CITIZENS FINANCIAL SERVICES INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2025
Or
EXCHANGE ACT OF 1934
For the transition period from_____________________ to ___________________
Commission file number
0-13222
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (
570
)
662‑2121
N/A
(Former Name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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The
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Title of Each Class
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Trading
Symbol (s)
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Name of Each Exchange
on Which Registered
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Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
☐
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Non-accelerated filer
☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
The number of outstanding shares of the Registrant’s Common Stock, as of
May 1
,
2025, was
4,759,672
.
Citizens Financial Services, Inc.
Form 10-Q
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PAGE
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Part I
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements (unaudited):
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1
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2
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| 4 | ||
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5
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6-29
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Item 2.
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29-51
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Item 3.
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51
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Item 4.
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51
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Part II
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OTHER INFORMATION
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Item 1.
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52
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Item 1A.
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52
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Item 2.
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52 | |
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Item 3.
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52 | |
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Item 4.
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52
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Item 5.
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53
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Item 6.
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53
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54
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CITIZENS FINANCIAL SERVICES, INC.
(UNAUDITED)
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(in thousands except share data)
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March 31,
2025
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December 31,
2024
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ASSETS:
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Cash and due from banks:
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Noninterest-bearing
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$
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$
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Interest-bearing
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Total cash and cash equivalents
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Interest bearing time deposits with other banks
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Equity securities
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Available-for-sale securities
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Loans held for sale
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Loans (net of allowance for credit losses:
2025
$
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Premises and equipment
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Accrued interest receivable
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Goodwill
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Bank owned life insurance
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Other intangibles
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Fair value of derivative instruments
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Deferred tax asset
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Other assets
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TOTAL ASSETS
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$
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$
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LIABILITIES:
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Deposits:
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Noninterest-bearing
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$
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$
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Interest-bearing
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Total deposits
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Borrowed funds
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Accrued interest payable
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Fair value of derivative instruments - liability
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Other liabilities
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TOTAL LIABILITIES
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STOCKHOLDERS’ EQUITY:
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||||||||
| Preferred Stock | ||||||||
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$
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| Common stock | ||||||||
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$
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Additional paid-in capital
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Retained earnings
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Accumulated other comprehensive loss
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(
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)
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(
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)
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Treasury stock, at cost:
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(
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)
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(
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)
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TOTAL STOCKHOLDERS’ EQUITY
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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$
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$ |
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||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CITIZENS FINANCIAL SERVICES, INC.
(UNAUDITED)
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Three Months Ended
March 31,
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(in thousands, except share and per share data)
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2025
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2024
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INTEREST INCOME:
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Interest and fees on loans
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$
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$
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Interest-bearing deposits with banks
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Investment securities:
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Taxable
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Nontaxable
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Dividends
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TOTAL INTEREST INCOME
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INTEREST EXPENSE:
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Deposits
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Borrowed funds
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TOTAL INTEREST EXPENSE
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NET INTEREST INCOME
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Provision for credit losses
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NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
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NON-INTEREST INCOME:
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Service charges
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Trust
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Brokerage and insurance
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Gains on loans sold
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Equity security (losses) gains, net
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(
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)
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Gain on sale of Braavo division
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Earnings on bank owned life insurance
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Other
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TOTAL NON-INTEREST INCOME
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NON-INTEREST EXPENSES:
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Salaries and employee benefits
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Occupancy
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Furniture and equipment
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Professional fees
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FDIC insurance
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Pennsylvania shares tax
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Amortization of intangibles
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Software expenses
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ORE expenses (recovery)
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(
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Other
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TOTAL NON-INTEREST EXPENSES
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Income before provision for income taxes
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Provision for income taxes
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NET INCOME
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$
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$
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PER COMMON SHARE DATA:
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Net Income - Basic
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$
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$
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Net Income - Diluted
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$
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$
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Cash Dividends Paid
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$
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$
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Number of shares used in computation - basic
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Number of shares used in computation - diluted
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
CITIZENS FINANCIAL SERVICES, INC.
(UNAUDITED)
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Three Months Ended
March 31,
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|||||||
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(in thousands)
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2025
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2024
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Net income
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$
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$
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Other comprehensive income (loss):
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Unrealized gains (losses) on available for sale securities
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(
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)
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Income tax effect
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(
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Change in unrecognized pension cost
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Income tax effect
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Unrealized gain (loss) on interest rate swaps
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(
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)
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Income tax effect
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(
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Other comprehensive income (loss), net of tax
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(
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Comprehensive income
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$
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$
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
CITIZENS FINANCIAL SERVICES, INC.
(UNAUDITED)
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Common Stock
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Additional
Paid-in
Capital
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Retained
Earnings
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Accumulated
Other
Comprehensive Loss |
Treasury
Stock
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Total
Stockholders’
Equity
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||||||||||||||||||||||
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(in thousands, except share data)
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Shares | Amount | ||||||||||||||||||||||||||
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Balance,
December 31
,
2024
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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Comprehensive income:
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Net income
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Net other comprehensive income
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Issuance of Common stock for ESPP
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Purchase of treasury stock (
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(
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) |
(
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Restricted stock, executive and Board of Director awards (
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| Restricted stock vesting |
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Forfeited restricted stock (
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(
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Cash dividends, $
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(
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(
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||||||||||||||||||||||||
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Balance,
March 31
,
2025
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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Balance,
December 31
, 2023
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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Comprehensive income:
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Net income
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||||||||||||||||||||||||||
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Net other comprehensive loss
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(
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)
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(
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)
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||||||||||||||||||||||||
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Purchase of treasury stock (
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(
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) |
(
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) | ||||||||||||||||||||||||
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Restricted
stock, executive and Board of Director awards (
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(
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) |
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| Restricted stock vesting |
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Cash dividends, $
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(
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)
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(
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)
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Balance,
March 31
,
2024
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
CITIZENS FINANCIAL SERVICES, INC.
(UNAUDITED)
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Three Months Ended
March 31,
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(in thousands)
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2025
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2024
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income
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$
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$
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Adjustments to reconcile net income to net cash provided by operating activities:
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Provision for credit losses
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Depreciation and amortization
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Amortization and accretion of loans and other assets
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(
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)
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(
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)
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Amortization and accretion of investment securities
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Deferred income taxes
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(
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)
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Investment securities losses (gains), net
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(
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)
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Earnings on bank owned life insurance
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(
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)
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(
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)
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Vesting of restricted stock
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Originations of loans held for sale
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(
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)
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(
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)
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Proceeds from sales of loans held for sale
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Realized gains on loans sold
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(
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)
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(
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)
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Realized gains on sale of Braavo
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(
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) | |||||
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(Decrease) increase in accrued interest receivable
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(
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)
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Decrease in accrued interest payable
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(
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)
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(
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)
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Other, net
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Net cash provided by operating activities
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Available-for-sale securities:
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Proceeds from maturity and principal repayments
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||||||
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Purchase of securities
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(
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)
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(
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)
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Proceeds from sale of equity securities
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| Proceeds from life insurance |
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| Proceeds from matured interest bearing time deposits with other banks |
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Proceeds from redemption of regulatory stock
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Purchase of regulatory stock
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(
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)
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(
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)
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Net (increase) decrease in loans
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(
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)
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|||||
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Purchase of premises and equipment
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(
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)
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(
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)
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Proceeds from sale of premises and equipment
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Proceeds from sale of foreclosed assets held for sale
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Proceeds from sale of Braavo assets
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Net cash (used in) provided by investing activities
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(
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)
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|||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Net increase in deposits
|
(
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)
|
(
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)
|
||||
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Repayments of long-term borrowings
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(
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)
|
|||||
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Net increase (decrease) in short-term borrowed funds
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(
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)
|
|||||
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Purchase of treasury and restricted stock
|
(
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)
|
(
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)
|
||||
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Sale of stock for ESPP
|
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|
||||||
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Dividends paid
|
(
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)
|
(
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)
|
||||
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Net cash used in financing activities
|
(
|
)
|
(
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)
|
||||
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Net decrease in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
|
$
|
|
||||
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Supplemental Disclosures of Cash Flow Information:
|
||||||||
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Interest paid
|
$
|
|
$
|
|
||||
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Income taxes paid
|
$
|
|
$
|
|
||||
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Loans transferred to foreclosed property
|
$ |
|
$ |
|
||||
|
Right of use asset and liability
|
$ |
|
$ |
|
||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Note 1 – Basis of Presentation
Citizens Financial Services, Inc. (individually and collectively with its direct and
indirect subsidiaries, the “Company”) is a Pennsylvania corporation and
its wholly owned subsidiary is First Citizens Community Bank (the “Bank”), and of the Bank’s wholly owned subsidiary, First Citizens Insurance Agency, Inc. (“First
Citizens Insurance”). During 2024, the Company and Bank began the process to terminate the corporate existence of CZFS Acquisition Company, LLC and 1st Realty of PA LLC
.
The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”)
and in conformity with U.S. generally accepted accounting principles. Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles have been condensed or omitted. Certain of the prior year amounts have been reclassified to conform with the current year presentation. Such reclassifications had no effect on net income or stockholders’
equity. All material inter‑company balances and transactions have been eliminated in consolidation.
In the
opinion of management of the Company, the accompanying interim consolidated financial statements at March 31, 2025 and for the periods ended March 31, 2025 and 2024 include all adjustments, consisting of only normal recurring adjustments, necessary
for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance sheet and of revenues and expenses for the periods covered by the Consolidated Statement of Income. The financial performance reported for the Company for the three month
period ended March 31, 2025 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on
Form 10-K for the year ended December 31, 2024.
Note 2 – Revenue Recognition
In accordance with ASC 606, Management determined that the primary sources of revenue emanating from interest and dividend income on loans and
investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold, earnings on bank owned life insurances, gains and losses from
derivative instruments and changes in the fair of loans held for sale are not within the scope of ASC
606. The main types of noninterest income within the scope of the standard are as follows:
| • |
Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These
agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has
transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are
attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.
|
| • |
Trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis.
Fees charged to customers’ accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client asset in a managed fiduciary trust account). For these
accounts, the performance obligation of the Company is typically satisfied by holding and managing the customer’s assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the
Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction.
|
| • |
Gains and losses on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the
real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining
control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller,
the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market
terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.
|
| • |
Brokerage and insurance – Fees include commissions from the sales of investments and insurance products recognized on a trade date basis as the performance
obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company’s performance obligation
under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer’s portfolio and is not dependent on certain return or performance level of the
customer’s portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account
statements to customers) are generally considered immaterial to the overall transaction price.
|
The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of
revenue and cash flows for the three months ended March 31, 2025 and 2024 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time.
|
Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
Revenue stream
|
2025
|
2024
|
||||||
|
Service charges on deposit accounts
|
||||||||
|
Overdraft fees
|
$
|
|
|
|
||||
|
Statement fees
|
|
|
||||||
|
Interchange revenue
|
|
|
||||||
|
ATM income
|
|
|
||||||
|
Other service charges
|
|
|
||||||
|
Total Service Charges
|
|
|
||||||
|
Trust
|
|
|
||||||
|
Brokerage and insurance
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Note 3 – Earnings per Share
The following table sets forth the computation of earnings per share.
|
Three months ended
|
||||||||
|
March 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
Net income applicable to common stock
|
$
|
|
$
|
|
||||
|
Basic earnings per share computation
|
||||||||
|
Weighted average common shares outstanding
|
|
|
||||||
|
Earnings per share - basic
|
$
|
|
$
|
|
||||
|
Diluted earnings per share computation
|
||||||||
|
Weighted average common shares outstanding for basic earnings per share
|
|
|
||||||
|
Add: Dilutive effects of restricted stock
|
|
|
||||||
|
Weighted average common shares outstanding for dilutive earnings per share
|
|
|
||||||
|
Earnings per share - diluted
|
$
|
|
$
|
|
||||
For the three months ended March 31, 2025 and 2024, there were
2,276
and
4,553
shares, respectively, related to the restricted stock plan that
were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $
61.98
-$
83.38
for the three month period ended March 31, 2025 and per share prices ranging from $
58.20
-$
83.38
for the three months ended March 31, 2024.
Note 4 – Investments
The amortized cost, gross unrealized gains and losses, and fair value of investment securities
at March 31, 2025 and December 31, 2024 were as follows (in thousands):
|
March 31
,
2025
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Allowance
for Credit
Losses
|
Fair
Value
|
|||||||||||||||
|
Available-for-sale securities:
|
||||||||||||||||||||
|
U.S. agency securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
|
$
|
|
|||||||||
|
U.S. treasury securities
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Obligations of state and political subdivisions
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Corporate obligations
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Mortgage-backed securities in government sponsored entities
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Total available-for-sale securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
|
$
|
|
|||||||||
|
December 31
,
2024
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Allowance
for Credit
Losses
|
Fair
Value
|
|||||||||||||||
|
Available-for-sale securities:
|
|
|||||||||||||||||||
|
U.S. agency securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
|
$
|
|
|||||||||
|
U.S. treasury securities
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Obligations of state and political subdivisions
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Corporate obligations
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Mortgage-backed securities in government sponsored entities
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Total available-for-sale securities
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
The following table shows the
gross unrealized losses and fair value of the Company’s investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time, which individual securities have been
in a continuous unrealized loss position, at March 31, 2025 and December 31, 2024 (in thousands). As of March 31, 2025, the Company owned
292
securities whose fair value was less than their cost basis.
|
March 31
,
2025
|
Less than Twelve Months
|
Twelve Months or Greater
|
Total
|
|||||||||||||||||||||
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
|||||||||||||||||||
|
U.S. agency securities
|
$
|
|
$
|
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||||||
|
U.S. treasury securities
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
Obligations of state and political subdivisions
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
Corporate obligations
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
Mortgage-backed securities in government sponsored entities
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
Total securities
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||||||
|
December 31
,
2024
|
||||||||||||||||||||||||
|
U.S. agency securities
|
$
|
|
$
|
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||||||
|
U.S. treasury securities
|
|
(
|
) |
|
(
|
) |
|
(
|
) | |||||||||||||||
|
Obligations of states and political subdivisions
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
Corporate obligations
|
|
(
|
) |
|
(
|
) |
|
(
|
) | |||||||||||||||
|
Mortgage-backed securities in government sponsored entities
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
|
Total securities
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||||||
Allowance for Credit Losses – Available for Sale Securities
The Company measures expected credit losses on available-for-sale debt securities when the Company does not intend to sell,
or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is
written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this
assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this
evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less
than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is utilized to calculate
the present value of expected cash flows. The Company obtains its forecast data through a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine
a reasonable and supportable scenario, and utilizes a single scenario in the model. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
The allowance for credit losses on available-for-sale debt securities is included within Investment securities
available-for-sale on the consolidated balance sheet. Changes in the allowance for credit losses are recorded within Provision for credit losses on the consolidated statement of income. Losses are charged against the allowance when the Company
believes the
collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met. There was
no
allowance for credit losses for available for sale securities as of March 31, 2025 and December 31, 2024.
Accrued interest receivable on available-for-sale debt securities totaled $
2,002
,000
and $
2,135
,000
at March 31, 2025 and December
31, 2024 and is included within accrued
on the consolidated balance sheet. This amount is excluded from
the estimate of expected credit losses. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become
90
days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status,
unpaid interest credited to income is reversed.
There were
no
sales of available for sale securities during the
three months ended March 31, 2025 and 2024.
The following table presents the net gains (losses) on the Company’s equity investments recognized in earnings during the three month periods ended March
31, 2025 and 2024, and the portion of unrealized gains for the period that relates to
equity investments held
at March 31, 2025 and 2024 (in thousands):
|
Three Months Ended
March 31,
|
||||||||
|
Equity securities
|
2025
|
2024
|
||||||
|
Net (losses) gains recognized in equity securities during the period
|
$
|
(
|
)
|
$
|
|
|||
|
Less: Net losses realized on the sale of equity securities during the period
|
|
(
|
)
|
|||||
|
Net unrealized (losses) gains
|
$
|
(
|
)
|
$
|
|
|||
Investment securities with an approximate carrying value of $
365.8
million and $
340.4
million at March 31, 2025 and December 31, 2024, respectively, were pledged to secure public funds, certain other
deposits and borrowing lines.
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties. The amortized cost and fair value of debt securities at March 31, 2025, by contractual maturity, are shown below (in thousands):
|
Amortized
Cost
|
Fair Value
|
|||||||
|
Available-for-sale
debt securities:
|
||||||||
|
Due in one year
or less
|
$
|
|
$
|
|
||||
|
Due after one
year through five years
|
|
|
||||||
|
Due after five
years through ten years
|
|
|
||||||
|
Due after ten
years
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Note 5 – Loans
The Company originates commercial, industrial, agricultural, residential, and consumer loans primarily to
customers throughout north central, central and south central Pennsylvania, southern New York, and Wilmington and Dover, Delaware. The HVBC acquisition expanded our lending market further into southeast Pennsylvania, including Montgomery, Bucks and
Philadelphia Counties as well as Burlington County, New Jersey. Although the Company had a diversified loan portfolio at March 31, 2025 and December 31, 2024, a substantial portion of its debtors’ ability to honor their contracts is dependent on
the economic conditions within these regions.
The
following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for credit losses - loans as of
March 31, 2025 and December 31, 2024
(in thousands):
|
|
March 31
,
2025
|
December 31, 2024 | ||||||
|
Real estate loans:
|
||||||||
|
Residential
|
$
|
|
$
|
|
||||
|
Commercial
|
|
|
||||||
|
Agricultural
|
|
|
||||||
|
Construction
|
|
|
||||||
|
Consumer
|
|
|
||||||
|
Other commercial loans
|
|
|
||||||
|
Other agricultural loans
|
|
|
||||||
|
State and political subdivision loans
|
|
|
||||||
|
Total
|
|
|
||||||
|
Allowance for credit losses - loans
|
|
|
||||||
|
Net loans
|
$
|
|
$
|
|
||||
Allowance for Credit Losses - Loans
The allowance for credit losses related to loans consists of loans evaluated collectively and individually for expected
credit losses. It represents an estimate of credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to net loans. Loans individually evaluated for impairment consist of non-accrual commercial
loans and recently modified loans that were experiencing financial difficulty at the time of the modification. The allowance for credit losses for off-balance sheet credit exposures includes estimated losses on unfunded loan commitments, letters
of credit and other off-balance sheet credit exposures. The total allowance for credit losses is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.
The following table presents the components of the allowance for credit losses as of
March 31, 2025 and December 31, 2024
(in thousands):
|
March 31, 2025
|
December 31, 2024
|
|||||||
|
Allowance for Credit Losses - Loans
|
$ |
|
$
|
|
||||
|
Allowance for Credit Losses - Off-Balance Sheet credit Exposure
|
|
|
||||||
|
Total allowance for credit losses
|
$ |
|
$
|
|
||||
The following table presents the activity in the allowance for credit losses for the three
months ended
March 31, 2025 and 2024 (in thousands):
|
|
Allowance for Credit
Losses - Loans
|
Allowance for
Credit
Losses -
Off-Balance
Sheet credit
Exposure
|
Total
|
|||||||||
| Balance at December 31, 2024 | $ |
|
$ |
|
$ |
|
||||||
| Loans charge-off |
(
|
) | - |
(
|
) | |||||||
| Recoveries of loans previously charged-off |
|
- |
|
|||||||||
| Net loans charged-off |
(
|
) | - |
(
|
) | |||||||
| Provision for credit losses |
|
|
|
|||||||||
| Balance at March 31, 2025 | $ |
|
$ |
|
$ |
|
||||||
|
Allowance for Credit
Losses - Loans
|
Allowance for Credit
Losses - Off-Balance
Sheet credit Exposure
|
Total
|
||||||||||
|
Balance at December 31, 2023
|
$
|
|
$
|
|
$
|
|
||||||
|
Loans charge-off
|
(
|
)
|
-
|
(
|
)
|
|||||||
|
Recoveries of loans previously charged-off
|
|
-
|
|
|||||||||
|
Net loans charged-off
|
(
|
)
|
-
|
(
|
)
|
|||||||
|
Provision for credit losses
|
|
(
|
)
|
|
||||||||
|
Balance at March 31, 2024
|
$
|
|
$
|
|
$
|
|
||||||
The following tables presents the activity in the allowance for credit losses – loans, by portfolio segment, for the three months ended March 31, 2025 and 2024 (in thousands):
|
|
For the three months ended March 31, 2025
|
|||||||||||||||||||
|
|
Balance at
December 31, 2024
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
March 31, 2025
|
|||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Commercial
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Agricultural
|
|
|
|
|
|
|||||||||||||||
|
Construction
|
|
|
|
|
|
|||||||||||||||
|
Consumer
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Other commercial loans
|
|
(
|
)
|
|
(
|
)
|
|
|||||||||||||
|
Other agricultural loans
|
|
|
|
|
|
|||||||||||||||
|
State and political subdivision loans
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Unallocated
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Total
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||
|
|
For the three months ended March 31, 2024
|
|||||||||||||||||||
|
Balance at
December 31, 2023
|
Charge-offs | Recoveries | Provision |
Balance at
March 31, 2024
|
||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
|
|||||||||
|
Commercial
|
|
|
|
|
|
|||||||||||||||
|
Agricultural
|
|
|
|
|
|
|||||||||||||||
|
Construction
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Consumer
|
|
(
|
)
|
|
(
|
)
|
|
|||||||||||||
|
Other commercial loans
|
|
(
|
)
|
|
|
|
||||||||||||||
|
Other agricultural loans
|
|
|
|
(
|
)
|
|
||||||||||||||
|
State and political subdivision loans
|
|
|
|
|
|
|||||||||||||||
|
Unallocated
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Total
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$ |
|
|||||||||
The
provision for the first quarter of 2025 was driven by the annual update of the loss driver analysis. This update includes revising prepayment and curtailment speeds. In addition, loss rates are updated to include the most recent completed
year of 2024. For residential loans, the historical loss rate increased, while the prepayment speed slowed resulting in an increased provision. For other commercial loans the historical loss rate decreased in the annual update resulting in a
decrease in the provision for 2025.
The provision for the first quarter of 2024 was driven by the annual update of the loss driver analysis. This update
includes revising prepayment and curtailment speeds. In addition, loss rates are updated to include the most recent completed year of 2023. For other commercial loans the historical loss rate increased and there was an increase in specific
reserves for other commercial loans.
The following table presents the allowance for credit losses – loans and amortized cost basis of loans under CECL
methodology as of March 31, 2025 and December 31, 2024 (in thousands):
|
|
|
Allowance for Credit Losses - Loans
|
|
|
Loans
|
|
||||||||||||||||||
|
March 31, 2025
|
Collectively evaluated
|
Individually evaluated
|
Total Allowance
for Credit Losses - Loans
|
Collectively evaluated
|
Individually evaluated
|
Total Loans
|
||||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Commercial
|
|
|
|
|
|
|
||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
||||||||||||||||||
|
Other commercial loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Other agricultural loans
|
|
|
|
|
|
|
||||||||||||||||||
|
State and political subdivision loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Unallocated
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
December 31, 2024
|
|
|||||||||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||||||
|
Residential
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Commercial
|
|
|
|
|
|
|
||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
||||||||||||||||||
|
Other commercial loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Other agricultural loans
|
|
|
|
|
|
|
||||||||||||||||||
|
State and political subdivision loans
|
|
|
|
|
|
|
||||||||||||||||||
| Unallocated |
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
Non-performing Loans
Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days. Loans
are considered for non-accrual status upon reaching
90
days delinquency, although the Company may be receiving partial payments of
interest and partial repayments of principal on such loans, or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal
proceedings, the loan may be placed on non-accrual status. If a loan is
90
days or more past due and is well secured and in the process
of collection, it may still be considered accruing.
The following table reflects the non-performing loan receivables, as well as those on non-accrual status as of March 31, 2025 and December 31, 2024,
respectively. The balances are presented by class of loan receivable (in thousands):
|
March 31, 2025
|
December 31, 2024 | |||||||||||||||||||||||||||||||
|
Nonaccrual With a
related allowance
|
Nonaccrual Without
a related allowance
|
90 days or
greater past
due and
accruing
|
Total non-
performing
loans
|
Nonaccrual
With a
related
allowance
|
Nonaccrual
Without
a
related allowance
|
90 days
or greater
past due and
accruing
|
Total non-
performing loans
|
|||||||||||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||||||||||||||
|
Mortgages
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
|
Home Equity
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Commercial
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Other commercial loans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Other agricultural loans
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||
As of March 31, 2025, there were $
19.6
million of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to the realizable
collateral values. Accordingly, no specific valuation allowance was considered to be necessary.
The following table
presents, by class of loans and leases, the amortized cost basis of collateral-dependent nonaccrual loans and leases and type of collateral as of March 31, 2025 and December 31, 2024 (in thousands):
|
March 31, 2025
|
Real Estate
|
Business Assets
|
None
|
Total
|
||||||||||||
|
Real estate loans:
|
||||||||||||||||
|
Mortgages
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Home Equity
|
|
|
|
|
||||||||||||
|
Commercial
|
|
|
|
|
||||||||||||
|
Agricultural
|
|
|
|
|
||||||||||||
|
Construction
|
|
|
|
|
||||||||||||
|
Consumer
|
|
|
|
|
||||||||||||
|
Other commercial loans
|
|
|
|
|
||||||||||||
|
Other agricultural loans
|
|
|
|
|
||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
|
|
||||||||||||||||
|
December 31, 2024
|
Real Estate
|
Business Assets |
None
|
Total
|
||||||||||||
|
Real estate loans:
|
||||||||||||||||
|
Mortgages
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Home Equity
|
|
|
|
|
||||||||||||
|
Commercial
|
|
|
|
|
||||||||||||
|
Agricultural
|
|
|
|
|
||||||||||||
|
Construction
|
|
|
|
|
||||||||||||
|
Consumer
|
|
|
|
|
||||||||||||
|
Other commercial loans
|
|
|
|
|
||||||||||||
|
Other agricultural loans
|
|
|
|
|
||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
Credit Quality Information
For commercial real estate loans, agricultural real estate loans, construction loans, other commercial loans, other agricultural loans, and state and
political subdivision loans, management uses a ten grade internal risk rating system to monitor and assess credit quality. The first six grades under the revised system are considered not criticized and are aggregated as “Pass” rated. The criticized
rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below
:
|
|
• |
Pass
(Grades
1
-
6)
– These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by
the value of the underlying collateral.
|
|
|
• |
Special
Mention (Grade
7)
–
This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.
|
|
|
• |
Substandard
(Grade
8)
– This
loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies
are not corrected.
|
|
|
• |
Doubtful (
Grade
9)
– This loan
grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based
on existing circumstances.
|
|
|
• |
Loss
(Grade
10)
– This loan
grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.
|
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company’s loan
rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the
supervision of management. All commercial, agricultural and state and political relationships over $
500
,000 are reviewed annually to
ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to: 1) review a minimum of
50
%
of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $
1,000
,000,
3) selected loan relationships over $
750
,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or
Loss, and 4) such other loans which management or the consultant deems appropriate.
The following tables represent credit exposures by internally assigned grades, by origination year, as of March 31, 2025 and December 31, 2024 (in thousands):
|
Revolving
|
Revolving
|
|||||||||||||||||||||||||||||||||||
|
Loans
|
Loans
|
|||||||||||||||||||||||||||||||||||
|
Amortized
|
Converted
|
|||||||||||||||||||||||||||||||||||
|
March 31, 2025
|
2025
|
2024
|
2023
|
2022
|
2021
|
Prior
|
Cost Basis
|
to Term
|
Total
|
|||||||||||||||||||||||||||
|
Commercial real estate
|
||||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Agricultural real estate
|
||||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Construction
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Other commercial loans
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Other agricultural loans
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
State and political subdivision loans
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Total
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
Revolving
|
Revolving
|
||||||||||||||||||||||||||||||||||
|
|
Loans
|
Loans
|
||||||||||||||||||||||||||||||||||
|
|
Amortized
|
Converted
|
||||||||||||||||||||||||||||||||||
|
December 31, 2024
|
2024
|
2023
|
2022
|
2021
|
2020
|
Prior
|
Cost Basis
|
to Term
|
Total
|
|||||||||||||||||||||||||||
|
Commercial real estate
|
||||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Agricultural real estate
|
||||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Construction
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Other commercial loans
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Other agricultural loans
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
State and political subdivision loans
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total
|
|
|||||||||||||||||||||||||||||||||||
|
Risk Rating
|
||||||||||||||||||||||||||||||||||||
|
Pass
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Substandard
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
For residential real estate mortgage loans, home equity loans, and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the
loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered
nonaccrual, described in more detail above, and all loans past due 90 or more days and still accruing. The following tables present the recorded investment in those loan classes based on payment activity, by origination year, as of March 31, 2025
and December 31, 2024 (in thousands):
|
Revolving
|
Revolving
|
|||||||||||||||||||||||||||||||||||
|
Loans
|
Loans
|
|||||||||||||||||||||||||||||||||||
|
Amortized
|
Converted
|
|||||||||||||||||||||||||||||||||||
|
March 31, 2025
|
2025
|
2024
|
2023
|
2022
|
2021
|
Prior
|
Cost Basis
|
to Term
|
Total
|
|||||||||||||||||||||||||||
|
Residential real estate
|
||||||||||||||||||||||||||||||||||||
|
Payment Performance
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Home equity
|
|
|||||||||||||||||||||||||||||||||||
|
Payment Performance
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Consumer
|
|
|||||||||||||||||||||||||||||||||||
|
Payment Performance
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Total
|
|
|||||||||||||||||||||||||||||||||||
|
Payment Performance
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
Revolving
|
Revolving
|
||||||||||||||||||||||||||||||||||
|
|
Loans
|
Loans
|
||||||||||||||||||||||||||||||||||
|
|
Amortized
|
Converted
|
||||||||||||||||||||||||||||||||||
|
December 31, 2024
|
2024
|
2023
|
2022
|
2021
|
2020
|
Prior
|
Cost Basis
|
to Term
|
Total
|
|||||||||||||||||||||||||||
|
Residential real estate
|
||||||||||||||||||||||||||||||||||||
|
Payment Performance
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Home equity
|
|
|||||||||||||||||||||||||||||||||||
|
Payment Performance
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Consumer
|
|
|||||||||||||||||||||||||||||||||||
|
Payment Performance
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Current period gross charge-offs
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total
|
|
|||||||||||||||||||||||||||||||||||
|
Payment Performance
|
||||||||||||||||||||||||||||||||||||
|
Performing
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Nonperforming
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
Aging Analysis of Past Due Loan Receivables
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of
time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loan receivables as of March 31, 2025 and December 31, 2024 (in thousands):
|
March 31
,
2025
|
30-59
Days
Past Due
|
60-89
Days
Past Due
|
90 Days
Or Greater
|
Total
Past
Due
|
Current
|
Total
Loans
Receivables
|
||||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||||||
|
Mortgages
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Home Equity
|
|
|
|
|
|
|
||||||||||||||||||
|
Commercial
|
|
|
|
|
|
|
||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
||||||||||||||||||
|
Other commercial loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Other agricultural loans
|
|
|
|
|
|
|
||||||||||||||||||
|
State and political
subdivision loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Loans considered non-accrual
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Loans still accruing
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
December 31,
2024
|
30-59
Days
Past Due
|
60-89
Days
Past Due
|
90 Days
Or Greater
|
Total
Past
Due
|
Current
|
Total
Loans
Receivables
|
||||||||||||||||||
|
Real estate loans:
|
||||||||||||||||||||||||
|
Mortgages
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Home Equity
|
|
|
|
|
|
|
||||||||||||||||||
|
Commercial
|
|
|
|
|
|
|
||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
||||||||||||||||||
|
Construction
|
|
|
|
|
|
|
||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
||||||||||||||||||
|
Other commercial loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Other agricultural loans
|
|
|
|
|
|
|
||||||||||||||||||
|
State and political subdivision loans
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Loans considered non-accrual
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Loans still accruing
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
Modifications to Borrowers Experiencing Financial Difficulty
Occasionally, the Company modifies loans to
borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the
allowance for credit losses.
In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience
financial difficulty, another concession, such as principal forgiveness, may be granted.
The following table shows, the amortized cost basis by class of loans receivable, information regarding nonaccrual modified loans to borrowers experiencing financial
difficulty during the three months ended March 31, 2025 (dollars in thousands):
|
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
|
||||||||||||
|
Three months ended March 31, 2025
|
||||||||||||
|
Number of loans
|
Amortized Cost Basis
|
% of Total Class of Financing Receivable
|
||||||||||
|
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
|
||||||||||||
|
Other commercial loans
|
|
$
|
|
|
%
|
|||||||
|
Total
|
|
$
|
|
|||||||||
The
following table shows, by class of loans receivable, information regarding the financial effect on nonaccrual modified loans to borrowers experiencing financial difficulty during the three months ended March 31, 2025:
|
Three months ended March 31, 2025
|
|||||
|
Term Extension
|
|||||
|
Loan Type
|
Number of loans
|
Financial Effect
|
|||
|
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
|
|||||
|
Other commercial loans
|
|
Extended the loan maturity
|
|||
|
Total
|
|
||||
There were no nonaccrual modified loans to borrowers experiencing
financial difficulty for which there were payment defaults after the modification date for the three and nine months ended March 31, 2025.
The following presents, by class of loans, the amortized cost and
payment status of accruing and nonaccrual modified loans to borrowers experiencing financial difficulty at March 31, 2025 (in thousands):
|
March 31, 2025
|
||||||||||||||||
|
30-89 Days
|
90 Days
|
|||||||||||||||
|
Non-Accruing Modified Loans to Borrowers Experiencing Financial Difficulty
|
Current
|
Past Due
|
Or Greater
|
Total
|
||||||||||||
|
Other commercial loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Foreclosed Assets Held For Sale
Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the
Consolidated Balance Sheet. As of March 31, 2025 and December 31, 2024, included within other assets are $
2,544
,000 and $
2,635
,000, respectively, of foreclosed assets. As of March 31, 2025, included within the foreclosed assets are $
76
,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of March 31, 2025, the Company had
initiated formal foreclosure proceedings on $
546
,000 of residential mortgage loans, the collateral properties which have not yet been
transferred into foreclosed assets.
Note 6 – Goodwill and Other Intangible Assets
The following table provides the gross carrying value and accumulated amortization of intangible assets as of March 31, 2025 and December 31, 2024 (in
thousands):
|
March 31, 2025
|
December 31, 2024
|
|||||||||||||||||||||||
|
|
Gross
carrying
value
|
Accumulated
amortization
|
Net
carrying
value
|
Gross
carrying
value
|
Accumulated
amortization
|
Net
carrying
value
|
||||||||||||||||||
|
Amortized intangible assets (1):
|
||||||||||||||||||||||||
|
MSRs
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Core deposit intangibles
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||
|
Total amortized intangible assets
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Unamortized intangible assets:
|
||||||||||||||||||||||||
|
Goodwill
|
$
|
|
$
|
|
||||||||||||||||||||
( 1 )
The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years (in
thousands). The Company based its projections of amortization expense shown below on existing asset balances at March 31, 2025. Future amortization expense may vary from these projections:
|
MSRs
|
Core
deposit
intangibles
|
Total
|
||||||||||
|
Three months ended
March 31, 2025
(actual)
|
$
|
|
$
|
|
$
|
|
||||||
|
Three months
ended
March 31, 2024
(actual)
|
|
|
|
|||||||||
|
Estimate for year
ending December 31,
|
||||||||||||
|
Remaining 2025
|
|
|
|
|||||||||
|
2026
|
|
|
|
|||||||||
|
2027
|
|
|
|
|||||||||
|
2028
|
|
|
|
|||||||||
|
2029
|
|
|
|
|||||||||
|
Thereafter
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
Note 7 - Employee Benefit Plans
For additional detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 11 of the Company’s Audited Consolidated
Financial Statements included in the 2024 Annual Report on Form 10-K.
Noncontributory Defined Benefit Pension Plan
The Bank sponsors a trusteed noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all employees and officers hired prior
to January 1, 2007. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plan’s actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the
Pension Plan.
In lieu of the Pension Plan, employees with a
hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee’s base compensation. The
contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.
For employees who are eligible to participate
in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment. Upon retirement or other termination of employment, employees can elect either an annuity
benefit or a lump sum distribution of vested benefits in the Pension Plan.
The following sets forth the components of net periodic benefit costs of the Pension Plan and the line item on the Consolidated Statement of Income where
such amounts are included, for the three months ended March 31, 2025 and 2024, respectively (in thousands):
|
Three Months Ended
|
|||||||||
| March 31, | |||||||||
|
2025
|
2024
|
Affected line item on the Consolidated Statement of Income
|
|||||||
|
Service cost
|
$
|
|
$
|
|
|
Salary and Employee Benefits
|
|||
|
Interest cost
|
|
|
|
Other Expenses
|
|||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
Other Expenses
|
||||
|
Net amortization and deferral
|
|
|
|
Other Expenses
|
|||||
|
Net periodic benefit cost
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
The Bank does
no
t expect to contribute to
the Pension Plan during 2025.
Restricted Stock Plan
The Company maintains a Restricted Stock Plan (the “Plan”) whereby employees and non-employee corporate directors are eligible to receive awards of
restricted stock based upon performance related requirements. Awards granted under the Plan are in the form of the Company’s common stock and are subject to certain vesting requirements including continuous employment or service with the Company.
In April 2016, the Company’s stockholders authorized a total of
150,000
shares of the Company’s common stock to be made available under
the Plan. As of March 31, 2025,
104,212
shares remain available to be issued under the Plan. The Plan assists the Company in attracting,
retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.
The following table details the vesting, awarding and forfeiting of restricted stock during the three months ended March 31, 2025:
|
Three months
|
||||||||
|
Unvested
|
Weighted
|
|||||||
|
Average
|
||||||||
| Shares |
Market Price
|
|||||||
|
Outstanding, beginning of period
|
|
$
|
|
|||||
|
Granted
|
|
|
||||||
|
Forfeited
|
(
|
) |
(
|
) | ||||
|
Vested
|
(
|
)
|
(
|
)
|
||||
|
Outstanding, end of period
|
|
$
|
|
|||||
Compensation expense related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. For
the three months ended March 31, 2025 and 2024, compensation expense totaled $
73
,000 and $
65
,000, respectively. At March 31, 2025, the total compensation cost related to nonvested awards that had not yet been recognized was $
579
,000, which is expected to be recognized over the next
three years
.
Note 8 –
Accumulated Other Comprehensive Loss
The following tables present the changes in accumulated other comprehensive loss by
component, net of tax, for the three months ended
March 31, 2025 and 2024
(in thousands)
:
|
Three months ended March 31, 2025
|
||||||||||||||||
|
|
Unrealized gain (loss) on
available for sale
securities (a)
|
Defined Benefit
Pension Items (a)
|
Unrealized loss on
interest rate swap (a)
|
Total
|
||||||||||||
|
Balance as of
December 31, 2024
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | |||||
|
Other comprehensive income (loss) before reclassifications (net of tax)
|
|
|
(
|
) |
|
|||||||||||
|
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)
|
|
|
(
|
) |
(
|
) | ||||||||||
|
Net current period other comprehensive income (loss)
|
|
|
(
|
) |
|
|||||||||||
|
Balance as of
March 31, 2025
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | |||||
|
Three months ended March 31, 2024
|
||||||||||||||||
|
Unrealized gain (loss) on
available for sale
securities (a)
|
Defined Benefit
Pension Items (a)
|
Unrealized loss on
interest rate swap (a)
|
Total
|
|||||||||||||
|
Balance as of
December 31, 2023
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | |||||
|
Other comprehensive income (loss) before reclassifications (net of tax)
|
(
|
) |
|
|
(
|
) | ||||||||||
|
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)
|
|
|
(
|
) |
(
|
) | ||||||||||
|
Net current period other comprehensive income (loss)
|
(
|
) |
|
|
(
|
) | ||||||||||
|
Balance as of
March 31, 2024
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | |||||
(a)
Amounts in parentheses
indicate debits on the Consolidated Balance Sheet.
The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive loss for the three months
ended March 31, 2025 and 2024 (in thousands):
|
Details about accumulated other comprehensive income (loss)
|
Amount reclassified from accumulated comprehensive
income (loss) (a)
|
Affected line item in the Consolidated Statement of Income
|
|||||||
|
|
Three Months Ended March 31,
|
|
|||||||
|
|
2025
|
2024
|
|
||||||
|
Unrealized gains and losses on available for sale securities
|
|
||||||||
|
$
|
|
$
|
|
Available for sale securities gains, net
|
|||||
|
|
|
Provision for income taxes
|
|||||||
|
$
|
|
$
|
|
Net of tax
|
|||||
|
Defined benefit pension items
|
|||||||||
|
|
$
|
|
$
|
(
|
)
|
Other expenses
|
|||
|
|
|
|
Provision for income taxes
|
||||||
|
|
$
|
|
$
|
(
|
)
|
Net of tax
|
|||
| Unrealized gain (loss) on interest rate swap | $ |
|
$ |
|
Interest expense | ||||
|
(
|
) |
(
|
) | Provision for income taxes | |||||
| $ |
|
$ |
|
Net of tax | |||||
|
Total reclassifications
|
$
|
|
$
|
|
|
||||
(a)
Amounts in parentheses
indicate expenses and other amounts indicate income on the Consolidated Statement of Income
Note 9 – Fair Value Measurements
The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and
liabilities at fair value. The three broad levels defined by this hierarchy are as follows:
| Level I: |
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
|
| Level II: |
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these
assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
|
| Level III: |
Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using
management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
|
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon
internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect
counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value
calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date
of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.
Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis
The fair values of equity securities and securities available for sale are determined by quoted prices in active markets, when available, and classified
as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the
specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
The following tables present the assets and liabilities reported on the Consolidated
Balance Sheet at their fair value on a recurring basis as of March 31, 2025 and December 31, 2024 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
|
March 31
,
2025
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Fair value measurements on a recurring basis:
|
||||||||||||||||
|
Assets
|
||||||||||||||||
|
Equity securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Available for sale securities:
|
||||||||||||||||
|
U.S. Agency securities
|
|
|
|
|
||||||||||||
|
U.S. Treasury securities
|
|
|
|
|
||||||||||||
|
Obligations of state and political subdivisions
|
|
|
|
|
||||||||||||
|
Corporate obligations
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities in government sponsored entities
|
|
|
|
|
||||||||||||
|
Loans held for sale
|
|
|
|
|
||||||||||||
|
Derivative instruments – assets
|
|
|
|
|
||||||||||||
|
Derivative instruments - liabilities
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
December 31,
2024
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Fair value measurements on a recurring basis:
|
||||||||||||||||
|
Assets
|
||||||||||||||||
|
Equity securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Available for sale securities:
|
||||||||||||||||
|
U.S. Agency securities
|
|
|
|
|
||||||||||||
|
U.S. Treasuries securities
|
|
|
|
|
||||||||||||
|
Obligations of state and political subdivisions
|
|
|
|
|
||||||||||||
|
Corporate obligations
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities in government sponsored entities
|
|
|
|
|
||||||||||||
|
Loans held for sale
|
|
|
|
|
||||||||||||
|
Derivative instruments – assets
|
|
|
|
|
||||||||||||
|
Derivative instruments - liabilities
|
|
(
|
)
|
|
(
|
)
|
||||||||||
The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3)
for the three months ended March 31, 2025 and 2024 (in thousands):
|
IRLC-
Asset
|
||||
|
Balance: December 31,
2024
|
$
|
|
||
|
Total unrealized losses:
|
||||
|
Included in other comprehensive loss
|
|
|||
|
Total gains included in earnings and held at reporting date
|
|
|||
| Purchases, sales and settlements |
|
|||
|
Transfers in and/or out of Level 3
|
|
|||
|
Ending Balance: March 31, 2025
|
$
|
|
||
|
Change in unrealized (losses) for the period included in earnings (or changes in net assets) for assets held as
of March 31, 2025
|
|
|||
|
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2024
|
|
|||
|
IRLC-
Asset
|
||||
|
Balance: December 31, 2023
|
$
|
|
||
|
Total unrealized losses:
|
||||
|
Included in other comprehensive loss
|
|
|||
|
Total gains included in earnings and held at reporting date
|
|
|||
|
Purchases, sales and settlements
|
|
|||
|
Transfers in and/or out of Level 3
|
|
|||
|
Ending Balance: March 31, 2024
|
$
|
|
||
|
Change in unrealized (losses) for the period included in earnings (or changes in net assets) for assets held as of
March 31, 2024
|
|
|||
|
Change in unrealized loss for the period included other comprehensive loss for assets held as of December 31, 2023
|
|
|||
At
March 31
, 2025 and December 31, 2024
, the Company had classified as Level 3 $
472
,000
and $
317
,000, respectively, of net derivative assets and liabilities related to IRLC. The fair value of IRLCs is based on prices
obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Company’s best estimate of the probability that a committed loan will fund. The weighted average pull-through rates
applied ranged from
73.00
% to
95.02
%
at
March 31
, 2025
.
Significant unobservable inputs for assets measured at fair value on a recurring basis at March 31
, 2025 and December 31, 2024 (dollars in thousands)
:
|
Quantitative Information about Level 3 Fair Value Measurements
|
||||||||||||||
| March 31, 2025 |
Fair
Value
|
Valuation
Technique |
Significant
Unobservable
Input
|
Range
|
Weighted
Average
|
|||||||||
|
Measured at Fair Value on a Recurring Basis:
|
||||||||||||||
|
Net derivative asset and liability:
|
||||||||||||||
|
IRLC
|
$
|
|
Discounted cash flows
|
Pull-through rates
|
|
%
|
|
%
|
||||||
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||
| December 31, 2024 |
Fair
Value
|
Valuation
Technique |
Significant
Unobservable
Input
|
Range |
Weighted
Average
|
|||||||||
|
Measured
at Fair Value on a Recurring Basis:
|
||||||||||||||
|
Net
derivative asset and liability:
|
||||||||||||||
| IRLC | $ |
|
Discounted cash flows
|
Pull-through rates |
|
%
|
|
% | ||||||
Assets and
Liabilities Required to be Measured and Reported at Fair Value on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis as of March 31, 2025 and December
31, 2024 are included in the table below (
in thousands)
:
|
March 31
,
2025
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Collateral-dependent loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| Other real estate owned |
|
|
|
|
||||||||||||
|
December 31,
2024
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
|
Collateral-dependent loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Other real estate owned
|
|
|
|
|
||||||||||||
|
|
• |
Collateral
-
Dependent Loans (in accordance with ASC 326)
-
The Company records nonrecurring adjustments of collateral-dependent loans held for investment. Such amounts are generally based on the fair value of the underlying collateral
supporting the loan. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures that include recent sales prices for comparable properties and cost of construction. Periodically, in cases where
the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized in the form of a charge-off. The fair values above excluded estimated selling costs of $
|
|
|
• |
Other Real Estate Owned (OREO) –
OREO is carried at the lower of cost or fair value, less estimated costs to sell, which is measured at the date of foreclosure. If the fair value of the collateral exceeds the
carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying
amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales
for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement. In some cases, management may adjust the appraised value due to the age of the appraisal, changes
in market conditions, or observable deterioration of the property since the appraisal was completed. In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be
unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.
|
The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level
III techniques (dollars in thousands).
| Quantitative Information about Level III Fair Value Measurements | |||||||||||||||
|
March 31
,
2025
|
Fair
Value
|
Valuation Technique(s)
|
Unobservable input
|
Range
|
Weighted
average
|
||||||||||
|
Collateral-dependent loans
|
$
|
|
Appraised Collateral Values
|
Discount for time since appraisal
|
|
%
|
|
%
|
|||||||
|
Selling costs
|
|
%
|
|
%
|
|||||||||||
|
Holding period
|
|
|
|||||||||||||
|
Other real estate owned
|
|
Appraised Collateral Values | Discount for time since appraisal |
|
% |
|
% | ||||||||
|
December 31,
2024
|
Fair
Value
|
Valuation Technique(s)
|
Unobservable input
|
Range
|
Weighted
average
|
|||||||||
|
Collateral-dependent loans
|
|
Appraised Collateral Values
|
Discount for time since appraisal
|
|
%
|
|
%
|
|||||||
|
Selling costs
|
|
%
|
|
%
|
||||||||||
|
Holding period
|
|
|
||||||||||||
|
Other real estate owned
|
|
Appraised Collateral Values
|
Discount for time since appraisal
|
|
% |
|
%
|
|||||||
Financial Instruments Not Required to be Measured or Reported at Fair Value
The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring
basis are as follows (in thousands):
|
March 31,
2025
|
Carrying
Amount
|
Fair Value
|
Level I
|
Level II
|
Level III
|
|||||||||||||||
|
Financial assets:
|
||||||||||||||||||||
|
Interest bearing time deposits with other banks
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Net loans
|
|
|
|
|
|
|||||||||||||||
|
Financial liabilities:
|
||||||||||||||||||||
|
Deposits
|
|
|
|
|
|
|||||||||||||||
|
Borrowed funds
|
|
|
|
|
|
|||||||||||||||
|
December 31, 2024
|
Carrying
Amount
|
Fair Value |
Level I |
Level II |
Level III |
|||||||||||||||
|
Financial assets:
|
||||||||||||||||||||
|
Interest bearing time deposits with other banks
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Net loans
|
|
|
|
|
|
|||||||||||||||
|
Financial liabilities:
|
||||||||||||||||||||
|
Deposits
|
|
|
|
|
|
|||||||||||||||
|
Borrowed funds
|
|
|
|
|
|
|||||||||||||||
The carrying amounts for cash and due from banks, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair
value and are considered Level I measurements.
Note 10 - Segment Reporting
The Company’s reportable segment is determined by the Chief Executive Officer, who is the designated the chief operating decision
maker, based upon information provided about the Company’s products and services offered, primarily banking operations. The segment is also distinguished by the level of information provided to the chief operating decision maker, who uses such
information to review performance of various components of the business such as branches, which are then aggregated if operating performance, products/services, and customers are similar. The chief operating decision maker will evaluate the
financial performance of the Company’s business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company’s segment and in the determination of allocating resources. The chief
operating decision maker uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The chief operating decision maker uses consolidated net income to benchmark the Company against
its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation. Loans, investments, and deposits provide the revenues in the banking operation.
Interest expense, provisions for credit losses, payroll, and occupancy expenses provide the significant expenses in the banking operation. All operations are domestic.
The measure of segment assets is reported on the balance sheet as total consolidated assets. Segment performance is evaluated
using consolidated net income. Information reported internally for performance assessment by the chief operating decision maker follows, inclusive of reconciliations of significant segment totals to the consolidated financial statements (in
thousands):
|
|
Community Banking
|
|||||||
|
|
Three months ended
|
|||||||
|
|
March 31,
|
|||||||
|
|
2025
|
2024
|
||||||
|
Total Interest and Dividend Income
|
$
|
|
$
|
|
||||
|
Total non-interest income
|
|
|
||||||
|
Total Consolidated Revenues
|
|
|
||||||
|
Less:
|
||||||||
|
Interest Expense
|
|
|
||||||
|
Segment net interest income and non-interest income
|
|
|
||||||
|
Less:
|
||||||||
|
Provision for credit losses
|
|
|
||||||
|
Salaries and employee benefits
|
|
|
||||||
|
Occupancy
|
|
|
||||||
|
Other segment expenses
|
|
|
||||||
|
Income Taxes
|
|
|
||||||
|
Segment net income/consolidated net income
|
$
|
|
$
|
|
||||
Note 11 – Recent Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03,
Income Statement – Reporting
Comprehensive Income – Expense Disaggregation Disclosures.
This ASU requires disclosure in the notes to financial statements of specified information about certain costs and expenses. Specific disclosures are required for (a)
purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil and gas producing activities. The amendments in this
Update do not change or remove current expense disclosure requirements. However, the amendments affect where this information appears in the notes to financial statements because entities are required to include certain current
disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments. The amendments in ASU 2024-03 apply only to public business entities and are effective for fiscal years beginning after December
15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on its financial statements.
In December 2024, the FASB issued ASU 2024-04,
Debt – Debt with Conversion and
Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments.
This new guidance clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of
convertible debt when changes are made to conversion features as part of an offer to settle the instrument. The ASU requires entities to apply a preexisting contract approach. To qualify for induced conversion accounting under this
approach, the inducement offer is required to preserve the form of consideration and result in an amount of consideration that is no less than that issuable pursuant to the preexisting conversion privileges. The guidance is effective for
fiscal years beginning after December 15, 2025, with early adoption permitted, and it can be adopted either on a prospective or retrospective basis. This Update is not expected to have a significant impact on the Company’s financial
statements.
In January 2025, the FASB issued ASU 2025-01,
Income Statement—Reporting
Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)
, which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) “to clarify that all public business
entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.” Entities within the ASU’s scope are
permitted to early adopt the ASU. The Company is currently evaluating the impact of this new guidance on its financial statements
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material
effect on the Company’s consolidated financial position, results of operations or cash flows.
| ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Forward-Looking Statements
We have made forward-looking statements in this document, and in documents that we may incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information
concerning possible or expected future results of operations of Citizens Financial Services, Inc., First Citizens Community Bank, First Citizens Insurance Agency, Inc. or the combined Company. When we use words such as “believes,” “expects,”
“anticipates,” or similar expressions, we are making forward-looking statements. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements. The Company cautions readers that
the following important factors, among others, could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement:
|
|
• |
Interest rates could change more rapidly or more significantly than we expect or the yield curve could remain inverted for a longer period than anticipated.
|
|
|
• |
The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.
|
|
|
• |
The financial markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.
|
|
|
• |
It could take us longer than we anticipate implementing strategic initiatives, including expansions, designed to increase revenues or manage expenses, or we may be unable to implement those initiatives at all.
|
|
|
• |
Acquisitions and dispositions of assets and companies could affect us in ways that management has not anticipated.
|
|
|
• |
We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition or operating results.
|
|
|
• |
We may become subject to new and unanticipated accounting, tax, regulatory or compliance practices or requirements. Failure to comply with any one or more of these requirements could have an adverse effect on our operations.
|
|
|
• |
We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition.
|
|
|
• |
We could experience greater losses than expected due to the ever-increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.
|
|
|
• |
We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area
knowledge.
|
|
|
• |
The agricultural economy is subject to extreme swings in both the costs of resources and the prices received from the sale of products as a result of weather
, government regulations, international trade
agreements and consumer tastes, which could negatively impact certain of our customers.
|
|
|
• |
Loan concentrations in certain industries could negatively impact our results, if financial results or economic conditions deteriorate.
|
|
|
• |
Companies providing support services related to the e
xploration and drilling of the natural gas reserves in our market area may be affected by federal, state and local laws and regulations such as
restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality. Additionally, the
activities the companies providing support services related to the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas. As a result, decreases in the market price of natural gas could
also negatively impact these companies, our customers.
|
Additional factors that may affect our results are discussed under “Part II – Item 1A – Risk Factors” in this report and in the Company’s 2024 Annual Report on Form 10-K under “Item 1.A/ Risk Factors.” Except as
required by applicable law and regulation, we assume no obligation to update or revise any forward-looking statements after the date on which they are made.
Introduction
The following is management's discussion and analysis of the Company’s consolidated financial condition and results of operations at the dates and for the periods presented in the accompanying consolidated financial
statements for the Company. Our consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. Management’s discussion and analysis should be read in conjunction with
the preceding financial statements presented under Part I and the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The results of operations for the
three months ended March 31, 2025 are not necessarily indicative of the results you may expect for the full year.
The Company engages in the general business of banking throughout our service area of Potter, Tioga, Clinton, Lycoming, Bradford and Centre counties in north central Pennsylvania, Lebanon, Berks, Schuylkill, Lancaster
and Chester counties in south central Pennsylvania and Allegany County in southern New York and with the MidCoast acquisition, the Cities of Wilmington and Dover, Delaware. We also have a limited branch office in Union county, Pennsylvania, which
primarily serves agricultural and commercial customers in the central Pennsylvania market. With the recently completed HVBC acquisition, we have expanded
further into southeast Pennsylvania, including Montgomery,
Bucks and Philadelphia Counties as well as Burlington County, New Jersey through the acquisition of five full service branches, four mortgage centers and one business banking facility.
We maintain our central office in Mansfield,
Pennsylvania. Presently we operate 48 banking facilities, 38 of which operate as bank branches. In Pennsylvania, the Company has full service offices located in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy, Sayre, Canton, Gillett,
Millerton, LeRaysville, Towanda, Rome, the Mansfield Wal-Mart Super Center, Mill Hall, Schuylkill Haven, Friedensburg, Mt. Aetna, Fredericksburg, Mount Joy, Ephrata, Fivepointville, State College, Kennett Square, Warrington, Williamsport,
Plumsteadville, Philadelphia, two branches near the city of Lebanon and two branches in Huntington Valley. The Company has limited branch offices located in Winfield, Pennsylvania and Georgetown, Delaware. In New York, our office is in Wellsville.
In Delaware, we have three branches in Wilmington and one in Dover. The mortgage centers acquired as part of the acquisition are located in Montgomeryville, PA, Huntington Valley, PA, Philadelphia, PA and Mount Laurel, NJ. The business banking
facility is located in Philadelphia, PA. In the fourth quarter of 2023, we opened a branch in Williamsport, Pennsylvania. During 2024, the Montgomeryville, PA mortgage office was closed and the Georgetown office was opened.
Risk Management
Risk identification and management are essential elements for the successful management of the Company. In the normal course of business, the Company is subject to various types of risk, including interest rate,
credit, liquidity, reputational and regulatory risk.
Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction, frequency and magnitude of changes in market interest rates. Interest rate risk results from
various re-pricing frequencies and the maturity structure of the financial instruments owned by the Company. The Company uses its asset/liability and funds management policy to control and manage interest rate risk.
Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from loans with customers and the purchase of securities from an issuer. The Company’s
primary credit risk is in the loan portfolio. The Company manages credit risk by adhering to an established credit policy and through a disciplined evaluation of the adequacy of the allowance for credit losses. Also, the investment policy limits
the amount of credit risk that may be taken in the investment portfolio.
Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors. The Company has established guidelines within its
asset/liability and funds management policy to manage liquidity risk. These guidelines include, among other things, contingent funding alternatives.
Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion, could result from our actual or alleged conduct in a variety of areas, including legal and
regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information, including fraudulent activity outside the Company’s control. We expend significant resources to comply
with regulatory requirements. Failure to comply could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely affect our ability to retain and attract new customers, and adversely impact our
earnings and liquidity.
Regulatory and compliance risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company. We cannot predict what legislation might be
enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations.
Competition
The banking industry in the Bank’s service areas continue to be extremely competitive for loans and deposits, both among commercial banks and with other financial service providers such as consumer
finance companies, thrifts, investment firms, mutual funds, insurance companies, credit unions, agricultural cooperatives and internet entities. Competition in our north central Pennsylvania market has increased as a result of other financial
institutions expanding looking to expand into new markets. With larger population centers in our central, south central and south east Pennsylvania markets, as well as in our Delaware market, we experience more competition to gather deposits and to
make loans. Mortgage banking firms, financial companies, financial affiliates of industrial companies, brokerage firms, retirement fund management firms and even government agencies provide additional competition for loans, deposits and other
financial services. Fintech and blockchain entities offering crypto services are also increasing competition for the Company’s financial services. The Bank is generally competitive with all competing financial institutions in its service areas with
respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans.
Trust and Investment Services; Oil and Gas Lease Services
Our Investment and Trust Services Division offers professional trust administration, investment management services, estate planning and administration, and custody of securities.
In
addition to traditional trust and investment services offered, we assist our customers through various oil and gas specific leasing matters from lease negotiations to establishing a successful approach to personal wealth management.
Assets
held by the Company in a fiduciary or agency capacity for its customers are not included in the Consolidated Balance Sheets since such items are not assets of the Company. Revenues and fees of the Trust Department are reflected in trust income in
the Consolidated Statement of Income. As of March 31, 2025 and December 31, 2024, the Trust Department had $178.0 million and $180.7 million of assets under management, respectively.
Our Investment Representatives offer full service brokerage services and financial planning throughout the Bank’s market area. Products such as mutual funds, annuities, health and life insurance are made available
through our insurance subsidiary, First Citizens Insurance Agency, Inc. The assets associated with these products are not included in the Consolidated Balance Sheets since such assets are not assets of the Company. Assets owned and invested by
customers of the Bank through the Bank’s Investment Representatives increased from $395.9 million at December 31, 2024 to $397.2 million at March 31, 2025. Fee income from the sale of these products is reflected in brokerage and insurance income in
the Consolidated Statement of Income. Management believes that there are opportunities to increase non-interest income through these products and services, especially in our central, south central and south eastern Pennsylvania markets.
Results of Operations
Overview of the Income Statement
The Company had net income of $7,621,000 for the first three months of 2025 compared to $7,024,000 for last year’s comparable period, an increase of $597,000, or 8.50%. Basic earnings per share for the
first three months of 2025 were $1.60, compared to $1.48 for last year’s comparable period, representing an 8.11% increase. Annualized return on assets and return on equity for the three months of 2025 were 1.00% and 10.00%, respectively, compared
with 0.94% and 9.95% for last year’s comparable period.
Net Interest Income
Net interest income, the most significant component of the Company’s earnings, is the amount by which interest income generated from interest-earning assets exceeds interest expense paid on interest-bearing
liabilities.
Net interest income for the first three months of 2025 was $23,002,000, an increase of $2,044,000, or 9.75%, compared to the same period in 2024. For the first three months of 2025 the provision for credit losses was
$625,000 compared to a provision of $785,000 for the first three months of 2024. Consequently, net interest income after the provision for credit losses was $22,377,000 in the first three months of 2025 compared to $20,173,000 during the first
three months of 2024.
The following table sets forth the average balances of, and the interest earned or incurred on, for each principal category of assets, liabilities and stockholders’ equity, the related rates, net interest income and
interest rate spread created for the three months ended March 31, 2025 and 2024 on a tax equivalent basis (dollars in thousands):
|
March 31, 2025
|
March 31, 2024
|
|||||||||||||||||||||||
|
Average
Balance (1)
|
Interest
|
Average
Rate
|
Average
Balance (1)
|
Interest
|
Average
Rate
|
|||||||||||||||||||
|
(dollars in thousands)
|
|
$ | $ |
|
%
|
|
$ | $ |
|
%
|
||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||
|
Short-term investments:
|
||||||||||||||||||||||||
|
Interest-bearing deposits at banks
|
23,985
|
114
|
1.93
|
29,184
|
212
|
2.92
|
||||||||||||||||||
|
Total short-term investments
|
23,985
|
114
|
1.93
|
29,184
|
212
|
2.92
|
||||||||||||||||||
|
Interest bearing time deposits at banks
|
3,820
|
29
|
3.08
|
4,054
|
31
|
3.08
|
||||||||||||||||||
|
Investment securities:
|
||||||||||||||||||||||||
|
Taxable
|
382,640
|
2,768
|
2.89
|
362,963
|
2,025
|
2.23
|
||||||||||||||||||
|
Tax-exempt (3)
|
103,015
|
693
|
2.69
|
107,497
|
674
|
2.51
|
||||||||||||||||||
|
Total investment securities
|
485,655
|
3,461
|
2.85
|
470,460
|
2,699
|
2.29
|
||||||||||||||||||
|
Loans (2)(3)(4):
|
||||||||||||||||||||||||
|
Residential mortgage loans
|
352,194
|
5,099
|
5.87
|
359,720
|
5,059
|
5.66
|
||||||||||||||||||
|
Construction
|
163,440
|
2,922
|
7.25
|
189,898
|
3,491
|
7.39
|
||||||||||||||||||
|
Commercial Loans
|
1,255,129
|
19,426
|
6.28
|
1,236,308
|
19,519
|
6.35
|
||||||||||||||||||
|
Agricultural Loans
|
356,868
|
4,726
|
5.37
|
344,468
|
4,405
|
5.14
|
||||||||||||||||||
|
Loans to state & political subdivisions
|
53,731
|
517
|
3.90
|
56,648
|
550
|
3.90
|
||||||||||||||||||
|
Other loans
|
164,774
|
2,968
|
7.31
|
110,140
|
2,217
|
8.10
|
||||||||||||||||||
|
Loans, net of discount
|
2,346,136
|
35,658
|
6.16
|
2,297,182
|
35,241
|
6.17
|
||||||||||||||||||
|
Total interest-earning assets
|
2,859,596
|
39,262
|
5.57
|
2,800,880
|
38,183
|
5.48
|
||||||||||||||||||
|
Cash and due from banks
|
9,620
|
9,822
|
||||||||||||||||||||||
|
Bank premises and equipment
|
21,545
|
21,289
|
||||||||||||||||||||||
|
Other assets
|
175,273
|
178,841
|
||||||||||||||||||||||
|
Total non-interest earning assets
|
206,438
|
209,952
|
||||||||||||||||||||||
|
Total assets
|
3,066,034
|
3,010,832
|
||||||||||||||||||||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||
|
Interest-bearing liabilities:
|
||||||||||||||||||||||||
|
Business Interest Checking
|
17,640
|
40
|
0.94
|
-
|
-
|
-
|
||||||||||||||||||
|
NOW accounts
|
739,808
|
4,054
|
2.22
|
799,968
|
5,223
|
2.63
|
||||||||||||||||||
|
Savings accounts
|
292,981
|
348
|
0.48
|
302,091
|
387
|
0.52
|
||||||||||||||||||
|
Money market accounts
|
417,907
|
3,025
|
2.94
|
381,042
|
2,793
|
2.95
|
||||||||||||||||||
|
Certificates of deposit
|
507,944
|
4,827
|
3.85
|
422,420
|
3,918
|
3.73
|
||||||||||||||||||
|
Total interest-bearing deposits
|
1,976,280
|
12,294
|
2.52
|
1,905,521
|
12,321
|
2.60
|
||||||||||||||||||
|
Other borrowed funds
|
346,416
|
3,718
|
4.35
|
375,972
|
4,654
|
4.98
|
||||||||||||||||||
|
Total interest-bearing liabilities
|
2,322,696
|
16,012
|
2.80
|
2,281,493
|
16,975
|
2.99
|
||||||||||||||||||
|
Demand deposits
|
371,893
|
370,951
|
||||||||||||||||||||||
|
Other liabilities
|
43,493
|
49,488
|
||||||||||||||||||||||
|
Total non-interest-bearing liabilities
|
415,386
|
420,439
|
||||||||||||||||||||||
|
Stockholders' equity
|
327,952
|
308,900
|
||||||||||||||||||||||
|
Total liabilities & stockholders' equity
|
3,066,034
|
3,010,832
|
||||||||||||||||||||||
|
Net interest income
|
23,250
|
21,208
|
||||||||||||||||||||||
|
Net interest spread (5)
|
2.77
|
%
|
2.49
|
%
|
||||||||||||||||||||
|
Net interest income as a percentage of average interest-earning assets
|
3.30
|
%
|
3.05
|
%
|
||||||||||||||||||||
|
Ratio of interest-earning assets to interest-bearing liabilities
|
123
|
%
|
123
|
%
|
||||||||||||||||||||
|
(1)
|
Averages are based on daily averages.
|
|
(2)
|
Includes loan origination and commitment fees.
|
|
(3)
|
Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21%.
|
|
(4)
|
Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
|
|
(5)
|
Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
|
Tax exempt revenue is shown on a tax-equivalent basis (non-GAAP) for proper comparison using a federal statutory income tax rate of 21% for the three months ended March 31, 2025 and 2024. For purposes of the
comparison, as well as the discussion that follows, this presentation facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been
paid if this income were taxable at the Company’s Federal statutory rate during the corresponding period. The following table represents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for
the periods ended March 31, 2025 and 2024 (in thousands):
|
For the Three Months
Ended March 31,
|
||||||||
|
2025
|
2024
|
|||||||
|
|
||||||||
|
Interest and dividend income from investment securities and interest bearing deposits at banks (non-tax adjusted)
|
$
|
3,458
|
$
|
2,800
|
||||
|
Tax equivalent adjustment
|
146
|
142
|
||||||
|
Interest and dividend income from investment securities and interest bearing deposits at banks (tax equivalent basis)
|
$
|
3,604
|
$
|
2,942
|
||||
|
Interest and fees on loans (non-tax adjusted)
|
$
|
35,556
|
$
|
35,133
|
||||
|
Tax equivalent adjustment
|
102
|
108
|
||||||
|
Interest and fees on loans (tax equivalent basis)
|
$
|
35,658
|
$
|
35,241
|
||||
|
|
||||||||
|
Total interest income
|
$
|
39,014
|
$
|
37,933
|
||||
|
Total interest expense
|
16,012
|
16,975
|
||||||
|
Net interest income
|
23,002
|
20,958
|
||||||
|
Total tax equivalent adjustment
|
248
|
250
|
||||||
|
Net interest income (tax equivalent basis)
|
$
|
23,250
|
$
|
21,208
|
||||
The following table shows the tax-equivalent effect of changes in volume and rate on interest income and expense (in thousands):
|
Three months ended March 31, 2025 vs 2024 (1)
|
||||||||||||
|
Change in
Volume
|
Change
in Rate
|
Total
Change
|
||||||||||
|
Interest Income:
|
||||||||||||
|
Short-term investments:
|
||||||||||||
|
Interest-bearing deposits at banks
|
$
|
(35
|
)
|
$
|
(63
|
)
|
$
|
(98
|
)
|
|||
|
Interest bearing time deposits at banks
|
(2
|
)
|
-
|
(2
|
)
|
|||||||
|
Investment securities:
|
||||||||||||
|
Taxable
|
115
|
628
|
743
|
|||||||||
|
Tax-exempt
|
(26
|
)
|
45
|
19
|
||||||||
|
Total investments
|
89
|
673
|
762
|
|||||||||
|
Loans:
|
||||||||||||
|
Residential mortgage loans
|
(142
|
)
|
182
|
40
|
||||||||
|
Construction
|
(503
|
)
|
(66
|
)
|
(569
|
)
|
||||||
|
Commercial Loans
|
119
|
(212
|
)
|
(93
|
)
|
|||||||
|
Agricultural Loans
|
124
|
197
|
321
|
|||||||||
|
Loans to state & political subdivisions
|
(33
|
)
|
-
|
(33
|
)
|
|||||||
|
Other loans
|
940
|
(189
|
)
|
751
|
||||||||
|
Total loans, net of discount
|
505
|
(88
|
)
|
417
|
||||||||
|
Total Interest Income
|
557
|
522
|
1,079
|
|||||||||
|
Interest Expense:
|
||||||||||||
|
Interest-bearing deposits:
|
||||||||||||
|
Business Interest Checking
|
-
|
40
|
40
|
|||||||||
|
NOW accounts
|
(413
|
)
|
(756
|
)
|
(1,169
|
)
|
||||||
|
Savings accounts
|
(15
|
)
|
(24
|
)
|
(39
|
)
|
||||||
|
Money Market accounts
|
244
|
(12
|
)
|
232
|
||||||||
|
Certificates of deposit
|
777
|
132
|
909
|
|||||||||
|
Total interest-bearing deposits
|
593
|
(620
|
)
|
(27
|
)
|
|||||||
|
Other borrowed funds
|
(384
|
)
|
(552
|
)
|
(936
|
)
|
||||||
|
Total interest expense
|
209
|
(1,172
|
)
|
(963
|
)
|
|||||||
|
Net interest income
|
$
|
348
|
$
|
1,694
|
$
|
2,042
|
||||||
|
(1)
|
The portion of the total change attributable to both volume and rate changes, which can not be separated, has been allocated proportionally to the change due to volume and the change due to rate prior to allocation.
|
Tax equivalent net interest income increased from $21,208,000 for the three month period ended March 31, 2024 to $23,250,000 for the three month period ended March 31, 2025, an increase of
$2,042,000. This increase was a result of an increase of $348,000 due to a change in volume as average interest-bearing assets increased $58.7 million due to organic growth primarily in our Delaware market. As a result of the lower market interest
rates, the yield on average interest earning liabilities decreased 19 basis points from 2.99% to 2.80% resulting in a decrease in interest expense of $963,000. The tax equivalent net interest margin increased from 3.05% for the first three months
of 2024 to 3.30% for the comparable period in 2025. The increase was primarily caused by the decrease in the cost of interest-bearing liabilities due to lower market interest rates in 2025 compared to 2024.
Total tax equivalent interest income for the 2025 totaled $39,262,000, an increase of $1,079,000, when compared to the same period in 2024. This increase was a result of an increase of $557,000 due
to a change in volume as average interest-bearing assets increased $58.7 million. The yield on interest earning assets increased from 5.48% to 5.57% resulting in an increase in interest income of $522,000.
Tax equivalent investment income for the three months ended March 31, 2025 increased $762,000 over the same period last year. The primary cause of the increase was due to the increase in yield on
investment securities of 56 basis points to 2.85%.
|
|
• |
The average balance of taxable securities increased $19.7 million, which resulted in an increase in investment income of $115,000. The yield on taxable securities increased 66 basis points from 2.29% to 2.85% as a result of lower
yielding securities maturing and purchases made in a higher rate environment. This resulted in an increase in investment income of $628,000.
|
|
|
• |
The average balance of tax-exempt securities decreased $4.5 million, which resulted in a decrease in investment income of $26,000. The yield on taxable securities increased 19 basis points from 2.51% to 2.69%. This resulted in a increase
in investment income of $45,000. For a discussion of the Company’s current investment strategy, see the “Financial Condition – Investments”.
|
Total loan interest income increased $417,000 for the three months ended March 31, 2025 compared to the same period last year, as a result of higher volume and yields.
|
|
• |
Interest income on residential mortgage loans increased $40,000. The change due to rate was an increase of $182,000 as the average yield on residential mortgages increased from 5.66% to 5.87% as a result of the higher interest rate
environment during the first nine months of 2024. The average balance of residential mortgage loans decreased $7.5 million. This resulted in a decrease of $142,000 on total interest income due to volume.
|
|
|
• |
The average balance of construction loans decreased $26.5 million as a result of projects in our Delaware and southeast Pennsylvania markets being completed and the related construction loans either transferring to other portfolios or
being paid off. This resulted in a decrease of $503,000 on total interest income due to volume. The change due to rate was a decrease of $66,000 as the average yield on construction loans decreased from 7.39% to 7.25% as a result of a
decrease in interest rates in the last quarter of 2024 and the first quarter of 2025.
|
|
|
• |
The average balance of commercial loans increased $18.8 million from a year ago. The growth was primarily attributable to construction loans being replaced with permanent financing. This had a positive impact of $119,000 on total
interest income due to volume. The yield decreased 0.07% to 6.28% as a result of a decrease in interest rates in the last quarter of 2024 and the first quarter of 2025, which decreased loan interest income $212,000.
|
|
|
• |
Interest income on agricultural loans increased $321,000 from 2024 to 2025. The yield increased 23 basis points to 5.37% as a result of the higher market rate environment the first nine months of 2024, which increased loan interest
income $197,000. The average balance of agricultural loans increased $12.4 million from a year ago, resulting in an increase in interest income of $124,000.
|
|
|
• |
The average balance of other loans increased $54.6 million as a result of outstanding student loans. This resulted in an increase of $940,000 on total interest income due to volume. The average yield of other loans decreased 79 basis
points to 7.31% due to the lower rate environment in the first quarter of 2025, resulting in a decrease in income of $189,000.
|
Total interest expense decreased $963,000 for the three months ended March 31, 2025 compared with the comparative period last year as a result of a decrease in rate on interest-bearing liabilities. Interest expense
increased $209,000 due to volume as a result of an increase in interest bearing liabilities of $41.2 million. The average rate paid on interest-bearing liabilities decreased from 2.99% to 2.80%. The decrease was driven by the Federal Reserve
interest rate decreases in 2024, which caused interest expense to decrease $1,172,000.
|
|
• |
The average balance of interest bearing deposits increased $70.8 million from March 31, 2024 to March 31, 2025.
The increase was due to organic growth experienced in 2024 and 2025.
The effect
of these volume changes was an increase in interest expense of $593,000. The average rate paid on interest bearing deposits was 2.52% for the first three months of 2025 and 2.60% for the comparable period in 2024. This resulted in a
decrease in interest expense of $620,000, driven primarily by NOW accounts, which decreased $756,000. The decrease was due to the Federal Reserve decreasing interest rates during the second half of 2024.
|
|
|
• |
The average balance of other borrowed funds decreased $29.6 million. This resulted in a decrease in interest expense of $384,000. There was a decrease in the average rate paid on other borrowed funds from 4.98% to 4.35% due to the
interest rate decreases by the Federal Reserve that decreased borrowings costs resulting in a decrease in interest expense of $552,000.
|
Provision for Credit Losses
For the three months ended March 31, 2025, we recorded a provision for credit losses of $625,000, which represents a decrease of $160,000. The decrease in the provision was due to a decrease in specific reserves for
non-performing loans when comparing 2025 to 2024. It should be noted that as in the prior year, loss drivers were updated which including updating prepayment and curtailment speeds as well as additional information. (see “Financial Condition –
Allowance for Credit Losses and Credit Quality Risk”).
Non-interest Income
The following table shows the breakdown of non-interest income for the three months ended March 31, 2025 and 2024 (dollars in thousands):
|
Three months ended March 31,
|
Change
|
|||||||||||||||
|
2025
|
2024
|
Amount
|
%
|
|||||||||||||
|
Service charges
|
$
|
1,291
|
$
|
1,372
|
$
|
(81
|
)
|
(5.9
|
)
|
|||||||
|
Trust
|
224
|
244
|
(20
|
)
|
(8.2
|
)
|
||||||||||
|
Brokerage and insurance
|
683
|
665
|
18
|
2.7
|
||||||||||||
|
Gains on loans sold
|
272
|
417
|
(145
|
)
|
(34.8
|
)
|
||||||||||
|
Equity security (losses) gains, net
|
(11
|
)
|
55
|
(66
|
)
|
(120.0
|
)
|
|||||||||
|
Gain on sale of Braavo division
|
-
|
1,102
|
(1,102
|
)
|
(100.0
|
)
|
||||||||||
|
Earnings on bank owned life insurance
|
346
|
668
|
(322
|
)
|
(48.2
|
)
|
||||||||||
|
Other
|
622
|
448
|
174
|
38.8
|
||||||||||||
|
Total
|
$
|
3,427
|
$
|
4,971
|
$
|
(1,544
|
)
|
(31.1
|
)
|
|||||||
Non-interest income for the three months ended March 31, 2025 totaled $3,427,000, a decrease of $1,544,000 when compared to the same period in 2024. During the first three months of 2025, net
equity security losses amounted to $11,000 as a result of market losses associated with general bank stock market losses compared with a $55,000 gain in the comparable 2024 period associated with market conditions for that period.
The decrease in gains on loans sold for the three month periods ended March 31, 2025 compared to 2024 is attributable to the continued high mortgage rate environment that is limiting the number of
sales as well as limiting refinancing opportunities. The decrease in earnings on bank owned life insurance is due to the death benefits received upon the passing of a former employee in 2024. During the first quarter of 2024, the Company completed
the sale of certain assets acquired as part of the HVB acquisition, which included loans and accrued interest, and software, as well as transferring certain contracts, processes and employees of a division internally known as Braavo. The proceeds
from the sale totaled approximately $7.2 million and generated a pre-tax gain of approximately $1.1 million.
Non-interest Expense
The following tables reflect the breakdown of non-interest expense for the three months ended March 31, 2025 and 2024 (dollars in thousands):
|
Three months ended March 31,
|
Change
|
|||||||||||||||
|
2025
|
2024
|
Amount
|
%
|
|||||||||||||
|
Salaries and employee benefits
|
$
|
10,289
|
$
|
10,290
|
$
|
(1
|
)
|
(0.0
|
)
|
|||||||
|
Occupancy
|
1,356
|
1,324
|
32
|
2.4
|
||||||||||||
|
Furniture and equipment
|
265
|
236
|
29
|
12.3
|
||||||||||||
|
Professional fees
|
517
|
703
|
(186
|
)
|
(26.5
|
)
|
||||||||||
|
FDIC insurance
|
450
|
525
|
(75
|
)
|
(14.3
|
)
|
||||||||||
|
Pennsylvania shares tax
|
319
|
310
|
9
|
2.9
|
||||||||||||
|
Amortization of intangibles
|
127
|
149
|
(22
|
)
|
(14.8
|
)
|
||||||||||
|
Software expenses
|
432
|
514
|
(82
|
)
|
(16.0
|
)
|
||||||||||
|
ORE expenses (recovery)
|
119
|
(13
|
)
|
132
|
(1,015.4
|
)
|
||||||||||
|
Other
|
2,554
|
2,605
|
(51
|
)
|
(2.0
|
)
|
||||||||||
|
Total
|
$
|
16,428
|
$
|
16,643
|
$
|
(215
|
)
|
(1.3
|
)
|
|||||||
Non-interest expenses decreased $215,000 for the three months ended March 31, 2025 compared to the same period in 2024. Salaries and employee benefits remained flat at $10.3 million. Full time
equivalent employees (FTE) decreased 14.3 or 3.6% when comparing 2025 to 2024. This decrease in headcount helped to offset the increase in salary and benefit expense due to merit increases, increased profit sharing and other retirement expenses.
Professional fees decreased due to various legal matters in 2024, of which $201,000 was related to the sale of Braavo. The decrease in FDIC insurance is due to an increase in the Bank’s leverage
ratio. The increase in ORE expenses was due to the sale of an OREO property in 2024 that generated a gain in of $138,000.
Provision for Income Taxes
The provision for income taxes was $1,755,000 for the three month period ended March 31, 2025 compared to $1,477,000 for the same period in 2024. The increase is primarily attributable to the increase in income before
the provision for income taxes of $875,000 for the comparable periods due to the increase in net interest income. Through management of our municipal loan and bond portfolios, management is focused on minimizing our effective tax rate. Our
effective tax rate was 18.7% and 17.4% for the first three months of 2025 and 2024, respectively, compared to the statutory rate of 21%.
We are invested in seven limited partnerships that have established low-income housing projects in our market areas, with our most recent investments made in the second half of 2022. We are currently recognizing
credits on three projects. The remaining four partnership credits are fully utilized as of December 31, 2023. We anticipate recognizing an aggregate of $7.6 million of tax credits over the next 11 years.
Financial Condition
Total assets were $3.02 billion at March 31, 2025, a decrease of $9.4 million from $3.03 billion at December 31, 2024, due primarily to a decrease in loans held for sale and other assets. Cash and cash equivalents
decreased $5.4 million to $36.8 million. Available for sale securities increased $4.8 million. Total loans increased $2.0 million. Total deposits decreased $17.2 million to $2.36 billion since year-end 2024, while borrowed funds increased $4.3
million to $302.0 million.
Cash and Cash Equivalents
Cash and cash equivalents totaled $36.8 million at March 31, 2025 compared to $42.2 million at December 31, 2024. The decrease is due to a decrease in the cash held at the Federal Reserve. Management actively measures
and evaluates the Company’s liquidity position through our Asset–Liability Committee and believes the Company’s liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding
sources including the Bank’s core deposits, Federal Home Loan Bank financing, federal funds lines with correspondent banks, brokered certificates of deposit and the portion of the investment and loan portfolios that mature within one year.
Management expects that these sources of funds will permit us to meet cash obligations and off-balance sheet commitments as they come due.
Investments
The following table shows the composition of the investment portfolio (including debt and equity securities) as of March 31, 2025 and December 31, 2024 (dollars in thousands):
|
March 31, 2025
|
December 31, 2024
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Debt securities:
|
||||||||||||||||
|
U. S. Agency securities
|
$
|
54,367
|
12.6
|
$
|
53,487
|
12.5
|
||||||||||
|
U. S. Treasury notes
|
112,415
|
26.0
|
120,502
|
28.2
|
||||||||||||
|
Obligations of state & political subdivisions
|
94,339
|
21.8
|
94,902
|
22.2
|
||||||||||||
|
Corporate obligations
|
10,772
|
2.5
|
10,438
|
2.4
|
||||||||||||
|
Mortgage-backed securities in government sponsored entities
|
158,808
|
36.7
|
146,583
|
34.3
|
||||||||||||
|
Equity securities
|
1,737
|
0.4
|
1,747
|
0.4
|
||||||||||||
|
Total
|
$
|
432,438
|
100.0
|
$
|
427,659
|
100.0
|
||||||||||
|
March 31, 2025/
December 31, 2024
Change
|
||||||||
|
Amount
|
%
|
|||||||
|
Debt securities:
|
||||||||
|
U. S. Agency securities
|
$
|
880
|
1.6
|
|||||
|
U. S. Treasury notes
|
(8,087
|
)
|
(6.7
|
)
|
||||
|
Obligations of state & political subdivisions
|
(563
|
)
|
(0.6
|
)
|
||||
|
Corporate obligations
|
334
|
3.2
|
||||||
|
Mortgage-backed securities in government sponsored entities
|
12,225
|
8.3
|
||||||
|
Equity securities
|
(10
|
)
|
(0.6
|
)
|
||||
|
Total
|
$
|
4,779
|
1.1
|
|||||
Our investment portfolio increased by $4.8 million, or 1.1%, from December 31, 2024 to March 31, 2025. During 2025, we purchased $14.2 million of mortgage-backed securities in U.S government sponsored entities. We
experienced $4.6 million of principal repayments and $14.1 million of calls and maturities. As a result of decreases in market interest rates, the unrealized loss on available for sale investment portfolio decreased $4.9 million. Excluding our
short-term investments consisting of monies held primarily at the Federal Reserve for liquidity purposes, our investment portfolio for the three month period ended March 31, 2025 yielded 2.85%, compared to 2.29% in the comparable period in 2024, on
a tax equivalent basis.
The investment strategy for 2025 has been to utilize cashflows from the investment portfolio to repurchase investments. We continually monitor interest rate trading ranges and seek to time investment security purchases
when rates are in the top third of the trading range. The Company believes its investment strategy has appropriately mitigated its interest rate risk exposure for various rate environments, including a rising rate environment, while providing
sufficient cashflows to meet liquidity needs.
Management continues to monitor the earnings performance and the liquidity of the investment portfolio on a regular basis. Through active balance sheet management and analysis of the investment portfolio, the Company
believes it maintains sufficient liquidity to satisfy depositor withdrawal requirements and various credit needs of its customers.
Loans Held for Sale
Loans held for sale decreased $3.6 million to $6.1 million as of March 31, 2025 from December 31, 2024 due to the first quarter typically being the slowest quarter for residential home sales.
Loans
The following table shows the composition of the loan portfolio as of March 31, 2025 and December 31, 2024 (dollars in thousands):
|
March 31,
2025
|
December 31,
2024
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Real estate:
|
||||||||||||||||
|
Residential
|
$
|
350,221
|
15.1
|
$
|
351,398
|
15.2
|
||||||||||
|
Commercial
|
1,117,240
|
48.3
|
|
1,121,435
|
48.5
|
|||||||||||
|
Agricultural
|
329,985
|
14.3
|
|
327,722
|
14.2
|
|||||||||||
|
Construction
|
168,896
|
7.3
|
|
164,326
|
7.1
|
|||||||||||
|
Consumer
|
129,943
|
5.6
|
133,207
|
5.8
|
||||||||||||
|
Other commercial loans
|
137,529
|
5.9
|
131,310
|
5.7
|
||||||||||||
|
Other agricultural loans
|
28,488
|
1.2
|
29,662
|
1.3
|
||||||||||||
|
State & political subdivision loans
|
53,361
|
2.3
|
54,182
|
2.2
|
||||||||||||
|
Total loans
|
2,315,663
|
100.0
|
2,313,242
|
100.0
|
||||||||||||
|
Less allowance for credit losses
|
22,081
|
21,699
|
||||||||||||||
|
Net loans
|
$
|
2,293,582
|
$
|
2,291,543
|
||||||||||||
|
March 31, 2025/
December 31, 2024
Change
|
||||||||
|
Amount
|
%
|
|||||||
|
Real estate:
|
||||||||
|
Residential
|
$
|
(1,177
|
)
|
(0.3
|
)
|
|||
|
Commercial
|
(4,195
|
)
|
(0.4
|
)
|
||||
|
Agricultural
|
2,263
|
0.7
|
||||||
|
Construction
|
4,570
|
2.8
|
||||||
|
Consumer
|
(3,264
|
)
|
(2.5
|
)
|
||||
|
Other commercial loans
|
6,219
|
4.7
|
||||||
|
Other agricultural loans
|
(1,174
|
)
|
(4.0
|
)
|
||||
|
State & political subdivision loans
|
(821
|
)
|
(1.5
|
)
|
||||
|
Total loans
|
$
|
2,421
|
0.1
|
|||||
Lending efforts have historically been focused in north central Pennsylvania, the south central Pennsylvania counties of Lebanon, Schuylkill, Berks and Lancaster, the central Pennsylvania counties of Clinton and
Centre, and southern New York. In Delaware, our activity is centered around the cities of Wilmington and Dover, Delaware. We have a limited branch office in Union County that is staffed by a lending team to primarily support agricultural
opportunities in central Pennsylvania and a loan production office in Georgetown, Delaware to also support our agricultural initiative. In June 2023, we completed the HVBC acquisition, which expanded our markets into south east Pennsylvania,
including the counties of Montgomery, Bucks and Philadelphia. It also includes a Mortgage production office in Mount Laurel, New Jersey. In the fourth quarter of 2023, we opened an office in Williamsport, Pennsylvania, to further our efforts in
central Pennsylvania. We originate loans primarily through direct loans to our existing customer base, with new customers generated through the strong relationships our lending teams have with their customers and our lenders expertise in certain
areas, as well as by referrals from real estate brokers, building contractors, attorneys, accountants, corporate and advisory board members, existing customers and the Bank’s website. The Bank offers a variety of loans although historically most
of our lending has focused on real estate loans including residential, commercial, agricultural, and construction loans. All lending is governed by a lending policy that is developed and administered by management and approved by the Board of
Directors.
Loan activity remained steady in the first quarter of 2025 with growth experienced across most markets even after some large pay-offs primarily in Delaware and our south east Pennsylvania market.
The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in
the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development and other land acquisitions which represent 100% or more of
an institution’s total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital and the institution’s commercial real estate loan portfolio has increased 50% or more
during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk
management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital. The Company, like many community banks, has a concentration in commercial real estate loans, and the Company has experienced
growth in its commercial real estate portfolio in recent years. As of March 31, 2025, non-owner-occupied commercial real estate loans (including construction, land and land development loans) represented 306.5% of consolidated risk based capital.
Construction, land and land development loans represented 57.8% of consolidated risk based capital as of March 31, 2025. Management has extensive experience in commercial real estate lending and has implemented and continues to maintain
heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. We may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which
could require us to obtain additional capital and may adversely affect shareholder returns. The Company has an extensive Capital Policy and Capital Plan, which includes pro-forma projections including stress testing within which the Board of
Directors has established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios. The Company continues to refine information reviewed related to commercial real estate and to implement additional
monitoring and testing of commercial real estate loans. As of March 31, 2025, management believes that it has implemented appropriate risk management practices, including risk assessments, board-approved underwriting policies and related
procedures, which include monitoring loan portfolio performance and stressing of the commercial real estate portfolio under adverse economic conditions.
Given the significance of commercial real estate (“CRE”) loans to our total loan portfolio, the following table further disaggregates these loans by occupied status and by collateral type as of March 31, 2025 and
December 31, 2024 (dollars in thousands):
|
March 31, 2025
|
||||||||||||||||||||||||
|
Owner Occupied
|
Non-Owner Occupied
|
Total
|
||||||||||||||||||||||
|
Commercial Real Estate
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
|
Residential Rental and Speculation
|
$
|
6,273
|
0.56
|
%
|
$
|
177,132
|
15.85
|
%
|
$
|
183,405
|
16.42
|
%
|
||||||||||||
|
Multifamily Rental
|
-
|
0.00
|
%
|
160,043
|
14.32
|
%
|
160,043
|
14.32
|
%
|
|||||||||||||||
|
Student Housing
|
-
|
0.00
|
%
|
48,317
|
4.32
|
%
|
48,317
|
4.32
|
%
|
|||||||||||||||
|
Office
|
14,177
|
1.27
|
%
|
65,159
|
5.83
|
%
|
79,336
|
7.10
|
%
|
|||||||||||||||
|
Medical office
|
10,492
|
0.94
|
%
|
7,956
|
0.71
|
%
|
18,448
|
1.65
|
%
|
|||||||||||||||
|
Retail
|
43,272
|
3.87
|
%
|
112,348
|
10.06
|
%
|
155,620
|
13.93
|
%
|
|||||||||||||||
|
Self Storage
|
-
|
0.00
|
%
|
11,577
|
1.04
|
%
|
11,577
|
1.04
|
%
|
|||||||||||||||
|
Industrial/Flex/Warehouse
|
23,733
|
2.12
|
%
|
62,674
|
5.61
|
%
|
86,407
|
7.73
|
%
|
|||||||||||||||
|
Mixed Use
|
15,678
|
1.40
|
%
|
81,370
|
7.28
|
%
|
97,048
|
8.69
|
%
|
|||||||||||||||
|
Hotel/Motel
|
-
|
0.00
|
%
|
97,263
|
8.71
|
%
|
97,263
|
8.71
|
%
|
|||||||||||||||
|
Healthcare/Hospitals
|
7,059
|
0.63
|
%
|
-
|
0.00
|
%
|
7,059
|
0.63
|
%
|
|||||||||||||||
|
Schools/Higher Ed/Vocational
|
1,548
|
0.14
|
%
|
7,324
|
0.66
|
%
|
8,872
|
0.79
|
%
|
|||||||||||||||
|
Amusement/Entertainment
|
16,608
|
1.49
|
%
|
4,888
|
0.44
|
%
|
21,496
|
1.92
|
%
|
|||||||||||||||
|
Specialty
|
32,213
|
2.88
|
%
|
23,252
|
2.08
|
%
|
55,465
|
4.96
|
%
|
|||||||||||||||
|
Land
|
2,589
|
0.23
|
%
|
54,520
|
4.88
|
%
|
57,109
|
5.11
|
%
|
|||||||||||||||
|
Senior Living
|
-
|
0.00
|
%
|
6,758
|
0.60
|
%
|
6,758
|
0.60
|
%
|
|||||||||||||||
|
Food and beverage
|
15,455
|
1.38
|
%
|
305
|
0.03
|
%
|
15,760
|
1.41
|
%
|
|||||||||||||||
|
Other
|
2,741
|
0.25
|
%
|
4,516
|
0.40
|
%
|
7,257
|
0.65
|
%
|
|||||||||||||||
|
Total
|
$
|
191,838
|
17.17
|
%
|
$
|
925,402
|
82.83
|
%
|
$
|
1,117,240
|
100.00
|
%
|
||||||||||||
|
December 31, 2024
|
||||||||||||||||||||||||
|
Owner Occupied
|
Non-Owner Occupied
|
Total
|
||||||||||||||||||||||
|
Commercial Real Estate:
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
|
Residential Rental
|
$
|
6,717
|
0.60
|
%
|
$
|
177,003
|
15.78
|
%
|
$
|
183,720
|
16.38
|
%
|
||||||||||||
|
Multifamily Rental
|
522
|
0.05
|
%
|
175,314
|
15.63
|
%
|
175,836
|
15.68
|
%
|
|||||||||||||||
|
Student Housing
|
-
|
0.00
|
%
|
47,346
|
4.22
|
%
|
47,346
|
4.22
|
%
|
|||||||||||||||
|
Office
|
11,280
|
1.01
|
%
|
57,767
|
5.15
|
%
|
69,047
|
6.16
|
%
|
|||||||||||||||
|
Medical office
|
10,549
|
0.94
|
%
|
7,664
|
0.68
|
%
|
18,213
|
1.62
|
%
|
|||||||||||||||
|
Retail
|
57,365
|
5.12
|
%
|
114,620
|
10.22
|
%
|
171,985
|
15.34
|
%
|
|||||||||||||||
|
Self Storage
|
1,921
|
0.17
|
%
|
9,769
|
0.87
|
%
|
11,690
|
1.04
|
%
|
|||||||||||||||
|
Industrial/Flex/Warehouse
|
24,387
|
2.17
|
%
|
65,232
|
5.82
|
%
|
89,619
|
7.99
|
%
|
|||||||||||||||
|
Mixed Use
|
21,051
|
1.88
|
%
|
69,783
|
6.22
|
%
|
90,834
|
8.10
|
%
|
|||||||||||||||
|
Hotel/Motel
|
43,178
|
3.85
|
%
|
62,941
|
5.61
|
%
|
106,119
|
9.46
|
%
|
|||||||||||||||
|
Healthcare/Hospitals
|
7,162
|
0.64
|
%
|
-
|
0.00
|
%
|
7,162
|
0.64
|
%
|
|||||||||||||||
|
Schools/Higher Ed/Vocational
|
934
|
0.08
|
%
|
8,020
|
0.72
|
%
|
8,954
|
0.80
|
%
|
|||||||||||||||
|
Amusement/Entertainment
|
16,896
|
1.51
|
%
|
5,067
|
0.45
|
%
|
21,963
|
1.96
|
%
|
|||||||||||||||
|
Specialty
|
26,545
|
2.37
|
%
|
23,427
|
2.09
|
%
|
49,972
|
4.46
|
%
|
|||||||||||||||
|
Land
|
2,800
|
0.25
|
%
|
49,111
|
4.38
|
%
|
51,911
|
4.63
|
%
|
|||||||||||||||
|
Senior Living
|
-
|
0.00
|
%
|
5,978
|
0.53
|
%
|
5,978
|
0.53
|
%
|
|||||||||||||||
|
Other
|
1,865
|
0.17
|
%
|
9,221
|
0.82
|
%
|
11,086
|
0.99
|
%
|
|||||||||||||||
|
Total
|
$
|
233,172
|
20.79
|
%
|
$
|
888,263
|
79.21
|
%
|
$
|
1,121,435
|
100.00
|
%
|
||||||||||||
The following table provides a breakdown of our construction portfolio by collateral type as of March 31, 2025 and December 31, 2024 (dollars in thousands):
|
March 31, 2025
|
December 31, 2024
|
|||||||||||||||
|
Construction
|
Amount
|
%
|
Amount
|
%
|
||||||||||||
|
Residential
|
$
|
60,036
|
35.55
|
%
|
$
|
59,334
|
36.11
|
%
|
||||||||
|
Multifamily
|
49,737
|
29.45
|
%
|
49,838
|
30.33
|
%
|
||||||||||
|
Student Housing
|
1,494
|
0.88
|
%
|
-
|
0.00
|
%
|
||||||||||
|
Office
|
6,955
|
4.12
|
%
|
8,456
|
5.15
|
%
|
||||||||||
|
Retail
|
746
|
0.44
|
%
|
2,299
|
1.40
|
%
|
||||||||||
|
Self Storage
|
12,444
|
7.37
|
%
|
11,986
|
7.29
|
%
|
||||||||||
|
Industrial/Flex/Warehouse
|
17,167
|
10.16
|
%
|
15,337
|
9.33
|
%
|
||||||||||
|
Mixed Use
|
7,589
|
4.49
|
%
|
7,580
|
4.61
|
%
|
||||||||||
|
Hotel/Motel
|
620
|
0.37
|
%
|
623
|
0.38
|
%
|
||||||||||
|
Schools/Higher Ed/Vocational
|
4,806
|
2.85
|
%
|
3,464
|
2.11
|
%
|
||||||||||
|
Agricultural and land
|
4,875
|
2.89
|
%
|
4,528
|
2.76
|
%
|
||||||||||
|
Food and beverage
|
1,553
|
0.92
|
%
|
-
|
0.00
|
%
|
||||||||||
|
Other
|
874
|
0.52
|
%
|
881
|
0.54
|
%
|
||||||||||
|
Total
|
$
|
168,896
|
100.00
|
%
|
$
|
164,326
|
100.00
|
%
|
||||||||
The Company obtains an appraisal of the real estate collateral securing a CRE loan prior to originating the loan. The appraised value is used to calculate the ratio of the outstanding loan balance to the value of the
real estate collateral, or loan-to-value ratio ("LTV"). The original appraisal is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons, including but not limited to
payment delinquency, additional loan requests using the same collateral, and loan modifications. The following table presents the ranges in the LTVs of our CRE loans at March 31, 2025 (dollars in thousands):
|
LTV Range
|
Number of Loans
|
Amount
|
%
|
||||||||||
|
0%-25%
|
|
828
|
$
|
152,051
|
13.61
|
%
|
|||||||
|
25.01%-50%
|
|
536
|
316,437
|
28.32
|
%
|
||||||||
|
50.01%-60%
|
|
295
|
219,751
|
19.67
|
%
|
||||||||
|
60.01%-70%
|
|
353
|
279,376
|
25.01
|
%
|
||||||||
|
70.01%-75%
|
|
163
|
107,791
|
9.65
|
%
|
||||||||
|
75.01%-80%
|
|
47
|
32,169
|
2.88
|
%
|
||||||||
|
>80%
|
10
|
9,665
|
0.87
|
%
|
|||||||||
|
Total
|
2,232
|
$
|
1,117,240
|
100.00
|
%
|
||||||||
While the Company lends to companies that service companies that explore for natural gas in our market area, the Company has not originated any loans to companies performing the actual drilling and exploration
activities. Loans made by the Company are to service industry customers which include trucking companies, stone quarries and other support businesses, favoring customers that have had a relationship with the Company prior to supporting the
exploration for natural gas. We also have originated loans to businesses and individuals for restaurants, hotels and apartment rentals that have been developed and expanded to meet the housing and living needs of the gas industry workers. Due to
our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities have been originated in accordance with specific policies and procedures for lending to these entities, which include more stringent loan
to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity.
For loans sold on the secondary market, the Company recognizes fee income for servicing certain sold loans, which is included in non-interest income.
Allowance for Credit Losses - Loans
The allowance for credit losses - loans is maintained at a level which, in management’s judgment, is adequate to absorb losses in the loan portfolio. The provision for credit losses - loans is charged against current
income. Loans deemed not collectable are charged-off against the allowance while subsequent recoveries increase the allowance. The allowance for credit losses - loans was $22,081,000 or 0.95% of total loans as of March 31, 2025 as compared to
$21,699,000 or 0.94% of loans as of December 31, 2024. The $382,000 increase is a result of a $538,000 provision for credit losses – loans less net charge-offs of $156,000. Net charge-offs for 2024 are driven by loans acquired as part of the HVBC
acquisition due to collateral issues. The following table shows the distribution of the allowance for credit losses - loans and the percentage of loans compared to total loans by loan category as of March 31, 2025 and December 31, 2024 (dollars in
thousands):
|
March 31,
2025
|
December 31
2024
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Real estate loans:
|
||||||||||||||||
|
Residential
|
$
|
3,213
|
15.1
|
$
|
1,940
|
15.2
|
||||||||||
|
Commercial
|
9,237
|
48.3
|
9,174
|
48.5
|
||||||||||||
|
Agricultural
|
4,350
|
14.3
|
3,529
|
14.2
|
||||||||||||
|
Construction
|
1,552
|
7.3
|
1,402
|
7.1
|
||||||||||||
|
Consumer
|
1,418
|
5.6
|
1,405
|
5.8
|
||||||||||||
|
Other commercial loans
|
2,032
|
5.9
|
3,699
|
5.7
|
||||||||||||
|
Other agricultural loans
|
137
|
1.2
|
133
|
1.3
|
||||||||||||
|
State & political subdivision loans
|
57
|
2.3
|
61
|
2.2
|
||||||||||||
|
Unallocated
|
85
|
N/A
|
356
|
N/A
|
||||||||||||
|
Total allowance for credit losses
|
$
|
22,081
|
100.0
|
$
|
21,699
|
100.0
|
||||||||||
The following table provides information related to credit loss experience and loan quality for the three months ended March 31, 2025 and the year ended December 31, 2024 (dollars in thousands).
|
March 31, 2025
|
Credit Loss
Expense
(Benefit)
|
Net (charge-
offs)
Recoveries
|
Average
Loans
|
Ratio of net
(charge-offs)
recoveries to
Average loans
|
Allowance
to total
loans
|
Non-
accrual
loans as a
percent of
loans
|
Allowance to
total non-
accrual
loans
|
|||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||
|
Residential
|
$
|
1,273
|
$
|
-
|
$
|
352,194
|
0.00
|
%
|
0.92
|
%
|
0.85
|
%
|
107.46
|
%
|
||||||||||||||
|
Commercial
|
103
|
(40
|
)
|
1,119,035
|
0.00
|
%
|
0.83
|
%
|
1.01
|
%
|
81.89
|
%
|
||||||||||||||||
|
Agricultural
|
821
|
-
|
327,053
|
0.00
|
%
|
1.32
|
%
|
1.12
|
%
|
117.50
|
%
|
|||||||||||||||||
|
Construction
|
150
|
-
|
163,440
|
0.00
|
%
|
0.92
|
%
|
0.83
|
%
|
110.70
|
%
|
|||||||||||||||||
|
Consumer
|
9
|
4
|
164,774
|
0.00
|
%
|
1.09
|
%
|
0.75
|
%
|
145.29
|
%
|
|||||||||||||||||
|
Other commercial loans
|
(1,547
|
)
|
(120
|
)
|
136,094
|
(0.09
|
%)
|
1.48
|
%
|
2.02
|
%
|
72.99
|
%
|
|||||||||||||||
|
Other agricultural loans
|
4
|
-
|
29,815
|
0.00
|
%
|
0.48
|
%
|
1.44
|
%
|
33.33
|
%
|
|||||||||||||||||
|
State & political subdivision loans
|
(4
|
)
|
-
|
53,731
|
0.00
|
%
|
0.11
|
%
|
0.00
|
%
|
NA
|
|
||||||||||||||||
|
Unallocated
|
(271
|
)
|
-
|
-
|
NA
|
NA
|
NA
|
NA
|
||||||||||||||||||||
|
Total
|
$
|
538
|
$
|
(156
|
)
|
$
|
2,346,136
|
(0.01
|
%)
|
0.95
|
%
|
1.02
|
%
|
93.78
|
%
|
|||||||||||||
|
December 31, 2024
|
||||||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||
|
Residential
|
$
|
(409
|
)
|
$
|
(5
|
)
|
$
|
356,292
|
0.00
|
%
|
0.55
|
%
|
0.82
|
%
|
67.57
|
%
|
||||||||||||
|
Commercial
|
(4
|
)
|
-
|
1,109,075
|
0.00
|
%
|
0.82
|
%
|
1.28
|
%
|
63.87
|
%
|
||||||||||||||||
|
Agricultural
|
265
|
-
|
324,500
|
0.00
|
%
|
1.08
|
%
|
1.24
|
%
|
86.88
|
%
|
|||||||||||||||||
|
Construction
|
(548
|
)
|
-
|
182,714
|
0.00
|
%
|
0.85
|
%
|
0.17
|
%
|
495.41
|
%
|
||||||||||||||||
|
Consumer
|
(6
|
)
|
(85
|
)
|
107,656
|
(0.08
|
%)
|
1.05
|
%
|
0.75
|
%
|
140.22
|
%
|
|||||||||||||||
|
Other commercial loans
|
4,010
|
(2,540
|
)
|
133,107
|
(1.91
|
%)
|
2.82
|
%
|
1.97
|
%
|
143.26
|
%
|
||||||||||||||||
|
Other agricultural loans
|
(137
|
)
|
-
|
26,088
|
0.00
|
%
|
0.45
|
%
|
1.81
|
%
|
24.77
|
%
|
||||||||||||||||
|
State & political subdivision loans
|
16
|
-
|
55,919
|
0.00
|
%
|
0.11
|
%
|
0.00
|
%
|
NA
|
||||||||||||||||||
|
Unallocated
|
(11
|
)
|
-
|
-
|
NA
|
NA
|
NA
|
NA
|
||||||||||||||||||||
|
Total
|
$
|
3,176
|
$
|
(2,630
|
)
|
$
|
2,295,351
|
(0.11
|
%)
|
0.94
|
%
|
1.11
|
%
|
84.43
|
%
|
|||||||||||||
The credit loss expense for the first quarter of 2025 was driven by the annual update of the loss driver analysis. This update includes revising prepayment and curtailment speeds. In addition, loss rates are updated to
include the most recent completed year of 2024. For residential loans, the historical loss rate increased, while the prepayment speed slowed resulting in an increased provision. For other commercial loans the historical loss rate decreased in the
annual update resulting in a decrease in the provision for 2025. These changes in credit loss expense drove the change in the allowance to total loans by segment when compared to December 31, 2024 as net-charge offs for these segments were mininmal
for 2025.
The Company believes it utilizes a disciplined and thorough loan review process based upon its internal loan policy approved by the Company’s Board of Directors. The purpose of the review is to assess credit quality,
analyze delinquencies, identify problem loans, evaluate potential charge-offs and recoveries, and assess general overall economic conditions in the markets served. An external independent loan review is performed on our commercial portfolio at
least semi-annually for the Company. The external consultant is engaged to 1) review a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis, 2) a large sample of relationships in aggregate over $1,000,000, 3)
selected loan relationships over $750,000 which are over 30 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, and 4) such other loans which management or the consultant deems appropriate. As part of this review, our
underwriting process and loan grading system is evaluated.
Management believes it uses the best information available to make such determinations and that the allowance for credit losses - loans is adequate as of March 31, 2025. However, future adjustments could be required if
circumstances differ substantially from assumptions and estimates used in making the initial determination. A prolonged downturn in the economy, changes in the economies of various segments of our agricultural and commercial portfolios, high
unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, credit loss provisions and reduction in income.
Additionally, bank regulatory agencies periodically examine the Bank’s allowance for credit losses. The banking agencies could require the recognition of additions to the allowance for credit losses - loans based upon their judgment of information
available to them at the time of their examination.
On a monthly basis, problem loans are identified and updated primarily using internally prepared past due reports. Based on data surrounding the collection process of each identified loan, the loan may be added or
deleted from the monthly watch list. The watch list includes loans graded special mention, substandard, doubtful, and loss, as well as additional loans that management may choose to include. Watch list loans are continually monitored going
forward until satisfactory conditions exist that allow management to upgrade and remove the loan from the watchlist. In certain cases, loans may be placed on non-accrual status or charged-off based upon management’s evaluation of the borrower’s
ability to pay. All commercial loans, which include commercial real estate, agricultural real estate, state and political subdivision loans, other commercial loans and other agricultural loans, on non-accrual are evaluated quarterly for
impairment.
See also “Note 5 – Loans and Related Allowance for Credit Losses - Loans” to the consolidated financial statements.
The following table is a summary of our non-performing assets as of March 31, 2025 and December 31, 2024.
|
(dollars in thousands)
|
March 31,
2025
|
December 31,
2024
|
||||||
|
Non-performing loans:
|
||||||||
|
Non-accruing loans
|
$
|
23,545
|
$
|
25,701
|
||||
|
Accrual loans - 90 days or more past due
|
1,393
|
276
|
||||||
|
Total non-performing loans
|
24,938
|
25,977
|
||||||
|
Foreclosed assets held for sale
|
2,544
|
2,635
|
||||||
|
Total non-performing assets
|
$
|
27,482
|
$
|
28,612
|
||||
The following table identifies amounts of loans contractually past due 30 to 90 days and non-performing loans by loan category, as well as the change from December 31, 2024 to March 31, 2025 in non-performing loans (in
thousands). Non-performing loans include those accruing loans that are contractually past due 90 days or more and non-accrual loans. Interest does not accrue on non-accrual loans. Subsequent cash payments received are applied to the outstanding
principal balance or recorded as interest income, depending upon management's assessment of its ultimate ability to collect principal and interest.
|
March 31, 2025
|
December 31, 2024
|
|||||||||||||||||||||||||||||||
|
Non-Performing Loans
|
Non-Performing Loans
|
|||||||||||||||||||||||||||||||
|
(in thousands)
|
30 - 89 Days
Past Due
Accruing
|
90 Days Past
Due Accruing
|
Non-
accrual
|
Total Non-
Performing
|
30 - 89 Days
Past Due
Accruing |
90 Days Past
Due Accruing
|
Non-
accrual
|
Total Non-
Performing
|
||||||||||||||||||||||||
|
Real estate:
|
||||||||||||||||||||||||||||||||
|
Residential
|
$
|
3,441
|
$
|
168
|
$
|
2,990
|
$
|
3,158
|
$
|
1,527
|
$
|
-
|
$
|
2,871
|
$
|
2,871
|
||||||||||||||||
|
Commercial
|
5,692
|
74
|
11,280
|
11,354
|
3,915
|
-
|
14,364
|
14,364
|
||||||||||||||||||||||||
|
Agricultural
|
-
|
314
|
3,702
|
4,016
|
383
|
269
|
4,062
|
4,331
|
||||||||||||||||||||||||
|
Construction
|
-
|
789
|
1,402
|
2,191
|
1,119
|
-
|
283
|
283
|
||||||||||||||||||||||||
|
Consumer
|
89
|
2
|
976
|
978
|
312
|
7
|
1,002
|
1,009
|
||||||||||||||||||||||||
|
Other commercial loans
|
310
|
46
|
2,784
|
2,830
|
760
|
-
|
2,582
|
2,582
|
||||||||||||||||||||||||
|
Other agricultural loans
|
100
|
-
|
411
|
411
|
-
|
-
|
537
|
537
|
||||||||||||||||||||||||
|
Total nonperforming loans
|
$
|
9,632
|
$
|
1,393
|
$
|
23,545
|
$
|
24,938
|
$
|
8,016
|
$
|
276
|
$
|
25,701
|
$
|
25,977
|
||||||||||||||||
|
Change in Non-Performing Loans
March 31, 2025 /December 31, 2024
|
||||||||
|
(in thousands)
|
Amount
|
%
|
||||||
|
Real estate:
|
||||||||
|
Residential
|
$
|
287
|
10.0
|
|||||
|
Commercial
|
(3,010
|
)
|
(21.0
|
)
|
||||
|
Agricultural
|
(315
|
)
|
(7.3
|
)
|
||||
|
Construction
|
1,908
|
674.2
|
||||||
|
Consumer
|
(31
|
)
|
(3.1
|
)
|
||||
|
Other commercial loans
|
248
|
9.6
|
||||||
|
Other agricultural loans
|
(126
|
)
|
(23.5
|
)
|
||||
|
Total nonperforming loans
|
$
|
(1,039
|
)
|
(4.0
|
)
|
|||
Nonperforming loans decreased $1.0 million during 2025. During the first three months of 2025, one large construction relationship was placed on non-accrual status and
one large commercial relationship and a large agricultural relationship were removed from non-accrual status, which accounts for the majority of the change in non-performing loans since year-end.
All non-performing commercial agricultural
and construction loans are reviewed on an individual basis to determine the need for a specific reserve at quarter end. In addition, non-performing residential loans with a balance in excess of $150,000 are individually evaluated. The specific
reserves for these non-performing loans as of March 31, 2025 was $606,000. In addition, the Bank policy is to reserve 100% of all non-performing student loans. The reserve for these loans was $978,000 as of March 31, 2025.
Management believes that the allowance for credit losses - loans at March 31, 2025 was adequate at that date, which was based on the following factors:
|
|
• |
Specific reserves for non-performing loans total $1,584,000.
|
|
|
• |
The
Company has a history of low charge-offs, which were 0.03% of average loans on an annualized basis for 2025 and 0.11% for 2024, which included the numerous charge-offs related to the Braavo loans.
|
Bank Owned Life Insurance
The Company owns bank owned life insurance policies to offset future employee benefit costs. These policies provide the Bank with an asset that generates earnings to partially offset the current costs of benefits, and
eventually (at the death of the insureds) provide partial recovery of cash outflows associated with the benefits. As of March 31, 2025, and December 31, 2024, the cash surrender value of the life insurance was $50.6 million and $50.3 million,
respectively. The change in cash surrender value, net of purchases and amounts acquired through acquisitions, is recognized in the results of operations. The amounts recorded as non-interest income totaled $346,000 and $668,000 for the three month
periods ended March 31, 2025 and 2024, respectively. During the first quarter of 2024, the Company received proceeds of $1,147,000, which included death benefits of $326,000 on a former employee of the Company. The Company evaluates annually the
risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers’ credit ratings.
The Company policies that were purchased directly from insurance companies and acquired as part of the HVBC acquisition are structured so that any death benefits received from a policy while the insured person is an
active employee of the Bank will be split with the beneficiary of the policy. Under these agreements, the employee’s beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds. The net amount at risk is the total
death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of an acquisition in 2015 provide a fixed split-dollar benefit for the beneficiary’s estate, which is dependent on several
factors including whether the covered individual was a former Director of First National Bank of Fredericksburg (“FNB”) or a former employee of FNB and their salary level. As of March 31, 2025 and December 31, 2024, included in other liabilities on
the Consolidated Balance Sheet was a liability of $518,000 and $514,000, respectively, for the obligation under the split-dollar benefit agreements.
Premises and Equipment
Premises and equipment increased $232,000 to $21.6 million as of March 31, 2025 from December 31, 2024 as a result of purchases of equipment.
Other assets
Other assets decreased $6.1 million to $48.5 million. The primary drivers of the decrease was a decrease in regulatory stock and the receipt of payment related to a loan participation.
Deposits
The following table shows the composition of deposits as of March 31, 2025 and December 31, 2024 (dollars in thousands):
|
March 31,
2025
|
December 31,
2024
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Non-interest-bearing deposits
|
$
|
505,826
|
21.4
|
$
|
532,776
|
22.4
|
||||||||||
|
Interest bearing demand deposits
|
18,745
|
0.8
|
18,004
|
0.8
|
||||||||||||
|
NOW accounts
|
593,851
|
5.1
|
581,673
|
24.4
|
||||||||||||
|
Savings deposits
|
291,355
|
12.3
|
292,918
|
12.3
|
||||||||||||
|
Money market deposit accounts
|
468,624
|
19.8
|
434,856
|
18.3
|
||||||||||||
|
Certificates of deposit
|
486,453
|
20.6
|
521,801
|
21.8
|
||||||||||||
|
Total
|
$
|
2,364,854
|
100.0
|
$
|
2,382,028
|
100.0
|
||||||||||
|
March 31, 2025/
December 31, 2024
Change
|
||||||||
|
Amount
|
%
|
|||||||
|
Non-interest-bearing deposits
|
$
|
(26,950
|
)
|
(5.1
|
)
|
|||
|
Interest bearing demand deposits
|
741
|
4.1
|
||||||
|
NOW accounts
|
12,178
|
2.1
|
||||||
|
Savings deposits
|
(1,563
|
)
|
(0.5
|
)
|
||||
|
Money market deposit accounts
|
33,768
|
7.8
|
||||||
|
Certificates of deposit
|
(35,348
|
)
|
(6.8
|
)
|
||||
|
Total
|
$
|
(17,174
|
)
|
(0.7
|
)
|
|||
Deposits decreased $17.2 million since December 31, 2024. The decrease in deposits was driven by decreases in state and political organizations and timing of their tax receipts and a decrease in brokered deposits of
$14.6 million. We continue to see customer funds being transferred to higher-yielding investment alternatives. Brokered deposits totaled $78.4 million and $93.1 million as of March 31, 2025 and December 31, 2024, respectively.
At March 31, 2025, the Bank estimates that balances held by customers in excess of
the FDIC insurance limit (
$250,000
per insured account)
totaled
$1.13 billion, or 47.3% of the Bank’s total deposits. Included in this balance are balances held through Intrafi, which provides customers with additional FDIC insurance, as well as deposits collateralized by securities or letters of credit
(almost exclusively municipal deposits). The total of these items
was
$611.7 million, or 25.7%
of the Bank’s total deposits,
as of March 31, 2025.
Borrowed Funds
Borrowed funds were $302.0 million and $297.7 million as of March 31, 2025 and December 31, 2024, respectively. The increase in borrowed funds was due to the increase in loans and investments and the seasonal decrease
in deposits.
In April 2020, the Bank entered into two interest rate swap agreements to convert floating-rate debt to fixed rate debt on notional amounts of $15.0 million and $10.0 million. The interest rate swap
instruments involve an agreement to receive a floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional amounts. The differentials paid or received on interest rate swap agreements are recognized as
adjustments to interest expense in the period. The interest rate swap agreements were entered into on April 1, 2020 and expire on April 1, 2025 and April 1, 2027. In April 2020, the Company entered into an interest rate swap agreement to convert
floating-rate debt to fixed rate debt on a notional amounts of $7.5 million. The interest rate swap instrument involves an agreement to receive a floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional
amount. The differentials paid or received on interest rate swap agreements are recognized as adjustments to interest expense in the period. The interest rate swap agreements were entered into on April 13, 2020 and expire on June 17, 2027. In May
of 2020, the Bank entered into three two year forward interest rate swaps that will convert floating rate debt to fixed rate debt on notional amounts of $6.0 million each. The interest rate swap instruments involves an agreement to receive a
floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional amount. The differentials paid or received on interest rate swap agreements are recognized as adjustments to interest expense in the period. The
interest rate swap agreements were entered into on May 14, 2020 and expire on May 14, 2027, 2029 and 2032. The fair value of the interest rate swaps at March 31, 2025 was $3,452,000 and is included within fair value of derivative instruments on the
consolidated balance sheets.
The Company’s current strategy for borrowings is to consider terms and structures to manage interest rate risk and liquidity in a declining rate environment. The Company's daily cash requirements or short-term
investments are primarily met by using the financial instruments available through the Federal Home Loan Bank of Pittsburgh.
Stockholders’ Equity
We evaluate stockholders’ equity in relation to total assets and the risks associated with those assets. The greater the capital resource, the more likely a corporation will meet its cash obligations and absorb
unforeseen losses. For these reasons, capital adequacy has been, and will continue to be, of paramount importance to the Company. As such, the Company has implemented policies and procedures to ensure that it has adequate capital levels. As part
of this process, we routinely stress test our capital levels and identify potential risk and alternative sources of additional capital should the need arise.
Total stockholders’ equity was $308.3 million at March 31, 2025 compared to $299.7 million at December 31, 2024, an increase of $8,562,000, or 2.9%. Excluding accumulated other comprehensive loss, stockholders’ equity
increased $5.3 million, or 1.6%. The accumulated comprehensive loss decreased $3.3 million, which was primarily the result of the increase in fair value of the Company’s available for sale investment portfolio caused by the decrease in longer term
market interest rates. For the first three months of 2025, the Company had net income of $7.6 million and declared cash dividends of $2.4 million, or $0.495 per share, representing a cash dividend payout ratio of 30.9%.
All of the Company’s debt investment securities are classified as available-for-sale, making this portion of the Company’s balance sheet more sensitive to the changing market value of investments due to changes in
market interest rates. As a result of decreases in longer term market interest rates, accumulated other comprehensive loss decreased approximately $3.3 million from December 31, 2024.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements, and regulatory capital standards. The
Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as
defined) to risk-weighted assets (as defined), common equity Tier 1 capital (as defined) to total risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).
As permitted by applicable federal
regulation, the Bank has opted to use the community bank leverage ratio (the “CBLR”) framework for determining its capital adequacy. Under the CBLR framework a qualifying community bank is considered well-capitalized if its leverage ratio (Tier 1
capital divided by average total consolidated assets) exceeds 9%. There is a two quarter grace period for a qualifying community bank to return to 9% as long as the CBLR is least 8%. If a qualifying community bank fails to maintain the applicable
minimum CBLR during the grace period, or if it is unable to restore compliance with the CBLR within the grace period, then it will revert to the Basel III capital framework and the normal Prompt Corrective Action capital categories will apply. At
March 31, 2025, the Bank leverage ratio under the CBLR framework was 9.06%, which meets the 9.0% requirement to be considered “well-capitalized” under the CBLR. The Bank leverage ratio as of December 31, 2024 was 8.99%, which did not meet the
ratio to be considered “well-capitalized” under the CBLR as of December 31, 2024. As such, the following table provides the Bank’s computed risk‑based capital ratios as of December 31, 2024, which reflects the Bank being well capitalized at that
date (dollars in thousands):
|
Actual
|
For Capital Adequacy Purposes
|
To Be Well Capitalized Under
Prompt Corrective Action Provisions
|
||||||||||||||||||||||
|
2024
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
Total Capital
(to Risk Weighted Assets):
|
||||||||||||||||||||||||
|
Company
|
$
|
284,931
|
11.88
|
%
|
$
|
191,824
|
8.00
|
%
|
$
|
239,780
|
10.00
|
%
|
||||||||||||
|
Bank
|
$
|
287,020
|
11.99
|
%
|
$
|
191,501
|
8.00
|
%
|
$
|
239,376
|
10.00
|
%
|
||||||||||||
|
Tier 1 Capital
(to Risk Weighted Assets):
|
||||||||||||||||||||||||
|
Company
|
$
|
243,761
|
10.17
|
%
|
$
|
143,868
|
6.00
|
%
|
$
|
191,824
|
8.00
|
%
|
||||||||||||
|
Bank
|
$
|
265,207
|
11.08
|
%
|
$
|
143,625
|
6.00
|
%
|
$
|
191,501
|
8.00
|
%
|
||||||||||||
|
Common Equity Tier 1 Capital
(to Risk Weighted Assets):
|
||||||||||||||||||||||||
|
Company
|
$
|
236,261
|
9.86
|
%
|
$
|
107,901
|
4.50
|
%
|
$
|
155,857
|
6.50
|
%
|
||||||||||||
|
Bank
|
$
|
265,207
|
11.08
|
%
|
$
|
107,719
|
4.50
|
%
|
$
|
155,594
|
6.50
|
%
|
||||||||||||
|
Tier 1 Capital
(to Average Assets):
|
||||||||||||||||||||||||
|
Company
|
$
|
243,761
|
8.26
|
%
|
$
|
118,096
|
4.00
|
%
|
$
|
147,620
|
5.00
|
%
|
||||||||||||
|
Bank
|
$
|
265,207
|
8.99
|
%
|
$
|
118,007
|
4.00
|
%
|
$
|
147,508
|
5.00
|
%
|
||||||||||||
Off-Balance Sheet Activities
Some financial instruments, such as loan commitments, credit lines, and letters of credit, are issued to meet customer financing needs but are not recorded on the Company’s balance sheet. The contractual amount of
financial instruments with off-balance sheet risk was as follows at March 31, 2025 and December 31, 2024 (in thousands):
|
March 31, 2025
|
December 31, 2024
|
|||||||
|
Commitments to extend credit
|
$
|
424,062
|
$
|
432,123
|
||||
|
Standby letters of credit
|
9,674
|
9,799
|
||||||
|
$
|
433,736
|
$
|
441,922
|
|||||
|
Allowance for Credit Losses - Off-Balance Sheet credit Exposure
|
$
|
763
|
$
|
676
|
||||
We also offer limited overdraft protection as a non-contractual courtesy which is available to demand deposit accounts in good standing. Overdraft charges as a result of ATM withdrawals and one-time point of sale
(non-recurring) transactions require prior approval of the customer. The non-contractual amount of financial instruments with off-balance sheet risk at March 31, 2025 and December 31, 2024 was $12,940,000 and $13,006,000, respectively. The Company
reserves the right to discontinue this service without prior notice.
Liquidity
Liquidity is a measure of the Company's ability to efficiently meet normal cash flow requirements of both borrowers and depositors. To maintain proper liquidity, we use funds management policies, which include
liquidity target ratios, along with our investment policies to assure we can meet our financial obligations to depositors, credit customers and stockholders. Liquidity is needed to meet depositors' withdrawal demands, extend credit to meet
borrowers' needs, provide funds for normal operating expenses and cash dividends, and to fund other capital expenditures.
Cash generated by operating activities, investing activities and financing activities influences liquidity management. Our Company's historical activity in this area can be seen in the Consolidated Statement of Cash
Flows. The most important source of funds is core deposits. Repayment of principal on outstanding loans and cash flows created from the investment portfolio are also factors in liquidity management. Other sources of funding include brokered
certificates of deposit and the sale of loans or investments, if needed.
The Company's use of funds is shown in the investing activity section of the Consolidated Statement of Cash Flows, where the net loan activity is presented. Other uses of funds include purchasing stock from the
Federal Home Loan Bank (FHLB) of Pittsburgh, as well as capital expenditures. Capital expenditures (including software purchases), during the first three months of 2025 were $585,000 compared to $99,000 during the same time period in 2024.
Short-term debt from the FHLB supplements the Bank’s availability of funds. The Bank achieves liquidity primarily from temporary or short‑term investments in the Federal Reserve and the FHLB. The Bank had a maximum
borrowing capacity at the FHLB of approximately $1.06 billion, of which $443.07 million was outstanding, at March 31, 2025. The Bank also has two federal funds line with third party providers for $34.0 million as of March 31, 2025, which are
unsecured and were undrawn upon as of March 31, 2025. The Company also has a borrower in custody line with the Federal Reserve Bank of approximately $14.1 million, which also was not drawn upon as of March 31, 2025. The Company has a $15.0 million
line of credit with a New York community bank, of which $6.6 million was utilized as of March 31, 2025. The Company continues to evaluate its liquidity needs and as necessary finds additional sources.
Citizens Financial Services, Inc. is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, Citizens Financial Services, Inc. is responsible for paying any
dividends declared to its shareholders. Citizens Financial also has repurchased shares of its common stock. Citizens Financial Services, Inc.’s primary source of income is dividends received from the Bank. Both federal and state laws impose
restrictions on the ability of the Bank to pay dividends. In particular, the Bank may not, as a state-chartered bank which is a member of the Federal Reserve System, declare a dividend without approval of the Federal Reserve, unless the dividend to
be declared by the Bank’s Board of Directors does not exceed the total of: (i) the Bank’s net profits for the current year to date, plus (ii) its retained net profits for the preceding two current years, less any required transfers to surplus.
The Federal Reserve Board and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions. The Prompt Corrective
Action Rules, described above, further limit the ability of banks to pay dividends, because banks which are not classified as well capitalized or adequately capitalized may not pay dividends and no dividend may be paid which would make the Bank
undercapitalized after the dividend. At March 31, 2025, Citizens Financial Services, Inc. (on an unconsolidated basis) had liquid assets of approximately $4.0 million.
Interest Rate and Market Risk Management
The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances
and the market value risk of assets and liabilities.
Because of the nature of our operations, we are not subject to foreign currency exchange or commodity price risk and, because we have no trading portfolio, we are not subject to trading risk. At March 31, 2025, the
Company has equity securities that represent only 0.06% of its total assets and, therefore, equity risk is not significant.
The primary components of interest-sensitive assets include adjustable-rate loans and investments, loan repayments, investment maturities and money market investments. The primary components of interest-sensitive
liabilities include maturing certificates of deposit, IRA certificates of deposit and short-term borrowings. Savings deposits, NOW accounts and money market investor accounts are considered core deposits and are not short-term interest sensitive
(except for the top-tier money market investor accounts, typically help by local governments, which are paid current market interest rates).
Gap analysis, one of the methods used by us to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on our Company's net interest income because the re-pricing of
certain assets and liabilities is discretionary and is subject to competitive and other pressures. In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels. We have not
experienced the kind of earnings volatility that might be indicated from gap analysis.
The Company currently uses a computer simulation model to better measure the impact of interest rate changes on net interest income. We use the model as part of our risk management and asset liability management
processes that we believe will effectively identify, measure, and monitor the Company’s risk exposure. In this analysis, the Company examines the results of movements in interest rates with additional assumptions made concerning prepayment speeds
on mortgage loans and mortgage securities. Shock scenarios, which assume a parallel shift in interest rates and is instantaneous, typically have the greatest impact on net interest income. The following is a rate shock analysis and the impact on
net interest income as of March 31, 2025 (dollars in thousands):
|
Changes in Rates
|
Prospective One-Year
Net Interest Income
|
Change In
Prospective
Net Interest Income
|
% Change In
Prospective
Net Interest Income
|
|||||||||
|
-400 Shock
|
$
|
107,845
|
$
|
11,366
|
11.78
|
|||||||
|
-300 Shock
|
103,887
|
7,408
|
7.68
|
|||||||||
|
-200 Shock
|
101,779
|
5,300
|
5.49
|
|||||||||
|
-100 Shock
|
99,458
|
2,979
|
3.09
|
|||||||||
|
Base
|
96,479
|
-
|
-
|
|||||||||
|
+100 Shock
|
93,014
|
(3,465
|
)
|
(3.59
|
)
|
|||||||
|
+200 Shock
|
89,190
|
(7,289
|
)
|
(7.56
|
)
|
|||||||
|
+300 Shock
|
85,762
|
(10,717
|
)
|
(11.11
|
)
|
|||||||
|
+400 Shock
|
82,337
|
(14,142
|
)
|
(14.66
|
)
|
|||||||
The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage backed securities, call activity of other investment securities, and deposit
selection, re-pricing and maturity structure. Because of these assumptions, actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change on net interest income.
Additionally, the changes above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. The changes in net interest income
noted above are in line with Company policy for interest rate risk.
In the normal course of conducting business activities, the Company is exposed to market risk, principally interest rate risk, through the operations of its banking subsidiary. Interest rate risk arises from market
driven fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments and was discussed previously in this Form 10-Q. Management and a committee of the Board of Directors manage interest rate risk (see
also “Interest Rate and Market Risk Management”).
(a) Disclosure Controls and Procedures
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is
defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the
period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with
the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes to Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonable likely to materially affect, the Company’s
internal control over financial reporting.
PART II ‑ OTHER INFORMATION
Management is not aware of any pending or threatened litigation that would have a material adverse effect on the consolidated financial position of the Company. Any pending proceedings are ordinary, routine litigation
incidental to the business of the Company and its subsidiaries. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company and its subsidiaries by government authorities.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1.A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,
2024, which could materially affect our business, financial condition or future results. At March 31, 2025, the risk factors of the Company have not changed materially from those reported in our 2024 Annual Report on Form 10-K. However, the risks
described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial
condition and/or operating results.
Item 2 – Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
|
Period
|
Total Number of Shares
(or units Purchased)
|
Average Price
Paid per Share
(or Unit)
|
Total Number of Shares (or
Units) Purchased as Part of
Publicly Announced Plans
of Programs
|
Maximum Number (or Approximate
Dollar Value) of Shares (or Units)
that May Yet Be Purchased Under
the Plans or Programs (1)
|
||||||||||||
|
1/1/25 to 1/31/25
|
1
|
$
|
59.19
|
1
|
146,185
|
|||||||||||
|
2/1/25 to 2/28/25
|
-
|
$
|
0.00
|
-
|
146,185
|
|||||||||||
|
3/1/25 to 3/31/25
|
946
|
$
|
58.15
|
946
|
145,239
|
|||||||||||
|
Total
|
947
|
$
|
58.15
|
947
|
145,239
|
|||||||||||
| (1) |
On April 22, 2023, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 150,000 shares at an aggregate purchase price not to exceed $15.0 million over a
period of 36 months. The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors. No time limit was placed on the
duration of the share repurchase program. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.
|
Additionally, during the quarter ended March 31, 2025, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state
tax obligations associated with the vesting of shares of restricted common stock issued under the Amended and Restated First Citizens Community Bank Annual Incentive Plan. Additionally, during the quarter ended December 31, 2024, certain employees
resigned from the Company and forfeited unvested restricted shares awarded to them through the Amended and Restated First Citizens Community Bank Annual Incentive Plan.
Not applicable
.
Not applicable
.
During the three months ended March 31, 2025, none of the Company’s directors or executive officers
adopted
or
terminated
any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to
satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as such term is defined in Item 408 of SEC Regulation S-K).
(a) The following documents are filed as a part of this report:
|
Restated Articles of Incorporation of Citizens Financial Services, Inc.
(1)
|
|
|
Articles of Amendment of Restated Articles of Incorporation of Citizens Financial Services, Inc.
(2)
|
|
|
Bylaws of Citizens Financial Services, Inc.
(3)
|
|
|
Amendment No. 1 to Amended and Restated Bylaws of Citizens Financial Services, Inc.
(4)
|
|
|
Form of Common Stock Certificate.
(5)
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|
|
|
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
|
|
|
101
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2025, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet
(unaudited), (ii) the Consolidated Statement of Income (unaudited), (iii) the Consolidated Statement of Comprehensive Income (unaudited), (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statement of
Cash Flows (unaudited) and (vi) related notes (unaudited).
|
|
104
|
Cover Page Interactive Data File (embedded within the Inline XBRL document)
|
|
(1)
|
Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended June 30, 2018, as filed with the Commission on August 9, 2018.
|
|
(2)
|
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on April 26, 2021.
|
|
(3)
|
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on December 17, 2020.
|
|
(4)
|
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the Commission on November 23, 2022
|
|
(5)
|
Incorporated by reference to Exhibit 4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Commission on March 9, 2023.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
Citizens Financial Services, Inc. | |
|
|
(Registrant)
|
|
May 8, 2025
|
/s/ Randall E. Black
|
|
|
|
By: Randall E. Black | |
|
|
President and Chief Executive Officer | |
|
|
(Principal Executive Officer)
|
|
May 8, 2025
|
/s/ Stephen J. Guillaume
|
|
|
|
By: Stephen J. Guillaume | |
|
|
Chief Financial Officer | |
|
|
(Principal Financial and Accounting Officer)
|
54
TABLE OF CONTENTS
Note 1 Basis Of PresentationNote 2 Revenue RecognitionNote 3 Earnings Per ShareNote 4 InvestmentsNote 5 LoansNote 6 Goodwill and Other Intangible AssetsNote 7 - Employee Benefit PlansNote 8 Accumulated Other Comprehensive LossNote 9 Fair Value MeasurementsNote 10 - Segment ReportingNote 11 Recent Accounting PronouncementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3-quantitative and Qualitative Disclosure About Market RiskItem 4-control and ProceduresPart II Other InformationItem 1 Legal ProceedingsItem 1A Risk FactorsItem 2 Unregistered Sales Of Equity Securities, Use Of Proceeds, and Issuer Purchases Of Equity SecuritiesItem 3 Defaults Upon Senior SecuritiesItem 4 Mine Safety DisclosureItem 5 Other InformationItem 6 Exhibits