Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A - Qualitative and Quantitative Disclosures about Market Risk
Not applicable.
General
Critical Accounting Policies
The Company’s financial condition and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain. When applying accounting policies in areas that are subjective in nature, the Company must use its best judgment to arrive at the carrying value of certain assets. One of the most critical accounting policies applied by the Company is related to the valuation of its loan portfolio.
A variety of estimates impact the carrying value of the Company’s loan portfolio including the calculation of the allowance for credit losses, valuation of underlying collateral, the timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.
The calculation of the allowance for credit losses is a complex process containing estimates which are inherently subjective and susceptible to significant revision as current information becomes available. The allowance is established and maintained at a level management believes is adequate to cover losses resulting from the inability of borrowers to make required payments on loans. Estimates for credit losses are determined by analyzing risks associated with specific loans and the loan portfolio, current trends in delinquencies and charge-offs, changes in the size and composition of the loan portfolio and peer comparisons. The analysis also requires consideration of the economic climate and direction, changes in the economic and interest rate environment which may impact a borrower’s ability to pay, legislation impacting the banking industry and economic conditions specific to the counties the Bank serves in the State of Florida. Because the calculation of the allowance for credit losses relies on the Company’s estimates and judgments relating to inherently uncertain events, results may differ from management’s estimates.
The allowance for credit losses is also discussed as part of “Loan Portfolio, Asset Quality and Allowance for Credit Losses” and in Note 3 of Notes to Consolidated Financial Statements. The Company’s significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements.
Regulation and Legislation
As a state-chartered commercial bank, the Bank is subject to extensive regulation by the Florida OFR and the FDIC. The Bank files reports with the Florida OFR and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. Periodic examinations are performed by the Florida OFR and the FDIC to monitor the Bank’s compliance with the various regulatory requirements. The Company is also subject to regulation and examination by the Federal Reserve Board of Governors.
Loan Portfolio, Asset Quality and Allowance for Credit Losses
The Bank’s primary business is making business loans. This activity may subject the Bank to potential credit losses, the magnitude of which depends on a variety of economic factors affecting borrowers which are beyond its control. As of December 31, 2025, the Bank’s nonperforming loans were approximately $2.9 million, or 0.3% of gross loan portfolio.
The following table sets forth the composition of the Bank’s loan portfolio:
At December 31,
(dollars in thousands)
Amount
Total
Amount
Total
Amount
Total
Residential real estate
Multi-family real estate
Commercial real estate
Land and construction
Commercial
Consumer
Total loans
(Deduct) add:
Net deferred loan (fees) costs and premiums
Allowance for credit losses
Loans, net
The following table sets forth the activity in the allowance for credit losses:
Year Ended December 31,
(dollars in thousands)
Beginning balance
Additional allowance recognized due to adoption of Topic 326
Credit loss expense
Loans charged off
Recoveries collected
Total ending allowance balance
Reconciliation of Credit Loss Expense
The following table provides a reconciliation of the credit loss expense on the condensed consolidated statements of income between the funded and unfunded components at the dates indicated:
At December 31,
Credit loss expense - funded
Credit loss expense - unfunded
Total Credit loss expense
The allowance for credit losses represents management’s estimate of expected losses in the existing loan portfolio. The allowance for credit losses is increased by the credit loss expense charged to earnings and reduced by loans charged off, net of recoveries. The allowance for credit losses represented 1.07% and 1.08% of the total loans outstanding at December 31, 2025, and 2024, respectively.
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The allowance for credit losses is adjusted by a credit loss expense which is reported in earnings and reduced by the charge-off of loan amounts, net of recoveries. Loans are charged off against the allowance when management determines that the loan balance is uncollectable. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Expected credit loss inherent in non-cancellable off-balance sheet credit exposures is provided through the credit loss expense, but recorded separately in other liabilities.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of current conditions and forecasts.
The following table sets forth the Bank’s allowance for loan losses by loan type:
At December 31,
(dollars in thousands)
Amount
Total
Loans
Amount
Total
Loans
Amount
Total
Loans
Residential real estate
Multi-family real estate
Commercial real estate
Land and construction
Commercial
Consumer
Total allowance for credit losses
Allowance for loan losses as a percentage of total loans outstanding
The following summarizes the amount of nonperforming loans:
December 31, 2025
(dollars in thousands)
Nonaccrual
Without ACL
Nonaccrual
With ACL
Total
Nonaccrual
Commercial
Total
December 31, 2024
(dollars in thousands)
Nonaccrual
Without ACL
Nonaccrual
With ACL
Total
Nonaccrual
Land and construction
Commercial
Consumer
Total
During 2025, 2024, and 2023, the average recorded investment in collateral dependent loans and interest income recognized and received on collateral dependent loans were as follows:
Year Ended December 31,
(dollars in thousands)
Average investment in collateral dependent loans
Interest income recognized
Interest income received
Other Real Estate Owned (“OREO”) is excluded from the allowance for credit losses. Upon foreclosure, the loan was removed from loans held for investment. Subsequent declines in the fair value of OREO are recognized through direct write-downs rather than through an allowance methodology. During 2025, the Bank acquired one property through foreclosure of a consumer home equity line of credit (“HELOC”). The addition of OREO increased total nonperforming assets; however, management believes the risk is mitigated as the property is actively marketed for sale. Management continues to monitor local market conditions in Florida and will recognize additional write-downs, if necessary, based on changes in fair value.
Liquidity and Capital Resources
Liquidity represents an institution’s ability to meet current and future obligations through liquidation or maturity of existing assets or the acquisition of additional liabilities. The Bank’s ability to respond to the needs of depositors and borrowers and to benefit from investment opportunities is facilitated through liquidity management. Management monitors the liquidity position daily.
The Bank’s liquidity is derived primarily from our deposit base, scheduled amortization and prepayments of loans and investment securities, funds provided by operations, and capital. Additionally, as a commercial bank, we are expected to maintain an adequate liquidity position. The liquidity position may consist of cash on hand, cash on demand deposit with correspondent banks, federal funds sold, and marketable securities such as United States government treasury and agency securities, municipal securities, U.S. agency mortgage-backed securities and asset-backed securities.
The Bank’s primary sources of cash during the year ended December 31, 2025, were payments of principal and interest on loans made by the Bank to third parties, payments of principal and interest on debt securities held by the Bank and deposits made by third parties at the Bank. Cash was used primarily to fund loans and repay Federal Home Loan Bank of Atlanta (“FHLB”) advances. The Bank adjusts rates on its deposits to attract or retain deposits as needed. The Bank primarily obtains deposits from its market area and secondarily from listing services.
The Bank also has external sources of funds through the FHLB and with unsecured lines of credit with correspondent banks and the Federal Reserve. The Bank is a member of the FHLB, which allows it to borrow funds under a pre-arranged line of credit. As of December 31, 2025, the Bank had outstanding borrowings of $50.0 million and pledged $464.8 million in loans as a collateral, providing borrowing availability of $231.9 million under its established borrowing capacity with the FHLB. The Company’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. In addition, the Bank has access to the Federal Reserve Discount Window as supplemental source of liquidity. As of December 31, 2025, the Bank had pledged $50.8 million in securities and loans as collateral to secure this borrowing facility, providing a line of credit available for use if needed. At December 31, 2025, the Company also had available lines of credit amounting to $73.5 million with five correspondent banks to purchase federal funds. Disbursements on these lines of credit are subject to the approval of the correspondent banks. The Company measure and monitor our liquidity daily and believes its sources of funding are adequate to meet our operating needs.
Debt Securities
The Bank’s securities portfolio is comprised of SBA pool securities, mortgage-backed securities, taxable municipal securities and collateralized mortgage obligations. The securities portfolio is categorized as either “held-to-maturity” or “available for sale.” Debt securities held-to-maturity represent those securities which the Bank has the positive intent and ability to hold to maturity. These debt securities are carried at amortized cost. Debt securities available for sale represent those investments which may be sold for various reasons including changes in interest rates and liquidity considerations. These debt securities are reported at fair market value and unrealized gains and losses are excluded from earnings and reported in other comprehensive losses.
The following table sets forth the amortized cost and fair value of the Bank’s debt securities portfolio:
(dollars in thousands)
Amortized Cost
Fair Value
At December 31, 2025:
Held-to-maturity:
Collateralized mortgage obligations
Total
Available for sale:
SBA Pool Securities
Collateralized mortgage obligation
Municipal securities
Mortgage-backed Securities.
Total
At December 31, 2024:
Held-to-maturity:
Collateralized mortgage obligations
Total
Available for sale:
SBA Pool Securities
Collateralized mortgage obligations
Municipal securities
Mortgage-backed Securities.
Total
The following table sets forth, by maturity distribution, certain information pertaining to the debt securities portfolio at amortized cost:
(dollars in thousands)
Less than a year
After 1-5 Years
After 5-10 Years
After 10 Years
Total
Yield
At December 31, 2025:
Collateralized mortgage obligation
Mortgage-backed securities
Municipal securities
SBA pool securities
At December 31, 2024:
Collateralized mortgage obligation
Mortgage-backed securities
Municipal securities
SBA pool securities
The following table sets forth, by maturity distribution, certain information pertaining to the debt securities portfolio at fair value:
(dollars in thousands)
Less than
a year
After 1-5
Years
After 5-10
Years
After 10
Years
Total
Yield
At December 31, 2025:
Collateralized mortgage obligation
Mortgage-backed securities
Municipal securities
SBA pool securities
At December 31, 2024:
Collateralized mortgage obligation
Mortgage-backed securities
Municipal securities
SBA pool securities
Expected maturities of these debt securities will differ from contractual maturities because borrowers have the right to call or repay obligations with or without call or prepayment penalties.
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. The Bank’s market risk arises primarily from interest-rate risk inherent in its lending and deposit-taking activities. The Bank does not engage in securities trading or hedging activities and does not invest in interest-rate derivatives or interest rate swaps.
The Bank may utilize financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 9 of Notes to Consolidated Financial Statements.
The Bank’s primary objective in managing interest-rate risk is to minimize the potential adverse impact of changes in interest rates on its net interest income and capital, while adjusting its asset-liability structure to obtain the maximum yield-cost spread on that structure. The Bank actively monitors and manages its interest-rate risk exposure by managing its asset and liability structure. However, a sudden and substantial increase in interest rates may adversely impact its earnings, to the extent that the interest-earning assets and interest-bearing liabilities do not change or reprice at the same speed, to the same extent, or on the same basis.
The Bank uses modeling techniques to simulate changes in net interest income under various rate scenarios. Important elements of these techniques include the mix of floating versus fixed-rate assets and liabilities, and the scheduled, as well as expected, repricing and maturing volumes and rates of the existing balance sheet.
Asset Liability Management
As part of its asset and liability management, the Bank has emphasized establishing and implementing internal asset-liability decision processes, as well as control procedures to aid in managing its earnings. Management believes that these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines, which should result in effective controls and limited exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a specific time period. The gap ratio is computed as the amount of rate sensitive assets less the amount of rate sensitive liabilities divided by total assets. A gap is considered positive when the amount of interest-rate sensitive assets exceeds interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would affect net interest income.
In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, the Bank’s management continues to monitor its assets and liabilities to better match the maturities and repricing terms of its interest-earning assets and interest-bearing liabilities. The Bank’s policies emphasize the origination of adjustable-rate loans, building a stable core deposit base and, to the extent possible, matching deposit maturities with loan repricing timeframes or maturities.
The following table sets forth certain information related to the Bank’s interest-earning assets and interest-bearing liabilities at December 31, 2025, that are estimated to mature or are scheduled to be repriced within the period shown:
Gap Maturity / Repricing Schedule
(dollars in thousands)
Less than
a year
After 1-5
Years
After 5-15
Years
After 15
Years
Total
Loans (1):
Residential real estate loans
Multi-family real estate loans
Commercial real estate loans
Land and construction
Commercial
Consumer
Total loans
Securities (2)
Interest-bearing deposits in banks
Federal Home Loan Bank stock
Total rate-sensitive assets
Deposit accounts (3):
Money-market deposits
Interest-bearing checking deposits
Savings deposits
Time deposits
Total deposits
Federal Home Loan Bank advances
Total rate-sensitive liabilities
GAP (repricing differences)
Cumulative GAP
Cumulative GAP/total assets
In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature. Fixed-rate loans are scheduled, including repayment, according to their maturities.
Securities are scheduled through the repricing date.
Money-market, interest-bearing checking and savings deposits are regarded as readily accessible withdrawable accounts. Time deposits are scheduled through the maturity dates.
The following table sets forth loan maturities by type of loan at December 31, 2025:
(dollars in thousands)
Less than
a year
After 1-5
Years
After 5-15
Years
After 15
Years
Total
Residential real estate
Multi-family real estate
Commercial real estate
Land and construction
Commercial
Consumer
Total
The following table sets forth the maturity or repricing of loans by interest type at December 31, 2025:
(dollars in thousands)
Less than
a year
After 1-5
Years
After 5-15
Years
After 15
Years
Total
Fixed interest rate
Variable interest rate
Total
Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of loans is substantially less than their average contractual terms due to prepayments. In addition, due-on-sale clauses on loans generally give us the right to declare a conventional loan immediately due and payable in the event, among other things, that the borrower sells real property subject to a mortgage and the loan is not repaid. The average life of mortgage loans tends to increase, however, when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgages are substantially higher than current mortgage rates.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheet. The contractual amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee. Since certain commitments expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary in order to extend credit, is based on management’s credit evaluation of the counterparty.
A summary of the contractual amounts of the Company’s financial instruments with off-balance sheet risk at December 31, 2025, follows:
(dollars in thousands)
Commitments to extend credit
Unused lines of credit
Standby letters of credit
The following is a summary of the Company’s on-balance sheet contractual obligations at December 31, 2025:
(dollars in thousands)
Payments Due by Period
Contractual Obligations
(dollars in thousands)
Less Than 1 Year
1-3 Years
3-5 Years
More Than 5 Years
Total
Federal Home Loan Bank advances
Operating lease liabilities
Total
Deposits
Deposits traditionally are the primary source of funds for the Company’s use in lending, making investments and meeting liquidity demands. The Company has focused on raising time deposits primarily within its market area, which is the area of Broward, Miami-Dade, Palm Beach, Martin, and St. Lucie counties. The Company offers a variety of deposit products, such as mobile banking, remote deposit capture and bank-to-bank ACH, which are promoted within its market area. Deposits increased $159.6 million in 2025. The increase in deposit balances primarily consisted of an increase of $54.6 million in noninterest-bearing demand deposits, an increase of $11.3 million in NOW accounts, an increase of $17.1 million in money market accounts, an increase of $216,000 in savings accounts, and an increase of $76.4 million in time deposits.
The following table displays the distribution of the Company’s deposits by product at December 31, 2025 and 2024:
(dollars in thousands)
Amount
% of Deposits
Amount
% of Deposits
Noninterest-bearing demand deposits
NOW deposits
Money-market deposits
Savings
Subtotal
Time deposits:
Total time deposits (1)
Total deposits
Includes Individual Retirement Accounts (IRA’s) totaling $3,919,000 and $3,421,000 at December 31, 2025 and 2024, respectively, all of which are in the form of time deposits.
The following table displays the distribution of the Company’s deposits by source at December 31, 2025 and 2024:
At December 31, 2025
At December 31, 2024
(dollars in thousands)
Retail
Listing Services
Brokered
Total
Retail
Listing Services
Brokered
Total
Noninterest-bearing demand deposits
NOW deposits
Money-market deposits
Savings
Time deposits
The Company uses third-party deposits listing services as part of its funding strategy. None of the deposits obtained from the listing services are considered brokered deposits. In addition, the Company utilized brokered deposits as part of its funding strategy, consisting primarily of brokered certificate deposits. At December 31, 2025, brokered deposits comprised 9% of total deposits, compared to 19% at December 31, 2024, and listing service deposits comprised 15% and 14% of total deposits at December 31, 2025 and 2024 respectively.
The following table sets forth the Company’s maturity distribution of time deposits of $250,000 or more at December 31, 2025 and 2024:
At December 31,
(dollars in thousands)
Due three months or less
Due more than three months to six months
More than six months to one year
One to five years
Total
Analysis of Results of Operations
The Company’s profitability depends primarily on net interest income, which is the difference between the interest received on earning assets, such as loans and securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest-rate spread”) and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s interest-rate spread is affected by regulatory, economic, and competitive factors that influence interest rates, loan demand, and deposit flows. The Company’s results of operations are also affected by credit loss expense, operating expenses such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest income such as loan prepayment fees.
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Average balances are based on average daily balances:
Year Ended December 31,
Interest
Average
Interest
Average
Average
Income/
Yield/
Average
Income/
Yield/
(dollars in thousands)
Balance
Expense
Rate
Balance
Expense
Rate
Interest-earning assets:
Loans
Securities
Other interest-earning assets (1)
Total interest-earning assets/interest income
Cash and due from banks
Premises and equipment
Other assets
Total assets
Interest-bearing liabilities:
Savings, NOW and money-market deposits
Time deposits
Borrowings (2)
Total interest-bearing liabilities/interest expense
Noninterest-bearing demand deposits
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Net interest income
Interest rate spread (3)
Net interest margin (4)
Ratio of average interest-earning assets to average interest- bearing liabilities
Includes interest-earning deposits with banks, Federal funds sold and Federal Home Loan Bank stock dividends.
Includes Federal Home Loan Bank advances
Interest rate spread represents the difference between average yield on interest-earning assets and the average cost of interest-bearing liabilities
Net interest margin is net interest income divided by average interest-earning assets.
Rate/Volume Analysis
The following tables provide certain information regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume):
Year Ended December 31,
2025 versus 2024
Increases (Decreases) Due to Change In:
(dollars in thousands)
Rate
Volume
Rate/ Volume
Total
Interest-earning assets:
Loans
Securities
Other interest-earning assets
Total interest-earning assets
Interest-bearing liabilities:
Savings, NOW and money-market
Time deposits
Other
Total interest-bearing liabilities
Net interest income
Financial Condition as of December 31, 2025 Compared to December 31, 2024
The Company’s total assets at December 31, 2025, were $1.1 billion, an increase of $178.7 million from December 31, 2024. The increase primarily consisted of increases of $20.9 million in cash and cash equivalents, $152.3 million in net loans, and $2.4 million in debt securities available for sale, primarily due to purchase of two new securities and unrealized gains during the year. The Company experienced growth across the various loan types due to new organic originations. The net increase in loans resulted from $180.8 million increase in commercial real estate loans, $17.8 million increase in consumer loans, $1.7 million increase in multi-family real estate loans, partially offset by decreases in $41.1 million in land and construction loans and $4.6 million decrease in commercial loans. The growth experienced in the loan portfolio is due to the implementation of our relationship-based banking model and the success of our lenders in competing for new business in a highly competitive South Florida area.
The Company’s total liabilities at December 31, 2025, were $989.8 million, an increase of $160.0 million from $829.7 million on December 31, 2024. The increase in total liabilities was mainly due to an increase of $159.6 million in total deposits.
The Company’s total stockholders’ equity at December 31, 2025, was $121.9 million, an increase of $18.7 million from $103.2 million on December 31, 2024. The increase was primarily attributable to net income of $16.6 million, stock-based compensation of $875,000, proceeds of $217,000 from the issuance of common stocks, and unrealized gains on debt securities of $973,000.
At December 31, 2025, the Bank had a Tier 1 leverage ratio of 11.39%.
Results of Operations for Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Years Ended December 31,
Increase / (Decrease)
(dollars in thousands)
Amount
Percentage
Total interest income
Total interest expense
Net interest income
Credit loss expense
Net interest income after credit loss expense
Total noninterest income
Total noninterest expenses
Income before income taxes
Income taxes expense
Net income
Earnings per share - Basic
Earnings per share – Diluted (1)
(1) On October 1, 2025, the Company amended the terms of the Series B preferred shares, as detailed in Note 19, to the consolidated financial statements. This amendment affected the calculation of diluted earnings per share, and accordingly, prior period diluted earnings per share amounts have been restated to conform to the current period presentation. This ensures a consistent basis of comparison.
Net income. The Company had net income of $16.6 million or $1.42 per basic share and $.71 per diluted share for the year ended December 31, 2025 compared to net income of $13.1 million or $1.39 per basic share and $.63 per diluted share for the year ended December 31, 2024. The growth was primarily driven by a $7.9 million increase in net interest income, partially offset by $5.7 million increase in non-interest expenses. Additionally, the Company recognized a $186,000 decrease in credit loss expense.
Interest Income. Interest income increased by $4.7 million to $64.4 million for the year ended December 31, 2025 from $59.6 million for the year ended December 31, 2024, primarily due to increases in loan volume.
Interest Expense. Interest expense on deposits and borrowings decreased by $3.2 million to $21.8 million for the year ended December 31, 2025 compared to $24.9 million from the prior year. The decrease in interest expense was primarily driven by lower interest rates paid on deposits and borrowings.
Credit loss expense.
Credit loss expense totaled $2.0 million for the year ended December 31, 2025, compared to $2.2 million for the year ended December 31, 2024. Credit loss expense is recognized to maintain the allowance for credit losses at a level management believes is appropriate to absorb expected losses. Management’s periodic evaluation of the adequacy of the allowance for credit losses is based upon historical experience, the volume and type of lending conducted by the Company, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, general economic conditions, particularly as they relate to our market areas, economic forecasts and other factors related to the estimated collectability of our loan portfolio. The allowance for credit losses totaled $10.3 million or 1.07% of loans outstanding at December 31, 2025, compared to $8.7 million or 1.08% of loans outstanding at December 31, 2024. The decrease in the credit loss expense during the year ended on December 31, 2025 was primarily due to improvements in the credit quality of the loan portfolio and the evaluation of the other factors noted above. During the year ended December 31, 2025, the net charge-off amounting to $727,000 resulted from consumer lending.
Noninterest Income. Total noninterest income of $6.8 million increased by $2.2 million for the year ended December 31, 2025, from $4.6 million for the year ended December 31, 2024. The increase is primarily related to service charges on deposits, wire transfers, and ACH fees on deposit payment transactions.
Noninterest Expenses . Total noninterest expenses of $25.2 million increased by $5.7 million for the year ended December 31, 2025, compared to $19.5 million for the year ended December 31, 2024. The increase is primarily due to increases in salaries and employee benefits, data processing, and other operating costs. The headcount of full-time equivalent employees increased from 73 to 98. The increase in non-interest expenses is directly attributable to the growth of the Bank.
Income Taxes. The Company recorded income taxes of $5.5 million for the year ended December 31, 2025, compared to an income tax expense of $4.5 million for the year ended December 31, 2024.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of the Bank’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on its performance than the effects of general levels of inflation. However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and stockholders’ equity. Loan originations and re-financing tend to slow as interest rates increase. As a general principle, higher interest rates are likely to reduce the Company’s earnings.
