First National Q3 2026 earnings rise to $6.9M
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.
Rhea-AI Filing Summary
First National Corporation (FXNC) reported third-quarter net income of $6.9 million, versus $5.6 million a year earlier; diluted earnings per share were $0.76 versus $0.62. Net interest income was $21.2 million, compared with $18.3 million. Noninterest income was $4.1 million, down from $4.5 million, while noninterest expense was $16.7 million versus $15.8 million.
For the nine months ended September 30, 2026, net income was $17.5 million versus $12.2 million, and operating cash flow was $21.7 million versus $16.7 million. At September 30, total loans were $1,500.225 million and deposits were $1,828.740 million, compared with $1,449.745 million and $1,799.548 million, respectively, at December 31, 2025.
Available-for-sale securities had $21.489 million in gross unrealized losses at September 30. Management said it did not intend to sell them, did not expect to be required to sell them, and expected to recover their entire amortized cost. For the nine months, other comprehensive loss was $4.666 million, versus income of $5.488 million in 2025.
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 pointThird-quarter net income reached $6.9 million, versus $5.6 million.
- Moderate pointThird-quarter net interest income was $21.2 million, versus $18.3 million.
- Minor pointNine-month operating cash flow was $21.7 million, versus $16.7 million.
Negative
- Moderate pointThird-quarter noninterest income fell to $4.1 million from $4.5 million.
Filing Explained
Alongside the available-for-sale losses already summarized, the
Key Figures
Key Terms
available for sale securities financial
held to maturity financial
nonaccrual loans financial
collateral-dependent loans financial
fair value hierarchy financial
Allowance for Credit Losses financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much did FXNC earn in Q3 2026?
What was FXNC's net interest income in Q3 2026?
AI-generated analysis. How Rhea-AI works. Not financial advice.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
The |
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.
Table of Contents
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 (Section 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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| Accelerated filer |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 6, 2026,
Table of Contents
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets as of September 30, 2026 (unaudited) and December 31, 2025 |
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Consolidated Statements of Income for the three and nine months ended September 30, 2026 and 2025 (unaudited) |
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Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2026 and 2025 (unaudited) |
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Consolidated Statements of Cash Flows for the nine months ended September 30, 2026 and 2025 (unaudited) |
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Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2026 and 2025 (unaudited) |
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Notes to Consolidated Financial Statements (unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. |
Controls and Procedures |
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PART II – OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
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Item 1A. |
Risk Factors |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. |
Defaults Upon Senior Securities |
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Item 4. |
Mine Safety Disclosures |
64 |
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Item 5. |
Other Information |
64 |
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Item 6. |
Exhibits |
65 |
3
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NATIONAL CORPORATION
Consolidated Balance Sheets
(in thousands, except share and per share data)
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Assets |
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Cash and due from banks |
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Interest-bearing deposits in banks |
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Cash and cash equivalents |
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Securities available for sale, at fair value |
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Securities held to maturity, at amortized cost (net of allowance for credit losses, 2026, $; 2025, $) |
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Restricted securities, at cost |
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Loans held for sale |
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Loans, net of allowance for credit losses, 2026, $; 2025, $ |
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Other real estate owned, net of valuation allowance |
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Premises and equipment, net |
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Accrued interest receivable |
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Bank owned life insurance |
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Goodwill |
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Core deposit intangibles, net |
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Other assets |
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Total assets |
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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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Savings and interest-bearing demand deposits |
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Time deposits |
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Total deposits |
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Other borrowings |
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Subordinated debt, net of issuance cost |
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Junior subordinated debt |
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Accrued interest payable and other liabilities |
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Total liabilities |
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Commitments and contingencies |
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Shareholders’ Equity |
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Preferred stock, par value $ per share; authorized shares; issued and outstanding |
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Common stock, par value $ per share; authorized shares; issued and outstanding, 2026, shares; 2025, shares |
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Surplus |
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Retained earnings |
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Accumulated other comprehensive loss, net |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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*Derived from audited consolidated financial statements.
See Notes to Consolidated Financial Statements
4
Table of Contents
FIRST NATIONAL CORPORATION
Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
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Interest and Dividend Income |
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Interest and fees on loans |
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Interest on deposits in banks |
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Interest on federal funds sold |
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Interest and dividends on securities: |
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Taxable interest |
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Tax-exempt interest |
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Dividends |
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Total interest and dividend income |
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Interest Expense |
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Interest on deposits |
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Interest on subordinated debt |
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Interest on junior subordinated debt |
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Interest on other borrowings |
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Total interest expense |
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Net interest income |
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Provision for credit losses |
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Net interest income after provision for credit losses |
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Noninterest Income |
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Service charges on deposit accounts |
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ATM and check card fees |
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Wealth management fees |
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Fees for other customer services |
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Brokered mortgage fees |
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Income from bank owned life insurance |
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Net gains on redemption of subordinated debt |
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Net gains on securities available for sale |
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Mortgage banking revenue |
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Net (loss) gain on disposal of premises and equipment |
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Bargain purchase gain |
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Other operating income |
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Total noninterest income |
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Noninterest Expense |
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Salaries and employee benefits |
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Occupancy |
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Equipment |
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Marketing |
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Supplies |
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Legal and professional fees |
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ATM and check card expense |
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FDIC assessment |
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Bank franchise tax |
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Data processing expense |
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Core deposit intangible amortization expense |
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Other real estate owned income, net |
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Net losses on disposal of premises and equipment |
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Merger expense |
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Other operating expense |
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Total noninterest expense |
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See Notes to Consolidated Financial Statements
5
Table of Contents
FIRST NATIONAL CORPORATION
Consolidated Statements of Income (Unaudited)
(Continued)
(in thousands, except per share data)
| | Three Months Ended | | | Nine Months Ended | | ||||||||||
| | September 30, | | | September 30, | | | September 30, | | | September 30, | | ||||
| | 2026 | | | 2025 | | | 2026 | | | 2025 | | ||||
Income before income taxes | | $ | | | $ | | | $ | | | $ | | ||||
Income tax expense | | | | | | | | | | | | | ||||
Net income | | $ | | | $ | | | $ | | | $ | | ||||
Earnings per common share | | | | | | | | | | | | | | | | |
Basic | | $ | | | $ | | | $ | | | $ | | ||||
Diluted | | $ | | | $ | | | $ | | | $ | | ||||
See Notes to Consolidated Financial Statements
6
Table of Contents
FIRST NATIONAL CORPORATION
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
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| Three Months Ended |
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| September 30, |
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| 2026 |
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Net income |
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Other comprehensive income (loss), net of tax, |
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Unrealized holding gains (losses) on available for sale securities, net of tax of ($) and $ for the three months and ($) and $ for the nine months ended September 30, 2026 and 2025, respectively |
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Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity, net of tax of $ and $ for the three months and $ and $ for the nine months ended September 30, 2026 and 2025, respectively |
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Reclassification adjustment for gains included in net income, net of tax of $ and $ for the three months and ($) and $ for the nine months ended September 30, 2026 and 2025, respectively |
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Change in fair value of cash flow hedges, net of tax $ and ($) for the three months and $ and ($) for the nine months ended September 30, 2026 and 2025, respectively |
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Total other comprehensive income (loss) |
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Total comprehensive income |
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See Notes to Consolidated Financial Statements
7
Table of Contents
FIRST NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
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| September 30, |
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Cash Flows from Operating Activities |
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Net income |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization of premises and equipment |
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Amortization of core deposit intangibles |
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Amortization of debt issuance costs |
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Amortization of subordinated debt fair value mark |
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(Gain) on redemption of subordinated debt |
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(Origination of) mortgage loans held for sale |
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Proceeds from sale of mortgage loans held for sale |
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Net (gains) on sales of mortgage loans held for sale |
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Provision for credit losses on loans |
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(Recovery of) credit losses on securities held to maturity |
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(Recovery of) provision for credit losses on unfunded commitments |
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Net (gain) on securities available for sale |
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Net loss (gain) on sale of other real estate owned |
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Increase in cash value of bank owned life insurance |
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Accretion of discounts and amortization of premiums on securities, net |
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Amortization (accretion) of premium on time deposits |
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Accretion of certain acquisition-related loan (discounts) and premiums, net |
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Stock-based compensation |
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Excess tax benefits on stock-based compensation |
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(Gain) on disposal of premises and equipment, net |
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Bargain purchase gain |
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Deferred income tax expense |
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Changes in assets and liabilities: |
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(Increase) in interest receivable |
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Decrease in other assets |
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(Decrease) in accrued interest payable and other liabilities |
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Net cash provided by operating activities |
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Cash Flows from Investing Activities |
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Proceeds from maturities, calls, and principal payments of securities available for sale |
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Proceeds from maturities, calls, and principal payments of securities held to maturity |
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Purchases of securities available for sale |
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Purchases of restricted securities |
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Net redemption of restricted securities |
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Purchase of premises and equipment |
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Proceeds from sale of premises and equipment |
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Proceeds from sale of other real estate owned |
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Purchase of bank owned life insurance |
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Net (increase) decrease in loans |
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| |
Net cash (used in) provided by investing activities |
| $ | ( | ) |
| $ |
| |
See Notes to Consolidated Financial Statements
8
Table of Contents
FIRST NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(Continued)
(in thousands)
|
| Nine Months Ended |
| |||||
|
| September 30, |
|
| September 30, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net increase (decrease) in demand deposits and savings accounts |
| $ |
|
| $ | ( | ) | |
Net (decrease) increase in time deposits |
|
| ( | ) |
|
|
| |
Redemption of subordinated debt |
|
|
|
|
| ( | ) | |
Cash dividends paid on common stock, net of reinvestment |
|
| ( | ) |
|
| ( | ) |
Repurchase of common stock, stock incentive plan |
|
| ( | ) |
|
|
| |
Net cash provided by financing activities |
| $ |
|
| $ |
| ||
Increase in cash and cash equivalents |
| $ |
|
| $ |
| ||
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
Beginning |
| $ |
|
| $ |
| ||
Ending |
| $ |
|
| $ |
| ||
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash payments for: |
|
|
|
|
|
|
|
|
Interest |
| $ |
|
| $ |
| ||
Income taxes |
| $ |
|
| $ |
| ||
Supplemental Disclosures of Noncash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Unrealized (losses) gains on securities available for sale |
| $ | ( | ) |
| $ |
| |
Amortization of unrealized losses on securities transferred from available for sale to held to maturity |
| $ |
|
| $ |
| ||
Change in fair value of cash flow hedges |
| $ | ( | ) |
| $ | ( | ) |
Transfer from premises and equipment to other real estate owned, net |
| $ | ( | ) |
| $ |
| |
Issuance of common stock, dividend reinvestment plan |
| $ |
|
| $ |
| ||
See Notes to Consolidated Financial Statements
9
Table of Contents
FIRST NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands, except share and per share data)
|
| Common Stock |
|
| Surplus |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive (Loss) |
|
| Total |
| |||||
Balance, June 30, 2026 |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive (loss) |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Cash dividends on common stock ($ per share) |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of shares common stock, dividend reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of shares common stock, stock incentive plan |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||
Balance, September 30, 2026 |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
|
| Common Stock |
|
| Surplus |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive (Loss) |
|
| Total |
| |||||
Balance, June 30, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash dividends on common stock ($ per share) |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of shares common stock, dividend reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of shares common stock, stock incentive plan |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||
Balance, September 30, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
See Notes to Consolidated Financial Statements
10
Table of Contents
FIRST NATIONAL CORPORATION
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands, except share and per share data)
|
| Common Stock |
|
| Surplus |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive (Loss) |
|
| Total |
| |||||
Balance, December 31, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive (loss) |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Cash dividends on common stock ($ per share) |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of shares common stock, dividend reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of shares common stock, stock incentive plan |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||
Repurchase of shares common stock, stock incentive plan |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||
Balance, September 30, 2026 |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
|
| Common Stock |
|
| Surplus |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive (Loss) |
|
| Total |
| |||||
Balance, December 31, 2024 |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash dividends on common stock ($ per share) |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of shares common stock, dividend reinvestment plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Issuance of shares common stock, stock incentive plan |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||
Balance, September 30, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||
See Notes to Consolidated Financial Statements
11
Table of Contents
FIRST NATIONAL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
Note 1. General
Basis of Presentation
The accompanying unaudited consolidated financial statements of First National Corporation (the Company) and its subsidiary, First Bank (the Bank), have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for annual year-end financial statements. All significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications of a normal and recurring nature considered necessary to present fairly the financial positions on September 30, 2026 and December 31, 2025, the statements of income and comprehensive income for the three and nine months ended September 30, 2026 and 2025, the cash flows for the nine months ended September 30, 2026 and 2025, and the changes in shareholders’ equity for the three and nine months ended September 30, 2026 and 2025. The statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2025. Operating results for the nine months ended September 30, 2026 are not necessarily indicative of the results that may be expected for the year ended December 31, 2026. Certain items in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications had no effect on prior year net income or shareholders' equity.
Significant Accounting Policies and Estimates
Application of the principles of GAAP and practices within the banking industry requires management to make estimates, assumptions, and judgements that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgements 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 judgements. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgements 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 changes in the near term include estimates related to the determination of the allowance for credit losses on loans.
The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the audited financial statements and notes for the year ended December 31, 2025 and are contained in the Company’s 2025 Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2025.
Recent Accounting Pronouncements
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 at the time of adoption; however, the Company is considering the impacts to future acquisition activity.
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.
12
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 2. Securities
The Company invests in U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, and corporate debt securities. Amortized costs, gross unrealized gains and losses, allowance for credit losses, and fair values of debt securities on September 30, 2026 and December 31, 2025 were as follows (in thousands):
|
| September 30, 2026 |
| |||||||||||||||||
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized (Losses) |
|
| Fair Value |
|
| Allowance for Credit Losses |
| |||||
Securities available for sale: |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
U.S. Treasury securities |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||
U.S. agency and mortgage-backed securities |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||
Corporate debt securities |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| | |||
Total securities available for sale |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||
Securities held to maturity: |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
U.S. Treasury securities |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
U.S. agency and mortgage-backed securities |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||
Corporate debt securities |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Total securities held to maturity |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||
Total securities |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||
| | December 31, 2025 | | |||||||||||||||||
| | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized (Losses) | | | Fair Value | | | Allowance for Credit Losses | | |||||
Securities available for sale: | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | | | $ | | | $ | ( | ) | | $ | | | $ | | ||||
U.S. agency and mortgage-backed securities | | | | | | | | | ( | ) | | | | | | | ||||
Obligations of states and political subdivisions | | | | | | | | | ( | ) | | | | | | | ||||
Corporate debt securities | | | | | | | | | ( | ) | | | | | | | ||||
Total securities available for sale | | $ | | | $ | | | $ | ( | ) | | $ | | | $ | | ||||
Securities held to maturity: | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities | | $ | | | $ | | | $ | ( | ) | | $ | | | $ | | ||||
U.S. agency and mortgage-backed securities | | | | | | | | | ( | ) | | | | | | | ||||
Obligations of states and political subdivisions | | | | | | | | | ( | ) | | | | | | | ||||
Corporate debt securities | | | | | | | | | ( | ) | | | | | | ( | ) | |||
Total securities held to maturity | | $ | | | $ | | | $ | ( | ) | | $ | | | $ | ( | ) | |||
Total securities | | $ | | | $ | | | $ | ( | ) | | $ | | | $ | ( | ) | |||
13
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Information pertaining to available for sale securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position is as follows (in thousands):
|
| September 30, 2026 |
| |||||||||||||||||||||
|
| Less than 12 months |
|
| 12 months or more |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized (Loss) |
|
| Fair Value |
|
| Unrealized (Loss) |
|
| Fair Value |
|
| Unrealized (Loss) |
| ||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||
U.S. agency and mortgage-backed securities |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Obligations of states and political subdivisions |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Corporate debt securities |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||||
Total securities available for sale |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||
|
| December 31, 2025 |
| |||||||||||||||||||||
|
| Less than 12 months |
|
| 12 months or more |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized (Loss) |
|
| Fair Value |
|
| Unrealized (Loss) |
|
| Fair Value |
|
| Unrealized (Loss) |
| ||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||
U.S. agency and mortgage-backed securities |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Obligations of states and political subdivisions |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Corporate debt securities |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||||
Total securities available for sale |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||
The tables above provide information about available for sale securities that have been in an unrealized loss position for less than twelve consecutive months and securities that have been in an unrealized loss position for twelve consecutive months or more. Management evaluates securities to determine whether the impairment is due to credit-related factors or noncredit-related factors at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. Presently, the Company does not intend to sell any of these securities, does not expect to be required to sell these securities, and expects to recover the entire amortized cost of all the securities.
Accrued interest receivable on securities available for sale and securities held to maturity totaled $
On September 30, 2026, there were
14
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The amortized cost and fair value of securities on September 30, 2026 by contractual maturity are shown below (in thousands). Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.
|
| Available for Sale |
|
| Held to Maturity |
| ||||||||||
|
| Amortized Cost |
|
| Fair Value |
|
| Amortized Cost |
|
| Fair Value |
| ||||
Due within one year |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Due after one year through five years |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Due after five years through ten years |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Due after ten years |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Federal Home Loan Bank, Federal Reserve Bank, and Community Bankers’ Bank stock are generally viewed as long-term investments and as restricted securities, which are carried at cost, because there is a minimal market for the stock. Therefore, when evaluating restricted securities for impairment, their value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.
The composition of restricted securities on September 30, 2026 and December 31, 2025 was as follows (in thousands):
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
Federal Home Loan Bank stock |
| $ |
|
| $ |
| ||
Federal Reserve Bank stock |
|
|
|
|
|
| ||
Community Bankers’ Bank stock |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
The Company also holds limited partnership investments in Small Business Investment Companies (SBICs), which are included in other assets in the Consolidated Balance Sheets. The limited partnership investments are measured as equity investments (without readily determinable fair values) at their cost, less any impairment or other observable transaction prices. The amounts included in other assets for the limited partnership investments were $
Credit Quality Indicators & Allowance for Credit Losses - HTM
The Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings from Moody's, S&P, and Egan-Jones. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held to maturity on September 30, 2026 and December 31, 2025, aggregated by credit quality indicators.
|
| U.S. Treasury securities |
|
| U.S. agency and mortgage-backed securities |
|
| Obligations of states and political subdivisions |
|
| Corporate debt securities |
|
| Total Held to Maturity Securities |
| |||||
September 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aaa |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Aa1 / Aa2 / Aa3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Baa1 / Baa2 / Baa3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Not rated - Agency (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aaa |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Aa1 / Aa2 / Aa3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Baa1 / Baa2 / Baa3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Not rated - Agency (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
(1) Generally considered not to have credit risk given the implied governmental guarantees associated with these agencies.
15
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize the change in the allowance for credit losses on held to maturity securities for the nine months ended September 30, 2026 and 2025 and the year ended December 31, 2025.
|
| U.S. Treasury securities |
|
| U.S. agency and mortgage-backed securities |
|
| Obligations of states and political subdivisions |
|
| Corporate debt securities |
|
| Total Held to Maturity Securities |
| |||||
Balance, December 31, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Charge-offs of securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, September 30, 2026 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
|
| U.S. Treasury securities |
|
| U.S. agency and mortgage-backed securities |
|
| Obligations of states and political subdivisions |
|
| Corporate debt securities |
|
| Total Held to Maturity Securities |
| |||||
Balance, December 31, 2024 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Charge-offs of securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, September 30, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
|
| U.S. Treasury securities |
|
| U.S. agency and mortgage-backed securities |
|
| Obligations of states and political subdivisions |
|
| Corporate debt securities |
|
| Total Held to Maturity Securities |
| |||||
Balance, December 31, 2024 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Charge-offs of securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, December 31, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
On September 30, 2026 and December 31, 2025, the Company had no securities held-to-maturity that were past due 30 days or more as to principal and interest payments. The Company had no securities held-to-maturity classified as nonaccrual as of September 30, 2026 and December 31, 2025.
16
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 3. Loans
Loans on September 30, 2026 and December 31, 2025 are summarized as follows (in thousands):
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
Real estate loans: |
|
|
|
|
|
|
|
|
Construction and land development |
| $ |
|
| $ |
| ||
Secured by 1-4 family residential |
|
|
|
|
|
| ||
Other real estate loans |
|
|
|
|
|
| ||
Commercial and industrial loans |
|
|
|
|
|
| ||
Consumer and other loans |
|
|
|
|
|
| ||
Total loans |
| $ |
|
| $ |
| ||
Allowance for credit losses |
|
| ( | ) |
|
| ( | ) |
Loans, net |
| $ |
|
| $ |
| ||
Net deferred loan fees included in the above loan categories were $
Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The principal balance of purchased loans is included in the allowance for credit losses calculation. The remaining net discount on purchased loans on September 30, 2026 was $
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
|
| Acquired Loans- |
|
| Acquired Loans- |
| ||
|
| Non-Purchased |
|
| Non-Purchased |
| ||
(Dollars in thousands) |
| Credit Deteriorated |
|
| Credit Deteriorated |
| ||
Outstanding principal balance |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
Construction and land development |
| $ |
|
| $ |
| ||
Secured by 1-4 family residential |
|
|
|
|
|
| ||
Other real estate loans |
|
|
|
|
|
| ||
Commercial and industrial loans |
|
|
|
|
|
| ||
Consumer and other loans |
|
|
|
|
|
| ||
Total acquired loans |
| $ |
|
| $ |
| ||
17
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Risk characteristics of each loan portfolio class that are considered by the Company include:
| • | 1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral. |
| • | Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project. |
| • | Other real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project. |
| • | Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability. Commercial and industrial loans also include purchased loans which could have been originated outside of the Company's market area. |
| • | Consumer and other loans carry risks associated with the continued creditworthiness of the borrower and the value of the collateral, if any. Consumer loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Consumer and other loans also include purchased consumer loans which could have been originated outside of the Company's market area. Other loans included in this category include loans to states and political subdivisions. |
18
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The following tables provide a summary of loan classes and an aging of past due loans as of September 30, 2026 and December 31, 2025 (in thousands):
|
| September 30, 2026 |
| |||||||||||||||||||||||||||||
|
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| > 90 Days Past Due |
|
| Total Past Due |
|
| Current |
|
| Total Loans |
|
| Non-accrual Loans |
|
| 90 Days or More Past Due and Accruing |
| ||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Secured by 1-4 family residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consumer and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
| December 31, 2025 |
| |||||||||||||||||||||||||||||
|
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| > 90 Days Past Due |
|
| Total Past Due |
|
| Current |
|
| Total Loans |
|
| Non-accrual Loans |
|
| 90 Days or More Past Due and Accruing |
| ||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Secured by 1-4 family residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consumer and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
19
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Credit Quality Indicators
As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans. The Company utilizes a risk grading matrix to assign a rating to each of its loans. The loan ratings are summarized into the following categories: pass, special mention, substandard, doubtful, and loss. Pass rated loans include all risk rated credits other than those included in special mention, substandard, or doubtful. Loans classified as loss are charged-off. Loan officers assign risk grades to loans at origination and as renewals arise. The Bank’s Credit Administration department reviews risk grades for accuracy on a quarterly basis and as credit issues arise. In addition, a certain amount of loans are reviewed each year through the Company’s internal and external loan review process. A description of the general characteristics of the loan grading categories is as follows:
Pass – Loans classified as pass exhibit acceptable operating trends, balance sheet trends, and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower as agreed.
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The Company considers all doubtful loans to be impaired and places the loan on non-accrual status.
Loss – Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.
20
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of September 30, 2026 and December 31, 2025 and charge offs by year of origination for the nine months ended September 30, 2026 and the year ended December 31, 2025 (in thousands).
|
| September 30, 2026 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Term Loans by Year of Origination |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 2026 |
|
| 2025 |
|
| 2024 |
|
| 2023 |
|
| 2022 |
|
| Prior |
|
| Revolving |
|
| Total |
| ||||||||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total construction and land development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total secured by 1-4 family residential |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total other real estate loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total commercial and industrial |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total consumer and other loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
21
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
|
| December 31, 2025 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Term Loans by Year of Origination |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| Prior |
|
| Revolving |
|
| Total |
| ||||||||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total construction and land development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total secured by 1-4 family residential |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total other real estate loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total commercial and industrial |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Special Mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total consumer and other loans |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross write-offs |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
22
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 4. Allowance for Credit Losses
The following tables present, as of and during the periods ended September 30, 2026, December 31, 2025 and September 30, 2025, the activity in the Allowance for Credit Losses on Loans (ACLL) by portfolio, and information about individually evaluated and collectively evaluated loans (in thousands):
|
| September 30, 2026 |
| |||||||||||||||||||||
|
| Construction and Land Development |
|
| Secured by 1-4 Family Residential |
|
| Other Real Estate |
|
| Commercial and Industrial |
|
| Consumer and Other Loans |
|
| Total |
| ||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance, December 31, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Charge-offs |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | ||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Provision for (recovery of) credit losses on loans |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Ending Balance, September 30, 2026 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Ending Balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| December 31, 2025 |
| |||||||||||||||||||||
|
| Construction and Land Development |
|
| Secured by 1-4 Family Residential |
|
| Other Real Estate |
|
| Commercial and Industrial |
|
| Consumer and Other Loans |
|
| Total |
| ||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance, December 31, 2024 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Charge-offs |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Provision for (recovery of) credit losses on loans |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||
Ending Balance, December 31, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Ending Balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
23
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
|
| September 30, 2025 |
| |||||||||||||||||||||
|
| Construction and Land Development |
|
| Secured by 1-4 Family Residential |
|
| Other Real Estate |
|
| Commercial and Industrial |
|
| Consumer and Other Loans |
|
| Total |
| ||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance, December 31, 2024 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Charge-offs |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Provision for (recovery of) credit losses on loans |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||
Ending Balance, September 30, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Ending Balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Nonaccrual loans
The following is a summary of the Company's nonaccrual loans by major categories for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||||||||||||||||||
|
| Nonaccrual Loans with No Allowance |
|
| Nonaccrual loans with an Allowance |
|
| Total Nonaccrual Loans |
|
| Nonaccrual Loans with No Allowance |
|
| Nonaccrual loans with an Allowance |
|
| Total Nonaccrual Loans |
| ||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Secured by 1-4 family residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
24
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Collateral-Dependent Loans
The Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The Company reevaluates the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:
| • | Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate. |
| • | Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage. |
| • | Home equity lines of credit are generally secured by second mortgages on residential real estate property. |
| • | Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral. |
The following table presents the amortized cost of collateral-dependent loans (in thousands):
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||||||||||||||||||
(Dollars in thousands) |
| Real Estate Secured |
|
| Non-Real Estate Secured |
|
| Total Collateral-Dependent Loans |
|
| Real Estate Secured |
|
| Non-Real Estate Secured |
|
| Total Collateral-Dependent Loans |
| ||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Secured by 1-4 family residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
On September 30, 2026 and December 31, 2025 there was
25
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Modifications Made to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For combination real estate loans, multiple types of modifications may be made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, and interest rate reduction.
The following tables show the amortized cost basis of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loan and type of concession granted and describes the financial effect of the modifications made.
The following table shows the amortized cost basis for the three months ended September 30, 2026:
(Dollars in thousands) |
| Term Extension | |||||||
Class of Financing Receivable |
| Amortized Cost Basis |
|
| % of Total Loan Type |
| Financial Effect | ||
Commercial and industrial |
| $ |
|
|
| % | Term and amortization increased to 120 months | ||
Total |
| $ |
|
|
| % |
| ||
The following table shows the amortized cost basis for the nine months ended September 30, 2026:
(Dollars in thousands) |
| Term Extension | |||||||
Class of Financing Receivable |
| Amortized Cost Basis |
|
| % of Total Loan Type |
| Financial Effect | ||
Commercial and industrial |
| $ |
|
|
| % | Term and amortization increased from 4 years to 6 years | ||
Commercial and industrial |
|
|
|
|
| % | Term and amortization increased from 43 months to 55 months | ||
Commercial and industrial |
|
|
|
|
| % | Term and amortization increased to 120 months | ||
Total |
| $ |
|
|
| % |
| ||
The following table shows the amortized cost basis for the three and nine months ended September 30, 2025.
(Dollars in thousands) | | Interest Rate Reduction | |||||||
Class of Financing Receivable | | Amortized Cost Basis | | | % of Total Loan Type | | Financial Effect | ||
Commercial and industrial | | $ | | | | % | Interest rate reduced by 4% | ||
Total | | $ | | | | % | | ||
Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. For the nine months ended September 30, 2026 and 2025, there were
26
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Unfunded Commitments
The Company maintains a separate reserve for credit losses on off-balance-sheet credit exposures, including unfunded loan 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 income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described in Note 1 of Form 10-K, as these unfunded 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 following tables depict the allowance for credit losses on off-balance sheet exposures for the three and nine months ended September 30, 2026 and 2025 (in thousands):
For the Nine Months Ended |
| ||||||||
September 30, 2026 |
| September 30, 2025 |
| ||||||
Balance, December 31, 2025 |
| $ |
| Balance, December 31, 2024 |
| $ |
| ||
Provision for unfunded commitments |
|
| ( | ) | Provision for unfunded commitments |
|
|
| |
Recovery of unfunded commitments |
|
| — |
| Recovery of unfunded commitments |
|
| — |
|
Balance, September 30, 2026 |
| $ |
| Balance, September 30, 2025 |
| $ |
| ||
For the Three Months Ended |
| ||||||||
September 30, 2026 |
| September 30, 2025 |
| ||||||
Balance, June 30, 2026 |
| $ |
| Beginning, June 30, 2025 |
| $ |
| ||
Provision for unfunded commitments |
|
| ( | ) | Provision for unfunded commitments |
|
|
| |
Recovery of unfunded commitments |
|
| — |
| Recovery of unfunded commitments |
|
| — |
|
Balance, September 30, 2026 |
| $ |
| Balance, September 30, 2025 |
| $ |
| ||
Note 5. Earnings per Common Share
Basic earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per common 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 following table presents the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2026 and 2025 (dollars in thousands, except per share data):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2026 |
|
| September 30, 2025 |
|
| September 30, 2026 |
|
| September 30, 2025 |
| ||||
(Numerator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
(Denominator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Potentially dilutive common shares – restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding – diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Diluted |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Restricted stock units for
27
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 6. Fair Value Measurements
Determination of Fair Value
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurement and Disclosures” topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups its assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
| Level 1 - | Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. |
| Level 2 - | Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |
| Level 3 - | Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires a significant management judgment or estimation. |
28
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
An instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a recurring basis in the financial statements:
Securities available for sale
Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).
Derivative asset/liability - cash flow hedges
Cash flow hedges are recorded at fair value on a recurring basis. The fair value of the Company's cash flow hedges is determined by a third-party vendor using the discounted cash flow method (Level 2).
The following tables present the balances of assets measured at fair value on a recurring basis as of September 30, 2026 and December 31, 2025 (in thousands).
|
|
|
|
|
| Fair Value Measurements at September 30, 2026 |
| |||||||||
Description |
| Balance as of September 30, 2026 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
U.S. agency and mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total securities available for sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Derivatives - cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
29
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
| Fair Value Measurements at December 31, 2025 |
| |||||||||
Description |
| Balance as of December 31, 2025 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
U.S. agency and mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total securities available for sale |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Derivatives - cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Certain 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 assets recorded at fair value on a nonrecurring basis in the financial statements:
Collateral Dependent Loans with an ACLL
In accordance with ASC 326, the Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. There was
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 the secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). The Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the nine months ended September 30, 2026 and the year ended December 31, 2025.
30
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Other Real Estate Owned
Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of OREO is determined using current appraisals from independent parties, a Level 2 input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs. The Company had Other Real Estate Owned of $
There were no assets measured at fair value on a nonrecurring basis for the year ended December 31, 2025. The following tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis during the period ended September 30, 2026 (dollars in thousands):
|
|
|
| |
| Fair Value Measurements at September 30, 2026 |
| |||||||||
Description |
| Balance as of September 30, 2026 |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Other real estate owned |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| | Quantitative information about Level 3 Fair Value Measurements for September 30, 2026 | | |||||||
| | Fair Value | | Valuation Technique | Unobservable Input | | Range | | ||
Other real estate owned | | $ | | Property appraisals | Selling cost | | | % | ||
| | | . | | | | | | | |
(1) Unobservable inputs were weighted by the relative fair value of the instruments.
Accounting guidance requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The carrying values and estimated fair values of the Company’s financial instruments on September 30, 2026 and December 31, 2025 are as follows (in thousands):
|
|
|
|
|
| Fair Value Measurements at September 30, 2026 Using |
| |||||||||||||
|
| Carrying Amount |
|
| Quoted Prices in Active Markets for Identical Assets Level 1 |
|
| Significant Other Observable Inputs Level 2 |
|
| Significant Unobservable Inputs Level 3 |
|
| Fair Value |
| |||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and interest-bearing deposits in banks |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Restricted securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accrued interest receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Derivatives - cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Other borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Junior subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accrued interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
31
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
| Fair Value Measurements at December 31, 2025 Using |
| |||||||||||||
|
| Carrying Amount |
|
| Quoted Prices in Active Markets for Identical Assets Level 1 |
|
| Significant Other Observable Inputs Level 2 |
|
| Significant Unobservable Inputs Level 3 |
|
| Fair Value |
| |||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and interest-bearing deposits in banks |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Restricted securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accrued interest receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Derivatives - cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Other borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Junior subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accrued interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
Note 7. Stock Compensation Plans
Stock awards and restricted stock units (RSUs) are both issued under the Company's 2023 Stock Incentive Plan. Awards are made at the discretion of the Board of Directors and compensation cost equal to the fair value of the award is recognized over the vesting period.
32
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Stock Awards
Whenever the Company deems it appropriate to grant a stock award, the recipient receives a specified number of unrestricted shares of the Company's common stock. Stock awards may be made by the Company at its discretion without cash consideration and may be granted as settlement of a performance-based compensation award.
Compensation expense related to stock awards totaled $
Restricted Stock Units
RSUs are awards of units that correspond to a specified number of shares of the Company's common stock which the recipient receives according to a vesting plan and distribution schedule after achieving required performance milestones or upon remaining with the Company for a particular length of time. Each RSU that vests entitles the recipient to receive one share of common stock on a specified issuance date.
During the first nine months of 2026,
A summary of the activity for the Company’s RSUs for the period indicated is presented in the following table:
|
| Nine Months Ended |
| |||||
|
| September 30, 2026 |
| |||||
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested, beginning of year |
|
|
|
| $ |
| ||
Granted |
|
|
|
|
|
| ||
Vested |
|
| ( | ) |
|
|
| |
Forfeited |
|
| ( | ) |
|
|
| |
Unvested, end of period |
|
|
|
| $ |
| ||
The total unrecognized pre-tax compensation expense related to unvested RSU awards was $
33
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 8. Accumulated Other Comprehensive (Loss)
Changes in each component of accumulated other comprehensive (loss) were as follows (in thousands):
|
| Net Unrealized Gains (Losses) on Securities |
|
| Change in Fair Value of Cash Flow Hedges |
|
| Accumulated Other Comprehensive (Loss) |
| |||
Balance at June 30, 2025 |
| $ | ( | ) |
| $ |
|
|
| ( | ) | |
Unrealized holding gains (net of tax, $) |
|
|
|
|
|
|
|
|
| |||
Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity (net of tax of $) |
|
|
|
|
|
|
|
|
| |||
Change in fair value of cash flow hedge (net of tax, ($)) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Change during period |
|
|
|
|
| ( | ) |
|
|
| ||
Balance at September 30, 2025 |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2026 |
| $ | ( | ) |
| $ |
|
|
| ( | ) | |
Unrealized holding gains (net of tax, ($)) |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity (net of tax of $) |
|
|
|
|
|
|
|
|
| |||
Change in fair value of cash flow hedge (net of tax, $) |
|
|
|
|
|
|
|
|
| |||
Change during period |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Balance at September 30, 2026 |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
|
| Net Unrealized Gains (Losses) on Securities |
|
| Change in Fair Value of Cash Flow Hedges |
|
| Accumulated Other Comprehensive (Loss) |
| |||
Balance at December 31, 2024 |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Unrealized holding gains (net of tax, $) |
|
|
|
|
|
|
|
|
| |||
Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity (net of tax of $) |
|
|
|
|
|
|
|
|
| |||
Change in fair value of cash flow hedge (net of tax, ($)) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Change during period |
|
|
|
|
| ( | ) |
|
|
| ||
Balance at September 30, 2025 |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2025 |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Unrealized holding gains (net of tax, ($)) |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity (net of tax of $) |
|
|
|
|
|
|
|
|
| |||
Reclassification adjustment (net of tax, ($)) |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Change in fair value of cash flow hedge (net of tax, $) |
|
|
|
|
|
|
|
|
| |||
Change during period |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Balance at September 30, 2026 |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
34
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The following table presents information related to reclassifications from accumulated other comprehensive income (loss) for the nine months ended September 30, 2026 (in thousands):
Details About Accumulated Other Comprehensive Income (Loss) |
| Amount Reclassified from Accumulated Other Comprehensive Income (Loss) |
| Affected Line Item in the Consolidated Statements of Income | |||||
|
| Nine Months Ended |
|
| |||||
|
| September 30, 2026 |
|
| September 30, 2025 |
|
| ||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
Net securities gains reclassified into earnings |
| $ | ( | ) |
| $ |
| Net gains on securities available for sale | |
Related income tax expense |
|
|
|
|
|
| Income tax expense | ||
Total reclassifications |
| $ | ( | ) |
| $ |
| Net of tax | |
Note 9. Revenue Recognition
Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of ASC topic 606. Gains and losses on investment securities, derivatives, financial guarantees, and sales of financial instruments are similarly excluded from the scope. The guidance is applicable to noninterest revenue streams such as service charges on deposit accounts, ATM and check card fees, wealth management fees, and fees for other customer services. Noninterest revenue streams within the scope of Topic 606 are discussed below.
Service charges on deposit accounts
Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, and other deposit account related fees. The Company's performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers' accounts. Overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time.
ATM and check card fees
ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. ATM fees are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Check card fees are primarily comprised of interchange fee income. Interchange fees are earned whenever the Company's debit cards are processed through card payment networks, such as Visa. The Company's performance obligation for interchange fee income is largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
35
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Wealth management fees
Wealth management fees are 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 primarily 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.
Brokered mortgage fees
Brokered mortgage fees are comprised of loan fee income earned from generating loans in the secondary market. Brokered mortgage fee income is recognized at loan closing.
Fees for other customer services
Fees for other customer services include fees for brokered loans, check ordering charges, merchant services income, safe deposit box rental fees, and other service charges. Check ordering charges are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Merchant services income mainly represent fees charged to merchants to process their debit and credit card transactions. The Company's performance obligation for merchant services income is largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.
The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Accounting Standards Codification Topic 606, for the three and nine months ended September 30, 2026 and 2025 (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, 2026 |
|
| September 30, 2025 |
|
| September 30, 2026 |
|
| September 30, 2025 |
| ||||
Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
ATM and check card fees |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wealth management fees |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Brokered mortgage fees |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Bargain purchase gain |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fees for other customer services |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest income (in-scope of Topic 606) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Noninterest income (out-of-scope of Topic 606) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total noninterest income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
36
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 10. Derivative Financial Instruments
On April 21, 2020, the Company entered into
The Company entered into interest rate swaps to reduce interest rate risk and to manage interest expense. By entering into these agreements, the Company converted variable rate debt into fixed rate debt. Alternatively, the Company may enter into interest rate swap agreements to convert fixed rate debt into variable rate debt. Interest differentials paid or received under interest rate swap agreements are reflected as adjustments to interest expense. The Company designated the interest rate swaps as hedging instruments in qualifying cash flow hedges. Changes in fair value of these designated hedging instruments are reported as a component of other comprehensive (loss) income. Interest rate swaps designated as cash flow hedges are expected to be highly effective in offsetting the effect of changes in interest rates on the amount of variable rate interest payments, and the Company assesses the effectiveness of each hedging relationship quarterly. If the Company determines that a cash flow hedge is no longer highly effective, future changes in the fair value of the hedging instrument would be reported as earnings. As of September 30, 2026, the Company has designated cash flow hedges to manage its exposure to variability in cash flows on certain variable rate borrowings for periods that end between June 2034 and October 2036. The notional amounts of the interest rate swaps were not exchanged and do not represent exposure to credit loss. In the event of default by a counterparty, the risk in these transactions is the cost of replacing the agreements at current market rates.
All interest rate swaps were entered into with counterparties that met the Company's credit standards and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in these derivative contracts is not significant.
Unrealized gains or losses recorded in other comprehensive (loss) income related to cash flow hedges are reclassified into earnings in the same period(s) during which the hedged interest payments affect earnings. When a designated hedging instrument is terminated and the hedged interest payments remain probable of occurring, any remaining unrecognized gain or loss in other comprehensive (loss) income is reclassified into earnings in the period(s) during which the forecasted interest payments affect earnings. Amounts reclassified into earnings and interest receivable or payable under designated interest rate swaps are reported in interest expense. The Company does not expect any unrealized losses related to cash flow hedges to be reclassified into earnings in the next twelve months.
37
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The following table summarizes key elements of the Company's derivative instruments on September 30, 2026 and December 31, 2025 (in thousands):
|
| September 30, 2026 |
| |||||||||||||
|
| Notional Amount |
|
| Assets |
|
| Liabilities |
|
| Collateral Pledged(1) |
| ||||
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| December 31, 2025 |
| |||||||||||||
|
| Notional Amount |
|
| Assets |
|
| Liabilities |
|
| Collateral Pledged(1) |
| ||||
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| (1) | Collateral pledged may be comprised of cash or securities. |
Note 11. Acquisition
Fair Value Premiums and Discounts
The net effect of the amortization and accretion of premiums and discounts associated with the Company’s acquisition accounting adjustments, which includes previous acquisitions in addition to Touchstone Bankshares, Inc. (Touchstone), had the following impact on the Consolidated Statements of Income for the three and nine months ended September 30, 2026 and 2025, as follows (in thousands):
|
| For the Three Months Ended September 30, |
| |||||
|
| 2026 |
|
| 2025 |
| ||
Loans (1) |
| $ |
|
| $ |
| ||
Core deposit intangible (2) |
|
| ( | ) |
|
| ( | ) |
Subordinated Debt (3) |
|
| ( | ) |
|
| ( | ) |
Time deposits (4) |
|
| ( | ) |
|
|
| |
Net impact to income before taxes |
| $ |
|
| $ | ( | ) | |
38
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2026 |
|
| 2025 |
| ||
Loans (1) |
| $ |
|
| $ |
| ||
Core deposit intangible (2) |
|
| ( | ) |
|
| ( | ) |
Subordinated Debt (3) |
|
| ( | ) |
|
| ( | ) |
Time deposits (4) |
|
| ( | ) |
|
|
| |
Net impact to income before taxes |
| $ |
|
| $ | ( | ) | |
(1) Loan acquisition-related fair value adjustments accretion (amortization) is included in "Interest and fees on loans" in the "Interest and dividend income" section of the Company’s Consolidated Statements of Income.
(2) Core deposit and other intangible premium (amortization) is included in "Amortization expense" in the "Noninterest expense" section of the Company’s Consolidated Statements of Income.
(3) Borrowings acquisition-related fair value adjustments accretion (amortization) is included in "Interest on subordinated debt" in the "Interest Expense" section of the Company’s Consolidated Statements of Income.
(4) Certificate of deposit acquisition-related fair value adjustments accretion (amortization) is included in "Interest on deposits" in the "Interest expense" section of the Company’s Consolidated Statements of Income.
Other Intangible Assets
Other intangible assets consist of the core deposit intangible which is being amortized on an accelerated basis over its estimated useful life of 7 years. The gross carrying amounts and accumulated amortization of other intangible assets, which includes previous acquisitions in addition to Touchstone for the three and nine months ended September 30, 2026 and 2025, were as follows (in thousands):
|
| For the Three Months Ended September 30, |
| |||||
|
| 2026 |
|
| 2025 |
| ||
Beginning of period, June 30 |
| $ |
|
| $ |
| ||
Amortization |
|
| ( | ) |
|
| ( | ) |
Total core deposit intangible |
| $ |
|
| $ |
| ||
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2026 |
|
| 2025 |
| ||
Beginning of period, December 31 |
| $ |
|
| $ |
| ||
Amortization |
|
| ( | ) |
|
| ( | ) |
Total core deposit intangible |
| $ |
|
| $ |
| ||
39
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
The Company reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Estimated amortization expense for future years is as follows, including changes for the two branches sold during the fourth quarter (in thousands):
|
| Estimated Amortization |
| |
Remaining three months ending December 31, 2026 |
| $ |
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
2030 |
|
|
| |
Thereafter |
|
|
| |
Total |
| $ |
| |
Note 12. Segment Reporting
The Company has reportable segments. Each reportable segment is a strategic business unit that offers different products and services. They are managed separately, because each segment appeals to different markets and, accordingly, require different technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report.
The reportable segments are:
| ● | Community Banking - The Community Banking segment involves making loans and generating deposits from individuals, businesses, and charitable organizations. Loan fee income, service charges from deposit accounts, and other non-interest-related fees, such as fees for debit cards and ATM usage and fees for brokered mortgage services, generates income for the Community Banking segment. |
| ● | Wealth Management Services – Wealth Management Services offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenue for this segment is generated from administration, service and custody fees, as well as management fees which are derived from assets under management. Investment management services currently are offered through in-house and third-party managers. |
The Company's chief operating decision maker (CODM) is the President and Chief Operating Officer of the Bank. The CODM uses income, operating expenses and net income to evaluate income generated from the operating segments. Net income is used to monitor budget versus actual results and profitability. Financials of the operating segments are reviewed monthly to assess the performance of the segments.
40
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Segment information for the three and nine months ended September 30, 2026 and 2025, is shown in the following tables. Note that asset information is not reported below, as the assets of the Company are reported at the Bank level. Assets under management by Wealth Management Services were $
|
| For the Three Months Ended September 30, 2026 |
| |||||||||
(in thousands) |
| Community Banking |
|
| Wealth Management |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
| $ |
|
| $ |
|
| $ |
| |||
Interest Expense |
|
|
|
|
|
|
|
|
| |||
Net interest income |
| $ |
|
| $ |
|
| $ |
| |||
Provision for credit losses |
|
|
|
|
|
|
|
|
| |||
Net interest income after provision for credit losses |
| $ |
|
| $ |
|
| $ |
| |||
Noninterest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
| $ |
|
| $ |
|
| $ |
| |||
ATM and check card fees |
|
|
|
|
|
|
|
|
| |||
Wealth management fees |
|
|
|
|
|
|
|
|
| |||
Other operating income |
|
|
|
|
|
|
|
|
| |||
Total noninterest income |
| $ |
|
| $ |
|
| $ |
| |||
Noninterest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
| $ |
|
| $ |
|
| $ |
| |||
Occupancy |
|
|
|
|
|
|
|
|
| |||
Equipment |
|
|
|
|
|
|
|
|
| |||
Legal and professional fees |
|
|
|
|
|
|
|
|
| |||
Data processing expense |
|
|
|
|
|
|
|
|
| |||
Investment management |
|
|
|
|
|
|
|
|
| |||
Other operating expense |
|
|
|
|
|
|
|
|
| |||
Total noninterest expense |
| $ |
|
| $ |
|
| $ |
| |||
Income before income taxes |
| $ |
|
| $ |
|
| $ |
| |||
Income tax expense |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ |
|
| $ |
|
| $ |
| |||
41
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
|
| For the Three Months Ended September 30, 2025 |
| |||||||||
(in thousands) |
| Community Banking |
|
| Wealth Management |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
| $ |
|
| $ |
|
| $ |
| |||
Interest Expense |
|
|
|
|
|
|
|
|
| |||
Net interest income |
| $ |
|
| $ |
|
| $ |
| |||
Provision for credit losses |
|
|
|
|
|
|
|
|
| |||
Net interest income after provision for credit losses |
| $ |
|
| $ |
|
| $ |
| |||
Noninterest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
| $ |
|
| $ |
|
| $ |
| |||
ATM and check card fees |
|
|
|
|
|
|
|
|
| |||
Wealth management fees |
|
|
|
|
|
|
|
|
| |||
Other operating income |
|
|
|
|
|
|
|
|
| |||
Total noninterest income |
| $ |
|
| $ |
|
| $ |
| |||
Noninterest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
| $ |
|
| $ |
|
| $ |
| |||
Occupancy |
|
|
|
|
|
|
|
|
| |||
Equipment |
|
|
|
|
|
|
|
|
| |||
Legal and professional fees |
|
|
|
|
|
|
|
|
| |||
Data processing expense |
|
|
|
|
|
|
|
|
| |||
Investment management |
|
|
|
|
|
|
|
|
| |||
Other operating expense |
|
|
|
|
|
|
|
|
| |||
Total noninterest expense |
| $ |
|
| $ |
|
| $ |
| |||
Income before income taxes |
| $ |
|
| $ |
|
| $ |
| |||
Income tax expense |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ |
|
| $ |
|
| $ |
| |||
42
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
|
| For the Nine Months Ended September 30, 2026 |
| |||||||||
(in thousands) |
| Community Banking |
|
| Wealth Management |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
| $ |
|
| $ |
|
| $ |
| |||
Interest Expense |
|
|
|
|
|
|
|
|
| |||
Net interest income |
| $ |
|
| $ |
|
| $ |
| |||
Provision for credit losses |
|
|
|
|
|
|
|
|
| |||
Net interest income after provision for credit losses |
| $ |
|
| $ |
|
| $ |
| |||
Noninterest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
| $ |
|
| $ |
|
| $ |
| |||
ATM and check card fees |
|
|
|
|
|
|
|
|
| |||
Wealth management fees |
|
|
|
|
|
|
|
|
| |||
Other operating income |
|
|
|
|
|
|
|
|
| |||
Total noninterest income |
| $ |
|
| $ |
|
| $ |
| |||
Noninterest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
| $ |
|
| $ |
|
| $ |
| |||
Occupancy |
|
|
|
|
|
|
|
|
| |||
Equipment |
|
|
|
|
|
|
|
|
| |||
Legal and professional fees |
|
|
|
|
|
|
|
|
| |||
Data processing expense |
|
|
|
|
|
|
|
|
| |||
Investment management |
|
|
|
|
|
|
|
|
| |||
Other operating expense |
|
|
|
|
|
|
|
|
| |||
Total noninterest expense |
| $ |
|
| $ |
|
| $ |
| |||
Income before income taxes |
| $ |
|
| $ |
|
| $ |
| |||
Income tax expense |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ |
|
| $ |
|
| $ |
| |||
43
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
|
| For the Nine Months Ended September 30, 2025 |
| |||||||||
(in thousands) |
| Community Banking |
|
| Wealth Management |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
| $ |
|
| $ |
|
| $ |
| |||
Interest Expense |
|
|
|
|
|
|
|
|
| |||
Net interest income |
| $ |
|
| $ |
|
| $ |
| |||
Provision for credit losses |
|
|
|
|
|
|
|
|
| |||
Net interest income after provision for credit losses |
| $ |
|
| $ |
|
| $ |
| |||
Noninterest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
| $ |
|
| $ |
|
| $ |
| |||
ATM and check card fees |
|
|
|
|
|
|
|
|
| |||
Wealth management fees |
|
|
|
|
|
|
|
|
| |||
Other operating income |
|
|
|
|
|
|
|
|
| |||
Total noninterest income |
| $ |
|
| $ |
|
| $ |
| |||
Noninterest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
| $ |
|
| $ |
|
| $ |
| |||
Occupancy |
|
|
|
|
|
|
|
|
| |||
Equipment |
|
|
|
|
|
|
|
|
| |||
Legal and professional fees |
|
|
|
|
|
|
|
|
| |||
Data processing expense |
|
|
|
|
|
|
|
|
| |||
Investment management |
|
|
|
|
|
|
|
|
| |||
Other operating expense |
|
|
|
|
|
|
|
|
| |||
Total noninterest expense |
| $ |
|
| $ |
|
| $ |
| |||
Income before income taxes |
| $ |
|
| $ |
|
| $ |
| |||
Income tax expense |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ |
|
| $ |
|
| $ |
| |||
44
Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
Note 13. Subsequent Events
In February of 2026, the Company announced plans to sell two of its banking offices and consolidate three others into nearby locations. The sale closed in early October and included two banking offices in , as well as $
45
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
First National Corporation (the Company) makes forward-looking statements in this Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding profitability, liquidity, adequacy of capital, allowance for credit losses, interest rate sensitivity, market risk, and strategy, including with respect to the Company's branch sales and other branch optimization initiatives, as well as certain financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements. These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:
|
• |
general business conditions, as well as conditions within the financial markets; |
|
• |
general economic conditions, including unemployment levels, inflation and slowdowns in economic growth; |
|
• |
the Company’s branch and market expansions and reductions, technology initiatives and other strategic initiatives, and the Company's ability to achieve the expected benefit of these initiatives; |
|
• |
the impact of competition from banks and non-banks, including financial technology companies (Fintech); |
|
• | advances and changes in technology, including artificial intelligence, and the Company’s ability to develop timely and competitive products and services and effectively manage related risks; |
|
• |
the composition of the loan and deposit portfolio, including the types of accounts and customers, may change, which could impact the amount of net interest income and noninterest income in future periods, including revenue from service charges on deposits; |
|
• |
limited availability of financing or inability to raise capital; |
|
• |
reliance on third parties for key services; |
|
• |
the Company’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses; |
|
• |
the quality of the loan portfolio and the value of the collateral securing those loans; |
|
• | prepayments of loans and securities could materially impact earnings through a reduction in interest income and fees on loans and interest income on securities; |
|
• | the level of net charge-offs on loans and the adequacy of the allowance for credit losses on loans; |
|
• | the concentration in loans secured by real estate may adversely affect earnings due to changes in the real estate markets; |
|
• | demand for loan products; |
|
• | deposit flows; |
|
• | the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s, or industry's, reputation become compromised; |
|
• |
the value of securities held in the Company's investment portfolio; |
|
• |
legislative or regulatory changes or actions, including the effects of changes in tax laws; |
|
• |
changes in accounting principles, policies and guidelines and elections made by the Company thereunder; |
|
• |
cyber threats, attacks or events; |
|
• |
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve Board, and the effect of those policies on interest rates and business in the Company's markets; |
|
• |
changes in interest rates could have a negative impact on the value of the Company’s securities portfolio and its net interest income and an unfavorable impact on the Company’s customers’ ability to repay loans; |
|
• | U.S. and global trade policies and tensions, including change in, or the imposition of, tariffs and/or other barriers or restrictions on trade and/or any retaliatory counter measures, and the economic impacts, volatility and uncertainty resulting therefrom, and geopolitical instability; |
|
• | geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad; |
|
• | the emergence of digital assets and payment stablecoins, and evolving legislative or regulatory frameworks, which could alter deposit flows, competition, and credit intermediation and, in turn, adversely affect the Company’s funding, liquidity, or overall financial performance; |
|
• | political developments, including government shutdowns and other significant disruptions and changes in the funding, size, scope, and effectiveness of the federal government, its agencies and services; and |
|
• |
other factors identified in Item 1A. Risk Factors of the Company’s Form 10-K for the year ended December 31, 2025. |
46
Table of Contents
Because of these and other uncertainties, actual results may be materially different from the results indicated by these forward-looking statements. In addition, past results of operations do not necessarily indicate future results. The following discussion and analysis of the financial condition on September 30, 2026 and statements of income of the Company for the three and nine months ended September 30, 2026 and 2025 should be read in conjunction with the consolidated financial statements and related notes included in Part I, Item 1, of this Form 10-Q and in Part II, Item 8, of the Form 10-K for the period ended December 31, 2025. The statements of income for the three and nine months ended September 30, 2026 may not be indicative of the results to be achieved for the year.
Executive Overview
The Company
First National Corporation (the Company) is the bank holding company of:
|
• |
First Bank (the Bank). The Bank owns: |
|
• |
First Bank Financial Services, Inc. |
|
• |
Shen-Valley Land Holdings, LLC |
|
• | McKenney Group, LLC |
|
• |
First National (VA) Statutory Trust II (Trust II) |
|
• |
First National (VA) Statutory Trust III (Trust III and, together with Trust II, the Trusts) |
First Bank Financial Services, Inc. owns an interest in an entity that provides title insurance services. Shen-Valley Land Holdings, LLC was formed to hold other real estate owned and future office sites. McKenney Group, LLC owns an interest in an entity that provides insurance services. The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities and are not included in the Company’s consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities. The Company is not the primary beneficiary of the Trusts and, accordingly, the Trusts are not consolidated.
Products, Services, Customers and Locations
The Bank offers loan, deposit, and wealth management products and services. Loan products and services include consumer loans, residential mortgages, home equity loans, and commercial loans. Deposit products and services include checking accounts, treasury management solutions, savings accounts, money market accounts, certificates of deposit, and individual retirement accounts. Wealth management services include estate planning, investment management of assets, trustee under an agreement, trustee under a will, individual retirement accounts, and estate settlement. Customers include small and medium-sized businesses, individuals, estates, local governmental entities, and non-profit organizations. The Bank’s office locations are well-positioned in attractive markets along the Interstate 81, Interstate 66, and Interstate 64 corridors in the Shenandoah Valley, the Roanoke Valley, south-central regions of Virginia, and the Richmond MSA. Within this market area, there are diverse types of industry including medical and professional services, manufacturing, retail, warehousing, government, hospitality, and higher education. The Bank’s products and services were delivered through 30 banking offices as of September 30, 2026 (reduced to 28 banking offices following the sale in early October 2026), one loan production office, and one customer service center in a retirement community. For the location and general character of each of these offices, see Item 2 of the Company's Form 10-K for the year ended December 31, 2025. Many of the Bank’s services are also delivered through the Bank’s mobile banking platforms and a network of ATMs located throughout its market area.
47
Table of Contents
Revenue Sources and Expense Factors
The primary source of revenue is from net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense and typically represents between 75% and 85% of the Company’s total revenue. Interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets. The Company’s interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid. In addition to net interest income, noninterest income is the other source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits, fee income from wealth management services, and ATM and check card fees.
Primary expense categories are salaries and employee benefits, which comprised 56% of noninterest expenses for the nine months ended September 30, 2026, followed by other operating expense, which comprised 10% of noninterest expenses. The provision for credit losses is also typically a primary expense of the Company. The provision is determined by factors that include net charge-offs, asset quality, economic conditions, and loan growth. Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company’s control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses.
Branch Sale
In February of 2026, the Company announced plans to sell two of its banking offices and consolidate three others into nearby locations. The sale closed in early October and included two banking offices in Roanoke Rapids and Louisburg, North Carolina, as well as $44.1 million in deposit accounts and $14.5 million in loan accounts associated with those offices. The Company will recognize a one-time gain on the sale of the offices in the fourth quarter of 2026.
Overview of Quarterly Financial Performance
Comparing the Three-Month Periods Ended September 30, 2026 and September 30, 2025
Net income increased by $1.3 million, or 24.3%, to $6.9 million, or $0.76 per diluted share, for the three months ended September 30, 2026, compared to $5.6 million, or $0.62 per diluted share, for the same period in 2025. Return on average assets was 1.32% and return on average equity was 14.02% for the third quarter of 2026, compared to 1.09% and 12.43%, respectively, for the same period in 2025.
The increase in net income resulted primarily from a $2.9 million increase in net interest income and a $3.1 million increase in net interest income after provision for credit losses, which was partially offset by a decrease in noninterest income of $416 thousand and an increase in noninterest expenses of $914 thousand.
Net interest income increased by $2.9 million as total interest expense decreased by $1.1 million and total interest income increased by $1.8 million. Net interest income was positively impacted by a $33.6 million, or 1.8%, increase in average earning assets with a 29-basis point increase in yield and a $17.0 million, or 1.3%, increase in interest bearing liabilities with a 35-basis point decrease in rate. Net interest income was positively impacted with a 54-basis point increase in the net interest margin to 4.38%. There were positive impacts to the loan portfolio yield during the quarter due to merger related accretion income, and excluding those impacts loan yields were 14-basis points higher in the third quarter of 2026 compared to the same period in 2025.
There was zero net provision for credit losses recorded for the third quarter of 2026. The provision was comprised of a $63 thousand provision for credit losses on loans, a $78 thousand reduction in provision for credit losses on unfunded commitments, and a $15 thousand provision for credit losses on securities held-to-maturity. For the same period of 2025, the provision for credit losses totaled $193 thousand.
48
Table of Contents
Noninterest income decreased by $416 thousand in the third quarter of 2026 compared to the third quarter of 2025 primarily from decreases from a one-time bargain purchase gain in 2025, ATM and check card fees, brokered mortgage fees and fees for other customer services, offset by increases in other operating income and wealth management fees. The bargain purchase gain resulted from a higher-than-expected tax refund related to the final Touchstone tax filing in the prior year. The increase in other operating income was driven by income from limited partnership investments in SBIC.
Noninterest expenses increased by $914 thousand and were primarily attributable to an $854 thousand increase in salaries and employee benefits and a $212 thousand increase in other real estate owned expense. The increases in noninterest expenses were partially offset by a $205 thousand decrease in other operating expense. The increase in salaries and employee benefits expense was driven by additional production and support staff salaries, health insurance, commissions, and other employee benefits in 2026. The Bank consolidated three banking offices and discontinued low-volume ATMs at non-branch locations during the third quarter of 2026, resulting in other real estate owned expense of $212 thousand.
Comparing the Nine-Month Periods Ended September 30, 2026 and September 30, 2025
Net income increased $5.3 million, or 43.7%, to $17.5 million, or $1.93 per diluted share, for the nine months ended September 30, 2026, compared to $12.2 million, or $1.35 per diluted share, for the same period in 2025. Return on average assets was 1.15% and return on average equity was 12.26% for the nine months ended September 30, 2026, compared to 0.81% and 9.47%, respectively, for the same period in 2025.
The increase in net income resulted primarily from a $5.6 million increase in net interest income, a $6.6 million increase in net interest income after provision for credit losses, a decrease of $74 thousand in noninterest income, and a decrease in noninterest expenses of $193 thousand.
Net interest income increased by $5.6 million as total interest expense decreased by $3.0 million and total interest income increased by $2.6 million. Net interest income was positively impacted by a $33.0 million, or 1.7%, increase in average earning assets with an 11-basis point increase in yield and a $20.1 million, or 1.5%, increase in interest bearing liabilities with a 32-basis point decrease in rate. Net interest income was positively impacted by a 34-basis point increase in the net interest margin to 4.19%. There were positive impacts to the loan portfolio yield in both periods due to merger related accretion income, and excluding those impacts, loan yields were 14-basis points higher in 2026 compared to the same period in 2025.
Our provision for credit losses decreased by $1.1 million for the nine months ended September 30, 2026. The provision for credit losses totaled $876 thousand and was comprised of a $934 thousand provision for credit losses on loans, a $55 thousand reduction in provision for credit losses on unfunded commitments, and a $3 thousand reduction in provision in the credit losses on securities held-to-maturity. For the same period of 2025, the provision for credit losses totaled $1.9 million.
Noninterest income decreased by $74 thousand in the nine months ended September 30, 2026 primarily from decreases in a one-time bargain purchase gain in 2025, service charges on deposit accounts, ATM and check card fees, and brokered mortgage fees, offset by increases in other operating income and wealth management fees. The bargain purchase gain resulted from a higher-than-expected tax refund related to the final Touchstone tax filing in the prior year. The other operating income increase was driven by income from limited partnership investments in SBIC and recognition of a previously deferred gain on an investment receivable.
Noninterest expenses decreased by $193 thousand and were primarily attributable to a $2.0 million decrease in merger expenses, a $752 thousand decrease in other operating expense, and a $497 thousand decrease in data processing expense. The decreases are primarily driven by fewer merger related expenses following the operational merger of Touchstone in the first quarter of prior year. During the first quarter of 2025 the company was operating duplicative technology platforms due to the Touchstone acquisition in late 2024. The decreases in noninterest expenses were partially offset by a $2.1 million increase in salaries and employee benefits.
49
Table of Contents
Non-GAAP Financial Measures
This report refers to the efficiency ratio, which is computed by dividing noninterest expense, excluding amortization of intangibles, net (loss) on disposal of premises and equipment, other real estate owned (expense) income, net, and merger related expenses, by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding net (gain) on subordinated debt payoff, bargain purchase (gain), loss (gain) on disposal of premises and equipment, and (gain) on securities. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with GAAP and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for or more important than GAAP. The methodology for determining this measurement may differ among companies. The Company, in referring to its net income, is referring to income under GAAP. The components of the efficiency ratio calculation are summarized in the following table (dollars in thousands).
|
|
Efficiency Ratio |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||
Noninterest expense (GAAP) |
|
$ | 16,696 |
|
|
$ | 15,782 |
|
|
$ | 49,115 |
|
|
$ | 49,308 |
|
Subtract/Add: other real estate owned (expense) income, net |
|
|
(212 |
) |
|
|
— |
|
|
|
(212 |
) |
|
|
7 |
|
Subtract: amortization of intangibles |
|
|
(434 |
) |
|
|
(442 |
) |
|
|
(1,301 |
) |
|
|
(1,325 |
) |
Add: gain on disposal of premises and equipment, net |
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
16 |
|
Subtract: merger related expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,032 |
) |
Adjusted noninterest expense (Non-GAAP) |
|
$ | 16,050 |
|
|
$ | 15,349 |
|
|
$ | 47,602 |
|
|
$ | 45,974 |
|
Tax-equivalent net interest income (Non-GAAP) |
|
$ | 21,295 |
|
|
$ | 18,385 |
|
|
$ | 60,130 |
|
|
$ | 54,571 |
|
Noninterest income (GAAP) |
|
|
4,084 |
|
|
|
4,500 |
|
|
|
11,926 |
|
|
|
12,000 |
|
Subtract: net (gain) on subordinated debt payoff |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(80 |
) |
Subtract: bargain purchase gain |
|
|
— |
|
|
|
(304 |
) |
|
|
— |
|
|
|
(304 |
) |
Add/Subtract: loss (gain) on disposal of premises and equipment, net |
|
|
12 |
|
|
|
— |
|
|
|
(44 |
) |
|
|
— |
|
Subtract: securities (gains), net |
|
|
— |
|
|
|
— |
|
|
|
(8 |
) |
|
|
— |
|
Adjusted income (Non-GAAP) |
|
$ | 25,391 |
|
|
$ | 22,581 |
|
|
$ | 72,004 |
|
|
$ | 66,187 |
|
Efficiency ratio |
|
|
63.21 |
% |
|
|
67.97 |
% |
|
|
66.11 |
% |
|
|
69.46 |
% |
50
Table of Contents
This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income and then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for both 2026 and 2025 is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (in thousands).
|
|
Reconciliation of Net Interest Income to Tax-Equivalent Net Interest Income |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||
GAAP measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income – loans |
|
$ |
23,496 |
|
|
$ |
21,430 |
|
|
$ |
66,658 |
|
|
$ |
63,661 |
|
Interest income – investments and other |
|
|
3,424 |
|
|
|
3,657 |
|
|
|
10,224 |
|
|
|
10,612 |
|
Interest expense – deposits |
|
|
(5,471 |
) |
|
|
(6,246 |
) |
|
|
(16,295 |
) |
|
|
(18,363 |
) |
Interest expense – subordinated debt |
|
|
(171 |
) |
|
|
(479 |
) |
|
|
(509 |
) |
|
|
(1,414 |
) |
Interest expense – junior subordinated debt |
|
|
(69 |
) |
|
|
(67 |
) |
|
|
(204 |
) |
|
|
(199 |
) |
Interest expense – other borrowings |
|
|
(3 |
) |
|
|
— |
|
|
|
(11 |
) |
|
|
(3 |
) |
Total net interest income |
|
$ |
21,206 |
|
|
$ |
18,295 |
|
|
$ |
59,863 |
|
|
$ |
54,294 |
|
Non-GAAP measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit realized on non-taxable interest income – loans |
|
$ |
11 |
|
|
$ |
11 |
|
|
$ |
34 |
|
|
$ |
39 |
|
Tax benefit realized on non-taxable interest income – municipal securities |
|
|
78 |
|
|
|
79 |
|
|
|
233 |
|
|
|
238 |
|
Total tax benefit realized on non-taxable interest income |
|
$ |
89 |
|
|
$ |
90 |
|
|
$ |
267 |
|
|
$ |
277 |
|
Total tax-equivalent net interest income |
|
$ |
21,295 |
|
|
$ |
18,385 |
|
|
$ |
60,130 |
|
|
$ |
54,571 |
|
|
|
Net Interest Margin |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||
Tax-equivalent net interest income |
|
$ | 21,295 |
|
|
$ | 18,385 |
|
|
$ | 60,130 |
|
|
$ | 54,571 |
|
Average earning assets |
|
$ | 1,930,945 |
|
|
$ | 1,897,328 |
|
|
$ | 1,925,959 |
|
|
$ | 1,892,933 |
|
Net Interest Margin |
|
|
4.38 |
% |
|
|
3.84 |
% |
|
|
4.19 |
% |
|
|
3.85 |
% |
51
Table of Contents
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. Although the economics of the Company’s transactions may not change, the timing of events that would impact the transactions could change.
Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. The Company provides additional information on its critical accounting policies and estimates under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” and in Note 1 in its 2025 Form 10-K. There have been no changes since that time.
Lending Policies
There have been no material changes in the Company’s lending policies disclosed in the Annual Report on Form 10-K for the year ended December 31, 2025.
Results of Operations
General
Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on interest-earning assets, predominantly loans and securities, exceeds interest expense on interest-bearing liabilities, including deposits, subordinated debt, and junior subordinated debt. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, are the components that impact the level of net interest income. The net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets. The provision for credit losses, noninterest income, and noninterest expense are the other components that determine net income. Noninterest income and expense primarily consist of income from service charges on deposit accounts, revenue from wealth management services, ATM and check card income, revenue from other customer services, income from bank owned life insurance, and general and administrative expenses.
Net Income
Three Month Period Ended September 30, 2026
Net income increased by $1.3 million, or 24.3%, to $6.9 million, or $0.76 per diluted share, for the three months ended September 30, 2026, compared to $5.6 million, or $0.62 per diluted share, for the same period in 2025. Return on average assets was 1.32% and return on average equity was 14.02% for the third quarter of 2026, compared to 1.09% and 12.43%, respectively, for the same period in 2025. The increase in net income resulted primarily from a $2.9 million increase in net interest income and a $3.1 million increase in net interest income after provision for credit losses, which was partially offset by a decrease of $416 thousand in noninterest income and an increase in noninterest expenses of $914 thousand.
Nine Month Period Ended September 30, 2026
Net income increased $5.3 million, or 43.7%, to $17.5 million, or $1.93 per diluted share, for the nine months ended September 30, 2026, compared to $12.2 million, or $1.35 per diluted share, for the same period in 2025. Return on average assets was 1.15% and return on average equity was 12.26% for the nine months ended September 30, 2026, compared to 0.81% and 9.47%, respectively, for the same period in 2025. The increase in net income resulted primarily from a $5.6 million increase in net interest income, a $6.6 million increase in net interest income after provision for credit losses, a decrease of $74 thousand in noninterest income, and a decrease in noninterest expenses of $193 thousand.
52
Table of Contents
Net Interest Income
Three Month Period Ended September 30, 2026
Net interest income increased $2.9 million, or 15.9%, to $21.2 million for the third quarter of 2026 compared to the same period in the prior year. Total interest expense decreased by $1.1 million, and interest income increased by $1.8 million. Net interest income was positively impacted by a 54-basis point increase in the net interest margin and a $33.6 million, or 1.8%, increase in average earning assets which was offset by a $17.0 million, or 1.3%, increase in average interest-bearing liabilities.
The increase in total interest income was attributable to a $2.1 million, or 9.6%, increase in interest income and fees on loans and a $337 thousand, or 21.6%, increase in taxable interest on securities, offset by a $564 thousand, or 32.5%, decrease in interest on deposits in banks. The increase in interest income on loans was impacted by net accretion income related to acquisition accounting of $958 thousand in the third quarter of 2026 compared to net accretion income of $81 thousand in the third quarter of 2025. Interest income on securities increased consistently with purchases made since the prior year.
The decrease in total interest expense was attributable to a $775 thousand, or 12.4%, decrease in interest expense on deposits and a $308 thousand, or 64.3%, decrease on interest expense on subordinated debt. The net interest margin was positively impacted by a 28-basis point decrease in the cost of interest-bearing deposits. The decrease in subordinated debt and related interest expense was due to redemptions of subordinated debt during the fourth quarter of the prior year.
The net interest margin was 4.38% for the third quarter of 2026 compared to 3.84% for the same period in the prior year. When compared to the third quarter of 2025, the net interest margin increased by 54-basis points with the cost of funds decrease related to the federal funds rate cuts in late 2025. The yield on earning assets was impacted by net accretion income related to acquisition accounting of $867 thousand in the third quarter for an 18-basis point increase to the net interest margin compared to net accretion income of $43 thousand in the third quarter of 2025.
Nine Month Period Ended September 30, 2026
Net interest income increased $5.6 million, or 10.3%, to $59.9 million for the nine months ended September 30, 2026, compared to the same period in the prior year. Total interest expense decreased by $3.0 million, and interest income increased by $2.6 million. Net interest income was positively impacted by a 34-basis point increase in the net interest margin and a $33.0 million, or 1.7%, increase in average earning assets which was offset by a $20.1 million, or 1.5%, increase in average interest-bearing liabilities.
The increase in total interest income was attributable to a $3.0 million, or 4.7%, increase in interest income and fees on loans and a $1.3 million, or 32.0%, increase in taxable interest on securities, offset by a $1.7 million, or 31.5%, decrease in interest on deposits in banks. The increase in interest income on loans was impacted by net accretion income related to acquisition accounting of $1.6 million for the nine months ended September 30, 2026, compared to net accretion income of $1.0 million for the same period in 2025. Interest income on securities increased consistently with purchases since prior year.
The decrease in total interest expense was attributable to a $2.1 million, or 11.3%, decrease in interest expense on deposits and a $905 thousand, or 64.0%, decrease on interest expense on subordinated debt. The net interest margin was positively impacted by a 25-basis point decrease in the cost of interest-bearing deposits. The decrease in subordinated debt and related interest expense was due to redemptions of subordinated debt during the fourth quarter of the prior year.
The net interest margin was 4.19% for the nine months ended September 30, 2026 compared to 3.85% for the same period in the prior year. When compared to the nine months ended September 30, 2025, the net interest margin increased by 34-basis points with the cost of funds decrease related to the federal funds rate cuts in late 2025. The yield on earning assets was impacted by net accretion income related to acquisition accounting of $1.3 million during the nine months for a 9-basis point increase to the net interest margin.
53
Table of Contents
The following tables show interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the periods indicated (dollars in thousands):
Average Balances, Income and Expenses, Yields and Rates (Taxable Equivalent Basis)
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
|
|
Average Balance |
|
|
Interest Income/Expense |
|
|
Yield/Rate (3) |
|
|
Average Balance |
|
|
Interest Income/Expense |
|
|
Yield/Rate (3) |
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
250,906 |
|
|
$ |
1,899 |
|
|
|
3.00 |
% |
|
$ |
242,797 |
|
|
$ |
1,562 |
|
|
|
2.55 |
% |
Tax-exempt (1) |
|
|
62,745 |
|
|
|
370 |
|
|
|
2.33 |
% |
|
|
51,493 |
|
|
|
375 |
|
|
|
2.89 |
% |
Restricted |
|
|
4,468 |
|
|
|
64 |
|
|
|
5.66 |
% |
|
|
4,436 |
|
|
|
65 |
|
|
|
5.80 |
% |
Total securities |
|
$ |
318,119 |
|
|
$ |
2,333 |
|
|
|
2.91 |
% |
|
$ |
298,726 |
|
|
$ |
2,002 |
|
|
|
2.66 |
% |
Loans: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
1,483,047 |
|
|
$ |
23,452 |
|
|
|
6.27 |
% |
|
$ |
1,437,946 |
|
|
$ |
21,386 |
|
|
|
5.90 |
% |
Tax-exempt (1) |
|
|
3,463 |
|
|
|
55 |
|
|
|
6.34 |
% |
|
|
3,473 |
|
|
|
55 |
|
|
|
6.29 |
% |
Total loans |
|
$ |
1,486,510 |
|
|
$ |
23,507 |
|
|
|
6.27 |
% |
|
$ |
1,441,419 |
|
|
$ |
21,441 |
|
|
|
5.90 |
% |
Federal funds sold |
|
|
13 |
|
|
|
— |
|
|
|
— |
|
|
|
55 |
|
|
|
— |
|
|
|
— |
|
Interest-bearing deposits with other institutions |
|
|
126,303 |
|
|
|
1,169 |
|
|
|
3.67 |
% |
|
|
157,128 |
|
|
|
1,734 |
|
|
|
4.38 |
% |
Total earning assets |
|
$ |
1,930,945 |
|
|
$ |
27,009 |
|
|
|
5.55 |
% |
|
$ |
1,897,328 |
|
|
$ |
25,177 |
|
|
|
5.26 |
% |
Less: allowance for credit losses on loans |
|
|
(15,193 |
) |
|
|
|
|
|
|
|
|
|
|
(15,378 |
) |
|
|
|
|
|
|
|
|
Total non-earning assets |
|
|
150,060 |
|
|
|
|
|
|
|
|
|
|
|
141,008 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,065,812 |
|
|
|
|
|
|
|
|
|
|
$ |
2,022,958 |
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
409,383 |
|
|
$ |
1,138 |
|
|
|
1.10 |
% |
|
$ |
376,344 |
|
|
$ |
1,256 |
|
|
|
1.32 |
% |
Regular savings |
|
|
210,192 |
|
|
|
173 |
|
|
|
0.33 |
% |
|
|
209,909 |
|
|
|
208 |
|
|
|
0.39 |
% |
Money market accounts |
|
|
332,549 |
|
|
|
1,582 |
|
|
|
1.89 |
% |
|
|
330,115 |
|
|
|
1,882 |
|
|
|
2.26 |
% |
Time deposits |
|
|
357,452 |
|
|
|
2,578 |
|
|
|
2.86 |
% |
|
|
363,702 |
|
|
|
2,900 |
|
|
|
3.16 |
% |
Total interest-bearing deposits |
|
$ |
1,309,576 |
|
|
$ |
5,471 |
|
|
|
1.66 |
% |
|
$ |
1,280,070 |
|
|
$ |
6,246 |
|
|
|
1.94 |
% |
Federal funds purchased |
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Subordinated debt |
|
|
8,498 |
|
|
|
171 |
|
|
|
8.02 |
% |
|
|
21,304 |
|
|
|
479 |
|
|
|
8.92 |
% |
Junior subordinated debt |
|
|
9,279 |
|
|
|
69 |
|
|
|
2.95 |
% |
|
|
9,279 |
|
|
|
67 |
|
|
|
2.83 |
% |
Other borrowings |
|
|
272 |
|
|
|
3 |
|
|
|
4.19 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total interest-bearing liabilities |
|
$ |
1,327,630 |
|
|
$ |
5,714 |
|
|
|
1.71 |
% |
|
$ |
1,310,653 |
|
|
$ |
6,792 |
|
|
|
2.06 |
% |
Non-interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
534,392 |
|
|
|
|
|
|
|
|
|
|
|
526,240 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
8,528 |
|
|
|
|
|
|
|
|
|
|
|
8,935 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
1,870,550 |
|
|
|
|
|
|
|
|
|
|
$ |
1,845,828 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
195,262 |
|
|
|
|
|
|
|
|
|
|
|
177,130 |
|
|
|
|
|
|
|
|
|
Total liabilities and Shareholders’ equity |
|
$ |
2,065,812 |
|
|
|
|
|
|
|
|
|
|
$ |
2,022,958 |
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
21,295 |
|
|
|
|
|
|
|
|
|
|
$ |
18,385 |
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.84 |
% |
|
|
|
|
|
|
|
|
|
|
3.21 |
% |
Cost of funds |
|
|
|
|
|
|
|
|
|
|
1.22 |
% |
|
|
|
|
|
|
|
|
|
|
1.47 |
% |
Interest expense as a percent of average earning assets |
|
|
|
|
|
|
|
|
|
|
1.17 |
% |
|
|
|
|
|
|
|
|
|
|
1.42 |
% |
Net interest margin (1) |
|
|
|
|
|
|
|
|
|
|
4.38 |
% |
|
|
|
|
|
|
|
|
|
|
3.84 |
% |
(1) |
Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 21%. The tax-equivalent adjustment was $89 and $90 thousand for the three months ended September 30, 2026 and 2025, respectively. Refer to "Non-GAAP Financial Measures" section for further details. |
(2) |
Loans on non-accrual status are reflected in the average balances. |
| (3) | Yields and rates are annualized. |
54
Table of Contents
|
|
Nine Months Ended |
|
|||||||||||||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
|
|
Average Balance |
|
|
Interest Income/Expense |
|
|
Yield/Rate (3) |
|
|
Average Balance |
|
|
Interest Income/Expense |
|
|
Yield/Rate (3) |
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
255,719 |
|
|
$ |
5,528 |
|
|
|
2.90 |
% |
|
$ |
227,643 |
|
|
$ |
4,189 |
|
|
|
2.46 |
% |
Tax-exempt (1) |
|
|
62,225 |
|
|
|
1,110 |
|
|
|
2.39 |
% |
|
|
51,380 |
|
|
|
1,132 |
|
|
|
2.95 |
% |
Restricted |
|
|
4,467 |
|
|
|
192 |
|
|
|
5.78 |
% |
|
|
4,353 |
|
|
|
194 |
|
|
|
5.96 |
% |
Total securities |
|
$ |
322,411 |
|
|
$ |
6,830 |
|
|
|
2.84 |
% |
|
$ |
283,376 |
|
|
$ |
5,515 |
|
|
|
2.60 |
% |
Loans: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
$ |
1,467,572 |
|
|
$ |
66,529 |
|
|
|
6.08 |
% |
|
$ |
1,444,739 |
|
|
$ |
63,513 |
|
|
|
5.88 |
% |
Tax-exempt (1) |
|
|
3,468 |
|
|
|
163 |
|
|
|
6.34 |
% |
|
|
4,117 |
|
|
|
187 |
|
|
|
6.08 |
% |
Total loans |
|
$ |
1,471,040 |
|
|
$ |
66,692 |
|
|
|
6.08 |
% |
|
$ |
1,448,856 |
|
|
$ |
63,700 |
|
|
|
5.88 |
% |
Federal funds sold |
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
1,182 |
|
|
|
40 |
|
|
|
4.52 |
% |
Interest-bearing deposits with other institutions |
|
|
132,491 |
|
|
|
3,627 |
|
|
|
3.67 |
% |
|
|
159,519 |
|
|
|
5,295 |
|
|
|
4.44 |
% |
Total earning assets |
|
$ |
1,925,959 |
|
|
$ |
77,149 |
|
|
|
5.38 |
% |
|
$ |
1,892,933 |
|
|
$ |
74,550 |
|
|
|
5.27 |
% |
Less: allowance for credit losses on loans |
|
|
(15,091 |
) |
|
|
|
|
|
|
|
|
|
|
(15,624 |
) |
|
|
|
|
|
|
|
|
Total non-earning assets |
|
|
136,970 |
|
|
|
|
|
|
|
|
|
|
|
143,954 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,047,838 |
|
|
|
|
|
|
|
|
|
|
$ |
2,021,263 |
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
409,527 |
|
|
$ |
3,317 |
|
|
|
1.09 |
% |
|
$ |
370,045 |
|
|
$ |
3,696 |
|
|
|
1.34 |
% |
Regular savings |
|
|
211,231 |
|
|
|
521 |
|
|
|
0.33 |
% |
|
|
211,635 |
|
|
|
574 |
|
|
|
0.36 |
% |
Money market accounts |
|
|
333,069 |
|
|
|
4,647 |
|
|
|
1.87 |
% |
|
|
332,864 |
|
|
|
5,713 |
|
|
|
2.30 |
% |
Time deposits |
|
|
357,495 |
|
|
|
7,810 |
|
|
|
2.93 |
% |
|
|
362,860 |
|
|
|
8,380 |
|
|
|
3.09 |
% |
Total interest-bearing deposits |
|
$ |
1,311,322 |
|
|
$ |
16,295 |
|
|
|
1.67 |
% |
|
$ |
1,277,404 |
|
|
$ |
18,363 |
|
|
|
1.92 |
% |
Federal funds purchased |
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
0.00 |
% |
Subordinated debt |
|
|
8,423 |
|
|
|
509 |
|
|
|
8.11 |
% |
|
|
22,500 |
|
|
|
1,414 |
|
|
|
8.40 |
% |
Junior subordinated debt |
|
|
9,279 |
|
|
|
204 |
|
|
|
2.95 |
% |
|
|
9,279 |
|
|
|
199 |
|
|
|
2.86 |
% |
Other borrowings |
|
|
366 |
|
|
|
11 |
|
|
|
4.01 |
% |
|
|
92 |
|
|
|
3 |
|
|
|
4.63 |
% |
Total interest-bearing liabilities |
|
$ |
1,329,399 |
|
|
$ |
17,019 |
|
|
|
1.72 |
% |
|
$ |
1,309,276 |
|
|
$ |
19,979 |
|
|
|
2.04 |
% |
Non-interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
518,141 |
|
|
|
|
|
|
|
|
|
|
|
530,612 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
8,389 |
|
|
|
|
|
|
|
|
|
|
|
9,078 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
1,855,929 |
|
|
|
|
|
|
|
|
|
|
$ |
1,848,966 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
191,909 |
|
|
|
|
|
|
|
|
|
|
|
172,297 |
|
|
|
|
|
|
|
|
|
Total liabilities and Shareholders’ equity |
|
$ |
2,047,838 |
|
|
|
|
|
|
|
|
|
|
$ |
2,021,263 |
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
60,130 |
|
|
|
|
|
|
|
|
|
|
$ |
54,571 |
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.66 |
% |
|
|
|
|
|
|
|
|
|
|
3.23 |
% |
Cost of funds |
|
|
|
|
|
|
|
|
|
|
1.24 |
% |
|
|
|
|
|
|
|
|
|
|
1.45 |
% |
Interest expense as a percent of average earning assets |
|
|
|
|
|
|
|
|
|
|
1.19 |
% |
|
|
|
|
|
|
|
|
|
|
1.41 |
% |
Net interest margin (1) |
|
|
|
|
|
|
|
|
|
|
4.19 |
% |
|
|
|
|
|
|
|
|
|
|
3.85 |
% |
(1) |
Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 21%. The tax-equivalent adjustment was $267 and $277 thousand for the nine months ended September 30, 2026 and 2025, respectively. Refer to "Non-GAAP Financial Measures" section for further details. |
(2) |
Loans on non-accrual status are reflected in the average balances. |
(3) |
Yields and rates are annualized. |
55
Table of Contents
Provision for Credit Losses
Three-Month Period Ended September 30, 2026
The provision for credit losses netted $0 for the three-month period ended September 30, 2026, compared to $193 thousand for the same period of the prior year. The provision was comprised of a $63 thousand provision for credit losses on loans, a $15 thousand provision of credit losses on held-to-maturity securities, and a $78 thousand reduction in provision of credit losses on unfunded commitments. As compared to the same period of the prior year, the decrease in provision for credit losses is driven by a decrease in the specific reserves on individually analyzed loans and lower calculated reserves on pooled loans. The decrease in provision resulted in a slightly lower allowance to total loans of 0.96% on September 30, 2026 compared to 1.01% on September 30, 2025.
Nine-Month Period Ended September 30, 2026
The provision for credit losses totaled $876 thousand for the nine-month period ended September 30, 2026, compared to $1.90 million for the same period of the prior year. The provision was comprised of a $934 thousand provision for credit losses on loans, a $3 thousand reduction in provision of credit losses on held-to-maturity securities, and a $55 thousand reduction in provision of credit losses on unfunded commitments. As compared to the same period of the prior year, the decrease in provision for credit losses is driven by a decrease in the specific reserves on individually analyzed loans and lower calculated reserves on pooled loans. The decrease in provision resulted in a lower allowance to total loans of 0.96% on September 30, 2026 compared to 1.01% on September 30, 2025.
Noninterest Income
Three-Month Period Ended September 30, 2026
Noninterest income decreased $416 thousand, or 9.2%, to $4.1 million for the third quarter of 2026, compared to the same period of 2025. The decrease resulted from decreases in a one-time bargain purchase gain of $304 thousand, ATM and check card fees of $193 thousand, brokered mortgage fees of $87 thousand, and fees for other customer services of $73 thousand; offset by increases in other operating income of $153 thousand and wealth management fees of $99 thousand. The bargain purchase gain resulted from a higher-than-expected tax refund related to the final Touchstone tax filing in the prior year. The other operating income increase was driven by income from limited partnership investments in SBIC.
Nine-Month Period Ended September 30, 2026
Noninterest income decreased $74 thousand, or 0.6%, to $11.9 million for the nine months ended September 30, 2026, compared to the same period of 2025. The decrease resulted from decreases in a one-time bargain purchase gain of $304 thousand, in service charges of $241 thousand, ATM and check card fees of $115 thousand, brokered mortgage fees of $112 thousand, and a gain on redemption of subordinated debt of $80 thousand in 2025; offset by increases in other operating income of $484 thousand and wealth management fees of $147 thousand. The other operating income increase was driven by income from limited partnership investments in SBIC and gain on insurance.
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Table of Contents
Noninterest Expense
Three-Month Period Ended September 30, 2026
Noninterest expenses increased $914 thousand, or 5.8%, to $16.7 million for the three-month period ended September 30, 2026, compared to the same period one year ago. The increase was primarily attributable to an $854 thousand, or 10.1%, increase in salaries and employee benefits expense, a $212 thousand increase in other real estate owned expense, and a $60 thousand increase in ATM and check card expense. The increases were offset by a $205 thousand, or 10.6%, decrease in other operating expense and a $60 thousand, or 12.1%, decrease in data processing expense. The increase in salaries and employee benefits expense was driven by additional production and support staff salaries, health insurance, commissions, and other employee benefits in 2026. The Bank consolidated three banking offices and discontinued low-volume ATMs at non-branch locations during the third quarter of 2026, resulting in other real estate owned expense of $212 thousand.
Nine-Month Period Ended September 30, 2026
Noninterest expenses decreased $193 thousand or 0.4%, to $49.1 million for the nine-month period ended September 30, 2026, compared to the same period one year ago. The decrease was primarily attributable to a $2.0 million decrease in merger expenses, a $752 thousand, or 12.4%, decrease in other operating expense, a $497 thousand, or 28.2%, decrease in data processing expense, and $329 thousand, or 31.8%, decrease in FDIC expense. The decreases in merger expenses, other operating expenses, and data processing expense were driven by the Touchstone merger and operating two core systems until our operational merger late in the first quarter of 2025. The decrease in FDIC expense was due to changes to financial ratios in the assessment calculation driven by improved capital levels and regulatory ratings. The decreases in noninterest expenses were partially offset by a $2.1 million increase in salaries, health insurance, commissions, and other employee benefits in 2026.
Income Taxes
Three-Month Period Ended September 30, 2026
Income tax expense increased $424 thousand to $1.7 million for the third quarter of 2026, compared to the same period one year ago. The effective tax rate for the third quarter of 2026 was 19.7% compared to 18.6% for the same period in 2025. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the three months ended September 30, 2026 and 2025. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and nondeductible merger expenses. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Nine-Month Period Ended September 30, 2026
Income tax expense increased $1.4 million to $4.3 million for the nine months ended September 30, 2026, compared to the same period one year ago. The effective tax rate for the nine months ended September 30, 2026 was 19.6% compared to 18.9% for the same period in 2025. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the nine months ended September 30, 2026 and 2025. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and nondeductible merger expenses. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
57
Table of Contents
Financial Condition
General
Assets totaled $2.075 billion on September 30, 2026, which was an increase of $36.9 million or 2.4% (annualized) from December 31, 2025. The asset composition did not significantly change during the first nine months of the year as loans, net of the allowance for credit losses, increased by $50.8 million, while total securities decreased by $19.2 million.
Total liabilities increased by $27.5 million during the nine-month period ended September 30, 2026, primarily from changes in customer deposits. Deposit balances and the composition of deposits as of September 30, 2026 changed as noninterest-bearing deposits increased $10.2 million, savings and interest-bearing deposits increased $24.8 million, and time deposits decreased $5.8 million from December 31, 2025.
Total shareholders’ equity increased by $9.4 million during the first nine months of 2026, primarily from a $12.9 million increase in retained earnings, offset by a $4.7 million increase in accumulated other comprehensive loss. The increase in accumulated other comprehensive loss was attributable to unrealized holding losses in the available-for-sale securities portfolio. The Bank's capital ratios continued to exceed the minimum capital requirements for regulatory purposes.
Loans
Loans totaled $1.486 billion on September 30, 2026, which was a $50.8 million or 4.7% (annualized) increase from December 31, 2025, and a $67.1 million, or 4.7%, increase over September 30, 2025. The change in loans over the periods did not have a significant impact on the composition of the loan portfolio. The loan portfolio was primarily comprised of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, and commercial and industrial loans, which totaled 35%, 50%, and 7% of the loan portfolio, respectively, on September 30, 2026, and 36%, 48%, and 8% of the loan portfolio, respectively, on December 31, 2025.
The loan portfolio includes loans that were acquired through business combinations and loans that were purchased through a third-party loan originator. Loans acquired through business combinations included unaccreted discounts, net of unamortized premiums totaling $11.6 million and $13.2 million, as of September 30, 2026 and December 31, 2025, respectively. Loans purchased from a third-party that originated and serviced loans to health care professionals were $7.9 million as of September 30, 2026, plus unamortized premiums totaling $3.0 million, compared to loans of $10.0 million as of December 31, 2025, plus unamortized premiums totaling $4.1 million.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balance less the allowance for credit losses, any deferred fees or costs on originated loans, and any premiums or discounts on acquired and purchased loans. Interest income is accrued and credited to income based on the unpaid principal balance. Loan origination fees, net of certain origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Interest income includes amortization of premiums and accretion of discounts on purchased loans, recognized over the life of the loans.
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Table of Contents
Asset Quality
Management classifies non-performing assets as non-accrual loans and OREO. Non-performing assets totaled $4.8 million on September 30, 2026, and $4.7 million on December 31, 2025, representing approximately 0.26% and 0.23% of total assets, respectively. Nonaccrual loans totaled $4.1 million and $4.7 million on September 30, 2026, and December 31, 2025, respectively. There was $747 thousand in OREO on September 30, 2026, and none on December 31, 2025. The OREO increase is from the carrying values of two closed banking offices driven by the one-time event of the branch consolidation. The Bank did not have any consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings were in process as of September 30, 2026. There were no loans past due 90 days or more and accruing interest on September 30, 2026, and December 31, 2025.
On September 30, 2026 commercial and industrial loans and residential real estate loans comprised 41% and 42% of non-performing assets, respectively. Non-performing assets could increase due to other loans identified by management as potential problem loans. Other potential problem loans are defined as performing loans that possess certain risks, including the borrower’s ability to pay and the collateral value securing the loan, that management has identified that may result in the loans not being repaid in accordance with their terms. Other potential problem loans totaled $2.8 million and $6.4 million on September 30, 2026 and December 31, 2025, respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customer's ability to meet their debt requirements.
The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals. The finance company operated a program that historically provided credit support to the Company through, among other things, the repurchase of their loans and unamortized loan premiums when loans did not pay according to the loan agreements. The finance company no longer offers this credit support. On September 30, 2026, loans purchased from the finance company totaled $10.9 million, which was comprised of $7.9 million in loan balances and unamortized premiums totaling $3.0 million. As of September 30, 2026, $1.4 million of these loans were non-accrual including premiums totaling $500 thousand and thus were individually evaluated. Specific reserves on these individually evaluated loans totaled $1.0 million and were included in the Company’s allowance for credit losses on loans. The remaining $9.5 million of loans with premiums totaling $2.5 million were considered performing and were included in the calculation of the collectively evaluated component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. As of September 30, 2026, there was a total of 112 loans purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 5.1 years.
Management believes, based upon its review and analysis, that the Company has sufficient reserves to cover expected losses inherent within the loan portfolio. For each period presented, the provision for credit losses charged to expense was based on management’s judgment after taking into consideration all factors connected with the collectability of the existing portfolio. Management considers economic conditions, historical losses, past due percentages, internally generated loan quality reports, prepayment speeds, curtailment rates for each loan category and other relevant factors when evaluating the loan portfolio. The allowance for credit losses on loans totaled $14.4 million, or 0.96% of total loans on September 30, 2026, compared to $14.7 million, or 1.02% of total loans on December 31, 2025. The decrease in allowance for credit losses to total loans from the prior period is primarily driven by a decrease in reserve percentage on individually analyzed loans and pooled loans. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers.
59
Table of Contents
Securities
The securities portfolio plays a primary role in the management of the Company’s interest rate sensitivity and serves as a source of liquidity. The portfolio is used as needed to meet collateral requirements, such as those related to secure public deposits and balances with the Reserve Bank. The investment portfolio consists of held to maturity, available for sale, and restricted securities. Securities are classified as available for sale or held to maturity based on the Company’s investment strategy and management’s assessment of the intent and ability to hold the securities until maturity. Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Company has the ability at the time of purchase to hold the investment securities to maturity, they are classified as investment securities held to maturity and are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts using the interest method. Investment securities which the Company may not hold to maturity are classified as investment securities available for sale, as management has the intent and ability to hold such investment securities for an indefinite period of time, but not necessarily to maturity. Securities available for sale may be sold in response to changes in market interest rates, changes in prepayment risk, increases in loan demand, general liquidity needs and other similar factors and are carried at estimated fair value with any unrealized gain (or loss) in the value of the investment reported within the stockholders’ equity. Restricted securities, including Federal Home Loan Bank, Federal Reserve Bank, and Community Bankers’ Bank stock, are generally viewed as long-term investments because there is minimal market for the stock and are carried at cost.
On September 30, 2026 securities totaled $306.8 million, a decrease of $19.2 million, or 7.9% (annualized), from $326.0 million on December 31, 2025. Investment securities are comprised of U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities. As of September 30, 2026, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $79 thousand and $363 thousand on September 30, 2026 and December 31, 2025, respectively. Gross unrealized losses in the available for sale portfolio totaled $21.5 million and $14.8 million on September 30, 2026, and December 31, 2025, respectively. Gross unrealized gains in the held to maturity portfolio totaled $0 and $98 thousand on September 30, 2026, and December 31, 2025, respectively. Gross unrealized losses in the held to maturity portfolio totaled $9.4 million and $6.8 million on September 30, 2026, and December 31, 2025, respectively. The change in the unrealized gains and losses of investment securities from December 31, 2025, to September 30, 2026, was related to changes in market interest rates and was not related to credit concerns of the issuers.
Deposits
Deposits totaled $1.829 billion on September 30, 2026, which was a $29.2 million, or 2.2% (annualized), increase from December 31, 2025, and a $19.2 million, or 1.1%, increase from September 30, 2025. Noninterest-bearing deposits, savings and interest-bearing deposits, and time deposits, totaled 28%, 52%, and 20%, of total deposits, respectively on September 30, 2026, consistent with 28%, 52%, and 20%, on December 31, 2025, and 28%, 52%, and 20%, on September 30, 2025. The composition of the deposit portfolio remained largely consistent with the prior period.
Subordinated Debt
The Company has one issuance of subordinated debt on September 30, 2026 that consists of $9.5 million outstanding of 4.00% fixed-to-floating rate subordinated notes due 2032. The original issuance of $10 million was assumed during the acquisition of Touchstone, and the Company repurchased $500 thousand of the notes during the second quarter of 2025 when the noteholder bank was acquired. There is currently an unamortized discount of $963 thousand on the remaining subordinated debt balance to be accreted monthly until maturity in January of 2032.
Liquidity
Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, and available lines of credit totaled $721.6 million on September 30, 2026, $781.5 million on December 31, 2025, and $783.2 million on September 30, 2025.
The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits were $575.8 million on September 30, 2026, $538.2 million on December 31, 2025, and $555.0 million on September 30, 2025. Excluding municipal deposits that have collateral pledged, the estimated amount of uninsured customer deposits were $483.3 million on September 30, 2026, $448.8 million on December 31, 2025, and $473.4 million on September 30, 2025.
60
Table of Contents
Capital Resources
The adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to the size, composition, and quality of the Company’s asset and liability levels and consistent with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and absorb potential losses. The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement and is not obligated to report consolidated regulatory capital.
The Bank is subject to capital rules adopted by federal bank regulators that implemented the Basel III regulatory capital reforms adopted by the Basel Committee on Banking Supervision (the Basel Committee), and certain changes required by the Dodd-Frank Act.
The minimum capital level requirements applicable to the Bank under the final rules are as follows: a common equity Tier 1 capital ratio of 4.5%; a Tier 1 capital ratio of 6%; a total capital ratio of 8%; and a Tier 1 leverage ratio of 4% for all institutions. There is also a capital conservation buffer, which is 2.5% above the regulatory minimum capital requirements. If capital levels fall below the required minimum ratios plus the buffer, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. This results in the following minimum capital ratios required to exceed the buffer: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. Management believes, as of September 30, 2026 and December 31, 2025, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.
The following table shows the Bank’s regulatory capital ratios on September 30, 2026:
|
|
Minimum Capital Requirement |
|
|
First Bank |
|
||
Total capital to risk-weighted assets |
|
|
8.00 |
% |
|
|
14.19 |
% |
Tier 1 capital to risk-weighted assets |
|
|
6.00 |
% |
|
|
13.20 |
% |
Common equity Tier 1 capital to risk-weighted assets |
|
|
4.50 |
% |
|
|
13.20 |
% |
Tier 1 capital to average assets |
|
|
4.00 |
% |
|
|
9.77 |
% |
Capital conservation buffer ratio(1) |
|
|
|
|
|
|
6.19 |
% |
The following table shows the Company's regulatory capital ratios on September 30, 2026:
|
|
Minimum Capital Requirement |
|
|
First National Corporation |
|
||
Total capital to risk-weighted assets |
|
|
8.00 |
% |
|
|
15.14 |
% |
Tier 1 capital to risk-weighted assets |
|
|
6.00 |
% |
|
|
13.59 |
% |
Common equity Tier 1 capital to risk-weighted assets |
|
|
4.50 |
% |
|
|
12.98 |
% |
Tier 1 capital to average assets |
|
|
4.00 |
% |
|
|
10.00 |
% |
Capital conservation buffer ratio(1) |
|
|
|
|
|
|
7.14 |
% |
(1) |
Calculated by subtracting the regulatory minimum capital ratio requirements from the actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital. The lowest of the three measures represents the capital conservation buffer ratio. |
The prompt corrective action framework is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as “well capitalized:” a common equity Tier 1 capital ratio of 6.5%; a Tier 1 capital ratio of 8%; a total capital ratio of 10%; and a Tier 1 leverage ratio of 5%. The Bank met the requirements to qualify as "well capitalized" as of September 30, 2026 and December 31, 2025.
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Table of Contents
Contractual Obligations
There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Off-Balance Sheet Arrangements
The Company, through the Bank, is a party to credit related financial instruments with risk not reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk more than the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit, which amounted to $285.1 million on September 30, 2026, and $288.1 million on September 30, 2025, are agreements to lend to a customer if there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit evaluation of the customer.
Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are collateralized as deemed necessary and may or may not be drawn upon to the total extent to which the Bank is committed.
Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments if deemed necessary. On September 30, 2026 and December 31, 2025, the Bank had $4.4 million and $3.1 million in outstanding standby letters of credit, respectively.
On April 21, 2020, the Company entered into interest rate swap agreements related to its outstanding junior subordinated debt. The Company uses derivatives to manage exposure to interest rate risk using interest rate swaps. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts.
The interest rate swaps qualified and are designated as cash flow hedges. The Company’s cash flow hedges effectively modify the Company’s exposure to interest rate risk by converting variable rates of interest on $9.0 million of the Company’s junior subordinated debt to fixed rates of interest. The cash flow hedges end, and the junior subordinated debt matures between June 2034 and October 2036. The cash flow hedges’ total notional amount is $9.0 million. On September 30, 2026, the cash flow hedges had a fair value of $2.7 million, which is recorded in other assets. The net gain/loss on the cash flow hedges is recognized as a component of other comprehensive (loss) income and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. The Company’s derivative financial instruments are described more fully in Note 10 to the Consolidated Financial Statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to provide assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods required by the SEC and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2026 was carried out under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based on and as of the date of such evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective.
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company is a party or to which the property of the Company is subject.
Item 1A. Risk Factors
There were no material changes to the Company’s risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
During the three months ended September 30, 2026, of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
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Item 6. Exhibits
The following documents are attached hereto as Exhibits:
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31.1 |
Certification of Chief Executive Officer, Section 302 Certification. |
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31.2 |
Certification of Chief Financial Officer, Section 302 Certification. |
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32.1 |
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. |
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32.2 |
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. |
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101 |
The following materials from First National Corporation’s 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 Cash Flows, (v) Consolidated Statements of Shareholders’ Equity, and (vi) Notes to Consolidated Financial Statements. |
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| 104 | The cover page from First National Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2026, formatted in Inline XBRL (included with Exhibit 101). |
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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.
FIRST NATIONAL CORPORATION |
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(Registrant) |
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/s/ Scott C. Harvard |
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November 13, 2026 |
Scott C. Harvard |
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Date |
President and Chief Executive Officer |
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/s/ Brad E. Schwartz |
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November 13, 2026 |
Brad E. Schwartz |
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Date |
Executive Vice President and Chief Financial Officer |
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