MidWestOne Financial Group Inc.

11/05/2025 | Press release | Distributed by Public on 11/05/2025 15:47

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain "forward-looking statements" within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We and our representatives may, from time to time, make written or oral statements that are "forward-looking" and provide information other than historical information. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as "believe," "expect," "anticipate," "should," "could," "would," "plans," "intend," "project," "estimate," "forecast," "may" or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Additionally, we undertake no obligation to update any statement in light of new information or future events, except as required under federal securities law.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have an impact on our ability to achieve operating results, growth plan goals and future prospects include, but are not limited to, the following:
•the effects of changes in interest rates, including on our net income, the volatility of our rate-sensitive deposits, and the value of our securities portfolio;
•fluctuations in the value of our investment securities;
•effects on the U.S. economy resulting from the threat or implementation of, or changes to existing, policies and executive orders, including concerning tariffs, immigration, regulatory or other governmental agencies, DEI and ESG initiative trends, consumer protection policies, fiscal policies, and foreign policy and tax regulations;
•asset/liability matching risks and liquidity risks;
•the ability to successfully manage liquidity risk, which may increase dependence on non-core funding sources such as brokered deposits, and may negatively impact the Company's cost of funds;
•the concentration of large deposits from certain clients, including those who have balances above current FDIC insurance limits;
•credit quality deterioration, pronounced and sustained reduction in real estate market values, or other uncertainties, including the impact of inflationary pressures and future monetary policies of the Federal Reserve in response thereto on economic conditions and our business, which may result in an increase in the allowance for credit losses, an increase in the credit loss expense, and a reduction in net earnings;
•the sufficiency of the allowance for credit losses to absorb the amount of expected losses inherent in our existing loan portfolio;
•the failure of assumptions underlying the establishment of allowances for credit losses and estimation of values of collateral and various financial assets and liabilities;
•credit risks and risks from concentrations (by type of borrower, collateral, geographic area and by industry) within our loan portfolio;
•changes in the economic environment, competition, or other factors that may affect our ability to acquire loans or influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing;
•new or revised general economic, political, or industry conditions, nationally, internationally or in the communities in which we conduct business, including the risk of a recession;
•the imposition of domestic or foreign tariffs or other governmental policies impacting the global supply chain and the value of the agricultural or other products of our borrowers;
•war or terrorist activities, including ongoing conflicts in the Middle East and the Russian invasion of Ukraine, widespread disease or pandemic, or other adverse external events, which may cause deterioration in the economy or cause instability in credit markets;
•legislative and regulatory changes, including changes in banking, securities, trade, and tax laws and regulations and their application by our regulators, and including changes in interpretation or prioritization of such laws and regulations;
•changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the FASB;
•the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, financial technology companies, and other financial institutions operating in our markets or elsewhere or providing similar services;
•changes in the business and economic conditions generally and in the financial services industry, and the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in prior bank failures;
•the occurrence of fraudulent activity, breaches, or failures of our or our third party vendors' information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools or as a result of insider fraud;
•the ability to attract and retain key executives and employees experienced in banking and financial services;
•our ability to adapt successfully to technological changes implemented by us and other parties in the financial services industry, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequence to us and our customers, including the development and implementation of tools incorporating artificial intelligence;
•operational risks, including data processing system failures and fraud;
•the costs, effects and outcomes of existing or future litigation or other legal proceedings and regulatory actions;
•the risks of mergers or and other strategic transactions (including our previously-announced transaction with Nicolet), including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions;
•the economic impacts on the Company and its customers of climate change, natural disasters and exceptional weather occurrences, such as: tornadoes, floods and blizzards; and
•factors and risks described under "Risk Factors" in our Annual Report on Form 10-K and in other reports we file with the SEC.
We qualify all of our forward-looking statements by the foregoing cautionary statements. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations are not necessarily indicative of our future results.
OVERVIEW
The Company provides financial services to individuals, businesses, governmental units and institutional customers located primarily in the upper Midwest through its bank subsidiary, MidWestOne Bank. The Bank has locations throughout central and eastern Iowa, the Minneapolis/St. Paul metropolitan area, southwestern Wisconsin, and Denver, Colorado.
On January 31, 2024, the Company completed the acquisition of DNVB, a bank holding company headquartered in Denver, Colorado, and the parent company of BOD. Immediately following completion of the acquisition, BOD was merged with and into the Bank. As consideration for the merger, we paid cash of $32.6 million.
On June 7, 2024, the Bank completed the sale of its Florida banking operations for a 7.5% deposit premium, which consisted of one bank branch in each of Naples and Ft. Myers, Florida.
In the first quarter of 2025, MidWestOneBank reclassified $11.0 million of credit card receivables to loans held for sale. The sale closed in October 2025.
On October 23, 2025, the Company entered into a Merger Agreement with Nicolet, pursuant to which the Company will merge with and into Nicolet, with Nicolet as the surviving entity of the Merger. Immediately following the Merger, and subject to the occurrence of the Merger, MidWestOneBank, will merge with and into Nicolet National Bank, Nicolet's wholly-owned subsidiary bank, with Nicolet National Bank as the surviving entity of such merger. The transaction is expected to be completed in the first half of 2026.
The Bank is focused on delivering relationship-based banking products and services to its customers. The Bank offers commercial, real estate, agricultural, credit card, and consumer loans as well as transaction, savings, and time deposit accounts. Complementary to our loan and deposit products, the Bank provides products and services including treasury management, Zelle, online and mobile banking, credit and debit cards, ATMs, and safe deposit boxes. The Bank also provides expertise in specialty business lines, such as: public finance, sponsor finance, SBA, and agribusiness. Further, the Bank offers wealth management services including the administration of estates, trusts, and conservatorships, as well as financial planning, investment advisory, and brokerage services (the latter of which is provided through an arrangement with a third-party registered broker-dealer).
Our results of operations are significantly affected by our net interest income. Results of operations are also affected by noninterest income and expense, credit loss expense and income tax expense. Significant external factors that impact our results of operations include general economic and competitive conditions, as well as changes in market interest rates, government policies, and actions of regulatory authorities.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the statistical information and financial data appearing in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 11, 2025. Results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of results to be attained for any other period.
FINANCIAL SUMMARY
The Company reported net income for the three months ended September 30, 2025 of $17.0 million, an increase of $112.7 million, compared to net loss of $95.7 million for the three months ended September 30, 2024, with diluted earnings (loss) per share of $0.82 and $(6.05) for the three months ended September 30, 2025 and 2024, respectively. Adjusted earnings (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) for the three months ended September 30, 2025 were $18.1 million, compared to $9.1 million for the three months ended September 30, 2024, with adjusted earnings per share (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) of $0.87 and $0.58 for the three months ended September 30, 2025 and 2024, respectively.
For the nine months ended September 30, 2025, the Company reported net income of $42.1 million, an increase of $118.8 million, compared to net loss of $76.6 million for the nine months ended September 30, 2024, with diluted earnings (loss) per share of $2.03 and $(4.86) for the nine months ended September 30, 2025 and 2024, respectively. Adjusted earnings (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) for the nine months ended September 30, 2025 were $43.5 million, compared to $21.8 million for the nine months ended September 30, 2024, with adjusted earnings per share (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) of $2.09 and $1.38 for the nine months ended September 30, 2025 and 2024, respectively.
The periods as of and for the three and nine months ended September 30, 2025 were also highlighted by the following results:
Balance Sheet:
•Total assets increased to $6.25 billion at September 30, 2025 from $6.24 billion at December 31, 2024, primarily driven by higher cash and loan volumes, partially offset by lower security volumes.
•Total debt securities AFS at September 30, 2025 were $1.18 billion, as compared to $1.33 billion at December 31, 2024.
•Gross loans held for investment increased $100.9 million, from $4.33 billion at December 31, 2024 to $4.43 billion at September 30, 2025, primarily due to organic loan growth and higher line of credit usage, partially offset by the reclassification of $11.0 million of credit card receivables to loans held for sale in the first quarter of 2025.
•Nonperforming assets increased $8.8 million, from $25.2 million at December 31, 2024, to $33.9 million at September 30, 2025.
•The allowance for credit losses was $51.9 million, or 1.17% of total loans, at September 30, 2025, compared with $55.2 million, or 1.28% of total loans, at December 31, 2024.
•Total deposits increased $1.0 million to $5.48 billion at September 30, 2025 when compared to December 31, 2024.
•There were no short-term borrowings at September 30, 2025, compared to $3.2 million of short-term borrowings at December 31, 2024. Long-term debt decreased to $98.0 million at September 30, 2025, from $113.4 million at December 31, 2024, primarily due to the redemption of the entire $65.0 million outstanding principal of the Company's 5.75% Fixed-to-Floating Rate Subordinated Notes on July 30, 2025, utilizing a combination of cash on hand and proceeds from a $50.0 million senior term note that closed on July 29, 2025.
•The Company was well-capitalized with a total risk-based capital ratio of 13.08% at September 30, 2025.
Income Statement:
Three Months Ended September 30, 2025 and 2024:
•Tax equivalent net interest income (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) was $52.2 million for the third quarter of 2025, an increase of $13.4 million, from $38.8 million in the third quarter of 2024. The increase in tax equivalent net interest income was primarily due to a decrease in interest expense on borrowed funds and interest-bearing deposits of $5.4 million and $2.8 million, respectively, coupled with increases of $2.2 million, $1.3 million, and $1.7 million in investment securities income, loan interest income, and other interest income, respectively.
•Credit loss expense of $2.1 million was recorded during the third quarter of 2025, compared to credit loss expense of $1.5 million recorded in the third quarter of 2024.
•Noninterest income increased $140.6 million, from noninterest loss of $130.4 million in the third quarter of 2024, to noninterest income of $10.3 million in the third quarter of 2025, primarily due to the balance sheet-repositioning related securities impairment of $140.4 million recognized in the third quarter of 2024, coupled with an increase of $0.7 million in investment services and trust activities revenue.
•Noninterest expense increased $1.8 million, from $35.8 million in the third quarter of 2024, to $37.6 million in the third quarter of 2025, primarily due to an increase of $2.4 million in compensation and employee benefits.
Nine Months Ended September 30, 2025 and 2024:
•Tax equivalent net interest income (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) was $152.0 million for the nine months ended September 30, 2025, an increase of $39.4 million from the nine months ended September 30, 2024. The increase in tax equivalent net interest income was due primarily to declines in interest expense on borrowed funds and interest bearing deposits of $16.4 million and $8.4 million, respectively, coupled with an increase of $7.4 million in interest income earned from investment securities, an increase of $3.6 million in loan interest income, and an increase of $3.8 million in other interest income.
•Credit loss expense of $15.7 million was recorded in the first nine months of 2025, as compared to credit loss expense of $7.5 million for the first nine months of 2024. Credit loss expense in the first nine months of 2025 primarily reflected the specific reserve established in connection with a single CRE office credit, coupled with an increase of $0.4 million in the reserve for unfunded loan commitments.
•Noninterest income increased $129.7 million, from noninterest loss of $99.1 million for the nine months ended September 30, 2024, to noninterest income of $30.6 million in the first nine months of 2025, primarily due to the balance sheet-repositioning related securities impairment of $140.4 million recognized in the third quarter of 2024. Also contributing to the increase were increases of $0.9 million and $0.4 million in investment services and trust activities revenue and loan revenue, respectively. Partially offsetting these increases was a decline in other revenue stemming primarily from the $11.1 million gain realized in connection with the sale of our Florida banking operations in the second quarter of 2024.
•Noninterest expense increased $2.6 million, from $107.1 million for the nine months ended September 30, 2024, to $109.7 million in the first nine months of 2025, and was largely driven by increases of $2.7 million and $1.3 million in compensation and employee benefits and other expense, respectively. These increases were partially offset by lower intangible amortization, FDIC insurance costs, and foreclosed assets, net costs, which decreased $0.9 million, $0.4 million, and $0.3 million, respectively.
Critical Accounting Estimates
Management has identified the accounting policies related to the ACL to be critical accounting policies. Information about our critical accounting estimates is included under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 11, 2025, and there have been no material changes in these critical accounting policies since December 31, 2024.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended September 30, 2025 and September 30, 2024
Summary
As of or for the Three Months Ended September 30,
(in thousands, except per share amounts) 2025 2024
Net Interest Income $ 51,008 $ 37,521
Noninterest Income (Loss) 10,253 (130,388)
Total Revenue, Net of Interest Expense 61,261 (92,867)
Credit Loss Expense 2,132 1,535
Noninterest Expense 37,637 35,798
Income (Loss) Before Income Tax Expense 21,492 (130,200)
Income Tax Expense (Benefit) 4,477 (34,493)
Net Income (Loss) 17,015 (95,707)
Adjusted Earnings(1)
$ 18,054 $ 9,141
Diluted Earnings (Loss) Per Share $ 0.82 $ (6.05)
Adjusted Earnings Per Share(1)
0.87 0.58
Return on Average Assets 1.09 % (5.78) %
Return on Average Equity 11.34 (69.05)
Return on Average Tangible Equity(1)
14.08 (82.78)
Efficiency Ratio(1)
58.21 70.32
Dividend Payout Ratio 29.57 (n/m)
Common Equity Ratio 9.70 8.58
Tangible Common Equity Ratio(1)
8.36 7.22
Book Value per Share $ 29.37 $ 27.06
Tangible Book Value per Share(1)
24.96 22.43
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.
(n/m) - Not meaningful
Net Interest Income
The following table shows consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related yields and costs for the periods indicated:
Three Months Ended September 30,
2025 2024
Average
Balance 		Interest
Income/
Expense 		Average
Yield/
Cost 		Average
Balance 		Interest
Income/
Expense 		Average
Yield/
Cost
(in thousands)
ASSETS
Loans, including fees (1)(2)(3)
$ 4,392,991 $ 64,732 5.85 % $ 4,311,693 $ 63,472 5.86 %
Taxable investment securities
1,098,771 12,109 4.37 1,489,843 8,779 2.34
Tax-exempt investment securities (2)(4)
103,321 846 3.25 313,935 1,976 2.50
Total securities held for investment (2)
1,202,092 12,955 4.28 1,803,778 10,755 2.37
Other
212,544 2,466 4.60 52,054 785 6.00
Total interest earning assets (2)
$ 5,807,627 $ 80,153 5.48 % $ 6,167,525 $ 75,012 4.84 %
Other assets
412,244 415,879
Total assets
$ 6,219,871 $ 6,583,404
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits
$ 1,208,957 $ 2,065 0.68 % $ 1,243,327 $ 3,041 0.97 %
Money market deposits
981,896 6,187 2.50 1,047,081 7,758 2.95
Savings deposits
882,572 3,533 1.59 761,922 3,128 1.63
Time deposits
1,440,704 14,485 3.99 1,430,723 15,190 4.22
Total interest bearing deposits
4,514,129 26,270 2.31 4,483,053 29,117 2.58
Securities sold under agreements to repurchase - - - 5,812 12 0.82
Other short-term borrowings - 19 - 415,961 5,031 4.81
Total short-term borrowings - 19 - 421,773 5,043 4.76
Long-term debt 103,044 1,645 6.33 116,032 2,015 6.91
Total borrowed funds
103,044 1,664 6.41 537,805 7,058 5.22
Total interest bearing liabilities
$ 4,617,173 $ 27,934 2.40 % $ 5,020,858 $ 36,175 2.87 %
Noninterest bearing deposits
933,935 919,581
Other liabilities
73,707 91,551
Shareholders' equity
595,056 551,414
Total liabilities and shareholders' equity
$ 6,219,871 $ 6,583,404
Net interest income (2)
$ 52,219 $ 38,837
Net interest spread(2)
3.08 % 1.97 %
Net interest margin(2)
3.57 % 2.51 %
Total deposits(5)
$ 5,448,064 $ 26,270 1.91 % $ 5,402,634 $ 29,117 2.14 %
Cost of funds(6)
2.00 % 2.42 %
(1) Average balance includes nonaccrual loans.
(2) Tax equivalent (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent). The federal statutory tax rate utilized was 21%.
(3)
Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $381 thousand and $378 thousand for the three months ended September 30, 2025 and September 30, 2024, respectively. Loan purchase discount accretion was $1.0 million and $1.4 million for the three months ended September 30, 2025 and September 30, 2024, respectively. Tax equivalent adjustments were $1.1 million and $951 thousand for the three months ended September 30, 2025 and September 30, 2024, respectively. The federal statutory tax rate utilized was 21%.
(4)
Interest income includes tax equivalent adjustments of $158 thousand and $365 thousand for the three months ended September 30, 2025 and September 30, 2024, respectively. The federal statutory tax rate utilized was 21%.
(5) Total deposits is the sum of total interest bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6) Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.
The following table shows changes to tax equivalent net interest income (a non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent) attributable to (i) changes in volume and (ii) changes in rate. Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.
Three Months Ended September 30,
2025 Compared to 2024
Change due to
(in thousands) Volume Yield/Cost Net
Increase (decrease) in interest income:
Loans, including fees (1)
$ 1,355 $ (95) $ 1,260
Taxable investment securities
(2,768) 6,098 3,330
Tax-exempt investment securities (1)
(1,601) 471 (1,130)
Total securities held for investment (1)
(4,369) 6,569 2,200
Other
1,905 (224) 1,681
Change in interest income (1)
(1,109) 6,250 5,141
Increase (decrease) in interest expense:
Interest checking deposits
(83) (893) (976)
Money market deposits
(455) (1,116) (1,571)
Savings deposits
484 (79) 405
Time deposits
108 (813) (705)
Total interest-bearing deposits
54 (2,901) (2,847)
Securities sold under agreements to repurchase (6) (6) (12)
Other short-term borrowings (5,012) - (5,012)
Total short-term borrowings (5,018) (6) (5,024)
Long-term debt
(211) (159) (370)
Total borrowed funds
(5,229) (165) (5,394)
Change in interest expense
(5,175) (3,066) (8,241)
Change in net interest income $ 4,066 $ 9,316 $ 13,382
Percentage increase in net interest income over prior period 34.5 %
(1) Tax equivalent, using a federal statutory tax rate of 21%.
Our tax equivalent net interest income for the third quarter of 2025 was $52.2 million, an increase of $13.4 million, or 34.5%, compared to $38.8 million for the third quarter of 2024. The increase in tax equivalent net interest income in the third quarter of 2025 compared to the third quarter of 2024 was partially due to an increase of $2.2 million, or 20.5%, in interest income earned from investment securities, which stemmed from higher asset yields, partially offset by lower volumes of securities. The increase in tax equivalent net interest income was also due to an increase of $1.3 million, or 2.0%, in loan interest income stemming from higher volumes of loans, partially offset by a decrease in loan yields. Also contributing to the increase was the $1.7 million increase in other interest income, coupled with decreases in interest expense on borrowed funds and interest bearing deposits of $5.4 million and $2.8 million, respectively, stemming primarily from lower costs and volumes of borrowed funds and lower interest bearing deposit costs.
The tax equivalent net interest margin for the third quarter of 2025 improved to 3.57% from 2.51% in the third quarter of 2024, driven by higher earning asset yields and lower interest bearing liability costs. Total earning asset yields increased 64 basis points ("bps") from the third quarter of 2024, primarily due to an increase of 191 bps in investment securities yields. Interest bearing liability costs decreased 47 bps to 2.40%, due to decreases in interest-bearing deposits, short-term borrowings, and long-term debt costs which decreased 27 bps, 476, and 58 bps, respectively, from the third quarter of 2024.
Credit Loss Expense
Credit loss expense of $2.1 million was recorded during the third quarter of 2025, compared to $1.5 million of credit loss expense recorded in the third quarter of 2024. Credit loss expense in the third quarter of 2025 primarily reflected an additional reserve taken to support organic loan growth, and a $0.7 million increase in the reserve for unfunded loan commitments. Net charge-offs were $15.3 million in the third quarter of 2025, compared to net charge-offs of $1.7 million in the third quarter of 2024, which was primarily due to the $14.6 million charge-off on a single CRE office credit that was reserved for in the second quarter of 2025. The estimation model utilized by the Company is sensitive to changes in the following forecast inputs: (1) national unemployment; (2) year-to-year change in national retail sales; (3) year-to-year change in CRE index; and (4) year-to-year change in U.S. GDP. In addition, management utilized qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
Noninterest Income
The following table presents significant components of noninterest income and the related dollar and percentage change from period to period:
Three Months Ended September 30,
(in thousands) 2025 2024 $ Change % Change
Investment services and trust activities $ 4,059 $ 3,410 $ 649 19.0 %
Service charges and fees 2,423 2,170 253 11.7
Card revenue 1,752 1,935 (183) (9.5)
Loan revenue 924 760 164 21.6
Bank-owned life insurance 703 879 (176) (20.0)
Investment securities gains (losses), net - (140,182) 140,182 (100.0)
Other 392 640 (248) (38.8)
Total noninterest income (loss)
$ 10,253 $ (130,388) $ 140,641 (107.9) %
Total noninterest income for the third quarter of 2025 increased $140.6 million to $10.3 million, from total noninterest loss of $130.4 million in the third quarter of 2024, primarily due to the balance sheet-repositioning related securities impairment of $140.4 million recognized in the third quarter of 2024. Also contributing to the increase was a $0.7 million increase in investment services and trust activities revenue stemming from higher assets under administration, coupled with an increase of $0.3 million in service charges and fees. Partially offsetting these increases were declines of $0.2 million each in card revenue, bank-owned life insurance, and other revenue.
Noninterest Expense
The following table presents significant components of noninterest expense and the related dollar and percentage change from period to period:
Three Months Ended September 30,
(in thousands) 2025 2024 $ Change % Change
Compensation and employee benefits $ 22,312 $ 19,943 $ 2,369 11.9 %
Occupancy expense of premises, net 2,690 2,443 247 10.1
Equipment 2,601 2,486 115 4.6
Legal and professional 2,067 2,261 (194) (8.6)
Data processing 1,568 1,580 (12) (0.8)
Marketing 624 619 5 0.8
Amortization of intangibles 1,143 1,470 (327) (22.2)
FDIC insurance 780 923 (143) (15.5)
Communications 155 159 (4) (2.5)
Foreclosed assets, net 401 330 71 21.5
Other 3,296 3,584 (288) (8.0)
Total noninterest expense
$ 37,637 $ 35,798 $ 1,839 5.1 %
The following table summarizes acquisition and divestiture-related expenses incurred during the three months ended September 30, 2025 and September 30, 2024, which are included in the respective income statement line items, for the periods indicated:
Three Months Ended September 30,
Merger-related expenses: 2025 2024
(in thousands)
Legal and professional $ 132 $ 127
Other - 6
Total merger-related expenses
$ 132 $ 133
Noninterest expense for the third quarter of 2025 increased $1.8 million to $37.6 million, from $35.8 million in the third quarter of 2024, primarily due to an increase of $2.4 million in compensation and employee benefits driven by wage expense increases due to headcount, medical benefits expense, and incentive expense. The increase in noninterest expense was also partially offset by decreases in amortization of intangibles expense and other expense of $0.3 million each.
Income Tax Expense
Our effective income tax rate, or income tax expense divided by income before income tax expense, was 20.8% for the three months ended September 30, 2025 and 26.5% for the three months ended September 30, 2024. The effective tax rate for the full year 2025 is expected to be in the range of 21.5% to 22.5%.
Comparison of Operating Results for the Nine Months Ended September 30, 2025 and September 30, 2024
Summary
As of and for the Nine Months Ended September 30,
(dollars in thousands, except per share amounts) 2025 2024
Net Interest Income $ 148,429 $ 108,599
Noninterest Income (Loss) 30,638 (99,084)
Total Revenue, Net of Interest Expense 179,067 9,515
Credit Loss Expense 15,708 7,491
Noninterest Expense 109,697 107,124
Income (Loss) Before Income Tax Expense 53,662 (105,100)
Income Tax Expense (Benefit) 11,529 (28,481)
Net Income (Loss) 42,133 (76,619)
Adjusted Earnings(1)
$ 43,532 $ 21,762
Diluted Earnings (Loss) Per Share $ 2.03 $ (4.86)
Adjusted Earnings Per Share(1)
2.09 1.38
Return on Average Assets 0.91 % (1.54) %
Return on Average Equity 9.63 (19.03)
Return on Average Tangible Equity(1)
12.22 (22.17)
Efficiency Ratio (1)
57.91 65.20
Dividend Payout Ratio 35.84 (n/m)
Common Equity Ratio 9.70 8.58
Tangible Common Equity Ratio(1)
8.36 7.22
Book Value per Share $ 29.37 $ 27.06
Tangible Book Value per Share(1)
24.96 22.43
(1) A non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation to the most comparable GAAP equivalents.
(n/m) - Not meaningful
Net Interest Income
The following table shows consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related yields and costs for the periods indicated:
Nine Months Ended September 30,
2025 2024
(dollars in thousands) Average
Balance 		Interest
Income/
Expense 		Average
Yield/
Cost 		Average
Balance 		Interest
Income/
Expense 		Average
Yield/
Cost
ASSETS
Loans, including fees (1)(2)(3)
$ 4,351,665 $ 188,473 5.79 % $ 4,343,087 $ 184,920 5.69 %
Taxable investment securities
1,157,821 38,364 4.43 1,522,447 27,467 2.41
Tax-exempt investment securities (2)(4)
103,884 2,570 3.31 321,560 6,113 2.54
Total securities held for investment (2)
1,261,705 40,934 4.34 1,844,007 33,580 2.43
Other
147,426 5,230 4.74 34,435 1,445 5.61
Total interest-earning assets (2)
$ 5,760,796 $ 234,637 5.45 % $ 6,221,529 $ 219,945 4.72 %
Other assets
426,414 422,368
Total assets
$ 6,187,210 $ 6,643,897
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest checking deposits
$ 1,223,487 $ 6,293 0.69 % $ 1,280,581 $ 9,076 0.95 %
Money market deposits
990,146 18,577 2.51 1,074,006 23,644 2.94
Savings deposits
854,014 9,751 1.53 731,724 7,848 1.43
Time deposits
1,425,025 42,798 4.02 1,449,485 45,217 4.17
Total interest-bearing deposits
4,492,672 77,419 2.30 4,535,796 85,785 2.53
Securities sold under agreements to repurchase 1,190 6 0.67 5,482 33 0.80
Other short-term borrowings - 57 - 422,653 15,394 4.87
Total short-term borrowings 1,190 63 7.08 428,135 15,427 4.81
Long-term debt
109,443 5,190 6.34 119,837 6,196 6.91
Total borrowed funds
110,633 5,253 6.35 547,972 21,623 5.27
Total interest-bearing liabilities
$ 4,603,305 $ 82,672 2.40 % $ 5,083,768 $ 107,408 2.82 %
Noninterest bearing deposits 922,775 930,197
Other liabilities 76,329 92,235
Shareholders' equity 584,801 537,697
Total liabilities and shareholders' equity $ 6,187,210 $ 6,643,897
Net interest income (2)
$ 151,965 $ 112,537
Net interest spread(2)
3.05 % 1.90 %
Net interest margin (2)
3.53 % 2.42 %
Total deposits(5)
$ 5,415,447 $ 77,419 1.91 % $ 5,465,993 $ 85,785 2.10 %
Cost of funds(6)
2.00 % 2.39 %
(1) Average balance includes nonaccrual loans.
(2) Tax equivalent. The federal statutory tax rate utilized was 21%.
(3)
Interest income includes net loan fees, loan purchase discount accretion and tax equivalent adjustments. Net loan fees were $909 thousand and $952 thousand for the nine months ended September 30, 2025 and September 30, 2024, respectively. Loan purchase discount accretion was $3.3 million and $3.8 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. Tax equivalent adjustments were $3.1 million and $2.8 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. The federal statutory tax rate utilized was 21%.
(4)
Interest income includes tax equivalent adjustments of $480 thousand and $1.1 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. The federal statutory tax rate utilized was 21%.
(5) Total deposits is the sum of total interest bearing deposits and noninterest bearing deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(6) Cost of funds is calculated as annualized total interest expense divided by the sum of average total deposits and borrowed funds.
The following table shows changes to tax equivalent net interest income attributable to (i) changes in volume and (ii) changes in rate. Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.
Nine Months Ended September 30,
2025 Compared to 2024
Change due to
(in thousands) Volume Yield/Cost Net
Increase (decrease) in interest income:
Loans, including fees (1)
$ 359 $ 3,194 $ 3,553
Taxable investment securities
(7,802) 18,699 10,897
Tax-exempt investment securities(1)
(5,005) 1,462 (3,543)
Total securities held for investment(1)
(12,807) 20,161 7,354
Other
4,042 (257) 3,785
Change in interest income (1)
(8,406) 23,098 14,692
Increase (decrease) in interest expense:
Interest checking deposits
(390) (2,393) (2,783)
Money market deposits
(1,764) (3,303) (5,067)
Savings deposits
1,342 561 1,903
Time deposits
(773) (1,646) (2,419)
Total interest-bearing deposits
(1,585) (6,781) (8,366)
Securities sold under agreements to repurchase (23) (4) (27)
Other short-term borrowings (15,337) - (15,337)
Total short-term borrowings (15,360) (4) (15,364)
Long-term debt
(515) (491) (1,006)
Total borrowed funds
(15,875) (495) (16,370)
Change in interest expense
(17,460) (7,276) (24,736)
Change in net interest income $ 9,054 $ 30,374 $ 39,428
Percentage increase in net interest income over prior period 35.0 %
(1) Tax equivalent, using a federal statutory tax rate of 21%.
Our tax equivalent net interest income for the nine months ended September 30, 2025 was $152.0 million, an increase of $39.4 million, or 35.0%, compared to $112.5 million for the nine months ended September 30, 2024. This increase in tax equivalent net interest income was due to an increase of $7.4 million, or 21.9%, in interest income earned from investment securities, which stemmed from higher securities yields, partially offset by lower volumes of securities. The increase was also due to an increase of $3.6 million, or 1.9%, in loan interest income stemming from higher yields and loan volume, an increase of $3.8 million in other interest income, coupled with decreases in interest expense on borrowed funds and interest bearing deposits of $16.4 million and $8.4 million, respectively, stemming from lower costs and volumes in all interest expense categories, except savings deposits.
The tax equivalent net interest margin for the nine months ended September 30, 2025 was 3.53%, or 111 bps higher than the tax equivalent net interest margin of 2.42% for the nine months ended September 30, 2024. Total earning asset yield increased 73 bps compared to the nine months ended September 30, 2024, primarily due to increases of 191 bps and 10 bps in total investment securities and loan yields, respectively. Interest bearing liability costs decreased 42 bps to 2.40%, due to a decline in long-term debt costs and interest bearing deposit costs of 57 bps and 23 bps, to 6.34% and 2.30%, respectively, compared to the nine months ended September 30, 2024.
Credit Loss Expense
Credit loss expense of $15.7 million was recorded in the first nine months of 2025, as compared to credit loss expense of $7.5 million for the first nine months of 2024. Credit loss expense in the first nine months of 2025 primarily reflected the specific reserve established in connection with a single $24.0 million CRE office credit, coupled with an increase of $0.4 million in the reserve for unfunded loan commitments. Net charge-offs in the first nine months of 2025 were $18.6 million, as compared to net charge-offs of $2.4 million in the first nine months of 2024. The estimation model utilized by the Company is sensitive to changes in the following forecast inputs: (1) national unemployment; (2) year-to-year change in national retail sales; (3) year-to-year change in CRE index; and (4) year-to-year change in U.S. GDP. In addition, management utilized qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
Noninterest Income
The following table presents the significant components of noninterest income and the related dollar and percentage change from period to period:
Nine Months Ended September 30,
(dollars in thousands) 2025 2024 $ Change % Change
Investment services and trust activities $ 11,308 $ 10,417 $ 891 8.6 %
Service charges and fees 6,744 6,470 274 4.2
Card revenue 5,430 5,785 (355) (6.1)
Loan revenue 3,535 3,141 394 12.5
Bank-owned life insurance 2,437 2,207 230 10.4
Investment securities gains (losses), net 33 (140,113) 140,146 (100.0)
Other 1,151 13,009 (11,858) (91.2)
Total noninterest income (loss)
$ 30,638 $ (99,084) $ 129,722 (130.9) %
Total noninterest income for the first nine months of 2025 increased $129.7 million to $30.6 million, from noninterest loss of $99.1 million during the same period of 2024, primarily due to the the balance sheet-repositioning related securities impairment of $140.4 million recognized in the third quarter of 2024. Also contributing to the increase were increases of $0.9 million and $0.4 million in investment services and trust activities revenue and loan revenue, respectively. The increase in investment services and trust activities revenue was driven by higher assets under administration, while the increase in loan revenue was due primarily to higher mortgage origination fee income, a favorable change in the fair value of our mortgage servicing rights and an increase in SBA gain on sale revenue. Partially offsetting these increases was the decline of $11.9 million in other revenue stemming from the $11.1 million gain realized in connection with the sale of our Florida banking operations in the second quarter of 2024 and a $0.6 million decrease in swap origination fee income, coupled with a decline of $0.4 million in card revenue.
Noninterest Expense
The following table presents the significant components of noninterest expense and the related dollar and percentage change from period to period:
Nine Months Ended September 30,
(dollars in thousands) 2025 2024 $ Change % Change
Compensation and employee benefits $ 64,535 $ 61,858 $ 2,677 4.3 %
Occupancy expense of premises, net 7,818 7,691 127 1.7
Equipment 7,577 7,616 (39) (0.5)
Legal and professional 6,446 6,573 (127) (1.9)
Data processing 4,752 4,585 167 3.6
Marketing 1,938 1,853 85 4.6
Amortization of intangibles 3,803 4,700 (897) (19.1)
FDIC insurance 2,548 2,916 (368) (12.6)
Communications 475 546 (71) (13.0)
Foreclosed assets, net 558 826 (268) (32.4)
Other 9,247 7,960 1,287 16.2
Total noninterest expense
$ 109,697 $ 107,124 $ 2,573 2.4 %
The following table summarizes the acquisition and divestiture-related expenses incurred during the nine months ended September 30, 2025 and September 30, 2024, which are included in the respective income statement line items, for the periods indicated:
Merger-related expenses: Nine Months Ended September 30,
(dollars in thousands) 2025 2024
Compensation and employee benefits $ - $ 314
Occupancy expense of premises, net - 152
Equipment - 177
Legal and professional 172 1,162
Data processing - 312
Marketing - 32
Communications - 9
Other - 143
Total merger-related expenses
$ 172 $ 2,301
Noninterest expense for the nine months ended September 30, 2025 was $109.7 million, an increase of $2.6 million, or 2.4%, from $107.1 million for the nine months ended September 30, 2024 and was largely driven by increases of $2.7 million and $1.3 million in compensation and employee benefits and other expense, respectively. The increase in compensation and employee benefits was driven by wage expense increases due to headcount and annual compensation adjustments, increased incentives and commission and employee benefits expenses, partially offset by the receipt of $1.1 million from Employee Retention Tax Credit claims. The increase in other expense stemmed primarily from customer deposit costs and a loss on extinguishment of debt of $0.7 million, partially offset by a decline of $1.9 million in fraud and operating losses. Further, excluding merger-related expenses, legal and professional costs increased $0.9 million due primarily to higher litigation-related legal expenses, coupled with increases in consulting and audit fees. These increases were partially offset by lower intangible amortization, FDIC insurance costs, and foreclosed assets, net costs, which decreased $0.9 million, $0.4 million, and $0.3 million, respectively.
Income Tax Expense
Our effective income tax rate, or income tax expense divided by income before tax expense, was 21.5% for the first nine months of 2025, compared to an effective tax rate of 27.1% for the first nine months of 2024. The effective tax rate for the full year 2025 is expected to be in the range of 21.5 to 22.5%.
FINANCIAL CONDITION
The table below presents the major categories of the Company's balance sheet as of the dates indicated:
(in thousands) September 30, 2025 December 31, 2024 $ Change % Change
ASSETS
Cash and cash equivalents $ 272,241 $ 204,895 $ 67,346 32.9 %
Loans held for sale 12,690 749 11,941 (n/m)
Debt securities available for sale at fair value 1,175,656 1,328,433 (152,777) (11.5)
Loans held for investment, net of unearned income 4,419,628 4,315,627 104,001 2.4
Allowance for credit losses (51,900) (55,200) 3,300 (6.0)
Total loans held for investment, net 4,367,728 4,260,427 107,301 2.5
Other assets 421,437 441,825 (20,388) (4.6)
Total assets $ 6,249,752 $ 6,236,329 $ 13,423 0.2 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits $ 5,478,996 $ 5,477,982 $ 1,014 0.0 %
Total borrowings 97,973 116,562 (18,589) (15.9)
Other liabilities 66,727 82,089 (15,362) (18.7)
Total shareholders' equity 606,056 559,696 46,360 8.3
Total liabilities and shareholders' equity $ 6,249,752 $ 6,236,329 $ 13,423 0.2 %
(n/m) - Not Meaningful
Debt Securities
The composition of debt securities available for sale as of the dates indicated was as follows:
September 30, 2025 December 31, 2024
(in thousands) Balance % of Total Balance % of Total
Available for Sale
U.S. Treasuries $ 20,981 1.8 % $ 50,399 3.8 %
U.S. Government agencies and corporations 20,097 1.7 9,941 0.7
States and political subdivisions
128,071 10.9 135,720 10.2
Mortgage-backed securities
301,850 25.7 323,439 24.3
Collateralized loan obligations 8,582 0.7 48,869 3.7
Collateralized mortgage obligations
583,889 49.7 646,109 48.7
Corporate debt securities
112,186 9.5 113,956 8.6
Fair value of debt securities available for sale
$ 1,175,656 100.0 % $ 1,328,433 100.0 %
Total investment securities at September 30, 2025 decreased $152.8 million, or 11.5%, from December 31, 2024 to $1.18 billion. This decrease stemmed from principal cash flows received from scheduled payments, calls, and maturities. As of September 30, 2025, there was $3.5 million of gross unrealized gains and $70.0 million of gross unrealized losses in our debt securities available for sale portfolio for a net unrealized loss of $66.5 million.
See Note 3. Debt Securitiesto our consolidated financial statements for additional information related to debt securities.
Loans
The composition of our loan portfolio by type of loan was as follows, as of the dates indicated:
September 30, 2025 December 31, 2024
(in thousands) Balance % of Total Balance % of Total
Agricultural $ 133,612 3.0 % $ 119,051 2.8 %
Commercial and industrial
1,274,881 28.8 1,126,813 26.1
Commercial real estate
2,298,628 52.0 2,344,681 54.2
Residential real estate
659,033 15.0 656,382 15.3
Consumer
53,474 1.2 68,700 1.6
Loans held for investment, net of unearned income
$ 4,419,628 100.0 % $ 4,315,627 100.0 %
Loans held for sale $ 12,690 $ 749
Loans held for investment, net of unearned income, at September 30, 2025, increased $104.0 million, or 2.4%, from December 31, 2024 to $4.42 billion, primarily driven by organic loan growth and higher line of credit usage, partially offset by the reclassification of $11.0 million of credit card receivables to loans held for sale in the first quarter of 2025. The credit card portfolio sale closed in October 2025. Our loan to deposit ratio increased to 80.66% as of September 30, 2025, as compared to 78.78% as of December 31, 2024. See Note 4. Loans Receivable and the Allowance for Credit Lossesto our consolidated financial statements for additional information related to our loan portfolio.
Commitments under standby letters of credit, unused lines of credit and other conditionally approved credit lines totaled approximately $1.16 billion and $1.08 billion as of September 30, 2025 and December 31, 2024, respectively.
The composition of our CRE loan portfolio as of September 30, 2025 was as follows:
(in thousands) Amount % of Total Loans
Construction & Development $ 256,532 5.8 %
Farmland 194,921 4.4
Multifamily 451,020 10.2
CRE Other:
NOO CRE Office 111,399 2.5
OO CRE Office 69,130 1.6
Industrial and Warehouse 440,389 10.0
Retail 288,512 6.5
Hotel 131,789 3.0
Other 354,936 8.0
Total CRE $ 2,298,628 52.0 %
Nonperforming Assets
The following table sets forth information concerning nonperforming loans by class of receivable and our nonperforming assets at September 30, 2025 and December 31, 2024:
(in thousands) September 30, 2025 December 31, 2024
Nonaccrual loans held for investment $ 28,700 $ 21,705
Accruing loans contractually past due 90 days or more 1,292 142
Total nonperforming loans 29,992 21,847
Foreclosed assets, net 3,952 3,337
Total nonperforming assets 33,944 25,184
Nonaccrual loans ratio (1)
0.65 % 0.50 %
Nonperforming loans ratio (2)
0.68 % 0.51 %
Nonperforming assets ratio (3)
0.54 % 0.40 %
(1)Nonaccrual loans ratio is calculated as nonaccrual loans divided by loans held for investment, net of unearned income, at the end of the period.
(2)Nonperforming loans ratio is calculated as total nonperforming loans divided by loans held for investment, net of unearned income, at the end of the period.
(3) Nonperforming assets ratio is calculated as total nonperforming assets divided by total assets at the end of the period.
Compared to December 31, 2024, nonperforming loans and asset ratios increased 17 and 14 bps, respectively.
Loan Review and Classification Process for Agricultural, Commercial and Industrial, and Commercial Real Estate Loans
The Bank maintains a loan review and classification process which involves multiple officers of the Bank and is designed to assess the general quality of credit underwriting and to promote early identification of potential problem loans. All commercial and agricultural loan officers are charged with the responsibility of risk rating all loans in their portfolios and updating the ratings, positively or negatively, on an ongoing basis as conditions warrant. Risk ratings are selected from a 9-point scale with ratings as follows: ratings 1- 5 Satisfactory (pass), rating 6 Special Mention (potential weakness), rating 7 Substandard (well-defined weakness), rating 8 Doubtful, and rating 9 Loss.
When a loan officer originates a new loan, based upon proper loan authorization, they document the credit file with an offering sheet summary, supplemental underwriting analysis, relevant financial information and collateral evaluations. This information is used in the determination of the initial loan risk rating. Segregation of owner-occupied and non-owner occupied residential real estate loans is made at the time of origination. The Bank's loan review department undertakes independent credit reviews of relationships based on either criteria established by loan policy, risk-focused sampling, or random sampling. Credit relationships with larger exposure may pose incrementally higher risks. As a result, the Bank's loan review department is
required to review all credit relationships with total exposure of $7.5 million or more at least annually. In addition, the individual loan reviews consider such items as: loan type; nature, type and estimated value of collateral; borrower and/or guarantor estimated financial strength; most recently available financial information; related loans and total borrower exposure; and current and anticipated performance of the loan. The results of such reviews are presented to both executive management and the Audit Committee.
Through the review of delinquency reports, updated financial statements or other relevant information, the lending officer and/or loan review personnel may determine that a loan relationship has weakened to the point that either a Special Mention (risk rating 6) or Classified (risk ratings 7 through 9) rating is warranted. At least quarterly, the loan strategy committee meets to discuss Special Mention rated credits with total relationship exposure of $1.0 million and above, Substandard or worse rated credits with total relationship exposure of $500 thousand and above, as well as non-accrual credits with total relationships exposure of $250 thousand and above. Loan relationships outside these designated thresholds are reviewed upon request. The lending officer is charged with preparing a loan strategy summary worksheet that outlines the background of the credit problem, current repayment status of the loans, current collateral evaluation and a workout plan of action. This plan may include goals to improve the credit rating, assist the borrower in moving the loans to another institution and/or collateral liquidation. All such reports are presented to the loan strategy committee. Further, a report on all Pass (risk rating 5) loans with total exposure of $2.0 million and above is made verbally to the loan strategy committee, with loan relationships outside this threshold being reviewed upon request. The minutes of the loan strategy committee meetings are provided to the board of directors of the Bank.
Depending upon the individual facts and circumstances and the result of the loan strategy review process, loan officers and/or loan review personnel may categorize a loan relationship as requiring an individual analysis. Once that determination has occurred, the credit analyst will complete an individually analyzed worksheet that contains an evaluation of the collateral (for collateral-dependent loans) based upon the estimated collateral value, adjusting for current market conditions and other local factors that may affect collateral value. Loan review personnel may also complete an independent individual analysis when deemed necessary. These judgmental evaluations may produce an initial specific reserve for recognition in the Company's allowance for credit losses calculation. An analysis for the underlying collateral value of each individually analyzed loan relationship is completed in the last month of the quarter. The individually analyzed worksheets are reviewed by the Credit Administration department prior to quarter-end. The board of directors of the Bank on a quarterly basis reviews the special mention/classified reports including changes in credit grades of 6 or higher as well as all individually analyzed loans, the related allowances and foreclosed assets, net.
The review process also provides for the upgrade of loans that show improvement since the last review. All requests for an upgrade of a credit are approved by the proper authority based upon the aggregate credit exposure before the rating can be changed.
Loan Modifications for Borrowers Experiencing Financial Difficulty
Infrequently, the Company makes modification to certain loans in order to alleviate temporary difficulties in the borrower's financial condition and/or constraints on the borrower's ability to repay a loan, and to minimize potential losses to the Company. GAAP requires that certain types of modifications be reported, including:
•Principal forgiveness.
•Interest rate reduction.
•An other than-insignificant payment delay.
•Term extension.
For the three months ended September 30, 2025, the amortized cost of the loans that were modified to borrowers in financial distress was $4.3 million, which represented 0.10% of total loans held for investment, net of unearned income. For the nine months ended September 30, 2025, the amortized cost of the loans that were modified to borrowers in financial distress was $7.1 million, which represented 0.16% of total loans held for investment, net of unearned income.
Allowance for Credit Losses
The following table sets forth the allowance for credit losses by loan portfolio segment compared to the percentage of loans to total loans by loan portfolio segment for the periods indicated:
September 30, 2025 December 31, 2024
(in thousands) Allowance for Credit Losses % of Loans in Each Segment to Total Loans Allowance for Credit Losses % of Loans in Each Segment to Total Loans
Agricultural $ 468 3.0 % $ 249 2.8 %
Commercial and industrial 24,447 28.8 21,040 26.1
Commercial real estate 20,230 52.0 27,641 54.2
Residential real estate 5,560 15.0 4,929 15.3
Consumer 1,195 1.2 1,341 1.6
Total $ 51,900 100.0 % $ 55,200 100.0 %
Allowance for credit losses ratio(1)
1.17 % 1.28 %
Allowance for credit losses to nonaccrual loans ratio(2)
180.84 % 254.32 %
(1) Allowance for credit losses ratio is calculated as allowance for credit losses divided by loans held for investment, net of unearned income at the end of the period.
(2) Allowance for credit losses to nonaccrual loans ratio is calculated as allowance for credit losses divided by nonaccrual loans at the end of the period.
The following table sets forth the net (charge-offs) recoveries by loan portfolio segments for the periods indicated:
Three Months Ended September 30, 2025 and 2024
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
For the Three Months Ended September 30, 2025
Charge-offs $ - $ (199) $ (14,614) $ (135) $ (455) $ (15,403)
Recoveries 2 38 3 - 28 71
Net (charge-offs) recoveries $ 2 $ (161) $ (14,611) $ (135) $ (427) $ (15,332)
Net (charge-off) recovery ratio(1)
- % (0.01) % (1.32) % (0.01) % (0.04) % (1.38) %
For the Three Months Ended September 30, 2024
Charge-offs $ - $ (1,575) $ - $ - $ (363) $ (1,938)
Recoveries 1 168 4 4 26 203
Net (charge-offs) recoveries $ 1 $ (1,407) $ 4 $ 4 $ (337) $ (1,735)
Net (charge-off) recovery ratio(1)
- % (0.13) % - % - % (0.03) % (0.16) %
(1) Net (charge-off) recovery ratio is calculated as the annualized net (charge-offs) recoveries divided by average loans held for investment, net of unearned income and average loans held for sale, during the period.
Nine Months Ended September 30, 2025 and 2024
(in thousands) Agricultural Commercial and Industrial Commercial Real Estate Residential Real Estate Consumer Total
For the Nine Months Ended September 30, 2025
Charge-offs
$ (27) $ (385) $ (17,250) $ (207) $ (1,130) $ (18,999)
Recoveries
4 92 178 13 104 391
Net (charge-offs) recoveries $ (23) $ (293) $ (17,072) $ (194) $ (1,026) $ (18,608)
Net (charge-off) recovery ratio(1)
- % (0.01) % (0.52) % (0.01) % (0.03) % (0.57) %
For the Nine Months Ended September 30, 2024
Charge-offs
$ (4) $ (2,343) $ (35) $ (75) $ (913) $ (3,370)
Recoveries
356 437 18 17 94 922
Net (charge-offs) recoveries $ 352 $ (1,906) $ (17) $ (58) $ (819) $ (2,448)
Net (charge-off) recovery ratio(1)
0.01 % (0.06) % - % - % (0.03) % (0.08) %
(1) Net (charge-off) recovery ratio is calculated as the annualized net (charge-offs) recoveries divided by average loans held for investment, net of unearned income and average loans held for sale, during the period.
Actual Results:Our ACL as of September 30, 2025 was $51.9 million, which was 1.17% of loans held for investment, net of unearned income as of that date. This compares with an ACL of $55.2 million as of December 31, 2024, which was 1.28% of loans held for investment, net of unearned income as of that date. The liability for off-balance sheet credit exposures totaled $5.0 million as of September 30, 2025 and $4.6 million as of December 31, 2024, and is included in 'Other liabilities' on the balance sheet.
The Company recorded a credit loss expense related to loans of $15.3 million for the nine months ended September 30, 2025, compared to credit loss expense related to loans of $6.9 million for the nine months ended September 30, 2024. Gross charge-offs for the first nine months of 2025 totaled $19.0 million, while there were $0.4 million in gross recoveries of previously charged-off loans. The ratio of annualized net charge-offs to average loans for the first nine months of 2025 was 0.57% compared to 0.08% for the nine months ended September 30, 2024. This increase was primarily due to the $14.6 million charge-off on a single CRE office credit that was reserved for in the second quarter of 2025.
Economic Forecast: At September 30, 2025, the economic forecast used by the Company showed the following: (1) national unemployment - increases over the next four forecasted quarters; (2) year-to-year change in national retail sales - increases over the next four forecasted quarters; (3) year-to-year change in CRE index - decreases over the next four forecasted quarters; and (4) year-to-year change in U.S. GDP - increases over the next four forecasted quarters. In addition, management utilized qualitative factors to adjust the calculated ACL as appropriate. Qualitative factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
Loan Policy: We review all nonaccrual relationships greater than $250 thousand individually on a quarterly basis to measure any amount to be recognized in the Company's allowance for credit losses by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, and other relevant factors. We review loans 90 days or more past due that are still accruing interest no less than quarterly to determine if the asset is both well secured and in the process of collection. If not, such loans are placed on non-accrual status. Upon the Company's determination that a loan balance has been deemed uncollectible, the uncollectible balance is charged-off.
Management believed that, as of September 30, 2025, the ACL was adequate; however, there is no assurance losses will not exceed the ACL. In addition, growth in the loan portfolio or general economic deterioration may require the recognition of additional credit loss expense in future periods. See Note 4. Loans Receivable and the Allowance for Credit Lossesto our consolidated financial statements for additional information related to the allowance for credit losses.
Deposits
The composition of deposits was as follows:
As of September 30, 2025 As of December 31, 2024
(in thousands) Balance % of Total Balance % of Total
Noninterest bearing deposits $ 958,080 17.5 % $ 951,423 17.4 %
Interest checking deposits 1,210,637 22.1 1,258,191 22.9
Money market deposits 972,139 17.7 1,053,988 19.2
Savings deposits 912,879 16.7 820,549 15.0
Total non-maturity deposits 4,053,735 74.0 4,084,151 74.5
Time deposits of $250 and under 845,104 15.4 826,793 15.1
Brokered deposits 200,000 3.7 200,000 3.7
Time deposits over $250 380,157 6.9 367,038 6.7
Total time deposits $ 1,425,261 26.0 % $ 1,393,831 25.5 %
Total deposits
$ 5,478,996 100.0 % $ 5,477,982 100.0 %
Deposits as of September 30, 2025 increased $1.0 million from December 31, 2024 to $5.48 billion. Brokered time deposits were $200.0 million at September 30, 2025 and December 31, 2024. Core deposits, which include the total of all deposits other than time deposits greater than $250 thousand and brokered deposits, were approximately 89.4% of our total deposits as of September 30, 2025, compared to 89.6% as of December 31, 2024. See Note 8. Depositsto our consolidated financial statements for additional information related to our deposits.
Short-Term Borrowings and Long-Term Debt
The following table sets forth the composition of short-term borrowings and long-term debt as of the dates presented:
(in thousands) September 30, 2025 December 31, 2024
Securities sold under agreements to repurchase $ - $ 3,186
Junior subordinated notes issued to capital trusts $ 42,605 $ 42,471
Subordinated debentures - 64,268
Finance lease payable 228 398
Federal Home Loan Bank borrowings 5,140 4,239
Other long-term debt 50,000 2,000
Total long-term debt $ 97,973 $ 113,376
The Company redeemed the entire $65.0 million outstanding principal of its 5.75% Fixed-to-Floating Rate Subordinated Notes due 2030 on July 30, 2025, utilizing a combination of cash on hand and proceeds from a $50.0 million senior term note that closed on July 29, 2025. The senior term note is structured as a 5-year maturity, 7-year amortization facility, bearing interest at a floating rate of 1-month term SOFR plus 1.75%.
See Note 9. Short-Term Borrowingsand Note 10. Long-Term Debtto our consolidated financial statements for additional information related to short-term borrowings and long-term debt.
Capital Resources
Shareholders' Equity and Capital Adequacy
The following table summarizes certain equity capital ratios and book value per share amounts of the Company at the dates presented:
September 30, 2025 December 31, 2024
Common equity ratio 9.70 % 8.97 %
Tangible common equity ratio(1)
8.36 % 7.57 %
Total risk-based capital ratio 13.08 % 14.07 %
Tier 1 risk-based capital ratio 11.95 % 11.59 %
Common equity tier 1 risk-based capital ratio 11.10 % 10.73 %
Tier 1 leverage ratio 9.73 % 9.15 %
Book value per share $ 29.37 $ 26.94
Tangible book value per share(1)
$ 24.96 $ 22.37
(1)A non-GAAP financial measure - see the "Non-GAAP Presentations" section for a reconciliation to the most comparable GAAP equivalent.
Shareholders' Equity:Total shareholders' equity was $606.1 million as of September 30, 2025, compared to $559.7 million as of December 31, 2024, an increase of $46.4 million, or 8.3%, due primarily to a decrease in accumulated other comprehensive loss and an increase in retained earnings.
Capital Adequacy:Risk-based capital guidelines require the classification of assets and some off-balance-sheet items in terms of credit-risk exposure and the measuring of capital as a percentage of the risk-adjusted asset totals. Management believed that, as of September 30, 2025, the Company and the Bank met all capital adequacy requirements to which we were subject. As of that date, the Bank was "well capitalized" under regulatory prompt corrective action provisions. See Note 12. Regulatory Capital Requirements and Restrictions on Subsidiary Cashto our consolidated financial statements for additional information related to our capital.
Stock Compensation
Restricted stock units were granted to certain officers of the Company on February 15, 2025, in the aggregate amount of 99,284. A total of 14,183 restricted stock units were also granted to directors of the Company and the Bank on May 15, 2025, while a total of 8,248 restricted stock units were also granted to directors of the Company and the Bank on August 15, 2025. Additionally, during the first nine months of 2025, 73,446 shares of common stock were issued in connection with the vesting of previously awarded grants of restricted stock units, of which 14,369 shares were surrendered by grantees to satisfy tax requirements, and 6,718 unvested restricted stock units were forfeited.
Liquidity
Liquidity risk management involves meeting the cash flow requirements of depositors and borrowers. We conduct liquidity risk management on both a daily and long-term basis, and adjust our investments in liquid assets based on expected loan demand, projected loan maturities and payments, expected deposit flows, yields available on interest-bearing deposits, and the objectives of our asset/liability management program. Generally, excess liquidity is invested in short-term U.S. government and agency securities, short- and medium-term state and political subdivision securities, and other investment securities. Our most liquid assets are cash and due from banks, interest-bearing bank deposits, and federal funds sold. The balances of these assets are dependent on our operating, investing, and financing activities during any given period.
Cash and cash equivalents are summarized in the table below:
(in thousands) As of September 30, 2025 As of December 31, 2024
Cash and due from banks $ 67,125 $ 71,803
Interest-bearing deposits 205,116 133,092
Total $ 272,241 $ 204,895
Generally, our principal sources of funds are deposits, advances from the FHLB, principal repayments on loans, proceeds from the sale of loans, proceeds from the maturity and sale of investment securities, our federal funds lines, and funds provided by operations. While scheduled loan amortization and maturing interest-bearing deposits are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by economic conditions, the general level of interest rates, and competition. We utilized particular sources of funds based on comparative costs and availability. The Bank maintains unsecured lines of credit with several correspondent banks and secured lines with the Federal Reserve Bank of Chicago and the FHLB that would allow us to borrow funds on a short-term basis, if necessary. We also hold debt securities classified as available for sale that could be sold to meet liquidity needs if necessary.
Net cash provided by operations was another major source of liquidity. The net cash provided by operating activities was $51.3 million for the nine months ended September 30, 2025 and the net cash provided by operating activities was $32.1 million for the nine months ended September 30, 2024.
Inflation
The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it is difficult to assess its overall impact on the Company. The price of one or more of the components of the Consumer Price Index may fluctuate considerably and thereby influence the overall Consumer Price Index without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. Inflation and related increases in market rates by the Federal Reserve generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings and shareholders' equity. Ongoing higher inflation levels and higher interest rates could have a negative impact on both our consumer and commercial borrowers. We anticipate our noninterest income may be adversely affected in future periods as a result of sustained high interest rates and inflationary pressure, which negatively impact mortgage originations and mortgage banking revenue. Additionally, the economic impact of the sustained higher levels of inflation and higher interest rates could place increased demand on our liquidity if we experience significant credit deterioration and as we meet borrowers' needs. There is also a risk that additional interest rate increases to fight inflation could lead to a recession.
Off-Balance-Sheet Arrangements
During the normal course of business, we are a party to financial instruments with off-balance-sheet risk in order to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commitments to sell loans, and standby letters of credit. We follow the same credit policy (including requiring collateral, if deemed appropriate) to make such commitments as is followed for those loans that are recorded in our financial statements.
Our exposure to credit losses in the event of nonperformance is represented by the contractual amount of the commitments. Management does not expect any significant losses as a result of these commitments, and also expects to have sufficient liquidity available to cover these off-balance-sheet instruments. Off-balance-sheet transactions are more fully discussed in Note 13. Commitments and Contingenciesto our consolidated financial statements.
Contractual Obligations
There have been no material changes to the Company's contractual obligations existing at December 31, 2024, as disclosed in the Annual Report on Form 10-K, filed with the SEC on March 11, 2025.
Non-GAAP Financial Measures
Certain ratios and amounts not in conformity with GAAP are provided to evaluate and measure the Company's operating performance and financial condition, including return on average tangible equity, tangible common equity, tangible book value per share, tangible common equity ratio, efficiency ratio, net interest margin (tax equivalent), core net interest margin, adjusted earnings, and adjusted earnings per share. Management believes these ratios and amounts provide investors with useful information regarding the Company's profitability, financial condition and capital adequacy, consistent with how management evaluates the Company's financial performance.
The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent:
Three Months Ended Nine Months Ended
(in thousands) September 30, September 30,
Return on Average Tangible Equity 2025 2024 2025 2024
Net income (loss) $ 17,015 $ (95,707) $ 42,133 $ (76,619)
Intangible amortization, net of tax (1)
850 1,090 2,828 3,487
Tangible net income (loss) $ 17,865 $ (94,617) $ 44,961 $ (73,132)
Average shareholders' equity $ 595,056 $ 551,414 $ 584,801 $ 537,697
Average intangible assets, net (91,571) (96,706) (92,815) (97,102)
Average tangible equity $ 503,485 $ 454,708 $ 491,986 $ 440,595
Return on average equity 11.34 % (69.05) % 9.63 % (19.03) %
Return on average tangible equity (2)
14.08 % (82.78) % 12.22 % (22.17) %
(1) The income tax rate utilized was the blended marginal rate.
(2) Annualized tangible net income divided by average tangible equity.
(in thousands, except per share data)
Tangible Common Equity/Tangible Book Value per Share /
Tangible Common Equity Ratio 		September 30, 2025 December 31, 2024
Total shareholders' equity $ 606,056 $ 559,696
Intangible assets, net (91,004) (94,807)
Tangible common equity $ 515,052 $ 464,889
Total assets $ 6,249,752 $ 6,236,329
Intangible assets, net (91,004) (94,807)
Tangible assets $ 6,158,748 $ 6,141,522
Book value per share $ 29.37 $ 26.94
Tangible book value per share (1)
$ 24.96 $ 22.37
Shares outstanding 20,632,760 20,777,485
Equity to assets ratio 9.70 % 8.97 %
Tangible common equity ratio (2)
8.36 % 7.57 %
(1) Tangible common equity divided by shares outstanding.
(2) Tangible common equity divided by tangible assets.
Three Months Ended Nine Months Ended
(in thousands) September 30, September 30,
Net Interest Margin, Tax Equivalent/Core Net Interest Margin 2025 2024 2025 2024
Net interest income $ 51,008 $ 37,521 $ 148,429 $ 108,599
Tax equivalent adjustments:
Loans (1)
1,053 951 3,056 2,809
Securities (1)
158 365 480 1129
Net interest income, tax equivalent $ 52,219 $ 38,837 $ 151,965 $ 112,537
Loan purchase discount accretion (962) (1,426) (3,270) (3,839)
Core net interest income $ 51,257 $ 37,411 $ 148,695 $ 108,698
Net interest margin 3.48 % 2.42 % 3.44 % 2.33 %
Net interest margin, tax equivalent (2)
3.57 % 2.51 % 3.53 % 2.42 %
Core net interest margin (3)
3.50 % 2.41 % 3.45 % 2.33 %
Average interest earning assets $ 5,807,627 $ 6,167,525 $ 5,760,796 $ 6,221,529
(1) The federal statutory tax rate utilized was 21%.
(2) Annualized tax equivalent net interest income divided by average interest earning assets.
(3) Annualized core net interest income divided by average interest earning assets.
Three Months Ended Nine Months Ended
(in thousands) September 30, September 30,
Efficiency Ratio 2025 2024 2025 2024
Total noninterest expense $ 37,637 $ 35,798 $ 109,697 $ 107,124
Amortization of intangibles (1,143) (1,470) (3,803) (4,700)
Merger-related expenses (132) (133) (172) (2,301)
Noninterest expense used for efficiency ratio $ 36,362 $ 34,195 $ 105,722 $ 100,123
Net interest income, tax equivalent(1)
$ 52,219 $ 38,837 $ 151,965 $ 112,537
Noninterest income (loss) 10,253 (130,388) 30,638 (99,084)
Investment security (gains) losses, net - 140,182 (33) 140,113
Net revenues used for efficiency ratio $ 62,472 $ 48,631 $ 182,570 $ 153,566
Efficiency ratio(2)
58.21 % 70.32 % 57.91 % 65.20 %
(1) The federal statutory tax rate utilized was 21%.
(2) Noninterest expense adjusted for amortization of intangibles and merger-related expenses divided by the sum of tax equivalent net interest income, noninterest income and net investment securities gains.
Three Months Ended Nine Months Ended
(in thousands, except per share data) September 30, September 30,
Adjusted Earnings 2025 2024 2025 2024
Net income (loss) $ 17,015 $ (95,707) $ 42,133 $ (76,619)
Less: Investment securities gains (losses), net of tax(1)
- (103,988) 25 (103,937)
Less: Mortgage servicing rights loss, net of tax(1)
(454) (761) (809) (938)
Plus: Merger-related expenses, net of tax(1)
98 99 128 1,707
Less: (Loss) on extinguishment of debt, net of tax (487) - (487) -
Less: Gain on branch sale, net of tax(1)
- - - 8,201
Adjusted earnings $ 18,054 $ 9,141 $ 43,532 $ 21,762
Weighted average diluted common shares outstanding 20,718,431 15,829,032 20,800,812 15,771,924
Earnings (loss) per common share
Earnings (loss) per common share - diluted $ 0.82 $ (6.05) $ 2.03 $ (4.86)
Adjusted earnings per common share(2)
$ 0.87 $ 0.58 $ 2.09 $ 1.38
(1) The income tax rate utilized was the blended marginal tax rate.
(2) Adjusted earnings divided by weighted average diluted common shares outstanding.
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