The First Bancorp Inc.
11/07/2025 | Press release | Distributed by Public on 11/07/2025 07:58
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
and Results of Operations
The First Bancorp, Inc. and Subsidiary
Forward-Looking Statements
This report contains statements that are "forward-looking statements." We may also make written or oral forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from 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: changes in general national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets, volatility and disruption in national and international financial markets, government intervention in the U.S. financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectability, default and charge-off rates, changes in the size and nature of the Company's competition, changes in legislation or regulation and accounting principles, policies and guidelines, and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under "Risk Factors" in Item 1A of this Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC, may result in these differences, as well as the "Risk Factors" in Part II, Item 1A listed below. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this quarterly 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.
Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. Readers are also urged to carefully review and consider the various disclosures made by the Company, which attempt to advise interested parties of the factors that affect the Company's business.
Critical Accounting Policies
Management's discussion and analysis of the Company's financial condition and results of operations is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, Management evaluates its estimates, including those related to the ACL, fair value of securities, goodwill, the valuation of mortgage servicing rights, derivative financial instruments, and credit losses on securities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amounts derived from Management's estimates and assumptions under different assumptions or conditions.
Allowance for Credit Losses.Management believes the ACL requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements. The ACL is based on Management's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio, off-balance sheet commitments, and investment portfolio.
Management regularly evaluates the allowance, typically monthly, to determine the appropriate level by taking into consideration factors such as the size and growth trajectory of the portfolio, quality trends as measured by key indicators, prior loan loss experience in major portfolio segments, local and national business conditions, economic forecasts, the results of any stress testing undertaken during the period, and Management's estimation of potential losses. Period-to-period changes to any or all of these of these factors could change the level of ACL required, in turn impacting our level of provision expense and ultimately our net income. Similarly, the use of different estimates or assumptions could produce different provisions for credit losses which would likely result in changes to the Company's net income.
In the nine months ended September 30, 2025 the ACL-Loans increased by $207,000, the ACL-Off-Balance Commitments increased by $154,000 and the ACL-HTM Securities decreased by $10,000. Further discussion of the ACL may be found in Note 2, "Investment Securities", Note 3, "Loans", and Note 4, "Allowance for Credit Losses", to the consolidated financial statements contained in Item 1 of the Form 10-Q.
Goodwill. Management utilizes numerous techniques to estimate the value of various assets held by the Company, including methods to determine the appropriate carrying value of goodwill as required under FASB ASC Topic 350 "Intangibles - Goodwill and Other." In addition, goodwill from a purchase acquisition is subject to ongoing periodic impairment tests, which include an evaluation of the ongoing assets, liabilities and revenues from the acquisition and an estimation of the impact of business conditions.
Fair Value of Securities.Determining a market price for securities carried at fair value is a critical accounting estimate in the Company's financial statements. Pricing of individual securities is subject to a number of factors including changes in market interest rates, changes in prepayment speeds and assumptions, changes in market tolerance for risk, and any changes in the risk profile of the security. The Company subscribes to a widely recognized, independent pricing service and updates carrying values no less frequently than monthly. It also validates the values provided by the pricing service no less frequently than quarterly by measuring against security prices provided by a secondary source. Results of the validation are reported to the ALCO each quarter and any variances between the two sources above defined thresholds are investigated by management. A finding that the Company's methodology for valuation of its investment securities is materially incorrect could result in changes to the carrying value of securities on its balance sheet and corresponding changes in shareholders equity position. As of September 30, 2025 the fair value of AFS securities decreased by $1.2 million and the fair value of HTM securities increased by $1.6 million from that of December 31, 2024. The decrease in the fair value of AFS securities is attributable to a combination of rate-driven market price adjustments for the underlying securities, principal returned via maturity, call, or amortization, and new purchases. The increase in the fair value of HTM securities is primarily attributable to rate-driven price adjustments for the underlying securities. Further discussion of the fair value of securities may be found in Note 2, "Investment Securities", to the consolidated financial statements contained in Item 1 of the Form 10-Q.
Credit Loss Recognition on Securities.Another significant estimate related to investment securities is the evaluation of potential credit losses on investment securities. The evaluation of securities for potential credit losses is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized as a charge to the ACL. The risks and uncertainties include changes in general economic conditions, the issuer's financial condition and/or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses. Securities that are in an unrealized loss position are reviewed at least quarterly to determine if recognition of a loss is required. The primary factors considered in this evaluation (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities' market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity and (f) any other information and observable data considered relevant, including the expectation of receipt of all principal and interest when due. The Bank invests only in investment grade securities and no credit losses have been recognized on securities currently held. Further discussion of credit loss recognition on securities may be found in Note 2, "Investment Securities", to the consolidated financial statements contained in Item 1 of the Form 10-Q.
Derivative Financial Instruments Designated as Hedges.The Company recognizes all derivatives in the consolidated balance sheets at fair value. On the date a derivative contract is entered into, the derivative is designated as a hedge of either a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), or a held for trading instrument ("trading instrument"). The relationships between hedging instruments and hedged items is formally documented, as is the risk management objectives and strategy for undertaking various hedge transactions. Both at the hedge's inception and on an ongoing basis, determination is made as to whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of hedged items. Changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in OCI and are reclassified into earnings when the forecasted transaction or related cash flows affect earnings. Changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is effective. Those derivatives that are classified as trading instruments, including customer loan swaps, are recorded at fair value with changes in fair value recorded in earnings. Hedge accounting is discontinued when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, that it is unlikely that the forecasted transaction will occur, or that the designation of the derivative as a hedging instrument is no longer appropriate. Among the factors that may influence the fair value of a derivative instrument are changes in market interest rates, changes in the time remaining to maturity of the instrument, or credit quality of the counter-party. Further information, including
period-to-period changes in the fair value of derivatives, may be found in Note 10, "Financial Derivative Instruments", to the consolidated financial statements contained in Item 1 of the Form 10-Q.
Use of Non-GAAP Financial Measures
Certain information in this release contains financial information determined by methods other than in accordance with GAAP. Management uses these "non-GAAP" measures in its analysis of the Company's performance (including for purposes of determining the compensation of certain executive officers and other Company employees) and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and with other financial institutions, as well as demonstrating the effects of significant gains and charges in the current period, in light of the disclosure practices employed by many other publicly-traded financial institutions. The Company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. Management believes that investors may use these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the Company's underlying performance. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
In several places net interest income is calculated on a fully tax-equivalent basis. Specifically included in interest income was tax-exempt interest income from certain investment securities and loans. An amount equal to the tax benefit derived from this tax-exempt income has been added back to the interest income total which, as adjusted, increased net interest income accordingly. Management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company's results of operations. Other financial institutions commonly present net interest income on a tax-equivalent basis. This adjustment is considered helpful in the comparison of one financial institution's net interest income to that of another institution, as each will have a different proportion of tax-exempt interest from its earning assets. Moreover, net interest income is a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution. The Company follows these practices.
The following table provides a reconciliation of tax-equivalent financial information to the Company's consolidated financial statements prepared in accordance with GAAP. A Federal Income Tax rate of 21.0% was used in 2025 and 2024.
| For the nine months ended September 30, |
For the quarter ended September 30,
|
|||||||||||||
|
Dollars in thousands
|
2025 | 2024 | 2025 | 2024 | ||||||||||
| Net interest income as presented | $ | 56,266 | $ | 46,357 | $ | 20,058 | $ | 16,402 | ||||||
| Effect of tax-exempt income | 2,136 | 2,072 | 727 | 717 | ||||||||||
| Net interest income, tax equivalent | $ | 58,402 | $ | 48,429 | $ | 20,785 | $ | 17,119 | ||||||
The Company presents its efficiency ratio using non-GAAP information which is most commonly used by financial institutions. The GAAP-based efficiency ratio is non-interest expenses divided by net interest income plus non-interest income from the Consolidated Statements of Income. The non-GAAP efficiency ratio excludes any losses on sales of securities from non-interest expenses, excludes any gains on sales of securities from non-interest income, and adds the tax-equivalent adjustment to net interest income.
The following table provides a reconciliation between the GAAP and non-GAAP efficiency ratio:
| For the nine months ended September 30, |
For the quarter ended September 30,
|
|||||||||||||
|
Dollars in thousands
|
2025 | 2024 | 2025 | 2024 | ||||||||||
| Non-interest expense, as presented | $ | 37,797 | $ | 35,011 | $ | 12,754 | $ | 12,000 | ||||||
| Net interest income, as presented | 56,266 | 46,357 | 20,058 | 16,402 | ||||||||||
| Effect of tax-exempt interest income | 2,136 | 2,072 | 727 | 717 | ||||||||||
| Non-interest income, as presented | 12,606 | 11,919 | 4,475 | 4,122 | ||||||||||
| Effect of non-interest tax-exempt income | 144 | 136 | 48 | 45 | ||||||||||
| Adjusted net interest income plus non-interest income | $ | 71,152 | $ | 60,484 | $ | 25,308 | $ | 21,286 | ||||||
| Non-GAAP efficiency ratio | 53.12 | % | 57.88 | % | 50.40 | % | 56.37 | % | ||||||
| GAAP efficiency ratio | 54.88 | % | 60.08 | % | 51.99 | % | 58.47 | % | ||||||
The Company presents certain information based upon tangible common equity instead of total shareholders' equity. The difference between these two measures is the Company's intangible assets, specifically goodwill from prior acquisitions. Management, banking regulators, and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions.
The following table provides a reconciliation of average tangible common equity to the Company's consolidated financial statements, which have been prepared in accordance with GAAP:
| For the nine months ended September 30, | For the quarter ended September 30, | |||||||||||||
|
Dollars in thousands
|
2025 | 2024 | 2025 | 2024 | ||||||||||
| Average shareholders' equity as presented | $ | 263,639 | $ | 247,463 | $ | 270,306 | $ | 253,911 | ||||||
| Less average intangible assets | (30,794) | (30,820) | (30,801) | (30,827) | ||||||||||
| Average tangible shareholders' common equity | $ | 232,845 | $ | 216,643 | $ | 239,505 | $ | 223,084 | ||||||
To provide period-to-period comparison of operating results prior to consideration of credit loss provision and income taxes, the non-GAAP measure of PTPP Net Income is presented. The following table provides a reconciliation to Net Income:
| For the nine months ended September 30, | For the quarter ended September 30, | |||||||||||||
| Dollars in thousands | 2025 | 2024 | 2025 | 2024 | ||||||||||
| Net Income, as presented | $ | 24,222 | $ | 19,763 | $ | 9,082 | $ | 7,571 | ||||||
| Add: credit loss expense (reduction) | 1,578 | (639) | 700 | (638) | ||||||||||
| Add: income taxes expense | 5,275 | 4,141 | 1,997 | 1,591 | ||||||||||
| Pre-tax, pre-provision net income | $ | 31,075 | $ | 23,265 | $ | 11,779 | $ | 8,524 | ||||||
Executive Summary
Net income for the nine months ended September 30, 2025 was $24.2 million, up $4.5 million or 22.6% from the same period in 2024. Earnings per common share on a fully diluted basis were $2.16 for the nine months ended September 30, 2025, up $0.39 or 21.5% from the $1.78 posted for the same period in 2024. Dividends totaling $1.10 per share have been declared year-to-date, representing a payout to our shareholders of 50.3% of basic earnings per share for the period. For the quarter ended September 30, 2025, net income was $9.1 million, up $1.5 million or 20.0% from the same period in 2024. Earnings per common share on a fully diluted basis were $0.81 for the quarter ended September 30, 2025, up $0.13 or 19.3% from the $0.68 posted for the same period in 2024. On a PTPP basis, earnings for the nine months ended September 30, 2025 were $31.1 million, up $7.8 million, or 33.6% from the prior year.
Net interest income on a tax-equivalent basis was up $10.0 million or 20.6% in the nine months ended September 30, 2025 compared to the same period in 2024. The tax equivalent net interest margin for the nine months ended September 30, 2025, was 2.57%, up from 2.25% for the same period in 2024. The period-to-period change in net interest income and net interest margin is attributable to favorable changes on both sides of the balance sheet as an increase in tax equivalent yield on earning assets was coupled with decrease in the cost of total liabilities. For the quarter ended September 30, 2025, net interest income on a tax-equivalent basis increased $3.7 million or 21.4% compared to the same period in 2024, with the net interest margin at 2.70% compared to 2.32% for the same period in 2024.
Non-interest income for the nine months ended September 30, 2025 was $12.6 million, up $687,000 or 5.8%, from the nine months ended September 30, 2024. As compared to the prior year, service charges on deposit accounts were up $50,000, or 3.2%, and debit card revenue decreased $25,000, or 0.6%. Revenue at First National Wealth Management increased $305,000 or 8.3% over the same period and mortgage banking revenue increased $123,000 or 24.0%.
Non-interest expense for the nine months ended September 30, 2025 was $37.8 million, up $2.8 million or 8.0% from the nine months ended September 30, 2024. FDIC insurance premiums increased $331,000 from the same period in 2024, salaries and employee benefits increased 11.4% and other operating expense increased 2.0% over the same period.
Asset quality continues to be strong and stable. Non-performing assets stood at 0.30% of total assets as of September 30, 2025, up from 0.14% as of December 31, 2024 and up from 0.08% of total assets as of September 30, 2024. Total past-due loans remain low and were 0.69% of total loans as of September 30, 2025, up from 0.40% and up from 0.14% of total loans as of December 31, 2024 and September 30, 2024, respectively.
The provision for credit losses on loans for the first nine months of 2025 was $1.4 million, up from the $58,000 provisioned in the same period in 2024. Net charge-offs for the nine months ended September 30, 2025 were $1.2 million or 0.069% of average loans on an annualized basis, compared to net charge-offs of $89,000 or 0.005% as of the nine months ended September 30, 2024. The ACL for loans increased $207,000 between December 31, 2024 and September 30, 2025, and now stands at 1.05% of loans outstanding as of September 30, 2025, as compared to 1.06% at December 31, 2024 and 1.04% at September 30, 2024.
The Company's balance sheet continued to expand in the first nine months of 2025 as total assets increased $41.5 million or 1.3% year-to-date. The loan portfolio increased $57.6 million or 2.5% in the nine months ended September 30, 2025 and $91.3 million or 4.0% from a year ago. Loan growth in the first nine months of 2025 was centered in the commercial and residential portfolios. Commercial loans increased by $21.4 million during the period, led by increases in owner-occupied commercial real estate of $16.7 million, non-owner occupied commercial real estate of $10.6 million, commercial & industrial loans of $11.1 million and multifamily of $27.8 million, and partially offset by a decrease of $48.0 millionin construction loan balances. Residential term loans increased by $19.8 million and home equity loans increased by $14.0 million in the first nine months of 2025. The investment portfolio has decreased $8.6 million year-to-date and decreased $26.1 million from a year ago based upon cash flow of amortizing securities, limited reinvestment or new purchases, and changes in the carrying value of AFS securities.
On the liability side of the balance sheet, total deposits have increased $12.3 million, or 0.5%, in the nine months ended September 30, 2025 to $2.74 billion. Low-cost deposits (Demand, NOW, Savings) have decreased $26.2 million year-to-date while money market balances have increased $81.8 million, and local CDs have increased $14.3 million. Wholesale CDs have decreased $57.6 million year-to-date while borrowings have increased by $6.7 million.
Remaining well capitalized is a top priority for The Company. The Company's total risk-based capital ratio was 13.56% as of September 30, 2025, solidly above the well-capitalized threshold of 10.0% set by the FDIC, the FRBB, and the OCC.
Among the Company's operating ratios, the return on average assets was 1.02% and return on average tangible common equity of 13.91% for the nine months ended September 30, 2025 compared to 0.87% and 12.19%, respectively, for the same period in 2024. The Company's PTPP return of average assets for the nine months ended September 30, 2025 was 1.30% compared to 1.03% in the prior year period. Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 53.12% for the nine months ended September 30, 2025 compared to 57.88% for the same period in 2024, the change being attributable primarily to higher levels of net interest income.
Net Interest Income
Total interest income of $119.5 million for the nine months ended September 30, 2025 was an increase of $9.7 million or 8.8% compared to total interest income of $109.8 million for the same period of 2024. Nearly all of the increase is attributable to the loan portfolio which benefited from both greater volume and higher average yields as compared to the prior year.
Total interest expense of $63.3 million for the nine months ended September 30, 2025, was a decrease of $203,000 or 0.3% compared to total interest expense for the nine months ended September 30, 2024. Interest expense on deposits fell $737,000 year-to-date as compared to prior year on lower funding rates, partially countered by and increase in borrowed funds expense, up $534,000 year-to-date attributable to higher utilization of short-term FHLB funding as compared to the prior year.
As a result, net interest income of $56.3 million for the nine months ended September 30, 2025 was an increase of $9.9 million or 21.4% compared to net interest income of $46.4 million for the same period ended September 30, 2024. The Company's net interest margin on a tax-equivalent basis for the nine months ended September 30, 2025 was 2.57%, up from 2.25% for the first nine months of 2024. Tax-exempt interest income amounted to $8.0 million for the nine months ended September 30, 2025 compared to $7.8 million for the nine months ended September 30, 2024.
The following table presents the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the nine months and quarters ended September 30, 2025 and 2024. Tax-exempt income is calculated on a tax-equivalent basis, using a 21.0% Federal Income Tax rate.
| For the nine months ended | ||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||
|
Dollars in thousands
|
Amount of interest |
Average Yield/Rate |
Amount of interest |
Average Yield/Rate |
||||||||||||||||
| Interest on earning assets | ||||||||||||||||||||
| Interest-bearing deposits | $ | 215 | 4.51 | % | $ | 190 | 4.97 | % | ||||||||||||
| Investments | 15,748 | 3.23 | % | 15,689 | 3.17 | % | ||||||||||||||
| Loans | 105,712 | 5.93 | % | 96,027 | 5.80 | % | ||||||||||||||
| Total interest income | 121,675 | 5.35 | % | 111,906 | 5.19 | % | ||||||||||||||
| Interest expense | ||||||||||||||||||||
|
Deposits1
|
58,374 | 3.23 | % | 59,112 | 3.43 | % | ||||||||||||||
| Other borrowings | 4,899 | 3.51 | % | 4,365 | 3.48 | % | ||||||||||||||
| Total interest expense | 63,273 | 3.25 | % | 63,477 | 3.44 | % | ||||||||||||||
| Net interest income | $ | 58,402 | $ | 48,429 | ||||||||||||||||
| Interest rate spread | 2.10 | % | 1.75 | % | ||||||||||||||||
| Net interest margin | 2.57 | % | 2.25 | % | ||||||||||||||||
1Prior period amount of interest of $59,112 will not tie to Interest on deposits in the Consolidated Statements of Income and Comprehensive Income due to rounding.
| For the quarters ended | ||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||
|
Dollars in thousands
|
Amount of interest |
Average Yield/Rate |
Amount of interest |
Average Yield/Rate |
||||||||||||||||
| Interest on earning assets | ||||||||||||||||||||
| Interest-bearing deposits | $ | 108 | 4.00 | % | $ | 56 | 4.00 | % | ||||||||||||
| Investments | 5,219 | 3.20 | % | 5,261 | 3.16 | % | ||||||||||||||
| Loans | 36,405 | 6.03 | % | 33,687 | 5.90 | % | ||||||||||||||
| Total interest-earning assets | 41,732 | 5.43 | % | 39,004 | 5.28 | % | ||||||||||||||
| Interest expense | ||||||||||||||||||||
| Deposits | 19,380 | 3.20 | % | 20,118 | 3.46 | % | ||||||||||||||
| Other borrowings | 1,567 | 3.43 | % | 1,767 | 3.71 | % | ||||||||||||||
| Total interest expense | 20,947 | 3.21 | % | 21,885 | 3.48 | % | ||||||||||||||
| Net interest income | $ | 20,785 | $ | 17,119 | ||||||||||||||||
| Interest rate spread | 2.21 | % | 1.80 | % | ||||||||||||||||
| Net interest margin | 2.70 | % | 2.32 | % | ||||||||||||||||
The following table presents changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and liabilities for the nine months and quarters ended September 30, 2025 compared to 2024. Tax-exempt income is calculated on a tax-equivalent basis, using a 21% Federal Income Tax rate.
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For the nine months ended September 30, 2025 compared to 2024
|
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Dollars in thousands
|
Volume | Rate |
Rate/Volume1
|
Total | |||||||||||||||||||
| Interest on earning assets | |||||||||||||||||||||||
| Interest-bearing deposits | $ | 47 | $ | (18) | $ | (4) | $ | 25 | |||||||||||||||
| Investment securities | (216) | 279 | (4) | 59 | |||||||||||||||||||
| Loans held for sale | - | - | - | - | |||||||||||||||||||
| Loans | 7,466 | 2,059 | 160 | 9,685 | |||||||||||||||||||
| Change in interest income | 7,297 | 2,320 | 152 | 9,769 | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Deposits | 2,955 | (3,517) | (176) | (738) | |||||||||||||||||||
| Other borrowings | 492 | 38 | 4 | 534 | |||||||||||||||||||
| Change in interest expense | 3,447 | (3,479) | (172) | (204) | |||||||||||||||||||
| Change in net interest income | $ | 3,850 | $ | 5,799 | $ | 324 | $ | 9,973 | |||||||||||||||
1Represents the change attributable to a combination of change in rate and change in volume.
|
For the quarter ended September 30, 2025 compared to 2024
|
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Dollars in thousands
|
Volume | Rate |
Rate/Volume1
|
Total | |||||||||||||||||||
| Interest on earning assets | |||||||||||||||||||||||
| Interest-bearing deposits | $ | 52 | $ | - | $ | - | $ | 52 | |||||||||||||||
| Investment securities | (131) | 91 | (2) | (42) | |||||||||||||||||||
| Loans held for sale | - | - | - | - | |||||||||||||||||||
| Loans | 1,825 | 847 | 46 | 2,718 | |||||||||||||||||||
| Change in interest income | 1,746 | 938 | 44 | 2,728 | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Deposits | 794 | (1,474) | (58) | (738) | |||||||||||||||||||
| Other borrowings | (73) | (132) | 5 | (200) | |||||||||||||||||||
| Change in interest expense | 721 | (1,606) | (53) | (938) | |||||||||||||||||||
| Change in net interest income | $ | 1,025 | $ | 2,544 | $ | 97 | $ | 3,666 | |||||||||||||||
1Represents the change attributable to a combination of change in rate and change in volume.
Average Daily Balance Sheets
The following table shows the Company's average daily balance sheets for the nine months and quarters ended September 30, 2025 and 2024:
| For the nine months ended | For the quarters ended | |||||||||||||
|
Dollars in thousands
|
September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||
| Assets | ||||||||||||||
| Cash and cash equivalents | $ | 26,033 | $ | 24,797 | $ | 28,404 | $ | 26,371 | ||||||
| Interest-bearing deposits in other banks | 6,368 | 5,102 | 10,704 | 5,568 | ||||||||||
|
Securities available for sale (includes tax exempt securities of $36,335 and $36,473 at September 30, 2025 and 2024, respectively)
|
276,153 | 274,732 | 273,897 | 278,609 | ||||||||||
|
Securities to be held to maturity, net of ACL (included tax exempt securities of $250,491 and $252,516 at September 30, 2025 and 2024, respectively)
|
367,375 | 379,438 | 364,847 | 377,361 | ||||||||||
| Restricted equity securities, at cost | 7,747 | 6,221 | 7,598 | 6,829 | ||||||||||
| Loans held for sale | 38 | 26 | 70 | 37 | ||||||||||
| Loans | 2,383,988 | 2,212,019 | 2,394,736 | 2,271,637 | ||||||||||
| Allowance for credit losses | (24,969) | (24,458) | (25,058) | (24,808) | ||||||||||
| Net loans | 2,359,019 | 2,187,561 | 2,369,678 | 2,246,829 | ||||||||||
| Accrued interest receivable | 17,502 | 15,588 | 17,078 | 15,864 | ||||||||||
| Premises and equipment | 28,143 | 28,245 | 28,179 | 27,795 | ||||||||||
| Other real estate owned | 46 | 71 | - | 200 | ||||||||||
| Goodwill | 30,646 | 30,646 | 30,646 | 30,646 | ||||||||||
| Other assets | 65,183 | 64,618 | 66,296 | 63,827 | ||||||||||
| Total Assets | $ | 3,184,253 | $ | 3,017,045 | $ | 3,197,397 | $ | 3,079,936 | ||||||
| Liabilities & Shareholders' Equity | ||||||||||||||
| Demand deposits | $ | 291,269 | $ | 274,854 | $ | 310,254 | $ | 294,424 | ||||||
| NOW deposits | 606,454 | 617,644 | 600,789 | 610,394 | ||||||||||
| Money market deposits | 399,540 | 317,397 | 413,239 | 325,757 | ||||||||||
| Savings deposits | 260,062 | 277,247 | 256,074 | 269,561 | ||||||||||
| Certificates of deposit | 1,148,685 | 1,087,513 | 1,136,062 | 1,109,018 | ||||||||||
| Total deposits | 2,706,010 | 2,574,655 | 2,716,418 | 2,609,154 | ||||||||||
| Borrowed funds - short term | 91,057 | 72,679 | 86,448 | 94,274 | ||||||||||
| Borrowed funds - long term | 95,500 | 95,000 | 95,000 | 95,000 | ||||||||||
| Dividends payable | 2,247 | 922 | 2,384 | 959 | ||||||||||
| Other liabilities | 25,800 | 26,326 | 26,841 | 26,638 | ||||||||||
| Total Liabilities | 2,920,614 | 2,769,582 | 2,927,091 | 2,826,025 | ||||||||||
| Shareholders' Equity: | ||||||||||||||
| Common stock | 112 | 111 | 112 | 111 | ||||||||||
| Additional paid-in capital | 72,488 | 70,656 | 72,949 | 71,088 | ||||||||||
| Retained earnings | 229,881 | 217,930 | 233,772 | 220,379 | ||||||||||
| Net unrealized loss on securities available for sale | (39,133) | (42,077) | (36,708) | (38,330) | ||||||||||
| Net unrealized loss on securities transferred from available for sale to held to maturity | (48) | (52) | (51) | (50) | ||||||||||
| Net unrealized gain (loss) on cash flow hedging derivative instruments | 52 | 592 | (55) | 410 | ||||||||||
| Net unrealized gain on postretirement benefit costs | 287 | 303 | 287 | 303 | ||||||||||
| Total Shareholders' Equity | 263,639 | 247,463 | 270,306 | 253,911 | ||||||||||
| Total Liabilities & Shareholders' Equity | $ | 3,184,253 | $ | 3,017,045 | $ | 3,197,397 | $ | 3,079,936 | ||||||
Non-Interest Income
Non-interest income of $12.6 million for the nine months ended September 30, 2025 is an increase of $687,000 compared to the same period in 2024. Service charges on deposit accounts were up $50,000, or 3.2%, mortgage banking revenue was up $123,000, or 24.0%, revenue at First National Wealth Management increased $305,000 or 8.3%, and fee income derived from loan derivative transactions increased $204,000. Over the same period, debit card revenue was down a modest $25,000, or 0.6%. Non-interest income of $4.5 million for the quarter ended September 30, 2025 is an increase of $353,000 compared to the same period in 2024.
Non-Interest Expense
Non-interest expense of $37.8 million for the nine months ended September 30, 2025 is an increase of 8.0% or $2.8 million compared to non-interest expense of $35.0 million for the same period in 2024. Salaries and employee benefits increased $2.0 million, or 11.4%, attributable to a combination of salary adjustments, incentive compensation accruals, increased benefit costs, and several one-time expenses resulting from retirements. Furniture and equipment expense was up $209,000 or 5.0% on higher software costs, and other operating expense increased $179,000 or 2.0%. FDIC insurance premiums increased by $331,000 due to balance sheet expansion. Non-interest expense of $12.8 million for the quarter ended September 30, 2025 is an increase of 6.3% compared to non-interest expense of $12.0 million for the same period in 2024 due to the reasons mentioned.
Income Taxes
Income taxes on operating earnings were $5.3 million for the nine months ended September 30, 2025, up $1.1 million from the same period in 2024.
Investments
The carrying value of the Company's investment portfolio decreased by $8.6 million between December 31, 2024 and September 30, 2025 from $651.6 million to $643.0 million. The change in value of the portfolio is attributable to lack of like-kind re-investment of incoming cash flow from amortizing investments and limited new purchases, partially countered by positive effects of interest rate movement on the fair value of AFS holdings. As of September 30, 2025, mortgage-backed securities had a carrying value of $268.9 million and a fair value of $259.5 million. Of this total, securities with a fair value of $74.8 million or 28.7% of the mortgage-backed portfolio were issued by GNMA and securities with a fair value of $185.7 million or 71.3% of the mortgage-backed portfolio were issued by FHLMC and FNMA.
The Company's investment securities are classified into two categories: securities available for sale and securities to be held to maturity. Securities available for sale consist primarily of debt securities which Management intends to hold for indefinite periods of time. They may be used as part of the Company's funds management strategy, and may be sold in response to changes in interest rates, prepayment risk and liquidity needs, to increase capital ratios, or for other similar reasons. Securities to be held to maturity consist primarily of debt securities that the Company has acquired solely for long-term investment purposes, rather than potential future sale. For securities to be categorized as HTM, Management must have the intent and the Company must have the ability to hold such investments until their respective maturity dates. The Company does not hold trading account securities.
All investment securities are managed in accordance with a written investment policy adopted by the Board of Directors. It is the Company's general policy that investments for either portfolio be limited to government debt obligations, time deposits, and corporate bonds or commercial paper with one of the three highest ratings given by a nationally recognized rating agency. The portfolio is currently invested primarily in U.S. Government agency securities, mortgage-backed securities, and tax-exempt obligations of states and political subdivisions. The individual securities have been selected to enhance the portfolio's overall yield while not materially adding to the Company's level of interest rate risk.
During the third quarter of 2014, the Company transferred securities with a total amortized cost of $89,780,000 and a corresponding fair value of $89,757,000 from AFS to HTM. The net unrealized loss, net of taxes, on these securities at the date of the transfer was $15,000. The net unrealized holding loss at the time of transfer continues to be reported in AOCI, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the net unrealized loss reported in AOCI will offset the effect on interest income of the discount for the transferred securities. The remaining unamortized balance of the net unrealized losses for the securities transferred from AFS to HTM was $40,000 at September 30, 2025. This compares to $47,000 and $49,000, net of taxes, at December 31, 2024 and September 30, 2024, respectively. These securities were transferred as a part of the Company's overall investment and balance sheet strategies.
The following table sets forth the Company's investment securities at their carrying amounts as of September 30, 2025 and 2024 and December 31, 2024.
|
Dollars in thousands
|
September 30, 2025 | December 31, 2024 | September 30, 2024 | ||||||||
| Securities available for sale | |||||||||||
| U.S. Treasury & Agency securities | $ | 17,882 | $ | 19,796 | $ | 20,735 | |||||
| Mortgage-backed securities | 219,417 | 219,382 | 227,374 | ||||||||
| State and political subdivisions | 34,162 | 33,252 | 34,608 | ||||||||
| Asset-backed securities | 2,032 | 2,250 | 2,304 | ||||||||
| $ | 273,493 | $ | 274,680 | $ | 285,021 | ||||||
| Securities to be held to maturity | |||||||||||
| U.S. Treasury & Agency securities | $ | 38,100 | $ | 38,100 | $ | 38,100 | |||||
| Mortgage-backed securities | 49,444 | 52,370 | 53,373 | ||||||||
| State and political subdivisions | 249,194 | 252,180 | 252,636 | ||||||||
| Corporate securities | 26,000 | 27,250 | 33,750 | ||||||||
| $ | 362,738 | $ | 369,900 | $ | 377,859 | ||||||
| Less allowance for credit losses | (186) | (196) | (224) | ||||||||
| Net securities to be held to maturity | $ | 362,552 | $ | 369,704 | $ | 377,635 | |||||
| Restricted equity securities | |||||||||||
| Federal Home Loan Bank Stock | $ | 5,879 | $ | 6,166 | $ | 5,383 | |||||
| Federal Reserve Bank Stock | 1,037 | 1,037 | 1,037 | ||||||||
| $ | 6,916 | $ | 7,203 | $ | 6,420 | ||||||
| Total securities | $ | 642,961 | $ | 651,587 | $ | 669,076 | |||||
The Company adopted ASC 326, the CECL standard in 2023. In conjunction with adoption, holdings of AFS Securities and HTM securities were evaluated to determine the need to establish an ACL, if any. The total ACL for HTM securities was $186,000 as of September 30, 2025, $196,000 as of December 31, 2024 and $224,000 September 30, 2024. Further details are included in Note 2 of the accompanying financial statements.
The following table sets forth yields and contractual maturities of the Company's investment securities as of September 30, 2025. Yields on tax-exempt securities have been computed on a tax-equivalent basis using a tax rate of 21%. Mortgage-backed securities are presented according to their final contractual maturity date, while the calculated yield takes into effect the intermediate cash flows from repayment of principal which results in a much shorter average life.
| Available For Sale | Held to Maturity | |||||||||||||||||||||||||
|
Dollars in thousands
|
Fair Value |
Yield to maturity | Amortized Cost | Yield to maturity | ||||||||||||||||||||||
| U.S. Treasury & Agency Securities | ||||||||||||||||||||||||||
| Due in 1 year or less | $ | - | 0.00 | % | $ | - | 0.00 | % | ||||||||||||||||||
| Due in 1 to 5 years | 3,065 | 1.03 | % | 6,500 | 1.13 | % | ||||||||||||||||||||
| Due in 5 to 10 years | 5,633 | 1.25 | % | 8,150 | 1.59 | % | ||||||||||||||||||||
| Due after 10 years | 9,184 | 2.00 | % | 23,450 | 1.56 | % | ||||||||||||||||||||
| Total | 17,882 | 1.60 | % | 38,100 | 1.49 | % | ||||||||||||||||||||
| Mortgage-Backed Securities | ||||||||||||||||||||||||||
| Due in 1 year or less | 11 | 2.93 | % | - | 0.00 | % | ||||||||||||||||||||
| Due in 1 to 5 years | 854 | 1.27 | % | 4 | 7.34 | % | ||||||||||||||||||||
| Due in 5 to 10 years | 7,098 | 3.56 | % | 3,465 | 4.84 | % | ||||||||||||||||||||
| Due after 10 years | 211,454 | 2.71 | % | 45,975 | 1.52 | % | ||||||||||||||||||||
| Total | 219,417 | 2.74 | % | 49,444 | 1.75 | % | ||||||||||||||||||||
| State & Political Subdivisions | ||||||||||||||||||||||||||
| Due in 1 year or less | - | 0.00 | % | 1,635 | 3.33 | % | ||||||||||||||||||||
| Due in 1 to 5 years | 180 | 5.06 | % | 18,601 | 3.54 | % | ||||||||||||||||||||
| Due in 5 to 10 years | 9,780 | 2.61 | % | 69,730 | 3.44 | % | ||||||||||||||||||||
| Due after 10 years | 24,202 | 3.40 | % | 159,228 | 2.37 | % | ||||||||||||||||||||
| Total | 34,162 | 3.18 | % | 249,194 | 2.76 | % | ||||||||||||||||||||
| Asset-Backed Securities | ||||||||||||||||||||||||||
| Due in 1 year or less | - | 0.00 | % | - | 0.00 | % | ||||||||||||||||||||
| Due in 1 to 5 years | - | 0.00 | % | - | 0.00 | % | ||||||||||||||||||||
| Due in 5 to 10 years | - | 0.00 | % | - | 0.00 | % | ||||||||||||||||||||
| Due after 10 years | 2,032 | 5.44 | % | - | 0.00 | % | ||||||||||||||||||||
| Total | 2,032 | 5.44 | % | - | 0.00 | % | ||||||||||||||||||||
| Corporate Securities | ||||||||||||||||||||||||||
| Due in 1 year or less | - | 0.00 | % | - | 0.00 | % | ||||||||||||||||||||
| Due in 1 to 5 years | - | 0.00 | % | 2,250 | 3.19 | % | ||||||||||||||||||||
| Due in 5 to 10 years | - | 0.00 | % | 23,750 | 5.29 | % | ||||||||||||||||||||
| Due after 10 years | - | 0.00 | % | - | 0.00 | % | ||||||||||||||||||||
| Total | - | 0.00 | % | 26,000 | 5.10 | % | ||||||||||||||||||||
| $ | 273,493 | 2.74 | % | $ | 362,738 | 2.66 | % | |||||||||||||||||||
AFS Debt Securities in an Unrealized Loss Position
The securities portfolio contains certain AFS securities where the amortized cost of which exceeds fair value, which at September 30, 2025 amounted to $42.9 million, or 13.56% of the amortized cost of the total securities portfolio. At December 31, 2024, this amount was $54.2 million, or 16.48% of the amortized cost of total securities portfolio.
The Company's evaluation of securities for impairment is a quantitative and qualitative process intended to determine whether declines in the fair value of investment securities should be recognized as a charge against the ACL. The primary factors considered in evaluating whether a loss should be recognized include: (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity, and (f) any other information and observable data considered relevant in determining whether full collection of amounts contractually due will be realized.
The Company's best estimate of cash flows uses severe economic recession assumptions due to market uncertainty. The Company's assumptions include but are not limited to delinquencies, foreclosure levels and constant default rates on the underlying collateral, loss severity ratios, and constant prepayment rates. If the Company does not expect to receive 100% of future contractual principal and interest, a charge against the ACL is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral.
As of September 30, 2025, the Company had AFS debt securities in an unrealized loss position with a fair value of $238.1 million and unrealized losses of $42.9 million, as identified in the table below. AFS Securities in a continuous unrealized loss position for more than twelve months amounted to a fair value of $232.9 million as of September 30, 2025, compared with $234.1 million at December 31, 2024. The Company has concluded that these securities are fully collectible and that no charge against the allowance is required. This conclusion was based on the issuer's continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that the issuer will continue to do so, Management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value which may be at maturity, the expectation that the Company will receive 100% of future contractual cash flows, as well as the evaluation of the fundamentals of the issuer's financial condition and other objective evidence. The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at September 30, 2025:
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||
|
Dollars in thousands
|
Fair Value (Estimated) |
Unrealized Losses |
Fair Value (Estimated) |
Unrealized Losses |
Fair Value (Estimated) |
Unrealized Losses |
||||||||||||||
| U.S. Treasury & Agency securities | $ | - | $ | - | $ | 17,882 | $ | (5,163) | $ | 17,882 | $ | (5,163) | ||||||||
| Mortgage-backed securities | 1,776 | (10) | 183,340 | (31,741) | 185,116 | (31,751) | ||||||||||||||
| State and political subdivisions | 2,276 | (23) | 31,706 | (5,886) | 33,982 | (5,909) | ||||||||||||||
| Asset-backed securities | 1,109 | (31) | - | - | 1,109 | (31) | ||||||||||||||
| $ | 5,161 | $ | (64) | $ | 232,928 | $ | (42,790) | $ | 238,089 | $ | (42,854) | |||||||||
For AFS securities with unrealized losses, the following information was considered in determining that no charge against the allowance for decline in fair value was required in the current reporting period:
AFS Securities issued by the U.S. Treasury and U.S. Government-sponsored agencies & enterprises.As of September 30, 2025, there were $5.2 million of unrealized losses on these securities compared to $6.2 million at December 31, 2024. All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies. Management believes that securities issued by the U.S. Treasury and U.S. Government-sponsored agencies and enterprises carry zero or near-zero credit risk, and that 100% of the amounts contractually due will be collected.
AFS Mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises.As of September 30, 2025, there were $31.8 million of unrealized losses on these securities compared with $41.0 million at December 31, 2024. All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies. Management believes that securities issued by U.S. Government agencies bear no credit risk because they are backed by the full faith and credit of the United States and that securities issued by U.S. Government-sponsored enterprises have minimal credit risk, as these agencies and enterprises play a vital role in the nation's financial markets. Management believes that the unrealized losses at September 30, 2025 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized. The Company also has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity.
AFS Obligations of state and political subdivisions.As of September 30, 2025, there were $5.9 million of unrealized losses on these securities compared to $6.9 million at December 31, 2024. Municipal securities are supported by the general taxing authority of the municipality or a dedicated revenue stream, and, in the case of school districts, are generally supported by state aid. At September 30, 2025, all municipal bond issuers were current on contractually obligated interest and principal payments. The Company attributes the unrealized losses at September 30, 2025 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with general market conditions. The Company has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity, and believes that 100% of the amounts contractually due will be realized.
AFS Asset-backed securities. As of September 30, 2025, there were $31,000 of unrealized losses on these securities compared with none at December 31, 2024. These securities consist of U.S. Government backed student loans along with other credit enhancements.
FHLBB and FRBB Stock
The Bank is a member of the FHLBB, a cooperatively owned wholesale bank for housing and finance in the six New England States. As a requirement of membership in the FHLBB, the Bank must own a minimum required amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. The Bank uses the FHLBB for a portion of its wholesale funding needs. As of September 30, 2025, the Bank's investment in FHLBB stock totaled $5.9 million. This compares to $6.2 million as of December 31, 2024 and $5.4 million as of September 30, 2024. FHLBB stock is a non-marketable equity security and therefore is reported at cost, subject to adjustments for any observable market transactions on the same or similar instruments of the investee. No impairment losses have been recorded through September 30, 2025.
The Bank is also a member of the FRBB. As a requirement for membership in the FRBB, the Bank must own a minimum required amount of FRBB stock. The Bank uses FRBB for certain correspondent banking services and maintains borrowing capacity at its discount window. The Bank's investment in FRBB stock totaled $1.0 million at September 30, 2025 and 2024, and December 31, 2024.
The Company periodically evaluates its investment in FHLBB and FRBB stock for impairment based on, among other factors, the capital adequacy of the Banks and their overall financial condition. No impairment losses have been recorded through September 30, 2025. The Bank will continue to monitor its investment in these restricted equity securities.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value. As of September 30, 2025, the Bank had $333,000 in loans
held for sale. This compares to no loans held for sale at December 31, 2024 and September 30, 2024.
Loans
The Company provides loans to customers within our market area, the State of Maine, with very limited exposures outside of Maine. Loans are originated primarily via our network of branch offices, along with an online channel for residential mortgage loans.
The loan portfolio increased during the first nine months of 2025, with total loans at $2.40 billion at September 30, 2025, up $57.6 million or 2.5% from total loans of $2.34 billion at December 31, 2024. Commercial loans increased $21.4 million or 1.5% between December 31, 2024 and September 30, 2025, municipal loans increased $6.8 million or 10.9%, residential term loans increased $19.8 million, and home equity lines of credit increased $14.0 million.
The loan portfolio is segmented into eleven classes. Commercial loans comprise six of the classes: commercial real estate owner occupied, commercial real estate non-owner occupied, commercial construction, C&I, multifamily and agriculture. Residential mortgage loans comprise two of the classes: residential real estate term and residential real estate construction. The remaining classes are municipal loans, home equity loans, and consumer loans. Further descriptions of each class, and the risk factors associated with each, are included in Note 4 of the accompanying financial statements.
The following table summarizes the loan portfolio, by class, at September 30, 2025 and 2024 and December 31, 2024.
|
Dollars in thousands
|
September 30, 2025 | December 31, 2024 | September 30, 2024 | ||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Real estate owner occupied | $ | 375,263 | 15.6 | % | $ | 358,588 | 15.3 | % | $ | 348,287 | 15.1 | % | |||||||||||||||||
| Real estate non-owner occupied | 414,481 | 17.3 | % | 403,899 | 17.3 | % | 408,361 | 17.7 | % | ||||||||||||||||||||
| Construction | 51,753 | 2.1 | % | 99,717 | 4.3 | % | 87,992 | 3.8 | % | ||||||||||||||||||||
| C&I | 376,911 | 15.7 | % | 365,817 | 15.6 | % | 368,415 | 16.0 | % | ||||||||||||||||||||
| Multifamily | 136,515 | 5.7 | % | 108,732 | 4.6 | % | 110,472 | 4.8 | % | ||||||||||||||||||||
| Agriculture | 55,489 | 2.3 | % | 52,219 | 2.2 | % | 51,274 | 2.2 | % | ||||||||||||||||||||
| Municipal | 68,593 | 2.9 | % | 61,827 | 2.6 | % | 62,944 | 2.7 | % | ||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Term | 730,624 | 30.5 | % | 710,807 | 30.4 | % | 698,068 | 30.2 | % | ||||||||||||||||||||
| Construction | 32,779 | 1.4 | % | 35,481 | 1.5 | % | 34,628 | 1.5 | % | ||||||||||||||||||||
| Home Equity | |||||||||||||||||||||||||||||
| Revolving and term | 137,018 | 5.7 | % | 123,063 | 5.3 | % | 117,028 | 5.1 | % | ||||||||||||||||||||
| Consumer | 19,084 | 0.8 | % | 20,790 | 0.9 | % | 19,784 | 0.9 | % | ||||||||||||||||||||
| Total loans | $ | 2,398,510 | 100.0 | % | $ | 2,340,940 | 100.0 | % | $ | 2,307,253 | 100.0 | % | |||||||||||||||||
The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of September 30, 2025.
|
Dollars in thousands
|
< 1 Year | 1 - 5 Years | 5 - 10 Years | > 10 Years | Total | ||||||||||||
| Commercial | |||||||||||||||||
| Real estate owner occupied | $ | 5,973 | $ | 103,872 | $ | 32,932 | $ | 232,486 | $ | 375,263 | |||||||
| Real estate non-owner occupied | 18,915 | 89,829 | 29,886 | 275,851 | 414,481 | ||||||||||||
| Construction | 9,157 | 21,155 | 4,151 | 17,290 | 51,753 | ||||||||||||
| C&I | 90,315 | 167,895 | 33,904 | 84,797 | 376,911 | ||||||||||||
| Multifamily | 207 | 29,094 | 5,168 | 102,046 | 136,515 | ||||||||||||
| Agriculture | 5,400 | 17,992 | 9,801 | 22,296 | 55,489 | ||||||||||||
| Municipal | 25,097 | 11,562 | 13,401 | 18,533 | 68,593 | ||||||||||||
| Residential | |||||||||||||||||
| Term | 1,328 | 56,476 | 40,350 | 632,470 | 730,624 | ||||||||||||
| Construction | 1,930 | 4,230 | - | 26,619 | 32,779 | ||||||||||||
| Home Equity | |||||||||||||||||
| Revolving and term | 5,608 | 9,592 | 8,186 | 113,632 | 137,018 | ||||||||||||
| Consumer | 7,524 | 6,498 | 1,186 | 3,876 | 19,084 | ||||||||||||
| Total loans | $ | 171,454 | $ | 518,195 | $ | 178,965 | $ | 1,529,896 | $ | 2,398,510 | |||||||
The following table provides a listing of loans by class, between variable and fixed rates as of September 30, 2025.
| Fixed-Rate | Adjustable-Rate | Total | |||||||||||||||||||||||||||
|
Dollars in thousands
|
Amount | % of total | Amount | % of total | Amount | % of total | |||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Real estate owner occupied | $ | 71,219 | 3.0 | % | $ | 304,044 | 12.6 | % | $ | 375,263 | 15.6 | % | |||||||||||||||||
| Real estate non-owner occupied | 129,179 | 5.4 | % | 285,302 | 11.9 | % | 414,481 | 17.3 | % | ||||||||||||||||||||
| Construction | 29,482 | 1.2 | % | 22,271 | 0.9 | % | 51,753 | 2.1 | % | ||||||||||||||||||||
| C&I | 146,912 | 6.1 | % | 229,999 | 9.6 | % | 376,911 | 15.7 | % | ||||||||||||||||||||
| Multifamily | 20,028 | 0.8 | % | 116,487 | 4.9 | % | 136,515 | 5.7 | % | ||||||||||||||||||||
| Agriculture | 10,041 | 0.4 | % | 45,448 | 1.9 | % | 55,489 | 2.3 | % | ||||||||||||||||||||
| Municipal | 68,393 | 2.9 | % | 200 | 0.0 | % | 68,593 | 2.9 | % | ||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Term | 463,083 | 19.3 | % | 267,541 | 11.2 | % | 730,624 | 30.5 | % | ||||||||||||||||||||
| Construction | 12,647 | 0.5 | % | 20,132 | 0.9 | % | 32,779 | 1.4 | % | ||||||||||||||||||||
| Home Equity | |||||||||||||||||||||||||||||
| Revolving and Term | 23,753 | 1.0 | % | 113,265 | 4.7 | % | 137,018 | 5.7 | % | ||||||||||||||||||||
| Consumer | 11,575 | 0.5 | % | 7,509 | 0.3 | % | 19,084 | 0.8 | % | ||||||||||||||||||||
| Total loans | $ | 986,312 | 41.1 | % | $ | 1,412,198 | 58.9 | % | $ | 2,398,510 | 100.0 | % | |||||||||||||||||
Loan Concentrations
As of September 30, 2025, the Bank had one concentration of loans in one particular industry that exceeded 10% of its total loan portfolio: (1) loans to lessors of residential buildings and dwellings, totaling $265.1 million, or 11.05% of total loans. This compares to two concentrations of loans in two particular industries that exceeded 10% of its total loan portfolio as of September 30, 2024: (1) loans to hotels (except Casino hotels) and motels, totaling $243.6 million, or 10.56% of total loans, and (2) loans to lessors of residential buildings and dwellings, $255.5 million, or 11.07% of total loans, .
Credit Risk Management and Allowance for Credit Losses on Loans
Upon adoption of the CECL standard, in 2023, the Company replaced the incurred loss model that recognized loan losses when it became probable that a credit loss would be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The ACL is a valuation amount that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. The ACL consists of three elements: (1) specific reserves for loans individually analyzed; (2) general reserves for each portfolio segment; and, (3) qualitative reserves. All outstanding loans are considered in evaluating the appropriateness of the allowance with similar risk characteristics in the portfolio. Prior to adoption of ASC 326, under the incurred loss methodology, the Company evaluated portfolio risk characteristics largely on loan purpose.
The Company provides for loan losses through the ACL which represents an estimated reserve for losses in the loan portfolio. To determine an appropriate level for general reserves, a discounted cash flow approach is applied to each portfolio segment implementing a probability of default and loss given default estimate based upon a number of factors including historical losses over an economic cycle, economic forecasts, loan prepayment speeds and curtailment rates. To determine an appropriate level for qualitative reserves various factors are considered including underwriting policies, credit administration practices, experience, ability and depth of lending management, and economic factors not captured in the general reserve calculation.
The ACL is increased by provisions charged against current earnings. Loan losses are charged against the allowance when Management believes that the collectibility of the loan principal is unlikely. Recoveries on loans previously charged off are credited to the allowance. The adequacy of the ACL is overseen by the ACL Committee whose membership includes senior level personnel from the Executive, Lending, Credit Administration, and Finance functions of the Bank. While Management uses available information to assess possible losses on loans, future additions to the allowance may be necessary based on increases in non-performing loans, changes in economic conditions or outlook, growth in loan portfolios, or for other reasons. Any future additions to the allowance would be recognized in the period in which they were determined to be necessary. In addition, various regulatory agencies periodically review the Company's ACL as an integral part of their examination process. Such agencies may require the Company to record additions to the allowance based on judgments different from those of Management.
The ACL includes reserve amounts assigned to IAL. This includes loans with balances of $250,000 or more that have been placed into non-accrual or are loans identified by management as having characteristics that may impact ultimate collectibility and therefore merit individual analysis. A specific reserve is allocated to an individual loan when the amount of a probable loss is estimable on the basis of its collateral value, the present value of anticipated future cash flows, or its net realizable value. At September 30, 2025, IAL with specific reserves totaled $1.3 million and the amount of such reserves was $826,000. This compares to IAL with specific reserves of $1.7 million at December 31, 2024 and the amount of such reserves was $1.0 million.
The total ACL on loans at September 30, 2025 is considered by Management to be appropriate to address the potential for credit losses inherent in the loan portfolio at that date. However, determination of the appropriate allowance level is based upon a number of assumptions made about future events, which management believes are reasonable, but which may or may not prove valid. Thus, there can be no assurance charge-offs in future periods will not exceed the ACL or that additional increases in the ACL will not be necessary.
The following table summarizes the allocation of allowance by loan class as of September 30, 2025 and 2024 and December 31, 2024. The percentages are the portion of each loan class to total loans.
|
Dollars in thousands
|
September 30, 2025 | December 31, 2024 | September 30, 2024 | ||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Real estate owner occupied | $ | 5,130 | 15.6 | % | $ | 5,045 | 15.3 | % | $ | 5,119 | 15.1 | % | |||||||||||||||||
| Real estate non-owner occupied | 4,765 | 17.3 | % | 4,829 | 17.3 | % | 4,971 | 17.7 | % | ||||||||||||||||||||
| Construction | 419 | 2.1 | % | 944 | 4.3 | % | 807 | 3.8 | % | ||||||||||||||||||||
| C&I | 5,115 | 15.7 | % | 5,364 | 15.6 | % | 4,662 | 16.0 | % | ||||||||||||||||||||
| Multifamily | 1,481 | 5.7 | % | 1,239 | 4.6 | % | 1,262 | 4.8 | % | ||||||||||||||||||||
| Agriculture | 673 | 2.3 | % | 605 | 2.2 | % | 613 | 2.2 | % | ||||||||||||||||||||
| Municipal | 288 | 2.9 | % | 262 | 2.6 | % | 266 | 2.7 | % | ||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Term | 5,756 | 30.5 | % | 5,241 | 30.4 | % | 5,051 | 30.2 | % | ||||||||||||||||||||
| Construction | 436 | 1.4 | % | 474 | 1.5 | % | 425 | 1.5 | % | ||||||||||||||||||||
| Home Equity | |||||||||||||||||||||||||||||
| Revolving and term | 849 | 5.7 | % | 686 | 5.3 | % | 663 | 5.1 | % | ||||||||||||||||||||
| Consumer | 166 | 0.8 | % | 182 | 0.9 | % | 160 | 0.9 | % | ||||||||||||||||||||
| Total | $ | 25,078 | 100.0 | % | $ | 24,871 | 100.0 | % | $ | 23,999 | 100.0 | % | |||||||||||||||||
A breakdown of the ACL on loans as of September 30, 2025, by loan class and allowance element, is presented in the following table:
|
Dollars in thousands
|
Specific Reserves on Loans Evaluated Individually | General Reserves on Loans Based on Historical Loss Experience | Reserves for Qualitative Factors | Total Reserves | ||||||||||
| Commercial | ||||||||||||||
| Real estate owner occupied | $ | - | $ | 4,396 | $ | 734 | $ | 5,130 | ||||||
| Real estate non-owner occupied | - | 4,127 | 638 | 4,765 | ||||||||||
| Construction | - | 319 | 100 | 419 | ||||||||||
| C&I | 740 | 3,770 | 605 | 5,115 | ||||||||||
| Multifamily | - | 1,304 | 177 | 1,481 | ||||||||||
| Agriculture | - | 514 | 159 | 673 | ||||||||||
| Municipal | - | 35 | 253 | 288 | ||||||||||
| Residential | ||||||||||||||
| Term | 86 | 5,279 | 391 | 5,756 | ||||||||||
| Construction | - | 380 | 56 | 436 | ||||||||||
| Home Equity | ||||||||||||||
| Revolving and term | - | 767 | 82 | 849 | ||||||||||
| Consumer | - | 162 | 4 | 166 | ||||||||||
| $ | 826 | $ | 21,053 | $ | 3,199 | $ | 25,078 | |||||||
Based upon Management's evaluation, provisions are made to maintain the allowance as a best estimate of expected losses within the portfolio. The provision for credit losses to maintain the allowance was $1.4 million for the first nine months of 2025 and $58,000 the first nine months of 2024. Net charge-offs were $1.2 in the first nine months of 2025, compared to net charge-offs of $89,000 in the first nine months of 2024. The ACL as a percentage of outstanding loans was 1.05% as of September 30, 2025, down slightly from 1.06% as of December 31, 2024, and up slightly from 1.04% as of September 30, 2024.
The following table summarizes the activities in the ACL for the nine months ended September 30, 2025 and 2024 and for the year ended December 31, 2024:
|
Dollars in thousands
|
September 30, 2025 | December 31, 2024 | September 30, 2024 | |||||||||||||||||
| Balance at the beginning of period | $ | 24,871 | $ | 24,030 | $ | 24,030 | ||||||||||||||
| Loans charged off: | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| Real estate owner occupied | - | - | - | |||||||||||||||||
| Real estate non-owner occupied | - | - | - | |||||||||||||||||
| Construction | - | - | - | |||||||||||||||||
| C&I | 1,101 | 451 | 88 | |||||||||||||||||
| Multifamily | - | - | - | |||||||||||||||||
| Agriculture | - | - | - | |||||||||||||||||
| Municipal | - | - | - | |||||||||||||||||
| Residential | ||||||||||||||||||||
| Term | 1 | 37 | 36 | |||||||||||||||||
| Construction | - | - | - | |||||||||||||||||
| Home Equity | ||||||||||||||||||||
| Revolving and term | - | 7 | 7 | |||||||||||||||||
| Consumer | 238 | 252 | 210 | |||||||||||||||||
| Total | 1,340 | 747 | 341 | |||||||||||||||||
| Recoveries on loans previously charged off | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| Real estate owner occupied | - | 100 | 100 | |||||||||||||||||
| Real estate non-owner occupied | - | - | - | |||||||||||||||||
| Construction | - | - | - | |||||||||||||||||
| C&I | 28 | 25 | 24 | |||||||||||||||||
| Multifamily | - | - | - | |||||||||||||||||
| Agriculture | - | - | - | |||||||||||||||||
| Municipal | - | - | - | |||||||||||||||||
| Residential | ||||||||||||||||||||
| Term | 6 | 32 | 30 | |||||||||||||||||
| Construction | - | - | - | |||||||||||||||||
| Home Equity | ||||||||||||||||||||
| Revolving and term | 15 | 24 | 21 | |||||||||||||||||
| Consumer | 64 | 103 | 77 | |||||||||||||||||
| Total | 113 | 284 | 252 | |||||||||||||||||
| Net loans charged off | 1,227 | 463 | 89 | |||||||||||||||||
| Credit loss expense | 1,434 | 1,304 | 58 | |||||||||||||||||
| Balance at end of period | $ | 25,078 | $ | 24,871 | $ | 23,999 | ||||||||||||||
|
Ratio of net loans charged off to average loans outstanding1
|
0.069 | % | 0.021 | % | 0.005 | % | ||||||||||||||
| Ratio of allowance for credit losses to total loans outstanding | 1.05 | % | 1.06 | % | 1.04 | % | ||||||||||||||
1Annualized using a 365-day basis in 2025 and a 366-day basis in 2024.
ACL for Unfunded Commitments
The Bank's modeling methodology applies the same class level credit loss factors used in the ACL for loans model to applicable classes of unfunded commitments to determine an appropriate ACL level. Utilization assumptions are based upon an independent analysis of the Bank's historical data. The ACL for unfunded commitments is reported on the Company's consolidated balance sheets within other liabilities and totaled $868,000 as of September 30, 2025.
Nonperforming Loans
Nonperforming loans are comprised of loans, for which based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.
Generally, when a loan becomes 90 days past due it is evaluated for collateral dependency based upon the most recent appraisal or other evaluation method. If the collateral value is lower than the outstanding loan balance plus accrued interest and estimated selling costs, the loan is placed on non-accrual status, all accrued interest is reversed from interest income, and a specific reserve is established for the difference between the loan balance and the collateral value less selling costs, or, in certain situations, the difference between the loan balance and the collateral value less selling costs is written off. Concurrently, a new appraisal or valuation may be ordered, depending on collateral type, currency of the most recent valuation, the size of the loan, and other factors appropriate to the loan. Upon receipt and acceptance of the new valuation, the loan may have an additional specific reserve or write down based on the updated collateral value. On an ongoing basis, appraisals or valuations may be done periodically on collateral dependent nonperforming loans and an additional specific reserve or write down will be made, if appropriate, based on the new collateral value.
Once a loan is placed on non-accrual, it remains in non-accrual status until the loan is current as to payment of both principal and interest and the borrower demonstrates the ability to pay and remain current. All payments made on non-accrual loans are applied to the principal balance of the loan.
Nonperforming loans, expressed as a percentage of total loans, totaled 0.40% at September 30, 2025 compared to 0.18% at December 31, 2024 and 0.11% at September 30, 2024. The following table shows the distribution of nonperforming loans by class as of September 30, 2025 and 2024 and December 31, 2024:
|
Dollars in thousands
|
September 30, 2025 | December 31, 2024 | September 30, 2024 | ||||||||
| Commercial | |||||||||||
| Real estate owner occupied | $ | 3,891 | 553 | $ | 367 | ||||||
| Real estate non-owner occupied | 61 | 61 | - | ||||||||
| Construction | 9 | 18 | 19 | ||||||||
| C&I | 1,721 | 1,695 | 129 | ||||||||
| Multifamily | - | - | - | ||||||||
| Agriculture | 187 | 31 | 31 | ||||||||
| Municipal | - | - | - | ||||||||
| Residential | |||||||||||
| Term | 3,110 | 1,599 | 1,686 | ||||||||
| Construction | - | - | - | ||||||||
| Home Equity | |||||||||||
| Revolving and term | 610 | 291 | 265 | ||||||||
| Consumer | 6 | - | - | ||||||||
| Total nonperforming loans | $ | 9,595 | $ | 4,248 | $ | 2,497 | |||||
| Allowance for credit losses on loans as a percentage of nonperforming loans | 261.4 | % | 585.5 | % | 961.1 | % | |||||
The amounts shown for total nonperforming loans do not include loans 90 or more days past due and still accruing interest. These are loans for which we expect to collect all amounts due, including past-due interest. As of September 30, 2025, loans 90 or more days past due and still accruing interest totaled $1.5 million, compared to $1.0 million at December 31, 2024 and $405,000 at September 30, 2024.
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
The Company adopted ASU 2022-02 effective January 1, 2023. Reporting of loan modifications subject to ASU 2022-02 may be found in Note 3 of the accompanying financial statements.
Past Due Loans
The Bank's overall loan delinquency ratio was 0.69% at September 30, 2025 compared to 0.40% at December 31, 2024 and 0.14% at September 30, 2024. Loans 90 or more days delinquent and accruing increased from $1.0 million at December 31, 2024 to $1.5 million as of September 30, 2025. The following table sets forth loan delinquencies as of September 30, 2025 and 2024 and December 31, 2024:
|
Dollars in thousands
|
September 30, 2025 | December 31, 2024 | September 30, 2024 | |||||||||||||||||
| Commercial | ||||||||||||||||||||
| Real estate owner occupied | $ | 4,204 | $ | 549 | $ | 162 | ||||||||||||||
| Real estate non-owner occupied | 1,285 | - | - | |||||||||||||||||
| Construction | - | - | - | |||||||||||||||||
| C&I | 1,455 | 1,998 | 1,070 | |||||||||||||||||
| Multifamily | 2,626 | - | - | |||||||||||||||||
| Agriculture | 212 | 115 | 210 | |||||||||||||||||
| Municipal | - | - | - | |||||||||||||||||
| Residential | ||||||||||||||||||||
| Term | 4,589 | 3,686 | 736 | |||||||||||||||||
| Construction | - | 390 | - | |||||||||||||||||
| Home Equity | ||||||||||||||||||||
| Revolving and term | 1,894 | 1,536 | 512 | |||||||||||||||||
| Consumer | 356 | 1,109 | 617 | |||||||||||||||||
| Total | $ | 16,621 | $ | 9,383 | $ | 3,307 | ||||||||||||||
| Loans 30-89 days past due to total loans | 0.395 | % | 0.311 | % | 0.104 | % | ||||||||||||||
| Loans 90+ days past due and accruing to total loans | 0.063 | % | 0.044 | % | 0.018 | % | ||||||||||||||
| Loans 90+ days past due on non-accrual to total loans | 0.235 | % | 0.046 | % | 0.022 | % | ||||||||||||||
| Total past due loans to total loans | 0.693 | % | 0.401 | % | 0.144 | % | ||||||||||||||
Potential Problem Loans and Loans in Process of Foreclosure
Potential problem loans consist of classified, accruing commercial and commercial real estate loans that were between 30 and 89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to improvements in the economy as well as changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in some amount of loss. At September 30, 2025, there were 11 potential problem loans reported with a balance of $5.4 million or 0.227% of total loans. This compares to one potential problem loan with a balance of $84,000 or 0.004% of total loans at December 31, 2024.
As of September 30, 2025, there were three residential loans in the process of foreclosure totaling $935,000 and one home equity line of credit totaling $63,000. The Bank's residential foreclosure process begins when a loan becomes 75 days past due at which time a Demand/Breach Letter is sent to the borrower. If the loan becomes 120 days past due, copies of the promissory note and mortgage deed are forwarded to the Bank's attorney for review and a complaint for foreclosure is then prepared. An authorized Bank officer signs the affidavit certifying the validity of the documents and verification of the past due amount which is then forwarded to the court. Once a Motion for Summary Judgment is granted, a POR begins which gives the customer 90 days to cure the default. A foreclosure auction date is then set 30 days from the POR expiration date if the default is not cured.
As of September 30, 2025, there were no commercial loans in the process of foreclosure. The Bank's commercial foreclosure process begins when a loan becomes 60 days past due, at which time a default letter is issued. At expiration of the period to cure default, which lasts 12 days after the issuing of the default letter, copies of the promissory note and mortgage deed are forwarded to the Bank's attorney for review. A Notice of Statutory Power of Sale is then prepared. This notice must be published for three consecutive weeks in a newspaper located in the county in which the property is located. A notice also must be issued to the mortgagor and all parties of interest 21 days prior to the sale. The foreclosure auction occurs and the Affidavit of Sale is recorded within the appropriate county within 30 days of the sale.
The Bank's written policies and procedures for foreclosures, along with implementation of same, are subject to annual review by its internal audit provider. The scope of this review includes loans held in portfolio and loans serviced for others. There were no issues requiring management attention in the most recent review. Servicing for others includes loans sold to FHLMC, FNMA, and the FHLBB through its MPF program. The Bank follows the published guidelines of each investor. Loans serviced for FHLMC and FNMA have been sold without recourse, and the Bank has no liability for these loans in the event of foreclosure. A de minimis volume of loans has been sold to and serviced for MPF to date. The Bank retains a second loss layer credit enhancement obligation; no losses have been recorded on this credit enhancement obligation since the Bank started selling loans to MPF in 2013.
Other Real Estate Owned
OREO and repossessed assets are comprised of properties or other assets acquired through a foreclosure proceeding, or acceptance of a deed or title in lieu of foreclosure. Real estate acquired through foreclosure is carried at the lower of fair value less estimated cost to sell or the cost of the asset and is not included as part of the ACL totals. At September 30, 2025 there were no OREO properties and no allowance for losses. This compares to December 31, 2024 and September 30, 2024, when there was one OREO property with a balance of $173,000, net of an allowance for OREO losses of $35,000. The table below presents the composition of OREO at September 30, 2025 and 2024, and December 31, 2024:
|
Dollars in thousands
|
September 30, 2025 | December 31, 2024 | September 30, 2024 | ||||||||
| Carrying Value | |||||||||||
| Residential | |||||||||||
| Term | $ | - | $ | 208 | $ | 208 | |||||
| Construction | - | - | - | ||||||||
| Home Equity | |||||||||||
| Revolving and Term | - | - | - | ||||||||
| Consumer | - | - | - | ||||||||
| Total | - | 208 | 208 | ||||||||
| Related Allowance | |||||||||||
| Residential | |||||||||||
| Term | - | 35 | 35 | ||||||||
| Construction | - | - | - | ||||||||
| Home Equity | |||||||||||
| Revolving and Term | - | - | - | ||||||||
| Consumer | - | - | - | ||||||||
| Total | - | 35 | 35 | ||||||||
| Net Value | |||||||||||
| Residential | |||||||||||
| Term | - | 173 | 173 | ||||||||
| Construction | - | - | - | ||||||||
| Home Equity | |||||||||||
| Revolving and Term | - | - | - | ||||||||
| Consumer | - | - | - | ||||||||
| Total | $ | - | $ | 173 | $ | 173 | |||||
Liquidity
Liquidity is the ability of a financial institution to meet maturing liability obligations, depositor withdrawal requests, and customer loan demand. The Bank's lead source of liquidity is deposits, including brokered deposits, which funded 85.0% of total average assets in the first nine months of 2025, down slightly from 85.3% a year ago. Other sources of funding include discretionary use of purchased liabilities (e.g., FHLBB term or overnight advances, and other borrowings), cash flows from the securities portfolio and loan repayments. Securities designated as available for sale may also be sold in response to short-term or long-term liquidity needs, although Management has no intention to do so at this time. While the generally preferred funding strategy is to attract and retain low cost deposits, the ability to do so is affected by competitive interest rates and terms in the marketplace.
The Bank has a detailed liquidity funding policy and a contingency funding plan that provide for prompt and comprehensive responses to unexpected demands for liquidity. Management has developed quantitative models to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of "business as usual" cash flows. In Management's estimation, risks are concentrated amongst several major categories: runoff of in-market deposit balances, an inability to renew wholesale sources of funding, and materially increased utilization of available credit lines by borrowers. Of these, potential runoff of deposit balances would have the most significant impact on contingent liquidity. The modeling attempts to quantify deposits at risk over selected time horizons. In addition to these outflow risks, several other "business as usual" factors enter into the calculation of the adequacy of contingent liquidity, including payment proceeds from loans and investment securities, maturing debt obligations and maturing time deposits. Stress testing analysis of liquidity resources under various scenarios is conducted no less than quarterly and results are reported to the ALCO. Borrowings supplement deposits as a source of liquidity; the Company's borrowings typically consist of customer repurchase agreements and FHLBB advances. The Bank tests its borrowing capacity with the FRBB, the FHLBB and Fed Funds lines with other correspondents no less than annually; each has been tested within the past five months.
The Company defines its primary sources of contingent liquidity as cash & equivalents, unencumbered U.S. Government or Agency bond collateral, available capacity at FHLBB, and available authorized brokered deposit issuance capacity. As of September 30, 2025, the Bank had primary sources of contingent liquidity of $970.0 million or 30.6% of its total assets. It is Management's opinion that this is an appropriate level. In addition, the Bank has $299.0 million in borrowing capacity at FRBB under the FRBB's Borrower in Custody program as well as securities available as collateral, $101.0 million in credit lines with correspondent banks, and $45.0 million in other unencumbered securities available as collateral for borrowing. These bring the Bank's total sources of liquidity to $1.415 billion or 44.7% of its total assets.
The ALCO establishes guidelines for liquidity in its Asset/Liability policy and monitors internal liquidity measures to manage liquidity exposure. Based on its assessment of the liquidity considerations described above, Management believes the Company's sources of funding will meet anticipated funding needs.
The Company is dependent upon the payment of cash dividends by the Bank to service its commitments. As the sole shareholder of the Bank, the Company is entitled to such dividends when and as declared by the Bank's Board of Directors from legally available funds. For the nine-months periods ended September 30, 2025 and 2024 the Bank declared dividends to the Company of $12.3 million and $11.9 million, respectively. The Bank's regulator, the OCC, may limit the amount of dividends declared and paid in a calendar year based upon certain factors. Further discussion may be found in Shareholder's Equity below.
Deposits
During the first nine months of 2025, total deposits increased by $12.3 million or 0.5% from December 31, 2024 levels. In the first nine months of 2025 low-cost deposits (demand, NOW, and savings accounts) decreased by $26.2 million or 2.1%, money market deposits increased $81.8 million or 21.7%, and certificates of deposit decreased $43.3 million or 3.9%.
Between September 30, 2024 and September 30, 2025, total deposits increased by $34.8 million or 1.3%. Low-cost deposits decreased by $25.7 million or 2.1%, money market accounts increased $114.3 million or 33.2%, and certificates of deposit decreased $53.8 million or 4.8%.
Over both the year-to-date and year-over-year periods, management has observed a modest shift of low-cost deposits to higher cost money market deposits. The reduction in certificate of deposit balances is principally the result of redemption of non-local time deposits.
Estimated uninsured deposits totaled $538.2 million or 19.7% of total deposits as of September 30, 2025, and $506.2 million or 18.6% of total deposits as of December 31, 2024. The company has pledged assets as collateral covering certain deposits; these amounts were $365.4 million and $349.8 million as of September 30, 2025 and December 31, 2024, respectively.
Borrowed Funds
The Company uses funding from the FHLBB, the FRBB and customer repurchase agreements enabling it to grow its balance sheet and its revenues. This funding may also be used to balance seasonal deposit flows or to carry out interest rate risk management strategies, and may be used to replace or supplement other sources of funding, including core deposits and certificates of deposit. During the nine months ended September 30, 2025, total borrowed funds increased $6.7 million; between September 30, 2024 and September 30, 2025, total borrowed funds increased by $1.9 million. For both the year-to-date and year-over-year periods, the change in borrowed funds outstanding is mostly attributable to changes in customer repurchase agreement balances. FRBB borrowings were zero as of each date and FHLBB borrowings increased by $500,000 in the third quarter of 2025.
Capital Resources
Shareholders' equity as of September 30, 2025 was $274.6 million, compared to $252.5 million as of December 31, 2024 and $256.8 million as of September 30, 2024. The Company's earnings in the first nine months of 2025, net of dividends declared, added $11.9 million to shareholders' equity. The net unrealized loss on AFS securities, net of tax, presented in accordance with FASB ASC Topic 320 "Investments - Debt and Equity Securities" stands at $33.5 million as of September 30, 2025 and was $42.7 million as of December 31, 2024. Additional information about the net unrealized loss on AFS securities was provided in Note 2 of the Consolidated Financial Statements and in the AFS Debit Securities section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
A cash dividend of $0.37 per share was declared in the third quarter of 2025. The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 50.34% for the first nine months of 2025 compared to 59.81% for the same period in 2024. In determining future dividend payout levels, the Board of Directors carefully analyzes capital requirements and earnings retention, as set forth in the Company's Dividend Policy. The ability of the Company to pay cash dividends to its shareholders depends on receipt of dividends from its subsidiary, the Bank. The subsidiary may pay dividends to its parent out of so much of its net profits as the Bank's directors deem appropriate, subject to the limitation that the total of all dividends declared by the Bank in any calendar year may not exceed the total of its net profits of that year combined with its retained net profits of the preceding two years. The amount available for dividends in 2025 is this year's net income plus $27.9 million.
Financial institution regulators have established guidelines for minimum capital ratios for banks and bank holding companies. The net unrealized gain or loss on AFS securities is generally not included in computing regulatory capital. During the first quarter of 2015, the Company adopted the new Basel III regulatory capital framework as approved by the federal banking agencies. In order to avoid limitations on capital distributions, including dividend payments, the Company must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios. The Company met each of the well-capitalized ratio guidelines at September 30, 2025.
The following tables indicate the capital ratios for the Bank and the Company at September 30, 2025 and December 31, 2024:
| As of September 30, 2025 | Leverage | Common Equity Tier 1 | Tier 1 | Total Risk-Based | ||||||||||||||||||||||
| Bank | 8.62 | % | 12.33 | % | 12.33 | % | 13.50 | % | ||||||||||||||||||
| Company | 8.63 | % | 12.39 | % | 12.39 | % | 13.56 | % | ||||||||||||||||||
| Adequately capitalized ratio | 4.00 | % | 4.50 | % | 6.00 | % | 8.00 | % | ||||||||||||||||||
| Adequately capitalized ratio plus capital conservation buffer | n/a | % | 7.00 | % | 8.50 | % | 10.50 | % | ||||||||||||||||||
| Well capitalized ratio (Bank only) | 5.00 | % | 6.50 | % | 8.00 | % | 10.00 | % | ||||||||||||||||||
| As of December 31, 2024 | Leverage | Common Equity Tier 1 | Tier 1 | Total Risk-Based | ||||||||||||||||||||||
| Bank | 8.32 | % | 11.98 | % | 11.98 | % | 13.16 | % | ||||||||||||||||||
| Company | 8.47 | % | 12.04 | % | 12.04 | % | 13.22 | % | ||||||||||||||||||
| Adequately capitalized ratio | 4.00 | % | 4.50 | % | 6.00 | % | 8.00 | % | ||||||||||||||||||
| Adequately capitalized ratio plus capital conservation buffer | n/a | % | 7.00 | % | 8.50 | % | 10.50 | % | ||||||||||||||||||
| Well capitalized ratio (Bank only) | 5.00 | % | 6.50 | % | 8.00 | % | 10.00 | % | ||||||||||||||||||
The Bank maintains and annually updates a capital plan over a five year horizon. The capital plan was last updated and approved by the Board in July 2025. Based upon reasonable assumptions of growth and operating performance, the base capital plan model projects that the Bank will be well capitalized throughout the five year period. The base model is also stress tested for interest rate risk from increasing and decreasing rates, credit risk in normal, elevated and severe loss scenarios, and combinations of interest rate and credit risk. In each stress scenario, the Bank maintained well capitalized status.
Off-Balance Sheet Financial Credit Exposures and Contractual Obligations
Derivative Financial Instruments Designated as Hedges
As part of its overall asset and liability management strategy, the Bank periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank's interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets and/or liabilities to mitigate adverse impacts upon net interest income resulting from interest rate changes. Derivative instruments that Management periodically uses as part of its interest rate risk management strategy may include interest rate swap agreements, interest rate floor agreements, and interest rate cap agreements.
At September 30, 2025, the Bank had one outstanding off-balance sheet, derivative instrument, designated as a cash flow hedge and four off-balance sheet, derivative instruments, designated as fair value hedges. Notional principal amounts totaled $75.0 million for the cash flow hedge and $160.0 million for the fair value hedges, with a cumulative unrealized loss of $573,000, net of taxes. The notional amounts and net unrealized gain (loss) of the financial derivative instruments do not represent exposure to credit loss. The Bank is exposed to credit loss only to the extent the counterparty defaults in its responsibility to pay interest under the terms of the agreements. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that Management believes to be creditworthy and by limiting the amount of exposure to each counter-party. At September 30, 2025, the Bank's derivative instrument counterparties had a composite credit rating of "A-" based upon the ratings of several major credit rating agencies. The interest rate swap and interest rate cap agreements were entered into by the Bank to limit its exposure to rising interest rates.
The Bank also enters into swap arrangements with qualified loan customers as a means to provide these customers with access to long-term fixed interest rates for borrowings, and simultaneously enters into a swap contract with an approved third- party financial institution. The terms of the contracts are designed to offset one another resulting in there being neither a net gain or a loss. The notional amounts of the financial derivative instruments do not represent exposure to credit loss. The Bank is exposed to credit loss only to the extent that either counter-party defaults in its responsibility to pay interest under the terms of the agreements. Credit risk is mitigated by prudent underwriting of the loan customer and financial institution counterparties. As of September 30, 2025, the Bank had 17 loan swap agreements in place with a total notional value of $138.3 million.
Contractual Obligations
The following table sets forth the contractual obligations of the Company as of September 30, 2025:
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Dollars in thousands
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Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||
| Borrowed funds | $ | 152,968 | $ | 57,468 | $ | 70,000 | $ | 25,500 | $ | - | |||||||
| Operating leases | 607 | 124 | 73 | 56 | 354 | ||||||||||||
| Certificates of deposit | 1,071,527 | 746,638 | 283,565 | 41,324 | - | ||||||||||||
| Total | $ | 1,225,102 | $ | 804,230 | $ | 353,638 | $ | 66,880 | $ | 354 | |||||||
| Total loan commitments and unused lines of credit | $ | 318,459 | $ | 318,459 | $ | - | $ | - | $ | - | |||||||
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