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Franklin Financial Services (FRAF) - 2025 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION This section covers the Corporation's financial statements, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including Balance Sheets, Income, Comprehensive Income, Shareholders' Equity, and Cash Flows, with detailed explanatory notes Consolidated Balance Sheets | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | | :--------------------- | :------------- | :---------------- | | Assets | | | | Total cash and cash equivalents | $224,956 | $203,613 | | Debt securities available for sale, at fair value | $495,487 | $508,604 | | Net Loans | $1,437,747 | $1,380,424 | | Total assets | $2,257,478 | $2,197,841 | | Liabilities | | | | Total deposits | $1,867,577 | $1,815,647 | | FHLB advances | $200,000 | $200,000 | | Total liabilities | $2,106,087 | $2,053,125 | | Shareholders' Equity | | | | Total shareholders' equity | $151,391 | $144,716 | - Total assets increased by $59.6 million (2.7%) from December 31, 2024, to March 31, 2025, reaching $2.257 billion9 - Net loans increased by $57.3 million (4.2%) from December 31, 2024, to March 31, 20259 Consolidated Statements of Income | (Dollars in thousands, except per share data) | For the Three Months Ended March 31, 2025 | For the Three Months Ended March 31, 2024 | | :-------------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total interest income | $27,058 | $23,809 | | Total interest expense | $11,452 | $10,256 | | Net interest income | $15,606 | $13,553 | | Total provision for credit losses | $779 | $452 | | Total noninterest income | $4,562 | $4,188 | | Total noninterest expense | $14,577 | $13,284 | | Net income | $3,922 | $3,361 | | Basic earnings per share | $0.88 | $0.77 | | Diluted earnings per share | $0.88 | $0.77 | - Net income increased by 16.7% to $3.9 million in Q1 2025 from $3.4 million in Q1 202411119 - Basic and diluted EPS increased from $0.77 in Q1 2024 to $0.88 in Q1 202511 Consolidated Statements of Comprehensive Income | (Dollars in thousands) | For the Three Months Ended March 31, 2025 | For the Three Months Ended March 31, 2024 | | :--------------------- | :---------------------------------------- | :---------------------------------------- | | Net Income | $3,922 | $3,361 | | Total other comprehensive gain (loss) | $3,652 | $(294) | | Total Comprehensive Income (Loss) | $7,574 | $3,067 | - Total comprehensive income significantly increased to $7.574 million in Q1 2025 from $3.067 million in Q1 2024, driven by a net unrealized gain on debt securities12 Consolidated Statements of Changes in Shareholders' Equity | (Dollars in thousands) | Balance at January 1, 2025 | Balance at March 31, 2025 | Balance at January 1, 2024 | Balance at March 31, 2024 | | :--------------------- | :------------------------- | :------------------------ | :------------------------- | :------------------------ | | Total Shareholders' Equity | $144,716 | $151,391 | $132,136 | $134,237 | | Net income | | $3,922 | | $3,361 | | Other comprehensive gain (loss) | | $3,652 | | $(294) | | Cash dividends declared | | $(1,418) | | $(1,399) | - Total shareholders' equity increased by $6.675 million from January 1, 2025, to March 31, 2025, primarily due to net income and other comprehensive gain14 Consolidated Statements of Cash Flows | (Dollars in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $8,823 | $7,304 | | Net cash used in investing activities | $(38,317) | $(18,112) | | Net cash provided by financing activities | $50,837 | $170,238 | | Increase in cash and cash equivalents | $21,343 | $159,430 | | Cash and cash equivalents at the end of the period | $224,956 | $182,570 | - Net cash provided by operating activities increased to $8.823 million in Q1 2025 from $7.304 million in Q1 202416 - Net cash used in investing activities significantly increased to $38.317 million in Q1 2025, primarily due to a net increase in loans16 Notes to Consolidated Financial Statements Note 1. Basis of Presentation - The consolidated financial statements include Franklin Financial Services Corporation and its wholly-owned subsidiaries: Farmers and Merchants Trust Company of Chambersburg (the Bank) and Franklin Future Fund Inc17 - The Bank's subsidiary, Franklin Financial Properties Corp., holds real estate assets leased by the Bank17 - Certain GAAP information and footnote disclosures have been condensed or omitted, and the Q1 2025 results are not necessarily indicative of the full year19 Note 2. Recent Accounting Pronouncements - ASU 2023-07, Segment Reporting, was adopted as of December 31, 2024, and had no effect on consolidated financial statements22 - ASU 2023-09, Income Taxes, effective for annual periods after December 15, 2024, is not expected to impact financial statements23 - ASU 2023-06, Disclosure Improvements, is not expected to impact financial statements23 Note 3. Accumulated Other Comprehensive Income (Loss) | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | | :--------------------- | :------------- | :---------------- | | Net unrealized (losses) gains on debt securities | $(30,436) | $(34,088) | | Accumulated pension adjustment | $(1,420) | $(1,420) | | Total accumulated other comprehensive (loss) income | $(31,856) | $(35,508) | - Total accumulated other comprehensive loss improved to $(31.856) million at March 31, 2025, from $(35.508) million at December 31, 2024, primarily due to a reduction in net unrealized losses on debt securities24 Note 4. Investments | (Dollars in thousands) | March 31, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :--------------------- | :-------------------------- | :----------------------------- | | U.S. Treasury | $32,472 | $31,797 | | Municipal | $133,879 | $133,592 | | Corporate | $24,341 | $24,224 | | Agency MBS & CMO | $137,693 | $138,742 | | Non-Agency MBS & CMO | $137,127 | $149,170 | | Asset-backed | $29,975 | $31,079 | | Total AFS Securities | $495,487 | $508,604 | - The fair value of AFS debt securities decreased by $13.1 million to $495.487 million at March 31, 2025, from $508.604 million at December 31, 202425 - The AFS debt securities portfolio had $39.2 million in unrealized losses at March 31, 2025, an improvement of $6.5 million from year-end 2024, and these losses were not attributable to credit-related factors2830 Note 5. Loans - The loan portfolio is categorized by primary collateral (residential real estate, commercial real estate, commercial, consumer) and purpose (consumer or commercial), with each class having different risk profiles3233 | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | | :--------------------- | :------------- | :---------------- | | Residential Real Estate 1-4 Family | $329,333 | $322,835 | | Residential real estate - construction | $48,968 | $32,427 | | Commercial real estate | $831,787 | $803,365 | | Commercial | $238,010 | $230,597 | | Consumer | $8,093 | $8,853 | | Total Loans | $1,456,191 | $1,398,077 | | Less: Allowance for credit losses | $(18,444) | $(17,653) | | Net Loans | $1,437,747 | $1,380,424 | - Total loans increased by $58.114 million (4.2%) to $1.456 billion at March 31, 2025, from $1.398 billion at December 31, 2024, with significant growth in residential real estate construction and commercial real estate44 Note 6. Loan Quality and Allowance for Credit Losses - The Bank categorizes loans into risk categories (Pass, OAEM, Substandard, Doubtful, Loss) and monitors loan performance monthly, with quarterly ACL evaluations4550 | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | | :--------------------- | :------------- | :---------------- | | Total Past Due Loans | $4,936 | $2,942 | | Nonaccrual and Loans past due 90 Days or more | $273 | $268 | | Allowance for Credit Losses (ACL) | $18,444 | $17,653 | - The ACL for loans increased to $18.444 million at March 31, 2025, from $17.653 million at December 31, 2024, with a provision for credit losses of $750 thousand for Q1 202556 Note 7. Leases - The Corporation classifies all its leases as operating leases, primarily for equipment and real estate, with no finance leases57 | (Dollars in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Total lease cost | $223 | $232 | | Operating cash flows from operating leases | $178 | $189 | - The weighted-average remaining lease term was 11.3 years at March 31, 2025, with a weighted-average discount rate of 3.52%59 Note 8. Other Real Estate Owned - The Bank had no other real estate owned at March 31, 2025, or December 31, 202461 Note 9. Derivatives - The Corporation uses interest rate swap contracts designated as fair value portfolio layer hedges for available-for-sale investment securities63 | (Dollars in thousands) | As of March 31, 2025 (Fair Value) | As of December 31, 2024 (Fair Value) | | :--------------------- | :-------------------------------- | :----------------------------------- | | Derivatives designated as hedging instruments (Interest rate swaps) | $375 | $2,275 | | Derivatives not designated as hedging instruments (Other Contracts) | $0 | $0 | - The fair value of derivatives designated as hedging instruments decreased to $375 thousand at March 31, 2025, from $2.275 million at December 31, 202467 Note 10. Pension | (Dollars in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Total pension expense | $65 | $22 | - Total pension expense increased to $65 thousand in Q1 2025 from $22 thousand in Q1 2024, primarily due to recognized net actuarial loss70 Note 11. Fair Value Measurements and Fair Values of Financial Instruments - The Corporation uses a fair value hierarchy (Level 1, 2, 3) to prioritize inputs for valuation methods, with Level 1 being unadjusted quoted prices in active markets and Level 3 using unobservable inputs727374 | (Dollars in thousands) | Fair Value at March 31, 2025 | Fair Value at December 31, 2024 | | :--------------------- | :--------------------------- | :------------------------------ | | Recurring Fair Value Measurements | | | | Total assets (AFS securities) | $495,487 | $508,770 | | Liabilities (Derivatives) | $375 | $2,275 | | Nonrecurring Fair Value Measurements | | | | Collateral Dependent Loans | $380 | $380 | - The majority of AFS securities are valued using Level 2 inputs, while collateral-dependent loans are valued using Level 3 inputs based on appraisals with customized discounting criteria777883 Note 12. Deposits | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | | :--------------------- | :------------- | :---------------- | | Noninterest-bearing checking | $298,945 | $290,346 | | Interest-bearing checking | $407,951 | $417,870 | | Money management | $752,218 | $694,880 | | Savings | $96,933 | $96,646 | | Time deposits | $311,530 | $315,905 | | Total deposits | $1,867,577 | $1,815,647 | - Total deposits increased by $51.930 million (2.9%) to $1.868 billion at March 31, 2025, from $1.816 billion at December 31, 2024, primarily driven by an increase in money management accounts86 - Time deposits greater than $250,000 were $75.7 million at March 31, 202586 Note 13. Borrowings - The Bank had $200.0 million in FHLB borrowings at March 31, 2025, with a rate of 4.32% due January 12, 202787 - The Corporation has $20.0 million of unsecured subordinated debt notes payable, maturing in 2030 ($15.0 million) and 2035 ($5.0 million), with fixed rates converting to variable SOFR-based rates88 - These subordinated notes are structured to qualify as Tier 2 Capital for the Corporation88 Note 14. Capital Ratios - The Bank was 'well capitalized' at March 31, 2025, exceeding all minimum regulatory capital ratios89 | Regulatory Ratios | March 31, 2025 | December 31, 2024 | Well Capitalized Minimum | | :---------------- | :------------- | :---------------- | :----------------------- | | Common Equity Tier 1 Risk-based Capital Ratio (Bank) | 11.44% | 11.71% | 6.50% | | Tier 1 Risk-based Capital Ratio (Bank) | 11.44% | 11.71% | 8.00% | | Total Risk-based Capital Ratio (Bank) | 12.69% | 12.96% | 10.00% | | Tier 1 Leverage Ratio (Bank) | 8.24% | 8.20% | 5.00% | - The Bank's capital conservation buffer was 4.69% at March 31, 2025, exceeding the regulatory buffer of 2.5%89 Note 15. Revenue Recognition - All revenue from contracts with customers is recognized in non-interest income, including wealth management fees, loan service charges, deposit service charges, debit card income, and other service charges9193949596 | (Dollars in thousands) | For the Three Months Ended March 31, 2025 | For the Three Months Ended March 31, 2024 | | :--------------------- | :---------------------------------------- | :---------------------------------------- | | Asset Management Fees | $1,996 | $1,833 | | Estate Management Fees | $136 | $87 | | Commissions | $83 | $106 | | Total Wealth Management Fees | $2,215 | $2,026 | - Wealth management fees increased by $189 thousand (9.3%) in Q1 2025 compared to Q1 2024, primarily due to growth in asset management fees92129 Note 16. Commitments and Contingencies - The Bank has off-balance-sheet financial instruments, including commitments to extend credit and standby letters of credit, which involve credit and interest rate risk100101 | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | | :--------------------- | :------------- | :---------------- | | Total commitments to extend credit | $490,849 | $469,934 | | Standby letters of credit | $30,747 | $28,815 | | ACL - Unfunded Commitments | $2,059 | $2,030 | - Management does not anticipate that the ultimate aggregate liability from legal proceedings will have a material adverse effect on its financial position108 Note 17. Segment Reporting - The Corporation has two reportable segments: Community Banking and Wealth Management, evaluated based on revenue streams, significant expenses, and budget to actual results109 | (Dollars in thousands) | For the Three Months Ended March 31, 2025 | For the Three Months Ended March 31, 2024 | | :--------------------- | :---------------------------------------- | :---------------------------------------- | | Wealth Management Segment | | | | Wealth fee income | $2,215 | $2,026 | | Segment profit | $1,022 | $947 | | Total assets | $1,497 | $1,590 | | Community Banking Segment | | | | Total segment income | $27,058 | $23,807 | | Segment profit | $19,451 | $17,224 | | Total assets | $2,257,354 | $2,010,353 | - Community Banking's primary revenue sources are interest income on loans and securities, while Wealth Management's primary revenue is from assets under management110111 Note 18. Reclassifications - Certain prior period amounts may have been reclassified to conform to the current year presentation, without affecting prior year net income or shareholders' equity114 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition This section provides management's analysis of the Corporation's financial performance and condition, covering key highlights, income, expenses, loan quality, deposits, borrowings, capital, and liquidity Forward Looking Statements - The report contains forward-looking statements reflecting management's current views on future developments, subject to risks and uncertainties such as economic conditions, interest rate changes, and regulatory shifts115 - Readers are cautioned not to place undue reliance on these statements, as they reflect analysis only as of the report date and are not revised or updated116 Critical Accounting Policies - Management identified critical accounting policies requiring significant judgments, estimates, and assumptions117 - There were no changes to the critical accounting policies disclosed in the 2024 Annual Report on Form 10-K as of March 31, 2025118 Results of Operations - Summary - Net income for Q1 2025 was $3.9 million ($0.88 per diluted share), a 16.7% increase from Q1 2024119 - Wealth management fees reached $2.2 million, with assets under management exceeding $1.3 billion119 | Performance Measurement | Q1 2025 | Q1 2024 | | :---------------------- | :------ | :------ | | Return on average assets (ROA) | 0.72% | 0.67% | | Return on average equity (ROE) | 10.80% | 10.21% | | Net Interest Margin (NIM) | 3.05% | 2.88% | - Total assets increased by 2.7% to $2.257 billion, and total net loans increased by 4.2% to $1.438 billion from year-end 2024119 - The Board declared a $0.33 per share quarterly cash dividend for Q2 2025, a 3.1% increase over Q4 2024119 GAAP versus non-GAAP Presentations - The Corporation uses non-GAAP measurements to evaluate performance by eliminating the effect of intangible assets (Goodwill), providing comparability with companies without such assets121 | Non-GAAP Measurement | Q1 2025 | Q1 2024 | FY 2024 | | :------------------- | :------ | :------ | :------ | | Return on average tangible equity | 11.35% | 10.92% | 8.62% | | Tangible book value per share | $31.97 | $28.50 | $30.65 | | Efficiency ratio | 71.36% | 73.76% | 73.36% | - The efficiency ratio improved to 71.36% in Q1 2025 from 73.76% in Q1 2024122 Net Interest Income - Tax equivalent net interest income increased by $2.1 million to $15.9 million in Q1 2025, compared to $13.8 million in Q1 2024124 - This increase was driven by $467 thousand from balance sheet volume changes and $1.6 million from interest rate changes124 | (Dollars in thousands) | Q1 2025 Average Yield/Rate | Q1 2024 Average Yield/Rate | | :--------------------- | :------------------------- | :------------------------- | | Total interest-earning assets | 5.25% | 5.03% | | Total interest-bearing liabilities | 2.64% | 2.59% | | Net Interest Margin (T/E) | 3.05% | 2.88% | | Net Interest Spread | 2.61% | 2.44% | | Cost of Deposits | 2.02% | 1.70% | Provision for Credit Losses - Total provision for credit loss expense was $779 thousand in Q1 2025, up from $452 thousand in Q1 2024127 - The increase was primarily due to loan growth of $57.3 million since year-end 2024, with no material change in historical credit loss rate or qualitative loss factor119127 - The Allowance for Credit Losses (ACL) ratio for loans was 1.27% at March 31, 2025, compared to 1.26% at December 31, 2024128 Noninterest Income - Noninterest income increased by $374 thousand (8.9%) to $4.562 million in Q1 2025 compared to $4.188 million in Q1 2024129 | (Dollars in thousands) | Q1 2025 | Q1 2024 | Change Amount | Change % | | :--------------------- | :------ | :------ | :------------ | :------- | | Wealth management fees | $2,215 | $2,026 | $189 | 9.3 | | Gain on sale of loans | $109 | $58 | $51 | 87.9 | | Other | $275 | $190 | $85 | 44.7 | - The increase was primarily driven by growth in wealth management fees, higher gains on sale of loans due to increased mortgage sales volume, and an increase in other income from swap referral fees129 Noninterest Expense - Noninterest expense increased by $1.3 million (9.7%) to $14.577 million in Q1 2025 compared to $13.284 million in Q1 2024130131 | (Dollars in thousands) | Q1 2025 | Q1 2024 | Change Amount | Change % | | :--------------------- | :------ | :------ | :------------ | :------- | | Salaries and benefits | $8,506 | $7,727 | $779 | 10.1 | | Data processing | $1,557 | $1,423 | $134 | 9.4 | | FDIC Insurance | $545 | $322 | $223 | 69.3 | | Other | $1,166 | $1,065 | $101 | 9.5 | - Key drivers of the increase included higher salaries and employee benefits (due to salaries, health insurance, and commissions), increased data processing costs from software expenses, and higher FDIC insurance due to balance sheet growth130 Provision for Income Taxes - Income tax expense for Q1 2025 was $890 thousand, resulting in an effective tax rate of 18.5%, up from 15.7% in Q1 202411132 - The federal statutory tax rate remained at 21% for both 2025 and 2024132 Financial Condition - Cash and Cash Equivalents - Cash and cash equivalents increased by $21.3 million to $225.0 million at March 31, 2025, from $203.6 million at year-end 2024133 - Short-term interest-earning deposits are primarily held at the Federal Reserve ($196.2 million)133 - The Corporation posted $5.2 million in cash collateral to a counterparty for a derivative transaction133 Financial Condition - Investment Securities - The AFS securities portfolio's amortized cost decreased by $19.6 million to $534.4 million, and fair value decreased by $13.1 million to $495.5 million at March 31, 2025, from year-end 2024134 - The portfolio returned $19.6 million of principal in Q1 2025, with no new purchases or sales134 - Net unrealized losses in the AFS portfolio improved to $38.9 million at March 31, 2025, from $45.4 million at year-end 2024134 Financial Condition - Loans | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | Change Amount | Change % | | :--------------------- | :------------- | :---------------- | :------------ | :------- | | Total residential real estate 1-4 family | $329,333 | $322,835 | $6,498 | 2.0 | | Total residential real estate - construction | $48,968 | $32,427 | $16,541 | 51.0 | | Commercial real estate | $831,787 | $803,365 | $28,422 | 3.5 | | Commercial | $238,010 | $230,597 | $7,413 | 3.2 | | Consumer | $8,093 | $8,853 | $(760) | (8.6) | | Total Loans | $1,456,191 | $1,398,077 | $58,114 | 4.2 | - Total loans increased by $58.1 million (4.2%) from year-end 2024, with significant growth in residential real estate construction (51.0%) and commercial real estate (3.5%)138 - Commercial real estate loans include $508 million of nonowner-occupied loans, primarily in south-central Pennsylvania142 Financial Condition - Loan Quality - Management monitors loan performance monthly and evaluates ACL adequacy quarterly, with enhanced monitoring for loans rated 'Other Assets Especially Mentioned' or worse147 - The watch list totaled $31.4 million at March 31, 2025, up from $21.5 million at December 31, 2024, primarily due to credit downgrades on two hotel loans148 - Nonaccruing loans totaled $253 thousand at March 31, 2025, and the nonperforming loan to gross loans ratio was 0.02% at both March 31, 2025, and December 31, 2024152 Financial Condition - Allowance for Credit Losses - The ACL for loans is an estimate of expected losses over the loan portfolio's life, determined for individually evaluated loans (specific reserve) and collectively evaluated loans (pooled reserve)156 - The pooled reserve calculation uses a quantitative component (historical credit loss rates, weighted average remaining maturity) and a qualitative component (risk matrix with eight factors)159160 - At March 31, 2025, the pooled loan reserve was $18.4 million, with approximately 69% from the qualitative component, and no specific reserve161 - The ACL for unfunded commitments totaled $2.1 million at March 31, 2025, up from $2.0 million at December 31, 2024162 Financial Condition - Deposits - Total deposits increased by $51.9 million to $1.868 billion during Q1 2025164 | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | Change Amount | Change % | | :--------------------- | :------------- | :---------------- | :------------ | :------- | | Noninterest-bearing checking | $298,945 | $290,346 | $8,599 | 3.0 | | Interest-bearing checking | $407,951 | $417,870 | $(9,919) | (2.4) | | Money management | $752,218 | $694,880 | $57,338 | 8.3 | | Time deposits | $311,530 | $315,905 | $(4,375) | (1.4) | - The Bank had $303.2 million in IntraFi Network reciprocal deposits and $29.7 million in CDARS program deposits at March 31, 2025, with approximately 89% of total deposits FDIC insured or collateralized165166 Financial Condition - Borrowings - The Bank maintained $200.0 million in FHLB borrowings at March 31, 2025, with a 4.32% rate due January 12, 2027168 - The Corporation has $20.0 million in unsecured subordinated debt notes, issued in 2020, with maturities in 2030 ($15.0 million) and 2035 ($5.0 million), structured to qualify as Tier 2 Capital169 Financial Condition - Shareholders' Equity - Total shareholders' equity increased by $6.7 million to $151.4 million at March 32, 2025, from December 31, 2024170 - This increase was driven by $2.5 million in retained earnings (from $3.9 million net income offset by $1.4 million cash dividends) and a $3.7 million improvement in accumulated other comprehensive income/(loss)170 - The Board authorized a share repurchase plan for up to 150,000 shares in January 2025, but no shares were purchased in Q1 2025172 Economy - The Corporation's primary market area in central Pennsylvania and Maryland has a diverse economic base, including warehousing, manufacturing, healthcare, agriculture, and a varied service sector175 - Management believes the market area is well-suited for growth due to its diverse economy and easy access to major East Coast metropolitan markets175 Impact of Inflation - Inflation and changes in interest rates have a significant effect on the Corporation's financial results, unlike other commercial enterprises, due to the financial nature of its assets and liabilities176 - The Corporation closely monitors the Federal Reserve Open Market Committee's decisions on interest rate changes176 Liquidity - The Corporation manages liquidity to meet customer financial needs and shareholder returns, regularly reviewing projected net cash flows at 30 and 90-day intervals and conducting stress tests177 - Primary liquidity sources include earnings, loan repayments, amortizing/maturing investment securities, loan sales, deposit growth, and existing lines of credit178 | (Dollars in thousands) | Capacity | Outstanding | Available | | :--------------------- | :------- | :---------- | :-------- | | Federal Home Loan Bank | $567,117 | $200,000 | $367,117 | | Federal Reserve Bank Discount Window | $65,885 | $0 | $65,885 | | Correspondent Banks | $76,000 | $0 | $76,000 | | Total | $709,002 | $200,000 | $509,002 | Off Balance Sheet Commitments - Off-balance sheet commitments, including unfunded loans and letters of credit, are made under the same standards as on-balance sheet instruments and do not generally present significant liquidity risk due to fixed maturity dates and expected expiration without being drawn upon183 | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | | :--------------------- | :------------- | :---------------- | | Commercial commitments to extend credit | $347,325 | $328,806 | | Consumer commitments to extend credit (secured) | $137,353 | $135,776 | | Consumer commitments to extend credit (unsecured) | $6,170 | $5,352 | | Standby letters of credit | $30,747 | $28,815 | | ACL - Unfunded Commitments | $2,059 | $2,030 | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section confirms no material changes in the Corporation's market risk exposure during Q1 2025, referring to the 2024 Annual Report for details - No material changes occurred in the Corporation's exposure to market risk during the three months ended March 31, 2025186 - Further information on market risk is available in the Corporation's 2024 Annual Report on Form 10-K186 Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures as of March 31, 2025, with no material changes in internal control over financial reporting during the quarter - The Corporation's disclosure controls and procedures were evaluated and concluded to be effective as of March 31, 2025187 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025187 - Internal control over financial reporting is designed to provide reasonable assurance regarding financial reporting reliability, acknowledging inherent limitations188189 Part II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section confirms that no current legal proceedings are anticipated to have a material adverse effect on the Corporation's financial condition or results of operations - The Corporation's business generates a certain amount of litigation in the ordinary course191 - Management does not anticipate any pending legal proceedings will have a material adverse effect on the Corporation's financial condition or results of operations192 Item 1A. Risk Factors This section introduces a new risk factor regarding adverse impacts of trade policies and tariffs on customer financial health and the Corporation's asset quality - No material changes in risk factors occurred during Q1 2025, except for a new disclosure regarding trade policies and tariffs193 - Changes in trade policies, including tariffs, could negatively impact economic conditions in the markets served, potentially leading to higher costs, reduced demand, and supply chain disruptions for customers194 - Financial stress on customers could increase loan delinquencies and credit losses, adversely affecting the Corporation's asset quality and overall financial performance194 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports the Board's authorization of a share repurchase plan for up to 150,000 shares, with no repurchases made in Q1 2025 - The Board of Directors approved an open market repurchase plan in January 2025 to repurchase up to 150,000 shares of common stock195 - No shares were repurchased under this plan during the first three months of 2025195 Item 3. Defaults Upon Senior Securities This section confirms no defaults occurred upon senior securities during the reporting period - There were no defaults upon senior securities196 Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Corporation - Mine Safety Disclosures are not applicable to the Corporation196 Item 5. Other Information This section discloses that no directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements, except for the CEO and President, Craig W. Best - No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2025, with one exception196 - Craig W. Best, Director, CEO, and President, adopted a non-Rule 10b5-1 trading arrangement on February 24, 2025, to purchase up to 6,775 shares, which was terminated on March 7, 2025197 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate organizational documents, executive officer certifications, and interactive data files - The report includes exhibits such as Amended and Restated Articles of Incorporation, Bylaws, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Interactive Data Files (XBRL)198 SIGNATURE PAGE This page contains the official signatures of the Chief Executive Officer and President, and the Treasurer and Chief Financial Officer - The report is duly signed on May 15, 2025, by Craig W. Best, Chief Executive Officer and President, and Mark R. Hollar, Treasurer and Chief Financial Officer201