Eagle Financial (NASDAQ: EFSI) 2025 profit falls as capital rises
Eagle Financial Services reports 2025 results with lower earnings but a stronger capital base. Net income was $8.2 million, down from $15.3 million, as the company sold $99.2 million of securities and realized a $12.4 million pre-tax loss to reposition its portfolio.
Total assets reached $1.89 billion, with net loans of $1.46 billion and deposits of $1.61 billion. Shareholders’ equity rose to $188.8 million, helped by an underwritten public offering of 1,796,875 shares at $32.00 per share, generating $53.5 million in net proceeds.
Return on average assets was 0.42% and return on average equity 4.81%. The company paid $6.1 million in dividends and maintained quarterly payouts, while opening a new full-service branch in McLean, Virginia and uplisting its stock to Nasdaq.
Positive
- None.
Negative
- None.
Insights
2025 shows weaker earnings but improved capital and franchise reach.
Eagle Financial Services generated net income of
Total assets increased to
Return on average assets slipped to
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
|
||
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
||
(Address of principal executive offices) |
|
(Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act: None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required 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.
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).
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.
Large accelerated filer |
|
☐ |
|
|
☒ |
|
|
|
|
|
|||
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging growth company |
|
|
|
|
|
||||
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). □
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The aggregate market value of the voting common equity held by non-affiliates of the registrant at June 30, 2025 was $
The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of March 10, 2026 was
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2026 Annual Meeting of Shareholders are incorporated by reference into Part III.
EAGLE FINANCIAL SERVICES, INC.
INDEX TO FORM 10-K
|
|
|
PART I |
|
|
|
|
|
Item 1. |
Business |
4 |
Item 1A. |
Risk Factors |
12 |
Item 1B. |
Unresolved Staff Comments |
19 |
Item 1C. |
Cybersecurity |
19 |
Item 2. |
Properties |
21 |
Item 3. |
Legal Proceedings |
21 |
Item 4. |
Mine Safety Disclosures |
21 |
|
|
|
PART II |
|
|
|
|
|
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
22 |
Item 6. |
Reserved |
22 |
Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 7A. |
Quantitative and Qualitative Disclosures about Market Risk |
52 |
Item 8. |
Financial Statements and Supplementary Data |
54 |
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
111 |
Item 9A. |
Controls and Procedures |
111 |
Item 9B. |
Other Information |
112 |
Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
112 |
PART III |
|
|
|
|
|
Item 10. |
Directors, Executive Officers and Corporate Governance |
113 |
Item 11. |
Executive Compensation |
113 |
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
113 |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
113 |
Item 14. |
Principal Accounting Fees and Services |
113 |
|
|
|
PART IV |
|
|
|
|
|
Item 15. |
Exhibit and Financial Statement Schedules |
114 |
Item 16. |
Form 10-K Summary |
115 |
3
PART I
Item 1. Business
General
Eagle Financial Services, Inc. is a bank holding company that was incorporated in 1991. The company is headquartered in Berryville, Virginia and conducts its operations through its subsidiary, Bank of Clarke (the “Bank”). The Bank is chartered under Virginia law. For purposes of this annual report on Form 10-K, the terms the "Company," "our," "us" and "we" refer to Eagle Financial Services, Inc. and our subsidiary as a combined entity, unless this report otherwise indicates or the context otherwise requires.
The Bank has fifteen full-service branches, one loan production office, one wealth management office and one drive-through only facility. The Bank’s main office is located at 2 East Main Street in Berryville, Virginia. The Bank opened for business on April 1, 1881. The Bank's market area is located in the Shenandoah Valley of Virginia, Northern Virginia and Frederick, Maryland. The Bank has Virginia offices located in Clarke County, Frederick County, Fauquier County, Loudoun County and Fairfax County, as well as the towns of Leesburg and Purcellville and the City of Winchester. The Bank has a Maryland office located in Frederick.
The Bank offers a wide range of retail and commercial banking services, including demand, savings and time deposits and consumer, mortgage and commercial loans. The Bank has fourteen ATM locations in its trade area and issues debit cards to deposit customers. These cards can be used to withdraw cash at most ATMs through the Bank’s membership in both regional and national networks. The Bank offers telephone banking, internet banking, and mobile banking to its customers. Internet banking also offers online bill payment to consumer and commercial customers. The Bank offers other commercial deposit account services such as ACH origination and remote deposit capture.
The Bank of Clarke Wealth Management Division, a division of the Bank, provides both a full-service trust department and a separate brokerage area. The trust department features a full range of fiduciary expertise, including service as trustee of personal trusts, service as guardian or conservator by court appointment, fiduciary investment management, estate settlement, and agency for trustees. The brokerage area offers advisory services and a broad selection of investment products, including individual retirement accounts, mutual funds, tax-deferred annuities, 529 college savings plans, life insurance, long term care insurance, brokerage certificates of deposit, among other brokerage services. Securities and other property held by the Bank of Clarke Wealth Management Division in a fiduciary or agency capacity are not assets of the Bank and are not included in the accompanying consolidated financial statements. Non-deposit investment products are offered through a third party provider.
The Bank is a member in Bankers Title Shenandoah, LLC, which sells title insurance and is an investor in Bearing Insurance Group, LLC, which serves as the broker for insurance sales through its member banks. The Bank invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.
Employees
The Company, including the Bank, has 254 full-time equivalent employees at December 31, 2025, representing 86 officers, 161 other, non-officer, full-time employees and 8 part-time employees. None of the Company’s employees are represented by a union or covered under a collective bargaining agreement. The Company considers relations with its employees to be excellent, and obtained its second a Great Place to Work® certified. designation for the annual period through June 2025.
Securities and Exchange Commission Filings
The Company maintains an internet website at www.bankofclarke.bank. Shareholders of the Company and the public may access, free of charge, the Company’s periodic and current reports (including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports) filed with or furnished to the Securities and Exchange Commission (the "SEC"), through the “Investor Relations” section of the Company’s website. The reports are made available on this website as soon as practicable following the filing of the reports with the SEC. The information is free of charge and may be reviewed, downloaded and printed from the Company website or http://www.sec.gov at any time. In addition, certain committee charters and the Company's Code of Ethics are available on the Company's website. The information on the Company's website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.
4
Competition
There is significant competition for both loans and deposits within the Company’s trade area. Competition for loans comes from other commercial banks, savings banks, credit unions, mortgage brokers, finance companies, financial technology firms, insurance companies, and other institutional lenders. Competition for deposits comes from other commercial banks, savings banks, credit unions, brokerage firms, and other financial institutions. Based on total deposits at June 30, 2025 as reported to the FDIC, the Bank has 11.94% of the total deposits in its primary deposit market area of Clarke County, Frederick County, Loudoun County, Fauquier County and the City of Winchester. During the third quarter of 2025, the Bank opened its first full-service branch in Fairfax County, providing an opportunity to expand strategically and deliver its distinctive brand of community banking to Fairfax County. Adding Fairfax County to the the Bank's primary deposit market area increases the number of competing banking offices by approximately 66%. Under the expanded market area, the Bank's has 1.29% of total deposits at June 30, 2025, as reported to the FDIC.
Supervision and Regulation
General. As a bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956, as amended, and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (the "Federal Reserve"). As a state-chartered commercial bank, the Bank is subject to regulation, supervision and examination by the Virginia State Corporation Commission’s Bureau of Financial Institutions. The Bank is also subject to regulation, supervision and examination by the Federal Reserve. Other federal and state laws, including various consumer and compliance laws, govern the activities of the Company and the Bank, the investments that they may make and the aggregate amount of loans that the Bank may grant to one borrower.
The following sections summarize some of the significant federal and state laws applicable to the Company and its subsidiary. To the extent that statutory or regulatory provisions are described, the description is qualified in its entirety by reference to that particular statutory or regulatory provision.
The Bank Holding Company Act. Under the Bank Holding Company Act, the Company is subject to periodic examination by the Federal Reserve and is required to file periodic reports regarding its operations and any additional information that the Federal Reserve may require. Activities at the bank holding company level are limited to the following:
Some of the activities that the Federal Reserve has determined by regulation to be closely related to the business of a banking include making or servicing loans and specific types of leases, performing specific data processing services and acting in some circumstances as a fiduciary or investment or financial adviser.
With some limited exceptions, the Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before:
In addition, and subject to some exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with their regulations, require Federal Reserve approval prior to any person or company acquiring 25% or more of any class of voting securities of the bank holding company. Prior notice to the Federal Reserve is required if a person acquires 10% or more, but less than 25%, of any class of voting securities of a bank or bank holding company and either the institution has registered securities under Section 12 of the Securities Exchange Act of 1934 or no other person owns a greater percentage of that class of voting securities immediately after the transaction.
Under the Gramm-Leach-Bliley Act (“GLBA”), bank holding companies that are well-capitalized and well-managed and meet other conditions can elect to become “financial holding companies.” As financial holding companies, they and their subsidiaries are permitted to acquire or engage in additional activities such as insurance underwriting, securities underwriting and distribution, travel agency activities, insurance agency activities, merchant banking and other activities that the Federal Reserve determines to be financial in nature or complementary to these activities. Financial holding companies continue to be subject to the overall oversight and supervision of the Federal Reserve, but the GLBA applies the concept of
5
functional regulation to the activities conducted by subsidiaries. For example, insurance activities would be subject to supervision and regulation by state insurance authorities. Although the Company has not elected to become a financial holding company in order to exercise the broader activity powers provided by the GLBA, the Company may elect do so in the future.
Payment of Dividends. The Company is organized under the Virginia Stock Corporation Act, which prohibits the payment of a dividend if, after giving it effect, the corporation would not be able to pay its debts as they become due in the usual course of business or if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved, to satisfy the preferential rights upon dissolution of any preferred shareholders. In addition, the Federal Reserve has indicated that a bank holding company should generally pay dividends only if its current earnings are sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition.
The Company is a legal entity separate and distinct from its subsidiary. Its ability to distribute cash dividends will depend primarily on the ability of the Bank to pay dividends to it, and the Bank is subject to laws and regulations that limit the amount of dividends that it can pay. As a state member bank, the Bank is subject to certain restrictions imposed by the reserve and capital requirements of federal and Virginia banking statutes and regulations. Under Virginia law, a bank may not declare a dividend in excess of its undivided profits. Additionally, the Bank may not declare a dividend if the total amount of all dividends, including the proposed dividend, declared by it in any calendar year exceeds the total of its retained net income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the Federal Reserve.
The Federal Reserve, the FDIC and the state of Virginia have the general authority to limit the dividends paid by insured banks if the payment is deemed an unsafe and unsound practice. These regulators have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice. The Bank may also not declare or pay a dividend without the approval of its board and two-thirds of its shareholders if the dividend would exceed its undivided profits, as reported to the Federal Reserve.
The Company does not expect that any of these laws, regulations or policies will materially affect the Bank's ability to pay dividends to the Company. During 2025, the Company paid total dividends of $6.1 million, including cash dividends that were reinvested in Company stock.
Insurance of Accounts, Assessments and Regulation by the FDIC. The Bank’s deposits are insured up to applicable limits by the FDIC. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") permanently raised the standard maximum deposit insurance amount to $250,000. The FDIC has implemented a risk-based assessment system in which assessment rates for insured institutions with under $10 billion in assets are calculated based on supervisory evaluations and certain other financial measures. The assessment base is an institution’s average consolidated total assets less average tangible equity, and the initial base assessment rates are currently between 5 and 32 basis points depending on the institution's composite rating, and subject to potential adjustment based on certain long-term unsecured debt. Progressively lower assessment rate schedules will take effect once the FDIC’s reserve ratio reaches 2.0% or greater, and again once the reserve ratio reaches 2.5% or greater.
Capital Requirements. The Federal Reserve and the other federal banking agencies have issued risk-based and leverage capital guidelines applicable to U.S. banking organizations. Those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth. Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.
The Federal Reserve has adopted capital rules implementing the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.
Under these risk-based capital requirements of the Federal Reserve, the Bank is required to maintain a minimum ratio of total capital (which is defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 8.0%. At least 6.0% of risk-weighted assets is required to be “Tier 1 capital,” which consists principally of common and certain qualifying preferred shareholders’ equity (including grandfathered trust preferred securities) as well as retained earnings, less certain intangibles and other adjustments. The “Tier 2 capital” consists of cumulative preferred stock, long-term perpetual preferred stock, a limited amount of subordinated and other qualifying debt (including certain hybrid capital instruments), and a limited amount of the allowance for credit losses, including reserves for off-balance sheet commitments. A common equity Tier 1 capital ratio of 4.5% of risk-weighted assets also was added with the rules effective January 1, 2015.
6
Each of the federal bank regulatory agencies also has established a minimum leverage capital ratio of Tier 1 capital to average adjusted assets (“Tier 1 leverage ratio”). The guidelines require a minimum Tier 1 leverage ratio of 3.0% for financial holding companies and banking organizations with the highest supervisory rating. All other banking organizations are required to maintain a minimum Tier 1 leverage ratio of 4.0% unless a different minimum was specified by an appropriate regulatory authority. In addition, for a depository institution to be considered “well capitalized” under the regulatory framework for prompt corrective action, its Tier 1 leverage ratio must be at least 5.0%. Banking organizations that have experienced internal growth or made acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve has not advised the Company or the Bank of any specific minimum leverage ratio applicable to either entity.
Banks also are required to maintain additional capital known as the "capital conservation buffer." The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
The Basel III final rules and capital conservation buffer requires the Bank to maintain:
(i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%);
(ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%);
(iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%); and
(iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
The Federal Reserve’s final rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the FDIA by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0%; and (iii) eliminating the provision that provided that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized. These thresholds were effective for the Bank as of January 1, 2015. The minimum total capital to risk-weighted assets ratio (10.0%) and minimum leverage ratio (5.0%) for well-capitalized status were unchanged by the final rules.
As directed by the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”), the federal banking regulators jointly issued a final rule in 2019 that permits qualifying banks that have less than $10 billion in total consolidated assets to elect to be subject to a 9% “community bank leverage ratio ("
CBLR"). A qualifying bank that has chosen the proposed framework is not required to calculate the existing risk-based and leverage capital requirements and would be considered to have met the capital ratio requirements to be “well capitalized” under prompt corrective action rules, provided it has a community bank leverage ratio greater than 9%. In November 2025, the federal banking regulators issued a proposal that would lower the leverage ratio for purposes of the CBLR framework from 9% to 8%. As of December 31, 2025, the Bank has not opted into the CBLR framework.
Other Safety and Soundness Regulations. There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event that the depository institution is insolvent or is in danger of becoming insolvent. For example, under the requirements of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so otherwise. In addition, the “cross-guarantee” provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the insolvency of commonly controlled insured depository institutions or for any assistance provided by the FDIC to commonly controlled insured depository institutions in danger of failure. The FDIC may decline to enforce the cross-guarantee provision if it determines that a waiver is in the best interests of the deposit insurance funds. The FDIC’s claim for reimbursement under the cross guarantee provisions is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt of the commonly controlled insured depository institutions.
7
Federal Reserve System. In 1980, Congress enacted legislation that imposed reserve requirements on all depository institutions that maintain transaction accounts or nonpersonal time deposits. NOW accounts, money market deposit accounts and other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to these reserve requirements, as are any nonpersonal time deposits at an institution.
The reserve percentages are subject to adjustment by the Federal Reserve. Because required reserves must be maintained in the form of vault cash or in a non-interest-bearing account at, or on behalf of, a Federal Reserve Bank, the effect of the reserve requirement is to reduce the amount of the institution’s interest-earning assets.
However, in March 2020, in an unprecedented move, the Federal Reserve announced that the banking system had ample reserves, and, as reserve requirements no longer played a significant role in this regime, it reduced all reserve tranches to zero percent, thereby freeing banks from the reserve maintenance requirement. The action permits the Bank to loan or invest funds that were previously unavailable. The Federal Reserve has indicated that it expects to continue to operate in an ample reserves regime for the foreseeable future.
Transactions with Affiliates. Transactions between banks and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any bank or entity that controls, is controlled by or is under common control with such bank. Generally, Sections 23A and 23B (i) limit the extent to which the Bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and maintain an aggregate limit on all such transactions with affiliates to an amount equal to 20% of such capital stock and surplus, and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the association or subsidiary as those provided to a nonaffiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of transactions.
Transactions with Insiders. The Federal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers and principal shareholders of banks. Under Section 22(h) of the Federal Reserve Act, loans to a director, an executive officer and to a principal shareholder of a bank, and some affiliated entities of any of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated entities, the bank’s loan-to-one borrower limit. Loans in the aggregate to insiders and their related interests as a class may not exceed two times the bank’s unimpaired capital and unimpaired surplus until the bank’s total deposits equal or exceed $100,000,000, at which time the aggregate is limited to the bank’s unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and principal shareholders of a bank or bank holding company, and their respective affiliates, unless such loan is approved in advance by a majority of the board of directors of the bank with any “interested” director not participating in the voting. The FDIC has prescribed the loan amount, which includes all other outstanding loans to such person, as to which such prior board of director approval is required, as being the greater of $25,000 or 5% of capital and surplus (up to $500,000). Section 22(h) requires that loans to directors, executive officers and principal shareholders be made on terms and underwriting standards substantially the same as offered in comparable transactions to other persons.
The Dodd-Frank Act also provides that banks may not “purchase an asset from, or sell an asset to” a bank insider (or their related interests) unless (i) the transaction is conducted on market terms between the parties, and (ii) if the proposed transaction represents more than 10 percent of the capital stock and surplus of the bank, it has been approved in advance by a majority of the bank’s non-interested directors.
Community Reinvestment Act. Under the Community Reinvestment Act and related regulations, depository institutions have an affirmative obligation to assist in meeting the credit needs of their market areas, including low and moderate-income areas, consistent with safe and sound banking practice. The Community Reinvestment Act directs each bank to maintain a public file containing specific information, including all written comments received from the public for the current year and each of the previous two calendar years that specifically relate to the bank’s performance in helping to meet community credit needs. Depository institutions are periodically examined for compliance with the Community Reinvestment Act and are periodically assigned ratings in this regard. Banking regulators consider a depository institution’s Community Reinvestment Act rating when reviewing applications to establish new branches, undertake new lines of business, and/or acquire part or all of another depository institution. An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its depository institution subsidiaries.
Fair Lending; Consumer Laws. In addition to the Community Reinvestment Act, other federal and state laws regulate various lending and consumer aspects of the banking business. Governmental agencies, including the Department of Housing and Urban Development, the Federal Trade Commission and the Department of Justice, have become concerned that prospective borrowers experience discrimination in their efforts to obtain loans from depository and other lending institutions.
8
These agencies have brought litigation against depository institutions alleging discrimination against borrowers. Many of these suits have been settled, in some cases for material sums, short of a full trial.
These governmental agencies have clarified what they consider to be lending discrimination and have specified various factors that they will use to determine the existence of lending discrimination under the Equal Credit Opportunity Act and the Fair Housing Act, including evidence that a lender discriminated on a prohibited basis, evidence that a lender treated applicants differently based on prohibited factors in the absence of evidence that the treatment was the result of prejudice or a conscious intention to discriminate, and evidence that a lender applied an otherwise neutral non-discriminatory policy uniformly to all applicants, but the practice had a discriminatory effect, unless the practice could be justified as a business necessity.
Banks and other depository institutions are also subject to numerous consumer-oriented laws and regulations. These laws, which include the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Funds Availability Act, the Equal Credit Opportunity Act, and the Fair Housing Act, require compliance by depository institutions with various disclosure requirements and requirements regulating the availability of funds after deposit or the making of some loans to customers.
Privacy Regulations. The GLBA contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, both at the inception of the customer relationship and on an annual basis, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. The law provides that, except for specific limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account identifiers for marketing purposes. The GLBA also provides that the states may adopt customer privacy protections that are more strict than those contained in the act.
Regulation P provides an exception under which financial institutions that meet certain conditions are not required to provide annual privacy notices to customers. To qualify for this exception, a financial institution must not share nonpublic personal information about customers except as described in certain statutory exceptions. In addition, the rule requires that the financial institution must not have changed its policies and practices with regard to disclosing nonpublic personal information from those that the institution disclosed in the most recent privacy notice it sent. As part of its implementation, the CFPB also amended Regulation P to provide timing requirements for delivery of annual privacy notices in the event that a financial institution that qualified for this annual notice exception later changes its policies or practices in such a way that it no longer qualifies for the exception. The CFPB further removed the Regulation P provision that allowed for use of the alternative delivery method for annual privacy notices because the CFPB believes the alternative delivery method will no longer be used in light of the annual notice exception.
Anti-Money Laundering Laws and Regulations. The Bank is subject to several federal laws that are designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities (“AML laws”). This category of laws includes the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986, the USA PATRIOT Act of 2001, and the Anti-Money Laundering Act of 2020. The Anti-Money Laundering Act of 2020, the most sweeping anti-money laundering legislation in 20 years, requires various federal agencies to promulgate regulations implementing a number of its provisions.
The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, the Company has implemented appropriate internal practices, procedures, and controls.
Cybersecurity. The federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial products and services. The federal banking agencies expect financial institutions to establish lines of defense and ensure that their risk management processes also address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption and maintenance of the institution’s operations
9
after a cyber-attack. If the Bank fails to meet the expectations set forth in this regulatory guidance, it could be subject to various regulatory actions and any remediation efforts may require significant resources of the Bank. In addition, all federal and state bank regulatory agencies continue to increase focus on cybersecurity programs and risks as part of regular supervisory exams.
In November 2021, the federal banking agencies approved a final rule effective on April 1, 2022 that, among other things, requires banking organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident” that rises to the level of a “notification incident.” The rule also requires bank service providers to notify their banking organization customers as soon as possible after becoming aware of similar incidents.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act implemented a number of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act established: (i) requirements for audit committees, including independence, expertise, and responsibilities; (ii) responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) standards for auditors and regulation of audits; (iv) disclosure and reporting obligations for reporting companies and their directors and executive officers; and (v) civil and criminal penalties for violations of the securities laws. Because the Company’s common stock is registered with the SEC, it is currently subject to these requirements.
Incentive Compensation. In June 2010, the Federal Reserve issued a final rule on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. Banking organizations are instructed to review their incentive compensation policies to ensure that they do not encourage excessive risk-taking and implement corrective programs as needed. The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Bank, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
Dodd-Frank Act. In July 2010, the Dodd-Frank Act was signed into law, incorporating numerous financial institution regulatory reforms. The Dodd-Frank Act implements far-reaching reforms of major elements of the financial landscape, particularly for larger financial institutions. Many of its provisions do not directly impact community-based institutions like the Bank. For instance, provisions that regulate derivative transactions and limit derivatives trading activity of federally-insured institutions, enhance supervision of “systemically significant” institutions, impose new regulatory authority over hedge funds, limit proprietary trading by banks, and phase-out the eligibility of trust preferred securities for Tier 1 capital are among the provisions that do not directly impact the Bank either because of exemptions for institutions below a certain asset size or because of the nature of the Bank’s operations.
In May 2018, the Economic Growth Act was enacted to modify or remove certain regulatory financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion, such as the Bank, and for large banks with assets of more than $50 billion.
Among other matters, the Economic Growth Act expands the definition of qualified mortgages which may be held by a financial institution with total consolidated assets of less than $10 billion, exempts community banks from the Volcker Rule, and includes additional regulatory relief regarding regulatory examination cycles, call reports, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
Future Legislation and Regulation. Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which the Company and the Bank operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue business opportunities in an efficient manner. A change in statutes, regulations or regulatory policies applicable to the Company or the Bank could have a material, adverse effect on the business, financial condition and results of operations of the Company and the Bank. Future legislation, regulation, and government policy could affect the banking industry as a whole, including the business and results of operations of the Company and the Bank, in ways
10
that are difficult to predict. The Company fully expects that the financial institution industry will remain heavily regulated in the near future and that additional laws or regulations may be adopted further regulating specific banking practices.
11
Item 1A. Risk Factors
The Company is subject to many risks that could adversely affect its future financial condition and performance and, therefore, the market value of its securities. The risk factors applicable to the Company include, but are not limited to the following:
Credit Risks
The Company’s concentration in loans secured by real estate may increase its credit losses, which would negatively affect our financial results.
At December 31, 2025, loans secured by real estate totaled $1.1 billion and represented 77.4% of the Company’s loan portfolio, net of net deferred loan costs and premiums. If we experience adverse changes in the local real estate market or in the local or national economy, borrowers’ ability to pay these loans may be impaired, which could impact the Company’s financial performance. The Company attempts to limit its exposure to this risk by applying good underwriting practices at origination, evaluating the appraisals used to establish property values, and routinely monitoring the financial condition of borrowers. If the value of real estate serving as collateral for the loan portfolio were to decline materially, a significant part of the loan portfolio could become under-collateralized. If the loans that are secured by real estate become troubled when real estate market conditions are declining or have declined, in the event of foreclosure, the Company may not be able to realize the amount of collateral that was anticipated at the time of originating the loan. In that event, the Company might have to increase the provision for credit losses, which could have a material adverse effect on its operating results and financial condition.
An inadequate allowance for credit losses would reduce our earnings.
Our earnings are significantly affected by our ability to properly originate, underwrite and service loans. We maintain an allowance for credit losses on loans based upon many factors, including the following:
These determinations are based upon estimates that are inherently subjective, and their accuracy depends on the outcome of future events; therefore, realized losses may differ from current estimates. Changes in economic, operating, and other conditions, including changes in interest rates, which are generally beyond our control, could increase actual loan losses significantly. As a result, actual losses could exceed our current allowance estimate. We cannot provide assurance that our allowance for credit losses is sufficient to cover actual loan losses should such losses differ significantly from the current estimates.
Technology Risks
The Company’s operations may be adversely affected by cybersecurity risks.
In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks of the Company and its customers and third-party service providers. The secure processing, maintenance, and use of this information is critical to the Company's operations and business strategy. In addition, the Company relies heavily on communications and information systems to conduct its business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in the Company's customer relationship management, general ledger, deposit, loan, and other systems. The Company has invested in accepted technologies, and continually reviews processes and practices that are designed to protect its networks, computers, and data from damage or unauthorized access. To date, the Company has not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, but the Company’s systems and those of its customers and third-party service providers are under constant threat and it is possible that the Company
12
could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by the Company and its customers. The continued evolution and increased usage of artificial intelligence technologies may further increase these risks. The Company’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged, or disclosed. A breach in security or other failure could result in legal claims, regulatory penalties, disruption in operations, increased expenses, loss of customers and business partners, and damage to the Company’s reputation, which could adversely affect its business and financial condition. Furthermore, as cyber threats continue to evolve and increase, the Company may be required to expend significant additional financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any identified information security vulnerabilities.
Failure to keep pace with technological change could adversely affect our business.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services, including artificial intelligence. The effective use of technology increases efficiency and enables financial institutions and other firms to better serve customers and to reduce costs. The pace of these technological changes has increased in the “Fintech” environment, in which industry changing products and services are often introduced and adopted, including innovative ways that customers can make payments, access products, and manage accounts. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services, which could entail significant time, resources and additional risk to develop or adopt, or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Liquidity and Interest Rate Risks
The Company’s success depends upon its ability to manage interest rate risk.
The profitability of the Company depends significantly on its net interest income, which is the difference between the interest earned on loans, securities and other interest-earning assets, and the interest paid on deposits and borrowings. Changes in interest rates will affect the rates earned on securities and loans and rates paid on deposits and other borrowings. These factors include competition, federal economic, monetary and fiscal policies, and general economic conditions.
In addition, changes in interest rates may negatively affect both the returns on and market value of the Company’s investment securities. Interest rate changes can reduce unrealized gains or increase unrealized losses in its portfolio and thereby negatively impact its accumulated other comprehensive income and equity levels. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position. Additionally, actual investment income and cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated at the time of investment or subsequently as a result of changes in interest rates and market conditions. These occurrences could have a material adverse effect on the Company’s net interest income or our results of operations.
Inflation can have an adverse impact on our business and on our customers.
The future rate of inflation and other economic factors remain uncertain, and the Federal Reserve may decrease or increase interest rates slower or faster than anticipated. If inflation increases and interest rates rise, the value of our investment securities, particularly those with longer maturities, will decrease, although this effect is less pronounced for floating rate instruments. Prolonged periods of inflation also may impact our profitability by negatively impacting our costs and expenses, including elevated funding costs and expenses related to talent acquisition and retention, and negatively impacting the demand for our products and services. Moreover, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans.
13
The Company relies substantially on deposits obtained from customers in its target markets to provide liquidity and support growth.
The Company requires sufficient liquidity to fund asset growth, meet customer loan requests, customer deposit maturities and withdrawals, make payments on its debt obligations as they come due and other cash commitments. The Company’s business strategy is based primarily on access to funding from local customer deposits. Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, changes in the liquidity needs of our depositors and general economic conditions that affect savings levels and the amount of liquidity in the economy, including government stimulus efforts in response to economic crises. If market interest rates rise or our competitors raise the rates they pay on deposits, the Company’s funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Either of these factors could reduce the Company’s net interest margin and net interest income and could have a material adverse effect on the Company’s business, financial condition, results of operations, liquidity and cash flows from operations.
Further, if local customer deposits are not sufficient to fund the Company’s normal operations and growth, we may rely on secondary sources of liquidity, such as borrowings from the Federal Home Loan Bank of Atlanta ("FHLB"), and federal funds lines of credit with larger institutions; however, there can be no assurance that these arrangements will be available to us when needed on favorable terms, or at all, or that they will be sufficient to meet future liquidity needs. For example, the Company’s ability to access borrowings from the FHLB will be dependent upon whether and the extent to which we can provide collateral to secure FHLB borrowings. In addition, the availability of these funding sources is highly dependent upon the perception of the liquidity and creditworthiness of the financial institution, and such perception can change quickly in response to market conditions or circumstances unique to a particular company. The Company also may need to raise funds through the issuance of shares of our debt or equity securities, or the sale of investment securities or loans, as additional sources of liquidity. If the Company is unable to access funding sufficient to support our business operations and growth strategies or are unable to access such funding on attractive terms, the Company may not be able to implement our business strategies or satisfy our obligations.
The Company depends on the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted, which could impact the Company’s ability to satisfy its obligations.
The Company is a bank holding company with no material activities other than activities incidental to holding the common stock of the Bank. The Company’s principal source of funds to pay distributions on its common stock and service any of its obligations, other than further issuances of securities, is dividends received from the Bank. The holding company, Eagle Financial Services, Inc., is a legal entity separate and distinct from the Bank. Furthermore, the Bank is not obligated to pay dividends to the Company, and any dividends paid to the Company would depend on the earnings or financial condition of the Bank, various business considerations, and applicable law and regulation. As is generally the case for banking institutions, the profitability of the Bank is subject to the fluctuating cost and availability of money, changes in interest rates, and economic conditions in general. In addition, various federal statutes and regulations limit the amount of dividends that the Bank may pay to the Company without regulatory approval.
Market Risks
The Company’s success depends upon its ability to compete effectively in the banking industry.
The Company’s banking subsidiary faces competition from banks and other financial institutions, including savings and loan associations, savings banks, finance companies and credit unions for deposits, loans and other financial services in our market area. Certain divisions within the banking subsidiary face competition from wealth management and investment brokerage firms. A number of these banks and other financial institutions are significantly larger and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. In addition, the Company faces competition from market place lenders and other financial technology firms, which may provide competitive services quickly and in innovative ways and may have fewer regulatory constraints and lower cost structures. The financial services industry continues to undergo rapid technological change with introductions of new technologies and services, including new ways that customers can make payments or manage their accounts, including through use of stablecoins and other forms of cryptocurrency, tokens, and other digital assets or alternative payment systems.This competition may reduce or limit our margins and our market share and may adversely affect our results of operations and financial condition.
14
The Company could be adversely affected by economic conditions in its market area.
The Company’s branches are located in the counties of Clarke, Frederick, Fauquier, Loudoun, and Fairfax the towns of Purcellville, Leesburg and Ashburn, and the City of Winchester. The Company also operates loan production offices in the counties of Fairfax (Virginia) and Frederick (Maryland). Because our lending is concentrated in these markets, we will be affected by the general economic conditions in these areas. Changes in the economy may influence the growth rate of our loans and deposits, the quality of the loan portfolio and loan and deposit pricing. Over the past several years, the growth in economic activity and in the demand for goods and services, coupled with labor shortages, supply chain disruptions and other factors, has contributed to rising inflationary pressures, the Federal Reserve’s responsive interest rate hikes, and the risk of recession. A decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact the demand for banking products and services generally, which could negatively affect our financial condition and performance.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. If such events were to occur again in the future and result in the receivership of financial institutions, there is no guarantee that the systemic risk exception would be invoked to allow the FDIC to complete its resolution of such financial institutions in a manner that fully protects depositors or counterparties. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.
Operational Risks
Our exposure to operational risk may adversely affect our business.
We are exposed to many types of operational risk, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.
Reputational risk, or the risk to our earnings and capital from negative public opinion, could result from our actual alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance or the occurrence of any of the events or instances mentioned below, or from actions taken by government regulators or community organizations in response to that conduct. Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally.
Further, if any of our financial, accounting, or other data processing systems fail or have other significant shortcomings, we could be adversely affected. We depend on internal systems and outsourced technology to support these data storage and processing operations. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. We could be adversely affected if one of our employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.
If any of the foregoing risks materialize, it could have a material adverse affect on our business, financial condition and results of operations.
The Company may not be able to successfully manage its growth or implement its growth strategy, which may adversely affect results of operations and financial condition.
A key component of the Company’s business strategy is to continue to grow and expand. The Company’s ability to grow and expand depends upon its ability to open new branch locations, attract new deposits to the existing and new branch locations, and identify attractive loan and investment opportunities. The Company may not be able to implement its growth
15
strategy if it is unable to identify attractive markets or branch locations. Once identified, successfully managing growth will depend on integrating the new branch locations while maintaining adequate capital, cost controls and asset quality. As this growth strategy is implemented, the Company will incur construction costs and increased personnel, occupancy and other operating expenses. Because these costs are incurred before new deposits and loans are generated, adding new branch locations will initially decrease earnings, despite efficient execution of this strategy. In addition, the Company could experience difficulties expanding into new markets or product lines. The Company’s lack of history and familiarity with those markets, clients and lines of business may lead to unexpected challenges or difficulties that inhibit its success and adversely affect the Company’s results of operations.
Severe weather, natural disasters, acts of war or terrorism, geopolitical instability, public health issues, and other external events could significantly impact the Company's business.
Severe weather, natural disasters, acts of war or terrorism, geopolitical instability, public health issues, and other adverse external events could have a significant impact on the Company's ability to conduct business. In addition, such events could affect the stability of the Company’s deposit base, cause economic or market uncertainty, negatively impact consumer confidence, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause the Company to incur additional expenses. The Company is also at risk of the impact of natural disasters, terrorism, and international hostilities on its systems and from the effects of cyberattacks, outages or other failures involving power or communications systems operated by others, which may give rise to disruption of service to customers and to financial loss or liability. The occurrence of any such events in the future and the economic impact from such events could have a material adverse effect on the Company's business, which, in turn, could have a material adverse effect on its financial condition and results of operations.
The Company relies heavily on its senior management team and the unexpected loss of key officers could adversely affect operations.
The Company believes that its growth and success depends heavily upon the skills of its senior management team. The Company also depends on the experience of its subsidiary’s officers and on their relationships with the customers they serve. The loss of one or more of these officers could disrupt the Company’s operations and impair its ability to implement its business strategy, which could adversely affect the Company’s financial condition and performance.
Legal, Regulatory and Compliance Risks
The Company operates in a highly regulated industry, and the laws and regulations that govern the Company’s operations, including changes in them or the Company’s failure to comply with them, and regulatory actions implementing such laws and regulations, may adversely affect the Company.
The Company is subject to extensive regulation and supervision that govern almost all aspects of its operations. These laws and regulations are generally intended to benefit consumers, borrowers and depositors, but not investors. Our success depends on our ability to maintain compliance with existing and new laws and regulations. Changes to laws, regulations, or regulatory policies, or supervisory guidance, including changes in interpretation or implementation of laws, regulations, policies, or supervisory guidance, could affect the Company in substantial and unpredictable ways. Regulatory responses in connection with unforeseen stress events, including failures of banks and other financial institutions, often lead to increased regulatory scrutiny and heightened supervisory expectations and could adversely impact the Company’s business, financial condition, and results of operations, or alter or disrupt the Company’s planned future strategies and actions. Compliance with laws and regulations, and regulatory actions implementing such laws and regulations, can be difficult and costly, and changes to laws and regulations could make compliance more difficult or expensive or otherwise adversely affect the Company’s business and financial condition.
The Company expects the Trump administration will implement a regulatory agenda that could reduce and streamline certain prudential and regulatory requirements applicable to banking organizations at a federal level. At this time, however, it is unclear what the impacts to the rulemaking, supervision, examination, and enforcement priorities of the federal banking agencies will be, what laws, regulations, and policies may change, and whether future changes or uncertainty surrounding future changes will adversely affect the Company’s operating environment, and therefore its business, financial condition, and results of operations.
16
The Bank is subject to stringent capital and liquidity requirements as a result of the Basel III regulatory capital reforms and the Dodd-Frank Act.
The Bank is subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital which it must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines. Under the Dodd-Frank Act, the federal banking agencies have established stricter capital requirements and leverage limits for banks and bank holding companies that are based on the Basel III regulatory capital reforms. The Basel III Capital Rules require banking organizations to maintain significantly more capital and adopt more demanding regulatory capital risk weightings and calculations. While the Economic Growth Act requires that federal banking regulators establish a simplified leverage capital framework for smaller banks, these more stringent capital requirements could, among other things, limit banking operations and activities, and growth of loan portfolios, in order to focus on retention of earnings to improve capital levels. The Bank believes that it maintains sufficient levels of Tier 1 and Common Equity Tier 1 capital to comply with the Basel III Final rules. However, if the Bank fails to meet these minimum capital guidelines and/or other regulatory requirements, the Bank could be subject to regulatory restrictions, including limitations on paying dividends to the holding company for shareholder dividends and share repurchases and paying discretionary bonuses, or experience other adverse consequences that could cause its financial condition to be materially and adversely affected.
Changes in accounting standards could impact reported earnings and capital.
The authorities that promulgate accounting standards, including the Financial Accounting Standards Board (the “FASB”), the SEC, and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes are difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in the restatement of financial statements for prior periods. Such changes could also impact the capital levels of the Bank, or require the Company to incur additional personnel or technology costs.
Evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance ("ESG") practices may impose additional costs on the Company or expose it to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to corporate social responsibility, environmental concerns, governance and related practices. Failure to act responsibly or in line with regulatory and stakeholder expectations in a number of areas, such as climate risk, human capital and hiring practices, human rights, support for local communities, and corporate governance and transparency, could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price. The rules, regulations and expectations of regulators, customers, investors, associates, and other stakeholders with respect to these matters continue to evolve, which could result in increases to the Company’s overall operational costs and increased management time and attention. Further, as these rules, regulations and expectations continue to evolve, the Company’s stakeholders may have differing views on related matters. Scrutiny, or the perception that the Company’s efforts are too ambitious or misdirected, could expose the Company to the risk of investigations, litigation and other proceedings or reputational harm. If the Company is unable to meet its social- or environmentally-related goals or evolving and divergent stakeholder expectations and industry standards, it could negatively impact the value of the Company’s brand, the cost of its operations and/or relationships with customers, investors or employees, any of which could adversely affect its business and results.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company’s business.
The current and anticipated effects of climate change continue to raise concerns for the state of the global environment. As a result, the Company and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. While the Trump administration has shifted federal policy to reduce the emphasis on climate change initiatives and environmental regulations, state and local regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, could affect our business operations. Among other things, the Company and its customers could face cost increases, compliance-related risks, asset value reductions and operating process changes.
17
The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict how specifically climate change may impact the Company’s financial condition and results of operations; however, the physical effects of climate change may also directly impact the Company. Specifically, unpredictable and more frequent weather disasters may adversely impact the value of real property securing the loans in the Bank’s loan portfolio. Additionally, if insurance obtained by borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to borrowers, the collateral securing loans may be negatively impacted by climate change, which could impact the Company’s financial condition and results of operations. Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on customers and impact the communities in which the Company operates. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on the Company’s financial condition and results of operations.
Risks Relating to an Investment in Our Common Stock
There can be no assurances concerning continuing dividend payments.
Our common stockholders are only entitled to receive the dividends declared by our Board of Directors out of funds legally available for such payments. Although we have historically paid quarterly dividends on our common stock, there can be no assurances that we will be able to continue to pay regular quarterly dividends or an annual stock dividend or that any dividends we do declare will be in any particular amount. The primary source of money to pay our cash dividends comes from dividends paid to the Company by the Bank. The Bank’s ability to pay dividends to the Company is subject to, among other things, its earnings, financial condition and applicable regulations, which in some instances limit the amount that may be paid as dividends. In addition, the Company and the Bank are required to maintain a capital conservation buffer of 2.5% of Common Equity Tier 1 Capital on top of minimum risk-weighted asset ratios to pay dividends without additional restrictions. Any change in the level of dividends or the suspension of the payment thereof could have an adverse effect on the market price of our common stock.
There is a limited trading market for our common shares, and you may not be able to resell your shares at or above the price you paid for them.
Although our common shares are listed for trading on the Nasdaq Capital Market, the trading volume in our common shares may be lower than other larger financial institutions or publicly traded companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the market of willing buyers and sellers of our common shares at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. We cannot assure you that volume of trading in our common shares will increase in the future.
The market price of our common stock may be volatile, and we may not be able to meet investor or analyst expectations. You may not be able to resell your shares at or above the price you paid and may lose part or all of your investment as a result.
Our stock price can fluctuate widely. On February 10, 2025, the Company completed a public offering increasing its common shares outstanding by 1,796,875 shares, or 50.2%, at a price of $32.00.
Volatility in the market price of our common stock may negatively impact the price at which our common stock may be sold and may also negatively impact the timing of any sale. The market price of our common stock may continue to fluctuate widely in response to a variety of factors including the risk factors described herein and, among other things:
18
In particular, the realization of any of the risks described in this section under Item IA. Risk Factors, could have an adverse effect on the market price of our common stock and cause the value of your investment to decline. In addition, the stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of our common stock over the short, medium or long term, regardless of our actual performance.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, or change their recommendations regarding our common stock or if our operating results do not meet their expectations, the market price of our common stock and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades common stock or publishes inaccurate or unfavorable research about our business, or our operating results do not meet their expectations, either absolutely or relative to our competitors, the market price of our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports about us regularly, (1) we would lose visibility in the financial markets, which in turn could cause the market price of our common stock or trading volume to decline and (2) demand for our common stock could decrease, which could cause the market price of our common stock and trading volume to decline. If we fail to meet the expectation of analysts for our operating results, the market price of our common stock would likely decline.
Virginia law and the provisions of the Company’s articles of incorporation and amended and restated bylaws may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.
Certain provisions of the Company’s articles of incorporation and amended and restated bylaws, as well as Virginia law, and the Bank Holding Company Act, and Change in Bank Control Act, could delay or prevent a change of control that you may favor. The Company’s articles of incorporation and amended and restated bylaws include certain provisions that could delay a takeover or change in control of the Company, including: a staggered board of directors, the exclusive right of the Company’s board to fill any director vacancy; and advance notice requirements for shareholder proposals and director nominations.
Virginia law contains two antitakeover statutes: the Affiliated Transactions Statute and the Control Share Acquisitions Statute, each of which could make it more difficult for another party to acquire the Company without the approval of the Company’s board of directors. These provisions are expected to discourage specific types of coercive takeover practices and inadequate takeover bids as well as to encourage persons seeking to acquire control to first negotiate with the Company. Although these provisions may have the effect of delaying, deferring or preventing a change in control, the Company believes that the benefits of increased protection through the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of discouraging these proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
19
Risk Management and Strategy
Cybersecurity risks are constantly evolving and becoming increasingly pervasive across all industries. To mitigate these risks and protect sensitive customer data, financial transactions, and our information systems, the Company has
Key components of the risk management program include:
Governance and Oversight
The Board of Directors has designated the Security Committee and Incident Response Team with responsibilities related to information security and cybersecurity.
The Security Committee is a management committee with representation from operations, technology, compliance, risk, and senior management. The Security Committee monitors, reviews, and makes necessary changes to the Information Security Program. This Committee provides accountability for policies and procedures and reviews incidents that may affect information security.
The Incident Response Team has overall authority and responsibility for preparing and responding to incidents and consists of various sub-teams including representation from operations, technology, risk, compliance, human resources, and marketing. While key personnel have identified roles, this team ensures appropriate reports, statuses, and decisions are presented to the Executive Management and the Board of Directors.
The Company’s Chief Technology Officer (“CTO”) oversees the Company’s information technology programs and investments.
Material Effects of Cybersecurity Threats
20
While cybersecurity risks have the potential to materially affect the Company's business, financial condition, and results of operations, the Company does not believe that risks from cybersecurity threats or attacks, including because of any previous cybersecurity incidents, have
For more information on how cybersecurity risk may materially affect the Company’s business strategy, results of operations or financial condition, refer to Item 1A, Risk Factors of this Form 10-K.
Item 2. Properties
The Company owns or leases buildings which are used in normal business operations. The Company’s corporate headquarters, and that of Bank of Clarke, is located at 2 East Main Street, Berryville, Virginia, 22611. At December 31, 2025, Bank of Clarke operated fifteen full-service branches, one loan production office, and one drive-through only facility in the Virginia communities of Berryville, Winchester, Boyce, Stephens City, Purcellville, Warrenton, Leesburg, Ashburn and Fairfax. The Bank also operated one loan production office in the Maryland community of Frederick. See Note 1 “Nature of Banking Activities and Significant Accounting Policies” and Note 6 “Bank Premises and Equipment, Net” and Note 13 "Leases" in the “Notes to the Consolidated Financial Statements” of this Form 10-K for information with respect to the amounts at which bank premises and equipment are carried and commitments under long-term leases.
All of the Company’s properties are well maintained, are in good operating condition and are adequate for the Company’s present and anticipated future needs.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is a party or of which the property of the Company is subject.
Item 4. Mine Safety Disclosures
None.
21
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock is traded on The Nasdaq Capital Market (the "Exchange") under the symbol “EFSI.” As of March 3, 2026, the Company had approximately 818 shareholders of record. As of that date, the closing price of our common stock on the Exchange was $34.56.
The Company has historically paid dividends on a quarterly basis. The final determination of the timing, amount and payment of dividends on the Common Stock is at the discretion of the Company’s Board of Directors. Some of the factors affecting the payment of dividends on the Company’s common stock are operating results, financial condition, capital adequacy, regulatory requirements and shareholders returns.
Issuer Purchases of Equity Securities for the Quarter Ended December 31, 2025
On June 18, 2025, the Company re-authorized the purchase of up to 150,000 shares of its common stock under its stock repurchase program, which expires on June 30, 2026. During 2025, the Company purchased 9,598 shares of its Common Stock under its stock repurchase program at an average price of $36.58.
The Company purchased 818 shares of its common stock during the fourth quarter pursuant to the stock repurchase program discussed above and as shown in the following table.
|
|
Total Number |
|
|
Average |
|
|
Total Number |
|
|
Maximum |
|
||||
October 1 - October 31, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
150,000 |
|
November 1 - November 30, 2025 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
150,000 |
|
December 1 - December 31, 2025 |
|
|
818 |
|
|
|
39.80 |
|
|
|
818 |
|
|
|
149,182 |
|
|
|
|
818 |
|
|
$ |
— |
|
|
|
818 |
|
|
|
149,182 |
|
Item 6. Reserved
22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The purpose of this discussion is to focus on certain information relevant to the Company’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the Company’s Audited Consolidated Financial Statements and notes thereto presented in Item 8, Financial Statements and Supplementary Data, of this Form 10-K. Operating results for the year ended December 31, 2025 are not necessarily indicative of the results for any future period.
GENERAL
Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank.
The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and mortgage-backed securities, municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law.
The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with its customers, employees, communities, and shareholders.
At December 31, 2025, the Company had total assets of $1.89 billion, net loans of $1.46 billion, total deposits of $1.61 billion, and shareholders’ equity of $188.8 million.
During 2025, the Company strengthened its balance sheet and improved its forward earnings profile, as marked by a successful capital raise, a strategic balance sheet repositioning of its investment securities portfolio, and subsequent uplist of its stock to NASDAQ. The Company sold available for sale securities with an amortized cost balance of $99.2 million, resulting in a net realized pre-tax loss of $12.4 million, and reinvested $66.0 million into purchases of available for sale securities. Additionally, the Company completed an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. Net proceeds from the offering were $53.5 million. Also during 2025, the Company opened a full-service branch in McLean, VA offering a full suite of retail and business banking, lending, and wealth management solutions offered at the Bank's other locations.
23
The following table presents selected financial data, which was derived from the Company’s audited financial statements for the periods indicated.
|
|
As of or for the Years Ended |
|
|||||||||||||||||
|
|
December 31, |
|
|||||||||||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
(dollars in thousands, except per share amounts) |
|
|||||||||||||||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest and dividend income |
|
$ |
99,005 |
|
|
$ |
91,321 |
|
|
$ |
83,093 |
|
|
$ |
54,686 |
|
|
$ |
42,676 |
|
Interest expense |
|
|
36,391 |
|
|
|
40,094 |
|
|
|
32,837 |
|
|
|
5,473 |
|
|
|
1,677 |
|
Net interest income |
|
$ |
62,614 |
|
|
$ |
51,227 |
|
|
$ |
50,256 |
|
|
$ |
49,213 |
|
|
$ |
40,999 |
|
Provision for credit losses |
|
|
3,701 |
|
|
|
2,551 |
|
|
|
1,649 |
|
|
|
1,830 |
|
|
|
1,483 |
|
Net interest income after provision for credit losses |
|
$ |
58,913 |
|
|
$ |
48,676 |
|
|
$ |
48,607 |
|
|
$ |
47,383 |
|
|
$ |
39,516 |
|
Noninterest income |
|
|
6,883 |
|
|
|
21,557 |
|
|
|
14,780 |
|
|
|
13,345 |
|
|
|
11,320 |
|
Net revenue |
|
$ |
65,796 |
|
|
$ |
70,233 |
|
|
$ |
63,387 |
|
|
$ |
60,728 |
|
|
$ |
50,836 |
|
Noninterest expenses |
|
|
55,871 |
|
|
|
51,332 |
|
|
|
52,754 |
|
|
|
43,057 |
|
|
|
38,049 |
|
Income before income taxes |
|
$ |
9,925 |
|
|
$ |
18,901 |
|
|
$ |
10,633 |
|
|
$ |
17,671 |
|
|
$ |
12,787 |
|
Income tax expense |
|
|
1,711 |
|
|
|
3,558 |
|
|
|
1,276 |
|
|
|
3,150 |
|
|
|
1,766 |
|
Net Income |
|
$ |
8,214 |
|
|
$ |
15,343 |
|
|
$ |
9,357 |
|
|
$ |
14,521 |
|
|
$ |
11,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Return on average assets |
|
|
0.42 |
% |
|
|
0.85 |
% |
|
|
0.54 |
% |
|
|
1.02 |
% |
|
|
0.90 |
% |
Return on average equity |
|
|
4.81 |
% |
|
|
13.77 |
% |
|
|
9.05 |
% |
|
|
14.06 |
% |
|
|
10.28 |
% |
Shareholders’ equity to assets |
|
|
10.00 |
% |
|
|
6.38 |
% |
|
|
5.94 |
% |
|
|
6.29 |
% |
|
|
8.46 |
% |
Dividend payout ratio |
|
|
77.99 |
% |
|
|
28.01 |
% |
|
|
45.11 |
% |
|
|
27.58 |
% |
|
|
34.38 |
% |
Non-performing loans to total loans |
|
|
0.98 |
% |
|
|
0.14 |
% |
|
|
0.40 |
% |
|
|
0.19 |
% |
|
|
0.28 |
% |
Non-performing assets to total assets |
|
|
0.77 |
% |
|
|
0.14 |
% |
|
|
0.34 |
% |
|
|
0.16 |
% |
|
|
0.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Share and Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income, basic |
|
$ |
1.59 |
|
|
$ |
4.32 |
|
|
$ |
2.66 |
|
|
$ |
4.17 |
|
|
$ |
3.20 |
|
Net income, diluted |
|
|
1.59 |
|
|
|
4.32 |
|
|
|
2.66 |
|
|
|
4.17 |
|
|
|
3.20 |
|
Cash dividends declared |
|
|
1.24 |
|
|
|
1.21 |
|
|
|
1.20 |
|
|
|
1.15 |
|
|
|
1.10 |
|
Book value |
|
|
35.14 |
|
|
|
33.52 |
|
|
|
30.78 |
|
|
|
29.15 |
|
|
|
31.93 |
|
Market price |
|
|
39.80 |
|
|
|
36.40 |
|
|
|
30.00 |
|
|
|
35.95 |
|
|
|
34.65 |
|
Average shares outstanding, basic |
|
|
5,178,488 |
|
|
|
3,553,919 |
|
|
|
3,523,547 |
|
|
|
3,482,368 |
|
|
|
3,440,080 |
|
Average shares outstanding, diluted |
|
|
5,178,488 |
|
|
|
3,553,919 |
|
|
|
3,523,547 |
|
|
|
3,482,368 |
|
|
|
3,440,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total securities |
|
$ |
123,329 |
|
|
$ |
128,887 |
|
|
$ |
147,011 |
|
|
$ |
158,389 |
|
|
$ |
193,370 |
|
Total loans |
|
|
1,473,077 |
|
|
|
1,467,049 |
|
|
|
1,462,686 |
|
|
|
1,323,783 |
|
|
|
985,720 |
|
Total assets |
|
|
1,888,626 |
|
|
|
1,866,215 |
|
|
|
1,825,597 |
|
|
|
1,616,717 |
|
|
|
1,303,038 |
|
Total deposits |
|
|
1,607,360 |
|
|
|
1,575,156 |
|
|
|
1,506,322 |
|
|
|
1,264,075 |
|
|
|
1,177,235 |
|
Shareholders’ equity |
|
|
188,839 |
|
|
|
118,987 |
|
|
|
108,379 |
|
|
|
101,729 |
|
|
|
110,280 |
|
24
MANAGEMENT’S STRATEGY
The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with: (1) its customers, by providing highly personalized customer service, a network of conveniently placed branches and ATMs, a competitive variety of products/services and courteous, professional employees, (2) its employees, by providing generous benefits, a positive work environment, advancement opportunities and incentives to exceed expectations, (3) its communities, by participating in local concerns, providing monetary support, supporting employee volunteerism and providing employment opportunities, and (4) its shareholders, by providing sound profits and returns, sustainable growth, regular dividends and committing to our local, independent status.
OPERATING STRATEGY
The Bank is a locally managed, commercial focused banking institution operating in several of the country's most attractive markets. The Company expanded its ownership to institutional investors through a public offering of its common stock in February 2025, increasing the number of shares outstanding by 50% and added approximately $53.5 million in capital. This operating strategy allows the Bank to be flexible and responsive in the products and services it offers and to further grow by lending funds to local residents and businesses at a competitive price that reflects the inherent risk of lending. The Bank strives to fund these loans through deposits gathered from local residents and businesses. The Bank prices its deposits by comparing alternative sources of funds and selecting the lowest cost available. When deposits are not adequate to fund asset growth, the Bank relies on borrowings, both short and long term. The Bank’s primary source of borrowed funds is the Federal Home Loan Bank of Atlanta which offers numerous terms and rate structures to the Bank.
As interest rates change, the Bank attempts to maintain its net interest margin. This is accomplished by changing the price, terms, and mix of its financial assets and liabilities. The Bank also earns fees on services provided through the Bank of Clarke Wealth Management Division, which is the Bank’s investment management division that offers both trust services and investment sales, mortgage originations, loan sales to the secondary market, and deposit operations. The Bank also incurs noninterest expenses associated with compensating employees, maintaining and acquiring fixed assets, and purchasing goods and services necessary to support its daily operations.
The Bank maintains a full-service marketing department dedicated to driving new business and increasing awareness of the Bank's banking, lending, and wealth management offerings across its footprint. Marketing employs an integrated, multi-channel strategy that includes television and radio advertising, digital media (such as display ads, SEO/SEM, podcasts, and streaming platforms), print and electronic publications, billboards, email campaigns, branch signage, and social media. The Marketing department is responsible for all content creation, campaign strategy and execution, marketing-related internal and external communications, marketing vendor management, and brand stewardship.
LENDING POLICIES
Administration and supervision over the lending process is provided by the Bank’s Credit Administration Department. The principal risk associated with the Bank’s loan portfolio is the creditworthiness of its borrowers. In an effort to manage this risk, the Bank’s policy gives loan amount approval limits to individual loan officers based on their position and level of experience. Credit risk is increased or decreased, depending on the type of loan and prevailing economic conditions. In consideration of the different types of loans in the portfolio, the risk associated with real estate mortgage loans, commercial loans and consumer loans varies based on employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay debt.
The Company has written policies and procedures to help manage credit risk. The Company utilizes a loan review process that includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to establish loss exposure and to ascertain compliance with the Company’s policies.
The Bank uses a tiered approach to approve credit requests consisting of individual lending authorities, joint approval of Co-Approval officers (Executive, Regional Credit Officer, Small Business Credit Officer), and a director loan committee. Lending limits for individuals are set by the Board of Directors and are determined by loan purpose, collateral type, and internal risk rating of the borrower. The highest individual authority (Executive) is assigned to the Bank’s President/ Chief Executive Officer, Chief Banking Officer and Chief Credit Officer (approval authority only). Two Executive officers may combine their authority to approve loan requests to borrowers with credit exposure up to $10.0 million on a secured basis and $6.0 million unsecured. Three Executive officers may combine to approve loan requests to borrowers with credit exposure up to $15.0 million on a secured basis and $9.0 million unsecured. Consumer Central Lenders are individual lenders who have been assigned to an Approval Category (A through F) based on their level of experience and job function. Consumer Central Lenders can co-approve consumer, home equity lines of credit and home equity loan requests up to their stated authorities.
25
Officers in Categories A through F have lesser authorities and with approval of an Executive officer may extend loans to borrowers with exposure of $5.0 million on a secured basis and $3.0 million unsecured. Officers in Categories A through F can also utilize the co-approval of the Regional and Small Business Credit Officers to extend loans with exposures up to $2.5 million and $1.5 million, respectively on a secured basis, and up to $1 million and $750 thousand, respectively on an unsecured basis. Loans exceeding $15.0 million and up to the Bank’s legal lending limit can be approved by the Risk Committee consisting of four directors (three directors constituting a quorum). The Director’s Loan Committee also reviews and approves changes to the Bank’s Loan Policy as presented by management. The following sections discuss the major loan categories within the total loan portfolio:
One-to-Four-Family Residential Real Estate Lending
Residential lending activity may be generated by the Bank’s loan officer solicitations, referrals by real estate professionals, and existing or new bank customers. Loan applications are taken by a Bank loan officer. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee. In connection with residential real estate loans, the Bank requires title insurance, hazard insurance and, if applicable, flood insurance. In addition to traditional residential mortgage loans secured by a first or junior lien on the property, the Bank offers home equity lines of credit.
Commercial Real Estate Lending
Commercial real estate loans are secured by various types of commercial real estate in the Bank’s market area, including multi-family residential buildings, commercial buildings and offices, small shopping centers and churches. Commercial real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from customers. In its underwriting of commercial real estate, the Bank’s loan to original appraised value ratio is generally 80% or less. Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general. The Bank’s commercial real estate loan underwriting criteria require an examination of debt service coverage ratios, the borrower’s creditworthiness, prior credit history and reputation, and the Bank typically requires personal guarantees or endorsements of the borrowers’ principal owners.
Construction and Land Development Lending
The Bank makes local construction loans and land acquisition and development loans. The construction loans are secured by residential houses under construction and the underlying land for which the loan was obtained. The average life of most construction loans is less than one year and the Bank offers both fixed and variable rate interest structures. The interest rate structure offered to customers depends on the total amount of these loans outstanding and the impact of the interest rate structure on the Bank’s overall interest rate risk. There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished property. The Bank also obtains a first lien on the property as security for its construction loans and typically requires personal guarantees from the borrower’s principal owners. Finally, the Bank performs inspections of the construction projects to ensure that the percentage of construction completed correlates with the amount of draws on the construction line of credit.
Commercial and Industrial Lending
Commercial business loans generally have more risk than residential mortgage loans but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of its business borrowers. Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
26
Consumer Lending
The Bank offers various secured and unsecured consumer loans, which include personal installment loans, personal lines of credit, automobile loans, and credit card loans. The Bank generally originates its consumer loans within its geographic market area and these loans are largely made to customers with whom the Bank has an existing relationship. Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.
The underwriting standards employed by the Bank for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and from any verifiable secondary income. Although creditworthiness of the applicant is the primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount.
Marine Lending
The Bank's marine loan portfolio is comprised of originated retail loans. The Company ceased accepting new marine business in August 2023, upon completion of a sale of specific assets from its marine lending segment. Subsequent to the sale the Company retained ownership of its portfolio of marine vessel retail loans, which continue to constitute a significant portion of the Company's assets, revenues, and earnings. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Retail loans were generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.
CRITICAL ACCOUNTING POLICIES
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which requires us to make estimates and assumptions. Actual results could differ from those estimates. The financial information contained within these statements is, to a significant extent, based on measurements of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the transactions would be the same, the timing of events that would impact the transactions could change. The accounting estimate with the greatest uncertainty and susceptibility to significant near-term change for the Company is the allowance for credit losses on loans.
Allowance for Credit Losses on Loans
The Company establishes the allowance for credit losses through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.
The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. Loans that share common risk characteristics are evaluated collectively using a loss-rate, or cohort methodology to estimate its current expected credit losses on loans.
The measurement of the allowance for credit losses is based in part on forecasts of unemployment, inflation, as well as the consumer price index, and may also consider other factors, which we believe to be indicative of risk factors related to collectability. Management also assesses the risk of credit losses arising from changes in economic conditions; the nature
27
and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances; lending policy and procedures; credit administration and lending staff; loan review; concentrations of credit and the value of underlying collateral in determining the recorded balance of the allowance for credit losses.
This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, of the 2025 Form 10-K, provides additional information concerning the determination of the allowance for credit losses on loans.
NON-GAAP FINANCIAL MEASURES
This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including non-GAAP net income, non-GAAP noninterest income, non-GAAP earnings per share, non-GAAP return on average equity and average assets, tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.
The realized loss on the sale of the available for sale securities, which resulted from the balance sheet repositioning transactions during the first quarter of 2025 and the December 2024 sale of the Company's operating center and branch building in a sales-leaseback transaction, significantly impacted the Company's operating results and certain performance metrics and ratios.
The following table reconciles the GAAP reported measure to the adjusted non-GAAP measure to show the impact of these transactions during the twelve months ended December 31, 2025 and 2024.
|
|
Twelve Months Ended |
|
|||||
|
|
December 31, |
|
|||||
(dollars in thousands except for per share data) |
|
2025 |
|
|
2024 |
|
||
GAAP Net income |
|
$ |
8,214 |
|
|
$ |
15,343 |
|
Adjustments to net income: |
|
|
|
|
|
|
||
Loss on sales of securities |
|
|
12,425 |
|
|
|
— |
|
(Gain) on sale of fixed assets |
|
|
— |
|
|
|
(3,875 |
) |
Tax effect of adjustments to net income |
|
|
(2,609 |
) |
|
|
814 |
|
Non-GAAP Net income |
|
$ |
18,030 |
|
|
$ |
12,282 |
|
|
|
|
|
|
|
|
||
GAAP Noninterest income |
|
$ |
6,883 |
|
|
$ |
21,557 |
|
Adjustments to noninterest income: |
|
|
|
|
|
|
||
Loss on sales of securities |
|
|
12,425 |
|
|
|
— |
|
(Gain) on sale of fixed assets |
|
|
— |
|
|
|
(3,875 |
) |
Non-GAAP Noninterest income |
|
$ |
19,308 |
|
|
$ |
17,682 |
|
|
|
|
|
|
|
|
||
Earnings per share, basic and diluted (GAAP) |
|
$ |
1.59 |
|
|
$ |
4.32 |
|
Effect of adjustments to net income |
|
|
1.90 |
|
|
|
(0.86 |
) |
Non-GAAP Earnings per share, basic and diluted |
|
$ |
3.49 |
|
|
$ |
3.46 |
|
|
|
|
|
|
|
|
||
Return on average equity |
|
|
4.81 |
% |
|
|
13.77 |
% |
Effect of adjustments to net income |
|
|
(5.75 |
)% |
|
|
2.75 |
% |
Non-GAAP Return on average equity |
|
|
10.56 |
% |
|
|
11.03 |
% |
|
|
|
|
|
|
|
||
Return on average assets |
|
|
0.42 |
% |
|
|
0.85 |
% |
Effect of adjustments to net income |
|
|
(0.51 |
)% |
|
|
0.17 |
% |
Non-GAAP Return on average assets |
|
|
0.93 |
% |
|
|
0.68 |
% |
28
For additional information and calculations of tax-equivalent net interest income and efficiency ratio, see the sections entitled "Tax-Equivalent Net Interest Income" and "Efficiency Ratio" below.
FORWARD LOOKING STATEMENTS
This report contains statements that are "forward looking statements." The Company may also make forward looking statements in other documents that are filed with the Securities and Exchange Commission, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors, or employees. Forward looking statements include statements regarding our expectations, intentions, and objectives, or other expressions that predict or indicate future events and trends and which do not relate to historical matters. The words “believe,” “expect,” “may,” “will,” “should,” "could," “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. You should not rely on forward looking statements, as they involve known and unknown risks, uncertainties, and other factors, some of which are beyond our control. These risks, uncertainties, and other factors may cause our actual results, performance, or achievements to be materially different than the anticipated future results, performance, or achievements expressed or implied by the forward looking statements.
Some of the factors that might cause these differences include the following:
You should carefully review all of these factors and you should be aware that there may be other factors that cause these differences. These forward looking statements were based on information, plans, and estimates at the date of this report, and we assume no obligation to update any forward looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
29
RESULTS OF OPERATIONS
Net Income
The following table presents a summarized consolidated statement of income for the periods indicated:
|
|
Twelve Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
December 31, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Net interest income |
|
$ |
62,614 |
|
|
$ |
51,227 |
|
|
$ |
11,387 |
|
|
|
22.23 |
% |
Noninterest income |
|
|
6,883 |
|
|
|
21,557 |
|
|
|
(14,674 |
) |
|
|
(68.07 |
)% |
Net revenues |
|
|
69,497 |
|
|
|
72,784 |
|
|
|
(3,287 |
) |
|
|
(4.52 |
)% |
Provision for credit losses |
|
|
3,701 |
|
|
|
2,551 |
|
|
|
1,150 |
|
|
|
45.08 |
% |
Noninterest expense |
|
|
55,871 |
|
|
|
51,332 |
|
|
|
4,539 |
|
|
|
8.84 |
% |
Income before income taxes |
|
|
9,925 |
|
|
|
18,901 |
|
|
|
(8,976 |
) |
|
|
(47.49 |
)% |
Income tax expense |
|
|
1,711 |
|
|
|
3,558 |
|
|
|
(1,847 |
) |
|
|
(51.91 |
)% |
Net income |
|
$ |
8,214 |
|
|
$ |
15,343 |
|
|
$ |
(7,129 |
) |
|
|
(46.46 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted net income (non-GAAP) |
|
$ |
18,030 |
|
|
$ |
12,282 |
|
|
$ |
5,748 |
|
|
|
46.80 |
% |
Net income for 2025 and 2024 was significantly impacted by two transactions. During the first quarter of 2025, the Company recognized a loss on the sale of available for sale securities totaling $9.8 million, net of tax, and during the fourth quarter of 2024, the Bank's operating center and branch building in Winchester, VA was sold in a sale-leaseback transaction and the Company recognized a net of tax gain of $3.1 million. The twelve months ended December 31, 2025 also experienced a strong increase in net interest income over the corresponding 2024 period, largely due to the restructuring of the investment securities portfolio further described in the section titled Securities under the heading Financial Condition.
The following table presents a summary of performance metrics and ratios for the periods indicated:
|
|
Twelve Months Ended |
|
|||||
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Earnings per share, basic and diluted |
|
$ |
1.59 |
|
|
$ |
4.32 |
|
Adjusted earnings per share, basic and diluted (non-GAAP)(1) |
|
$ |
3.49 |
|
|
$ |
3.46 |
|
Return on average assets |
|
|
0.42 |
% |
|
|
0.85 |
% |
Adjusted return on average assets (non-GAAP)(1) |
|
|
0.93 |
% |
|
|
0.68 |
% |
Return on average equity |
|
|
4.81 |
% |
|
|
13.77 |
% |
Adjusted return on average equity (non-GAAP)(1) |
|
|
10.56 |
% |
|
|
11.03 |
% |
(1) Adjusted to exclude the loss on sale of securities in 2025 and the gain recognized on the sale of the Company's operating center and branch building in 2024.
Return on average assets (“ROA”) measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control.
Return on average equity (“ROE”) measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by the shareholders.
30
Average Balances, Income and Expenses, Yields and Rates (Tax-Equivalent Basis)
The following table shows average balance, interest, and yield/rate information, as well as net interest margin on a tax- equivalent basis for the years ended December 31, 2025 and 2024 (dollars in thousands):
|
|
Years Ended |
|
|||||||||||||||||||||
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||||||||||
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
||||||
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
$ |
120,646 |
|
|
$ |
4,792 |
|
|
|
3.97 |
% |
|
$ |
138,205 |
|
|
$ |
3,551 |
|
|
|
2.57 |
% |
Tax-Exempt (1) |
|
|
87 |
|
|
|
4 |
|
|
|
4.60 |
% |
|
|
495 |
|
|
|
20 |
|
|
|
4.09 |
% |
Total Securities |
|
$ |
120,733 |
|
|
$ |
4,796 |
|
|
|
3.97 |
% |
|
$ |
138,700 |
|
|
$ |
3,571 |
|
|
|
2.58 |
% |
Loans: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
|
1,432,473 |
|
|
|
81,978 |
|
|
|
5.72 |
% |
|
|
1,446,705 |
|
|
|
81,366 |
|
|
|
5.62 |
% |
Non-accrual |
|
|
11,944 |
|
|
|
— |
|
|
|
— |
% |
|
|
3,774 |
|
|
|
— |
|
|
|
— |
% |
Tax-Exempt (1) |
|
|
9,769 |
|
|
|
496 |
|
|
|
5.08 |
% |
|
|
10,405 |
|
|
|
523 |
|
|
|
5.02 |
% |
Total Loans |
|
$ |
1,454,186 |
|
|
$ |
82,474 |
|
|
|
5.67 |
% |
|
$ |
1,460,884 |
|
|
$ |
81,889 |
|
|
|
5.61 |
% |
Federal funds sold and interest-bearing deposits in other banks |
|
|
269,375 |
|
|
|
11,840 |
|
|
|
4.40 |
% |
|
|
114,189 |
|
|
|
5,975 |
|
|
|
5.23 |
% |
Total earning assets |
|
$ |
1,844,294 |
|
|
$ |
99,110 |
|
|
|
5.37 |
% |
|
$ |
1,713,773 |
|
|
$ |
91,435 |
|
|
|
5.34 |
% |
Allowance for credit losses |
|
|
(15,351 |
) |
|
|
|
|
|
|
|
|
(14,793 |
) |
|
|
|
|
|
|
||||
Total non-earning assets |
|
|
109,176 |
|
|
|
|
|
|
|
|
|
105,840 |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
1,938,119 |
|
|
|
|
|
|
|
|
$ |
1,804,820 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities and Shareholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
NOW accounts |
|
$ |
300,711 |
|
|
$ |
6,654 |
|
|
|
2.21 |
% |
|
$ |
259,372 |
|
|
$ |
6,097 |
|
|
|
2.35 |
% |
Money market accounts |
|
|
273,390 |
|
|
|
6,033 |
|
|
|
2.21 |
% |
|
|
263,960 |
|
|
|
5,989 |
|
|
|
2.27 |
% |
Savings accounts |
|
|
128,007 |
|
|
|
142 |
|
|
|
0.11 |
% |
|
|
134,893 |
|
|
|
155 |
|
|
|
0.12 |
% |
Time deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
$250,000 and more |
|
|
176,777 |
|
|
|
7,568 |
|
|
|
4.28 |
% |
|
|
153,398 |
|
|
|
7,260 |
|
|
|
4.73 |
% |
Less than $250,000 |
|
|
292,311 |
|
|
|
11,782 |
|
|
|
4.03 |
% |
|
|
276,580 |
|
|
|
12,353 |
|
|
|
4.47 |
% |
Total interest-bearing deposits |
|
$ |
1,171,196 |
|
|
$ |
32,179 |
|
|
|
2.75 |
% |
|
$ |
1,088,203 |
|
|
$ |
31,854 |
|
|
|
2.93 |
% |
Federal funds purchased |
|
|
4 |
|
|
|
— |
|
|
NM |
|
|
|
11 |
|
|
|
— |
|
|
NM |
|
||
Federal Home Loan Bank advances |
|
|
57,603 |
|
|
|
2,795 |
|
|
|
4.85 |
% |
|
|
145,383 |
|
|
|
6,823 |
|
|
|
4.69 |
% |
Subordinated debt |
|
|
29,543 |
|
|
|
1,417 |
|
|
|
4.80 |
% |
|
|
29,476 |
|
|
|
1,417 |
|
|
|
4.81 |
% |
Total interest-bearing liabilities |
|
$ |
1,258,346 |
|
|
$ |
36,391 |
|
|
|
2.89 |
% |
|
$ |
1,263,073 |
|
|
$ |
40,094 |
|
|
|
3.17 |
% |
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Demand deposits |
|
|
486,606 |
|
|
|
|
|
|
|
|
|
412,646 |
|
|
|
|
|
|
|
||||
Other Liabilities |
|
|
22,409 |
|
|
|
|
|
|
|
|
|
17,714 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
$ |
1,767,361 |
|
|
|
|
|
|
|
|
$ |
1,693,433 |
|
|
|
|
|
|
|
||||
Shareholders' equity |
|
|
170,758 |
|
|
|
|
|
|
|
|
|
111,387 |
|
|
|
|
|
|
|
||||
Total liabilities and shareholders' equity |
|
$ |
1,938,119 |
|
|
|
|
|
|
|
|
$ |
1,804,820 |
|
|
|
|
|
|
|
||||
Net interest income |
|
|
|
|
$ |
62,719 |
|
|
|
|
|
|
|
|
$ |
51,341 |
|
|
|
|
||||
Net interest spread |
|
|
|
|
|
|
|
|
2.48 |
% |
|
|
|
|
|
|
|
|
2.17 |
% |
||||
Interest expense as a percent of average earning assets |
|
|
|
|
|
|
|
|
1.97 |
% |
|
|
|
|
|
|
|
|
2.34 |
% |
||||
Net interest margin (3) |
|
|
|
|
|
|
|
|
3.40 |
% |
|
|
|
|
|
|
|
|
3.00 |
% |
||||
NM = Not Meaningful
31
Tax-Equivalent Net Interest Income
The following table reconciles tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income. Tax-equivalent net interest income (Non-GAAP) is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2025 and 2024.
|
|
Twelve Months Ended |
|
|||||
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
GAAP Financial Measurements: |
|
|
|
|
|
|
||
Interest Income - Loans |
|
$ |
82,370 |
|
|
$ |
81,779 |
|
Interest Income - Securities and Other Interest-Earnings Assets |
|
|
16,635 |
|
|
|
9,542 |
|
Interest Expense - Deposits |
|
|
32,179 |
|
|
|
31,854 |
|
Interest Expense - Other Borrowings |
|
|
4,212 |
|
|
|
8,240 |
|
Total Net Interest Income |
|
$ |
62,614 |
|
|
$ |
51,227 |
|
|
|
|
|
|
|
|
||
Non-GAAP Financial Measurements: |
|
|
|
|
|
|
||
Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1) |
|
$ |
104 |
|
|
$ |
110 |
|
Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1) |
|
|
1 |
|
|
|
4 |
|
Total Tax Benefit on Tax-Exempt Interest Income |
|
$ |
105 |
|
|
$ |
114 |
|
Tax-Equivalent Net Interest Income |
|
$ |
62,719 |
|
|
$ |
51,341 |
|
Net Interest Income
Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is primarily impacted by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates.
The year-over-year improvements in net interest income, tax-equivalent net interest income, net interest spread, and net interest margin primarily reflect the impact of the balance sheet repositioning strategy, pursuant to which the Company raised capital, increased cash on hand and replaced lower-yielding investment securities with higher yielding securities. Declining average rates paid on interest-bearing deposits and maturities of FHLB advances also contributed to the increase in net interest income, which was partially offset the amount of interest paid also increased due to higher average balance levels of time deposits during the 2025 period.
Net interest income was $62.6 million for 2025 and $51.2 million for 2024, which represents an increase of $11.4 million or 22.23%. Tax-equivalent net interest income was $62.7 million and $51.3 million for the twelve months ended December 31, 2025 and 2024, respectively.
The net interest margin was 3.40% for 2025 and 3.00% for 2024. The net interest margin is calculated by dividing tax-equivalent net interest income by total average earnings assets. Ongoing margin pressures include deposit pricing, the Bank's strategy of originating mortgage loans for sale, and an increase in nonaccrual assets.
The net interest spread for the twelve months ended December 31, 2025 was 2.48%, an increase of 31 basis points compared to 2.17% for the twelve months ended December 31, 2024. The 31 basis point increase was due to improvements of three basis points and 28 basis points in the tax-equivalent yield on earning assets and the average rate paid on interest-bearing liabilities, respectively.
Total average balance of securities decreased by $18.0 million during 2025 from the average balances in the prior year period primarily due to routine paydowns and maturities in the portfolio. The average yield on securities increased 139 basis points during 2025 reflecting the sale of lower-yielding securities and reinvestment into higher-yielding securities in the first quarter of 2025.
The total average loan balances decreased by $6.7 million during the year ended December 31, 2025 largely reflecting the sale of a pool of mortgage loans totaling $18.8 million early in the first quarter of 2025 as well as continuing paydowns and payoffs in the marine loan portfolio as the Company is no longer originating new marine business. These
32
decreases were partially offset by new loan growth in the commercial real estate loan portfolios. The average yield on loans increased by six basis points during 2025.
The average balance of federal funds sold and interest-bearing deposits in other banks increased $155.2 million, or 135.90%, during 2025 compared to 2024, resulting from higher cash levels, which were bolstered by proceeds received from the public stock offering and increased deposit balances during 2025. The average yield earned during 2025 decreased by 83 basis points reflecting the decline in market interest rates experienced during the current year.
Total average interest-bearing deposit balances during 2025 increased by $83.0 million from the prior year, primarily in NOW accounts and time deposits. The average rate paid on interest-bearing deposits decreased 18 basis points during the 2025, reflecting the lower market interest rate environment balanced by pricing strategies.
The average balance of FHLB advances decreased $87.8 million, or 60.38%, during the year ended December 31, 2025 due to maturing advances that were not replaced with new borrowings. The average rate paid on FHLB advances increased 16 basis points during the 2025.
Volume and Rate Analysis (Tax-Equivalent Basis)
Interest income and expense are affected by fluctuation in interest rates, by changes in the volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each.
The following table provides information about changes in rate and volume (dollars in thousands):
|
|
2025 vs 2024 |
|
|||||||||
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|||
Earning Assets: |
|
|
|
|
|
|
|
|
|
|||
Securities: |
|
|
|
|
|
|
|
|
|
|||
Taxable |
|
$ |
(377 |
) |
|
$ |
1,618 |
|
|
$ |
1,241 |
|
Tax-exempt |
|
|
(19 |
) |
|
|
3 |
|
|
|
(16 |
) |
Loans: |
|
|
|
|
|
|
|
|
|
|||
Taxable |
|
|
(757 |
) |
|
|
1,369 |
|
|
|
612 |
|
Tax-exempt |
|
|
(32 |
) |
|
|
5 |
|
|
|
(27 |
) |
Federal funds sold and interest-bearing deposits in other banks |
|
|
6,640 |
|
|
|
(775 |
) |
|
|
5,865 |
|
Total earning assets |
|
$ |
5,455 |
|
|
$ |
2,220 |
|
|
$ |
7,675 |
|
|
|
|
|
|
|
|
|
|
|
|||
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|||
NOW accounts |
|
$ |
889 |
|
|
$ |
(332 |
) |
|
$ |
557 |
|
Money market accounts |
|
|
169 |
|
|
|
(125 |
) |
|
|
44 |
|
Savings accounts |
|
|
(13 |
) |
|
|
— |
|
|
|
(13 |
) |
Time deposits: |
|
|
|
|
|
|
|
|
|
|||
$250,000 and more |
|
|
820 |
|
|
|
(512 |
) |
|
|
308 |
|
Less than $250,000 |
|
|
781 |
|
|
|
(1,352 |
) |
|
|
(571 |
) |
Total interest-bearing deposits |
|
$ |
2,646 |
|
|
$ |
(2,321 |
) |
|
$ |
325 |
|
Federal Home Loan Bank advances |
|
|
(4,269 |
) |
|
|
241 |
|
|
|
(4,028 |
) |
Total interest-bearing liabilities |
|
$ |
(1,623 |
) |
|
$ |
(2,080 |
) |
|
$ |
(3,703 |
) |
Change in net interest income |
|
$ |
7,078 |
|
|
$ |
4,300 |
|
|
$ |
11,378 |
|
Provision for Credit Losses
The provision for credit losses results from management's review of the adequacy of the allowance for credit losses. The allowance for credit losses is management’s estimate, at the reporting date, of expected lifetime credit losses and includes consideration of current forecasted economic conditions. Estimating the amount required to maintain an adequate allowance
33
for credit losses involves a high degree of judgment.as discussed within the Critical Accounting Policies section above and Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data.
The following table presents the provision for credit losses:
|
|
Twelve Months Ended |
|
|||||||||||||
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Provision for credit losses on loans |
|
$ |
3,880 |
|
|
$ |
2,525 |
|
|
$ |
1,355 |
|
|
|
54 |
% |
Provison for credit losses on unfunded commitments |
|
|
(179 |
) |
|
|
26 |
|
|
|
(205 |
) |
|
|
(788 |
)% |
Provison for credit losses |
|
$ |
3,701 |
|
|
$ |
2,551 |
|
|
$ |
1,150 |
|
|
|
45 |
% |
The provision for credit losses for the years ended December 31, 2025 and 2024 included the impact of net losses and specific reserve allocations on individually evaluated nonaccrual loans and reflected management's estimate of forecasted economic conditions and changes in loan balances.
Net charge-offs were $3.6 million and $2.0 million during 2025 and 2024, respectively. Net charge-offs for 2025 were primarily within the commercial real estate and marine loan portfolios and consisted of six relationships totaling $3.3 million. The provision for credit losses in 2024 resulted largely from a $1.9 million provision against the marine portfolio due to charge-offs against six marine loans totaling $1.8 million.
Specific reserve allocations were $467 thousand and $248 thousand at December 31, 2025 and 2024, respectively. The majority of the specific reserve at December 31, 2025 reflects three commercial loan relationships with loan balances totaling $880 thousand. The specific reserve allocation in 2024 represented two commercial loan relationships with loan balances totaling $908 thousand.
The Company is committed to maintaining an allowance that it believes will adequately absorb the current expected losses in the loan portfolio. This commitment is more fully discussed in the “Asset Quality” section.
Noninterest Income
Total noninterest income was $6.9 million and $21.6 million during 2025 and 2024, respectively. This represents a decrease of $14.7 million or 68.07% for 2025. Management reviews the activities which generate noninterest income on an ongoing basis.
The following table provides the components of noninterest income for the twelve months ended December 31, 2025 and 2024, which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Wealth management fees |
|
$ |
7,457 |
|
|
$ |
5,624 |
|
|
$ |
1,833 |
|
|
|
32.59 |
% |
Service charges on deposit accounts |
|
|
2,141 |
|
|
|
1,936 |
|
|
|
205 |
|
|
|
10.59 |
% |
Other service charges and fees |
|
|
4,192 |
|
|
|
4,179 |
|
|
|
13 |
|
|
|
0.31 |
% |
(Loss) gain on the sale and disposal of bank premises and equipment |
|
|
(19 |
) |
|
|
3,863 |
|
|
|
(3,882 |
) |
|
NM |
|
|
(Loss) on sale of securities |
|
|
(12,425 |
) |
|
|
— |
|
|
|
(12,425 |
) |
|
NM |
|
|
Gain on sale of loans |
|
|
3,375 |
|
|
|
2,141 |
|
|
|
1,234 |
|
|
|
57.64 |
% |
Small business investment company income |
|
|
251 |
|
|
|
1,357 |
|
|
|
(1,106 |
) |
|
|
(81.50 |
)% |
Bank owned life insurance income |
|
|
1,099 |
|
|
|
1,981 |
|
|
|
(882 |
) |
|
|
(44.52 |
)% |
Other operating income |
|
|
812 |
|
|
|
476 |
|
|
|
336 |
|
|
|
70.59 |
% |
Total noninterest income |
|
$ |
6,883 |
|
|
$ |
21,557 |
|
|
$ |
(14,674 |
) |
|
|
(68.07 |
)% |
NM - Not Meaningful
Wealth management fees increased in 2025 compared to 2024. Wealth management fee income is primarily comprised of income from fiduciary activities and commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management. Income from investment sales increased due to the continued attractiveness of brokerage and advisory investments products. Wealth
34
management revenue also includes transaction-based revenues that are not primarily derived from the value of assets. Transaction-based revenues related to estates and other services have also contributed to the year over year increase in revenue. These include estate settlement fees which increased primarily due to two large trusts that were settled.
Services charges on deposit accounts increased when comparing the year ended December 31, 2025 to 2024. This increase is mainly due to growth in the number of accounts as well as higher levels of overdraft charges.
Gain on the sale and disposal of bank premises and equipment decreased during the year ended December 31, 2025 due to sale of the Company's operating center and branch building in a sales-leaseback transaction during the fourth quarter of 2024, which resulted in a realized gain of $3.9 million. There was no similar transaction during the year ended December 31, 2025.
The Company executed balance sheet repositioning transactions within its investment securities portfolio during March 2025. The sale of $99.2 million of available for sale debt securities, with a fair value of $86.8 million, resulted in a pre-tax loss of $12.4 million during the twelve months ended December 31, 2025. Management utilized the proceeds from the public offering capital raise completed in February 2025 to enable the balance sheet repositioning.
During 2025, the Company sold $89.7 million in mortgage loans on the secondary market and $21.8 million in Small Business Association ("SBA") loans. During 2024, the Company sold $59.0 million in mortgage loans on the secondary market and $14.3 million in SBA loans. These loan sales resulted in gains of $3.4 million and $2.1 million during the years ended December 31, 2025 and 2024, respectively.
Income from holdings in small business investment companies decreased during 2025 compared to 2024. The decrease during the current year period is mainly attributed to lower cash distributions received, based on the results of their performance and timing of distributions.
Bank owned life insurance ("BOLI") fee income totaled $1.1 million for the year ended December 31, 2025 compared to $2.0 million for the year ended December 31, 2024. The decrease was primarily due to death benefit settlement gains of $907 thousand received during the year ended December 31, 2024.
Other operating income increased primarily as a result of an increase in loan swap fee income recognized on agreements with initial notional balances totaling $21.6 million and $4.1 million during the years ended December 31, 2025 and 2024 respectively. The agreements resulted in a gain of $271 thousand during 2025 compared to $27 thousand in 2024.
Noninterest Expenses
Total noninterest expenses were $55.9 million and $51.3 million during 2025 and 2024, respectively. This represents an increase of $4.5 million or 8.84% during 2025.
35
The following table provides the components of noninterest expense for the twelve months ended December 31, 2025 and 2024, which are included within the respective Consolidated Statements of Income headings. The following paragraphs provide information about activities which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Salaries and employee benefits |
|
$ |
33,203 |
|
|
$ |
30,059 |
|
|
$ |
3,144 |
|
|
|
10.46 |
% |
Occupancy expenses |
|
|
2,614 |
|
|
|
2,077 |
|
|
|
537 |
|
|
|
25.85 |
% |
Equipment expenses |
|
|
1,703 |
|
|
|
1,657 |
|
|
|
46 |
|
|
|
2.78 |
% |
Advertising and marketing expenses |
|
|
861 |
|
|
|
1,038 |
|
|
|
(177 |
) |
|
|
(17.05 |
)% |
Stationery and supplies |
|
|
134 |
|
|
|
145 |
|
|
|
(11 |
) |
|
|
(7.59 |
)% |
ATM network fees |
|
|
1,345 |
|
|
|
1,530 |
|
|
|
(185 |
) |
|
|
(12.09 |
)% |
Other real estate owned expense |
|
|
20 |
|
|
|
— |
|
|
|
20 |
|
|
NM |
|
|
Loss on other real estate owned |
|
|
51 |
|
|
|
— |
|
|
|
51 |
|
|
NM |
|
|
Loss on sale of repossessed assets |
|
|
302 |
|
|
|
204 |
|
|
|
98 |
|
|
|
48.04 |
% |
FDIC assessment |
|
|
948 |
|
|
|
1,433 |
|
|
|
(485 |
) |
|
|
(33.85 |
)% |
Computer software expense |
|
|
1,369 |
|
|
|
1,068 |
|
|
|
301 |
|
|
|
28.18 |
% |
Bank franchise tax |
|
|
1,524 |
|
|
|
1,353 |
|
|
|
171 |
|
|
|
12.64 |
% |
Professional fees |
|
|
2,420 |
|
|
|
2,065 |
|
|
|
355 |
|
|
|
17.19 |
% |
Data processing fees |
|
|
2,210 |
|
|
|
2,418 |
|
|
|
(208 |
) |
|
|
(8.60 |
)% |
Loan servicing expense |
|
|
1,116 |
|
|
|
1,062 |
|
|
|
54 |
|
|
|
5.08 |
% |
Other operating expenses |
|
|
6,051 |
|
|
|
5,223 |
|
|
|
828 |
|
|
|
15.85 |
% |
Total noninterest expenses |
|
$ |
55,871 |
|
|
$ |
51,332 |
|
|
$ |
4,539 |
|
|
|
8.84 |
% |
NM - Not Meaningful
Salaries and employee benefits expense increased during 2025 reflecting increases in salaries, commission, stock-based compensation expenses, and annual incentive plan expenses. The Company's number of full-time equivalent employees (FTEs) increased from 231 at December 31, 2024 to 254 at December 31, 2025. Stock based compensation expense increased due to a higher grant price in the twelve months ended December 31, 2025, compared to the twelve months ended December 31, 2024. Partially offsetting these increases was a net reduction in employee medical costs due to lower claims deficit expenses during the twelve months ended December 31, 2025.
Occupancy expenses increased during 2025 largely due to the impact of the sales-leaseback transaction of the Company's operating center and branch building in December 2024. Rental expense, net of building depreciation increased $498 thousand during 2025 compared to 2024. The increase in rental expense also reflects a new long-term lease executed during the first quarter of 2025 as the Company moved its standalone loan production office and established a full-service branch in McLean, Virginia.
Advertising and marketing expenses decreased during 2025. This reflects fewer advertising campaigns and a marketing bonus credit related to the Bank's credit card provider relationship.
ATM network fees decreased during 2025 due, in part, to a contract renegotiation which lowered per unit transaction fees as well as lower costs associated with fewer plastic cards purchased.
FDIC assessment expense, which is based in part on asset size and capital levels, decreased in 2025 compared to 2024. The decrease reflects an improvement in the financial ratios primarily due to the capital raise completed in early 2025. An improved loan mix index, partially offset by an increase in nonperforming loans also contributed to the decreased assessment rate during 2025.
Computer software expense increased during 2025 compared to 2024 due to the Company's continued investment in technology to enhance systems security and drive operational efficiencies. Additionally, approximately $200 thousand of the increase was due to existing loan software expenses, which were recorded to other operating expenses in the prior year.
Bank franchise tax which is based on asset and capital levels, increased during 2025 compared to 2024 reflecting growth of the Company's capital.
36
Professional fees increased during 2025 primarily due to higher legal fees as a result of increased problem loan workouts and activity as well as increased internal audit services, testing, and annual loan review costs.
Data processing fees decreased reflecting core provider pricing discounts and credits recognized during 2025.
Other operating expenses increased during 2025. The largest drivers of the increase were loan collection costs, higher contributions towards charitable activities, debit card usage incentive rewards, and greater travel costs related to investor relations activities. These increases were partially offset by the reclassification of loan software expenses as described above in computer software expenses.
Efficiency Ratio
The efficiency ratio of the Company was 67.67% and 75.08% for 2025 and 2024, respectively. The improvement in the efficiency ratio during 2025 reflects an increase in net interest and noninterest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing total noninterest expenses by the sum of tax-equivalent net interest income and total noninterest income. The Company adjusts for non-recurring items such as gains and losses on investment portfolio sales and other gains/losses from OREO, repossessed assets, sale or disposals of bank assets, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.
The calculation of the efficiency ratio for the twelve months ended December 31, 2025 and 2024 was as follows:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Summary of Operating Results: |
|
|
|
|
|
|
||
Noninterest expenses (GAAP) |
|
$ |
55,871 |
|
|
$ |
51,332 |
|
Less: Loss on other real estate owned and repossessed assets |
|
|
353 |
|
|
|
204 |
|
Adjusted noninterest expenses (non-GAAP) |
|
$ |
55,518 |
|
|
$ |
51,128 |
|
|
|
|
|
|
|
|
||
Net interest income |
|
$ |
62,614 |
|
|
$ |
51,227 |
|
|
|
|
|
|
|
|
||
Noninterest income (GAAP) |
|
$ |
6,883 |
|
|
$ |
21,557 |
|
Less: (Loss) on sales of securities |
|
|
(12,425 |
) |
|
|
— |
|
Less: (Loss) Gain on the sale and disposal of premises and equipment |
|
|
(19 |
) |
|
|
3,863 |
|
Less: Life insurance proceeds |
|
|
— |
|
|
|
935 |
|
Adjusted noninterest income (non-GAAP) |
|
$ |
19,327 |
|
|
$ |
16,759 |
|
Tax equivalent adjustment (1) |
|
|
105 |
|
|
|
114 |
|
Total net interest income and noninterest income, adjusted (non-GAAP) |
|
$ |
82,046 |
|
|
$ |
68,100 |
|
|
|
|
|
|
|
|
||
Efficiency ratio |
|
|
67.67 |
% |
|
|
75.08 |
% |
(1) Includes tax-equivalent adjustments on loans and securities using the federal statutory tax rate of 21%.
Income Taxes
The following table presents the Company's income tax provision and applicable tax rates for the periods indicated:
|
|
Twelve Months Ended |
|
|||||
|
|
December 31, |
|
|||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
||
Income tax expense |
|
$ |
1,711 |
|
|
$ |
3,558 |
|
Effective income tax rate |
|
|
17.24 |
% |
|
|
18.82 |
% |
Income tax expense was $1.7 million and $3.6 million for the years ended December 31, 2025 and 2024, respectively. These amounts correspond to an effective tax rate of 17.24% and 18.82% for 2025 and 2024, respectively. Total income tax expense is comprised of federal and state income taxes of $1.6 million and $100 thousand, respectively, for the year ended December 31, 2025 and $3.4 million and $134 thousand, respectively, for the year ended December 31, 2024.
The effective tax rate is below the statutory rate of 21%, due primarily to the recognition of tax-exempt life insurance income, which also included death benefit proceeds during 2024. The effective tax rate is also impacted by
37
tax-exempt income on investment securities and loans, qualified rehabilitation credits and tax credits on qualified affordable housing project investments. Note 9 to the Consolidated Financial Statements provides a reconciliation between income tax expense computed using the federal statutory income tax rate and the Company’s actual income tax expense during 2025 and 2024 and Note 25 further discusses qualified affordable housing project investments.
As previously discussed in the "Non-GAAP Financial Measures" section above, both 2025 and 2024 had large out of the ordinary transactions due to balance sheet repositioning events that affected taxable income. Due to lower taxable income in 2025, resulting from realized losses on the sale of securities, the strategies employed by the Company to reduce its effective tax rate had a greater impact. Conversely, higher taxable income in 2024 due to the realized gain on the sale of the Company's operating center and branch building, lessened the impact of the Company's effective tax rate strategies.
Business Segments
The Company has three reportable operating segments: community banking, marine lending and wealth management. See Note 27 to the Consolidated Financial Statements.
The following table presents a summarized statement of income for the community banking business segment for the twelve months ended December 31, 2025 and 2024.
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Net Interest Income |
|
$ |
57,814 |
|
|
$ |
45,756 |
|
|
$ |
12,058 |
|
|
|
26.35 |
% |
Gain on sales of loans |
|
|
3,375 |
|
|
|
2,141 |
|
|
|
1,234 |
|
|
|
57.64 |
% |
(Loss) on the sale of securities |
|
|
(12,425 |
) |
|
|
— |
|
|
|
(12,425 |
) |
|
NM |
|
|
Other noninterest income |
|
|
8,305 |
|
|
|
13,792 |
|
|
|
(5,487 |
) |
|
|
(39.78 |
)% |
Net Revenue |
|
|
57,069 |
|
|
|
61,689 |
|
|
|
(4,620 |
) |
|
|
(7.49 |
)% |
Provision for credit losses |
|
|
3,690 |
|
|
|
2,403 |
|
|
|
1,287 |
|
|
|
53.56 |
% |
Noninterest expense |
|
|
51,674 |
|
|
|
47,448 |
|
|
|
4,226 |
|
|
|
8.91 |
% |
Income before taxes |
|
|
1,705 |
|
|
|
11,838 |
|
|
|
(10,133 |
) |
|
|
(85.60 |
)% |
Income tax expense |
|
|
7 |
|
|
|
2,048 |
|
|
|
(2,041 |
) |
|
|
(99.66 |
)% |
Net Income |
|
$ |
1,698 |
|
|
$ |
9,790 |
|
|
$ |
(8,092 |
) |
|
|
(82.66 |
)% |
Net interest income increased during the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to income earned on: i) non-marine loans; ii) the investment securities portfolio, which was restructured in the first quarter of 2025 to sell and replace lower yielding investments with higher yielding securities; iii) higher levels of earning deposit balances in other other banks; and iv) reduction in borrowings expense as FHLB advances have matured and were not replaced. These increases were partially offset by an increase in interest-bearing deposit expense due to growth in average balances. Higher levels of interest-earning deposits balances in other banks reflects proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025, as well as increases in customer deposit balances.
Gain on sales of loans increased during 2025 compared to 2024 largely reflecting increases in sales of mortgage loans originated for sale and SBA loans. See further discussion of gain on sales of loans under the caption "Noninterest Income" above.
Loss on the sale of securities resulted from the Company's execution of balance sheet repositioning transactions within its investment securities portfolio in March 2025. Available for sale debt securities totaling $99.2 million, with a fair value of $86.8 million, were sold resulting in a pre-tax loss of $12.4 million.
Other noninterest income for the twelve months ended December 31, 2025 decreased compared to the same period in 2024 primarily reflecting the sale of the Company's operating center and branch building in a sales-leaseback transaction, resulting in a realized gain of $3.9 million during 2024.
Provision for credit losses increased during 2025 largely reflecting the increase in net charge-offs within the commercial real estate loan portfolio. See further discussion under the caption "Provision" above.
Noninterest expense increased during 2025 primarily due to salaries and employee benefits. See further discussion under the caption "Noninterest Expenses" above.
38
Income tax expense decreased by $2.0 million from 2024 primarily due to the impact of securities sale loss recognized in 2025.
The following table presents a summarized statement of income for the marine lending segment for the twelve months ended December 31, 2025 and 2024.
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Net Interest Income |
|
$ |
6,217 |
|
|
$ |
6,888 |
|
|
$ |
(671 |
) |
|
|
(9.74 |
)% |
Net Revenue |
|
|
6,217 |
|
|
|
6,888 |
|
|
|
(671 |
) |
|
|
(9.74 |
)% |
Provision for credit losses |
|
|
11 |
|
|
|
148 |
|
|
|
(137 |
) |
|
|
(92.57 |
)% |
Noninterest expense |
|
|
433 |
|
|
|
629 |
|
|
|
(196 |
) |
|
|
(31.16 |
)% |
Income before taxes |
|
|
5,773 |
|
|
|
6,111 |
|
|
|
(338 |
) |
|
|
(5.53 |
)% |
Income tax expense |
|
|
1,212 |
|
|
|
1,283 |
|
|
|
(71 |
) |
|
|
(5.53 |
)% |
Net Income |
|
$ |
4,561 |
|
|
$ |
4,828 |
|
|
$ |
(267 |
) |
|
|
(5.53 |
)% |
NM - Not Meaningful
Marine lending net revenues declined for the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024 due to pay downs in the portfolio, which are not being replaced with new loan originations. The marine loan portfolio balance totaled $175.6 million at December 31, 2025 compared to $210.1 million at December 31, 2024.
Provision for credit losses for marine lending decreased due to the declining loan balances, which mostly offset the impact of net charge-offs recorded during 2025. Net charge-offs declined by $1.2 million, or 67.38%, from 2024 levels.
Noninterest expenses were down from 2024 due to decreases in loan servicing and collection expenses, which comprise the majority of total noninterest expenses for marine lending.
The following table presents a summarized statement of income for the wealth management business segment for the twelve months ended December 31, 2025 and 2024.
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Net Interest Income |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
% |
Other noninterest income |
|
|
7,628 |
|
|
|
5,624 |
|
|
|
2,004 |
|
|
|
35.63 |
% |
Net Revenue |
|
|
7,628 |
|
|
|
5,624 |
|
|
|
2,004 |
|
|
|
35.63 |
% |
Noninterest expense |
|
|
3,267 |
|
|
|
2,823 |
|
|
|
444 |
|
|
|
15.73 |
% |
Income before taxes |
|
|
4,361 |
|
|
|
2,801 |
|
|
|
1,560 |
|
|
|
55.69 |
% |
Income tax expense |
|
|
916 |
|
|
|
588 |
|
|
|
328 |
|
|
|
55.78 |
% |
Net Income |
|
$ |
3,445 |
|
|
$ |
2,213 |
|
|
$ |
1,232 |
|
|
|
55.67 |
% |
Wealth Management's net revenues increased $2.0 million, or 35.63%, for the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024, reflecting increases in both trust services and investment sales income. See further discussion of wealth management revenues under the caption "Noninterest Income" above.
Noninterest expense increased during 2025 primarily reflecting increases in salaries, commissions and annual incentive plan expenses.
39
FINANCIAL CONDITION
Select financial condition data is presented in the following table:
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Securities available for sale |
|
$ |
119,543 |
|
|
$ |
121,330 |
|
|
$ |
(1,787 |
) |
|
|
(1.47 |
)% |
Loans |
|
|
1,473,077 |
|
|
|
1,467,049 |
|
|
|
6,028 |
|
|
|
0.41 |
% |
Allowance for credit losses |
|
|
(15,320 |
) |
|
|
(15,027 |
) |
|
|
(293 |
) |
|
|
1.95 |
% |
Total assets |
|
|
1,888,626 |
|
|
|
1,866,215 |
|
|
|
22,411 |
|
|
|
1.20 |
% |
Total deposits |
|
|
1,607,360 |
|
|
|
1,575,156 |
|
|
|
32,204 |
|
|
|
2.04 |
% |
FHLB advances |
|
|
40,000 |
|
|
|
120,000 |
|
|
|
(80,000 |
) |
|
|
(66.67 |
)% |
Total shareholders' equity |
|
|
188,839 |
|
|
|
118,987 |
|
|
|
69,852 |
|
|
|
58.71 |
% |
Two significant events impacting the Company's financial condition occurred during the first quarter of 2025. On February 13, 2025, the Company completed an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. The net proceeds from the offering were $53.5 million. During March 2025, the Company executed balance sheet repositioning transactions within its investment securities portfolio. The execution of these events was to support continued organic growth and capital generation. These are further described in their corresponding paragraphs below.
Securities
The carrying amounts of the Company's available for sale securities are as follows:
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
||||||||||
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of U.S. government corporations and agencies |
|
$ |
7,444 |
|
|
|
6 |
% |
|
$ |
7,668 |
|
|
|
6 |
% |
U.S. Treasury securities |
|
|
10,001 |
|
|
|
8 |
% |
|
|
— |
|
|
|
0 |
% |
Mortgage-backed securities |
|
|
75,129 |
|
|
|
63 |
% |
|
|
104,967 |
|
|
|
87 |
% |
Collateralized mortgage obligations |
|
|
22,495 |
|
|
|
19 |
% |
|
|
— |
|
|
|
0 |
% |
Obligations of states and political subdivisions |
|
|
— |
|
|
|
0 |
% |
|
|
4,645 |
|
|
|
4 |
% |
Subordinated debt |
|
|
4,474 |
|
|
|
4 |
% |
|
|
4,050 |
|
|
|
3 |
% |
|
|
$ |
119,543 |
|
|
|
100 |
% |
|
$ |
121,330 |
|
|
|
100 |
% |
Total securities available for sale decreased by $1.8 million, or 1.47%, during 2025. The Company purchased $102.7 million of securities during the twelve months ended December 31, 2025 , which includes $66.0 million as part of the balance sheet repositioning transactions in the first quarter of 2025. The Company had total maturities, calls, and principal repayments of $22.7 million and sales of $99.2 million during the twelve months ended December 31, 2025.
Net unrealized loss on available for sale securities was $6.7 million at December 31, 2025 as compared to a net unrealized loss of $23.6 million at December 31, 2024. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).
During March 2025, balance sheet repositioning transactions were comprised of sales of available for sale debt securities with an amortized cost balance of $99.2 million (fair value of $86.8 million) and a weighted average yield of 1.72%, with proceeds reinvested into purchases of $66.0 million of available for sale debt securities with a weighted average yield of 4.72%. The total sales of $99.2 million represented 68.48% of December 31, 2024 securities balance. The majority of these repositioning sales and purchases consisted of mortgage-backed securities. The sale of debt securities resulted in a net pre-tax realized loss of $12.4 million (after-tax of $9.8 million) that was recognized in the first quarter of 2025. In addition to the repositioning transactions, the Company purchased U.S. Treasury notes totaling $9.9 million prior to the repositioning to maintain pledging levels throughout the repositioning period and has also made subsequent purchases.
40
The primary cause of the unrealized losses at December 31, 2025 and December 31, 2024 was changes in market interest rates, rather than other market conditions or credit concerns of the issuers over the time between purchase and measurement periods. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.
The table titled “Maturity Distribution and Yields of Securities” shows the maturity period and average yield for the different types of securities in the portfolio at December 31, 2025. The weighted average is calculated based on the relative amortized costs of the securities. Although mortgage-backed securities have definitive maturities, they provide monthly principal curtailments which can be reinvested at a prevailing rate and for a different term.
Maturity Distribution and Yields of Securities
|
|
December 31, 2025 |
|
|||||||||||||||||
|
|
Due in one year |
|
|
Due after 1 |
|
|
Due after 5 |
|
|
Due after 10 years |
|
|
Total |
|
|||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Obligations of U.S. government corporations and agencies |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
4.83 |
% |
|
|
4.83 |
% |
U.S. treasury securities |
|
|
4.27 |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
4.27 |
% |
Mortgage-backed securities |
|
|
— |
% |
|
|
4.82 |
% |
|
|
4.32 |
% |
|
|
3.30 |
% |
|
|
3.59 |
% |
Collateralized mortgage obligations |
|
|
— |
% |
|
|
5.20 |
% |
|
|
— |
% |
|
|
5.09 |
% |
|
|
5.12 |
% |
Subordinated debt |
|
|
— |
% |
|
|
7.95 |
% |
|
|
5.53 |
% |
|
|
— |
% |
|
|
5.91 |
% |
Total taxable |
|
|
4.27 |
% |
|
|
5.19 |
% |
|
|
4.59 |
% |
|
|
3.75 |
% |
|
|
4.08 |
% |
Total |
|
|
4.27 |
% |
|
|
5.19 |
% |
|
|
4.59 |
% |
|
|
3.75 |
% |
|
|
4.08 |
% |
41
Loan Portfolio
The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Details of the Company's loan portfolio are presented below:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||
(dollars in thousands) |
|
Amount |
|
|
Percent to Total Loans |
|
|
Amount |
|
|
Percent to Total Loans |
|
||||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
HELOCs |
|
$ |
58,640 |
|
|
|
4 |
% |
|
$ |
50,646 |
|
|
|
4 |
% |
Residential First Lien - Investor |
|
|
107,307 |
|
|
|
7 |
% |
|
|
105,910 |
|
|
|
7 |
% |
Residential First Lien - Owner Occupied |
|
|
178,807 |
|
|
|
12 |
% |
|
|
194,065 |
|
|
|
13 |
% |
Residential Junior Liens |
|
|
10,724 |
|
|
|
1 |
% |
|
|
11,184 |
|
|
|
1 |
% |
Total residential real estate loans |
|
|
355,478 |
|
|
|
24 |
% |
|
|
361,805 |
|
|
|
25 |
% |
Commercial - Owner Occupied |
|
|
298,853 |
|
|
|
20 |
% |
|
|
272,236 |
|
|
|
19 |
% |
Commercial - Non-Owner Occupied & Multifamily |
|
|
398,926 |
|
|
|
27 |
% |
|
|
367,680 |
|
|
|
25 |
% |
Total commercial real estate loans |
|
|
697,779 |
|
|
|
47 |
% |
|
|
639,916 |
|
|
|
44 |
% |
Construction & Secured by Farmland |
|
|
82,336 |
|
|
|
6 |
% |
|
|
95,200 |
|
|
|
6 |
% |
Total mortgage real estate loans |
|
|
1,135,593 |
|
|
|
77 |
% |
|
|
1,096,921 |
|
|
|
75 |
% |
Commercial and industrial loans |
|
|
113,224 |
|
|
|
8 |
% |
|
|
110,343 |
|
|
|
8 |
% |
Marine loans |
|
|
175,639 |
|
|
|
12 |
% |
|
|
210,095 |
|
|
|
14 |
% |
Consumer loans |
|
|
28,742 |
|
|
|
2 |
% |
|
|
31,017 |
|
|
|
2 |
% |
Other loans |
|
|
14,264 |
|
|
|
1 |
% |
|
|
12,220 |
|
|
|
1 |
% |
Total loans |
|
|
1,467,462 |
|
|
|
100 |
% |
|
|
1,460,596 |
|
|
|
100 |
% |
Net deferred loan costs and premiums |
|
|
5,615 |
|
|
|
|
|
|
6,453 |
|
|
|
|
||
Gross loans |
|
$ |
1,473,077 |
|
|
|
|
|
$ |
1,467,049 |
|
|
|
|
||
Gross loans increased $6.0 million, or 0.41%, and totaled $1.47 billion at December 31, 2025 and 2024. The ratio of gross loans to deposits decreased during the year from 93.14% to 91.65% at December 31, 2024 and December 31, 2025, respectively.
The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. The modest increase in gross loans reflects new loan originations outpacing reductions due to loan sales, paydowns, and significant payoffs of commercial and industrial loans related to the sales of two customers' businesses.
Total residential real estate loans decreased by $6.3 million, or 1.75%, during the year ended December 31, 2025 primarily due to the sale of $18.8 million of portfolio mortgage loans in early 2025, ahead of the Company's public stock offering, in order to bolster on-balance sheet liquidity.
Total commercial real estate loans increased by $57.9 million, or 9.04%, since December 31, 2024, reflecting strong origination growth in both owner and non-owner occupied portfolios. This growth included a large construction loan that converted to permanent financing.
Marine loans are declining due to normal paydowns and payoffs only as the Company is no longer accepting new marine business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid.
The table titled “Maturity Schedule of Selected Loans” shows the various loan categories and the period during which they mature. For loans maturing in more than one year, the table also shows a breakdown between fixed rate loans and floating rate loans. The table indicates that $764.6 million or 52.11% of the loan portfolio matures within five years. The floating rate loans maturing after five years are primarily comprised of loans secured by 1-4 family residential properties.
42
Maturity Schedule of Selected Loans
(dollars in thousands)
|
|
December 31, 2025 |
|
|||||||||||||||||
|
|
Within |
|
|
After |
|
|
After 5 Years Within 15 years |
|
|
After 15 Years |
|
|
Total |
|
|||||
Loans secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Construction & Farmland |
|
$ |
34,475 |
|
|
$ |
31,739 |
|
|
$ |
8,513 |
|
|
$ |
7,609 |
|
|
$ |
82,336 |
|
Secured by 1-4 family residential properties |
|
|
34,443 |
|
|
|
67,838 |
|
|
|
57,823 |
|
|
|
195,374 |
|
|
|
355,478 |
|
Commercial & Multifamily |
|
|
91,596 |
|
|
|
421,201 |
|
|
|
173,176 |
|
|
|
11,806 |
|
|
|
697,779 |
|
Commercial and industrial loans |
|
|
36,241 |
|
|
|
36,348 |
|
|
|
37,842 |
|
|
|
2,793 |
|
|
|
113,224 |
|
Marine |
|
|
— |
|
|
|
761 |
|
|
|
50,578 |
|
|
|
124,300 |
|
|
|
175,639 |
|
Consumer installment loans |
|
|
1,608 |
|
|
|
5,288 |
|
|
|
3,711 |
|
|
|
18,135 |
|
|
|
28,742 |
|
All other loans |
|
|
368 |
|
|
|
2,718 |
|
|
|
9,262 |
|
|
|
1,916 |
|
|
|
14,264 |
|
|
|
$ |
198,731 |
|
|
$ |
565,893 |
|
|
$ |
340,905 |
|
|
$ |
361,933 |
|
|
$ |
1,467,462 |
|
For maturities over one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Floating rate loans |
|
|
|
|
$ |
106,151 |
|
|
$ |
126,940 |
|
|
$ |
146,226 |
|
|
$ |
379,317 |
|
|
Fixed rate loans |
|
|
|
|
|
459,742 |
|
|
|
213,965 |
|
|
|
215,707 |
|
|
|
889,414 |
|
|
|
|
|
|
|
$ |
565,893 |
|
|
$ |
340,905 |
|
|
$ |
361,933 |
|
|
$ |
1,268,731 |
|
|
Asset Quality
The Company has policies and procedures designed to control credit risk and to maintain the quality of its loan portfolio. These include underwriting standards for new originations and ongoing monitoring and reporting of asset quality and adequacy of the allowance for credit losses. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk on a quarterly basis.
The following table presents credit risk ratings as of December 31, 2025 and 2024:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||
(dollars in thousands) |
|
Amount |
|
|
Percent to Total Loans |
|
|
Amount |
|
|
Percent to Total Loans |
|
||||
Risk categories |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pass |
|
$ |
1,396,752 |
|
|
|
95 |
% |
|
$ |
1,405,997 |
|
|
|
96 |
% |
Special Mention |
|
|
54,752 |
|
|
|
4 |
% |
|
|
50,081 |
|
|
|
3 |
% |
Classified |
|
|
15,958 |
|
|
|
1 |
% |
|
|
4,518 |
|
|
|
1 |
% |
Total loans |
|
$ |
1,467,462 |
|
|
|
100 |
% |
|
$ |
1,460,596 |
|
|
|
100 |
% |
Loans risk rated as special mention, which exhibit negative trends and potential weaknesses include loans with stale financial information. Of the total special mention loans, $35.7 million had stale financial information at December 31, 2025 compared to $45.0 million at December 31, 2024. Upon receipt of current financial information, the loans will be evaluated and returned to a pass classification if appropriate.
Loans risk rated as classified, include substandard, doubtful, and loss loans. Classified loans increased primarily due to three large relationships being placed on nonaccrual status during 2025 that totaled $9.6 million at December 31, 2025. The first relationship had an outstanding balance of $2.2 million as of December 31, 2025 and was a partially owner-occupied property whose owner passed away unexpectedly causing the business to halt. The second relationship is comprised of three residential multifamily income of producing properties in Washington D.C. (the District) with a combined exposure of $5.3 million at December 31, 2025. The Bank has been granted receivership of these properties and is actively working with the receiver to update the properties and ready them for sale while continuing to collect the housing payments directly from the District. The third relationship had an outstanding balance of $2.1 million at December 31, 2025. The Bank's portion is part of a larger syndicated loan, with the Bank’s portion being 0.31% of the total loan commitment. The borrower is currently under a forbearance agreement, for financial covenant violations and past due payments. The borrower's new management team along with the lead bank continue to work on a restructuring of the business.
43
Classified loans also include other potential problem loans, defined as performing loans that possess certain risks that management has identified that could result in the loans not being repaid in accordance with their terms. Accordingly, these loans are risk rated at a level of substandard or lower. At December 31, 2025, other potential problem loans totaled $1.6 million.
All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity.
Total past due loans were $16.9 million at December 31, 2025, an increase of $12.4 million, compared to $4.5 million at December 31, 2024. The $12.4 million increase in past due loans primarily reflects a $12.7 million increase in loans 90 or more days past due, partially offset by a $292 thousand decrease in loans 30-89 days past due. Loans 90 or more days past due were concentrated in the commercial real estate loan portfolios and reflected the increase in nonaccrual loans.
Nonperforming and Other Assets
Nonperforming assets consist of nonaccrual loans, loans past due 90 days and accruing interest, other real estate owned (foreclosed properties), and repossessed assets.
Loans are placed on non-accrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses that require additional provisions for credit losses to be charged against earnings.
For real estate loans, upon foreclosure, the properties are recorded at the fair value of the property based on current appraisals and other current market trends, less selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off against the allowance for credit losses on loans. A review of the recorded property value is performed in conjunction with normal loan reviews, and if market conditions indicate that the recorded value exceeds the fair value, additional write downs of the property value are charged directly to operations. Gains on properties acquired through foreclosure where the fair value less costs to sell exceeds the related loan balance and there have been no prior charge-offs are recorded to current earnings. Loans secured by other assets, such as marine vessels, are recorded in a similar manner when a repossession occurs.
In addition, the Company may, under certain circumstances, modify loans. Modifications made to a loan are considered when a borrower is experiencing financial difficulty and the modification constitutes a concession to the borrower that is not in line with market rates and/or terms. Modified terms are dependent upon the financial position and needs of the individual borrower. Generally, the modifications granted are extensions of terms, deferrals of payments for an extended period or interest rate reductions. There were three commercial real estate loan modifications to one borrower experiencing financial difficulty totaling $5.3 million during the year ended December 31, 2025. These residential multifamily income producing properties are under a receivership agreement and are expected to be ready for sale during 2026. No loans were modified during 2024.
44
Nonperforming assets and related ratios are detailed in the table below:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Nonaccrual loans |
|
$ |
14,398 |
|
|
$ |
2,072 |
|
Loans past due 90 days and accruing interest |
|
|
60 |
|
|
|
— |
|
Other real estate owned and repossessed assets |
|
|
135 |
|
|
|
514 |
|
Total nonperforming assets |
|
$ |
14,593 |
|
|
$ |
2,586 |
|
|
|
|
|
|
|
|
||
Allowance for credit losses on loans |
|
$ |
15,320 |
|
|
$ |
15,027 |
|
|
|
|
|
|
|
|
||
Gross loans |
|
$ |
1,473,077 |
|
|
$ |
1,467,049 |
|
|
|
|
|
|
|
|
||
Allowance for credit losses on loans to nonperforming assets |
|
|
105 |
% |
|
|
581 |
% |
|
|
|
|
|
|
|
||
Allowance for credit losses on loans to total loans |
|
|
1.04 |
% |
|
|
1.02 |
% |
|
|
|
|
|
|
|
||
Allowance for credit losses on loans to nonaccrual loans |
|
|
106 |
% |
|
|
725 |
% |
|
|
|
|
|
|
|
||
Nonaccrual loans to total loans |
|
|
0.98 |
% |
|
|
0.14 |
% |
|
|
|
|
|
|
|
||
Non-performing assets to period end loans, other real estate owned and repossessed assets |
|
|
0.99 |
% |
|
|
0.18 |
% |
There were $14.6 million in total non-performing assets at December 31, 2025. This increase of $12.0 million when compared to the December 31, 2024 balance of $2.6 million resulted mostly from the increase in nonaccrual loans.
Nonaccrual loans were $14.4 million at December 31, 2025 and $2.1 million at the end of 2024. The gross amount of interest income that would have been recognized on nonaccrual loans was $672 thousand for 2025 and $81 thousand for 2024. None of this interest income was included in net income for 2025 or 2024.
Included in the nonaccrual balance at December 31, 2025 were 20 loans totaling $14.1 million which were placed on nonaccrual during 2025, including three large relationships which made up $9.6 million of the nonaccrual balance at December 31, 2025 and were discussed above. Four additional commercial relationships totaling $2.7 million were added to nonaccrual status during 2025 reflecting their delinquent payment status and required an allowance for credit losses of $467 thousand based on management's evaluation of the underlying collateral values. In addition, of the $2.1 million nonaccrual balance at December 31, 2024, payoffs totaling $1.6 million were received, $89 thousand was charged off, and three loans totaling $316 thousand remained on nonaccrual status at December 31, 2025.
Management evaluates the financial condition of borrowers in nonaccrual status and the value of any collateral on these loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans. Nonaccrual loans that were individually evaluated for impairment at December 31, 2025 totaled $14.4 million, of which $2.7 million required a specific allocation of $467 thousand to be assigned.
Other real estate owned and repossessed assets decreased from $514 thousand at December 31, 2024 to $135 thousand at December 31, 2025, consisting of repossessed assets. Four marine vessels were repossessed during 2025 and placed into repossessed assets. Sales of repossessed assets during 2025 included three marine vessel repossessed in 2024 and three of the four marine vessels repossessed during 2025. A net loss of $302 thousand and $204 thousand was recognized on the sale of repossessed assets for the twelve months ended December 31, 2025 and 2024, respectively.
There was one real estate property that foreclosed and sold during 2025, compared to no transactions during 2024. The difference between the amount of other real estate owned and the settlement proceeds is recognized as a gain or loss on the sale of other real estate owned. A net loss of $51 thousand was recognized on the sale of other real estate owned during the twelve months ended December 31, 2025.
45
Allowance for Credit Losses on Loans
The purpose of and the methods for measuring the allowance for credit losses on loans is discussed in the Critical Accounting Policies section above as well as in Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, of the this Form 10-K.
The following table presents the activity in the allowance for credit losses on loans and related ratios for the periods indicated:
|
|
Twelve Months Ended |
|
|||||
|
|
December 31, |
|
|||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
||
Balance at beginning of period |
|
$ |
15,027 |
|
|
$ |
14,493 |
|
Charge-Offs |
|
|
|
|
|
|
||
Construction & secured by farmland |
|
|
— |
|
|
|
(94 |
) |
Residential real estate |
|
|
(31 |
) |
|
|
(277 |
) |
Commercial real estate |
|
|
(2,771 |
) |
|
|
(7 |
) |
Commercial |
|
|
(485 |
) |
|
|
(238 |
) |
Marine |
|
|
(580 |
) |
|
|
(1,778 |
) |
Consumer |
|
|
(140 |
) |
|
|
(309 |
) |
Other |
|
|
(139 |
) |
|
|
(141 |
) |
Total charge-off's |
|
|
(4,146 |
) |
|
|
(2,844 |
) |
Recoveries |
|
|
|
|
|
|
||
Construction & secured by farmland |
|
|
5 |
|
|
|
102 |
|
Residential real estate |
|
|
308 |
|
|
|
347 |
|
Commercial real estate |
|
|
— |
|
|
|
162 |
|
Commercial |
|
|
153 |
|
|
|
67 |
|
Marine |
|
|
— |
|
|
|
— |
|
Consumer |
|
|
46 |
|
|
|
150 |
|
Other |
|
|
47 |
|
|
|
25 |
|
Total recoveries |
|
|
559 |
|
|
|
853 |
|
Net charge-off's |
|
|
(3,587 |
) |
|
|
(1,991 |
) |
Provision for credit losses on loans |
|
|
3,880 |
|
|
|
2,525 |
|
Balance at end of period |
|
$ |
15,320 |
|
|
$ |
15,027 |
|
|
|
|
|
|
|
|
||
Net charge-off's to average loans |
|
|
0.25 |
% |
|
|
0.14 |
% |
Allowance for credit losses on loans as a percentage of gross loans |
|
|
1.04 |
% |
|
|
1.02 |
% |
Charged-off loans were $4.1 million and $2.8 million for 2025 and 2024, respectively. Recoveries were $559 thousand and $853 thousand for 2025 and 2024, respectively. Net charge-offs were $3.6 million for 2025 and $2.0 million for 2024. The year over year increase in net charge-offs was primarily due to one relationship in the commercial real estate loan portfolio.
A non-owner occupied commercial real estate loan relationship consisting of four residential multifamily income producing properties had a current combined exposure of approximately $5.4 million at December 31, 2025. The largest of the four properties had a corresponding loan balance of $5.9 million at June 30, 2025. This property was offered for sale on July 8, 2025, for $5.7 million with the Bank agreeing to a short sale of $4.8 million, thereby creating a deficiency balance of $1.1 million after consideration of past due taxes and other costs. Due to the unlikelihood of repayment and limited remaining collateral value, the deficiency balance was charge-off in the third quarter of 2025. Combined with write-downs on the other remaining properties, a total of $2.3 million was charged off during 2025 related to this relationship.
Four marine loan relationships had charge-off totaling $580 thousand during 2025 compared to $1.8 million during 2024, which represented six marine relationships. Marine net charge-offs as a percentage to average marine loans outstanding was 0.29% and 0.74%, respectively.
The allowance for credit losses as a percentage of loans was 1.04% and 1.02% at the end of 2025 and 2024, respectively. The increase in the allowance percentage year over year was mostly attributable to the increase in net
46
charge-offs and growth in the portfolio, partially offset by a reduction in the specific reserve. Additionally, the impact of the change in mix of the loan pool balances and associated reserve factors has tempered the level of allowance for credit losses related to loan growth. The ratio of net charge-offs to average loans was 0.25% for 2025 and 0.14% for 2024.
The provision for credit losses for the years ended December 31, 2025 and 2024 was $3.7 million and $2.6 million, respectively. The provision for credit losses in 2025 and 2024 reflected the level of net charge-offs and the specific reserve allocation in addition to loan growth in the portfolio.
The table titled “Allocation of Allowance for Credit Losses on Loans” shows the amount of the allowance for credit losses which is allocated to the indicated loan categories, along with that category’s percentage of total loans, at December 31, 2025 and 2024. The amount of allowance for credit losses allocated to each loan category is based on the amount of delinquent loans in that loan category, the status of nonperforming assets in that loan category, the historical losses for that loan category, the evaluation of qualitative factors impacting the portfolio and the financial condition of certain borrowers whose financial conditional is monitored on a periodic basis. Management believes that the allowance for credit losses is adequate to absorb the current expected losses in the loan portfolio.
Analysis of Allowance for Credit Losses
(dollars in thousands)
|
|
Years Ended December 31, |
|
|||||||||||||||||
|
|
2025 |
|
|
2024 |
|
||||||||||||||
|
|
Net charge-offs (recoveries) |
|
Average loans outstanding |
|
Net charge-offs (recoveries) to average loans outstanding |
|
|
Net charge-offs (recoveries) |
|
Average loans outstanding |
|
Net charge-offs (recoveries) to average loans outstanding |
|
||||||
Construction and Farmland |
|
$ |
(5 |
) |
$ |
84,528 |
|
|
(0.01 |
)% |
|
$ |
(8 |
) |
$ |
89,383 |
|
|
(0.01 |
)% |
Residential Real Estate |
|
|
(277 |
) |
|
354,568 |
|
|
(0.08 |
)% |
|
|
(70 |
) |
|
367,706 |
|
|
(0.02 |
)% |
Commercial Real Estate |
|
|
2,771 |
|
|
669,204 |
|
|
0.41 |
% |
|
|
(155 |
) |
|
618,843 |
|
|
(0.03 |
)% |
Commercial |
|
|
332 |
|
|
106,146 |
|
|
0.31 |
% |
|
|
171 |
|
|
102,818 |
|
|
0.17 |
% |
Marine |
|
|
580 |
|
|
199,327 |
|
|
0.29 |
% |
|
|
1,778 |
|
|
239,853 |
|
|
0.74 |
% |
Consumer |
|
|
94 |
|
|
26,028 |
|
|
0.36 |
% |
|
|
159 |
|
|
29,742 |
|
|
0.53 |
% |
All Other Loans |
|
|
92 |
|
|
14,385 |
|
|
0.64 |
% |
|
|
116 |
|
|
12,539 |
|
|
0.93 |
% |
Total |
|
$ |
3,587 |
|
$ |
1,454,186 |
|
|
0.25 |
% |
|
$ |
1,991 |
|
$ |
1,460,884 |
|
|
0.14 |
% |
Allocation of Allowance for Credit Losses on Loans
(dollars in thousands)
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||
|
|
Allowance for Credit Losses |
|
|
Percent of Loans in Category to Total Loans |
|
|
Allowance for Credit Losses |
|
|
Percent of Loans in Category to Total Loans |
|
||||
Construction and Farmland |
|
$ |
1,275 |
|
|
|
5.6 |
% |
|
$ |
2,387 |
|
|
|
6.5 |
% |
Residential Real Estate |
|
|
3,160 |
|
|
|
24.2 |
% |
|
|
2,318 |
|
|
|
24.8 |
% |
Commercial Real Estate |
|
|
8,163 |
|
|
|
47.5 |
% |
|
|
7,251 |
|
|
|
43.8 |
% |
Commercial |
|
|
1,312 |
|
|
|
7.7 |
% |
|
|
1,433 |
|
|
|
7.6 |
% |
Marine |
|
|
710 |
|
|
|
12.0 |
% |
|
|
1,279 |
|
|
|
14.4 |
% |
Consumer |
|
|
230 |
|
|
|
2.0 |
% |
|
|
238 |
|
|
|
2.1 |
% |
All Other Loans |
|
|
470 |
|
|
|
1.0 |
% |
|
|
121 |
|
|
|
0.8 |
% |
Total |
|
$ |
15,320 |
|
|
|
100 |
% |
|
$ |
15,027 |
|
|
|
100 |
% |
47
Deposits
Total deposits were $1.61 billion and $1.58 billion at December 31, 2025 and 2024, respectively. This represents an increase of $32.2 million or 2.04% during 2025. 2025 benefited from a higher level of deposits from non interest bearing accounts received during the second quarter primarily related to sales proceeds of two customers' businesses. These balances had mostly been withdrawn at December 31, 2025.
The following table provides the composition of total deposits at December 31, 2025 and December 31, 2024.
|
|
December 31, |
|
|||||||||||||
(dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ Change |
|
|
% Change |
|
||||
Noninterest bearing demand deposits |
|
$ |
432,171 |
|
|
$ |
406,180 |
|
|
$ |
25,991 |
|
|
|
6 |
% |
NOW accounts |
|
|
322,687 |
|
|
|
278,835 |
|
|
|
43,852 |
|
|
|
16 |
% |
Money market accounts |
|
|
282,828 |
|
|
|
269,115 |
|
|
|
13,713 |
|
|
|
5 |
% |
Regular savings accounts |
|
|
123,030 |
|
|
|
131,380 |
|
|
|
(8,350 |
) |
|
|
(6 |
)% |
Time deposits less than $250,000 |
|
|
262,390 |
|
|
|
293,864 |
|
|
|
(31,474 |
) |
|
|
(11 |
)% |
Time deposits $250,000 and more |
|
|
184,254 |
|
|
|
195,782 |
|
|
|
(11,528 |
) |
|
|
(6 |
)% |
Total deposits |
|
$ |
1,607,360 |
|
|
$ |
1,575,156 |
|
|
$ |
32,204 |
|
|
|
2 |
% |
Core deposits |
|
$ |
1,304,733 |
|
|
$ |
1,299,323 |
|
|
|
5,410 |
|
|
|
0 |
% |
Core deposits as a percent of total deposits |
|
|
81 |
% |
|
|
82 |
% |
|
|
|
|
|
|
||
Non-core deposits |
|
$ |
302,627 |
|
|
$ |
275,833 |
|
|
|
26,794 |
|
|
|
10 |
% |
Non-core deposits as a percent of total deposits |
|
|
19 |
% |
|
|
18 |
% |
|
|
|
|
|
|
||
The total increase in deposits was primarily in non-core accounts, which increased $26.8 million while core accounts increased $5.4 million. Core deposits consist of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, excluding wholesale or brokered deposits.
In general, deposit pricing is done in response to monetary policy actions and yield curve changes. Local competition for funds also affects the cost of time deposits. Marketing efforts, including rate specials, are utilized to maintain maturing accounts and to acquire new time deposit accounts. At December 31, 2025, over 87% of deposits were fully FDIC insured.
The table titled “Average Deposits and Rates Paid” shows the average deposit balances and average rates paid for 2025 and 2024.
Average Deposits and Rates Paid
(dollars in thousands)
|
|
Years Ended December 31, |
|
|||||||||||||
|
|
2025 |
|
|
2024 |
|
||||||||||
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
||||
Noninterest-bearing |
|
$ |
486,606 |
|
|
|
|
|
$ |
412,646 |
|
|
|
|
||
Interest-bearing: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOW accounts |
|
|
300,711 |
|
|
|
2.21 |
% |
|
|
259,372 |
|
|
|
2.35 |
% |
Money market accounts |
|
|
273,390 |
|
|
|
2.21 |
% |
|
|
263,960 |
|
|
|
2.27 |
% |
Regular savings accounts |
|
|
128,007 |
|
|
|
0.11 |
% |
|
|
134,893 |
|
|
|
0.12 |
% |
Time deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
$250,000 and more |
|
|
176,777 |
|
|
|
4.28 |
% |
|
|
153,398 |
|
|
|
4.73 |
% |
Less than $250,000 |
|
|
292,311 |
|
|
|
4.03 |
% |
|
|
276,580 |
|
|
|
4.47 |
% |
Total interest-bearing |
|
$ |
1,171,196 |
|
|
|
2.75 |
% |
|
$ |
1,088,203 |
|
|
|
2.93 |
% |
Total deposits |
|
$ |
1,657,802 |
|
|
|
|
|
$ |
1,500,849 |
|
|
|
|
||
48
The table titled “Maturities of Certificates of Deposit and Other Time Deposits of $250,000 and Greater” shows the amount of certificates of deposit of $250,000 and more maturing within the time periods indicated at December 31, 2025. The total amount maturing within one year is $181.2 million, or 98.35%, of the total amount outstanding.
Maturities of Certificates of Deposit and Other Time Deposits of $250,000 and Greater
(dollars in thousands)
|
|
Within |
|
|
Three |
|
|
Six to |
|
|
Over |
|
|
Total |
|
|
Percent |
|
||||||
December 31, 2025 |
|
$ |
59,007 |
|
|
$ |
59,308 |
|
|
$ |
62,892 |
|
|
$ |
3,047 |
|
|
$ |
184,254 |
|
|
|
11.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
The table titled “Certificates of Deposit and Other Time Deposits Otherwise Uninsured" shows the balances of certificates of deposit that were in excess of the FDIC insurance limit at December 31, 2025. The total amount maturing within one year is $121.7 million, or 98.54%, of the total amount outstanding.
Certificates of Deposit and Other Time Deposits Otherwise Uninsured
(dollars in thousands)
|
|
Within |
|
|
Three |
|
|
Six to |
|
|
Over |
|
|
Total |
|
|
Percent |
|
||||||
December 31, 2025 |
|
$ |
42,257 |
|
|
$ |
35,559 |
|
|
$ |
43,892 |
|
|
$ |
1,797 |
|
|
$ |
123,505 |
|
|
|
7.68 |
% |
CAPITAL RESOURCES
Total shareholders’ equity on December 31, 2025 was $188.9 million, reflecting a percentage of total assets of 10.00% as compared to $119.0 million and 6.38% at December 31, 2024. The $69.9 million increase in shareholders’ equity was primarily due to net proceeds of $53.5 million received from the completion of an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. An additional increase of $13.4 million is due to a decrease in unrealized losses on the securities available for sale portfolio largely reflecting the impact of the balance sheet repositioning. This increase in shareholders' equity was further enhanced by a net operating income of $8.2 million and partially offset by $6.1 million in dividends declared for the twelve months ended December 31, 2025. During the twelve months ended December 31, 2025 and 2024, the Company paid dividends of $1.24 and $1.21 per share, respectively. The Company has a Dividend Investment Plan that allows shareholders to reinvest dividends in Company stock.
At December 31, 2025, and 2024, the Bank met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well capitalized institutions. The bank monitors these ratios on a quarterly basis and has several strategies, including without limitation the issuance of common stock, to ensure that these ratios remain above regulatory minimum. The bank's capital amounts and ratios are presented using the Federal Reserve's risk-based capital framework.
Federal regulatory risk-based capital guidelines require percentages to be applied to various assets, including off-balance sheet assets, based on their perceived risk in order to calculate risk-weighted assets. Tier 1 capital consists of total shareholders’ equity plus qualifying trust preferred securities outstanding less net unrealized gains and losses on available for sale securities, goodwill and other intangible assets. Total capital is comprised of Tier 1 capital plus the allowable portion of the allowance for credit losses and any excess trust preferred securities that do not qualify as Tier 1 capital.
The risk-based capital rules require the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. In addition, a capital conservation buffer requirement of 2.5% was effective January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with any ratio (excluding the leverage ratio) above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The capital conservation buffer rule requires the Bank to maintain (i) a minimum ratio of common equity Tier 1 to
49
risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.
The following table summarizes the Bank's regulatory capital and related ratios at December 31, 2025 and December 31, 2024:
Analysis of Bank Capital
(dollars in thousands)
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Tier 1 Capital: |
|
|
|
|
|
|
||
Common stock |
|
$ |
1,682 |
|
|
$ |
1,682 |
|
Capital surplus |
|
|
9,773 |
|
|
|
9,773 |
|
Retained earnings |
|
|
211,730 |
|
|
|
155,016 |
|
Nonmortgage servicing assets |
|
|
(637 |
) |
|
|
(326 |
) |
Total Tier 1 capital |
|
$ |
222,548 |
|
|
$ |
166,145 |
|
Common equity tier 1 capital |
|
$ |
222,548 |
|
|
$ |
166,145 |
|
Tier 2 Capital: |
|
|
|
|
|
|
||
Allowable portion of allowance for credit losses and reserve for off-balance sheet commitments |
|
$ |
15,128 |
|
|
$ |
14,493 |
|
Total Tier 2 capital |
|
$ |
15,128 |
|
|
$ |
14,493 |
|
Total risk-based capital |
|
$ |
237,676 |
|
|
$ |
180,638 |
|
|
|
|
|
|
|
|
||
Risk weighted assets |
|
$ |
1,530,835 |
|
|
$ |
1,504,960 |
|
|
|
|
|
|
|
|
||
Capital Ratios: |
|
|
|
|
|
|
||
Common equity Tier 1 capital ratio |
|
|
14.54 |
% |
|
|
11.04 |
% |
Tier 1 risk-based capital ratio |
|
|
14.54 |
% |
|
|
11.04 |
% |
Total risk-based capital ratio |
|
|
15.53 |
% |
|
|
12.00 |
% |
Tier 1 leverage ratio |
|
|
11.68 |
% |
|
|
8.79 |
% |
Note 15 to the Consolidated Financial Statements provides additional discussion and analysis of regulatory capital requirements.
LIQUIDITY
Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or with the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks, federal funds sold, unpledged securities classified as available for sale, and loans maturing within one year. At December 31, 2025 liquid assets totaled $423.4 million as compared to $335.9 million at December 31, 2024. These amounts represent 24.91% and 19.22% of total liabilities at December 31, 2025 and 2024, respectively. The increase during the year reflects increased cash on hand from Federal Funds Sold as well as an increase in the balance of loans maturing within one year, partially offset by lower levels of deposits with other institutions.
The Company generally attempts to minimize liquidity demand by primarily utilizing core deposits to fund asset growth. Securities provide a constant source of liquidity through paydowns and maturities. Also, the Company maintains
50
short-term borrowing arrangements, namely federal funds lines of credit, with larger financial institutions as an additional source of liquidity. The Bank’s membership with the Federal Home Loan Bank of Atlanta also provides a source of borrowings with numerous rate and term structures. At December 31, 2025 and 2024, the Company had remaining credit availability in the amounts of $454.1 million and $254.3 million, respectively, with the Federal Home Loan Bank of Atlanta. The Company also had unused lines of credit with financial institutions of $78.0 million at December 31, 2025 and 2024.
The Company pledges available for sale mortgage-backed securities with the Federal Reserve Bank discount window, which while reducing its liquid assets it reinforces its ability to obtain liquidity from the Federal Reserve Bank discount window. At December 31, 2025 the Company had $63.2 million in funds available through the discount window. The Company’s senior management monitors the liquidity position regularly and attempts to maintain a position which utilizes available funds most efficiently.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
Note 18 to the Consolidated Financial Statements provides information about the off-balance sheet arrangements which arise through the lending activities of the Company. These arrangements increase the degree of both credit and interest rate risk beyond that which is recognized through the financial assets and liabilities on the consolidated balance sheets.
51
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
As the holding company of the Bank, the Company’s primary component of market risk is interest rate volatility. Interest rate fluctuations will impact the amount of interest income and expense the Bank receives or pays on almost all of its assets and liabilities and the market value of its interest-earning assets and interest-bearing liabilities, excluding those which have a very short term until maturity. Interest rate risk exposure of the Company is, therefore, experienced at the Bank level. Asset / liability management attempts to maximize the net interest income of the Company by adjusting the volume and price of rate sensitive assets and liabilities. The Company does not subject itself to foreign currency exchange or commodity price risk due to prohibition through policy and the current nature of operations. Derivative instruments and hedging activities of the Company have historically been minimal.
The Bank’s interest rate management strategy is designed to maximize net interest income and preserve the capital of the Company. The Bank’s financial instruments are periodically subjected to various simulations whose results are discussed in the following paragraphs. These models are based on actual data from the Bank’s financial statements and assumptions about the performance of certain financial instruments. Prepayment assumptions are applied to all mortgage related assets, which includes real estate loans and mortgage-backed securities. Prepayment assumptions are based on a median rate at which principal payments are received on these assets over their contractual term. The rate of principal payback is assumed to increase when rates fall and decrease when rates rise. Term assumptions are applied to non-maturity deposits, which includes demand deposits, NOW accounts, savings accounts, and money market accounts. Demand deposits and NOW accounts are generally assumed to have a term greater than one year since the total amount outstanding does not fluctuate with changes in interest rates. Savings accounts and money market accounts are assumed to be more interest rate sensitive, therefore, a majority of the amount outstanding is assumed to have a term of less than one year.
The simulation analysis evaluates the potential effect of upward and downward changes in market interest rates on future net interest income. The Bank views the immediate shock of rates as a more effective measure of interest rate risk exposure. The analysis assesses the impact on net interest income over a 12 month period after an immediate change or “shock” in rates, of 100 basis points up to 400 basis points. The simulation analysis results are presented in the table below:
Year 1 Net Interest Income Simulation
(dollars in thousands)
|
|
Change in |
|
|||||
Assumed Market Interest Rate Shock |
|
Dollars |
|
|
Percent Change |
|
||
-400 BP |
|
$ |
(4,196 |
) |
|
|
(6.61 |
)% |
-300 BP |
|
|
(2,585 |
) |
|
|
(4.07 |
)% |
-200 BP |
|
|
(1,499 |
) |
|
|
(2.36 |
)% |
-100 BP |
|
|
(285 |
) |
|
|
(0.45 |
)% |
+100 BP |
|
|
(45 |
) |
|
|
(0.07 |
)% |
+200 BP |
|
|
(418 |
) |
|
|
(0.66 |
)% |
+300 BP |
|
|
(729 |
) |
|
|
(1.15 |
)% |
+400 BP |
|
|
(1,057 |
) |
|
|
(1.67 |
)% |
The Bank uses simulation analysis to assess earnings at risk and economic value of equity ("EVE") analysis to assess economic value at risk. This analysis method allows management to regularly monitor the direction and magnitude of the Bank’s interest rate risk exposure. The modeling techniques cannot be measured with complete precision. Maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturity deposit sensitivity and loan and deposit pricing are key assumptions used in acquiring this analysis. There is a realm of uncertainty in using these assumptions but the analysis does provide the Bank with the ability to estimate interest rate risk position over time.
52
The table below examines the EVE. The EVE of the balance sheet is defined as the discounted present value of expected asset cash flows minus the discounted present value of the expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The model indicates a more significant exposure to falling interest rates. These results are driven primarily by the relative change in value of the Bank’s core deposit base as rates rise.
Static EVE Change
(dollars in thousands)
|
|
Change in EVE |
|
|||||
Assumed Market Interest Rate Shift |
|
Dollars |
|
|
Percent Change |
|
||
-400 BP Shock |
|
$ |
(111,475 |
) |
|
|
(29.55 |
)% |
-300 BP Shock |
|
|
(56,805 |
) |
|
|
(15.06 |
)% |
-200 BP Shock |
|
|
(27,377 |
) |
|
|
(7.26 |
)% |
-100 BP Shock |
|
|
(6,561 |
) |
|
|
(1.74 |
)% |
+100 BP Shock |
|
|
499 |
|
|
|
0.13 |
% |
+200 BP Shock |
|
|
(6,242 |
) |
|
|
(1.65 |
)% |
+300 BP Shock |
|
|
(8,702 |
) |
|
|
(2.31 |
)% |
+400 BP Shock |
|
|
(12,412 |
) |
|
|
(3.29 |
)% |
53
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Eagle Financial Services, Inc.
Berryville, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Eagle Financial Services, Inc. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 16, 2026 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses – Loans Collectively Evaluated for Credit Losses
As further described in Notes 1 and 4 to the financial statements, the allowance for credit losses on loans (“ACLL”) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company’s ACLL related to collectively evaluated loans represented $14.9 million of the total recorded ACLL of $15.3 million as of December 31, 2025. The collectively evaluated ACLL consists of quantitative and qualitative components.
The quantitative component consists of loss estimates derived from the Company’s application of its cohort methodology, which identifies and tracks respective losses generated by specific cohorts (or pools) of loans over their remaining lives. These
54
estimates consider large amounts of data over an extended period of time and require complex calculations as well as management judgment in the selection of the appropriate inputs.
In addition to the quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. Factors considered by management in developing its qualitative estimates include: changes in lending policies and procedures; changes in international, national, regional and local economic conditions; changes in the nature and volume of the portfolio and terms of loans; changes in the experience, depth, and ability of lending management; changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans; changes in the quality of the Company’s loan review system; changes in the value of underlying collateral for collateral-dependent loans; the existence and effect of any concentrations of credit and changes in the level of such concentrations; and the effect of other external factors (i.e. competition, legal and regulatory requirements, etc.) on the level of credit losses.
Management exercised significant judgment when estimating the ACLL on collectively evaluated loans. We identified the estimation of the collectively evaluated ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.
How We Addressed the Matter in Our Audit
The primary audit procedures we performed to address this critical audit matter included:
/s/
We have served as the Company's auditor since 2015.
March 16, 2026
55
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Eagle Financial Services, Inc.
Berryville, Virginia
Opinion on the Internal Control Over Financial Reporting
We have audited Eagle Financial Services, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively, the “financial statements”) of the Company and our report dated March 16, 2026 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
March 16, 2026
56
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2025 and 2024
(dollars in thousands, except per share amounts)
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
Assets |
|
|
|
|
|
|
||
Cash and due from banks |
|
$ |
|
|
$ |
|
||
Interest-bearing deposits with other institutions |
|
|
|
|
|
|
||
Federal funds sold |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
|
|
|
|
|
||
Securities available for sale, at fair value |
|
|
|
|
|
|
||
Restricted investments |
|
|
|
|
|
|
||
Loans held for sale |
|
|
|
|
|
|
||
Loans |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Net loans |
|
|
|
|
|
|
||
Bank premises and equipment, net |
|
|
|
|
|
|
||
Bank owned life insurance |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Deposits: |
|
|
|
|
|
|
||
Noninterest bearing demand deposits |
|
$ |
|
|
$ |
|
||
Savings and interest bearing demand deposits |
|
|
|
|
|
|
||
Time deposits |
|
|
|
|
|
|
||
Total deposits |
|
$ |
|
|
$ |
|
||
Federal Home Loan Bank advances, short-term |
|
|
|
|
|
|
||
Federal Home Loan Bank advances, long-term |
|
|
|
|
|
|
||
Subordinated debt, net of unamortized issuance costs |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Commitments and contingencies |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Shareholders’ Equity |
|
|
|
|
|
|
||
Preferred stock, $ |
|
$ |
|
|
$ |
|
||
Common stock, $ |
|
|
|
|
|
|
||
Surplus |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total shareholders’ equity |
|
$ |
|
|
$ |
|
||
Total liabilities and shareholders’ equity |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
See Notes to Consolidated Financial Statements
57
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 2025 and 2024
(dollars in thousands, except per share amounts)
|
|
2025 |
|
|
2024 |
|
||
Interest and Dividend Income |
|
|
|
|
|
|
||
Interest and fees on loans |
|
$ |
|
|
$ |
|
||
Interest and dividends on securities: |
|
|
|
|
|
|
||
Taxable interest income |
|
|
|
|
|
|
||
Interest income exempt from federal income taxes |
|
|
|
|
|
|
||
Dividends |
|
|
|
|
|
|
||
Interest on deposits in banks |
|
|
|
|
|
|
||
Interest on federal funds sold |
|
|
|
|
|
|
||
Total interest and dividend income |
|
$ |
|
|
$ |
|
||
Interest Expense |
|
|
|
|
|
|
||
Interest on deposits |
|
$ |
|
|
$ |
|
||
Interest on Federal Home Loan Bank advances |
|
|
|
|
|
|
||
Interest on subordinated debt |
|
|
|
|
|
|
||
Total interest expense |
|
$ |
|
|
$ |
|
||
Net interest income |
|
$ |
|
|
$ |
|
||
Provision For Credit Losses |
|
|
|
|
|
|
||
Net interest income after provision for credit losses |
|
$ |
|
|
$ |
|
||
Noninterest Income |
|
|
|
|
|
|
||
Wealth management fees |
|
$ |
|
|
$ |
|
||
Service charges on deposit accounts |
|
|
|
|
|
|
||
Other service charges and fees |
|
|
|
|
|
|
||
(Loss) gain on the sale and disposal of bank premises and equipment |
|
|
( |
) |
|
|
|
|
(Loss) on sale of securities |
|
|
( |
) |
|
|
|
|
Gain on sale of loans |
|
|
|
|
|
|
||
Small business investment company income |
|
|
|
|
|
|
||
Bank owned life insurance income |
|
|
|
|
|
|
||
Other operating income |
|
|
|
|
|
|
||
Total noninterest income |
|
$ |
|
|
$ |
|
||
Noninterest Expenses |
|
|
|
|
|
|
||
Salaries and employee benefits |
|
$ |
|
|
$ |
|
||
Occupancy expenses |
|
|
|
|
|
|
||
Equipment expenses |
|
|
|
|
|
|
||
Advertising and marketing expenses |
|
|
|
|
|
|
||
Stationery and supplies |
|
|
|
|
|
|
||
ATM network fees |
|
|
|
|
|
|
||
Other real estate owned expense |
|
|
|
|
|
|
||
Loss on other real estate owned |
|
|
|
|
|
|
||
Loss on sale of repossessed assets |
|
|
|
|
|
|
||
FDIC assessment |
|
|
|
|
|
|
||
Computer software expense |
|
|
|
|
|
|
||
Bank franchise tax |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Data processing fees |
|
|
|
|
|
|
||
Loan servicing expense |
|
|
|
|
|
|
||
Other operating expenses |
|
|
|
|
|
|
||
Total noninterest expenses |
|
$ |
|
|
$ |
|
||
Income before income taxes |
|
$ |
|
|
$ |
|
||
Income Tax Expense |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Earnings Per Share |
|
|
|
|
|
|
||
Net income per common share, basic |
|
$ |
|
|
$ |
|
||
Net income per common share, diluted |
|
$ |
|
|
$ |
|
||
See Notes to Consolidated Financial Statements
58
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2025 and 2024
(dollars in thousands)
|
|
2025 |
|
|
2024 |
|
||
Net income |
|
$ |
|
|
$ |
|
||
Other comprehensive income (loss): |
|
|
|
|
|
|
||
Changes in benefit obligations and plan assets for post retirement benefit plans, net of reclassification adjustments, net of deferred income tax of $( |
|
|
( |
) |
|
|
( |
) |
Unrealized gain (loss) on available for sale securities, net of reclassification adjustments, net of deferred income tax expense (benefit) of $ |
|
|
|
|
|
( |
) |
|
Total other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
Total comprehensive income |
|
$ |
|
|
$ |
|
||
See Notes to Consolidated Financial Statements
59
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2025 and 2024
(dollars in thousands, except per share amounts)
|
|
Common |
|
|
Surplus |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
|||||
December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Cumulative effect adjustment for adoption of ASU 2023-02 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other comprehensive (loss) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Restricted stock awards, stock incentive plan ( |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Repurchase and retirement of common stock ( |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Dividends declared ($ |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
December 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Issuance of common stock, public offering, net ( |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Restricted stock awards, stock incentive plan ( |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Repurchase and retirement of common stock ( |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dividends declared ($ |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
December 31, 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
See Notes to Consolidated Financial Statements
60
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 2025 and 2024
(dollars in thousands)
|
|
2025 |
|
|
2024 |
|
||
Cash Flows from Operating Activities |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Amortization of other assets |
|
|
|
|
|
|
||
Origination of loans held for sale |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of loans held for sale |
|
|
|
|
|
|
||
Net (gain) on sales of loans |
|
|
( |
) |
|
|
( |
) |
Provision for credit losses |
|
|
|
|
|
|
||
(Gain) on sale of portfolio loans |
|
|
( |
) |
|
|
|
|
Loss on sale of other real estate owned |
|
|
|
|
|
|
||
Loss (gain) on the sale and disposal of premises and equipment |
|
|
|
|
|
( |
) |
|
Loss on the sale of repossessed assets |
|
|
|
|
|
|
||
Loss on the sale of securities |
|
|
|
|
|
|
||
Amortization of subordinated debt issuance costs |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
(Accretion) amortization of premiums and discounts on debt securities and loans, net |
|
|
( |
) |
|
|
|
|
Bank owned life insurance income |
|
|
( |
) |
|
|
( |
) |
(Gain) on bank-owed life insurance settlement |
|
|
|
|
|
( |
) |
|
Deferred tax accrual |
|
|
|
|
|
|
||
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Decrease in other assets |
|
|
|
|
|
|
||
Increase in other liabilities |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
$ |
|
|
$ |
|
||
Cash Flows from Investing Activities |
|
|
|
|
|
|
||
Proceeds from maturities, calls, and principal payments of securities available for sale |
|
$ |
|
|
$ |
|
||
Proceeds from the sale of securities available for sale |
|
|
|
|
|
|
||
Purchases of securities available for sale |
|
|
( |
) |
|
|
( |
) |
Proceeds from the sale of restricted investments |
|
|
|
|
|
|
||
Purchase of restricted investments |
|
|
( |
) |
|
|
( |
) |
Proceeds from bank-owned life insurance settlement |
|
|
|
|
|
|
||
Proceeds from the sale of bank premises and equipment |
|
|
|
|
|
|
||
Purchases of bank premises and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from the sale of other real estate owned |
|
|
|
|
|
|
||
Proceeds from the sale of repossessed assets |
|
|
|
|
|
|
||
Changes in collateral posted with other financial institutions, net |
|
|
|
|
|
( |
) |
|
Proceeds from the sale of portfolio loans |
|
|
|
|
|
|
||
Origination of loans, net of prinicpal collected |
|
|
( |
) |
|
|
( |
) |
Funding of capital commitments related to other investments |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by investing activities |
|
$ |
( |
) |
|
$ |
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Net increase (decrease) in demand deposits, money market and savings accounts |
|
$ |
|
|
$ |
( |
) |
|
Net (decrease) increase in certificates of deposit |
|
|
( |
) |
|
|
|
|
Net (decrease) increase in short-term Federal Home Loan Bank advances |
|
|
( |
) |
|
|
|
|
(Repayment) of long-term Federal Home Loan Bank advances |
|
|
( |
) |
|
|
( |
) |
Net proceeds from issuance of common stock in public offering |
|
|
|
|
|
|
||
Repurchase and retirement of common stock |
|
|
( |
) |
|
|
( |
) |
Cash dividends paid |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
$ |
( |
) |
|
$ |
|
|
Increase in cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Cash and Cash Equivalents |
|
|
|
|
|
|
||
Beginning |
|
|
|
|
|
|
||
Ending |
|
$ |
|
|
$ |
|
||
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
||
Cash payments for: |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Income taxes |
|
$ |
|
|
$ |
|
||
Supplemental Schedule of Noncash Investing and Financing Activities: |
|
|
|
|
|
|
||
Unrealized gain (loss) on securities available for sale |
|
$ |
|
|
$ |
( |
) |
|
Minimum postretirement liability adjustment |
|
$ |
( |
) |
|
$ |
( |
) |
Real estate and repossessed assets acquired in settlement of loans |
|
$ |
|
|
$ |
|
||
Lease liabilities arising from right-of-use assets |
|
$ |
|
|
$ |
|
||
See Notes to Consolidated Financial Statements
61
NOTE 1. Nature of Banking Activities and Significant Accounting Policies
Eagle Financial Services, Inc. (the “Company” or “Corporation”) and Bank of Clarke (the “Bank”) make commercial, financial, agricultural, residential and consumer loans to customers in Virginia, Maryland and the Eastern Panhandle of West Virginia. The loan portfolio is well diversified and generally is collateralized by assets of the customers. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrowers. In addition, the Bank of Clarke Wealth Management Division, a division of the Bank, provides both a full-service Trust Department and a separate brokerage area.
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to accepted practices within the banking industry.
Principles of Consolidation
The Company owns
Wealth Management Assets
The Bank of Clarke Wealth Management Division provides both a full-service Trust Department and a separate brokerage area. The Trust Department features a full range of fiduciary expertise, including service as Trustee of personal trusts, service as guardian or conservator by court appointment, fiduciary investment management, estate settlement, and agency for trustees. The brokerage area offers advisory services and a broad selection of investment products, including Individual Retirement Accounts, mutual funds, tax-deferred annuities, 529 college savings plans, life insurance, long term care insurance, brokerage certificates of deposit, among other brokerage services. Securities and other property held by the Bank of Clarke Wealth Management Division in a fiduciary or agency capacity are not assets of the Bank and are not included in the accompanying consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for credit losses on loans.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest bearing deposits. Generally, federal funds are purchased and sold for one-day periods.
Securities
The Company determines the appropriate classification of securities at the time of purchase. Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Debt securities not classified as held to maturity are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Equity securities with readily determinable fair values are carried at fair value, with changes in fair value reported in income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
Purchase premiums are recognized in interest income using the effective interest rate method over the period from purchase to maturity or, for callable securities, the earliest call date, and purchase discounts are recognized in the same manner from purchase to maturity.
The Bank is required to maintain an investment in the capital stock of certain correspondent banks. No readily available market exists for this stock and it has no quoted market value. The investment in these securities is recorded at cost and they are reported on the Company’s consolidated balance sheet as restricted investments.
62
Allowance for Credit Losses on Securities
For available for sale debt securities in an unrealized loss position, management first assesses whether the Company intends to sell, or if it is likely that the Company 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 a provision for credit losses charge to earnings. For debt securities available for sale that do not meet either of these criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers both quantitative and qualitative factors,
A substantial portion of the available for sale debt securities held by the Company are obligations issued by U.S. government agency and U.S. government-sponsored enterprises, including mortgage-backed securities. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies and have a long history of no credit losses. For these securities, management takes into consideration the long history of no credit losses and other factors to assess the risk of nonpayment even if the U.S. government were to default. As such, the Company utilized a zero credit loss estimate for these securities.
For available for sale debt securities that are not guaranteed by U.S. government agencies and U.S. government-sponsored enterprises, management utilizes a third-party credit modeling tool based on observable market data, which assists management in identifying any potential credit risk associated with these available for sale debt securities. Qualitative factors are also considered, including the extent to which fair value is less than amortized cost, changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If a credit loss exists, an allowance for credit losses is recorded that reflects the amount of the impairment related to credit losses, limited by the amount by which the security's amortized cost basis exceeds its fair value.
Changes in the allowance for credit losses are recorded in net income in the period of change and are included in provision for credit losses. Changes in the fair value of debt securities available for sale not resulting from credit losses are recorded in other comprehensive income (loss).
Loans Held for Sale
Mortgage loans originated with the intent to sell in the secondary market are classified as loans held for sale and carried at the lower of cost or fair value as determined by commitments from investors. Mortgage loans that are sold in the secondary market are sold servicing released. The Company may also classify other loans as loans held for sale as part of its ongoing portfolio management strategies. Such other loans are generally not originated with the intent to sell. Once a decision is made to sell loans not previously classified as held for sale, such loans are transferred into the held-for-sale classification and carried at the lower of cost or fair value. In 2025, the Company sold non-mortgage loans totaling $
Loan Servicing Rights
Loan servicing rights are separate from the underlying loan and may be retained or sold by the Company when the related loan is sold. In connection with sale of certain loans, the Company has recognized assets for retained loan servicing rights. Capitalized loan servicing rights represent the economic benefits associated with contracts to service loans under which the benefits of servicing are expected to more than adequately compensate the Company for performing the servicing. Assets for retained loan servicing rights are initially recognized as a component of the gain recognized on the sale of the underlying loan(s) and are recorded at fair value on the consolidated balance sheets. Loan servicing rights are subsequently accounted for using the amortization method. The amortization method requires the servicing assets to be amortized in proportion to and over the period of estimated net servicing income. Additionally, the recorded balances are evaluated for impairment each reporting period and are reported at the lower of amortized cost or fair value. Assets for loan servicing rights are recorded in other assets in the consolidated balance sheets. Servicing fee income, net of amortization and impairment, if any, is reported in other service charges and fees in the consolidated statements of income.
Loans Held for Investment
The Company makes mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout the Counties of Clarke, Frederick, Loudoun and Fairfax, Virginia as well as the Towns of Leesburg and Purcellville and the Cities of Winchester and Frederick, Maryland. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in these areas.
63
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the charge-offs, unearned discounts, any deferred fees or costs on originated loans, and the allowance for credit losses. The Company has elected to exclude accrued interest receivable from the amortized cost basis. Accrued interest totaled $
Interest income is accrued on the unpaid principal balance. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. Deferred fees and costs are recorded as an adjustment to interest income using a method that approximates a constant yield.
A loan’s past due status is based on the contractual due date of the most delinquent payment due. Loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Any accrued interest receivable on loans placed on nonaccrual status is reversed by an adjustment to interest income. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on nonaccrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed. These policies are applied consistently across our loan portfolio.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. All payments, including any interest collected, on these loans are accounted for on the cash-basis or cost-recovery method and applied to principal, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
In the ordinary course of business, the Company has entered into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the Consolidated Balance Sheets when they are funded.
Troubled Loan Modifications
A loan that has been modified is considered a troubled loan modification when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows. If both of these criteria are met, then the modification is considered a troubled loan modification and subject to enhanced disclosure requirements. Troubled loan modifications include principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension (or a combination thereof). Modified terms are dependent upon the financial position and needs of the individual borrower. Generally, the modifications granted are extensions of terms, deferrals of payments for an extended period or interest rate reductions. If a loan was accruing prior to being modified and if the Company concludes that the borrower is able to make such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on accrual status. If a loan was on non-accrual status at the time of the modification, the loan will remain on non-accrual status following the modification and may be returned to accrual status based on the policy for returning loans to accrual status as noted above.
Risks by Loan Portfolio Segment
One-to-Four-Family Residential Real Estate Lending
Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee.
Commercial Real Estate Lending
Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general.
64
Construction and Land Development Lending
There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to
Commercial and Industrial Lending
Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of the borrower. Commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as accounts receivable, equipment, inventory and boats. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
Consumer Lending
Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. A portion of the Company’s consumer loans are also secured by boats. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.
Marine Lending
The Bank’s marine loan portfolio is comprised of retail loans originated through August 2023, at which time the Company ceased accepting new marine lending business. The Company expects to hold the retained outstanding loans until they are ultimately repaid.
The Company’s relationships were limited to well established dealers of global premium brand manufacturers, with the top three manufacturer customers have been in business between 30 and 100 years. Retail loans were generally limited to premium manufactures with established relationships with the Company, which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.
Allowance for Credit Losses on Loans
The allowance for credit losses is established through charges to earnings in the form of a provision for credit losses. The allowance for credit losses is also increased by recoveries of amounts previously charged-off and is reduced by charge-offs on loans. Loan charge-offs are recognized as the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Full or partial charge-offs on collateral dependent individually analyzed loans are generally recognized when the collateral is deemed to be insufficient to support the carrying value of the loan.
The allowance represents management's current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management's judgment, reduces the recorded investment in loans to the net amount expected to be collected. No allowance for credit losses is recorded on accrued interest receivable and amount written-off are reversed by an adjustment to interest income. Management's judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. Loans that share common risk characteristics are evaluated collectively using a loss-rate, or cohort methodology to estimate its current expected credit losses on loans. The cohort method identifies and captures the balances of pooled loans with similar risk characteristics, as a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over their remaining lives. The method encompasses loan balances for as long as the loans are outstanding.
Management's estimate of the allowance for credit losses on loans that are collectively evaluated also includes a qualitative assessment of available information relevant to assessing collectability that is not captured in the loss estimation process.
65
Factors considered by management include economic conditions including reasonable and supportable forecasts of economic conditions; the nature and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances; ending policy and procedures; credit administration and lending staff; loan review; concentrations of credit and the value of underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
Loans that do not share common risk characteristics with other loans are evaluated individually and are not included in the collective analysis. The allowance for credit losses on loans that are individually evaluated may be estimated based on their expected cash flows, or, in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral or the fair value of collateral less estimated costs to sell.
Allowance for Credit Losses on Unfunded Commitments
The Company records a reserve, reported in other liabilities, for expected credit losses on commitments to extend credit that are not unconditionally cancelable by the Company. The reserve for unfunded commitments is measured based on the principles utilized in estimating the allowance for credit losses on loans and an estimate of the amount of unfunded commitments expected to be advanced. Changes in the reserve for unfunded commitments are recorded through the provision for credit losses. The reserve totaled $
Bank Premises and Equipment
Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from
Leases
The Company accounts for its leasing arrangements in accordance with ASC 842 "Leases". Refer to Note 13 for further discussion of the Company's accounting for its leasing arrangements.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less estimated cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in the gain on other real estate owned line item in the consolidated statements of income.
Bank Owned Life Insurance
The Company has purchased life insurance on certain key individuals. Bank owned life insurance is recorded at the amount that may be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. These amounts are recorded in noninterest income and are generally not subject to income taxes.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and
66
the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Derivative Instruments
Derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of the derivative depends on the intended use of the derivative and resulting designation.
The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Company simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back loan swaps are derivative financial instruments not designated as hedges and are reported in other assets and other liabilities in the Consolidated Balance Sheets. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of swaps with borrowers and swaps with dealer counterparties.
The Company has one pay fixed/receive variable interest rate swap designated as a fair value hedge under the portfolio layer method. Under this method, the hedged item is designated as a hedged layer of a closed portfolio pool of financial loans that is anticipated to remain outstanding for the designed hedged period. Adjustments are made to record the fair value of the swap as either an other asset or other liability in the Consolidated Balance Sheets, with changes in fair value recognized in net loans. The carrying value of the fair value swap will also be adjusted through loan interest income, based on changes in the fair value attributable to changes in the hedged risk. The ineffective portion is recognized in current earnings as a component of the interest income section of the related hedged item.
Retirement Plans
The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of their compensation on a pretax basis. The Company also provides a match to participants in this plan, as described more fully in Note 11.
Stock-Based Compensation Plan
On May 16, 2023, the Company’s shareholders approved the 2023 Stock Incentive Plan (the "2023 Plan") which allows key employees and directors to increase their personal financial interest in the Company. The 2023 Plan permits the issuance of incentive stock options and non-qualified stock options and the award of common stock, restricted stock, and stock units. The 2023 Plan authorized the issuance of up to
Income Taxes
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws.
When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the applicable taxing authority, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, the Company believes it is “more likely than not” that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the “more likely than not” recognition threshold are measured as the largest amount of tax benefit that is more than fifty percent (
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred.
67
Reclassifications
Certain reclassifications have been made to the 2024 financial statements to conform to reporting for 2025. The results of the reclassifications are not considered material and had no effect on prior years' net income or shareholders' equity.
Earnings Per Common Share
Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of dividend participation and voting rights. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The number of potential common shares is determined using the treasury method.
The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock.
|
|
Twelve Months Ended |
|
|||||
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Average number of common shares outstanding |
|
|
|
|
|
|
||
Effect of dilutive common stock |
|
|
— |
|
|
|
— |
|
Average number of common shares outstanding used to calculate diluted earnings per share |
|
|
|
|
|
|
||
There were
Comprehensive (Loss) Income
Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, net of income taxes, are reported within the balance sheet as a separate component of shareholders’ equity. These changes, along with net income, are components of comprehensive income and are reported in the statement of comprehensive income. In addition to net income, the Company’s comprehensive income includes changes in the benefit obligations and plan assets for postretirement benefit plans and unrealized gains or losses on available for sale securities.
Business Segments
The Company operates in three reportable business segments through the Bank: community banking, marine lending and wealth management. The Company’s business segments are determined based on the products and services provided, as well as the nature of the related business activities, and they reflect the manner in which financial information is regularly reviewed for the purpose of allocating resources and evaluating performance of the Company’s businesses. The results for these business segments are based on management’s accounting process, which assigns income statement items and assets to each operating segment. Given the Company's reportable segments are contained within the Bank, management must make certain allocations of expenses, which may not be representative of the costs expected to be incurred if the specific business segments operated as stand-alone entities. For additional information, refer to Note 27. “Business Segments.”
Stock Repurchase Program
On June 18, 2025, the Board of Directors of the Company re-authorized the purchase of up to
68
Recent Accounting Pronouncements and Other Authoritative Guidance
Recently Adopted
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU') 2023-09, "Income Taxes (Topic 740), Improvements to Income Tax Disclosures." The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity's applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU was effective for the Company on January 1, 2025 and is presented in its annual financial statements on Form 10-K for the year ended December 31, 2025. The disclosures are presented on a prospective basis, with the option to apply retrospectively. There was no material impact on the Company's consolidated financial statements upon adoption of ASU 2023-09.
Pending Adoption
In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements.” The amendments in this ASU enables entities to apply hedge accounting to a greater number of highly effective economic hedges in the following five areas: 1) similar risk assessment for cash flow hedges, 2) hedging forecasted interest payments on choose-your-rate debt instruments, 3) cash flow hedges of nonfinancial forecasted transactions, 4) net written options as hedging instruments, and 5) foreign-currency-denominated debt instrument as hedging instrument and hedged item (dual hedge). This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted on any date on or after November 25, 2025. The Company does not expect the adoption of ASU 2025-09 to have a material impact on its consolidated financial statements.
In November 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326): Purchased Loans.” The amendments in this ASU expand the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. This ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts this ASU in an interim reporting period, it should apply it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. The Company does not expect the adoption of ASU 2025-08 to have a material impact on its consolidated 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 financial position, results of operations or cash flows.
69
NOTE 2. Securities
Amortized costs and fair values of securities available for sale at December 31, 2025 and 2024 were as follows:
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair |
|
||||
|
|
December 31, 2025 |
|
|||||||||||||
|
|
(in thousands) |
|
|||||||||||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Subordinated debt |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
December 31, 2024 |
|
|||||||||||||
|
|
(in thousands) |
|
|||||||||||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Subordinated debt |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The Company has elected to exclude accrued interest receivable, totaling $
In March 2025, balance sheet repositioning transactions were executed. The Bank sold available for sale securities with an amortized cost balance of $
The following table summarizes amounts related to the sale of available for sale securities:
|
For the Twelve Months Ended |
|
|
|
December 31, 2025 |
|
|
|
(in thousands) |
|
|
Proceeds from sales |
|
|
|
|
|
|
|
Gross realized gains |
|
|
|
Gross realized losses |
|
( |
) |
Net realized losses on securities |
$ |
( |
) |
70
The amortized cost and estimated fair value of securities at December 31, 2025, by the earlier of contractual maturity or expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.
|
|
Amortized Cost |
|
|
Fair Value |
|
||
|
|
(in thousands) |
|
|||||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due after one year through five years |
|
|
|
|
|
|
||
Due after five years through ten years |
|
|
|
|
|
|
||
Due after ten years |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2025 and 2024 were as follows:
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
||||||
|
|
December 31, 2025 |
|
|||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
||||||
|
|
December 31, 2024 |
|
|||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The reference point for determining when securities are in an unrealized loss position is month end. As such, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.
71
There were
Securities having carrying values of $
The composition of restricted investments at December 31, 2025 and December 31, 2024 was as follows:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
|
|
(in thousands) |
|
|||||
Federal Reserve Bank Stock |
|
$ |
|
|
$ |
|
||
Federal Home Loan Bank Stock |
|
|
|
|
|
|
||
Community Bankers’ Bank Stock |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
NOTE 3. Loans
The composition of loans at December 31, 2025 and 2024 was as follows:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Mortgage loans on real estate: |
|
|
|
|
|
|
||
Construction and & Secured by Farmland |
|
$ |
|
|
$ |
|
||
HELOCs |
|
|
|
|
|
|
||
Residential First Lien - Investor |
|
|
|
|
|
|
||
Residential First Lien - Owner Occupied |
|
|
|
|
|
|
||
Residential Junior Liens |
|
|
|
|
|
|
||
Commercial - Owner Occupied |
|
|
|
|
|
|
||
Commercial - Non-Owner Occupied & Multifamily |
|
|
|
|
|
|
||
Commercial and industrial loans: |
|
|
|
|
|
|
||
SBA PPP loans |
|
|
|
|
|
|
||
Other commercial and industrial loans |
|
|
|
|
|
|
||
Marine loans |
|
|
|
|
|
|
||
Consumer loans |
|
|
|
|
|
|
||
Overdrafts |
|
|
|
|
|
|
||
Other loans |
|
|
|
|
|
|
||
Total loans |
|
$ |
|
|
$ |
|
||
Net deferred loan costs and premiums |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
72
At December 31, 2025 and 2024, the Company was servicing loans totaling $
NOTE 4. Allowance for Credit Losses on Loans
Changes in the allowance for credit losses for the years ended December 31, 2025 and 2024 were as follows:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Balance, beginning |
|
$ |
|
|
$ |
|
||
Provision charged to operating expense |
|
|
|
|
|
|
||
Recoveries added to the allowance |
|
|
|
|
|
|
||
Credit losses charged to the allowance |
|
|
( |
) |
|
|
( |
) |
Balance, ending |
|
$ |
|
|
$ |
|
||
Past due and nonaccrual loans by class at December 31, 2025 were as follows:
|
|
December 31, 2025 |
|
|||||||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
30 - 59 |
|
|
60 - 89 |
|
|
90 or More |
|
|
Total Past |
|
|
Current |
|
|
Total Loans |
|
|
90 or More |
|
|||||||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Construction & Secured by Farmland |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||||
HELOCs |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Residential First Lien - Investor |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Residential First Lien - Owner Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Residential Junior Liens |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Commercial - Owner Occupied |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Commercial - Non-Owner Occupied & Multifamily |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
SBA PPP loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Other commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Marine loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Overdrafts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
73
|
|
December 31, 2025 |
|
|||||||||
|
|
(in thousands) |
|
|||||||||
|
|
Nonaccruals with No Allowance for Credit Losses |
|
|
Nonaccruals with an Allowance for Credit Losses |
|
|
Nonaccrual |
|
|||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|||
Construction & Secured by Farmland |
|
$ |
|
|
$ |
|
|
$ |
|
|||
HELOCs |
|
|
|
|
|
|
|
|
|
|||
Residential First Lien - Investor |
|
|
|
|
|
|
|
|
|
|||
Residential First Lien - Owner Occupied |
|
|
|
|
|
|
|
|
|
|||
Residential Junior Liens |
|
|
|
|
|
|
|
|
|
|||
Commercial - Owner Occupied |
|
|
|
|
|
|
|
|
|
|||
Commercial - Non-Owner Occupied & Multifamily |
|
|
|
|
|
|
|
|
|
|||
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|||
SBA PPP loans |
|
|
|
|
|
|
|
|
|
|||
Other commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|||
Marine loans |
|
|
|
|
|
|
|
|
|
|||
Consumer loans |
|
|
|
|
|
|
|
|
|
|||
Overdrafts |
|
|
|
|
|
|
|
|
|
|||
Other loans |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Past due and nonaccrual loans by class at December 31, 2024 were as follows:
|
|
December 31, 2024 |
|
|||||||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
30 - 59 |
|
|
60 - 89 |
|
|
90 or More |
|
|
Total Past |
|
|
Current |
|
|
Total Loans |
|
|
90 or More |
|
|||||||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Construction & Secured by Farmland |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||
HELOCs |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Residential First Lien - Investor |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Residential First Lien - Owner Occupied |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Residential Junior Liens |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Commercial - Owner Occupied |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Commercial - Non-Owner Occupied & Multifamily |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
SBA PPP loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Other commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Marine loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||||
Overdrafts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
||||||
74
|
|
December 31, 2024 |
|
|||||||||
|
|
(in thousands) |
|
|||||||||
|
|
Nonaccruals with No Allowance for Credit Losses |
|
|
Nonaccruals with an Allowance for Credit Losses |
|
|
Nonaccrual |
|
|||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|||
Construction & Secured by Farmland |
|
$ |
|
|
$ |
|
|
$ |
|
|||
HELOCs |
|
|
|
|
|
|
|
|
|
|||
Residential First Lien - Investor |
|
|
|
|
|
|
|
|
|
|||
Residential First Lien - Owner Occupied |
|
|
|
|
|
|
|
|
|
|||
Residential Junior Liens |
|
|
|
|
|
|
|
|
|
|||
Commercial - Owner Occupied |
|
|
|
|
|
|
|
|
|
|||
Commercial - Non-Owner Occupied & Multifamily |
|
|
|
|
|
|
|
|
|
|||
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|||
SBA PPP loans |
|
|
|
|
|
|
|
|
|
|||
Other commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|||
Marine loans |
|
|
|
|
|
|
|
|
|
|||
Consumer loans |
|
|
|
|
|
|
|
|
|
|||
Overdrafts |
|
|
|
|
|
|
|
|
|
|||
Other loans |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
75
Allowance for credit losses by segment as of and for the years ended December 31, 2025 and December 31, 2024 were as follows:
|
|
December 31, 2025 |
|
|||||||||||||||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||
|
|
Construction |
|
|
Residential |
|
|
Commercial |
|
|
Commercial |
|
|
Marine |
|
|
Consumer |
|
|
All Other |
|
|
Unallocated |
|
|
Total |
|
|||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Beginning Balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Charge-Offs |
|
|
— |
|
|
|
( |
) |
|
|
(2,771 |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||||
Provision |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Ending balance: Individually evaluated |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Ending balance: collectively evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Ending balance individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||||
Ending balance collectively evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
December 31, 2024 |
|
|||||||||||||||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||
|
|
Construction |
|
|
Residential |
|
|
Commercial |
|
|
Commercial |
|
|
Marine |
|
|
Consumer |
|
|
All Other |
|
|
Unallocated |
|
|
Total |
|
|||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Beginning Balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Charge-Offs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||||
Provision |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Ending balance: Individually evaluated |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Ending balance: collectively evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Ending balance individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||||
Ending balance collectively evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
76
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||||||||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||||||||||
(in thousands) |
|
Real Estate Collateral |
|
|
Other Collateral |
|
|
Total |
|
|
Real Estate Collateral |
|
|
Other Collateral |
|
|
Total |
|
||||||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Construction & Secured by Farmland |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
||
HELOCs |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Residential First Lien - Investor |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Residential First Lien - Owner Occupied |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Residential Junior Liens |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial - Owner Occupied |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Commercial - Non-Owner Occupied & Multifamily |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
SBA PPP loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other commercial and industrial loans |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Marine loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Overdrafts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the year ended December 31, 2025.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The following table presents risk ratings by loan portfolio segment and origination year. Descriptions of these ratings are as follows:
|
|
|
Pass |
|
Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner. |
|
|
|
Special Mention |
|
Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt. |
|
|
|
Classified |
|
Classified loans include loans rated Substandard, Doubtful and Loss. |
|
|
|
|
|
• Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt. |
|
|
|
|
|
• Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions. |
|
|
• Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted. |
Credit quality information by class at December 31, 2025 was as follows:
77
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Term Loan Amortized Cost Basis by Origination Year |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
(in thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Revolving Loans Amortized Cost Basis |
|
|
Revolving Loans Converted to Term |
|
|
Total |
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Construction & Secured by Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|||
Classified |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
HELOCs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
||
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||
Residential First Lien - Investor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
||||||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||||
Classified |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Residential First Lien - Owner Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Residential Junior Liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
||||||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Commercial - Owner Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||||||
Classified |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||||
Commercial - Non-Owner Occupied & Multifamily |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||||||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Current period gross charge-offs |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||||
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
SBA PPP loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||
78
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Term Loan Amortized Cost Basis by Origination Year |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
(in thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Revolving Loans Amortized Cost Basis |
|
|
Revolving Loans Converted to Term |
|
|
Total |
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Other commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
|||||
Marine loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|||
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||||||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
|||||||
Overdrafts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Classified |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||
Current period gross charge-offs |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||
Other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Total by Risk Category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Total current period gross charge-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||||||||
Credit quality information by class at December 31, 2024 was as follows:
79
December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Term Loans Amortized Cost Basis by Origination Year |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving Loans Amortized Cost Basis |
|
|
Revolving Loans Converted to Term |
|
|
Total |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Construction & Secured by Farmland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||
HELOCs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Residential First Lien - Investor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Residential First Lien - Owner Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Residential Junior Liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Commercial - Owner Occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Commercial - Non-Owner Occupied & Multifamily |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
SBA PPP loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
80
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Other commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||||
Classified |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Marine loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||||
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||
Overdrafts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Classified |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Current period gross charge-offs |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Total by Risk Category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Classified |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Total current period gross charge-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
NOTE 5. Restructurings for Borrowers Experiencing Financial Difficulty
A loan that has been modified is considered a troubled loan modification when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows. There were no loans modified during the twelve months ended December 31, 2024.
|
|
Twelve Months Ended |
|
|||||||||
|
|
December 31, 2025 |
|
|||||||||
|
|
(dollars in thousands) |
|
|||||||||
|
|
Collateral Dependent Foreclosure |
|
|
Total |
|
|
% of Total Class of Loans |
|
|||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|||
Commercial - Non-Owner Occupied & Multifamily |
|
$ |
|
|
$ |
|
|
|
% |
|||
Total |
|
$ |
|
|
$ |
|
|
|
|
|||
81
The modified loan balance at December 31, 2025 represents one customer relationship comprised of three residential multifamily income producing properties in Washington D.C. (the District), and the Bank has been granted receivership of these properties. The Bank is actively working with the receiver to update the properties and ready them for sale while continuing to collect the housing payments directly from the District. These loans are on nonaccrual status, are 90 or more days past due and have been written down to their current estimated values.
There were no loans to borrowers experiencing financial difficulty that had a payment default during the twelve months ended December 31, 2024 and were modified in the twelve months prior to that default. Management defines default as over
NOTE 6. Bank Premises and Equipment, Net
The major classes of bank premises and equipment and the total accumulated depreciation at December 31, 2025 and 2024 were as follows:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Land |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Furniture and equipment |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Less accumulated depreciation |
|
|
|
|
|
|
||
Bank premises and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense on buildings and improvements was $
NOTE 7. Deposits
The composition of deposits at December 31, 2025 and December 31, 2024 was as follows:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
|
|
(in thousands) |
|
|||||
Noninterest bearing demand deposits |
|
$ |
|
|
$ |
|
||
Savings and interest bearing demand deposits: |
|
|
|
|
|
|
||
NOW accounts |
|
$ |
|
|
$ |
|
||
Money market accounts |
|
|
|
|
|
|
||
Regular savings accounts |
|
|
|
|
|
|
||
Total savings and interest bearing demand deposits |
|
$ |
|
|
$ |
|
||
Time deposits: |
|
|
|
|
|
|
||
Balances of less than $250,000 |
|
$ |
|
|
$ |
|
||
Balances of $250,000 or greater |
|
|
|
|
|
|
||
Total time deposits |
|
$ |
|
|
$ |
|
||
Total deposits |
|
$ |
|
|
$ |
|
||
82
Savings and interest bearing demand deposits included $
The outstanding balance of time deposits at December 31, 2025 was due as follows:
|
|
December 31, 2025 |
|
|
|
|
(in thousands) |
|
|
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
Deposit overdrafts reclassified as loans totaled $
83
NOTE 8. Borrowings
The Company has access to borrowings in the form of federal funds purchased, Federal Home Loan Bank of Atlanta ("FHLB") advances and subordinated notes.
The following table presents selected information on short-term borrowings for the years ended December 31, 2025 and 2024, which consisted of FHLB advances.
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(dollars in thousands) |
|
|||||
Balance at year-end |
|
$ |
|
|
$ |
|
||
Average balance during the year |
|
$ |
|
|
$ |
|
||
Average interest rate during the year |
|
|
% |
|
|
% |
||
Maximum month-end balance during the year |
|
$ |
|
|
$ |
|
||
The Company's long-term borrowings with the FHLB were $
Federal fund lines of credit are extended to the Bank by nonaffiliated banks with which a correspondent banking relationship exists. The line of credit amount is determined by the creditworthiness of the Bank and, in particular, its regulatory capital ratios, which are discussed in Note 15. Federal funds purchased generally mature each business day. At December 31, 2025 these available lines totaled $
At December 31, 2025, the Company had collateral valued at $
The Company had $
As of December 31, 2025, Company had remaining credit availability in the amount of $
On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $
The Notes were structured to qualify as Tier 2 capital for regulatory capital purposes at the holding company and bear an initial interest rate of
84
NOTE 9. Income Taxes
The Company files income tax returns with the United States of America, the Commonwealth of Virginia, West Virginia, Maryland, Florida, and North Carolina. With few exceptions, the Company is no longer subject to federal, state, or local income tax examinations for years prior to 2022.
The net deferred tax asset at December 31, 2025 and 2024 consisted of the following components:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
||
Allowance for credit losses |
|
$ |
|
|
$ |
|
||
Reserve for unfunded commitments |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Accrued postretirement benefits |
|
|
|
|
|
|
||
Home equity origination costs |
|
|
|
|
|
|
||
Nonaccrual interest |
|
|
|
|
|
|
||
Lease liabilities |
|
|
|
|
|
|
||
Credit carryforward |
|
|
|
|
|
|
||
Securities available for sale |
|
|
|
|
|
|
||
Total deferred tax assets |
|
$ |
|
|
$ |
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Property and equipment |
|
$ |
|
|
$ |
|
||
Right-of-use assets |
|
|
|
|
|
|
||
Loan servicing rights |
|
|
|
|
|
|
||
Total deferred tax liabilities |
|
$ |
|
|
$ |
|
||
Net deferred tax asset |
|
$ |
|
|
$ |
|
||
The Company has not recorded a valuation allowance for deferred tax assets because management believes that it is more likely than not that they will be ultimately realized.
Pretax income from continuing operations was as follows for the year ended December 31, 2025:
|
|
December 31, |
|
|
|
|
2025 |
|
|
|
|
(in thousands) |
|
|
Domestic |
|
$ |
|
|
Foreign |
|
|
|
|
Total |
|
$ |
|
|
85
Income tax expense from continuing operations for the years ended December 31, 2025 and 2024 consisted of the following components:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Current tax expense |
|
|
|
|
|
|
||
Federal |
|
$ |
|
|
$ |
|
||
State |
|
|
|
|
|
|
||
Maryland |
|
|
|
|
|
|
||
Other States |
|
|
|
|
|
|
||
Foreign1 |
|
|
|
|
|
|
||
Deferred tax accrual (benefit) |
|
|
|
|
|
|
||
Federal |
|
|
|
|
|
|
||
State |
|
|
|
|
|
|
||
Maryland |
|
|
( |
) |
|
|
|
|
Other States |
|
|
( |
) |
|
|
|
|
Foreign1 |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The following tables reconcile income tax expense to the statutory federal corporate income tax amount, which was calculated by applying the federal corporate income tax rate to pre-tax income for the years ended December 31, 2025 and 2024:
|
|
2025 |
|
|||||
|
|
Amount |
|
|
Percent |
|
||
|
|
(dollars in thousands) |
|
|||||
Federal statutory income tax |
|
$ |
|
|
|
% |
||
Effect of: |
|
|
|
|
|
|
||
State income taxes, net of federal effect 1 |
|
|
( |
) |
|
|
- |
% |
Foreign tax effects |
|
|
|
|
|
% |
||
Tax credits: |
|
|
|
|
|
|
||
Qualified affordable housing projects |
|
|
|
|
|
% |
||
Rehabilitation programs |
|
|
( |
) |
|
|
- |
% |
Nontaxable or nondeductible items: |
|
|
|
|
|
|
||
Tax-exempt interest income |
|
|
( |
) |
|
|
- |
% |
Officer insurance income |
|
|
( |
) |
|
|
- |
% |
Other, net |
|
|
( |
) |
|
|
- |
% |
Effective tax rate |
|
$ |
|
|
|
% |
||
|
|
|
|
December 31, |
|
|
|
|
|
|
(in thousands) |
|
|
Federal statutory income tax |
|
|
|
$ |
|
|
Effect of: |
|
|
|
|
|
|
Tax-exempt interest income |
|
|
|
|
( |
) |
Officer insurance income |
|
|
|
|
( |
) |
Net tax credits |
|
|
|
|
( |
) |
Other, net |
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
86
The effective tax rates were
Income taxes paid during the year ended December 31, 2025 were as follows:
|
|
December 31, |
|
|
|
|
2025 |
|
|
|
|
(in thousands) |
|
|
Federal |
|
$ |
|
|
State and Local: |
|
|
|
|
Maryland |
|
|
|
|
Other |
|
|
|
|
Total |
|
$ |
|
|
Income taxes paid during the year ended December 31, 2024 totaled $
87
NOTE 10. Stock-Based Compensation
On May 16, 2023, the Company's shareholders approved the 2023 Stock Incentive Plan ("the 2023 Plan") which allows key employees and directors to increase their personal financial interest in the Company. The 2023 Plan permits the issuance of incentive stock options and non-qualified stock options and the award of common stock, restricted stock, and stock units. The plan authorizes the issuance of up to
The Company periodically grants restricted stock to its directors, executive officers and certain non-executive officers. Restricted stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restriction period, all shares are considered outstanding and dividends are paid to the grantee. Outside directors are periodically granted restricted shares which vest over a period of
The following table presents the activity for restricted stock awards for the years ended December 31, 2025 and 2024:
|
|
Twelve Months Ended |
|
|||||||||||||
|
|
December 31, |
|
|||||||||||||
|
|
2025 |
|
|
2024 |
|
||||||||||
|
|
Shares |
|
|
Weighted |
|
|
Shares |
|
|
Weighted |
|
||||
Nonvested, beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Nonvested, end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The Company recognizes compensation expense over the restricted period based on the fair value of the Company's stock on the grant date. Compensation expense was $
88
NOTE 11. Employee Benefits
The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of salary on a pretax basis, subject to certain IRS limits. The Company matches
The Company has established an Executive Supplemental Income Plan for certain key employees. Benefits are to be paid in monthly installments following retirement or death. The agreement provides that if employment is terminated for reasons other than death or disability prior to age
NOTE 12. Commitments and Contingencies
In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities, which are not reflected in the accompanying financial statements. These commitments and contingent liabilities include various guarantees, commitments to extend credit and standby letters of credit. The Company does not anticipate any material losses as a result of these commitments.
During the normal course of business, various legal claims arise from time to time which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.
The Bank was required to maintain a total compensating balance on deposit with two correspondent banks in the amount of $
See Note 18 with respect to financial instruments with off-balance-sheet risk.
NOTE 13. Leases
The Company leases certain office properties and equipment used in its operations in the normal course of business. Leases greater than 12 months in duration are recorded in the consolidated balance sheets at the lease commencement date and are classified as either operating or finance leases based on the Company's assessment of the underlying agreement. During the first quarter of 2025, the Company entered into a long-term lease with the intention of establishing a full-service branch in McLean, Virginia and moving the Tysons loan production office into the new location, which opened in September 2025. The new lease replaced an expiring lease and resulted in the initial recognition of a right-of-use asset and lease liability of $
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s five long-term lease agreements are classified as operating leases. These leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liability to the extent the options are reasonably certain of being exercised. These lease agreements do not provide for residual value guarantee and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. Right-of-use assets and lease liabilities are included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets.
89
The following tables present information about the Company’s leases:
(dollars in thousands) |
|
|
|
|
|
|
||
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
Lease liabilities |
|
$ |
|
|
$ |
|
||
Right-of-use assets |
|
$ |
|
|
$ |
|
||
Weighted average remaining lease term |
|
|
|
|
||||
Weighted average discount rate |
|
|
% |
|
|
% |
||
|
|
Twelve Months Ended |
|
|||||
Lease Cost |
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Short-term lease cost |
|
|
|
|
|
|
||
Total lease cost |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
|
|
$ |
|
||
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities is as follows:
(dollars in thousands) |
|
As of |
|
|
Lease payments due |
|
December 31, 2025 |
|
|
Twelve months ending December 31, 2026 |
|
$ |
|
|
Twelve months ending December 31, 2027 |
|
|
|
|
Twelve months ending December 31, 2028 |
|
|
|
|
Twelve months ending December 31, 2029 |
|
|
|
|
Twelve months ending December 31, 2030 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted cash flows |
|
$ |
|
|
Discount |
|
|
( |
) |
Lease liabilities |
|
$ |
|
|
NOTE 14. Transactions with Directors and Officers
The Bank grants loans to and accepts deposits from its directors, principal officers and related parties of such persons during the ordinary course of business as presented in the following table during the twelve months ended December 31, 2025 and 2024:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Balance, beginning |
|
$ |
|
|
$ |
|
||
New loans |
|
|
|
|
|
|
||
Repayments |
|
|
( |
) |
|
|
( |
) |
Balance, ending |
|
$ |
|
|
$ |
|
||
The aggregate balance of deposits from directors, principal officers and their related parties was $
90
NOTE 15. Capital Requirements
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 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 their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Bank utilizes the risk-based capital framework for its presentation of capital amounts and ratios.
At December 31, 2025, and 2024, management believes the Bank met all capital adequacy requirements to which it was subject. Additionally, at December 31, 2025, the most recent notification from the Federal Reserve categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.
The following table presents the Bank’s actual capital amounts and ratios at December 31, 2025 and 2024:
|
|
Actual |
|
|
Minimum Capital |
|
|
Minimum To Be |
|
|||||||||||||||
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common Equity Tier 1 Capital to Risk Weighted Assets |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Total Capital to Risk Weighted Assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||
Tier 1 Capital to Risk Weighted Assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||
Tier 1 Capital to Average Assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common Equity Tier 1 Capital to Risk Weighted Assets |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Total Capital to Risk Weighted Assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||
Tier 1 Capital to Risk Weighted Assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||
Tier 1 Capital to Average Assets |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||
NOTE 16. Restrictions On Dividends, Loans and Advances
Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company. The total amount of dividends which may be paid at any date is generally limited to the lesser of the Bank’s retained earnings or the three preceding years’ undistributed net income of the Bank. Loans or advances are limited to 10% of the Bank’s capital stock and surplus on a secured basis. Capital stock and surplus is defined as tier 1 and tier 2 capital under the risk-based capital guidelines. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.
At December 31, 2025, the Bank’s retained earnings available for the payment of dividends to the Company was $
91
NOTE 17. Dividend Investment Plan
The Company has a Dividend Investment Plan, which allows participants’ dividends to purchase additional shares of common stock at its fair market value on each dividend record date. Shares of common stock purchased through the Plan can be purchased at a price equal to the market price of the shares. No changes have been made to the operation of the dividend reinvestment features of the Plan during 2025 and 2024.
NOTE 18. Financial Instruments with Off-Balance-Sheet Risk
The Company, through its subsidiary bank, is a party to credit related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unfunded commitments under lines of credit, and commercial and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Company’s exposure to credit losses is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Unfunded loan commitments that are not unconditionally cancelable by the Company are measured for expected credit losses under ASC 326. At December 31, 2025 and 2024, the unfunded loan commitments reserve balance totaled $
At December 31, 2025 and 2024, the following financial instruments were outstanding whose contract amounts represent credit risk:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
|
|
(dollars in thousands) |
|
|||||
Commitments to extend credit |
|
$ |
|
|
$ |
|
||
Unfunded commitments under lines of credit |
|
|
|
|
|
|
||
Commercial and standby letters of credit |
|
|
|
|
|
|
||
Commitments to extend credit are agreements to lend to a customer as long as the terms offered are acceptable and certain other conditions are met. Commitments generally have fixed expiration dates or other termination clauses. Since these commitments may expire or terminate, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, with regards to these commitments, is based on management’s credit evaluation of the customer.
Unfunded commitments under lines of credit are contracts for possible future extensions of credit to existing customers. Unfunded commitments under lines of credit include, but are not limited to, home equity lines of credit, overdraft protection lines of credit, credit cards, and unsecured and secured commercial lines of credit. The terms and conditions of these commitments vary depending on the line of credit’s purpose, collateral, and maturity. The amount disclosed above represents total unused lines of credit for which a contract with the Bank has been established.
Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in granting loans to customers. The Bank holds collateral supporting these commitments if it is deemed necessary. Collateralized outstanding letters of credit totaled $
The Bank has cash accounts in other commercial banks. The amount on deposit in these banks at December 31, 2025 exceeded the insurance limits of the Federal Deposit Insurance Corporation by $
NOTE 19. Revenue Recognition
Substantially all of the Company's revenue from contracts with customers that is within the scope of ASC 606, "Revenue from Contracts with Customers" is reported within noninterest income. A limited amount of other in-scope items such as gains and
92
losses on other real estate owned are recorded in noninterest expense. The recognition of interest income and certain sources of noninterest income (e.g. gains on securities transactions, bank owned life insurance income, etc.) are governed by other areas of U.S. GAAP. Significant revenue streams that are within the scope of ASC 606 and included in noninterest income are discussed in the following paragraphs.
Income from Fiduciary Activities
Trust asset management fee income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. Estate management fees are based upon the size of the estate. Revenue for estate management fees are recorded periodically, according to a fee schedule and are based on the services that have been provided. The Company does not earn performance-based incentives on customer products sold. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
Service Charges on Deposit Accounts
Service charges on deposit accounts are principally comprised of overdrawn account fees, account maintenance charges and other activity based fees. The Company’s performance obligations on revenue generated from deposit accounts are generally satisfied immediately, when the transaction occurs, or by month-end. Typically, the duration of a contract does not extend beyond the services performed. Due to the short duration of most customer contracts which generate these sources of noninterest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized.
Other Service Charges and Fees
The majority of the Company’s noninterest income is derived from short term contracts associated with services provided for other ancillary services such as ATM fees, safe deposit box fees and loan servicing fees. The Company’s performance obligations on revenue generated from these ancillary services are generally satisfied immediately, when the transaction occurs, or by month-end. Typically, the duration of a contract does not extend beyond the services performed. Due to the short duration of most customer contracts which generate these sources of noninterest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. Since the rentals and renewals occur fairly consistently, revenue is recognized on a basis consistent with the duration of the performance obligation.
The Company earns interchange fees from credit cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly.
93
Noninterest income and the related amounts that are from contracts with customers within the scope of ASC 606 disaggregated by major source, for the years ended December 31, 2025 and 2024 consisted of the following:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||
|
|
Revenue (1) |
|
|
ASC 606 Revenue (2) |
|
|
Revenue (1) |
|
|
ASC 606 Revenue (2) |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Wealth management fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trust asset management fees |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Brokerage commissions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service charges on deposit accounts |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Overdrawn account fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Monthly and other service charges |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other service charges and fees: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interchange fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ATM fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other charges and fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Loss) gain on the sale and disposal of bank premises and equipment |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
(Loss) on sale of securities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Small business investment company income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bank owned life insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total noninterest income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(2)
Contract Balances
The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of December 31, 2025 and December 31, 2024, the Company did not have any significant contract balances.
94
NOTE 20. Quarterly Condensed Statements of Income - Unaudited
The Company’s quarterly net income, net income per common share and dividends per common share during 2025 and 2024 are summarized as follows:
|
|
2025 |
|
|||||||||||||
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
||||
|
|
(in thousands, except per share amounts) |
|
|||||||||||||
Total interest and dividend income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net interest income after provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Noninterest (loss) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Noninterest expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Loss) income before income taxes |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income per common share, basic |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income per common share, diluted |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Dividends per common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
2024 |
|
|||||||||||||
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
||||
|
|
(in thousands, except per share amounts) |
|
|||||||||||||
Total interest and dividend income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net interest income after provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Noninterest expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per common share, basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per common share, diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends per common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOTE 21. Fair Value Measurements
GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants as of the measurement date.
“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
• Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
95
The following section provides a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy:
Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
Derivative instruments are recorded at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.
The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at December 31, 2025 and December 31, 2024:
|
|
|
|
|
Fair Value Measurements at |
|
||||||||||
|
|
|
|
|
December 31, 2025 |
|
||||||||||
|
|
|
|
|
Using |
|
||||||||||
|
|
Balance as of |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
|
|
December 31, 2025 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
U.S. treasury notes |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Mortgage-backed securities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Collateralized mortgage obligations |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Subordinated debt |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Derivative: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps on loans |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total assets at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps on loans |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
— |
|
|||
Fair value swap |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total liabilities at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
96
|
|
|
|
|
Fair Value Measurements at |
|
||||||||||
|
|
|
|
|
December 31, 2024 |
|
||||||||||
|
|
|
|
|
Using |
|
||||||||||
|
|
Balance as of |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
|
|
December 31, 2024 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Mortgage-backed securities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Obligations of states and political subdivisions |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Subordinated debt |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Derivative: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps on loans |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Fair value swap |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total assets at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps on loans |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Total liabilities at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
The table below presents a reconciliation for all assets measured at fair value on a recurring basis classified as Level 3 for the year ended December 31, 2025:
|
|
Subordinated Debt Securities AFS |
|
|
|
|
2025 |
|
|
|
|
(in thousands) |
|
|
Balance of recurring Level 3 assets at January 1 |
|
|
— |
|
Total gains (losses) included in net income |
|
|
— |
|
Total gains (losses) included in OCI |
|
|
— |
|
Purchases |
|
|
|
|
Sales |
|
|
— |
|
Issuances |
|
|
— |
|
Settlements |
|
|
— |
|
Transfer into Level 3 |
|
|
— |
|
Transfer out of Level 3 |
|
|
— |
|
Balance of recurring Level 3 assets at December 31 |
|
|
|
|
Level 3 securities at December 31, 2025 consisted of one newly issued corporate subordinated debt security for which no pricing information was available and therefore priced at book value. There were no assets measured at fair value on a recurring basis classified as Level 3 for the year ended December 31, 2024.
97
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:
Individually Evaluated Collateral-Dependent Loans: The estimated fair value of individually evaluated collateral-dependent loans is based on the value of the underlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, equipment, inventory, accounts receivable, and/or other business assets. The value of real estate collateral is determined using a market valuation approach based on an appraisal conducted by an independent, licensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the Consolidated Statements of Income. At December 31, 2025, there were four collateral-dependent relationships totaling $
Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses on loans. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as collateral-dependent loans described above. We believe that the fair value component in its valuation follows the provisions of GAAP. The Company held
Repossessed Assets: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the asset, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant improvements are capitalized, whereas costs relating to holding assets are expensed. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of an asset to fair value less cost to sell. The fair value measurement of repossessed assets is assessed in the same manner as collateral dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held $
Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value. These loans consisted of one-to-four family residential loans originated for sale in the secondary market at December 31, 2025. Fair value is based on prices the secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). The Company records any fair value adjustments on a nonrecurring basis.
The following tables summarize the Company’s financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at December 31, 2025 and 2024:
98
|
|
|
|
|
Carrying value at |
|
||||||||||
|
|
|
|
|
December 31, 2025 |
|
||||||||||
|
|
Balance as of |
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
||||
|
|
December 31, 2025 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Collateral dependent individually evaluated loans |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Nonfinancial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Repossessed assets |
|
$ |
|
|
|
— |
|
|
|
— |
|
|
$ |
|
||
|
|
|
|
|
Carrying value at |
|
||||||||||
|
|
|
|
|
December 31, 2024 |
|
||||||||||
|
|
Balance as of |
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
||||
|
|
December 31, 2024 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Impaired loans |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Nonfinancial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reposessed assets |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis at December 31, 2025 and 2024:
|
|
Quantitative information about Level 3 Fair Value Measurements |
||||||
|
|
December 31, 2025 |
||||||
|
|
Valuation Technique(s) |
|
Unobservable Input |
|
Range |
|
Weighted Average (1) |
Assets: |
|
|
|
|
|
|
|
|
Collateral dependent individually evaluated loans |
|
Discounted value |
|
Selling cost and appraisal discount |
|
|
||
Repossessed assets |
|
Offer value |
|
Selling cost |
|
|
||
99
|
|
December 31, 2024 |
||||||
|
|
Valuation Technique(s) |
|
Unobservable Input |
|
Range |
|
Weighted Average (1) |
Assets: |
|
|
|
|
|
|
|
|
Collateral dependent individually evaluated loans |
|
Discounted value |
|
Selling cost and appraisal discount |
|
|
||
Repossessed assets |
|
Discounted appraised value |
|
Selling cost |
|
|
||
The carrying amount and fair value of the Company’s financial instruments at December 31, 2025 and 2024 were as follows:
|
|
|
|
|
Fair Value Measurements at |
|
|
|
|
|||||||||||
|
|
|
|
|
December 31, 2025 |
|
|
|
|
|||||||||||
|
|
|
|
|
Using |
|
|
|
|
|||||||||||
|
|
Carrying |
|
|
Quoted |
|
|
Significant |
|
|
Significant |
|
|
Fair Value |
|
|||||
|
|
December 31, 2025 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2025 |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and short-term investments |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Securities available for sale |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Restricted Investments |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Loans held for sale |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Loans, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Bank owned life insurance |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Derivative assets |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Federal Home Loan Bank advances, long-term |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Subordinated debt |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Accrued interest payable |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Derivative liabilities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
100
|
|
|
|
|
Fair Value Measurements at |
|
|
|
|
|||||||||||
|
|
|
|
|
December 31, 2024 |
|
|
|
|
|||||||||||
|
|
|
|
|
Using |
|
|
|
|
|||||||||||
|
|
Carrying |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Fair Value |
|
|||||
|
|
December 31, 2024 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2024 |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and short-term investments |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Securities available for sale |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Restricted Investments |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loans, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Bank owned life insurance |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Derivative assets |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Federal Home Loan Bank advances, short-term |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Federal Home Loan Bank advances, long-term |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Subordinated debt |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Accrued interest payable |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Derivative liabilities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
The Company assumes interest rate risk (the risk that general interest rate levels will change) during its normal operations. As a result, the fair value of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities in order to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay their principal balance in a rising rate environment and more likely to do so in a falling rate environment. Conversely, depositors who are receiving fixed rate interest payments are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting the terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
101
NOTE 22. Change in Accumulated Other Comprehensive (Loss)
Accumulated other comprehensive (loss) includes unrealized gains and losses on available for sale securities and changes in benefit obligations and plan assets for the post retirement benefit plan. Changes to accumulated other comprehensive (loss) are presented net of tax as a component of equity. Reclassifications out of accumulated other comprehensive (loss) are recorded in the Consolidated Statements of Income either as a gain or loss.
Changes to accumulated other comprehensive (loss) by components are shown in the following tables for the years ended December 31, 2025 and 2024:
|
|
Twelve Months Ended |
|
|||||||||||||||||||||||
|
|
December 31, |
|
|||||||||||||||||||||||
|
|
2025 |
|
|
2024 |
|
||||||||||||||||||||
|
|
Unrealized |
|
|
|
Change in |
|
|
Total |
|
|
Unrealized |
|
|
|
Change in |
|
|
Total |
|
||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||
January 1 |
|
$ |
( |
) |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
|
|
$ |
( |
) |
||
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
||
Reclassifications of realized losses into earnings |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
||||
Tax effect of current period changes |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
||||
Current period changes net of taxes |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
||
December 31 |
|
$ |
( |
) |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
|
|
$ |
( |
) |
|
For the year ended December 31, 2025, the reclassification out of accumulated other comprehensive loss represents the realized loss on the sale of available for sale securities, which appears as loss on the sale of securities in the Consolidated Statements of Income. The tax benefit related to this reclassification was $
102
NOTE 23. Condensed Financial Information – Parent Company Only
The following tables present parent company only condensed financial statements of the Company, reflecting the investment in the Bank on the equity basis of accounting. The Statements of Changes in Shareholders' Equity for the parent company only are identical to the Consolidated Statements of Changes in Shareholders' Equity and are therefore not presented.
Balance Sheets
December 31, 2025 and 2024
(dollars in thousands)
|
|
2025 |
|
|
2024 |
|
||
Assets |
|
|
|
|
|
|
||
Cash held in subsidiary bank |
|
$ |
|
|
$ |
|
||
Investment in subsidiary |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
||
Subordinated debt |
|
$ |
|
|
$ |
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
Shareholders’ Equity |
|
|
|
|
|
|
||
Common stock |
|
$ |
|
|
$ |
|
||
Surplus |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Accumulated other comprehensive (loss) |
|
|
( |
) |
|
|
( |
) |
Total shareholders’ equity |
|
$ |
|
|
$ |
|
||
Total liabilities and shareholders’ equity |
|
$ |
|
|
$ |
|
||
Statements of Income
Years Ended December 31, 2025 and 2024
(dollars in thousands)
|
|
2025 |
|
|
2024 |
|
||
Income |
|
|
|
|
|
|
||
Dividends from subsidiary bank |
|
$ |
|
|
$ |
|
||
Total income |
|
$ |
|
|
$ |
|
||
Expenses |
|
|
|
|
|
|
||
Interest expense on subordinated debt |
|
$ |
|
|
$ |
|
||
Other operating expenses |
|
|
|
|
|
|
||
Total expenses |
|
$ |
|
|
$ |
|
||
Income before income (benefit) tax and equity in undistributed earnings of subsidiary bank |
|
$ |
( |
) |
|
$ |
|
|
Income Tax (Benefit) |
|
|
( |
) |
|
|
( |
) |
(Loss) income before equity in undistributed earnings of subsidiary bank |
|
$ |
( |
) |
|
$ |
|
|
Equity in Undistributed Net Income of Subsidiary Bank |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Comprehensive income |
|
$ |
|
|
$ |
|
||
103
Statements of Cash Flows
Years Ended December 31, 2025 and 2024
(dollars in thousands)
|
|
2025 |
|
|
2024 |
|
||
Cash Flows from Operating Activities |
|
|
|
|
|
|
||
Net Income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by (used in) operating activities |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Undistributed earnings of subsidiary bank |
|
|
( |
) |
|
|
( |
) |
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Changes in assets and liabilities: |
|
|
|
|
|
|
||
(Increase) decrease in other assets |
|
|
( |
) |
|
|
|
|
Net cash (used in) provided by operating activities |
|
$ |
( |
) |
|
$ |
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
||
Capital contribution to bank subsidiary |
|
$ |
( |
) |
|
$ |
|
|
Net cash (used in) investing activities |
|
$ |
( |
) |
|
$ |
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Cash dividends paid |
|
|
( |
) |
|
|
( |
) |
Net proceeds from issuance of common stock in public offering |
|
|
|
|
|
|
||
Retirement of common stock |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
$ |
|
|
$ |
( |
) |
|
(Decrease) increase in cash |
|
$ |
( |
) |
|
$ |
|
|
Cash |
|
|
|
|
|
|
||
Beginning |
|
$ |
|
|
$ |
|
||
Ending |
|
$ |
|
|
$ |
|
||
104
NOTE 24. Other Real Estate Owned & Repossessed Assets
The following table is a summary of other real estate owned ("OREO") and repossessed asset activity for the twelve months ended December 31, 2025 and 2024.
|
|
For the Year Ended |
|
|
For the Year Ended |
|
||||||||||
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||
|
|
Other Real Estate Owned |
|
|
Repossessed Assets |
|
|
Other Real Estate Owned |
|
|
Repossessed Assets |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Balance, beginning |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Transfer from loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales proceeds |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Loss on sales |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Valuation adjustments |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Balance, ending |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The classifications of OREO and repossessed assets in the consolidated balance sheets at December 31, 2025 and 2024 were as follows:
|
|
As of December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Other Real Estate Owned: |
|
|
|
|
|
|
||
Construction and Farmland |
|
$ |
|
|
$ |
|
||
Residential Real Estate |
|
|
|
|
|
|
||
Commercial Real Estate |
|
|
|
|
|
|
||
Less valuation allowance |
|
|
|
|
|
|
||
Other Real Estate Subtotal |
|
$ |
|
|
$ |
|
||
Repossessed Assets: |
|
|
|
|
|
|
||
Marine Vessels |
|
$ |
|
|
$ |
|
||
Less valuation allowance |
|
|
|
|
|
|
||
Repossessed Asset Subtotal |
|
$ |
|
|
$ |
|
||
Total |
|
$ |
|
|
$ |
|
||
There were
NOTE 25. Qualified Affordable Housing Project Investments
The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.
At December 31, 2025 and 2024, the balance of the investments for qualified affordable housing projects was $
During the twelve months ended December 31, 2025 and 2024, the Company recognized amortization expense of $
Total estimated credits to be received during 2025 are $
105
NOTE 26. Derivatives
The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates, and to assist customers with their risk management objectives. Derivative contracts that are not designated in a qualifying hedging relationships include customer accommodation loan swaps.
On August 15, 2024, the Company executed a 2-year,
The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset at December 31, 2025 and 2024.
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||
|
|
Carrying Amount of Hedged Asset |
|
|
Cumulative Amount of Fair Value Adjustment |
|
|
Carrying Amount of Hedged Asset |
|
|
Cumulative Amount of Fair Value Adjustment |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Loans receivable (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
(1)
The following table summarizes the effect of the fair value hedging relationship recognized in the consolidated statements of income for the twelve months ended December 31, 2025 and 2024.
|
|
Twelve Months Ended |
|
|||||
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in thousands) |
|
|||||
Hedged asset |
|
$ |
|
|
$ |
|
||
Fair value derivative designated as hedging instrument |
|
|
|
|
|
|
||
Total gain recognized in the consolidated statement of income within interest and fees on loans |
|
$ |
|
|
$ |
|
||
The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back loan swaps are derivative financial instruments and are reported at fair value in “other assets” and “other liabilities” in the Consolidated Balance Sheets. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of the swaps with borrowers and the swaps with dealer counterparties.
106
The following tables summarize key elements of the Company's derivative instruments at December 31, 2025 and 2024.
|
|
December 31, 2025 |
|
|||||||||
|
|
Notional Amount |
|
|
Assets |
|
|
Liabilities |
|
|||
|
|
(in thousands) |
|
|||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|||
Fair value swap |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|||
Customer-related interest rate swap contracts: |
|
|
|
|
|
|
|
|
|
|||
Matched interest rate swaps with borrower |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Matched interest rate swaps with counterparty |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
December 31, 2024 |
|
|||||||||
|
|
Notional Amount |
|
|
Assets |
|
|
Liabilities |
|
|||
|
|
(in thousands) |
|
|||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|||
Fair value swap |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|||
Customer-related interest rate swap contracts: |
|
|
|
|
|
|
|
|
|
|||
Matched interest rate swaps with borrower |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Matched interest rate swaps with counterparty |
|
|
|
|
|
|
|
|
|
|||
NOTE 27. Business Segments
The Company has
The community banking segment offers a wide range of retail and commercial banking services in the form of loan and deposit products. Revenues consist primarily of net interest income related to investments in non-marine loans and securities and outstanding deposits and borrowings, fees earned on deposit accounts and debit card interchange activity. During the first quarter of 2025 the Company executed a balance sheet repositioning of its investment securities portfolio, selling available for sale securities with an amortized cost balance of $
Revenue from marine lending operations consist primarily of net interest income related to commercial and consumer marine vessel retail loans originated through August 2023, at which time the Company ceased accepting new marine lending business. The balance of the marine loan portfolio, which constitutes a significant portion of the Company's assets, revenues, and earnings, totaled $
The wealth management segment offers both a trust department and investment services. Trust department services include a full range of personal and retirement plan services, and investment services products include, among other products, annuities, IRA's, life insurance, fixed income investing, and full service or discount brokerage services. Non-deposit investment products are offered through a third-party service provider.
Financial information of the parent company is included in the "All Other" category. The parent company's revenue and expenses are comprised primarily of interest expense associated with subordinated debt.
107
The Company's segment structure reflects the financial information and reports used by our chief operating decision maker to make decisions regarding the business, including resource allocations and performance. Our Chief Executive Officer is the chief operating decision maker ("CODM"). We evaluate performance and allocate resources based on the operating income of each operating segment. The CODM uses segment operating income in the annual budget process. The operating income of each operating segment includes the revenues of the segment less expenses that are directly related to those revenues. Operating overhead, shared costs and share-based compensation costs are included in Community Banking.
The following table provides income and asset information as of and for the twelve months ended December 31, 2025 and 2024, which are included within the Consolidated Balance Sheets and Consolidated Statements of Income.
108
|
|
Twelve Months Ended |
|
|||||||||||||||||||||
|
|
December 31, 2025 |
|
|||||||||||||||||||||
|
|
Community Banking |
|
|
Marine Lending |
|
|
Wealth Management |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Interest Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Interest Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Gain on sales of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(Loss) on the sale of securities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||
Other noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Salaries and employee benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Occupancy expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Data processing fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Net Income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Twelve Months Ended |
|
|||||||||||||||||||||
|
|
December 31, 2024 |
|
|||||||||||||||||||||
|
|
Community Banking |
|
|
Marine Lending |
|
|
Wealth Management |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Interest Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Interest Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Gain on sales of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Revenue |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Salaries and employee benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Occupancy expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Data processing fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Net Income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
109
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Community Banking |
|
|
Marine Lending |
|
|
Wealth Management |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
Total assets at December 31, 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total assets at December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
110
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2025 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, management has conducted an assessment of the design and effectiveness of its internal controls over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013.
Management maintains a comprehensive system of internal control to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures that are communicated to employees. Those policies and procedures: 1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of the Company, 2) provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors, 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Management recognizes that there are inherent limitations in the effectiveness of any internal control system, including the possibility of human error and the circumvention or overriding of internal controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Changes in conditions will also impact the internal control effectiveness over time. Eagle Financial Services, Inc. and its subsidiary maintain an internal auditing program, under the supervision of the Audit Committee of the Board of Directors, which independently assesses the effectiveness of the system of internal control and recommends possible improvements.
Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2025, using the 2013 Internal Control – Integrated Framework issued by COSO. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded as of December 31, 2025, the Company’s internal control over financial reporting is adequate and effective and meets the criteria of the Internal Control – Integrated Framework.
Management’s assessment did not determine any material weaknesses within the Company’s internal control structure. There were no changes in the Company’s internal control over financial reporting during the Company’s quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2025 has been audited by Yount, Hyde & Barbour, P.C., (U.S. PCAOB Auditor Firm ID:
111
Item 9B. Other Information
During the fiscal quarter ended December 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934)
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
None.
112
PART III
Item 10. Directors, Executives Officers and Corporate Governance
The information required by Part III, Item 10 is incorporated herein by reference to the Proxy Statement for the 2026 Annual Meeting of Shareholders to be held May 19, 2026.
The Company has
Item 11. Executive Compensation
The information required by Part III, Item 11 is incorporated herein by reference to the Proxy Statement for the 2026 Annual Meeting of Shareholders to be held May 19, 2026.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Part III, Item 12 is incorporated herein by reference to the Proxy Statement for the 2026 Annual Meeting of Shareholders to be held May 19, 2026.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Part III, Item 13 is incorporated herein by reference to the Proxy Statement for the 2026 Annual Meeting of Shareholders to be held May 19, 2026.
Item 14. Principal Accounting Fees and Services
The information required by Part III, Item 14 is incorporated herein by reference to the Proxy Statement for the 2026 Annual Meeting of Shareholders to be held May 19, 2026.
113
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
The financial statements are filed as part of this Annual Report on Form 10-K within Item 8.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted since they are not required, or are not applicable, or the required information is given in the financial statements or notes thereto.
(a)(3) Exhibits
The following exhibits, as applicable, are filed with this Form 10-K or incorporated by reference to previous filings.
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
Articles of Incorporation of the Company, restated in electronic format only as of March 1, 2006 (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated March 1, 2006). |
|
|
|
3.2 |
|
Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 20, 2021). |
|
|
|
4.1 |
|
Description of Securities (incorporated herein by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed March 13, 2020). |
|
|
|
4.2 |
|
Form of 4.50% Fixed to Floating Rate Subordinated Note due April 1, 2032 (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 5, 2022). |
|
|
|
10.1 |
|
Description of Executive Supplemental Income Plan (incorporated by reference to Exhibit 10.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996).* |
|
|
|
10.2 |
|
Amended and Restated Employment Agreement of Brandon C. Lorey (incorporated by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019).* |
|
|
|
10.3 |
|
Eagle Financial Services, Inc. 2023 Stock Incentive Plan (incorporated herein by reference to Appendix A of the Proxy Statement for the Annual Meeting of Shareholders held on May 16, 2023, filed on April 5, 2023).* |
|
|
|
10.4 |
|
Eagle Financial Services, Inc. 2014 Stock Incentive Plan (incorporated by reference to Exhibit A of the Proxy Statement for the Annual Meeting of Shareholders held on May 21, 2014, filed on April 21, 2014).* |
|
|
|
10.5 |
|
Amended and Restated Employment Agreement of Joseph T. Zmitrovich (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 3, 2022).* |
|
|
|
10.6 |
|
Amended and Restated Employment Agreement of Kaley P. Crosen (incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019).* |
|
|
|
10.7 |
|
Amended and Restated Employment Agreement of Kathleen J. Chappell (incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 16, 2020).* |
|
|
|
10.8 |
|
Eagle Financial Services, Inc. Dividend Investment Plan (incorporated herein by reference to the Company’s Registration Statement on Form S-3, File No. 333-209460, filed on February 10, 2016).* |
|
|
|
10.9 |
|
Amended and Restated Employment Agreement, dated December 1, 2022, between Eagle Financial Services, Inc. and Aaron M. Poffinberger (incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 5, 2022).* |
|
|
|
10.10 |
|
Form of Subordinated Note Purchase Agreement, dated March 31, 2022 (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 5, 2022). |
|
|
|
10.11 |
|
Asset Purchase and Servicing Rights Agreement, by and between Bank of Clarke and Axos Bank, dated as of August 23, 2023 (incorporated by reference to Exhibit 10.1 to Eagle Financial Services, Inc.’s Current Report on Form 8-K filed August 24, 2023). |
114
|
|
|
10.12 |
|
Loan Purchase and Sale Agreement, by and between Bank of Clarke and Axos Bank, dated as of August 23, 2023 (exhibits omitted) (incorporated by reference to Exhibit 10.2 to Eagle Financial Services, Inc.’s Current Report on Form 8-K filed August 24, 2023). |
|
|
|
10.13 |
|
Form of Restricted Stock Award Agreement for the Eagle Financial Services, Inc. 2023 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 15, 2024). |
|
|
|
10.14 |
|
Form of Performance Restricted Stock Award Agreement for the Eagle Financial Services, Inc. 2023 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on May 15, 2024). |
|
|
|
10.15 |
|
Form of Non-Employee Director Restricted Stock Award Agreement for the Eagle Financial Services, Inc. 2023 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on May 15, 2024). |
|
|
|
14.1 |
|
Eagle Financial Services, Inc. Code of Conduct and Ethics Policy. |
|
|
|
21.1 |
|
Subsidiary of the Company. |
|
|
|
23.1 |
|
Consent of Yount, Hyde & Barbour, P.C. |
|
|
|
31.1 |
|
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
|
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
97 |
|
Eagle Financial Services, Inc. Clawback Policy (incorporated herein by reference to Exhibit 97 to the Company's Annual Report on Form 10-K filed on March 31, 2025). |
|
|
|
101 |
|
The following materials from the Eagle Financial Service, Inc. Annual Report on Form 10-K for the year ended December 31, 2025 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders Equity, (v) Consolidated Statements of Cash Flows and (vi) notes to Consolidated Financial Statements. |
|
|
|
104 |
|
The cover page from the Eagle Financial Services, Inc. Annual Report on Form 10-K for the year ended
|
* Management contracts and compensatory plans and arrangements.
Item 16. Form 10-K Summary
Not applicable.
115
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Eagle Financial Services, Inc. |
||
|
|
|
By: |
|
/s/ BRANDON C. LOREY |
|
|
Brandon C. Lorey |
|
|
President and Chief Executive Officer |
Date: March 16, 2026
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 16, 2026.
Signature |
|
Title |
|
|
|
/s/ BRANDON C. LOREY |
|
President, Chief Executive Officer, and Director (principal executive officer) |
Brandon C. Lorey |
|
|
|
|
|
/s/ KATHLEEN J. CHAPPELL |
|
Executive Vice President and Chief Financial Officer (principal financial and accounting officer) |
Kathleen J. Chappell |
|
|
|
|
|
/s/ CARY C. NELSON |
|
Chair of the Board and Director |
Cary C. Nelson |
|
|
|
|
|
/s/ SCOTT M. HAMBERGER |
|
Vice Chair of the Board and Director |
Scott M. Hamberger |
|
|
|
|
|
/s/ SUSAN D. DAVIES |
|
Director |
Susan D. Davies |
|
|
|
|
|
/s/ MARY BRUCE GLAIZE |
|
Director |
Mary Bruce Glaize |
|
|
|
|
|
/s/ EDWARD HILL, III |
|
Director |
Edward Hill, III |
|
|
|
|
|
/s/ TATIANA C. MATTHEWS |
|
Director |
Tatiana C. Matthews |
|
|
|
|
|
/s/ JOHN R. MILLESON |
|
Director |
John R. Milleson |
|
|
|
|
|
/s/ DOUGLAS C. RINKER |
|
Director |
Douglas C. Rinker |
|
|
|
|
|
/s/ KARTHIK SHYAMSUNDER |
|
Director |
Karthik Shyamsunder |
|
|
|
|
|
/s/ ROBERT W. SMALLEY JR. |
Director
|
|
Robert W. Smalley Jr.
|
|
|
|
|
|
/s/ JOHN D. STOKELY, JR. |
|
Director |
John D. Stokely, Jr. |
|
|
|
|
|
/s/ BRIAN T. STROSSER |
Director |
|
Brian T. Strosser
|
|
|
116
FAQ
How did Eagle Financial Services (EFSI) perform financially in 2025?
What were Eagle Financial Services’ key balance sheet totals at December 31, 2025?
How did Eagle Financial’s 2025 capital raise affect its financial position?
Why did Eagle Financial’s earnings decline in 2025 compared to 2024?
What were Eagle Financial’s 2025 profitability ratios?
How strong was Eagle Financial’s credit quality at the end of 2025?
What dividends did Eagle Financial Services pay to shareholders in 2025?
