Tri-County Financial (OTC: TYFG) Q1 income $4,472K vs $2,554K
Tri-County Financial Group, Inc. reported much stronger quarterly results for the three months ended March 31, 2026. Net income rose to $4,472K from $2,554K a year earlier, with basic earnings per share increasing to $1.88 from $1.07.
Net interest income improved to $13,684K from $11,638K, helped by lower deposit interest expense. The company also recorded net recoveries of credit losses on loans and off-balance-sheet exposures, versus expenses in the prior year. Mortgage banking income grew to $2,535K from $2,178K. Total assets were $1,581,588K as of March 31, 2026, with loans, net, at $1,279,256K and deposits at $1,309,038K.
Positive
- Net income nearly doubled year over year, rising to $4,472K for Q1 2026 from $2,554K in Q1 2025, with basic EPS moving to $1.88 from $1.07.
- Credit provisioning turned favorable, as the company recorded net recoveries on loan and off-balance-sheet credit losses instead of the prior-year expenses, while maintaining an allowance for credit losses on loans of $14,893K.
Negative
- None.
Insights
Q1 2026 shows materially stronger profitability, aided by credit loss reversals and solid mortgage banking.
Tri-County Financial Group delivered net income of $4,472K for Q1 2026 versus $2,554K a year earlier, with net interest income rising to $13,684K. Deposit interest expense declined to $6,540K, helping expand net interest income despite only modest balance sheet changes.
Credit quality metrics supported results. The allowance for credit losses on loans edged down to $14,893K, as the company booked net credit loss recoveries on both loans and off-balance-sheet commitments, reversing prior-year expenses. Non-interest income was helped by mortgage banking, which increased to $2,535K.
Non-interest expenses rose modestly to $11,997K, so the earnings improvement mainly reflects stronger spread income, favorable credit provisioning, and higher mortgage banking revenues. Total assets of $1,581,588K and deposits of $1,309,038K as of March 31, 2026 indicate a relatively stable funding base.
Key Figures
Key Terms
allowance for credit losses financial
mortgage banking income financial
interest rate lock commitments financial
collateral dependent loans financial
Federal Home Loan Bank advances financial
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 |
Commission
File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip code) |
Registrant’s
telephone number, including area code:
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTC Market Group, Inc. |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company |
Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at May 11, 2026 | |
| Common
Stock, $ |
TABLE OF CONTENTS
| Pages | ||
| Part I | Financial Information | 1 |
| Item 1. | Financial Statements (Unaudited) | |
| Condensed Consolidated Balance Sheets | 1 | |
| Condensed Consolidated Statements of Income | 2 | |
| Condensed Consolidated Statements of Comprehensive Income | 3 | |
| Condensed Consolidated Statements of Changes in Shareholders’ Equity | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to Condensed Consolidated Financial Statements | 7 | |
| Item 2. | Management Discussion and Analysis of Financial Condition and Results of Operations | 52 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 68 |
| Item 4. | Controls and Procedures | 68 |
| Part II | Other Information | 69 |
| Item 1. | Legal Proceedings | 69 |
| Item 1A. | Risk Factors | 69 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 69 |
| Item 3. | Defaults Upon Senior Securities | 69 |
| Item 4. | Mine Safety Disclosures | 69 |
| Item 5. | Other Information | 69 |
| Item 6. | Exhibits | 69 |
| Signatures | 70 |
PART I - FINANCIAL INFORMATION
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(000s omitted except share data)
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Federal funds sold | ||||||||
| Cash and cash equivalents | ||||||||
| Debt securities available-for-sale, at fair value (amortized cost $ | ||||||||
| Federal Home Loan Bank stock, at cost | ||||||||
| Mortgage loans held for sale | ||||||||
| Loans, net of allowance for credit losses of $ | ||||||||
| Bank-owned life insurance | ||||||||
| Foreclosed assets, net | ||||||||
| Bank premises and equipment, net | ||||||||
| Goodwill and other intangibles | ||||||||
| Accrued interest receivable | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing | $ | $ | ||||||
| Interest-bearing | ||||||||
| Total deposits | ||||||||
| Federal Home Loan Bank advances and other borrowings | ||||||||
| Securities sold under agreements to repurchase | ||||||||
| Dividends payable | ||||||||
| Accrued interest payable and other liabilities | ||||||||
| Subordinated debt, net of debt issuance costs of $ | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in-capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| -1- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(000s omitted except share data)
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2026 | 2025 | |||||||
| Interest income: | ||||||||
| Loans, including fees | $ | $ | ||||||
| Debt securities: | ||||||||
| Taxable | ||||||||
| Tax-exempt | ||||||||
| Mortgage loans held for sale, including fees | ||||||||
| Dividends | ||||||||
| Other | ||||||||
| Total interest income | ||||||||
| Interest expense: | ||||||||
| Deposits | ||||||||
| Federal Home Loan Bank advances and other borrowings | ||||||||
| Securities sold under agreements to repurchase | ||||||||
| Total interest expense | ||||||||
| Net interest income | ||||||||
| Credit loss (recovery) of credit loss expense on loans | ( | ) | ||||||
| Credit loss (recovery) of credit loss expense on off-balance sheet credit exposures | ( | ) | ||||||
| Net interest income after credit loss expense (recovery) | ||||||||
| Non-interest income: | ||||||||
| Trust department | ||||||||
| Customer-service fees | ||||||||
| Mortgage banking | ||||||||
| Insurance services | ||||||||
| Other | ||||||||
| Total non-interest income | ||||||||
| Non-interest expenses: | ||||||||
| Salaries and employee benefits | ||||||||
| Occupancy | ||||||||
| Furniture and equipment | ||||||||
| Other | ||||||||
| Total non-interest expenses | ||||||||
| Income before income taxes | ||||||||
| Income tax expense | ||||||||
| Net income | $ | $ | ||||||
| Earnings per common share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| -2- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(000s omitted except share data)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| Net income | $ | $ | ||||||
| Other comprehensive income (loss): | ||||||||
| Unrealized holding gains (losses) on available-for-sale debt securities | ( | ) | ||||||
| Income tax effect | ( | ) | ||||||
| Other comprehensive income (loss), net of taxes | ( | ) | ||||||
| Total comprehensive income | $ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| -3- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
(000s omitted except share data)
| Common Stock | Accumulated | |||||||||||||||||||
| and Non-Voting | Additional | Other | ||||||||||||||||||
| Common | Paid-in- | Retained | Comprehensive | |||||||||||||||||
| Stock | Capital | Earnings | Loss | Total | ||||||||||||||||
| Balance, January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | - | - | - | |||||||||||||||||
| Other comprehensive income | - | - | - | |||||||||||||||||
| Cash dividends on common stock ($ | - | - | ( | ) | - | ( | ) | |||||||||||||
| Purchases and retirement of | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||
| Stock options exercised ( | - | - | - | |||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Balance, January 1, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | - | - | - | |||||||||||||||||
| Other comprehensive income (loss) | - | - | - | ( | ) | ( | ) | |||||||||||||
| Cash dividends on common stock ($ | - | - | ( | ) | - | ( | ) | |||||||||||||
| Stock options exercised ( | - | - | ||||||||||||||||||
| Balance, March 31, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| -4- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(000s omitted except share data)
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2026 | 2025 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangibles | ||||||||
| Net amortization of securities | ||||||||
| Amortization of debt issuance costs | ||||||||
| Provision (recovery) of credit loss expense | ( | ) | ||||||
| Deferred income tax | ( | ) | ( | ) | ||||
| Net gain on sales of foreclosed assets | ( | ) | ||||||
| Net loss on sales of bank premises and equipment | ||||||||
| Net gain on sale of loans | ( | ) | ( | ) | ||||
| Net mortgage servicing rights amortization | ||||||||
| Origination of loans held for sale | ( | ) | ( | ) | ||||
| Proceeds from loans held for sale | ||||||||
| Change in accrued interest receivable | ( | ) | ( | ) | ||||
| Change in bank-owned life insurance | ( | ) | ( | ) | ||||
| Change in other assets | ( | ) | ( | ) | ||||
| Change in accrued interest payable and other liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from maturities, paydowns and calls of available-for-sale debt securities | ||||||||
| Purchases of available-for-sale debt securities | ( | ) | ( | ) | ||||
| Net redemptions of FHLB stock | ||||||||
| Loan (originations) and principal collections, net | ||||||||
| Proceeds from sales of foreclosed assets | ||||||||
| Proceeds from sales of bank premises and equipment | ||||||||
| Purchases of bank premises and equipment, net | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| -5- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(unaudited)
(000s omitted except share data)
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2026 | 2025 | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net change in deposits | $ | $ | ||||||
| Net change in securities sold under agreements to repurchase | ( | ) | ( | ) | ||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Purchases and retirement of common stock | ( | ) | ||||||
| Net change in short-term FHLB advances and other borrowings | ( | ) | ( | ) | ||||
| Proceeds from stock options exercised | ||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents: | ||||||||
| Beginning of the year | ||||||||
| Ending of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash payments for interest paid: | ||||||||
| Deposits | $ | $ | ||||||
| Securities sold under agreements to repurchase | ||||||||
| FHLB advances and other borrowings | ||||||||
| Total | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF NONCASH AND FINANCING ACTIVITIES: | ||||||||
| Dividends payable | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| -6- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(000s omitted except share data)
| (1) | Significant Accounting Policies: |
Principles of consolidation:
The accompanying unaudited condensed consolidated financial statements include the accounts of Tri-County Financial Group, Inc. (the “Company”) and its wholly owned subsidiaries, First State Bank (the “Bank”), Tri-County Insurance Services, Inc. (“Insurance Company”), and First State Mortgage (“Mortgage Banking Company”). All significant intercompany transactions have been eliminated.
In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (which consist of normal recurring adjustments) necessary, to present a fair statement of the results for the interim periods presented. In accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, these statements do not include certain information and footnote disclosures required by GAAP for complete annual financial statements. The results of operations, other comprehensive income (loss), the changes in stockholders’ equity, and the cash flows for the interim periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of March 31, 2026 has been derived from the unaudited consolidated financial statements of the Company for that period. For further information, refer to the consolidated financial statements and footnotes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
General Litigation:
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.
Nature of operations:
The Company provides a variety of banking and mortgage banking services and insurance services to individuals and businesses principally through its main facilities in Mendota and branches in LaMoille, Peru, Streator, McNabb, Ottawa, Bloomington, Geneva, North Aurora, St. Charles, Batavia, Shabbona, Waterman, Sycamore, Rochelle, Princeton, West Brooklyn, Champaign and Earlville, Illinois, with additional mortgage banking offices in Illinois and Wisconsin. The Company’s primary deposit products are demand deposits and certificates of deposit, and its primary lending products are agribusiness, commercial, real estate mortgage, and installment loans, as well as secondary market mortgage activities.
The Company is divided into two reportable segments: Commercial Banking and Mortgage Banking. Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all markets through retail lending, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, agricultural lending, and other banking services. Mortgage banking provides residential mortgage banking products through five offices in Illinois and one office in Wisconsin through our Mortgage Banking Company. The majority of the loans are sold with servicing released.
| -7- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies: |
Use of estimates:
The preparation of the accompanying unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for credit losses and valuation of goodwill.
Significant group concentrations of credit risk:
Most of the Company’s activities are with customers located in the area and communities noted above. Note 3 details the types of securities in which the Company invests. Note 4 details the types of lending in which the Company engages. A substantial portion of the Company’s loans are with entities involved in the agricultural industry.
Cash and cash equivalents:
For purposes of reporting cash flows, cash and cash equivalents are defined as those amounts included in cash and due from banks and federal funds sold, which are sold overnight.
Trust assets:
Assets of the trust department, other than trust cash on deposit at the Bank, are not included in these condensed consolidated financial statements because they are not assets of the Company.
Debt securities available-for-sale:
Debt securities are classified as available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings and reported in other comprehensive income (loss).
Purchase premiums are recognized in interest income using the interest method over the terms of the debt securities and are amortized/accreted to the earliest of call or maturity date. Discounts are recognized in interest income using the interest method over the term of the securities. Gains and losses on the sale of debt securities are recorded on the trade date and are determined using the specific identification method.
| -8- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Debt securities available-for-sale (continued):
When the fair value of securities is below the amortized cost and the Company will not be required to sell the security before recovery of its amortized cost basis, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. If the present value of cash flows expected to be collected from the security are less than the amortized cost basis of the security, an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).
| Accounting Treatment | ||||
| Circumstances of Impairment Considerations | Credit Component | Remaining Portion | ||
| Not intended for sale or more likely than not that the Bank will not have to sell before recovery of cost basis | Recognized as an allowance for credit loss | Recognized in other comprehensive income (loss) | ||
| Intended for sale or more likely than not that the Bank will be required to sell before recovery of cost basis | Recognized in earnings | |||
Allowance for Credit Losses – available-for-sale debt securities:
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether (1) there is intention to sell or (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged off and the security’s amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. The Company excludes accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale securities are charged off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
| -9- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Federal Home Loan Bank stock:
The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required to own a certain amount of stock based on the level of borrowings and may invest in additional amounts. FHLB stock is carried at cost since no ready market exists and it has no quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery of par value.
Mortgage loans held for sale and loan servicing:
Mortgage loans held for sale are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to non-interest income. The majority of the Company’s mortgage loans held for sale are generated through the Mortgage Banking Company. Changes in fair value are recorded in mortgage banking income in the consolidated statements of income.
The Company does retain some of the servicing on the loans sold through the Mortgage Banking Company within the Company’s markets.
Mortgage loans held for sale through the Bank are sold with the mortgage servicing rights retained by the Bank. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. These gains or losses are included in mortgage banking income in the consolidated statements of income.
Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans. Generally, for sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available. The Company subsequently measures each class of servicing asset using the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income of the underlying loans. Capitalized mortgage servicing assets are reported in other assets and are assessed for impairment at least annually.
Servicing fee income is recorded for fees earned from servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as mortgage banking income when earned.
Mortgage loan sales:
The Company generally sells mortgage loans held for sale without recourse. However, the Company’s agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability, which if subsequently are untrue or breached, could require the Company to repurchase certain loans affected. The potential liability under these representations and warranties is estimated as a liability and any losses incurred and resulting expense are netted with mortgage banking income.
| -10- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Mortgage banking income:
Mortgage banking income includes the fees generated from the underwriting and origination of mortgage loans held for sale along with the gains or losses realized from the sale of these loans, net of origination costs, the changes in fair values of mortgage loan derivatives, servicing right income, amortization, and servicing fee income.
Loans:
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income and deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in the consolidated balance sheets.
Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the life of the loan without anticipating prepayments.
Loans are considered past due or delinquent when the contractual principal and/or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. The accrual of interest income on loans is typically discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection, or if full collection of interest or principal becomes doubtful. All interest accrued but not received for a loan placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for credit losses (ACL) - Loans:
The allowance for credit losses (ACL) on loans represents a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to represent the net amount expected to be collected on the loan portfolio.
| -11- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Allowance for credit losses (ACL) – Loans (continued):
The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of payment, and partial charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACL on loans.
Expected credit losses are reflected in the ACL on loans through a charge to provision for credit losses on loans. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written off and the ACL on loans is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts of collection have been exhausted and the collateral, if any, has been liquidated. Subsequent recoveries, if any, are credited to the ACL on loans when received.
The Company’s methodologies for estimating the ACL on loans consider available relevant information about the collectability of cash flows, including information about past events, current conditions and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies may revert to historical loss information on a straight-line basis over a number of quarters when it can no longer develop reasonable and supportable forecasts.
Loans are predominantly segmented by FDIC Call Report Codes into loan pools that have similar risk characteristics, similar collateral type and are assumed to pose consistent risk of loss to the Company.
| -12- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Allowance for credit losses (ACL) - Loans (continued):
The Company measures expected credit losses for its loan portfolio segments as follows:
| Loan Portfolio Segment | ACL Methodology | |
| Commercial and industrial | Discounted cash flow | |
| Commercial agricultural | Discounted cash flow | |
| Commercial other | Discounted cash flow | |
| Real estate – commercial | Discounted cash flow | |
| Real estate – consumer | Discounted cash flow | |
| Real estate – agricultural | Discounted cash flow | |
| Real estate – construction and land | Discounted cash flow | |
| Consumer installment | Remaining life | |
| Consumer vehicle | Remaining life | |
| Credit cards | Other |
Discounted cash flow method (DCF) – The DCF methodology is used to develop cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed and curtailments and expected losses are calculated via a gross loss rate and recovery rate assumption. The modeling of expected prepayment speeds and curtailment rates are based on industry data.
The Company uses regression analysis on historical internal and peer data to determine suitable loss drivers to utilize when modeling expected losses. For all loan pools utilizing the DCF method, management utilizes a forecast unemployment rate and gross domestic product as its primary loss drivers, as these were determined to best correlate to historical losses.
With regard to the DCF model, management determined that four quarters represented a reasonable and supportable forecast period with reversion back to historical loss rate over four quarters on a straight-line basis.
The combination of adjustments for credit expectations (expected losses) and timing expectations (prepayment and curtailment) produces an expected cash flow stream at the instrument level. An ACL is established for the difference between the instrument’s NPV and amortized cost basis.
Remaining life method – The remaining life methodology is a type of loss rate methodology that uses an average loss rate and applies it to future expected outstanding balances of the pool.
| -13- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Allowance for credit losses (ACL) - Loans (continued):
Collateral dependent loans – Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where the Company has determined that the liquidation or foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation of the business or sale of the collateral, the ACL is measured based on the difference between the estimated fair value of the collateral and amortized cost basis of the assets as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized costs basis of the loan. The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the loan and the contractual term does not consider extensions, renewals, or modifications.
The Company’s qualitative factors are considered by qualitatively adjusting model results for risk factors that are not considered within the modeling processes but are nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factors and other qualitative adjustments may increase or decrease the Company’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making qualitative adjustments include among other things the impact of the following:
| i. | Changes in lending policies and procedures, including changes in underwriting standards and collections, charge offs, and recovery practices |
| ii. | Changes in international, national, regional, and local economic and business conditions |
| iii. | Changes in the nature and volume of the portfolio and in the terms of the underlying loans |
| iv. | Changes in the experience, depth, and ability of the lending management and staff |
| v. | Changes in volume and severity of past due loans and other similar conditions |
| vi. | Changes in the quality of the organization’s loan review system |
| -14- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Allowance for credit losses (ACL) - Loans (continued):
| vii. | Changes in the value of the underlying collateral for loans that are non-collateral dependent |
| viii. | The existence and effect of any concentrations of credit and changes in the levels of such concentrations |
| ix. | The effect of other external factors such as regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics |
The following portfolio segments have been identified: commercial, real estate and consumer.
Management considers the following when assessing the risk in the loan portfolio:
Commercial and industrial and agricultural loans are primarily for working capital, physical asset expansion, asset acquisition and other. These loans are made based primarily on historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Financial information is obtained from the borrowers to evaluate cash flows sufficiency to service debt and are periodically updated during the life of the loan.
Agricultural real estate and commercial real estate loans are dependent on the industries tied to these loans. Agricultural real estate loans are primarily for land acquisition. Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, small retail shopping facilities, single family rental, multifamily loans, and various special purpose properties, including hotels and restaurants. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt and is periodically updated during the life of the loan. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.
| -15- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Allowance for credit losses (ACL) - Loans (continued):
Commercial real estate loans also include construction and land development loans. These loans are secured by vacant land and/or property that are in the process of improvement, including (a) land development preparatory to erecting vertical improvements or (b) the on-site construction of industrial, commercial, residential or farm buildings. Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the improvements by the builder for the end user. In the event a loan is made on property that is not yet improved for the planned development, there is the risk that necessary approvals will not be granted or will be delayed. Construction loans also run the risk that improvements will not be completed on time or in accordance with specifications and projected costs.
Consumer real estate loans are affected by the local residential real estate market, the local economy, and, for variable rate mortgages, movement in indices tied to these loans. At the time of origination, the Company evaluates the borrower’s repayment ability through a review of debt to income and credit scores. Appraisals are obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt at the time of origination.
Consumer and other loans may take the form of installment loans, demand loans or single payment loans and are extended to individuals for household, family and other personal expenditures. At the time of origination, the Company evaluates the borrower’s repayment ability through a review of debt to income and credit scores.
Allowance for Credit Losses – Off-Balance-Sheet Credit Exposures
The allowance for credit losses on off-balance-sheet credit exposures is a liability account, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Company has the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in the consolidated balance sheets. Adjustments to the allowance are reported in the consolidated income statement as a component of credit loss expense. The allowance for credit losses on off-balance-sheet credit exposures is described more fully in Note 4.
| -16- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Loan commitments:
The Bank enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit issued to meet customer financing needs. Loan commitments are recorded when they are funded. Standby letters of credit are considered financial guarantees in accordance with GAAP and are recorded at fair value, if material.
Loan servicing:
Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans and are reported in other assets. When the originating mortgage loans are sold into the secondary market, the Company allocates the total cost of the mortgage loans between mortgage servicing rights and the loans, based on their relative fair values. The cost of originated mortgage-servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. The amount of impairment is the amount by which the capitalized mortgage servicing rights exceed their fair value. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.
Mortgage loan derivatives:
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are to be accounted for as free-standing derivatives. The Company enters into these best efforts forward commitments and mandatory delivery forward commitments in order to hedge the change in interest rates resulting from its commitments to fund the loans. The Company also enters into over-the-counter contracts for the future delivery of mortgage-backed securities. These contracts are fair value hedges, which are also used to offset the interest rate risk related to granting interest rate locks. The fair values of these derivatives are estimated based on the expected net future cash flows related to the associated servicing of the loans and changes in mortgage interest rates from the date of the commitments. In estimating fair value, the Company assigns a probability to the commitment based on an expectation that it will be exercised and the loan will be funded. These derivatives are included in other assets and other liabilities with changes in fair values on these derivatives included in net gains on sales of mortgage loans.
| -17- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Foreclosed assets:
Assets acquired through or in lieu of loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair market value less estimated cost to sell. At the date of acquisition losses are charged to the allowance for credit losses, and subsequent write downs are charged to expense in the period incurred. Operating costs after acquisition are expensed.
Bank premises and equipment:
Land is carried at cost. Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by using the straight-line method over the estimated useful lives. Building and improvements are depreciated from five to forty years and furniture and equipment from three to fifteen years.
Goodwill and other intangibles:
The premium paid on the assumption of deposit liabilities and the fair value of net assets acquired is accounted for as goodwill and other intangibles. Goodwill and other intangible assets determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. Intangible assets with definite useful lives are amortized over their estimated useful lives, which is ten years. Goodwill is the only intangible asset with an indefinite useful life on the balance sheet.
Goodwill is evaluated at the reporting unit level annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the condensed consolidated financial statements.
Bank owned life insurance:
The Bank has purchased life insurance policies on certain key employees. The Bank- owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value.
| -18- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Transfers of financial assets:
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Comprehensive income:
Comprehensive income consists of net income and other comprehensive income (loss). Accumulated other comprehensive loss includes unrealized gains and losses on securities available for sale, and is recognized as separate components of stockholders’ equity.
Reclassification adjustments out of other comprehensive income (loss) for gains realized on sales and calls of securities available for sale comprise the entire balance of “Net gain on sales of available-for-sale securities” on the consolidated statements of income.
Stock compensation plans:
The Company records stock-based employee compensation cost using the fair value method. Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of grant. The Company begins to record compensation expense in the subsequent calendar year as options are historically issued every two years in December. A Black-Scholes model is used to estimate the fair value of stock options. The Company assumes no projected forfeitures on its stock based compensation, since actual historical forfeiture rates on its stock-based incentive awards have been negligible.
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
| -19- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (1) | Significant Accounting Policies (continued): |
Income taxes (continued):
The Company may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the financial statements. Interest and penalties related to unrecognized tax benefits are classified as income taxes, if applicable. No liabilities for unrecognized tax benefits from uncertain tax positions have been recorded.
Earnings per share:
Basic earnings per common share are computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under the Company’s stock options.
| (2) | Cash and Due from Banks: |
The Federal Reserve Board reduced reserve requirements to zero percent, eliminating the need for depository institutions to maintain balances at the Federal Reserve Bank to satisfy reserve requirements. As a result, at March 31, 2026 and December 31, 2025, there were no reserve requirements in effect.
In
the normal course of business, the Company maintains cash and due from bank balances with correspondent banks. Balances in these accounts
may exceed the Federal Deposit Insurance Corporation’s (FDIC’s) insured limit of $
| -20- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (3) | Debt Securities Available for Sale: |
The following tables reflect the amortized cost and fair value of debt securities available for sale as of March 31, 2026:
Schedule of Amortized Cost and Fair Value of Debt Securities Available for Sale
| 2026 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | (Losses) | Value | |||||||||||||
| U.S. Treasuries & Govt. - sponsored agencies | $ | $ | $ | ( | ) | $ | ||||||||||
| State and Municipal | ( | ) | ||||||||||||||
| Mortgage Backed | ( | ) | ||||||||||||||
| Collateralized Mortgage | ||||||||||||||||
| Obligations (CMOs) | ( | ) | ||||||||||||||
| $ | $ | $ | ( | ) | $ | |||||||||||
The following tables reflect the amortized cost and fair value of debt securities available for sale as of December 31, 2025:
| 2025 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | (Losses) | Value | |||||||||||||
| U.S. Treasuries & Govt. - sponsored agencies | $ | $ | $ | ( | ) | $ | ||||||||||
| State and Municipal | ( | ) | ||||||||||||||
| Mortgage Backed | ( | ) | ||||||||||||||
| Collateralized Mortgage | ||||||||||||||||
| Obligations (CMOs) | ( | ) | ||||||||||||||
| $ | $ | $ | ( | ) | $ | |||||||||||
| -21- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (3) | Debt Securities Available for Sale (continued): |
Debt
securities with a carrying amount of approximately $
At
March 31, 2026 and December 31, 2025, there were no holdings of debt securities of any one issuer, other than the U.S. Government and
its sponsored agencies, in an amount greater than
As
of March 31, 2026 and December 31, 2025, accrued interest on debt securities available-for-sale of $
The amortized cost and approximate fair value of debt securities at March 31, 2026 by contractual maturity are shown below. Expected maturities may differ from contractual maturities on mortgage-backed and collateralized mortgage obligation debt securities because the underlying mortgages may be called or prepaid without any penalties.
Schedule of Amortized Cost and Fair Value of Debt Securities
| Amortized Cost | Fair Value | |||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Mortgage Backed | ||||||||
| Collateralized Mortgage Obligations | ||||||||
| $ | $ | 154,749 | ||||||
| -22- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (3) | Debt Securities Available-for-Sale (continued): |
Debt securities with unrealized losses as of March 31, 2026 not recognized in income are as follows:
Schedule of Debt Securities with Unrealized Losses
| 2026 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||
| U.S Treas. & Gov’t - sponsored agencies | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| State and Municipal | ||||||||||||||||||||||||
| Mortgage Backed | ||||||||||||||||||||||||
| CMOs | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
| temporarily impaired | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Debt securities with unrealized losses as of December 31, 2025 not recognized in income are as follows:
| 2025 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||
| U.S Treas. & Gov’t - sponsored agencies | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| State and Municipal | ||||||||||||||||||||||||
| Mortgage Backed | ||||||||||||||||||||||||
| CMOs | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
| temporarily impaired | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
At
March 31, 2026 and December 31, 2025, the investment portfolio included
| -23- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans: |
The following table presents total loans at March 31, 2026 and December 31, 2025 by portfolio segment and class of loan:
Schedule of Total Loans by Portfolio Segment and Class of Loan
March 31, 2026 | December 31, 2025 | |||||||
| Commercial: | ||||||||
| Commercial and industrial | $ | $ | ||||||
| Agricultural | ||||||||
| Real estate: | ||||||||
| Commercial | ||||||||
| Consumer | ||||||||
| Agricultural | ||||||||
| Construction and land | ||||||||
| Consumer: | ||||||||
| Installment | ||||||||
| Vehicle | ||||||||
| Credit cards | ||||||||
| Total loans | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | $ | $ | ||||||
Detailed analysis of the allowance for credit losses by portfolio segment for the three months ended March 31, 2026 follows:
Schedule of Allowance for Credit Losses by Portfolio Segment
Three Months Ended March 31, 2026 | Commercial | Real Estate | Consumer | Total | ||||||||||||
| Balance at beginning of year | $ | $ | $ | $ | ||||||||||||
| Credit loss expense (benefit) | ( | ) | ( | ) | ( | ) | ||||||||||
| Recoveries on loans previously charged-off | ||||||||||||||||
| Less loans charged-off | ( | ) | ( | ) | ||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | $ | ||||||||||||
Detailed analysis of the allowance for credit losses by portfolio segment for the three months ended March 31, 2025 follows:
Three Months Ended March 31, 2025 | Commercial | Real Estate | Consumer | Total | ||||||||||||
| Balance at beginning of year | $ | $ | $ | $ | ||||||||||||
| Credit loss expense (benefit) | ( | ) | ( | ) | ||||||||||||
| Recoveries on loans previously charged-off | ||||||||||||||||
| Less loans charged-off | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ||||||||||||
| -24- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
Detailed analysis of the allowance for unfunded commitments for the three months ended March 31, 2026 follows:
Schedule of Allowance for Unfunded Commitments
| Three Months Ended March 31, 2026 | Commercial | Real Estate | Consumer | Total | ||||||||||||
| Balance at beginning of year | $ | $ | $ | $ | ||||||||||||
| Credit loss expense (benefit) | ( | ) | ( | ) | ||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | $ | ||||||||||||
Detailed analysis of the allowance for unfunded commitments for the three months ended March 31, 2025 follows:
Three Months Ended March 31, 2025 | Commercial | Real Estate | Consumer | Total | ||||||||||||
| Balance at beginning of year | $ | $ | $ | $ | ||||||||||||
| Credit loss expense (benefit) | ( | ) | ||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ||||||||||||
The Bank has no commitments to loan additional funds to the borrowers of collateral dependent or non-accrual loans.
Certain purchased loans as later discussed in Note 4 are not considered impaired or non-accrual loans if the expected cash flows as of March 31, 2026 and December 31, 2025 exceed the carrying amount and accretion income is being recorded.
| -25- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for credit losses. The Company generally monitors credit quality indicators for all non-consumer loans using the following internally prepared ratings:
| ● | ‘Pass’ ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable. | |
| ● | ‘Watch’ loans are credits that are fundamentally sound but warrant close attention by management. Borrowers in this category may have acceptable asset quality but may face challenges due to market conditions, economic conditions, management changes, or other forces that could adversely affect operations. Factors contributing to adverse conditions are expected to be temporary. | |
| ● | ‘Special Mention’ ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable. | |
| ● | ‘Substandard’ ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is no longer probable. | |
| ● | ‘Doubtful’ ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectability of the contractual loan payments is unlikely. |
As
of March 31, 2026 and December 31, 2025, accrued interest on loans of $
| -26- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and year of origination as of March 31, 2026.
Schedule of Credit Risk Profile of Company’s Loan Portfolio Based on rating category and Year Origination
| March 31, | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Prior | Revolving Loans | Total | ||||||||||||||||||||||||
| March 31, | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans | Total | ||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Agricultural: | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Agricultural | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Real Estate: | ||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Commercial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| -27- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
| March 31, | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans | Total | ||||||||||||||||||||||||
| (Real Estate Continued): | ||||||||||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Agricultural | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Construction and land: | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Construction and land | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||||||||
| Installment | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Vehicle | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Vehicle | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Credit Cards | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total Loans | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| -28- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
The following table presents the credit risk profile of the Company’s loan portfolio (excluding loans in process and deferred loan fees) based on rating category and year of origination as of December 31, 2025:
| December 31, | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Total | ||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||
| Commercial and industrial | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Agricultural: | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Agricultural | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Real Estate: | ||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Commercial | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| -29- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
| December 31, | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Total | ||||||||||||||||||||||||
| Real Estate Continued): | ||||||||||||||||||||||||||||||||
| Agricultural | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Agricultural | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Construction and land: | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Construction and land | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||||||||
| Installment | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Consumer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Vehicle | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Vehicle | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Credit cards | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total Credit Cards | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total Loans | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Watch | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| -30- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing as of March 31, 2026:
Schedule of Amortized Cost Basis of Loans on Nonaccrual Status and Loans
| 2026 | Non-accrual | Non-accrual With No ACL | Loans Past Due Over 89 Days and Still Accruing | |||||||||
| 2026 | Non-accrual | Non-accrual With No ACL | Loans Past Due Over 89 Days and Still Accruing | |||||||||
| Commercial: | ||||||||||||
| Commercial | $ | $ | $ | |||||||||
| Agricultural | ||||||||||||
| Real estate: | ||||||||||||
| Commercial real estate | ||||||||||||
| Agricultural real estate | ||||||||||||
| Consumer real estate | ||||||||||||
| Consumer: | ||||||||||||
| Installment | ||||||||||||
| Total | $ | $ | $ | |||||||||
The following table presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing as of December 31, 2025:
| 2025 |
Non-accrual | Non-accrual With No ACL | Loans Past Due Over 89 Days and Still Accruing | |||||||||
| Commercial: | ||||||||||||
| Commercial | $ | $ | $ | |||||||||
| Agricultural | ||||||||||||
| Real estate: | ||||||||||||
| Commercial real estate | ||||||||||||
| Agricultural real estate | ||||||||||||
| Consumer real estate | ||||||||||||
| Consumer: | ||||||||||||
| Installment | ||||||||||||
| Total | $ | $ | $ | |||||||||
| -31- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
Loan aging information by class of loan at March 31, 2026 and December 31, 2025:
Schedule of Loan Aging Information by Class of Loan
| March 31, 2026 | Loans Past Due 30-59 Days | Loans Past Due 60-89 Days | Loans Past Due 90+ Days | Total Past Due | ||||||||||||
| March 31, 2026 | Loans Past Due 30-59 Days | Loans Past Due 60-89 Days | Loans Past Due 90+ Days | Total Past Due | ||||||||||||
| Commercial: | ||||||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Agricultural | ||||||||||||||||
| Real estate: | ||||||||||||||||
| Commercial real estate | ||||||||||||||||
| Agricultural real estate | ||||||||||||||||
| Consumer real estate | ||||||||||||||||
| Consumer: | ||||||||||||||||
| Installment | ||||||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
| December 31, 2025 | Loans Past Due 30-59 Days | Loans Past Due 60-89 Days | Loans Past Due 90+ Days | Total Past Due | ||||||||||||
| Commercial: | ||||||||||||||||
| Commercial | $ | $ | $ | $ | ||||||||||||
| Agricultural | ||||||||||||||||
| Real estate: | ||||||||||||||||
| Commercial real estate | ||||||||||||||||
| Agricultural real estate | ||||||||||||||||
| Consumer real estate | ||||||||||||||||
| Consumer: | ||||||||||||||||
| Installment | ||||||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
| -32- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (4) | Loans (continued): |
The following table represents collateral dependent loans. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2026:
Schedule of Amortized Cost Basis of Collateral-dependent Loans
| 2026 | Commercial | Real Estate | Collateral dependent loans | Total | ||||||||||||
| 2026 | Commercial | Real Estate | Vehicle | Total | ||||||||||||
| Commercial and industrial | $ | $ | $ | $ | ||||||||||||
| Agriculture | ||||||||||||||||
| Commercial real estate | ||||||||||||||||
| Agricultural real estate | ||||||||||||||||
| Consumer real estate | ||||||||||||||||
| Consumer other | ||||||||||||||||
| Consumer vehicle | ||||||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2025:
| 2025 | Commercial | Real Estate | Collateral dependent loans | Total | ||||||||||||
| 2025 | Commercial | Real Estate | Vehicle | Total | ||||||||||||
| Commercial and industrial | $ | $ | $ | $ | ||||||||||||
| Agricultural | ||||||||||||||||
| Commercial real estate | ||||||||||||||||
| Agricultural real estate | ||||||||||||||||
| Consumer real estate | ||||||||||||||||
| Consumer other | ||||||||||||||||
| Consumer vehicle | ||||||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
The Company had no loans modified to borrowers experiencing financial difficulty as of March 31, 2026 and December 31, 2025.
| -33- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (5) | Mortgage Banking Commitments: |
The
Company enters into commitments to fund residential mortgage loans (interest rate lock commitments, or IRLC) at specified times in the
future, with the intention that these loans will be subsequently sold to third-party investors. A mortgage loan commitment binds the
Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60
days after inception of the interest rate lock. These mortgage loan commitments are considered to be derivatives. As of March 31, 2026
and December 31, 2025, the Company had approximately $
To protect against the price risk inherent in derivative loan commitments, the Company utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. During 2026 and 2025, the Mortgage Banking Company used both “best efforts” and “mandatory delivery”, and the Bank used “mandatory delivery” forward loan sale commitments. To facilitate the hedging of the loans, the Company has elected the fair value option for loans held for sale. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on non-accrual as of March 31, 2026.
As of March 31, 2026 and December 31, 2025, the aggregate fair value, contractual balance, and gain or loss were as follows:
Schedule of Aggregate Fair Value, Contractual Balance and Gain or Loss for Mortgage Banking Commitments
March 31, 2026 | December 31, 2025 | |||||||
| Aggregate fair value | $ | $ | ||||||
| Contractual balance | ||||||||
| Gain | $ | $ | ||||||
Best
efforts sale commitments are contracts to deliver certain mortgage loans to third-party investors at a specified date and price only
if the underlying loan is funded. At March 31, 2026 and December 31, 2025, the Company had approximately $
Mandatory
forward sale commitments are contracts to deliver a certain principal amount of mortgage loans to a third-party investor at a specified
date and price. If the contractual amount of mortgages are not delivered, then a “pair-off fee” is assessed based on then-current
market prices. At March 31, 2026 and December 31, 2025, the Company had approximately $
| -34- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (5) | Mortgage Banking Commitments (continued): |
The following table provides the components of income from mortgage banking activities for the three months ended March 31, 2026 and 2025:
Schedule of Components of Income From Mortgage Banking Activities
| 2026 | 2025 | |||||||
| Gain on loans sold | $ | $ | ||||||
| Gain (loss) resulting from the change in fair value of loans held-for-sale | ( | ) | ||||||
| Gain resulting from the change in fair value of derivatives | ||||||||
| Gain (loss) resulting from the change in forward contracts | ( | ) | ||||||
| Total | $ | $ | ||||||
The
fair value of mortgage banking derivatives reported as assets and included in other assets was approximately $
The
Company also enters into over-the-counter contracts for the future delivery of mortgage-backed securities. These contracts are fair value
hedges, which are also used to offset the interest rate risk related to granting interest rate locks. It is the Company’s practice
not to deliver on these contracts for future delivery of mortgage-backed securities. Instead, these contracts are settled with a “pair-off”
that is assessed based on then-current market prices. The notional amounts of these contracts were $
The IRLCs and forward contracts are not designed as accounting hedges and are recorded at fair value with changes in fair value reflected in non-interest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in other liabilities in the consolidated balance sheets.
| -35- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (5) | Mortgage Banking Commitments (continued): |
The following table presents the notional amount and fair value of IRLCs and forward contracts utilized by the Company at March 31, 2026 and December 31, 2025:
Schedule of Notional Amount and Fair Value of IRLCs and Forward Contracts
Asset Derivatives
| March 31, 2026 | December 31, 2025 | |||||||||||||||
Notional Amount | Fair Value | Notional Amount | Fair Value | |||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||
| IRLCs | $ | $ | $ | $ | ||||||||||||
| Forward contracts | ||||||||||||||||
Liability Derivatives
| March 31, 2026 | December 31, 2025 | |||||||||||||||
Notional Amount | Fair Value | Notional Amount | Fair Value | |||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||
| Forward contracts | $ | $ | $ | $ | ( | ) | ||||||||||
Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.
| -36- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (6) | Bank Premises and Equipment: |
The cost of bank premises and equipment and the total accumulated depreciation at March 31, 2026 and December 31, 2025 is as follows:
Schedule of Bank Premises and Equipment
March 31, 2026 | December 31, 2025 | |||||||
| Land | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Furniture and equipment | ||||||||
| Property, plant and equipment, gross | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Bank premises and equipment, net | $ | $ | ||||||
| (7) | Commitments and Contingencies: |
Loan commitments:
The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, credit lines, letters of credit, and overdraft protection. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets.
The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and issuing letters of credit as it does for on-balance-sheet instruments.
A summary of the contract amount of the Bank’s exposure to off-balance-sheet risk as of March 31, 2026 and December 31, 2025 is approximately as follows:
Schedule of Contract Amount of Bank’s Exposure to Off-Balance-Sheet Risk
March 31, 2026 | December 31, 2025 | |||||||
| Commitments to extend credit | $ | $ | ||||||
| Committed credit-card lines | ||||||||
| Standby letters of credit | ||||||||
| Contract amount of the bank’s exposure to off-balance-sheet risk | $ | $ | ||||||
| -37- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (7) | Commitments and Contingencies (continued): |
Commitments
to extend credit are agreements to lend to a customer as long as 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. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The Commitments extended over varying periods of time with the majority being disbursed within a one-year period. Loan commitments at
fixed rates of interest amounted to $
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit are considered financial guarantees under FASB guidance. The fair value of these financial guarantees is considered immaterial.
Contingencies:
Various legal claims arise from time to time in the normal course of business, which in the opinion of management will have no material effect on the Company’s consolidated financial statements.
| (8) | Federal Home Loan Bank Advances and Other Borrowings: |
Federal Home Loan Bank advances and letters of credit:
| -38- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (8) | Federal Home Loan Bank Advances and Other Borrowings (continued): |
Federal Home Loan Bank advances and letters of credit (continued):
Variable
rate advances are due on demand and interest is payable monthly. Various advances were obtained from the FHLB with total outstanding
balances of $
Fixed
rate advances are due at the maturity date, with a prepayment penalty applying and interest payable monthly. Various advances were obtained
from the FHLB with a total outstanding balance of $
The
Bank had four letters of credit totaling $
Federal Reserve Bank Discount Window:
The
Bank maintains an operating line of credit with the Federal Reserve Bank Discount Window that is secured by commercial and agricultural
loans. As of March 31, 2026 and December 31, 2025, the balance owed on the line was $
At March 31, 2026, the scheduled maturities of Federal Home Loan Bank advances are as follows:
Schedule of Maturities of Federal Home Loan Bank Advances
| 2026 | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Federal Home Loan Bank advances | $ | |||
Bankers’ Bank Borrowings:
During
October 2024, Tri-County Financial Group entered into an operating
| -39- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (9) | Securities Sold Under Agreements to Repurchase: |
The agreements to repurchase securities require the Company (seller) to repurchase identical securities as those that are sold. The securities underlying the agreements were under the Company’s control. Information about the repurchase agreements at March 31, 2026 follows:
Schedule of Securities Sold Under Agreements to Repurchase
| Overnight and Continuous | ||||
| 2026 | ||||
| Remaining Contractual Maturity of the Agreements | ||||
| Overnight and Continuous | ||||
| Repurchase agreements secured by: | ||||
| U.S. Government sponsored agencies | $ | |||
| Mortgage-backed | ||||
| Collateralized mortgage obligations (CMOs) | ||||
| Total securities sold under agreements to repurchase | $ | |||
Information about the repurchase agreements at December 31, 2025 follows:
| Overnight and Continuous | ||||
2025 | ||||
| Remaining Contractual Maturity of the Agreements | ||||
| Overnight and Continuous | ||||
| Repurchase agreements secured by: | ||||
| U.S. Government sponsored agencies | $ | |||
| Mortgage-backed | ||||
| Collateralized mortgage obligations (CMOs) | ||||
| Total securities sold under agreements to repurchase | $ | |||
The
maximum amount of outstanding agreements at any month end during 2026 and 2025 totaled $
| (10) | Subordinated Debentures: |
In
October 2021, the Company issued $
| -40- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (10) | Subordinated Debentures (continued): |
At March 31, 2026 and December 31, 2025, subordinated debentures are as follows:
Schedule of Subordinated Debentures
| 2026 | 2025 | |||||||||||||||
| Principal | Unamortized Debt Issuance Costs | Principal | Unamortized Debt Issuance Costs | |||||||||||||
| Subordinated debentures, due 2031 and 2026, respectively | $ | $ | $ | $ | ||||||||||||
| (11) | Deposits: |
At March 31, 2026, the scheduled maturities of time deposits are as follows:
Schedule of Maturities of Time Deposits
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total | $ |
Brokered
certificates were $
The
aggregate amounts of time deposits (including certificates of deposit) in denominations that exceed the FDIC insurance limit of $
| -41- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (12) | Transactions with Related Parties: |
Certain
directors, executive officers, and principal shareholders of the Company, and their related interests, had loans outstanding in the aggregate
amounts of approximately $
Deposit
accounts with related parties totaled approximately $
In management’s opinion, such loans and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.
| (13) | Minimum Capital Requirements: |
The Bank is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum capital amounts and ratios (set forth in the table below). Management believes, as of March 31, 2026 and December 31, 2025, the Bank met all capital-adequacy requirements to which they are subject.
As of March 31, 2026, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum Common Equity Tier 1 risk-based, total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since March 31, 2026 that management believes have changed this categorization.
| -42- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (13) | Minimum Capital Requirements (continued): |
The actual capital amounts and ratios for the Bank are also presented in the following table as of March 31, 2026 and December 31, 2025:
Schedule of Capital Amounts and Ratios for the Bank
| Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| As of March 31, 2026: | ||||||||||||||||||||||||
| Common equity Tier 1 capital (to Risk-Weighted Assets) Bank | $ | % | > $ | >
| >
$ | >
| ||||||||||||||||||
| Total Capital (to Risk-Weighted Assets) Bank | $ | % | >
$ | >
| >
$ | >
| ||||||||||||||||||
| Tier-I Capital (to Risk-Weighted Assets) Bank | $ | % | >
$ | >
| >
$ | >
| ||||||||||||||||||
| Tier-I Capital (To Average Assets) Bank | $ | % | >
$ | >
| >
$ | >
| ||||||||||||||||||
| As of December 31, 2025: | ||||||||||||||||||||||||
| Common equity Tier 1 capital (to Risk-Weighted Assets) Bank | $ | % | >
$ | >
| >
$ | >
| ||||||||||||||||||
| Total Capital (to Risk-Weighted Assets) Bank | $ | % | >
$ | >
| >
$ | >
| ||||||||||||||||||
| Tier-I Capital (to Risk-Weighted Assets) Bank | $ | % | >
$ | >
| >
$ | >
| ||||||||||||||||||
| Tier-I Capital (To Average Assets) Bank | $ | % | >
$ | >
| >
$ | >
| ||||||||||||||||||
Consolidated
capital amounts and ratios are not presented as they are not required for consolidated entities less than $
The
Basel III Capital Rules were fully phased in on January 1, 2020 and require the Bank to maintain:
| -43- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (13) | Minimum Capital Requirements (continued): |
The payment of dividends by the Bank would be restricted if the Bank does not meet the minimum Capital Conservation Buffer as defined by Basel III regulatory capital guidelines and/or if, after payment of the dividend, the Bank would be unable to maintain satisfactory regulatory capital ratios.
The Mortgage Banking Company is also subject to capital requirements in connection with its mortgage banking activities. Failure to maintain minimum capital requirements could result in the Mortgage Banking Company’s inability to originate mortgage loans for the respective investor and therefore could have a direct material effect on the Mortgage Banking Company’s financial statements.
| (14) | Earnings Per Common Share: |
For the three months ended March 31, 2026 and 2025 earnings per common share have been computed based on the following:
Schedule of Earnings Per Share
| 2026 | 2025 | |||||||
| Net income | $ | $ | ||||||
| Income available to common stockholders | $ | $ | ||||||
| Average number of common shares outstanding used to calculate basic earnings per common share | ||||||||
| Effect of dilutive securities: | ||||||||
| Stock options | ||||||||
| Effect of dilutive securities | ||||||||
| Average number of common shares outstanding used to calculate diluted earnings per common share | ||||||||
| -44- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (15) | Fair Value Measurements: |
Accounting standards define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard describes three levels of inputs that may be used to measure fair value:
| ● | Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date. |
| ● | Level 2: Significant other observable inputs other than Level 1 prices such as 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. |
| ● | Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The following is a description of valuation methodologies used for assets recorded at fair value:
Debt securities available for sale: The fair values of the Company’s debt securities available for sale are primarily determined by quoted prices in active markets (Level 1) and matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific debt securities, but rather by relying on the debt securities’ relationship to other benchmark quoted securities. The values determined by matrix pricing are considered Level 2 fair value measurements.
Mortgage loans held for sale: The fair values of the Company’s mortgage loans held for sale are based on quotes from third party investors.
Derivatives: Derivatives instruments such as interest rate lock commitments and forward contracts are valued by means of pricing models based on readily observable market parameters such as interest rate yield curves and option pricing volatilities.
Collateral-dependent impaired loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the borrower’s financial statements or aging reports, adjusted or discounted based on management’s expertise and knowledge of the borrower and borrower’s business. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets but include significant unobservable data and are therefore considered Level 3 measurements.
| -45- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (15) | Fair Value Measurements (continued): |
Foreclosed assets: Real estate acquired through or in lieu of loan foreclosure is not measured at fair value on a recurring basis. However, other real estate is initially measured at fair value (less estimated costs to sell) when it is acquired and may also be measured at fair value (less estimated costs to sell) if it becomes subsequently impaired. The fair value measurement for each property must be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.
The following table presents the Company’s approximate fair value hierarchy for assets measured at fair value as of March 31:
Schedule of Fair Value Hierarchy for Assets Measured at Fair Value
| 2026 | ||||||||||||||||
| Fair Value Measurements at | ||||||||||||||||
| Reporting Date Using | ||||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets and liabilities measured at fair value on a recurring basis: | ||||||||||||||||
| Assets: | ||||||||||||||||
| Debt securities available for sale | $ | $ | $ | - | ||||||||||||
| Mortgage loans held for sale | $ | - | $ | - | ||||||||||||
| $ | - | $ | - | |||||||||||||
| $ | - | $ | - | |||||||||||||
| Assets measured at fair value on a non-recurring basis: | ||||||||||||||||
| Assets: | ||||||||||||||||
| Collateral-dependent loans, net of specific reserves | $ | - | - | $ | ||||||||||||
| Foreclosed assets | $ | - | - | $ | ||||||||||||
| -46- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (15) | Fair Value Measurements (continued): |
The following table presents the Company’s approximate fair value hierarchy for assets measured at fair value as of December 31:
| 2025 | ||||||||||||||||
| Fair Value Measurements at | ||||||||||||||||
| Reporting Date Using | ||||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets measured at fair value on a recurring basis: | ||||||||||||||||
| Assets: | ||||||||||||||||
| Debt securities available for sale | $ | $ | $ | - | ||||||||||||
| Mortgage loans held for sale | $ | - | $ | - | ||||||||||||
| Derivative assets | $ | - | $ | - | ||||||||||||
| Liabilities: | ||||||||||||||||
| Forward contracts | $ | - | $ | - | ||||||||||||
| Assets measured at fair value on a non-recurring basis: | ||||||||||||||||
| Assets: | ||||||||||||||||
| Collateral-dependent loans, net of specific reserves | $ | - | - | $ | ||||||||||||
| Foreclosed assets | $ | - | - | $ | ||||||||||||
There were no transfers between Level 1 and Level 2 during 2026 or 2025.
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined by 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 valuation techniques. Those techniques are significantly affected by 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. Accounting standards exclude certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
| -47- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (15) | Fair Value Measurements (continued): |
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of March 31:
Schedule of Carrying Amounts and Estimated Fair Values
| 2026 | |||||||||||||||||||
| Fair Value Measurements at | |||||||||||||||||||
| Carrying | Reporting Date Using | ||||||||||||||||||
| Amount | (Level 1) | (Level 2) | (Level 3) | Total |
|||||||||||||||
| Financial assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||||
| Securities available for sale | |||||||||||||||||||
| Federal Home Loan Bank stock | |||||||||||||||||||
| Mortgage loans held for sale | |||||||||||||||||||
| Loans, net | |||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||
| Mortgage servicing rights | |||||||||||||||||||
| Derivative assets | |||||||||||||||||||
| Forward commitments | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||
| Deposits | $ | $ | $ | $ | |||||||||||||||
| FHLB advances and other borrowings | |||||||||||||||||||
| Securities sold under agreements to repurchase | |||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||
| Forward commitments | |||||||||||||||||||
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of December 31:
| 2025 | |||||||||||||||||||
| Fair Value Measurements at | |||||||||||||||||||
| Carrying | Reporting Date Using | ||||||||||||||||||
| Amount | (Level 1) | (Level 2) | (Level 3) | Total |
|||||||||||||||
| Financial assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||||||||||||
| Securities available for sale | |||||||||||||||||||
| Federal Home Loan Bank stock | |||||||||||||||||||
| Mortgage loans held for sale | |||||||||||||||||||
| Loans, net | |||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||
| Mortgage servicing rights | |||||||||||||||||||
| Derivative assets | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||
| Deposits | $ | $ | $ | $ | |||||||||||||||
| FHLB advances and other borrowings | |||||||||||||||||||
| Securities sold under agreements to repurchase | |||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||
| Forward commitments | |||||||||||||||||||
| -48- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (16) | Revenue from Contracts with Customers: |
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income.
A description of the Company’s revenue streams accounted for under ASC 606 follows:
Customer-service fees: The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Interchange income: The Company earns interchange fees from debit and credit cardholder transactions conducted through the Visa and MasterCard payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.
Trust department income: The Company earns income from its contracts with trust customers to manage assets for investment and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month-end. Fees that are transaction-based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e., the trade date. Other related services are provided and the fees the Company earns, which are based on a fixed fee schedule, are recognized when the services are rendered.
Insurance services: The Company earns fees from insurance services provided to its customers. These fees are primarily earned and assessed each month as the Company provides the contracted monthly service.
Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.
| -49- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (17) | Segments: |
The
Company is divided into
Financial information for each business segment reflects that which is specifically identifiable. Income taxes are allocated based on the effective federal tax rate adjusted for any tax-exempt activity. All tax-exempt activity and provision have been fully allocated to the commercial banking segment. Measurement of performance of business segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. Information presented is also not necessarily indicative of the segments’ operations if they were independent entities.
Principally,
all of the net assets of the Company are involved in the commercial banking segment. Goodwill of approximately $
The Company’s chief operating decision maker is comprised of the Chief Executive Officer of the Company, the Chief Executive Officer of First State Bank, and Chief Executive Officer/Chief Operating Officer of First State Mortgage. The individuals consider net interest income, non-interest income, and budget-to-actual variances on a monthly basis for profit measures when making decisions about allocating capital and personnel to the operating segment.
Selected financial information by business segment is as follows for the three months ended March 31, 2026:
Schedule of Business Segment
2026 | Commercial | Mortgage Banking | Eliminations | Total | ||||||||||||
| Net interest income | $ | $ | $ | ( | ) | $ | ||||||||||
| Recovery of credit loss expense | ( | ) | ( | ) | ||||||||||||
| Mortgage banking revenues | ||||||||||||||||
| All other non-interest income | ||||||||||||||||
| Non-interest expenses | ( | ) | ||||||||||||||
| Income (loss) before income tax expense | ( | ) | ||||||||||||||
| Income tax expense (benefit) | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| -50- |
TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (000s omitted except share data) |
| (17) | Segments (continued): |
Selected financial information by business segment is as follows for the three months ended March 31, 2025:
2025 |
Commercial | Mortgage Banking |
Eliminations |
Total | ||||||||||||
| Net interest income | $ | $ | $ | ( | ) | $ | ||||||||||
| Credit loss expense | ||||||||||||||||
| Mortgage banking revenues | ||||||||||||||||
| All other non-interest income | ||||||||||||||||
| Non-interest expenses | ( | ) | ||||||||||||||
| Income (loss) before income tax expense | ( | ) | ||||||||||||||
| Income tax expense (benefit) | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| 18) | Subsequent events: |
The Company has evaluated subsequent events for recognition and disclosure through May 13, 2026, which is the date the financial statements were available to be issued.
| -51- |
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide a better understanding of the consolidated financial condition and results of operations of the Company and its subsidiaries as of and for the three months ended March 31, 2026 and 2025. This discussion and analysis should be read in conjunction with the consolidated financial statements, related notes and selected financial data appearing elsewhere in this report.
The consolidated Company is referred to as “we” or “our” or “the Company” in the following discussion.
Critical Accounting Policies and Use of Significant Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the determination of the allowance for credit losses and valuation of goodwill, both of which involve significant judgment by management. Our critical accounting policies and related disclosures about credit losses are discussed in more detail in the Notes to our consolidated financial statements in the 2025 Annual Report on Form 10-K. Please refer to Note 1 – Significant Accounting Policies and Note 4 – Loans.
RESULTS OF OPERATIONS
Overview
Reconciliation of Non-GAAP Financial Measures
Our accounting and reporting policies conform to GAAP and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate our performance. We believe these non-GAAP financial measures are common in the banking industry and may enhance comparability for peer comparison purposes. These non-GAAP measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures.
Management reviews yields on tax exempt debt securities and the net interest margin on an FTE basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from debt securities exempt from federal income tax. The following table summarizes components of FTE net interest income for the periods indicated.
| -52- |
| Quarter Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| (Dollars in thousands) | ||||||||
| Net interest income (GAAP) | $ | 13,684 | $ | 11,638 | ||||
| Tax-equivalent adjustment on securities exempt from federal income tax | 105 | 99 | ||||||
| Net interest income, FTE (non-GAAP) | $ | 13,789 | $ | 11,737 | ||||
| Average balance of total interest-earning assets | $ | 1,498,937 | $ | 1,461,302 | ||||
| Net interest margin (annualized net interest income divided by the average balance of total interest-earning assets) (GAAP) | 3.70 | % | 3.23 | % | ||||
| Net interest margin, FTE (annualized net interest income, FTE, divided by the average balance of total interest earning assets) (non-GAAP) | 3.73 | % | 3.26 | % | ||||
The efficiency ratio is a non-GAAP financial measure that is calculated by dividing non-interest expense by total revenue (net interest income plus non-interest income), and measures how much it costs to produce one dollar of revenue. The following table summarizes components of our efficiency ratio for the periods indicated.
| Quarter Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| (Dollars in thousands) | ||||||||
| Non-interest expense | $ | 11,997 | $ | 11,300 | ||||
| Net interest income | $ | 13,684 | $ | 11,638 | ||||
| Non-interest income | 4,112 | 3,596 | ||||||
| Total Revenue | $ | 17,796 | $ | 15,234 | ||||
| Efficiency ratio (non-interest expense divided by total revenue) (non-GAAP) | 67.4 | % | 74.2 | % | ||||
Summary of Performance
Net income in the first three months of 2026 was $4.5 million, which increased $1.9 million, or 75%, from $2.6 million for the comparable period of 2025. Diluted earnings per common share was $1.86 in the first three months of 2026, an increase of 75% from $1.06 in the comparable period of 2025. The increase in net income for 2026 was primarily due to an increase to net interest income of $2.0 million, or 18%, an increase in noninterest income of $0.5 million, or 14%, and a decrease in the provision for credit losses of $0.8 million, or 161%. Offsetting these positive contributions was an increase in noninterest expense of $0.7 million, or 6%, and an increase to income tax expense of $0.8 million, or 86%.
Credit loss recovery in the first three months of 2026 (i.e., a credit to pre-tax earnings) was $305,000, compared to credit loss expense of $501,000 in the prior year period.
| -53- |
Total assets were $1.582 billion as of March 31, 2026 versus $1.596 billion as of December 31, 2025, a decrease of $14.1 million, or 0.9%. Balance sheet compression was driven by decreases to total loans, net of the allowance for credit losses, which decreased $21.0 million, or 1.6%. This is normal fluctuation between year-end and the first quarter with our agriculture portfolio.
Selected information about our results for the three months ended March 31, 2026 and 2025 is scheduled below:
| Quarter Ended March 31, | Increase (Decrease) | |||||||||||||||
| Statement of Income Data | 2026 | 2025 | Amount | % | ||||||||||||
| Interest income | $ | 20,970 | $ | 19,530 | $ | 1,440 | 7.4 | % | ||||||||
| Interest expense | 7,286 | 7,892 | (606 | ) | (7.7 | %) | ||||||||||
| Net interest income | 13,684 | 11,638 | 2,046 | 17.6 | % | |||||||||||
| Credit loss expense (recovery) | (305 | ) | 501 | (806 | ) | (160.9 | %) | |||||||||
| Noninterest income | 4,112 | 3,596 | 516 | 14.3 | % | |||||||||||
| Noninterest expense | 11,997 | 11,300 | 697 | 6.2 | % | |||||||||||
| Income tax expense | 1,632 | 879 | 753 | 85.7 | % | |||||||||||
| Net Income | $ | 4,472 | $ | 2,554 | $ | 1,918 | 75.1 | % | ||||||||
| Quarter Ended March 31, | Increase (Decrease) | |||||||||||||||
| 2026 | 2025 | Amount | % | |||||||||||||
| Average Balances (Dollars in thousands) | ||||||||||||||||
| Average earning assets | $ | 1,498,937 | $ | 1,461,302 | $ | 37,635 | 2.6 | % | ||||||||
| Average total assets | 1,574,254 | 1,523,355 | 50,899 | 3.3 | % | |||||||||||
| Average stockholders’ equity | 160,738 | 144,834 | 15,904 | 11.0 | % | |||||||||||
| Selected Financial Ratios | ||||||||||||||||
| Return on average assets | 1.21 | % | 0.71 | % | 0.5 | % | 70.7 | % | ||||||||
| Return on average equity | 11.28 | % | 7.15 | % | 4.1 | % | 57.8 | % | ||||||||
| Net interest margin (1) | 3.73 | % | 3.26 | % | 0.5 | % | 14.5 | % | ||||||||
| Dividend payout ratio | 14.89 | % | 23.38 | % | (8.5 | %) | (36.3 | %) | ||||||||
(1) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.
Individual components of net income are discussed in more detail below.
Net Interest Income
The Company’s largest component of net income is net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans and securities, and interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities. The FOMC decreased the target federal funds interest rate by a total of 75 basis points from September through December of 2025, which will impact the comparability of net interest margin between 2026 and 2025.
Our net interest income was $13.7 million and $11.6 million for the three months ended March 31, 2026 and 2025, respectively. In the first three months of 2026, on a full-tax equivalent basis, our net interest margin improved to 3.73% from 3.26% in the same period of 2025. The improvement in net interest margin was due primarily to higher loan yields and a decrease in the cost of time deposits and FHLB advances.
For the three months ended March 31, 2026, on a full-tax equivalent basis, total interest income improved by $1.4 million, or 7%, compared to the same period of 2025. The increase was substantially due to higher loan yields. Loan pricing improved as older loans were renewed or replaced with new volume at higher, current rates. The loan yields increased to 6.09% from 5.77% for the same period in the prior year.
| -54- |
During the three months ended March 31, 2026, the average amortized cost balance of debt securities was $162.8 million, a 2.2% increase from the comparable period of 2025.
For the three months ended March 31, 2026, dividends on Federal Home Loan Bank of Chicago (“FHLB”) stock increased to $91 from $84 in the comparable period of 2025. The increase was primarily due to a 1.6% increase in average balance. The timing of dividend payments and stock purchases and redemptions may distort the yield on average balances.
Interest expense decreased by $0.6 million, or nearly 7.7%, in the three months ended March 31, 2026, compared to the same period in 2025. Interest expense on time deposits decreased by $604,000 because the average balance decreased slightly and the interest rate declined, from 3.86% to 3.47%. The cost of total interest-bearing deposits declined to 2.36% in three months ended March 31, 2026, from 2.59% in the comparable period of 2025.
Average interest-bearing deposits in the three months ended March 31, 2026 were 1.6% more than in the comparable period of 2025. Average time deposits decreased by nearly 1.9% and average interest-bearing demand deposits decreased by nearly 1.9%. Average savings and money market account balances increased nearly 10.2% compared to the first three months of 2025.
During the three months ended March 31, 2026, the rate on FHLB advances was 3.97%, as compared to the 4.58% cost during the comparable period of 2025.
The following table sets forth information relating to average balances of interest-earning assets and interest-bearing liabilities for the three months ended March 31, 2026 and 2025. Non-accrual loans are included in average balances. The yields in the table below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense. This table reflects the average yields on assets and average costs of liabilities (derived by dividing income or expense by the average balance of assets or liabilities, respectively) as well as the “net interest margin” for the periods shown.
| -55- |
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||
| Average Balance | Interest Income / Expense | Average Yield / Rate | Average Balance | Interest Income / Expense | Average Yield / Rate | |||||||||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Loans (1) (2) | $ | 1,296,803 | $ | 19,476 | 6.09 | % | $ | 1,271,296 | $ | 18,228 | 5.77 | % | ||||||||||||
| Debt securities - taxable | 111,493 | 713 | 2.59 | % | 108,281 | 582 | 2.16 | % | ||||||||||||||||
| Debt securities - tax-exempt (3) | 51,327 | 499 | 3.94 | % | 50,986 | 470 | 3.70 | % | ||||||||||||||||
| Interest-bearing balances at banks | 33,731 | 288 | 3.46 | % | 24,816 | 255 | 4.13 | % | ||||||||||||||||
| Federal funds sold | 2,034 | 8 | 1.60 | % | 2,429 | 10 | 1.66 | % | ||||||||||||||||
| Federal Home Loan Bank stock | 3,549 | 91 | 10.40 | % | 3,494 | 84 | 9.67 | % | ||||||||||||||||
| Total interest-earning assets | 1,498,937 | 21,075 | 5.70 | % | 1,461,302 | 19,629 | 5.40 | % | ||||||||||||||||
| Cash and due from banks -noninterest bearing | 17,479 | 16,323 | ||||||||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||||||
| Deposits | ||||||||||||||||||||||||
| Demand, interest-bearing | $ | 278,216 | $ | 883 | 1.29 | % | $ | 283,720 | $ | 955 | 1.35 | % | ||||||||||||
| Savings and money market | 355,064 | 1,435 | 1.64 | % | 322,288 | 1,351 | 1.69 | % | ||||||||||||||||
| Time deposits | 493,068 | 4,222 | 3.47 | % | 502,512 | 4,826 | 3.86 | % | ||||||||||||||||
| Total interest-bearing deposits | 1,126,348 | 6,540 | 2.35 | % | 1,108,520 | 7,132 | 2.59 | % | ||||||||||||||||
| Federal Home Loan Bank advances | 51,828 | 508 | 3.98 | % | 43,361 | 494 | 4.58 | % | ||||||||||||||||
| Securities sold under agreement to repurchase | 21,740 | 151 | 2.82 | % | 20,215 | 178 | 3.54 | % | ||||||||||||||||
| Subordinated debt | 9,863 | 87 | 3.58 | % | 9,838 | 88 | 3.60 | % | ||||||||||||||||
| Total interest-bearing liabilities | 1,209,779 | 7,286 | 2.44 | % | 1,181,934 | 7,892 | 2.69 | % | ||||||||||||||||
| Non-interest bearing demand deposits | 183,390 | 178,802 | ||||||||||||||||||||||
| Net interest income / margin (3) | $ | 13,789 | 3.73 | % | $ | 11,737 | 3.26 | % | ||||||||||||||||
| Less tax equivalent adjustment | (105 | ) | (99 | ) | ||||||||||||||||||||
| Net interest income | $ | 13,684 | $ | 11,638 | ||||||||||||||||||||
(1) Includes loans held for sale and nonaccrual loans.
(2) Yield amounts on loans include fees.
(3) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.
Volume variances are equal to the increase or decrease in average balance multiplied by the average rate in the prior period. Changes attributable to rate variances are equal to the increase or decrease in the average interest rate multiplied by the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate multiplied by the change in average balance and are included below in the average volume column.
The volume and rate variances table below indicate the difference in interest earned and interest expense for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to changes in average balances (volume) or average interest rates for the three months ended March 31, 2026.
| -56- |
| Three Months Ended March 31, 2026 | ||||||||||||
| Increase (Decrease) Due to | ||||||||||||
| Average Volume | Average Rate | Net Change | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Income from interest-earning assets | ||||||||||||
| Loans | $ | 232 | $ | 1,016 | $ | 1,248 | ||||||
| Debt securities - taxable | 16 | 115 | 131 | |||||||||
| Debt securities - tax-exempt (1) | (1 | ) | 30 | 29 | ||||||||
| Interest-bearing balances at banks | 74 | (41 | ) | 33 | ||||||||
| Federal funds sold | (2 | ) | (0 | ) | (2 | ) | ||||||
| Federal Home Loan Bank stock | 1 | 6 | 7 | |||||||||
| Total interest income | $ | 320 | $ | 1,126 | $ | 1,446 | ||||||
| Expense from interest-bearing liabilities | ||||||||||||
| Demand deposits, interest-bearing | $ | (25 | ) | $ | (47 | ) | $ | (72 | ) | |||
| Savings and money market deposits | 121 | (37 | ) | 84 | ||||||||
| Time deposits | (121 | ) | (483 | ) | (604 | ) | ||||||
| Total interest expense on deposits | (25 | ) | (567 | ) | (592 | ) | ||||||
| Federal Home Loan Bank advances | 277 | (263 | ) | 14 | ||||||||
| Securities sold under agreement to repurchase | 119 | (146 | ) | (27 | ) | |||||||
| Subordinated debt | 1 | (2 | ) | (1 | ) | |||||||
| Total interest expense | 372 | (978 | ) | (606 | ) | |||||||
| Net interest income (1) | $ | (52 | ) | $ | 2,104 | $ | 2,052 | |||||
| Tax equivalent adjustment | (6 | ) | ||||||||||
| Net interest income | $ | 2,046 | ||||||||||
(1) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.
Provisions for Credit Losses
Credit risk is inherent in the business of making loans. We maintain an allowance for credit losses on loans through charges or credits to earnings, which are presented in the statements of income as credit loss expense or recovery of credit loss expense. Determining the appropriate level of the allowance involves a high degree of management judgment and is based upon historical and projected losses in the loan portfolio, including the fair value of collateral or discounted cash flows of specifically identified impaired loans. This process, by its nature, creates variability in the amount and frequency of charges or credits to the Company’s earnings. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. Subsequent recoveries, if any, are credited to the allowance.
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At March 31, 2026, our recovery of credit loss expense on loans was $96,000 and credit loss recovery on off-balance sheet loans was $209,000. The loan portfolio decreased approximately $21 million during the quarter, with decreases in commercial real estate, agriculture, and construction loans. Economic conditions have been mixed, resulting in steady loss rate calculations for individual segments, while additional reserves for individually evaluated loans offset the lower reserves on outstanding balances. Although the balance of unfunded commitments was relatively flat, offsetting changes to higher rate construction balances and lower rate agriculture, resulted in a reserve excess. The net effect was a recovery of credit loss expense.
Reserves for potential losses on individual problem loans were approximately $1.4 million at March 31, 2026 and $1.0 million at December 31, 2025.
Non-Interest Income
The following table sets forth the Company’s various components of non-interest income for the three months ended March 31, 2026 and 2025.
| Quarter Ended March 31, | Increase (Decrease) | |||||||||||||||
| 2026 | 2025 | Amount | Percentage | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Non-interest income | ||||||||||||||||
| Service charges on deposits | $ | 270 | $ | 260 | $ | 10 | 3.8 | % | ||||||||
| Mortgage banking income | 2,535 | 2,178 | 357 | 16.4 | % | |||||||||||
| Debit card and ATM fees | 436 | 427 | 9 | 2.1 | % | |||||||||||
| Insurance services | 472 | 409 | 63 | 15.4 | % | |||||||||||
| Trust fees | 36 | 37 | (1 | ) | (2.7 | %) | ||||||||||
| Other customer service fees | 43 | 45 | (2 | ) | (4.4 | %) | ||||||||||
| Earnings on Bank-owned life insurance | 143 | 139 | 4 | 2.9 | % | |||||||||||
| Gains (losses) on sales of securities | - | - | - | 0.0 | % | |||||||||||
| Other non-interest income | 177 | 101 | 76 | 75.2 | % | |||||||||||
| Total non-interest income | $ | 4,112 | $ | 3,596 | $ | 516 | 14.3 | % | ||||||||
Non-interest income was $4.1 million in the three months ended March 31, 2026 and $3.6 million in the three months ended March 31, 2025, representing a 14.3% increase.
Insurance service revenue contributed to the increase in consolidated non-interest income in 2026. The timing of premium payments received from customers may skew insurance revenue from one quarter to the next. Insurance services revenue is generated by Tri-County Insurance Services, Inc. (d/b/a First State Insurance) (“FSI”), a wholly-owned subsidiary of the Bank. FSI had revenue of $472,000 in the three months ended March 31, 2026, an increase of $63,000, or 15%, from the same period in 2025. The revenue increase in 2026 is primarily due to incentive commissions received from insurers. FSI continues to be profitable, with net income of $122,000 and $127,000 in the three months ended March 31, 2026 and 2025, respectively.
The average balance of our investment in life insurance policies was $20.9 million and $20.3 million during the first three months of 2026 and 2025, respectively. No death benefits were received in either year. As an investment, the policies are designed to be held until death of the insured.
Most of our mortgage banking activity occurs at First State Mortgage Services, LLC (“FSM”), a wholly-owned subsidiary of the Bank. Mortgage banking income increased by $357,000, or 16%, in the three months ended March 31, 2026 compared to the same period in 2025.
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FSM is structured to provide conventional and government-sponsored financing on 1-4 family residences. FSM’s profitability and mortgage loan volume are greatly affected by market interest rates. Rising interest rates, beginning in March 2022, have substantially ended mortgage refinancing activity and slowed the pace of home sales. Demand for new single-family homes still exists, but the supply of existing homes on the market has been reduced. FSM had 63 full-time equivalent employees at March 31, 2026, compared to 68 at March 31, 2025. We continue to try and adjust the scale of mortgage operations without significantly reducing our capacity to serve our markets.
Despite the less favorable rate environment in recent years, FSM financial performance has been improving. The net loss for the first three months of 2026 was 22% less than the comparable period in 2025. FSM had a net loss of $384,000 for the quarter ended March 31, 2026, compared to a net loss of $495,000 for the quarter ended March 31, 2025. FSM had a net loss of approximately $1.1 million for the year 2025.
Non-Interest Expense
The following table sets forth the various components of our non-interest expense for the three months ended March 31, 2026 and 2025.
| Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||
| 2026 | 2025 | Amount | Percentage | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Non-interest expense | ||||||||||||||||
| Salaries and employee benefits | $ | 8,003 | $ | 7,552 | $ | 451 | 6.0 | % | ||||||||
| Occupancy | 676 | 669 | 7 | 1.0 | % | |||||||||||
| Furniture and equipment | 285 | 283 | 2 | 0.7 | % | |||||||||||
| Data processing | 995 | 990 | 5 | 0.5 | % | |||||||||||
| FDIC insurance assessments | 177 | 167 | 10 | 6.0 | % | |||||||||||
| Insurance | 39 | 31 | 8 | 25.8 | % | |||||||||||
| Advertising | 146 | 156 | (10 | ) | (6.4 | %) | ||||||||||
| Professional fees | 373 | 372 | 1 | 0.3 | % | |||||||||||
| Other non-interest expense | 1,303 | 1,080 | 223 | 20.6 | % | |||||||||||
| Total non-interest expense | $ | 11,997 | $ | 11,300 | $ | 697 | 6.2 | % | ||||||||
| Efficiency ratio | 67.4 | % | 74.2 | % | (6.8 | %) | (9.1 | %) | ||||||||
| FTE employees at quarter-end | 281 | 288 | (7 | ) | (2.4 | %) | ||||||||||
Despite inflationary pressures, we were successful in controlling non-interest expense during the three months ended March 31, 2026, although total non-interest expense increased more than the rate of inflation.
In the three months ended March 31, 2026, our efficiency ratio decreased to 67.4% from 74.2% for the comparable period of 2025. The lower efficiency ratio results from significantly higher net interest income and non-interest income, up 18% and 14%, respectively. In contrast, non-interest expense increased 6% since March 31, 2025, largely due to the costs of preparing our registration statement and filing costs.
Income Taxes
Income tax expense was $1.6 million and $0.9 million in the three months ended March 31, 2026 and 2025, respectively. The 86% increase in income tax expense was directionally consistent with the 78% increase in pre-tax income. Our effective income tax rate (income tax expense divided by pre-tax income) was 26.7% and 25.6% in the first three months of 2026 and 2025, respectively, compared to the combined federal and state statutory income tax rate of approximately 28.5%. The difference between the combined federal and state statutory rate and our effective tax rate is primarily due to tax-exempt interest income and earnings on Bank-owned life insurance.
| -59- |
FINANCIAL CONDITION
Overview
Total assets were $1.58 billion at March 31, 2026, representing a decrease of $14.1 million, or 0.9%, from December 31, 2025. The most significant change in assets was the $21.1 million (or 1.6%) decrease in loans (not including loans held for sale). Asset decline was also attributed to paydowns of FHLB borrowings.
Our primary investing activities are the origination of real estate, commercial, and agricultural loans and the purchase of debt securities. Assets are funded primarily by deposits, borrowings such as FHLB advances, securities sold under agreement to repurchase and stockholders’ equity.
Our primary earning assets and funding sources are discussed below, including significant changes in our assets, liabilities, and stockholders’ equity during the first three months of 2026.
Securities Portfolio
The securities portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.
Consistent with our investment policy, our portfolio consists of (i) U.S. Treasury securities and U.S. Government sponsored entities’ debt securities for liquidity and pledging; (ii) mortgage-backed securities and collateralized mortgage obligations, which in many instances can also be used for pledging, and which generally enhance the yield of the portfolio; and (iii) municipal obligations, which provide tax free income and limited pledging potential.
All debt securities are classified as available-for-sale. Accounting guidance requires available-for-sale securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), which is a component of stockholders’ equity. Regular adjustments are made to reflect changes in the fair value of our available-for-sale securities.
Our investment portfolio increased $0.5 million from December 31, 2025, to March 31, 2026 with the purchase of additional securities to the portfolio.
The amortized cost and fair value of our Treasury securities were $16.0 million and $15.5 million, respectively at March 31, 2026. The amortized cost and fair value of our Treasury securities were $23.8 million and $22.9 million, respectively, at March 31, 2025. The amortized cost and fair value of our Treasury securities were $18.0 million and $17.5 million, respectively at December 31, 2025. Our federal agency obligations consist of securities issued by U.S. government-sponsored enterprises, primarily the FHLB. We also invest in SBA guaranteed loan participations.
Unrealized losses in our securities portfolio are due to increases in interest rates rather than credit deterioration. None of our securities has had a past due payment.
Absent credit quality concerns or further increases in market interest rates, unrealized losses on debt securities generally recover as the maturity date approaches.
Loan Portfolio
Our loan portfolio consists of various types of loans. The three segments of our loan portfolio are: commercial (including agricultural production); real estate; and consumer. At March 31, 2026 and December 31, 2025, the real estate segment comprised 88% of our loan portfolio. The real estate segment primarily consists of commercial and one-to-four family residential loans. Smaller portions of the real estate segment are agricultural loans and construction and land loans. Our loans are primarily to borrowers in the Illinois markets where we operate.
| -60- |
Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, small retail shopping centers, single family and multi-family residential buildings, and various other properties including restaurants and hotels. None of our loans are secured by, or dependent on, office buildings in large urban centers such as downtown Chicago. Agricultural real estate loans are primarily for land acquisition and other long-term farm financing.
At March 31, 2026 and December 31, 2025, approximately 90% of our residential real estate loans are secured by first liens on one-to-four family residential properties. The rest of the portfolio consists of home equity loans and other home loans secured by junior liens. At origination, evaluation of borrower repayment ability includes a review of debt to income, credit scores, and certain other information. Collateral coverage is based on appraisals.
Construction and land development loans are generally secured by vacant land and/or property in the process of improvement, including (1) land development preparatory to erecting vertical improvements, and (2) the construction of industrial, commercial, residential, or farm buildings. Repayment of these loans typically depends on the sale of the property to third parties or the successful and timely completion of the improvements by the builder for the end user.
Commercial and agricultural loans are primarily for working capital, asset acquisition or expansion, and other business purposes. Underwriting of these loans is based primarily on the historical and projected cash flow of the borrower, guarantor support and finally on the underlying collateral. Financial information obtained from borrowers, such as tax returns or accountant-prepared financial statements are used to evaluate debt service sufficiency. Such financial information and evaluations are updated periodically during the life of the loan.
Consumer loans for household, family, and other personal expenditures are less than 1% of our total loan portfolio. At the time of origination, we evaluate the borrower’s repayment ability primarily through a review of debt to income and credit scores.
Loan characteristics and risks and underwriting are described in more detail in our consolidated financial statements in the 2025 Annual Report, primarily in accompanying Notes 1 and 4.
Loan volume in the first three months of 2026 decreased compared to year-end 2025. Total loans were approximately 1.6% less at March 31, 2026 compared to year-end 2025. However, this is typical between year-end and the first quarter given the seasonality of our agriculture portfolio and cash flow inputs.
The following table sets forth loans within each segment of our portfolio at March 31, 2026 and year-end 2025, including their percentage of total loans and increase (decrease) through the first quarter of 2026:
| March 31, | December 31, | March 31, | December 31, | Increase (Decrease) | ||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | in 2026 | ||||||||||||||||
| (Dollars in thousands) | Percent of Total Loans | Percentage | ||||||||||||||||||
| Commercial | ||||||||||||||||||||
| Commercial | $ | 74,942 | $ | 71,872 | 5.8 | % | 5.5 | % | 4.3 | % | ||||||||||
| Agricultural | 72,118 | 78,695 | 5.6 | % | 6.0 | % | (8.4 | )% | ||||||||||||
| Other | - | - | 0.0 | % | 0.0 | % | ||||||||||||||
| Real estate | ||||||||||||||||||||
| Commercial real estate | 541,132 | 549,247 | 41.8 | % | 41.8 | % | (1.5 | )% | ||||||||||||
| Agricultural real estate | 169,575 | 169,779 | 13.1 | % | 12.9 | % | (0.1 | )% | ||||||||||||
| Consumer real estate | 397,912 | 398,022 | 30.7 | % | 30.3 | % | (0.0 | )% | ||||||||||||
| Construction and land | 30,883 | 39,916 | 2.4 | % | 3.0 | % | (22.6 | )% | ||||||||||||
| Consumer | ||||||||||||||||||||
| Installment | 4,475 | 4,470 | 0.3 | % | 0.3 | % | 0.1 | % | ||||||||||||
| Vehicle | 1,738 | 1,928 | 0.1 | % | 0.1 | % | (9.9 | )% | ||||||||||||
| Credit cards | 1,374 | 1,365 | 0.1 | % | 0.1 | % | 0.7 | % | ||||||||||||
| Total loans | 1,294,149 | 1,315,294 | 100.0 | % | 100.0 | % | (1.6 | )% | ||||||||||||
| Allowance for credit losses | (14,893 | ) | (14,992 | ) | (1.2 | )% | (1.1 | )% | (0.7 | )% | ||||||||||
| Loans, net | $ | 1,279,256 | $ | 1,300,302 | (1.6 | )% | ||||||||||||||
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Past Due Loans
Loans past due are summarized in the following table.
| (Dollars in thousands) | ||||||||
| March 31, | December 31, | |||||||
| Loans past due | 2026 | 2025 | ||||||
| 30-89 days past due | $ | 4,964 | $ | 6,125 | ||||
| 90 or more days past due | 6,882 | 5,253 | ||||||
| Total loans past due 30 days or more | $ | 11,846 | $ | 11,378 | ||||
Past due loans remain at manageable levels. At March 31, 2026, three loans comprised 58% of total loans past due 90 days or more. Two of these loans had a balance of approximately $1.2 million each and are secured by owner-operated commercial real estate. The other is an approximate $1.7 million commercial loan that is secured by various collateral. Management believes cash flow from operations and, if necessary, collateral coverage will prevent or mitigate losses on these loans.
Sources of Funds
Our primary sources of funds are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are influenced by market interest rates, economic conditions, and customer behavior, all of which can change over time.
Deposits
The composition and cost of our deposit base are important components in analyzing our net interest margin and balance sheet liquidity. Our liquidity is impacted by the volatility of deposits, given the risk of that money leaving our Bank for rate-related or other reasons. Deposits can be adversely affected if economic conditions weaken, especially in the markets where we operate. Our most volatile deposits are those that exceed the FDIC deposit insurance limit. Rate sensitivity is another potential cause of deposit volatility, as customers may seek more attractive interest rates on their balances. Customers with higher balances may be more rate-sensitive than customers with smaller balances.
Total average interest-bearing deposits were $1.1 billion in the first quarter of 2026. Total deposits as of March 31, 2026 were $1.3 billion, representing a $5.1 million (or 0.4%) increase from year-end 2025. At March 31, 2026, deposit categories were similar to year-end 2025 as a percent of total deposits.
We continue to participate in a program offered by the State of Illinois, whereby we obtain time deposit funding in exchange for commitments to make a certain amount of agricultural loans. The average balance of State of Illinois time deposits was $65 million at March 31, 2026 and December 31, 2025.
Deposits as of March 31, 2026 and year-end 2025 are presented below, together with the percentage increase (decrease) as of March 31, 2026:
| Q1 2026 | ||||||||||||||||
| March 31, | December 31, | Increase | Increase | |||||||||||||
| Deposit Category (Dollars in thousands) | 2026 | 2025 | (Decrease) | (Decrease) | ||||||||||||
| Demand, non-interest bearing | $ | 186,586 | $ | 167,062 | $ | 19,524 | 11.7 | % | ||||||||
| Demand, interest bearing | 282,879 | 281,169 | 1,710 | 0.6 | % | |||||||||||
| Savings, including money market | 359,836 | 344,147 | 15,689 | 4.6 | % | |||||||||||
| Time, $250 and over | 146,273 | 145,357 | 916 | 0.6 | % | |||||||||||
| Time, under $250 | 333,464 | 366,188 | (32,724 | ) | (8.9 | )% | ||||||||||
| Total deposits | $ | 1,309,038 | $ | 1,303,923 | $ | 5,115 | 0.4 | % | ||||||||
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Maturities of time deposits as of March 31, 2026 are shown below:
| Maturing Period (Dollars in thousands) | March 31, 2026 | Percentage of Total | ||||||
| Within one year | $ | 410,337 | 85.5 | % | ||||
| Over one year through two years | 53,974 | 11.3 | % | |||||
| Over two years through three years | 13,579 | 2.8 | % | |||||
| Over three years through four years | 1,474 | 0.3 | % | |||||
| Over four years through five years | 373 | 0.1 | % | |||||
| Total time deposits | $ | 479,737 | 100.0 | % | ||||
Core deposits are defined by the banking regulators as all deposit accounts of $250,000 and less, minus any fully insured brokered deposits of $250,000 or less. Our core deposits have been relatively stable, while our use of brokered deposits has declined in 2025 and the first three months of 2026. Information about our core deposits and brokered deposits follows as of the dates indicated:
| Core and Brokered Deposits | March 31, | December 31, | ||||||
| (Dollars in thousands) | 2026 | 2025 | ||||||
| Core deposits | $ | 1,153,709 | $ | 1,114,413 | ||||
| % of total deposits | 88.1 | % | 85.5 | % | ||||
| Change from prior balance sheet date | $ | 39,296 | $ | 20,527 | ||||
| % Change from prior balance sheet date | 3.5 | % | 1.9 | % | ||||
| Brokered deposits | $ | 9,993 | $ | 44,921 | ||||
| % of total deposits | 0.8 | % | 3.4 | % | ||||
A portion of our deposits are from state, county, and municipal customers. In general, public deposits exceed the FDIC insurance limits so, as allowed by law, we have specifically pledged a portion of our debt securities to collateralize these deposits. The banking regulators refer to collateralized public deposits as “preferred deposits.”
As shown below, uninsured and preferred deposit balances have been relatively stable. Estimated uninsured deposits and preferred deposits and their percentage to total deposits follow as of the dates indicated:
| Uninsured and Preferred Deposits | March 31, 2026 | December 31, 2025 | ||||||
| Estimated amount of uninsured deposits | $ | 344,779 | $ | 331,528 | ||||
| Preferred deposits | 105,082 | 107,862 | ||||||
| Estimated uninsured deposits, net of preferred deposits | $ | 239,697 | $ | 223,666 | ||||
| As a percent of total deposits | ||||||||
| Estimated uninsured deposits | 26.3 | % | 25.4 | % | ||||
| Estimated uninsured deposits, net of preferred deposits | 18.3 | % | 17.2 | % | ||||
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Other Borrowings
We also used repurchase agreements as a funding source. Repurchase agreements provide secured borrowings from customers whose funds exceed FDIC deposit insurance limits. To repay these borrowings, we are required to repurchase identical securities to those that are sold. The average balance of securities sold under agreement to repurchase was $21.7 million and $22.4 million at March 31, 2026 and December 31, 2025, respectively.
We also maintain a borrowing arrangement with the FHLB. FHLB advances totaled $55.9 million at March 31, 2026, compared to $77.9 million at year-end 2025.
Off-Balance Sheet Arrangements
As a provider of financial services, we issue standby letters of credit. Standby letters of credit are conditional commitments issued by the Bank generally to guarantee the payment or performance obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards, and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance by the customers, we have the right to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash, and marketable securities. The contract amount of these standby letters of credit, which represents the maximum potential future payments guaranteed by us, was $6.5 million and $6.9 million at March 31, 2026 and December 31, 2025, respectively.
At March 31, 2026 and December 31, 2025, we had outstanding loan commitments, including letters of credit, totaling $329.3 million and $262.9 million, respectively. These commitments consist primarily of unfunded lines of credit and commitments to make loans.
We anticipate that sufficient funds will be available to meet current loan commitments. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
As required by ASC 326, we maintain an allowance for expected credit losses on off-balance sheet commitments. The allowance balance is included with other liabilities on our balance sheet. The allowance balance is calculated in the same manner as our allowance for credit losses on loans, except we estimate the percentage of off-balance sheet commitments that we will actually fund in the future. Our allowance for credit losses on off-balance sheet commitments was $0.7 million at March 31, 2026 and $1.0 million at December 31, 2025. There were no charge-offs of any off-balance sheet commitments in 2025 or through March 31, 2026.
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Funding at the Company Level
At March 31, 2026 and December 31, 2025, the Company had $10.0 million of subordinated debentures outstanding. These unsecured subordinated debentures mature in 2031.
In 2022, the Company obtained a $10 million operating line of credit from Bankers’ Bank. The line of credit was most recently renewed in 2024 with a maturity date of October 29, 2026. The line of credit is secured by all the stock of the Bank and includes covenants specific to capital and other financial ratios. The Company was in compliance with these covenants at March 31, 2026 and December 31, 2025. There were no borrowings on the line of credit during the first three months of 2026 or during 2025.
The Company primarily depends on dividends from the Bank for its cash needs. The Bank must maintain profitable operations and satisfy its capital requirements in order to pay dividends to its parent company. In addition to debt service, the parent company uses cash to pay dividends to its stockholders.
LIQUIDITY
Liquidity management is a daily function. Excess funds are generally invested in short-term investments. Cash inflows are typically generated from earnings, loan payments, mortgage loan sales, maturing securities, and increased deposit balances and borrowings. Debt securities can also be sold to provide funds. The Bank’s cash outflows are primarily for loan advances, security purchases, deposit withdrawals, and maturities of other borrowings.
In the event we require funds beyond our ability to generate them internally, additional funds are generally available from FHLB advances and the Federal Reserve Discount Window. Brokered deposits and deposits obtained through listing services are other potential sources of funds. The Company also has a $10 million line of credit that could be used to support Bank liquidity.
We maintain significant capacity to borrow from the FHLB and the Federal Reserve. The Bank’s pledged collateral, related borrowings, and additional borrowings available are summarized below.
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Collateral pledged to | (Dollars in thousands) | |||||||
| Federal Home Loan Bank | $ | 889,255 | $ | 906,150 | ||||
| Federal Reserve Discount Window | 106,024 | 112,294 | ||||||
| $ | 995,279 | $ | 1,018,444 | |||||
| Borrowings from the | ||||||||
| Federal Home Loan Bank | $ | 55,917 | $ | 77,917 | ||||
| Federal Reserve Discount Window | - | - | ||||||
| $ | 55,917 | $ | 77,917 | |||||
| Additional borrowing available from the | ||||||||
| Federal Home Loan Bank | $ | 500,566 | $ | 474,819 | ||||
| Federal Reserve Discount Window | 93,526 | 92,003 | ||||||
| Total borrowing available | $ | 594,092 | $ | 566,822 | ||||
Our most liquid assets are cash and cash equivalents and securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending, and investing activities during any given year. These liquid assets totaled $204.8 million at March 31, 2026 and $203.8 million at December 31, 2025.
Operating activities used $1.6 million and $4.7 million of cash for the three months ended March 31, 2026 and 2025, respectively. Net income is a primary source of operating cash, as adjusted for certain items including gains on sales of assets, changes in income and expense accruals, and non-cash expenses such as depreciation and the provision for credit losses.
Mortgage banking activity was another important source of cash from operating activities, as shown in the following table.
Cash flows from mortgage loans held for sale (Dollars in thousands) | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | ||||||
| Proceeds from loan sales | $ | 62,818 | $ | 50,810 | ||||
| Gains on sales of loans | $ | (2,458 | ) | $ | (1,631 | ) | ||
| Origination of loans held for sale | (65,482 | ) | (55,746 | ) | ||||
| Net cash (used) | $ | (5,122 | ) | $ | (6,567 | ) | ||
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Investing cash flows related to debt securities provided cash in both 2026 and 2025, as summarized below.
| Cash flows from security purchases and maturities (Dollars in thousands) | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | Increase (Decrease) | |||||||||
| Proceeds from maturities, paydowns, and calls | $ | 6,252 | $ | 4,989 | $ | 1,263 | ||||||
| Purchases of available-for-sale securities | (6,888 | ) | (7,051 | ) | 163 | |||||||
| Net cash provided (used) | $ | (636 | ) | $ | (2,062 | ) | $ | 1,426 | ||||
In the three months ended March 31, 2026, net cash provided by investing activities was $20.6 million, primarily due to loan (originations) and principal collections, net, of $21.1 million.
Financing activities used $18.6 million of net cash in the three months ended March 31, 2026. Net increases in deposits were $5.1 million in the three months ended March 31, 2026. Decreases of FHLB advances used $22.0 million of financing cash in the three months ended March 31, 2026, as management relied less on other funding sources.
Less significant sources and uses of cash from financing activities include cash dividends paid, purchases and retirement of our common stock, and proceeds from stock options exercised. Netted together, these equity transactions used $1.7 million of cash in the three months ended March 31, 2026.
Cash and cash equivalents increased $0.4 million in the three months ended March 31, 2026. We consider cash and cash equivalents, in combination with other liquidity sources, to be adequate for our operations.
Management believes the Bank’s liquid assets and unused borrowing capacity are sufficient for our operations, including the ability to fund loan originations and meet deposit outflows.
CAPITAL
As of March 31, 2026, total stockholders’ equity was $161.6 million, an increase of $3.9 million, or 2.5%, from $157.8 million at December 31, 2025. The increase to total stockholders’ equity was primarily driven by net income of $4.5 million and was reduced by dividends declared and paid of $0.7 million.
The impact on equity for other comprehensive income (loss) is not included in regulatory capital. The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1, or core capital, as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations. As of March 31, 2026, the Company’s capital levels remained characterized as “well-capitalized”.
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The actual capital amounts and ratios of the Company and the Bank as of March 31, 2026 are presented in the table below.
| Capital Ratios | Capital Amounts | |||||||||||||||
| Capital ratios of the Bank, as of March 31, 2026 | Minimum Required | Actual | Minimum Required | Actual | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Common Equity Tier 1 capital to risk-weighted assets (1) | 7.0 | % | 14.1 | % | $ | 83,650 | $ | 167,853 | ||||||||
| Total capital to risk-weighted assets (1) | 10.5 | % | 15.3 | % | $ | 125,475 | $ | 182,791 | ||||||||
| Tier 1 Capital to risk-weighted assets (1) | 8.5 | % | 14.1 | % | $ | 101,575 | $ | 167,853 | ||||||||
| Tier 1 Capital to average assets (leverage ratio) (2) | 5.0 | % | 10.8 | % | $ | 78,095 | $ | 167,853 | ||||||||
(1) Minimum required, including the capital conservation buffer, under the Basel III Capital Rules
(2) Minimum required to be categorized as “well capitalized” under the prompt corrective action provisions
The payment of dividends by the Bank would be restricted if the Bank does not meet the minimum Capital Conservation Buffer as defined by Basel III regulatory capital guidelines and/or if, after payment of the dividend, the Bank would be unable to maintain satisfactory regulatory capital ratios. Bank dividends are similarly restricted by the prompt corrective action provisions.
Consolidated capital amounts and ratios are not presented because they are not required for consolidated entities with less than $3 billion in total assets and the Bank comprises over 90% of the consolidated assets of the Company. Nonetheless, regulators expect bank holding companies to be a “source of strength” to their subsidiary banks and we follow that principle in managing capital at both the Bank and Company levels.
FSM is subject to capital requirements in connection with its mortgage banking activities. Failure to maintain minimum capital requirements could result in the FSM’s inability to originate mortgage loans for the respective investor and therefore could have a direct material effect on FSM’s financial results.
Dividends and Share Buybacks
We continue our history of paying cash dividends to stockholders. Dividends were $0.28 per share through three months at March 31, 2026.
Dividends were $1.00 per share for the year ending December 31, 2025. Our ratio of dividends declared to net income was 17% year-to-date in 2025.
From time to time, our Board of Directors authorizes the purchase of the Company’s outstanding common stock, subject to a dollar amount limit over a specified period. The number of shares purchased, and the timing, manner, price, and amount of the purchases are determined at the Company’s discretion. Among other factors, we consider stock price, trading volume, general market conditions, and our capital and liquidity needs.
We purchased and retired 24,800 shares in 2025 for approximately $1.1 million. In the first three months of 2026, we did not purchase or retire any shares.
FORWARD-LOOKING STATEMENTS
This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the federal securities law. Forward-looking statements are not historical facts and are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “project,” “possible,” “continue,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
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The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and, accordingly, the reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including, without limitation:
| ● | the effects of future economic, business and market conditions and changes, particularly in our Illinois market area, including prevailing interest rates and the rate of inflation; | |
| ● | governmental trade, monetary, tax and fiscal policies; | |
| ● | the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand and the values and liquidity of loan collateral, securities and other interest sensitive assets and liabilities; | |
| ● | changes in borrowers’ credit risks and payment behaviors; | |
| ● | the failure of assumptions and estimates used in our reviews of our loan portfolio, underlying the establishment of reserves for possible credit losses, our analysis of our capital position and other estimates; | |
| ● | the performance of our commercial real estate loan portfolio, including the effects of the elevated interest rate environment, the strength of the commercial real estate market in our Illinois markets, and recent changes in retail and office usage patterns; | |
| ● | risk of cybersecurity attacks that could result in damage to the Company’s or third-party service providers’ networks or data of the Company; | |
| ● | the timing and scope of any legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators; | |
| ● | the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services; | |
| ● | the effects of war or other conflicts, acts of terrorism or other catastrophic events, including storms, droughts, tornados and flooding, that may affect general economic conditions, including agricultural production and demand and prices for agricultural goods and land used for agricultural purposes, generally and in our markets; | |
| ● | the effects of disruption and volatility in capital markets on the value of our investment portfolio; | |
| ● | changes in the prices, values and sales volumes of residential real estate; | |
| ● | changes in the scope and cost of FDIC insurance, the state of Illinois’ Public Deposit Insurance Fund and other coverages; | |
| ● | the impact of litigation and other claims we may be subject to from time to time; | |
| ● | the effects of fraud by or affecting employees, customers or third parties; | |
| ● | changes in the availability and cost of credit and capital in the financial markets; | |
| ● | changes in technology or products that may be more difficult or costly, or less effective than anticipated; | |
| ● | changes in accounting policies, rules and practices; | |
| ● | the risks related to mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; and | |
| ● | the risks noted in the Risk Factors discussed in the Company’s Form S-1, filed with the SEC on July 18, 2025, as well as other risks and uncertainties set forth from time to time in the Company’s other filings with the SEC. |
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information relating to this item.
Item 4 – Controls and Procedures
As required by Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, management has evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of March 31, 2026. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
During the quarter ended March 31, 2026, there were no changes to the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.
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Part II. Other Information
Item 1 – Legal Proceedings
There are no material pending legal proceedings to which the Company or its subsidiaries are a party other than ordinary, routine litigation incidental to their respective businesses.
Item 1A – Risk Factors
There have been no material changes to the risk factors disclosed in the “Risk Factors” section of the Company’s Form S-1, filed with the SEC on July 18, 2025. Please refer to that section of the Company’s Form S-1 for disclosures regarding the risks and uncertainties related to the Company’s business.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
From time to time, our Board of Directors authorizes the purchase of the Company’s outstanding common stock, subject to a dollar amount limit over a specified period. The number of shares purchased, and the timing, manner, price, and amount of the purchases are determined at the Company’s discretion. The repurchase program does not obligate the Company to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended or discontinued at any time. Among other factors, we consider stock price, trading volume, general market conditions, and our capital and liquidity needs.
During the first quarter of 2026, the Company did not repurchase any shares of its common stock. At March 31, 2026, our most recent share buyback program had approximately $760,000 remaining.
Item 3 – Defaults Upon Senior Securities
None.
Item 4 – Mine Safety Disclosures
N/A.
Item 5 – Other Information
During
the three months ended March 31, 2026, no director or officer of the Company
Item 6 – Exhibits
EXHIBIT INDEX
Exhibit |
Description | |
| 31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) | |
| 31.2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) | |
| 32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101 | Interactive Data File | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in 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.
TRI-COUNTY FINANCIAL GROUP, INC.
(Registrant)
| Date: May 13, 2026 | By: | /s/ Kirk Ross |
| Kirk Ross | ||
| Director, President and Chief Executive Officer | ||
| (principal executive officer) | ||
| Date: May 13, 2026 | By: | /s/ Lana Eddy |
| Lana Eddy | ||
| Chief Financial Officer | ||
| (principal financial officer) |
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