Eagle Financial Services Inc.
11/09/2026 | Press release | Distributed by Public on 11/09/2026 15:02
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion is to focus on certain information relevant to the Company's financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the Company's Audited Consolidated Financial Statements and notes thereto included in the 2025 Form 10-K, and in conjunction with the Unaudited Consolidated Financial Statements and notes thereto presented in Part I, Item 1, Financial Statements, of this Form 10-Q. Operating results for the three and nine months ended September 30, 2026 are not necessarily indicative of the results for the full-year ending December 31, 2026 or any future period.
GENERAL
Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the "Bank" and, collectively with Eagle Financial Services, Inc., the "Company", "we", "us" or "our"). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank.
The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and mortgage-backed securities, municipal and U.S. government agency securities. The Bank's deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law.
The Company strives to be an outstanding financial institution in its market by: building solid sustainable relationships with its customers, employees, communities, and shareholders; offering best-in-class products and services; and being the leader in the markets it serves.
At September 30, 2026, the Company had total assets of $1.87 billion, net loans of $1.51 billion, total deposits of $1.62 billion, and shareholders' equity of $195.3 million.
The Company has continued to build on its strategic actions taken during 2025, which was marked by a successful capital raise and balance sheet repositioning of its investment securities portfolio. These actions strengthened its balance sheet and improved its forward earnings profile. Our vision for 2026 is about disciplined growth with smart investment and continued focus on people and technology, which we believe will lead to stronger core earnings and a balance sheet positioned for more consistent results.
On September 7, 2026, the Company, John Marshall Bancorp, Inc., a Virginia corporation ("JMSB") and George Sub, Inc., a newly formed Virginia corporation and a wholly owned subsidiary of JMSB ("Merger Sub") entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation (the "First Merger"), and immediately thereafter, the Company will merge with and into JMSB, with JMSB as the surviving corporation. The Merger Agreement was approved by the board of directors of each of the Company and JMSB on September 7, 2026. Subject to the terms and conditions of the Merger Agreement, at the effective time of the First Merger, each outstanding share of common stock of the Company, excluding certain specified shares owned by the Company, JMSB or their respective subsidiaries, will be converted into the right to receive 2.00 shares of common stock of JMSB, with cash to be paid in lieu of any fractional shares. The transaction is expected to close in the first quarter of 2027, subject to customary closing conditions, including receipt of required regulatory approvals, approval by the shareholders of the Company and JMSB, and the satisfaction or waiver of the other conditions set forth in the Merger Agreement. There can be no assurance that the transaction will be completed within the expected timeframe or at all.
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CRITICAL ACCOUNTING ESTIMATES
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.
Our most significant policies are described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to our audited financial statements for the year ended December 31, 2025, included in the Company's 2025 Annual Report on Form 10-K filed with the SEC. There have been no changes since that time.
NON-GAAP FINANCIAL MEASURES
This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including non-GAAP net income, non-GAAP noninterest income and expense, non-GAAP earnings per share, non-GAAP return on average equity and average assets, tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.
The Company executed significant non-recurring transactions during the second quarter of 2026 and the first quarter of 2025 that significantly impacted the Company's operating results for the respective periods. In May 2026, the Company sold its membership interest in Bearing Insurance Group, LLC ("Bearing") to an unaffiliated third party and recognized a pre-tax gain of $3.5 million. During the first quarter of 2025, the Company executed balance sheet repositioning transactions and recorded a realized loss on the sale of the available for sale securities totaling $12.4 million. Additionally, the Company incurred merger-related expenses during the third quarter of 2026 related to the announced merger with JMSB in September 2026. Merger-related expenses are anticipated to occur through the closing date of the transaction. These transactions significantly impacted the Company's operating results and certain performance metrics and ratios for the three months ended September 30, 2026 and the nine months ended September 30, 2026 and 2025.
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The following table reconciles the GAAP reported measure to the adjusted non-GAAP measure to show the impact of significant non-recurring transactions and merger-related expenses for the periods presented:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
(dollars in thousands except for per share data) |
2026 |
2025 |
2026 |
2025 |
||||||||||||
|
GAAP Net income |
$ |
4,750 |
$ |
5,584 |
$ |
13,471 |
$ |
3,880 |
||||||||
|
Adjustments to net income: |
||||||||||||||||
|
Loss on sales of securities |
- |
- |
- |
12,425 |
||||||||||||
|
(Gain) on sale of other assets |
- |
- |
(3,486 |
) |
- |
|||||||||||
|
Merger-related expenses |
342 |
- |
342 |
- |
||||||||||||
|
Tax effect of adjustments to net income |
(72 |
) |
- |
660 |
(2,609 |
) |
||||||||||
|
Non-GAAP Net income |
$ |
5,020 |
$ |
5,584 |
$ |
10,987 |
$ |
13,696 |
||||||||
|
GAAP Noninterest income |
$ |
5,296 |
$ |
5,165 |
$ |
18,814 |
$ |
1,528 |
||||||||
|
Adjustments to noninterest income: |
||||||||||||||||
|
Loss on sales of securities |
- |
- |
- |
12,425 |
||||||||||||
|
(Gain) on sale of other assets |
- |
- |
(3,486 |
) |
- |
|||||||||||
|
Non-GAAP Noninterest income |
$ |
5,296 |
$ |
5,165 |
$ |
15,328 |
$ |
13,953 |
||||||||
|
GAAP Noninterest expense |
$ |
16,127 |
$ |
14,344 |
$ |
45,870 |
$ |
40,332 |
||||||||
|
Adjustments to noninterest expense: |
||||||||||||||||
|
Merger-related expenses |
342 |
- |
342 |
- |
||||||||||||
|
Non-GAAP Noninterest expense |
$ |
15,785 |
$ |
14,344 |
$ |
45,528 |
$ |
40,332 |
||||||||
|
Earnings per share, basic and diluted (GAAP) |
$ |
0.88 |
$ |
1.04 |
$ |
2.49 |
$ |
0.76 |
||||||||
|
Effect of adjustments to net income |
0.05 |
- |
(0.46 |
) |
1.92 |
|||||||||||
|
Non-GAAP Earnings per share, basic and diluted |
$ |
0.93 |
$ |
1.04 |
$ |
2.03 |
$ |
2.68 |
||||||||
|
Annualized return on average equity |
9.66 |
% |
12.20 |
% |
9.35 |
% |
3.14 |
% |
||||||||
|
Effect of adjustments to net income |
0.55 |
% |
- |
% |
(1.73 |
)% |
7.94 |
% |
||||||||
|
Non-GAAP Annualized return on average equity |
10.21 |
% |
12.20 |
% |
7.62 |
% |
11.08 |
% |
||||||||
|
Annualized return on average assets |
1.01 |
% |
1.10 |
% |
0.97 |
% |
0.27 |
% |
||||||||
|
Effect of adjustments to net income |
0.06 |
% |
- |
% |
(0.18 |
)% |
0.67 |
% |
||||||||
|
Non-GAAP Annualized return on average assets |
1.07 |
% |
1.10 |
% |
0.79 |
% |
0.94 |
% |
||||||||
For additional information and calculations of tax-equivalent net interest income and efficiency ratio, see the sections entitled "Tax-Equivalent Net Interest Income" and "Efficiency Ratio" below.
FORWARD LOOKING STATEMENTS
This report contains statements that are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company may also make forward looking statements in other documents that are filed with the Securities and Exchange Commission, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors, or employees. Forward looking statements include statements regarding future plans, strategies and expectations of the Company, JMSB and the combined company, otherwise relating to the proposed transaction of the Company and JMSB, or our expectations, intentions, and objectives, or other expressions that predict or indicate future events and trends and which do not relate to historical matters. The words "believe," "expect," "may," "will," "should," "could," "projects," "contemplates," "anticipates," "forecasts," "intends," or other similar words or terms are intended to identify forward looking statements. You should not rely on forward looking statements, as they involve known and unknown risks, uncertainties, and other factors, some of which are beyond our, JMSB's and the combined company's control. These risks, uncertainties, and other factors may cause our actual results,
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performance, or achievements to be materially different than the anticipated future results, performance, or achievements expressed or implied by the forward looking statements.
Some of the factors that might cause these differences include the following:
•
the occurrence of any event, change or other circumstances that could give rise to the right of the Company or JMSB to terminate the Merger Agreement;
•
the outcome of any legal proceedings or governmental inquiries or actions that may be instituted against the Company, JMSB, or the combined company;
•
the possibility that the proposed transaction will not close when expected or at all because required regulatory, shareholder or other approvals or consents are not received or other conditions to closing are not satisfied on a timely basis or at all or are obtained subject to conditions that are not anticipated (and the risk that required regulatory approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed transaction);
•
the ability of the Company or JMSB to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed transaction;
•
any changes of, including the risk that any announcements relating to the proposed transaction could have adverse effects on, the market price of the common stock of the Company or JMSB;
•
the possibility that the anticipated benefits or synergies of the proposed transaction will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company and JMSB do business, and such integration may be more difficult, time-consuming or costly than expected and may result in unexpected liabilities or operational disruptions;
•
certain restrictions during the pendency of the proposed transaction that may impact the Company's and JMSB's ability to pursue certain business opportunities or strategic transactions;
•
the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
•
diversion of the Company management's or JMSB management's attention from ongoing business operations and opportunities;
•
difficult market conditions in our industry;
•
the ability to successfully manage growth or implement growth strategies if the Bank is unable to identify attractive markets, locations or opportunities to expand in the future or if the Bank is unable to successfully integrate new branches, business lines or other growth opportunities into its existing operations;
•
competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;
•
the successful management of interest rate risk;
•
risks inherent in making loans such as repayment risks and fluctuating collateral values;
•
the Company's ability to successfully resolve non-performing assets;
•
changes in general economic and business conditions in the Bank's market area;
•
reliance on the Bank's management team, including the ability to attract and retain key personnel;
•
changes in interest rates and interest rate policies;
•
maintaining capital levels adequate to support growth;
•
maintaining cost controls and asset qualities as new branches are opened or acquired;
•
demand, development and acceptance of new products and services;
•
deposit flows;
•
the Bank's ability to manage liquidity;
•
the cost and availability of secondary funding sources;
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•
effects of soundness of other financial institutions;
•
problems with technology utilized by the Bank;
•
changing trends in customer profiles and behavior;
•
geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;
•
the economic impact of duties, tariffs or other barriers or restrictions on trade, any retaliatory counter measures, or the volatility and uncertainty arising there from;
•
political developments, including government shutdowns, and other significant disruptions and changes in the funding, size, scope, and efficiencies of the federal government, its agencies and services;
•
the Company's potential exposure to fraud, negligence, computer theft, and cyber-crime;
•
potential impact on us of existing and future legislation and regulations;
•
changes in accounting policies and banking and other law and regulations; and
•
other factors described in Item 1A., "Risk Factors," in the Company's 2025 Form 10-K.
You should carefully review all of these factors and you should be aware that there may be other factors that cause these differences. These forward looking statements were based on information, plans, and estimates at the date of this report, and we assume no obligation to update any forward looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
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RESULTS OF OPERATIONS
Summary
The following tables present a summarized consolidated statement of income for the periods indicated:
|
Three Months Ended |
||||||||||||||||
|
September 30, |
Change |
|||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
$ Change |
% Change |
||||||||||||
|
Net interest income |
$ |
17,629 |
$ |
17,199 |
$ |
430 |
3 |
% |
||||||||
|
Noninterest income |
5,296 |
5,165 |
131 |
3 |
% |
|||||||||||
|
Net revenues |
22,925 |
22,364 |
561 |
3 |
% |
|||||||||||
|
Provision for credit losses |
1,050 |
1,112 |
(62 |
) |
-6 |
% |
||||||||||
|
Noninterest expense |
16,127 |
14,344 |
1,783 |
12 |
% |
|||||||||||
|
Income before income taxes |
5,748 |
6,908 |
(1,160 |
) |
-17 |
% |
||||||||||
|
Income tax expense |
998 |
1,324 |
(326 |
) |
-25 |
% |
||||||||||
|
Net income |
$ |
4,750 |
$ |
5,584 |
$ |
(834 |
) |
(15 |
)% |
|||||||
|
Adjusted net income (non-GAAP) (1) |
$ |
5,020 |
$ |
5,584 |
$ |
(564 |
) |
(10 |
)% |
|||||||
(1) Adjusted to exclude merger-related expenses in connection with the Company's pending merger with JMSB during the three months ended September 30, 2026. See "Non-GAAP Financial Measures" for a reconciliation to comparable measures calculated in accordance with GAAP.
|
Nine Months Ended |
||||||||||||||||
|
September 30, |
Change |
|||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
$ Change |
% Change |
||||||||||||
|
Net interest income |
$ |
50,502 |
$ |
46,233 |
$ |
4,269 |
9 |
% |
||||||||
|
Noninterest income |
18,814 |
1,528 |
17,286 |
1131 |
% |
|||||||||||
|
Net revenues |
69,316 |
47,761 |
21,555 |
45 |
% |
|||||||||||
|
Provision for credit losses |
6,514 |
3,013 |
3,501 |
116 |
% |
|||||||||||
|
Noninterest expense |
45,870 |
40,332 |
5,538 |
14 |
% |
|||||||||||
|
Income before income taxes |
16,932 |
4,416 |
12,516 |
283 |
% |
|||||||||||
|
Income tax expense |
3,461 |
536 |
2,925 |
546 |
% |
|||||||||||
|
Net income |
$ |
13,471 |
$ |
3,880 |
$ |
9,591 |
247 |
% |
||||||||
|
Adjusted net income (non-GAAP) (1) |
$ |
10,987 |
$ |
13,696 |
$ |
(2,709 |
) |
(20 |
)% |
|||||||
(1) Adjusted to exclude the gain on sale of other assets in connection with the Company's sale of its membership interest in Bearing, merger-related expenses in connection with the Company's pending merger with JMSB, and the loss on sale of securities in connection with the Company's balance sheet repositioning transactions recognized during the nine months ended September 30, 2026 and 2025. See "Non-GAAP Financial Measures" for a reconciliation to comparable measures calculated in accordance with GAAP.
The Company's net income decreased during the three months ended September 30, 2026, compared to the three months ended September 30, 2025 primarily due to higher noninterest expenses, partially offset by improved net interest income and lower income tax expense.
During the nine months ended September 30, 2026 the Company's net income increased compared to the nine months ended September 30, 2025 primarily due to loss on the sale of available for sale securities totaling $12.4 million, or $9.8 million, net of tax, recognized during the prior year period. The 2026 year-to-date period also increased due to improved net interest income and gain on sale of other assets, which was more than offset by higher noninterest expense, provision for credit losses, and income tax expense over the corresponding 2025 period.
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The following table presents a summary of performance metrics and ratios for the periods indicated:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
Earnings per share, basic and diluted |
$ |
0.88 |
$ |
1.04 |
$ |
2.49 |
$ |
0.76 |
||||||||
|
Adjusted earnings per share, basic and diluted (non-GAAP)(1) |
$ |
0.93 |
$ |
1.04 |
$ |
2.03 |
$ |
2.68 |
||||||||
|
Annualized return on average assets |
1.01 |
% |
1.10 |
% |
0.97 |
% |
0.27 |
% |
||||||||
|
Adjusted annualized return on average assets (non-GAAP)(1) |
1.07 |
% |
1.10 |
% |
0.79 |
% |
0.94 |
% |
||||||||
|
Annualized return on average equity |
9.66 |
% |
12.20 |
% |
9.35 |
% |
3.14 |
% |
||||||||
|
Adjusted annualized return on average equity (non-GAAP)(1) |
10.21 |
% |
12.20 |
% |
7.62 |
% |
11.08 |
% |
||||||||
(1) Adjusted to exclude merger-related expenses incurred during the third quarter 2026 in connection with the Company's pending merger with JMSB, gain on sale of other assets in connection with the Company's second quarter 2026 sale of its membership interest in Bearing and the loss on sale of securities in connection with the Company's balance sheet repositioning transactions during the first quarter of 2025. See "Non-GAAP Financial Measures" for a reconciliation to comparable measures calculated in accordance with GAAP.
Return on average equity ("ROE") measures the utilization of shareholders' equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company's assets are funded by shareholders.
Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company's asset mix, funding sources, pricing, fee generation, and cost control.
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Average Balances, Income and Expenses, Yields and Rates (Tax-Equivalent Basis)
The following table shows average balance, interest, and yield/rate information, as well as net interest margin on a tax- equivalent basis for the three months ended September 30, 2026 and 2025 (dollars in thousands):
|
September 30, 2026 |
September 30, 2025 |
|||||||||||||||||||||||
|
Interest |
Average |
Interest |
Average |
|||||||||||||||||||||
|
Average |
Income/ |
Yield/ |
Average |
Income/ |
Yield/ |
|||||||||||||||||||
|
Assets: |
Balance |
Expense |
Rate (2) |
Balance |
Expense |
Rate (2) |
||||||||||||||||||
|
Securities: |
||||||||||||||||||||||||
|
Taxable |
$ |
109,875 |
$ |
1,098 |
3.96 |
% |
$ |
124,891 |
$ |
1,353 |
4.30 |
% |
||||||||||||
|
Tax-Exempt (1) |
- |
- |
- |
% |
- |
- |
- |
% |
||||||||||||||||
|
Total Securities |
$ |
109,875 |
$ |
1,098 |
3.96 |
% |
$ |
124,891 |
$ |
1,353 |
4.30 |
% |
||||||||||||
|
Loans: |
||||||||||||||||||||||||
|
Taxable |
1,492,680 |
22,680 |
6.03 |
% |
1,423,586 |
20,626 |
5.75 |
% |
||||||||||||||||
|
Non-accrual |
15,358 |
- |
- |
% |
15,058 |
- |
- |
% |
||||||||||||||||
|
Tax-Exempt (1) |
6,388 |
82 |
5.09 |
% |
9,454 |
121 |
5.08 |
% |
||||||||||||||||
|
Total Loans |
$ |
1,514,426 |
$ |
22,762 |
5.96 |
% |
$ |
1,448,098 |
$ |
20,747 |
5.68 |
% |
||||||||||||
|
Federal funds sold and interest-bearing deposits in other banks |
149,722 |
1,375 |
3.64 |
% |
336,562 |
3,858 |
4.55 |
% |
||||||||||||||||
|
Total earning assets |
$ |
1,774,023 |
$ |
25,235 |
5.64 |
% |
$ |
1,909,551 |
$ |
25,958 |
5.39 |
% |
||||||||||||
|
Allowance for credit losses on loans |
(18,255 |
) |
(15,699 |
) |
||||||||||||||||||||
|
Total non-earning assets |
103,104 |
118,550 |
||||||||||||||||||||||
|
Total assets |
$ |
1,858,872 |
$ |
2,012,402 |
||||||||||||||||||||
|
Liabilities and Shareholders' Equity: |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
NOW accounts |
$ |
302,243 |
$ |
1,679 |
2.20 |
% |
$ |
314,742 |
$ |
1,863 |
2.35 |
% |
||||||||||||
|
Money market accounts |
304,800 |
1,714 |
2.23 |
% |
267,787 |
1,478 |
2.19 |
% |
||||||||||||||||
|
Savings accounts |
119,006 |
32 |
0.11 |
% |
125,512 |
35 |
0.11 |
% |
||||||||||||||||
|
Time deposits: |
||||||||||||||||||||||||
|
$250,000 and more |
173,413 |
1,613 |
3.69 |
% |
170,124 |
1,761 |
4.11 |
% |
||||||||||||||||
|
Less than $250,000 |
249,986 |
2,197 |
3.49 |
% |
281,617 |
2,749 |
3.87 |
% |
||||||||||||||||
|
Total interest-bearing deposits |
$ |
1,149,448 |
$ |
7,235 |
2.50 |
% |
$ |
1,159,782 |
$ |
7,886 |
2.70 |
% |
||||||||||||
|
Federal funds purchased |
- |
- |
- |
% |
7 |
- |
NM |
|||||||||||||||||
|
Federal Home Loan Bank advances |
- |
- |
- |
% |
40,000 |
494 |
4.90 |
% |
||||||||||||||||
|
Subordinated debt, net |
29,619 |
354 |
4.74 |
% |
29,552 |
354 |
4.75 |
% |
||||||||||||||||
|
Total interest-bearing liabilities |
$ |
1,179,067 |
$ |
7,589 |
2.55 |
% |
$ |
1,229,341 |
$ |
8,734 |
2.82 |
% |
||||||||||||
|
Noninterest-bearing liabilities: |
||||||||||||||||||||||||
|
Demand deposits |
461,525 |
579,568 |
||||||||||||||||||||||
|
Other Liabilities |
23,208 |
21,863 |
||||||||||||||||||||||
|
Total liabilities |
$ |
1,663,800 |
$ |
1,830,772 |
||||||||||||||||||||
|
Shareholders' equity |
195,072 |
181,630 |
||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
1,858,872 |
$ |
2,012,402 |
||||||||||||||||||||
|
Net interest income |
$ |
17,646 |
$ |
17,224 |
||||||||||||||||||||
|
Net interest spread |
3.09 |
% |
2.57 |
% |
||||||||||||||||||||
|
Interest expense as a percent of average earning assets |
1.70 |
% |
1.81 |
% |
||||||||||||||||||||
|
Net interest margin (non-GAAP) (3) |
3.95 |
% |
3.58 |
% |
||||||||||||||||||||
(1)
Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21% (Non-GAAP).
(2)
Annualized.
(3)
Refer to section entitled "Tax-Equivalent Net Interest Income" for the reconciliation of tax-equivalent net interest income.
NM - Not Meaningful
TABLE OF CONTENTS
The following table shows average balance, interest, and yield/rate information, as well as net interest margin on a tax- equivalent basis for the nine months ended September 30, 2026 and 2025 (dollars in thousands):
|
September 30, 2026 |
September 30, 2025 |
|||||||||||||||||||||||
|
Interest |
Average |
Interest |
Average |
|||||||||||||||||||||
|
Average |
Income/ |
Yield/ |
Average |
Income/ |
Yield/ |
|||||||||||||||||||
|
Assets: |
Balance |
Expense |
Rate (2) |
Balance |
Expense |
Rate (2) |
||||||||||||||||||
|
Securities: |
||||||||||||||||||||||||
|
Taxable |
$ |
115,970 |
$ |
3,659 |
4.22 |
% |
$ |
119,351 |
$ |
3,457 |
3.87 |
% |
||||||||||||
|
Tax-Exempt (1) |
- |
- |
- |
% |
116 |
4 |
4.61 |
% |
||||||||||||||||
|
Total Securities |
$ |
115,970 |
$ |
3,659 |
4.22 |
% |
$ |
119,467 |
$ |
3,461 |
3.87 |
% |
||||||||||||
|
Loans: |
||||||||||||||||||||||||
|
Taxable |
1,469,890 |
64,994 |
5.91 |
% |
1,428,186 |
60,806 |
5.69 |
% |
||||||||||||||||
|
Non-accrual |
15,004 |
- |
- |
% |
11,825 |
- |
- |
% |
||||||||||||||||
|
Tax-Exempt (1) |
6,942 |
263 |
5.07 |
% |
9,859 |
374 |
5.07 |
% |
||||||||||||||||
|
Total Loans |
$ |
1,491,836 |
$ |
65,257 |
5.85 |
% |
$ |
1,449,870 |
$ |
61,180 |
5.64 |
% |
||||||||||||
|
Federal funds sold and interest-bearing deposits in other banks |
165,036 |
4,558 |
3.69 |
% |
288,033 |
9,688 |
4.50 |
% |
||||||||||||||||
|
Total earning assets |
$ |
1,772,842 |
$ |
73,474 |
5.54 |
% |
$ |
1,857,370 |
$ |
74,329 |
5.35 |
% |
||||||||||||
|
Allowance for credit losses on loans |
(17,246 |
) |
(15,457 |
) |
||||||||||||||||||||
|
Total non-earning assets |
103,190 |
109,072 |
||||||||||||||||||||||
|
Total assets |
$ |
1,858,786 |
$ |
1,950,985 |
||||||||||||||||||||
|
Liabilities and Shareholders' Equity: |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
NOW accounts |
$ |
309,414 |
$ |
5,030 |
2.17 |
% |
$ |
298,045 |
$ |
4,958 |
2.22 |
% |
||||||||||||
|
Money market accounts |
294,607 |
4,807 |
2.18 |
% |
271,758 |
4,511 |
2.22 |
% |
||||||||||||||||
|
Savings accounts |
121,337 |
97 |
0.11 |
% |
129,500 |
108 |
0.11 |
% |
||||||||||||||||
|
Time deposits: |
||||||||||||||||||||||||
|
$250,000 and more |
171,621 |
4,848 |
3.78 |
% |
176,676 |
5,788 |
4.38 |
% |
||||||||||||||||
|
Less than $250,000 |
254,050 |
6,728 |
3.54 |
% |
300,965 |
9,288 |
4.13 |
% |
||||||||||||||||
|
Total interest-bearing deposits |
$ |
1,151,029 |
$ |
21,510 |
2.50 |
% |
$ |
1,176,944 |
$ |
24,653 |
2.80 |
% |
||||||||||||
|
Federal funds purchased |
3 |
- |
NM |
5 |
- |
NM |
||||||||||||||||||
|
Federal Home Loan Bank advances |
9,377 |
344 |
4.90 |
% |
63,535 |
2,301 |
4.84 |
% |
||||||||||||||||
|
Subordinated debt, net |
29,602 |
1,063 |
4.80 |
% |
29,535 |
1,063 |
4.81 |
% |
||||||||||||||||
|
Total interest-bearing liabilities |
$ |
1,190,011 |
$ |
22,917 |
2.57 |
% |
$ |
1,270,019 |
$ |
28,017 |
2.95 |
% |
||||||||||||
|
Noninterest-bearing liabilities: |
||||||||||||||||||||||||
|
Demand deposits |
453,332 |
494,034 |
||||||||||||||||||||||
|
Other Liabilities |
22,718 |
21,736 |
||||||||||||||||||||||
|
Total liabilities |
$ |
1,666,061 |
$ |
1,785,789 |
||||||||||||||||||||
|
Shareholders' equity |
192,725 |
165,196 |
||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
1,858,786 |
$ |
1,950,985 |
||||||||||||||||||||
|
Net interest income |
$ |
50,557 |
$ |
46,312 |
||||||||||||||||||||
|
Net interest spread |
2.97 |
% |
2.40 |
% |
||||||||||||||||||||
|
Interest expense as a percent of average earning assets |
1.73 |
% |
2.02 |
% |
||||||||||||||||||||
|
Net interest margin (non-GAAP) (3) |
3.81 |
% |
3.33 |
% |
||||||||||||||||||||
(1)
Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21% (Non-GAAP).
(2)
Annualized.
(3)
Refer to section entitled "Tax-Equivalent Net Interest Income" for the reconciliation of tax-equivalent net interest income.
NM - Not Meaningful
Tax-Equivalent Net Interest Income
The following table reconciles tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income. Tax-equivalent net interest income (Non-GAAP) is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2026 and 2025.
TABLE OF CONTENTS
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
(in thousands) |
||||||||||||||||
|
GAAP Financial Measurements: |
||||||||||||||||
|
Interest Income - Loans |
$ |
22,745 |
$ |
20,722 |
$ |
65,202 |
$ |
61,102 |
||||||||
|
Interest Income - Securities and Other Interest-Earnings Assets |
2,473 |
5,211 |
8,217 |
13,148 |
||||||||||||
|
Interest Expense - Deposits |
7,235 |
7,886 |
21,510 |
24,653 |
||||||||||||
|
Interest Expense - Borrowings |
354 |
848 |
1,407 |
3,364 |
||||||||||||
|
Total Net Interest Income |
$ |
17,629 |
$ |
17,199 |
$ |
50,502 |
$ |
46,233 |
||||||||
|
Non-GAAP Financial Measurements: |
||||||||||||||||
|
Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1) |
$ |
17 |
$ |
25 |
$ |
55 |
$ |
78 |
||||||||
|
Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1) |
- |
$ |
- |
- |
1 |
|||||||||||
|
Total Tax Benefit on Tax-Exempt Interest Income |
$ |
17 |
$ |
25 |
$ |
55 |
$ |
79 |
||||||||
|
Tax-Equivalent Net Interest Income |
$ |
17,646 |
$ |
17,224 |
$ |
50,557 |
$ |
46,312 |
||||||||
(1)
Tax benefit was calculated using the federal statutory tax rate of 21%.
Net Interest Income
Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates.
The year-over-year improvements in net interest income, net interest spread, and net interest margin reflect a reduction in cost associated with time deposits and continue to demonstrate the benefits of the balance sheet repositioning strategy completed in March 2025, in which the Company raised capital, increased cash on hand and replaced lower-yielding investment securities with higher yielding securities. In turn, the Company deployed capital to reduce its reliance on wholesale borrowings and higher cost deposits and to fund meaningful loan growth.
The increase in net interest income during the three and nine months ended September 30, 2026 primarily reflects decreases in the average balances of interest-bearing liabilities and reductions in the average rates paid while being partially offset by lower income from interest-earning assets, namely federal funds sold and interest-bearing deposits in other banks. The decline in the average balances of federal funds sold and interest-bearing deposits in other banks outpaced average balance growth in loans, slightly outweighing earnings on loans.
Net interest income, on a tax-equivalent basis, was $17.6 million and $17.2 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $422 thousand, or 2.45%. For the nine months ended September 30, 2026 and 2025, tax-equivalent net interest income was $50.6 million and $46.3 million, respectively, an increase of $4.3 million, or 9.2%.
The Company's net interest spread and net interest margin increased 52 basis points and 37 basis points, respectively, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. For the nine months ended September 30, 2026, the Company's net interest spread and net interest margin increased 57 basis points and 48 basis points, respectively, compared to nine months ended September 30, 2025. Ongoing margin pressures include loan demand unpredictability, deposit competition, and elevated funding costs.
Total average balance of securities decreased by $15.0 million and $3.5 million for the three and nine months ended September 30, 2026, respectively, from the average balance in the prior year periods. The average yield on securities decreased 34 basis points during the three months ended September 30, 2026 compared to the three months ended September 30, 2025. During the nine months ended September 30, 2026, the average yield on securities increased 35 basis points compared to the nine
TABLE OF CONTENTS
months ended September 30, 2025, reflecting the sale of lower-yielding securities and reinvestment into higher-yielding securities in the first quarter of 2025.
The total average loan balances for the three months ended September 30, 2026 increased $66.3 million and for the nine months ended September 30, 2026 increased $42.0 million compared to the same periods in 2025. The increase in average balances reflects growth in commercial real estate, construction, commercial and industrial, and residential owner occupied loan portfolios, offset by continued amortization of the marine loan portfolio. The year-to-date change was also impacted by the sale of a pool of mortgage loans totaling $18.8 million early in the first quarter of 2025.
Total average balance of federal funds sold and interest-bearing deposits in other banks decreased $186.8 million and $123.0 million during the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025, largely due to funding loan growth and the payoff of maturing borrowings.
Total average interest-bearing deposit balances for three and nine months ended September 30, 2026 decreased $10.3 million and $25.9 million from the same periods in 2025. For the three months ended September 30, 2026, average balances of time deposits decreased $28.3 million and were partially offset by a net average balance increase of $18.0 million in lower cost savings and interest-bearing demand deposits. The average rate paid on interest-bearing deposits decreased 20 basis points and 30 basis points during the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025 primarily reflecting lower average rates paid on time deposits.
The average balance of FHLB advances decreased $40.0 million and $54.2 million during the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025 due to maturing advances that were not replaced with new borrowings. During March 2026, the Company's remaining FHLB borrowings were fully paid down, which materially reduced our reliance on wholesale funding.
Volume and Rate Analysis (Tax-Equivalent Basis)
Interest income and expense are affected by fluctuation in interest rates, by changes in the volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each.
TABLE OF CONTENTS
The following table provides information about changes in rate and volume (dollars in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||
|
September 30, 2026 from 2025 |
September 30, 2026 from 2025 |
|||||||||||||||||||||||
|
Increase (Decrease) |
Increase (Decrease) |
|||||||||||||||||||||||
|
Volume |
Rate |
Total |
Volume |
Rate |
Total |
|||||||||||||||||||
|
Earning Assets: |
||||||||||||||||||||||||
|
Securities: |
||||||||||||||||||||||||
|
Taxable |
$ |
(154 |
) |
$ |
(101 |
) |
$ |
(255 |
) |
$ |
(92 |
) |
$ |
294 |
$ |
202 |
||||||||
|
Tax-exempt |
- |
- |
- |
(2 |
) |
(2 |
) |
(4 |
) |
|||||||||||||||
|
Loans: |
||||||||||||||||||||||||
|
Taxable |
1,025 |
1,029 |
2,054 |
1,802 |
2,386 |
4,188 |
||||||||||||||||||
|
Tax-exempt |
(39 |
) |
- |
(39 |
) |
(111 |
) |
- |
(111 |
) |
||||||||||||||
|
Federal funds sold and interest-bearing deposits in other banks |
(1,825 |
) |
(658 |
) |
(2,483 |
) |
(3,609 |
) |
(1,521 |
) |
(5,130 |
) |
||||||||||||
|
Total earning assets |
$ |
(993 |
) |
$ |
270 |
$ |
(723 |
) |
$ |
(2,012 |
) |
$ |
1,157 |
$ |
(855 |
) |
||||||||
|
Interest-Bearing Liabilities: |
||||||||||||||||||||||||
|
NOW accounts |
$ |
(71 |
) |
$ |
(113 |
) |
$ |
(184 |
) |
$ |
176 |
$ |
(104 |
) |
$ |
72 |
||||||||
|
Money market accounts |
208 |
28 |
236 |
377 |
(81 |
) |
296 |
|||||||||||||||||
|
Savings accounts |
(3 |
) |
- |
(3 |
) |
(11 |
) |
- |
(11 |
) |
||||||||||||||
|
Time deposits: |
||||||||||||||||||||||||
|
$250,000 and more |
35 |
(183 |
) |
(148 |
) |
(162 |
) |
(778 |
) |
(940 |
) |
|||||||||||||
|
Less than $250,000 |
(295 |
) |
(257 |
) |
(552 |
) |
(1,336 |
) |
(1,224 |
) |
(2,560 |
) |
||||||||||||
|
Total interest-bearing deposits |
$ |
(126 |
) |
$ |
(525 |
) |
$ |
(651 |
) |
$ |
(956 |
) |
$ |
(2,187 |
) |
$ |
(3,143 |
) |
||||||
|
Federal Home Loan Bank advances |
(247 |
) |
(247 |
) |
(494 |
) |
(1,986 |
) |
29 |
(1,957 |
) |
|||||||||||||
|
Total interest-bearing liabilities |
$ |
(373 |
) |
$ |
(772 |
) |
$ |
(1,145 |
) |
$ |
(2,942 |
) |
$ |
(2,158 |
) |
$ |
(5,100 |
) |
||||||
|
Change in net interest income |
$ |
(620 |
) |
$ |
1,042 |
$ |
422 |
$ |
930 |
$ |
3,315 |
$ |
4,245 |
|||||||||||
Provision for Credit Losses
The provision for credit losses results from management's review of the adequacy of the allowance for credit losses. The allowance for credit losses is management's estimate, at the reporting date, of expected lifetime credit losses and includes consideration of current forecasted economic conditions. Estimating the amount required to maintain an adequate allowance for credit losses involves a high degree of judgment.
The following table presents the provision for credit losses:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||||||||||||||||||
|
$ |
% |
$ |
% |
|||||||||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
Change |
Change |
2026 |
2025 |
Change |
Change |
||||||||||||||||||||||||
|
Provision for credit losses on loans |
$ |
1,261 |
$ |
1,131 |
$ |
130 |
11 |
% |
$ |
6,440 |
$ |
3,133 |
$ |
3,307 |
106 |
% |
||||||||||||||||
|
Provision for credit losses on unfunded commitments |
(211 |
) |
(19 |
) |
(192 |
) |
1,011 |
% |
74 |
(120 |
) |
194 |
(162 |
)% |
||||||||||||||||||
|
Provision for credit losses |
$ |
1,050 |
$ |
1,112 |
$ |
(62 |
) |
(6 |
)% |
$ |
6,514 |
$ |
3,013 |
$ |
3,501 |
116 |
% |
|||||||||||||||
The provision for credit losses includes the impact of a change in historical loss factors driven by charge-offs, changes in qualitative factors adjustments including forecasted economic conditions and loan growth, and specific reserve allocations on individually evaluated nonaccrual loans.
The provision for credit losses increased for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025, reflecting higher historical loss factors and specific reserve allocations, partially offset by lower qualitative
TABLE OF CONTENTS
factor adjustments. For the three months ended September 30, 2026, these same components also affected the change from the three months ended September 30, 2025. However, the change in provision attributable to the qualitative factor adjustments slightly offset the historical loss factor and specific reserve allocations, resulting in an overall decrease in provision for credit losses for the three-month period.
The qualitative factor for the nature, terms, and volume of the loan portfolio is intended to capture incremental risk arising from portfolio growth that is not otherwise reflected in the quantitative estimate. During the three months ended September 30, 2026, this factor was refined to provide a more representative assessment of sustained portfolio growth trends and their relationship to expected credit losses. This refinement was the primary reason for the lower qualitative factor adjustment.
For the three and nine months ended September 30, 2026, net charge-offs totaled $1.0 million and $3.2 million, compared to net charge-offs totaling $2.3 million and $3.4 million during the three and nine months ended September 30, 2025, respectively.
Specific reserve allocations totaled $3.4 million at September 30, 2026, compared to $333 thousand at September 30, 2025, primarily reflecting new and increased allocations on commercial loan relationships during 2026. At September 30, 2026, six commercial loan relationships comprised $3.1 million, or 91%, of the total specific reserve allocation, including two commercial and industrial relationships, two multi-family commercial real estate relationships, one owner-occupied commercial real estate exposure, and one marine relationship. The $3.1 million increase from September 30, 2025 was primarily attributable to these six relationships. Specific allocations on three of these commercial loan relationships were recorded based on updated collateral information, while three new nonaccrual relationships requiring specific allocations were added during the second and third quarters of 2026. These increases were partially offset by charge-offs of loan balances with previously established specific reserve balances.
Noninterest Income
Total noninterest income was $5.3 million and $5.2 million for the three months ended September 30, 2026 and 2025, respectively, and $18.8 million and $1.5 million for the nine months ended September 30, 2026 and 2025, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three and nine months ended September 30, 2026 and 2025, which are included within the respective Consolidated Statements of Income headings.
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
$ Change |
% Change |
2026 |
2025 |
$ Change |
% Change |
||||||||||||||||||||||||
|
Wealth management fees |
$ |
1,744 |
$ |
1,827 |
$ |
(83 |
) |
(5 |
)% |
$ |
5,723 |
$ |
5,158 |
$ |
565 |
11 |
% |
|||||||||||||||
|
Service charges on deposit accounts |
606 |
558 |
48 |
9 |
% |
1,725 |
1,567 |
158 |
10 |
% |
||||||||||||||||||||||
|
Other service charges and fees |
1,096 |
1,151 |
(55 |
) |
(5 |
)% |
3,045 |
3,183 |
(138 |
) |
(4 |
)% |
||||||||||||||||||||
|
(Loss) on sale of securities |
- |
- |
- |
- |
% |
- |
(12,425 |
) |
12,425 |
NM |
||||||||||||||||||||||
|
Gain (loss) on disposal of bank premises and equipment |
7 |
(2 |
) |
9 |
450 |
% |
3 |
(18 |
) |
21 |
(117 |
)% |
||||||||||||||||||||
|
Gain on sale of loans |
1,255 |
1,012 |
243 |
24 |
% |
2,913 |
2,545 |
368 |
14 |
% |
||||||||||||||||||||||
|
Gain on sale of other assets |
- |
- |
- |
- |
% |
3,486 |
- |
3,486 |
100 |
% |
||||||||||||||||||||||
|
Small business investment company income |
213 |
58 |
155 |
267 |
% |
589 |
211 |
378 |
179 |
% |
||||||||||||||||||||||
|
Bank owned life insurance income |
280 |
268 |
12 |
4 |
% |
853 |
819 |
34 |
4 |
% |
||||||||||||||||||||||
|
Other operating income |
95 |
293 |
(198 |
) |
(68 |
)% |
477 |
488 |
(11 |
) |
(2 |
)% |
||||||||||||||||||||
|
Total noninterest income |
$ |
5,296 |
$ |
5,165 |
$ |
131 |
3 |
% |
$ |
18,814 |
$ |
1,528 |
$ |
17,286 |
1131 |
% |
||||||||||||||||
NM - Not Meaningful
Wealth management fee income increased during the nine months ended September 30, 2026 compared to the same period in 2025. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale
TABLE OF CONTENTS
of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management. Since September 30, 2025, assets under management increased $58.4 million, or 10.8%, to $601.6 million, reflecting increases in market value and new business accounts. Additionally, termination fees have also contributed to the year over year increase in revenue. Partially offsetting these increases was a decrease in investment sales commissions and estate settlement fees.
Service charges on deposit accounts increased during the three and nine months ended September 30, 2026 compared to the same period in 2025. The increase is mainly driven by higher overdraft charges and account analysis income.
The Company executed balance sheet repositioning transactions within its investment securities portfolio during March 2025. The sale of $99.2 million of available for sale debt securities, with a fair value of $86.8 million, resulted in a net pre-tax loss of $12.4 million during the nine months ended September 30, 2025. There were no sales of available for sale debt securities in the three and nine months ended September 30, 2026.
Gain on sale of loans increased during the three and nine months ended September 30, 2026 when compared to the same periods in 2025. Higher sales volume drove the increase during three months ended September 30, 2026 compared to three months ended September 30, 2025. For the nine months ended September 30, 2026, sales volume was slightly lower, due to sales of $18.3 million of portfolio mortgage loans sold during the nine months ended September 30, 2025. These portfolio mortgage loans were priced at par and had a minimal impact on income. Excluding the portfolio loan sale, sold loan volume increased during the nine months ended September 30, 2026. The Company sold $85.0 million loans on the secondary market, consisting of $66.0 million of mortgage loans and $19.0 million of SBA commercial loans during the nine months ended September 30, 2026. This compares to total loan sales of $88.6 million during the nine months ended September 30, 2025, consisting of $53.5 million of mortgage loans originated for sale, $16.3 million SBA commercial loans, and a pool of $18.8 million residential mortgage loans held for investment.
Gain on sale of other assets during the nine months ended September 30, 2026 reflects the Company's sale of its membership interest in Bearing to an unaffiliated third party in May 2026.
Income from holdings in small business investment companies increased during the three and nine months ended September 30, 2026, compared to the same periods in 2025. The increases during the current year periods are mainly attributed to higher cash distributions received, based on the results of their performance and difference in timing of distributions.
TABLE OF CONTENTS
Noninterest Expenses
Total noninterest expenses increased $1.8 million, or 12%, for the three months ended September 30, 2026 and $5.5 million, or 14%, for the nine months ended September 30, 2026 compared to the same periods in 2025. The following table presents the components of noninterest expense for the three and nine months ended September 30, 2026 and 2025, which are included within the respective Consolidated Statements of Income headings.
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
$ Change |
% Change |
2026 |
2025 |
$ Change |
% Change |
||||||||||||||||||||||||
|
Salaries and employee benefits |
$ |
9,627 |
$ |
8,717 |
$ |
910 |
10 |
% |
$ |
27,068 |
$ |
23,741 |
$ |
3,327 |
14 |
% |
||||||||||||||||
|
Occupancy expenses |
696 |
691 |
5 |
1 |
% |
1,975 |
1,951 |
24 |
1 |
% |
||||||||||||||||||||||
|
Equipment expenses |
495 |
437 |
58 |
13 |
% |
1,408 |
1,261 |
147 |
12 |
% |
||||||||||||||||||||||
|
Advertising and marketing expenses |
264 |
317 |
(53 |
) |
(17 |
)% |
750 |
652 |
98 |
15 |
% |
|||||||||||||||||||||
|
Stationery and supplies |
39 |
37 |
2 |
5 |
% |
115 |
114 |
1 |
1 |
% |
||||||||||||||||||||||
|
ATM network fees |
330 |
327 |
3 |
1 |
% |
983 |
1,021 |
(38 |
) |
(4 |
)% |
|||||||||||||||||||||
|
Other real estate owned expense (gain), net |
- |
- |
- |
- |
% |
(5 |
) |
- |
(5 |
) |
100 |
% |
||||||||||||||||||||
|
Loss on sale of repossessed assets |
15 |
- |
15 |
- |
% |
54 |
133 |
(79 |
) |
(59 |
)% |
|||||||||||||||||||||
|
FDIC assessment |
200 |
172 |
28 |
16 |
% |
596 |
748 |
(152 |
) |
(20 |
)% |
|||||||||||||||||||||
|
Computer software expense |
432 |
389 |
43 |
11 |
% |
1,208 |
996 |
212 |
21 |
% |
||||||||||||||||||||||
|
Bank franchise tax |
530 |
388 |
142 |
37 |
% |
1,541 |
1,136 |
405 |
36 |
% |
||||||||||||||||||||||
|
Professional fees |
716 |
493 |
223 |
45 |
% |
1,871 |
1,697 |
174 |
10 |
% |
||||||||||||||||||||||
|
Data processing fees |
553 |
469 |
84 |
18 |
% |
1,630 |
1,652 |
(22 |
) |
(1 |
)% |
|||||||||||||||||||||
|
Loan servicing expense |
274 |
280 |
(6 |
) |
(2 |
)% |
803 |
779 |
24 |
3 |
% |
|||||||||||||||||||||
|
Merger-related expenses |
342 |
- |
342 |
100 |
% |
342 |
- |
342 |
100 |
% |
||||||||||||||||||||||
|
Other operating expenses |
1,614 |
1,627 |
(13 |
) |
(1 |
)% |
5,531 |
4,451 |
1,080 |
24 |
% |
|||||||||||||||||||||
|
Total noninterest expenses |
$ |
16,127 |
$ |
14,344 |
$ |
1,783 |
12 |
% |
$ |
45,870 |
$ |
40,332 |
$ |
5,538 |
14 |
% |
||||||||||||||||
Salaries and employee benefits increased during the three and nine months ended September 30, 2026 over 2025, primarily reflecting increases in salaries due to investments in staffing and higher annual incentive compensation plan accruals as certain performance metrics were attained. Further contributing to the increases were higher stock-based compensation expense and employee medical insurance costs. The Company's number of full-time equivalent employees ("FTE's") has increased from 249 at September 30, 2025 to 261 at September 30, 2026.
FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the nine months ended September 30, 2026 compared to the same period in 2025. The decreased expense primarily reflects an improvement in the financial ratio portions of the assessment rate reflecting a stronger capital position largely due to improved net income during 2026 and the capital raise completed in early 2025.
Computer software and equipment expenses increased during the three and nine months ended September 30, 2026 compared to the same periods in 2025 reflecting higher costs of system solutions enhancing security and operational efficiency throughout the organization.
Bank Franchise tax increased during the three and nine months ended September 30, 2026 compared to the same periods in 2025 due to a higher estimate for 2026, reflective of the Bank's capital level.
Professional fees increased during the three and nine months ended September 30, 2026 primarily due to higher expenses related to employee recruitment fees and legal fees on loan matters, as well as consulting fees in conjunction with the purchase of tax credits.
TABLE OF CONTENTS
In September 2026, the Company entered into a Merger Agreement, which is discussed above and in Note 2. As a result, the Company incurred merger-related expenses totaling $342 thousand during the three and nine months ended September 30, 2026. These expenses are expected to occur through the closing date of the transaction, anticipated in the first quarter of 2027. There were no merger-related expenses incurred during the three and nine months ended September 30, 2025.
Other operating expenses increased during the nine months ended September 30, 2026 compared to the same period in 2025. The increase largely reflects higher expenses related to volume based costs, loan collection, and other loan costs as well as higher charitable contributions primarily driven by the Bank's matching of donations from a very successful "Give with BOC" campaign. Partially offsetting this was a decline in fraudulent transaction activity costs in 2026 compared to 2025.
Efficiency Ratio
The efficiency ratio of the Company was 68.76% and 64.06% for the three months ended September 30, 2026 and 2025, respectively and 69.02% and 66.68% for the nine months ended September 30, 2026 and 2025. The deterioration in the efficiency ratio during the 2026 periods reflects increases in noninterest expenses, partially offset by increases in net interest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income. The Company adjusts for non-recurring or non-operating items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed or other assets, merger-related expenses, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.
The calculation of the efficiency ratio for the three and nine months ended September 30, 2026 and 2025 was as follows:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
(in thousands) |
(in thousands) |
|||||||||||||||
|
Summary of Operating Results: |
||||||||||||||||
|
Noninterest expenses (GAAP) |
$ |
16,127 |
$ |
14,344 |
$ |
45,870 |
$ |
40,332 |
||||||||
|
Less: Loss on sale of repossessed assets |
15 |
- |
54 |
133 |
||||||||||||
|
Merger-related expenses |
342 |
- |
342 |
- |
||||||||||||
|
Adjusted noninterest expenses (Non-GAAP) |
$ |
15,770 |
$ |
14,344 |
$ |
45,474 |
$ |
40,199 |
||||||||
|
Net interest income |
17,629 |
17,199 |
50,502 |
46,233 |
||||||||||||
|
Noninterest income (GAAP) |
5,296 |
5,165 |
18,814 |
1,528 |
||||||||||||
|
Less: Gain (Loss) on the sale and disposal of premises and equipment |
7 |
(2 |
) |
3 |
(18 |
) |
||||||||||
|
Less: Gain on the sale of other assets |
- |
- |
3,486 |
- |
||||||||||||
|
Less: (Loss) on the sale of securities |
- |
- |
- |
(12,425 |
) |
|||||||||||
|
Adjusted noninterest income (Non-GAAP) |
$ |
5,289 |
$ |
5,167 |
$ |
15,325 |
$ |
13,971 |
||||||||
|
Tax equivalent adjustment (1) |
17 |
25 |
55 |
79 |
||||||||||||
|
Total net interest income and noninterest income, adjusted (Non-GAAP) |
$ |
22,935 |
$ |
22,391 |
$ |
65,882 |
$ |
60,283 |
||||||||
|
Efficiency ratio |
68.76 |
% |
64.06 |
% |
69.02 |
% |
66.68 |
% |
||||||||
(1)
Includes tax-equivalent adjustments on loans and securities using the federal statutory tax rate of 21%.
TABLE OF CONTENTS
Income Taxes
The following table presents the Company's income tax provision and effective tax rate for the periods indicated:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
2026 |
2025 |
||||||||||||
|
Income tax expense |
$ |
998 |
$ |
1,324 |
$ |
3,461 |
$ |
536 |
||||||||
|
Effective income tax rate |
17.36 |
% |
19.17 |
% |
20.44 |
% |
12.14 |
% |
||||||||
Income tax expense for the three months ended September 30, 2026 was comprised of federal and state income taxes of $850 thousand and $148 thousand, respectively. For the three months ended September 30, 2025, the Company recognized income tax expense of $1.3 million, comprised of federal and state income taxes of $1.3 million and $27 thousand, respectively.
For the nine months ended September 30, 2026, income tax expense was comprised of federal and state income taxes of $3.2 million and $260 thousand, respectively. For the nine months ended September 30, 2025, the Company recognized federal and state income taxes of $452 thousand and $84 thousand, respectively.
Income tax expense decreased during the third quarter 2026 compared to the 2025 period due to the purchase of tax credits, which resulted in a negative adjustment to income tax expense of $400 thousand, and lower income recognized during the 2026 quarterly period.
The increase in income tax expense during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 primarily reflects the higher level of net income recognized during the 2026 year-to-date period compared to the same 2025 period. Additionally, during the second quarter of 2026, there was an adjustment to the proportional amortization expense for investments in qualified rehabilitation credits and tax credits on qualified affordable housing project investments of $174 thousand based on final 2025 income tax results. These increases were partially offset by tax credits purchased during the third quarter of 2026.
The effective tax rate was 17.36% and 20.44% for the three and nine months ended September 30, 2026, respectively. The effective tax rate varied from the statutory rate primarily due to the purchase of $5 million of tax credits at a discounted rate of $0.93/dollar, partially offset by $342 thousand of merger-related expenses, that are non-deductible for tax purposes, in connection with the Company's proposed merger with JMSB announced in September 2026.
The effective tax rate for the three and nine months ended September 30, 2025 was 19.17% and 12.14%, respectively, reflecting the recognition of tax-exempt life insurance income and the Company's balance sheet repositioning transaction in March 2025 discussed in the "Non-GAAP Financial Measures" section above.
Business Segments
The Company has three reportable operating segments: community banking, marine lending and wealth management. See Note 17 to the Consolidated Financial Statements.
TABLE OF CONTENTS
The following table presents a summarized statement of operations for the community banking business segment for the three and nine months ended September 30, 2026 and 2025:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
$ Change |
% Change |
2026 |
2025 |
$ Change |
% Change |
||||||||||||||||||||||||
|
Interest Income |
$ |
23,176 |
$ |
23,429 |
$ |
(253 |
) |
(1 |
)% |
$ |
67,024 |
$ |
66,383 |
$ |
641 |
1 |
% |
|||||||||||||||
|
Interest Expense |
6,529 |
7,466 |
(937 |
) |
(13 |
)% |
19,598 |
23,806 |
(4,208 |
) |
(18 |
)% |
||||||||||||||||||||
|
Net interest income |
$ |
16,647 |
$ |
15,963 |
$ |
684 |
4 |
% |
$ |
47,426 |
$ |
42,577 |
$ |
4,849 |
11 |
% |
||||||||||||||||
|
Gain on sale of loans |
1,255 |
1,012 |
243 |
24 |
% |
2,913 |
2,545 |
368 |
14 |
% |
||||||||||||||||||||||
|
(Loss) on the sale of securities |
- |
- |
- |
- |
% |
- |
(12,425 |
) |
12,425 |
NM |
||||||||||||||||||||||
|
Other noninterest income |
2,254 |
2,284 |
(30 |
) |
(1 |
)% |
10,049 |
6,122 |
3,927 |
64 |
% |
|||||||||||||||||||||
|
Net Revenue |
20,156 |
19,259 |
897 |
5 |
% |
60,388 |
38,819 |
21,569 |
56 |
% |
||||||||||||||||||||||
|
Provision for credit losses |
572 |
551 |
21 |
4 |
% |
5,489 |
2,722 |
2,767 |
102 |
% |
||||||||||||||||||||||
|
Noninterest expense |
14,797 |
13,283 |
1,514 |
11 |
% |
42,496 |
37,334 |
5,162 |
14 |
% |
||||||||||||||||||||||
|
Income (Loss) before taxes |
4,787 |
5,425 |
(638 |
) |
(12 |
)% |
12,403 |
(1,237 |
) |
13,640 |
(1,103 |
)% |
||||||||||||||||||||
|
Income tax expense (benefit) |
725 |
1,011 |
(286 |
) |
(28 |
)% |
2,463 |
(640 |
) |
3,103 |
485 |
% |
||||||||||||||||||||
|
Net Income (Loss) |
$ |
4,062 |
$ |
4,414 |
$ |
(352 |
) |
(8 |
)% |
$ |
9,940 |
$ |
(597 |
) |
$ |
10,537 |
(1,765 |
)% |
||||||||||||||
Net interest income increased during the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 primarily due to income earned on non-marine loans as well as reductions in time deposit interest expense due primarily to lower average rates paid, and borrowings interest expense as FHLB advances have matured. These increases were partially offset by decreased earnings attributable to the reduced level of interest-earning deposit balances in other banks as cash was deployed to payoff the Company's remaining FHLB advances and fund loan growth, as well as a net increase in interest expense paid on lower cost customer savings interest-bearing demand deposit balances, reflecting average balance growth. For the nine months ended September 30, 2026, net interest income increased over the nine months ended September 30, 2025 due to the investment securities portfolio, which was restructured in the first quarter of 2025 whereby lower yielding investment securities were sold and replaced with higher yielding securities.
Provision for credit losses reflects an increase in historical loss factors due to non-marine loan net charge-offs totaling $1.0 million and $2.9 million for the three and nine months ended September 30, 2026, respectively, as well as specific reserves of $2.8 million. Provision for credit losses for the three and nine months ended September 30, 2025 reflects net charge-offs totaling $1.8 million and $2.8 million, respectively, as well as specific reserves of $333 thousand. The increase in the specific reserve was primarily attributable to three commercial loan relationships for which specific allocations were adjusted based on updated collateral information, and two new nonaccrual relationships requiring specific allocations were added during the 2026 year-to-date period.
Gain on sale of loans increased during the three and nine months ended September 30, 2026 compared to the same 2025 periods. Higher sales volume drove the increase during the three months ended September 30, 2026 compared to three months ended September 30, 2025. For the nine months ended September 30, 2026, sales volume was slightly lower, however certain mortgage loans sold from portfolio during the nine months ended September 30, 2025 were priced at par, thereby causing gain on sale income during the 2025 year-to-date period to be lower.
Other noninterest income increased during the nine months ended September 30, 2026 over the nine months ended September 30, 2025 primarily due to income from holdings in small business investment companies and the Company's sale of its membership interest in Bearing to an unaffiliated third party. A pre-tax gain on the sale in the amount of $3.5 million was recognized as a gain on sale of other assets during the second quarter of 2026.
TABLE OF CONTENTS
Loss on the sale of securities during the nine months ended September 30, 2025 resulted from the Company's execution of balance sheet repositioning transactions within its investment securities portfolio in March 2025. Available for sale debt securities totaling $99.2 million, with a fair value of $86.8 million, were sold and a pre-tax loss of $12.4 million was recognized.
Noninterest expense increased during the three and nine months ended September 30, 2026 over the 2025 periods primarily due to an increase in salaries and employee benefits, reflecting the Company's continued investment in staffing and increased benefits expenses including annual incentive plan accruals, medical insurance, 401K match, and stock-based compensation. Additional noninterest expense increases related to bank franchise tax, merger-related expenses, loan costs and charitable contributions.
Income tax expense for the three months ended September 30, 2026 decreased from the three months ended September 30, 2025 primarily due to the purchase of $5 million of tax credits, which resulted in a negative adjustment to income tax expense of $400 thousand. The increase in income tax expense during the nine months ended September 30, 2026 was primarily due to the Company's net income level compared to the nine months ended September 30, 2025, partially offset by the tax credit adjustment. The 2025 period included the recognized loss on the sale of securities during the first quarter of 2025.
The following table presents a summarized statement of income for the marine lending segment for the three and nine months ended September 30, 2026 and 2025:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
$ Change |
% Change |
2026 |
2025 |
$ Change |
% Change |
||||||||||||||||||||||||
|
Interest Income |
$ |
2,042 |
$ |
2,504 |
$ |
(462 |
) |
(18 |
)% |
$ |
6,395 |
$ |
7,867 |
$ |
(1,472 |
) |
(19 |
)% |
||||||||||||||
|
Interest Expense (1) |
706 |
914 |
(208 |
) |
(23 |
)% |
2,256 |
3,148 |
(892 |
) |
(28 |
)% |
||||||||||||||||||||
|
Net interest income |
$ |
1,336 |
$ |
1,590 |
$ |
(254 |
) |
(16 |
)% |
$ |
4,139 |
$ |
4,719 |
$ |
(580 |
) |
(12 |
)% |
||||||||||||||
|
Net Revenue |
1,336 |
1,590 |
(254 |
) |
(16 |
)% |
4,139 |
4,719 |
(580 |
) |
(12 |
)% |
||||||||||||||||||||
|
Provision for (recovery of) credit losses |
478 |
561 |
(83 |
) |
(15 |
)% |
1,025 |
291 |
734 |
252 |
% |
|||||||||||||||||||||
|
Noninterest expense |
81 |
96 |
(15 |
) |
(16 |
)% |
265 |
326 |
(61 |
) |
(19 |
)% |
||||||||||||||||||||
|
Income before taxes |
777 |
933 |
(156 |
) |
(17 |
)% |
2,849 |
4,102 |
(1,253 |
) |
(31 |
)% |
||||||||||||||||||||
|
Income tax expense |
163 |
198 |
(35 |
) |
(18 |
)% |
598 |
863 |
(265 |
) |
(31 |
)% |
||||||||||||||||||||
|
Net Income |
$ |
614 |
$ |
735 |
$ |
(121 |
) |
(16 |
)% |
$ |
2,251 |
$ |
3,239 |
$ |
(988 |
) |
(31 |
)% |
||||||||||||||
(1) Allocation of interest expense is a function of the Bank's internal cost of funds rate and the average loan balance of the marine lending portfolio.
Net revenues declined as pay downs reduced the portfolio balance and are not being replaced with new loan originations. The marine loan portfolio totaled $152.4 million and $185.9 million at September 30, 2026 and September 30, 2025, respectively.
Changes in the provision for credit losses for the three and nine months ended September 30, 2026 compared to the same periods in 2025 reflected an increase in the historical loss factor due to cumulative net charge-off activity, a specific reserve allocation, and declining loan balances. For the three months ended September 30, 2026, the effect of declining loan balances more than offset the other drivers resulting in a year-over-year decrease compared to three months ended September 30, 2025.
For the three months ended September 30, 2026, the marine segment had net recoveries of $8 thousand compared to net charge-offs of $467 thousand during the three months ended September 30, 2025. Net charge-offs were $359 thousand and $581 thousand for the nine months ended September 30, 2026 and 2025, respectively. Additionally, at September 30, 2026 specific reserve allocations totaled $557 thousand, compared to none at September 30, 2025.
The following table presents a summarized statement of income for the wealth management segment for the three and nine months ended September 30, 2026 and 2025:
TABLE OF CONTENTS
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
$ Change |
% Change |
2026 |
2025 |
$ Change |
% Change |
||||||||||||||||||||||||
|
Interest Income |
$ |
- |
$ |
- |
$ |
- |
- |
% |
$ |
- |
$ |
- |
$ |
- |
- |
% |
||||||||||||||||
|
Interest Expense |
- |
- |
- |
- |
% |
- |
- |
- |
- |
% |
||||||||||||||||||||||
|
Net Interest Income |
$ |
- |
$ |
- |
$ |
- |
- |
% |
$ |
- |
$ |
- |
$ |
- |
- |
% |
||||||||||||||||
|
Other noninterest income |
$ |
1,787 |
$ |
1,869 |
$ |
(82 |
) |
(4 |
)% |
$ |
5,852 |
$ |
5,286 |
$ |
566 |
11 |
% |
|||||||||||||||
|
Net Revenue |
1,787 |
1,869 |
(82 |
) |
(4 |
)% |
5,852 |
5,286 |
566 |
11 |
% |
|||||||||||||||||||||
|
Noninterest expense |
762 |
839 |
(77 |
) |
(9 |
)% |
2,345 |
2,298 |
47 |
2 |
% |
|||||||||||||||||||||
|
Income before taxes |
1,025 |
1,030 |
(5 |
) |
(0 |
)% |
3,507 |
2,988 |
519 |
17 |
% |
|||||||||||||||||||||
|
Income tax expense |
215 |
216 |
(1 |
) |
0 |
% |
736 |
627 |
109 |
17 |
% |
|||||||||||||||||||||
|
Net Income |
$ |
810 |
$ |
814 |
$ |
(4 |
) |
(0 |
)% |
$ |
2,771 |
$ |
2,361 |
$ |
410 |
17 |
% |
|||||||||||||||
Net revenue during the three months ended September 30, 2026 decreased from the 2025 period and increased during nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The 2026 periods reflect increases in trust services income resulting from fees earned on a higher level of assets under management and higher levels of termination fees, and decreases in investment sales revenue and estate settlement fees. Assets under management were $601.6 million and $543.2 million at September 30, 2026 and 2025, respectively.
FINANCIAL CONDITION
Select financial condition data is presented in the following table:
|
September 30, |
December 31, |
|||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
$ Change |
% Change |
||||||||||||
|
Securities available for sale |
$ |
103,071 |
$ |
119,543 |
$ |
(16,472 |
) |
(14 |
)% |
|||||||
|
Loans |
1,531,942 |
1,473,077 |
58,865 |
4 |
% |
|||||||||||
|
Allowance for credit losses |
(18,533 |
) |
(15,320 |
) |
(3,213 |
) |
21 |
% |
||||||||
|
Total assets |
1,870,465 |
1,888,626 |
(18,161 |
) |
(1 |
)% |
||||||||||
|
Total deposits |
1,623,246 |
1,607,360 |
15,886 |
1 |
% |
|||||||||||
|
FHLB advances |
- |
40,000 |
(40,000 |
) |
(100 |
)% |
||||||||||
|
Total shareholders' equity |
195,287 |
188,839 |
6,448 |
3 |
% |
|||||||||||
Securities
The carrying amounts of the Company's available for sale securities are as follows:
|
September 30, 2026 |
December 31, 2025 |
|||||||||||||||
|
(dollars in thousands) |
Amount |
Percent |
Amount |
Percent |
||||||||||||
|
Obligations of U.S. government corporations and agencies |
$ |
6,781 |
7 |
% |
$ |
7,444 |
6 |
% |
||||||||
|
U.S. Treasury securities |
5,914 |
6 |
% |
10,001 |
8 |
% |
||||||||||
|
Mortgage-backed securities |
65,388 |
63 |
% |
75,129 |
63 |
% |
||||||||||
|
Collateralized mortgage obligations |
20,923 |
20 |
% |
22,495 |
19 |
% |
||||||||||
|
Subordinated debt |
4,065 |
4 |
% |
4,474 |
4 |
% |
||||||||||
|
Total securities available for sale at fair value |
$ |
103,071 |
100 |
% |
$ |
119,543 |
100 |
% |
||||||||
Total securities available for sale decreased $16.5 million, or 13.78% during the nine months ended September 30, 2026. The Company purchased $16.2 million of securities during the nine months ended September 30, 2026 and had total maturities, calls, and principal repayments of $29.0 million. There were no sales during the nine months ended September 30, 2026.
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Net unrealized loss on available for sale securities was $10.4 million at September 30, 2026 as compared to a net unrealized loss of $6.7 million at December 31, 2025. Unrealized gains or losses on available for sale securities are reported within shareholders' equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).
The primary cause of the unrealized losses at September 30, 2026 and December 31, 2025 was changes in market interest rates, rather than other market conditions or credit concerns of the issuers over the time between purchase and measurement periods. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer's financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.
Loan Portfolio
The Company's primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Details of the Company's loan portfolio are presented below:
|
September 30, 2026 |
December 31, 2025 |
|||||||||||||||
|
(dollars in thousands) |
Amount |
Percent to Total Loans |
Amount |
Percent to Total Loans |
||||||||||||
|
Mortgage real estate loans: |
||||||||||||||||
|
HELOCs |
$ |
60,024 |
4 |
% |
$ |
58,640 |
4 |
% |
||||||||
|
Residential First Lien - Investor |
104,664 |
7 |
% |
107,307 |
7 |
% |
||||||||||
|
Residential First Lien - Owner Occupied |
194,889 |
13 |
% |
178,807 |
12 |
% |
||||||||||
|
Residential Junior Liens |
10,553 |
1 |
% |
10,724 |
1 |
% |
||||||||||
|
Total residential real estate loans |
370,130 |
25 |
% |
355,478 |
24 |
% |
||||||||||
|
Commercial - Owner Occupied |
355,269 |
23 |
% |
298,853 |
20 |
% |
||||||||||
|
Commercial - Non-Owner Occupied & Multifamily |
389,986 |
25 |
% |
398,926 |
27 |
% |
||||||||||
|
Total commercial real estate loans |
745,255 |
48 |
% |
697,779 |
47 |
% |
||||||||||
|
Construction & Secured by Farmland |
96,150 |
6 |
% |
82,336 |
6 |
% |
||||||||||
|
Total mortgage real estate loans |
1,211,535 |
79 |
% |
1,135,593 |
77 |
% |
||||||||||
|
Commercial and industrial loans |
125,289 |
8 |
% |
113,224 |
8 |
% |
||||||||||
|
Marine loans |
152,352 |
10 |
% |
175,639 |
12 |
% |
||||||||||
|
Consumer loans |
26,715 |
2 |
% |
28,742 |
2 |
% |
||||||||||
|
Other loans |
12,585 |
1 |
% |
14,264 |
1 |
% |
||||||||||
|
Total loans |
1,528,476 |
100 |
% |
1,467,462 |
100 |
% |
||||||||||
|
Net deferred loans costs and premiums |
3,466 |
5,615 |
||||||||||||||
|
Gross loans |
$ |
1,531,942 |
$ |
1,473,077 |
||||||||||||
Gross loans were $1.53 billion and $1.47 billion at September 30, 2026 and December 31, 2025, respectively. This represents an increase of $58.9 million, or 4.00%, during the nine months ended September 30, 2026. The ratio of gross loans to deposits increased during the nine months ended September 30, 2026 from 91.65% at December 31, 2025 to 94.38% at September 30, 2026 reflecting increases in gross loans and deposits during the same time period.
The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. The increase in gross loans was primarily attributable to growth within real estate loans including the commercial owner occupied, residential owner occupied and construction and farmland portfolios. SBA loan sales, marine loan portfolio paydowns, and significant payoffs of matured commercial and industrial and municipal notes, partially offset new growth.
During the nine months ended September 30, 2026, through the normal course of business, $80.8 million in loans were sold, consisting of $61.9 million in mortgage loans originated for sale and $18.9 million of SBA commercial loans.
Residential owner occupied loans increased $16.1 million, or 8.99%, since December 31, 2025, with most of the growth occurring during the third quarter of 2026. The increase reflects a shift in market demand toward non-conforming
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adjustable-rate loans in response to the rising interest rate environment. These loans are less interest rate sensitive than conforming fixed-rate mortgages originated for sale.
Commercial real estate loans increased during the nine months ended September 30, 2026 reflecting growth in the owner occupied and construction portfolios. The Company experienced steady activity across commercial business lines reflecting its focus on relationship-based lending in its core markets.
Marine loans are declining due to normal paydowns and payoffs only. At present, the Company is not accepting new marine business and expects to hold the remaining outstanding loans until they are ultimately repaid.
Allowance for Credit Losses on Loans
The purpose of, and the methods for, measuring the allowance for credit losses on loans are discussed in Note 1 to the Consolidated Financial Statements in the 2025 Form 10-K.
The following table presents the activity in the allowance for credit losses on loans and related ratios for the periods indicated:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
(dollars in thousands) |
2026 |
2025 |
2026 |
2025 |
||||||||||||
|
Balance at beginning of period |
$ |
18,306 |
$ |
15,979 |
$ |
15,320 |
$ |
15,027 |
||||||||
|
Charge-Offs |
||||||||||||||||
|
Construction & secured by farmland |
(301 |
) |
- |
(301 |
) |
- |
||||||||||
|
Residential real estate |
- |
- |
- |
(30 |
) |
|||||||||||
|
Commercial real estate |
- |
(1,660 |
) |
(1,586 |
) |
(2,631 |
) |
|||||||||
|
Commercial |
(683 |
) |
(219 |
) |
(1,018 |
) |
(353 |
) |
||||||||
|
Marine |
- |
(467 |
) |
(369 |
) |
(581 |
) |
|||||||||
|
Consumer |
(70 |
) |
(37 |
) |
(110 |
) |
(127 |
) |
||||||||
|
Other |
(41 |
) |
(34 |
) |
(135 |
) |
(106 |
) |
||||||||
|
Total charge-offs |
(1,095 |
) |
(2,417 |
) |
(3,519 |
) |
(3,828 |
) |
||||||||
|
Recoveries |
||||||||||||||||
|
Construction & secured by farmland |
1 |
1 |
4 |
4 |
||||||||||||
|
Residential real estate |
7 |
44 |
157 |
296 |
||||||||||||
|
Commercial real estate |
- |
- |
- |
- |
||||||||||||
|
Commercial |
22 |
32 |
59 |
110 |
||||||||||||
|
Marine |
8 |
- |
10 |
- |
||||||||||||
|
Consumer |
5 |
21 |
26 |
34 |
||||||||||||
|
Other |
18 |
19 |
36 |
34 |
||||||||||||
|
Total recoveries |
61 |
117 |
292 |
478 |
||||||||||||
|
Net (charge-offs) |
(1,034 |
) |
(2,300 |
) |
(3,227 |
) |
(3,350 |
) |
||||||||
|
Provision for credit losses on loans |
1,261 |
1,131 |
6,440 |
3,133 |
||||||||||||
|
Balance at end of period |
$ |
18,533 |
$ |
14,810 |
$ |
18,533 |
$ |
14,810 |
||||||||
|
Net (charge-offs) to average loans (annualized) |
(0.27 |
)% |
(0.63 |
)% |
(0.29 |
)% |
(0.31 |
)% |
||||||||
|
Allowance for credit losses on loans as a percentage of gross loans |
1.21 |
% |
1.01 |
% |
1.21 |
% |
1.01 |
% |
||||||||
During the nine months ended September 30, 2026, the Company recorded charge-offs of $3.5 million primarily due to three relationships. These included: i) a $1.6 million partial write-down of a single multifamily relationship to the fair value of the underlying collateral, net of estimated selling costs; ii) a $507 thousand partial write-down on a commercial and industrial syndicated relationship in conjunction with a restructuring by the lead bank; and iii) a $426 thousand charge-off upon completion of a foreclosure and liquidation sale of commercial real estate and business assets. The remaining charge-offs were attributable to smaller relationships, including marine vessels and commercial loans secured by equipment as well as writeoffs of overdraft and credit card accounts.
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Recoveries recognized during the nine months ended September 30, 2026 totaled $292 thousand, largely due to a recovery on a residential mortgage loan.
During the nine months ended September 30, 2025, charge-offs primarily reflected losses on three marine vessels that were repossessed, a $468 thousand partial write-down on a nonaccrual owner-occupied commercial real estate loan, and write-downs totaling $2.2 million, which included a $1.2 million deficiency balance, related to a non-owner occupied commercial loan relationship consisting of four residential multifamily income producing properties.
Recoveries during the nine months ended September 30, 2025 totaled $478 thousand resulting in net charge-offs of $3.4 million for the nine months ended September 30, 2025.
The increase of 20 basis points in the allowance for credit losses on loans to gross loans ratio largely reflects growth in the portfolio and the increase in specific reserve allocations required at September 30, 2026. The increase was also attributable to changes in historical loss ratios, primarily within the marine and non-owner occupied commercial real estate portfolios, partially offset by a decrease in qualitative factors. The qualitative factor for the nature, terms, and volume of the loan portfolio is intended to capture incremental risk arising from portfolio growth that is not otherwise reflected in the quantitative estimate. During the three months ended September 30, 2026, this factor was refined to provide a more representative assessment of sustained portfolio growth trends and their relationship to expected credit losses. This refinement was the primary reason for the lower qualitative factor adjustment.
Management believes that the allowance for credit losses on loans is currently adequate to absorb the current expected losses in the loan portfolio.
Credit Risk, Nonperforming Assets and Other Assets
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk on a quarterly basis. The following table presents credit risk ratings as of September 30, 2026 and December 31, 2025:
|
September 30, 2026 |
December 31, 2025 |
|||||||||||||||
|
(dollars in thousands) |
Amount |
Percent to Total Loans |
Amount |
Percent to Total Loans |
||||||||||||
|
Risk categories |
||||||||||||||||
|
Pass |
$ |
1,449,121 |
95 |
% |
$ |
1,396,752 |
95 |
% |
||||||||
|
Special Mention |
59,192 |
4 |
% |
54,752 |
4 |
% |
||||||||||
|
Classified |
20,163 |
1 |
% |
15,958 |
1 |
% |
||||||||||
|
Total loans |
$ |
1,528,476 |
100 |
% |
$ |
1,467,462 |
100 |
% |
||||||||
Loans risk rated as special mention, which exhibit negative trends and potential weaknesses, include loans with stale financial information. Of the total special mention loans, $32.6 million had stale financial information at September 30, 2026 compared to $35.7 million at December 31, 2025. The increase in total special mention loans was largely due to additions for potential credit weakness reflecting insufficient debt service coverage ratio, reduction in income, bankruptcy notice, as well as the lack of current financial information required to complete annual reviews. Partially offsetting the increase were upgrades upon receipt and review of current financial information, principal reductions, and the migration of one relationship to classified.
Loans risk rated as classified, include substandard, doubtful, and loss loans increased primarily due to two commercial real estate relationships and a marine relationship and were partially offset by write-downs to already existing classified relationships and a large loan payoff. The additions to classified include a $3.6 million multifamily loan which moved to nonaccrual status during the second quarter, and a $4.1 million non-owner occupied office building that is active and accruing, however was downgraded from special mention to classified during the first quarter of 2026 due to cash flow concerns and a $905 thousand marine vessel.
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All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity.
Nonperforming assets and related ratios are detailed in the table below:
|
(dollars in thousands) |
September 30, 2026 |
December 31, 2025 |
||||||
|
Nonaccrual loans |
$ |
15,641 |
$ |
14,398 |
||||
|
Loans past due 90 days or more and accruing interest |
104 |
60 |
||||||
|
Other real estate owned and repossessed assets |
250 |
135 |
||||||
|
Total nonperforming assets |
$ |
15,995 |
$ |
14,593 |
||||
|
Allowance for credit losses on loans |
$ |
18,533 |
$ |
15,320 |
||||
|
Gross loans |
$ |
1,531,942 |
$ |
1,473,077 |
||||
|
Allowance for credit losses on loans to nonperforming assets |
116 |
% |
105 |
% |
||||
|
Allowance for credit losses on loans to total gross loans |
1.21 |
% |
1.04 |
% |
||||
|
Allowance for credit losses on loans to nonaccrual loans |
118 |
% |
106 |
% |
||||
|
Nonaccrual loans to total gross loans |
1.02 |
% |
0.98 |
% |
||||
|
Non-performing assets to period end gross loans, other real estate owned and repossessed assets |
1.04 |
% |
0.99 |
% |
||||
Nonperforming assets increased by $1.4 million during the nine months ended September 30, 2026, primarily reflecting additions of a $3.6 million multi-family loan and a $905 thousand marine loan to nonaccrual status, partially offset by paydowns, partial write-downs on nonaccrual loans including $1.6 million on a multi-family relationship, $507 thousand on a commercial and industrial relationship and $301 thousand on a construction and farmland relationship as well as a change in repossessed assets.
Total past due loans, as disclosed in Note 6 to the Consolidated Financial Statements, increased by $5.1 million and totaled $22.0 million at September 30, 2026 compared to $16.9 million at December 31, 2025. The increase in past due loans primarily reflects loans secured by commercial real estate including three non-owner occupied commercial real estate loans totaling $9.4 million that became past due during the nine months ended September 30, 2026, as well as a marine relationship totaling $905 thousand. These increases were partially offset partial write-downs and the movement of two relationships into current status during the nine months ended September 30, 2026, a $2.1 million restructuring of a commercial and industrial relationship and a $1.9 million non-owner occupied commercial real estate loan. The loans that primarily drove the increase in past due balances are rated special mention and classified.
Nonaccrual loans are risk rated as classified and comprised the majority of the classified loan balance as previously described. Management evaluates the financial condition of borrowers and the value of any collateral on nonaccrual loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans and are reflected in the allowance for credit losses on loans. At September 30, 2026 total specific reserves of $3.4 million were required primarily reflecting five commercial loan relationships and one marine loan relationship, compared to specific reserves of $467 thousand at December 31, 2025.
Loans are placed on nonaccrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses to principal that require additional provisions for credit losses to be charged against earnings.
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For real estate loans, upon foreclosure, the balance of the loan is transferred to OREO and carried at the fair value of the property based on current appraisals and other current market trends, less estimated selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off to the allowance for credit losses. A review of the recorded property value is performed in conjunction with normal quarterly reviews, and if market conditions indicate that the recorded value exceeds the fair value, additional write downs of the property value are charged directly to operations.
Deposits
Total deposits were $1.62 billion and $1.61 billion at September 30, 2026 and December 31, 2025, respectively. This represents an increase of $15.9 million or 0.99% during the nine months ended September 30, 2026.
The following table provides the composition of total deposits at September 30, 2026 and December 31, 2025.
|
(dollars in thousands) |
September 30, |
December 31, |
$ Change |
% Change |
||||||||||||
|
Noninterest bearing demand deposits |
$ |
453,481 |
$ |
432,171 |
$ |
21,310 |
5 |
% |
||||||||
|
NOW accounts |
299,776 |
322,687 |
(22,911 |
) |
(7 |
)% |
||||||||||
|
Money market accounts |
312,759 |
282,828 |
29,931 |
11 |
% |
|||||||||||
|
Regular savings accounts |
118,045 |
123,030 |
(4,985 |
) |
(4 |
)% |
||||||||||
|
Time deposits less than $250,000 |
256,390 |
262,390 |
(6,000 |
) |
(2 |
)% |
||||||||||
|
Time deposits $250,000 and more |
182,795 |
184,254 |
(1,459 |
) |
(1 |
)% |
||||||||||
|
Total deposits |
$ |
1,623,246 |
$ |
1,607,360 |
$ |
15,886 |
1 |
% |
||||||||
|
Core deposits (1) |
$ |
1,335,940 |
$ |
1,304,733 |
31,207 |
2 |
% |
|||||||||
|
Core deposits as a percent of total deposits |
82 |
% |
81 |
% |
||||||||||||
|
Non-core deposits (2) |
$ |
287,306 |
$ |
302,627 |
(15,321 |
) |
(5 |
)% |
||||||||
|
Non-core deposits as a percent of total deposits |
18 |
% |
19 |
% |
||||||||||||
(1) Core deposits consist of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, excluding wholesale or brokered deposits.
(2) Non-core deposits consist of brokered deposits, CDARs and time deposits of $250,000 or more.
Total deposits increased $15.9 million with an increase in core deposits of $31.2 million during the nine months ended September 30, 2026. The increase in core deposits was in line with management's effort to grow these deposits to support loan expansion. Non-core deposits decreased $15.3 million primarily due to a decrease in brokered certificate of deposits.
In general, deposit pricing is done in response to monetary policy actions and yield curve changes. Local competition for funds also affects the cost of time deposits. Marketing efforts, including rate specials and emphasis on customer relationships are utilized to maintain maturing accounts and to acquire new time deposit accounts. At September 30, 2026, over 86% of deposits were fully FDIC insured.
CAPITAL RESOURCES
The Bank continues to be a well capitalized financial institution. Total shareholders' equity at September 30, 2026 was $195.3 million, reflecting a percentage of total assets of 10.44%, as compared to $188.9 million and 10.00% at December 31, 2025. The $6.4 million increase in shareholders' equity was primarily due to net operating income of $13.5 million earned during the nine months ended September 30, 2026, partially offset by an increase in unrealized losses on available for sale securities amounting to $3.0 million, net of tax, and dividends declared of $5.0 million. During each of the nine months ended September 30, 2026 and 2025, the Company declared dividends of $0.93 per share. The Company has a Dividend Investment Plan that allows shareholders to reinvest dividends in Company stock.
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At September 30, 2026, the Bank met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions. The Bank monitors these ratios on a quarterly basis and has several strategies, including without limitation the issuance of common stock, to ensure that these ratios remain above regulatory minimums. The Bank's capital amounts and ratios are presented using the Federal Reserve's risk-based capital framework.
The risk-based capital rules require the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. In addition, a capital conservation buffer requirement of 2.5% was effective January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with any ratio (excluding the leverage ratio) above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The capital conservation buffer rule requires the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer" (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
At September 30, 2026 and December 31, 2025, the Bank's regulatory capital and related ratios were as follows:
|
(dollars in thousands) |
September 30, |
December 31, |
||||||
|
Tier 1 Capital: |
||||||||
|
Common stock |
$ |
1,682 |
$ |
1,682 |
||||
|
Capital surplus |
9,773 |
9,773 |
||||||
|
Retained earnings |
218,402 |
211,730 |
||||||
|
Nonmortgage servicing assets |
(810 |
) |
(637 |
) |
||||
|
Total Tier 1 capital |
$ |
229,047 |
$ |
222,548 |
||||
|
Common equity tier 1 capital |
$ |
229,047 |
$ |
222,548 |
||||
|
Tier 2 Capital: |
||||||||
|
Allowable portion of allowance for credit losses and reserve for off-balance sheet commitments |
$ |
18,934 |
$ |
15,128 |
||||
|
Total Tier 2 capital |
$ |
18,934 |
$ |
15,128 |
||||
|
Total risk-based capital |
$ |
247,981 |
$ |
237,676 |
||||
|
Risk weighted assets |
$ |
1,598,285 |
$ |
1,530,835 |
||||
|
Capital Ratios: |
||||||||
|
Common equity Tier 1 capital ratio |
14.33 |
% |
14.54 |
% |
||||
|
Tier 1 risk-based capital ratio |
14.33 |
% |
14.54 |
% |
||||
|
Total risk-based capital ratio |
15.52 |
% |
15.53 |
% |
||||
|
Tier 1 leverage ratio |
12.28 |
% |
11.68 |
% |
||||
Pursuant to the Federal Reserve's Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.
LIQUIDITY
Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or with the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks,
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federal funds sold, unpledged securities classified as available for sale and loans maturing within one year. At September 30, 2026, liquid assets totaled $421.8 million as compared to $423.4 million at December 31, 2025. These amounts represented 25.18% and 24.91% of total liabilities at September 30, 2026 and December 31, 2025, respectively. The decrease during the nine months of 2026 was primarily due to a decrease in federal funds sold, which was mostly offset by increases in the balance of loans maturing within one year and non-pledged available for sale securities.
The Company generally attempts to minimize liquidity demand by primarily utilizing core deposits to fund asset growth. Securities provide a constant source of liquidity through paydowns and maturities. Also, the Company maintains short-term borrowing arrangements, including the Federal Reserve discount window and federal funds lines of credit with larger financial institutions as additional sources of liquidity. The Bank's membership with the Federal Home Loan Bank of Atlanta provides a source of borrowings with numerous rate and term structures. The Company's senior management monitors the liquidity position regularly and attempts to maintain a position which utilizes available funds most efficiently.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes in off-balance sheet arrangements and contractual obligations as reported in the 2025 Form 10-K.
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Eagle Financial Services Inc. published this content on November 09, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 09, 2026 at 21:02 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]