# Princeton Bancorp, Inc. (BPRN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Princeton Bancorp, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1913971/000119312525054907/d885370d10k.htm
Accession: 0001193125-25-054907
Filing date: 2025-03-14
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

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

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in sections as follows:

[[GREPCENT_TABLE]]
[["","\u2022","","Overview and Strategy"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Comparison of Financial Condition at December 31, 2024 and December 31, 2023"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Comparison of Operating Results for the Years Ended December 31, 2024 and 2023"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Rate/Volume Analysis"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Liquidity, Commitments and Capital Resources"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Off-Balance Sheet Arrangements"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Impact of Inflation"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Exposure to Changes in Interest Rates"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Critical Accounting Policies and Estimates"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","Recently Issued Accounting Standards"]]
[[/GREPCENT_TABLE]]

Overview and Strategy

We remain focused on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively priced and delivered in a responsive manner to small businesses, to professionals and individuals in our market area. As a community bank, we seek to provide superior customer service that is highly personalized, efficient and responsive to local needs. To better serve our customers, we endeavor to provide state-of-the-art delivery systems with ATMs, current operating software, timely reporting, online bill pay and other similar up-to-date products and services. We seek to deliver these products and services with the care and professionalism expected of a community bank and with a special dedication to personalized customer service.

Our primary business objectives are:

[[GREPCENT_TABLE]]
[["","\u2022","","to provide local businesses, professionals and individuals with banking services responsive to and determined by their needs and local market conditions;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","to attract deposits and loans through competitive pricing, responsiveness and service; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","","to provide a reasonable return to stockholders on capital invested."]]
[[/GREPCENT_TABLE]]

We also intend to continue pursuing a strategy that includes acquisitions. An acquisition strategy involves significant risks, including the following: finding suitable candidates for acquisition; attracting funding to support additional growth within acceptable risk tolerances; maintaining asset quality; retaining the target’s customers and key personnel; obtaining necessary regulatory approvals; conducting adequate due diligence and managing known and unknown risks and uncertainties; integrating acquired businesses; and maintaining adequate regulatory capital. The market for acquisition targets is highly competitive, which may adversely affect our ability to find acquisition candidates that fit our strategy and standards.

We strive to serve the financial needs of our customers while providing an appropriate return to our stockholders, consistent with safe and sound banking practices. We expect that a financial strategy that utilizes variable rates and matching assets and liabilities will enable us to increase our net interest margin, while managing interest rate risk. We also seek to generate fee income from various sources, subject to our desire to maintain competitive pricing within our market area.

46

Table of Contents

Our recognition of, and commitment to, the needs of the local community, combined with highly personalized and responsive customer service, differentiates us from our competition. We continue to capitalize upon the personal contacts and relationships of our organizers, directors, stockholders and officers to establish and grow our customer base.

Comparison of Financial Condition at December 31, 2024 and December 31, 2023

General.

Total assets were $2.34 billion at December 31, 2024, an increase of $423.7 million, or 22.11% when compared to $1.92 billion at the end of 2023. The primary reasons for the increase in total assets were the acquisition of CFC on August 23, 2024, which had approximately $303.5 million in assets at closing, and increases from existing core operations.

Cash and cash equivalents

Cash and cash equivalents decreased $33.2 million, or 22.06%, to $117.3 million at December 31, 2024 compared to December 31, 2023.

Investment securities

Total available-for-sale investment securities increased million $155.8, or 170.57%, to $247.2 million at December 31, 2024 compared to December 31, 2023. This increase was related to the purchase of mortgage-backed securities of U.S. government sponsored enterprises, and U.S government agency securities, along with $14.0 million in securities acquired in the CFC acquisition during the year ended December 31, 2024.

Loans

Loans, net of deferred loan fees and costs, increased $270.5 million, or 17.47%, to $1.82 billion at December 31, 2024 compared to December 31, 2023. The primary reasons for the increase in net loans were the $255.5 million in loans acquired from CFC and a $15.0 million increase from existing operations. The increase in the Company’s net loans consisted of increases of $242.2 million in commercial real estate loans, $41.9 million in commercial and industrial loans, $30.0 million in residential mortgages, and $10.1 in home equity and consumer loans, all partially offset by a decrease of $53.0 million in construction loans.

The Company’s CRE loan portfolio, which includes multi-family, land, owner-occupied and non-owner-occupied CRE loans, was $1.39 billion or 76.1% of total loans of $1.82 billion at December 31, 2024. There were 774 loans in the Company’s CRE portfolio with an average and median loan size of $1.8 million and $0.6 million, respectively. LTV estimates are less than 70% for $1.27 billion or 92.1% of the CRE portfolio and less than 80% for $1.37 billion or 99.3% of the CRE portfolio.

47

Table of Contents

The following table presents the commercial real estate portfolio by property type along with the weighted average loan to value for the periods presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","December 31, 2024","","","December 31, 2023"],["Commercial Real Estate","","Balance","","","% of portfolio","","","Weighted Average LTV","","","Balance","","","% of portfolio","","","Weighted Average LTV"],["Multi Family","","","533,287","","","","38.6","%","","","53.6","%","","","403,779","","","","35.3","%","","","55.7","%"],["Owner Occupied","","","407,798","","","","29.4","%","","","36.3","%","","","347,734","","","","30.4","%","","","33.0","%"],["Land","","","25,241","","","","1.8","%","","","73.9","%","","","30,280","","","","2.6","%","","","79.6","%"],["Non Owner Occupied"],["Office Building","","","104,388","","","","7.5","%","","","43.5","%","","","91,968","","","","8.0","%","","","42.9","%"],["Retail","","","100,771","","","","7.3","%","","","42.5","%","","","67,862","","","","5.9","%","","","40.7","%"],["Industrial/Warehousing","","","73,417","","","","5.3","%","","","44.9","%","","","69,917","","","","6.1","%","","","46.0","%"],["Mixed Use","","","48,076","","","","3.5","%","","","43.7","%","","","48,684","","","","4.3","%","","","42.9","%"],["Restaurants","","","22,650","","","","1.6","%","","","39.3","%","","","15,361","","","","1.3","%","","","33.3","%"],["Healthcare","","","10,268","","","","0.7","%","","","53.3","%","","","11,448","","","","1.0","%","","","48.7","%"],["Other","","","59,189","","","","4.3","%","","","45.6","%","","","55,830","","","","4.9","%","","","38.7","%"],["Total non owner occupied","","","418,759","","","","30.2","%","","","","","","","361,070","","","","31.6","%"],["Total Commercial Real Estate","","","1,385,085","","","","100.0","%","","","","","","","1,142,863","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

The following table presents the geographic markets of the commercial real estate portfolio for the periods presented (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","December 31, 2024","","","December 31, 2023"],["","","Balance","","","% of portfolio","","","Balance","","","% of portfolio"],["Geographical Market"],["New York","","","639,994","","","","46.1","%","","","533,991","","","","46.7","%"],["New Jersey","","","540,896","","","","39.1","%","","","408,368","","","","35.7","%"],["Pennsylvania","","","184,084","","","","13.3","%","","","172,848","","","","15.1","%"],["Other","","","20,111","","","","1.5","%","","","27,657","","","","2.5","%"],["","","","1,385,085","","","","100.00","%","","","1,142,864","","","","100.00","%"]]
[[/GREPCENT_TABLE]]

At December 31, 2024, non-performing assets totaled $27.1 million, an increase of $20.4 million when compared to the amount at December 31, 2023. The increase was due to the delinquency of two commercial real estate loans totaling $25.4 million with collateral supporting each loan. The Company is a participant in these loans and is currently evaluating its options with the lead bank, including but not limited to placing the loans on the market for sale.

Deposits

Total deposits on December 31, 2024, increased $396.9 million, or 24.26%, when compared to December 31, 2023. The primary reasons for the increase in total deposits were the $282.8 million in deposits acquired from CFC and an increase of $114.1 million from existing branch operations. The increase in the Company’s deposits consisted of increases in money market deposits of $136.5 million, certificates of deposit of $131.6 million, interest-bearing demand deposits of $52.6 million, non-interest-bearing deposits of $51.7 million, and savings deposits of $24.4 million.

Borrowings

The Company had no outstanding borrowings at December 31, 2024 or December 31, 2023.

48

Table of Contents

Stockholders’ equity

Total stockholders’ equity at December 31, 2024, increased $21.8 million or 9.09% when compared to December 31, 2023. The increase was primarily due to the $21.6 million increase in paid-in capital which is primarily associated with the issuance of $20.0 million of common stock related to the acquisition of CFC, and an increase in retained earnings of $2.5 million, which consisted of $10.2 million in net income partially offset by $7.7 million of cash dividends recorded during the period, which increase was partially offset by an increase in accumulated other comprehensive loss of $1.4 million. The ratio of equity to total assets at December 31, 2024 and at December 31, 2023 was 11.2% and 12.5%, respectively. The current period ratio decrease was primarily due to the CFC acquisition.

We manage our balance sheet based on a number of interrelated criteria, such as changes in interest rates, fluctuations in certain asset and liability categories whose changes are not totally controlled by us, swings in deposit account balances driven by depositors’ needs, prepayments and issuer call options exercised on securities available for sale, early payoffs on loans, investment opportunities presented by market conditions, lending originations, capital provided by earnings, and active management of our overall liquidity positions. The management of these dynamic and interrelated elements of our balance sheet results in fluctuations in balance sheet items throughout the year.

Comparison of Operating Results for the Years Ended December 31, 2024, and 2023

General.

For the year ended December 31, 2024, the Company recorded net income of $10.2 million, or $1.55 per diluted common share, compared to $25.8 million, or $4.03 per diluted common share, for the same period in 2023. This year-to-date decrease was primarily the result of a $9.7 bargain purchase gain which included a tax benefit of $2.0 million in 2023 from the Company’s acquisition of Noah Bank in May of 2023, and the purchase accounting adjustments recorded in 2024 related to the CFC acquisition, which included an increase of $1.5 million in the provision for credit losses when comparing both periods.

Net interest income.

Net interest income for the twelve-month period ended December 31, 2024, was $66.5 million, an increase of $1.5 million, or 2.3%, from 2023. The increase from the previous year was the result of an increase in interest income of $24.8 million, or 25.2%, partially offset by an increase in interest expense of $23.3 million, or 70.1%.

Total interest and dividend income.

Total interest and dividend income increased $24.8 million, or 25.2%, to $122.9 million for the year ended December 31, 2024, compared to $98.2 million for the prior year. The improvement in interest income resulted from an increase in the yield on earning assets of 31 basis points to 6.25% and an increase in average interest-earning assets of $315.2 million for the twelve-month period ended December 31, 2024.

Interest income and fees on loans increased $19.3 million, or 21.6%, to $108.6 million for the year ended December 31, 2024, compared to $89.3 million for the prior year. The increase was attributable to both a $213.5 million increase in the average balance and a 37 basis point increase in the year-over-year average yield on loans to 6.53%, due to rising interest rates over the period.

Interest income on securities increased approximately $3.6 million, or 144.43%, for the year ended December 31, 2024, compared to the prior year. The increase was attributable to both a $65.6 million increase in the average balance and a 110 basis point increase in the year-over-year average yield on investments to 4.06%

Other interest and dividends increased $1.9 million, or 29.1%, to $8.3 million for the year ended December 31, 2024, compared to $6.4 million for the prior year due to an increase of $26.9 million in the average balances of federal funds sold, partially offset by an 8 basis point decrease in the yield on fed funds sold.

49

Table of Contents

Interest expense.

Total interest expense increased $23.3 million, or 70.1%, for the year ended December 31, 2024 compared to the prior year. This increase was the result of a 99 basis point increase in the cost of interest-bearing deposits and an increase of $302.7 million in average interest-bearing deposits.

Interest expense on borrowings was not significant for either period presented.

Provision for credit losses.

The provision for credit losses for the twelve months ended December 31, 2024, was $5.1 million compared with a provision of $3.1 million for the 2023 period. The $5.1 million provision for 2024 consists of a $5.5 million provision associated with the company’s loan portfolio, offset by a credit to the provision of $360 thousand associated with unfunded commitments. The provision for credit losses on loans includes $3.2 million related to non-purchased-credit-deteriorated loans acquired in the CFC acquisition. See the section above titled “Analysis of Allowance for Credit Losses” for a discussion of our allowance for credit losses methodology, including additional information regarding the determination of the provision for credit losses.

Non-interest income.

Total non-interest income for the year ended December 31, 2024, decreased $9.0 million, or by 52.4%, primarily due to the $9.7 million bargain purchase gain from the Noah Bank acquisition recorded in 2023, partially offset by a 2024 increase in other non-interest income of $646 thousand and an increase in income from bank owned life insurance of $380 thousand over the same period in 2023.

Non-interest expense.

For the year ended December 31, 2024, non-interest expense was $56.8 million, compared to $48.7 million for 2023. The increase of $8.0 million was primarily attributed to increases in salaries and employee benefits of $2.7 million, occupancy and equipment of $1.2 million, professional fees of $515 thousand, data processing and communications of $352 thousand, federal deposit insurance of $254 thousand and merger-related expenses of $2.2 million during 2024 over the same period in 2023. The CFC acquisition caused a significant portion of such increases.

Income tax expense.

For the year ended December 31, 2024, income tax expense was $2.6 million resulting in an effective tax rate of 20.1% compared to income tax expense of $4.6 million and an effective tax rate of 15.1% for the year ended December 31, 2023. This decrease was due to the income taxes on the $9.7 million bargain purchase gain from the Noah Bank acquisition, recorded in the year ended December 31, 2023, and an increase in 2024 merger related expenses of $2.2 million when comparing the years ended December 31, 2024 and 2023.

50

Table of Contents

Average Balance Sheets. The following table sets forth average balance sheets, yields and costs, and certain other information for the years indicated. The average yields and costs of funds shown are derived by dividing income or expense by the daily average balance of assets or liabilities, respectively, for the periods presented. Net loan fees of $4.1 million and $2.8 million were recorded for the twelve months ended December 31, 2024 and 2023, respectively. Nonaccrual loans are included in the average balance of loans receivable, net for all periods presented. No tax-equivalent adjustments have been made as they were deemed insignificant.

[[GREPCENT_TABLE]]
[["","","Twelve Months Ended December 31,"],["","","2024","","","2023","","","Change 2024 vs 2023"],["","","Average Balances","","","Income/ Expense","","","Yield Rates","","","Average Balances","","","Income/ Expense","","","Yield Rates","","","Average Balances","","","Yield Rates"],["","","(Dollars in thousands)"],["Interest-earning assets:"],["Loans receivable","","$","1,663,013","","","$","108,586","","","","6.53","%","","$","1,449,504","","","$","89,278","","","","6.16","%","","$","213,509","","","","0.37","%"],["Securities"],["Taxable available-for-sale","","","109,145","","","","4,928","","","","4.51","%","","","43,476","","","","1,339","","","","3.08","%","","","65,669","","","","1.43","%"],["Tax exempt available-for-sale","","","40,239","","","","1,142","","","","2.84","%","","","40,264","","","","1,138","","","","2.83","%","","","(25",")","","","0.01","%"],["Held-to-maturity","","","169","","","","9","","","","5.27","%","","","197","","","","10","","","","5.28","%","","","(28",")","","","-0.01","%"],["Federal funds sold","","","136,281","","","","7,188","","","","5.27","%","","","109,441","","","","5,858","","","","5.35","%","","","26,840","","","","-0.08","%"],["Other interest earning-assets","","","19,337","","","","1,093","","","","5.65","%","","","10,064","","","","557","","","","5.53","%","","","9,273","","","","0.12","%"],["Total interest-earning assets","","","1,968,184","","","$","122,946","","","","6.25","%","","","1,652,946","","","$","98,180","","","","5.94","%","","","315,239","","","","0.31","%"],["Other non-earnings assets","","","151,600","","","","","","","","","","","","122,321","","","","","","","","","","","","29,369"],["Total assets","","$","2,119,784","","","","","","","","","","","$","1,775,267","","","","","","","","","","","$","344,608"],["Interest-bearing liabilities"],["Demand","","$","258,462","","","$","4,941","","","","1.91","%","","$","250,312","","","$","3,654","","","","1.46","%","","$","8,150","","","","0.45","%"],["Savings","","","157,538","","","","3,974","","","","2.52","%","","","159,175","","","","2,742","","","","1.72","%","","","(1,637",")","","","0.80","%"],["Money markets","","","421,934","","","","15,971","","","","3.79","%","","","311,478","","","","9,565","","","","3.07","%","","","110,456","","","","0.72","%"],["Certificates of deposit","","","724,060","","","","31,528","","","","4.35","%","","","538,343","","","","17,085","","","","3.17","%","","","185,717","","","","1.18","%"],["Total deposit","","","1,561,994","","","","56,414","","","","3.61","%","","","1,259,308","","","","33,046","","","","2.62","%","","","302,686","","","","0.99","%"],["Borrowings","","","\u2014","","","","\u2014","","","","0.00","%","","","2,343","","","","118","","","","5.01","%","","","(2,343",")","","","-5.01","%"],["Total interest-bearing liabilities","","","1,561,994","","","$","56,414","","","","3.61","%","","","1,261,651","","","$","33,164","","","","2.63","%","","","300,343","","","","0.98","%"],["Non-interest-bearing deposits","","","264,418","","","","","","","","","","","","248,233","","","","","","","","","","","","16,185"],["Other liabilities","","","43,955","","","","","","","","","","","","36,856","","","","","","","","","","","","7,099"],["Total liabilities","","","1,870,367","","","","","","","","","","","","1,546,740","","","","","","","","","","","","323,627"],["Stockholders\u2019 equity","","","249,417","","","","","","","","","","","","228,527","","","","","","","","","","","","20,890"],["Total liabilities and stockholder\u2019s equity","","$","2,119,784","","","","","","","","","","","$","1,775,267","","","","","","","","","","","$","344,517"],["Net interest-earnings assets","","$","406,189","","","","","","","","","","","$","391,295","","","","","","","","","","","$","14,894"],["Net interest income; interest rate spread","","","","","","","","","","","2.64","%","","","","","","","","","","","3.31","%","","","","","","","-0.67","%"],["Net interest margin","","","","","","$","66,532","","","","3.38","%","","","","","","$","65,016","","","","3.93","%","","$","1,516","","","","-0.55","%"]]
[[/GREPCENT_TABLE]]

51

Table of Contents

Rate/Volume Analysis

The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the periods indicated.

[[GREPCENT_TABLE]]
[["","","Twelve Months Ended December 31, 2024 vs . 2023 Increase (Decrease) Due to"],["","","Rate","","","Volume","","","Net"],["","","(In thousands)"],["Interest and dividend income:"],["Loans receivable, including fees","","$","5,588","","","$","13,720","","","$","19,308"],["Securities available-for-sale","","","","","","","","","","","\u2014"],["Taxable","","","842","","","","2,747","","","","3,589"],["Tax-exempt","","","6","","","","(2",")","","","4"],["Securities held-to-maturity","","","\u2014","","","","(1",")","","","(1",")"],["Federal funds sold","","","(82",")","","","1,412","","","","1,330"],["Other interest and dividend income","","","12","","","","524","","","","536"],["Total interest and dividend income","","$","6,366","","","$","18,400","","","$","24,766"],["Interest expense:"],["Demand","","$","1,164","","","$","123","","","$","1,287"],["Savings","","","1,260","","","","(28",")","","","1,232"],["Money market","","","2,540","","","","3,866","","","","6,406"],["Certificates of deposit","","","7,509","","","","6,934","","","","14,443"],["Borrowings","","","(78",")","","","(40",")","","","(118",")"],["Total interest expense","","$","12,395","","","$","10,855","","","$","23,250"],["Change in net interest income","","$","(6,029",")","","$","7,545","","","$","1,516"]]
[[/GREPCENT_TABLE]]

Liquidity, Commitments and Capital Resources

Liquidity. Our liquidity, represented by cash and due from banks, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, principal repayments of securities and outstanding loans, and funds provided from operations. In addition, we invest excess funds in short-term interest-earnings assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities.

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

We review cash flow projections regularly and update them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals.

52

Table of Contents

While deposits are our primary source of funds, when needed we are also able to generate cash through borrowings from the FHLB-NY. At December 31, 2024, we had remaining available capacity with FHLB-NY, subject to certain collateral restrictions, of $554.8 million.

Additionally, we are a shareholder of Atlantic Community Bancshares, Inc., and as such, as of December 31, 2024, we had available capacity with its subsidiary, Atlantic Community Bankers Bank of $10.0 million to provide short-term liquidity generally for a period of not more than fourteen days.

Contractual Obligations. We have non-cancelable operating leases for branch offices and our operations center. The following table is a schedule of future payments under operating leases with initial terms longer than 12 months at December 31, 2024:

[[GREPCENT_TABLE]]
[["","","Amount"],["Years Ended December 31","","(in thousands)"],["2025","","$","3,722"],["2026","","","3,498"],["2027","","","3,208"],["2028","","","3,093"],["2029","","","2,467"],["Thereafter","","","14,541"],["Total","","$","30,529"]]
[[/GREPCENT_TABLE]]

The following table summarizes our contractual cash obligations relating to certificates of deposits:

[[GREPCENT_TABLE]]
[["","","Amount"],["Years Ended December 31","","(in thousands)"],["2025","","$","727,528"],["2026","","","33,942"],["2027","","","4,581"],["2028","","","1,112"],["2029 and thereafter","","","2,508"],["Total","","$","769,671"]]
[[/GREPCENT_TABLE]]

Capital Resources. Consistent with our goals to operate as a sound and profitable financial institution, we actively seek to maintain our status as a well-capitalized institution in accordance with regulatory standards. As of December 31, 2024, we met the capital requirements to be considered “well capitalized.” See Note 17 – “Regulatory Matters” in the Notes to Consolidated Financial Statements included within this Form 10-K for more information regarding our capital resources.

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of our business of investing in loans and securities as well as in the normal course of maintaining and improving our facilities. These financial instruments include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to purchase investment securities or mortgage-backed securities, and commitments to extend credit to meet the financial needs of our customers.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by our customers. Our exposure to credit loss in the event of non-performance by the counterparty to the financial instrument for commitments to extend credit is

53

Table of Contents

represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

We had the following off-balance sheet financial instruments whose contract amounts represent credit risk at December 31:

[[GREPCENT_TABLE]]
[["","","2024","","","2023"],["","","(In thousands)"],["Performance and standby letters of credit","","$","700","","","$","1,010"],["Undisbursed construction loans-in-process","","","62,007","","","","89,258"],["Commitments to fund loans","","","51,075","","","","38,863"],["Unfunded commitments under lines of credit","","","19,659","","","","4,697"],["Total","","$","133,441","","","$","133,828"]]
[[/GREPCENT_TABLE]]

For additional information regarding our outstanding lending commitments at December 31, 2024, see Note 9 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements contained in this Form 10-K.

Impact of Inflation

The financial statements included in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation.

Exposure to Changes in Interest Rates

Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring the Bank’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income.

54

Table of Contents

The table on the next page sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2024, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2024, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans.

[[GREPCENT_TABLE]]
[["","","3 Months or Less","","","More than 3 Months to 1 Year","","","More than 1 Year to 3 Years","","","More than 3 Years to 5 Years","","","More than 5 Years","","","Non-Rate Sensitive","","","Total Amount"],["(Dollars in thousands)"],["Interest-earning assets: (1)"],["Investment securities","","$","15,364","","","$","36,842","","","$","59,335","","","$","35,919","","","$","113,336","","","$","(13,464",")","","$","247,332"],["Loans receivable","","","443,443","","","","219,100","","","","541,988","","","","502,376","","","","103,380","","","","(15,069",")","","","1,795,218"],["Other interest-earnings assets (2)","","","102,508","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","102,508"],["Total interest-earning assets","","$","561,315","","","$","255,942","","","$","601,323","","","$","538,295","","","$","216,716","","","$","(28,533",")","","$","2,145,058"],["Interest-bearing liabilities:"],["Checking and savings accounts","","$","471,439","","","","","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","471,439"],["Money market accounts","","","490,543","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","490,543"],["Certificate accounts","","","145,858","","","","582,477","","","","38,162","","","","3,174","","","","\u2014","","","","\u2014","","","","769,671"],["Borrowings","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["Total interest-bearing liabilities","","$","1,107,840","","","$","582,477","","","$","38,162","","","$","3,174","","","$","\u2014","","","$","\u2014","","","$","1,731,653"],["Interest-earning assets less interest-bearing liabilities","","$","(546,525",")","","$","(326,535",")","","$","563,161","","","$","535,121","","","$","216,716","","","$","(28,533",")","","$","413,405"],["Cumulative interest-rate sensitivity gap (3)","","$","(546,525",")","","$","(873,060",")","","$","(309,899",")","","$","225,222","","","$","441,938"],["Cumulative interest-rate gap as a percentage of total assets at December 31, 2024","","","-23.35","%","","","-37.31","%","","","-13.24","%","","","9.62","%","","","18.88","%"],["Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at December 31, 2024","","","50.67","%","","","48.35","%","","","82.07","%","","","113.01","%","","","125.52","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Interest-earnings assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Includes interest-bearing bank balances, FHLB Stock and Federal Funds Sold"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Interest-rate sensitivity gap represents the difference between total interest-earning assets and total interest-bearing liabilities."]]
[[/GREPCENT_TABLE]]

55

Table of Contents

Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase.

Net Portfolio Value Analysis. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of December 31, 2024 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.

[[GREPCENT_TABLE]]
[["Change in Interest Rates","","Net Portfolio Value","","","NPV as % of Portfolio Value of Assets"],["In Basis Points (Rate Shock)","","Amounts","","","$ Change","","","% Change","","","EVE/EVA1","","Change"],["","","","","","(Dollars in thousands)"],["300","","$","307,333","","","$","(37,478",")","","","-10.87","%","","14.05%","","","(0.81",")"],["200","","$","322,552","","","$","(22,259",")","","","-6.46","%","","14.46%","","","(0.40",")"],["100","","$","334,236","","","$","(10,575",")","","","-3.07","%","","14.69%","","","(0.17",")"],["Static","","$","344,811","","","$","\u2014","","","","","","","14.86%"],["(100)","","$","357,192","","","$","12,381","","","","3.59","%","","15.12%","","","0.26"],["(200)","","$","361,831","","","$","17,020","","","","4.94","%","","15.11%","","","0.25"],["(300)","","$","352,480","","","$","7,669","","","","2.22","%","","14.55%","","","(0.31",")"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["1","Economic Value of Equity (EVE) divided by Economic Value of Assets (EVA)"]]
[[/GREPCENT_TABLE]]

As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.

Critical Accounting Policies and Estimates

In the preparation of our financial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and in accordance with general practices within the banking industry. Our significant accounting policies are described in our financial statements under Note 1- “Summary of Significant Accounting Policies.” While all these policies are important to understanding the financial statements, certain accounting policies described below involve significant judgment and assumptions by management that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting estimates to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under

56

Table of Contents

the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and assumptions that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for Credit Losses. The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents our estimate of losses expected in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents our estimate of losses expected in our unfunded loan commitments and is recorded in other liabilities on the balance sheet. The allowance for credit losses is increased by the provision for credit losses and recoveries and decreased by charge-offs. Generally, loans deemed to be uncollectible are charged-off against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance for loan losses. All, or part, of the principal balance of loans receivable are charged off to the allowance for credit losses when it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

Goodwill and Core Deposit Intangible. For mergers and acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit intangibles, and the liabilities assumed at their fair value. The difference between consideration and the net fair value of assets acquired is recorded as goodwill or a bargain purchase gain if the acquired net fair value of assets acquired exceeds the consideration. Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates and realizable collateral values. The allowance for credit losses for PCD loans is recognized within acquisition accounting. The allowance for credit losses for non-PCD assets is recognized as provision for credit losses in the same reporting period as the merger or acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the merger or acquisition. The use of different assumptions could produce significantly different valuation results, which could have material positive or negative effects on our results of operations.

Both goodwill and the core deposit intangible asset are reviewed for impairment annually or when events and circumstances indicate that an impairment may have occurred. Applicable accounting guidance requires an annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill. A qualitative factor test can be performed to determine whether it is necessary to perform a quantitative goodwill impairment test. If this qualitative test determines it is not more likely than not (less than 50% probability) that the fair value of the Reporting Unit is less than the Carrying Value, then the Company does not have to perform a quantitative test and goodwill can be considered not impaired. The Company performed its annual review at May 31, 2024 and determined that it was more than 50% probable the fair value of the Reporting Unit exceeds the then Carrying Value, therefore a quantitative test was not required as of May 31, 2024.

Recently Issued Accounting Standards

See Note 1- “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K for a discussion of recently issued accounting standards.

Cautionary Note Regarding Forward-Looking Statements

The Company may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the SEC, in its reports to stockholders and in other communications by the Company (including this report), which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Exchange Act.

57

Table of Contents

These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control). The following factors, among others, could cause the Company’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the extent of the adverse impact of any current or future pandemics or other natural disasters on our customers, prospects and business, including related supply chain shortage of goods; civil unrest, rioting, acts or threats of terrorism, or actions taken by the local, state and Federal governments in response to such events, which could impact business and economic conditions in our market area; the strength of the United States economy in general and the strength of the local economies in which the Company and the Bank conduct operations; the imposition of tariffs or other domestic or international governmental policies impacting the value of the products of our borrowers; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; market volatility; the value of the Bank’s products and services as perceived by actual and prospective customers, including the features, pricing and quality compared to competitors’ products and services; the willingness of customers to substitute competitors’ products and services for the Bank’s products and services; credit risk associated with the Bank’s lending activities; risks relating to the real estate market and the Bank’s real estate collateral; the impact of changes in applicable laws and regulations and requirements arising out of our supervision by banking regulators; other regulatory requirements applicable to the Company and the Bank; the timing and nature of the regulatory response to any applications filed by the Company and the Bank; technological changes; acquisitions and difficulties and delays in integrating the businesses of the acquired company, including CFC, and the Company fully realizing cost savings and other benefits of such acquisitions; changes in consumer spending and saving habits; those risks described in Item 1. “Business,” Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company, except as required by applicable law or regulation.