# ORRSTOWN FINANCIAL SERVICES INC (ORRF) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ORRSTOWN FINANCIAL SERVICES INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/826154/000082615425000090/orrf-20241231.htm
Accession: 0000826154-25-000090
Filing date: 2025-03-31
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ORRF/
All MD&A years: /company/ORRF/mda/
Previous year: /company/ORRF/mda/fy2023/ (FY 2023)
Next year: /company/ORRF/mda/fy2025/ (FY 2025)

ITEM 7 – 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 the Company and should be read in conjunction with our Consolidated Financial Statements and notes thereto included in this Annual Report on Form 10-K. Certain prior period amounts presented in this discussion and analysis have been reclassified to conform to current period 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.

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 December 31, 2024, the Company had total assets of $5.4 billion, total liabilities of $4.9 billion and total shareholders' equity of $516.7 million as reported in the consolidated balance sheets.

The Company acquired Codorus Valley and its wholly-owned bank subsidiary PeoplesBank, A Codorus Valley Company on July 1, 2024. The merger and acquisition method of accounting was used to account for the transaction with the Company as the acquirer. The Company recorded the assets and liabilities of Codorus Valley at their respective fair values as of July 1, 2024. The transaction was valued at $233.4 million and expanded the Bank’s footprint into the York, Pennsylvania market while increasing its market penetration in its existing markets. The Bank has 38 full-service branches and seven limited purpose branches.

The Company incurred merger-related expenses of $22.7 million, a provision for legal settlement of $478 thousand and restructuring expenses of $296 thousand for the year ended December 31, 2024. For the year ended December 31, 2023, the Company incurred merger-related expenses of $1.1 million. The merger-related and other non-recurring expenses are included in non-interest expenses in the consolidated statements of income under Part II, Item 8, "Financial Statements and Supplemental Data."

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. The most significant accounting policies followed by the Company are presented in Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data." 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. In applying those accounting policies, the Company's management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and, in some cases, may contribute to volatility in our reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The more critical accounting estimates include accounting for credit losses, income tax methodologies and accounting for business combinations.

Business Combinations

The Company accounts for its mergers and acquisitions using the acquisition method of accounting under the provisions of FASB ASC Topic 805 ("ASC 805"), Business Combinations. Under ASC 805, the assets acquired, including identified intangible assets such as core deposit intangibles and customer relationship 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.

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Examples of the impacted acquired loans and assumed liabilities includes loans, deposits, identifiable intangible assets, borrowings and certain other assets and liabilities.

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 an additional or reduced reserve is warranted 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

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calculate an expected default rate. The expected default rates are then applied to expected loan balances estimated through the consideration of contractual repayment terms and expected prepayments. The prepayment and curtailment assumptions adjust the contractual terms of the loan to arrive at the expected cash flows, which are obtained from the third-party vendor. The model incorporates an annualized prepayment rate and a twelve-month rate for curtailment based on a "statistical tendency to repay." Changes in the prepayment and curtailment speeds that vary from the current model inputs could result in an inaccurate 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; however, 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. See Note 8, Income Taxes, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplemental Data," for details on our income tax expense and deferred tax assets and liabilities.

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.

Economic Climate, Inflation and Interest Rates

Preliminary real GDP was 2.3% on an annualized basis for the fourth quarter of 2024, which was a decrease from 3.1% for the third quarter of 2024 and from 3.4% during the fourth quarter of 2023. The decline from the third quarter of 2024 was due to a decline in investments and exports despite an increase in consumer spending. Fluctuations in real GDP in recent periods, due to inflation, credit conditions and geopolitical tensions, continue to create uncertainty in the current economic environment. The personal consumption expenditures ("PCE") price index increased by 2.4% in the fourth quarter of 2024 compared to an increase of 1.5% for third quarter of 2024 and 1.9% for the fourth quarter of 2023. Excluding food and energy prices, the PCE price index increased by 2.7% in the fourth quarter of 2024 compared to 2.2% in the third quarter of 2024 and 2.0% in the fourth quarter of 2023.

The national unemployment rate was 4.1% in December 2024 compared to 3.8% in December 2023. Within the Company's geographic footprint, the unemployment rate in Pennsylvania was 3.7% in December 2024 compared to 3.4% in December 2023. The unemployment rate in Maryland increased from 2.7% in December 2023 to 3.1% in December 2024. Despite the increases in both states since December 2023, the unemployment rates in Pennsylvania and Maryland both remain significantly 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.

At December 31, 2024, the 10-year Treasury bond yield was 4.58%, an increase from 3.88% at December 31, 2023. In addition, the FOMC reduced the Federal Funds rate by 50 basis points in September 2024 and 25 basis points in December

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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.

As the Company’s balance sheet consists primarily of financial instruments, interest income and interest expense are greatly influenced by the level of interest rates and the slope of the yield curve, as well as the mix of assets and funding. The Company has been able to grow its net interest income by $50.4 million from 2023 to 2024, which is attributed to the Merger that was completed on July 1, 2024 and continued success with the balance of organic commercial loan growth and pricing. Competition for quality lending opportunities and deposits remains intense, which, together with a flat yield curve and changing economic environment, will continue to challenge the Company's ability to grow its net interest margin and to manage its overhead expenses.

Results of Operations

Summary

Net income totaled $22.1 million, $35.7 million and $22.0 million for 2024, 2023 and 2022, respectively. Diluted earnings per share totaled $1.48, $3.42 and $2.06 for 2024, 2023 and 2022, respectively. For the year ended December 31, 2024, the Company incurred merger-related expenses of $22.7 million, provision for credit losses on acquired non-PCD loans of $15.5 million, retirement expenses for an executive of $4.8 million and a provision for legal settlement of $478 thousand, which were included in non-interest expenses of the consolidated statements of income. Excluding these non-recurring expenses, net income and diluted earnings per share totaled $56.1 million and $3.76, respectively, for the year ended December 31, 2024. Net income was $36.6 million and diluted earnings per share was $3.51 for the year ended December 31, 2023 excluding $1.1 million of merger-related expenses for the year ended December 31, 2023. The Company recorded a gain of $1.2 million from the sale of the Bank's Path Valley branch during the year ended December 31, 2023. Net income was $34.8 million and diluted earnings per share was $3.25 for the year ended December 31, 2022, excluding the financial impact of a legal settlement and restructuring expenses. See “Supplemental Reporting of Non-GAAP Measures.”

Net interest income totaled $155.3 million, $104.9 million and $99.6 million for 2024, 2023 and 2022, respectively. The increase in net interest income reflected the deployment of cash into higher yielding commercial loans and investment securities and the impact of the rising interest rates on interest-earning asset yields, partially offset by the impact of an increase in cost of funds and increases in interest-bearing liabilities. In addition, the increase in interest income during 2024 reflects the impact of the Merger, including net accretion of purchase accounting marks on loans, deposits and borrowings.

The provision for credit losses on loans totaled $17.4 million, $1.7 million and $4.2 million in 2024, 2023 and 2022, respectively. For the year ended December 31, 2024, the provision for credit losses increased primarily due to $15.5 million of reserves on acquired non-PCD loans as a result of the Merger. During the first quarter of 2023, the Company adopted the new accounting standard for CECL, which resulted in the change from the incurred loss model based on historical loss experience to the expected loss model, which reflects the projected credit losses over the expected life of financial assets and commitments.

Noninterest income totaled $37.4 million, $25.7 million and $27.0 million for 2024, 2023 and 2022, respectively. The increase of $11.7 million from 2023 to 2024 was primarily due to an increase in wealth management income of $5.0 million and increases in service charges and interchange income of $2.8 million, partially driven by the Merger. The remainder of the increase is across several line items primarily due to the Merger. These increase in 2024 compared to 2023 were partially offset by the gain of $1.2 million recorded to other income from the sale of the Path Valley branch for the year ended December 31, 2023. The decrease in noninterest income of $1.3 million from 2022 to 2023 was primarily due to a decrease of $1.6 million in swap fee income, partially offset by an increase in in mortgage banking activities of $184 thousand and the before mentioned gain on sale of the Path Valley branch in 2023. Other income in 2022 included realized gains on the Company's investment in a non-housing limited partnership of $1.1 million.

Noninterest expenses totaled $148.3 million, $83.8 million and $95.8 million for 2024, 2023 and 2022, respectively. The increase of $64.5 million from 2023 to 2024 includes non-recurring expenses of $43.4 million. The remainder of the increase is across several line items primarily due to impact from the Merger. The decrease of $11.9 million in non-interest expenses from 2022 to 2023 was due to a legal settlement of $13.0 million and a restructuring charge of $3.2 million during 2022, partially

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offset by an increase of $3.0 million in salaries and employee benefits expenses and merger-related expenses of $1.1 million during 2023.

Income tax expense totaled $5.8 million, $9.4 million and $4.6 million for 2024, 2023 and 2022, or an effective tax rate of 20.7%, 20.8% and 17.2% respectively. 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 tax credits.

Net Interest Income

Net interest income is the primary component of the Company's net income. Interest-earning assets include loans, investment securities and interest-bearing bank balances. Interest-bearing liabilities include primarily deposits and borrowed funds.

Net interest income is affected by changes in interest rates, the volume of interest-earning assets and interest-bearing liabilities, and the composition of those assets and liabilities. “Net interest spread” and “net interest margin” are two common statistics related to changes in net interest income. Net interest spread represents the difference between the yields earned on interest-earning assets and the rates paid for interest-bearing liabilities. Net interest margin is the ratio of net interest income to average earning asset balances.

The FRB influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Starting in March 2022, the FOMC increased the Federal Funds rate by 425 basis points during 2022 and 100 basis points during 2023 as an attempt to combat the impact of inflation, the rising consumer price index, supply chain disruptions, the state of the labor market and geopolitical tensions. In the second half of 2024, the FOMC reduced the Federal Funds rate by 75 basis points based on the progress towards the 2.0% inflation target and the state of unemployment.

Core deposits are deposits that are stable, lower cost and generally reprice more slowly than other deposits when interest rates change. Core deposits, which exclude certificates of deposit, are typically funds of local clients who also have a borrowing or other relationship with the Bank. The Company is primarily funded by core deposits, with noninterest-bearing demand deposits historically being a source of funds. During 2022, the lower-cost funding base had a positive impact on the Bank's net interest income and net interest margin in the rising interest rate environment. However, as the Federal Funds rate continued to increase, the competition for deposits also increased in the latter part of 2022 and continued throughout 2024 with clients utilizing their funds at a higher frequency and additional liquidity was needed to meet the demands of our clients. In addition, decreases in demand deposits and savings deposits were primarily due to clients shifting to higher-yielding products within the Bank, including time deposits with promotional offerings of up to 18-month terms.

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The following table presents net interest income, net interest spread and net interest margin on a taxable-equivalent basis for 2024, 2023 and 2022. Taxable-equivalent adjustments are the result of increasing income from tax-exempt loans and investment securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 21% federal corporate tax rate for 2024, 2023 and 2022, reflecting our statutory tax rates for those years.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["","AverageBalance","","Taxable-EquivalentInterest","","Taxable-EquivalentRate","","AverageBalance","","Taxable-EquivalentInterest","","Taxable-EquivalentRate","","AverageBalance","","Taxable-EquivalentInterest","","Taxable-EquivalentRate"],["Assets"],["Federal funds sold and interest-bearing bank balances","$","150,500","","","$","7,764","","","5.14","%","","$","40,856","","","$","1,809","","","4.43","%","","$","98,793","","","$","774","","","0.78","%"],["Taxable securities","564,702","","","27,361","","","4.85","","","396,779","","","18,031","","","4.54","","","368,479","","","10,237","","","2.78"],["Tax-exempt securities (1)","125,521","","","4,456","","","3.54","","","123,686","","","4,383","","","3.54","","","141,161","","","5,209","","","3.69"],["Total investment securities (2)","690,223","","","31,817","","","4.60","","","520,465","","","22,414","","","4.31","","","509,640","","","15,446","","","3.03"],["Loans (1)(3)(4)(5)(6)","3,150,425","","","210,994","","","6.68","","","2,239,574","","","127,107","","","5.68","","","2,042,422","","","93,799","","","4.59"],["Total interest-earning assets","3,991,148","","","250,575","","","6.26","","","2,800,895","","","151,330","","","5.40","","","2,650,855","","","110,019","","","4.15"],["Cash and due from banks","41,536","","","","","","","29,867","","","","","","","28,534"],["Bank premises and equipment","39,792","","","","","","","29,442","","","","","","","32,673"],["Other assets","288,082","","","","","","","167,499","","","","","","","155,428"],["Allowance for credit losses","(39,086)","","","","","","","(28,176)","","","","","","","(22,690)"],["Total assets","$","4,321,472","","","","","","","$","2,999,527","","","","","","","$","2,844,800"],["Liabilities and Shareholders\u2019 Equity"],["Interest-bearing demand deposits(7)","$","1,147,124","","","$","21,455","","","1.87","%","","$","1,525,204","","","$","26,944","","","1.77","%","","$","1,414,177","","","$","4,308","","","0.30","%"],["Savings deposits(7)","1,153,097","","","30,193","","","2.61","","","198,157","","","585","","","0.30","","","232,660","","","341","","","0.15"],["Time deposits","732,446","","","32,586","","","4.44","","","338,170","","","9,981","","","2.95","","","273,276","","","1,688","","","0.62"],["Total interest-bearing deposits","3,032,667","","","84,234","","","2.77","","","2,061,531","","","37,510","","","1.82","","","1,920,113","","","6,337","","","0.33"],["Securities sold under agreements to repurchase and federal funds purchased","17,543","","","215","","","1.22","","","14,111","","","114","","","0.80","","","22,305","","","44","","","0.20"],["FHLB advances and other borrowings","120,787","","","4,945","","","4.08","","","123,697","","","5,350","","","4.32","","","15,678","","","630","","","4.01"],["Subordinated notes and trust preferred debt","50,397","","","4,285","","","8.48","","","32,058","","","2,017","","","6.29","","","31,993","","","2,013","","","6.29"],["Total interest-bearing liabilities","3,221,394","","","93,679","","","2.91","","","2,231,397","","","44,991","","","2.02","","","1,990,089","","","9,024","","","0.45"],["Noninterest-bearing demand deposits","625,714","","","","","","","470,349","","","","","","","557,142"],["Other liabilities","82,084","","","","","","","54,447","","","","","","","53,288"],["Total liabilities","3,929,192","","","","","","","2,756,193","","","","","","","2,600,519"],["Shareholders\u2019 equity","392,280","","","","","","","243,334","","","","","","","244,281"],["Total liabilities and shareholders' equity","$","4,321,472","","","","","","","$","2,999,527","","","","","","","$","2,844,800"],["Taxable-equivalent net interest income / net interest spread","","","156,896","","","3.36","%","","","","106,339","","","3.39","%","","","","100,995","","","3.70","%"],["Taxable-equivalent net interest margin","","","","","3.92","%","","","","","","3.80","%","","","","","","3.81","%"],["Taxable-equivalent adjustment","","","(1,642)","","","","","","","(1,433)","","","","","","","(1,365)"],["Net interest income","","","$","155,254","","","","","","","$","104,906","","","","","","","$","99,630"],["Ratio of average interest-earning assets to average interest-bearing liabilities","","","","","124","%","","","","","","126","%","","","","","","133","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["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 for the year ended December 31, 2024."],["(6)","Interest income on loans includes accretion on purchase accounting marks of $15.2 million, $748 thousand and $1.1 million for the years ended December 31, 2024, 2023 and 2022, respectively."],["(7)","Changes between average deposit type balances are due to operational updates for deposit sweeps for the year ended December 31, 2024."]]
[[/GREPCENT_TABLE]]

The following table presents changes in net interest income on a taxable-equivalent basis for 2024 and 2023 by rate and volume components.

[[GREPCENT_TABLE]]
[["","2024 Versus 2023 Increase (Decrease) Due to Change in","","2023 Versus 2022 Increase (Decrease) Due to Change in"],["","AverageVolume","","AverageRate","","Total","","AverageVolume","","AverageRate","","Total"],["Interest Income"],["Federal funds sold and interest-bearing bank balances","$","4,855","","","$","1,100","","","$","5,955","","","$","(454)","","","$","1,489","","","$","1,035"],["Taxable securities","7,631","","","1,699","","","9,330","","","786","","","7,008","","","7,794"],["Tax-exempt securities","65","","","8","","","73","","","(645)","","","(181)","","","(826)"],["Loans","51,695","","","32,192","","","83,887","","","9,054","","","24,253","","","33,307"],["Total interest income","64,246","","","34,999","","","99,245","","","8,741","","","32,569","","","41,310"],["Interest Expense"],["Interest-bearing demand deposits","(6,679)","","","1,190","","","(5,489)","","","338","","","22,298","","","22,636"],["Savings deposits","2,819","","","26,789","","","29,608","","","(51)","","","294","","","243"],["Time deposits","11,637","","","10,968","","","22,605","","","401","","","7,892","","","8,293"],["Securities purchases under agreements to repurchase and federal funds purchased","27","","","74","","","102","","","(16)","","","86","","","70"],["FHLB advances and other borrowings","(126)","","","(279)","","","(405)","","","4,330","","","390","","","4,720"],["Subordinated notes and trust preferred debt","1,154","","","1,114","","","2,268","","","4","","","0","","","4"],["Total interest expense","8,832","","","39,856","","","48,688","","","5,006","","","30,960","","","35,966"],["Taxable-Equivalent Net Interest Income","$","55,414","","","$","(4,857)","","","$","50,557","","","$","3,735","","","$","1,609","","","$","5,344"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Note:","The change attributed to volume is calculated by multiplying the average change in average balance by the prior year's average rate. The remainder is attributable to rate."]]
[[/GREPCENT_TABLE]]

2024 versus 2023

Interest income on loans increased by $83.7 million, from $126.6 million in 2023 to $210.3 million in 2024, and interest income on investment securities increased by $9.4 million, from $21.5 million in 2023 to $30.9 million in 2024. Total interest expense increased by $48.7 million from $45.0 million in 2023 to $93.7 million in 2024. Interest expense on deposits increased by $46.7 million from $37.5 million in 2023 to $84.2 million in 2024, and interest expense on borrowed funds increased by $1.9 million to $7.5 million in 2023 to $9.4 million in 2024.

Net interest income on a taxable-equivalent basis increased by $50.4 million, or 48%, from $104.9 million in 2023 to $155.3 million in 2024. The Company’s net interest spread decreased by three basis points from 3.39% in 2023 to 3.36% in 2024 primarily due to an increase in cost of funds.

Taxable-equivalent net interest margin increased by twelve basis points to 3.92% in 2024 from 3.80% in 2023. 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 four basis points to the Company's net interest margin during the year ended December 31, 2024. The taxable-equivalent yield on interest-earning assets increased by 86 basis points to 6.26% in 2024 from 5.40% in

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2023, due primarily to the accretion recognized on fair value marks to loans and securities assumed in the Merger. The increase in yield was more than offset by an increase of 89 basis points in the cost of interest-bearing liabilities from 2.02% in 2023 to 2.91% in 2024 due primarily to increased funding costs on deposits from higher market interest rates and competitive pressures, an increase in the interest rate on Orrstown Financial Services, Inc.'s subordinated notes, which converted from a fixed rate to a floating rate on December 30, 2023, and the assumption of subordinated notes and trust preferred debt from the Merger.

Average loans increased by $910.9 million from $2.2 billion during 2023 to $3.2 billion during 2024. Average investment securities increased by $169.7 million from $520.5 million in 2023 to $690.2 million during 2024. Average interest-bearing liabilities increased by $990.0 million from $2.2 billion in 2023 to $3.2 billion during 2024.

The yield on loans increased by 100 basis points to 6.68% in 2024 from 5.68% in 2023. Taxable-equivalent interest income earned on loans increased by $83.9 million from $127.1 million in 2023 to $211.0 million in 2024 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 interest rate environment.

The average balance of commercial loans increased by $725.2 million from $1.8 billion during 2023 to $2.5 billion during 2024. Average residential mortgage loans increased by $120.7 million from $246.7 million for 2023 to $367.4 million for 2024. Average home equity loans increased by $57.8 million from $189.6 million for 2023 to $247.4 million for 2024. Average installment and other consumer loans increased by $7.2 million from $20.0 million for 2023 to $27.2 million for 2024.

Accretion of purchase accounting adjustments included in interest income was $15.2 million during 2024 compared to $748 thousand in 2023. The increase in accretion was due to the recognition of fair value marks from the Merger. Accelerated accretion totaled $5.4 million during 2024 compared to $269 thousand during 2023. Prepayment income on commercial loans increased from $826 thousand during 2023 to $1.1 million during 2024.

Interest income on investment securities on a tax-equivalent basis increased by $9.4 million to $31.8 million for 2024 from $22.4 million for 2023, with the taxable equivalent yield increasing by 29 basis points from 4.31% for 2023 to 4.60% for 2024. This increase reflects the impact from the higher interest rates as well as the accretion of discounts recorded on investment securities assumed from the Merger. Average investment securities increased by $169.7 million from $520.5 million in 2023 to $690.2 million during 2024 due primarily to the Merger.

Interest income on federal funds sold and interest-bearing bank balances on a tax-equivalent basis increased by $6.0 million to $7.8 million for 2024 from $1.8 million for 2023. The average balance of federal funds sold and interest-bearing bank balances increased by $109.6 million from $40.9 million for 2023 to $150.5 million for 2024. 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 deposits increased by $46.7 million from $37.5 million in 2023 to $84.2 million in 2024 as the cost of borrowings increased by 95 basis points from 1.82% in 2023 to 2.77% in 2024 as funding costs increased due to higher market interest rates and competitive pressures on deposit pricing. The average balance of interest-bearing deposits increased by $971.1 million from $2.1 billion in 2023 to $3.0 billion in 2024. Average time deposits increased by $394.3 million in 2024, which resulted in increased interest expense on time deposits of $11.6 million. The cost of time deposits increased by 149 basis points from 2.95% in 2023 to 4.44% in 2024 as clients sought higher-yielding products during the rising interest rate environment, including the Bank's promotional offerings for time deposits with terms up to 18-months. Amortization expense of fair value marks on acquired time deposits was $2.1 million for the year ended December 31, 2024. The increase in deposit balances was primarily due to the Merger.

Interest expense on borrowings increased by $1.9 million to $9.4 million in 2024 from $7.5 million in 2023 despite the cost of borrowings decreasing by 24 basis points from 4.32% in 2023 to 4.08% in 2024. Average borrowings increased by $18.8 million from $169.9 million in 2023 to $188.7 million in 2024, which included $50.4 million in average subordinated notes and trust preferred debt for the year ended December 31, 2024, an increase of $18.3 million, from $32.1 million for the year ended December 31, 2023. This increase is due to the assumption of subordinated debt of $31.0 million and trust preferred debt of $10.3 million from the Merger. The interest rate increased on Orrstown Financial Services, Inc.'s outstanding subordinated notes of $32.5 million, which converted from a fixed rate of 6.00% to a floating rate of 8.78% on December 30, 2023. The interest rate on the Company's subordinated notes at December 31, 2024 was 8.03%. 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 issuances have a variable rate of three-month CME term SOFR, plus a spread adjustment and margin. Amortization expense of fair value marks on acquired borrowings was $294 thousand for the year ended December 31, 2024.

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2023 versus 2022

Net interest income increased by $5.3 million from $99.6 million in 2022 to $104.9 million in 2023. Similarly, net interest income on a taxable-equivalent basis for 2023 increased by $5.3 million compared with 2022. The Company’s net interest spread decreased by 31 basis points from 3.70% in 2022 to 3.39% in 2023 primarily due to the increase in the cost of funds.

Interest income on loans increased by $33.1 million, from $93.5 million in 2022 to $126.6 million in 2023, and interest income on investment securities increased by $7.1 million, from $14.4 million in 2022 to $21.5 million in 2023. Total interest expense increased by $36.0 million from $9.0 million in 2022 to $45.0 million in 2023. Interest expense on deposits increased by $31.2 million from $6.3 million in 2022 to $37.5 million in 2023, and interest expense on borrowed funds increased by $4.9 million to $2.6 million in 2022 to $7.5 million in 2023.

Taxable-equivalent net interest margin decreased by one basis point to 3.80% in 2023 from 3.81% in 2022. The taxable-equivalent yield on interest-earning assets increased by 125 basis points to 5.40% in 2023 from 4.15% in 2022, reflecting both the deployment of cash into higher yielding loans and investment securities and the impact of elevated interest rates on these interest-earning assets. The increase in yield was partially offset by an increase of 157 basis points in the cost of interest-bearing liabilities from 0.45% in 2022 to 2.02% in 2023 due to increased funding costs from higher market interest rates, competitive pressures and an increase in higher cost borrowings.

Average loans increased by $197.2 million from $2.0 billion during 2022 to $2.2 billion during 2023. Average investment securities increased by $10.9 million from $509.6 million in 2022 to $520.5 million during 2023 due to net investment purchases and a decrease in unrealized losses from 2022. Average interest-bearing liabilities increased by $241.3 million from $2.0 billion in 2022 to $2.2 billion during 2023. The competition for deposits increased in the latter part of 2022 and continued throughout 2023, which was coupled with clients utilizing their funds at a higher frequency. Therefore, additional liquidity was needed to meet demands of our clients, which resulted in an increase in higher cost borrowings.

The yield on loans increased by 109 basis points to 5.68% in 2023 from 4.59% in 2022. Taxable-equivalent interest income earned on loans increased by $33.3 million from $93.8 million in 2022 to $127.1 million in 2023 primarily due to an increase in the average balances of commercial, residential mortgage and home equity loans and from the impact of the rising rate environment. The increase in interest income from loan growth and higher rates was partially offset by a decrease in interest income from SBA PPP loans due to a lower amount of forgiveness activity during 2023 compared to 2022.

The average balance of commercial loans, excluding SBA PPP loans, increased by $211.9 million from $1.6 billion during 2022 to $1.8 billion during 2023. SBA PPP loans, net of deferred fees and costs, averaged $8.8 million during 2023, a decrease of $58.3 million from an average of $67.1 million in 2022. This decrease was due to forgiveness of SBA PPP loans since 2022. Average residential mortgage loans increased by $35.7 million from $211.0 million for 2022 to $246.7 million for 2023 due primarily to adjustable-rate and jumbo mortgage loans originated for the portfolio. Average home equity loans increased by $14.1 million from $175.5 million for 2022 to $189.6 million for 2023. Average installment and other consumer loans decreased by $6.3 million from $26.3 million for 2022 to $20.0 million for 2023.

For 2023, interest income on loans included $192 thousand of interest and net deferred fee income associated with the SBA PPP loans compared to $6.1 million for 2022. Accretion of purchase accounting adjustments included in interest income was $748 thousand during 2023 compared to $1.1 million in 2022. The decrease in accretion was due to a decline in accelerated accretion from acquired loan payoffs or significant payments from the prior year. During 2023, accelerated accretion was $269 thousand compared to $724 thousand in 2022. Prepayment income on commercial loans decreased from $1.0 million during 2022 to $826 thousand during 2023.

Interest income on investment securities on a tax-equivalent basis increased by $7.0 million to $22.4 million for 2023 from $15.4 million for 2022, with the taxable equivalent yield increasing by 128 basis points from 3.03% for 2022 to 4.31% for 2023. The increase reflects the impact from higher interest rates since March 2022 and the impact of investment security purchases at higher yields. The average balance of investment securities was impacted by purchases of $45.6 million and unrealized gains of $14.0 million, which were partially offset by investment security sales totaling $22.0 million during 2023.

The average balance of federal funds sold and interest-bearing bank balances decreased by $57.9 million from $98.8 million for 2022 to $40.9 million for 2023, due primarily to the deployment of cash into loans and investment securities. The related interest income increased by $1.0 million to $1.8 million for 2023 from $774 thousand for 2022. This increase was caused by 525 basis points of Fed Funds rate increases by the FOMC since March 2022.

Interest expense on deposits increased by $31.2 million from $6.3 million in 2022 to $37.5 million in 2023. The average balance of interest-bearing deposits increased by $141.4 million from $1.9 billion in 2022 to $2.1 billion 2023 and the cost of funds increased by 149 basis points from 0.33% in 2022 to 1.82% in 2023. Average time deposits increased by $64.9 million in 2023, which the change in volume increased interest expense on time deposits by $401 thousand. The cost of time deposits

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increased by 233 basis points from 0.62% in 2022 to 2.95% in 2023 as clients sought higher-yielding products during the rising interest rate environment, including the Bank's promotional offerings for time deposits with terms up to 18-months. Average interest-bearing demand deposits increased by $111.0 million in 2023. Interest expense for interest-bearing demand deposits increased by $22.6 million, with the cost of funds increasing by 147 basis points from 0.30% in 2022 to 1.77% in 2023 as a result of deposit rate increases during 2023.

Interest expense on borrowings increased by $4.9 million to $7.5 million in 2023 from $2.6 million in 2022, as the cost of borrowings increased by 31 basis points from 4.01% in 2022 to 4.32% in 2023. Average borrowings increased by $108.0 million from $15.7 million in 2022 to $123.7 million in 2023, as the Bank opted to borrow funds to provide additional liquidity to meet the credit needs of its clients. On December 31, 2023, the Company's subordinated notes converted from a fixed rate at 6.0% to a variable rate of three-month CME term SOFR rate plus 3.16%, or 8.78%.

Provision for Credit Losses

The Company recorded a provision for credit losses of $17.4 million, $1.7 million and $4.2 million in 2024, 2023 and 2022, respectively. On January 1, 2023, the Company adopted the new accounting standard, referred to as CECL, which transitioned from the incurred loss model based on historical loss experience and economic and market conditions to the expected loss model. The CECL standard reflects expected credit losses over the expected life of the financial assets and commitments, primarily based on the DCF methodology for the majority of the loan segments, which applies the probability of default and loss given default factors to future cash flows, and adjusts to the net present value to derive the required reserve. Macroeconomic conditions are incorporated into the model for unemployment and gross domestic product, in addition to model assumptions for discount rate and prepayment and curtailment speeds.

The ACL to total loan ratio decreased from 1.25% at December 31, 2023 to 1.24% at December 31, 2024. In 2024, the provision for credit losses increased primarily due to $15.5 million of reserves on acquired non-PCD loans, which was partially offset by a reversal of the provision for credit losses for off-balance sheet credit exposures of $862 thousand. The remaining provision expense recorded for the year ended December 31, 2024 was due to commercial loan growth, partially offset by changes to qualitative factors during 2024; specifically the Economic Conditions qualitative factor was reduced and the Other External Factors qualitative factor is no longer assigned to the impacted loan segments. These changes were based on improved economic factors, as well as concerns subsiding from the prior year about liquidity conditions within the banking industry. The Economic Conditions qualitative factor for the residential mortgage loan segment was removed and there was a decrease in the Collateral Valuation Trends qualitative factor from a moderate to low level in the ACL model for the residential mortgage and installment and other loan segments. These changes were based on the stabilization in real estate collateral valuation, housing demand and overall portfolio performance. In 2023 and 2022, the provision for credit losses was driven primarily by increases in commercial loans, excluding SBA PPP loan forgiveness activity, of $118.3 million and $299.9 million, respectively, in addition to the overall increase in expected loss rates under CECL. During 2023, the Delinquency and Classified Loan Trends qualitative factor was increased for the commercial & industrial and owner-occupied commercial real estate loan classes, which was based on a trend of increases in loans downgraded to the special mention or classified risk rating. All other qualitative factors were unchanged from levels at adoption of CECL. During 2022, qualitative factors were unchanged, except for a reduction in the National and Local Economic Conditions factor, which reduced the provision by $726 thousand.

Net charge-offs totaled $3.3 million in 2024, compared to net charge-offs of $581 thousand in 2023. The increase in net charge-offs was due primarily to a charge-off of $2.4 million for one commercial and industrial relationship and charge-offs of $595 thousand associated with a loan sale. Nonaccrual loans were 0.61% of gross loans at December 31, 2024, compared with 1.11% of gross loans at December 31, 2023. Nonaccrual loans decreased by $1.4 million from $25.5 million at December 31, 2023 to $24.1 million at December 31, 2024 due to the payoffs of two commercial real estate loans with outstanding balances totaling $15.0 million and a sale of mostly commercial and industrial loans on nonaccrual status of $2.6 million, mostly offset by acquired loans on nonaccrual status of $12.8 million from the Merger and other additions in commercial and industrial and CRE loans. See further discussion in the “Asset Quality” and “Credit Risk Management” sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Noninterest Income

The following table compares noninterest income for 2024, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022","","$ Change","","% Change"],["2024-2023","","2023-2022","","2024-2023","","2023-2022"],["Service charges on deposit accounts","$","5,327","","","$","3,949","","","$","3,826","","","$","1,378","","","$","123","","","34.9","%","","3.2","%"],["Interchange income","5,259","","","3,873","","","4,055","","","1,386","","","(182)","","","35.8","","","(4.5)"],["Other service charges, commissions and fees","1,566","","","917","","","788","","","649","","","129","","","70.8","","","16.4"],["Swap fee income","1,676","","","1,039","","","2,632","","","637","","","(1,593)","","","61.3","","","(60.5)"],["Trust and investment management income","11,501","","","7,691","","","7,631","","","3,810","","","60","","","49.5","","","0.8"],["Brokerage income","4,852","","","3,649","","","3,620","","","1,203","","","29","","","33.0","","","0.8"],["Mortgage banking activities","1,835","","","591","","","407","","","1,244","","","184","","","210.5","","","45.2"],["Income from life insurance","3,866","","","2,482","","","2,339","","","1,384","","","143","","","55.8","","","6.1"],["Other income","1,304","","","1,508","","","1,814","","","(204)","","","(306)","","","(13.5)","","","(16.9)"],["Subtotal before securities gains (losses)","37,186","","","25,699","","","27,112","","","11,487","","","(1,413)","","","44.7","","","(5.2)"],["Investment securities gains (losses)","249","","","(47)","","","(160)","","","296","","","113","","","629.8","","","70.6"],["Total noninterest income","$","37,435","","","$","25,652","","","$","26,952","","","$","11,783","","","$","(1,300)","","","45.9","%","","(4.8)","%"]]
[[/GREPCENT_TABLE]]

2024 versus 2023

Noninterest income increased by $11.7 million from 2023 to 2024. The primary driver of the overall increase was the impact of the Merger. The following were significant factors in the net increase: 

•Wealth management income increased by $5.0 million due to strong market performance and growth in managed assets, both organically and through the acquisition of two registered investment advisory firms since September 2023 with total assets under management of $151 million. From the Merger, the Company generated an additional $3.2 million in wealth management income.

•Swap fee income increased by $637 thousand as swap fee income will fluctuate based on market conditions and client demand.

•Mortgage banking income increased by $1.2 million. Mortgage loans sold totaled $45.8 million in 2024, which included a $7.2 million portfolio sold to another institution, compared to $23.8 million during 2023.

•Other income decreased by $204 thousand due primarily to a gain of $1.2 million from the sale of the Bank's Path Valley branch during 2023, partially offset by $408 thousand of solar tax credit income recognized in 2024.

•The gain on investment securities in 2024 was due to a $4.6 million security redemption, resulting in a gain of $181 thousand and the mark-to-market activity on an equity security. During 2023, the Company sold three U.S. Treasury securities with a principal balance of $19.9 million for a nominal gain and six securities issued by state and political subdivisions with a principal balance of $2.2 million for a net loss of $44 thousand.

•Other line items within noninterest income showed fluctuations attributable to normal business operations and the impact of the Merger.

2023 versus 2022

Noninterest income decreased by $1.3 million from 2022 to 2023. The following were significant factors in the net decrease: 

•Other service charges, commissions and fees increased by $129 thousand due primarily to increases of $58 thousand in credit card fee income and $51 thousand in loan fees charged to clients for loan workout and forbearance agreements.

•Swap fee income decreased by $1.6 million as swap fee income will fluctuate based on market conditions and client demand.

•Mortgage banking income increased by $184 thousand from 2022 to 2023 due to a decline in the fair value losses on the Bank's held-for-sale loans caused by a significant increase in mortgage interest rates during 2022 compared to

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the fluctuation during the current year. The fair value mark declined $323 thousand in 2023 compared to a decrease of $1.3 million in 2022. However, market conditions and elevated interest rates continued to hinder mortgage production during 2023. Most mortgage production remains in adjustable-rate products, which are held in portfolio, and thus have resulted in a reduction in the residential mortgage loan pipeline and secondary market sales. Mortgage loans sold totaled $23.8 million during 2023 compared to $76.2 million during 2022.

•Other income decreased by $306 thousand from 2022 to 2023 primarily due to distribution of $964 thousand from investments in non-housing limited partnerships, gains on the sales of two SBA loans totaling $306 thousand and tax credits of $102 thousand recognized from the Bank's investment in solar energy renewable energy partnerships during 2022, partially offset by a gain of $1.1 million from the sale of the Bank's Path Valley branch during 2023.

•Investment securities losses declined by $113 thousand due primarily to a loss of $171 thousand during 2022 recorded on one non-agency CMO security, which was called at a price below par. During 2023, the Company sold three U.S. Treasury securities with a principal balance of $19.9 million for a nominal gain and six securities issued by state and political subdivisions with a principal balance of $2.2 million for a net loss of $44 thousand. During the year ended December 31, 2022, the Company sold 19 securities with a principal balance of $31.3 million for a net gain of $32 thousand.

Noninterest Expenses

The following table compares noninterest expenses for 2024, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","","","","","","","$ Change","","% Change"],["","2024","","2023","","2022","","2024-2023","","2023-2022","","2024-2023","","2023-2022"],["Salaries and employee benefits","$","76,581","","","$","50,983","","","$","48,004","","","$","25,598","","","$","2,979","","","50.2","%","","6.2","%"],["Occupancy","5,978","","","4,342","","","4,729","","","1,636","","","(387)","","","37.7","","","(8.2)"],["Furniture and equipment","8,592","","","5,251","","","5,083","","","3,341","","","168","","","63.6","","","3.3"],["Data processing","6,088","","","4,913","","","4,560","","","1,175","","","353","","","23.9","","","7.7"],["Automated teller machine and interchange fees","2,281","","","1,252","","","1,287","","","1,029","","","(35)","","","82.2","","","(2.7)"],["Advertising and bank promotions","2,587","","","2,157","","","2,264","","","430","","","(107)","","","19.9","","","(4.7)"],["FDIC insurance","2,677","","","1,960","","","1,083","","","717","","","877","","","36.6","","","81.0"],["Professional services","4,142","","","2,905","","","3,254","","","1,237","","","(349)","","","42.6","","","(10.7)"],["Directors' compensation","783","","","915","","","938","","","(132)","","","(23)","","","(14.4)","","","(2.5)"],["Taxes other than income","734","","","1,050","","","1,391","","","(316)","","","(341)","","","(30.1)","","","(24.5)"],["Intangible asset amortization","5,742","","","953","","","1,105","","","4,789","","","(152)","","","502.5","","","(13.8)"],["Merger-related expenses","22,671","","","1,059","","","\u2014","","","21,612","","","1,059","","","2,040.8","","","100.0"],["Provision for legal settlement","478","","","\u2014","","","13,000","","","478","","","(13,000)","","","100.0","","","(100.0)"],["Restructuring expenses","296","","","\u2014","","","3,155","","","296","","","(3,155)","","","100.0","","","(100.0)"],["Other operating expenses","8,707","","","6,103","","","5,925","","","2,604","","","178","","","42.7","","","3.0"],["Total noninterest expenses","$","148,337","","","$","83,843","","","$","95,778","","","$","64,494","","","$","(11,935)","","","76.9","%","","(12.5)","%"]]
[[/GREPCENT_TABLE]]

2024 versus 2023

Noninterest expenses increased by $64.5 million from 2023 to 2024. The primary driver of the overall increase was the impact of the Merger. The following were significant factors in the net increase:

•Merger-related expenses increased by $21.6 million, which primarily included employee separation costs, vendor contract terminations and professional fees incurred in connection with the Merger.

•Salaries and employee benefits expense includes a $4.8 million charge associated with the retirement of an executive.

•Data processing expense increased by $1.2 million due to the use of two core processing systems. The system conversion process was completed in November 2024.

•Intangible asset amortization increased by $4.8 million due to the amortization expense recognized on the core deposit intangible and customer relationship intangible recorded as a result of the Merger.

•The Company agreed to settle a litigation matter, which resulted in a provision for legal settlement of $478 thousand in the fourth quarter of 2024.

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•Restructuring expense of $296 thousand was recorded due to the closure of six branch locations during the fourth quarter of 2024.

•Other line items within noninterest expense showed fluctuations attributable to normal business operations and the impact of the Merger.

2023 versus 2022

Noninterest expenses decreased by $12.0 million from 2022 to 2023. The following were significant factors in the net decrease:

•Salaries and employee benefits expense increased by $3.0 million, or 6%, due primarily to staff additions that filled vacancies, merit-based and incentive compensation increases, higher employee benefit costs from increased claims volume and employee severance costs.

•Occupancy expense decreased by $387 thousand, or 8%, due primarily to operating efficiencies from branch closures in 2022.

•Data processing expense increased by $353 thousand, or 8%, due primarily to an increase in core system costs and investments in new technology as the Company focused on the evolving needs of its clients.

•FDIC insurance expense increased by $877 thousand, or 81%, due to increases in the assessment rate caused by an annualized two-basis point increase assessed by the FDIC to increase its deposit insurance fund and increases commercial loans and total assets.

•Professional services decreased by $349 thousand, or 11%, due primarily to a reduction in legal expenses following the settlement of outstanding litigation.

•Taxes other than income decreased by $341 thousand, or 25%, due to a decrease in the Pennsylvania Bank Shares Tax expense, which was driven by a decrease in the Bank's total equity balance from the increase in unrealized losses on investment securities and charges in the third quarter of 2022 for a legal settlement and restructuring expenses.

•Intangible asset amortization decreased by $152 thousand, or 14%, due to amortization of the core deposit intangible assets on an accelerated basis.

•During the fourth quarter of 2023, the Company announced it entered into an agreement to merge with Codorus Valley. Merger-related expenses totaled $1.1 million, which included due diligence costs, legal expenses and a fairness opinion.

•The Company agreed to settle a litigation matter, which resulted in a provision for legal settlement of $13.0 million recorded in the third quarter of 2022.

•During the third quarter of 2022, the Company announced that five branch locations would be closing and staffing model adjustments would be made to drive long-term growth and improve operating efficiencies in 2023 and forward. As a result of these initiatives, the Company recorded a restructuring charge of $3.2 million.

Income Taxes

Income tax expense totaled $5.8 million, $9.4 million and $4.6 million for 2024, 2023 and 2022, respectively. The effective tax rate for 2024 was 20.7% compared with 20.8% for 2023 and 17.2% for 2022. Generally, 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, income from life insurance policies and tax credits, partially offset by disallowed interest expense and state income taxes. Although the change in the effective tax rate was minimal year-over-year, the rate in 2024 was impacted by non-deductible merger-related expenses, which were greater than in 2023. With the rising interest rates, each year was impacted by the portion of interest expense disallowed as a deduction against earnings under the TEFRA and an increase in state taxes as a result of a greater percentage of taxable income earned in a state with a state income tax.

Note 8, Income Taxes, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data," includes a reconciliation of our federal statutory tax rate to the Company's effective tax rate, which is a meaningful comparison between years and measures income tax expense as a percentage of pretax income.

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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, enhance income through interest and dividend income and collateralize certain deposits and borrowings.

The Company has established investment policies and an asset 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 held-to-maturity,” “trading securities” and “securities available-for-sale.” At December 31, 2024 and 2023, management classified the entire investment securities portfolio as AFS, which is accounted for at current market value with non-credit 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 issues. Management monitors its debt securities, using various indicators in determining whether unrealized losses on debit 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 on the AFS securities did not require an ACL at December 31, 2024 and 2023. Under the prior OTTI framework, the Company did not record any cumulative OTTI expense at December 31, 2022.

The following table summarizes the fair value of AFS securities at December 31, 2024, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["U.S. Treasury","$","18,063","","","$","17,840","","","$","17,291"],["U.S. Government Agencies","3,053","","","4,151","","","5,135"],["States and political subdivisions","200,028","","","203,122","","","197,414"],["GSE residential MBS","151,548","","","57,632","","","59,402"],["GSE commercial MBS","8,792","","","4,743","","","\u2014"],["GSE residential CMOs","324,692","","","73,102","","","68,378"],["Non-agency CMOs","33,284","","","44,669","","","39,758"],["Asset-backed","88,103","","","108,134","","","125,973"],["Corporate bonds","1,954","","","\u2014","","","\u2014"],["Other","194","","","126","","","377"],["Total investment securities","$","829,711","","","$","513,519","","","$","513,728"]]
[[/GREPCENT_TABLE]]

At December 31, 2024, AFS securities totaled $829.7 million, an increase of $316.2 million, from $513.5 million at December 31, 2023. Pursuant to the Merger, the Company acquired AFS securities with a fair value totaling $327.1 million. To align with the Company's investment strategy and to achieve higher yielding results, $162.7 million of the acquired AFS securities were sold, which included $91.5 million of MBS and CMO's, $27.1 million of corporate debt securities, $24.4 million of securities issued by state and political subdivisions and $19.7 million of securities issued by U.S. government agencies. The sales resulted in no gain or loss as the securities were sold at book value due to the proximity of the sales to the closing date of the Merger. Most of the proceeds from the sales of the acquired AFS securities were reinvested. During 2024, the Company purchased investment securities totaling $227.1 million, which included $224.8 million of agency MBS and CMO securities, $1.5 million of non-agency CMO securities and $788 thousand of investment securities issued by state and political subdivisions.

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In addition, calls of non-agency CMO securities totaled $18.0 million and there were paydowns of $58.2 million. The balance of investment securities included net unrealized losses of $35.2 million at December 31, 2024 compared to net unrealized losses of $35.6 million at December 31, 2023 for a decrease of $361 thousand. This decrease in net unrealized losses was primarily due to lower treasury rates and narrower credit spreads compared to December 31, 2023. 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.

At December 31, 2023, AFS securities totaled $513.5 million, an increase of $209 thousand, from $513.7 million at December 31, 2022. During 2023, the Company purchased investment securities totaling $45.6 million, which included $19.8 million of U.S. Treasury securities, $15.3 million of agency MBS and CMO securities, $8.9 million of non-agency CMO securities and $972 thousand of asset-backed securities. During 2023, the Company sold three U.S. Treasury securities with a total principal balance of $19.9 million for a nominal gain and six securities issued by state and political subdivisions with a total principal balance of $2.2 million for a net loss of $44 thousand. The sale of the securities issued by state and political subdivisions in net unrealized loss position was to redeploy funds from the lower yielding investment securities to higher yielding assets. The balance of investment securities included net unrealized losses of $35.6 million at December 31, 2023 compared to net unrealized losses of $49.6 million at December 31, 2022 for a reduction in unrealized losses of $14.0 million. The decrease in net unrealized losses was primarily due to lower treasury rates and contracting credit spreads during 2023 compared to 2022. 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 securities portfolio is appropriately aligned with the remainder of the balance sheet to protect against volatile interest rate environments and to generate steady earnings.

44

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The following table shows the maturities of investment securities at book value at December 31, 2024, and weighted average yields of such investment securities. Yields are shown on a tax equivalent basis, assuming a 21% federal income tax rate.

[[GREPCENT_TABLE]]
[["","Within 1year","","After 1 yearbut within 5years","","After 5 yearsbut within10 years","","After 10years","","Total"],["U.S. Treasury securities"],["Book value","$","\u2014","","","$","20,043","","","$","\u2014","","","$","\u2014","","","$","20,043"],["Yield","\u2014","%","","1.05","%","","\u2014","%","","\u2014","%","","1.05","%"],["Average maturity (years)","\u2014","","3.3","","\u2014","","\u2014","","3.3"],["U. S. Government Agencies"],["Book value","$","\u2014","","","$","\u2014","","","$","2,953","","","$","\u2014","","","$","2,953"],["Yield","\u2014","%","","\u2014","%","","6.46","%","","\u2014","%","","6.46","%"],["Average maturity (years)","\u2014","","\u2014","","7.0","","\u2014","","7.0"],["States and political subdivisions"],["Book value","$","\u2014","","","$","20,424","","","$","48,805","","","$","151,189","","","$","220,418"],["Yield","\u2014","%","","2.84","%","","3.01","%","","2.75","%","","2.82","%"],["Average maturity (years)","\u2014","","3.7","","7.5","","18.8","","14.9"],["GSE residential mortgage-backed securities"],["Book value","$","\u2014","","","$","\u2014","","","$","1,599","","","$","154,194","","","$","155,793"],["Yield","\u2014","%","","\u2014","%","","4.76","%","","4.66","%","","4.66","%"],["Average maturity (years)","\u2014","","\u2014","","7.7","","28.0","","27.8"],["GSE commercial mortgage-backed securities"],["Book value","$","\u2014","","","$","892","","","$","3,101","","","$","4,577","","","$","8,570"],["Yield","\u2014","%","","4.86","%","","4.99","%","","6.01","%","","5.52","%"],["Average maturity (years)","\u2014","","\u2014","","0.1","","0.2","","14.3"],["GSE residential CMOs"],["Book value","$","\u2014","","","$","\u2014","","","$","1,291","","","$","329,725","","","$","331,016"],["Yield","\u2014","%","","\u2014","%","","4.04","%","","4.86","%","","4.86","%"],["Average maturity (years)","\u2014","","\u2014","","9.3","","30.3","","30.2"],["Non-agency CMOs"],["Book value","$","1,571","","","$","3,073","","","$","\u2014","","","$","30,904","","","$","35,548"],["Yield","7.07","%","","2.58","%","","\u2014","%","","4.57","%","","4.51","%"],["Average maturity (years)","0.3","","3.0","","\u2014","","30.9","","27.2"],["Asset-backed"],["Book value","$","\u2014","","","$","\u2014","","","$","560","","","$","87,890","","","$","88,450"],["Yield","\u2014","%","","\u2014","%","","6.44","%","","6.00","%","","6.00","%"],["Average maturity (years)","\u2014","","\u2014","","8.9","","20.3","","20.3"],["Corporate bonds"],["Book value","$","\u2014","","","$","1,935","","","$","\u2014","","","$","\u2014","","","$","1,935"],["Yield","\u2014","%","","5.84","%","","\u2014","%","","\u2014","%","","5.84","%"],["Average maturity (years)","\u2014","","3.3","","\u2014","","\u2014","","3.3"],["Other"],["Book value","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","194","","","$","194"],["Yield","\u2014","%","","\u2014","%","","\u2014","%","","\u2014","%","","\u2014","%"],["Average maturity (years)","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["Total"],["Book value","$","1,571","","","$","46,367","","","$","58,309","","","$","758,673","","","$","864,920"],["Yield","7.07","%","","2.21","%","","3.39","%","","4.53","%","","4.33","%"],["Average maturity (years)","0.3","","3.5","","7.5","","26.4","","23.8"]]
[[/GREPCENT_TABLE]]

45

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The average maturity is based on the contractual terms of the debt or mortgage-backed securities, and does not factor in required repayments or anticipated prepayments. At December 31, 2024, the weighted average estimated life is 29 years for mortgage-backed and CMO securities, and 20 years for asset-backed securities, based on current interest rates and anticipated prepayment speeds. The overall duration of the Company's investment security portfolio is 4.1 years and 4.3 years at December 31, 2024 and 2023, respectively.

The following table summarizes the credit ratings and collateral associated with the Company's AFS investment securities portfolio, excluding equity securities, at December 31, 2024:

[[GREPCENT_TABLE]]
[["Sector","Portfolio Mix","Amortized Book","Fair Value","Credit Enhancement","AAA","AA","A","BBB","NR","Collateral / Guarantee Type"],["Unsecured ABS","\u2014","%","$","3,073","","$","2,854","","27","%","\u2014","%","\u2014","%","\u2014","%","\u2014","%","100","%","Unsecured Consumer Debt"],["Student Loan ABS","1","","4,060","","4,035","","27","","\u2014","","\u2014","","\u2014","","\u2014","","100","","Seasoned Student Loans"],["Federal Family Education Loan ABS","9","","80,121","","80,063","","11","","7","","81","","\u2014","","12","","\u2014","","Federal Family Education Loan (1)"],["PACE Loan ABS","\u2014","","1,985","","1,727","","7","","100","","\u2014","","\u2014","","\u2014","","\u2014","","PACE Loans (2)"],["Non-Agency RMBS","2","","16,555","","14,528","","16","","100","","\u2014","","\u2014","","\u2014","","\u2014","","Reverse Mortgages (3)"],["Non-Agency CMBS","2","","15,920","","15,901","","27","","\u2014","","\u2014","","\u2014","","\u2014","","100"],["Municipal - General Obligation","12","","99,515","","90,767","","","11","","82","","7","","\u2014","","\u2014"],["Municipal - Revenue","14","","120,903","","109,261","","","\u2014","","82","","12","","\u2014","","6"],["SBA ReRemic (5)","\u2014","","2,283","","2,278","","","\u2014","","100","","\u2014","","\u2014","","\u2014","","SBA Guarantee (4)"],["Small Business Administration","1","","5,926","","6,263","","","\u2014","","100","","\u2014","","\u2014","","\u2014","","SBA Guarantee (4)"],["Agency MBS","19","","160,027","","155,778","","","\u2014","","100","","\u2014","","\u2014","","\u2014","","Residential Mortgages (4)"],["Agency CMO","38","","332,380","","326,045","","","\u2014","","100","","\u2014","","\u2014","","\u2014"],["U.S. Treasury securities","2","","20,043","","18,063","","","\u2014","","100","","\u2014","","\u2014","","\u2014","","U.S. Government Guarantee (4)"],["Corporate bonds","\u2014","","1,935","","1,954","","","\u2014","","\u2014","","52","","48","","\u2014"],["","100","%","$","864,726","","$","829,517","","","4","%","89","%","3","%","1","%","3","%"],["(1) 97% guaranteed by U.S. government"],["(2) PACE acronym represents Property Assessed Clean Energy loans"],["(3) Non-agency reverse mortgages with current structural credit enhancements"],["(4) Guaranteed by U.S. government or U.S government agencies"],["(5) SBA ReRemic acronym represents Re-Securitization of Real Estate Mortgage Investment Conduits"],["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+."]]
[[/GREPCENT_TABLE]]

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.

Generally, the Bank is permitted under applicable law to make loans to single borrowers (including certain related persons and entities) in aggregate amounts of up to 15% of the sum of total capital and excess ACL not included in Tier 2 capital. The Company's policy has established an internal lending limit of $25.0 million to one borrower or a group of borrowers, except for commercial real estate loans, which the Company reduced the internal lending limit to $15.0 million on a per project basis beginning in 2024. Credit exposure may be aggregated if loans are under common control or ownership or with common guarantors, for which the internal lending limit is $50.0 million, but not permitted to exceed the regulatory lending limit. These amounts are below the Bank's regulatory lending limit of $78.7 million at December 31, 2024. No borrower had an outstanding exposure exceeding the Bank's legal lending limit at year-end.

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, related risks and methodology for the allowance for credit losses are included in 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 Supplementary Data."

46

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The following table presents the loan portfolio, excluding residential LHFS, by segments and classes at December 31 of each of the years set forth below.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022","","2021","","2020"],["Commercial real estate:"],["Owner-occupied","$","633,567","","","$","373,757","","","$","315,770","","","$","238,668","","","$","174,908"],["Non-owner occupied","1,160,238","","","694,638","","","608,043","","","551,783","","","409,567"],["Multi-family","274,135","","","150,675","","","138,832","","","93,255","","","113,635"],["Non-owner occupied residential","179,512","","","95,040","","","104,604","","","106,112","","","114,505"],["Acquisition and development:"],["1-4 family residential construction","47,432","","","24,516","","","25,068","","","12,279","","","9,486"],["Commercial and land development","241,424","","","115,249","","","158,308","","","93,925","","","51,826"],["Agricultural","125,156","","","26,847","","","25,990","","","26,026","","","25,873"],["Commercial and industrial","451,384","","","340,238","","","331,784","","","459,702","","","621,495"],["Municipal","30,044","","","9,812","","","12,173","","","14,989","","","20,523"],["Residential mortgage:"],["First lien","460,297","","","266,239","","","229,849","","","198,831","","","244,321"],["Home equity \u2013 term","5,988","","","5,078","","","5,505","","","6,081","","","10,169"],["Home equity \u2013 lines of credit","303,561","","","186,450","","","183,241","","","160,705","","","157,021"],["Installment and other loans","18,476","","","9,774","","","12,065","","","17,630","","","26,361"],["Total loans","$","3,931,214","","","$","2,298,313","","","$","2,151,232","","","$","1,979,986","","","$","1,979,690"]]
[[/GREPCENT_TABLE]]

Total loans increased by $1.6 billion to $3.9 billion at December 31, 2024 from $2.3 billion at December 31, 2023. The increase is due to $1.6 billion in loans acquired in the Merger and continued portfolio growth in the commercial loan segment and residential mortgage segment during 2024. During December 2024, the Company sold acquired loans from the Merger with an unpaid principal balance totaling $6.0 million, inclusive of loans on nonaccrual status totaling $2.6 million. The Company recorded charge offs related to the loan sale of $595 thousand, but also recognized accretion of $1.1 million on the associated loan marks in interest income.

The loan portfolio at December 31, 2023 increased by $147.1 million to $2.3 billion from $2.2 billion at December 31, 2022 due primarily to commercial loan and residential mortgage production. The increase was due to growth in the commercial real estate loan segment of $146.9 million, residential mortgages of $39.2 million, and commercial and industrial loans of $9.3 million, partially offset by a decrease in the acquisition and development loan segment of $43.6 million. The decrease in the acquisition and development loan segment includes construction-to-permanent loans for which construction has been completed or there is a certificate of occupancy, which allows for the transfer of the loan classification to a permanent loan class secured by real estate. Overall loan growth, excluding SBA PPP forgiveness activity of $8.1 million, was $155.2 million or 7% for the year ended December 31, 2023 compared to 2022.

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In addition to monitoring the loan portfolio by loan class as noted above, the Company also monitors concentrations by segment. The Bank’s lending policy reports segment concentrations that exceed 20% of the Bank’s total risk-based capital ("RBC"). The following segments met this criterion at December 31, 2024:

[[GREPCENT_TABLE]]
[["","Balance","","% of Total Loans","","% of Total RBC"],["Office Space","$","293,887","","","7.5%","","54.4%"],["1-4 Family Rentals","182,908","","","4.7","","33.9"],["Hotels & Motels (including Bed & Breakfast)","177,923","","","4.5","","33.0"],["Multi-Family","274,135","","","7.0","","50.8"],["Purchased Participation","209,295","","","5.3","","38.8"],["Senior Housing and Care","153,084","","","3.9","","28.4"],["Strip Centers (Retail)","205,941","","","5.2","","38.1"],["Warehouse","180,894","","","4.6","","33.5"]]
[[/GREPCENT_TABLE]]

Management regularly analyzes the commercial real estate portfolio, which includes the review of occupancy, cash flows, expenses and expiring leases, as well as the location of the real estate. At December 31, 2024, the Company had $293.9 million in loans related to office space, which had a weighted average loan-to-value ratio of 51%. Management believes that the office space portfolio is well-diversified and includes only limited exposure to properties located in major metropolitan markets. The Company does not have any material exposure to office space in the District of Columbia area. In addition, the Company does not have any material exposure to government contractors.

The following table presents expected maturities of loan classes by fixed rate or adjustable-rate categories at December 31, 2024.

[[GREPCENT_TABLE]]
[["","Due In"],["","One Yearor Less","","OneYear ThroughFive Years","","Five Years Through 15 Years","","After 15 Years","","Total","","% of Total"],["Commercial real estate:"],["Owner occupied"],["Fixed rate","$","13,506","","","$","122,692","","","$","104,242","","","$","8,607","","","$","249,047","","","39","%"],["Adjustable and floating rate","54,473","","","74,320","","","236,984","","","18,743","","","384,520","","","61","%"],["","67,979","","","197,012","","","341,226","","","27,350","","","633,567","","","100","%"],["Non-owner occupied"],["Fixed rate","44,922","","","148,964","","","135,911","","","2,892","","","332,689","","","29","%"],["Adjustable and floating rate","10,493","","","168,156","","","648,577","","","323","","","827,549","","","71","%"],["","55,415","","","317,120","","","784,488","","","3,215","","","1,160,238","","","100","%"],["Multi-family"],["Fixed rate","36,877","","","29,143","","","19,318","","","62","","","85,400","","","31","%"],["Adjustable and floating rate","41,470","","","42,567","","","102,350","","","2,348","","","188,735","","","69","%"],["","78,347","","","71,710","","","121,668","","","2,410","","","274,135","","","100","%"],["Non-owner occupied residential"],["Fixed rate","11,356","","","50,954","","","8,739","","","1,754","","","72,803","","","41","%"],["Adjustable and floating rate","4,085","","","22,933","","","77,364","","","2,327","","","106,709","","","59","%"],["","15,441","","","73,887","","","86,103","","","4,081","","","179,512","","","100","%"],["(continued)"]]
[[/GREPCENT_TABLE]]

48

Table of Contents

[[GREPCENT_TABLE]]
[["","Due In"],["","One Yearor Less","","OneYear ThroughFive Years","","Five Years Through 15 Years","","After 15 Years","","Total","","% of Total"],["Acquisition and development:"],["1-4 family residential construction"],["Fixed rate","6,658","","","688","","","\u2014","","","1,307","","","8,653","","","18","%"],["Adjustable and floating rate","27,672","","","7,359","","","10","","","3,738","","","38,779","","","82","%"],["","34,330","","","8,047","","","10","","","5,045","","","47,432","","","100","%"],["Commercial and land development"],["Fixed rate","14,332","","","19,968","","","8,359","","","110","","","42,769","","","18","%"],["Adjustable and floating rate","81,995","","","64,776","","","50,789","","","1,095","","","198,655","","","82","%"],["","96,327","","","84,744","","","59,148","","","1,205","","","241,424","","","100","%"],["Agricultural"],["Fixed rate","6,766","","","60,883","","","10,656","","","\u2014","","","78,305","","","63","%"],["Adjustable and floating rate","18,507","","","2,668","","","23,383","","","2,293","","","46,851","","","37","%"],["","25,273","","","63,551","","","34,039","","","2,293","","","125,156","","","100","%"],["Commercial and industrial"],["Fixed rate","4,885","","","121,867","","","42,525","","","573","","","169,850","","","38","%"],["Adjustable and floating rate","110,078","","","93,911","","","75,669","","","1,876","","","281,534","","","62","%"],["","114,963","","","215,778","","","118,194","","","2,449","","","451,384","","","100","%"],["Municipal"],["Fixed rate","507","","","3,793","","","14,742","","","4,131","","","23,173","","","77","%"],["Adjustable and floating rate","\u2014","","","\u2014","","","5,112","","","1,759","","","6,871","","","23","%"],["","507","","","3,793","","","19,854","","","5,890","","","30,044","","","100","%"],["Residential mortgage:"],["First lien"],["Fixed rate","169","","","6,559","","","31,855","","","190,667","","","229,250","","","50","%"],["Adjustable and floating rate","\u2014","","","481","","","17,319","","","213,247","","","231,047","","","50","%"],["","169","","","7,040","","","49,174","","","403,914","","","460,297","","","100","%"],["Home equity - term"],["Fixed rate","28","","","1,091","","","3,083","","","1,190","","","5,392","","","90","%"],["Adjustable and floating rate","\u2014","","","48","","","221","","","327","","","596","","","10","%"],["","28","","","1,139","","","3,304","","","1,517","","","5,988","","","100","%"],["Home equity - lines of credit"],["Fixed rate","112","","","13,223","","","70,625","","","16,723","","","100,683","","","33","%"],["Adjustable and floating rate","6,763","","","141","","","1,994","","","193,980","","","202,878","","","67","%"],["","6,875","","","13,364","","","72,619","","","210,703","","","303,561","","","100","%"],["(continued)"]]
[[/GREPCENT_TABLE]]

49

Table of Contents

[[GREPCENT_TABLE]]
[["","Due In"],["","One Yearor Less","","OneYear ThroughFive Years","","Five Years Through 15 Years","","After 15 Years","","Total","","% of Total"],["Installment and other loans"],["Fixed rate","399","","","7,326","","","917","","","4","","","8,646","","","47","%"],["Adjustable and floating rate","22","","","1,081","","","3,873","","","4,854","","","9,830","","","53","%"],["","421","","","8,407","","","4,790","","","4,858","","","18,476","","","100","%"],["","$","496,075","","","$","1,065,592","","","$","1,694,617","","","$","674,930","","","$","3,931,214"]]
[[/GREPCENT_TABLE]]

The final maturity is used in the determination of maturity of acquisition and development loans that convert from construction to permanent status. Variable rate loans shown above include semi-fixed loans that contractually will adjust with prime or another variable rate index after the interest lock period.

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 the 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.

On January 1, 2023, the Company adopted ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). ASU 2022-02 eliminated the TDR accounting model, and requires that the Company evaluate, based on the 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 if the modified terms represent a new loan or a continuation of an existing loan, which the Company refers to these loans as "financial difficulty modifications" or "FDMs."

Prior to the adoption of ASU 2022-02, loans were classified as TDRs if a concession was granted for legal or economic reasons related to a borrower’s financial difficulties. Concessions granted under a TDR typically involved a temporary deferral of scheduled loan payments, an extension of a loan’s stated maturity date, temporary reduction in interest rates, or below market rates. If a modification occurred while the loan is on accruing status, it would continue to accrue interest under the modified terms. Nonaccrual TDRs were restored to accrual status if scheduled principal and interest payments, under the modified terms, were current for six months after modification, and the borrower continues to demonstrate its ability to meet the modified terms. TDRs were evaluated individually for impairment if they have been restructured during the most recent calendar year, or if they are not performing according to their modified terms.

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The following table presents the Company’s risk elements and relevant asset quality ratios at December 31 of each of the years set forth below:

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022","","2021","","2020"],["Nonaccrual loans","$","24,111","","","$","25,527","","","$","20,583","","","$","6,449","","","$","10,310"],["OREO","138","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total nonperforming assets","24,249","","","25,527","","","20,583","","","6,449","","","10,310"],["FDM / TDR still accruing","4,897","","","9","","","682","","","804","","","934"],["Loans past due 90 days or more and still accruing (1)","641","","","66","","","439","","","1,201","","","554"],["Total nonperforming and other risk assets","$","29,787","","","$","25,602","","","$","21,704","","","$","8,454","","","$","11,798"],["Loans 30-89 days past due","$","35,393","","","$","8,111","","","$","7,311","","","$","5,925","","","$","10,291"],["Asset quality ratios:"],["Total nonperforming loans to total loans","0.61","%","","1.11","%","","0.96","%","","0.33","%","","0.52","%"],["Total nonperforming assets to total assets","0.45","%","","0.83","%","","0.70","%","","0.23","%","","0.37","%"],["Total nonperforming assets to total loans and OREO","0.62","%","","1.11","%","","0.96","%","","0.33","%","","0.52","%"],["Total risk assets to total loans and OREO","0.76","%","","1.11","%","","1.01","%","","0.43","%","","0.60","%"],["Total risk assets to total assets","0.55","%","","0.84","%","","0.74","%","","0.30","%","","0.43","%"],["ACL to total loans","1.24","%","","1.25","%","","1.17","%","","1.07","%","","1.02","%"],["ACL to nonperforming loans","201.94","%","","112.44","%","","122.32","%","","328.42","%","","195.45","%"],["ACL to nonperforming loans and FDMs / TDRs still accruing","167.85","%","","112.40","%","","118.40","%","","292.02","%","","179.22","%"],["Net charge-offs (recoveries) to total average loans","0.11","%","","0.03","%","","0.01","%","","\u2014","%","","(0.01)","%"]]
[[/GREPCENT_TABLE]]

(1) Includes zero, zero, $307 thousand, $214 thousand and $456 thousand, respectively, of PCI loans at December 31, 2024, 2023, 2022, 2021 and 2020 in accordance with ASU 310-30. Upon adoption of the CECL standard on January 1, 2023, PCD loans were evaluated on an individual loan level and reported on an individual loan basis under ASU 310-20, Nonrefundable Fees and Other Assets. As of December 31, 2021, there was one loan for $891 thousand, which was in the process of collection and guaranteed by the SBA, and was subsequently collected during the first quarter of 2022.

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 $29.8 million at December 31, 2024, an increase of $4.2 million from $25.6 million at December 31, 2023. Nonaccrual loans decreased by $1.4 million from $25.5 million at December 31, 2023 to $24.1 million at December 31, 2024 due primarily to additions in commercial and industrial and commercial real estate loans partially offset by the payoffs of two commercial real estate loans with outstanding balances totaling $15.0 million with no charge-offs recorded on these relationships in addition to a sale of mostly commercial and industrial loans on nonaccrual status of $2.6 million. Nonaccrual loans totaling $12.8 million were acquired in the Merger.

During 2024, the Company had loan modifications meeting the FDM criteria under ASU 2022-02 totaling $9.3 million, which included $6.4 million in acquired loans from the Merger and new FDMs during 2024 totaling $8.5 million, partially offset by payoffs of three FDMs totaling $4.9 million, the sale of one FDM of $208 thousand and the remaining difference is due to repayments. During 2023, the Company modified terms for loans totaling $1.4 million, representing one existing nonaccrual loan.

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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 December 31, 2024 and 2023. At December 31, 2024, there was a specific reserve of $7 thousand on nonaccrual loans, excluding the ACL recorded on acquired PCD loans from the Merger, compared to $49 thousand at December 31, 2023.

[[GREPCENT_TABLE]]
[["","December 31, 2024","","December 31, 2023"],["","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","$","232","","","$","4,046","","","$","4,278","","","$","\u2014","","","$","\u2014","","","$","15,786","","","$","15,786","","","$","\u2014"],["Non-owner occupied","\u2014","","","1,466","","","1,466","","","\u2014","","","\u2014","","","240","","","240","","","\u2014"],["Multi-family","\u2014","","","721","","","721","","","237","","","\u2014","","","1,233","","","1,233","","","\u2014"],["Non-owner occupied residential","\u2014","","","175","","","175","","","\u2014","","","\u2014","","","2,572","","","2,572","","","\u2014"],["Acquisition and development:"],["Commercial and land development","3,282","","","376","","","3,658","","","\u2014","","","\u2014","","","1,361","","","1,361","","","\u2014"],["Agricultural","\u2014","","","797","","","797","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Commercial and industrial","2,822","","","2,678","","","5,500","","","113","","","68","","","604","","","672","","","\u2014"],["Residential mortgage:"],["First lien","\u2014","","","5,077","","","5,077","","","243","","","\u2014","","","2,309","","","2,309","","","66"],["Home equity \u2013 term","36","","","34","","","70","","","18","","","\u2014","","","3","","","3","","","\u2014"],["Home equity \u2013 lines of credit","\u2014","","","2,344","","","2,344","","","30","","","\u2014","","","1,312","","","1,312","","","\u2014"],["Installment and other loans","15","","","10","","","25","","","\u2014","","","3","","","36","","","39","","","\u2014"],["Total","$","6,387","","","$","17,724","","","$","24,111","","","$","641","","","$","71","","","$","25,456","","","$","25,527","","","$","66"]]
[[/GREPCENT_TABLE]]

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 December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","# ofRelationships","","RecordedInvestment","","PartialCharge-offsto Date","","SpecificReserves"],["December 31, 2024"],["Relationships greater than $1 million","5","","","$","10,210","","","$","828","","","$","177"],["Relationships greater than $500 thousand but less than $1 million","6","","","4,925","","","313","","","2,173"],["Relationships greater than $250 thousand but less than $500 thousand","9","","","2,887","","","\u2014","","","155"],["Relationships less than $250 thousand","121","","","6,256","","","431","","","1,439"],["","141","","","$","24,278","","","$","1,572","","","$","3,944"],["December 31, 2023"],["Relationships greater than $1 million","4","","","$","20,363","","","$","\u2014","","","$","\u2014"],["Relationships greater than $500 thousand but less than $1 million","1","","","616","","","388","","","\u2014"],["Relationships greater than $250 thousand but less than $500 thousand","1","","","257","","","\u2014","","","\u2014"],["Relationships less than $250 thousand","78","","","4,472","","","214","","","77"],["","84","","","$","25,708","","","$","602","","","$","77"]]
[[/GREPCENT_TABLE]]

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.

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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.

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 December 31, 2024. 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. As disclosed in Note 1, Summary of Significant Accounting Policies, and Note 4, Loans and Allowance for Credit Losses, on January 1, 2023 the Company implemented CECL and increased the ACL with a cumulative-effect adjustment to the ACL of $2.4 million. In addition, the Company recorded a cumulative-effect adjustment to the ACL for off-balance sheet exposures of $100 thousand. The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the consolidated statement 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 Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data."

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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 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 and installment and other consumer loans are presented below based on payment performance: performing or nonperforming. During 2024, commercial and land development construction loans originated prior to 2024 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 originated in 2024 totaling $17.1 million were recharacterized to a permanent 1-4 family residential mortgage upon the completion of construction. During 2023, commercial and land development loans and 1-4 family residential construction loans totaling $109.3 million and $18.2 million, respectively, were recharacterized to a permanent amortizing loan secured by real estate class upon the completion of construction or receiving a certificate of occupancy.

[[GREPCENT_TABLE]]
[["","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","","","$","562,268"],["Special mention","\u2014","","","1,674","","","18,563","","","1,895","","","7,946","","","5,422","","","165","","","\u2014","","","35,665"],["Substandard - Non-IEL","\u2014","","","694","","","14,572","","","4,204","","","2,477","","","4,899","","","4,510","","","\u2014","","","31,356"],["Substandard - IEL","\u2014","","","9","","","\u2014","","","1,110","","","245","","","2,914","","","\u2014","","","\u2014","","","4,278"],["Total owner-occupied loans","$","55,068","","","$","88,632","","","$","139,831","","","$","119,487","","","$","42,163","","","$","168,778","","","$","19,328","","","$","280","","","$","633,567"],["Current period gross charge offs - owner-occupied","$","\u2014","","","$","217","","","$","13","","","$","313","","","$","\u2014","","","$","12","","","$","\u2014","","","$","\u2014","","","$","555"],["Non-owner occupied:"],["Risk rating"],["Pass","$","82,441","","","$","146,020","","","$","193,131","","","$","326,586","","","$","123,646","","","$","256,212","","","$","2,335","","","$","\u2014","","","$","1,130,371"],["Special mention","\u2014","","","10,081","","","2,985","","","334","","","7,920","","","1,919","","","\u2014","","","\u2014","","","23,239"],["Substandard - Non-IEL","482","","","\u2014","","","1,049","","","\u2014","","","1,043","","","2,588","","","\u2014","","","\u2014","","","5,162"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,466","","","\u2014","","","\u2014","","","1,466"],["Total non-owner occupied loans","$","82,923","","","$","156,101","","","$","197,165","","","$","326,920","","","$","132,609","","","$","262,185","","","$","2,335","","","$","\u2014","","","$","1,160,238"],["Current period gross charge offs - non-owner occupied","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","65","","","$","\u2014","","","$","\u2014","","","$","65"],["Multi-family:"],["Risk rating"],["Pass","$","7,269","","","$","12,679","","","$","105,883","","","$","54,028","","","$","30,968","","","$","54,676","","","$","1,351","","","$","\u2014","","","$","266,854"],["Special mention","\u2014","","","\u2014","","","1,094","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,094"],["Substandard - Non-IEL","\u2014","","","\u2014","","","571","","","4,658","","","\u2014","","","237","","","\u2014","","","\u2014","","","5,466"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","721","","","\u2014","","","\u2014","","","721"],["Total multi-family loans","$","7,269","","","$","12,679","","","$","107,548","","","$","58,686","","","$","30,968","","","$","55,634","","","$","1,351","","","$","\u2014","","","$","274,135"],["Current period gross charge offs - multi-family","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","7","","","$","\u2014","","","$","\u2014","","","$","7"],["Non-owner occupied residential:"],["Risk rating"],["Pass","$","9,322","","","$","22,771","","","$","29,681","","","$","29,729","","","$","19,410","","","$","64,851","","","$","1,257","","","$","\u2014","","","$","177,021"],["Special mention","\u2014","","","\u2014","","","\u2014","","","147","","","42","","","478","","","39","","","\u2014","","","706"],["Substandard - Non-IEL","\u2014","","","\u2014","","","166","","","133","","","\u2014","","","1,311","","","\u2014","","","\u2014","","","1,610"],["Substandard - IEL","\u2014","","","\u2014","","","43","","","\u2014","","","\u2014","","","132","","","\u2014","","","\u2014","","","175"],["Total non-owner occupied residential loans","$","9,322","","","$","22,771","","","$","29,890","","","$","30,009","","","$","19,452","","","$","66,772","","","$","1,296","","","$","\u2014","","","$","179,512"],["Current period gross charge offs - non-owner occupied residential","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","29","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","29"],["(continued)"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","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","","","$","3,921","","","$","\u2014","","","$","46,498"],["Special mention","74","","","717","","","\u2014","","","\u2014","","","\u2014","","","143","","","\u2014","","","\u2014","","","934"],["Substandard - Non-IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total 1-4 family residential construction loans","$","30,982","","","$","7,796","","","$","2,295","","","$","598","","","$","935","","","$","905","","","$","3,921","","","$","\u2014","","","$","47,432"],["Current period gross charge offs - 1-4 family residential construction","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Commercial and land development:"],["Risk rating"],["Pass","$","60,420","","","$","57,563","","","$","74,893","","","$","14,107","","","$","372","","","$","6,928","","","$","7,280","","","$","\u2014","","","$","221,563"],["Special mention","734","","","\u2014","","","4,557","","","998","","","1,841","","","3,451","","","\u2014","","","\u2014","","","11,581"],["Substandard - Non-IEL","2,966","","","1,656","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","4,622"],["Substandard - IEL","\u2014","","","18","","","3,282","","","358","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","3,658"],["Total commercial and land development loans","$","64,120","","","$","59,237","","","$","82,732","","","$","15,463","","","$","2,213","","","$","10,379","","","$","7,280","","","$","\u2014","","","$","241,424"],["Current period gross charge offs - commercial and land development","$","\u2014","","","$","23","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","23"],["Agricultural"],["Risk rating"],["Pass","$","14,663","","","$","14,507","","","$","21,782","","","$","19,486","","","$","10,463","","","$","28,095","","","$","13,891","","","$","164","","","$","123,051"],["Special mention","\u2014","","","\u2014","","","\u2014","","","25","","","\u2014","","","902","","","161","","","\u2014","","","1,088"],["Substandard - Non-IEL","\u2014","","","\u2014","","","13","","","\u2014","","","\u2014","","","207","","","\u2014","","","\u2014","","","220"],["Substandard - IEL","\u2014","","","\u2014","","","797","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","797"],["Total agricultural loans","$","14,663","","","$","14,507","","","$","22,592","","","$","19,511","","","$","10,463","","","$","29,204","","","$","14,052","","","$","164","","","$","125,156"],["Current period gross charge offs - agricultural","$","\u2014","","","$","1","","","$","\u2014","","","$","18","","","$","\u2014","","","$","18","","","$","1","","","$","\u2014","","","$","38"],["Commercial and Industrial:"],["Risk rating"],["Pass","$","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","","","\u2014","","","15,796"],["Substandard - Non-IEL","\u2014","","","1,037","","","2,547","","","3,409","","","\u2014","","","490","","","8,386","","","\u2014","","","15,869"],["Substandard - IEL","409","","","2,772","","","140","","","191","","","884","","","921","","","183","","","\u2014","","","5,500"],["Total commercial and industrial loans","$","83,818","","","$","60,918","","","$","58,646","","","$","53,830","","","$","16,291","","","$","18,649","","","$","156,464","","","$","2,768","","","$","451,384"],["Current period gross charge offs - commercial and industrial","$","\u2014","","","$","335","","","$","212","","","$","60","","","$","1,739","","","$","60","","","$","571","","","$","\u2014","","","$","2,977"],["Municipal:"],["Risk rating"],["Pass","$","1,565","","","$","\u2014","","","$","10,006","","","$","3,124","","","$","269","","","$","15,080","","","$","\u2014","","","$","\u2014","","","$","30,044"],["Total municipal loans","$","1,565","","","$","\u2014","","","$","10,006","","","$","3,124","","","$","269","","","$","15,080","","","$","\u2014","","","$","\u2014","","","$","30,044"],["Current period gross charge offs - municipal","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["(continued)"]]
[[/GREPCENT_TABLE]]

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Table of Contents

[[GREPCENT_TABLE]]
[["","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","","","$","\u2014","","","$","\u2014","","","$","455,054"],["Nonperforming","672","","","308","","","241","","","483","","","218","","","3,321","","","\u2014","","","\u2014","","","5,243"],["Total first lien loans","$","63,642","","","$","102,209","","","$","103,588","","","$","52,903","","","$","25,521","","","$","112,434","","","$","\u2014","","","$","\u2014","","","$","460,297"],["Current period gross charge offs - first lien","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","2","","","$","\u2014","","","$","\u2014","","","$","2"],["Home equity - term:"],["Payment performance"],["Performing","$","395","","","$","752","","","$","1,040","","","$","201","","","$","462","","","$","3,068","","","$","\u2014","","","$","\u2014","","","$","5,918"],["Nonperforming","\u2014","","","\u2014","","","36","","","\u2014","","","\u2014","","","34","","","\u2014","","","\u2014","","","70"],["Total home equity - term loans","$","395","","","$","752","","","$","1,076","","","$","201","","","$","462","","","$","3,102","","","$","\u2014","","","$","\u2014","","","$","5,988"],["Current period gross charge offs - home equity - term","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Home equity - lines of credit:"],["Payment performance"],["Performing","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","200,886","","","$","100,331","","","$","301,217"],["Nonperforming","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,048","","","296","","","2,344"],["Total residential real estate - home equity - lines of credit loans","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","202,934","","","$","100,627","","","$","303,561"],["Current period gross charge offs - home equity - lines of credit","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","63","","","$","\u2014","","","$","63"],["Installment and other loans:"],["Payment performance"],["Performing","$","2,197","","","$","2,764","","","$","2,209","","","$","830","","","$","119","","","$","496","","","$","9,817","","","$","19","","","$","18,451"],["Nonperforming","9","","","3","","","\u2014","","","\u2014","","","\u2014","","","13","","","\u2014","","","\u2014","","","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","","","$","12","","","$","\u2014","","","$","32","","","$","\u2014","","","$","33","","","$","21","","","$","\u2014","","","$","307"]]
[[/GREPCENT_TABLE]]

56

Table of Contents

[[GREPCENT_TABLE]]
[["","Term Loans Amortized Cost Basis by Origination Year"],["As of December 31, 2023","2023","","2022","","2021","","2020","","2019","","Prior","","Revolving Loans Amortized Basis","","Revolving Loans Converted to Term","","Total"],["Commercial Real Estate:"],["Owner-occupied:"],["Risk rating"],["Pass","$","50,829","","","$","103,192","","","$","69,888","","","$","21,232","","","$","21,251","","","$","62,634","","","$","4,941","","","$","\u2014","","","$","333,967"],["Special mention","\u2014","","","\u2014","","","2,517","","","1,176","","","\u2014","","","1,314","","","\u2014","","","\u2014","","","5,007"],["Substandard - Non-IEL","\u2014","","","9,923","","","\u2014","","","6,075","","","\u2014","","","2,687","","","312","","","\u2014","","","18,997"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","13,366","","","\u2014","","","2,420","","","\u2014","","","\u2014","","","15,786"],["Total owner-occupied loans","$","50,829","","","$","113,115","","","$","72,405","","","$","41,849","","","$","21,251","","","$","69,055","","","$","5,253","","","$","\u2014","","","$","373,757"],["Current period gross charge offs - owner-occupied","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Non-owner occupied:"],["Risk rating"],["Pass","$","82,879","","","$","102,212","","","$","235,031","","","$","83,652","","","$","63,176","","","$","120,696","","","$","509","","","$","\u2014","","","$","688,155"],["Special mention","\u2014","","","\u2014","","","\u2014","","","524","","","\u2014","","","2,112","","","\u2014","","","\u2014","","","2,636"],["Substandard - Non-IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,739","","","\u2014","","","868","","","3,607"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","240","","","\u2014","","","\u2014","","","240"],["Total non-owner occupied loans","$","82,879","","","$","102,212","","","$","235,031","","","$","84,176","","","$","63,176","","","$","125,787","","","$","509","","","$","868","","","$","694,638"],["Current period gross charge offs - non-owner occupied","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Multi-family:"],["Risk rating"],["Pass","$","2,701","","","$","61,805","","","$","28,541","","","$","12,694","","","$","7,437","","","$","33,895","","","$","117","","","$","\u2014","","","$","147,190"],["Special mention","\u2014","","","\u2014","","","\u2014","","","\u2014","","","244","","","2,008","","","\u2014","","","\u2014","","","2,252"],["Substandard - Non-IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,233","","","\u2014","","","\u2014","","","1,233"],["Total multi-family loans","$","2,701","","","$","61,805","","","$","28,541","","","$","12,694","","","$","7,681","","","$","37,136","","","$","117","","","$","\u2014","","","$","150,675"],["Current period gross charge offs - multi-family","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Non-owner occupied residential:"],["Risk rating"],["Pass","$","10,075","","","$","20,473","","","$","16,947","","","$","7,974","","","$","6,444","","","$","28,319","","","$","1,130","","","$","\u2014","","","$","91,362"],["Special mention","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","731","","","\u2014","","","\u2014","","","731"],["Substandard - Non-IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","375","","","\u2014","","","\u2014","","","375"],["Substandard - IEL","2","","","\u2014","","","192","","","1,461","","","\u2014","","","917","","","\u2014","","","\u2014","","","2,572"],["Total non-owner occupied residential loans","$","10,077","","","$","20,473","","","$","17,139","","","$","9,435","","","$","6,444","","","$","30,342","","","$","1,130","","","$","\u2014","","","$","95,040"],["Current period gross charge offs - non-owner occupied residential","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","12","","","$","\u2014","","","$","\u2014","","","$","12"],["Acquisition and development:"],["1-4 family residential construction:"],["Risk rating"],["Pass","$","18,820","","","$","5,400","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","24,220"],["Special mention","222","","","\u2014","","","74","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","296"],["Substandard - Non-IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total 1-4 family residential construction loans","$","19,042","","","$","5,400","","","$","74","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","24,516"],["Current period gross charge offs - 1-4 family residential construction","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["(continued)"]]
[[/GREPCENT_TABLE]]

57

Table of Contents

[[GREPCENT_TABLE]]
[["","Term Loans Amortized Cost Basis by Origination Year"],["As of December 31, 2023","2023","","2022","","2021","","2020","","2019","","Prior","","Revolving Loans Amortized Basis","","Revolving Loans Converted to Term","","Total"],["Commercial and land development:"],["Risk rating"],["Pass","$","28,829","","","$","48,453","","","$","9,847","","","$","9,927","","","$","110","","","$","1,774","","","$","6,574","","","$","6,936","","","$","112,450"],["Special mention","\u2014","","","\u2014","","","\u2014","","","1,001","","","\u2014","","","437","","","\u2014","","","\u2014","","","1,438"],["Substandard - Non-IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,361","","","\u2014","","","\u2014","","","1,361"],["Total commercial and land development loans","$","28,829","","","$","48,453","","","$","9,847","","","$","10,928","","","$","110","","","$","3,572","","","$","6,574","","","$","6,936","","","$","115,249"],["Current period gross charge offs - commercial and land development","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Agricultural"],["Risk rating"],["Pass","$","2,339","","","$","4,434","","","$","4,102","","","$","3,204","","","$","397","","","$","10,926","","","$","866","","","$","\u2014","","","$","26,268"],["Special mention","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","357","","","8","","","\u2014","","","365"],["Substandard - Non-IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","214","","","\u2014","","","\u2014","","","214"],["Substandard - IEL","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total agricultural loans","$","2,339","","","$","4,434","","","$","4,102","","","$","3,204","","","$","397","","","$","11,497","","","$","874","","","$","\u2014","","","$","26,847"],["Current period gross charge offs - agricultural","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Commercial and Industrial:"],["Risk rating"],["Pass","$","65,396","","","$","65,236","","","$","63,015","","","$","21,376","","","$","10,356","","","$","9,849","","","$","85,609","","","$","1,522","","","$","322,359"],["Special mention","\u2014","","","4,251","","","4,364","","","11","","","552","","","\u2014","","","2,250","","","\u2014","","","11,428"],["Substandard - Non-IEL","\u2014","","","\u2014","","","4,682","","","\u2014","","","5","","","11","","","1,082","","","\u2014","","","5,780"],["Substandard - IEL","\u2014","","","69","","","\u2014","","","7","","","\u2014","","","454","","","141","","","\u2014","","","671"],["Total commercial and industrial loans","$","65,396","","","$","69,556","","","$","72,061","","","$","21,394","","","$","10,913","","","$","10,314","","","$","89,082","","","$","1,522","","","$","340,238"],["Current period gross charge offs - commercial and industrial","$","\u2014","","","$","161","","","$","106","","","$","\u2014","","","$","\u2014","","","$","8","","","$","473","","","$","\u2014","","","$","748"],["Municipal:"],["Risk rating"],["Pass","$","\u2014","","","$","\u2014","","","$","3,403","","","$","\u2014","","","$","\u2014","","","$","6,409","","","$","\u2014","","","$","\u2014","","","$","9,812"],["Total municipal loans","$","\u2014","","","$","\u2014","","","$","3,403","","","$","\u2014","","","$","\u2014","","","$","6,409","","","$","\u2014","","","$","\u2014","","","$","9,812"],["Current period gross charge offs - municipal","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Residential mortgage:"],["First lien:"],["Payment performance"],["Performing","$","43,641","","","$","71,311","","","$","34,704","","","$","8,056","","","$","7,465","","","$","97,943","","","$","\u2014","","","$","638","","","$","263,758"],["Nonperforming","\u2014","","","\u2014","","","\u2014","","","\u2014","","","120","","","2,361","","","\u2014","","","\u2014","","","2,481"],["Total first lien loans","$","43,641","","","$","71,311","","","$","34,704","","","$","8,056","","","$","7,585","","","$","100,304","","","$","\u2014","","","$","638","","","$","266,239"],["Current period gross charge offs - first lien","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","58","","","$","\u2014","","","$","\u2014","","","$","58"],["Home equity - term:"],["Payment performance"],["Performing","$","607","","","$","732","","","$","90","","","$","426","","","$","115","","","$","3,105","","","$","\u2014","","","$","\u2014","","","$","5,075"],["Nonperforming","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","3","","","\u2014","","","\u2014","","","3"],["Total home equity - term loans","$","607","","","$","732","","","$","90","","","$","426","","","$","115","","","$","3,108","","","$","\u2014","","","$","\u2014","","","$","5,078"],["Current period gross charge offs - home equity - term","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["(continued)"]]
[[/GREPCENT_TABLE]]

58

Table of Contents

[[GREPCENT_TABLE]]
[["","Term Loans Amortized Cost Basis by Origination Year"],["As of December 31, 2023","2023","","2022","","2021","","2020","","2019","","Prior","","Revolving Loans Amortized Basis","","Revolving Loans Converted to Term","","Total"],["Home equity - lines of credit:"],["Payment performance"],["Performing","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","107,967","","","$","77,171","","","$","185,138"],["Nonperforming","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,296","","","16","","","1,312"],["Total residential real estate - home equity - lines of credit loans","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","109,263","","","$","77,187","","","$","186,450"],["Current period gross charge offs - home equity - lines of credit","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","40","","","$","\u2014","","","$","40"],["Installment and other loans:"],["Payment performance"],["Performing","$","758","","","$","413","","","$","332","","","$","106","","","$","670","","","$","947","","","$","6,500","","","$","\u2014","","","$","9,726"],["Nonperforming","3","","","\u2014","","","\u2014","","","\u2014","","","33","","","12","","","\u2014","","","\u2014","","","48"],["Total Installment and other loans","$","761","","","$","413","","","$","332","","","$","106","","","$","703","","","$","959","","","$","6,500","","","$","\u2014","","","$","9,774"],["Current period gross charge offs - installment and other","$","181","","","$","24","","","$","\u2014","","","$","\u2014","","","$","4","","","$","10","","","$","28","","","$","\u2014","","","$","247"]]
[[/GREPCENT_TABLE]]

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 $65.9 million from $24.2 million at December 31, 2023 to $90.1 million at December 31, 2024 primarily due to acquired loans from the Merger of $51.1 million and the impact of downgrades. Classified loans totaled $88.6 million at December 31, 2024, or 2.3% of total loans outstanding, compared to $55.0 million, or 2.4% of total loans outstanding, at December 31, 2023.

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 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 $64.4 million at December 31, 2024, an increase of $35.1 million, compared to $29.3 million at December 31, 2023 due primarily to acquired loans from the Merger of $35.7 million. The Substandard-IEL category decreased by $1.4 million from $25.7 million at December 31, 2023 to $24.3 million at December 31, 2024 primarily due to acquired loans from the Merger of $12.9 million and the impact of downgrades, partially offset by repayments including the payoff of loans to three commercial real estate clients with an outstanding balance of $16.4 million and a residential mortgage loan of $1.6 million at December 31, 2023.

59

Table of Contents

 The following table summarizes activity in the ACL, including the impact of adopting CECL, for the years ended December 31, 2024 and 2023, and the activity in the ALL for years ended December 31, 2022, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","Commercial","","Consumer"],["","CommercialReal Estate","","AcquisitionandDevelopment","","Agricultural","","CommercialandIndustrial","","Municipal","","Total","","ResidentialMortgage","","Installmentand Other","","Total","","Unallocated","","Total"],["December 31, 2024"],["Balance, beginning of year","$","17,873","","","$","2,241","","","$","437","","","$","5,369","","","$","157","","","$","26,077","","","$","2,424","","","$","201","","","$","2,625","","","$","\u2014","","","$","28,702"],["Allowance established for acquired PCD Loans","1,321","","","2,535","","","2","","","1,947","","","\u2014","","","5,805","","","105","","","10","","","115","","","\u2014","","","5,920"],["Provision for credit losses","10,963","","","1,809","","","(292)","","","1,467","","","163","","","14,110","","","2,696","","","602","","","3,298","","","\u2014","","","17,408"],["Charge-offs","(656)","","","(23)","","","(38)","","","(2,977)","","","\u2014","","","(3,694)","","","(65)","","","(307)","","","(372)","","","\u2014","","","(4,066)"],["Recoveries","50","","","39","","","1","","","384","","","\u2014","","","474","","","80","","","171","","","251","","","\u2014","","","725"],["Balance, end of year","$","29,551","","","$","6,601","","","$","110","","","$","6,190","","","$","320","","","$","42,772","","","$","5,240","","","$","677","","","$","5,917","","","$","\u2014","","","$","48,689"],["December 31, 2023"],["Balance, beginning of year","$","13,558","","","$","3,214","","","$","218","","","$","4,287","","","$","24","","","$","21,301","","","$","3,444","","","$","188","","","$","3,632","","","$","245","","","$","25,178"],["Impact of adopting ASC 326 - CECL","2,857","","","(214)","","","200","","","728","","","169","","","3,740","","","(1,121)","","","49","","","(1,072)","","","(245)","","","2,423"],["Provision for loan losses","1,360","","","(764)","","","19","","","1,004","","","(36)","","","1,583","","","6","","","93","","","99","","","\u2014","","","1,682"],["Charge-offs","(12)","","","\u2014","","","\u2014","","","(748)","","","\u2014","","","(760)","","","(98)","","","(247)","","","(345)","","","\u2014","","","(1,105)"],["Recoveries","110","","","5","","","\u2014","","","98","","","\u2014","","","213","","","193","","","118","","","311","","","\u2014","","","524"],["Balance, end of year","$","17,873","","","$","2,241","","","$","437","","","$","5,369","","","$","157","","","$","26,077","","","$","2,424","","","$","201","","","$","2,625","","","$","\u2014","","","$","28,702"],["December 31, 2022"],["Balance, beginning of year","$","12,037","","","$","2,062","","","$","197","","","$","3,617","","","$","30","","","$","17,943","","","$","2,785","","","$","215","","","$","3,000","","","$","237","","","$","21,180"],["Provision for loan losses","1,489","","","1,142","","","21","","","619","","","(6)","","","3,265","","","669","","","218","","","887","","","8","","","4,160"],["Charge-offs","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(50)","","","(360)","","","(410)","","","\u2014","","","(410)"],["Recoveries","32","","","10","","","\u2014","","","51","","","\u2014","","","93","","","40","","","115","","","155","","","\u2014","","","248"],["Balance, end of year","$","13,558","","","$","3,214","","","$","218","","","$","4,287","","","$","24","","","$","21,301","","","$","3,444","","","$","188","","","$","3,632","","","$","245","","","$","25,178"],["December 31, 2021"],["Balance, beginning of year","$","11,151","","","$","1,114","","","$","197","","","$","3,745","","","$","40","","","$","16,247","","","$","3,362","","","$","324","","","$","3,686","","","$","218","","","$","20,151"],["Provision for loan losses","710","","","938","","","\u2014","","","23","","","(10)","","","1,661","","","(517)","","","(73)","","","(590)","","","19","","","1,090"],["Charge-offs","(293)","","","\u2014","","","\u2014","","","(663)","","","\u2014","","","(956)","","","(92)","","","(70)","","","(162)","","","\u2014","","","(1,118)"],["Recoveries","469","","","10","","","\u2014","","","512","","","\u2014","","","991","","","32","","","34","","","66","","","\u2014","","","1,057"],["Balance, end of year","$","12,037","","","$","2,062","","","$","197","","","$","3,617","","","$","30","","","$","17,943","","","$","2,785","","","$","215","","","$","3,000","","","$","237","","","$","21,180"],["(continued)"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Commercial","","Consumer"],["","CommercialReal Estate","","AcquisitionandDevelopment","","Agricultural","","CommercialandIndustrial","","Municipal","","Total","","ResidentialMortgage","","Installmentand Other","","Total","","Unallocated","","Total"],["December 31, 2020"],["Balance, beginning of year","$","7,634","","","$","959","","","$","142","","","$","2,214","","","$","100","","","$","11,049","","","$","3,147","","","$","319","","","$","3,466","","","$","140","","","$","14,655"],["Provision for loan losses","2,745","","","146","","","55","","","2,041","","","(60)","","","4,927","","","203","","","117","","","320","","","78","","","5,325"],["Charge-offs","(3)","","","\u2014","","","\u2014","","","(748)","","","\u2014","","","(751)","","","(114)","","","(146)","","","(260)","","","\u2014","","","(1,011)"],["Recoveries","775","","","9","","","\u2014","","","238","","","\u2014","","","1,022","","","126","","","34","","","160","","","\u2014","","","1,182"],["Balance, end of year","$","11,151","","","$","1,114","","","$","197","","","$","3,745","","","$","40","","","$","16,247","","","$","3,362","","","$","324","","","$","3,686","","","$","218","","","$","20,151"]]
[[/GREPCENT_TABLE]]

The following table summarizes asset quality ratios for years ended December 31, 2024, 2023, 2022, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022","","2021","","2020"],["Provision for credit losses to net charge-offs (recoveries)","521","%","","290","%","","2,568","%","","1,787","%","","(3,114)","%"],["ACL to total loans ratio","1.24","%","","1.25","%","","1.17","%","","1.07","%","","1.02","%"]]
[[/GREPCENT_TABLE]]

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The following table details net charge-offs (recoveries) to average loans outstanding by loan category for the years ended December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["Commercial real estate:"],["Net charge-offs (recoveries)","$","606","","","$","(98)","","","$","(32)"],["Average loans for the year","$","1,751,519","","","$","1,233,720","","","$","1,069,392"],["Net recoveries/average loans","0.03","%","","(0.01)","%","","\u2014","%"],["Acquisition and development:"],["Net recoveries","(16)","","","(5)","","","(10)"],["Average loans for the year","225,091","","","172,239","","","147,364"],["Net recoveries/average loans","(0.01)","%","","\u2014","%","","(0.01)","%"],["Agricultural"],["Net charge-offs","37","","","\u2014","","","\u2014"],["Average loans for the year","78,272","","","26,285","","","25,989"],["Net charge-offs (recoveries)/average loans","0.05","%","","\u2014","%","","\u2014","%"],["Commercial and industrial:"],["Net charge-offs (recoveries)","2,593","","","650","","","(51)"],["Average loans for the year","405,235","","","345,643","","","383,006"],["Net charge-offs (recoveries)/average loans","0.64","%","","0.19","%","","(0.01)","%"],["Municipal:"],["Net charge-offs (recoveries)","\u2014","","","\u2014","","","\u2014"],["Average loans for the year","20,348","","","10,857","","","13,486"],["Net charge-offs (recoveries)/average loans","\u2014","%","","\u2014","%","","\u2014","%"],["Residential mortgage:"],["Net (recoveries) charge-offs","(15)","","","(95)","","","10"],["Average loans for the year","662,994","","","432,108","","","389,048"],["Net (recoveries) charge-offs /average loans","\u2014","%","","(0.02)","%","","\u2014","%"],["Installment and other loans:"],["Net charge-offs","136","","","129","","","245"],["Average loans for the year","14,413","","","10,808","","","14,732"],["Net charge-offs/average loans","0.94","%","","1.19","%","","1.66","%"],["Total loans:"],["Net charge-offs","$","3,341","","","$","581","","","$","162"],["Average loans for the year","$","3,157,872","","","$","2,231,660","","","$","2,043,017"],["Net charge-offs/average loans","0.11","%","","0.03","%","","0.01","%"]]
[[/GREPCENT_TABLE]]

(1) Average loans exclude loans held for sale.

The ACL totaled $48.7 million at December 31, 2024, a $20.0 million increase from $28.7 million at December 31, 2023, 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, other provision expense of $1.9 million and net charge-offs of $3.3 million for 2024. At December 31, 2024, the ACL as a percentage of the total loan portfolio was 1.24% compared to 1.25% at December 31, 2023 and 1.17% at December 31, 2022.

In 2024, the provision expense recorded was due to commercial loan growth offset by changes to qualitative factors during 2024; specifically the Economic Conditions qualitative factor was reduced and the Other External Factors qualitative factor is no longer assigned to the impacted loan segments. These changes were based on improved economic factors, as well as concerns subsiding from the prior year about liquidity conditions within the banking industry. The Economic Conditions qualitative factor for the residential mortgage loan segment was removed and there was a decrease in the Collateral Valuation

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Trends qualitative factor from a moderate to low level in the ACL model for the residential mortgage and installment and other loan segments. These changes were based on the stabilization in real estate collateral valuation, housing demand and overall portfolio performance. In 2023, the provision for credit losses was driven primarily by increases in commercial loans, the increase in the loss reserve rates under the CECL methodology and an increase in the Delinquency and Classified Loan Trends qualitative factor for the commercial and industrial and owner-occupied commercial real estate loans. During 2023, the Delinquency and Classified Loan Trends qualitative factor was increased for the commercial & industrial and owner-occupied commercial real estate loan classes, which was based on a trend of increases in loans downgraded to the special mention or classified risk rating. All other qualitative factors were unchanged from levels established at the adoption of CECL.

For the years ended December 31, 2024 and 2023, gross recoveries of $725 thousand and $524 thousand, respectively, were credited to the ACL. These recoveries on previously charged-off relationships are the result of successful loan monitoring and workout solutions. Recoveries are difficult to predict, and any additional recoveries that the Company receives will be used to replenish the ACL. Recoveries favorably impact historical charge-off factors, and contribute to changes in the quantitative and qualitative factors used in our allowance adequacy analysis. However, as the loan portfolio continues to grow, future provisions for credit losses may result.

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 reserve allocations on individually evaluated loans noted above, 11 loans, with aggregate outstanding principal balances of $4.4 million, have had cumulative partial charge-offs to the ACL totaling $1.6 million at December 31, 2024. As updated appraisals were received on collateral-dependent loans, partial charge-offs were taken to the extent the loans’ principal balance exceeded their fair value.

The following table shows the allocation of the ACL by loan class, as well as the percent of each loan class in relation to the total loan balance at December 31, 2024 and 2023, and the allocation of the ALL by loan class, as well as the percent of each loan class in relation to the total loan balance at December 31, 2022, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022","","2021","","2020"],["","ACL Amount by Loan Class","","% ofLoanType toTotalLoans","","ACL Amount by Loan Class","","% ofLoanType toTotalLoans","","ALL Amount by Loan Class","","% ofLoanType toTotalLoans","","ALL Amount by Loan Class","","% ofLoanType toTotalLoans","","ALL Amount by Loan Class","","% ofLoanType toTotalLoans"],["Commercial real estate:"],["Owner-occupied","$","8,375","","","16","%","","$","5,090","","","16","%","","$","3,618","","","15","%","","$","2,752","","","12","%","","$","2,072","","","9","%"],["Non-owner occupied","17,381","","","30","%","","9,587","","","30","%","","7,473","","","28","%","","7,244","","","28","%","","6,049","","","21","%"],["Multi-family","2,898","","","7","%","","2,540","","","7","%","","1,355","","","6","%","","870","","","5","%","","1,846","","","6","%"],["Non-owner occupied residential","897","","","5","%","","656","","","4","%","","1,112","","","5","%","","1,171","","","5","%","","1,184","","","6","%"],["Acquisition and development:"],["1-4 family residential construction","717","","","1","%","","397","","","1","%","","376","","","1","%","","188","","","1","%","","144","","","0","%"],["Commercial and land development","5,884","","","6","%","","1,844","","","5","%","","2,838","","","7","%","","1,874","","","5","%","","970","","","3","%"],["Agricultural","110","","","3","%","","437","","","1","%","","218","","","1","%","","197","","","1","%","","197","","","1","%"],["Commercial and industrial","6,190","","","11","%","","5,369","","","15","%","","4,287","","","16","%","","3,617","","","23","%","","3,745","","","31","%"],["Municipal","320","","","1","%","","157","","","\u2014","%","","24","","","1","%","","30","","","1","%","","40","","","1","%"],["Residential mortgage:"],["First lien","4,013","","","12","%","","1,580","","","12","%","","1,600","","","11","%","","1,188","","","10","%","","1,627","","","12","%"],["Home equity - term","56","","","0","%","","23","","","0","%","","32","","","0","%","","31","","","\u2014","%","","63","","","1","%"],["Home equity - lines of credit","1,171","","","8","%","","821","","","8","%","","1,812","","","8","%","","1,566","","","8","%","","1,672","","","8","%"],["Installment and other loans","677","","","0","%","","201","","","\u2014","%","","188","","","1","%","","215","","","1","%","","324","","","1","%"],["Unallocated","\u2014","","","","","\u2014","","","","","245","","","","","237","","","","","218"],["","$","48,689","","","100","%","","$","28,702","","","100","%","","$","25,178","","","100","%","","$","21,180","","","100","%","","$","20,151","","","100","%"]]
[[/GREPCENT_TABLE]]

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The information presented in the table below is not required for periods subsequent to the adoption of CECL. The following table summarizes the ALL allocation for loans individually and collectively evaluated for impairment by loan segment at December 31, 2022. Accruing PCI loans are excluded from loans individually evaluated for impairment.

[[GREPCENT_TABLE]]
[["","Commercial","","Consumer"],["","CommercialReal Estate","","AcquisitionandDevelopment","","CommercialandIndustrial","","Municipal","","Total","","ResidentialMortgage","","Installmentand Other","","Total","","Unallocated","","Total"],["December 31, 2022"],["Loans allocated by:"],["Individually evaluated for impairment","$","2,848","","","$","15,426","","","$","31","","","$","\u2014","","","$","18,305","","","$","2,920","","","$","40","","","$","2,960","","","$","\u2014","","","$","21,265"],["Collectively evaluated for impairment","1,164,401","","","167,950","","","357,743","","","12,173","","","1,702,267","","","415,675","","","12,025","","","427,700","","","\u2014","","","2,129,967"],["","$","1,167,249","","","$","183,376","","","$","357,774","","","$","12,173","","","$","1,720,572","","","$","418,595","","","$","12,065","","","$","430,660","","","$","\u2014","","","$","2,151,232"],["Allowance for credit losses allocated by:"],["Individually evaluated for impairment","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","28","","","$","\u2014","","","$","28","","","$","\u2014","","","$","28"],["Collectively evaluated for impairment","13,558","","","3,214","","","4,505","","","24","","","21,301","","","3,416","","","188","","","3,604","","","245","","","25,150"],["","$","13,558","","","$","3,214","","","$","4,505","","","$","24","","","$","21,301","","","$","3,444","","","$","188","","","$","3,632","","","$","245","","","$","25,178"]]
[[/GREPCENT_TABLE]]

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 II, Item 8, "Financial Statements and Supplementary Data." 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 grew by $2.1 billion to $4.6 billion at December 31, 2024 from $2.6 billion at December 31, 2023, which included $1.9 billion in deposits assumed from the Merger. During 2024, time deposits increased by $586.4 million from $406.5 million at December 31, 2023 to $992.9 million at December 31, 2024, which included $536.0 million of time deposits assumed in the Merger. The remaining increase is due to the success of promotional offerings of up to 18-month terms.

Total deposits grew by $82.6 million to $2.6 billion at December 31, 2023 from $2.5 billion at December 31, 2022. During 2023, time deposits increased by $155.5 million from $251.0 million at December 31, 2022 to $406.5 million at December 31, 2023 due to competitive pricing, including promotional offerings of up to 18-month terms. In addition, money market deposits and interest-bearing demand deposits increased by $36.5 million and $13.5 million, respectively, which increases were partially offset by decreases of $71.0 million in noninterest-bearing demand deposits and $51.9 million in savings deposits. The declines in noninterest-bearing deposit and savings deposits were primarily due to clients shifting to higher-yielding products within the Bank. During 2023, the Bank was successful at retaining many of those deposits and driving inflows from new clients as well.

The following table presents average deposits for years ended December 31, 2024, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["Non-interest bearing demand deposits","$","625,714","","","$","470,349","","","$","557,142"],["Interest-bearing demand deposits (1)","1,147,124","","","1,525,204","","","1,414,177"],["Savings deposits (1)","1,153,097","","","198,157","","","232,660"],["Time deposits","732,446","","","338,170","","","273,276"],["Total deposits","$","3,658,381","","","$","2,531,880","","","$","2,477,255"]]
[[/GREPCENT_TABLE]]

(1) Changes between deposit type balances are due to operational updates for deposit sweeps for the year ended December 31, 2024.

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Management evaluates its utilization of brokered deposits, taking into consideration the Bank's policies, the interest rate curve and regulatory views on non-core funding sources, and balances this funding source with its funding needs based on growth initiatives. The Company anticipates that loan growth will be funded through deposit generation by offering competitive rates, as well as reliance on FHLB borrowings. The Bank's brokered money market deposit balances were $8.1 million and $20.1 million at December 31, 2024 and 2023, respectively. The Bank's brokered time deposit balances, including the average balance, remained at zero at December 31, 2024 and 2023.

The Company had time deposits that met or exceeded the FDIC insurance limit of $250,000 of $170.1 million and $76.4 million at December 31, 2024 and 2023, respectively. This increase is primarily due to the impact from the Merger. At December 31, 2024, the scheduled maturities of time deposits that met or exceeded the FDIC insurance limit or otherwise uninsured were as follows:

[[GREPCENT_TABLE]]
[["Three months or less","","$","55,640"],["Over three months through six months","","51,240"],["Over six months through one year","","60,191"],["Over one year","","3,040"],["Total","","$","170,111"]]
[[/GREPCENT_TABLE]]

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 and other borrowings decreased by $22.1 million to $115.4 million at December 31, 2024 compared to $137.5 million at December 31, 2023. The Bank repaid overnight borrowings during the first quarter of 2024 based on available liquidity from deposits.

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 a spread adjustment of 0.26161% and a margin of 3.16% through maturity. At December 31, 2024, the interest rate on the Company's subordinated debt was 8.03%.

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.

For additional information about borrowings, refer to Note 13, Short-Term Borrowings, Note 14, Long-Term Debt, and Note 15, Subordinated Notes, to the Consolidated Financial Statements appearing in Part II, Item 8, "Financial Statements and Supplementary Data."

Shareholders' Equity

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 maintaining a “well-capitalized” position of regulatory strength.

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Shareholders’ equity totaled $516.7 million at December 31, 2024, an increase of $251.6 million from $265.1 million at December 31, 2023. The increase in 2024 was primarily attributable to the issuance of common stock of $233.4 million to acquire Codorus Valley, net income of $22.1 million, the issuance of treasury shares for share-based compensation which reduced treasury stock by $7.2 million, and other comprehensive income of $2.2 million, partially offset by dividends paid of $13.2 million. Other comprehensive income generated during 2024 was due to after-tax net unrealized gains on AFS securities and cash flow hedges primarily caused by a decline in treasury rates and contracting credit spreads during 2024. For the year ended December 31, 2024, total comprehensive income was $24.2 million, a decrease of $22.9 million, from total comprehensive income of $47.1 million for the same period in 2023. This decrease was primarily due to a decrease in net income of $13.6 million and a reduction in unrealized gains on AFS securities, net of taxes, of $10.6 million .

At December 31, 2024, book value per common share was $26.65 per share compared to $24.98 per share at December 31, 2023. Tangible book value per share decreased from $23.03 per share at December 31, 2023 to $21.19 per share at December 31, 2024, primarily as a result of the common stock issued in the Merger and purchase accounting marks recorded through shareholders' equity as a result of the Merger. See “Supplemental Reporting of Non-GAAP Measures.”

In September 2015, the Board of Directors authorized a stock repurchase program, which is more fully described in Item 5 under Issuer Purchases of Equity Securities. Subsequently on April 19, 2021, the Board of Directors authorized the additional future repurchase of up to 562,000 shares of its outstanding common stock. The maximum number of shares that may yet be purchased under the plan is 28,467 shares at December 31, 2024.

The following table includes additional information for shareholders’ equity for the years ended December 31, 2024, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["Average shareholders\u2019 equity","$","392,280","","","$","243,334","","","$","244,281"],["Net income","22,050","","","35,663","","","22,037"],["Cash dividends paid","13,177","","","8,485","","","8,264"],["Average equity to average assets ratio","9.08","%","","8.11","%","","8.59","%"],["Dividend payout ratio","57.57","%","","23.19","%","","36.39","%"],["Return on average equity","5.62","%","","14.66","%","","9.02","%"]]
[[/GREPCENT_TABLE]]

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 and regulatory requirements. The Company’s capital management strategies have been developed to provide attractive rates of returns to its shareholders, while maintaining a “well capitalized” position of regulatory strength.

The Parent Company and the Bank both have met all capital adequacy requirements to which they are subject at December 31, 2024 and 2023. At December 31, 2024 and 2023, the Parent Company and the Bank were considered well capitalized under applicable banking regulations.

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 December 31, 2024 and 2023, the Bank was considered well-capitalized under applicable banking regulations. Under 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.

In addition to the minimum capital ratio requirement and minimum capital ratio to be well capitalized presented in the tables in Note 17, we must maintain a capital conservation buffer as noted in Item 1 - Business under the topic Basel III Capital Rules. At December 31, 2024, the Parent Company's and the Bank's capital conservation buffer, based on the most restrictive capital ratio, was 4.2% and 4.4%, respectively, which are above the regulatory requirement of 2.50% at December 31, 2024.

Tables presenting the Parent Company’s and the Bank’s capital amounts and ratios at December 31, 2024 and 2023 are included in Note 17, Shareholders' Equity and Regulatory Capital, to the Consolidated Financial Statements appearing in Part II, Item 8, "Financial Statements and Supplementary Data."

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Liquidity and Rate Sensitivity

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 December 31, 2024, cash and cash equivalents totaled $248.9 million compared with $65.2 million at December 31, 2023, which included net income of $22.1 million, an increase in deposits excluding the assumption of deposits from the Merger totaling $116.9 million, cash received from the Merger of $45.3 million and a net increase in investment securities excluding the impact from the Merger of $10.7 million, partially offset by the decrease in borrowings of $14.4 million. Unencumbered investment securities totaled $160.5 million at December 31, 2024 compared to $73.8 million at December 31, 2023, which the increase is due to the acquired investment securities from the Merger and the funds required to collateralize deposits. At December 31, 2024, the Company had $15.9 million of investment securities pledged at the FRB Discount Window with no associated borrowings outstanding compared to $17.4 million at December 31, 2023. The Company's maximum borrowing capacity from the FHLB of Pittsburgh was $1.9 billion, of which $118.2 million in advances and letters of credit were outstanding at December 31, 2024 compared to a maximum borrowing capacity of $1.1 billion and $138.7 million in advances and letters of credit outstanding at December 31, 2023. The Company’s ability to borrow from the FHLB is dependent on having sufficient qualifying collateral, which generally consists of mortgage loans. In addition, the Company had $20.0 million in available unsecured lines of credit with other banks at both December 31, 2024 and 2023. The Bank tested its various sources of funding during 2024 to ensure accessibility.

At December 31, 2024, outstanding loan commitments totaled $1.6 billion, which included $343.9 million in undisbursed loans, $538.2 million in unused home equity lines of credit, $706.8 million in commercial lines of credit, and $42.7 million in performance standby letters of credit. Time deposits due within one year after December 31, 2024 totaled $944.5 million, or 95% of time deposits, which includes both clients with longer-term time deposits nearing maturity and the more recent time deposit offerings with terms of 18 months or less. If these maturing deposits do not remain with the Company, it may be required to seek other sources of funds, including other time deposits and lines of credit. Due to current market conditions, the Company has paid higher rates on such deposits during 2024 than it paid in 2023. The Company has the ability to attract and retain deposits by adjusting the interest rates it offers.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders and interest on its borrowings. The Company also has repurchased shares of its common stock. The Company’s primary source of income is dividends received from the Bank. Restrictions on the Bank’s ability to dividend funds to the Company are described in Note 17, Shareholders' Equity and Regulatory Capital, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data."

Interest Rate Sensitivity. Interest rate sensitivity management requires the maintenance of an appropriate balance between interest sensitive assets and liabilities. Management, through its asset/liability management process, attempts to manage the level of repricing and maturity mismatch so that fluctuations in net interest income are maintained within policy limits in current and expected market conditions. For further discussion, see Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk."

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Contractual Obligations

The Company enters into contractual obligations in the normal course of business to fund loan growth, for asset/liability management purposes, to meet required capital needs and for other corporate purposes. The following table presents significant fixed and determinable contractual obligations of principal by payment date at December 31, 2024.

Further discussion of the nature of each obligation is in the referenced Note to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data" referenced in the following table.

[[GREPCENT_TABLE]]
[["","","","Payments Due"],["","NoteReference","","Less than 1year","","2-3 years","","4-5 years","","More than5 years","","Total"],["Time deposits","11","","$","944,461","","","$","41,349","","","$","5,875","","","$","1,207","","","$","992,892"],["Short-term borrowings","13","","100,863","","","\u2014","","","\u2014","","","\u2014","","","100,863"],["FHLB fixed rate advances","14","","15,000","","","\u2014","","","25,000","","","\u2014","","","40,000"],["Financing lease liabilities","14","","79","","","160","","","160","","","13","","","412"],["Subordinated notes","15","","\u2014","","","\u2014","","","32,500","","","31,000","","","63,500"],["Trust preferred debt","15","","\u2014","","","\u2014","","","\u2014","","","10,310","","","10,310"],["Operating lease obligations","6","","1,583","","","3,264","","","2,691","","","13,662","","","21,200"],["Total","","","$","1,061,986","","","$","44,773","","","$","66,226","","","$","56,192","","","$","1,229,177"]]
[[/GREPCENT_TABLE]]

The contractual obligations table above does not include off-balance sheet commitments to extend credit that are detailed in the following section. These commitments generally have fixed expiration dates and many will expire without being drawn upon, therefore the total commitment does not necessarily represent future cash requirements and is excluded from the contractual obligations table.

Off-Balance Sheet Arrangements

The Company is 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.

The following table details significant commitments at December 31, 2024:

[[GREPCENT_TABLE]]
[["","Contract or NotionalAmount"],["Commitments to fund:"],["Home equity lines of credit","$","538,204"],["1-4 family residential construction loans","107,475"],["Commercial real estate, construction and land development loans","236,445"],["Commercial, industrial and other loans","706,783"],["Standby letters of credit","42,691"]]
[[/GREPCENT_TABLE]]

A discussion of the nature, business purpose, and guarantees that result from the Company’s off-balance sheet arrangements is included in Note 19, Financial Instruments with Off-Balance Sheet Risk, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data."

Recently Adopted and Recently Issued Accounting Standards

Recently adopted and recently issued accounting standards are described in Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data."

Supplemental Reporting of Non-GAAP Measures

Management believes providing certain “non-GAAP” information will assist investors in their understanding of the effect on recent financial results from non-recurring charges.

As a result of acquisitions, the Company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $115.9 million and $21.1 million at December 31, 2024 and 2023, respectively. During the year ended

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December 31, 2024 and 2023, the Company incurred merger-related expenses of $22.7 million and $1.1 million, respectively, in connection with the Merger. In addition, the Company incurred $20.7 million in other non-recurring expenses during the year ended December 31, 2024. During the year ended December 31, 2022, the Company incurred $3.2 million and $13.0 million in restructuring charges and a provision for legal settlement, respectively.

Tangible book value per common share and the impact of the merger-related expenses, restructuring charge and legal settlement 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 7, 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.

The decrease in tangible book value per share (non-GAAP) in 2024 compared to 2023 was primarily due to the goodwill and other intangibles from the Merger, partially offset by the increase in shareholders' equity from the common stock issued to acquire Codorus Valley of $233.4 million.

The following tables present the computation of each non-GAAP based measure shown together with its most directly comparable GAAP-based measure.

[[GREPCENT_TABLE]]
[["(Dollars, except per share amounts, and shares in thousands)","2024","","2023","","2022"],["Tangible book value per common share"],["Shareholders' equity (most directly comparable GAAP-based measure)","$","516,682","","","$","265,056","","","$","228,896"],["Less: Goodwill","68,106","","","18,724","","","18,724"],["Other intangible assets","47,765","","","2,414","","","3,078"],["Related tax effect","(10,031)","","","(507)","","","(646)"],["Tangible common equity (non-GAAP)","$","410,842","","","$","244,425","","","$","207,740"],["Common shares outstanding","19,390","","","10,612","","","10,671"],["Book value per share (most directly comparable GAAP based measure)","$","26.65","","","$","24.98","","","$","21.45"],["Intangible assets per share","5.46","","","1.95","","","1.98"],["Tangible book value per share (non-GAAP)","$","21.19","","","$","23.03","","","$","19.47"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Adjusted Net Income and Adjusted Diluted Earnings Per Share","December 31,"],["(Dollars, except per share amounts, and shares in thousands)","2024","","2023","","2022"],["Net income (most directly comparable GAAP based measure)","$","22,050","","","$","35,663","","","$","22,037"],["Plus: Merger-related expenses","22,671","","","1,059","","","\u2014"],["Plus: Executive retirement expenses","4,793","","","\u2014","","","\u2014"],["Plus: Provision for credit losses on non-PCD loans","15,504","","","\u2014","","","\u2014"],["Plus: Restructuring charges","\u2014","","","\u2014","","","3,155"],["Plus: Provision for legal settlement","478","","","\u2014","","","13,000"],["Total non-recurring expenses","43,446","","","1,059","","","16,155"],["Less: Related tax effect","(9,442)","","","(79)","","","(3,393)"],["Adjusted net income (non-GAAP)","$","56,054","","","$","36,643","","","$","34,799"],["Weighted average shares - diluted (most directly comparable GAAP-based measure)","14,914","","10,435","","10,706"],["Diluted earnings per share (most directly comparable GAAP-based measure)","1.48","","3.42","","2.06"],["Weighted average shares - diluted (non-GAAP)","14,914","","10,435","","10,706"],["Diluted earnings per share, adjusted (non-GAAP)","$","3.76","","","$","3.51","","","$","3.25"]]
[[/GREPCENT_TABLE]]