,623,096 |

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NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and also through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used as risk management tools by the Company to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investment securities and borrowings and are not used for trading or speculative purposes.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.
Interest rate swaps designated as cash flow hedges involve limiting the Company's exposure to fluctuations in future cash flows through the receipt of fixed or variable amounts from a counterparty in exchange for the Company making variable-rate or fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period due to circumstances. Upon discontinuance, the associated gains and losses deferred in AOCI are reclassified immediately into earnings and subsequent changes in the fair value of the cash flow hedge are recognized in earnings.
At both March 31, 2025 and December 31, 2024, the Company had one interest rate swap designated as a cash flow hedge with a notional value of $75.0 million, which was a pay-fixed hedge for the purpose of hedging variable cash flows associated with the Company's borrowings. During the three months ended March 31, 2025, the Company did not enter into new interest rate swaps designated as cash flow hedges.
Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. The gain or loss on the fair value hedge, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as the fair value changes. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability.
During the three months ended March 31, 2025, the Company terminated its three pay-fixed interest rate swaps with a total notional value of $100.0 million, which were on closed portfolio loans with the Bank's commercial clients. The Company recorded a gain from the termination of $129 thousand, which was included in other noninterest income in the unaudited consolidated statements of income. The interest rate swaps are designated as fair value hedges and allow the Company to offer long-term fixed rate loans to commercial clients while mitigating the interest rate risk of a long-term asset by converting fixed rate interest payments to floating rate interest payments indexed to a synthetic U.S. SOFR rate.
The Company enters into interest rate swap agreements that allow its commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate loan into a fixed-rate loan. In addition, the Company may enter into interest rate caps that allow its commercial loan customers to gain protection against significant interest rate increases and provide an upper limit, or cap, on the variable interest rate. The Company then enters into a corresponding swap or cap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps and interest rate caps with both the customers and third parties are not designated as hedges and are marked through earnings. At March 31, 2025, the Company had 74 customer and 74 corresponding third-party broker interest rate derivatives not designated as a hedging instrument with an aggregate notional amount of $836.8 million compared to $789.3 million in notional amount of such derivative instruments at December 31, 2024. During the three months ended March 31, 2025, the Company entered into nine new interest rate swaps with a commercial loan customer and recorded swap fee income of $394 thousand. The Company entered into one new interest rate swap and recorded $199 thousand in swap fee income during the three months ended
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March 31, 2024. Swap fee income is included in other noninterest income in the unaudited condensed consolidated statements of income.
At March 31, 2025 and December 31, 2024, the Company had cash collateral of $5.1 million and $6.7 million with third parties for certain of these derivatives, respectively. At March 31, 2025 and December 31, 2024, the Company held cash collateral of $2.9 million and $8.3 million from a counterparty for these derivatives, respectively.
The Company also may enter into risk participation agreements with a financial institution counterparty for an interest rate derivative contract related to a loan in which the Company may be a participant or the agent bank. The risk participation agreement provides credit protection to the agent bank should the borrower fail to perform on its interest rate derivative contracts with the agent bank. The Company manages its credit risk on the risk participation agreement by monitoring the creditworthiness of the borrower, which is based on the same credit review process as though the Company had entered into the derivative instruments directly with the borrower. The notional amount of such risk participation agreement reflects the Company’s pro-rata share of the derivative instrument, consistent with its share of the related participated loan. At March 31, 2025 and December 31, 2024, the Company had five and six risk participation agreements with sold protection with a notional value of $39.8 million and $47.5 million, respectively. In addition, the Company had five risk participations with purchased protection with a notional value of $23.7 million at both March 31, 2025 and December 31, 2024. The Company did not enter into any risk participation agreements during the three months ended March 31, 2025. One risk participation with sold protection was terminated during the three months ended March 31, 2025. The Company did not enter into any new risk participations during the three months ended March 31, 2024.
As a part of its normal residential mortgage operations, the Company will enter into an interest rate lock commitment with a potential borrower. The Company may enter into a corresponding commitment with an investor to sell that loan at a specific price shortly after origination. In accordance with FASB ASC 820, adjustments are recorded through earnings to account for the net change in fair value of these transactions for the held for sale loan pipeline. The fair value of held for sale loans can vary based on the interest rate locked with the customer and the current market interest rate at the balance sheet date.
The following table summarizes the fair value of the Company's derivative instruments at March 31, 2025 and December 31, 2024:

| March 31, 2025 |  | December 31, 2024
| Notional Amount |  | Balance Sheet Location |  | Fair Value |  | Notional Amount |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Cash flow hedge designation: |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps -FHLB advances | $ | 75,000 |  |  | Other assets |  | $ | 222 |  |  | $ | 75,000 |  |  | Other assets |  | $ | 1,138 |
Fair value hedge designation: |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps - commercial loans | n/a |  | Other liabilities |  | n/a |  | 100,000 |  |  | Other liabilities |  | (252) |
Total derivatives designated as hedging instruments |  |  |  |  | $ | 222 |  |  |  |  |  |  | $ | 886 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 412,610 |  |  | Other assets |  | $ | 12,908 |  |  | $ | 388,851 |  |  | Other assets |  | $ | 12,240 |
Interest rate swaps | 412,610 |  |  | Other liabilities |  | (13,158) |  |  | 388,851 |  |  | Other liabilities |  | (12,239) |
Purchased options – rate cap | 5,787 |  |  | Other assets |  | 2 |  |  | 5,813 |  |  | Other assets |  | 5 |
Written options – rate cap | 5,787 |  |  | Other liabilities |  | (2) |  |  | 5,813 |  |  | Other liabilities |  | (5) |
Risk participations - sold credit protection | 39,790 |  |  | Other liabilities |  | (89) |  |  | 47,545 |  |  | Other liabilities |  | (79) |
Risk participations - purchased credit protection | 23,671 |  |  | Other assets |  | 61 |  |  | 23,726 |  |  | Other assets |  | 48 |
Interest rate lock commitments with customers | 5,161 |  |  | Other assets |  | 113 |  |  | 679 |  |  | Other assets |  | 20 |
Forward sale commitments | 4,836 |  |  | Other liabilities |  | (1) |  |  | 6,508 |  |  | Other assets |  | 24 |
Total derivatives not designated as hedging instruments |  |  |  |  | $ | (166) |  |  |  |  |  |  | $ | 14 |

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The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of March 31, 2025 and 2024.

| Carrying Amounts of Hedged Assets |  | Cumulative Amounts of Fair Value Hedging Adjustments Included in the Carrying Amounts of the Hedged Assets
| Three Months Ended March 31, |  | Three Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Commercial loans | $ | — |  |  | $ | 100,000 |  |  | $ | — |  |  | $ | (9) |

The following tables summarize the effect of the Company's derivative financial instruments on OCI and net income for the three months ended March 31, 2025 and 2024:

| Amount of (Loss) Gain Recognized in OCI on Derivative |  |
| Three Months Ended March 31, |  |
| 2025 |  | 2024 |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |
Interest rate products | $ | (916) |  |  | $ | 1,428 |  |  |  |  |

|  |  | Amount of Loss Reclassified from AOCI into Income |  | Location of Loss Recognized from AOCI into Income
|  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2025 |  | 2024 |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |
Interest rate products |  |  |  |  | $ | — |  |  | $ | — |  |  | Interest income

|  |  | Amount of (Loss) Gain Recognized in Income |  | Location of Gain Recognized in Income
|  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2025 |  | 2024 |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |
Fair value hedge designation: |  |  |  |  |  |  |  |  |
Interest rate swaps - commercial loans (1) |  |  |  |  | $ | (1) |  |  | $ | 3 |  |  | Interest income on loans
Derivatives not designated as hedging instruments: |  |  |  |  |  |
Interest rate products |  |  |  |  | $ | (252) |  |  | $ | 44 |  |  | Other operating expenses
Risk participation agreements |  |  |  |  | 3 |  |  | 81 |  |  | Other operating expenses
Interest rate lock commitments with customers |  |  |  |  | 93 |  |  | 2 |  |  | Mortgage banking activities
Forward sale commitments |  |  |  |  | (25) |  |  | 2 |  |  | Mortgage banking activities
Total derivatives not designated as hedging instruments |  |  |  |  | $ | (181) |  |  | $ | 129 |  |  |
(1) Amount includes the net of the change in the fair value of the interest rate swaps hedging commercial loans and the change in the carrying value included in the hedged commercial loans.

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The following table is a summary of components for interest rate swaps designated as hedging instruments at March 31, 2025 and December 31, 2024:

| Weighted Average Pay Rate |  | Weighted Average Receive Rate |  | Weighted Average Maturity in Years
March 31, 2025 |  |  |  |  |
Cash flow hedge designation: |  |  |  |  |
Interest rate swaps - FHLB advances | 3.49 | % |  | 4.34 | % |  | 3.0
December 31, 2024 |  |  |  |  |
Cash flow hedge designation: |  |  |  |  |
Interest rate swaps - FHLB advances | 3.49 | % |  | 4.53 | % |  | 3.3
Fair value hedge designation: |  |  |  |  |
Interest rate swaps - commercial loans | 4.12 | % |  | 4.53 | % |  | 2.7

NOTE 10. SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under the Basel Committee on Banking Supervision's capital guidelines for U.S. Banks, an entity must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The Company and the Bank have elected not to include net unrealized gains or losses included in AOCI in computing regulatory capital.
The Company and the Bank met all capital adequacy requirements to which they are subject at March 31, 2025 and December 31, 2024. Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2025, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's classification.
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The following table presents capital amounts and ratios at March 31, 2025 and December 31, 2024:

| Actual |  | For Capital Adequacy Purposes (includes applicable capital conservation buffer) |  | To Be Well Capitalized Under Prompt Corrective Action Provisions
| Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio
March 31, 2025 |  |  |  |  |  |  |  |  |  |  |
Total risk-based capital: |  |  |  |  |  |  |  |  |  |  |
Orrstown Financial Services, Inc. | $ | 558,790 |  |  | 13.1 | % |  | $ | 448,390 |  |  | 10.5 | % |  | n/a |  | n/a
Orrstown Bank | 555,955 |  |  | 13.0 | % |  | 448,396 |  |  | 10.5 | % |  | $ | 427,044 |  |  | 10.0 | %
Tier 1 risk-based capital: |  |  |  |  |  |  |  |  |  |  |
Orrstown Financial Services, Inc. | 460,912 |  |  | 10.8 | % |  | 362,982 |  |  | 8.5 | % |  | n/a |  | n/a
Orrstown Bank | 506,304 |  |  | 11.9 | % |  | 362,987 |  |  | 8.5 | % |  | 341,635 |  |  | 8.0 | %
Tier 1 common equity risk-based capital: |  |  |  |  |  |  |  |  |  |  |
Orrstown Financial Services, Inc. | 453,162 |  |  | 10.6 | % |  | 298,927 |  |  | 7.0 | % |  | n/a |  | n/a
Orrstown Bank | 506,304 |  |  | 11.9 | % |  | 298,930 |  |  | 7.0 | % |  | 277,578 |  |  | 6.5 | %
Tier 1 leverage capital: |  |  |  |  |  |  |  |  |  |  |
Orrstown Financial Services, Inc. | 460,912 |  |  | 8.6 | % |  | 214,143 |  |  | 4.0 | % |  | n/a |  | n/a
Orrstown Bank | 506,304 |  |  | 9.5 | % |  | 214,266 |  |  | 4.0 | % |  | 267,833 |  |  | 5.0 | %
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |
Total risk-based capital: |  |  |  |  |  |  |  |  |  |  |
Orrstown Financial Services, Inc. | $ | 543,170 |  |  | 12.4 | % |  | $ | 458,593 |  |  | 10.5 | % |  | n/a |  | n/a
Orrstown Bank | 539,929 |  |  | 12.4 | % |  | 458,609 |  |  | 10.5 | % |  | $ | 436,770 |  |  | 10.0 | %
Tier 1 risk-based capital: |  |  |  |  |  |  |  |  |  |  |
Orrstown Financial Services, Inc. | 445,146 |  |  | 10.2 | % |  | 371,242 |  |  | 8.5 | % |  | n/a |  | n/a
Orrstown Bank | 490,029 |  |  | 11.2 | % |  | 371,255 |  |  | 8.5 | % |  | 349,416 |  |  | 8.0 | %
Tier 1 common equity risk-based capital: |  |  |  |  |  |  |  |  |  |  |
Orrstown Financial Services, Inc. | 437,456 |  |  | 10.0 | % |  | 305,728 |  |  | 7.0 | % |  | n/a |  | n/a
Orrstown Bank | 490,029 |  |  | 11.2 | % |  | 305,739 |  |  | 7.0 | % |  | 283,901 |  |  | 6.5 | %
Tier 1 leverage capital: |  |  |  |  |  |  |  |  |  |  |
Orrstown Financial Services, Inc. | 445,146 |  |  | 8.3 | % |  | 215,375 |  |  | 4.0 | % |  | n/a |  | n/a
Orrstown Bank | 490,029 |  |  | 9.1 | % |  | 215,375 |  |  | 4.0 | % |  | 269,219 |  |  | 5.0 | %

The Company maintains a stockholder dividend reinvestment and stock purchase plan. Under the plan, shareholders may purchase additional shares of the Company’s common stock at the prevailing market prices with reinvested dividends and voluntary cash payments. The Company reserved 1,045,000 shares of its common stock to be issued under the dividend reinvestment and stock purchase plan. At March 31, 2025, approximately 665,000 shares were available to be issued under the plan.
In September 2015, the Board of Directors of the Company authorized a share repurchase program pursuant to which the Company could repurchase up to 416,000 shares of the Company's outstanding shares of common stock, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act, as amended. On April 19, 2021, the Board of Directors authorized the additional repurchase of up to 562,000 shares of its outstanding common stock for a total of 978,000 shares. When and if appropriate, repurchases may be made in the open market or privately negotiated transactions, depending on market conditions, regulatory requirements and other corporate considerations, as determined by management. Share repurchases may not occur and may be discontinued at any time. For the three months ended March 31, 2025, the Company repurchased zero shares of its common stock. At March 31, 2025, 949,533 shares had been repurchased at a total cost of $21.2 million, or $22.36 per share. Common stock available for future repurchase totals 28,467 shares, or 0.1% of the Company's outstanding common stock at March 31, 2025.
On April 22, 2025, the Board of Directors declared a cash dividend of $0.26 per common share, which will be paid on May 13, 2025 to shareholders of record at May 6, 2025.
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NOTE 11. EARNINGS PER SHARE
The following table presents earnings per share for the three months ended March 31, 2025 and 2024:

|  |  | Three Months Ended March 31,
(shares presented in the table are in thousands) |  |  |  |  | 2025 |  | 2024
Net income |  |  |  |  | $ | 18,051 |  |  | $ | 8,531 |
Weighted average shares outstanding - basic |  |  |  |  | 19,157 |  |  | 10,349 |
Dilutive effect of share-based compensation |  |  |  |  | 171 |  |  | 133 |
Weighted average shares outstanding - diluted |  |  |  |  | 19,328 |  |  | 10,482 |
Per share information: |  |  |  |  |  |  |
Basic earnings per share |  |  |  |  | $ | 0.94 |  |  | $ | 0.82 |
Diluted earnings per share |  |  |  |  | 0.93 |  |  | 0.81 |

For the three months ended March 31, 2025 and 2024, there were average outstanding restricted award shares totaling 2,070 and 1,549 shares, respectively, excluded from the computation of earnings per share because the effect was antidilutive, as the grant price exceeded the average market price. The dilutive effect of share-based compensation in each period above relates to restricted stock awards and vested stock options assumed from the Merger.
NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the unaudited condensed consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The following table presents these contractual, or notional, amounts at March 31, 2025 and December 31, 2024.

| Contractual or Notional Amount
| March 31, 2025 |  | December 31, 2024
Commitments to fund: |  |  |
Home equity lines of credit | $ | 540,564 |  |  | $ | 538,204 |
1-4 family residential construction loans | 105,547 |  |  | 107,475 |
Commercial real estate, construction and land development loans | 190,587 |  |  | 236,445 |
Commercial, industrial and other loans | 602,556 |  |  | 706,783 |
Letters of credit | 35,148 |  |  | 42,691 |

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the client. Collateral varies but may include accounts receivable, inventory, equipment, residential real estate, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional commitments issued by the Company to guarantee the performance of a client to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to clients. The Company holds collateral supporting those commitments when deemed necessary by management. The liability at March 31, 2025 and December 31, 2024 for guarantees under standby letters of credit issued was not considered to be material.
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The Company maintains a reserve on its off-balance sheet credit exposures, which totaled $2.5 million at both March 31, 2025 and December 31, 2024, respectively, and is recorded in other liabilities on the unaudited condensed consolidated balance sheets. The reserve is based on management's estimate of expected losses in its off-balance sheet credit exposures. The reserve specific to unfunded loan commitments is determined by applying utilization assumptions based on historical experience and applying the expected loss rates by loan class. The change in the reserve for off-balance sheet credit exposures is recorded as a provision or reduction to expense through the provision for credit losses in the unaudited condensed consolidated statements of income. The Company recorded no provision for credit loss expense and a reversal of $123 thousand, respectively, for off-balance sheet credit exposures for the three months ended March 31, 2025 and 2024 in the unaudited condensed consolidated statements of income.
NOTE 13. FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are:
Level 1 – quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.
Level 2 – significant other observable inputs other than Level 1 prices such as prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3 – at least one significant unobservable input that reflects a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
In instances in which multiple levels of inputs are used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company used the following methods and significant assumptions to estimate fair value for instruments measured on a recurring basis:
Where quoted prices are available in an active market, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, investment securities are classified within Level 2 and fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or DCF. Level 2 investment securities include U.S. agency securities, MBS, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. The Company’s investment securities are classified as AFS.
The fair values of interest rate swaps, interest rate caps and risk participation derivatives are determined using models that incorporate readily observable market data into a market standard methodology. This methodology nets the discounted future cash receipts and the discounted expected cash payments. The discounted variable cash receipts and payments are based on expectations of future interest rates derived from observable market interest rate curves. In addition, fair value is adjusted for the effect of nonperformance risk by incorporating credit valuation adjustments for the Company and its counterparties. These assets and liabilities are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.
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The following table summarizes assets and liabilities measured at fair value on a recurring basis at March 31, 2025 and December 31, 2024:

| Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value Measurements
March 31, 2025 |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |
U.S. Treasury securities | $ | 18,417 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,417 |
U.S. Government Agencies | — |  |  | 2,800 |  |  | — |  |  | 2,800 |
States and political subdivisions | — |  |  | 191,449 |  |  | 5,657 |  |  | 197,106 |
GSE residential MBSs | — |  |  | 158,988 |  |  | — |  |  | 158,988 |
GSE commercial MBSs | — |  |  | 7,497 |  |  | — |  |  | 7,497 |
GSE residential CMOs | — |  |  | 351,407 |  |  | — |  |  | 351,407 |
Non-agency CMOs | — |  |  | 20,908 |  |  | 10,608 |  |  | 31,516 |
Asset-backed | — |  |  | 85,544 |  |  | — |  |  | 85,544 |
Corporate bonds | — |  |  | 1,974 |  |  | — |  |  | 1,974 |
Other | 207 |  |  | — |  |  | — |  |  | 207 |
Loans held for sale | — |  |  | 5,261 |  |  | — |  |  | 5,261 |
Derivatives | — |  |  | 13,192 |  |  | 113 |  |  | 13,305 |
Totals | $ | 18,624 |  |  | $ | 839,020 |  |  | $ | 16,378 |  |  | $ | 874,022 |
Financial Liabilities |  |  |  |  |  |  |
Derivatives | $ | — |  |  | $ | 13,248 |  |  | $ | — |  |  | $ | 13,248 |
December 31, 2024 |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |
U.S. Treasury securities | $ | 18,063 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,063 |
U.S. Government Agencies | — |  |  | 3,053 |  |  | — |  |  | 3,053 |
States and political subdivisions | — |  |  | 193,756 |  |  | 6,272 |  |  | 200,028 |
GSE residential MBSs | — |  |  | 151,548 |  |  | — |  |  | 151,548 |
GSE commercial MBSs | — |  |  | 8,792 |  |  | — |  |  | 8,792 |
GSE residential CMOs | — |  |  | 324,692 |  |  | — |  |  | 324,692 |
Non-agency CMOs | — |  |  | 22,636 |  |  | 10,648 |  |  | 33,284 |
Asset-backed | — |  |  | 88,103 |  |  | — |  |  | 88,103 |
Corporate bonds | — |  |  | 1,954 |  |  | — |  |  | 1,954 |
Other | 194 |  |  | — |  |  | — |  |  | 194 |
Loans held for sale | — |  |  | 6,614 |  |  | — |  |  | 6,614 |
Derivatives | — |  |  | 13,431 |  |  | 20 |  |  | 13,451 |
Totals | $ | 18,257 |  |  | $ | 814,579 |  |  | $ | 16,940 |  |  | $ | 849,776 |
Financial Liabilities |  |  |  |  |  |  |
Derivatives | $ | — |  |  | $ | 12,575 |  |  | $ | — |  |  | $ | 12,575 |

The Company had one municipal bond and two CMOs measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, 2025 and December 31, 2024. The Level 3 valuation is based on a non-executable broker quote, which is considered a significant unobservable input. Such quotes are updated as available and may remain constant for a period of time for certain broker-quoted securities that do not move with the market or that are not interest rate sensitive as a result of their structure or overall attributes.
The Company’s residential mortgage LHFS are recorded at fair value utilizing Level 2 measurements. This fair value measurement is determined based upon third party quotes obtained on similar loans. For loans held-for-sale, for which the fair value option has been elected, the aggregate fair value was greater than the aggregate principal balance by $139 thousand and $131 thousand as of March 31, 2025 and December 31, 2024, respectively.
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The determination of the fair value of interest rate lock commitments on residential mortgages is based on agreed upon pricing with the respective investor on each loan and includes a pull through percentage. The pull through percentage represents an estimate of loans in the pipeline to be delivered to an investor versus the total loans committed for delivery. Significant changes in this input could result in a significantly higher or lower fair value measurement. As the pull through percentage is a significant unobservable input, this is deemed a Level 3 valuation input. The average pull through percentage, which is based upon historical experience, was 92% as of March 31, 2025. An increase or decrease of 5% in the pull through assumption would result in a positive or negative change of $6 thousand in the fair value of interest rate lock commitments at March 31, 2025.
The following provides details of the Level 3 fair value measurement activity for the periods ended March 31, 2025 and 2024:
Investment securities:

|  |  | Three Months Ended March 31,
|  |  |  |  | 2025 |  | 2024
Balance, beginning of period |  |  |  |  | $ | 16,920 |  |  | $ | 27,853 |
Unrealized (losses) gains included in OCI |  |  |  |  | (539) |  |  | 96 |
Net discount accretion |  |  |  |  | 13 |  |  | 17 |
Principal payments and other |  |  |  |  | (129) |  |  | (125) |
Calls |  |  |  |  | — |  |  | (10,107) |
Balance, end of period |  |  |  |  | $ | 16,265 |  |  | $ | 17,734 |

Interest rate lock commitments on residential mortgages:

|  |  | Three Months Ended March 31,
|  |  |  |  | 2025 |  | 2024
Balance, beginning of period |  |  |  |  | $ | 20 |  |  | $ | 55 |
Total gains included in earnings |  |  |  |  | 93 |  |  | 1 |
Balance, end of period |  |  |  |  | $ | 113 |  |  | $ | 56 |

Certain financial assets are measured at fair value on a nonrecurring basis. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write-downs of individual assets. The Company used the following methods and significant assumptions to estimate fair value for these financial assets.
There were no transfers into or out of Level 3 during the three months ended March 31, 2025 and 2024.
Individually Evaluated Loans
Loans individually evaluated for credit expected losses include nonaccrual loans and other loans that do not share similar risk characteristics to loans in the CECL loan pools, which have been classified as Level 3. Individually evaluated loans with an allocation to the ACL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the unaudited condensed consolidated statements of income.
The measurement of loss associated with loans evaluated individually for all loan classes was based on either the observable market price of the loan, the fair value of the collateral or DCF. For collateral-dependent loans, fair value was measured based on the value of the collateral securing the loan, less estimated costs to sell. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The value of the real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if management adjusts the appraisal value, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal, if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3).
Changes in the fair value of individually evaluated loans still held and considered in the determination of the provision for credit losses were a decline of $595 thousand for the three months ended March 31, 2025, compared to a decline of $385 thousand for the three months ended March 31, 2024.
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Mortgage Servicing Rights
MSRs are evaluated for impairment by comparing the carrying value to the fair value, which is determined through a DCF valuation. To the extent the amortized cost of the MSRs exceeds their estimated fair values, a valuation allowance is established for such impairment. Fair value adjustments on the MSRs only occurs if there is an impairment charge. At March 31, 2025, the fair value of the MSR was $5.9 million, which exceeded the carrying value of $3.5 million. At December 31, 2024, the fair value of the MSR was $6.0 million, which exceeded the carrying value of $3.5 million. At March 31, 2025 and December 31, 2024, the MSR impairment reserve was zero for both periods. For the three months ended March 31, 2025 and 2024, there was no impairment valuation allowance adjustment in mortgage banking activities on the unaudited consolidated statements of income.
The following table summarizes assets measured at fair value on a nonrecurring basis at March 31, 2025 and December 31, 2024:

| Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value Measurements
March 31, 2025 |  |  |  |  |  |  |
Individually Evaluated Loans |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |
Owner occupied | $ | — |  |  | $ | — |  |  | $ | 973 |  |  | $ | 973 |
Non-owner occupied residential | — |  |  | — |  |  | 39 |  |  | 39 |
Acquisition and development: |  |  |  |  |  |  |
Commercial and land development | — |  |  | — |  |  | 832 |  |  | 832 |
Commercial and industrial | — |  |  | — |  |  | 1,398 |  |  | 1,398 |
Residential mortgage: |  |  |  |  |  |  |
First lien | — |  |  | — |  |  | 227 |  |  | 227 |
Home equity - lines of credit | — |  |  | — |  |  | 20 |  |  | 20 |
Total individually evaluated loans | $ | — |  |  | $ | — |  |  | $ | 3,489 |  |  | $ | 3,489 |
December 31, 2024 |  |  |  |  |  |  |
Individually Evaluated Loans |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |
Owner occupied | $ | — |  |  | $ | — |  |  | $ | 997 |  |  | $ | 997 |
Non-owner occupied residential | — |  |  | — |  |  | 43 |  |  | 43 |
Acquisition and development: |  |  |  |  |  |  |
Commercial and land development | — |  |  | — |  |  | 932 |  |  | 932 |
Commercial and industrial | — |  |  | — |  |  | 3,995 |  |  | 3,995 |
Residential mortgage: |  |  |  |  |  |  |
First lien | — |  |  | — |  |  | 213 |  |  | 213 |
Home equity - term | — |  |  | — |  |  | 44 |  |  | 44 |
Home equity - lines of credit | — |  |  | — |  |  | 25 |  |  | 25 |
Installment and other loans | — |  |  | — |  |  | 3 |  |  | 3 |
Total individually evaluated loans | $ | — |  |  | $ | — |  |  | $ | 6,252 |  |  | $ | 6,252 |

The following table presents additional qualitative information about assets measured on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
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| Fair Value Estimate |  | Valuation Techniques |  | Unobservable Input (1) |  | Range
March 31, 2025 |  |  |  |  |  |  |
Individually evaluated loans | $ | 3,489 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 10.00% - 84.00% discount
|  |  |  |  | - Management adjustments for liquidation expenses |  | 1.50% - 98.78% discount
December 31, 2024 |  |  |  |  |  |  |
Individually evaluated loans | $ | 6,252 |  |  | Appraisal of collateral |  | Management adjustments on appraisals for property type and recent activity |  | 10.00% - 84.00% discount
|  |  |  |  | - Management adjustments for liquidation expenses |  | 5.81% - 16.07% discount
(1) Discount rates can vary due to factors such as costs that may be assumed by the Bank to liquidate the property in addition to adjustments to the appraised value of the collateral securing the loan. Adjustments may be applied to valuations deemed deficient to ensure the fair value is reasonable.

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Fair values of financial instruments
GAAP requires disclosure of the fair value of financial assets and liabilities, including those that are not measured and reported at fair value on a recurring or nonrecurring basis. The following table presents carrying amounts and estimated fair values of the financial assets and liabilities at March 31, 2025 and December 31, 2024:

| Carrying Amount |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
March 31, 2025 |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 64,376 |  |  | $ | 64,376 |  |  | $ | 64,376 |  |  | $ | — |  |  | $ | — |
Interest-bearing deposits with banks | 222,744 |  |  | 222,744 |  |  | 222,744 |  |  | — |  |  | — |
Restricted investments in bank stock | 19,693 |  |  | n/a |  | n/a |  | n/a |  | n/a
Investment securities | 855,456 |  |  | 855,456 |  |  | 18,624 |  |  | 820,567 |  |  | 16,265 |
Loans held for sale | 5,261 |  |  | 5,261 |  |  | — |  |  | 5,261 |  |  | — |
Loans, net of allowance for credit losses | 3,828,181 |  |  | 3,755,398 |  |  | — |  |  | — |  |  | 3,755,398 |
Derivatives | 13,305 |  |  | 13,305 |  |  | — |  |  | 13,192 |  |  | 113 |
Accrued interest receivable | 19,893 |  |  | 19,893 |  |  | — |  |  | 4,933 |  |  | 14,960 |
Financial Liabilities |  |  |  |  |  |  |  |  |
Deposits | 4,633,716 |  |  | 4,632,002 |  |  | — |  |  | 4,632,002 |  |  | — |
Securities sold under agreements to repurchase and federal funds purchased | 23,131 |  |  | 23,131 |  |  | — |  |  | 23,131 |  |  | — |
FHLB advances and other borrowings | 100,349 |  |  | 100,075 |  |  | — |  |  | 100,075 |  |  | — |
Subordinated notes and trust preferred debt | 68,850 |  |  | 69,144 |  |  | — |  |  | 69,144 |  |  | — |
Derivatives | 13,248 |  |  | 13,248 |  |  | — |  |  | 13,248 |  |  | — |
Accrued interest payable | 3,039 |  |  | 3,039 |  |  | — |  |  | 3,039 |  |  | — |
Off-balance sheet instruments | — |  |  | — |  |  | — |  |  | — |  |  | — |
December 31, 2024 |  |  |  |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 51,026 |  |  | $ | 51,026 |  |  | $ | 51,026 |  |  | $ | — |  |  | $ | — |
Interest-bearing deposits with banks | 197,848 |  |  | 197,848 |  |  | 197,848 |  |  | — |  |  | — |
Restricted investments in bank stock | 20,232 |  |  | n/a |  | n/a |  | n/a |  | n/a
Investment securities | 829,711 |  |  | 829,711 |  |  | 18,257 |  |  | 794,534 |  |  | 16,920 |
Loans held for sale | 6,614 |  |  | 6,614 |  |  | — |  |  | 6,614 |  |  | — |
Loans, net of allowance for loan losses | 3,882,525 |  |  | 3,783,097 |  |  | — |  |  | — |  |  | 3,783,097 |
Derivatives | 13,451 |  |  | 13,451 |  |  | — |  |  | 13,431 |  |  | 20 |
Accrued interest receivable | 21,058 |  |  | 21,058 |  |  | — |  |  | 5,361 |  |  | 15,697 |
Financial Liabilities |  |  |  |  |  |  |  |  |
Deposits | 4,623,096 |  |  | 4,621,081 |  |  | — |  |  | 4,621,081 |  |  | — |
Securities sold under agreements to repurchase | 25,863 |  |  | 25,863 |  |  | — |  |  | 25,863 |  |  | — |
FHLB advances and other borrowings | 115,364 |  |  | 114,851 |  |  | — |  |  | 114,851 |  |  | — |
Subordinated notes and trust preferred debt | 68,680 |  |  | 67,597 |  |  | — |  |  | 67,597 |  |  | — |
Derivatives | 12,575 |  |  | 12,575 |  |  | — |  |  | 12,575 |  |  | — |
Accrued interest payable | 2,924 |  |  | 2,924 |  |  | — |  |  | 2,924 |  |  | — |
Off-balance sheet instruments | — |  |  | — |  |  | — |  |  | — |  |  | — |

In accordance with the Company's adoption of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, the methods utilized to measure the fair value of financial instruments at March 31, 2025 and December 31, 2024 represent an approximation of exit price; however, an actual exit price may differ.
NOTE 14. SEGMENT REPORTING
On January 1, 2024, the Company adopted FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The updated guidance requires enhanced disclosures for significant expenses by reportable operating segments. The significant expense categories would be those regularly provided to the Company's chief operating decision-maker ("CODM") and included in an operating segment's measures of profit or loss. Other required disclosures include the composition of other segment items, the title and position of the CODM and an explanation on how the CODM evaluates and uses the reportable segment's performance.
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The segment reporting guidance identifies operating segments as components of a business which are evaluated regularly by the Company's Chief Financial Officer, who is the designated CODM and is responsible for deciding how to allocate resources and assess performance. The segment is distinguished by the level of the information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products and services and customers are similar. While the Company monitors the available information about products and services, operations are managed and financial performance is evaluated on a company-wide basis. Management has determined that the Company has one reportable segment consisting of community banking and is engaged in lending activities and deposit services in addition to providing fiduciary, investment advisory, insurance and brokerage services. Management continues to evaluate the Company's business units for separate reporting if facts and circumstances change.
The community banking segment includes revenues from interest income primarily from loans and investment securities and non-interest income, which includes revenue from trust and investment management and retail brokerage services. The performance of the segment is evaluated using net income that is also reported on the consolidated statements of income. The measure of segment assets is reported on the consolidated balance sheets. Significant expenses, other than interest expense and the provision for credit losses, of the Company include salaries and employee benefits, occupancy, furniture and equipment, data processing and professional service fees. The CODM evaluates the financial performance of the segment using net income to monitor budget versus actual results. Other relevant company-wide financial performance and credit quality metrics used by the CODM to evaluate the segment performance and benchmark to the Company's peers include return on average assets, return on average shareholders' equity, basic and diluted earnings per common share, net interest margin and the efficiency ratio, among others.
NOTE 15. CONTINGENCIES
The nature of the Company’s business generates a certain amount of litigation involving matters arising out of the ordinary course of business. Except as described below, in the opinion of management, there are no legal proceedings that might have a material effect on the results of operations, liquidity, or the financial position of the Company at this time.
On March 25, 2022, a customer of the Bank filed a putative class action complaint against the Bank in the Court of Common Pleas of Cumberland County, Pennsylvania, in a case captioned Alleman, on behalf of himself and all others similarly situated, v. Orrstown Bank. The complaint alleges, among other things, that the Bank breached its account agreements by charging certain overdraft fees. The complaint seeks a refund of all allegedly improper fees, damages in an amount to be proven at trial, attorneys’ fees and costs, and an injunction against the Bank’s allegedly improper overdraft practices. This lawsuit is similar to lawsuits filed against other financial institutions pertaining to overdraft fee disclosures.
On December 31, 2024, the Bank entered into a classwide settlement agreement (the “Settlement Agreement”). The Settlement Agreement provides for a payment by the Bank to the purported class in the amount of $478 thousand, in exchange for a mutual release of claims against all parties, and a stipulation that the lawsuit will be dismissed with prejudice. The Settlement Agreement does not include any admission of wrongdoing by the Bank. The Bank has agreed to settle the case in order to avoid the cost, risks and distraction of continued litigation.
The proposed settlement contemplated by the Settlement Agreement is subject to preliminary and final court approval.
On March 6, 2025, a customer of the Bank filed a putative class action complaint against the Bank in the Court of Common Pleas of Dauphin County, Pennsylvania, in a case captioned Pryde, on behalf of himself and all others similarly situated, v. Orrstown Bank. The complaint alleges, among other things, that the Bank violated the Electronic Fund Transfer Act, Regulation E and the Pennsylvania Unfair Trade Practices and Consumer Protection Law (PUTPCPL) when charging certain overdraft fees. The complaint seeks a refund of all allegedly improper fees, damages in an amount to be proven at trial, treble damages for violations of the PUTPCPL, attorneys’ fees and costs, and an injunction against the Bank’s allegedly improper overdraft practices. This lawsuit is similar to lawsuits filed against other financial institutions pertaining to overdraft fee disclosures. The Bank believes that the allegations and claims against the Bank are without merit. On April 14, 2025, the Bank removed the case to the U.S. District Court for the Middle District of Pennsylvania. Based on information available at present, it is not possible at this time to reasonably estimate possible losses, or even a range of reasonably possible losses, in connection with the litigation. Accordingly, the Company has not recognized any liability associated with this action.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of Orrstown and should be read in conjunction with the preceding unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q, as well as with the audited consolidated financial statements and notes thereto for the year ended December 31, 2024, included in our Annual Report on Form 10-K filed with the SEC on March 31, 2025. Throughout this discussion, the yield on earning assets is stated on a fully taxable-equivalent basis and balances represent average daily balances unless otherwise stated. All dollar amounts presented in the tables, except per share amounts, are in thousands.
Overview
The Company, headquartered in Harrisburg, Pennsylvania, is a one-bank holding company that has elected status as a financial holding company. The consolidated financial information presented herein reflects the Company and its wholly-owned subsidiary, the Bank. At March 31, 2025, the Company had total assets of $5.4 billion, total liabilities of $4.9 billion and total shareholders’ equity of $532.9 million as reported in the unaudited consolidated balance sheet.
For the three months ended March 31, 2025 and 2024, the Company had net income of $18.1 million and $8.5 million, respectively. Diluted earnings per share was $0.93 and $0.81 for the three months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025 and 2024, the Company incurred merger-related expenses of $1.6 million and $672 thousand, respectively. The merger-related expenses are included in non-interest expenses in the unaudited consolidated statements of income.
Cautionary Note About Forward-Looking Statements
Certain statements appearing herein, which are not historical in nature, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications, from time to time, that contain such statements. Such forward-looking statements reflect the current views of the Company's management with respect to, among other things, future events and the Company's financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. Forward-looking statements are statements that include projections, predictions, expectations, estimates or beliefs about events or results or otherwise are not statements of historical facts, many of which, by their nature, are inherently uncertain and beyond the Company's control, and include, but are not limited to, statements related to new business development, new loan opportunities, growth in the balance sheet and fee-based revenue lines of business, merger and acquisition activity, cost savings initiatives, reducing risk assets, and mitigating losses in the future. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will achieve the desired level of new business development and new loans, growth in the balance sheet and fee-based revenue lines of business, cost savings initiatives, and continued reductions in risk assets or mitigate losses in the future. Factors which could cause the actual results to differ from those expressed or implied by the forward-looking statements include, but are not limited to, the following: interest rate changes or volatility; general economic conditions (including inflation and concerns about liquidity) on a national basis or in the local markets in which the Company operates; ineffectiveness of the Company’s strategic growth plan due to changes in current or future market conditions; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products and services; changes in consumer behavior due to changing political, business and economic conditions, or legislative or regulatory initiatives; changes in, and evolving interpretations of, existing and future laws and regulations; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatility in the securities markets; the demand for our products and services; deteriorating economic conditions; geopolitical tensions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; expenses associated with litigation and legal proceedings; the possibility that the anticipated benefits of the merger with Codorus Valley Bancorp are not realized when expected or at all; and other risks and uncertainties, including those detailed in our Annual Report on Form 10-K for the year ended December 31, 2024, and our Quarterly Reports on Form 10-Q under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other filings made with the SEC. The statements are valid only as of the date hereof and we disclaim any obligation to update this information.
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Economic Climate, Inflation and Interest Rates
Preliminary real GDP contracted by 0.3% on an annualized basis for the first quarter of 2025, compared to an increase of 2.4% for the fourth quarter of 2024 and an increase of 1.4% during the first quarter of 2024. This was the first quarterly decline since the first quarter of 2022. The contraction was primarily driven by a surge in imports and a decrease in government spending, partially offset by increases in investment, consumer spending and exports. There are growing concerns regarding the potential impact of wide-ranging tariffs on the U.S. economy and the potential of a recession. The personal consumption expenditures ("PCE") price index increased by 2.3% in the first quarter of 2025 compared to an increase of 2.4% for fourth quarter of 2024 and 3.4% for the first quarter of 2024. Excluding food and energy prices, the PCE price index increased by 2.6% in the first quarter of 2025 compared to 2.6% in the fourth quarter of 2024 and 3.7% in the first quarter of 2024.
The national unemployment rate was 4.2% in March 2025 compared to 4.1% in December 2024 and 3.8% in March 2024. Within the Company's geographic footprint, the unemployment rate in Pennsylvania was 3.8% in March 2025 compared to 3.7% in December 2024 and 3.4% in March 2024. The unemployment rate increased in Maryland from 2.5% in March 2024 to 3.0% in March 2025; however, it remains below the national level. These state-wide unemployment rates are consistent with those experienced by the counties in which the Company operates branches and other corporate offices. There were notable job gains nationally in healthcare, social assistance, retail trade, transportation and warehousing during the first quarter of 2025.
At March 31, 2025, the 10-year Treasury bond yield was 4.23%, a decrease from 4.58% at December 31, 2024 and 4.62% at March 31, 2024 which was attributed to the FOMC's decision to reduce the Federal Funds rate by 75 basis points in 2024. The decrease was based on the progress towards the FOMC's 2.0% inflation target and the unemployment rate remaining low despite recent slowing in job gains.
The majority of the assets and liabilities of a financial institution are monetary in nature and, therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an impact on the Company, particularly with respect to the growth of total assets and noninterest expenses, which tend to rise during periods of general inflation. Risks also exist due to supply and demand imbalances, employment shortages, the interest rate environment, and geopolitical tensions. It is possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans and the fair value of financial instruments that are carried at fair value.
Critical Accounting Estimates
The Company’s accounting and reporting policies are in accordance with GAAP and follow accounting and reporting guidelines prescribed by bank regulatory authorities and general practices within the financial services industry in which it operates. Our financial position and results of operations are affected by management's application of accounting policies, including estimates, and assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the balance sheet date and through the date the financial statements are filed with the SEC. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations and related disclosures. The more critical accounting estimates include accounting for business combinations, accounting for credit losses and accounting for income taxes.
Business Combinations
The Company accounts for its mergers and acquisitions using the acquisition method of accounting under the provisions of the FASB ASC Topic 805, Business Combinations. Under ASC 805, the assets acquired, including identified intangible assets such as core deposit intangibles and customer list intangibles, and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The valuations are based upon management’s assumptions of future growth rates, future attrition, discount rates and other relevant factors, which involves a significant level of estimation and uncertainty. In addition, management engaged independent third-party specialists to assist in the development of the fair values of the acquired assets and assumed liabilities. The preliminary estimates of fair values may be adjusted for a period of time subsequent to the acquisition date if new information is obtained about facts and circumstances that existed as of the merger date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments would be recorded to goodwill during the current reporting period. Examples of the impacted acquired loans and assumed liabilities includes loans, deposits, identifiable intangible assets, borrowings and certain other assets and liabilities.
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For acquired loans at the merger date, management evaluated and classified loans based upon whether the loans had experienced a more-than-insignificant amount of credit deteriorating since origination. To determine the fair value of the loans, significant estimates and assumptions were applied, including projected cash flows, discount rates, repayment speeds, credit loss severity rates, default rates and realizable collateral values. At acquisition, the allowance on PCD loans is booked directly to the ACL using the Company’s existing ACL methodology, but there is no initial impact to net income. Subsequent to acquisition, future changes in estimates of expected credit losses on PCD loans are recognized as provision expense (or reversal of provision expense). The ACL for non-PCD loans is recognized as a provision for credit losses in the same reporting period as the business acquisition, using the Company’s existing ACL methodology.
These critical accounting estimates are discussed in detail in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024. Significant accounting policies and any changes in accounting principles and effects of new accounting pronouncements are discussed in Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data," in our Annual Report on Form 10-K for the year ended December 31, 2024.
Accounting for Credit Losses - Loans
The ACL represents the amount that, in management’s judgment, appropriately reflects credit losses inherent in the loan portfolio at the balance sheet date. A provision for credit losses is recorded to adjust the level of the ACL as determined by management. In accordance with ASU 2016-13, the CECL methodology requires an organization to measure all expected credit losses over the contractual term for financial assets measured at amortized cost based on historical credit loss experience, current conditions, and reasonable and supportable forecasts.
Determining the ACL inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and trends, all of which may undergo material changes, including expected probabilities of default, expected loss given default, the timing of expected future cash flows including the impact from unexpected changes in prepayment speeds, estimated losses based on historical credit loss experience and forecasted economic conditions. To the extent actual results differ from management's estimates, additional provisions for credit losses may be required that could adversely impact results of operations and regulatory capital in future periods.
The ACL is maintained at a level considered appropriate to absorb credit losses over the expected life of the loan. The ACL for expected credit losses is determined based on a quantitative assessment of two categories of loans: collectively evaluated loans and individually evaluated loans. In addition, the ACL also includes a qualitative component, which adjusts the CECL model results for risk factors that are not considered within the CECL model, but are relevant in assessing the expected credit losses within the loan classes.
The ACL on loans is measured on a collective basis when similar risk characteristics exist within the Company's loan segments between commercial and consumer. Each of these loan segments are broken down into multiple loan classes, which are characterized by loan type, collateral type, risk attributions and the manner in which management monitors the performance of the borrower. The risks associated with lending activities differ and are subject to the impact of changes in interest rates, market conditions, the collateral securing the loans, and general economic conditions.
The ACL for loans collectively evaluated is measured using a lifetime expected loss rate model that considers historical loss performance and past events in addition to forecasts of future economic conditions. Based on management's analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the quantitatively calculated reserve on collectively evaluated loans. As the quantitative reserve calculation incorporates historical conditions, management may consider if an additional or reduced reserve is warranted and make adjustments through qualitative risk factors based on current and expected conditions. Management uses the best available information to complete these evaluations; however, future adjustments to the ACL may be necessary if conditions significantly differ from the assumptions used in making the evaluations.
Utilizing a third-party vendor, the ACL for loans collectively evaluated is measured using a lifetime expected loss rate model under the vendor's neutral scenario that considers historical loss performance and past events in addition to forecasts of future economic conditions. The Company elected to use the DCF methodology for the quantitative analysis for the majority of its loan segments, which applies the probability of default to future cash flows, using a loss driver model and loss given default factors, and then adjusts to the net present value to derive the required reserve. The probability of default estimates are derived through the application of reasonable and supportable economic forecasts to the regression models, which incorporates the Company's and peer loss-rate data, unemployment rate and GDP and can be obtained from the Federal Reserve Economic Database. The reasonable and supportable forecasts of the selected economic metrics are then input into the regression model to calculate an expected default rate. The expected default rates are then applied to expected loan balances estimated through the consideration of contractual repayment terms and expected prepayments. The prepayment and curtailment assumptions adjust
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the contractual terms of the loan to arrive at the expected cash flows, which are obtained from the third-party vendor. The model incorporates an annualized prepayment rate and a twelve-month rate for curtailment based on a "statistical tendency to repay." Changes in the prepayment and curtailment speeds that vary from the current model inputs could result in an inaccurate forecast of expected credit losses. The development and validation of credit models also included determining the length of the reasonable and supportable forecast and regression period and utilizing national peer group historical loss rates, which a four-quarter forecast period followed by a four-quarter straight-line reversion period were applied.
Management incorporates the national unemployment rate and GDP as the drivers of the quantitative portion of collectively evaluated reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, which represents a significant judgment in determining the ACL. Accordingly, changes in the macroeconomic forecast could significantly impact the calculated ACL. For the consumer loan segment, the quantitative reserve was calculated using the remaining life methodology where the average historical bank-specific and peer loss rates are applied to expected loan balances over an estimated remaining life of loans. The estimated remaining life is calculated using historical bank-specific loan attrition data.
See Note 1, Summary of Significant Accounting Policies, and Note 4, Loans and Allowance for Credit Losses, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplemental Data," for details on the ACL evaluation.
Accounting for Income Taxes
The Company is subject to federal and state income taxes in the jurisdictions in which it operates. Due to the complexity of the tax laws, management may make judgments in computing income tax expense, which are subject to varying interpretations by management and the taxing authorities, and could result in changes upon final determination. Income tax expense is based upon income before taxes, adjusted for the effect of certain tax-exempt income, non-deductible expenses and credits. Temporary differences may occur as a result of certain income and expense items being reported in different periods for financial reporting and tax purposes. Deferred taxes are calculated, using the applicable enacted marginal tax rate, based on the differences between the tax basis and carrying value of the asset or liability on the financial statement. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of income. Under FASB ASC 740, Income Taxes, the Company must apply a more likely than not probability threshold on its tax positions before a financial statement benefit is recognized. A valuation allowance would be recognized if any deferred tax assets were determined to be more likely than not unrecoverable.
Readers of the Company's consolidated financial statements should be aware that the estimates and assumptions used may need to be updated in future financial presentations for changes in circumstances, business or economic conditions, in order to fairly represent the condition of the Company at that time.
RESULTS OF OPERATIONS
Three months ended March 31, 2025 compared with three months ended March 31, 2024
Summary
Net income totaled $18.1 million for the three months ended March 31, 2025 compared to $8.5 million for the same period in 2024. Diluted earnings per share for the three months ended March 31, 2025 totaled $0.93 compared to $0.81 for the three months ended March 31, 2024. T he net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $6.9 million for the three months ended March 31, 2025, For the three months ended March 31, 2025 and 2024, the Company incurred merger-related expenses of $1.6 million and $672 thousand, respectively, which were included in non-interest expenses of the unaudited condensed consolidated statements of income. Excluding these non-recurring expenses, net income and diluted earnings per common share totaled $19.3 million and $1.00, respectively, for the three months ended March 31, 2025. For the three months ended March 31, 2024, excluding these non-recurring expenses, net income and diluted earnings per common share totaled $9.2 million and $0.88, respectively. See “Supplemental Reporting of Non-GAAP Measures” for additional information.
Net interest income totaled $48.8 million for the three months ended March 31, 2025 compared to $26.9 million for the three months ended March 31, 2024.
The provision for credit losses on loans and off-balance sheet reserves totaled a recovery of $554 thousand and expense of $298 thousand for the three months ended March 31, 2025 and 2024, respectively.
Noninterest income totaled $11.6 million and $6.6 million for the three months ended March 31, 2025 and 2024, respectively. The increase of $5.0 million was primarily due to a merger-related increase in wealth management income of $2.3
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million, increases in service charges and interchange income totaling $1.7 million and an increase in income from life insurance policies of $655 thousand.
Noninterest expenses totaled $38.2 million and $22.5 million for the three months ended March 31, 2025 and 2024, respectively. The increase of $15.7 million included an increase of $2.3 million in intangible asset amortization from intangibles generated through the Merger and an increase of $977 thousand in merger-related expenses. The remainder of the increase is across several line items due to the Merger, primarily salaries and employee benefits.
Income tax expense totaled $4.7 million and $2.2 million for the three months ended March 31, 2025 and 2024, respectively. The Company's effective tax rate was 20.7% for the three months ended March 31, 2025 compared to 20.6% for the three months ended March 31, 2024. The Company’s effective tax rate is less than the 21% federal statutory rate due to tax-exempt income, including interest earned on tax-exempt loans and investment securities and income from life insurance policies and partially offset by disallowed interest expense and state income taxes.
Net Interest Income
Net interest income increased by $21.9 million from $26.9 million for the three months ended March 31, 2024 to $48.8 million for the three months ended March 31, 2025. Interest income on loans increased by $27.2 million, from $36.2 million for the three months ended March 31, 2024 to $63.4 million for the three months ended March 31, 2025. Interest income on investment securities increased by $4.3 million, from $5.5 million for the three months ended March 31, 2024 to $9.8 million for the three months ended March 31, 2025. Total interest expense increased by $11.0 million from $15.8 million for the three months ended March 31, 2024 to $26.8 million for the three months ended March 31, 2025. Interest expense on deposits increased by $10.8 million from $13.5 million for the three months ended March 31, 2024 to $24.3 million for the three months ended March 31, 2025. Interest expense on borrowings increased by $245 thousand from $2.3 million in the three months ended March 31, 2024 to $2.5 million for the three months ended March 31, 2025.
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The following table presents net interest income, net interest spread and net interest margin for the three months ended March 31, 2025 and 2024 on a taxable-equivalent basis:

| Three Months Ended March 31, 2025 |  | Three Months Ended March 31, 2024
| Average Balance |  | Taxable- Equivalent Interest |  | Taxable- Equivalent Rate |  | Average Balance |  | Taxable- Equivalent Interest |  | Taxable- Equivalent Rate
Assets |  |  |  |  |  |  |  |  |  |  |
Federal funds sold & interest-bearing bank balances | $ | 203,347 |  |  | $ | 2,268 |  |  | 4.52 | % |  | $ | 74,523 |  |  | $ | 956 |  |  | 5.16 | %
Investment securities (1)(2) | 865,126 |  |  | 10,052 |  |  | 4.65 |  |  | 519,851 |  |  | 5,694 |  |  | 4.39 |
Loans (1)(3)(4)(5)(6) | 3,909,694 |  |  | 63,641 |  |  | 6.59 |  |  | 2,308,103 |  |  | 36,382 |  |  | 6.34 |
Total interest-earning assets | 4,978,167 |  |  | 75,961 |  |  | 6.17 |  |  | 2,902,477 |  |  | 43,032 |  |  | 5.96 |
Other assets | 447,530 |  |  |  |  |  |  | 196,295 |  |  |  |  |
Total | $ | 5,425,697 |  |  |  |  |  |  | $ | 3,098,772 |  |  |  |  |
Liabilities and Shareholders’ Equity |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand deposits | $ | 2,473,543 |  |  | 14,156 |  |  | 2.32 |  |  | $ | 1,570,622 |  |  | 9,192 |  |  | 2.35 |
Savings deposits | 273,313 |  |  | 165 |  |  | 0.25 |  |  | 170,005 |  |  | 144 |  |  | 0.34 |
Time deposits | 970,588 |  |  | 9,939 |  |  | 4.15 |  |  | 428,443 |  |  | 4,180 |  |  | 3.92 |
Total interest-bearing deposits | 3,717,444 |  |  | 24,260 |  |  | 2.65 |  |  | 2,169,070 |  |  | 13,516 |  |  | 2.51 |
Securities sold under agreements to repurchase and federal funds purchased | 26,163 |  |  | 84 |  |  | 1.30 |  |  | 12,010 |  |  | 25 |  |  | 0.85 |
FHLB advances and other borrowings | 112,859 |  |  | 1,118 |  |  | 4.02 |  |  | 137,505 |  |  | 1,474 |  |  | 4.31 |
Subordinated notes and trust preferred debt | 68,739 |  |  | 1,296 |  |  | 7.65 |  |  | 32,100 |  |  | 754 |  |  | 9.45 |
Total interest-bearing liabilities | 3,925,205 |  |  | 26,758 |  |  | 2.76 |  |  | 2,350,685 |  |  | 15,769 |  |  | 2.70 |
Noninterest-bearing demand deposits | 887,726 |  |  |  |  |  |  | 417,469 |  |  |  |  |
Other liabilities | 89,077 |  |  |  |  |  |  | 62,329 |  |  |  |  |
Total liabilities | 4,902,008 |  |  |  |  |  |  | 2,830,483 |  |  |  |  |
Shareholders’ equity | 523,689 |  |  |  |  |  |  | 268,289 |  |  |  |  |
Total | $ | 5,425,697 |  |  |  |  |  |  | $ | 3,098,772 |  |  |  |  |
Taxable-equivalent net interest income / net interest spread |  |  | 49,203 |  |  | 3.41 | % |  |  |  | 27,263 |  |  | 3.26 | %
Taxable-equivalent net interest margin |  |  |  |  | 4.00 | % |  |  |  |  |  | 3.77 | %
Taxable-equivalent adjustment |  |  | (442) |  |  |  |  |  |  | (382) |  |  |
Net interest income |  |  | $ | 48,761 |  |  |  |  |  |  | $ | 26,881 |  |  |

NOTES TO ANALYSIS OF NET INTEREST INCOME:
(1) | Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis assuming a 21% tax rate.
(2) | Average balance of investment securities is computed at fair value.
(3) | Average balances include nonaccrual loans.
(4) | Interest income on loans includes prepayment and late fees, where applicable.
(5) | Interest income on loans includes interest recovered of $1.6 million from the payoff of a commercial real estate loan on nonaccrual status during the three months ended March 31, 2024.
(6) | Interest income on loans includes accretion on purchase accounting marks of $6.6 million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively.

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The following table presents the impact of rate and volume on the change in taxable-equivalent net interest income from the three months ended March 31, 2024 to three months ended March 31, 2025:

| Three Months Ended March 31, 2025 Versus 2024 Increase (Decrease) Due to Change In
| Average Volume |  | Average Rate |  | Total
Interest Income |  |  |  |  |
Federal funds sold and interest-bearing bank balances | $ | 1,629 |  |  | $ | (317) |  |  | $ | 1,312 |
Taxable securities | 4,034 |  |  | 326 |  |  | 4,360 |
Tax-exempt securities | (22) |  |  | 20 |  |  | (2) |
Loans | 24,843 |  |  | 2,416 |  |  | 27,259 |
Total interest income | 30,484 |  |  | 2,445 |  |  | 32,929 |
Interest Expense |  |  |  |  |
Interest-bearing demand deposits | 5,863 |  |  | (899) |  |  | 4,964 |
Savings deposits | 86 |  |  | (65) |  |  | 21 |
Time deposits | 5,184 |  |  | 575 |  |  | 5,759 |
Total interest-bearing deposits | 11,133 |  |  | (389) |  |  | 10,744 |
Securities purchases under agreements to repurchase and federal funds purchased | 30 |  |  | 29 |  |  | 59 |
FHLB advances and other borrowings | (261) |  |  | (95) |  |  | (356) |
Subordinated notes and trust preferred debt | 846 |  |  | (304) |  |  | 542 |
Total interest expense | 11,748 |  |  | (759) |  |  | 10,989 |
Taxable-Equivalent Net Interest Income | $ | 18,736 |  |  | $ | 3,204 |  |  | $ | 21,940 |

Net interest income on a taxable-equivalent basis increased by $21.9 million to $49.2 million for the three months ended March 31, 2025 from $27.3 million for the three months ended March 31, 2024. The Company's net interest spread increased by 15 basis points from 3.26% for the three months ended March 31, 2024 to 3.41% for the three months ended March 31, 2025.
Taxable-equivalent net interest margin increased by 23 basis points to 4.00% for the three months ended March 31, 2025 from 3.77% for the three months ended March 31, 2024. The taxable-equivalent yield on interest-earning assets increased by 21 basis points from 5.96% for the three months ended March 31, 2024 to 6.17% for the three months ended March 31, 2025, due primarily to the accretion recognized on fair value marks to loans and securities assumed in the Merger, the impact of which was partially offset by a decline in the Fed Funds rate. T he net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings was $6.9 million, which represented 51 basis points of net interest margin during the first quarter of 2025. The incre ase in yield on interest earning assets was partially offset by the increase of six basis points in the cost of interest-bearing liabilities from 2.70% to 2.76% due primarily to increased funding costs on deposits, subordinated notes and trust preferred debt assumed in the Merger. The recognition of interest income previously applied to principal of $1.6 million from the payoff of a commercial real estate loan on nonaccrual status contributed five basis points to the Company's net interest margin during the three months ended March 31, 2024.
Average loans increased by $1.6 billion to $3.9 billion for the three months ended March 31, 2025 compared to $2.3 billion for the three months ended March 31, 2024. Average investment securities increased by $345.2 million from $519.9 million for the three months ended March 31, 2024 to $865.1 million for the three months ended March 31, 2025. Average interest-bearing liabilities increased by $1.5 billion to $3.9 billion for the three months ended March 31, 2025 from $2.4 billion for the three months ended March 31, 2024.
The average yield on loans increased by 25 basis points to 6.59% for the three months ended March 31, 2025 compared to 6.34% for the three months ended March 31, 2024. Taxable-equivalent interest income earned on loans increased by $27.3 million primarily due to an increase in the average balances, which was attributed to the acquired loans from the Merger and from the impact of the accretion of the fair value marks on loans.
The average balance of commercial loans increased by $1.3 billion from $1.8 billion for the three months ended March 31, 2024 to $3.1 billion for the three months ended March 31, 2025. Average residential mortgage loans increased by
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$188.4 million from $273.4 million during the three months ended March 31, 2024 to $461.8 million during the three months ended March 31, 2025. Average home equity loans increased by $96.7 million from $192.0 million for the three months ended March 31, 2024 to $288.7 million for the three months ended March 31, 2025. Average installment and other consumer loans increased by $28.5 million from $17.4 million for the three months ended March 31, 2024 to $45.9 million for the three months ended March 31, 2025.
Accretion of purchase accounting adjustments included in interest income was $6.6 million and $147 thousand for the three months ended March 31, 2025 and 2024, respectively. The increase in accretion was due to the recognition of fair value marks from the Merger. Accelerated accretion totaled $1.4 million and $66 thousand during the three months ended March 31, 2025 and 2024, respectively. Prepayment income on loans increased from $56 thousand for the three months ended March 31, 2024 to $300 thousand for the three months ended March 31, 2025.
Interest income on investment securities on a tax-equivalent basis increased by $4.4 million to $10.1 million for the three months ended March 31, 2025 from $5.7 million for the three months ended March 31, 2024, with the taxable equivalent yield increasing from 4.39% for the three months ended March 31, 2024 to 4.65% for the three months ended March 31, 2025. The 26 basis point increase reflects the impact from the higher interest rates as well as the accretion of discounts recorded on investment securities assumed from the Merger. Accretion on acquired investment securities was $839 thousand for the three months ended March 31, 2025. The average balance of investment securities increased by $345.2 million to $865.1 million for the three months ended March 31, 2025 from $519.9 million for the three months ended March 31, 2024 due primarily to the Merger.
Interest income on federal funds sold and interest-bearing bank balances on a tax-equivalent basis increased by $1.3 million to $2.3 million for the three months ended March 31, 2025 from $1.0 million for the three months ended March 31, 2024. The average balance of federal funds sold and interest-bearing bank balances increased by $128.8 million from $74.5 million for the three months ended March 31, 2024 to $203.3 million for the three months ended March 31, 2025. The Federal Funds rate had remained unchanged from the prior rate increase of 25 basis points in July 2023 until the FOMC cut the Federal Funds rate by 50 basis points in September 2024 and 25 basis points in December 2024.
Interest expense on interest-bearing liabilities increased by $11.0 million from $15.8 million for the three months ended March 31, 2024 to $26.8 million for the three months ended March 31, 2025. The cost of interest-bearing liabilities increased by six basis points from 2.70% for the three months ended March 31, 2024 to 2.76% for the three months ended March 31, 2025 due primarily to increased funding costs on deposits, subordinated notes and trust preferred debt assumed in the Merger. The average balance of interest-bearing deposits increased by $1.5 billion to $3.7 billion for the three months ended March 31, 2025 from $2.2 billion for the three months ended March 31, 2024. Average interest-bearing demand deposits increased by $902.9 million, average time deposits increased by $542.1 million and average savings deposits increased by $103.3 million for the three months ended March 31, 2025 in relation to the comparable prior period due primarily to the impact of the Merger. Amortization of fair value marks on acquired time deposits was $452 thousand for the three months ended March 31, 2025.
Interest expense on borrowings increased by $245 thousand to $2.5 million for the three months ended March 31, 2025 from $2.3 million for the three months ended March 31, 2024. The cost of borrowings decreased by 11 basis points to 4.88% for the three months ended March 31, 2025 from 4.99% for the three months ended March 31, 2024. Average borrowings increased by $26.2 million from $181.6 million for the three months ended March 31, 2024 to $207.8 million for the three months ended March 31, 2025, which included average subordinated debt and trust preferred debt of $68.7 million for the three months ended March 31, 2025, an increase of $36.6 million, from an average of $32.1 million for the three months ended March 31, 2024. The increase is due primarily to the assumed subordinated debt of $31.0 million and trust preferred debt of $10.3 million from the Merger. The subordinated notes assumed from the Merger have a fixed rate of interest equal to 4.50% until December 30, 2025. The trust preferred debt has a variable rate of three-month CME term SOFR rate, plus a spread adjustment and margin. The interest rate on Orrstown Financial Services, Inc.'s subordinated notes was 7.75% at March 31, 2025 compared to 8.77% at March 31, 2024. Amortization of fair value marks on acquired borrowings was $152 thousand for the three months ended March 31, 2025.
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Provision for Credit Losses
The ACL as a percentage of the total loan portfolio was 1.23% at March 31, 2025 compared to 1.27% at March 31, 2024. The Company recorded a recovery of provision for credit losses on loans of $554 thousand for the three months ended March 31, 2025 compared to expense of $421 thousand for the same period in 2024. For the three months ended March 31, 2025, the provision for credit losses was primarily impacted by the decrease in loans of $55.2 million, partially offset by increases in certain qualitative factors. A qualitative factor was added for Other External Factors at a minor level for all loan classes due to the uncertainty created within the global and domestic markets from changes in U.S. economic policy, including the recently implemented tariffs, the Economic Conditions qualitative factor at a minor level and the Delinquency and Classified Loan Trends qualitative factor at a moderate level were added for the residential senior liens loan class and the Delinquency and Classified Loan Trends qualitative factor at a moderate level was added for the home equity loan class. An adjustment to the Economic Conditions qualitative factor was based on current market interest rates and prepayment speeds, and the adjustment to Delinquency and Classified Loan Trends was based on delinquencies and downgrades within the aforementioned loan classes.
Net charge-offs for the three months ended March 31, 2025 totaled $331 thousand compared to net recoveries of $42 thousand for the three months ended March 31, 2024. Nonaccrual loans were 0.59% of gross loans at March 31, 2025 compared with 0.56% of gross loans at March 31, 2024. Nonaccrual loans increased by $9.8 million from $12.9 million at March 31, 2024 to $22.7 million at March 31, 2025. This reflects $12.8 million of nonaccrual loans assumed in the Merger and other additions in commercial and industrial and commercial real estate loans, partially offset by repayments and charge offs totaling $8.2 million on nonaccrual loans from March 31, 2024.
Additional information is included in the "Credit Risk Management" section herein.
Noninterest Income
The following table compares noninterest income for the three months ended March 31, 2025 and 2024:

| Three Months Ended March 31, |  | $ Change |  | % Change
| 2025 |  | 2024 |  | 2025-2024 |  | 2025-2024
Service charges on deposit accounts | $ | 1,911 |  |  | $ | 1,005 |  |  | $ | 906 |  |  | 90.1 | %
Interchange income | 1,427 |  |  | 911 |  |  | 516 |  |  | 56.6 | %
Other service charges, commissions and fees | 484 |  |  | 195 |  |  | 289 |  |  | 148.2 | %
Swap fee income | 394 |  |  | 199 |  |  | 195 |  |  | 98.0 | %
Trust and investment management income | 3,976 |  |  | 2,024 |  |  | 1,952 |  |  | 96.4 | %
Brokerage income | 1,439 |  |  | 1,078 |  |  | 361 |  |  | 33.5 | %
Mortgage banking activities | 302 |  |  | 458 |  |  | (156) |  |  | (34.1) | %
Income from life insurance | 1,289 |  |  | 634 |  |  | 655 |  |  | 103.3 | %
Other income | 389 |  |  | 131 |  |  | 258 |  |  | 196.9 | %
Investment securities losses | 13 |  |  | (5) |  |  | 18 |  |  | 360.0 | %
Total noninterest income | $ | 11,624 |  |  | $ | 6,630 |  |  | $ | 4,994 |  |  | 75.3 | %

Noninterest income increased by $5.0 million from $6.6 million for the three months ended March 31, 2024 to $11.6 million for the three months ended March 31, 2025. The primary driver of the overall increase was the impact of the Merger in the three months ended March 31, 2025. The following were significant components of the change in this line item that did not result from the Merger:
•Swap fee income increased by $195 thousand as swap fee income will fluctuate based on market conditions and client demand.
•Mortgage banking income decreased by $156 thousand. This decrease was primarily due to a reduction in the fair value of mortgage servicing rights, which was driven by interest rate movements in the first quarter of 2025.
•Other income increased by $258 thousand. The increase includes $129 thousand in gains from the termination of three pay-fixed interest rate swaps.
•Other line items within noninterest income showed fluctuations attributable to normal business operations.
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Noninterest Expenses
The following table compares noninterest expenses for the three months ended March 31, 2025 and 2024:

| Three Months Ended March 31, |  | $ Change |  | % Change
| 2025 |  | 2024 |  | 2025-2024 |  | 2025-2024
Salaries and employee benefits | $ | 20,388 |  |  | $ | 13,752 |  |  | $ | 6,636 |  |  | 48.3 | %
Occupancy | 1,989 |  |  | 1,201 |  |  | 788 |  |  | 65.6 | %
Furniture and equipment | 2,686 |  |  | 1,438 |  |  | 1,248 |  |  | 86.8 | %
Data processing | 924 |  |  | 1,265 |  |  | (341) |  |  | (27.0) | %
Automated teller machine and interchange fees | 677 |  |  | 351 |  |  | 326 |  |  | 92.9 | %
Advertising and bank promotions | 499 |  |  | 398 |  |  | 101 |  |  | 25.4 | %
FDIC insurance | 824 |  |  | 441 |  |  | 383 |  |  | 86.8 | %
Professional services | 1,826 |  |  | 631 |  |  | 1,195 |  |  | 189.4 | %
Directors' compensation | 211 |  |  | 251 |  |  | (40) |  |  | (15.9) | %
Taxes other than income | 942 |  |  | 494 |  |  | 448 |  |  | 90.7 | %
Intangible asset amortization | 2,535 |  |  | 225 |  |  | 2,310 |  |  | 1026.7 | %
Merger-related expenses | 1,649 |  |  | 672 |  |  | 977 |  |  | 145.4 | %
Restructuring expenses | 91 |  |  | — |  |  | 91 |  |  | 100.0 | %
Other operating expenses | 2,935 |  |  | 1,350 |  |  | 1,585 |  |  | 117.4 | %
Total noninterest expenses | $ | 38,176 |  |  | $ | 22,469 |  |  | $ | 15,707 |  |  | 69.9 | %

Noninterest expense increased by $15.7 million from $22.5 million for the three months ended March 31, 2024 to $38.2 million for the three months ended March 31, 2025. The primary driver of the overall increase was the impact of the Merger in the three months ended March 31, 2025. The following were additional significant components of the change in this line item:
•Data processing expense decreased by $341 thousand due to the reduction in core system costs following a system conversion in the fourth quarter of 2024.
•Professional services expense increased by $1.2 million, partly due to the Merger, but also due to higher utilization of consultants and other third-party service providers during the integration and system conversion process.
•Intangible asset amortization expense increased by $2.3 million due to the amortization recognized on the core deposit intangible and wealth customer relationship intangible established from the Merger.
•Merger-related expenses increased by $977 thousand. The merger costs incurred during the first quarter of 2025 included software conversion costs and professional fees, including external audit, associated with the conversion.
•Restructuring expense of $91 thousand was recorded in the three months ended March 31, 2025, which is related to the closure of six branch locations during the fourth quarter of 2024.
•Other operating expenses increased by $1.6 million partially due to an increase in credit valuation adjustments on derivatives of $372 thousand. The remaining change is attributed to the impact of the merger and normal business operations, which included increases of $424 thousand in printing and postage charges, $248 thousand in insurance expenses, $169 thousand in telecommunication expenses, $163 thousand in loan-related expenses.
•Other line items within noninterest expenses showed fluctuations attributable to normal business operations.
Income Tax Expense
Income tax expense totaled $4.7 million, an effective tax rate of 20.7%, for the three months ended March 31, 2025 compared with $2.2 million and an effective tax rate of 20.6% for the three months ended March 31, 2024. The Company’s effective tax rate is less than the 21% federal statutory rate due to interest earned on tax-exempt loans and investment securities and income from life insurance policies, partially offset by disallowed interest expense and state income taxes.
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FINANCIAL CONDITION
Management devotes substantial time to overseeing the investment in and costs to fund loans and investment securities through deposits and borrowings, as well as the formulation and adherence to policies directed toward enhancing profitability and managing the risks associated with these investments.
Investment Securities
The Company utilizes investment securities to manage interest rate risk and liquidity, enhance income through interest and dividend income and collateralize certain deposits and borrowings.
The Company has established investment policies and an asset/liability management policy to assist in administering its investment portfolio. Decisions to purchase or sell these securities are based on economic conditions and management’s strategy to respond to changes in interest rates, liquidity, pledges to secure deposits and repurchase agreements and other factors while trying to maximize return on the investments. The Company may segregate its investment security portfolio into three categories: “securities available-for-sale,” “trading securities” and “securities held-to-maturity.” At March 31, 2025 and December 31, 2024, management classified the entire investment securities portfolio as AFS, which is accounted for at current market value with non-credit related losses and gains reported in OCI, net of income taxes.
The Company's investment securities portfolio includes debt investments that are subject to varying degrees of credit and market risks, which arise from general market conditions and factors impacting specific industries, as well as news that may impact specific securities. Management monitors its debt securities, using various indicators to determine whether unrealized losses on debt securities are credit related and require an ACL. These indicators include the amount of time the security has been in an unrealized loss position, the cause and extent of the unrealized loss and the credit quality of the issuer and underlying assets. In addition, management assesses whether it is likely the Company will have to sell the investment security prior to recovery, or it expects to be able to hold the investment security until the price recovers. The Company determined that the declines in market value were due to increases in interest rates and market movements, and not due to credit factors. The Company does not intend to sell these securities with unrealized losses and it is more likely than not that the Company will not be required to sell them before recovery of their amortized cost basis, which may be maturity. Therefore, the Company has concluded that the unrealized losses for the AFS securities did not require an ACL at March 31, 2025 and December 31, 2024.
At March 31, 2025, AFS securities totaled $855.5 million, an increase of $25.8 million, from $829.7 million at December 31, 2024. During the three months ended March 31, 2025, the Company purchased $39.6 million of AFS securities, consisting of agency MBS and CMO securities, which were partially offset by paydowns of $18.4 million. The balance of investment securities included net unrealized losses of $31.3 million at March 31, 2025 compared to net unrealized losses of $35.2 million at December 31, 2024 for a decrease of $3.9 million. This decrease in net unrealized losses was primarily due to lower treasury rates compared to December 31, 2024. The overall duration of the Company's investment securities portfolio was 4.3 years at March 31, 2025 compared to 4.1 years at December 31, 2024. The Company has sufficient access to liquidity such that management does not believe it would be necessary to sell any of its investment securities at a loss to offset any unexpected deposit outflows. Management believes the structure of the Company's investment security portfolio is appropriately aligned with the rest of the balance sheet to protect against volatile interest rate environments, to provide a source of liquidity and to generate steady earnings.
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The following table summarizes the credit ratings and collateral associated with the Company's investment security portfolio, excluding equity securities, at March 31, 2025:

Sector | Portfolio Mix | Amortized Book Value | Fair Value | Credit Enhancement | AAA | AA | A | BBB | BB | NR | Collateral / Guarantee Type
Unsecured ABS | — | % | $ | 2,952 |  | $ | 2,768 |  | 27 | % | —% | —% | —% | —% | —% | 100% | Unsecured Consumer Debt
Student Loan ABS | — |  | 3,808 |  | 3,792 |  | 28 |  | — | — | — | — | — | 100 | Seasoned Student Loans
Federal Family Education Loan ABS | 9 |  | 78,231 |  | 77,955 |  | 11 |  | 1 | 47 | 33 | 7 | 12 | — | Federal Family Education Loan (1)
PACE Loan ABS | — |  | 1,943 |  | 1,710 |  | 7 |  | 100 | — | — | — | — | — | PACE Loans
Non-Agency CMBS | 2 |  | 13,966 |  | 14,022 |  | 30 |  | — | — | — | — | — | 100 |
Non-Agency RMBS | 2 |  | 16,323 |  | 14,726 |  | 16 |  | 100 | — | — | — | — | — | Reverse Mortgages (2)
Municipal - General Obligation | 11 |  | 99,248 |  | 89,952 |  |  | 17 | 76 | 7 | — | — | — |
Municipal - Revenue | 14 |  | 120,676 |  | 107,154 |  |  | — | 82 | 12 | — | — | 6 |
SBA ReRemic | — |  | 2,095 |  | 2,087 |  |  | — | 100 | — | — | — | — | SBA Guarantee (3)
Small Business Administration | 1 |  | 5,511 |  | 5,629 |  |  | — | 100 | — | — | — | — | SBA Guarantee (3)
Agency MBS | 19 |  | 164,144 |  | 162,334 |  |  | — | 100 | — | — | — | — | Residential Mortgages (3)
Agency CMO | 40 |  | 355,699 |  | 352,729 |  |  | — | 100 | — | — | — | — |
U.S. Treasury securities | 2 |  | 20,040 |  | 18,417 |  |  | — | 100 | — | — | — | — | U.S. Government Guarantee (3)
Corporate debt | — |  | 1,939 |  | 1,974 |  |  | — | — | 52 | 48 | — | — |
| 100 | % | $ | 886,575 |  | $ | 855,249 |  |  | 4% | 87% | 5% | 1% | —% | 3% |
(1) Minimum of 97% guaranteed by U.S. government
(2) Non-agency reverse mortgages with current structural credit enhancements
(3) Guaranteed by U.S. government or U.S. government agencies
Note : Ratings in table are the lowest of the six rating agencies (Standard & Poor's, Moody's, Fitch, Morningstar, DBRS and Kroll Bond Rating Agency). Standard & Poor's rates U.S. government obligations at AA+.

Loan Portfolio
The Company offers a variety of products to meet the credit needs of its borrowers, principally commercial real estate loans, commercial and industrial loans, retail loans secured by residential properties, and, to a lesser extent, installment loans. No loans are extended to non-domestic borrowers or governments.
The risks associated with lending activities differ among loan segments and classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans and general economic conditions. Any of these factors may adversely impact a borrower’s ability to repay loans, and also impact the associated collateral. A further discussion on the Company's loan segments and classes, the related risks, ACL and FDM are included in Note 1, Summary of Significant Accounting Policies, and Note 4, Loans and Allowance for Credit Losses, to the unaudited condensed consolidated financial statements under Part I, Item 1, "Financial Information."
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The following table presents the loan portfolio, excluding residential LHFS, by segment and class at March 31, 2025 and December 31, 2024:

| March 31, 2025 |  | December 31, 2024
Commercial real estate: |  |  |
Owner occupied | $ | 617,854 |  |  | $ | 633,567 |
Non-owner occupied | 1,157,383 |  |  | 1,160,238 |
Multi-family | 257,724 |  |  | 274,135 |
Non-owner occupied residential | 168,354 |  |  | 179,512 |
Acquisition and development: |  |  |
1-4 family residential construction | 40,621 |  |  | 47,432 |
Commercial and land development | 227,434 |  |  | 241,424 |
Agricultural | 134,916 |  |  | 125,156 |
Commercial and industrial | 455,494 |  |  | 451,384 |
Municipal | 30,780 |  |  | 30,044 |
Residential mortgage: |  |  |
First lien | 464,642 |  |  | 460,297 |
Home equity - term | 9,224 |  |  | 5,988 |
Home equity - lines of credit | 295,820 |  |  | 303,561 |
Installment and other loans | 15,739 |  |  | 18,476 |
| $ | 3,875,985 |  |  | $ | 3,931,214 |

Total loans decreased by $55.2 million from December 31, 2024 to March 31, 2025. This decrease was primarily due to strategic actions to reduce risk in the portfolio, including reducing commercial real estate loan concentrations during the three months ended March 31, 2025.
Asset Quality
Risk Elements
The Company’s loan portfolio is subject to varying degrees of credit risk. Credit risk is managed through the Company's underwriting standards, on-going credit reviews and monitoring of asset quality measures. Additionally, loan portfolio diversification, which limits exposure to a single industry or borrower, and collateral requirements also mitigate the Company's risk of credit loss.
The loan portfolio consists principally of loans to borrowers in south central Pennsylvania and the greater Baltimore, Maryland region. As the majority of loans are concentrated in these geographic regions, a substantial portion of the borrowers' ability to honor their obligations may be affected by the level of economic activity in these market areas.
Nonperforming assets include nonaccrual loans and foreclosed real estate. In addition, loan modifications to borrowers experiencing financial difficulty and loans past due 90 days or more and still accruing are also deemed to be risk assets. For all loan classes, the accrual of interest income on loans, including individually evaluated loans, ceases when principal or interest is past due 90 days or more and collateral is inadequate to cover principal and interest or immediately if, in the opinion of management, full collection is unlikely. Interest will continue to accrue on loans past due 90 days or more if the collateral is adequate to cover principal and interest, and the loan is in the process of collection. Interest accrued, but not collected, as of the date of placement on nonaccrual status, is generally reversed and charged against interest income, unless fully collateralized. Subsequent payments received are either applied to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of principal. Loans are returned to accrual status, for all loan classes, when all the principal and interest amounts contractually due are brought current, the loans have performed in accordance with the contractual terms of the note for a reasonable period of time, generally six months, and the ultimate collectability of the total contractual principal and interest is reasonably assured. Past due status is based on contract terms of the loan.
In accordance with ASU 2022-02, the Company is required to evaluate, based on the accounting for loan modifications, whether the borrower is experiencing financial difficulty and if the modification results in a more-than-insignificant direct change in the contractual cash flows and represents a new loan or a continuation of an existing loan, which the Company refers to these loans as "financial difficulty modifications" or "FDMs."
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The following table presents the Company’s risk elements and relevant asset quality ratios at March 31, 2025 and December 31, 2024:

| March 31, 2025 |  | December 31, 2024 |  |
Nonaccrual loans | $ | 22,727 |  |  | $ | 24,111 |  |  |
OREO | 138 |  |  | 138 |  |  |
Total nonperforming assets | 22,865 |  |  | 24,249 |  |  |
FDMs still accruing | 5,127 |  |  | 4,897 |  |  |
Loans past due 90 days or more and still accruing | 400 |  |  | 641 |  |  |
Total nonperforming and other risk assets ("total risk assets") | $ | 28,392 |  |  | $ | 29,787 |  |  |
Loans 30-89 days past due and still accruing | $ | 29,639 |  |  | $ | 35,393 |  |  |
Asset quality ratios: |  |  |  |  |
Total nonperforming loans to total loans | 0.59 | % |  | 0.61 | % |  |
Total nonperforming assets to total assets | 0.42 | % |  | 0.45 | % |  |
Total nonperforming assets to total loans and OREO | 0.59 | % |  | 0.62 | % |  |
Total risk assets to total loans and OREO | 0.73 | % |  | 0.76 | % |  |
Total risk assets to total assets | 0.52 | % |  | 0.55 | % |  |
ACL to total loans | 1.23 | % |  | 1.24 | % |  |
ACL to nonperforming loans | 210.34 | % |  | 201.94 | % |  |
ACL to nonperforming loans and FDMs still accruing | 171.62 | % |  | 167.85 | % |  |
Net charge-offs to total average loans (1) | 0.03 | % |  | 0.03 | % |  |

(1) Annualized
Nonperforming assets include nonaccrual loans and foreclosed real estate. Risk assets, which include nonperforming assets, FDMs still accruing and loans past due 90 days or more and still accruing, totaled $28.4 million at March 31, 2025, a decrease of $1.4 million from $29.8 million at December 31, 2024. Nonaccrual loans decreased by $1.4 million from December 31, 2024 to March 31, 2025 due primarily to repayments of $4.2 million and charge offs of $581 thousand, partially offset by additions consisting mostly of loans in the commercial and residential mortgage segments.
At March 31, 2025, the Company had $6.8 million in loan modifications meeting the FDM criteria under ASU 2022-02 compared to $9.3 million at December 31, 2024. At March 31, 2025, the FDM balance included $5.2 million in acquired loans from the Merger and new loan modifications during the first quarter of 2025 totaling $269 thousand. The decrease in FDM during the first quarter of 2025 was due to repayments. There were $1.7 million in FDM loans in nonaccrual status at March 31, 2025.
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The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without reserves on individually evaluated loans at March 31, 2025 and December 31, 2024. At March 31, 2025, there was a specific reserve of $15 thousand on nonaccrual loans, excluding the ACL recorded on acquired PCD loans from the Merger, compared to $7 thousand at December 31, 2024.

| March 31, 2025 |  | December 31, 2024
| Nonaccrual loans with a related ACL |  | Nonaccrual loans with no related ACL |  | Total nonaccrual loans |  | Loans Past Due 90+ Accruing |  | Nonaccrual loans with a related ACL |  | Nonaccrual loans with no related ACL |  | Total nonaccrual loans |  | Loans Past Due 90+ Accruing
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied | $ | 232 |  |  | $ | 5,416 |  |  | $ | 5,648 |  |  | $ | — |  |  | $ | 232 |  |  | $ | 4,046 |  |  | $ | 4,278 |  |  | $ | — |
Non-owner occupied | — |  |  | 1,360 |  |  | 1,360 |  |  | — |  |  | — |  |  | 1,466 |  |  | 1,466 |  |  | — |
Multi-family | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 721 |  |  | 721 |  |  | 237 |
Non-owner occupied residential | — |  |  | 278 |  |  | 278 |  |  | — |  |  | — |  |  | 175 |  |  | 175 |  |  | — |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential construction | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial and land development | 3,006 |  |  | 636 |  |  | 3,642 |  |  | — |  |  | 3,282 |  |  | 376 |  |  | 3,658 |  |  | — |
Agricultural | — |  |  | 790 |  |  | 790 |  |  | — |  |  | — |  |  | 797 |  |  | 797 |  |  | — |
Commercial and industrial | 1,460 |  |  | 1,548 |  |  | 3,008 |  |  | 109 |  |  | 2,822 |  |  | 2,678 |  |  | 5,500 |  |  | 113 |
Municipal | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien | 20 |  |  | 5,487 |  |  | 5,507 |  |  | 272 |  |  | — |  |  | 5,077 |  |  | 5,077 |  |  | 243 |
Home equity – term | — |  |  | 69 |  |  | 69 |  |  | 19 |  |  | 36 |  |  | 34 |  |  | 70 |  |  | 18 |
Home equity – lines of credit | — |  |  | 2,411 |  |  | 2,411 |  |  | — |  |  | — |  |  | 2,344 |  |  | 2,344 |  |  | 30 |
Installment and other loans | 14 |  |  | — |  |  | 14 |  |  | — |  |  | 15 |  |  | 10 |  |  | 25 |  |  | — |
Total | $ | 4,732 |  |  | $ | 17,995 |  |  | $ | 22,727 |  |  | $ | 400 |  |  | $ | 6,387 |  |  | $ | 17,724 |  |  | $ | 24,111 |  |  | $ | 641 |

The following table presents our exposure to relationships that are individually evaluated and the partial charge-offs taken to date and specific reserves established on those relationships at March 31, 2025 and December 31, 2024:

| # of Relationships |  | Individually Evaluated Loans |  | Partial Charge-offs to Date |  | Specific Reserves
March 31, 2025 |  |  |  |  |  |  |
Relationships greater than $1,000,000 | 7 |  |  | $ | 8,792 |  |  | $ | 923 |  |  | $ | 2,818 |
Relationships greater than $500,000 but less than $1,000,000 | 8 |  |  | 5,393 |  |  | 313 |  |  | 500 |
Relationships greater than $250,000 but less than $500,000 | 9 |  |  | 2,603 |  |  | — |  |  | 101 |
Relationships less than $250,000 | 135 |  |  | 6,103 |  |  | 536 |  |  | 44 |
| 159 |  |  | $ | 22,891 |  |  | $ | 1,772 |  |  | $ | 3,463 |
December 31, 2024 |  |  |  |  |  |  |
Relationships greater than $1,000,000 | 5 |  |  | $ | 10,210 |  |  | $ | 828 |  |  | $ | 177 |
Relationships greater than $500,000 but less than $1,000,000 | 6 |  |  | 4,925 |  |  | 313 |  |  | 2,173 |
Relationships greater than $250,000 but less than $500,000 | 9 |  |  | 2,887 |  |  | — |  |  | 155 |
Relationships less than $250,000 | 121 |  |  | 6,256 |  |  | 431 |  |  | 1,439 |
| 141 |  |  | $ | 24,278 |  |  | $ | 1,572 |  |  | $ | 3,944 |

The Company takes partial charge-offs on collateral-dependent loans when carrying value exceeds estimated fair value, as determined by the most recent appraisal adjusted for current (within the quarter) conditions, less costs to dispose. Specific reserves remain in place if updated appraisals are pending and represent management’s estimate of potential loss.
Internal loan reviews are completed annually on all commercial relationships, secured by commercial real estate, with a committed loan balance in excess of $2.0 million, which includes confirmation of risk rating by an independent credit officer. In addition, all commercial relationships greater than $500 thousand rated Substandard, Doubtful or Loss are reviewed and
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corresponding risk ratings are reaffirmed by the Bank's Problem Loan Committee, with subsequent reporting to the Management ERM Committee and the Board of Directors.
In its individually evaluated loan analysis, the Company determines the extent of any full or partial charge-offs that may be required, or any reserves that may be needed. The determination of the Company’s charge-offs or specific reserve include an evaluation of the outstanding loan balance and the related collateral securing the credit. Through a combination of collateral securing the loans and partial charge-offs taken to date, the Company believes that it has adequately provided for the potential losses that it may incur on these relationships at March 31, 2025. However, over time, additional information may result in increased reserve allocations or, alternatively, it may be deemed that the reserve allocations exceed those that are needed.
Credit Risk Management
Allowance for Credit Losses
The Company maintains the ACL at a level deemed adequate by management for expected credit losses. The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the unaudited condensed consolidated statements of income. A comprehensive analysis of the ACL is performed by the Company on a quarterly basis. Management evaluates the adequacy of the ACL utilizing a defined methodology to determine if it properly addresses the current and expected risks in the loan portfolio, which considers the performance of borrowers and specific evaluation of individually evaluated loans, including historical loss experiences, trends in delinquencies, nonperforming loans and other risk assets, and the qualitative factors. Risk factors are continuously reviewed and adjusted, as needed, by management when conditions support a change. Management believes its approach properly addresses relevant accounting and bank regulatory guidance for loans both collectively and individually evaluated. The results of the comprehensive analysis, including recommended changes, are governed by the Company's Reserve Adequacy Committee and subsequently presented to the Enterprise Risk Management Committee.
The ACL is evaluated based on a review of the collectability of loans in light of historical experience; the nature and volume of the loan portfolio; adverse situations that may affect a borrower’s ability to repay; estimated value of any underlying collateral; and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. A description of the methodology for establishing the allowance and provision for credit losses and related procedures in establishing the appropriate level of reserve is included in Note 4, Loans and Allowance for Credit Losses, to the unaudited condensed consolidated financial statements under Part I, Item 1, "Financial Information."
The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class and credit quality as of March 31, 2025. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan and payment activity. Residential mortgage and installment and other consumer loans are presented below based on payment performance: performing or nonperforming. During the three months ended March 31, 2025, commercial and land development loans totaling $6.1 million were recharacterized to a permanent commercial real estate class upon the completion of construction or receiving a certificate of occupancy. In addition, 1-4 family residential construction loans totaling $1.2 million were recharacterized to a permanent 1-4 family residential mortgage upon the completion of construction. During 2024, commercial and land development loans totaling $44.5 million were recharacterized to a permanent commercial real estate class upon the completion of construction or receiving a certificate of occupancy. In addition, 1-4 family residential construction loans totaling $17.1 million were recharacterized to a permanent 1-4 family residential mortgage upon the completion of construction.
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| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of March 31, 2025 | 2025 |  | 2024 |  | 2023 |  | 2022 |  | 2021 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 10,969 |  |  | $ | 53,350 |  |  | $ | 90,088 |  |  | $ | 104,618 |  |  | $ | 97,914 |  |  | $ | 169,641 |  |  | $ | 12,407 |  |  | $ | 1,578 |  |  | $ | 540,565 |
Special mention | — |  |  | — |  |  | 136 |  |  | 15,651 |  |  | 14,734 |  |  | 11,459 |  |  | 320 |  |  | — |  |  | 42,300 |
Substandard - Non-IEL | — |  |  | — |  |  | 1,522 |  |  | 12,572 |  |  | 4,177 |  |  | 6,999 |  |  | 3,854 |  |  | 217 |  |  | 29,341 |
Substandard - IEL | — |  |  | — |  |  | 694 |  |  | 206 |  |  | 1,082 |  |  | 3,666 |  |  | — |  |  | — |  |  | 5,648 |
Total owner-occupied loans | $ | 10,969 |  |  | $ | 53,350 |  |  | $ | 92,440 |  |  | $ | 133,047 |  |  | $ | 117,907 |  |  | $ | 191,765 |  |  | $ | 16,581 |  |  | $ | 1,795 |  |  | $ | 617,854 |
Current period gross charge offs - owner-occupied | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 75 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 75 |
Non-owner occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 10,367 |  |  | $ | 82,873 |  |  | $ | 145,771 |  |  | $ | 192,518 |  |  | $ | 323,602 |  |  | $ | 372,363 |  |  | $ | 2,449 |  |  | $ | 378 |  |  | $ | 1,130,321 |
Special mention | — |  |  | — |  |  | 10,077 |  |  | 2,989 |  |  | 1,136 |  |  | 9,782 |  |  | — |  |  | — |  |  | 23,984 |
Substandard - Non-IEL | — |  |  | 466 |  |  | — |  |  | 1,045 |  |  | — |  |  | 207 |  |  | — |  |  | — |  |  | 1,718 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,360 |  |  | — |  |  | — |  |  | 1,360 |
Total non-owner occupied loans | $ | 10,367 |  |  | $ | 83,339 |  |  | $ | 155,848 |  |  | $ | 196,552 |  |  | $ | 324,738 |  |  | $ | 383,712 |  |  | $ | 2,449 |  |  | $ | 378 |  |  | $ | 1,157,383 |
Current period gross charge offs - non-owner occupied | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Multi-family: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 548 |  |  | $ | 7,232 |  |  | $ | 9,919 |  |  | $ | 96,057 |  |  | $ | 52,973 |  |  | $ | 84,242 |  |  | $ | 1,409 |  |  | $ | 214 |  |  | $ | 252,594 |
Special mention | — |  |  | — |  |  | — |  |  | 1,082 |  |  | 776 |  |  | — |  |  | — |  |  | — |  |  | 1,858 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | 569 |  |  | 2,468 |  |  | 235 |  |  | — |  |  | — |  |  | 3,272 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total multi-family loans | $ | 548 |  |  | $ | 7,232 |  |  | $ | 9,919 |  |  | $ | 97,708 |  |  | $ | 56,217 |  |  | $ | 84,477 |  |  | $ | 1,409 |  |  | $ | 214 |  |  | $ | 257,724 |
Current period gross charge offs - multi-family | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Non-owner occupied residential: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 213 |  |  | $ | 9,291 |  |  | $ | 19,935 |  |  | $ | 28,486 |  |  | $ | 27,625 |  |  | $ | 78,606 |  |  | $ | 1,113 |  |  | $ | 652 |  |  | $ | 165,921 |
Special mention | — |  |  | — |  |  | — |  |  | — |  |  | 147 |  |  | 381 |  |  | 40 |  |  | 40 |  |  | 608 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | 51 |  |  | 131 |  |  | 1,256 |  |  | — |  |  | 109 |  |  | 1,547 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | 154 |  |  | — |  |  | 124 |  |  | — |  |  | — |  |  | 278 |
Total non-owner occupied residential loans | $ | 213 |  |  | $ | 9,291 |  |  | $ | 19,935 |  |  | $ | 28,691 |  |  | $ | 27,903 |  |  | $ | 80,367 |  |  | $ | 1,153 |  |  | $ | 801 |  |  | $ | 168,354 |
Current period gross charge offs - non-owner occupied residential | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential construction: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 8,151 |  |  | $ | 22,936 |  |  | $ | 4,235 |  |  | $ | 1,524 |  |  | $ | 1,138 |  |  | $ | 848 |  |  | $ | 880 |  |  | $ | — |  |  | $ | 39,712 |
Special mention | — |  |  | 74 |  |  | 222 |  |  | — |  |  | — |  |  | 613 |  |  | — |  |  | — |  |  | 909 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total 1-4 family residential construction loans | $ | 8,151 |  |  | $ | 23,010 |  |  | $ | 4,457 |  |  | $ | 1,524 |  |  | $ | 1,138 |  |  | $ | 1,461 |  |  | $ | 880 |  |  | $ | — |  |  | $ | 40,621 |
Current period gross charge offs - 1-4 family residential construction | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
continued

68

Table of Contents

| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of March 31, 2025 | 2025 |  | 2024 |  | 2023 |  | 2022 |  | 2021 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Commercial and land development: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 1,653 |  |  | $ | 67,323 |  |  | $ | 51,414 |  |  | $ | 73,373 |  |  | $ | 10,598 |  |  | $ | 5,422 |  |  | $ | 8,106 |  |  | $ | 150 |  |  | $ | 218,039 |
Special mention | — |  |  | — |  |  | — |  |  | 4,748 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,748 |
Substandard - Non-IEL | — |  |  | 734 |  |  | 271 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,005 |
Substandard - IEL | — |  |  | — |  |  | 18 |  |  | 3,274 |  |  | 350 |  |  | — |  |  | — |  |  | — |  |  | 3,642 |
Total commercial and land development loans | $ | 1,653 |  |  | $ | 68,057 |  |  | $ | 51,703 |  |  | $ | 81,395 |  |  | $ | 10,948 |  |  | $ | 5,422 |  |  | $ | 8,106 |  |  | $ | 150 |  |  | $ | 227,434 |
Current period gross charge offs - commercial and land development | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 5,219 |  |  | $ | 14,567 |  |  | $ | 14,206 |  |  | $ | 21,127 |  |  | $ | 19,446 |  |  | $ | 44,101 |  |  | $ | 13,130 |  |  | $ | 1,336 |  |  | $ | 133,132 |
Special mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 256 |  |  | 81 |  |  | — |  |  | 337 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | 450 |  |  | — |  |  | 207 |  |  | — |  |  | — |  |  | 657 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | 790 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 790 |
Total agricultural loans | $ | 5,219 |  |  | $ | 14,567 |  |  | $ | 14,206 |  |  | $ | 22,367 |  |  | $ | 19,446 |  |  | $ | 44,564 |  |  | $ | 13,211 |  |  | $ | 1,336 |  |  | $ | 134,916 |
Current period gross charge offs - agricultural | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 25 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 25 |
Commercial and Industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 22,580 |  |  | $ | 81,474 |  |  | $ | 52,806 |  |  | $ | 51,298 |  |  | $ | 48,462 |  |  | $ | 24,931 |  |  | $ | 130,512 |  |  | $ | 7,126 |  |  | $ | 419,189 |
Special mention | — |  |  | 4,376 |  |  | 927 |  |  | 2,361 |  |  | 235 |  |  | — |  |  | 9,603 |  |  | 61 |  |  | 17,563 |
Substandard - Non-IEL | — |  |  | — |  |  | 2,214 |  |  | 2,100 |  |  | — |  |  | — |  |  | 8,607 |  |  | 2,813 |  |  | 15,734 |
Substandard - IEL | — |  |  | 397 |  |  | 559 |  |  | 128 |  |  | 169 |  |  | 1,602 |  |  | — |  |  | 153 |  |  | 3,008 |
Total commercial and industrial loans | $ | 22,580 |  |  | $ | 86,247 |  |  | $ | 56,506 |  |  | $ | 55,887 |  |  | $ | 48,866 |  |  | $ | 26,533 |  |  | $ | 148,722 |  |  | $ | 10,153 |  |  | $ | 455,494 |
Current period gross charge offs - commercial and industrial | $ | — |  |  | $ | — |  |  | $ | 381 |  |  | $ | — |  |  | $ | 41 |  |  | $ | 95 |  |  | $ | — |  |  | $ | — |  |  | $ | 517 |
Municipal: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 2,497 |  |  | $ | 562 |  |  | $ | — |  |  | $ | 9,816 |  |  | $ | 2,877 |  |  | $ | 13,555 |  |  | $ | — |  |  | $ | — |  |  | $ | 29,307 |
Special mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,473 |  |  | — |  |  | — |  |  | 1,473 |
Total municipal loans | $ | 2,497 |  |  | $ | 562 |  |  | $ | — |  |  | $ | 9,816 |  |  | $ | 2,877 |  |  | $ | 15,028 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,780 |
Current period gross charge offs - municipal | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 20,302 |  |  | $ | 59,611 |  |  | $ | 97,877 |  |  | $ | 100,981 |  |  | $ | 49,771 |  |  | $ | 130,429 |  |  | $ | — |  |  | $ | — |  |  | $ | 458,971 |
Nonperforming | — |  |  | 673 |  |  | 577 |  |  | 237 |  |  | 250 |  |  | 3,934 |  |  | — |  |  | — |  |  | 5,671 |
Total first lien loans | $ | 20,302 |  |  | $ | 60,284 |  |  | $ | 98,454 |  |  | $ | 101,218 |  |  | $ | 50,021 |  |  | $ | 134,363 |  |  | $ | — |  |  | $ | — |  |  | $ | 464,642 |
Current period gross charge offs - first lien | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Home equity - term: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 79 |  |  | $ | 1,422 |  |  | $ | 1,245 |  |  | $ | 1,451 |  |  | $ | 1,028 |  |  | $ | 3,770 |  |  | $ | 160 |  |  | $ | — |  |  | $ | 9,155 |
Nonperforming | — |  |  | — |  |  | — |  |  | 35 |  |  | — |  |  | 34 |  |  | — |  |  | — |  |  | 69 |
Total home equity - term loans | $ | 79 |  |  | $ | 1,422 |  |  | $ | 1,245 |  |  | $ | 1,486 |  |  | $ | 1,028 |  |  | $ | 3,804 |  |  | $ | 160 |  |  | $ | — |  |  | $ | 9,224 |
Current period gross charge offs - home equity - term | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
continued

69

Table of Contents

| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of March 31, 2025 | 2025 |  | 2024 |  | 2023 |  | 2022 |  | 2021 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Home equity - lines of credit: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 196,120 |  |  | $ | 97,289 |  |  | $ | 293,409 |
Nonperforming | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,086 |  |  | 325 |  |  | 2,411 |
Total residential real estate - home equity - lines of credit loans | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 198,206 |  |  | $ | 97,614 |  |  | $ | 295,820 |
Current period gross charge offs - home equity - lines of credit | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Installment and other loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 578 |  |  | $ | 1,469 |  |  | $ | 2,355 |  |  | $ | 1,849 |  |  | $ | 666 |  |  | $ | 410 |  |  | $ | 8,371 |  |  | $ | 27 |  |  | $ | 15,725 |
Nonperforming | — |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  | 11 |  |  | — |  |  | — |  |  | 14 |
Total Installment and other loans | $ | 578 |  |  | $ | 1,469 |  |  | $ | 2,358 |  |  | $ | 1,849 |  |  | $ | 666 |  |  | $ | 421 |  |  | $ | 8,371 |  |  | $ | 27 |  |  | $ | 15,739 |
Current period gross charge offs - installment and other | $ | — |  |  | $ | 232 |  |  | $ | — |  |  | $ | 3 |  |  | $ | 2 |  |  | $ | 8 |  |  | $ | 31 |  |  | $ | — |  |  | $ | 276 |

| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of December 31, 2024 | 2024 |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Commercial Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 55,068 |  |  | $ | 86,255 |  |  | $ | 106,696 |  |  | $ | 112,278 |  |  | $ | 31,495 |  |  | $ | 155,543 |  |  | $ | 14,653 |  |  | $ | 280 |  |  | $ | 562,268 |
Special mention | — |  |  | 1,674 |  |  | 18,563 |  |  | 1,895 |  |  | 7,946 |  |  | 5,422 |  |  | 165 |  |  | — |  |  | 35,665 |
Substandard - Non-IEL | — |  |  | 694 |  |  | 14,572 |  |  | 4,204 |  |  | 2,477 |  |  | 4,899 |  |  | 4,510 |  |  | — |  |  | 31,356 |
Substandard - IEL | — |  |  | 9 |  |  | — |  |  | 1,110 |  |  | 245 |  |  | 2,914 |  |  | — |  |  | — |  |  | 4,278 |
Total owner-occupied loans | $ | 55,068 |  |  | $ | 88,632 |  |  | $ | 139,831 |  |  | $ | 119,487 |  |  | $ | 42,163 |  |  | $ | 168,778 |  |  | $ | 19,328 |  |  | $ | 280 |  |  | $ | 633,567 |
Current period gross charge offs - owner-occupied | $ | — |  |  | $ | 217 |  |  | $ | 13 |  |  | $ | 313 |  |  | $ | — |  |  | $ | 12 |  |  | $ | — |  |  | $ | — |  |  | $ | 555 |
Non-owner occupied: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 82,441 |  |  | $ | 146,020 |  |  | $ | 193,131 |  |  | $ | 326,586 |  |  | $ | 123,646 |  |  | $ | 256,212 |  |  | $ | 2,335 |  |  | $ | — |  |  | $ | 1,130,371 |
Special mention | — |  |  | 10,081 |  |  | 2,985 |  |  | 334 |  |  | 7,920 |  |  | 1,919 |  |  | — |  |  | — |  |  | 23,239 |
Substandard - Non-IEL | 482 |  |  | — |  |  | 1,049 |  |  | — |  |  | 1,043 |  |  | 2,588 |  |  | — |  |  | — |  |  | 5,162 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,466 |  |  | — |  |  | — |  |  | 1,466 |
Total non-owner occupied loans | $ | 82,923 |  |  | $ | 156,101 |  |  | $ | 197,165 |  |  | $ | 326,920 |  |  | $ | 132,609 |  |  | $ | 262,185 |  |  | $ | 2,335 |  |  | $ | — |  |  | $ | 1,160,238 |
Current period gross charge offs - non-owner occupied | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 65 |  |  | $ | — |  |  | $ | — |  |  | $ | 65 |
Multi-family: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 7,269 |  |  | $ | 12,679 |  |  | $ | 105,883 |  |  | $ | 54,028 |  |  | $ | 30,968 |  |  | $ | 54,676 |  |  | $ | 1,351 |  |  | $ | — |  |  | $ | 266,854 |
Special mention | — |  |  | — |  |  | 1,094 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,094 |
Substandard - Non-IEL | — |  |  | — |  |  | 571 |  |  | 4,658 |  |  | — |  |  | 237 |  |  | — |  |  | — |  |  | 5,466 |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 721 |  |  | — |  |  | — |  |  | 721 |
Total multi-family loans | $ | 7,269 |  |  | $ | 12,679 |  |  | $ | 107,548 |  |  | $ | 58,686 |  |  | $ | 30,968 |  |  | $ | 55,634 |  |  | $ | 1,351 |  |  | $ | — |  |  | $ | 274,135 |
Current period gross charge offs - multi-family | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 7 |  |  | $ | — |  |  | $ | — |  |  | $ | 7 |
continued

70

Table of Contents

| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of December 31, 2024 | 2024 |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Non-owner occupied residential: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 9,322 |  |  | $ | 22,771 |  |  | $ | 29,681 |  |  | $ | 29,729 |  |  | $ | 19,410 |  |  | $ | 64,851 |  |  | $ | 1,257 |  |  | $ | — |  |  | $ | 177,021 |
Special mention | — |  |  | — |  |  | — |  |  | 147 |  |  | 42 |  |  | 478 |  |  | 39 |  |  | — |  |  | 706 |
Substandard - Non-IEL | — |  |  | — |  |  | 166 |  |  | 133 |  |  | — |  |  | 1,311 |  |  | — |  |  | — |  |  | 1,610 |
Substandard - IEL | — |  |  | — |  |  | 43 |  |  | — |  |  | — |  |  | 132 |  |  | — |  |  | — |  |  | 175 |
Total non-owner occupied residential loans | $ | 9,322 |  |  | $ | 22,771 |  |  | $ | 29,890 |  |  | $ | 30,009 |  |  | $ | 19,452 |  |  | $ | 66,772 |  |  | $ | 1,296 |  |  | $ | — |  |  | $ | 179,512 |
Current period gross charge offs - non-owner occupied residential | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 29 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 29 |
Acquisition and development: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-4 family residential construction: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 30,908 |  |  | $ | 7,079 |  |  | $ | 2,295 |  |  | $ | 598 |  |  | $ | 935 |  |  | $ | 762 |  |  | $ | 3,921 |  |  | $ | — |  |  | $ | 46,498 |
Special mention | 74 |  |  | 717 |  |  | — |  |  | — |  |  | — |  |  | 143 |  |  | — |  |  | — |  |  | 934 |
Substandard - Non-IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard - IEL | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total 1-4 family residential construction loans | $ | 30,982 |  |  | $ | 7,796 |  |  | $ | 2,295 |  |  | $ | 598 |  |  | $ | 935 |  |  | $ | 905 |  |  | $ | 3,921 |  |  | $ | — |  |  | $ | 47,432 |
Current period gross charge offs - 1-4 family residential construction | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial and land development: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 60,420 |  |  | $ | 57,563 |  |  | $ | 74,893 |  |  | $ | 14,107 |  |  | $ | 372 |  |  | $ | 6,928 |  |  | $ | 7,280 |  |  | $ | — |  |  | $ | 221,563 |
Special mention | 734 |  |  | — |  |  | 4,557 |  |  | 998 |  |  | 1,841 |  |  | 3,451 |  |  | — |  |  | — |  |  | 11,581 |
Substandard - Non-IEL | 2,966 |  |  | 1,656 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,622 |
Substandard - IEL | — |  |  | 18 |  |  | 3,282 |  |  | 358 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,658 |
Total commercial and land development loans | $ | 64,120 |  |  | $ | 59,237 |  |  | $ | 82,732 |  |  | $ | 15,463 |  |  | $ | 2,213 |  |  | $ | 10,379 |  |  | $ | 7,280 |  |  | $ | — |  |  | $ | 241,424 |
Current period gross charge offs - commercial and land development | $ | — |  |  | $ | 23 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 23 |
Agricultural |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 14,663 |  |  | $ | 14,507 |  |  | $ | 21,782 |  |  | $ | 19,486 |  |  | $ | 10,463 |  |  | $ | 28,095 |  |  | $ | 13,891 |  |  | $ | 164 |  |  | $ | 123,051 |
Special mention | — |  |  | — |  |  | — |  |  | 25 |  |  | — |  |  | 902 |  |  | 161 |  |  | — |  |  | 1,088 |
Substandard - Non-IEL | — |  |  | — |  |  | 13 |  |  | — |  |  | — |  |  | 207 |  |  | — |  |  | — |  |  | 220 |
Substandard - IEL | — |  |  | — |  |  | 797 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 797 |
Total agricultural loans | $ | 14,663 |  |  | $ | 14,507 |  |  | $ | 22,592 |  |  | $ | 19,511 |  |  | $ | 10,463 |  |  | $ | 29,204 |  |  | $ | 14,052 |  |  | $ | 164 |  |  | $ | 125,156 |
Current period gross charge offs - agricultural | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 18 |  |  | $ | — |  |  | $ | 18 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 38 |
Commercial and Industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 82,924 |  |  | $ | 55,109 |  |  | $ | 53,482 |  |  | $ | 49,937 |  |  | $ | 15,405 |  |  | $ | 17,215 |  |  | $ | 137,379 |  |  | $ | 2,768 |  |  | $ | 414,219 |
Special mention | 485 |  |  | 2,000 |  |  | 2,477 |  |  | 293 |  |  | 2 |  |  | 23 |  |  | 10,516 |  |  | — |  |  | 15,796 |
Substandard - Non-IEL | — |  |  | 1,037 |  |  | 2,547 |  |  | 3,409 |  |  | — |  |  | 490 |  |  | 8,386 |  |  | — |  |  | 15,869 |
Substandard - IEL | 409 |  |  | 2,772 |  |  | 140 |  |  | 191 |  |  | 884 |  |  | 921 |  |  | 183 |  |  | — |  |  | 5,500 |
Total commercial and industrial loans | $ | 83,818 |  |  | $ | 60,918 |  |  | $ | 58,646 |  |  | $ | 53,830 |  |  | $ | 16,291 |  |  | $ | 18,649 |  |  | $ | 156,464 |  |  | $ | 2,768 |  |  | $ | 451,384 |
Current period gross charge offs - commercial and industrial | $ | — |  |  | $ | 335 |  |  | $ | 212 |  |  | $ | 60 |  |  | $ | 1,739 |  |  | $ | 60 |  |  | $ | 571 |  |  | $ | — |  |  | $ | 2,977 |
continued

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| Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |
As of December 31, 2024 | 2024 |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | Prior |  | Revolving Loans Amortized Basis |  | Revolving Loans Converted to Term |  | Total
Municipal: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 1,565 |  |  | $ | — |  |  | $ | 10,006 |  |  | $ | 3,124 |  |  | $ | 269 |  |  | $ | 15,080 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,044 |
Total municipal loans | $ | 1,565 |  |  | $ | — |  |  | $ | 10,006 |  |  | $ | 3,124 |  |  | $ | 269 |  |  | $ | 15,080 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,044 |
Current period gross charge offs - municipal | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Residential mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First lien: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 62,970 |  |  | $ | 101,901 |  |  | $ | 103,347 |  |  | $ | 52,420 |  |  | $ | 25,303 |  |  | $ | 109,113 |  |  | $ | — |  |  | $ | — |  |  | $ | 455,054 |
Nonperforming | 672 |  |  | 308 |  |  | 241 |  |  | 483 |  |  | 218 |  |  | 3,321 |  |  | — |  |  | — |  |  | 5,243 |
Total first lien loans | $ | 63,642 |  |  | $ | 102,209 |  |  | $ | 103,588 |  |  | $ | 52,903 |  |  | $ | 25,521 |  |  | $ | 112,434 |  |  | $ | — |  |  | $ | — |  |  | $ | 460,297 |
Current period gross charge offs - first lien | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |
Home equity - term: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 395 |  |  | $ | 752 |  |  | $ | 1,040 |  |  | $ | 201 |  |  | $ | 462 |  |  | $ | 3,068 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,918 |
Nonperforming | — |  |  | — |  |  | 36 |  |  | — |  |  | — |  |  | 34 |  |  | — |  |  | — |  |  | 70 |
Total home equity - term loans | $ | 395 |  |  | $ | 752 |  |  | $ | 1,076 |  |  | $ | 201 |  |  | $ | 462 |  |  | $ | 3,102 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,988 |
Current period gross charge offs - home equity - term | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Home equity - lines of credit: |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 200,886 |  |  | $ | 100,331 |  |  | $ | 301,217 |
Nonperforming | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,048 |  |  | 296 |  |  | 2,344 |
Total residential real estate - home equity - lines of credit loans | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 202,934 |  |  | $ | 100,627 |  |  | $ | 303,561 |
Current period gross charge offs - home equity - lines of credit | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 63 |  |  | $ | — |  |  | $ | 63 |
Installment and other loans: |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | $ | 2,197 |  |  | $ | 2,764 |  |  | $ | 2,209 |  |  | $ | 830 |  |  | $ | 119 |  |  | $ | 496 |  |  | $ | 9,817 |  |  | $ | 19 |  |  | $ | 18,451 |
Nonperforming | 9 |  |  | 3 |  |  | — |  |  | — |  |  | — |  |  | 13 |  |  | — |  |  | — |  |  | 25 |
Total Installment and other loans | $ | 2,206 |  |  | $ | 2,767 |  |  | $ | 2,209 |  |  | $ | 830 |  |  | $ | 119 |  |  | $ | 509 |  |  | $ | 9,817 |  |  | $ | 19 |  |  | $ | 18,476 |
Current period gross charge offs - installment and other | $ | 209 |  |  | $ | 12 |  |  | $ | — |  |  | $ | 32 |  |  | $ | — |  |  | $ | 33 |  |  | $ | 21 |  |  | $ | — |  |  | $ | 307 |

The Special Mention classification is intended to be a temporary classification reflective of loans that have potential weaknesses that may, if not monitored or corrected, weaken the asset or inadequately protect the Company’s position at some future date. Special mention loans represent an elevated risk, but their weakness does not yet justify a more severe, or classified, rating. These loans require inquiry by lenders on the cause of the potential weakness and, once analyzed, the loan classification may be downgraded to Substandard or, alternatively, could be upgraded to Pass.
Special Mention loans increased by $2.2 million from $90.1 million at December 31, 2024 to $92.3 million at March 31, 2025 due to downgrades at the Bank of $22.7 million, partially offset by repayments.
Classified loans totaled $76.2 million at March 31, 2025, or 2.0% of total loans outstanding, reflecting a decrease from $88.6 million, or 2.3% of total loans outstanding, at December 31, 2024.
Non-IEL substandard loans are performing loans, which have characteristics that cause management concern over the ability of the borrower to perform under present loan repayment terms and which may result in the reporting of these loans as nonperforming, or individually evaluated, loans in the future. Generally, management feels that substandard loans that are
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currently performing and not considered individually evaluated result in some doubt as to the borrower’s ability to continue to perform under the terms of the loan and represent potential problem loans. Non-IEL substandard loans totaled $53.3 million at March 31, 2025, a decrease of $11.1 million, compared to $64.4 million at December 31, 2024 due primarily to repayments of $13.2 million partially offset by downgrades. The Substandard-IEL category decreased from $24.3 million at December 31, 2024 to $22.9 million at March 31, 2025, primarily due to repayments of $6.2 million and charge offs totaling $472 thousand partially offset by downgrades.
The following table presents the activity in the ACL for the three months ended March 31, 2025 and 2024:

| Commercial |  | Consumer |  |  |  |
| Commercial Real Estate |  | Acquisition and Development |  | Agricultural |  | Commercial and Industrial |  | Municipal |  | Total |  | Residential Mortgage |  | Installment and Other |  | Total |  |  |  | Total
Three Months Ended |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period | $ | 29,551 |  |  | $ | 6,601 |  |  | $ | 110 |  |  | $ | 6,190 |  |  | $ | 320 |  |  | $ | 42,772 |  |  | $ | 5,240 |  |  | $ | 677 |  |  | $ | 5,917 |  |  |  |  | $ | 48,689 |
Provision for credit losses | (3,587) |  |  | (452) |  |  | 78 |  |  | 1,236 |  |  | 107 |  |  | (2,618) |  |  | 1,998 |  |  | 66 |  |  | 2,064 |  |  |  |  | (554) |
Charge-offs | (75) |  |  | — |  |  | (25) |  |  | (517) |  |  | — |  |  | (617) |  |  | — |  |  | (276) |  |  | (276) |  |  |  |  | (893) |
Recoveries | 4 |  |  | 1 |  |  | — |  |  | 453 |  |  | — |  |  | 458 |  |  | 74 |  |  | 30 |  |  | 104 |  |  |  |  | 562 |
Balance, end of period | $ | 25,893 |  |  | $ | 6,150 |  |  | $ | 163 |  |  | $ | 7,362 |  |  | $ | 427 |  |  | $ | 39,995 |  |  | $ | 7,312 |  |  | $ | 497 |  |  | $ | 7,809 |  |  |  |  | $ | 47,804 |
March 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period | $ | 17,873 |  |  | $ | 2,241 |  |  | $ | 437 |  |  | $ | 5,369 |  |  | $ | 157 |  |  | $ | 26,077 |  |  | $ | 2,424 |  |  | $ | 201 |  |  | $ | 2,625 |  |  |  |  | $ | 28,702 |
Provision for loan losses | 78 |  |  | (9) |  |  | (44) |  |  | (417) |  |  | 7 |  |  | (385) |  |  | 763 |  |  | 43 |  |  | 806 |  |  |  |  | 421 |
Charge-offs | — |  |  | — |  |  | — |  |  | (46) |  |  | — |  |  | (46) |  |  | — |  |  | (53) |  |  | (53) |  |  |  |  | (99) |
Recoveries | 24 |  |  | 1 |  |  | — |  |  | 90 |  |  | — |  |  | 115 |  |  | 6 |  |  | 20 |  |  | 26 |  |  |  |  | 141 |
Balance, end of period | $ | 17,975 |  |  | $ | 2,233 |  |  | $ | 393 |  |  | $ | 4,996 |  |  | $ | 164 |  |  | $ | 25,761 |  |  | $ | 3,193 |  |  | $ | 211 |  |  | $ | 3,404 |  |  |  |  | $ | 29,165 |

The ACL totaled $47.8 million at March 31, 2025, an increase of $18.6 million from March 31, 2024, resulting primarily from the provision for credit losses on non-PCD loans of $15.5 million related to the Merger, the allowance for credit losses on PCD loans from the Merger of $5.9 million and a recovery of provision for credit losses of $554 thousand, inclusive of net charge-offs of $331 thousand during the three months ended March 31, 2025. The ACL as a percentage of the total loan portfolio was 1.23% at March 31, 2025 compared to 1.27% at March 31, 2024.
The Company takes partial charge-offs on collateral-dependent loans when carrying value exceeds estimated fair value, as determined by the most recent appraisal adjusted for current (within the quarter) conditions, less costs to dispose. Specific reserves remain in place if updated appraisals are pending, and represent management’s estimate of potential loss. In addition to the specific reserve allocations on individually evaluated loans noted previously, 15 loans, with aggregate outstanding principal balances of $2.1 million, had cumulative partial charge-offs to the ACL totaling $1.8 million through March 31, 2025. As updated appraisals are received on collateral-dependent loans, partial charge-offs are taken to the extent the loans’ principal balance exceeds their fair value.
Management believes the allocation of the ACL among the various loan classes adequately reflects the life expected credit losses in each loan class and is based on the methodology outlined in Note 1, Summary of Significant Accounting Policies, and Note 4, Loans and Allowance for Credit Losses, to the Consolidated Financial Statements under Part I, Item 1, "Financial Information." Management re-evaluates and makes enhancements to its reserve methodology to better reflect the risks inherent in the different segments of the portfolio, particularly in light of increased charge-offs, with noticeable differences between the different loan classes. Management believes these enhancements to the ACL methodology improve the accuracy of quantifying the expected credit losses inherent in the portfolio. Management charges actual loan losses to the reserve and bases the provision for credit losses on its overall analysis.
Management believes the Company’s ACL is adequate based on currently available information. Future adjustments to the ACL and enhancements to the methodology may be necessary due to changes in economic conditions, regulatory guidance, or management’s assumptions as to future delinquencies or loss rates.
Deposits
Total deposits increased by $10.6 million during the first quarter of 2025 and totaled $4.6 billion at both March 31, 2025 and December 31, 2024. Interest-bearing demand deposits, non-interest bearing demand deposits and savings deposits increased by $52.5 million, $38.0 million and $4.1 million, respectively, from December 31, 2024 to March 31, 2025. These increases were partially offset by decreases in time deposits of $47.5 million and money market deposits of $36.5 million during the first
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quarter of 2025. The Bank has experienced some reductions in higher yielding promotional balances, but has been successful in retaining or replacing those deposits through demand deposit accounts.
Borrowings
In addition to deposits, the Company uses borrowing sources to meet liquidity needs and for temporary funding. Sources of short-term borrowings include the FHLB of Pittsburgh, federal funds purchased and the FRB discount window. Short-term borrowings also may include securities sold under agreements to repurchase with deposit clients, in which a client sweeps a portion of a deposit balance into a repurchase agreement, which is a secured borrowing with a pool of securities pledged against the balance.
The Company also utilizes long-term debt, consisting principally of FHLB fixed and amortizing advances, to fund its balance sheet with original maturities greater than one year. Prior to entering into long-term borrowings, the Company evaluates its funding needs, interest rate movements, the cost of options and the availability of attractive structures.
FHLB advances decreased by $15.0 million to $100.0 million at March 31, 2025 compared to $115.0 million at December 31, 2024 due to the maturity of a $15.0 million FHLB advance during the first quarter of 2025.
In December 2018, the Company issued unsecured subordinated notes payable totaling $32.5 million, which mature on December 30, 2028, and the proceeds of which were designated for general corporate use, including funding of cash consideration for mergers and acquisitions. The subordinated notes had a fixed interest rate of 6.0% through December 30, 2023, which then converted to a variable rate, three-month CME term SOFR rate plus 3.16%, through maturity. At March 31, 2025, the contractual interest rate on the subordinated debt was 7.75%.
The Company assumed unsecured subordinated notes of $31.0 million from the Merger. The subordinated notes have a fixed rate of interest equal to 4.50% until December 30, 2025. After that term, the variable rate of interest is equal to the three-month CME term SOFR rate plus 4.04%.
The Company also assumed junior subordinated trust preferred debt of $10.3 million from the Merger. In June 2006, Codorus Valley formed CVB Statutory Trust No. II, a wholly-owned special purpose entity whose sole purpose was to facilitate a pooled trust preferred debt issuance of $7.2 million with a stated maturity of July 7, 2036 and a variable rate of three-month CME term SOFR rate, plus a spread adjustment of 0.26161% and a margin of 1.54% through maturity. In November 2004, Codorus Valley formed CVB Statutory Trust No. I to facilitate a pooled trust preferred debt issuance of $3.1 million with a stated maturity of December 15, 2034 and a variable rate of three-month CME term SOFR rate, plus a spread adjustment of 0.26161% and a margin of 2.02% through maturity.
Shareholders' Equity, Capital Adequacy and Regulatory Matters
Capital management in a regulated financial services industry must properly balance return on equity to its shareholders while maintaining sufficient levels of capital and related risk-based regulatory capital ratios to satisfy statutory regulatory requirements. The Company’s capital management strategies have been developed to provide attractive rates of returns to its shareholders, while remaining “well-capitalized” under applicable banking regulations.
Shareholders’ equity totaled $532.9 million at March 31, 2025, an increase of $16.3 million from $516.7 million at December 31, 2024. The increase was primarily attributable to net income of $18.1 million, other comprehensive income of $2.3 million and the issuance of treasury shares for share-based compensation which increased shareholders' equity by $1.0 million, partially offset by dividends paid of $5.0 million for the three months ended March 31, 2025. Other comprehensive income included an after-tax increase of $3.0 million from net unrealized gains on investment securities, partially offset by $708 thousand in net unrealized losses from cash flow hedges. For the three months ended March 31, 2025, total comprehensive income totaled $20.3 million, an increase of $12.0 million, from total comprehensive income of $8.3 million for the same period in 2024 due primarily to an increase in net income of $9.5 million and an increase in after-tax net unrealized gains on investment securities of $4.3 million, partially offset by an increase in after-tax net unrealized losses on interest rate swaps designated as cash flow hedges of $1.8 million between the comparative periods. The increase i n net unrealized gains on investment securities was primarily caused by a decline in treasury rates.
At March 31, 2025, book value per common share was $27.32 compared to $26.65 at December 31, 2024. Tangible book value per share increased from $21.19 at December 31, 2024 to $21.99 at March 31, 2025, primarily as a result of the increase in shareholders' equity from net income. See “Supplemental Reporting of Non-GAAP Measures.”
The Company routinely evaluates its capital levels in light of its risk profile to assess its capital needs. The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. At March 31, 2025 and December 31, 2024, the Bank was considered well-capitalized under applicable banking regulations. Under
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capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Prompt corrective action provisions are not applicable to bank holding companies, including financial holding companies.
Note 10, Shareholders' Equity and Regulatory Capital, to the Notes to Unaudited Condensed Consolidated Financial Statements under Part I, Item 1, "Financial Information," includes a table presenting capital amounts and ratios for the Company and the Bank at March 31, 2025 and December 31, 2024.
In addition to the minimum capital ratio requirement and minimum capital ratio to be well-capitalized presented in the referenced table in Note 10, the Bank must maintain a capital conservation buffer as more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, Item 1 - Business, under the topic Basel III Capital Rules. At March 31, 2025, the Parent Company's and the Bank's capital conservation buffer, based on the most restrictive Total Capital to risk weighted assets capital ratio, was 4.8% and 5.0%, which is greater than the 2.5% requirement.
Liquidity
The primary function of asset/liability management is to ensure adequate liquidity and manage the Company’s sensitivity to changing interest rates. Liquidity management involves the ability to meet the cash flow requirements of clients who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. The Company's primary sources of funds consist of deposit inflows, loan repayments, borrowings from the FHLB of Pittsburgh and maturities and prepayments of investment securities. While maturities and scheduled amortization of loans and investment securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
The Company regularly adjusts its investments in liquid assets based upon its assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and investment securities and the objectives of its asset/liability management policy. The Company's most liquid assets are cash and cash equivalents.
At March 31, 2025, cash and cash equivalents totaled $287.1 million compared to $248.9 million at December 31, 2024, which reflects the decrease in loans of $55.2 million, net income of $18.1 million and the increase in deposits of $10.6 million, partially offset by the increase in investment securities of $25.7 million and the decrease in borrowings of $15.0 million for the three months ended March 31, 2025. U nencumbered investment securities totaled $151.2 million at March 31, 2025 compared to $160.3 million at December 31, 2024. At March 31, 2025, the Company had $16.1 million of investment securities pledged at the FRB Discount Window, with no associated borrowings outstanding, compared to $15.9 million at December 31, 2024. The Company's maximum borrowing capacity from the FHLB of Pittsburgh was $1.9 billion at both March 31, 2025 and December 31, 2024, of which $101.2 million and $118.2 million in advances and letters of credit were outstanding at these same periods, respectively. The decrease in FHLB advances was due to a maturity of $15.0 million. The Company’s ability to borrow from the FHLB is dependent on having sufficient qualifying collateral, which generally consists of loans primarily secured by real estate. In addition, the Company had $20.0 million in available unsecured lines of credit with other banks at March 31, 2025 and December 31, 2024. The Bank regularly tests its various sources of funding to ensure accessibility.
Supplemental Reporting of Non-GAAP Measures
Management believes providing certain “non-GAAP” financial information will assist investors in their understanding of the effect on recent financial results from non-recurring charges.
As a result of prior acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $113.3 million and $115.9 million at March 31, 2025 and December 31, 2024, respectively. During the three months ended March 31, 2025 and 2024, the Company incurred merger-related expenses of $1.6 million and $672 thousand, respectively, in connection with the Merger with Codorus Valley.
Tangible book value per common share and the impact of the merger-related expenses on net income and associated ratios, as used by the Company in this supplemental reporting presentation, are determined by methods other than in accordance with GAAP. While the Company's management believes this information is a useful supplement to the GAAP-based measures reported in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, readers are cautioned that this non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results and financial condition as reported under GAAP, nor are such measures necessarily comparable to non-GAAP performance measures that may be presented by other companies. This supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to be determined in accordance with GAAP.
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The increase in tangible book value per share (non-GAAP) from December 31, 2024 to March 31, 2025 is primarily due to net income of $18.1 million and other comprehensive income, net of taxes, of $2.3 million partially offset by dividends paid of $5.0 million. Other comprehensive income increased due to net unrealized gains on AFS securities partially offset by net unrealized losses on interest rate swaps designated as hedging instruments.
The following table presents the computation of each non-GAAP based measure shown together with its most directly comparable GAAP-based measure.

|  | March 31, 2025 |  | December 31, 2024
Tangible Book Value per Common Share |  |  |  |
Shareholders' equity (most directly comparable GAAP-based measure) |  | $ | 532,936 |  |  | $ | 516,682 |
Less: Goodwill |  | 68,106 |  |  | 68,106 |
Other intangible assets |  | 45,230 |  |  | 47,765 |
Related tax effect |  | (9,498) |  |  | (10,031) |
Tangible common equity (non-GAAP) |  | $ | 429,098 |  |  | $ | 410,842 |
Common shares outstanding |  | 19,510 |  |  | 19,390 |
Book value per share (most directly comparable GAAP based measure) |  | $ | 27.32 |  |  | $ | 26.65 |
Intangible assets per share |  | 5.33 |  |  | 5.46 |
Tangible book value per share (non-GAAP) |  | $ | 21.99 |  |  | $ | 21.19 |

Adjusted Net Income and Adjusted Diluted (Earnings Per Share)
|  |  | Three Months Ended
|  |  |  |  |  |  | March 31 2025 |  |  |  | March 31 2024
Net income (most directly comparable GAAP-based measure) |  |  |  |  |  |  | $ | 18,051 |  |  |  |  | $ | 8,531 |
Plus: Merger-related expenses |  |  |  |  |  |  | 1,649 |  |  |  |  | 672 |
Less: Related tax effect |  |  |  |  |  |  | (368) |  |  |  |  | (1) |
Adjusted net income (non-GAAP) |  |  |  |  |  |  | $ | 19,332 |  |  |  |  | $ | 9,202 |
Weighted average shares - diluted (most directly comparable GAAP-based measure) |  |  |  |  |  |  | 19,328 |  |  |  |  | 10,482
Diluted earnings per share (most directly comparable GAAP-based measure) |  |  |  |  |  |  | $ | 0.93 |  |  |  |  | $ | 0.81 |
Weighted average shares - diluted (non-GAAP) |  |  |  |  |  |  | 19,328 |  |  |  |  | 10,482
Diluted earnings per share, adjusted (non-GAAP) |  |  |  |  |  |  | $ | 1.00 |  |  |  |  | $ | 0.88 |

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk comprises exposure to interest rate risk, foreign currency exchange rate risk, commodity price risk and other relevant market rate or price risks. In the banking industry, a major risk exposure is changing interest rates. The primary objective of monitoring our interest rate sensitivity, or risk, is to provide management the tools necessary to manage the balance sheet to minimize adverse changes in net interest income as a result of changes in the direction and level of interest rates. FRB monetary control efforts, the effects of deregulation, economic uncertainty and legislative changes have been significant factors affecting the task of managing interest rate sensitivity positions in recent years.
Interest Rate Risk
Interest rate risk is the exposure to fluctuations in the Bank’s future earnings (earnings at risk) and value (value at risk) resulting from changes in interest rates. This exposure results from differences between the amounts of interest-earning assets and interest-bearing liabilities that reprice within a specified time period as a result of scheduled maturities, scheduled and unscheduled repayments, the propensity of borrowers and depositors to react to changes in their economic interests and loan contractual interest rate changes.
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We attempt to manage the level of repricing and maturity mismatch through our asset/liability management process so that fluctuations in net interest income are maintained within policy limits across a range of market conditions, while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent, appropriate and necessary to ensure the Bank’s profitability. Thus, the goal of interest rate risk management is to evaluate the amount of reward for taking risk and adjusting both the size and composition of the balance sheet relative to the level of reward available for taking risk.
Management endeavors to control the exposure to changes in interest rates by understanding, reviewing and making decisions based on its risk position. The Bank primarily uses its investment securities portfolio, FHLB advances, interest rate swaps and brokered deposits to manage its interest rate risk position. Additionally, pricing, promotion and product development activities are directed in an effort to emphasize the loan and deposit term or repricing characteristics that best meet current interest rate risk objectives.
We use simulation analysis to assess earnings at risk and net present value analysis to assess value at risk. These methods allow management to regularly monitor both the direction and magnitude of our interest rate risk exposure. These analyses require numerous assumptions including, but not limited to, changes in balance sheet mix, prepayment rates on loans and investment securities, cash flows and repricing of all financial instruments, changes in volumes and pricing, future shapes of the yield curve, relationship of market interest rates to each other (basis risk), credit spread and deposit sensitivity. Assumptions are based on management’s best estimates but may not accurately reflect actual results under certain changes in interest rates due to the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and providing a relative gauge of our interest rate risk position over time.
Our Asset/Liability Committee operates under management policies, approved by the Board of Directors, which define guidelines and limits on the level of risk. The committee meets regularly and reviews our interest rate risk position and monitors various liquidity ratios to ensure a satisfactory liquidity position. By utilizing our analyses, we can determine changes that may need to be made to the asset and liability mixes to mitigate the change in net interest income under various interest rate scenarios. Management continually evaluates the condition of the economy, the pattern of market interest rates and other economic data to inform the committee on the selection of investment securities. Regulatory authorities also monitor our interest rate risk position along with other liquidity ratios.
Net Interest Income Sensitivity
Simulation analysis evaluates the effect of upward and downward changes in market interest rates on future net interest income. The analysis involves changing the interest rates used in determining net interest income over the next twelve months. The resulting percentage change in net interest income in various rate scenarios is an indication of our short-term interest rate risk. The analysis assumes recent pricing trends in new loan and deposit volumes will continue while balances remain constant. Additional assumptions are applied to modify pricing under the various rate scenarios.
The simulation analysis results are presented in the table below. At March 31, 2025, the Bank is asset sensitive according to the model as the results of the modeling move in the same direction as rates. The results reflect the merged balance sheet and adjustments to assumptions based on its composition. Funding costs are not expected to decline as fast as historically suggested or modeled to correspond with the continued general market pressures related to deposits and borrowings. Should those costs come down faster than modeled, increased asset sensitivity would be expected.
Economic Value
Net present value analysis provides information on the risk inherent in the balance sheet that might not be considered in the simulation analysis due to the short time horizon used in that analysis. The net present value of the balance sheet incorporates the discounted present value of expected asset cash flows minus the discounted present value of expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The resulting percentage change in net present value in various rate scenarios is an indication of the longer term repricing risk and options embedded in the balance sheet.
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The results at March 31, 2025 and December 31, 2024 reflect the impact of the FOMC's interest rate changes in effect at the end of each period. Funding cost, the level of interest rates, infrastructure cost and repricing speed will continue to be a factor in the results of the model. The behavior of the business and retail clients also varies across the rate scenarios, which is reflected in the results for both periods. Enhancements were implemented in 2024 to provide a more granular analysis, which reflects that business and retail accounts experience, different rate sensitivities and average lives. To improve comparability across periods, the Bank strives to follow best practices related to the assumption setting and maintains the size and mix of the period end balance sheet; thus, the results do not reflect actions management may take through the normal course of business that would impact results.

Net Interest Income |  | Economic Value
|  | % Change in Net Interest Income |  |  |  | % Change in Market Value
Change in Market Interest Rates (basis points) |  | March 31, 2025 |  | December 31, 2024 |  | Change in Market Interest Rates (basis points) |  | March 31, 2025 |  | December 31, 2024
(200) |  |  | (3.2) | % |  | (2.5) | % |  | (200) |  |  | (14.5) | % |  | (7.9) | %
(100) |  |  | (0.7) | % |  | (0.5) | % |  | (100) |  |  | (5.0) | % |  | (2.1) | %
100 |  |  | 2.4 | % |  | 2.5 | % |  | 100 |  |  | 2.7 | % |  | 0.4 | %
200 |  |  | 4.2 | % |  | 4.3 | % |  | 200 |  |  | 3.4 | % |  | (0.7) | %

Item 4. Controls and Procedures
Based on the evaluation required by Exchange Act Rules 13a-15(b) and 15d-15(b), the Company's management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), at March 31, 2025. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at March 31, 2025.
There were no significant changes made to the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to affect, our internal control over financial reporting during the three months ended March 31, 2025.
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PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
Information regarding legal proceedings is included in Note 15, Contingencies, to the unaudited Condensed Consolidated Financial Statements under Part I, Item 1, "Financial Statements" and incorporated herein by reference.
Item 1A – Risk Factors
There have been no material changes from the risk factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

| (a) |  | (b) |  | (c) |  | (d)
Period | Total number of shares (or units) purchased |  | Average price paid per share (or unit) |  | Total number of shares (or units) purchased as part of publicly announced plans or programs |  | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
January 1, 2025 to January 31, 2025 | — |  |  | $ | — |  |  | — |  |  | 28,467 |
February 1, 2025 to February 28, 2025 | — |  |  | — |  |  | — |  |  | 28,467 |
March 1, 2025 to March 31, 2025 | — |  |  | — |  |  | — |  |  | 28,467 |
Total | — |  |  | $ | — |  |  | — |  |  |

In September 2015, the Board of Directors of the Company authorized a share repurchase program pursuant to which the Company may repurchase up to 416,000 shares of the Company's outstanding shares of common stock, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act, as amended. On April 19, 2021, the Board of Directors authorized the additional future repurchase of up to 562,000 shares of its outstanding common stock for a total of 978,000 shares. When and if appropriate, repurchases may be made in open market or privately negotiated transactions, depending on market conditions, regulatory requirements and other corporate considerations, as determined by management. Share repurchases may not occur and may be discontinued at any time. For the three months ended March 31, 2025, the Company repurchased zero shares of its common stock. At March 31, 2025, 949,533 shares had been repurchased under the program at a total cost of $21.2 million, or $22.36 per share. Common stock available for future repurchase totals approximately 28,467 shares, or 0.1% of the Company's outstanding common stock at March 31, 2025.
Item 3 – Defaults Upon Senior Securities
Not applicable.
Item 4 – Mine Safety Disclosures
Not applicable.
Item 5 – Other Information
During the three months ended March 31, 2025, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company's common stock that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement" as such term is defined in Item 408(c) of Regulation S-K.
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Item 6 – Exhibits

2.2 |  |  | Agreement and Plan of Merger by and between Orrstown Financial Services, Inc. and Codorus Valley Bancorp, Inc. incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K dated and filed December 12, 2023.
3.1 |  |  | Articles of Incorporation as amended, incorporated by reference to Exhibit 3.1 of the Registrant’s Report on Form 8-K filed on January 29, 2010.
3.2 |  |  | By-laws as amended, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed July 1, 2024.
4.1 |  |  | Specimen Common Stock Certificate, incorporated by reference to the Registrant’s Registration Statement on Form S-3 filed February 8, 2010 (File No. 333-164780).
31.1 |  |  | Rule 13a – 14(a)/15d-14(a) Certification (Principal Executive Officer)
31.2 |  |  | Rule 13a – 14(a)/15d-14(a) Certifications (Principal Financial Officer)
32.1 |  |  | Section 1350 Certifications (Principal Executive Officer)
32.2 |  |  | Section 1350 Certifications (Principal Financial Officer)
101.LAB |  | XBRL Taxonomy Extension Label Linkbase
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase
101.INS |  | XBRL Instance Document
101.SCH |  | XBRL Taxonomy Extension Schema
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase
104 |  | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

All other exhibits for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| /s/ Thomas R. Quinn, Jr.
| Thomas R. Quinn, Jr.
| President and Chief Executive Officer
| (Principal Executive Officer)
| /s/ Neelesh Kalani
| Neelesh Kalani
| Executive Vice President and Chief Financial Officer
| (Principal Financial Officer)
| Date: May 9, 2025

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