Eagle Financial Q3 2026 earnings fall to $4.75M
The merger agreement calls for 2.00 John Marshall Bancorp shares per EFSI share, excluding specified party-owned shares and subject to closing conditions.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Eagle Financial Services, Inc. (EFSI) reported net income of $4.750 million for the three months ended September 30, 2026, compared with $5.584 million a year earlier. For the nine months ended September 30, 2026, net income was $13.471 million, versus $3.880 million. Nine-month net interest income was $50.502 million, compared with $46.233 million.
At September 30, 2026, total assets were $1,870.465 million, compared with $1,888.626 million at December 31, 2025; deposits were $1,623.246 million, compared with $1,607.360 million. The nine-month provision for credit losses was $6.514 million, versus $3.013 million in 2025.
EFSI agreed to merge with John Marshall Bancorp, Inc. in a two-step transaction: its merger subsidiary first merges into EFSI, then EFSI merges into John Marshall Bancorp. At the first merger’s effective time, each EFSI common share, excluding specified shares owned by the parties or their subsidiaries, is to convert into the right to receive 2.00 John Marshall Bancorp common shares, with cash paid instead of fractional shares. The transaction is expected to close in the first quarter of 2027, subject to regulatory approvals, approval by both companies’ shareholders and other conditions.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointNine-month net income was $13.471 million, versus $3.880 million.
Negative
- Moderate pointThird-quarter net income fell to $4.750 million from $5.584 million.
Filing Explained
No merger-triggered vesting has occurred yet, and unused employee-plan shares are capacity rather than completed issuance.
The merger remains pending; this filing adds that, if the first merger takes effect, EFSI’s 86,912 nonvested restricted shares will vest immediately beforehand, with performance conditions treated as met at target. Those shares are already included in the September 30 outstanding share count, so vesting changes their award status rather than adding them to that count.
The employee stock purchase plan was frozen after its offering period ended on
Key Figures
Key Terms
allowance for credit losses financial
nonvested restricted stock financial
unrealized losses financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much did EFSI earn in the third quarter of 2026?
What are the EFSI merger terms?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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P.O. Box 391 |
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(Address of principal executive offices) |
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(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 |
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, 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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of November 4, 2026 was
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION |
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Item 1. |
Financial Statements: |
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Consolidated Balance Sheets at September 30, 2026 and December 31, 2025 |
1 |
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Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2026 and 2025 |
2 |
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Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2026 and 2025 |
3 |
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Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2026 and 2025 |
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Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2026 and 2025 |
5 |
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Notes to Consolidated Financial Statements |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
41 |
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
68 |
Item 4. |
Controls and Procedures |
68 |
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PART II - OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
69 |
Item 1A. |
Risk Factors |
69 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
73 |
Item 3. |
Defaults Upon Senior Securities |
73 |
Item 4. |
Mine Safety Disclosures |
73 |
Item 5. |
Other Information |
73 |
Item 6. |
Exhibits |
74 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EAGLE FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
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September 30, 2026 |
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December 31, 2025 |
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(Unaudited) |
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* |
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Assets |
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Cash and due from banks |
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$ |
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Interest-bearing deposits with other institutions |
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Federal funds sold |
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Total cash and cash equivalents |
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$ |
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Securities available for sale, at fair value, amortized cost of $ |
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Restricted investments, at cost |
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Loans held for sale |
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Loans |
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Allowance for credit losses |
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Net Loans |
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$ |
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Bank premises and equipment, net |
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Bank owned life insurance |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Liabilities |
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Deposits: |
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Noninterest bearing demand deposits |
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$ |
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$ |
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Savings and interest bearing demand deposits |
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Time deposits |
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Total deposits |
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$ |
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$ |
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Federal Home Loan Bank advances, long-term |
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Subordinated debt, net of unamortized issuance costs |
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Other liabilities |
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Total liabilities |
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$ |
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$ |
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Commitments and contingencies |
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Shareholders’ Equity |
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Preferred stock, $ |
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$ |
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$ |
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Common stock, $ |
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Surplus |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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Total shareholders’ equity |
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$ |
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$ |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See Notes to Consolidated Financial Statements
* Derived from the consolidated audited financial statements.
TABLE OF CONTENTS
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2026 |
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2025 |
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2026 |
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2025 |
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Interest and Dividend Income |
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Interest and fees on loans |
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$ |
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$ |
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$ |
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Interest and dividends on securities available for sale: |
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Taxable interest income |
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Interest income exempt from federal income taxes |
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Dividends |
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Interest on deposits in banks |
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Interest on federal funds sold |
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Total interest and dividend income |
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$ |
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$ |
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$ |
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$ |
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Interest Expense |
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Interest on deposits |
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$ |
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$ |
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$ |
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$ |
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Interest on Federal Home Loan Bank advances |
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Interest on subordinated debt |
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Total interest expense |
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$ |
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$ |
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$ |
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$ |
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Net interest income |
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$ |
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$ |
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$ |
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$ |
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Provision for Credit Losses |
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Net interest income after provision for credit losses |
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$ |
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$ |
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$ |
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$ |
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Noninterest Income |
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Wealth management fees |
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$ |
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$ |
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$ |
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$ |
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Service charges on deposit accounts |
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Other service charges and fees |
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Gain (loss) on the sale of bank premises and equipment |
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(Loss) on the sale of securities |
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Gain on sale of loans |
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Gain on sale of other assets |
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Small business investment company income |
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Bank owned life insurance income |
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Other operating income |
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Total noninterest income |
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$ |
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$ |
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$ |
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$ |
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Noninterest Expenses |
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Salaries and employee benefits |
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$ |
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$ |
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$ |
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$ |
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Occupancy expenses |
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Equipment expenses |
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Advertising and marketing expenses |
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Stationery and supplies |
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ATM network fees |
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Other real estate owned expense (gain), net |
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( |
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Loss on sale of repossessed assets |
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FDIC assessment |
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Computer software expense |
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Bank franchise tax |
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Professional fees |
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Data processing fees |
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Loan servicing expense |
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Merger-related expenses |
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Other operating expenses |
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Total noninterest expenses |
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$ |
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$ |
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$ |
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$ |
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Income before income taxes |
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$ |
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$ |
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$ |
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$ |
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Income Tax Expense |
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Net Income |
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$ |
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$ |
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$ |
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$ |
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Earnings Per Share |
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Net income per common share, basic |
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$ |
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$ |
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$ |
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$ |
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Net income per common share, diluted |
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$ |
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$ |
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$ |
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$ |
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See Notes to Consolidated Financial Statements
2
TABLE OF CONTENTS
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
(dollars in thousands)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2026 |
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2025 |
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2026 |
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2025 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income: |
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Unrealized (loss) gain on available for sale securities, net of reclassification adjustments, net of deferred income tax (benefit) expense of $( |
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( |
) |
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( |
) |
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Total other comprehensive (loss) income |
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( |
) |
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( |
) |
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Total comprehensive income |
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$ |
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$ |
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$ |
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$ |
|
||||
See Notes to Consolidated Financial Statements
3
TABLE OF CONTENTS
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollars in thousands, except per share amounts)
|
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Common Stock |
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Surplus |
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Retained |
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Accumulated |
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Total |
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|||||
December 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net loss |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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Vesting of restricted stock awards, stock incentive plan ( |
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( |
) |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock, public offering, net ( |
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— |
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— |
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Repurchase and retirement of common stock ( |
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( |
) |
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( |
) |
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— |
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— |
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( |
) |
Dividends declared ($ |
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— |
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— |
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( |
) |
|
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— |
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( |
) |
March 31, 2025 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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— |
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— |
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Other comprehensive (loss) |
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— |
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— |
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— |
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( |
) |
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( |
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Vesting of restricted stock awards, stock incentive plan ( |
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( |
) |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Repurchase and retirement of common stock ( |
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( |
) |
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( |
) |
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— |
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— |
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( |
) |
Dividends declared ($ |
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— |
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— |
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( |
) |
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— |
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( |
) |
June 30, 2025 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Dividends declared ($ |
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— |
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— |
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( |
) |
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— |
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( |
) |
September 30, 2025 |
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$ |
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|
$ |
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|
$ |
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|
$ |
( |
) |
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$ |
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||||
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|||||
December 31, 2025 |
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$ |
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|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Vesting of restricted stock awards, stock incentive plan ( |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Repurchase and retirement of common stock ( |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
March 31, 2026 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
June 30, 2026 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of common stock, employee stock purchase plan ( |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Dividends declared ($ |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
September 30, 2026 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
See Notes to Consolidated Financial Statements
4
TABLE OF CONTENTS
EAGLE FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
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 the sale of portfolio loans |
|
|
|
|
|
( |
) |
|
(Gain) loss on the sale and disposal of premises and equipment |
|
|
( |
) |
|
|
|
|
Loss on the sale of repossessed assets |
|
|
|
|
|
|
||
Loss on the sale of securities |
|
|
|
|
|
|
||
(Gain) on the sale of other assets |
|
|
( |
) |
|
|
|
|
Amortization of subordinated debt issuance costs |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
(Accretion) of premiums and discounts on debt securities and loans, net |
|
|
( |
) |
|
|
( |
) |
Bank-owned life insurance income |
|
|
( |
) |
|
|
( |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
||
(Increase) in other assets |
|
|
( |
) |
|
|
( |
) |
(Decrease) 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 |
|
|
|
|
|
|
||
Purchases of restricted investments |
|
|
( |
) |
|
|
( |
) |
Purchases of bank premises and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from the sale of bank premises and equipment |
|
|
|
|
|
|
||
Proceeds from the sale of repossessed assets |
|
|
|
|
|
|
||
Proceeds from sale of other assets |
|
|
|
|
|
|
||
Proceeds from the sale of portfolio loans |
|
|
|
|
|
|
||
Net (increase) in loans |
|
|
( |
) |
|
|
( |
) |
Funding of capital commitments related to other investments |
|
|
|
|
|
( |
) |
|
Net cash (used in) provided by investing activities |
|
$ |
( |
) |
|
$ |
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Net increase in noninterest bearing demand deposits, savings, and interest bearing demand deposits |
|
$ |
|
|
$ |
|
||
Net (decrease) in time deposits |
|
|
( |
) |
|
|
( |
) |
Net increase in federal funds purchased |
|
|
|
|
|
|
||
Repayments of short-term Federal Home Loan Bank advances |
|
|
|
|
|
( |
) |
|
Repayments of long-term Federal Home Loan Bank advances |
|
|
( |
) |
|
|
( |
) |
Net proceeds from issuance of common stock in public offering |
|
|
|
|
|
|
||
Proceeds from issuance of common stock for ESPP |
|
|
|
|
|
|
||
Repurchase and retirement of common stock |
|
|
( |
) |
|
|
( |
) |
Cash dividends paid |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
$ |
( |
) |
|
$ |
|
|
(Decrease) 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 (loss) gain on securities available for sale |
|
$ |
( |
) |
|
$ |
|
|
Repossessed assets acquired in settlement of loans |
|
$ |
|
|
$ |
|
||
Lease liabilities arising from right-of-use assets |
|
$ |
|
|
$ |
|
||
See Notes to Consolidated Financial Statements
5
TABLE OF CONTENTS
EAGLE FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2026
NOTE 1. General
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP.
In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at September 30, 2026 and December 31, 2025, the results of operations and the changes in shareholders' equity for the three and nine months ended September 30, 2026 and 2025, and cash flows for the nine months ended September 30, 2026 and 2025. The results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”).
Eagle Financial Services, Inc. (the "Company") owns
Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations. None of the reclassifications were of a material nature and they had no effect on prior year net income or shareholders' equity.
Application of the principles of GAAP and practices within the banking industry require management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses on loans.
The Company's significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the Company's 2025 Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2025.
NOTE 2. Pending Merger
On September 7, 2026, the Company, John Marshall Bancorp, Inc., a Virginia corporation (“JMSB”) and George Sub, Inc., a newly formed Virginia corporation and a wholly owned subsidiary of JMSB (“Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation (the "First Merger"), and immediately thereafter, the Company will merge with and into JMSB, with JMSB as the surviving corporation. The Merger Agreement was approved by the board of directors of each of the Company and JMSB on September 7, 2026.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the First Merger, each outstanding share of common stock of the Company, excluding certain specified shares owned by the Company, JMSB or their respective
6
TABLE OF CONTENTS
subsidiaries, will be converted into the right to receive
The transaction is expected to close in the first quarter of 2027, subject to customary closing conditions, including receipt of required regulatory approvals, approval by the shareholders of the Company and JMSB, and the satisfaction or waiver of the other conditions set forth in the Merger Agreement. There can be no assurance that the transaction will be completed within the expected timeframe or at all.
NOTE 3. Stock-Based Compensation
On May 16, 2023, the Company’s shareholders approved the 2023 Stock Incentive 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 restricted 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 restricted stock activity for the nine months ended September 30, 2026 and 2025:
|
|
Nine Months Ended |
|
|||||||||||||
|
|
September 30, |
|
|||||||||||||
|
|
2026 |
|
|
2025 |
|
||||||||||
|
|
Shares |
|
|
Weighted |
|
|
Shares |
|
|
Weighted |
|
||||
Nonvested, beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Nonvested, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
In accordance with the Merger Agreement, immediately prior to the effective time of the First Merger, each nonvested restricted stock award will fully vest, with any performance conditions deemed satisfied at the target level.
On May 19, 2026, the Company’s shareholders approved the 2026 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits eligible employees to purchase shares of the Company’s common stock through accumulated payroll deductions, subject to the terms and limitations of the ESPP. The ESPP is intended to provide eligible employees with an opportunity to acquire an ownership interest in the Company. The ESPP authorizes the issuance of up to
7
TABLE OF CONTENTS
For the three and nine months ended September 30, 2026, the Company recognized compensation expense related to the ESPP of $
During the nine months ended September 30, 2026, employees purchased
NOTE 4. 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 for the three and nine months ended September 30, 2026 and 2025. During 2026 and 2025, there were
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Average number of common shares outstanding used to calculate basic and diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOTE 5. Securities
Amortized costs and fair values of securities available for sale at September 30, 2026 and December 31, 2025 were as follows:
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
||||
|
|
September 30, 2026 |
|
|||||||||||||
|
|
(in thousands) |
|
|||||||||||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|||
U.S. treasury securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Subordinated debt |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
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 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
8
TABLE OF CONTENTS
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 Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
Proceeds from sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross realized losses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Net realized losses on securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
The amortized cost and estimated fair value of securities at September 30, 2026, 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 gross unrealized loss position, at September 30, 2026 and December 31, 2025 were as follows:
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|||||||||||||||
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
||||||
|
|
September 30, 2026 |
|
|||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
9
TABLE OF CONTENTS
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
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.
There were
Securities having carrying values of $
The composition of restricted investments at September 30, 2026 and December 31, 2025 was as follows:
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
|
|
(in thousands) |
|
|||||
Federal Reserve Bank Stock |
|
$ |
|
|
$ |
|
||
Federal Home Loan Bank Stock |
|
|
|
|
|
|
||
Community Bankers’ Bank Stock |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
NOTE 6. Loans and Allowance for Credit Losses on Loans
The composition of loans at September 30, 2026 and December 31, 2025 was as follows:
10
TABLE OF CONTENTS
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
|
|
(in thousands) |
|
|||||
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 loans |
|
$ |
|
|
$ |
|
||
Net deferred loan costs and premiums |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
At September 30, 2026, the Company was servicing $
Changes in the allowance for credit losses on loans for the three and nine months ended September 30, 2026 and 2025 and year-ended December 31, 2025 were as follows:
|
|
Three Months Ended |
|
|
Year Ended |
|
|
Nine Months Ended |
|
|||||||||||
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|||||||||||
|
|
2026 |
|
|
2025 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Balance, beginning |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Recoveries added to the allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Credit losses charged to the allowance |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, ending |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
11
TABLE OF CONTENTS
Past due loans by class at September 30, 2026 and December 31, 2025 were as follows:
|
|
September 30, 2026 |
|
|||||||||||||||||||||||||
|
|
(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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Marine loans |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Overdrafts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
12
TABLE OF CONTENTS
Nonaccrual loans by class at September 30, 2026 and December 31, 2025 were as follows:
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||||||||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||||||||||
|
|
Nonaccruals with No Allowance for Credit Losses |
|
|
Nonaccrual with an Allowance for Credit Losses |
|
|
Nonaccrual |
|
|
Nonaccruals with No Allowance for Credit Losses |
|
|
Nonaccrual 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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The allowance for credit losses on loans by segment at September 30, 2026 and December 31, 2025 was as follows:
|
|
As of and For the Nine Months Ended |
|
|||||||||||||||||||||||||||||
|
|
September 30, 2026 |
|
|||||||||||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||
|
|
Construction |
|
|
Residential |
|
|
Commercial |
|
|
Commercial |
|
|
Marine |
|
|
Consumer |
|
|
All Other |
|
|
Total |
|
||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Beginning Balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Charge-Offs |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recoveries |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provision (recovery) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Ending balance: Individually evaluated for impairment |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||
Ending balance: Collectively evaluated for impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Ending balance: Individually evaluated for impairment |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||
Ending balance: Collectively evaluated for impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
13
TABLE OF CONTENTS
|
|
As of and For the Year Ended |
|
|||||||||||||||||||||||||||||
|
|
December 31, 2025 |
|
|||||||||||||||||||||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||
|
|
Construction |
|
|
Residential |
|
|
Commercial |
|
|
Commercial |
|
|
Marine |
|
|
Consumer |
|
|
All Other |
|
|
Total |
|
||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Beginning Balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Charge-Offs |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recoveries |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||||
Provision (recovery) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Ending balance: Individually evaluated for impairment |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Ending balance: Collectively evaluated for impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Ending balance: Individually evaluated for impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||
Ending balance: Collectively evaluated for impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
14
TABLE OF CONTENTS
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||||||||||
|
|
(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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other commercial and industrial loans |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Marine loans |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Consumer loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Overdrafts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
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 period ended September 30, 2026.
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. Loan relationships with stale financial statements at their annual review will also cause a downgrade to special mention until current financials are received and upgrade is approved. 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 September 30, 2026 and gross charge-offs by year of origination for the nine months ended September 30, 2026 was as follows:
15
TABLE OF CONTENTS
September 30, 2026 |
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
Term Loans Amortized Cost Basis by Origination Year |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
(in thousands) |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
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 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
16
TABLE OF CONTENTS
Commercial - Non-Owner Occupied & Multifamily |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
4,040 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|||||
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Current period gross charge-offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|||
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Other commercial and industrial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Special Mention |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|||||
Classified |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||||
Current period gross charge-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
|||||||
Marine loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
905 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
||||||||
17
TABLE OF CONTENTS
Credit quality information by class at December 31, 2025 and gross charge-offs by year of origination for the year ended December 31, 2025 was as follows:
18
TABLE OF CONTENTS
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Term Loans 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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
19
TABLE OF CONTENTS
Current period gross charge-offs |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||||
Commercial and industrial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
SBA PPP loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Pass |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Special Mention |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Classified |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||||
Unfunded Commitments: The Company maintains a separate reserve for credit losses on unfunded commitments, which is included in Other Liabilities on the Consolidated Balance Sheet. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the Consolidated Statement of Operations. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, utilizing the same models and approaches for the Company's other loan portfolio segments, as these unfunded
20
TABLE OF CONTENTS
commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.
The activity in the unfunded commitment reserve for the three and nine months ended September 30, 2026 and 2025 and year-ended December 31, 2025 is presented below:
|
|
Three Months Ended |
|
|
Year Ended |
|
|
Nine Months Ended |
|
|||||||||||
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|||||||||||
|
|
2026 |
|
|
2025 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Balance, beginning |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Provision (recovery) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance, ending |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
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.
The carrying value of troubled loan modifications totaled $
The following tables present the carrying values at September 30, 2026 and 2025 of troubled loan modifications made during the periods indicated, segregated by class of loans and type of concession granted.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
2026 |
|
|
2026 |
|
||||||||||||||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
|
Combination (1) |
|
|
Total |
|
|
% of Total Class of Loans (2) |
|
|
Combination (1) |
|
|
Total |
|
|
% of Total Class of Loans (2) |
|
||||||
Commercial and industrial loans: |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Other commercial and industrial loans |
|
$ |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
|
% |
||||||
Total |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
(1)
(2)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
|
2025 |
|
|
2025 |
|
||||||||||||||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||||
|
|
Collateral Dependent Foreclosure (1) |
|
|
Total |
|
|
% of Total Class of Loans (2) |
|
|
Collateral Dependent Foreclosure (1) |
|
|
Total |
|
|
% of Total Class of Loans (2) |
|
||||||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial - Non-Owner Occupied & Multifamily |
|
$ |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
|
% |
||||||
Total |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
(1)
(2)
21
TABLE OF CONTENTS
During the three and nine months ended September 30, 2026, a restructuring was completed for a borrower experiencing financial difficulty involving two syndicated loans in which the Company participates. The restructuring established a new capital structure consisting of a First-Out Term Loan, a Last-Out Term Loan, Class A Preferred Equity, and Class B Common Equity. The Company's two existing loan participations, with aggregate principal of $
During the three and nine months ended September 30, 2025, a relationship comprised of three residential multifamily income producing properties in Washington D.C. (the District) was restructured and the Bank was granted receivership. This relationship was in default at the time restructuring and continues to be in default. The three loans in this relationship are on nonaccrual status and are
During the three and nine months ended September 30, 2026, there were
There were no loans to borrowers experiencing financial difficulty that had a payment default during the three and nine months ended September 30, 2025 and were modified in the twelve months prior to that default.
Default is determined at
NOTE 7. Deposits
The composition of deposits at September 30, 2026 and December 31, 2025 was as follows:
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
|
|
(in thousands) |
|
|||||
Noninterest bearing demand deposits |
|
$ |
|
|
$ |
|
||
Savings and interest bearing demand deposits: |
|
|
|
|
|
|
||
NOW accounts |
|
$ |
|
|
$ |
|
||
Money market accounts |
|
|
|
|
|
|
||
Regular savings accounts |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Time deposits: |
|
|
|
|
|
|
||
Balances of less than $250,000 |
|
$ |
|
|
$ |
|
||
Balances of $250,000 and more |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
|
||
22
TABLE OF CONTENTS
NOTE 8. Leases
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. Right-of-use assets and lease liabilities are included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets. In June 2026, the Company entered into a long-term lease and moved the Frederick, Maryland loan production office to a new location in Rockville, Maryland. The new lease replaced an expiring lease and resulted in the initial recognition of a right-of-use asset and lease liability of $
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. The 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.
The following tables present information about the Company’s leases:
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
|
|
|
|
|
|
||||
Lease liabilities |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||
Right-of-use assets |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||
Weighted average remaining lease term |
|
|
|
|
|
|
|
|
|
|
||||||
Weighted average discount rate |
|
|
% |
|
|
% |
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
Lease Cost |
|
September 30, 2026 |
|
|
September 30, 2025 |
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||
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 |
|
September 30, 2026 |
|
|
2026, remainder |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted cash flows |
|
$ |
|
|
Discount |
|
|
( |
) |
Lease liabilities |
|
$ |
|
|
NOTE 9. Fair Value Measurements
23
TABLE OF CONTENTS
GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of 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 for the asset or liability in an orderly transaction between market participants on 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. |
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: Interest rate derivative contracts are traded in over-the-counter markets where quoted market prices are not readily available. Fair value measurements are obtained from a third-party pricing service utilizing a discounted cash flow method using observable market inputs such as contractual terms and interest rate curves. 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. While credit valuation adjustments utilize unobservable Level 3 inputs, they are not significant to the overall valuation. As a result, the Company classifies its derivative instrument valuations as Level 2.
The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at September 30, 2026 and December 31, 2025:
24
TABLE OF CONTENTS
|
|
|
|
|
Fair Value Measurements at |
|
||||||||||
|
|
|
|
|
September 30, 2026 |
|
||||||||||
|
|
|
|
|
Using |
|
||||||||||
|
|
Balance as of |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
|
|
September 30, 2026 |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
|
|
(in thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Obligations of U.S. government corporations and agencies |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
U.S. Treasury securities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
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 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Total liabilities at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
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 securities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
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 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
25
TABLE OF CONTENTS
The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis classified as Level 3 for the periods indicated. Level 3 securities consist of one corporate subordinated debt security for which no pricing information was available and therefore priced at book value.
|
Level 3 Recurring Fair Value Measurements As Of and For The |
|
|||||||||||
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
|
2026 |
|
2025 |
|
||||
|
(in thousands) |
|
|
(in thousands) |
|
||||||||
Beginning balance |
$ |
|
$ |
— |
|
|
$ |
|
$ |
— |
|
||
Purchases |
|
|
|
|
|
|
|
|
|
||||
Sales |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
Issuances |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
Settlements |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
Total Gains (Losses) included in Net Income |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
Total Gains (Losses) included in OCI |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
Transfer into Level 3 |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
Transfer out of Level 3 |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
Total assets at fair value |
$ |
|
$ |
|
|
$ |
|
$ |
|
||||
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:
Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price 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.
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, marine vessels, 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 September 30, 2026 collateral-dependent loans 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 cost basis. Any write-downs based on the asset’s
26
TABLE OF CONTENTS
fair value at the date of acquisition are charged to the allowance for credit losses. 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 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 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 cost 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 repossessed assets totaling $
The following table summarizes the Company's financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at September 30, 2026 and December 31, 2025.
|
|
|
|
|
Carrying value at |
|
||||||||||
|
|
|
|
|
September 30, 2026 |
|
||||||||||
|
|
Balance as of |
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
||||
|
|
September 30, 2026 |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
|
|
(in thousands) |
|
|||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Collateral dependent individually evaluated loans |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Nonfinancial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Repossessed assets |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
Carrying value at |
|
||||||||||
|
|
|
|
|
December 31, 2025 |
|
||||||||||
|
|
Balance as of |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
||||
|
|
December 31, 2025 |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
|
|
(in thousands) |
|
|||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Collateral dependent individually evaluated loans |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Nonfinancial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Repossessed assets |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
27
TABLE OF CONTENTS
The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial and nonfinancial assets measured at fair value on a nonrecurring basis for September 30, 2026 and December 31, 2025.
|
|
Quantitative information about Level 3 Fair Value Measurements |
||||||
|
|
September 30, 2026 |
||||||
|
|
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 |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
||
(1)
The carrying value and fair value of the Company’s financial instruments at September 30, 2026 and December 31, 2025 were as follows:
|
|
Fair Value Measurements at |
|
|||||||||||||||||
|
|
September 30, 2026 |
|
|||||||||||||||||
|
|
Using |
|
|||||||||||||||||
|
|
Carrying |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Fair Value |
|
|||||
|
|
September 30, 2026 |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
September 30, 2026 |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and short-term investments |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Securities |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Restricted investments |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Loans, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Bank owned life insurance |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Derivative assets |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Subordinated debt, net of unamortized issuance costs |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Accrued interest payable |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Derivative liabilities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
28
TABLE OF CONTENTS
|
|
Fair Value Measurements at |
|
|||||||||||||||||
|
|
December 31, 2025 |
|
|||||||||||||||||
|
|
Using |
|
|||||||||||||||||
|
|
Carrying Value |
|
|
Quoted Prices |
|
|
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 |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
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, net of unamortized issuance costs |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Accrued interest payable |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Derivative liabilities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
NOTE 10. 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 their tax effect 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.
29
TABLE OF CONTENTS
Changes to accumulated other comprehensive loss by component are shown in the following table for the periods indicated:
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
September 30, |
|
|||||||||||||||||||||
|
|
2026 |
|
|
2025 |
|
||||||||||||||||||
|
|
Unrealized |
|
|
Change in |
|
|
Total |
|
|
Unrealized |
|
|
Change in |
|
|
Total |
|
||||||
|
|
(dollars in thousands) |
|
|
(dollars in thousands) |
|
||||||||||||||||||
July 1 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Tax effect of current period changes |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Current period changes net of taxes |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
September 30 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
|
Nine Months Ended |
|
|||||||||||||||||||||
|
|
September 30, |
|
|||||||||||||||||||||
|
|
2026 |
|
|
2025 |
|
||||||||||||||||||
|
|
Unrealized |
|
|
Change in |
|
|
Total |
|
|
Unrealized |
|
|
Change in |
|
|
Total |
|
||||||
|
|
(dollars in thousands) |
|
|
(dollars in thousands) |
|
||||||||||||||||||
January 1 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Reclassification of realized losses into earnings |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Tax effect of current period changes |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Current period changes net of taxes |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
September 30 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
For the nine months ended September 30, 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 $
30
TABLE OF CONTENTS
NOTE 11. Other Real Estate Owned & Repossessed Assets
The following table is a summary of other real estate owned (“OREO”) and repossessed asset activity for the nine months ended September 30, 2026 and 2025 and the year ended December 31, 2025:
|
|
Nine Months Ended |
|
|
Year Ended |
|
|
Nine Months Ended |
|
|||||||||||||||
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
|
September 30, 2025 |
|
|||||||||||||||
|
|
Other Real Estate Owned |
|
|
Repossessed Assets |
|
|
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 balance of repossessed assets at September 30, 2026 and December 31, 2025 represents repossessed marine vessels.
There was one loan collateralized by residential real estate with a balance of $
NOTE 12. 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 September 30, 2026 and December 31, 2025, the balance of the investment for qualified affordable housing projects was $
During the three months ended September 30, 2026 and September 30, 2025, the Company recognized amortization expense of $
Total estimated credits to be received during 2026 are $
31
TABLE OF CONTENTS
NOTE 13. Recent Accounting Pronouncements and Other Authoritative Guidance
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.
NOTE 14. 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 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.
32
TABLE OF CONTENTS
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.
Noninterest income and the related amounts that are from contracts with customers within the scope of ASC 606 disaggregated by major source, for the three and nine months ended September 30, 2026 and 2025 consisted of the following:
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
||||||||||
|
|
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 (3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain (loss) on the sale and disposal of bank premises and equipment |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Small business investment company income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bank owned life insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total noninterest income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
33
TABLE OF CONTENTS
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
||||||||||
|
|
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 (3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain (loss) on the sale and disposal of bank premises and equipment |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
(Loss) on sale of securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of other assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Small business investment company income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bank owned life insurance income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total noninterest income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1)
(2)
(3)
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 September 30, 2026 and December 31, 2025, the Company did not have any significant contract balances.
NOTE 15. Borrowings
The composition of borrowings at September 30, 2026 and December 31, 2025 was as follows:
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
|
|
(in thousands) |
|
|||||
Federal Home Loan Bank advances, long-term |
|
|
|
|
|
|
||
Subordinated debt, net of unamortized issuance costs |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
34
TABLE OF CONTENTS
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
The Bank pledges certain qualified loans and available for sale investment securities as collateral to the FHLB and FRB. At September 30, 2026, available borrowing capacity totaled $
Additionally, the Company had $
NOTE 16. 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 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 as of September 30, 2026 and December 31, 2025.
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||
|
|
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 three and nine months ended September 30, 2026.
35
TABLE OF CONTENTS
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Hedged asset |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Fair value derivative designated as hedging instrument |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Total (loss) 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.
The following tables summarize key elements of the Company's derivative instruments at September 30, 2026 and December 31, 2025.
|
|
September 30, 2026 |
|
|||||||||
|
|
Notional Amount |
|
|
Assets |
|
|
Liabilities |
|
|||
|
|
(in thousands) |
|
|||||||||
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, 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 |
|
|
|
|
|
|
|
|
|
|||
NOTE 17. Business Segments
The Company has
The community banking segment offers a wide range of retail and community 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. For the nine months ended September 30, 2026, the community banking segment's income was impacted by a gain on sale of other assets and a reduction in interest expense. During the second quarter of 2026, the Company sold its membership interest in Bearing Insurance Group, LLC ("Bearing") to an unaffiliated third party and recognized a pre-tax gain of $
36
TABLE OF CONTENTS
million, which resulted in a net realized pre-tax loss of $
Revenue from marine lending operations consist primarily of net interest income related to commercial and consumer marine vessel loans originated through August 2023, at which time the Company ceased accepting new marine lending business. The interest expense allocation is a function of the Bank's internal cost of funds rate and the average loan balance of marine lending. 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. In September 2026, the Company entered into a Merger Agreement, which is discussed in Note 2. As a result, the parent company has also incurred merger-related noninterest expenses, which totaled $
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. As such, expenses may not be representative of the costs expected to be incurred if the specific business segments operated as stand-alone entities. The Company expects it will continue to evaluate its business segments and internal reporting structure, including the production of discrete financial information to the CODM.
The following tables provide income and asset information as of September 30, 2026 and December 31, 2025 and for three and nine months ended September 30, 2026 and 2025, which are included within the Consolidated Balance Sheets and Consolidated Statements of Income.
37
TABLE OF CONTENTS
|
|
Three Months Ended |
|
|||||||||||||||||||||||
|
|
September 30, 2026 |
|
|||||||||||||||||||||||
|
|
Community Banking |
|
|
|
Marine Lending |
|
|
Wealth Management |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
|||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||
Interest Income |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Interest Expense |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net Interest Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net Revenue (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Three Months Ended |
|
|||||||||||||||||||||||
|
|
September 30, 2025 |
|
|||||||||||||||||||||||
|
|
Community Banking |
|
|
|
Marine Lending |
|
|
Wealth Management |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
|||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||
Interest Income |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net Interest Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net Revenue (Expense) |
|
|
|
|
— |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Provision for (recovery of) 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|||||||
38
TABLE OF CONTENTS
|
|
Nine Months Ended |
|
|||||||||||||||||||||
|
|
September 30, 2026 |
|
|||||||||||||||||||||
|
|
Community Banking |
|
|
Marine Lending |
|
|
Wealth Management |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Interest Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Interest Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Revenue (Expense) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine Months Ended |
|
|||||||||||||||||||||
|
|
September 30, 2025 |
|
|||||||||||||||||||||
|
|
Community Banking |
|
|
Marine Lending |
|
|
Wealth Management |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Interest Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Interest Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(Loss) on the sale of securities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||
Other noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Revenue (Expense) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Provision for (recovery of) credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Salaries and employee benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Occupancy expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Data processing fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(Loss) income before taxes |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Income tax (benefit) expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Net (Loss) Income |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
39
TABLE OF CONTENTS
|
|
Community Banking |
|
|
Marine Lending |
|
|
Wealth Management |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
Total assets at September 30, 2026 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total assets at December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
40
TABLE OF CONTENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 included in the 2025 Form 10-K, and in conjunction with the Unaudited Consolidated Financial Statements and notes thereto presented in Part I, Item 1, Financial Statements, of this Form 10-Q. Operating results for the three and nine months ended September 30, 2026 are not necessarily indicative of the results for the full-year ending December 31, 2026 or 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; offering best-in-class products and services; and being the leader in the markets it serves.
At September 30, 2026, the Company had total assets of $1.87 billion, net loans of $1.51 billion, total deposits of $1.62 billion, and shareholders’ equity of $195.3 million.
The Company has continued to build on its strategic actions taken during 2025, which was marked by a successful capital raise and balance sheet repositioning of its investment securities portfolio. These actions strengthened its balance sheet and improved its forward earnings profile. Our vision for 2026 is about disciplined growth with smart investment and continued focus on people and technology, which we believe will lead to stronger core earnings and a balance sheet positioned for more consistent results.
On September 7, 2026, the Company, John Marshall Bancorp, Inc., a Virginia corporation (“JMSB”) and George Sub, Inc., a newly formed Virginia corporation and a wholly owned subsidiary of JMSB (“Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation (the "First Merger"), and immediately thereafter, the Company will merge with and into JMSB, with JMSB as the surviving corporation. The Merger Agreement was approved by the board of directors of each of the Company and JMSB on September 7, 2026. Subject to the terms and conditions of the Merger Agreement, at the effective time of the First Merger, each outstanding share of common stock of the Company, excluding certain specified shares owned by the Company, JMSB or their respective subsidiaries, will be converted into the right to receive 2.00 shares of common stock of JMSB, with cash to be paid in lieu of any fractional shares. The transaction is expected to close in the first quarter of 2027, subject to customary closing conditions, including receipt of required regulatory approvals, approval by the shareholders of the Company and JMSB, and the satisfaction or waiver of the other conditions set forth in the Merger Agreement. There can be no assurance that the transaction will be completed within the expected timeframe or at all.
41
TABLE OF CONTENTS
CRITICAL ACCOUNTING ESTIMATES
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. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.
Our most significant policies are described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to our audited financial statements for the year ended December 31, 2025, included in the Company's 2025 Annual Report on Form 10-K filed with the SEC. There have been no changes since that time.
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 and expense, 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 Company executed significant non-recurring transactions during the second quarter of 2026 and the first quarter of 2025 that significantly impacted the Company's operating results for the respective periods. In May 2026, the Company sold its membership interest in Bearing Insurance Group, LLC ("Bearing") to an unaffiliated third party and recognized a pre-tax gain of $3.5 million. During the first quarter of 2025, the Company executed balance sheet repositioning transactions and recorded a realized loss on the sale of the available for sale securities totaling $12.4 million. Additionally, the Company incurred merger-related expenses during the third quarter of 2026 related to the announced merger with JMSB in September 2026. Merger-related expenses are anticipated to occur through the closing date of the transaction. These transactions significantly impacted the Company's operating results and certain performance metrics and ratios for the three months ended September 30, 2026 and the nine months ended September 30, 2026 and 2025.
42
TABLE OF CONTENTS
The following table reconciles the GAAP reported measure to the adjusted non-GAAP measure to show the impact of significant non-recurring transactions and merger-related expenses for the periods presented:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(dollars in thousands except for per share data) |
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
GAAP Net income |
|
$ |
4,750 |
|
|
$ |
5,584 |
|
|
$ |
13,471 |
|
|
$ |
3,880 |
|
Adjustments to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on sales of securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,425 |
|
(Gain) on sale of other assets |
|
|
— |
|
|
|
— |
|
|
|
(3,486 |
) |
|
|
— |
|
Merger-related expenses |
|
|
342 |
|
|
|
— |
|
|
|
342 |
|
|
|
— |
|
Tax effect of adjustments to net income |
|
|
(72 |
) |
|
|
— |
|
|
|
660 |
|
|
|
(2,609 |
) |
Non-GAAP Net income |
|
$ |
5,020 |
|
|
$ |
5,584 |
|
|
$ |
10,987 |
|
|
$ |
13,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP Noninterest income |
|
$ |
5,296 |
|
|
$ |
5,165 |
|
|
$ |
18,814 |
|
|
$ |
1,528 |
|
Adjustments to noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on sales of securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,425 |
|
(Gain) on sale of other assets |
|
|
— |
|
|
|
— |
|
|
|
(3,486 |
) |
|
|
— |
|
Non-GAAP Noninterest income |
|
$ |
5,296 |
|
|
$ |
5,165 |
|
|
$ |
15,328 |
|
|
$ |
13,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP Noninterest expense |
|
$ |
16,127 |
|
|
$ |
14,344 |
|
|
$ |
45,870 |
|
|
$ |
40,332 |
|
Adjustments to noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Merger-related expenses |
|
|
342 |
|
|
|
— |
|
|
|
342 |
|
|
|
— |
|
Non-GAAP Noninterest expense |
|
$ |
15,785 |
|
|
$ |
14,344 |
|
|
$ |
45,528 |
|
|
$ |
40,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share, basic and diluted (GAAP) |
|
$ |
0.88 |
|
|
$ |
1.04 |
|
|
$ |
2.49 |
|
|
$ |
0.76 |
|
Effect of adjustments to net income |
|
|
0.05 |
|
|
|
— |
|
|
|
(0.46 |
) |
|
|
1.92 |
|
Non-GAAP Earnings per share, basic and diluted |
|
$ |
0.93 |
|
|
$ |
1.04 |
|
|
$ |
2.03 |
|
|
$ |
2.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Annualized return on average equity |
|
|
9.66 |
% |
|
|
12.20 |
% |
|
|
9.35 |
% |
|
|
3.14 |
% |
Effect of adjustments to net income |
|
|
0.55 |
% |
|
|
— |
% |
|
|
(1.73 |
)% |
|
|
7.94 |
% |
Non-GAAP Annualized return on average equity |
|
|
10.21 |
% |
|
|
12.20 |
% |
|
|
7.62 |
% |
|
|
11.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Annualized return on average assets |
|
|
1.01 |
% |
|
|
1.10 |
% |
|
|
0.97 |
% |
|
|
0.27 |
% |
Effect of adjustments to net income |
|
|
0.06 |
% |
|
|
— |
% |
|
|
(0.18 |
)% |
|
|
0.67 |
% |
Non-GAAP Annualized return on average assets |
|
|
1.07 |
% |
|
|
1.10 |
% |
|
|
0.79 |
% |
|
|
0.94 |
% |
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" within the meaning of Section 27A of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 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 future plans, strategies and expectations of the Company, JMSB and the combined company, otherwise relating to the proposed transaction of the Company and JMSB, or 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, JMSB's and the combined company's control. These risks, uncertainties, and other factors may cause our actual results,
43
TABLE OF CONTENTS
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:
44
TABLE OF CONTENTS
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.
45
TABLE OF CONTENTS
RESULTS OF OPERATIONS
Summary
The following tables present a summarized consolidated statement of income for the periods indicated:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
||||
Net interest income |
|
$ |
17,629 |
|
|
$ |
17,199 |
|
|
$ |
430 |
|
|
|
3 |
% |
Noninterest income |
|
|
5,296 |
|
|
|
5,165 |
|
|
|
131 |
|
|
|
3 |
% |
Net revenues |
|
|
22,925 |
|
|
|
22,364 |
|
|
|
561 |
|
|
|
3 |
% |
Provision for credit losses |
|
|
1,050 |
|
|
|
1,112 |
|
|
|
(62 |
) |
|
|
-6 |
% |
Noninterest expense |
|
|
16,127 |
|
|
|
14,344 |
|
|
|
1,783 |
|
|
|
12 |
% |
Income before income taxes |
|
|
5,748 |
|
|
|
6,908 |
|
|
|
(1,160 |
) |
|
|
-17 |
% |
Income tax expense |
|
|
998 |
|
|
|
1,324 |
|
|
|
(326 |
) |
|
|
-25 |
% |
Net income |
|
$ |
4,750 |
|
|
$ |
5,584 |
|
|
$ |
(834 |
) |
|
|
(15 |
)% |
Adjusted net income (non-GAAP) (1) |
|
$ |
5,020 |
|
|
$ |
5,584 |
|
|
$ |
(564 |
) |
|
|
(10 |
)% |
(1) Adjusted to exclude merger-related expenses in connection with the Company's pending merger with JMSB during the three months ended September 30, 2026. See "Non-GAAP Financial Measures" for a reconciliation to comparable measures calculated in accordance with GAAP.
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
||||
Net interest income |
|
$ |
50,502 |
|
|
$ |
46,233 |
|
|
$ |
4,269 |
|
|
|
9 |
% |
Noninterest income |
|
|
18,814 |
|
|
|
1,528 |
|
|
|
17,286 |
|
|
|
1131 |
% |
Net revenues |
|
|
69,316 |
|
|
|
47,761 |
|
|
|
21,555 |
|
|
|
45 |
% |
Provision for credit losses |
|
|
6,514 |
|
|
|
3,013 |
|
|
|
3,501 |
|
|
|
116 |
% |
Noninterest expense |
|
|
45,870 |
|
|
|
40,332 |
|
|
|
5,538 |
|
|
|
14 |
% |
Income before income taxes |
|
|
16,932 |
|
|
|
4,416 |
|
|
|
12,516 |
|
|
|
283 |
% |
Income tax expense |
|
|
3,461 |
|
|
|
536 |
|
|
|
2,925 |
|
|
|
546 |
% |
Net income |
|
$ |
13,471 |
|
|
$ |
3,880 |
|
|
$ |
9,591 |
|
|
|
247 |
% |
Adjusted net income (non-GAAP) (1) |
|
$ |
10,987 |
|
|
$ |
13,696 |
|
|
$ |
(2,709 |
) |
|
|
(20 |
)% |
(1) Adjusted to exclude the gain on sale of other assets in connection with the Company's sale of its membership interest in Bearing, merger-related expenses in connection with the Company's pending merger with JMSB, and the loss on sale of securities in connection with the Company's balance sheet repositioning transactions recognized during the nine months ended September 30, 2026 and 2025. See "Non-GAAP Financial Measures" for a reconciliation to comparable measures calculated in accordance with GAAP.
The Company's net income decreased during the three months ended September 30, 2026, compared to the three months ended September 30, 2025 primarily due to higher noninterest expenses, partially offset by improved net interest income and lower income tax expense.
During the nine months ended September 30, 2026 the Company's net income increased compared to the nine months ended September 30, 2025 primarily due to loss on the sale of available for sale securities totaling $12.4 million, or $9.8 million, net of tax, recognized during the prior year period. The 2026 year-to-date period also increased due to improved net interest income and gain on sale of other assets, which was more than offset by higher noninterest expense, provision for credit losses, and income tax expense over the corresponding 2025 period.
46
TABLE OF CONTENTS
The following table presents a summary of performance metrics and ratios for the periods indicated:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Earnings per share, basic and diluted |
|
$ |
0.88 |
|
|
$ |
1.04 |
|
|
$ |
2.49 |
|
|
$ |
0.76 |
|
Adjusted earnings per share, basic and diluted (non-GAAP)(1) |
|
$ |
0.93 |
|
|
$ |
1.04 |
|
|
$ |
2.03 |
|
|
$ |
2.68 |
|
Annualized return on average assets |
|
|
1.01 |
% |
|
|
1.10 |
% |
|
|
0.97 |
% |
|
|
0.27 |
% |
Adjusted annualized return on average assets (non-GAAP)(1) |
|
|
1.07 |
% |
|
|
1.10 |
% |
|
|
0.79 |
% |
|
|
0.94 |
% |
Annualized return on average equity |
|
|
9.66 |
% |
|
|
12.20 |
% |
|
|
9.35 |
% |
|
|
3.14 |
% |
Adjusted annualized return on average equity (non-GAAP)(1) |
|
|
10.21 |
% |
|
|
12.20 |
% |
|
|
7.62 |
% |
|
|
11.08 |
% |
(1) Adjusted to exclude merger-related expenses incurred during the third quarter 2026 in connection with the Company's pending merger with JMSB, gain on sale of other assets in connection with the Company's second quarter 2026 sale of its membership interest in Bearing and the loss on sale of securities in connection with the Company's balance sheet repositioning transactions during the first quarter of 2025. See "Non-GAAP Financial Measures" for a reconciliation to comparable measures calculated in accordance with GAAP.
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 shareholders.
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.
47
TABLE OF CONTENTS
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 three months ended September 30, 2026 and 2025 (dollars in thousands):
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
Interest |
|
|
Average |
|
||||||
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
||||||
Assets: |
|
Balance |
|
|
Expense |
|
|
Rate (2) |
|
|
Balance |
|
|
Expense |
|
|
Rate (2) |
|
||||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
$ |
109,875 |
|
|
$ |
1,098 |
|
|
|
3.96 |
% |
|
$ |
124,891 |
|
|
$ |
1,353 |
|
|
|
4.30 |
% |
Tax-Exempt (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
Total Securities |
|
$ |
109,875 |
|
|
$ |
1,098 |
|
|
|
3.96 |
% |
|
$ |
124,891 |
|
|
$ |
1,353 |
|
|
|
4.30 |
% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
|
1,492,680 |
|
|
|
22,680 |
|
|
|
6.03 |
% |
|
|
1,423,586 |
|
|
|
20,626 |
|
|
|
5.75 |
% |
Non-accrual |
|
|
15,358 |
|
|
|
— |
|
|
|
— |
% |
|
|
15,058 |
|
|
|
— |
|
|
|
— |
% |
Tax-Exempt (1) |
|
|
6,388 |
|
|
|
82 |
|
|
|
5.09 |
% |
|
|
9,454 |
|
|
|
121 |
|
|
|
5.08 |
% |
Total Loans |
|
$ |
1,514,426 |
|
|
$ |
22,762 |
|
|
|
5.96 |
% |
|
$ |
1,448,098 |
|
|
$ |
20,747 |
|
|
|
5.68 |
% |
Federal funds sold and interest-bearing deposits in other banks |
|
|
149,722 |
|
|
|
1,375 |
|
|
|
3.64 |
% |
|
|
336,562 |
|
|
|
3,858 |
|
|
|
4.55 |
% |
Total earning assets |
|
$ |
1,774,023 |
|
|
$ |
25,235 |
|
|
|
5.64 |
% |
|
$ |
1,909,551 |
|
|
$ |
25,958 |
|
|
|
5.39 |
% |
Allowance for credit losses on loans |
|
|
(18,255 |
) |
|
|
|
|
|
|
|
|
(15,699 |
) |
|
|
|
|
|
|
||||
Total non-earning assets |
|
|
103,104 |
|
|
|
|
|
|
|
|
|
118,550 |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
1,858,872 |
|
|
|
|
|
|
|
|
$ |
2,012,402 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities and Shareholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
NOW accounts |
|
$ |
302,243 |
|
|
$ |
1,679 |
|
|
|
2.20 |
% |
|
$ |
314,742 |
|
|
$ |
1,863 |
|
|
|
2.35 |
% |
Money market accounts |
|
|
304,800 |
|
|
|
1,714 |
|
|
|
2.23 |
% |
|
|
267,787 |
|
|
|
1,478 |
|
|
|
2.19 |
% |
Savings accounts |
|
|
119,006 |
|
|
|
32 |
|
|
|
0.11 |
% |
|
|
125,512 |
|
|
|
35 |
|
|
|
0.11 |
% |
Time deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
$250,000 and more |
|
|
173,413 |
|
|
|
1,613 |
|
|
|
3.69 |
% |
|
|
170,124 |
|
|
|
1,761 |
|
|
|
4.11 |
% |
Less than $250,000 |
|
|
249,986 |
|
|
|
2,197 |
|
|
|
3.49 |
% |
|
|
281,617 |
|
|
|
2,749 |
|
|
|
3.87 |
% |
Total interest-bearing deposits |
|
$ |
1,149,448 |
|
|
$ |
7,235 |
|
|
|
2.50 |
% |
|
$ |
1,159,782 |
|
|
$ |
7,886 |
|
|
|
2.70 |
% |
Federal funds purchased |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
7 |
|
|
|
— |
|
|
NM |
|
|
Federal Home Loan Bank advances |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
40,000 |
|
|
|
494 |
|
|
|
4.90 |
% |
Subordinated debt, net |
|
|
29,619 |
|
|
|
354 |
|
|
|
4.74 |
% |
|
|
29,552 |
|
|
|
354 |
|
|
|
4.75 |
% |
Total interest-bearing liabilities |
|
$ |
1,179,067 |
|
|
$ |
7,589 |
|
|
|
2.55 |
% |
|
$ |
1,229,341 |
|
|
$ |
8,734 |
|
|
|
2.82 |
% |
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Demand deposits |
|
|
461,525 |
|
|
|
|
|
|
|
|
|
579,568 |
|
|
|
|
|
|
|
||||
Other Liabilities |
|
|
23,208 |
|
|
|
|
|
|
|
|
|
21,863 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
$ |
1,663,800 |
|
|
|
|
|
|
|
|
$ |
1,830,772 |
|
|
|
|
|
|
|
||||
Shareholders' equity |
|
|
195,072 |
|
|
|
|
|
|
|
|
|
181,630 |
|
|
|
|
|
|
|
||||
Total liabilities and shareholders' equity |
|
$ |
1,858,872 |
|
|
|
|
|
|
|
|
$ |
2,012,402 |
|
|
|
|
|
|
|
||||
Net interest income |
|
|
|
|
$ |
17,646 |
|
|
|
|
|
|
|
|
$ |
17,224 |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest spread |
|
|
|
|
|
|
|
|
3.09 |
% |
|
|
|
|
|
|
|
|
2.57 |
% |
||||
Interest expense as a percent of average earning assets |
|
|
|
|
|
|
|
|
1.70 |
% |
|
|
|
|
|
|
|
|
1.81 |
% |
||||
Net interest margin (non-GAAP) (3) |
|
|
|
|
|
|
|
|
3.95 |
% |
|
|
|
|
|
|
|
|
3.58 |
% |
||||
NM - Not Meaningful
48
TABLE OF CONTENTS
The following table shows average balance, interest, and yield/rate information, as well as net interest margin on a tax- equivalent basis for the nine months ended September 30, 2026 and 2025 (dollars in thousands):
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
Interest |
|
|
Average |
|
||||||
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
||||||
Assets: |
|
Balance |
|
|
Expense |
|
|
Rate (2) |
|
|
Balance |
|
|
Expense |
|
|
Rate (2) |
|
||||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
$ |
115,970 |
|
|
$ |
3,659 |
|
|
|
4.22 |
% |
|
$ |
119,351 |
|
|
$ |
3,457 |
|
|
|
3.87 |
% |
Tax-Exempt (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
116 |
|
|
|
4 |
|
|
|
4.61 |
% |
Total Securities |
|
$ |
115,970 |
|
|
$ |
3,659 |
|
|
|
4.22 |
% |
|
$ |
119,467 |
|
|
$ |
3,461 |
|
|
|
3.87 |
% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
|
1,469,890 |
|
|
|
64,994 |
|
|
|
5.91 |
% |
|
|
1,428,186 |
|
|
|
60,806 |
|
|
|
5.69 |
% |
Non-accrual |
|
|
15,004 |
|
|
|
— |
|
|
|
— |
% |
|
|
11,825 |
|
|
|
— |
|
|
|
— |
% |
Tax-Exempt (1) |
|
|
6,942 |
|
|
|
263 |
|
|
|
5.07 |
% |
|
|
9,859 |
|
|
|
374 |
|
|
|
5.07 |
% |
Total Loans |
|
$ |
1,491,836 |
|
|
$ |
65,257 |
|
|
|
5.85 |
% |
|
$ |
1,449,870 |
|
|
$ |
61,180 |
|
|
|
5.64 |
% |
Federal funds sold and interest-bearing deposits in other banks |
|
|
165,036 |
|
|
|
4,558 |
|
|
|
3.69 |
% |
|
|
288,033 |
|
|
|
9,688 |
|
|
|
4.50 |
% |
Total earning assets |
|
$ |
1,772,842 |
|
|
$ |
73,474 |
|
|
|
5.54 |
% |
|
$ |
1,857,370 |
|
|
$ |
74,329 |
|
|
|
5.35 |
% |
Allowance for credit losses on loans |
|
|
(17,246 |
) |
|
|
|
|
|
|
|
|
(15,457 |
) |
|
|
|
|
|
|
||||
Total non-earning assets |
|
|
103,190 |
|
|
|
|
|
|
|
|
|
109,072 |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
1,858,786 |
|
|
|
|
|
|
|
|
$ |
1,950,985 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities and Shareholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
NOW accounts |
|
$ |
309,414 |
|
|
$ |
5,030 |
|
|
|
2.17 |
% |
|
$ |
298,045 |
|
|
$ |
4,958 |
|
|
|
2.22 |
% |
Money market accounts |
|
|
294,607 |
|
|
|
4,807 |
|
|
|
2.18 |
% |
|
|
271,758 |
|
|
|
4,511 |
|
|
|
2.22 |
% |
Savings accounts |
|
|
121,337 |
|
|
|
97 |
|
|
|
0.11 |
% |
|
|
129,500 |
|
|
|
108 |
|
|
|
0.11 |
% |
Time deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
$250,000 and more |
|
|
171,621 |
|
|
|
4,848 |
|
|
|
3.78 |
% |
|
|
176,676 |
|
|
|
5,788 |
|
|
|
4.38 |
% |
Less than $250,000 |
|
|
254,050 |
|
|
|
6,728 |
|
|
|
3.54 |
% |
|
|
300,965 |
|
|
|
9,288 |
|
|
|
4.13 |
% |
Total interest-bearing deposits |
|
$ |
1,151,029 |
|
|
$ |
21,510 |
|
|
|
2.50 |
% |
|
$ |
1,176,944 |
|
|
$ |
24,653 |
|
|
|
2.80 |
% |
Federal funds purchased |
|
|
3 |
|
|
|
— |
|
|
NM |
|
|
|
5 |
|
|
|
— |
|
|
NM |
|
||
Federal Home Loan Bank advances |
|
|
9,377 |
|
|
|
344 |
|
|
|
4.90 |
% |
|
|
63,535 |
|
|
|
2,301 |
|
|
|
4.84 |
% |
Subordinated debt, net |
|
|
29,602 |
|
|
|
1,063 |
|
|
|
4.80 |
% |
|
|
29,535 |
|
|
|
1,063 |
|
|
|
4.81 |
% |
Total interest-bearing liabilities |
|
$ |
1,190,011 |
|
|
$ |
22,917 |
|
|
|
2.57 |
% |
|
$ |
1,270,019 |
|
|
$ |
28,017 |
|
|
|
2.95 |
% |
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Demand deposits |
|
|
453,332 |
|
|
|
|
|
|
|
|
|
494,034 |
|
|
|
|
|
|
|
||||
Other Liabilities |
|
|
22,718 |
|
|
|
|
|
|
|
|
|
21,736 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
$ |
1,666,061 |
|
|
|
|
|
|
|
|
$ |
1,785,789 |
|
|
|
|
|
|
|
||||
Shareholders' equity |
|
|
192,725 |
|
|
|
|
|
|
|
|
|
165,196 |
|
|
|
|
|
|
|
||||
Total liabilities and shareholders' equity |
|
$ |
1,858,786 |
|
|
|
|
|
|
|
|
$ |
1,950,985 |
|
|
|
|
|
|
|
||||
Net interest income |
|
|
|
|
$ |
50,557 |
|
|
|
|
|
|
|
|
$ |
46,312 |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest spread |
|
|
|
|
|
|
|
|
2.97 |
% |
|
|
|
|
|
|
|
|
2.40 |
% |
||||
Interest expense as a percent of average earning assets |
|
|
|
|
|
|
|
|
1.73 |
% |
|
|
|
|
|
|
|
|
2.02 |
% |
||||
Net interest margin (non-GAAP) (3) |
|
|
|
|
|
|
|
|
3.81 |
% |
|
|
|
|
|
|
|
|
3.33 |
% |
||||
NM - Not Meaningful
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 2026 and 2025.
49
TABLE OF CONTENTS
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
GAAP Financial Measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Income - Loans |
|
$ |
22,745 |
|
|
$ |
20,722 |
|
|
$ |
65,202 |
|
|
$ |
61,102 |
|
Interest Income - Securities and Other Interest-Earnings Assets |
|
|
2,473 |
|
|
|
5,211 |
|
|
|
8,217 |
|
|
|
13,148 |
|
Interest Expense - Deposits |
|
|
7,235 |
|
|
|
7,886 |
|
|
|
21,510 |
|
|
|
24,653 |
|
Interest Expense - Borrowings |
|
|
354 |
|
|
|
848 |
|
|
|
1,407 |
|
|
|
3,364 |
|
Total Net Interest Income |
|
$ |
17,629 |
|
|
$ |
17,199 |
|
|
$ |
50,502 |
|
|
$ |
46,233 |
|
Non-GAAP Financial Measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1) |
|
$ |
17 |
|
|
$ |
25 |
|
|
$ |
55 |
|
|
$ |
78 |
|
Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1) |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
1 |
|
Total Tax Benefit on Tax-Exempt Interest Income |
|
$ |
17 |
|
|
$ |
25 |
|
|
$ |
55 |
|
|
$ |
79 |
|
Tax-Equivalent Net Interest Income |
|
$ |
17,646 |
|
|
$ |
17,224 |
|
|
$ |
50,557 |
|
|
$ |
46,312 |
|
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 impacted primarily 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, net interest spread, and net interest margin reflect a reduction in cost associated with time deposits and continue to demonstrate the benefits of the balance sheet repositioning strategy completed in March 2025, in which the Company raised capital, increased cash on hand and replaced lower-yielding investment securities with higher yielding securities. In turn, the Company deployed capital to reduce its reliance on wholesale borrowings and higher cost deposits and to fund meaningful loan growth.
The increase in net interest income during the three and nine months ended September 30, 2026 primarily reflects decreases in the average balances of interest-bearing liabilities and reductions in the average rates paid while being partially offset by lower income from interest-earning assets, namely federal funds sold and interest-bearing deposits in other banks. The decline in the average balances of federal funds sold and interest-bearing deposits in other banks outpaced average balance growth in loans, slightly outweighing earnings on loans.
Net interest income, on a tax-equivalent basis, was $17.6 million and $17.2 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $422 thousand, or 2.45%. For the nine months ended September 30, 2026 and 2025, tax-equivalent net interest income was $50.6 million and $46.3 million, respectively, an increase of $4.3 million, or 9.2%.
The Company's net interest spread and net interest margin increased 52 basis points and 37 basis points, respectively, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. For the nine months ended September 30, 2026, the Company's net interest spread and net interest margin increased 57 basis points and 48 basis points, respectively, compared to nine months ended September 30, 2025. Ongoing margin pressures include loan demand unpredictability, deposit competition, and elevated funding costs.
Total average balance of securities decreased by $15.0 million and $3.5 million for the three and nine months ended September 30, 2026, respectively, from the average balance in the prior year periods. The average yield on securities decreased 34 basis points during the three months ended September 30, 2026 compared to the three months ended September 30, 2025. During the nine months ended September 30, 2026, the average yield on securities increased 35 basis points compared to the nine
50
TABLE OF CONTENTS
months ended September 30, 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 for the three months ended September 30, 2026 increased $66.3 million and for the nine months ended September 30, 2026 increased $42.0 million compared to the same periods in 2025. The increase in average balances reflects growth in commercial real estate, construction, commercial and industrial, and residential owner occupied loan portfolios, offset by continued amortization of the marine loan portfolio. The year-to-date change was also impacted by the sale of a pool of mortgage loans totaling $18.8 million early in the first quarter of 2025.
Total average balance of federal funds sold and interest-bearing deposits in other banks decreased $186.8 million and $123.0 million during the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025, largely due to funding loan growth and the payoff of maturing borrowings.
Total average interest-bearing deposit balances for three and nine months ended September 30, 2026 decreased $10.3 million and $25.9 million from the same periods in 2025. For the three months ended September 30, 2026, average balances of time deposits decreased $28.3 million and were partially offset by a net average balance increase of $18.0 million in lower cost savings and interest-bearing demand deposits. The average rate paid on interest-bearing deposits decreased 20 basis points and 30 basis points during the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025 primarily reflecting lower average rates paid on time deposits.
The average balance of FHLB advances decreased $40.0 million and $54.2 million during the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025 due to maturing advances that were not replaced with new borrowings. During March 2026, the Company's remaining FHLB borrowings were fully paid down, which materially reduced our reliance on wholesale funding.
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.
51
TABLE OF CONTENTS
The following table provides information about changes in rate and volume (dollars in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
|
September 30, 2026 from 2025 |
|
|
September 30, 2026 from 2025 |
|
||||||||||||||||||
|
|
Increase (Decrease) |
|
|
|
|
|
Increase (Decrease) |
|
|
|
|
||||||||||||
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
||||||
Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
$ |
(154 |
) |
|
$ |
(101 |
) |
|
$ |
(255 |
) |
|
$ |
(92 |
) |
|
$ |
294 |
|
|
$ |
202 |
|
Tax-exempt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
|
1,025 |
|
|
|
1,029 |
|
|
|
2,054 |
|
|
|
1,802 |
|
|
|
2,386 |
|
|
|
4,188 |
|
Tax-exempt |
|
|
(39 |
) |
|
|
— |
|
|
|
(39 |
) |
|
|
(111 |
) |
|
|
— |
|
|
|
(111 |
) |
Federal funds sold and interest-bearing deposits in other banks |
|
|
(1,825 |
) |
|
|
(658 |
) |
|
|
(2,483 |
) |
|
|
(3,609 |
) |
|
|
(1,521 |
) |
|
|
(5,130 |
) |
Total earning assets |
|
$ |
(993 |
) |
|
$ |
270 |
|
|
$ |
(723 |
) |
|
$ |
(2,012 |
) |
|
$ |
1,157 |
|
|
$ |
(855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
NOW accounts |
|
$ |
(71 |
) |
|
$ |
(113 |
) |
|
$ |
(184 |
) |
|
$ |
176 |
|
|
$ |
(104 |
) |
|
$ |
72 |
|
Money market accounts |
|
|
208 |
|
|
|
28 |
|
|
|
236 |
|
|
|
377 |
|
|
|
(81 |
) |
|
|
296 |
|
Savings accounts |
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
(11 |
) |
|
|
— |
|
|
|
(11 |
) |
Time deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
$250,000 and more |
|
|
35 |
|
|
|
(183 |
) |
|
|
(148 |
) |
|
|
(162 |
) |
|
|
(778 |
) |
|
|
(940 |
) |
Less than $250,000 |
|
|
(295 |
) |
|
|
(257 |
) |
|
|
(552 |
) |
|
|
(1,336 |
) |
|
|
(1,224 |
) |
|
|
(2,560 |
) |
Total interest-bearing deposits |
|
$ |
(126 |
) |
|
$ |
(525 |
) |
|
$ |
(651 |
) |
|
$ |
(956 |
) |
|
$ |
(2,187 |
) |
|
$ |
(3,143 |
) |
Federal Home Loan Bank advances |
|
|
(247 |
) |
|
|
(247 |
) |
|
|
(494 |
) |
|
|
(1,986 |
) |
|
|
29 |
|
|
|
(1,957 |
) |
Total interest-bearing liabilities |
|
$ |
(373 |
) |
|
$ |
(772 |
) |
|
$ |
(1,145 |
) |
|
$ |
(2,942 |
) |
|
$ |
(2,158 |
) |
|
$ |
(5,100 |
) |
Change in net interest income |
|
$ |
(620 |
) |
|
$ |
1,042 |
|
|
$ |
422 |
|
|
$ |
930 |
|
|
$ |
3,315 |
|
|
$ |
4,245 |
|
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 for credit losses involves a high degree of judgment.
The following table presents the provision for credit losses:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
Change |
|
|
Change |
|
|
2026 |
|
|
2025 |
|
|
Change |
|
|
Change |
|
||||||||
Provision for credit losses on loans |
|
$ |
1,261 |
|
|
$ |
1,131 |
|
|
$ |
130 |
|
|
|
11 |
% |
|
$ |
6,440 |
|
|
$ |
3,133 |
|
|
$ |
3,307 |
|
|
|
106 |
% |
Provision for credit losses on unfunded commitments |
|
|
(211 |
) |
|
|
(19 |
) |
|
|
(192 |
) |
|
|
1,011 |
% |
|
|
74 |
|
|
|
(120 |
) |
|
|
194 |
|
|
|
(162 |
)% |
Provision for credit losses |
|
$ |
1,050 |
|
|
$ |
1,112 |
|
|
$ |
(62 |
) |
|
|
(6 |
)% |
|
$ |
6,514 |
|
|
$ |
3,013 |
|
|
$ |
3,501 |
|
|
|
116 |
% |
The provision for credit losses includes the impact of a change in historical loss factors driven by charge-offs, changes in qualitative factors adjustments including forecasted economic conditions and loan growth, and specific reserve allocations on individually evaluated nonaccrual loans.
The provision for credit losses increased for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025, reflecting higher historical loss factors and specific reserve allocations, partially offset by lower qualitative
52
TABLE OF CONTENTS
factor adjustments. For the three months ended September 30, 2026, these same components also affected the change from the three months ended September 30, 2025. However, the change in provision attributable to the qualitative factor adjustments slightly offset the historical loss factor and specific reserve allocations, resulting in an overall decrease in provision for credit losses for the three-month period.
The qualitative factor for the nature, terms, and volume of the loan portfolio is intended to capture incremental risk arising from portfolio growth that is not otherwise reflected in the quantitative estimate. During the three months ended September 30, 2026, this factor was refined to provide a more representative assessment of sustained portfolio growth trends and their relationship to expected credit losses. This refinement was the primary reason for the lower qualitative factor adjustment.
For the three and nine months ended September 30, 2026, net charge-offs totaled $1.0 million and $3.2 million, compared to net charge-offs totaling $2.3 million and $3.4 million during the three and nine months ended September 30, 2025, respectively.
Specific reserve allocations totaled $3.4 million at September 30, 2026, compared to $333 thousand at September 30, 2025, primarily reflecting new and increased allocations on commercial loan relationships during 2026. At September 30, 2026, six commercial loan relationships comprised $3.1 million, or 91%, of the total specific reserve allocation, including two commercial and industrial relationships, two multi-family commercial real estate relationships, one owner-occupied commercial real estate exposure, and one marine relationship. The $3.1 million increase from September 30, 2025 was primarily attributable to these six relationships. Specific allocations on three of these commercial loan relationships were recorded based on updated collateral information, while three new nonaccrual relationships requiring specific allocations were added during the second and third quarters of 2026. These increases were partially offset by charge-offs of loan balances with previously established specific reserve balances.
Noninterest Income
Total noninterest income was $5.3 million and $5.2 million for the three months ended September 30, 2026 and 2025, respectively, and $18.8 million and $1.5 million for the nine months ended September 30, 2026 and 2025, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three and nine months ended September 30, 2026 and 2025, which are included within the respective Consolidated Statements of Income headings.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
||||||||
Wealth management fees |
|
$ |
1,744 |
|
|
$ |
1,827 |
|
|
$ |
(83 |
) |
|
|
(5 |
)% |
|
$ |
5,723 |
|
|
$ |
5,158 |
|
|
$ |
565 |
|
|
|
11 |
% |
Service charges on deposit accounts |
|
|
606 |
|
|
|
558 |
|
|
|
48 |
|
|
|
9 |
% |
|
|
1,725 |
|
|
|
1,567 |
|
|
|
158 |
|
|
|
10 |
% |
Other service charges and fees |
|
|
1,096 |
|
|
|
1,151 |
|
|
|
(55 |
) |
|
|
(5 |
)% |
|
|
3,045 |
|
|
|
3,183 |
|
|
|
(138 |
) |
|
|
(4 |
)% |
(Loss) on sale of securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
(12,425 |
) |
|
|
12,425 |
|
|
NM |
|
|
Gain (loss) on disposal of bank premises and equipment |
|
|
7 |
|
|
|
(2 |
) |
|
|
9 |
|
|
|
450 |
% |
|
|
3 |
|
|
|
(18 |
) |
|
|
21 |
|
|
|
(117 |
)% |
Gain on sale of loans |
|
|
1,255 |
|
|
|
1,012 |
|
|
|
243 |
|
|
|
24 |
% |
|
|
2,913 |
|
|
|
2,545 |
|
|
|
368 |
|
|
|
14 |
% |
Gain on sale of other assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
3,486 |
|
|
|
— |
|
|
|
3,486 |
|
|
|
100 |
% |
Small business investment company income |
|
|
213 |
|
|
|
58 |
|
|
|
155 |
|
|
|
267 |
% |
|
|
589 |
|
|
|
211 |
|
|
|
378 |
|
|
|
179 |
% |
Bank owned life insurance income |
|
|
280 |
|
|
|
268 |
|
|
|
12 |
|
|
|
4 |
% |
|
|
853 |
|
|
|
819 |
|
|
|
34 |
|
|
|
4 |
% |
Other operating income |
|
|
95 |
|
|
|
293 |
|
|
|
(198 |
) |
|
|
(68 |
)% |
|
|
477 |
|
|
|
488 |
|
|
|
(11 |
) |
|
|
(2 |
)% |
Total noninterest income |
|
$ |
5,296 |
|
|
$ |
5,165 |
|
|
$ |
131 |
|
|
|
3 |
% |
|
$ |
18,814 |
|
|
$ |
1,528 |
|
|
$ |
17,286 |
|
|
|
1131 |
% |
NM - Not Meaningful
Wealth management fee income increased during the nine months ended September 30, 2026 compared to the same period in 2025. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale
53
TABLE OF CONTENTS
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. Since September 30, 2025, assets under management increased $58.4 million, or 10.8%, to $601.6 million, reflecting increases in market value and new business accounts. Additionally, termination fees have also contributed to the year over year increase in revenue. Partially offsetting these increases was a decrease in investment sales commissions and estate settlement fees.
Service charges on deposit accounts increased during the three and nine months ended September 30, 2026 compared to the same period in 2025. The increase is mainly driven by higher overdraft charges and account analysis income.
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 net pre-tax loss of $12.4 million during the nine months ended September 30, 2025. There were no sales of available for sale debt securities in the three and nine months ended September 30, 2026.
Gain on sale of loans increased during the three and nine months ended September 30, 2026 when compared to the same periods in 2025. Higher sales volume drove the increase during three months ended September 30, 2026 compared to three months ended September 30, 2025. For the nine months ended September 30, 2026, sales volume was slightly lower, due to sales of $18.3 million of portfolio mortgage loans sold during the nine months ended September 30, 2025. These portfolio mortgage loans were priced at par and had a minimal impact on income. Excluding the portfolio loan sale, sold loan volume increased during the nine months ended September 30, 2026. The Company sold $85.0 million loans on the secondary market, consisting of $66.0 million of mortgage loans and $19.0 million of SBA commercial loans during the nine months ended September 30, 2026. This compares to total loan sales of $88.6 million during the nine months ended September 30, 2025, consisting of $53.5 million of mortgage loans originated for sale, $16.3 million SBA commercial loans, and a pool of $18.8 million residential mortgage loans held for investment.
Gain on sale of other assets during the nine months ended September 30, 2026 reflects the Company's sale of its membership interest in Bearing to an unaffiliated third party in May 2026.
Income from holdings in small business investment companies increased during the three and nine months ended September 30, 2026, compared to the same periods in 2025. The increases during the current year periods are mainly attributed to higher cash distributions received, based on the results of their performance and difference in timing of distributions.
54
TABLE OF CONTENTS
Noninterest Expenses
Total noninterest expenses increased $1.8 million, or 12%, for the three months ended September 30, 2026 and $5.5 million, or 14%, for the nine months ended September 30, 2026 compared to the same periods in 2025. The following table presents the components of noninterest expense for the three and nine months ended September 30, 2026 and 2025, which are included within the respective Consolidated Statements of Income headings.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
||||||||
Salaries and employee benefits |
|
$ |
9,627 |
|
|
$ |
8,717 |
|
|
$ |
910 |
|
|
|
10 |
% |
|
$ |
27,068 |
|
|
$ |
23,741 |
|
|
$ |
3,327 |
|
|
|
14 |
% |
Occupancy expenses |
|
|
696 |
|
|
|
691 |
|
|
|
5 |
|
|
|
1 |
% |
|
|
1,975 |
|
|
|
1,951 |
|
|
|
24 |
|
|
|
1 |
% |
Equipment expenses |
|
|
495 |
|
|
|
437 |
|
|
|
58 |
|
|
|
13 |
% |
|
|
1,408 |
|
|
|
1,261 |
|
|
|
147 |
|
|
|
12 |
% |
Advertising and marketing expenses |
|
|
264 |
|
|
|
317 |
|
|
|
(53 |
) |
|
|
(17 |
)% |
|
|
750 |
|
|
|
652 |
|
|
|
98 |
|
|
|
15 |
% |
Stationery and supplies |
|
|
39 |
|
|
|
37 |
|
|
|
2 |
|
|
|
5 |
% |
|
|
115 |
|
|
|
114 |
|
|
|
1 |
|
|
|
1 |
% |
ATM network fees |
|
|
330 |
|
|
|
327 |
|
|
|
3 |
|
|
|
1 |
% |
|
|
983 |
|
|
|
1,021 |
|
|
|
(38 |
) |
|
|
(4 |
)% |
Other real estate owned expense (gain), net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
(5 |
) |
|
|
— |
|
|
|
(5 |
) |
|
|
100 |
% |
Loss on sale of repossessed assets |
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
% |
|
|
54 |
|
|
|
133 |
|
|
|
(79 |
) |
|
|
(59 |
)% |
FDIC assessment |
|
|
200 |
|
|
|
172 |
|
|
|
28 |
|
|
|
16 |
% |
|
|
596 |
|
|
|
748 |
|
|
|
(152 |
) |
|
|
(20 |
)% |
Computer software expense |
|
|
432 |
|
|
|
389 |
|
|
|
43 |
|
|
|
11 |
% |
|
|
1,208 |
|
|
|
996 |
|
|
|
212 |
|
|
|
21 |
% |
Bank franchise tax |
|
|
530 |
|
|
|
388 |
|
|
|
142 |
|
|
|
37 |
% |
|
|
1,541 |
|
|
|
1,136 |
|
|
|
405 |
|
|
|
36 |
% |
Professional fees |
|
|
716 |
|
|
|
493 |
|
|
|
223 |
|
|
|
45 |
% |
|
|
1,871 |
|
|
|
1,697 |
|
|
|
174 |
|
|
|
10 |
% |
Data processing fees |
|
|
553 |
|
|
|
469 |
|
|
|
84 |
|
|
|
18 |
% |
|
|
1,630 |
|
|
|
1,652 |
|
|
|
(22 |
) |
|
|
(1 |
)% |
Loan servicing expense |
|
|
274 |
|
|
|
280 |
|
|
|
(6 |
) |
|
|
(2 |
)% |
|
|
803 |
|
|
|
779 |
|
|
|
24 |
|
|
|
3 |
% |
Merger-related expenses |
|
|
342 |
|
|
|
— |
|
|
|
342 |
|
|
|
100 |
% |
|
|
342 |
|
|
|
— |
|
|
|
342 |
|
|
|
100 |
% |
Other operating expenses |
|
|
1,614 |
|
|
|
1,627 |
|
|
|
(13 |
) |
|
|
(1 |
)% |
|
|
5,531 |
|
|
|
4,451 |
|
|
|
1,080 |
|
|
|
24 |
% |
Total noninterest expenses |
|
$ |
16,127 |
|
|
$ |
14,344 |
|
|
$ |
1,783 |
|
|
|
12 |
% |
|
$ |
45,870 |
|
|
$ |
40,332 |
|
|
$ |
5,538 |
|
|
|
14 |
% |
Salaries and employee benefits increased during the three and nine months ended September 30, 2026 over 2025, primarily reflecting increases in salaries due to investments in staffing and higher annual incentive compensation plan accruals as certain performance metrics were attained. Further contributing to the increases were higher stock-based compensation expense and employee medical insurance costs. The Company's number of full-time equivalent employees ("FTE's") has increased from 249 at September 30, 2025 to 261 at September 30, 2026.
FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the nine months ended September 30, 2026 compared to the same period in 2025. The decreased expense primarily reflects an improvement in the financial ratio portions of the assessment rate reflecting a stronger capital position largely due to improved net income during 2026 and the capital raise completed in early 2025.
Computer software and equipment expenses increased during the three and nine months ended September 30, 2026 compared to the same periods in 2025 reflecting higher costs of system solutions enhancing security and operational efficiency throughout the organization.
Bank Franchise tax increased during the three and nine months ended September 30, 2026 compared to the same periods in 2025 due to a higher estimate for 2026, reflective of the Bank's capital level.
Professional fees increased during the three and nine months ended September 30, 2026 primarily due to higher expenses related to employee recruitment fees and legal fees on loan matters, as well as consulting fees in conjunction with the purchase of tax credits.
55
TABLE OF CONTENTS
In September 2026, the Company entered into a Merger Agreement, which is discussed above and in Note 2. As a result, the Company incurred merger-related expenses totaling $342 thousand during the three and nine months ended September 30, 2026. These expenses are expected to occur through the closing date of the transaction, anticipated in the first quarter of 2027. There were no merger-related expenses incurred during the three and nine months ended September 30, 2025.
Other operating expenses increased during the nine months ended September 30, 2026 compared to the same period in 2025. The increase largely reflects higher expenses related to volume based costs, loan collection, and other loan costs as well as higher charitable contributions primarily driven by the Bank's matching of donations from a very successful "Give with BOC" campaign. Partially offsetting this was a decline in fraudulent transaction activity costs in 2026 compared to 2025.
Efficiency Ratio
The efficiency ratio of the Company was 68.76% and 64.06% for the three months ended September 30, 2026 and 2025, respectively and 69.02% and 66.68% for the nine months ended September 30, 2026 and 2025. The deterioration in the efficiency ratio during the 2026 periods reflects increases in noninterest expenses, partially offset by increases in net interest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income. The Company adjusts for non-recurring or non-operating items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed or other assets, merger-related expenses, disposals of bank premises and equipment, 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 three and nine months ended September 30, 2026 and 2025 was as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
Summary of Operating Results: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Noninterest expenses (GAAP) |
|
$ |
16,127 |
|
|
$ |
14,344 |
|
|
$ |
45,870 |
|
|
$ |
40,332 |
|
Less: Loss on sale of repossessed assets |
|
|
15 |
|
|
|
— |
|
|
|
54 |
|
|
|
133 |
|
Merger-related expenses |
|
|
342 |
|
|
|
— |
|
|
|
342 |
|
|
|
— |
|
Adjusted noninterest expenses (Non-GAAP) |
|
$ |
15,770 |
|
|
$ |
14,344 |
|
|
$ |
45,474 |
|
|
$ |
40,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net interest income |
|
|
17,629 |
|
|
|
17,199 |
|
|
|
50,502 |
|
|
|
46,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Noninterest income (GAAP) |
|
|
5,296 |
|
|
|
5,165 |
|
|
|
18,814 |
|
|
|
1,528 |
|
Less: Gain (Loss) on the sale and disposal of premises and equipment |
|
|
7 |
|
|
|
(2 |
) |
|
|
3 |
|
|
|
(18 |
) |
Less: Gain on the sale of other assets |
|
|
— |
|
|
|
— |
|
|
|
3,486 |
|
|
|
— |
|
Less: (Loss) on the sale of securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,425 |
) |
Adjusted noninterest income (Non-GAAP) |
|
$ |
5,289 |
|
|
$ |
5,167 |
|
|
$ |
15,325 |
|
|
$ |
13,971 |
|
Tax equivalent adjustment (1) |
|
|
17 |
|
|
|
25 |
|
|
|
55 |
|
|
|
79 |
|
Total net interest income and noninterest income, adjusted (Non-GAAP) |
|
$ |
22,935 |
|
|
$ |
22,391 |
|
|
$ |
65,882 |
|
|
$ |
60,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Efficiency ratio |
|
|
68.76 |
% |
|
|
64.06 |
% |
|
|
69.02 |
% |
|
|
66.68 |
% |
56
TABLE OF CONTENTS
Income Taxes
The following table presents the Company's income tax provision and effective tax rate for the periods indicated:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Income tax expense |
|
$ |
998 |
|
|
$ |
1,324 |
|
|
$ |
3,461 |
|
|
$ |
536 |
|
Effective income tax rate |
|
|
17.36 |
% |
|
|
19.17 |
% |
|
|
20.44 |
% |
|
|
12.14 |
% |
Income tax expense for the three months ended September 30, 2026 was comprised of federal and state income taxes of $850 thousand and $148 thousand, respectively. For the three months ended September 30, 2025, the Company recognized income tax expense of $1.3 million, comprised of federal and state income taxes of $1.3 million and $27 thousand, respectively.
For the nine months ended September 30, 2026, income tax expense was comprised of federal and state income taxes of $3.2 million and $260 thousand, respectively. For the nine months ended September 30, 2025, the Company recognized federal and state income taxes of $452 thousand and $84 thousand, respectively.
Income tax expense decreased during the third quarter 2026 compared to the 2025 period due to the purchase of tax credits, which resulted in a negative adjustment to income tax expense of $400 thousand, and lower income recognized during the 2026 quarterly period.
The increase in income tax expense during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 primarily reflects the higher level of net income recognized during the 2026 year-to-date period compared to the same 2025 period. Additionally, during the second quarter of 2026, there was an adjustment to the proportional amortization expense for investments in qualified rehabilitation credits and tax credits on qualified affordable housing project investments of $174 thousand based on final 2025 income tax results. These increases were partially offset by tax credits purchased during the third quarter of 2026.
The effective tax rate was 17.36% and 20.44% for the three and nine months ended September 30, 2026, respectively. The effective tax rate varied from the statutory rate primarily due to the purchase of $5 million of tax credits at a discounted rate of $0.93/dollar, partially offset by $342 thousand of merger-related expenses, that are non-deductible for tax purposes, in connection with the Company's proposed merger with JMSB announced in September 2026.
The effective tax rate for the three and nine months ended September 30, 2025 was 19.17% and 12.14%, respectively, reflecting the recognition of tax-exempt life insurance income and the Company's balance sheet repositioning transaction in March 2025 discussed in the "Non-GAAP Financial Measures" section above.
Business Segments
The Company has three reportable operating segments: community banking, marine lending and wealth management. See Note 17 to the Consolidated Financial Statements.
57
TABLE OF CONTENTS
The following table presents a summarized statement of operations for the community banking business segment for the three and nine months ended September 30, 2026 and 2025:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
||||||||
Interest Income |
|
$ |
23,176 |
|
|
$ |
23,429 |
|
|
$ |
(253 |
) |
|
|
(1 |
)% |
|
$ |
67,024 |
|
|
$ |
66,383 |
|
|
$ |
641 |
|
|
|
1 |
% |
Interest Expense |
|
|
6,529 |
|
|
|
7,466 |
|
|
|
(937 |
) |
|
|
(13 |
)% |
|
|
19,598 |
|
|
|
23,806 |
|
|
|
(4,208 |
) |
|
|
(18 |
)% |
Net interest income |
|
$ |
16,647 |
|
|
$ |
15,963 |
|
|
$ |
684 |
|
|
|
4 |
% |
|
$ |
47,426 |
|
|
$ |
42,577 |
|
|
$ |
4,849 |
|
|
|
11 |
% |
Gain on sale of loans |
|
|
1,255 |
|
|
|
1,012 |
|
|
|
243 |
|
|
|
24 |
% |
|
|
2,913 |
|
|
|
2,545 |
|
|
|
368 |
|
|
|
14 |
% |
(Loss) on the sale of securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
(12,425 |
) |
|
|
12,425 |
|
|
NM |
|
|
Other noninterest income |
|
|
2,254 |
|
|
|
2,284 |
|
|
|
(30 |
) |
|
|
(1 |
)% |
|
|
10,049 |
|
|
|
6,122 |
|
|
|
3,927 |
|
|
|
64 |
% |
Net Revenue |
|
|
20,156 |
|
|
|
19,259 |
|
|
|
897 |
|
|
|
5 |
% |
|
|
60,388 |
|
|
|
38,819 |
|
|
|
21,569 |
|
|
|
56 |
% |
Provision for credit losses |
|
|
572 |
|
|
|
551 |
|
|
|
21 |
|
|
|
4 |
% |
|
|
5,489 |
|
|
|
2,722 |
|
|
|
2,767 |
|
|
|
102 |
% |
Noninterest expense |
|
|
14,797 |
|
|
|
13,283 |
|
|
|
1,514 |
|
|
|
11 |
% |
|
|
42,496 |
|
|
|
37,334 |
|
|
|
5,162 |
|
|
|
14 |
% |
Income (Loss) before taxes |
|
|
4,787 |
|
|
|
5,425 |
|
|
|
(638 |
) |
|
|
(12 |
)% |
|
|
12,403 |
|
|
|
(1,237 |
) |
|
|
13,640 |
|
|
|
(1,103 |
)% |
Income tax expense (benefit) |
|
|
725 |
|
|
|
1,011 |
|
|
|
(286 |
) |
|
|
(28 |
)% |
|
|
2,463 |
|
|
|
(640 |
) |
|
|
3,103 |
|
|
|
485 |
% |
Net Income (Loss) |
|
$ |
4,062 |
|
|
$ |
4,414 |
|
|
$ |
(352 |
) |
|
|
(8 |
)% |
|
$ |
9,940 |
|
|
$ |
(597 |
) |
|
$ |
10,537 |
|
|
|
(1,765 |
)% |
Net interest income increased during the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 primarily due to income earned on non-marine loans as well as reductions in time deposit interest expense due primarily to lower average rates paid, and borrowings interest expense as FHLB advances have matured. These increases were partially offset by decreased earnings attributable to the reduced level of interest-earning deposit balances in other banks as cash was deployed to payoff the Company's remaining FHLB advances and fund loan growth, as well as a net increase in interest expense paid on lower cost customer savings interest-bearing demand deposit balances, reflecting average balance growth. For the nine months ended September 30, 2026, net interest income increased over the nine months ended September 30, 2025 due to the investment securities portfolio, which was restructured in the first quarter of 2025 whereby lower yielding investment securities were sold and replaced with higher yielding securities.
Provision for credit losses reflects an increase in historical loss factors due to non-marine loan net charge-offs totaling $1.0 million and $2.9 million for the three and nine months ended September 30, 2026, respectively, as well as specific reserves of $2.8 million. Provision for credit losses for the three and nine months ended September 30, 2025 reflects net charge-offs totaling $1.8 million and $2.8 million, respectively, as well as specific reserves of $333 thousand. The increase in the specific reserve was primarily attributable to three commercial loan relationships for which specific allocations were adjusted based on updated collateral information, and two new nonaccrual relationships requiring specific allocations were added during the 2026 year-to-date period.
Gain on sale of loans increased during the three and nine months ended September 30, 2026 compared to the same 2025 periods. Higher sales volume drove the increase during the three months ended September 30, 2026 compared to three months ended September 30, 2025. For the nine months ended September 30, 2026, sales volume was slightly lower, however certain mortgage loans sold from portfolio during the nine months ended September 30, 2025 were priced at par, thereby causing gain on sale income during the 2025 year-to-date period to be lower.
Other noninterest income increased during the nine months ended September 30, 2026 over the nine months ended September 30, 2025 primarily due to income from holdings in small business investment companies and the Company's sale of its membership interest in Bearing to an unaffiliated third party. A pre-tax gain on the sale in the amount of $3.5 million was recognized as a gain on sale of other assets during the second quarter of 2026.
58
TABLE OF CONTENTS
Loss on the sale of securities during the nine months ended September 30, 2025 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 and a pre-tax loss of $12.4 million was recognized.
Noninterest expense increased during the three and nine months ended September 30, 2026 over the 2025 periods primarily due to an increase in salaries and employee benefits, reflecting the Company's continued investment in staffing and increased benefits expenses including annual incentive plan accruals, medical insurance, 401K match, and stock-based compensation. Additional noninterest expense increases related to bank franchise tax, merger-related expenses, loan costs and charitable contributions.
Income tax expense for the three months ended September 30, 2026 decreased from the three months ended September 30, 2025 primarily due to the purchase of $5 million of tax credits, which resulted in a negative adjustment to income tax expense of $400 thousand. The increase in income tax expense during the nine months ended September 30, 2026 was primarily due to the Company's net income level compared to the nine months ended September 30, 2025, partially offset by the tax credit adjustment. The 2025 period included the recognized loss on the sale of securities during the first quarter of 2025.
The following table presents a summarized statement of income for the marine lending segment for the three and nine months ended September 30, 2026 and 2025:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
||||||||
Interest Income |
|
$ |
2,042 |
|
|
$ |
2,504 |
|
|
$ |
(462 |
) |
|
|
(18 |
)% |
|
$ |
6,395 |
|
|
$ |
7,867 |
|
|
$ |
(1,472 |
) |
|
|
(19 |
)% |
Interest Expense (1) |
|
|
706 |
|
|
|
914 |
|
|
|
(208 |
) |
|
|
(23 |
)% |
|
|
2,256 |
|
|
|
3,148 |
|
|
|
(892 |
) |
|
|
(28 |
)% |
Net interest income |
|
$ |
1,336 |
|
|
$ |
1,590 |
|
|
$ |
(254 |
) |
|
|
(16 |
)% |
|
$ |
4,139 |
|
|
$ |
4,719 |
|
|
$ |
(580 |
) |
|
|
(12 |
)% |
Net Revenue |
|
|
1,336 |
|
|
|
1,590 |
|
|
|
(254 |
) |
|
|
(16 |
)% |
|
|
4,139 |
|
|
|
4,719 |
|
|
|
(580 |
) |
|
|
(12 |
)% |
Provision for (recovery of) credit losses |
|
|
478 |
|
|
|
561 |
|
|
|
(83 |
) |
|
|
(15 |
)% |
|
|
1,025 |
|
|
|
291 |
|
|
|
734 |
|
|
|
252 |
% |
Noninterest expense |
|
|
81 |
|
|
|
96 |
|
|
|
(15 |
) |
|
|
(16 |
)% |
|
|
265 |
|
|
|
326 |
|
|
|
(61 |
) |
|
|
(19 |
)% |
Income before taxes |
|
|
777 |
|
|
|
933 |
|
|
|
(156 |
) |
|
|
(17 |
)% |
|
|
2,849 |
|
|
|
4,102 |
|
|
|
(1,253 |
) |
|
|
(31 |
)% |
Income tax expense |
|
|
163 |
|
|
|
198 |
|
|
|
(35 |
) |
|
|
(18 |
)% |
|
|
598 |
|
|
|
863 |
|
|
|
(265 |
) |
|
|
(31 |
)% |
Net Income |
|
$ |
614 |
|
|
$ |
735 |
|
|
$ |
(121 |
) |
|
|
(16 |
)% |
|
$ |
2,251 |
|
|
$ |
3,239 |
|
|
$ |
(988 |
) |
|
|
(31 |
)% |
(1) Allocation of interest expense is a function of the Bank's internal cost of funds rate and the average loan balance of the marine lending portfolio.
Net revenues declined as pay downs reduced the portfolio balance and are not being replaced with new loan originations. The marine loan portfolio totaled $152.4 million and $185.9 million at September 30, 2026 and September 30, 2025, respectively.
Changes in the provision for credit losses for the three and nine months ended September 30, 2026 compared to the same periods in 2025 reflected an increase in the historical loss factor due to cumulative net charge-off activity, a specific reserve allocation, and declining loan balances. For the three months ended September 30, 2026, the effect of declining loan balances more than offset the other drivers resulting in a year-over-year decrease compared to three months ended September 30, 2025.
For the three months ended September 30, 2026, the marine segment had net recoveries of $8 thousand compared to net charge-offs of $467 thousand during the three months ended September 30, 2025. Net charge-offs were $359 thousand and $581 thousand for the nine months ended September 30, 2026 and 2025, respectively. Additionally, at September 30, 2026 specific reserve allocations totaled $557 thousand, compared to none at September 30, 2025.
The following table presents a summarized statement of income for the wealth management segment for the three and nine months ended September 30, 2026 and 2025:
59
TABLE OF CONTENTS
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
||||||||
Interest Income |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
% |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
% |
Interest Expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
Net Interest Income |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
% |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
% |
Other noninterest income |
|
$ |
1,787 |
|
|
$ |
1,869 |
|
|
$ |
(82 |
) |
|
|
(4 |
)% |
|
$ |
5,852 |
|
|
$ |
5,286 |
|
|
$ |
566 |
|
|
|
11 |
% |
Net Revenue |
|
|
1,787 |
|
|
|
1,869 |
|
|
|
(82 |
) |
|
|
(4 |
)% |
|
|
5,852 |
|
|
|
5,286 |
|
|
|
566 |
|
|
|
11 |
% |
Noninterest expense |
|
|
762 |
|
|
|
839 |
|
|
|
(77 |
) |
|
|
(9 |
)% |
|
|
2,345 |
|
|
|
2,298 |
|
|
|
47 |
|
|
|
2 |
% |
Income before taxes |
|
|
1,025 |
|
|
|
1,030 |
|
|
|
(5 |
) |
|
|
(0 |
)% |
|
|
3,507 |
|
|
|
2,988 |
|
|
|
519 |
|
|
|
17 |
% |
Income tax expense |
|
|
215 |
|
|
|
216 |
|
|
|
(1 |
) |
|
|
0 |
% |
|
|
736 |
|
|
|
627 |
|
|
|
109 |
|
|
|
17 |
% |
Net Income |
|
$ |
810 |
|
|
$ |
814 |
|
|
$ |
(4 |
) |
|
|
(0 |
)% |
|
$ |
2,771 |
|
|
$ |
2,361 |
|
|
$ |
410 |
|
|
|
17 |
% |
Net revenue during the three months ended September 30, 2026 decreased from the 2025 period and increased during nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The 2026 periods reflect increases in trust services income resulting from fees earned on a higher level of assets under management and higher levels of termination fees, and decreases in investment sales revenue and estate settlement fees. Assets under management were $601.6 million and $543.2 million at September 30, 2026 and 2025, respectively.
FINANCIAL CONDITION
Select financial condition data is presented in the following table:
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
|
|
||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
$ Change |
|
|
% Change |
|
||||
Securities available for sale |
|
$ |
103,071 |
|
|
$ |
119,543 |
|
|
$ |
(16,472 |
) |
|
|
(14 |
)% |
Loans |
|
|
1,531,942 |
|
|
|
1,473,077 |
|
|
|
58,865 |
|
|
|
4 |
% |
Allowance for credit losses |
|
|
(18,533 |
) |
|
|
(15,320 |
) |
|
|
(3,213 |
) |
|
|
21 |
% |
Total assets |
|
|
1,870,465 |
|
|
|
1,888,626 |
|
|
|
(18,161 |
) |
|
|
(1 |
)% |
Total deposits |
|
|
1,623,246 |
|
|
|
1,607,360 |
|
|
|
15,886 |
|
|
|
1 |
% |
FHLB advances |
|
|
— |
|
|
|
40,000 |
|
|
|
(40,000 |
) |
|
|
(100 |
)% |
Total shareholders' equity |
|
|
195,287 |
|
|
|
188,839 |
|
|
|
6,448 |
|
|
|
3 |
% |
Securities
The carrying amounts of the Company's available for sale securities are as follows:
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||
(dollars in thousands) |
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
||||
Obligations of U.S. government corporations and agencies |
|
$ |
6,781 |
|
|
|
7 |
% |
|
$ |
7,444 |
|
|
|
6 |
% |
U.S. Treasury securities |
|
|
5,914 |
|
|
|
6 |
% |
|
|
10,001 |
|
|
|
8 |
% |
Mortgage-backed securities |
|
|
65,388 |
|
|
|
63 |
% |
|
|
75,129 |
|
|
|
63 |
% |
Collateralized mortgage obligations |
|
|
20,923 |
|
|
|
20 |
% |
|
|
22,495 |
|
|
|
19 |
% |
Subordinated debt |
|
|
4,065 |
|
|
|
4 |
% |
|
|
4,474 |
|
|
|
4 |
% |
Total securities available for sale at fair value |
|
$ |
103,071 |
|
|
|
100 |
% |
|
$ |
119,543 |
|
|
|
100 |
% |
Total securities available for sale decreased $16.5 million, or 13.78% during the nine months ended September 30, 2026. The Company purchased $16.2 million of securities during the nine months ended September 30, 2026 and had total maturities, calls, and principal repayments of $29.0 million. There were no sales during the nine months ended September 30, 2026.
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TABLE OF CONTENTS
Net unrealized loss on available for sale securities was $10.4 million at September 30, 2026 as compared to a net unrealized loss of $6.7 million at December 31, 2025. 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).
The primary cause of the unrealized losses at September 30, 2026 and December 31, 2025 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.
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:
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||
(dollars in thousands) |
|
Amount |
|
|
Percent to Total Loans |
|
|
Amount |
|
|
Percent to Total Loans |
|
||||
Mortgage real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
HELOCs |
|
$ |
60,024 |
|
|
|
4 |
% |
|
$ |
58,640 |
|
|
|
4 |
% |
Residential First Lien - Investor |
|
|
104,664 |
|
|
|
7 |
% |
|
|
107,307 |
|
|
|
7 |
% |
Residential First Lien - Owner Occupied |
|
|
194,889 |
|
|
|
13 |
% |
|
|
178,807 |
|
|
|
12 |
% |
Residential Junior Liens |
|
|
10,553 |
|
|
|
1 |
% |
|
|
10,724 |
|
|
|
1 |
% |
Total residential real estate loans |
|
|
370,130 |
|
|
|
25 |
% |
|
|
355,478 |
|
|
|
24 |
% |
Commercial - Owner Occupied |
|
|
355,269 |
|
|
|
23 |
% |
|
|
298,853 |
|
|
|
20 |
% |
Commercial - Non-Owner Occupied & Multifamily |
|
|
389,986 |
|
|
|
25 |
% |
|
|
398,926 |
|
|
|
27 |
% |
Total commercial real estate loans |
|
|
745,255 |
|
|
|
48 |
% |
|
|
697,779 |
|
|
|
47 |
% |
Construction & Secured by Farmland |
|
|
96,150 |
|
|
|
6 |
% |
|
|
82,336 |
|
|
|
6 |
% |
Total mortgage real estate loans |
|
|
1,211,535 |
|
|
|
79 |
% |
|
|
1,135,593 |
|
|
|
77 |
% |
Commercial and industrial loans |
|
|
125,289 |
|
|
|
8 |
% |
|
|
113,224 |
|
|
|
8 |
% |
Marine loans |
|
|
152,352 |
|
|
|
10 |
% |
|
|
175,639 |
|
|
|
12 |
% |
Consumer loans |
|
|
26,715 |
|
|
|
2 |
% |
|
|
28,742 |
|
|
|
2 |
% |
Other loans |
|
|
12,585 |
|
|
|
1 |
% |
|
|
14,264 |
|
|
|
1 |
% |
Total loans |
|
|
1,528,476 |
|
|
|
100 |
% |
|
|
1,467,462 |
|
|
|
100 |
% |
Net deferred loans costs and premiums |
|
|
3,466 |
|
|
|
|
|
|
5,615 |
|
|
|
|
||
Gross loans |
|
$ |
1,531,942 |
|
|
|
|
|
$ |
1,473,077 |
|
|
|
|
||
Gross loans were $1.53 billion and $1.47 billion at September 30, 2026 and December 31, 2025, respectively. This represents an increase of $58.9 million, or 4.00%, during the nine months ended September 30, 2026. The ratio of gross loans to deposits increased during the nine months ended September 30, 2026 from 91.65% at December 31, 2025 to 94.38% at September 30, 2026 reflecting increases in gross loans and deposits during the same time period.
The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. The increase in gross loans was primarily attributable to growth within real estate loans including the commercial owner occupied, residential owner occupied and construction and farmland portfolios. SBA loan sales, marine loan portfolio paydowns, and significant payoffs of matured commercial and industrial and municipal notes, partially offset new growth.
During the nine months ended September 30, 2026, through the normal course of business, $80.8 million in loans were sold, consisting of $61.9 million in mortgage loans originated for sale and $18.9 million of SBA commercial loans.
Residential owner occupied loans increased $16.1 million, or 8.99%, since December 31, 2025, with most of the growth occurring during the third quarter of 2026. The increase reflects a shift in market demand toward non-conforming
61
TABLE OF CONTENTS
adjustable-rate loans in response to the rising interest rate environment. These loans are less interest rate sensitive than conforming fixed-rate mortgages originated for sale.
Commercial real estate loans increased during the nine months ended September 30, 2026 reflecting growth in the owner occupied and construction portfolios. The Company experienced steady activity across commercial business lines reflecting its focus on relationship-based lending in its core markets.
Marine loans are declining due to normal paydowns and payoffs only. At present, the Company is not accepting new marine business and expects to hold the remaining outstanding loans until they are ultimately repaid.
Allowance for Credit Losses on Loans
The purpose of, and the methods for, measuring the allowance for credit losses on loans are discussed in Note 1 to the Consolidated Financial Statements in the 2025 Form 10-K.
The following table presents the activity in the allowance for credit losses on loans and related ratios for the periods indicated:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Balance at beginning of period |
|
$ |
18,306 |
|
|
$ |
15,979 |
|
|
$ |
15,320 |
|
|
$ |
15,027 |
|
Charge-Offs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Construction & secured by farmland |
|
|
(301 |
) |
|
|
— |
|
|
|
(301 |
) |
|
|
— |
|
Residential real estate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(30 |
) |
Commercial real estate |
|
|
— |
|
|
|
(1,660 |
) |
|
|
(1,586 |
) |
|
|
(2,631 |
) |
Commercial |
|
|
(683 |
) |
|
|
(219 |
) |
|
|
(1,018 |
) |
|
|
(353 |
) |
Marine |
|
|
— |
|
|
|
(467 |
) |
|
|
(369 |
) |
|
|
(581 |
) |
Consumer |
|
|
(70 |
) |
|
|
(37 |
) |
|
|
(110 |
) |
|
|
(127 |
) |
Other |
|
|
(41 |
) |
|
|
(34 |
) |
|
|
(135 |
) |
|
|
(106 |
) |
Total charge-offs |
|
|
(1,095 |
) |
|
|
(2,417 |
) |
|
|
(3,519 |
) |
|
|
(3,828 |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Construction & secured by farmland |
|
|
1 |
|
|
|
1 |
|
|
|
4 |
|
|
|
4 |
|
Residential real estate |
|
|
7 |
|
|
|
44 |
|
|
|
157 |
|
|
|
296 |
|
Commercial real estate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial |
|
|
22 |
|
|
|
32 |
|
|
|
59 |
|
|
|
110 |
|
Marine |
|
|
8 |
|
|
|
— |
|
|
|
10 |
|
|
|
— |
|
Consumer |
|
|
5 |
|
|
|
21 |
|
|
|
26 |
|
|
|
34 |
|
Other |
|
|
18 |
|
|
|
19 |
|
|
|
36 |
|
|
|
34 |
|
Total recoveries |
|
|
61 |
|
|
|
117 |
|
|
|
292 |
|
|
|
478 |
|
Net (charge-offs) |
|
|
(1,034 |
) |
|
|
(2,300 |
) |
|
|
(3,227 |
) |
|
|
(3,350 |
) |
Provision for credit losses on loans |
|
|
1,261 |
|
|
|
1,131 |
|
|
|
6,440 |
|
|
|
3,133 |
|
Balance at end of period |
|
$ |
18,533 |
|
|
$ |
14,810 |
|
|
$ |
18,533 |
|
|
$ |
14,810 |
|
Net (charge-offs) to average loans (annualized) |
|
|
(0.27 |
)% |
|
|
(0.63 |
)% |
|
|
(0.29 |
)% |
|
|
(0.31 |
)% |
Allowance for credit losses on loans as a percentage of gross loans |
|
|
1.21 |
% |
|
|
1.01 |
% |
|
|
1.21 |
% |
|
|
1.01 |
% |
During the nine months ended September 30, 2026, the Company recorded charge-offs of $3.5 million primarily due to three relationships. These included: i) a $1.6 million partial write-down of a single multifamily relationship to the fair value of the underlying collateral, net of estimated selling costs; ii) a $507 thousand partial write-down on a commercial and industrial syndicated relationship in conjunction with a restructuring by the lead bank; and iii) a $426 thousand charge-off upon completion of a foreclosure and liquidation sale of commercial real estate and business assets. The remaining charge-offs were attributable to smaller relationships, including marine vessels and commercial loans secured by equipment as well as writeoffs of overdraft and credit card accounts.
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TABLE OF CONTENTS
Recoveries recognized during the nine months ended September 30, 2026 totaled $292 thousand, largely due to a recovery on a residential mortgage loan.
During the nine months ended September 30, 2025, charge-offs primarily reflected losses on three marine vessels that were repossessed, a $468 thousand partial write-down on a nonaccrual owner-occupied commercial real estate loan, and write-downs totaling $2.2 million, which included a $1.2 million deficiency balance, related to a non-owner occupied commercial loan relationship consisting of four residential multifamily income producing properties.
Recoveries during the nine months ended September 30, 2025 totaled $478 thousand resulting in net charge-offs of $3.4 million for the nine months ended September 30, 2025.
The increase of 20 basis points in the allowance for credit losses on loans to gross loans ratio largely reflects growth in the portfolio and the increase in specific reserve allocations required at September 30, 2026. The increase was also attributable to changes in historical loss ratios, primarily within the marine and non‑owner occupied commercial real estate portfolios, partially offset by a decrease in qualitative factors. The qualitative factor for the nature, terms, and volume of the loan portfolio is intended to capture incremental risk arising from portfolio growth that is not otherwise reflected in the quantitative estimate. During the three months ended September 30, 2026, this factor was refined to provide a more representative assessment of sustained portfolio growth trends and their relationship to expected credit losses. This refinement was the primary reason for the lower qualitative factor adjustment.
Management believes that the allowance for credit losses on loans is currently adequate to absorb the current expected losses in the loan portfolio.
Credit Risk, Nonperforming Assets and Other Assets
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 September 30, 2026 and December 31, 2025:
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||
(dollars in thousands) |
|
Amount |
|
|
Percent to Total Loans |
|
|
Amount |
|
|
Percent to Total Loans |
|
||||
Risk categories |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pass |
|
$ |
1,449,121 |
|
|
|
95 |
% |
|
$ |
1,396,752 |
|
|
|
95 |
% |
Special Mention |
|
|
59,192 |
|
|
|
4 |
% |
|
|
54,752 |
|
|
|
4 |
% |
Classified |
|
|
20,163 |
|
|
|
1 |
% |
|
|
15,958 |
|
|
|
1 |
% |
Total loans |
|
$ |
1,528,476 |
|
|
|
100 |
% |
|
$ |
1,467,462 |
|
|
|
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, $32.6 million had stale financial information at September 30, 2026 compared to $35.7 million at December 31, 2025. The increase in total special mention loans was largely due to additions for potential credit weakness reflecting insufficient debt service coverage ratio, reduction in income, bankruptcy notice, as well as the lack of current financial information required to complete annual reviews. Partially offsetting the increase were upgrades upon receipt and review of current financial information, principal reductions, and the migration of one relationship to classified.
Loans risk rated as classified, include substandard, doubtful, and loss loans increased primarily due to two commercial real estate relationships and a marine relationship and were partially offset by write-downs to already existing classified relationships and a large loan payoff. The additions to classified include a $3.6 million multifamily loan which moved to nonaccrual status during the second quarter, and a $4.1 million non-owner occupied office building that is active and accruing, however was downgraded from special mention to classified during the first quarter of 2026 due to cash flow concerns and a $905 thousand marine vessel.
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TABLE OF CONTENTS
All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity.
Nonperforming assets and related ratios are detailed in the table below:
(dollars in thousands) |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
Nonaccrual loans |
|
$ |
15,641 |
|
|
$ |
14,398 |
|
Loans past due 90 days or more and accruing interest |
|
|
104 |
|
|
|
60 |
|
Other real estate owned and repossessed assets |
|
|
250 |
|
|
|
135 |
|
Total nonperforming assets |
|
$ |
15,995 |
|
|
$ |
14,593 |
|
|
|
|
|
|
|
|
||
Allowance for credit losses on loans |
|
$ |
18,533 |
|
|
$ |
15,320 |
|
|
|
|
|
|
|
|
||
Gross loans |
|
$ |
1,531,942 |
|
|
$ |
1,473,077 |
|
|
|
|
|
|
|
|
||
Allowance for credit losses on loans to nonperforming assets |
|
|
116 |
% |
|
|
105 |
% |
|
|
|
|
|
|
|
||
Allowance for credit losses on loans to total gross loans |
|
|
1.21 |
% |
|
|
1.04 |
% |
|
|
|
|
|
|
|
||
Allowance for credit losses on loans to nonaccrual loans |
|
|
118 |
% |
|
|
106 |
% |
|
|
|
|
|
|
|
||
Nonaccrual loans to total gross loans |
|
|
1.02 |
% |
|
|
0.98 |
% |
|
|
|
|
|
|
|
||
Non-performing assets to period end gross loans, other real estate owned and repossessed assets |
|
|
1.04 |
% |
|
|
0.99 |
% |
Nonperforming assets increased by $1.4 million during the nine months ended September 30, 2026, primarily reflecting additions of a $3.6 million multi-family loan and a $905 thousand marine loan to nonaccrual status, partially offset by paydowns, partial write-downs on nonaccrual loans including $1.6 million on a multi-family relationship, $507 thousand on a commercial and industrial relationship and $301 thousand on a construction and farmland relationship as well as a change in repossessed assets.
Total past due loans, as disclosed in Note 6 to the Consolidated Financial Statements, increased by $5.1 million and totaled $22.0 million at September 30, 2026 compared to $16.9 million at December 31, 2025. The increase in past due loans primarily reflects loans secured by commercial real estate including three non-owner occupied commercial real estate loans totaling $9.4 million that became past due during the nine months ended September 30, 2026, as well as a marine relationship totaling $905 thousand. These increases were partially offset partial write-downs and the movement of two relationships into current status during the nine months ended September 30, 2026, a $2.1 million restructuring of a commercial and industrial relationship and a $1.9 million non-owner occupied commercial real estate loan. The loans that primarily drove the increase in past due balances are rated special mention and classified.
Nonaccrual loans are risk rated as classified and comprised the majority of the classified loan balance as previously described. Management evaluates the financial condition of borrowers and the value of any collateral on nonaccrual 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 and are reflected in the allowance for credit losses on loans. At September 30, 2026 total specific reserves of $3.4 million were required primarily reflecting five commercial loan relationships and one marine loan relationship, compared to specific reserves of $467 thousand at December 31, 2025.
Loans are placed on nonaccrual 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 to principal that require additional provisions for credit losses to be charged against earnings.
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TABLE OF CONTENTS
For real estate loans, upon foreclosure, the balance of the loan is transferred to OREO and carried at the fair value of the property based on current appraisals and other current market trends, less estimated selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off to the allowance for credit losses. A review of the recorded property value is performed in conjunction with normal quarterly 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.
Deposits
Total deposits were $1.62 billion and $1.61 billion at September 30, 2026 and December 31, 2025, respectively. This represents an increase of $15.9 million or 0.99% during the nine months ended September 30, 2026.
The following table provides the composition of total deposits at September 30, 2026 and December 31, 2025.
(dollars in thousands) |
|
September 30, |
|
|
December 31, |
|
|
$ Change |
|
|
% Change |
|
||||
Noninterest bearing demand deposits |
|
$ |
453,481 |
|
|
$ |
432,171 |
|
|
$ |
21,310 |
|
|
|
5 |
% |
NOW accounts |
|
|
299,776 |
|
|
|
322,687 |
|
|
|
(22,911 |
) |
|
|
(7 |
)% |
Money market accounts |
|
|
312,759 |
|
|
|
282,828 |
|
|
|
29,931 |
|
|
|
11 |
% |
Regular savings accounts |
|
|
118,045 |
|
|
|
123,030 |
|
|
|
(4,985 |
) |
|
|
(4 |
)% |
Time deposits less than $250,000 |
|
|
256,390 |
|
|
|
262,390 |
|
|
|
(6,000 |
) |
|
|
(2 |
)% |
Time deposits $250,000 and more |
|
|
182,795 |
|
|
|
184,254 |
|
|
|
(1,459 |
) |
|
|
(1 |
)% |
Total deposits |
|
$ |
1,623,246 |
|
|
$ |
1,607,360 |
|
|
$ |
15,886 |
|
|
|
1 |
% |
Core deposits (1) |
|
$ |
1,335,940 |
|
|
$ |
1,304,733 |
|
|
|
31,207 |
|
|
|
2 |
% |
Core deposits as a percent of total deposits |
|
|
82 |
% |
|
|
81 |
% |
|
|
|
|
|
|
||
Non-core deposits (2) |
|
$ |
287,306 |
|
|
$ |
302,627 |
|
|
|
(15,321 |
) |
|
|
(5 |
)% |
Non-core deposits as a percent of total deposits |
|
|
18 |
% |
|
|
19 |
% |
|
|
|
|
|
|
||
(1) 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.
(2) Non-core deposits consist of brokered deposits, CDARs and time deposits of $250,000 or more.
Total deposits increased $15.9 million with an increase in core deposits of $31.2 million during the nine months ended September 30, 2026. The increase in core deposits was in line with management's effort to grow these deposits to support loan expansion. Non-core deposits decreased $15.3 million primarily due to a decrease in brokered certificate of 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 and emphasis on customer relationships are utilized to maintain maturing accounts and to acquire new time deposit accounts. At September 30, 2026, over 86% of deposits were fully FDIC insured.
CAPITAL RESOURCES
The Bank continues to be a well capitalized financial institution. Total shareholders’ equity at September 30, 2026 was $195.3 million, reflecting a percentage of total assets of 10.44%, as compared to $188.9 million and 10.00% at December 31, 2025. The $6.4 million increase in shareholders’ equity was primarily due to net operating income of $13.5 million earned during the nine months ended September 30, 2026, partially offset by an increase in unrealized losses on available for sale securities amounting to $3.0 million, net of tax, and dividends declared of $5.0 million. During each of the nine months ended September 30, 2026 and 2025, the Company declared dividends of $0.93 per share. The Company has a Dividend Investment Plan that allows shareholders to reinvest dividends in Company stock.
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At September 30, 2026, 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 minimums. The Bank's capital amounts and ratios are presented using the Federal Reserve's risk-based capital framework.
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 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.
At September 30, 2026 and December 31, 2025, the Bank's regulatory capital and related ratios were as follows:
(dollars in thousands) |
|
September 30, |
|
|
December 31, |
|
||
Tier 1 Capital: |
|
|
|
|
|
|
||
Common stock |
|
$ |
1,682 |
|
|
$ |
1,682 |
|
Capital surplus |
|
|
9,773 |
|
|
|
9,773 |
|
Retained earnings |
|
|
218,402 |
|
|
|
211,730 |
|
Nonmortgage servicing assets |
|
|
(810 |
) |
|
|
(637 |
) |
Total Tier 1 capital |
|
$ |
229,047 |
|
|
$ |
222,548 |
|
Common equity tier 1 capital |
|
$ |
229,047 |
|
|
$ |
222,548 |
|
Tier 2 Capital: |
|
|
|
|
|
|
||
Allowable portion of allowance for credit losses and reserve for off-balance sheet commitments |
|
$ |
18,934 |
|
|
$ |
15,128 |
|
Total Tier 2 capital |
|
$ |
18,934 |
|
|
$ |
15,128 |
|
Total risk-based capital |
|
$ |
247,981 |
|
|
$ |
237,676 |
|
|
|
|
|
|
|
|
||
Risk weighted assets |
|
$ |
1,598,285 |
|
|
$ |
1,530,835 |
|
|
|
|
|
|
|
|
||
Capital Ratios: |
|
|
|
|
|
|
||
Common equity Tier 1 capital ratio |
|
|
14.33 |
% |
|
|
14.54 |
% |
Tier 1 risk-based capital ratio |
|
|
14.33 |
% |
|
|
14.54 |
% |
Total risk-based capital ratio |
|
|
15.52 |
% |
|
|
15.53 |
% |
Tier 1 leverage ratio |
|
|
12.28 |
% |
|
|
11.68 |
% |
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.
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,
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federal funds sold, unpledged securities classified as available for sale and loans maturing within one year. At September 30, 2026, liquid assets totaled $421.8 million as compared to $423.4 million at December 31, 2025. These amounts represented 25.18% and 24.91% of total liabilities at September 30, 2026 and December 31, 2025, respectively. The decrease during the nine months of 2026 was primarily due to a decrease in federal funds sold, which was mostly offset by increases in the balance of loans maturing within one year and non-pledged available for sale securities.
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 short-term borrowing arrangements, including the Federal Reserve discount window and federal funds lines of credit with larger financial institutions as additional sources of liquidity. The Bank’s membership with the Federal Home Loan Bank of Atlanta provides a source of borrowings with numerous rate and term structures. 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
There have been no material changes in off-balance sheet arrangements and contractual obligations as reported in the 2025 Form 10-K.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in Quantitative and Qualitative Disclosures about Market Risk as reported in the 2025 Form 10-K.
Item 4. 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 Quarterly Report on Form 10-Q. 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 September 30, 2026 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.
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). The Company is currently using the 2013 COSO Framework.
There were no changes in the Company’s internal control over financial reporting during the Company’s three months ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. 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 1A. Risk Factors
In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factors previously disclosed in the 2025 Form 10-K. Additional risks not presently known, or that are currently deemed immaterial, may also adversely affect the Company’s business, financial condition or results of operations. Except as described below, there have been no material changes to the Company’s risk factors as disclosed in the 2025 Form 10-K.
Risks Related to the Pending Merger with JMSB
Because the exchange ratio is fixed, the number of shares of JMSB’s common stock to be issued in the proposed transaction will not be adjusted for changes in the market price of JMSB’s or the Company’s common stock.
Upon completion of the proposed transaction, each outstanding share of the Company’s common stock, except for certain specified shares, will be converted into the right to receive 2.00 shares of JMSB’s common stock. There will be no adjustment to the merger consideration based upon changes in the market price of JMSB’s common stock or the Company’s common stock prior to the time the proposed transaction is completed, and the merger agreement cannot be terminated due to a change in the price of JMSB’s common stock or the Company’s common stock. Accordingly, the value of the merger consideration at closing may differ significantly from its value on the date the merger agreement was signed or on the dates of the shareholder meetings. Stock price changes may result from a variety of factors, including general market and economic conditions, such as inflation, trade policies and tariffs, volatility in capital markets, volatility in real estate markets, interest and currency rate fluctuations, labor availability, supply chain disruptions, global pandemics and public health crises and responses thereto, weather catastrophes and geopolitical instability, including shutdowns and threats of shutdowns of the U.S. federal government, political instability and political violence, changes in each company’s respective businesses, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of the Company.
The Company’s shareholders will have a reduced ownership and voting interest in the Company after the proposed transaction and will exercise less influence over management.
The Company’s shareholders currently have the right to vote for the election of directors and on other matters affecting the Company. Upon completion of the proposed transaction, each of the Company’s shareholders will hold a smaller percentage ownership of the combined company than such shareholder held prior to the proposed transaction. Based on shares outstanding as of June 30, 2026, and assuming that all holders of unvested restricted stock awards elect to receive shares of the Company’s common stock, it is currently expected that the Company’s existing shareholders as a group will own approximately 43.4% of the combined company’s common stock and former JMSB shareholders as a group will own approximately 56.6%. As a result, the Company’s existing shareholders will have less influence on the management and policies of the combined company than they now have on the management and policies of the Company.
Combining JMSB and the Company may be more difficult, costly or time-consuming than expected, and the anticipated benefits and cost savings of the proposed transaction may not be realized.
The success of the proposed transaction will depend on, among other things, the combined company’s ability to combine the businesses of JMSB and the Company. If the combined company is not able to successfully achieve this objective, the anticipated benefits of the proposed transaction may not be realized fully, or at all, or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the proposed transaction could be less than anticipated, and integration may result in additional unforeseen expenses.
JMSB and the Company have operated and, until the completion of the proposed transaction, will continue to operate, independently. A successful integration of JMSB’s business and the Company’s business will depend on the ability to consolidate
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operations, corporate cultures, systems and procedures and to eliminate redundancies and costs. It is possible that the integration process could result in difficulties, such as the loss of key employees, the disruption of the combined company’s ongoing businesses, the inability to maintain and increase competitive presence, loan and deposit attrition, customer loss and revenue loss, additional costs or unexpected problems with operations, personnel, technology and credit, or inconsistencies in technologies, standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the proposed transaction. The loss of key employees could have an adverse effect on the combined company’s financial results and the value of its common stock. If the combined company experiences difficulties with the integration process, the anticipated benefits of the proposed transaction may not be realized fully, or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause current customers to move their accounts from the Company or JMSB to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources, and any problems with the assimilation of new operations, systems, sites or personnel could divert resources from banking operations. Additionally, general market and economic conditions or governmental actions affecting the financial industry generally may inhibit the successful integration of the Company and JMSB. These integration matters could have an adverse effect on each of the Company and JMSB during this transition period and for an undetermined period after consummation of the proposed transaction.
Combining JMSB and the Company may fail to realize the anticipated synergies of the proposed transaction.
The success of the proposed transaction will depend, in part, on the ability to realize the anticipated expense synergies and revenue synergies from combining the businesses of JMSB and the Company. To realize the anticipated synergies from the proposed transaction, JMSB and the Company must integrate and combine their businesses in a manner that permits those synergies to be realized, without adversely affecting current revenues and future growth. If JMSB and the Company are not able to successfully achieve these objectives, the anticipated benefits of the proposed transaction may not be realized fully or at all or may take longer to realize than expected. In addition, the actual expense synergies of the proposed transaction could be less than anticipated, and integration may result in additional and unforeseen delays and expenses.
An inability to realize the full extent of the anticipated benefits of the proposed transaction, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company, which may adversely affect the value of the combined company’s common stock after the completion of the proposed transaction.
The Company and JMSB have incurred, and the combined company following the closing of the proposed transaction expects to incur, substantial expenses related to the proposed transaction and integration.
The Company and JMSB have incurred and expect to incur significant non-recurring costs associated with the proposed transaction. These costs include legal, financial advisory, accounting, consulting and other advisory fees, employee benefit-related costs, public company filing fees and other regulatory fees, printing costs and other related costs. Some of these costs are payable by either the Company or JMSB regardless of whether the proposed transaction is completed and may adversely impact the Company's and JMSB's earnings.
The combined company expects to incur substantial expenses in connection with consummation of the proposed transaction and combining the business, operations, networks, systems, technologies, policies and procedures of the two companies, including facilities and systems consolidation costs and employment-related costs. The Company and JMSB may also incur additional costs to retain key employees. Although the Company and JMSB have assumed that a certain level of transaction and combination expenses would be incurred, there are a number of factors beyond their control that could affect the total amount or the timing of their combination expenses, and additional unanticipated costs may be incurred in the combination of the businesses of the Company and JMSB. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Due to these factors, the transaction and combination expenses associated with the proposed transaction could, particularly in the near term, exceed the savings that the combined company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the combination of the businesses following the consummation of the proposed transaction. As a result of these expenses, both the Company and JMSB expect to take charges against their earnings before and after the completion of the proposed transaction. The charges taken in connection with the proposed transaction are expected to be significant, although the aggregate amount and timing of such charges are uncertain at present. There an be no assurance that the anticipate benefits and cost savings related to the integration of the businesses will be realized to offset these transaction and integration expenses over time.
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Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated, cannot be met, or that could have an adverse effect on the combined company following the consummation of the proposed transaction.
Before the proposed transaction may be completed, various approvals, consents, waivers, and/or non-objections must be obtained from, or notices must be filed with, the Federal Reserve, the Virginia Bureau of Financial Institutions and other regulatory authorities in the United States. In determining whether to grant these approvals, the applicable regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to an adverse development in either party’s regulatory standing or in any other factors considered by regulators in granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political or regulatory environment generally.
The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business following the proposed transaction or require changes to the terms of the proposed transaction. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of the proposed transaction, imposing additional material costs on or materially limiting the revenues of the combined company following the proposed transaction or otherwise reducing the anticipated benefits of the proposed transaction if the proposed transaction were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the proposed transaction. The completion of the proposed transaction is conditioned on the receipt of the requisite regulatory approvals without the imposition of any condition or restriction that would reasonably be expected to be materially burdensome to the business, operations, capital, financial condition or results of operations of JMSB or the Company following the closing (a “burdensome condition”) and the expiration of all statutory waiting periods. Additionally, the completion of the proposed transaction is conditioned on the absence of certain laws, orders, injunctions or decrees issued by any court or governmental entity of competent jurisdiction that would prevent, prohibit or make illegal the consummation of the proposed transaction or any of the other transactions contemplated by the merger agreement.
If the consummation of the proposed transaction is delayed, including by a delay in receipt of necessary regulatory approvals, a denial of a regulatory application, or the imposition of a burdensome condition, the ongoing business and financial results of each company may also be adversely affected.
Failure to complete the proposed transaction could negatively affect the share prices, future business and financial results of JMSB and the Company.
The completion of the proposed transaction is subject to a number of customary conditions which must be fulfilled in order to complete the proposed transaction. These conditions to the consummation of the proposed transaction may not be fulfilled and, accordingly, the proposed transaction may not be completed. In addition, if the proposed transaction is not completed by September 30, 2027, either JMSB or the Company may choose to terminate the merger agreement at any time after that date if the failure to consummate the transactions contemplated by the merger agreement is not caused by any breach of the merger agreement by the party electing to terminate the merger agreement, before or after shareholder approval. JMSB and the Company may elect to terminate the merger agreement in other circumstances as well. If the merger agreement is terminated under certain circumstances, either JMSB or the Company may be required to pay a termination fee of $10.1 million to the other party.
If the proposed transaction is not consummated, the ongoing business and financial results of each company may be adversely affected and each company will be subject to risks, including significant declines in its share price to the extent that the current market prices reflect an assumption by the market that the proposed transaction will be completed, litigation related to any failure to complete the proposed transaction, and negative reactions from their respective customers and employees. If the consummation of the proposed transaction is delayed, including by the receipt of a competing acquisition proposal, the business, financial condition and results of operations of each company may be adversely affected.
In addition, each company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement. If the proposed transaction is not completed, the companies would have to recognize these expenses without realizing the expected benefits of the proposed transaction. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the proposed transaction, including the diversion of management attention from pursuing other opportunities and the constraints in the merger agreement on the ability to make significant changes to each company’s ongoing business during the pendency of the proposed transaction, could have an adverse effect on each company’s business, financial condition and results of operations.
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Additionally, JMSB’s or the Company’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the proposed transaction, without realizing any of the anticipated benefits of completing the proposed transaction, and the market price of JMSB’s common stock or the Company’s common stock might decline to the extent that the current market price reflects a market assumption that the proposed transaction will be completed. If the merger agreement is terminated and a company’s board of directors seeks another merger or business combination, such company’s shareholders cannot be certain that such company will be able to find a party willing to engage in a transaction on more attractive terms than the proposed transaction.
The Company will be subject to business uncertainties and contractual restrictions while the proposed transaction is pending.
Uncertainty about the effect of the proposed transaction on counterparties to contracts, employees, customers (including depositors and borrowers), suppliers, vendors and other parties may have an adverse effect on the Company’s business, financial condition and results of operations. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel and customers pending the consummation of the proposed transaction, and could cause those who deal with the Company to seek to change existing business relationships with the Company or fail to extend an existing relationship. In addition, competitors may target the Company’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the proposed transaction.
The pursuit of the proposed transaction and the preparation for the integration of the two companies may place a significant burden on the Company’s management and internal resources. In addition, the merger agreement restricts the Company from taking certain actions without JMSB’s consent while the proposed transaction is pending. These restrictions could have an adverse effect on the Company’s business, financial condition and results of operations.
The merger agreement contains provisions that may discourage other companies from pursuing, announcing or submitting a business combination proposal to the Company that might result in greater value to the Company’s shareholders.
The merger agreement generally prohibits the Company from soliciting, or, subject to certain exceptions, entering into discussions with any third party regarding, any acquisition proposal or offers for competing transactions. If the merger agreement is terminated under certain circumstances, the Company may be required to pay JMSB a termination fee of $10.1 million. The Company also has an unqualified obligation to submit the proposed transaction to a vote of its shareholders, even if the Company receives an unsolicited proposal that its board of directors believes is superior to the proposed transaction. In addition, each member of the Company’s board of directors and certain of its officers, in their capacities as shareholders, have entered into voting agreements that require them, among other things, to vote their shares in favor of the proposed transaction and against alternative transactions, subject to certain exceptions. These provisions could discourage a potential third party from pursuing, announcing or submitting a business combination proposal that might result in greater value to the Company’s shareholders than the proposed transaction.
Litigation relating to the proposed transaction could result in significant costs, management distraction, and/or a delay of or injunction against the proposed transaction, and/or otherwise negatively impact the business and operations of the Company and JMSB.
While the Company and JMSB believe that any claims that may be asserted by purported shareholder plaintiffs related to the proposed transaction would be without merit, the results of any such potential legal proceedings are difficult to predict and could delay or prevent the proposed transaction from being completed in a timely manner. The existence of litigation related to the proposed transaction could affect the likelihood of obtaining the required approvals from shareholders of the Company and JMSB. Moreover, any litigation could be time-consuming and expensive and divert the attention of management of the Company and JMSB away from their regular business. Further, any lawsuit adversely resolved against the Company, JMSB or members of the Company’s or JMSB’s boards of directors could have an adverse effect on each party’s business, financial condition and results of operations.
If any action remains unresolved, it could prevent or delay the completion of the proposed transaction. One of the conditions to the consummation of the proposed transaction is that no law, order, injunction or decree issued by any court or governmental entity of competent jurisdiction that would restrict, prohibit or make illegal the completion of the proposed transaction or any of the other transactions contemplated by the merger agreement be in effect. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a regulatory authority issues an order or other directive restricting, prohibiting or making illegal the consummation of the transactions
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contemplated by the merger agreement (including the proposed transaction), then such injunctive or other relief may delay or prevent the proposed transaction from becoming effective in a timely manner or at all and could result in significant costs to the Company and/or JMSB, including any cost associated with the indemnification of directors and officers of each company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table details the Company's purchases of its common stock during the third quarter of 2026 pursuant to its Stock Repurchase Program ("the Program"). On June 17, 2026, the Board of Directors of the Company re-authorized the purchase of up to 150,000 shares for repurchase under the Program. The Program expires on June 30, 2027.
|
|
Issuer Purchases of Equity Securities |
|
|||||||||||||
|
|
Total Number |
|
|
Average Price |
|
|
Total Number |
|
|
Maximum |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|||
July 1 - July 31, 2026 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
150,000 |
|
August 1 - August 31, 2026 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
150,000 |
|
September 1 - September 30, 2026 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
150,000 |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
150,000 |
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
During the fiscal quarter ended September 30, 2026, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934)
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Item 6. Exhibits
The following exhibits are filed with this Form 10-Q or incorporated by reference to previous filings. This list includes the exhibit index:
2.1
|
|
Agreement and Plan Of Merger, by and among John Marshall Bancorp, Inc., George Sub, Inc. and Eagle Financial Services, Inc., dated September 7, 2026 (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on September 8, 2026).* |
|
|
|
|
|
10.1
|
|
Form of Eagle Financial Services, Inc. Voting Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on September 8, 2026). |
|
|
|
|
|
10.2 |
|
Form of John Marshall Bancorp, Inc. Voting Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on September 8, 2026). |
|
|
|
|
|
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. |
|
|
|
||
101 |
|
The following materials from the Eagle Financial Services, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2026 formatted in Inline Extensible Business Reporting Language (XBRL): (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. Quarterly Report on Form 10-Q for the quarter ended September 30, 2026 formatted in Inline XBRL (included with Exhibit 101). |
|
|
|
|
|
* Certain schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) or Item 601(b)(2) of Regulation S-K, as applicable. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, this 9th day of November, 2026.
Eagle Financial Services, Inc.
By: |
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/S/ BRANDON C. LOREY |
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Brandon C. Lorey President and Chief Executive Officer |
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By: |
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/S/ KATHLEEN J. CHAPPELL |
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Kathleen J. Chappell Executive Vice President, Chief Financial Officer |
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