Coastalsouth Bancshares Inc.
11/06/2026 | Press release | Distributed by Public on 11/06/2026 15:17
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion and analysis of financial condition and results of operations, also referred to hereafter as this MD&A, is to aid in understanding significant changes in the financial condition of CoastalSouth Bancshares, Inc. and our wholly owned subsidiary, Coastal States Bank, as of December 31, 2025 and September 30, 2026, and on our results of operations for the three and nine months ended September 30, 2026 and 2025. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2025 included on the Company's 2025 Form 10-K and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "strive," "projection," "goal," "target," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following:
•
general economic and business conditions in our local markets, including conditions affecting employment levels, interest rates, inflation, supply chains, the threat of recession, volatile equity capital markets, property and casualty insurance costs, collateral values, customer income, creditworthiness and confidence, spending and savings that may affect customer bankruptcies, defaults, charge-offs and deposit activity; and the impact of the foregoing on client behavior, including the velocity and levels of deposit withdrawals and loan repayment, the risk of accelerated deposit outflows driven by digital banking channels, real-time payments, or social media-driven concerns that may materially increase liquidity risk;
•
the occurrence of significant natural disasters, including hurricanes;
•
our ability to successfully execute our business strategy to achieve profitable growth;
•
our ability to implement and adapt to changes in our business strategies;
•
the impact of adverse developments, or actual or perceived instability, in the banking industry, on client confidence, liquidity, and regulatory responses to these developments (including increases in the cost of our deposit insurance assessments and increased regulatory scrutiny), our ability to effectively manage our liquidity risk and any growth plans, and the availability of capital and funding;
•
our ability to manage growth and to increase operating efficiency;
•
our ability to access cost-effective funding in the future;
•
restrictions or limitations on access to funds from historical and alternative sources of liquidity could adversely affect our overall liquidity, which could restrict our ability to make payments on our obligations and our ability to support asset growth and sustain our operations and the operations of the Bank;
•
our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses ("ACL");
•
the adequacy of our reserves (including ACL), including the appropriateness of our methodology for calculating such reserves;
•
factors that may impact the performance of our loan portfolio, including real estate values and liquidity in our primary service market areas, the financial health of our borrowers and the success of various projects that we finance;
•
inflation and changes in the interest rate environment that can reduce our margins or reduce the fair value of the financial instruments due to changes in consumer spending, borrowing and savings habits;
•
our ability to attract and maintain business banking relationships with well-qualified businesses, real estate developers and investors with proven track records in the market areas that we serve;
•
our ability to retain our existing customers and attract and retain new customer relationships;
•
our focus on small and mid-sized businesses;
•
our capital requirements as an insured depository institution;
•
concentration of our loan portfolio in real estate loans, changes in the prices, values and sales volumes of commercial and residential real estate;
•
credit and lending risks associated with our construction and development, commercial real estate, commercial and industrial, residential real estate and Small Business Administration ("SBA") loan portfolios;
•
a breach in security of our information systems, including the occurrence of cyber-attack incidents or deficiencies in cyber security;
•
risks and costs related to the development and use of artificial intelligence in our industry and generally;
•
political instability or civil unrest and/or acts of war or terrorism;
•
changes or new fiscal and monetary policies of the federal government and its agencies;
•
our ability to comply with consumer protection laws, including the CRA and fair lending laws;
•
our ability to comply with various governmental and regulatory requirements, including supervisory actions by federal and state banking agencies;
•
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described in the Company's 2025 Form 10-K.
•
changes in the quality or composition of our loan or investment portfolios;
•
our hedging strategies to mitigate risks associated with changes in interest rates;
•
our dependence on third-party service providers;
•
inaccuracies or other failures from the use of models, including the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions;
•
continued or increasing competition and innovation from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;
•
our ability to attract and retain skilled people;
•
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the FASB, the SEC or the Public Company Accounting Oversight Board;
•
risks related to potential acquisitions;
•
changes in the scope and cost of FDIC insurance and other coverage;
•
restraints on the ability of the Bank to pay dividends to us, which could limit our liquidity;
•
our ability to maintain adequate internal controls over financial reporting;
•
potential claims, damages, penalties, fines, costs and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;
•
the makeup of our asset mix and investments;
•
our ability to manage our growth;
•
our ability to increase our operating efficiency;
•
the risk that balance sheet, revenue growth, and loan growth expectations may differ from actual results;
•
a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the federal budget and economic policy, including the impact of tariffs and trade policies; and
•
other risks and factors identified in the Company's 2025 Form 10-K that was filed with the SEC under the heading "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward-looking statements in this Quarterly Report on Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. These forward-looking statements represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. However, the events and circumstances reflected in the forward-looking statements may not be achieved or occur. For example, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have
conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Any forward-looking statement speaks only as of the date on which it is made, and except as required by applicable law, we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
These statements are inherently uncertain, and we cannot guarantee future results, performance or achievements. For a discussion of these and other risks that may cause actual results to differ from expectations, refer to the section entitled "Risk Factors" and other information contained on the Company's 2025 Form 10-K and our other periodic filings, including quarterly reports on Form 10-Q and current reports on Form 8-K, that we file from time to time with the SEC.
Overview
CoastalSouth Bancshares, Inc. (the "Company"), is a bank holding company headquartered in Atlanta, Georgia. The Company was incorporated under the laws of the Commonwealth of Virginia on May 24, 2004, and converted to a corporation organized under the laws of the State of Georgia on May 12, 2023. We operate through our wholly-owned banking subsidiary, Coastal States Bank (the "Bank" or "CSB"), a South Carolina state-chartered commercial bank. We currently operate 12 retail banking branches in three primary markets, including the Lowcountry of South Carolina, Savannah, Georgia, and metro Atlanta, Georgia. CSB also operates four specialty lines of business, including Senior Housing, Marine Lending, Government Guaranteed Lending, and Mortgage Banker Finance ("MBF"). The deposits of CSB are insured by the FDIC. Coastal States Mortgage, Inc. ("CSM"), a wholly owned subsidiary of CSB, is a mortgage company focused on originating single-family residential mortgages, some of which are retained in the portfolio. In this report on Form 10-Q, the words "the Company," "we," "us," and "our" refer to CoastalSouth Bancshares, Inc., together with CSB and CSB's wholly owned subsidiaries, except where the context requires otherwise.
The following discussion and analysis is intended to assist readers in their analysis and understanding of our consolidated financial statements and summary historical financial information appearing in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. This discussion and analysis presents our financial condition and results of operations on a consolidated basis, unless otherwise specified.
Critical Accounting Policies and Estimates
Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Application of these principles requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and the accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Estimates, assumptions or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon future events. Carrying assets and liabilities at fair value results in more financial statement volatility. The fair values and the information used to record the valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources.
Certain policies inherently have a greater reliance on the use of estimates, assumptions or judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the determination of our ACL and fair value measurements to be the accounting areas that require the most subjective or complex judgments, estimates and assumptions, and where changes in those judgments, estimates and assumptions (based on new or additional information, changes in the economic environment and/or market interest rates, etc.) could have a significant effect on our financial statements. Therefore, we consider these policies, discussed below, to be critical accounting estimates and discuss them directly with the Audit Committee of our Board.
Our most significant accounting policies are presented in Note 1 of the consolidated financial statements as of December 31, 2025 included on the Company's 2025 Form 10-K that was filed with the SEC. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. There have been no significant changes to the accounting policies, estimates, and assumptions, or the judgments affecting the application of these estimates and assumptions from those disclosed on the Company's 2025 Form 10-K.
Allowance for Credit Losses
The ACL represents management's current estimate of credit losses for the remaining estimated life of financial instruments, with particular applicability on our balance sheet to loans held-for-investment and unfunded loan commitments. Estimating the amount of the ACL requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet. Credit losses are charged against the allowance, while recoveries of amounts previously charged off
are credited to the allowance. A provision for credit losses is charged to operations based on management's periodic evaluation of the factors previously mentioned, as well as other pertinent factors.
There are many factors affecting the ACL; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes are worse than management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.
Additional information on the loan portfolio and ACL can be found in the sections of this MD&A titled "Loans," "Allowance for Credit Losses on Loans," "Allowance for Credit Losses for Unfunded Commitments," and "Nonperforming Loans." Note 1 to the consolidated financial statements as of December 31, 2025 included on the Company's 2025 Form 10-K that was filed with the SEC includes additional information on accounting policies related to the ACL.
Fair Value Measurements
ASC 820 defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available, management judgment is necessary to estimate fair value.
The fair values for AFS securities are generally based upon quoted market prices or observable market prices for similar instruments. Management utilizes a third-party pricing service to assist with determining the fair value of our securities portfolio. The pricing service uses observable inputs when available including benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers. These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information.
The Company's derivative financial instruments, which are interest rate contracts, are valued using a discounted cash flow method that incorporates current market interest rates. We use derivative financial instruments primarily to manage our interest rate risk.
From time to time, we may record assets at fair value on a nonrecurring basis, usually as a result of the write-downs of individual assets due to impairment or to value real estate or property obtained through foreclosure or repossession. In particular, nonaccrual loans may be carried at the fair value of collateral if repayment is expected solely from the collateral. Although management believes its processes for determining the fair value of collateral-dependent loans are appropriate, the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management's determination of fair value.
In addition, changes in market conditions may reduce the availability of quoted prices or observable data. See Note 6 of our consolidated financial statements as of September 30, 2026, included elsewhere in this Quarterly Report on Form 10-Q, for a complete discussion of fair value of financial assets and liabilities and their related measurement practices.
Emerging Growth Company
Pursuant to the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), as an emerging growth company, we can elect to opt out of the extended transition period for adopting any new or revised accounting standards. We have elected to take advantage of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we may adopt the standard on the application date for private companies. We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company.
Selected Financial Data
The following table sets forth unaudited selected financial data for the most recent five quarters and the nine months ended September 30, 2026 and 2025. This data should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Item 1 and the information contained in this Item 2.
|
As of and for the Three Months Ended |
As of and for the Nine Months Ended |
||||||||||||||||||||||||||||||||||
|
(dollars in thousands except |
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
September 30, |
September 30, |
||||||||||||||||||||||||||||
|
per share amounts) |
2026 |
2026 |
2026 |
2025 |
2025 |
2026 |
2025 |
||||||||||||||||||||||||||||
|
Selected Operating Data: |
|||||||||||||||||||||||||||||||||||
|
Interest income |
$ |
34,878 |
$ |
33,558 |
$ |
32,568 |
$ |
33,006 |
$ |
32,890 |
$ |
101,004 |
$ |
94,707 |
|||||||||||||||||||||
|
Interest expense |
13,351 |
12,893 |
12,824 |
13,143 |
13,700 |
39,068 |
40,680 |
||||||||||||||||||||||||||||
|
Net interest income |
21,527 |
20,665 |
19,744 |
19,863 |
19,190 |
61,936 |
54,027 |
||||||||||||||||||||||||||||
|
(Recovery) provision for credit losses |
(429 |
) |
658 |
382 |
1,162 |
653 |
611 |
2,034 |
|||||||||||||||||||||||||||
|
Noninterest income |
3,329 |
2,202 |
1,967 |
2,295 |
2,100 |
7,498 |
5,776 |
||||||||||||||||||||||||||||
|
Noninterest expense |
13,710 |
13,374 |
13,044 |
12,262 |
11,856 |
40,128 |
35,367 |
||||||||||||||||||||||||||||
|
Income tax expense |
2,803 |
1,502 |
1,956 |
1,598 |
2,040 |
6,261 |
4,646 |
||||||||||||||||||||||||||||
|
Net income |
8,772 |
7,333 |
6,329 |
7,136 |
6,741 |
22,434 |
17,756 |
||||||||||||||||||||||||||||
|
Share and Per Share Data: |
|||||||||||||||||||||||||||||||||||
|
Basic earnings per share |
$ |
0.73 |
$ |
0.61 |
$ |
0.53 |
$ |
0.60 |
$ |
0.57 |
$ |
1.87 |
$ |
1.64 |
|||||||||||||||||||||
|
Diluted earnings per share |
$ |
0.71 |
$ |
0.59 |
$ |
0.51 |
$ |
0.58 |
$ |
0.54 |
$ |
1.81 |
$ |
1.58 |
|||||||||||||||||||||
|
Dividends per share |
$ |
0.05 |
$ |
0.05 |
$ |
0.05 |
$ |
n/a |
$ |
n/a |
$ |
0.15 |
$ |
n/a |
|||||||||||||||||||||
|
Book value per share |
$ |
22.32 |
$ |
22.47 |
$ |
21.94 |
$ |
21.66 |
$ |
20.91 |
$ |
22.32 |
$ |
20.91 |
|||||||||||||||||||||
|
Tangible book value per common share (1) |
$ |
21.90 |
$ |
22.06 |
$ |
21.52 |
$ |
21.25 |
$ |
20.49 |
$ |
21.90 |
$ |
20.49 |
|||||||||||||||||||||
|
Shares of common stock outstanding |
11,734,134 |
12,003,040 |
11,985,414 |
11,980,412 |
11,978,921 |
11,734,134 |
11,978,921 |
||||||||||||||||||||||||||||
|
Weighted average diluted shares |
12,371,522 |
12,447,791 |
12,440,809 |
12,387,619 |
12,325,462 |
12,421,421 |
11,217,972 |
||||||||||||||||||||||||||||
|
Selected Balance Sheet Data: |
|||||||||||||||||||||||||||||||||||
|
Total assets |
$ |
2,423,766 |
$ |
2,420,993 |
$ |
2,348,547 |
$ |
2,306,586 |
$ |
2,255,389 |
$ |
2,423,766 |
$ |
2,255,389 |
|||||||||||||||||||||
|
Securities available-for-sale, at |
332,664 |
348,582 |
347,533 |
330,503 |
334,955 |
332,664 |
334,955 |
||||||||||||||||||||||||||||
|
Gross loans held for investment |
1,786,923 |
1,705,370 |
1,627,261 |
1,617,315 |
1,552,976 |
1,786,923 |
1,552,976 |
||||||||||||||||||||||||||||
|
Loans held for sale |
142,399 |
223,112 |
202,615 |
170,933 |
231,593 |
142,399 |
231,593 |
||||||||||||||||||||||||||||
|
Allowance for credit losses |
19,623 |
19,817 |
18,826 |
18,743 |
18,028 |
19,623 |
18,028 |
||||||||||||||||||||||||||||
|
Goodwill and other intangible assets |
6,307 |
6,246 |
6,243 |
6,262 |
6,186 |
6,307 |
6,186 |
||||||||||||||||||||||||||||
|
Total deposits |
2,100,746 |
2,047,671 |
2,057,144 |
1,987,684 |
1,949,672 |
2,100,746 |
1,949,672 |
||||||||||||||||||||||||||||
|
Core deposits (3) |
1,773,730 |
1,793,743 |
1,798,553 |
1,680,650 |
1,654,764 |
1,773,730 |
1,654,764 |
||||||||||||||||||||||||||||
|
Other borrowings |
30,000 |
75,000 |
- |
30,000 |
25,000 |
30,000 |
25,000 |
||||||||||||||||||||||||||||
|
Total shareholders' equity |
261,920 |
269,703 |
262,923 |
259,529 |
250,438 |
261,920 |
250,438 |
||||||||||||||||||||||||||||
(1) We calculate tangible book value per common share as total shareholders' equity less goodwill and other intangibles, excluding mortgage servicing rights, divided by the outstanding number of our shares of common stock at the end of the relevant period. Tangible book value per common share is a non-GAAP financial measure, and, as we calculate tangible book value per common share, the most comparable GAAP measure is book value per common share. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."
(2) We did not have securities held to maturity in any of the periods presented.
(3) This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."
|
As of and for the Three Months Ended |
As of and for the Nine Months Ended |
|||||||||||||||||||||||||||||||||||
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
September 30, |
September 30, |
||||||||||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2026 |
2026 |
2025 |
2025 |
2026 |
2025 |
|||||||||||||||||||||||||||||
|
Performance Ratios: |
||||||||||||||||||||||||||||||||||||
|
Pre-tax pre-provision net revenue |
$ |
11,146 |
$ |
9,493 |
$ |
8,667 |
$ |
9,896 |
$ |
9,434 |
$ |
29,306 |
$ |
24,436 |
||||||||||||||||||||||
|
Return on average assets (ROAA) (5) |
1.45 |
% |
1.24 |
% |
1.10 |
% |
1.24 |
% |
1.20 |
% |
1.27 |
% |
1.09 |
% |
||||||||||||||||||||||
|
Return on average equity (5) |
12.88 |
11.02 |
9.71 |
11.02 |
10.84 |
11.23 |
10.91 |
|||||||||||||||||||||||||||||
|
Return on average tangible common |
13.12 |
11.23 |
9.90 |
11.24 |
11.07 |
11.44 |
11.17 |
|||||||||||||||||||||||||||||
|
Dividend payout ratio |
6.92 |
8.33 |
9.69 |
n/a |
n/a |
8.16 |
n/a |
|||||||||||||||||||||||||||||
|
Net interest rate spread (5)(6) |
2.99 |
2.97 |
2.90 |
2.87 |
2.83 |
2.95 |
2.76 |
|||||||||||||||||||||||||||||
|
Net interest margin (5)(7) |
3.70 |
3.66 |
3.59 |
3.60 |
3.58 |
3.65 |
3.48 |
|||||||||||||||||||||||||||||
|
Efficiency ratio (8) |
55.16 |
58.49 |
60.08 |
55.34 |
55.69 |
57.79 |
59.14 |
|||||||||||||||||||||||||||||
|
Noninterest income to average total |
0.55 |
0.37 |
0.34 |
0.40 |
0.37 |
0.42 |
0.35 |
|||||||||||||||||||||||||||||
|
Noninterest expense to average total |
2.26 |
2.27 |
2.27 |
2.13 |
2.11 |
2.27 |
2.17 |
|||||||||||||||||||||||||||||
|
Average interest-earning assets to |
130.86 |
130.15 |
129.61 |
130.41 |
129.16 |
130.22 |
127.34 |
|||||||||||||||||||||||||||||
|
Average equity to average total assets |
11.22 |
11.29 |
11.34 |
11.22 |
11.08 |
11.28 |
9.99 |
|||||||||||||||||||||||||||||
|
Asset Quality Data: |
||||||||||||||||||||||||||||||||||||
|
Net charge-offs to average LHFI (5) |
0.01 |
% |
0.01 |
% |
0.01 |
% |
0.00 |
% |
0.03 |
% |
0.01 |
% |
0.03 |
% |
||||||||||||||||||||||
|
Net charge-offs to total average |
0.01 |
0.01 |
0.01 |
0.00 |
0.03 |
0.01 |
0.03 |
|||||||||||||||||||||||||||||
|
Total allowance for credit losses |
1.10 |
1.16 |
1.16 |
1.16 |
1.16 |
1.10 |
1.16 |
|||||||||||||||||||||||||||||
|
Total allowance for credit losses |
1.02 |
1.03 |
1.03 |
1.05 |
1.01 |
1.02 |
1.01 |
|||||||||||||||||||||||||||||
|
Total allowance for credit losses |
130.13 |
108.16 |
103.54 |
102.39 |
127.03 |
130.13 |
127.03 |
|||||||||||||||||||||||||||||
|
Nonperforming loans to gross LHFI |
0.84 |
1.07 |
1.12 |
1.13 |
0.91 |
0.84 |
0.91 |
|||||||||||||||||||||||||||||
|
Nonperforming assets to total assets |
0.62 |
0.76 |
0.77 |
0.79 |
0.63 |
0.62 |
0.63 |
|||||||||||||||||||||||||||||
|
Adjusted nonperforming assets to |
0.45 |
0.61 |
0.62 |
0.62 |
0.43 |
0.45 |
0.43 |
|||||||||||||||||||||||||||||
|
Balance Sheet Ratios: |
||||||||||||||||||||||||||||||||||||
|
Loan-to-deposit ratio |
91.84 |
% |
94.18 |
% |
88.95 |
% |
89.97 |
% |
91.53 |
% |
91.84 |
% |
91.53 |
% |
||||||||||||||||||||||
|
Noninterest bearing deposits to |
16.21 |
17.38 |
15.12 |
15.71 |
16.08 |
16.21 |
16.08 |
|||||||||||||||||||||||||||||
|
Capital Ratios: |
||||||||||||||||||||||||||||||||||||
|
Total shareholders' equity to total |
10.81 |
% |
11.14 |
% |
11.20 |
% |
11.25 |
% |
11.10 |
% |
10.81 |
% |
11.10 |
% |
||||||||||||||||||||||
|
Tangible common equity to tangible |
10.63 |
10.96 |
11.01 |
11.06 |
10.91 |
10.63 |
10.91 |
|||||||||||||||||||||||||||||
|
Tier 1 leverage ratio (10) |
11.07 |
11.12 |
11.21 |
11.18 |
11.15 |
11.07 |
11.15 |
|||||||||||||||||||||||||||||
|
Common equity tier 1 ratio (10) |
12.30 |
12.30 |
12.19 |
12.30 |
11.94 |
12.30 |
11.94 |
|||||||||||||||||||||||||||||
|
Tier 1 risk-based capital ratio (10) |
12.30 |
12.30 |
12.19 |
12.30 |
11.94 |
12.30 |
11.94 |
|||||||||||||||||||||||||||||
|
Total risk-based capital ratio (10) |
13.36 |
13.39 |
13.25 |
13.31 |
12.90 |
13.36 |
12.90 |
|||||||||||||||||||||||||||||
|
Other: |
||||||||||||||||||||||||||||||||||||
|
Number of branches |
12 |
11 |
11 |
11 |
11 |
12 |
11 |
|||||||||||||||||||||||||||||
|
Number of full-time equivalent |
210 |
201 |
201 |
196 |
194 |
207 |
187 |
|||||||||||||||||||||||||||||
(4) This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."
(5) Represent annualized data.
(6) Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities for the periods.
(7) Net interest margin represents net interest income as a percent of average interest-earning assets for the periods.
(8) The efficiency ratio represents noninterest expense divided by sum of net interest income and noninterest income.
(9) We calculate tangible common equity as total shareholders' equity less goodwill and other intangibles, excluding mortgage servicing rights, we calculate tangible assets as total assets less goodwill and other intangibles, excluding mortgage servicing rights. This is a non-GAAP financial measure. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption "Non-GAAP Financial Measure Reconciliations."
(10) Ratios are for Coastal States Bank only.
Results of Operations - Comparison of Results of Operations for the Three Months Ended September 30, 2026 and 2025
The following discussion of our results of operations compares the three months ended September 30, 2026 and 2025. We reported net income for the three months ended September 30, 2026 of $8.8 million compared to net income of approximately $6.7 million for the three months ended September 30, 2025. The increase of approximately $2.0 million was principally attributable to higher net interest income and noninterest income coupled with a lower provision for credit losses, offset by higher noninterest expense, primarily salaries and employee benefits, and income tax provision.
Net Interest Income
The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. The income and yield from non-taxable investment securities was not adjusted for tax equivalency.
|
For the Three Months Ended September 30, |
|||||||||||||||||||||||||||||
|
2026 |
2025 |
||||||||||||||||||||||||||||
|
Average |
Interest and |
Yield / |
Average |
Interest and |
Yield / |
||||||||||||||||||||||||
|
(dollars in thousands) |
Balance |
Fees |
Rate |
Balance |
Fees |
Rate |
|||||||||||||||||||||||
|
Earning Assets: |
|||||||||||||||||||||||||||||
|
Cash and due from banks |
$ |
23,841 |
$ |
132 |
2.20 |
% |
$ |
21,058 |
$ |
129 |
2.43 |
% |
|||||||||||||||||
|
Federal funds sold |
51,509 |
486 |
3.74 |
52,240 |
616 |
4.68 |
|||||||||||||||||||||||
|
Investment securities |
356,044 |
4,066 |
4.53 |
339,619 |
4,125 |
4.82 |
|||||||||||||||||||||||
|
Loans: |
|||||||||||||||||||||||||||||
|
Loans held for sale |
145,169 |
2,781 |
7.60 |
167,424 |
3,422 |
8.11 |
|||||||||||||||||||||||
|
Gross loans held for investment |
1,733,109 |
27,413 |
6.28 |
1,543,363 |
24,598 |
6.32 |
|||||||||||||||||||||||
|
Total earning assets |
2,309,672 |
34,878 |
5.99 |
2,123,704 |
32,890 |
6.14 |
|||||||||||||||||||||||
|
Noninterest-earning assets |
98,517 |
102,274 |
|||||||||||||||||||||||||||
|
Total assets |
$ |
2,408,189 |
$ |
2,225,978 |
|||||||||||||||||||||||||
|
Interest-bearing liabilities: |
|||||||||||||||||||||||||||||
|
Demand deposits |
$ |
222,231 |
$ |
623 |
1.11 |
% |
$ |
195,812 |
$ |
385 |
0.78 |
% |
|||||||||||||||||
|
Money market deposits |
726,364 |
5,384 |
2.94 |
599,475 |
4,834 |
3.20 |
|||||||||||||||||||||||
|
Savings deposits |
35,783 |
48 |
0.53 |
35,414 |
45 |
0.50 |
|||||||||||||||||||||||
|
Time deposits |
728,378 |
6,780 |
3.69 |
801,066 |
8,010 |
3.97 |
|||||||||||||||||||||||
|
Total interest-bearing deposits |
1,712,756 |
12,835 |
2.97 |
1,631,767 |
13,274 |
3.23 |
|||||||||||||||||||||||
|
Borrowings |
52,175 |
516 |
3.92 |
12,463 |
426 |
13.56 |
|||||||||||||||||||||||
|
Total interest-bearing liabilities |
$ |
1,764,931 |
$ |
13,351 |
3.00 |
% |
$ |
1,644,230 |
$ |
13,700 |
3.31 |
% |
|||||||||||||||||
|
Noninterest-bearing liabilities: |
|||||||||||||||||||||||||||||
|
Noninterest-bearing deposits |
$ |
343,110 |
$ |
306,133 |
|||||||||||||||||||||||||
|
Other noninterest-bearing liabilities |
29,996 |
28,927 |
|||||||||||||||||||||||||||
|
Total noninterest-bearing liabilities |
373,106 |
335,060 |
|||||||||||||||||||||||||||
|
Shareholders' equity |
270,152 |
246,688 |
|||||||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
2,408,189 |
$ |
2,225,978 |
|||||||||||||||||||||||||
|
Net interest income |
$ |
21,527 |
$ |
19,190 |
|||||||||||||||||||||||||
|
Net interest spread |
2.99 |
% |
2.83 |
% |
|||||||||||||||||||||||||
|
Net interest margin |
3.70 |
% |
3.58 |
% |
|||||||||||||||||||||||||
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing interest rates and volumes on our net interest income during the periods indicated. The information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes applicable to both volumes and rate have been allocated to volume.
|
Three Months Ended September 30, 2026 Compared to Three Months Ended September 30, 2025 |
|||||||||||||||
|
Increase (Decrease) Due to Change in: |
|||||||||||||||
|
(dollars in thousands) |
Volume |
Yield/Rate |
Total Change |
||||||||||||
|
Earning Assets: |
|||||||||||||||
|
Cash and due from banks |
$ |
69 |
$ |
(66 |
) |
$ |
3 |
||||||||
|
Federal funds sold |
521 |
(651 |
) |
(130 |
) |
||||||||||
|
Investment securities |
1,254 |
(1,313 |
) |
(59 |
) |
||||||||||
|
Loans: |
|||||||||||||||
|
Loans held for sale |
495 |
(1,136 |
) |
(641 |
) |
||||||||||
|
Gross loans held for investment |
3,800 |
(985 |
) |
2,815 |
|||||||||||
|
Total earning assets |
$ |
6,139 |
$ |
(4,151 |
) |
$ |
1,988 |
||||||||
|
Interest-bearing liabilities: |
|||||||||||||||
|
Demand deposits |
$ |
(629 |
) |
$ |
867 |
$ |
238 |
||||||||
|
Money market deposits |
2,628 |
(2,078 |
) |
550 |
|||||||||||
|
Savings deposits |
(10 |
) |
13 |
3 |
|||||||||||
|
Time deposits |
1,697 |
(2,927 |
) |
(1,230 |
) |
||||||||||
|
Total interest-bearing deposits |
$ |
3,686 |
$ |
(4,125 |
) |
$ |
(439 |
) |
|||||||
|
Borrowings |
1,691 |
(1,601 |
) |
90 |
|||||||||||
|
Total interest-bearing liabilities |
$ |
5,377 |
$ |
(5,726 |
) |
$ |
(349 |
) |
|||||||
|
Net interest income |
$ |
762 |
$ |
1,575 |
$ |
2,337 |
|||||||||
Net interest income for the three months ended September 30, 2026 was $21.5 million compared to $19.2 million for the three months ended September 30, 2025, an increase of $2.3 million, or 12.2%. This increase was primarily due to an increase in the average balance of our total interest-earning assets coupled with a decrease in the average rate paid on interest-bearing liabilities. The increase in the average balance for the interest-earning assets was primarily due to an increase in average loans held-for-investment outstanding and investment securities; offset by a net decrease in other categories, primarily loans held-for-sale. The yield on total earning assets and interest-bearing liabilities decreased by 15 and 31 basis points, respectively, during the same period.
Total interest income for the three months ended September 30, 2026 was $34.9 million compared to $32.9 million for the three months ended September 30, 2025, an increase of $2.0 million, or 6.0%. This increase was primarily due to growth in our loans held-for-investment portfolio, notwithstanding lower yields; offset by a net decrease in other categories, primarily loans held-for-sale and federal funds sold.
Interest and fees on LHFI were $27.4 million for the three months ended September 30, 2026 compared to $24.6 million for the three months ended September 30, 2025, an increase of $2.8 million, or 11.4%. This increase was primarily attributable to an increase in average LHFI of $189.7 million, or 12.3%, despite a decrease in yield. The yield on gross LHFI decreased by 5 basis points compared to the same period in 2025. Interest and fees on LHFS were $2.8 million for the three months ended September 30, 2026 compared to $3.4 million for the three months ended September 30, 2025. This decrease was primarily due to a decrease in yield by 51 basis points, coupled with a decrease in the average balance of LHFS outstanding compared to the same period in 2025.
Interest income on investment securities remained flat at $4.1 million for the three months ended September 30, 2026 and 2025. Investment securities average balance increased by $16.4 million, notwithstanding a 29 basis points decrease in yield during the period.
Interest expense for the three months ended September 30, 2026 was $13.4 million compared to $13.7 million for the three months ended September 30, 2025, a decrease of $349 thousand, or 2.5%. This decrease was primarily driven by lower average time deposits, coupled with a 31 basis point decrease in the average cost of overall total interest-bearing liabilities, primarily in borrowings, due to the payoff of the Company's subordinated debt towards the end of third quarter of 2025, and money market and time deposit accounts, as rates continued to align with the market.
Net interest margin for the three months ended September 30, 2026 and 2025 was 3.70% and 3.58%, respectively. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve. This increase in our net interest margin was primarily due to a combination of average total earning assets growth and a decrease in yield for average total interest-bearing liabilities. Average earning assets for the three months ended September 30, 2026 increased by $186.0 million compared to the three months ended September 30, 2025, principally due to growth of our loans held-for-investment portfolio and investment securities. Average interest-bearing liabilities for the three months ended September 30, 2026 increased by $120.7 million compared to the three months ended September 30, 2025, driven by growth in average interest-bearing deposits, primarily money market and demand deposits accounts and borrowings; offset by a net decrease in other interest-bearing liabilities categories, primarily time deposits.
Provision for Credit Losses
There was a recovery for credit losses during the three months ended September 30, 2026 of $429 thousand compared to a provision for credit losses of $653 thousand during the three months ended September 30, 2025, a decrease of $1.1 million or 165.7%. This decrease was due to updates to loss rates and economic scenarios and reductions to reserves on individually evaluated loans, offset by
increased reserves related to loan growth during the three months ended September 30, 2026 compared to the three months ended September 30, 2025. Our allowance for credit losses as a percentage of gross LHFI was 1.10% and 1.16% at September 30, 2026 and 2025, respectively.
Noninterest Income
Noninterest income for the three months ended September 30, 2026 was approximately $3.3 million, an increase of $1.2 million or 58.5%, compared to approximately $2.1 million for the three months ended September 30, 2025. This increase was principally across the board, but primarily in gain on sale of GGL and other noninterest income.
The following table sets forth the various components of our noninterest income for the periods indicated:
|
Three Months Ended September 30, |
||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
Increase (decrease) |
|||||||||||||||||
|
Noninterest income: |
||||||||||||||||||||
|
Bank-owned life insurance |
$ |
476 |
$ |
461 |
$ |
15 |
3.3 |
% |
||||||||||||
|
Income from mortgage originations |
375 |
299 |
76 |
25.4 |
||||||||||||||||
|
Gain on sale of government guaranteed loans |
1,558 |
613 |
945 |
154.2 |
||||||||||||||||
|
Interchange and card fee income |
244 |
238 |
6 |
2.5 |
||||||||||||||||
|
Service charges on deposit accounts |
268 |
208 |
60 |
28.8 |
||||||||||||||||
|
Other noninterest income |
408 |
281 |
127 |
45.2 |
||||||||||||||||
|
Total noninterest income |
$ |
3,329 |
$ |
2,100 |
$ |
1,229 |
58.5 |
% |
||||||||||||
Mortgage banking related income increased by $76 thousand to $375 thousand for the three months ended September 30, 2026 compared to $299 thousand for the three months ended September 30, 2025. This increase was primarily due to higher secondary market mortgage production which is comprised primarily of activity related to the sale of consumer mortgage loans as well as loan origination fees such as closing charges, document review fees, application fees, other loan origination fees, and loan processing fees.
Gain on sale of GGL increased by $945 thousand for the three months ended September 30, 2026 compared to $613 thousand for the three months ended September 30, 2025. The Company's gain on the sale of GGL volume increases or decreases based on the attractiveness of market premiums and the amount of inventory of loans that are saleable.
Other noninterest income increased by $127 thousand to $408 thousand for the three months ended September 30, 2026 compared to $281 thousand for the three months ended September 30, 2025. This increase was primarily due to gain on sale of other loans, offset by a net decrease in other categories within other noninterest income.
Changes to income from bank-owned life insurance policies ("BOLI"), interchange and card fee income, and service charges on deposit accounts remained fairly comparable between three months ended September 30, 2026 and three months ended September 30, 2025.
Noninterest Expense
Noninterest expense for the three months ended September 30, 2026 was $13.7 million compared to $11.9 million for the three months ended September 30, 2025, an increase of $1.9 million, or 15.6%. This increase was primarily in salaries and employee benefits, coupled with a net increase in all other noninterest expense categories, primarily other noninterest expense, and software and other technology expense.
The following table sets forth the major components of our noninterest expense for the three months ended September 30, 2026 and 2025:
|
Three Months Ended September 30, |
||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
Increase (decrease) |
|||||||||||||||||
|
Noninterest expense: |
||||||||||||||||||||
|
Salaries and employee benefits |
$ |
8,613 |
$ |
6,985 |
$ |
1,628 |
23.3 |
% |
||||||||||||
|
Occupancy and equipment |
944 |
850 |
94 |
11.1 |
||||||||||||||||
|
Software and other technology expense |
894 |
788 |
106 |
13.5 |
||||||||||||||||
|
Other professional services |
503 |
571 |
(68 |
) |
(11.9 |
) |
||||||||||||||
|
Data processing |
560 |
647 |
(87 |
) |
(13.4 |
) |
||||||||||||||
|
Regulatory assessment |
353 |
419 |
(66 |
) |
(15.8 |
) |
||||||||||||||
|
Marketing and advertising |
313 |
245 |
68 |
27.8 |
||||||||||||||||
|
Other noninterest expense |
1,530 |
1,351 |
179 |
13.2 |
||||||||||||||||
|
Total noninterest expense |
$ |
13,710 |
$ |
11,856 |
$ |
1,854 |
15.6 |
% |
||||||||||||
Salaries and employee benefits expense for the three months ended September 30, 2026 was $8.6 million compared to $7.0 million for the three months ended September 30, 2025, an increase of $1.6 million, or 23.3%. This increase was attributable to hiring new employees with skills and experience necessary to support our strategic goals coupled with annual merit increases. The average number of full-time equivalent employees was 210 for the three months ended September 30, 2026 compared to 194 for three months ended September 30, 2025.
Occupancy and equipment expense for the three months ended September 30, 2026 was $944 thousand compared to $850 thousand for the three months ended September 30, 2025, an increase of $94 thousand, or 11.1%. This increase was primarily due to new leases and rental increases, property taxes and depreciation, and upkeep related to the properties.
Software and other technology expense for the three months ended September 30, 2026 was $894 thousand compared to $788 thousand for the three months ended September 30, 2025, an increase of $106 thousand, or 13.5%. This expense was primarily comprised of our information technology services, software licenses and maintenance and commensurate with the Company's growth.
Other professional services expense for the three months ended September 30, 2026 was $503 thousand compared to $571 thousand for the three months ended September 30, 2025, a decrease of $68 thousand, or 11.9%. This decrease was across multiple categories, primarily due to lower accounting fees, outside professional services, and recruiting fees; offset by a net increase in other categories, primarily legal fees expense.
Data processing expense for the three months ended September 30, 2026 was $560 thousand compared to $647 thousand for the three months ended September 30, 2025, a decrease of $87 thousand, or 13.4%. The data processing expense decrease was due to lower wire and account processing volumes, and other processing costs.
FDIC insurance and regulatory assessment expense for the three months ended September 30, 2026 was $353 thousand compared to $419 thousand for the three months ended September 30, 2025, a decrease of $66 thousand, or 15.8%. This decrease was primarily attributable to changes in the Bank's asset mix and growth rates.
Marketing and advertising expense for the three months ended September 30, 2026 was $313 thousand compared to $245 thousand for the three months ended September 30, 2025. Marketing and advertising costs are associated with digital advertising, mailings, and sponsorship. Marketing and advertising expense is included in Other noninterest expenses in our Company's Consolidated Statements of Income.
Other noninterest expense, excluding marketing and advertising expense, for the three months ended September 30, 2026 were $1.5 million compared to approximately $1.4 million for the three months ended September 30, 2025, an increase of $179 thousand, or 13.2%. This increase was primarily attributable to increases across the board, principally other noninterest expense and deposit related expenses, offset by a decrease in Board of Directors fees. Included in other noninterest expense for the three months ended September 30, 2026 and 2025 were directors' fees of $137 thousand and $176 thousand, respectively.
Income Tax Expense
Income tax expense for the three months ended September 30, 2026 and 2025 was $2.8 million and $2.0 million, respectively. Effective tax rates were 24.2% and 23.2% for the three months ended September 30, 2026 and 2025, respectively. The increase in effective tax rate was primarily due to a reduction in the deferred tax asset related to state taxes during the third quarter of 2026 of approximately $641 thousand. Excluding discrete items related to this deferred tax asset write-down and other stock-based compensation activity, the Company's effective tax rate at the end of the third quarter was 20.05%.
Results of Operations - Comparison of Results of Operations for the Nine Months Ended September 30, 2026 and 2025
The following discussion of our results of operations compares the nine months ended September 30, 2026 and 2025. We reported net income for the nine months ended September 30, 2026 of $22.4 million compared to net income of $17.8 million for the nine months ended September 30, 2025. The increase of $4.7 million was primarily due to growth of our net interest income as a result of an overall better performance, coupled with a higher noninterest income during the nine months ended September 30, 2026; offset by an increase in noninterest expense that was commensurate with our strategic growth.
Net Interest Income
The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. The income and yield from non-taxable investment securities was not adjusted for tax equivalency.
|
For the Nine Months Ended September 30, |
|||||||||||||||||||||||||||||
|
2026 |
2025 |
||||||||||||||||||||||||||||
|
Average |
Interest and |
Yield / |
Average |
Interest and |
Yield / |
||||||||||||||||||||||||
|
(dollars in thousands) |
Balance |
Fees |
Rate |
Balance |
Fees |
Rate |
|||||||||||||||||||||||
|
Earning Assets: |
|||||||||||||||||||||||||||||
|
Cash and due from banks |
$ |
24,180 |
$ |
378 |
2.09 |
% |
$ |
21,509 |
$ |
375 |
2.33 |
% |
|||||||||||||||||
|
Federal funds sold |
60,421 |
1,687 |
3.73 |
67,659 |
2,277 |
4.50 |
|||||||||||||||||||||||
|
Investment securities |
352,870 |
11,569 |
4.38 |
337,852 |
11,800 |
4.67 |
|||||||||||||||||||||||
|
Loans: |
|||||||||||||||||||||||||||||
|
Loans held for sale |
157,918 |
8,858 |
7.50 |
157,409 |
9,537 |
8.10 |
|||||||||||||||||||||||
|
Gross loans held for investment |
1,673,572 |
78,512 |
6.27 |
1,493,081 |
70,718 |
6.33 |
|||||||||||||||||||||||
|
Total earning assets |
2,268,961 |
101,004 |
5.95 |
2,077,510 |
94,707 |
6.09 |
|||||||||||||||||||||||
|
Noninterest-earning assets |
98,655 |
101,460 |
|||||||||||||||||||||||||||
|
Total assets |
$ |
2,367,616 |
$ |
2,178,970 |
|||||||||||||||||||||||||
|
Interest-bearing liabilities: |
|||||||||||||||||||||||||||||
|
Demand deposits |
$ |
216,075 |
$ |
1,593 |
0.99 |
% |
$ |
196,921 |
$ |
1,078 |
0.73 |
% |
|||||||||||||||||
|
Money market deposits |
716,956 |
15,736 |
2.93 |
584,943 |
13,856 |
3.17 |
|||||||||||||||||||||||
|
Savings deposits |
35,457 |
144 |
0.54 |
35,274 |
132 |
0.50 |
|||||||||||||||||||||||
|
Time deposits |
736,173 |
20,499 |
3.72 |
791,445 |
24,289 |
4.10 |
|||||||||||||||||||||||
|
Total interest-bearing deposits |
1,704,661 |
37,972 |
2.98 |
1,608,583 |
39,355 |
3.27 |
|||||||||||||||||||||||
|
Borrowings |
37,784 |
1,096 |
3.88 |
22,845 |
1,325 |
7.75 |
|||||||||||||||||||||||
|
Total interest-bearing liabilities |
$ |
1,742,445 |
$ |
39,068 |
3.00 |
% |
$ |
1,631,428 |
$ |
40,680 |
3.33 |
% |
|||||||||||||||||
|
Noninterest-bearing liabilities: |
|||||||||||||||||||||||||||||
|
Noninterest-bearing deposits |
$ |
329,028 |
$ |
301,997 |
|||||||||||||||||||||||||
|
Other noninterest-bearing liabilities |
29,002 |
27,944 |
|||||||||||||||||||||||||||
|
Total noninterest-bearing liabilities |
358,030 |
329,941 |
|||||||||||||||||||||||||||
|
Shareholders' equity |
267,141 |
217,601 |
|||||||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
2,367,616 |
$ |
2,178,970 |
|||||||||||||||||||||||||
|
Net interest income |
$ |
61,936 |
$ |
54,027 |
|||||||||||||||||||||||||
|
Net interest spread |
2.95 |
% |
2.76 |
% |
|||||||||||||||||||||||||
|
Net interest margin |
3.65 |
% |
3.48 |
% |
|||||||||||||||||||||||||
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing interest rates and volumes on our net interest income during the periods indicated. The information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes applicable to both volumes and rate have been allocated to volume.
|
Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025 |
|||||||||||||||
|
Increase (Decrease) Due to Change in: |
|||||||||||||||
|
(dollars in thousands) |
Volume |
Yield/Rate |
Total Change |
||||||||||||
|
Earning Assets: |
|||||||||||||||
|
Cash and due from banks |
$ |
72 |
$ |
(69 |
) |
$ |
3 |
||||||||
|
Federal funds sold |
102 |
(692 |
) |
(590 |
) |
||||||||||
|
Investment securities |
1,059 |
(1,290 |
) |
(231 |
) |
||||||||||
|
Loans: |
|||||||||||||||
|
Loans held for sale |
582 |
(1,261 |
) |
(679 |
) |
||||||||||
|
Gross loans held for investment |
8,994 |
(1,200 |
) |
7,794 |
|||||||||||
|
Total earning assets |
$ |
10,809 |
$ |
(4,512 |
) |
$ |
6,297 |
||||||||
|
Interest-bearing liabilities: |
|||||||||||||||
|
Demand deposits |
$ |
(151 |
) |
$ |
666 |
$ |
515 |
||||||||
|
Money market deposits |
3,694 |
(1,814 |
) |
1,880 |
|||||||||||
|
Savings deposits |
(8 |
) |
20 |
12 |
|||||||||||
|
Time deposits |
223 |
(4,013 |
) |
(3,790 |
) |
||||||||||
|
Total interest-bearing deposits |
$ |
3,758 |
$ |
(5,141 |
) |
$ |
(1,383 |
) |
|||||||
|
Borrowings |
952 |
(1,181 |
) |
(229 |
) |
||||||||||
|
Total interest-bearing liabilities |
$ |
4,710 |
$ |
(6,322 |
) |
$ |
(1,612 |
) |
|||||||
|
Net interest income |
$ |
6,099 |
$ |
1,810 |
$ |
7,909 |
|||||||||
Net interest income for the nine months ended September 30, 2026 was $61.9 million compared to $54.0 million for the nine months ended September 30, 2025, an increase of $7.9 million, or 14.6%. This increase was primarily due to an increase in the average balance of our total interest-earning assets while the yield decreased at a lower rate compared with the decrease in the average rate paid on interest-bearing liabilities despite growth in average interest-bearing liabilities. The increase in the average balance for the total interest-earning assets was primarily due to growth in average loans held-for-investment. The yield on total earning assets and interest-bearing liabilities decreased by 14 and 33 basis points, respectively, during the same period.
Total interest income for the nine months ended September 30, 2026 was $101.0 million compared to $94.7 million for the nine months ended September 30, 2025, an increase of $6.3 million, or 6.6%. This increase was primarily due to growth in our average total earning assets by $191.5 million principally in the average LHFI portfolio, notwithstanding a decrease in yields by 14 basis points for the total earning assets from the comparable period.
Interest and fees on LHFI were $78.5 million for the nine months ended September 30, 2026 compared to $70.7 million for the nine months ended September 30, 2025, an increase of $7.8 million, or 11.0%. This increase was primarily attributable to growth of average LHFI which grew by $180.5 million, notwithstanding the yield decrease by 6 basis points compared to the same period last year. Interest and fees on LHFS were $8.9 million for the nine months ended September 30, 2026 compared to $9.5 million for the nine months ended September 30, 2025, a decrease of $679 thousand, or 7.1%, coupled with a decrease in yields by 60 basis points.
Interest income on investment securities was $11.6 million for the nine months ended September 30, 2026 compared to $11.8 million for the nine months ended September 30, 2025, a decrease of $231 thousand, or 2.0%. This decrease was primarily driven by the yield on investment securities decreasing by 29 basis points, notwithstanding an increase in the average balance by $15.0 million.
Interest expense for the nine months ended September 30, 2026 was $39.1 million compared to approximately $40.7 million for the nine months ended September 30, 2025, a decrease of $1.6 million, or 4.0%. This decrease was primarily attributable to a 33 basis point decrease in the average yield on overall total interest-bearing liabilities, primarily in money market and time deposits accounts, due to rates adjustments, coupled with a decrease in yield for the borrowings. Average borrowings outstanding increased from September 30, 2025 to September 30, 2026 by $14.9 million, or 65.4%, while the yield decreased by 387 basis points, primarily due to the repayment of the Company's subordinated debt towards the end of third quarter of 2025.
Net interest margin for the nine months ended September 30, 2026 and 2025 was 3.65% and 3.48%, respectively. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve. This increase in our net interest margin was primarily due to a 33 basis points decrease in the rate on interest-bearing liabilities, partially offset by a 14 basis points decrease in total earning assets yield.
Provision for Credit Losses
Provision for credit losses for the nine months ended September 30, 2026 was $611 thousand compared to $2.0 million for the nine months ended September 30, 2025, a decrease of $1.4 million. This decrease was primarily attributable to higher reserves related to loan growth and an increase in reserves of individually analyzed collateral-dependent loans during the nine months ended September 30, 2025, offset by other changes in loss rates and economic conditions during the nine months ended September 30, 2026. Our allowance for credit losses as a percentage of gross LHFI at September 30, 2026 and 2025 was 1.10% and 1.16%, respectively.
Noninterest Income
Noninterest income for the nine months ended September 30, 2026 was $7.5 million, an increase of $1.7 million or 29.8%, compared to $5.8 million for the nine months ended September 30, 2025. This increase was across multiple categories, primarily gain on sale of GGL, income from mortgage originations and service charges on deposit accounts, offset by a decrease in other noninterest income.
The following table sets forth the various components of our noninterest income for the periods indicated:
|
Nine Months Ended September 30, |
||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
Increase (decrease) |
|||||||||||||||||
|
Noninterest income: |
||||||||||||||||||||
|
Bank-owned life insurance |
$ |
1,398 |
$ |
1,349 |
$ |
49 |
3.6 |
% |
||||||||||||
|
Income from mortgage originations |
1,172 |
846 |
326 |
38.5 |
||||||||||||||||
|
Gain on sale of government guaranteed loans |
2,202 |
878 |
1,324 |
150.8 |
||||||||||||||||
|
Interchange and card fee income |
773 |
761 |
12 |
1.6 |
||||||||||||||||
|
Service charges on deposit accounts |
736 |
634 |
102 |
16.1 |
||||||||||||||||
|
Other noninterest income |
1,217 |
1,308 |
(91 |
) |
(7.0 |
) |
||||||||||||||
|
Total noninterest income |
$ |
7,498 |
$ |
5,776 |
$ |
1,722 |
29.8 |
% |
||||||||||||
Mortgage banking related income increased by $326 thousand to $1.2 million for the nine months ended September 30, 2026 compared to $846 thousand for the nine months ended September 30, 2025. This increase was primarily due to higher revenue from mortgage production which is comprised primarily of activity related to the sale of consumer mortgage loans as well as loan origination fees such as closing charges, document review fees, application fees, other loan origination fees, and loan processing fees, albeit slightly lower secondary market volume.
Gain on sale of GGL increased by $1.3 million to $2.2 million for the nine months ended September 30, 2026 compared to $878 thousand for the nine months ended September 30, 2025. The Company's gain on the sale of GGL volume increases or decreases based on the attractiveness of market premiums and the amount of inventory of loans that are saleable.
Service charges on deposit accounts increased by $102 thousand to $736 thousand for the nine months ended September 30, 2026 compared to $634 thousand for the nine months ended September 30, 2025. This increase was attributable to higher number of NSF and overdraft fees charged during the nine months ended September 30, 2026.
Other noninterest income decreased by $91 thousand to $1.2 million for the nine months ended September 30, 2026 compared to approximately $1.3 million for the nine months ended September 30, 2025. This decrease was primarily due to a previously disclosed nonrecurring $438 thousand of income recognized from a Small Business Investment Company ("SBIC") partnership investment related to the sale of one of the fund's underlying investments during 2025; offset by a net increase in other noninterest income, primarily gain on sale of other loans and SBA loan servicing fees. Apart from this SBIC partnership related income and gain on sale of other loans, the largest component of other non-interest income generally consists of SBA loan servicing fees. SBA loan servicing fees increased by $93 thousand during the nine months ended September 30, 2026 compared to the same period in 2025.
Changes to BOLI income and interchange and card fee income remained relatively comparable between the nine months ended September 30, 2026 and 2025.
Noninterest Expense
Noninterest expense for the nine months ended September 30, 2026 was $40.1 million compared to $35.4 million for the nine months ended September 30, 2025, an increase of $4.8 million, or 13.5%. This increase was across multiple noninterest expense categories but primarily in salaries and employee benefits, due to Company's growth and compensation adjustments; offset by a net decrease in other categories, primarily other professional services.
The following table sets forth the major components of our noninterest expense for the nine months ended September 30, 2026 and 2025:
|
Nine Months Ended September 30, |
||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
Increase (decrease) |
|||||||||||||||||
|
Noninterest expense: |
||||||||||||||||||||
|
Salaries and employee benefits |
$ |
24,973 |
$ |
20,676 |
$ |
4,297 |
20.8 |
% |
||||||||||||
|
Occupancy and equipment |
2,705 |
2,452 |
253 |
10.3 |
||||||||||||||||
|
Software and other technology expense |
2,581 |
2,210 |
371 |
16.8 |
||||||||||||||||
|
Other professional services |
1,730 |
2,237 |
(507 |
) |
(22.7 |
) |
||||||||||||||
|
Data processing |
1,897 |
1,924 |
(27 |
) |
(1.4 |
) |
||||||||||||||
|
Regulatory assessment |
1,032 |
1,124 |
(92 |
) |
(8.2 |
) |
||||||||||||||
|
Marketing and advertising |
868 |
747 |
121 |
16.2 |
||||||||||||||||
|
Other noninterest expense |
4,342 |
3,997 |
345 |
8.6 |
||||||||||||||||
|
Total noninterest expense |
$ |
40,128 |
$ |
35,367 |
$ |
4,761 |
13.5 |
% |
||||||||||||
Salaries and employee benefits expense for the nine months ended September 30, 2026 was $25.0 million compared to $20.7 million for the nine months ended September 30, 2025, an increase of approximately $4.3 million, or 20.8%. This increase was attributable to hiring new employees with skills and experience necessary to support our strategic goals and annual salary adjustments. The average number of full-time equivalent employees was 207 for the nine months ended September 30, 2026 compared to 187 for the nine months ended September 30, 2025.
Occupancy and equipment expense for the nine months ended September 30, 2026 was $2.7 million compared to $2.5 million for the nine months ended September 30, 2025, an increase of approximately $253 thousand, or 10.3%. This increase was primarily due to new leases and rental increases, property taxes and depreciation, and upkeep related to the properties.
Software and technology expense for the nine months ended September 30, 2026 was $2.6 million compared to $2.2 million for the nine months ended September 30, 2025, an increase of $371 thousand, or 16.8%. This expense primarily comprised information technology services, software licenses and maintenance and was generally commensurate with the Company's growth.
Other professional services expense for the nine months ended September 30, 2026 was $1.7 million compared to $2.2 million for the nine months ended September 30, 2025, a decrease of $507 thousand, or 22.7%. This decrease was primarily in loan-collection-related expenses and employees recruiting fees; offset by a net increase in other categories, principally legal fees.
Data processing expense for the nine months ended September 30, 2026 was $1.9 million similar to $1.9 million for the nine months ended September 30, 2025. Data processing expense was in line with the Company's wire and account processing volumes and other processing costs that were commensurate with growth, generally.
FDIC insurance and regulatory assessment expense for the nine months ended September 30, 2026 was approximately $1.0 million compared to $1.1 million for the nine months ended September 30, 2025, a decrease of $92 thousand, or 8.2%. This decrease was primarily attributable to changes in asset mix and asset growth rates from 2025 to 2026.
Marketing and advertising expense for the nine months ended September 30, 2026 was $868 thousand compared to $747 thousand for the nine months ended September 30, 2025, an increase of $121 thousand, or 16.2%. This increase was primarily attributable to
higher marketing and advertising costs associated with increased digital advertising, mailings, and sponsorships during 2026. Marketing and advertising expense is included in other noninterest expenses in our Company's Consolidated Statements of Income.
Other noninterest expense, excluding marketing and advertising expense, for the nine months ended September 30, 2026 were $4.3 million compared to approximately $4.0 million for the nine months ended September 30, 2025, an increase of $345 thousand, or 8.6%. This increase was across multiple categories but primarily was attributable to increases in general and administrative expense, other noninterest expense and other loan expense; offset by a net decrease in other noninterest categories, primarily board of directors fees and OREO writedowns. Included in other noninterest expenses for the nine months ended September 30, 2026 and 2025 were directors' fees paid in cash of $406 thousand and $527 thousand, respectively.
Income Tax Expense
Income tax expense for the nine months ended September 30, 2026 and 2025 was $6.3 million and $4.6 million, respectively. Effective tax rates were 21.8% and 20.7% for the nine months ended September 30, 2026 and 2025, respectively. The increase in effective tax rate was primarily due to varying amounts of tax credits recognized in the comparative periods, offset by the write-off of a state deferred tax asset and other discrete items related to stock-based compensation. We carried a net deferred tax asset of $17.6 million and $16.3 million at September 30, 2026 and 2025, respectively.
Financial Condition
Total Assets
Total assets increased $117.2 million, or 5.1%, to $2.42 billion at September 30, 2026 compared to $2.31 billion at December 31, 2025. The increasing trend in total assets was primarily attributable to continued growth of our loans held-for-investment portfolio.
Loans
Loans represent the largest portion of our earning assets, substantially greater than the securities portfolio or any other category of assets.
Average loans, including both LHFI and LHFS, were 80.7% and 79.8% of average earning assets as of September 30, 2026 and December 31, 2025, respectively. Therefore, the quality and diversification of our loan portfolio is an important consideration when reviewing our financial condition. The Company has established systematic procedures for approving and monitoring loans that vary depending on the size and nature of the loan and applies these procedures in a disciplined manner. Total gross loans of $1.93 billion at September 30, 2026 represent an increase of $141.1 million or 7.9% as compared to December 31, 2025.
LHFS are primarily comprised of loans acquired through mortgage warehouse activities through our MBF division. We act as a warehouse lender by purchasing loans originated by third-party mortgage originators and selling these loans to other third-party investors. Additionally, we sell other types of loans, such as GGL or marine loans, through the normal course of business; when the Company has the intent to sell these loans, they are transferred from LHFI to LHFS. LHFS at September 30, 2026 were $142.4 million compared to $170.9 million at December 31, 2025. The decrease in LHFS was due to decreased mortgage warehouse volume driven by increases in market interest rates on mortgages that tempered demand.
Gross LHFI increased $169.6 million, or 10.5%, to $1.79 billion as of September 30, 2026 compared to approximately $1.62 billion at December 31, 2025. There was a higher market demand across our commercial and retail loans portfolio during the nine months ended September 30, 2026 from December 31, 2025 as the Company experienced strong loan demand and continues to close many deals in the pipeline.
The Company engages in a full complement of lending activities, including CRE loans, construction loans, C&I, and consumer purpose loans. Our loan portfolio has concentrations of over 10% of LHFI in income producing CRE, senior housing, marine vessels loans, and residential mortgages with the remaining balance in other categories within commercial and retail loans categories. The Bank's ratio of commercial real estate loans, excluding owner-occupied loans, to total regulatory capital was 253.0% and 230.0% as of September 30, 2026 and December 31, 2025, respectively. The Bank's ratio of acquisition, development and construction loans to total regulatory capital was 52.5% and 54.5% as of September 30, 2026 and December 31, 2025, respectively.
The following table presents the balance and associated percentage of each major category in our loan portfolio as of September 30, 2026 and December 31, 2025:
|
As of September 30, 2026 |
As of December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Amount |
% of Total |
Amount |
% of Total |
||||||||||||||||
|
Commercial loans |
||||||||||||||||||||
|
Acquisition, development, and construction |
$ |
134,395 |
7.5 |
% |
$ |
119,352 |
7.4 |
% |
||||||||||||
|
Income producing CRE |
449,103 |
25.1 |
378,179 |
23.4 |
||||||||||||||||
|
Owner-occupied CRE |
140,420 |
7.9 |
92,787 |
5.7 |
||||||||||||||||
|
Senior housing |
308,295 |
17.3 |
259,529 |
16.0 |
||||||||||||||||
|
Commercial and industrial |
113,656 |
6.4 |
145,380 |
9.0 |
||||||||||||||||
|
Total commercial loans |
$ |
1,145,869 |
64.2 |
% |
$ |
995,227 |
61.5 |
% |
||||||||||||
|
Retail loans |
||||||||||||||||||||
|
Marine vessels |
$ |
320,682 |
17.9 |
% |
$ |
312,096 |
19.3 |
% |
||||||||||||
|
Residential mortgages |
203,476 |
11.4 |
199,991 |
12.4 |
||||||||||||||||
|
Cash value life insurance LOC |
93,210 |
5.2 |
87,172 |
5.4 |
||||||||||||||||
|
Other consumer |
23,686 |
1.3 |
22,829 |
1.4 |
||||||||||||||||
|
Total retail loans |
$ |
641,054 |
35.8 |
% |
$ |
622,088 |
38.5 |
% |
||||||||||||
|
Gross loans held for investment |
$ |
1,786,923 |
100.0 |
% |
$ |
1,617,315 |
100.0 |
% |
||||||||||||
|
Allowance for credit losses |
(19,623 |
) |
(18,743 |
) |
||||||||||||||||
|
Total loans held for investment, net |
$ |
1,767,300 |
$ |
1,598,572 |
||||||||||||||||
The Company has established a policy for managing concentration limits in the loan portfolio for commercial real estate, senior housing, and marine lending, among other loan types. All loan types are within established limits. We use underwriting guidelines to assess the borrowers' historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending agreements, when appropriate, to allow us to react to a borrower's deteriorating financial condition, should that occur.
The following table presents the maturity distribution of our loans as of September 30, 2026. The tables show the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates:
|
As of September 30, 2026 |
||||||||||||||||||||||||||||||||||||
|
Due in One Year or Less |
Due after One Year Through Five Years |
Due after Five Years Through Fifteen Years |
Due after Fifteen Years |
|||||||||||||||||||||||||||||||||
|
(dollars in thousands) |
Fixed |
Adjustable |
Fixed |
Adjustable |
Fixed |
Adjustable |
Fixed |
Adjustable |
Total |
|||||||||||||||||||||||||||
|
Commercial loans |
||||||||||||||||||||||||||||||||||||
|
Acquisition, development, and |
$ |
51 |
$ |
62,738 |
$ |
686 |
$ |
63,574 |
$ |
- |
$ |
2,545 |
$ |
- |
$ |
4,801 |
$ |
134,395 |
||||||||||||||||||
|
Income producing CRE |
86,917 |
35,457 |
99,854 |
164,138 |
11,953 |
28,220 |
1,113 |
21,451 |
449,103 |
|||||||||||||||||||||||||||
|
Owner-occupied CRE |
8,416 |
2,078 |
60,821 |
5,896 |
5,703 |
31,701 |
1,215 |
24,590 |
140,420 |
|||||||||||||||||||||||||||
|
Senior housing |
942 |
83,945 |
13,926 |
209,482 |
- |
- |
- |
- |
308,295 |
|||||||||||||||||||||||||||
|
Commercial and industrial |
5,714 |
4,594 |
31,801 |
21,592 |
26,175 |
23,326 |
6 |
448 |
113,656 |
|||||||||||||||||||||||||||
|
Total commercial loans |
$ |
102,040 |
$ |
188,812 |
$ |
207,088 |
$ |
464,682 |
$ |
43,831 |
$ |
85,792 |
$ |
2,334 |
$ |
51,290 |
$ |
1,145,869 |
||||||||||||||||||
|
Retail loans |
||||||||||||||||||||||||||||||||||||
|
Marine vessels |
$ |
4,592 |
$ |
- |
$ |
12 |
$ |
- |
$ |
33,148 |
$ |
521 |
$ |
263,620 |
$ |
18,789 |
$ |
320,682 |
||||||||||||||||||
|
Residential mortgages |
6,097 |
1,517 |
4,561 |
1,658 |
9,545 |
8,653 |
92,310 |
79,135 |
203,476 |
|||||||||||||||||||||||||||
|
Cash value life insurance LOC |
- |
22,333 |
- |
70,877 |
- |
- |
- |
- |
93,210 |
|||||||||||||||||||||||||||
|
Other consumer |
415 |
63 |
1,199 |
1 |
9,042 |
85 |
12,547 |
334 |
23,686 |
|||||||||||||||||||||||||||
|
Total retail loans |
$ |
11,104 |
$ |
23,913 |
$ |
5,772 |
$ |
72,536 |
$ |
51,735 |
$ |
9,259 |
$ |
368,477 |
$ |
98,258 |
$ |
641,054 |
||||||||||||||||||
|
Gross loans held for |
$ |
113,144 |
$ |
212,725 |
$ |
212,860 |
$ |
537,218 |
$ |
95,566 |
$ |
95,051 |
$ |
370,811 |
$ |
149,548 |
$ |
1,786,923 |
||||||||||||||||||
The following is a discussion of the Company's segments and classes of LHFI:
Commercial Loans
As of September 30, 2026, our commercial loan portfolio comprised of approximately $1.15 billion or 64.2%, of loans, compared to $995.2 million, or 61.5% of loans, as of December 31, 2025. Our total commercial loan balances increased by $150.6 million, or 15.1% at September 30, 2026 compared to December 31, 2025.
Following below are our principal commercial loans portfolio categories:
Acquisition, Development, and Construction - ADC loans include both loans and credit lines for the purpose of purchasing, carrying, and developing land into residential subdivisions or various types of commercial developments, such as industrial, hospitality, warehouse, retail, office, and multi-family. This category also includes loans and credit lines for construction of residential developments, multi-family buildings, and commercial buildings. The Company generally engages in ADC lending primarily in local markets served by its branches, and through our homebuilder finance and government guaranteed lending lines of business. The Company recognizes that risks are inherent in the financing of commercial real estate development and construction. These risks include location, market conditions and price volatility, change in interest rates, demand for developed land, lots and buildings, desirability of
features and styling of completed developments and buildings, competition from other developments and builders, traffic patterns, remote work patterns, governmental jurisdiction, tax structure, availability of utilities, roads, public transportation and schools, availability of permanent financing for homebuyers, zoning, environmental restrictions, lawsuits, economic and business cycle, labor, and reputation of the builder or developer.
Each ADC loan is underwritten to address: (i) the desirability of the project, its market viability and projected absorption period; (ii) the creditworthiness of the borrower and the guarantor as to liquidity, cash flow and assets available to ensure performance of the loan; (iii) equity contribution to the project; (iv) the developer's experience and success with similar projects; and (v) the value of the collateral. ADC loans are inspected periodically to ensure that the project is on schedule and eligible for requested draws. Inspections may be performed by construction inspectors hired by the Company or by appropriate loan officers and are conducted periodically to monitor the progress of a particular project. These inspections may also include discussions with project managers and engineers. Rising interest rates and the potential for slowing economic conditions could negatively impact borrowers' and guarantors' ability to repay their debt which could make more of the Company's loans collateral-dependent.
The following table presents the balance and associated percentage of each category in our ADC loan portfolio as of September 30, 2026 and December 31, 2025:
|
As of September 30, 2026 |
As of December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Amount |
% of Total |
Amount |
% of Total |
||||||||||||||||
|
ADC Loans by Type |
||||||||||||||||||||
|
Residential Builder |
$ |
64,864 |
48.3 |
% |
$ |
51,324 |
43.0 |
% |
||||||||||||
|
Multifamily |
17,607 |
13.1 |
20,886 |
17.5 |
||||||||||||||||
|
Office |
- |
0.0 |
904 |
0.8 |
||||||||||||||||
|
Retail |
2,580 |
1.9 |
666 |
0.5 |
||||||||||||||||
|
Restaurant |
833 |
0.6 |
- |
0.0 |
||||||||||||||||
|
Hospitality |
14,277 |
10.6 |
3,255 |
2.7 |
||||||||||||||||
|
Other |
34,234 |
25.5 |
42,317 |
35.5 |
||||||||||||||||
|
Total ADC loans |
$ |
134,395 |
100.0 |
% |
$ |
119,352 |
100.0 |
% |
||||||||||||
As of September 30, 2026, our ADC loans comprised of $134.4 million, or 7.5%, of loans, compared to $119.4 million, or 7.4% of loans, as of December 31, 2025. Our ADC loan balances increased $15.0 million or 12.6% since December 31, 2025 due to continued demand of the ADC loans in our markets.
Income Producing CRE - Income producing CRE loans include loans to finance income-producing commercial and multifamily properties. Lending in this category is generally limited to properties located in the Company's market area with only limited exposure to properties located elsewhere but owned by in-market borrowers. Loans in this category include loans for neighborhood retail centers, medical and professional offices, single retail stores, warehouses and apartments leased generally to local businesses and residents. The underwriting of these loans takes into consideration the occupancy, rental rates, and local market demand as well as the financial health of the borrower. The primary risk associated with loans secured with income producing property is the inability of that property to produce adequate cash flow to service the debt. High unemployment, significant increases to interest rates, generally weak economic conditions and/or an oversupply in the market may result in our customers having difficulty achieving adequate occupancy and/or rental rates. Payments on such loans are often dependent on successful operation or management of the properties. The Company's income producing CRE portfolio is diverse, with exposure spread across multiple real estate purposes.
The following table presents the balance and associated percentage of each category in our income producing CRE loan portfolio as of September 30, 2026 and December 31, 2025:
|
As of September 30, 2026 |
As of December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Amount |
% of Total |
Amount |
% of Total |
||||||||||||||||
|
Income Producing CRE by Type |
||||||||||||||||||||
|
Hospitality |
$ |
154,873 |
34.5 |
% |
$ |
146,540 |
38.8 |
% |
||||||||||||
|
Retail |
82,115 |
18.3 |
77,586 |
20.5 |
||||||||||||||||
|
Office |
44,828 |
10.0 |
28,100 |
7.4 |
||||||||||||||||
|
Multifamily |
72,439 |
16.1 |
41,682 |
11.0 |
||||||||||||||||
|
Industrial |
10,327 |
2.3 |
5,442 |
1.4 |
||||||||||||||||
|
Restaurant |
14,785 |
3.3 |
9,909 |
2.6 |
||||||||||||||||
|
Medical |
1,370 |
0.3 |
1,644 |
0.5 |
||||||||||||||||
|
Other |
68,366 |
15.2 |
67,276 |
17.8 |
||||||||||||||||
|
Total income producing CRE loans |
$ |
449,103 |
100.0 |
% |
$ |
378,179 |
100.0 |
% |
||||||||||||
As of September 30, 2026, our income producing CRE loans comprised of $449.1 million, or 25.1%, of loans, compared to $378.2 million, or 23.4% of loans, as of December 31, 2025. The weighted average original or renewal loan-to-value ("LTV") of income producing CRE loans with an outstanding balance of greater than $500 thousand, which makes up 97.6% and 96.8% of the income producing CRE balances was 59.0% and 59.7% as of September 30, 2026 and December 31, 2025, respectively. Our income producing CRE loan balances increased $70.9 million, or 18.8% since December 31, 2025 as the demand has improved for this loan type.
Owner-Occupied CRE - Owner-occupied CRE loans include loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized enterprises. These include both lines of credit and term loans which are amortized over the useful life of the assets financed. Personal guarantees, if applicable, are generally required for these loans. The Company recognizes that risk from economic cycles, pandemics, government regulation, supply chain disruptions, product innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or embezzlement, health or loss of key personnel, or competitive situations may adversely affect the scheduled repayment of business loans.
The following table presents the balance and associated percentage of each category in our owner-occupied CRE loan portfolio as of September 30, 2026 and December 31, 2025:
|
As of September 30, 2026 |
As of December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Amount |
% of Total |
Amount |
% of Total |
||||||||||||||||
|
Owner-occupied CRE by Type |
||||||||||||||||||||
|
Office |
$ |
19,613 |
14.0 |
% |
$ |
11,903 |
12.8 |
% |
||||||||||||
|
Restaurant |
21,878 |
15.6 |
22,275 |
24.0 |
||||||||||||||||
|
Medical |
6,184 |
4.4 |
6,911 |
7.5 |
||||||||||||||||
|
Retail |
3,768 |
2.7 |
3,254 |
3.5 |
||||||||||||||||
|
Industrial |
9,878 |
7.0 |
8,972 |
9.7 |
||||||||||||||||
|
Other |
79,099 |
56.3 |
39,472 |
42.5 |
||||||||||||||||
|
Total owner-occupied CRE loans |
$ |
140,420 |
100.0 |
% |
$ |
92,787 |
100.0 |
% |
||||||||||||
As of September 30, 2026, our owner-occupied CRE loans comprised of $140.4 million, or 7.9%, of loans, compared to $92.8 million, or 5.7% of loans, as of December 31, 2025. The weighted average original or renewal LTV of owner-occupied CRE loans with an outstanding balance of greater than $500 thousand, which makes up 83.2% and 74.0% of the owner-occupied CRE loans was 69.2% and 74.9% as of September 30, 2026 and December 31, 2025, respectively. Our owner-occupied CRE loan balances increased $47.6 million or 51.3% since December 31, 2025 although the competition remains fierce for this loan type.
Senior Housing - Senior housing loans support senior adult facilities, including loans for independent living communities, assisted living and memory care communities, nursing homes or skilled nursing facilities, and continuing care retirement communities. The Company recognizes that risk from high resident turnover, pandemics, government regulation, operator risk, increases in acuity, availability and cost of qualified staffing resources, technology risk, and other risks such as liability, insurance, reimbursement and regulatory changes may impact repayment of these loans. Underwriting focuses primarily on operator quality and business operations rather than income producing CRE property quality metrics.
The following table presents the balance and associated percentage of each category in our senior housing loans portfolio as of September 30, 2026 and December 31, 2025:
|
As of September 30, 2026 |
As of December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Amount |
% of Total |
Amount |
% of Total |
||||||||||||||||
|
Senior housing loans by Type |
||||||||||||||||||||
|
Independent living communities |
$ |
70,592 |
22.9 |
% |
$ |
51,032 |
19.7 |
% |
||||||||||||
|
Assisted living and memory care facilities |
237,703 |
77.1 |
205,406 |
79.1 |
||||||||||||||||
|
Nursing homes or skilled nursing facilities |
- |
0.0 |
3,091 |
1.2 |
||||||||||||||||
|
Total senior housing loans |
$ |
308,295 |
100.0 |
% |
$ |
259,529 |
100.0 |
% |
||||||||||||
As of September 30, 2026, our senior housing loans comprised of $308.3 million or 17.3%, of loans, compared to $259.5 million, or 16.0% of loans as of December 31, 2025. The weighted average original or renewal LTV of senior housing loans was 63.0% and 52.8% as of September 30, 2026 and December 31, 2025, respectively. Our senior housing loans were comprised of 54.6% owner-occupied CRE, 43.2% non-owner occupied CRE and 2.2% construction loans as of September 30, 2026, and were comprised of 50.4% owner-occupied CRE, 41.9% non-owner occupied CRE and 7.7% construction loans at December 31, 2025. Our senior housing loan balances increased $48.8 million or 18.8% since December 31, 2025; nevertheless, the Company continues monitoring its concentration of senior housing loans.
Commercial and Industrial - C&I loans are loans and lines of credit to finance business operations, equipment and other non-real estate collateral primarily for small and medium-sized enterprises. These include both lines of credit and term loans which are amortized over the useful life of the assets financed. Personal and/or corporate guarantees are generally obtained where available and prudent. The Company recognizes that risk from economic cycles, commodity prices, pandemics, government regulation, supply-chain disruptions, product innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or embezzlement, health or loss of key personnel or competitive situations may adversely affect the scheduled repayment of business loans.
As of September 30, 2026, our C&I loans comprised of $113.7 million, or 6.4% of loans, compared to $145.4 million, or 9.0% of loans, as of December 31, 2025. Our C&I loan balances decreased by $31.7 million or 21.8% since December 31, 2025 due to lower production.
Retail Loans
As of September 30, 2026, our total retail loans comprised of $641.1 million, or 35.8% of loans, compared to $622.1 million, or 38.5% of loans, as of December 31, 2025. Our total retail loan balances increased $19.0 million or 3.0% since December 31, 2025 due to an increase in production and demand across the board for our retail products.
Following below are our principal retail loans portfolio categories:
Residential Mortgages - Residential mortgages are first or second-lien loans secured by a primary residence or second home. This category includes permanent mortgage financing, construction loans to individual consumers, and home equity lines of credit. The loans are generally secured by properties located within the local market area of the Bank's retail footprint which originates and services the loan. These loans are underwritten in accordance with the Company's general loan policies and procedures which require, among other things, proper documentation of each borrower's financial condition, satisfactory credit history, and property value. In addition to loans originated through the Company's branches, the Company originates and services residential mortgages sold in the secondary market which are underwritten and closed pursuant to investor and agency guidelines. Significant and rapid declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the current market value of the collateral.
As of September 30, 2026, our residential mortgage loans comprised of $203.5 million, or 11.4% of loans, compared to $200.0 million, or 12.4% of loans, as of December 31, 2025. Our residential mortgage loan balances increased modestly by $3.5 million or 1.7% since December 31, 2025 due to continued modest demand for our residential mortgage products.
During the nine months ended September 30, 2026, we originated $29.5 million and sold $16.1 million in home mortgage loans. During the year ended December 31, 2025, we originated $93.3 million and sold $46.6 million in home mortgage loans.
Marine Vessels - Marine vessel loans are a type of consumer loan used to finance the purchase of a boat or other marine craft. Functioning similarly to auto loans and personal loans, these installment loans come with a repayment term, fixed monthly payments and variable-or-fixed interest rates. These loans are underwritten in accordance with the Company's general loan policies and procedures and are generally secured with title or preferred ships' mortgage on the marine vessel. The Company recognizes that risk of repayment can increase due to changes in economic cycles, pandemics, government regulation, natural disasters, or theft of marine vessels.
As of September 30, 2026, our marine vessels loans comprised of $320.7 million or 17.9%, of loans, compared to $312.1 million, or 19.3% of loans, as of December 31, 2025. Our marine vessels loan balances increased modestly by $8.6 million or 2.8% since December 31, 2025 due to the Company's intentional management of portfolio concentration.
Cash Value Life Insurance Line of Credit - Cash value life insurance ("CVLI") encompasses multiple types of life insurance that contain a cash value account. This cash value component typically earns interest or other investment gains and grows tax deferred. CVLI loans are generally lines of credit secured by cash value life insurance of the debtor and can be originated for personal or business purposes. Upon the delinquency of the loan or lapse of an insurance policy premium payment, the Company pursues liquidation of the policy cash value in order to satisfy the loan.
As of September 30, 2026, our CVLI loans comprised of $93.2 million, or 5.2% of loans, compared to $87.2 million, or 5.4% of loans, as of December 31, 2025. Our CVLI loan balances increased modestly by $6.0 million or 6.9% since December 31, 2025 as higher interest rates continue to soften demand for the product.
Other Consumer - As of September 30, 2026, our other consumer loans comprised of $23.7 million, or 1.3% of loans, compared to $22.8 million, or 1.4% of loans, as of December 31, 2025. Our other consumer loan balances increased modestly by $857 thousand or 3.8% since December 31, 2025 as higher interest rates continue to soften demand for the product.
The following table presents the balance and associated percentage of each category in our other consumer loans portfolio as of September 30, 2026 and December 31, 2025:
|
As of September 30, 2026 |
As of December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Amount |
% of Total |
Amount |
% of Total |
||||||||||||||||
|
Other consumer loans by Type |
||||||||||||||||||||
|
Unsecured student loans |
$ |
7,172 |
30.3 |
% |
$ |
8,712 |
38.2 |
% |
||||||||||||
|
Secured consumer purpose loans |
16,314 |
68.9 |
13,921 |
61.0 |
||||||||||||||||
|
Unsecured consumer purpose loans |
200 |
0.8 |
196 |
0.8 |
||||||||||||||||
|
Total other consumer loans |
$ |
23,686 |
100.0 |
% |
$ |
22,829 |
100.0 |
% |
||||||||||||
Internally Assigned Grades on LHFI
The Company utilizes an internal loan classification system for the Commercial portfolio that is updated to perpetually grade loans according to certain credit quality indicators. These credit quality indicators include, but are not limited to, recent credit performance, delinquency, liquidity, cash flows, debt coverage ratios, collateral type and LTV ratio. The Company determines its risk rating classification of the Retail lending portfolio based on nonaccrual and delinquency status in accordance with the Uniform Retail Credit Classification guidance and industry norms. See Note 3 to the consolidated financial statements.
The following tables provides details of the Company's loan and lease portfolio by segment, class, and internally
assigned grade at September 30, 2026 and December 31, 2025:
|
As of September 30, 2026 |
|||||||||||||||||||
|
(dollars in thousands) |
Pass |
Special mention |
Substandard |
Total |
|||||||||||||||
|
Commercial loans |
|||||||||||||||||||
|
Acquisition, development, and construction |
$ |
134,395 |
$ |
- |
$ |
- |
$ |
134,395 |
|||||||||||
|
Income producing CRE |
448,028 |
- |
1,075 |
449,103 |
|||||||||||||||
|
Owner-occupied CRE |
129,245 |
2,461 |
8,714 |
140,420 |
|||||||||||||||
|
Senior housing |
297,434 |
- |
10,861 |
308,295 |
|||||||||||||||
|
Commercial and industrial |
109,955 |
- |
3,701 |
113,656 |
|||||||||||||||
|
Retail loans (1) |
|||||||||||||||||||
|
Marine vessels |
320,682 |
- |
- |
320,682 |
|||||||||||||||
|
Residential mortgages |
203,088 |
- |
388 |
203,476 |
|||||||||||||||
|
Cash value life insurance LOC |
93,210 |
- |
- |
93,210 |
|||||||||||||||
|
Other consumer |
23,661 |
- |
25 |
23,686 |
|||||||||||||||
|
Total |
$ |
1,759,698 |
$ |
2,461 |
$ |
24,764 |
$ |
1,786,923 |
|||||||||||
(1) Retail loans are not risk rated but are classified as performing or nonperforming. Performing loans are presented in the Pass category and nonperforming loans are in the Substandard category.
|
As of December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Pass |
Special mention |
Substandard |
Total |
|||||||||||||||
|
Commercial loans |
|||||||||||||||||||
|
Acquisition, development, and construction |
$ |
119,352 |
- |
- |
$ |
119,352 |
|||||||||||||
|
Income producing CRE |
377,711 |
- |
468 |
378,179 |
|||||||||||||||
|
Owner-occupied CRE |
82,959 |
2,739 |
7,089 |
92,787 |
|||||||||||||||
|
Senior housing |
236,816 |
11,934 |
10,779 |
259,529 |
|||||||||||||||
|
Commercial and industrial |
141,020 |
212 |
4,148 |
145,380 |
|||||||||||||||
|
Retail loans (1) |
|||||||||||||||||||
|
Marine vessels |
312,096 |
- |
- |
312,096 |
|||||||||||||||
|
Residential mortgages |
199,601 |
- |
390 |
199,991 |
|||||||||||||||
|
Cash value life insurance LOC |
87,172 |
- |
- |
87,172 |
|||||||||||||||
|
Other consumer |
22,829 |
- |
- |
22,829 |
|||||||||||||||
|
Total |
$ |
1,579,556 |
$ |
14,885 |
$ |
22,874 |
$ |
1,617,315 |
|||||||||||
(1) Retail loans are not risk rated but are classified as performing or nonperforming. Performing loans are presented in the Pass category and nonperforming loans are in the Substandard category.
Pass rated loans were 98.5% of total LHFI at September 30, 2026 as compared to 97.7% at December 31, 2025. Special mention rated loans were 0.1% of total LHFI at September 30, 2026 as compared to 0.9% at December 31, 2025. Substandard loans were 1.4% of total LHFI at September 30, 2026 similar to 1.4% at December 31, 2025. The primary cause of the decrease in special mention loans during the comparative periods was a downgrade to substandard; however, several substandard loans showing improved financial condition were upgraded to pass, leaving the substandard balance comparable with the prior year end.
Nonperforming Loans
Loans are considered past due or delinquent when the contractual principal 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. Loans are placed on nonaccrual status when it becomes probable that interest is not fully collectable generally when the loan becomes 90 days past due. Once loans are placed on nonaccrual status, previously accrued but unpaid interest is reversed from interest income, and the accrual of interest income is suspended. Future payments received are applied to the principal balance of the loan. If and when borrowers demonstrate the sustained ability to repay such loans in accordance with the loan's contractual terms, the loan may be returned to accrual status. Loans which become 90 days past due are reviewed for collectability of principal. Principal amounts deemed uncollectible are charged off against the provision for credit losses on loans, unless such loans are in the process of modification, collection through repossession, or foreclosure. Certain consumer loans are not placed on nonaccrual but are monitored and charged-off at 120 days past due.
Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned until sold and is recorded at the lower of cost or fair value, minus estimated costs to sell. Subsequent to foreclosure, losses resulting from the periodic revaluation of the property are charged to loss on OREO, net and a new carrying value is established. Any gains or losses realized at the time of disposal or subsequent write-downs are reflected in the Consolidated Statements of Income. Expenses to maintain such assets are included in net cost of operation of OREO.
Nonperforming loans include loans 90 days or more past due and still accruing and loans accounted for on a nonaccrual basis. Nonperforming assets consist of nonperforming loans in addition to OREO, if any.
The following table sets forth the allocation of our nonperforming assets among our different asset categories as of September 30, 2026 and December 31, 2025:
|
September 30, |
December 31, |
||||||||
|
(dollars in thousands) |
2026 |
2025 |
|||||||
|
Nonaccrual loans (1) |
$ |
15,055 |
$ |
18,306 |
|||||
|
Past due loans 90 days and still accruing |
25 |
- |
|||||||
|
Total nonperforming loans |
15,080 |
18,306 |
|||||||
|
Other real estate owned |
- |
- |
|||||||
|
Total nonperforming assets |
$ |
15,080 |
$ |
18,306 |
|||||
|
Nonperforming loans to gross LHFI |
0.84 |
% |
1.13 |
% |
|||||
|
Nonperforming assets to total assets |
0.62 |
% |
0.79 |
% |
|||||
|
Allowance for credit losses to total LHFI |
1.10 |
% |
1.16 |
% |
|||||
(1) Nonaccrual loans include balances of approximately $4.2 million and $4.1 million that are covered by government guarantees at September 30, 2026 and December 31, 2025, respectively.
Nonperforming loans were $15.1 million and $18.3 million at September 30, 2026 and December 31, 2025, respectively. The decrease in nonperforming loans was primarily due to a $4.2 million paydown of one nonaccrual senior housing loan, offset by modest additions to nonaccrual loans.
The following table sets forth the major classifications of nonaccrual loans as of September 30, 2026 and December 31, 2025:
|
September 30, |
December 31, |
||||||||
|
(dollars in thousands) |
2026 |
2025 |
|||||||
|
Commercial loans |
|||||||||
|
Income producing CRE |
$ |
454 |
$ |
- |
|||||
|
Owner-occupied CRE |
3,514 |
3,074 |
|||||||
|
Senior housing |
6,998 |
10,779 |
|||||||
|
Commercial and industrial |
3,701 |
4,063 |
|||||||
|
Retail loans |
|||||||||
|
Residential mortgages |
388 |
390 |
|||||||
|
Total nonaccrual loans |
$ |
15,055 |
$ |
18,306 |
|||||
Allowance for Credit Losses on Loans
The ACL on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. The ACL represents management's best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and the impact of prepayment expectations. ACL is not required for LHFS and is only recorded for LHFI.
The Company estimates the ACL on loans based on the underlying loans' amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and 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. It is the Company's policy to write off uncollectible interest receivable of LHFI when it is considered uncollectible, which is generally when an asset is placed on nonaccrual and exclude it from the ACL.
Expected credit losses are reflected in the ACL through a charge to provision for credit losses. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. Loans are charged off against the ACL when management believes the collection of the principal is unlikely. Subsequent recoveries of previously charged off amounts, if any, are credited to the ACL when received. See Note 1 of our consolidated financial statements as of December 31, 2025 on the Company's 2025 Form 10-K for additional information regarding ACL policy.
It is management's policy to maintain the ACL at a level adequate for risks inherent in the loan portfolio. Based on the information currently available, management believes that our ACL is adequate. However, the loan portfolio can be adversely affected if economic conditions or the real estate market in our market areas were to weaken. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect our future growth and profitability. No assurance of the ultimate level of credit losses can be given with any certainty.
The allowance for credit losses on loans was $19.6 million at September 30, 2026 compared to $18.7 million at December 31, 2025, an increase of $880 thousand, or 4.7%, primarily attributed to increased loan volume and changes to individually analyzed loans, offset by other changes in loss rates.
Analysis of the Allowance for Credit Losses on Loans. The following table provides an analysis of the ACL on loans and net charge-offs for the periods presented:
|
As of |
As of |
|||||||
|
(dollars in thousands) |
September 30, 2026 |
December 31, 2025 |
||||||
|
Allowance for credit losses on loans at end of period (1) |
$ |
19,623 |
$ |
18,743 |
||||
|
Loan balances: |
||||||||
|
Total loans held for investment, end of period |
$ |
1,786,923 |
$ |
1,617,315 |
||||
|
Average loans held for investment |
$ |
1,673,572 |
$ |
1,511,831 |
||||
|
Net charge-offs to average LHFI |
0.01 |
% |
0.02 |
% |
||||
|
Allowance for credit losses on loans to total LHFI (1) |
1.10 |
% |
1.16 |
% |
||||
|
Nonaccrual loans as a percentage of end of period loans |
0.84 |
% |
1.13 |
% |
||||
|
Allowance for credit losses on loans to nonaccrual loans |
130.34 |
% |
102.39 |
% |
||||
|
Allowance for credit losses on loans to total nonperforming loans |
130.13 |
% |
102.39 |
% |
||||
(1) Excludes allowance for credit losses for unfunded loans commitments.
At September 30, 2026, the ACL on loans totaled $19.6 million, or 1.10% of LHFI, compared to $18.7 million, or 1.16% of LHFI, at December 31, 2025. The ACL on loans as a percentage of loans held-for-investment was 1.10% as of September 30, 2026, compared to 1.16% as of December 31, 2025.
For the nine months ended September 30, 2026, our net charge-off ratio as a percentage of average loans, as annualized, was 0.01%, compared to 0.02% for the year ended December 31, 2025. Originating and maintaining high quality loans is a top priority for the management.
As of September 30, 2026, our ratio of nonperforming assets to total assets was 0.62%, compared to 0.79% as of December 31, 2025. The decrease was primarily due to a $4.2 million paydown of one nonaccrual senior housing loan, offset by modest additions to nonaccrual loans. Adjusted nonperforming assets1, which excludes the guaranteed portions of nonaccrual loans, was $10.9 million, or 0.45% of total assets, at September 30, 2026 compared to $14.2 million, or 0.62% of total assets, at December 31, 2025.
The following table allocates the allowance for credit losses on loans by loan category for the periods presented:
|
As of September 30, 2026 |
As of December 31, 2025 |
|||||||||||||||||
|
(dollars in thousands) |
Amount |
% of Loans in each category to total loans |
Amount |
% of Loans in each category to total loans |
||||||||||||||
|
Commercial loans |
||||||||||||||||||
|
Acquisition, development, and |
$ |
1,769 |
7.5 |
% |
$ |
1,623 |
7.4 |
% |
||||||||||
|
Income producing CRE |
6,901 |
25.1 |
7,027 |
23.4 |
||||||||||||||
|
Owner-occupied CRE |
1,095 |
7.9 |
870 |
5.7 |
||||||||||||||
|
Senior housing |
4,111 |
17.3 |
4,051 |
16.0 |
||||||||||||||
|
Commercial and industrial |
1,401 |
6.4 |
902 |
9.0 |
||||||||||||||
|
Total commercial loans |
$ |
15,277 |
64.2 |
% |
$ |
14,473 |
61.5 |
% |
||||||||||
|
Retail loans |
||||||||||||||||||
|
Marine vessels |
1,560 |
17.9 |
1,412 |
19.3 |
||||||||||||||
|
Residential mortgages |
2,336 |
11.4 |
2,412 |
12.4 |
||||||||||||||
|
Cash value life insurance LOC |
97 |
5.2 |
82 |
5.4 |
||||||||||||||
|
Other consumer |
353 |
1.3 |
364 |
1.4 |
||||||||||||||
|
Total retail loans |
$ |
4,346 |
35.8 |
% |
$ |
4,270 |
38.5 |
% |
||||||||||
|
Total allowance for credit losses |
$ |
19,623 |
100.0 |
% |
$ |
18,743 |
100.0 |
% |
||||||||||
Allowance for Credit Losses for Unfunded Commitments
The Company records an ACL for unfunded loan commitments, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company's Consolidated Statements of Income. The ACL for unfunded commitment exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur. The ACL for unfunded commitments is included in Other liabilities on the Company's Consolidated Balance Sheets.
As of September 30, 2026, the ACL for unfunded commitments was $3.6 million compared to $4.0 million at December 31, 2025. The decrease in the ACL for unfunded commitments was primarily due to a reduction in unfunded commitments exposure, considering projected funding rates, coupled with a decrease in modeled loss rates.
1 Considered non-GAAP financial measure - See Section named "Non-GAAP Financial Measure Reconciliations" for reconciliation of GAAP to non-GAAP financial measures.
Net Charge-offs
The following table summarizes net charge-offs to average loans for the nine months ended September 30, 2026, as annualized, and for the year ended December 31, 2025:
|
For the Nine Months Ended |
For the Year Ended |
|||||||||||||||||||
|
September 30, 2026 |
December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Average Loans |
Net Charge-offs (Recoveries) |
Net Charge-offs to Average Loans (1) |
Average Loans |
Net Charge-offs (Recoveries) |
Net Charge-offs to Average Loans |
||||||||||||||
|
Commercial loans |
||||||||||||||||||||
|
Acquisition, development, |
$ |
130,983 |
$ |
- |
0.00% |
$ |
95,304 |
$ |
- |
0.00% |
||||||||||
|
Income producing CRE |
400,971 |
- |
0.00% |
351,976 |
- |
0.00% |
||||||||||||||
|
Owner-occupied CRE |
100,694 |
- |
0.00% |
88,869 |
- |
0.00% |
||||||||||||||
|
Senior housing |
261,177 |
- |
0.00% |
235,392 |
- |
0.00% |
||||||||||||||
|
Commercial and industrial |
150,038 |
(7 |
) |
-0.01% |
152,268 |
(13 |
) |
-0.01% |
||||||||||||
|
Retail loans |
||||||||||||||||||||
|
Marine vessels |
313,505 |
27 |
0.01% |
296,493 |
162 |
0.05% |
||||||||||||||
|
Residential mortgages |
204,479 |
(3 |
) |
(0.00%) |
182,995 |
(35 |
) |
-0.02% |
||||||||||||
|
Cash value life insurance LOC |
88,066 |
- |
0.00% |
87,222 |
- |
0.00% |
||||||||||||||
|
Other consumer |
23,659 |
78 |
0.44% |
21,312 |
221 |
1.04% |
||||||||||||||
|
$ |
1,673,572 |
$ |
95 |
0.01% |
$ |
1,511,831 |
$ |
335 |
0.02% |
|||||||||||
(1) Represents annualized September 30, 2026 data.
Net charge-offs were $95 thousand and $335 thousand as of September 30, 2026 and December 31, 2025, respectively.
Deposits
Deposits represent our Bank's primary source of funds. We gather deposits primarily through our branch locations and targeting new deposit relationships by our bankers. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts, and certificates of deposit ("CDs"). We put continued effort into gathering noninterest demand deposits accounts through marketing to our existing and new loan customers, customer referrals, and expansion into new markets. As the Company wins new loan customers and targets new deposit relationships with competitive rates on interest bearing accounts, our bankers are focused on ensuring that we win the entire deposit relationships, including operating accounts, so that we can preserve our attractive mix of deposits.
Total deposits increased $113.1 million, or 5.7%, to $2.10 billion at September 30, 2026 compared to $1.99 billion at December 31, 2025. As of September 30, 2026, 16.2% of total deposits were comprised of noninterest-bearing deposits accounts and 83.8% of interest-bearing deposit accounts compared to 15.7% and 84.3%, respectively, as of December 31, 2025. These changes were due to a continued result of pursuing and winning new deposit relationships as well as maintaining our existing deposit relationships; notwithstanding to seasonal outflows associated with our property management clients experienced during the third quarter of 2026.
At September 30, 2026, we had total brokered CDs of $257.0 million, or 12.2% of total deposits, compared to $307.0 million, or 15.5% of total deposits, at December 31, 2025. We selectively use brokered CDs, subject to certain well defined limits, to support targeted loan growth, manage liquidity, and manage interest rate risk. Our level of brokered CDs varies from time to time depending on competitive interest rate conditions and other factors and tends to increase as a percentage of total deposits when the brokered CDs are less costly than issuing internet certificates of deposit or borrowing from the FHLBA.
At September 30, 2026, our ICS money market One-Way Buy deposits were $70.0 million, or 3.3% of total deposits. There were no ICS money market One-Way Buy deposits at December 31, 2025. We use ICS One-Way Buy to deliberately purchase floating-rate wholesale deposits from the IntraFi network to inject liquidity and replace longer-term liabilities without a reciprocal deposit exchange.
The Company also had reciprocal deposits of $159.0 million and $174.5 million at September 30, 2026 and December 31, 2025, respectively.
As of September 30, 2026, our fifteen largest depositor relationships, excluding brokered deposits and One-Way Buy deposits, totaled $227.0 million, or 10.8%, of total deposits. Our deposits with directors and affiliated entities totaled $40.1 million as of September 30, 2026. A withdrawal of some or all of these balances over a short period could create liquidity pressure, require the use of higher-cost funding sources, or impact balance sheet stability, particularly during periods of market stress or declining depositor confidence.
Time deposits that exceed the FDIC insurance limit of $250 thousand at September 30, 2026 and December 31, 2025 were estimated to be $192.7 million and $186.4 million, respectively.
At September 30, 2026, our uninsured deposits were $816.3 million, or 38.9% of total deposits, compared to $719.4 million, or 36.2% of total deposits, at December 31, 2025.
The following table summarizes our average deposit balances and weighted average rates as of September 30, 2026 and December 31, 2025:
|
As of September 30, 2026 |
As of December 31, 2025 |
|||||||||||||||||||
|
(dollars in thousands) |
Average Balance |
Weighted Average Rate(1) |
Average Balance |
Weighted Average Rate |
||||||||||||||||
|
Noninterest-bearing demand deposits |
$ |
329,028 |
− |
% |
$ |
307,464 |
− |
% |
||||||||||||
|
Interest-bearing demand deposits |
216,075 |
0.99 |
199,395 |
0.76 |
||||||||||||||||
|
Money market deposits |
716,956 |
2.93 |
593,291 |
3.12 |
||||||||||||||||
|
Savings deposits |
35,457 |
0.54 |
35,179 |
0.50 |
||||||||||||||||
|
Certificates of deposit |
736,173 |
3.72 |
793,184 |
4.05 |
||||||||||||||||
|
Total interest-bearing deposits |
$ |
1,704,661 |
2.98 |
% |
$ |
1,621,049 |
3.23 |
% |
||||||||||||
|
Total deposits |
$ |
2,033,689 |
2.50 |
% |
$ |
1,928,513 |
2.71 |
% |
||||||||||||
(1) Annualized weighted average rate for September 30, 2026.
The following tables set forth the maturity of time deposits as of September 30, 2026:
|
As of September 30, 2026 |
||||||||||||||||||||||||||
|
(dollars in thousands) |
Three Months |
Three to Six Months |
Six to Twelve Months |
After Twelve Months |
Total |
|||||||||||||||||||||
|
Time deposits ($250,000 or less) |
$ |
298,912 |
$ |
177,667 |
$ |
77,280 |
$ |
12,835 |
$ |
566,694 |
||||||||||||||||
|
Time deposits (more than $250,000) |
77,615 |
72,819 |
28,792 |
265 |
179,491 |
|||||||||||||||||||||
|
Total time deposits |
$ |
376,527 |
$ |
250,486 |
$ |
106,072 |
$ |
13,100 |
$ |
746,185 |
||||||||||||||||
Commercial Mortgage Servicing Rights
As of September 30, 2026 and December 31, 2025, we serviced $142.1 million and $124.4 million, respectively, of SBA and United States Department of Agriculture loans for others. The size of this loan servicing portfolio has grown over the last few years as we consistently originated and sold portions of these loans that we originate while retaining loan servicing rights. Activity for commercial mortgage servicing rights was as follows:
|
Nine Months Ended |
Year Ended |
|||||||||
|
(dollars in thousands) |
September 30, 2026 |
December 31, 2025 |
||||||||
|
Balance, beginning of period |
$ |
1,266 |
$ |
1,237 |
||||||
|
Additions |
384 |
412 |
||||||||
|
Disposals |
- |
- |
||||||||
|
Other changes(1) |
(248 |
) |
(383 |
) |
||||||
|
Balance, end of period |
$ |
1,402 |
$ |
1,266 |
||||||
(1) Comprised of amortization.
Our commercial mortgage servicing rights are included in intangible assets on our consolidated balance sheets and are reported net of amortization and impairment, if any.
Other Borrowings
The Company utilizes FHLBA advances as a supplementary funding source to finance our operations. These FHLBA advances are collateralized by securities owned by the Company and held in safekeeping by the FHLBA, FHLBA stock owned by the Company, and certain qualifying loans secured by real estate, including residential mortgage loans, home equity lines of credit and commercial real estate loans.
At September 30, 2026 and December 31, 2025, we had a maximum borrowing capacity from the FHLBA of $450.6 million and $176.3 million, respectively. We had $30.0 million of FHLBA advances outstanding as of September 30, 2026 and December 31, 2025.
The Company had no borrowings outstanding on a line of credit as of September 30, 2026 and December 31, 2025 which had a maximum commitment availability of $15.0 million at September 30, 2026 and December 31, 2025.
Investment Portfolio
The securities portfolio is the second largest component of our interest-earning assets and is managed to: (i) generate a prudent level of income consistent with our liquidity, credit, and interest rate risk objectives; (ii) support overall balance sheet management by helping manage interest rate and market risk exposures arising from our loan and funding activities; (iii) provide a readily available source of liquidity when funds are not immediately deployed into loans or are needed to meet deposit outflows and other liquidity needs; and (iv) provide eligible collateral for public funds and other secured funding arrangements.
We classify our securities as either available-for-sale or held-to-maturity at the time of purchase. Investment securities not classified as either held-to-maturity or trading are classified as available-for-sale. All of the securities in our investment portfolio were classified as available-for-sale as of September 30, 2026 and December 31, 2025. Investment securities available-for-sale are stated at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of AOCI in the Consolidated Statements of
Comprehensive Income. Monthly adjustments are made to reflect changes in the fair value of our available-for-sale securities.
Securities available-for-sale consist primarily of U.S. Treasuries, municipal obligations, mortgage-backed securities, asset-backed securities, and corporate debt securities. No issuer of the available-for-sale securities comprised more than ten percent of our shareholders' equity as of September 30, 2026 and December 31, 2025, except Federal Home Loan Mortgage Corp ("FHLMC") and Federal National Mortgage Association ("FNMA') within those periods.
The following table summarizes the fair value of the available-for-sale securities portfolio as of September 30, 2026 and December 31, 2025:
|
As of September 30, |
As of December 31, |
|||||||||||||||||||||||||||||
|
2026 |
2025 |
|||||||||||||||||||||||||||||
|
(dollars in thousands) |
Amortized Cost |
Fair Value |
Unrealized Gain (Loss) |
Amortized Cost |
Fair Value |
Unrealized Gain (Loss) |
||||||||||||||||||||||||
|
U.S. Treasuries |
$ |
1,000 |
$ |
946 |
$ |
(54 |
) |
$ |
5,996 |
$ |
5,850 |
$ |
(146 |
) |
||||||||||||||||
|
Municipal obligations |
62,293 |
53,011 |
(9,282 |
) |
64,878 |
58,642 |
(6,236 |
) |
||||||||||||||||||||||
|
Mortgage-backed securities |
219,696 |
203,623 |
(16,073 |
) |
188,509 |
180,060 |
(8,449 |
) |
||||||||||||||||||||||
|
Asset-backed securities |
22,532 |
22,405 |
(127 |
) |
26,897 |
27,000 |
103 |
|||||||||||||||||||||||
|
Corporate debt securities |
53,285 |
52,679 |
(606 |
) |
59,079 |
58,951 |
(128 |
) |
||||||||||||||||||||||
|
Total available for sale securities |
$ |
358,806 |
$ |
332,664 |
$ |
(26,142 |
) |
$ |
345,359 |
$ |
330,503 |
$ |
(14,856 |
) |
||||||||||||||||
Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At September 30, 2026, we evaluated securities available-for-sale which had an unrealized loss to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit-related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value with a charge to earnings. We do not intend to sell these securities, and it is not more likely than not that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of September 30, 2026. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Yields were computed using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, considering the expected life of each security. The weighted average yield for each maturity range was computed using the amortized cost of each security within the applicable maturity range. The yield on non-taxable investments was not adjusted for tax equivalency.
|
As of September 30, 2026 |
|||||||||||||||||||||||||||||||||||||||
|
Due in One |
Due after One Year |
Due after Five Years |
Due after |
||||||||||||||||||||||||||||||||||||
|
(dollars in thousands) |
Amortized Cost |
Weighted Average Yield |
Amortized Cost |
Weighted Average Yield |
Amortized Cost |
Weighted Average Yield |
Amortized Cost |
Weighted Average Yield |
|||||||||||||||||||||||||||||||
|
U.S. Treasuries |
$ |
- |
- |
% |
$ |
1,000 |
1.28 |
% |
$ |
- |
- |
% |
$ |
- |
- |
% |
|||||||||||||||||||||||
|
Municipal obligations |
- |
- |
7,046 |
1.92 |
32,217 |
2.15 |
23,030 |
3.11 |
|||||||||||||||||||||||||||||||
|
Mortgage-backed securities |
699 |
3.04 |
35,041 |
3.07 |
9,829 |
4.53 |
174,127 |
3.70 |
|||||||||||||||||||||||||||||||
|
Asset-backed securities |
- |
- |
121 |
2.01 |
5,027 |
4.70 |
17,384 |
4.83 |
|||||||||||||||||||||||||||||||
|
Corporate debt securities |
- |
- |
9,844 |
6.99 |
40,896 |
6.43 |
2,545 |
5.81 |
|||||||||||||||||||||||||||||||
|
Total available for sale securities |
$ |
699 |
3.04 |
% |
$ |
53,052 |
3.61 |
% |
$ |
87,969 |
4.55 |
% |
$ |
217,086 |
3.75 |
% |
|||||||||||||||||||||||
We utilize interest rate swaps agreements for some of our AFS securities as part of our asset-liability management strategy to help mitigate its interest rate risk. The carrying amount of our hedged available-for-sale securities associated with fair value hedges was $23.0 million and $23.7 million as of September 30, 2026 and December 31, 2025, respectively.
Liquidity
The term liquidity refers to the measure of our ability to meet cash flow requirements of our depositors and borrowers, while at the same time meeting our operational, capital, and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities in order to meet the return on investment objectives of our shareholders.
The Bank's Asset and Liability Committee, as well as the Credit and Risk Committee of the Board of Directors are the primary groups responsible for monitoring the Bank's liquidity position. We have identified various liquidity metrics and ratios, including the volatile funds ratio, non-core funding dependency ratio and loan to deposit ratio that these committees use to monitor the Bank's liquidity position. Further, these groups are also responsible for reviewing and monitoring the stress testing of the Bank's overall liquidity under multiple liquidity stress scenarios. As of September 30, 2026 the Bank was in compliance with all internal policies and guidelines.
Our liquidity position is supported by management of our liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities.
Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLBA advances, and the Federal Reserve discount window.
Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and new customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.
As part of our liquidity management strategy, we open federal funds lines with our correspondent banks. As of September 30, 2026 and December 31, 2025, we had $72.0 million and $69.5 million, respectively, of unsecured federal funds lines with no amounts advanced.
As of September 30, 2026 and December 31, 2025, we had access to the Federal Reserve's discount window in the amount of $160.1 million and $29.8 million, respectively. There were no borrowings outstanding as of September 30, 2026 and December 31, 2025 for the Federal Reserve's discount window. We had pledged investment securities at September 30, 2026 and December 31, 2025 totaling $8.6 million and $9.1 million, respectively, as collateral for federal funds purchased. In addition, at September 30, 2026 and December 31, 2025, we also had pledged investment securities with a fair value of nil and $31.6 million, respectively, and pledged loans with an unpaid principal balance of $340.9 million and nil, respectively, as collateral at the Federal Reserve Bank.
At September 30, 2026 and December 31, 2025, we had $30.0 million of outstanding advances from the FHLBA and a letter of credit for $2.0 million. Based on the values of collateral pledged, we had $418.6 million and $144.3 million as of September 30, 2026 and December 31, 2025, respectively, of additional borrowing availability with the FHLBA. At September 30, 2026 and December 31, 2025, we had pledged investment securities with a fair value of $187.6 million and nil, respectively, and pledged loans with an unpaid principal balance of $453.8 million and $283.4 million, respectively, as collateral for the FHLBA advances. We also maintain relationships in the capital markets with brokers to issue certificates of deposits.
Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the Federal Reserve. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct adverse 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 the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios. These include a Common Equity Tier 1 ("CET1") risk-based capital ratio, a Tier 1 risk-based capital ratio, which includes CET1 and additional Tier 1 capital, and a total risk-based capital ratio, which includes Tier 1 and Tier 2 capital. CET1 is primarily comprised of the sum of common stock instruments and related surplus net of treasury stock plus retained earnings less certain adjustments and deductions, including with respect to goodwill, intangible assets, mortgage servicing assets, and deferred tax assets subject to temporary timing differences. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock. Tier 2 capital consists of instruments disqualified from Tier 1 capital, including qualifying subordinated debt and a limited amount of loan loss reserves up to a maximum of 1.25% of risk-weighted assets, subject to certain eligibility criteria. The capital rules also define the risk-weights assigned to assets and off-balance sheet items to determine the risk-weighted asset components of the risk-based capital rules, including, for example, certain "high volatility" commercial real estate, past due assets, structured securities, and equity holdings.
The Bank is also required to maintain capital at a minimum level based on total assets, which is known as the Tier 1 leverage ratio. The leverage capital ratio is the ratio of Tier 1 capital to quarterly average assets net of goodwill, certain other intangible assets, and certain required deduction items require the Bank to maintain:
(i) a minimum leverage ratio of Tier 1 capital to average total assets, after certain adjustments, of 4.0%,
(ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%,
(iii) a minimum ratio of total-capital to risk-weighted assets of 8.0% and,
(iv) a minimum ratio of CET1 to risk-weighted assets of 4.5%.
In addition, the capital rules require a capital conservation buffer of 2.5% above each of the minimum risk-based capital ratio requirements (CET1, Tier 1, and total capital), comprised of CET1, which is designed to absorb losses during periods of economic stress. These buffer requirements must be met for a bank or bank holding company to be able to pay dividends, engage in share buybacks, or make discretionary bonus payments to executive management without restriction. Our capital conservation buffer was $116.2 million and $110.5 million as of September 30, 2026 and December 31, 2025, respectively.
Prompt Corrective Action - The Federal Banking agencies have broad powers with which to require companies to take prompt corrective action to resolve problems of insured depository institutions that do not meet minimum capital requirements. The law establishes five capital categories for this purpose:
(i) well-capitalized;
(ii) adequately capitalized;
(iii) undercapitalized;
(iv) significantly undercapitalized; and
(v) critically undercapitalized.
To be well-capitalized, the Bank must maintain at least the following capital ratios:
•
6.5% CET1 to risk-weighted assets;
•
8.0% Tier 1 capital to risk-weighted assets;
•
10.0% Total capital to risk-weighted assets; and
•
5.0% Tier 1 leverage ratio.
The table below summarizes the capital requirements applicable to the Bank in order to be considered "well-capitalized" from a regulatory perspective, as well as the Bank's capital ratios as of September 30, 2026 and December 31, 2025. Because the Company is a small bank holding company under the guidelines of the Federal Reserve and is not required to report consolidated capital ratios for regulatory purposes, capital ratios are presented for the Bank only.
The Bank exceeded all regulatory capital requirements and was considered to be "well-capitalized" as of the dates reflected per the table below.
There have been no conditions or events since September 30, 2026 that management believes would change this classification.
The following table summarizes the capital amounts and ratios of CSB and the regulatory minimum requirements at September 30, 2026 and December 31, 2025:
|
Ratio at September 30, |
Ratio at |
Regulatory Capital Ratio |
Regulatory Capital Ratio Requirements including Capital Conservation |
Minimum Requirements for "Well Capitalized" Depository |
||||||||||||||||
|
2026 |
2025 |
Requirements |
Buffer |
Institution |
||||||||||||||||
|
Coastal States Bank |
||||||||||||||||||||
|
Total capital (to risk-weighted assets) |
13.36 |
% |
13.31 |
% |
8.00 |
% |
10.50 |
% |
10.00 |
% |
||||||||||
|
Tier 1 capital (to risk-weighted assets) |
12.30 |
% |
12.30 |
% |
6.00 |
% |
8.50 |
% |
8.00 |
% |
||||||||||
|
CET1 capital (to risk-weighted assets) |
12.30 |
% |
12.30 |
% |
4.50 |
% |
7.00 |
% |
6.50 |
% |
||||||||||
|
Tier 1 leverage |
11.07 |
% |
11.18 |
% |
4.00 |
% |
4.00 |
% |
5.00 |
% |
||||||||||
Dividends - The sole source of funds available to pay shareholders' dividends is from the Company's earnings. As of September 30, 2026, $1.8 million in common stock dividends were declared by the Company as of year-to-date. There were no common stock dividends declared or paid as of December 31, 2025. Any future determination to pay dividends to holders of our common stock will depend on our results of operations, financial condition, capital requirements, banking regulations, contractual restrictions and any other factors that our Board of Directors may deem relevant.
Contractual Obligations
The following tables contain supplemental information regarding our total contractual obligations at September 30, 2026 and December 31, 2025:
|
Payments Due at September 30, 2026 |
||||||||||||||||||||||||||
|
(dollars in thousands) |
Within One Year |
One to Three Years |
Three to Five Years |
After Five Years |
Total |
|||||||||||||||||||||
|
Deposits without a stated maturity |
$ |
1,354,561 |
$ |
- |
$ |
- |
$ |
- |
$ |
1,354,561 |
||||||||||||||||
|
Time deposits |
733,084 |
12,986 |
115 |
- |
746,185 |
|||||||||||||||||||||
|
Other borrowings (1) |
30,000 |
- |
- |
- |
30,000 |
|||||||||||||||||||||
|
Operating lease liabilities |
1,260 |
2,819 |
2,585 |
1,924 |
8,588 |
|||||||||||||||||||||
|
Total contractual obligations |
$ |
2,118,905 |
$ |
15,805 |
$ |
2,700 |
$ |
1,924 |
$ |
2,139,334 |
||||||||||||||||
(1) $30 million due within one year represents FHLBA advance outstanding.
|
Payments Due at December 31, 2025 |
||||||||||||||||||||||||||
|
(dollars in thousands) |
Within One Year |
One to Three Years |
Three to Five Years |
After Five Years |
Total |
|||||||||||||||||||||
|
Deposits without a stated maturity |
$ |
1,200,480 |
$ |
- |
$ |
- |
$ |
- |
$ |
1,200,480 |
||||||||||||||||
|
Time deposits |
723,130 |
63,991 |
83 |
- |
787,204 |
|||||||||||||||||||||
|
Other borrowings (1) |
30,000 |
- |
- |
- |
30,000 |
|||||||||||||||||||||
|
Operating lease liabilities |
809 |
1,683 |
1,433 |
1,116 |
5,041 |
|||||||||||||||||||||
|
Total contractual obligations |
$ |
1,954,419 |
$ |
65,674 |
$ |
1,516 |
$ |
1,116 |
$ |
2,022,725 |
||||||||||||||||
(1) $30 million due within one year represents FHLBA advance outstanding.
We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Off-Balance Sheet Arrangements
The Company is a 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 consist of commitments to extend credit and standby letters of credit.
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. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company's exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the contractual notional amount of the instrument. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company uses the same credit policies in making commitments to extend credit as it does for on-balance-sheet instruments.
Letters of credit are conditional commitments issued to guarantee a customer's performance to a third party and have essentially the same credit risk as other lending facilities. Collateral held for commitments to extend credit and letters of credit varies but may include accounts receivable, inventory, property, plant, equipment and income-producing commercial properties.
See Note 4 of our consolidated financial statements as of September 30, 2026, included elsewhere in this Form 10-Q, for more information regarding our off-balance sheet arrangements as of September 30, 2026 and December 31, 2025.
Non-GAAP Financial Measure Reconciliations
The measures entitled return on average tangible common equity, tangible book value per common share, tangible common equity, tangible assets, adjusted nonperforming assets to total assets, adjusted nonperforming assets, pre-tax, pre-provision net revenue ("PPNR"), tangible common equity to tangible assets and core deposits are not measures recognized under accounting principles generally accepted in the United States of America ("GAAP") and therefore are considered non-GAAP financial measures. The most comparable GAAP measures to these measures are return on average shareholders' equity, book value per share, total shareholders' equity, total assets, total nonperforming assets to total assets, total nonperforming assets, net income, total common equity to total assets, and total deposits, respectively.
Management believes that these non-GAAP financial measures and the information they provide are useful to investors since these measures permit investors to view the Company's performance using the same tools that management uses to evaluate the Company's past performance and prospects for future performance. While management believes that these non-GAAP financial measures are useful in evaluating our performance, this information should be considered as supplemental and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Additionally, these non-GAAP financial measures should be considered as additional views of the way the Company's financial measures are affected by significant items and other factors, and since they are not required to be uniformly applied, they may not be comparable to other similarly titled measures at other companies.
The following table reconciles, as of the dates set forth below, shareholders' equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates our tangible book value per common share.
|
As of |
||||||||||||||||||||
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
||||||||||||||||
|
(dollars in thousands) |
2026 |
2026 |
2026 |
2025 |
2025 |
|||||||||||||||
|
Tangible Common Equity: |
||||||||||||||||||||
|
Total shareholders' equity |
$ |
261,920 |
$ |
269,703 |
$ |
262,923 |
$ |
259,529 |
$ |
250,438 |
||||||||||
|
Less: Goodwill and intangibles |
(6,307 |
) |
(6,246 |
) |
(6,243 |
) |
(6,262 |
) |
(6,186 |
) |
||||||||||
|
Adjusted for: Mortgage servicing |
1,402 |
1,313 |
1,280 |
1,266 |
1,156 |
|||||||||||||||
|
Tangible Common Equity |
$ |
257,015 |
$ |
264,770 |
$ |
257,960 |
$ |
254,533 |
$ |
245,408 |
||||||||||
|
Common share outstanding |
11,734,134 |
$ |
12,003,040 |
11,985,414 |
11,980,412 |
11,978,921 |
||||||||||||||
|
Book value per common share |
22.32 |
22.47 |
21.94 |
21.66 |
20.91 |
|||||||||||||||
|
Tangible book value per common share |
21.90 |
22.06 |
21.52 |
21.25 |
20.49 |
|||||||||||||||
|
Tangible assets: |
||||||||||||||||||||
|
Total assets |
$ |
2,423,766 |
$ |
2,420,993 |
$ |
2,348,547 |
$ |
2,306,586 |
$ |
2,255,389 |
||||||||||
|
Less: goodwill and intangibles |
(6,307 |
) |
(6,246 |
) |
(6,243 |
) |
(6,262 |
) |
(6,186 |
) |
||||||||||
|
Adjusted for: Mortgage servicing |
1,402 |
1,313 |
1,280 |
1,266 |
1,156 |
|||||||||||||||
|
Tangible assets |
$ |
2,418,861 |
$ |
2,416,060 |
$ |
2,343,584 |
$ |
2,301,590 |
$ |
2,250,359 |
||||||||||
|
Tangible common equity to |
10.63 |
% |
10.96 |
% |
11.01 |
% |
11.06 |
% |
10.91 |
% |
||||||||||
The following table reconciles, as of the dates set forth below, the calculation of the return on average equity (on a GAAP basis) to the calculation of the return on average tangible equity and the calculation of the adjusted return on average tangible equity.
|
As of and for the Three Months Ended |
As of and for the Nine Months Ended |
|||||||||||||||||||||||||||
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
September 30, |
September 30, |
||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2026 |
2026 |
2025 |
2025 |
2026 |
2025 |
|||||||||||||||||||||
|
Net income |
$ |
8,772 |
$ |
7,333 |
$ |
6,329 |
$ |
7,136 |
$ |
6,741 |
$ |
22,434 |
$ |
17,756 |
||||||||||||||
|
Average shareholders' equity |
270,152 |
266,974 |
264,232 |
256,814 |
246,688 |
267,141 |
217,601 |
|||||||||||||||||||||
|
Return on average shareholders' equity |
12.88 |
11.02 |
% |
9.71 |
% |
11.02 |
% |
10.84 |
% |
11.23 |
% |
10.91 |
% |
|||||||||||||||
|
Average Tangible Common Equity: |
||||||||||||||||||||||||||||
|
Average shareholders' equity |
$ |
270,152 |
$ |
266,974 |
$ |
264,232 |
$ |
256,814 |
$ |
246,688 |
$ |
267,141 |
$ |
217,601 |
||||||||||||||
|
Less: Average goodwill and intangibles |
(6,235 |
) |
(6,229 |
) |
(6,270 |
) |
(6,166 |
) |
(6,176 |
) |
(6,245 |
) |
(6,224 |
) |
||||||||||||||
|
Adjusted for: Average mortgage |
1,315 |
1,281 |
1,291 |
1,155 |
1,128 |
1,296 |
1,136 |
|||||||||||||||||||||
|
Average tangible common equity |
$ |
265,232 |
$ |
262,026 |
$ |
259,253 |
$ |
251,803 |
$ |
241,640 |
$ |
262,192 |
$ |
212,513 |
||||||||||||||
|
Return on average tangible common (1) |
13.12 |
% |
11.23 |
% |
9.90 |
% |
11.24 |
% |
11.07 |
% |
11.44 |
% |
11.17 |
% |
||||||||||||||
(1) Represents annualized data.
The following table reconciles, as of the dates set forth below, the calculation of the nonperforming assets to total assets ratio (on a GAAP basis) and the calculation of the adjusted nonperforming assets to total assets ratio. Adjusted nonperforming assets to total assets ratio is calculated by adjusting for the guaranteed portions of nonaccrual loans from the total nonperforming assets.
|
As of |
||||||||||||||||||||
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
||||||||||||||||
|
(dollars in thousands) |
2026 |
2026 |
2026 |
2025 |
2025 |
|||||||||||||||
|
Total nonperforming assets |
$ |
15,080 |
$ |
18,322 |
$ |
18,183 |
$ |
18,306 |
$ |
14,192 |
||||||||||
|
Total assets |
2,423,766 |
2,420,993 |
2,348,547 |
2,306,586 |
2,255,389 |
|||||||||||||||
|
GAAP-based nonperforming assets |
0.62 |
% |
0.76 |
% |
0.77 |
% |
0.79 |
% |
0.63 |
% |
||||||||||
|
Total nonperforming assets |
$ |
15,080 |
$ |
18,322 |
$ |
18,183 |
$ |
18,306 |
$ |
14,192 |
||||||||||
|
Adjusted for: |
||||||||||||||||||||
|
Guaranteed portions of nonaccrual |
(4,217 |
) |
(3,542 |
) |
(3,657 |
) |
(4,089 |
) |
(4,457 |
) |
||||||||||
|
Adjusted nonperforming assets |
$ |
10,863 |
$ |
14,780 |
$ |
14,526 |
$ |
14,217 |
$ |
9,735 |
||||||||||
|
Total assets |
$ |
2,423,766 |
$ |
2,420,993 |
$ |
2,348,547 |
$ |
2,306,586 |
$ |
2,255,389 |
||||||||||
|
Adjusted nonperforming assets to |
0.45 |
% |
0.61 |
% |
0.62 |
% |
0.62 |
% |
0.43 |
% |
||||||||||
The following table reconciles net income (on a GAAP basis), as of the dates set forth below, to the calculation of the pre-tax, pre-provision net revenue ("PPNR"). PPNR is calculated by adjusting for the income tax expense and the provision for credit losses to the net income.
|
As of and for the Three Months Ended |
As of and for the Nine Months Ended |
|||||||||||||||||||||||||||
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
September 30, |
September 30, |
||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2026 |
2026 |
2025 |
2025 |
2026 |
2025 |
|||||||||||||||||||||
|
Net income (GAAP-based) |
$ |
8,772 |
$ |
7,333 |
$ |
6,329 |
$ |
7,136 |
$ |
6,741 |
$ |
22,434 |
$ |
17,756 |
||||||||||||||
|
Plus: |
||||||||||||||||||||||||||||
|
Income tax expense |
2,803 |
1,502 |
1,956 |
1,598 |
2,040 |
6,261 |
4,646 |
|||||||||||||||||||||
|
Provision for credit losses |
(429 |
) |
658 |
382 |
1,162 |
653 |
611 |
2,034 |
||||||||||||||||||||
|
Pre-tax, pre-provision net revenue |
$ |
11,146 |
$ |
9,493 |
$ |
8,667 |
$ |
9,896 |
$ |
9,434 |
$ |
29,306 |
$ |
24,436 |
||||||||||||||
The following table reconciles total deposits, as of the dates set forth below, to the calculation of the Company's core deposits.
|
As of |
||||||||||||||||||||
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
||||||||||||||||
|
(dollars in thousands) |
2026 |
2026 |
2026 |
2025 |
2025 |
|||||||||||||||
|
Total Deposits |
$ |
2,100,746 |
$ |
2,047,671 |
$ |
2,057,144 |
$ |
1,987,684 |
$ |
1,949,672 |
||||||||||
|
Less: |
||||||||||||||||||||
|
Brokered CDs |
257,016 |
253,928 |
258,591 |
307,034 |
294,908 |
|||||||||||||||
|
ICS money market One-Way Buy |
70,000 |
- |
- |
- |
- |
|||||||||||||||
|
Core deposits (1) |
$ |
1,773,730 |
$ |
1,793,743 |
$ |
1,798,553 |
$ |
1,680,650 |
$ |
1,654,764 |
||||||||||
(1) The Company defines its core deposits as total deposits less brokered certificates of deposit and IntraFi Cash Service ("ICS") One-Way Buy demand and money market deposits.
Coastalsouth Bancshares Inc. published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 21:18 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]