4
Discussion of Financial Condition
Earning Assets
Average earning
assets totaled $4.032 billion for the second quarter of 2025, an increase of $38.1 million,
or 1.0%, over the first
quarter of 2025, and an increase of $110.1
million, or 2.8%, over the fourth quarter of 2024.
The increase over both prior periods
was driven by higher average deposit balances (see below –
Deposits
).
Compared to the first quarter of 2025, the change in the
earning asset mix reflected a $27.8 million increase in overnight funds
and a $25.7 million increase in investment securities that was
partially offset by a $13.3 million decrease in loans HFI and
a $2.1
million decrease in loans held for sale (“HFS”).
Compared to
the fourth quarter of 2024, the change in the earning asset mix reflected a $92.8
million increase in investment securities and a
$50.5 million increase in overnight funds sold partially offset
by a $24.8 million decrease in loans HFI and a $8.4 million decrease
Average loans
HFI decreased by $13.3 million, or 0.5%, from the first quarter of 2025 and decreased
by $24.8 million, or 0.9%,
from the fourth quarter of 2024.
Compared to the first quarter of 2025, the decrease was due to decreases in
construction loans of
$24.6 million, consumer loans (primarily indirect auto) of $1.9 million,
and commercial loans of $3.4 million, partially offset by
increases to residential real estate loans of $10.2 million, commercial real estate loans
of $2.1 million, and home equity loans of
$4.1 million.
Compared to the fourth quarter of 2024, the decline was primarily attributable to decreases
in construction loans of
$33.2 million, commercial loans of $9.2 million, and consumer loans
(primarily indirect auto) of $4.0 million, partially offset by
increases in home equity loans of $10.8 million, residential real estate loans of
$9.9 million, and commercial real estate loans of
Loans HFI at June 30, 2025 decreased by $29.3 million, or 1.1%, from
March 31, 2025 and decreased by $20.1 million, or 0.8%,
from December 31, 2024.
Compared to the first quarter of 2025, the decline was primarily due to decreases
in construction loans of
$18.2 million, consumer loans (primarily indirect auto) of $8.7 million,
commercial loans of $4.4 million, and commercial real
estate loans of $4.4 million, partially offset by increases in residential real
estate loans of $5.8 million and home equity loans of $2.2
million.
Compared to December 31, 2024, the decrease was primarily attributable to decreases in
construction loans of $45.9
million, commercial loans of $9.2 million, and consumer loans (primarily
indirect auto) of $2.0 million, partially offset by increases
in commercial real estate loans of $23.4 million, residential real estate loans of
$17.9 million, and home equity loans of $8.1
Allowance for Credit Losses
At June 30, 2025, the allowance for credit losses for loans HFI totaled
$29.9 million compared to $29.7 million at March 31, 2025
and $29.3 million at December 31, 2024.
Activity within the allowance is provided on Page 14.
The slight increase in the
allowance over March 31, 2025 and December 31, 2024 was primarily
attributable to qualitative factor adjustments that were
partially offset by lower loan balances.
Net loan charge-offs for both the second quarter of 2025
and the first quarter of 2025 were
comparable at nine basis points of average loans.
At June 30, 2025, the allowance represented 1.13% of loans HFI compared
to
1.12% at March 31, 2025, and 1.10% at December 31, 2024.
Credit Quality
Nonperforming assets (nonaccrual loans and other real estate) totaled
$6.6 million at June 30, 2025 compared to $4.4 million at
March 31, 2025 and $6.7 million at December 31, 2024.
At June 30, 2025, nonperforming assets as a percentage of total assets was
0.15%, compared to 0.10% at March 31, 2025 and 0.15% at December 31,
2024.
Nonaccrual loans totaled $6.4 million at June 30,
2025, a $2.2 million increase over March 31, 2025 and a $0.1 million increase
over December 31, 2024 with the increase over the
first quarter of 2025 primarily attributable to two home equity loans
totaling $1.8 million.
Classified loans totaled $28.6 million at
June 30, 2025, a $9.4 million increase over March 31, 2025 and a $8.7 million increase
over December 31, 2024.
The increase over
the prior periods was primarily due to the downgrade of four residential real
estate loans totaling $4.2 million and two commercial
real estate loans totaling $4.3 million.
Deposits
Average total
deposits were $3.681 billion for the second quarter of 2025, an increase of $15.2
million, or 0.4%, over the first
quarter of 2025 and an increase of $80.3 million, or 2.2%, over the fourth quarter
of 2024.
Compared to the first quarter of 2025,
the increase was attributable to higher core deposit balances (primarily noninterest
bearing checking and money market), partially
offset by a decline in public funds balances (primarily NOW accounts)
due to the seasonal reduction in those balances.
The
increase over the fourth quarter of 2024 reflected strong growth in core deposit
balances and a seasonal increase in public funds
balances (primarily NOW) which are received/deposited by those clients
starting in December and peak on average in the first