Insiders ranked by realized 90-day signed return on their open-market trades at Eagle Financial Services Inc. Minimum 3 scored trades. Returns are signed - a sale followed by a rally counts against the insider.
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.12pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
-0.12pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+39
losses+14
troubled+4
declining+3
repossessed+2
Positive rising
greater+3
gains+3
effective+2
efficiency+2
improvements+2
MD&A (Item 7)
41,845 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The purpose of this discussion is to focus on certain information relevant to the Company’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the Company’s Audited Consolidated Financial Statements and notes thereto presented in Item 8, Financial Statements and Supplementary Data, of this Form 10-K. Operating results for the year ended December 31, 2025 are not necessarily indicative of the results for any future period.
GENERAL
Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank.
The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and mortgage-backed securities, municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law.
The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with its customers, employees, communities, and shareholders.
At December 31, 2025, the Company had total assets of $1.89 billion, net loans of $1.46 billion, total deposits of $1.61 billion, and shareholders’ equity of $188.8 million.
During 2025, the Company its balance sheet and its forward earnings profile, as marked by a capital raise, a strategic balance sheet repositioning of its investment securities portfolio, and subsequent uplist of its stock to NASDAQ. The Company sold available for sale securities with an amortized cost balance of $99.2 million, resulting in a net realized pre-tax of $12.4 million, and reinvested $66.0 million into purchases of available for sale securities. Additionally, the Company completed an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. Net proceeds from the offering were $53.5 million. Also during 2025, the Company opened a full-service branch in McLean, VA offering a full suite of retail and business banking, lending, and wealth management solutions offered at the Bank's other locations.
The following table presents selected financial data, which was derived from the Company’s audited financial statements for th e periods indicated.
As of or for the Years Ended
December 31,
(dollars in thousands, except per share amounts)
Income Statement Data:
Interest and dividend income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income
Net revenue
Noninterest expenses
Income before income taxes
Income tax expense
Net Income
Performance Ratios:
Return on average assets
Return on average equity
Shareholders’ equity to assets
Dividend payout ratio
Non-performing loans to total loans
Non-performing assets to total assets
Share and Per Share Data:
Net income, basic
Net income, diluted
Cash dividends declared
Book value
Market price
Average shares outstanding, basic
Average shares outstanding, diluted
Balance Sheet Data:
Total securities
Total loans
Total assets
Total deposits
Shareholders’ equity
MANAGEMENT’S STRATEGY
The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with: (1) its customers, by providing highly personalized customer service, a network of conveniently placed branches and ATMs, a competitive variety of products/services and courteous, professional employees, (2) its employees, by providing generous benefits, a positive work environment, advancementopportunities and incentives to exceed expectations, (3) its communities, by participating in local concerns, providing monetary support, supporting employee volunteerism and providing employment opportunities, and (4) its shareholders, by providing sound profits and returns, sustainable growth, regular dividends and committing to our local, independent status.
OPERATING STRATEGY
The Bank is a locally managed, commercial focused banking institution operating in several of the country's most attractive markets. The Company expanded its ownership to institutional investors through a public offering of its common stock in February 2025, increasing the number of shares outstanding by 50% and added approximately $53.5 million in capital. This operating strategy allows the Bank to be flexible and responsive in the products and services it offers and to further grow by lending funds to local residents and businesses at a competitive price that reflects the inherent risk of lending. The Bank strives to fund these loans through deposits gathered from local residents and businesses. The Bank prices its deposits by comparing alternative sources of funds and selecting the lowest cost available. When deposits are not adequate to fund asset growth, the Bank relies on borrowings, both short and long term. The Bank’s primary source of borrowed funds is the Federal Home Loan Bank of Atlanta which offers numerous terms and rate structures to the Bank.
As interest rates change, the Bank attempts to maintain its net interest margin. This is accomplished by changing the price, terms, and mix of its financial assets and liabilities. The Bank also earns fees on services provided through the Bank of Clarke Wealth Management Division, which is the Bank’s investment management division that offers both trust services and investment sales, mortgage originations, loan sales to the secondary market, and deposit operations. The Bank also incurs noninterest expenses associated with compensating employees, maintaining and acquiring fixed assets, and purchasing goods and services necessary to support its daily operations.
The Bank maintains a full-service marketing department dedicated to driving new business and increasing awareness of the Bank's banking, lending, and wealth management offerings across its footprint. Marketing employs an integrated, multi-channel strategy that includes television and radio advertising, digital media (such as display ads, SEO/SEM, podcasts, and streaming platforms), print and electronic publications, billboards, email campaigns, branch signage, and social media. The Marketing department is responsible for all content creation, campaign strategy and execution, marketing-related internal and external communications, marketing vendor management, and brand stewardship.
LENDING POLICIES
Administration and supervision over the lending process is provided by the Bank’s Credit Administration Department. The principal risk associated with the Bank’s loan portfolio is the creditworthiness of its borrowers. In an effort to manage this risk, the Bank’s policy gives loan amount approval limits to individual loan officers based on their position and level of experience. Credit risk is increased or decreased, depending on the type of loan and prevailing economic conditions. In consideration of the different types of loans in the portfolio, the risk associated with real estate mortgage loans, commercial loans and consumer loans varies based on employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay debt.
The Company has written policies and procedures to help manage credit risk. The Company utilizes a loan review process that includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to establish loss exposure and to ascertain compliance with the Company’s policies.
The Bank uses a tiered approach to approve credit requests consisting of individual lending authorities, joint approval of Co-Approval officers (Executive, Regional Credit Officer, Small Business Credit Officer), and a director loan committee. Lending limits for individuals are set by the Board of Directors and are determined by loan purpose, collateral type, and internal risk rating of the borrower. The highest individual authority (Executive) is assigned to the Bank’s President/ Chief Executive Officer, Chief Banking Officer and Chief Credit Officer (approval authority only). Two Executive officers may combine their authority to approve loan requests to borrowers with credit exposure up to $10.0 million on a secured basis and $6.0 million unsecured. Three Executive officers may combine to approve loan requests to borrowers with credit exposure up to $15.0 million on a secured basis and $9.0 million unsecured. Consumer Central Lenders are individual lenders who have been assigned to an Approval Category (A through F) based on their level of experience and job function. Consumer Central Lenders can co-approve consumer, home equity lines of credit and home equity loan requests up to their stated authorities.
Officers in Categories A through F have lesser authorities and with approval of an Executive officer may extend loans to borrowers with exposure of $5.0 million on a secured basis and $3.0 million unsecured. Officers in Categories A through F can also utilize the co-approval of the Regional and Small Business Credit Officers to extend loans with exposures up to $2.5 million and $1.5 million, respectively on a secured basis, and up to $1 million and $750 thousand, respectively on an unsecured basis. Loans exceeding $15.0 million and up to the Bank’s legal lending limit can be approved by the Risk Committee consisting of four directors (three directors constituting a quorum). The Director’s Loan Committee also reviews and approves changes to the Bank’s Loan Policy as presented by management. The following sections discuss the major loan categories within the total loan portfolio:
One-to-Four-Family Residential Real Estate Lending
Residential lending activity may be generated by the Bank’s loan officer solicitations, referrals by real estate professionals, and existing or new bank customers. Loan applications are taken by a Bank loan officer. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee. In connection with residential real estate loans, the Bank requires title insurance, hazard insurance and, if applicable, flood insurance. In addition to traditional residential mortgage loans secured by a first or junior lien on the property, the Bank offers home equity lines of credit.
Commercial Real Estate Lending
Commercial real estate loans are secured by various types of commercial real estate in the Bank’s market area, including multi-family residential buildings, commercial buildings and offices, small shopping centers and churches. Commercial real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from customers. In its underwriting of commercial real estate, the Bank’s loan to original appraised value ratio is generally 80% or less. Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general. The Bank’s commercial real estate loan underwriting criteria require an examination of debt service coverage ratios, the borrower’s creditworthiness, prior credit history and reputation, and the Bank typically requires personal guarantees or endorsements of the borrowers’ principal owners.
Construction and Land Development Lending
The Bank makes local construction loans and land acquisition and development loans. The construction loans are secured by residential houses under construction and the underlying land for which the loan was obtained. The average life of most construction loans is less than one year and the Bank offers both fixed and variable rate interest structures. The interest rate structure offered to customers depends on the total amount of these loans outstanding and the impact of the interest rate structure on the Bank’s overall interest rate risk. There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished property. The Bank also obtains a first lien on the property as security for its construction loans and typically requires personal guarantees from the borrower’s principal owners. Finally, the Bank performs inspections of the construction projects to ensure that the percentage of construction completed correlates with the amount of draws on the construction line of credit.
Commercial and Industrial Lending
Commercial business loans generally have more risk than residential mortgage loans but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of its business borrowers. Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
Consumer Lending
The Bank offers various secured and unsecured consumer loans, which include personal installment loans, personal lines of credit, automobile loans, and credit card loans. The Bank generally originates its consumer loans within its geographic market area and these loans are largely made to customers with whom the Bank has an existing relationship. Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.
The underwriting standards employed by the Bank for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and from any verifiable secondary income. Although creditworthiness of the applicant is the primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount.
Marine Lending
The Bank's marine loan portfolio is comprised of originated retail loans. The Company ceased accepting new marine business in August 2023, upon completion of a sale of specific assets from its marine lending segment. Subsequent to the sale the Company retained ownership of its portfolio of marine vessel retail loans, which continue to constitute a significant portion of the Company's assets, revenues, and earnings. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Retail loans were generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.
CRITICAL ACCOUNTING POLICIES
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which requires us to make estimates and assumptions. Actual results could differ from those estimates. The financial information contained within these statements is, to a significant extent, based on measurements of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the transactions would be the same, the timing of events that would impact the transactions could change. The accounting estimate with the greatest uncertainty and susceptibility to significant near-term change for the Company is the allowance for credit losses on loans.
Allowance for Credit Losses on Loans
The Company establishes the allowance for credit losses through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.
The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. Loans that share common risk characteristics are evaluated collectively using a loss-rate, or cohort methodology to estimate its current expected credit losses on loans.
The measurement of the allowance for credit losses is based in part on forecasts of unemployment, inflation, as well as the consumer price index, and may also consider other factors, which we believe to be indicative of risk factors related to collectability. Management also assesses the risk of credit losses arising from changes in economic conditions; the nature
and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances; lending policy and procedures; credit administration and lending staff; loan review; concentrations of credit and the value of underlying collateral in determining the recorded balance of the allowance for credit losses.
This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, of the 2025 Form 10-K, provides additional information concerning the determination of the allowance for credit losses on loans.
NON-GAAP FINANCIAL MEASURES
This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including non-GAAP net income, non-GAAP noninterest income, non-GAAP earnings per share, non-GAAP return on average equity and average assets, tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.
The realized loss on the sale of the available for sale securities, which resulted from the balance sheet repositioning transactions during the first quarter of 2025 and the December 2024 sale of the Company's operating center and branch building in a sales-leaseback transaction, significantly impacted the Company's operating results and certain performance metrics and ratios.
The following table reconciles the GAAP reported measure to the adjusted non-GAAP measure to show the impact of these tran sactions during the twelve months ended December 31, 2025 and 2024.
Twelve Months Ended
December 31,
(dollars in thousands except for per share data)
GAAP Net income
Adjustments to net income:
Loss on sales of securities
(Gain) on sale of fixed assets
Tax effect of adjustments to net income
Non-GAAP Net income
GAAP Noninterest income
Adjustments to noninterest income:
Loss on sales of securities
(Gain) on sale of fixed assets
Non-GAAP Noninterest income
Earnings per share, basic and diluted (GAAP)
Effect of adjustments to net income
Non-GAAP Earnings per share, basic and diluted
Return on average equity
Effect of adjustments to net income
Non-GAAP Return on average equity
Return on average assets
Effect of adjustments to net income
Non-GAAP Return on average assets
For additional information and calculations of tax-equivalent net interest income and efficiency ratio, see the sections entitled "Tax-Equivalent Net Interest Income" and "Efficiency Ratio" below.
FORWARD LOOKING STATEMENTS
This report contains statements that are "forward looking statements." The Company may also make forward looking statements in other documents that are filed with the Securities and Exchange Commission, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors, or employees. Forward looking statements include statements regarding our expectations, intentions, and objectives, or other expressions that predict or indicate future events and trends and which do not relate to historical matters. The words “believe,” “expect,” “may,” “will,” “should,” "could," “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. You should not rely on forward looking statements, as they involve known and unknown risks, uncertainties, and other factors, some of which are beyond our control. These risks, uncertainties, and other factors may cause our actual results, performance, or achievements to be materially different than the anticipated future results, performance, or achievements expressed or implied by the forward looking statements.
Some of the factors that might cause these differences include the following:
difficult market conditions in our industry;
the ability to successfully manage growth or implement growth strategies if the Bank is unable to identify attractive markets, locations or opportunities to expand in the future or if the Bank is unable to successfully integrate new branches, business lines or other growth opportunities into its existing operations;
competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;
the successful management of interest rate risk;
risks inherent in making loans such as repayment risks and fluctuating collateral values;
the Company's ability to successfullyresolve non-performing assets;
changes in general economic and business conditions in the Bank’s market area;
reliance on the Bank’s management team, including the ability to attract and retain key personnel;
changes in interest rates and interest rate policies;
maintaining capital levels adequate to support growth;
maintaining cost controls and asset qualities as new branches are opened or acquired;
demand, development and acceptance of new products and services;
deposit flows;
the Bank's ability to manage liquidity;
the cost and availability of secondary funding sources;
effects of the soundness of other financial institutions;
problems with technology utilized by the Bank;
changing trends in customer profiles and behavior;
geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;
the economic impact of duties, tariffs or other barriers or restrictions on trade, any retaliatory counter measures, or the volatility and uncertainty arising there from;
political developments, including government shutdowns, and other significant disruptions and changes in the funding, size, scope, and efficiencies of the federal government, its agencies and services;
the Company's potential exposure to fraud, negligence, computer theft, and cyber-crime;
potential impact on us of existing and future legislation and regulations;
changes in accounting policies and banking and other law and regulations; and
other factors described in Item 1A., “Risk Factors,” in this annual report on Form 10-K.
You should carefully review all of these factors and you should be aware that there may be other factors that cause these differences. These forward looking statements were based on information, plans, and estimates at the date of this report, and we assume no obligation to update any forward looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
RESULTS OF OPERATIONS
Net Income
The fo llowing ta ble presents a summarized consolidated statement of income for the periods indicated:
Twelve Months Ended
December 31,
Change
(dollars in thousands)
$ Change
% Change
Net interest income
Noninterest income
Net revenues
Provision for credit losses
Noninterest expense
Income before income taxes
Income tax expense
Net income
Adjusted net income (non-GAAP)
Net income for 2025 and 2024 was significantly impacted by two transactions. During the first quarter of 2025, the Company recognized a loss on the sale of available for sale securities totaling $9.8 million, net of tax, and during the fourth quarter of 2024, the Bank's operating center and branch building in Winchester, VA was sold in a sale-leaseback transaction and the Company recognized a net of tax gain of $3.1 million. The twelve months ended December 31, 2025 also experienced a strong increase in net interest income over the corresponding 2024 period, largely due to the restructuring of the investment securities portfolio further described in the section titled Securities under the heading Financial Condition.
The fol lowing table presents a summary of performance metrics and ratios for the periods indicated:
Twelve Months Ended
December 31,
Earnings per share, basic and diluted
Adjusted earnings per share, basic and diluted (non-GAAP) (1)
Return on average assets
Adjusted return on average assets (non-GAAP) (1)
Return on average equity
Adjusted return on average equity (non-GAAP) (1)
(1) Adjusted to exclude the loss on sale of securities in 2025 and the gain recognized on the sale of the Company's operating center and branch building in 2024.
Return on average assets (“ROA”) measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control.
Return on average equity (“ROE”) measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by the shareholders.
Average Balances, Income and Expenses, Yields and Rates (Tax-Equivalent Basis)
The following table shows average balance, interest, and yield/rate information, as well as net interest margin on a tax- eq uivalent basis for the years ended December 31, 2025 and 2024 (dollars in thousands):
Years Ended
December 31, 2025
December 31, 2024
Average
Interest
Income/
Average
Average
Interest
Income/
Average
Balance
Expense
Rate
Balance
Expense
Rate
Assets:
Securities:
Taxable
Tax-Exempt (1)
Total Securities
Loans: (2)
Taxable
Non-accrual
Tax-Exempt (1)
Total Loans
Federal funds sold and interest-bearing deposits in other banks
Total earning assets
Allowance for credit losses
Total non-earning assets
Total assets
Liabilities and Shareholders' Equity:
Interest-bearing deposits:
NOW accounts
Money market accounts
Savings accounts
Time deposits:
$250,000 and more
Less than $250,000
Total interest-bearing deposits
Federal funds purchased
Federal Home Loan Bank advances
Subordinated debt
Total interest-bearing liabilities
Noninterest-bearing liabilities:
Demand deposits
Other Liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Net interest income
Net interest spread
Interest expense as a percent of average earning assets
Net interest margin (3)
Income and yields are reported on a tax-equivalent basis using the federal tax rate of 21%.
Interest and yields on loans include the amortization/accretion of origination costs/fees as well as any purchase premiums or discounts.
Refer to the section titled "Tax-Equivalent Net Interest Income" for the reconciliation of tax-equivalent net interest income.
NM = Not Meaningful
Tax-Equivalent Net Interest Income
The following table reconciles tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income. Tax-equivalent net interest income (Non-GAAP) is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2025 and 2024.
Twelve Months Ended
December 31,
(in thousands)
GAAP Financial Measurements:
Interest Income - Loans
Interest Income - Securities and Other Interest-Earnings Assets
Interest Expense - Deposits
Interest Expense - Other Borrowings
Total Net Interest Income
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1)
Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1)
Total Tax Benefit on Tax-Exempt Interest Income
Tax-Equivalent Net Interest Income
Tax benefit was calculated using the federal statutory tax rate of 21%.
Net Interest Income
Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is primarily impacted by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates.
The year-over-year improvements in net interest income, tax-equivalent net interest income, net interest spread, and net interest margin primarily reflect the impact of the balance sheet repositioning strategy, pursuant to which the Company raised capital, increased cash on hand and replaced lower-yielding investment securities with higher yielding securities. Declining average rates paid on interest-bearing deposits and maturities of FHLB advances also contributed to the increase in net interest income, which was partially offset the amount of interest paid also increased due to higher average balance levels of time deposits during the 2025 period.
Net interest income was $62.6 million for 2025 and $51.2 million for 2024, which represents an increase of $11.4 million or 22.23%. Tax-equivalent net interest income was $62.7 million and $51.3 million for the twelve months ended December 31, 2025 and 2024, respectively.
The net interest margin was 3.40% for 2025 and 3.00% for 2024. The net interest margin is calculated by dividing tax-equivalent net interest income by total average earnings assets. Ongoing margin pressures include deposit pricing, the Bank's strategy of originating mortgage loans for sale, and an increase in nonaccrual assets.
The net interest spread for the twelve months ended December 31, 2025 was 2.48%, an increase of 31 basis points compared to 2.17% for the twelve months ended December 31, 2024. The 31 basis point increase was due to improvements of three basis points and 28 basis points in the tax-equivalent yield on earning assets and the average rate paid on interest-bearing liabilities, respectively.
Total average balance of securities decreased by $18.0 million during 2025 from the average balances in the prior year period primarily due to routine paydowns and maturities in the portfolio. The average yield on securities increased 139 basis points during 2025 reflecting the sale of lower-yielding securities and reinvestment into higher-yielding securities in the first quarter of 2025.
The total average loan balances decreased by $6.7 million during the year ended December 31, 2025 largely reflecting the sale of a pool of mortgage loans totaling $18.8 million early in the first quarter of 2025 as well as continuing paydowns and payoffs in the marine loan portfolio as the Company is no longer originating new marine business. These
decreases were partially offset by new loan growth in the commercial real estate loan portfolios. The average yield on loans increased by six basis points during 2025.
The average balance of federal funds sold and interest-bearing deposits in other banks increased $155.2 million, or 135.90%, during 2025 compared to 2024, resulting from higher cash levels, which were bolstered by proceeds received from the public stock offering and increased deposit balances during 2025. The average yield earned during 2025 decreased by 83 basis points reflecting the decline in market interest rates experienced during the current year.
Total average interest-bearing deposit balances during 2025 increased by $83.0 million from the prior year, primarily in NOW accounts and time deposits. The average rate paid on interest-bearing deposits decreased 18 basis points during the 2025, reflecting the lower market interest rate environment balanced by pricing strategies.
The average balance of FHLB advances decreased $87.8 million, or 60.38%, during the year ended December 31, 2025 due to maturing advances that were not replaced with new borrowings. The average rate paid on FHLB advances increased 16 basis points during the 2025.
Volume and Rate Analysis (Tax-Equivalent Basis)
Interest income and expense are affected by fluctuation in interest rates, by changes in the volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each.
The foll owing table provides information about changes in rate and volume (dollars in thousands):
Increase (Decrease)
Due to Changes in:
Volume
Rate
Total
Earning Assets:
Securities:
Taxable
Tax-exempt
Loans:
Taxable
Tax-exempt
Federal funds sold and interest-bearing deposits in other banks
Total earning assets
Interest-Bearing Liabilities:
NOW accounts
Money market accounts
Savings accounts
Time deposits:
$250,000 and more
Less than $250,000
Total interest-bearing deposits
Federal Home Loan Bank advances
Total interest-bearing liabilities
Change in net interest income
Provision for Credit Losses
The provision for credit losses results from management's review of the adequacy of the allowance for credit losses. The allowance for credit losses is management’s estimate, at the reporting date, of expected lifetime credit losses and includes consideration of current forecasted economic conditions. Estimating the amount required to maintain an adequate allowance
for credit losses involves a high degree of judgment.as discussed within the Critical Accounting Policies section above and Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data.
The following table presents the provision for credit losses:
Twelve Months Ended
December 31,
(dollars in thousands)
$ Change
% Change
Provision for credit losses on loans
Provison for credit losses on unfunded commitments
Provison for credit losses
The provision for credit losses for the years ended December 31, 2025 and 2024 included the impact of net losses and specific reserve allocations on individually evaluated nonaccrual loans and reflected management's estimate of forecasted economic conditions and changes in loan balances.
Net charge-offs were $3.6 million and $2.0 million during 2025 and 2024, respectively. Net charge-offs for 2025 were primarily within the commercial real estate and marine loan portfolios and consisted of six relationships totaling $3.3 million. The provision for credit losses in 2024 resulted largely from a $1.9 million provision against the marine portfolio due to charge-offs against six marine loans totaling $1.8 million.
Specific reserve allocations were $467 thousand and $248 thousand at December 31, 2025 and 2024, respectively. The majority of the specific reserve at December 31, 2025 reflects three commercial loan relationships with loan balances totaling $880 thousand. The specific reserve allocation in 2024 represented two commercial loan relationships with loan balances totaling $908 thousand.
The Company is committed to maintaining an allowance that it believes will adequately absorb the current expected losses in the loan portfolio. This commitment is more fully discussed in the “Asset Quality” section.
Noninterest Income
Total noninterest income was $6.9 million and $21.6 million during 2025 and 2024, respectively. This represents a decrease of $14.7 million or 68.07% for 2025. Management reviews the activities which generate noninterest income on an ongoing basis.
The following table provides the components of noninterest income for the twelve months ended December 31, 2025 and 2024, which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.
December 31,
(dollars in thousands)
$ Change
% Change
Wealth management fees
Service charges on deposit accounts
Other service charges and fees
(Loss) gain on the sale and disposal of bank premises and equipment
(Loss) on sale of securities
Gain on sale of loans
Small business investment company income
Bank owned life insurance income
Other operating income
Total noninterest income
NM - Not Meaningful
Wealth management fees increased in 2025 compared to 2024. Wealth management fee income is primarily comprised of income from fiduciary activities and commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management. Income from investment sales increased due to the continued attractiveness of brokerage and advisory investments products. Wealth
management revenue also includes transaction-based revenues that are not primarily derived from the value of assets. Transaction-based revenues related to estates and other services have also contributed to the year over year increase in revenue. These include estate settlement fees which increased primarily due to two large trusts that were settled.
Services charges on deposit accounts increased when comparing the year ended December 31, 2025 to 2024. This increase is mainly due to growth in the number of accounts as well as higher levels of overdraft charges.
Gain on the sale and disposal of bank premises and equipment decreased during the year ended December 31, 2025 due to sale of the Company's operating center and branch building in a sales-leaseback transaction during the fourth quarter of 2024, which resulted in a realized gain of $3.9 million. There was no similar transaction during the year ended December 31, 2025.
The Company executed balance sheet repositioning transactions within its investment securities portfolio during March 2025. The sale of $99.2 million of available for sale debt securities, with a fair value of $86.8 million, resulted in a pre-tax loss of $12.4 million during the twelve months ended December 31, 2025. Management utilized the proceeds from the public offering capital raise completed in February 2025 to enable the balance sheet repositioning.
During 2025, the Company sold $89.7 million in mortgage loans on the secondary market and $21.8 million in Small Business Association ("SBA") loans. During 2024, the Company sold $59.0 million in mortgage loans on the secondary market and $14.3 million in SBA loans. These loan sales resulted in gains of $3.4 million and $2.1 million during the years ended December 31, 2025 and 2024, respectively.
Income from holdings in small business investment companies decreased during 2025 compared to 2024. The decrease during the current year period is mainly attributed to lower cash distributions received, based on the results of their performance and timing of distributions.
Bank owned life insurance ("BOLI") fee income totaled $1.1 million for the year ended December 31, 2025 compared to $2.0 million for the year ended December 31, 2024. The decrease was primarily due to death benefit settlement gains of $907 thousand received during the year ended December 31, 2024.
Other operating income increased primarily as a result of an increase in loan swap fee income recognized on agreements with initial notional balances totaling $21.6 million and $4.1 million during the years ended December 31, 2025 and 2024 respectively. The agreements resulted in a gain of $271 thousand during 2025 compared to $27 thousand in 2024.
Noninterest Expenses
Total noninterest expenses were $55.9 million and $51.3 million during 2025 and 2024, respectively. This represents an increase of $4.5 million or 8.84% during 2025.
The following table provides the components of noninterest expense for the twelve months ended December 31, 2025 and 2024, which are included within the respective Consolidated Statements of Income headings. The following paragraphs provide information about activities which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.
December 31,
(dollars in thousands)
$ Change
% Change
Salaries and employee benefits
Occupancy expenses
Equipment expenses
Advertising and marketing expenses
Stationery and supplies
ATM network fees
Other real estate owned expense
Loss on other real estate owned
Loss on sale of repossessed assets
FDIC assessment
Computer software expense
Bank franchise tax
Professional fees
Data processing fees
Loan servicing expense
Other operating expenses
Total noninterest expenses
NM - Not Meaningful
Salaries and employee benefits expense increased during 2025 reflecting increases in salaries, commission, stock-based compensation expenses, and annual incentive plan expenses. The Company's number of full-time equivalent employees (FTEs) increased from 231 at December 31, 2024 to 254 at December 31, 2025. Stock based compensation expense increased due to a higher grant price in the twelve months ended December 31, 2025, compared to the twelve months ended December 31, 2024. Partially offsetting these increases was a net reduction in employee medical costs due to lower claimsdeficit expenses during the twelve months ended December 31, 2025.
Occupancy expenses increased during 2025 largely due to the impact of the sales-leaseback transaction of the Company's operating center and branch building in December 2024. Rental expense, net of building depreciation increased $498 thousand during 2025 compared to 2024. The increase in rental expense also reflects a new long-term lease executed during the first quarter of 2025 as the Company moved its standalone loan production office and established a full-service branch in McLean, Virginia.
Advertising and marketing expenses decreased during 2025. This reflects fewer advertising campaigns and a marketing bonus credit related to the Bank's credit card provider relationship.
ATM network fees decreased during 2025 due, in part, to a contract renegotiation which lowered per unit transaction fees as well as lower costs associated with fewer plastic cards purchased.
FDIC assessment expense, which is based in part on asset size and capital levels, decreased in 2025 compared to 2024. The decrease reflects an improvement in the financial ratios primarily due to the capital raise completed in early 2025. An improved loan mix index, partially offset by an increase in nonperforming loans also contributed to the decreased assessment rate during 2025.
Computer software expense increased during 2025 compared to 2024 due to the Company's continued investment in technology to enhance systems security and drive operational efficiencies. Additionally, approximately $200 thousand of the increase was due to existing loan software expenses, which were recorded to other operating expenses in the prior year.
Bank franchise tax which is based on asset and capital levels, increased during 2025 compared to 2024 reflecting growth of the Company's capital.
Professional fees increased during 2025 primarily due to higher legal fees as a result of increased problem loan workouts and activity as well as increased internal audit services, testing, and annual loan review costs.
Data processing fees decreased reflecting core provider pricing discounts and credits recognized during 2025.
Other operating expenses increased during 2025. The largest drivers of the increase were loan collection costs, higher contributions towards charitable activities, debit card usage incentive rewards, and greater travel costs related to investor relations activities. These increases were partially offset by the reclassification of loan software expenses as described above in computer software expenses.
Efficiency Ratio
The efficiency ratio of the Company was 67.67% and 75.08% for 2025 and 2024, respectively. The improvement in the efficiency ratio during 2025 reflects an increase in net interest and noninterest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing total noninterest expenses by the sum of tax-equivalent net interest income and total noninterest income. The Company adjusts for non-recurring items such as gains and losses on investment portfolio sales and other gains/losses from OREO, repossessed assets, sale or disposals of bank assets, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.
The calculation of the efficiency ratio for the twelve months ended December 31, 2025 and 2024 was as follows:
December 31,
(in thousands)
Summary of Operating Results:
Noninterest expenses (GAAP)
Less: Loss on other real estate owned and repossessed assets
Adjusted noninterest expenses (non-GAAP)
Net interest income
Noninterest income (GAAP)
Less: (Loss) on sales of securities
Less: (Loss) Gain on the sale and disposal of premises and equipment
Less: Life insurance proceeds
Adjusted noninterest income (non-GAAP)
Tax equivalent adjustment (1)
Total net interest income and noninterest income, adjusted (non-GAAP)
Efficiency ratio
(1) Includes tax-equivalent adjustments on loans and securities using the federal statutory tax rate of 21%.
Income Taxes
The following table presents the Company's income tax provision and applicable tax rates for the periods indicated:
Twelve Months Ended
December 31,
(dollars in thousands)
Income tax expense
Effective income tax rate
Income tax expense was $1.7 million and $3.6 million for the years ended December 31, 2025 and 2024, respectively. These amounts correspond to an effective tax rate of 17.24% and 18.82% for 2025 and 2024, respectively. Total income tax expense is comprised of federal and state income taxes of $1.6 million and $100 thousand, respectively, for the year ended December 31, 2025 and $3.4 million and $134 thousand, respectively, for the year ended December 31, 2024.
The effective tax rate is below the statutory rate of 21%, due primarily to the recognition of tax-exempt life insurance income, which also included death benefit proceeds during 2024. The effective tax rate is also impacted by
tax-exempt income on investment securities and loans, qualified rehabilitation credits and tax credits on qualified affordable housing project investments. Note 9 to the Consolidated Financial Statements provides a reconciliation between income tax expense computed using the federal statutory income tax rate and the Company’s actual income tax expense during 2025 and 2024 and Note 25 further discusses qualified affordable housing project investments.
As previously discussed in the "Non-GAAP Financial Measures" section above, both 2025 and 2024 had large out of the ordinary transactions due to balance sheet repositioning events that affected taxable income. Due to lower taxable income in 2025, resulting from realized losses on the sale of securities, the strategies employed by the Company to reduce its effective tax rate had a greater impact. Conversely, higher taxable income in 2024 due to the realized gain on the sale of the Company's operating center and branch building, lessened the impact of the Company's effective tax rate strategies.
Business Segments
The Company has three reportable operating segments: community banking, marine lending and wealth management. See Note 27 to the Consolidated Financial Statements.
The following table presents a summarized statement of income for the community banking business segment for the twelve months ended December 31, 2025 and 2024.
December 31,
(dollars in thousands)
$ Change
% Change
Net Interest Income
Gain on sales of loans
(Loss) on the sale of securities
Other noninterest income
Net Revenue
Provision for credit losses
Noninterest expense
Income before taxes
Income tax expense
Net Income
Net interest income increased during the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to income earned on: i) non-marine loans; ii) the investment securities portfolio, which was restructured in the first quarter of 2025 to sell and replace lower yielding investments with higher yielding securities; iii) higher levels of earning deposit balances in other other banks; and iv) reduction in borrowings expense as FHLB advances have matured and were not replaced. These increases were partially offset by an increase in interest-bearing deposit expense due to growth in average balances. Higher levels of interest-earning deposits balances in other banks reflects proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025, as well as increases in customer deposit balances.
Gain on sales of loans increased during 2025 compared to 2024 largely reflecting increases in sales of mortgage loans originated for sale and SBA loans. See further discussion of gain on sales of loans under the caption "Noninterest Income" above.
Loss on the sale of securities resulted from the Company's execution of balance sheet repositioning transactions within its investment securities portfolio in March 2025. Available for sale debt securities totaling $99.2 million, with a fair value of $86.8 million, were sold resulting in a pre-tax loss of $12.4 million.
Other noninterest income for the twelve months ended December 31, 2025 decreased compared to the same period in 2024 primarily reflecting the sale of the Company's operating center and branch building in a sales-leaseback transaction, resulting in a realized gain of $3.9 million during 2024.
Provision for credit losses increased during 2025 largely reflecting the increase in net charge-offs within the commercial real estate loan portfolio. See further discussion under the caption "Provision" above.
Noninterest expense increased during 2025 primarily due to salaries and employee benefits. See further discussion under the caption "Noninterest Expenses" above.
Income tax expense decreased by $2.0 million from 2024 primarily due to the impact of securities sale loss recognized in 2025.
The following table presents a summarized statement of income for the marine lending segment for the twelve months ended December 31, 2025 and 2024.
December 31,
(dollars in thousands)
$ Change
% Change
Net Interest Income
Net Revenue
Provision for credit losses
Noninterest expense
Income before taxes
Income tax expense
Net Income
NM - Not Meaningful
Marine lending net revenues declined for the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024 due to pay downs in the portfolio, which are not being replaced with new loan originations. The marine loan portfolio balance totaled $175.6 million at December 31, 2025 compared to $210.1 million at December 31, 2024.
Provision for credit losses for marine lending decreased due to the declining loan balances, which mostly offset the impact of net charge-offs recorded during 2025. Net charge-offs declined by $1.2 million, or 67.38%, from 2024 levels.
Noninterest expenses were down from 2024 due to decreases in loan servicing and collection expenses, which comprise the majority of total noninterest expenses for marine lending.
The following table presents a summarized statement of income for the wealth management business segment for the twelve months ended December 31, 2025 and 2024.
December 31,
(dollars in thousands)
$ Change
% Change
Net Interest Income
Other noninterest income
Net Revenue
Noninterest expense
Income before taxes
Income tax expense
Net Income
Wealth Management's net revenues increased $2.0 million, or 35.63%, for the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024, reflecting increases in both trust services and investment sales income. See further discussion of wealth management revenues under the caption "Noninterest Income" above.
Noninterest expense increased during 2025 primarily reflecting increases in salaries, commissions and annual incentive plan expenses.
FINANCIAL CONDITION
Select financial condition data is presented in the following table:
December 31,
(dollars in thousands)
$ Change
% Change
Securities available for sale
Loans
Allowance for credit losses
Total assets
Total deposits
FHLB advances
Total shareholders' equity
Two significant events impacting the Company's financial condition occurred during the first quarter of 2025. On February 13, 2025, the Company completed an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. The net proceeds from the offering were $53.5 million. During March 2025, the Company executed balance sheet repositioning transactions within its investment securities portfolio. The execution of these events was to support continued organic growth and capital generation. These are further described in their corresponding paragraphs below.
Securities
The carrying amounts of the Company's available for sale securities are as follows:
December 31,
(dollars in thousands)
Amount
Percent
Amount
Percent
Securities available for sale:
Obligations of U.S. government corporations and agencies
U.S. Treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Obligations of states and political subdivisions
Subordinated debt
Total securities available for sale decreased by $1.8 million, or 1.47%, during 2025. The Company purchased $102.7 million of securities during the twelve months ended December 31, 2025 , which includes $66.0 million as part of the balance sheet repositioning transactions in the first quarter of 2025. The Company had total maturities, calls, and principal repayments of $22.7 million and sales of $99.2 million during the twelve months ended December 31, 2025.
Net unrealized loss on available for sale securities was $6.7 million at December 31, 2025 as compared to a net unrealized loss of $23.6 million at December 31, 2024. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).
During March 2025, balance sheet repositioning transactions were comprised of sales of available for sale debt securities with an amortized cost balance of $99.2 million (fair value of $86.8 million) and a weighted average yield of 1.72%, with proceeds reinvested into purchases of $66.0 million of available for sale debt securities with a weighted average yield of 4.72%. The total sales of $99.2 million represented 68.48% of December 31, 2024 securities balance. The majority of these repositioning sales and purchases consisted of mortgage-backed securities. The sale of debt securities resulted in a net pre-tax realized loss of $12.4 million (after-tax of $9.8 million) that was recognized in the first quarter of 2025. In addition to the repositioning transactions, the Company purchased U.S. Treasury notes totaling $9.9 million prior to the repositioning to maintain pledging levels throughout the repositioning period and has also made subsequent purchases.
The primary cause of the unrealized losses at December 31, 2025 and December 31, 2024 was changes in market interest rates, rather than other market conditions or credit concerns of the issuers over the time between purchase and measurement periods. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.
The table titled “Maturity Distribution and Yields of Securities” shows the maturity period and average yield for the different types of securities in the portfolio at December 31, 2025. The weighted average is calculated based on the relative amortized costs of the securities. Although mortgage-backed securities have definitive maturities, they provide monthly principal curtailments which can be reinvested at a prevailing rate and for a different term.
Maturity Distribution and Yields of Securities
December 31, 2025
Due in one year
or less
Due after 1
through 5 years
Due after 5
through 10 years
Due after 10 years
Total
Securities available for sale:
Obligations of U.S. government corporations and agencies
U.S. treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Subordinated debt
Total taxable
Total
Yields on tax-exempt securities have been computed on a tax-equivalent basis using a federal tax rate of 21%.
Loan Portfolio
The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Details of the Company's loan portfolio are presented below:
December 31, 2025
December 31, 2024
(dollars in thousands)
Amount
Percent to Total Loans
Amount
Percent to Total Loans
Mortgage real estate loans:
HELOCs
Residential First Lien - Investor
Residential First Lien - Owner Occupied
Residential Junior Liens
Total residential real estate loans
Commercial - Owner Occupied
Commercial - Non-Owner Occupied & Multifamily
Total commercial real estate loans
Construction & Secured by Farmland
Total mortgage real estate loans
Commercial and industrial loans
Marine loans
Consumer loans
Other loans
Total loans
Net deferred loan costs and premiums
Gross loans
Gross loans increased $6.0 million, or 0.41%, and totaled $1.47 billion at December 31, 2025 and 2024. The ratio of gross loans to deposits decreased during the year from 93.14% to 91.65% at December 31, 2024 and December 31, 2025, respectively.
The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. The modest increase in gross loans reflects new loan originations outpacing reductions due to loan sales, paydowns, and significant payoffs of commercial and industrial loans related to the sales of two customers' businesses.
Total residential real estate loans decreased by $6.3 million, or 1.75%, during the year ended December 31, 2025 primarily due to the sale of $18.8 million of portfolio mortgage loans in early 2025, ahead of the Company's public stock offering, in order to bolster on-balance sheet liquidity.
Total commercial real estate loans increased by $57.9 million, or 9.04%, since December 31, 2024, reflecting strong origination growth in both owner and non-owner occupied portfolios. This growth included a large construction loan that converted to permanent financing.
Marine loans are declining due to normal paydowns and payoffs only as the Company is no longer accepting new marine business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid.
The table titled “Maturity Schedule of Selected Loans” shows the various loan categories and the period during which they mature. For loans maturing in more than one year, the table also shows a breakdown between fixed rate loans and floating rate loans. The table indicates that $764.6 million or 52.11% of the loan portfolio matures within five years. The floating rate loans maturing after five years are primarily comprised of loans secured by 1-4 family residential properties.
Maturity Schedule of Selected Loans
(dollars in thousands)
December 31, 2025
Within
1 Year
After
1 Year
Within
5 Years
After 5 Years Within 15 years
After 15 Years
Total
Loans secured by real estate:
Construction & Farmland
Secured by 1-4 family residential properties
Commercial & Multifamily
Commercial and industrial loans
Marine
Consumer installment loans
All other loans
For maturities over one year:
Floating rate loans
Fixed rate loans
Asset Quality
The Company has policies and procedures designed to control credit risk and to maintain the quality of its loan portfolio. These include underwriting standards for new originations and ongoing monitoring and reporting of asset quality and adequacy of the allowance for credit losses. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk on a quarterly basis.
The following table presents credit risk ratings as of December 31, 2025 and 2024:
December 31, 2025
December 31, 2024
(dollars in thousands)
Amount
Percent to Total Loans
Amount
Percent to Total Loans
Risk categories
Pass
Special Mention
Classified
Total loans
Loans risk rated as special mention, which exhibit negative trends and potential weaknesses include loans with stale financial information. Of the total special mention loans, $35.7 million had stale financial information at December 31, 2025 compared to $45.0 million at December 31, 2024. Upon receipt of current financial information, the loans will be evaluated and returned to a pass classification if appropriate.
Loans risk rated as classified, include substandard, doubtful, and loss loans. Classified loans increased primarily due to three large relationships being placed on nonaccrual status during 2025 that totaled $9.6 million at December 31, 2025. The first relationship had an outstanding balance of $2.2 million as of December 31, 2025 and was a partially owner-occupied property whose owner passed away unexpectedly causing the business to halt. The second relationship is comprised of three residential multifamily income of producing properties in Washington D.C. (the District) with a combined exposure of $5.3 million at December 31, 2025. The Bank has been granted receivership of these properties and is actively working with the receiver to update the properties and ready them for sale while continuing to collect the housing payments directly from the District. The third relationship had an outstanding balance of $2.1 million at December 31, 2025. The Bank's portion is part of a larger syndicated loan, with the Bank’s portion being 0.31% of the total loan commitment. The borrower is currently under a forbearance agreement, for financial covenant violations and past due payments. The borrower's new management team along with the lead bank continue to work on a restructuring of the business.
Classified loans also include other potential problem loans, defined as performing loans that possess certain risks that management has identified that could result in the loans not being repaid in accordance with their terms. Accordingly, these loans are risk rated at a level of substandard or lower. At December 31, 2025, other potential problem loans totaled $1.6 million.
All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity.
Total past due loans were $16.9 million at December 31, 2025, an increase of $12.4 million, compared to $4.5 million at December 31, 2024. The $12.4 million increase in past due loans primarily reflects a $12.7 million increase in loans 90 or more days past due, partially offset by a $292 thousand decrease in loans 30-89 days past due. Loans 90 or more days past due were concentrated in the commercial real estate loan portfolios and reflected the increase in nonaccrual loans.
Nonperforming and Other Assets
Nonperforming assets consist of nonaccrual loans, loans past due 90 days and accruing interest, other real estate owned (foreclosed properties), and repossessed assets.
Loans are placed on non-accrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses that require additional provisions for credit losses to be charged against earnings.
For real estate loans, upon foreclosure, the properties are recorded at the fair value of the property based on current appraisals and other current market trends, less selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off against the allowance for credit losses on loans. A review of the recorded property value is performed in conjunction with normal loan reviews, and if market conditions indicate that the recorded value exceeds the fair value, additional write downs of the property value are charged directly to operations. Gains on properties acquired through foreclosure where the fair value less costs to sell exceeds the related loan balance and there have been no prior charge-offs are recorded to current earnings. Loans secured by other assets, such as marine vessels, are recorded in a similar manner when a repossession occurs.
In addition, the Company may, under certain circumstances, modify loans. Modifications made to a loan are considered when a borrower is experiencing financial difficulty and the modification constitutes a concession to the borrower that is not in line with market rates and/or terms. Modified terms are dependent upon the financial position and needs of the individual borrower. Generally, the modifications granted are extensions of terms, deferrals of payments for an extended period or interest rate reductions. There were three commercial real estate loan modifications to one borrower experiencing financial difficulty totaling $5.3 million during the year ended December 31, 2025. These residential multifamily income producing properties are under a receivership agreement and are expected to be ready for sale during 2026. No loans were modified during 2024.
Nonperforming assets and related ratios are detailed in the table below:
December 31,
Nonaccrual loans
Loans past due 90 days and accruing interest
Other real estate owned and repossessed assets
Total nonperforming assets
Allowance for credit losses on loans
Gross loans
Allowance for credit losses on loans to nonperforming assets
Allowance for credit losses on loans to total loans
Allowance for credit losses on loans to nonaccrual loans
Nonaccrual loans to total loans
Non-performing assets to period end loans, other real estate owned and repossessed assets
There were $14.6 million in total non-performing assets at December 31, 2025. This increase of $12.0 million when compared to the December 31, 2024 balance of $2.6 million resulted mostly from the increase in nonaccrual loans.
Nonaccrual loans were $14.4 million at December 31, 2025 and $2.1 million at the end of 2024. The gross amount of interest income that would have been recognized on nonaccrual loans was $672 thousand for 2025 and $81 thousand for 2024. None of this interest income was included in net income for 2025 or 2024.
Included in the nonaccrual balance at December 31, 2025 were 20 loans totaling $14.1 million which were placed on nonaccrual during 2025, including three large relationships which made up $9.6 million of the nonaccrual balance at December 31, 2025 and were discussed above. Four additional commercial relationships totaling $2.7 million were added to nonaccrual status during 2025 reflecting their delinquent payment status and required an allowance for credit losses of $467 thousand based on management's evaluation of the underlying collateral values. In addition, of the $2.1 million nonaccrual balance at December 31, 2024, payoffs totaling $1.6 million were received, $89 thousand was charged off, and three loans totaling $316 thousand remained on nonaccrual status at December 31, 2025.
Management evaluates the financial condition of borrowers in nonaccrual status and the value of any collateral on these loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans. Nonaccrual loans that were individually evaluated for impairment at December 31, 2025 totaled $14.4 million, of which $2.7 million required a specific allocation of $467 thousand to be assigned.
Other real estate owned and repossessed assets decreased from $514 thousand at December 31, 2024 to $135 thousand at December 31, 2025, consisting of repossessed assets. Four marine vessels were repossessed during 2025 and placed into repossessed assets. Sales of repossessed assets during 2025 included three marine vessel repossessed in 2024 and three of the four marine vessels repossessed during 2025. A net loss of $302 thousand and $204 thousand was recognized on the sale of repossessed assets for the twelve months ended December 31, 2025 and 2024, respectively.
There was one real estate property that foreclosed and sold during 2025, compared to no transactions during 2024. The difference between the amount of other real estate owned and the settlement proceeds is recognized as a gain or loss on the sale of other real estate owned. A net loss of $51 thousand was recognized on the sale of other real estate owned during the twelve months ended December 31, 2025.
Allowance for Credit Losses on Loans
The purpose of and the methods for measuring the allowance for credit losses on loans is discussed in the Critical Accounting Policies section above as well as in Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, of the this Form 10-K.
The following table presents the activity in the allowance for credit losses on loans and related ratios for the periods indicated:
Twelve Months Ended
December 31,
(dollars in thousands)
Balance at beginning of period
Charge-Offs
Construction & secured by farmland
Residential real estate
Commercial real estate
Commercial
Marine
Consumer
Other
Total charge-off's
Recoveries
Construction & secured by farmland
Residential real estate
Commercial real estate
Commercial
Marine
Consumer
Other
Total recoveries
Net charge-off's
Provision for credit losses on loans
Balance at end of period
Net charge-off's to average loans
Allowance for credit losses on loans as a percentage of gross loans
Charged-off loans were $4.1 million and $2.8 million for 2025 and 2024, respectively. Recoveries were $559 thousand and $853 thousand for 2025 and 2024, respectively. Net charge-offs were $3.6 million for 2025 and $2.0 million for 2024. The year over year increase in net charge-offs was primarily due to one relationship in the commercial real estate loan portfolio.
A non-owner occupied commercial real estate loan relationship consisting of four residential multifamily income producing properties had a current combined exposure of approximately $5.4 million at December 31, 2025. The largest of the four properties had a corresponding loan balance of $5.9 million at June 30, 2025. This property was offered for sale on July 8, 2025, for $5.7 million with the Bank agreeing to a short sale of $4.8 million, thereby creating a deficiency balance of $1.1 million after consideration of past due taxes and other costs. Due to the unlikelihood of repayment and limited remaining collateral value, the deficiency balance was charge-off in the third quarter of 2025. Combined with write-downs on the other remaining properties, a total of $2.3 million was charged off during 2025 related to this relationship.
Four marine loan relationships had charge-off totaling $580 thousand during 2025 compared to $1.8 million during 2024, which represented six marine relationships. Marine net charge-offs as a percentage to average marine loans outstanding was 0.29% and 0.74%, respectively.
The allowance for credit losses as a percentage of loans was 1.04% and 1.02% at the end of 2025 and 2024, respectively. The increase in the allowance percentage year over year was mostly attributable to the increase in net
charge-offs and growth in the portfolio, partially offset by a reduction in the specific reserve. Additionally, the impact of the change in mix of the loan pool balances and associated reserve factors has tempered the level of allowance for credit losses related to loan growth. The ratio of net charge-offs to average loans was 0.25% for 2025 and 0.14% for 2024.
The provision for credit losses for the years ended December 31, 2025 and 2024 was $3.7 million and $2.6 million, respectively. The provision for credit losses in 2025 and 2024 reflected the level of net charge-offs and the specific reserve allocation in addition to loan growth in the portfolio.
The table titled “Allocation of Allowance for Credit Losses on Loans” shows the amount of the allowance for credit losses which is allocated to the indicated loan categories, along with that category’s percentage of total loans, at December 31, 2025 and 2024. The amount of allowance for credit losses allocated to each loan category is based on the amount of delinquent loans in that loan category, the status of nonperforming assets in that loan category, the historical losses for that loan category, the evaluation of qualitative factors impacting the portfolio and the financial condition of certain borrowers whose financial conditional is monitored on a periodic basis. Management believes that the allowance for credit losses is adequate to absorb the current expected losses in the loan portfolio.
Analysis of Allowance for Credit Losses
(dollars in thousands)
Years Ended December 31,
Net charge-offs (recoveries)
Average loans outstanding
Net charge-offs (recoveries) to average loans outstanding
Net charge-offs (recoveries)
Average loans outstanding
Net charge-offs (recoveries) to average loans outstanding
Construction and Farmland
Residential Real Estate
Commercial Real Estate
Commercial
Marine
Consumer
All Other Loans
Total
Allocation of Allowance for Credit Losses on Loans
(dollars in thousands)
December 31, 2025
December 31, 2024
Allowance for Credit Losses
Percent of Loans in Category to Total Loans
Allowance for Credit Losses
Percent of Loans in Category to Total Loans
Construction and Farmland
Residential Real Estate
Commercial Real Estate
Commercial
Marine
Consumer
All Other Loans
Total
Deposits
Total deposits were $1.61 billion and $1.58 billion at December 31, 2025 and 2024, respectively. This represents an increase of $32.2 million or 2.04% during 2025. 2025 benefited from a higher level of deposits from non interest bearing accounts received during the second quarter primarily related to sales proceeds of two customers' businesses. These balances had mostly been withdrawn at December 31, 2025.
The following table provides the composition of total deposits at December 31, 2025 and December 31, 2024.
December 31,
(dollars in thousands)
$ Change
% Change
Noninterest bearing demand deposits
NOW accounts
Money market accounts
Regular savings accounts
Time deposits less than $250,000
Time deposits $250,000 and more
Total deposits
Core deposits
Core deposits as a percent of total deposits
Non-core deposits
Non-core deposits as a percent of total deposits
The total increase in deposits was primarily in non-core accounts, which increased $26.8 million while core accounts increased $5.4 million. Core deposits consist of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, excluding wholesale or brokered deposits.
In general, deposit pricing is done in response to monetary policy actions and yield curve changes. Local competition for funds also affects the cost of time deposits. Marketing efforts, including rate specials, are utilized to maintain maturing accounts and to acquire new time deposit accounts. At December 31, 2025, over 87% of deposits were fully FDIC insured.
The table titled “Average Deposits and Rates Paid” shows the average deposit balances and average rates paid for 2025 and 2024.
Average Deposits and Rates Paid
(dollars in thousands)
Years Ended December 31,
Amount
Rate
Amount
Rate
Noninterest-bearing
Interest-bearing:
NOW accounts
Money market accounts
Regular savings accounts
Time deposits:
$250,000 and more
Less than $250,000
Total interest-bearing
Total deposits
The table titled “Maturities of Certificates of Deposit and Other Time Deposits of $250,000 and Greater” shows the amount of certificates of deposit of $250,000 and more maturing within the time periods indicated at December 31, 2025. The total amount maturing within one year is $181.2 million, or 98.35%, of the total amount outstanding.
Maturities of Certificates of Deposit and Other Time Deposits of $250,000 and Greater
(dollars in thousands)
Within
Three
Months
Three
to Six
Months
Six to
Twelve
Months
Over
One
Year
Total
Percent
of Total
Deposits
December 31, 2025
The table titled “Certificates of Deposit and Other Time Deposits Otherwise Uninsured" shows the balances of certificates of deposit that were in excess of the FDIC insurance limit at December 31, 2025. The total amount maturing within one year is $121.7 million, or 98.54%, of the total amount outstanding.
Certificates of Deposit and Other Time Deposits Otherwise Uninsured
(dollars in thousands)
Within
Three
Months
Three
to Six
Months
Six to
Twelve
Months
Over
One
Year
Total
Percent
of Total
Deposits
December 31, 2025
CAPITAL RESOURCES
Total shareholders’ equity on December 31, 2025 was $188.9 million, reflecting a percentage of total assets of 10.00% as compared to $119.0 million and 6.38% at December 31, 2024. The $69.9 million increase in shareholders’ equity was primarily due to net proceeds of $53.5 million received from the completion of an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. An additional increase of $13.4 million is due to a decrease in unrealized losses on the securities available for sale portfolio largely reflecting the impact of the balance sheet repositioning. This increase in shareholders' equity was further enhanced by a net operating income of $8.2 million and partially offset by $6.1 million in dividends declared for the twelve months ended December 31, 2025. During the twelve months ended December 31, 2025 and 2024, the Company paid dividends of $1.24 and $1.21 per share, respectively. The Company has a Dividend Investment Plan that allows shareholders to reinvest dividends in Company stock.
At December 31, 2025, and 2024, the Bank met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well capitalized institutions. The bank monitors these ratios on a quarterly basis and has several strategies, including without limitation the issuance of common stock, to ensure that these ratios remain above regulatory minimum. The bank's capital amounts and ratios are presented using the Federal Reserve's risk-based capital framework.
Federal regulatory risk-based capital guidelines require percentages to be applied to various assets, including off-balance sheet assets, based on their perceived risk in order to calculate risk-weighted assets. Tier 1 capital consists of total shareholders’ equity plus qualifying trust preferred securities outstanding less net unrealized gains and losses on available for sale securities, goodwill and other intangible assets. Total capital is comprised of Tier 1 capital plus the allowable portion of the allowance for credit losses and any excess trust preferred securities that do not qualify as Tier 1 capital.
The risk-based capital rules require the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. In addition, a capital conservation buffer requirement of 2.5% was effective January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with any ratio (excluding the leverage ratio) above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The capital conservation buffer rule requires the Bank to maintain (i) a minimum ratio of common equity Tier 1 to
risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.
The following table summarizes the Bank's regulatory capital and related ratios at December 31, 2025 and December 31, 2024:
Analysis of Bank Capital
(dollars in thousands)
December 31,
Tier 1 Capital:
Common stock
Capital surplus
Retained earnings
Nonmortgage servicing assets
Total Tier 1 capital
Common equity tier 1 capital
Tier 2 Capital:
Allowable portion of allowance for credit losses and reserve for off-balance sheet commitments
Total Tier 2 capital
Total risk-based capital
Risk weighted assets
Capital Ratios:
Common equity Tier 1 capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Tier 1 leverage ratio
Note 15 to the Consolidated Financial Statements provides additional discussion and analysis of regulatory capital requirements.
LIQUIDITY
Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or with the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks, federal funds sold, unpledged securities classified as available for sale, and loans maturing within one year. At December 31, 2025 liquid assets totaled $423.4 million as compared to $335.9 million at December 31, 2024. These amounts represent 24.91% and 19.22% of total liabilities at December 31, 2025 and 2024, respectively. The increase during the year reflects increased cash on hand from Federal Funds Sold as well as an increase in the balance of loans maturing within one year, partially offset by lower levels of deposits with other institutions.
The Company generally attempts to minimize liquidity demand by primarily utilizing core deposits to fund asset growth. Securities provide a constant source of liquidity through paydowns and maturities. Also, the Company maintains
short-term borrowing arrangements, namely federal funds lines of credit, with larger financial institutions as an additional source of liquidity. The Bank’s membership with the Federal Home Loan Bank of Atlanta also provides a source of borrowings with numerous rate and term structures. At December 31, 2025 and 2024, the Company had remaining credit availability in the amounts of $454.1 million and $254.3 million, respectively, with the Federal Home Loan Bank of Atlanta. The Company also had unused lines of credit with financial institutions of $78.0 million at December 31, 2025 and 2024.
The Company pledges available for sale mortgage-backed securities with the Federal Reserve Bank discount window, which while reducing its liquid assets it reinforces its ability to obtain liquidity from the Federal Reserve Bank discount window. At December 31, 2025 the Company had $63.2 million in funds available through the discount window. The Company’s senior management monitors the liquidity position regularly and attempts to maintain a position which utilizes available funds most efficiently.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
Note 18 to the Consolidated Financial Statements provides information about the off-balance sheet arrangements which arise through the lending activities of the Company. These arrangements increase the degree of both credit and interest rate risk beyond that which is recognized through the financial assets and liabilities on the consolidated balance sheets.
Item 7A. Quantitative and Quali tative Disclosures about Market Risk
As the holding company of the Bank, the Company’s primary component of market risk is interest rate volatility. Interest rate fluctuations will impact the amount of interest income and expense the Bank receives or pays on almost all of its assets and liabilities and the market value of its interest-earning assets and interest-bearing liabilities, excluding those which have a very short term until maturity. Interest rate risk exposure of the Company is, therefore, experienced at the Bank level. Asset / liability management attempts to maximize the net interest income of the Company by adjusting the volume and price of rate sensitive assets and liabilities. The Company does not subject itself to foreign currency exchange or commodity price risk due to prohibition through policy and the current nature of operations. Derivative instruments and hedging activities of the Company have historically been minimal.
The Bank’s interest rate management strategy is designed to maximize net interest income and preserve the capital of the Company. The Bank’s financial instruments are periodically subjected to various simulations whose results are discussed in the following paragraphs. These models are based on actual data from the Bank’s financial statements and assumptions about the performance of certain financial instruments. Prepayment assumptions are applied to all mortgage related assets, which includes real estate loans and mortgage-backed securities. Prepayment assumptions are based on a median rate at which principal payments are received on these assets over their contractual term. The rate of principal payback is assumed to increase when rates fall and decrease when rates rise. Term assumptions are applied to non-maturity deposits, which includes demand deposits, NOW accounts, savings accounts, and money market accounts. Demand deposits and NOW accounts are generally assumed to have a term greater than one year since the total amount outstanding does not fluctuate with changes in interest rates. Savings accounts and money market accounts are assumed to be more interest rate sensitive, therefore, a majority of the amount outstanding is assumed to have a term of less than one year.
The simulation analysis evaluates the potential effect of upward and downward changes in market interest rates on future net interest income. The Bank views the immediate shock of rates as a more effective measure of interest rate risk exposure. The analysis assesses the impact on net interest income over a 12 month period after an immediate change or “shock” in rates, of 100 basis points up to 400 basis points. The simulation analysis results are presented in the table below:
Year 1 Net Interest Income Simulation
(dollars in thousands)
Change in
Net Interest Income
Assumed Market Interest Rate Shock
Dollars
Percent Change
The Bank uses simulation analysis to assess earnings at risk and economic value of equity ("EVE") analysis to assess economic value at risk. This analysis method allows management to regularly monitor the direction and magnitude of the Bank’s interest rate risk exposure. The modeling techniques cannot be measured with complete precision. Maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturity deposit sensitivity and loan and deposit pricing are key assumptions used in acquiring this analysis. There is a realm of uncertainty in using these assumptions but the analysis does provide the Bank with the ability to estimate interest rate risk position over time.
The table below examines the EVE. The EVE of the balance sheet is defined as the discounted present value of expected asset cash flows minus the discounted present value of the expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The model indicates a more significant exposure to falling interest rates. These results are driven primarily by the relative change in value of the Bank’s core deposit base as rates rise.
Static EVE Change
(dollars in thousands)
Change in EVE
Assumed Market Interest Rate Shift
Dollars
Percent Change
-400 BP Shock
-300 BP Shock
-200 BP Shock
-100 BP Shock
+100 BP Shock
+200 BP Shock
+300 BP Shock
+400 BP Shock
Ite m 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Eagle Financial Services, Inc.
Berryville, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Eagle Financial Services, Inc. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 16, 2026 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses – Loans Collectively Evaluated for Credit Losses
As further described in Notes 1 and 4 to the financial statements, the allowance for credit losses on loans (“ACLL”) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company’s ACLL related to collectively evaluated loans represented $14.9 million of the total recorded ACLL of $15.3 million as of December 31, 2025. The collectively evaluated ACLL consists of quantitative and qualitative components.
The quantitative component consists of loss estimates derived from the Company’s application of its cohort methodology, which identifies and tracks respective losses generated by specific cohorts (or pools) of loans over their remaining lives. These
estimates consider large amounts of data over an extended period of time and require complex calculations as well as management judgment in the selection of the appropriate inputs.
In addition to the quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. Factors considered by management in developing its qualitative estimates include: changes in lending policies and procedures; changes in international, national, regional and local economic conditions; changes in the nature and volume of the portfolio and terms of loans; changes in the experience, depth, and ability of lending management; changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans; changes in the quality of the Company’s loan review system; changes in the value of underlying collateral for collateral-dependent loans; the existence and effect of any concentrations of credit and changes in the level of such concentrations; and the effect of other external factors (i.e. competition, legal and regulatory requirements, etc.) on the level of credit losses.
Management exercised significant judgment when estimating the ACLL on collectively evaluated loans. We identified the estimation of the collectively evaluated ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.
How We Addressed the Matter in Our Audit
The primary audit procedures we performed to address this critical audit matter included:
Obtaining an understanding, evaluating the design and testing the design and operating effectiveness of the Company’s ACLL internal controls, including management review controls, related to the collectively evaluated ACLL, including the process for selection, implementation and ongoing maintenance of:
The model methodology including identification of loan pools, model validation, monitoring, and the completeness and accuracy of key data inputs and assumptions.
Qualitative factors, including development and review of the data inputs used as the basis for the allocations and management's review and approval of the reasonableness of the assumptions used to develop the qualitative adjustments.
Governance and management review processes.
Substantively testing management’s process for measuring the collectively evaluated ACLL, including:
Testing the completeness and accuracy of the underlying internal data utilized to prepare the calculation.
Evaluating the relevance and reliability of the underlying external data utilized to prepare the calculation.
Testing the mathematical accuracy, including the transfer, aggregation, and processing of data and the application of assumptions, used in the ACLL calculation.
Evaluating the reasonableness of the significant judgements and assumptions utilized within the ACLL calculation.
Developing an independent expectation of relevant qualitative factors, which included consideration of certain alternative assumptions as well as metrics for comparison to the Company’s qualitative ACLL to determine whether this information supported or contradicted the Company’s conclusions.
Performed an analysis of the overall allowance for credit loss ratio compared to a relevant peer group.
/s/ Yount, Hyde & Barbour, P.C.
We have served as the Company's auditor since 2015.
Winchester, Virginia
March 16, 2026
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Eagle Financial Services, Inc.
Berryville, Virginia
Opinion on the Internal Control Over Financial Reporting
We have audited Eagle Financial Services, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively, the “financial statements”) of the Company and our report dated March 16, 2026 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
March 16, 2026
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2025 and 2024
(dollars in thousands, except per share amounts)
December 31, 2025
December 31, 2024
Assets
Cash and due from banks
Interest-bearing deposits with other institutions
Federal funds sold
Total cash and cash equivalents
Securities available for sale, at fair value
Restricted investments
Loans held for sale
Loans
Allowance for credit losses
Net loans
Bank premises and equipment, net
Bank owned life insurance
Other assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest bearing demand deposits
Savings and interest bearing demand deposits
Time deposits
Total deposits
Federal Home Loan Bank advances, short-term
Federal Home Loan Bank advances, long-term
Subordinated debt, net of unamortized issuance costs
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ Equity
Preferred stock, $ 10 par value; 500,000 shares authorized and unissued
Common stock, $ 2.50 par value; authorized 10,000,000 shares; issued and outstanding 2025, 5,374,205 including 68,476 shares of unvested restricted stock; issued and outstanding 2024, 3,549,581 including 64,043 shares of unvested restricted stock
Surplus
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 2025 and 2024
(dollars in thousands, except per share amounts)
Interest and Dividend Income
Interest and fees on loans
Interest and dividends on securities:
Taxable interest income
Interest income exempt from federal income taxes
Dividends
Interest on deposits in banks
Interest on federal funds sold
Total interest and dividend income
Interest Expense
Interest on deposits
Interest on Federal Home Loan Bank advances
Interest on subordinated debt
Total interest expense
Net interest income
Provision For Credit Losses
Net interest income after provision for credit losses
Noninterest Income
Wealth management fees
Service charges on deposit accounts
Other service charges and fees
(Loss) gain on the sale and disposal of bank premises and equipment
(Loss) on sale of securities
Gain on sale of loans
Small business investment company income
Bank owned life insurance income
Other operating income
Total noninterest income
Noninterest Expenses
Salaries and employee benefits
Occupancy expenses
Equipment expenses
Advertising and marketing expenses
Stationery and supplies
ATM network fees
Other real estate owned expense
Loss on other real estate owned
Loss on sale of repossessed assets
FDIC assessment
Computer software expense
Bank franchise tax
Professional fees
Data processing fees
Loan servicing expense
Other operating expenses
Total noninterest expenses
Income before income taxes
Income Tax Expense
Net income
Earnings Per Share
Net income per common share, basic
Net income per common share, diluted
See Notes to Consolidated Financial Statements
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2025 and 2024
(dollars in thousands)
Net income
Other comprehensive income (loss):
Changes in benefit obligations and plan assets for post retirement benefit plans, net of reclassification adjustments, net of deferred income tax of $( 2 ) and $( 2 ) for the years ended December 31, 2025 and 2024, respectively
Unrealized gain (loss) on available for sale securities, net of reclassification adjustments, net of deferred income tax expense (benefit) of $ 3,558 and $( 166 ) for the years ended December 31, 2025 and 2024, respectively
Total other comprehensive income (loss)
Total comprehensive income
See Notes to Consolidated Financial Statements
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2025 and 2024
(dollars in thousands, except per share amounts)
Common
Stock
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
December 31, 2023
Cumulative effect adjustment for adoption of ASU 2023-02
Net income
Other comprehensive (loss)
Restricted stock awards, stock incentive plan ( 29,426 shares)
Stock-based compensation expense
Repurchase and retirement of common stock ( 7,868 shares)
Dividends declared ($ 1.21 per share)
December 31, 2024
Net income
Other comprehensive income
Issuance of common stock, public offering, net ( 1,796,875 shares)
Restricted stock awards, stock incentive plan ( 32,914 shares)
Repurchase and retirement of common stock ( 9,598 shares)
Stock-based compensation expense
Dividends declared ($ 1.24 per share)
December 31, 2025
See Notes to Consolidated Financial Statements
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 2025 and 2024
(dollars in thousands)
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization of other assets
Origination of loans held for sale
Proceeds from sale of loans held for sale
Net (gain) on sales of loans
Provision for credit losses
(Gain) on sale of portfolio loans
Loss on sale of other real estate owned
Loss (gain) on the sale and disposal of premises and equipment
Loss on the sale of repossessed assets
Loss on the sale of securities
Amortization of subordinated debt issuance costs
Stock-based compensation expense
(Accretion) amortization of premiums and discounts on debt securities and loans, net
Bank owned life insurance income
(Gain) on bank-owed life insurance settlement
Deferred tax accrual
Changes in assets and liabilities:
Decrease in other assets
Increase in other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities
Proceeds from maturities, calls, and principal payments of securities available for sale
Proceeds from the sale of securities available for sale
Purchases of securities available for sale
Proceeds from the sale of restricted investments
Purchase of restricted investments
Proceeds from bank-owned life insurance settlement
Proceeds from the sale of bank premises and equipment
Purchases of bank premises and equipment
Proceeds from the sale of other real estate owned
Proceeds from the sale of repossessed assets
Changes in collateral posted with other financial institutions, net
Proceeds from the sale of portfolio loans
Origination of loans, net of prinicpal collected
Funding of capital commitments related to other investments
Net cash (used in) provided by investing activities
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits, money market and savings accounts
Net (decrease) increase in certificates of deposit
Net (decrease) increase in short-term Federal Home Loan Bank advances
(Repayment) of long-term Federal Home Loan Bank advances
Net proceeds from issuance of common stock in public offering
Repurchase and retirement of common stock
Cash dividends paid
Net cash (used in) provided by financing activities
Increase in cash and cash equivalents
Cash and Cash Equivalents
Beginning
Ending
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest
Income taxes
Supplemental Schedule of Noncash Investing and Financing Activities:
Unrealized gain (loss) on securities available for sale
Minimum postretirement liability adjustment
Real estate and repossessed assets acquired in settlement of loans
Lease liabilities arising from right-of-use assets
See Notes to Consolidated Financial Statements
NOTE 1. Nature of Banking Activities and Significant Accounting Policies
Eagle Financial Services, Inc. (the “Company” or “Corporation”) and Bank of Clarke (the “Bank”) make commercial, financial, agricultural, residential and consumer loans to customers in Virginia, Maryland and the Eastern Panhandle of West Virginia. The loan portfolio is well diversified and generally is collateralized by assets of the customers. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrowers. In addition, the Bank of Clarke Wealth Management Division, a division of the Bank, provides both a full-service Trust Department and a separate brokerage area.
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to accepted practices within the banking industry.
Principles of Consolidation
The Company owns 100 % of the Bank. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.
Wealth Management Assets
The Bank of Clarke Wealth Management Division provides both a full-service Trust Department and a separate brokerage area. The Trust Department features a full range of fiduciary expertise, including service as Trustee of personal trusts, service as guardian or conservator by court appointment, fiduciary investment management, estate settlement, and agency for trustees. The brokerage area offers advisory services and a broad selection of investment products, including Individual Retirement Accounts, mutual funds, tax-deferred annuities, 529 college savings plans, life insurance, long term care insurance, brokerage certificates of deposit, among other brokerage services. Securities and other property held by the Bank of Clarke Wealth Management Division in a fiduciary or agency capacity are not assets of the Bank and are not included in the accompanying consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for credit losses on loans.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest bearing deposits. Generally, federal funds are purchased and sold for one-day periods.
Securities
The Company determines the appropriate classification of securities at the time of purchase. Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Debt securities not classified as held to maturity are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Equity securities with readily determinable fair values are carried at fair value, with changes in fair value reported in income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
Purchase premiums are recognized in interest income using the effective interest rate method over the period from purchase to maturity or, for callable securities, the earliest call date, and purchase discounts are recognized in the same manner from purchase to maturity.
The Bank is required to maintain an investment in the capital stock of certain correspondent banks. No readily available market exists for this stock and it has no quoted market value. The investment in these securities is recorded at cost and they are reported on the Company’s consolidated balance sheet as restricted investments.
Allowance for Credit Losses on Securities
For available for sale debt securities in an unrealized loss position, management first assesses whether the Company intends to sell, or if it is likely that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through a provision for credit losses charge to earnings. For debt securities available for sale that do not meet either of these criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers both quantitative and qualitative factors,
A substantial portion of the available for sale debt securities held by the Company are obligations issued by U.S. government agency and U.S. government-sponsored enterprises, including mortgage-backed securities. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies and have a long history of no credit losses. For these securities, management takes into consideration the long history of no credit losses and other factors to assess the risk of nonpayment even if the U.S. government were to default. As such, the Company utilized a zero credit loss estimate for these securities.
For available for sale debt securities that are not guaranteed by U.S. government agencies and U.S. government-sponsored enterprises, management utilizes a third-party credit modeling tool based on observable market data, which assists management in identifying any potential credit risk associated with these available for sale debt securities. Qualitative factors are also considered, including the extent to which fair value is less than amortized cost, changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If a credit loss exists, an allowance for credit losses is recorded that reflects the amount of the impairment related to credit losses, limited by the amount by which the security's amortized cost basis exceeds its fair value.
Changes in the allowance for credit losses are recorded in net income in the period of change and are included in provision for credit losses. Changes in the fair value of debt securities available for sale not resulting from credit losses are recorded in other comprehensive income (loss).
Loans Held for Sale
Mortgage loans originated with the intent to sell in the secondary market are classified as loans held for sale and carried at the lower of cost or fair value as determined by commitments from investors. Mortgage loans that are sold in the secondary market are sold servicing released. The Company may also classify other loans as loans held for sale as part of its ongoing portfolio management strategies. Such other loans are generally not originated with the intent to sell. Once a decision is made to sell loans not previously classified as held for sale, such loans are transferred into the held-for-sale classification and carried at the lower of cost or fair value. In 2025, the Company sold non-mortgage loans totaling $ 21.8 million and mortgage loans totaling $ 18.8 million a s part of its portfolio management strategies that were previously classified as held for investment. Gains and losses on sales of loans are recorded based on the differential between the sales proceeds and carrying value of the underlying loans.
Loan Servicing Rights
Loan servicing rights are separate from the underlying loan and may be retained or sold by the Company when the related loan is sold. In connection with sale of certain loans, the Company has recognized assets for retained loan servicing rights. Capitalized loan servicing rights represent the economic benefits associated with contracts to service loans under which the benefits of servicing are expected to more than adequately compensate the Company for performing the servicing. Assets for retained loan servicing rights are initially recognized as a component of the gain recognized on the sale of the underlying loan(s) and are recorded at fair value on the consolidated balance sheets. Loan servicing rights are subsequently accounted for using the amortization method. The amortization method requires the servicing assets to be amortized in proportion to and over the period of estimated net servicing income. Additionally, the recorded balances are evaluated for impairment each reporting period and are reported at the lower of amortized cost or fair value. Assets for loan servicing rights are recorded in other assets in the consolidated balance sheets. Servicing fee income, net of amortization and impairment, if any, is reported in other service charges and fees in the consolidated statements of income.
Loans Held for Investment
The Company makes mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout the Counties of Clarke, Frederick, Loudoun and Fairfax, Virginia as well as the Towns of Leesburg and Purcellville and the Cities of Winchester and Frederick, Maryland. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in these areas.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the charge-offs, unearned discounts, any deferred fees or costs on originated loans, and the allowance for credit losses. The Company has elected to exclude accrued interest receivable from the amortized cost basis. Accrued interest totaled $ 4.6 million and $ 4.8 million at December 31, 2025 and 2024, and is included in the other assets line item in the Consolidated Balance Sheets.
Interest income is accrued on the unpaid principal balance. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. Deferred fees and costs are recorded as an adjustment to interest income using a method that approximates a constant yield.
A loan’s past due status is based on the contractual due date of the most delinquent payment due. Loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Any accrued interest receivable on loans placed on nonaccrual status is reversed by an adjustment to interest income. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on nonaccrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed. These policies are applied consistently across our loan portfolio.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. All payments, including any interest collected, on these loans are accounted for on the cash-basis or cost-recovery method and applied to principal, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
In the ordinary course of business, the Company has entered into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the Consolidated Balance Sheets when they are funded.
Troubled Loan Modifications
A loan that has been modified is considered a troubled loan modification when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows. If both of these criteria are met, then the modification is considered a troubled loan modification and subject to enhanced disclosure requirements. Troubled loan modifications include principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension (or a combination thereof). Modified terms are dependent upon the financial position and needs of the individual borrower. Generally, the modifications granted are extensions of terms, deferrals of payments for an extended period or interest rate reductions. If a loan was accruing prior to being modified and if the Company concludes that the borrower is able to make such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on accrual status. If a loan was on non-accrual status at the time of the modification, the loan will remain on non-accrual status following the modification and may be returned to accrual status based on the policy for returning loans to accrual status as noted above.
Risks by Loan Portfolio Segment
One-to-Four-Family Residential Real Estate Lending
Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee.
Commercial Real Estate Lending
Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general.
Construction and Land Development Lending
There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80 % of the estimated appraised value of the finished home or other real estate property.
Commercial and Industrial Lending
Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of the borrower. Commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as accounts receivable, equipment, inventory and boats. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
Consumer Lending
Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. A portion of the Company’s consumer loans are also secured by boats. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.
Marine Lending
The Bank’s marine loan portfolio is comprised of retail loans originated through August 2023, at which time the Company ceased accepting new marine lending business. The Company expects to hold the retained outstanding loans until they are ultimately repaid.
The Company’s relationships were limited to well established dealers of global premium brand manufacturers, with the top three manufacturer customers have been in business between 30 and 100 years. Retail loans were generally limited to premium manufactures with established relationships with the Company, which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.
Allowance for Credit Losses on Loans
The allowance for credit losses is established through charges to earnings in the form of a provision for credit losses. The allowance for credit losses is also increased by recoveries of amounts previously charged-off and is reduced by charge-offs on loans. Loan charge-offs are recognized as the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Full or partial charge-offs on collateral dependent individually analyzed loans are generally recognized when the collateral is deemed to be insufficient to support the carrying value of the loan.
The allowance represents management's current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management's judgment, reduces the recorded investment in loans to the net amount expected to be collected. No allowance for credit losses is recorded on accrued interest receivable and amount written-off are reversed by an adjustment to interest income. Management's judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. Loans that share common risk characteristics are evaluated collectively using a loss-rate, or cohort methodology to estimate its current expected credit losses on loans. The cohort method identifies and captures the balances of pooled loans with similar risk characteristics, as a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over their remaining lives. The method encompasses loan balances for as long as the loans are outstanding.
Management's estimate of the allowance for credit losses on loans that are collectively evaluated also includes a qualitative assessment of available information relevant to assessing collectability that is not captured in the loss estimation process.
Factors considered by management include economic conditions including reasonable and supportable forecasts of economic conditions; the nature and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances; ending policy and procedures; credit administration and lending staff; loan review; concentrations of credit and the value of underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
Loans that do not share common risk characteristics with other loans are evaluated individually and are not included in the collective analysis. The allowance for credit losses on loans that are individually evaluated may be estimated based on their expected cash flows, or, in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral or the fair value of collateral less estimated costs to sell.
Allowance for Credit Losses on Unfunded Commitments
The Company records a reserve, reported in other liabilities, for expected credit losses on commitments to extend credit that are not unconditionally cancelable by the Company. The reserve for unfunded commitments is measured based on the principles utilized in estimating the allowance for credit losses on loans and an estimate of the amount of unfunded commitments expected to be advanced. Changes in the reserve for unfunded commitments are recorded through the provision for credit losses. The reserve totaled $ 326 thousand and $ 505 thousand at December 31, 2025 and 2024 , respectively. The Company reduced the provision by $ 179 thousand during the twelve months ended December 31, 2025 and recorded an increase of $ 26 thousand during the twelve months ended December 31, 2024 .
Bank Premises and Equipment
Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from 10 to 39 years for buildings and 3 to 10 years for furniture and equipment. Maintenance and repairs of property and equipment are charged to operations and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation balances are cleared the differential between the proceeds, if any, and the carrying value is recorded as a gain or loss in the Company's results of operations.
Leases
The Company accounts for its leasing arrangements in accordance with ASC 842 "Leases". Refer to Note 13 for further discussion of the Company's accounting for its leasing arrangements.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less estimated cost to sell. Impairmentlosses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in the gain on other real estate owned line item in the consolidated statements of income.
Bank Owned Life Insurance
The Company has purchased life insurance on certain key individuals. Bank owned life insurance is recorded at the amount that may be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. These amounts are recorded in noninterest income and are generally not subject to income taxes.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and
the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Derivative Instruments
Derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of the derivative depends on the intended use of the derivative and resulting designation.
The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Company simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back loan swaps are derivative financial instruments not designated as hedges and are reported in other assets and other liabilities in the Consolidated Balance Sheets. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of swaps with borrowers and swaps with dealer counterparties.
The Company has one pay fixed/receive variable interest rate swap designated as a fair value hedge under the portfolio layer method. Under this method, the hedged item is designated as a hedged layer of a closed portfolio pool of financial loans that is anticipated to remain outstanding for the designed hedged period. Adjustments are made to record the fair value of the swap as either an other asset or other liability in the Consolidated Balance Sheets, with changes in fair value recognized in net loans. The carrying value of the fair value swap will also be adjusted through loan interest income, based on changes in the fair value attributable to changes in the hedged risk. The ineffective portion is recognized in current earnings as a component of the interest income section of the related hedged item.
Retirement Plans
The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of their compensation on a pretax basis. The Company also provides a match to participants in this plan, as described more fully in Note 11.
Stock-Based Compensation Plan
On May 16, 2023, the Company’s shareholders approved the 2023 Stock Incentive Plan (the "2023 Plan") which allows key employees and directors to increase their personal financial interest in the Company. The 2023 Plan permits the issuance of incentive stock options and non-qualified stock options and the award of common stock, restricted stock, and stock units. The 2023 Plan authorized the issuance of up to 250,000 shares of common stock. The 2023 Plan replaced the 2014 Stock Incentive Plan and is discussed more fully in Note 10.
Income Taxes
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws.
When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the applicable taxing authority, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, the Company believes it is “more likely than not” that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the “more likely than not” recognition threshold are measured as the largest amount of tax benefit that is more than fifty percent ( 50 %) likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheet along with any associated interest and penalties that would be payable to the applicable taxing authority upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income. The Company has no uncertain tax positions.
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred.
Reclassifications
Certain reclassifications have been made to the 2024 financial statements to conform to reporting for 2025 . The results of the reclassifications are not considered material and had no effect on prior years' net income or shareholders' equity.
Earnings Per Common Share
Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of dividend participation and voting rights. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The number of potential common shares is determined using the treasury method.
The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock.
Twelve Months Ended
December 31,
Average number of common shares outstanding
Effect of dilutive common stock
Average number of common shares outstanding used to calculate diluted earnings per share
There were no potentially dilutive securities outstanding in 2025 or 2024 .
Comprehensive (Loss) Income
Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, net of income taxes, are reported within the balance sheet as a separate component of shareholders’ equity. These changes, along with net income, are components of comprehensive income and are reported in the statement of comprehensive income. In addition to net income, the Company’s comprehensive income includes changes in the benefit obligations and plan assets for postretirement benefit plans and unrealized gains or losses on available for sale securities.
Business Segments
The Company operates in three reportable business segments through the Bank: community banking, marine lending and wealth management. The Company’s business segments are determined based on the products and services provided, as well as the nature of the related business activities, and they reflect the manner in which financial information is regularly reviewed for the purpose of allocating resources and evaluating performance of the Company’s businesses. The results for these business segments are based on management’s accounting process, which assigns income statement items and assets to each operating segment. Given the Company's reportable segments are contained within the Bank, management must make certain allocations of expenses, which may not be representative of the costs expected to be incurred if the specific business segments operated as stand-alone entities. For additional information, refer to Note 27. “Business Segments.”
Stock Repurchase Program
On June 18, 2025, the Board of Directors of the Company re-authorized the purchase of up to 150,000 shares of the Company’s common stock for repurchase under its Stock Repurchase Program ("the Program"). The Program expires on June 30, 2026 ("the Purchase Period"). During 2025 , the Company purchased 9,598 shares of its common stock under the Program at an average price of $ 36.25 . During 2024 , the Company purchased 7,868 shares of its common stock under the Program at an average price of $ 30.08 . At December 31, 2025 the maximum number of shares that may yet be purchased during the Purchase Period is 149,182 .
Recent Ac counting Pronouncements and Other Authoritative Guidance
Recently Adopted
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU') 2023-09, "Income Taxes (Topic 740), Improvements to Income Tax Disclosures." The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity's applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU was effective for the Company on January 1, 2025 and is presented in its annual financial statements on Form 10-K for the year ended December 31, 2025. The disclosures are presented on a prospective basis, with the option to apply retrospectively. There was no material impact on the Company's consolidated financial statements upon adoption of ASU 2023-09.
Pending Adoption
In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements.” The amendments in this ASU enables entities to apply hedge accounting to a greater number of highly effective economic hedges in the following five areas: 1) similar risk assessment for cash flow hedges, 2) hedging forecasted interest payments on choose-your-rate debt instruments, 3) cash flow hedges of nonfinancial forecasted transactions, 4) net written options as hedging instruments, and 5) foreign-currency-denominated debt instrument as hedging instrument and hedged item (dual hedge). This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted on any date on or after November 25, 2025. The Company does not expect the adoption of ASU 2025-09 to have a material impact on its consolidated financial statements.
In November 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326): Purchased Loans.” The amendments in this ASU expand the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. This ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts this ASU in an interim reporting period, it should apply it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. The Company does not expect the adoption of ASU 2025-08 to have a material impact on its consolidated financial statements.
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company's financial position, results of operations or cash flows.
NOTE 2. Securities
Amortized costs and fair values of securities available for sale at December 31, 2025 and 2024 were as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Fair
Value
December 31, 2025
(in thousands)
Obligations of U.S. government corporations and agencies
U.S. treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Subordinated debt
December 31, 2024
(in thousands)
Obligations of U.S. government corporations and agencies
Mortgage-backed securities
Obligations of states and political subdivisions
Subordinated debt
The Company has elected to exclude accrued interest receivable, totaling $ 669 thousand and $ 350 thousand at December 31, 2025, and 2024 respectively from the amortized cost basis of securities. The deferred tax asset on the securities portfolio at December 31, 2025, and 2024 was $ 1.4 million and $ 5.0 million, respectively, and is included in Other Assets in the Consolidated Balance Sheets.
In March 2025, balance sheet repositioning transactions were executed. The Bank sold available for sale securities with an amortized cost balance of $ 99.2 million and reinvested $ 66.0 million into purchases of available for sale securities. The sale of securities resulted in a net realized pre-tax loss of $ 12.4 million recognized during the twelve months ended December 31, 2025. There were no sales of available for sale securities during the twelve months ended December 31, 2024.
The following table summarizes amounts related to the sale of available for sale securities:
For the Twelve Months Ended
December 31, 2025
(in thousands)
Proceeds from sales
Gross realized gains
Gross realized losses
Net realized losses on securities
The amortized cost and estimated fair value of securities at December 31, 2025, by the earlier of contractual maturity or expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.
Amortized Cost
Fair Value
(in thousands)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2025 and 2024 were as follows:
Less than 12 months
12 months or more
Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
December 31, 2025
(in thousands)
Obligations of U.S. government corporations and agencies
Mortgage-backed securities
Collateralized mortgage obligations
Subordinated debt
Less than 12 months
12 months or more
Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
December 31, 2024
(in thousands)
Obligations of U.S. government corporations and agencies
Mortgage-backed securities
Obligations of states and political subdivisions
Subordinated debt
The reference point for determining when securities are in an unrealized loss position is month end. As such, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.
There were 39 and 101 debt securities with a fair value below the amortized cost basis, totaling $ 46.1 million and $ 120.8 million of aggregate fair value as of December 31, 2025 and 2024 respectively. The Company concluded that a credit loss does not exist in its securities portfolio at December 31, 2025 based on the fact that (1) changes in fair value were caused by non-credit-related factors, primarily fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) as of December 31, 2025, the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not that the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest. Additionally, the Company’s mortgage-backed securities and obligations of U.S. government corporations and agencies are entirely issued by either U.S. government agencies or U.S. government-sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. government, that investors in such mortgage-backed securities will receive timely principal and interest payments.
Securities having carrying v alues of $ 4.0 mi llion, $ 3.0 million and $ 90.4 million at December 31, 2025 were pledged as security for trust accounts, a deposit relationship and for borrowing capacity at the Federal Reserve Bank discount window, respectively.
The composition of restricted investments at December 31, 2025 and December 31, 2024 was as follows:
December 31, 2025
December 31, 2024
(in thousands)
Federal Reserve Bank Stock
Federal Home Loan Bank Stock
Community Bankers’ Bank Stock
NOTE 3. Loans
The composition of loans at December 31, 2025 and 2024 was as follows:
December 31,
(in thousands)
Mortgage loans on real estate:
Construction and & Secured by Farmland
HELOCs
Residential First Lien - Investor
Residential First Lien - Owner Occupied
Residential Junior Liens
Commercial - Owner Occupied
Commercial - Non-Owner Occupied & Multifamily
Commercial and industrial loans:
SBA PPP loans
Other commercial and industrial loans
Marine loans
Consumer loans
Overdrafts
Other loans
Total loans
Net deferred loan costs and premiums
Allowance for credit losses
At December 31, 2025 and 2024 , the Company was servicing loans totaling $ 40.5 million and $ 20.9 million, respectively, for other financial institutions which are not included in the table above. Also excluded from the table above are net servicing assets of $ 637 thousand and $ 326 thousand at December 31, 2025 and 2024 , respectively, which are recorded in other assets in the Consolidated Balance Sheets.
NOTE 4. Allowance for Credit Losses on Loans
Changes in the allowance for credit losses for the years ended December 31, 2025 and 2024 were as follows:
December 31,
(in thousands)
Balance, beginning
Provision charged to operating expense
Recoveries added to the allowance
Credit losses charged to the allowance
Balance, ending
Past due and nonaccrual loans by class at December 31, 2025 were as follows:
December 31, 2025
(in thousands)
Days
Past Due
Days
Past Due
90 or More
Days
Past Due
Total Past
Due
Current
Total Loans
90 or More
Days Past
Due Still
Accruing
Mortgage real estate loans:
Construction & Secured by Farmland
HELOCs
Residential First Lien - Investor
Residential First Lien - Owner Occupied
Residential Junior Liens
Commercial - Owner Occupied
Commercial - Non-Owner Occupied & Multifamily
Commercial and industrial loans:
SBA PPP loans
Other commercial and industrial loans
Marine loans
Consumer loans
Overdrafts
Other loans
Total
December 31, 2025
(in thousands)
Nonaccruals with No Allowance for Credit Losses
Nonaccruals with an Allowance for Credit Losses
Nonaccrual
Loans
Mortgage real estate loans:
Construction & Secured by Farmland
HELOCs
Residential First Lien - Investor
Residential First Lien - Owner Occupied
Residential Junior Liens
Commercial - Owner Occupied
Commercial - Non-Owner Occupied & Multifamily
Commercial and industrial loans:
SBA PPP loans
Other commercial and industrial loans
Marine loans
Consumer loans
Overdrafts
Other loans
Total
Past due and nonaccrual loans by class at December 31, 2024 were as follows:
December 31, 2024
(in thousands)
Days
Past Due
Days
Past Due
90 or More
Days Past
Due
Total Past
Due
Current
Total Loans
90 or More
Past Due
Still
Accruing
Mortgage real estate loans:
Construction & Secured by Farmland
HELOCs
Residential First Lien - Investor
Residential First Lien - Owner Occupied
Residential Junior Liens
Commercial - Owner Occupied
Commercial - Non-Owner Occupied & Multifamily
Commercial and industrial loans:
SBA PPP loans
Other commercial and industrial loans
Marine loans
Consumer loans
Overdrafts
Other loans
Total
December 31, 2024
(in thousands)
Nonaccruals with No Allowance for Credit Losses
Nonaccruals with an Allowance for Credit Losses
Nonaccrual
Loans
Mortgage real estate loans:
Construction & Secured by Farmland
HELOCs
Residential First Lien - Investor
Residential First Lien - Owner Occupied
Residential Junior Liens
Commercial - Owner Occupied
Commercial - Non-Owner Occupied & Multifamily
Commercial and industrial loans:
SBA PPP loans
Other commercial and industrial loans
Marine loans
Consumer loans
Overdrafts
Other loans
Total
Allowance for credit losses by segment as of and for the years ended December 31, 2025 and December 31, 2024 were as follows:
December 31, 2025
(in thousands)
Construction
and Farmland
Residential
Real Estate
Commercial
Real Estate & Multi Family
Commercial
Marine
Consumer
All Other
Loans
Unallocated
Total
Allowance for credit losses:
Beginning Balance
Charge-Offs
Recoveries
Provision
Ending balance
Ending balance: Individually evaluated
Ending balance: collectively evaluated
Loans:
Ending balance
Ending balance individually evaluated
Ending balance collectively evaluated
December 31, 2024
(in thousands)
Construction
and Farmland
Residential
Real Estate
Commercial
Real Estate & Multi Family
Commercial
Marine
Consumer
All Other
Loans
Unallocated
Total
Allowance for credit losses:
Beginning Balance
Charge-Offs
Recoveries
Provision
Ending balance
Ending balance: Individually evaluated
Ending balance: collectively evaluated
Loans:
Ending balance
Ending balance individually evaluated
Ending balance collectively evaluated
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:
December 31, 2025
December 31, 2024
(in thousands)
(in thousands)
(in thousands)
Real Estate Collateral
Other Collateral
Total
Real Estate Collateral
Other Collateral
Total
Mortgage real estate loans:
Construction & Secured by Farmland
HELOCs
Residential First Lien - Investor
Residential First Lien - Owner Occupied
Residential Junior Liens
Commercial - Owner Occupied
Commercial - Non-Owner Occupied & Multifamily
Commercial and industrial loans:
SBA PPP loans
Other commercial and industrial loans
Marine loans
Consumer loans
Overdrafts
Other loans
Total
The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the year ended December 31, 2025.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The following table presents risk ratings by loan portfolio segment and origination year. Descriptions of these ratings are as follows:
Pass
Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner.
Special Mention
Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt.
Classified
Classified loans include loans rated Substandard, Doubtful and Loss.
Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt.
Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions.
Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted.
Credit quality information by class at December 31, 2025 was as follows:
December 31, 2025
Term Loan Amortized Cost Basis by Origination Year
(in thousands)
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Mortgage real estate loans:
Construction & Secured by Farmland
Pass
Special Mention
Classified
Total
Current period gross charge-offs
HELOCs
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Residential First Lien - Investor
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Residential First Lien - Owner Occupied
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Residential Junior Liens
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Commercial - Owner Occupied
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Commercial - Non-Owner Occupied & Multifamily
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Commercial and industrial loans:
SBA PPP loans
Pass
Special Mention
Classified
Total
December 31, 2025
Term Loan Amortized Cost Basis by Origination Year
(in thousands)
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Current period gross charge-offs
Other commercial and industrial loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Marine loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Consumer loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Overdrafts
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Other loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Total by Risk Category
Pass
Special Mention
Classified
Total
Total current period gross charge-offs
Credit quality information by class at December 31, 2024 was as follows:
December 31, 2024
Term Loans Amortized Cost Basis by Origination Year
(in thousands)
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
Total
Mortgage real estate loans:
Construction & Secured by Farmland
Pass
Special Mention
Classified
Total
Current period gross charge-offs
HELOCs
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Residential First Lien - Investor
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Residential First Lien - Owner Occupied
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Residential Junior Liens
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Commercial - Owner Occupied
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Commercial - Non-Owner Occupied & Multifamily
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Commercial and industrial loans:
SBA PPP loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Other commercial and industrial loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Marine loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Consumer loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Overdrafts
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Other loans
Pass
Special Mention
Classified
Total
Current period gross charge-offs
Total by Risk Category
Pass
Special Mention
Classified
Total
Total current period gross charge-offs
NOTE 5. Restructurings for Borrowers Experiencing Financial Difficulty
A loan that has been modified is considered a troubled loan modification when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows. There were no loans modified during the twelve months ended December 31, 2024 . The following table presents the amortized cost of loans that were modified during the twelve months ended December 31, 2025 by loan portfolio segment and type of modification. The percentage of the amortized cost basis of loans that were modified as compared to the amortized cost basis of each loan portfolio is also presented below:
Twelve Months Ended
December 31, 2025
(dollars in thousands)
Collateral Dependent Foreclosure
Total
% of Total Class of Loans
Mortgage real estate loans:
Commercial - Non-Owner Occupied & Multifamily
Total
The modified loan balance at December 31, 2025 represents one customer relationship comprised of three residential multifamily income producing properties in Washington D.C. (the District), and the Bank has been granted receivership of these properties. The Bank is actively working with the receiver to update the properties and ready them for sale while continuing to collect the housing payments directly from the District. These loans are on nonaccrual status, are 90 or more days past due and have been written down to their current estimated values.
There were no loans to borrowers experiencing financial difficulty that had a payment default during the twelve months ended December 31, 2024 and were modified in the twelve months prior to that default. Management defines default as over 30 days contractually past due under the modified terms, the foreclosure and/or repossession of the collateral, or the charge-off of the loan.
NOTE 6. Bank Premises and Equipment, Net
The major classes of bank premises and equipment and the total accumulated depreciation at December 31, 2025 and 2024 were as follows:
December 31,
(in thousands)
Land
Buildings and improvements
Furniture and equipment
Less accumulated depreciation
Bank premises and equipment, net
Depreciation expense on buildings and improvements was $ 372 thousand and $ 504 thousand for the years ended 2025 and 2024 , respectively. Depreciation expense on furniture and equipment was $ 408 thousand and $ 475 thousand for the years ended 2025 and 2024, respectively.
NOTE 7. Deposits
The composition of deposits at December 31, 2025 and December 31, 2024 was as follows:
December 31, 2025
December 31, 2024
(in thousands)
Noninterest bearing demand deposits
Savings and interest bearing demand deposits:
NOW accounts
Money market accounts
Regular savings accounts
Total savings and interest bearing demand deposits
Time deposits:
Balances of less than $250,000
Balances of $250,000 or greater
Total time deposits
Total deposits
Savings and interest bearing demand deposits included $ 138.2 million and $ 152.0 million in reciprocal deposits at December 31, 2025 and 2024 , respectively. Time deposits with balances of less than $250,000 included $ 30.0 million in brokered certificates of deposit at both December 31, 2025 and 2024.
The outstanding balance of time deposits at December 31, 2025 was due as follows:
December 31, 2025
(in thousands)
Thereafter
Deposit overdrafts reclassified as loans totale d $ 318 thousan d and $ 309 thousand at December 31, 2025 and 2024 , respectively.
NOTE 8. Borrowings
The Company has access to borrowings in the form of federal funds purchased, Federal Home Loan Bank of Atlanta ("FHLB") advances and subordinated notes.
The following table presents selected information on short-term borrowings for the years ended December 31, 2025 and 2024, which consisted of FHLB advances.
December 31,
(dollars in thousands)
Balance at year-end
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
The C ompany's long-term borrowings with the FHLB were $ 40.0 million and $ 95.0 million at December 31, 2025 and 2024, respectively. The interest rate on the $ 40 million long-term borrowings with the FHLB is 4.83 % and is due in 2026.
Federal fund lines of credit are extended to the Bank by nonaffiliated banks with which a correspondent banking relationship exists. The line of credit amount is determined by the creditworthiness of the Bank and, in particular, its regulatory capital ratios, which are discussed in Note 15. Federal funds purchased generally mature each business day. At December 31, 2025 these available lines totaled $ 78.0 million.
At December 31, 2025 , the Company had collateral valued at $ 84.2 million pledged at the Federal Reserve Bank of Richmond ("FRB") discount window, of which 75 %, or $ 63.2 million is available for short-term liquidity needs. Discount window credit is available for as long as 90 days, prepayable and renewable on a daily basis, priced relative to the Federal Open Market Committee's target range for the federal funds rate.
The Com pany had $ 85.5 million in irrevocable letters of credit at December 31, 2025 with the FHLB to secure public deposits.
As of December 31, 2025 , Company had remaining credit availability in the amount of $ 454.1 million with the FHLB. This line may be utilized for short and/or long-term borrowing. Advances on the line are secured by all of the Company’s eligible first lien residential real estate loans on one-to-four-unit, single-family dwellings; multi-family dwellings; home equity lines of credit; and commercial real estate loans. The amount of the available credit is limited to a percentage of the estimated market value of the loans as determined periodically by the FHLB. The amount of the available credit is also limited to 20 % of total Bank assets.
On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $ 30.0 million in aggregate principal amount of its 4.50 % Fixed-to-Floating Rate Subordinated Notes due April 1, 2032 (the "Notes").
The Notes were structured to qualify as Tier 2 capital for regulatory capital purposes at the holding company and bear an initial interest rate of 4.50 % until April 1, 2027 , with interest during this period payable semi-annually in arrears. From and including April 1, 2027, but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month SOFR, plus 2.35 % with interest during the period payable quarterly in arrears. The Notes are redeemable by the Company at its option, in whole or in part, on or after April 1, 2027 . Initial debt issuance costs were $ 673 thousand. The debt balance of $ 30.0 million is presented net of unamortized issuance costs of $ 421 thousand and $ 488 thousand at December 31, 2025 and 2024 , respectively.
NOTE 9. Income Taxes
The Company files income tax returns with the United States of America, the Commonwealth of Virginia, West Virginia, Maryland, Florida, and North Carolina. With few exceptions, the Company is no longer subject to federal, state, or local income tax examinations for years prior to 2022.
The net deferred tax asset at December 31, 2025 and 2024 consisted of the following components:
December 31,
(in thousands)
Deferred tax assets:
Allowance for credit losses
Reserve for unfunded commitments
Share-based compensation
Accrued postretirement benefits
Home equity origination costs
Nonaccrual interest
Lease liabilities
Credit carryforward
Securities available for sale
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Right-of-use assets
Loan servicing rights
Total deferred tax liabilities
Net deferred tax asset
The Company has not recorded a valuation allowance for deferred tax assets because management believes that it is more likely than not that they will be ultimately realized.
Pretax income from continuing operations was as follows for the year ended December 31, 2025:
December 31,
(in thousands)
Domestic
Foreign
Total
Income tax expense from continuing operations for the years ended December 31, 2025 and 2024 consisted of the following components:
December 31,
(in thousands)
Current tax expense
Federal
State
Maryland
Other States
Foreign 1
Deferred tax accrual (benefit)
Federal
State
Maryland
Other States
Foreign 1
Total
Disclosure of foreign tax is required for 2025 as a result of the adoption of ASU 2023-09, on a prospective basis.
The following tables reconcile income tax expense to the statutory federal corporate income tax amount, which was calculated by applying the federal corporate income tax rate to pre-tax income for the years ended December 31, 2025 and 2024:
Amount
Percent
(dollars in thousands)
Federal statutory income tax
Effect of:
State income taxes, net of federal effect 1
Foreign tax effects
Tax credits:
Qualified affordable housing projects
Rehabilitation programs
Nontaxable or nondeductible items:
Tax-exempt interest income
Officer insurance income
Other, net
Effective tax rate
State taxes in Maryland made up the majority (greater than 50 percent of the tax effect in this category).
December 31,
(in thousands)
Federal statutory income tax
Effect of:
Tax-exempt interest income
Officer insurance income
Net tax credits
Other, net
Total
The effective tax rates were 17.23 % and 18.82 % for the years ended December 31, 2025 and 2024, respectively, which were impacted by the recognition of tax-exempt life insurance income, tax-exempt interest income, qualified rehabilitation credits, and affordable housing credits. Qualified affordable housing project investments are further discussed in Note 25 to the Consolidated Financial Statements.
Income taxes paid during the year ended December 31, 2025 were as follows:
December 31,
(in thousands)
Federal
State and Local:
Maryland
Other
Total
Income taxes paid during the year ended December 31, 2024 totaled $ 80 thousand.
NOTE 10. Stock-Based Compensation
On May 16, 2023, the Company's shareholders approved the 2023 Stock Incentive Plan ("the 2023 Plan") which allows key employees and directors to increase their personal financial interest in the Company. The 2023 Plan permits the issuance of incentive stock options and non-qualified stock options and the award of common stock, restricted stock, and stock units. The plan authorizes the issuance of up to 250,000 shares of common stock. The 2023 Plan replaced the 2014 Stock Incentive Plan . To date, equity awards have only been issued in the form of restricted stock.
The Company periodically grants restricted stock to its directors, executive officers and certain non-executive officers. Restricted stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restriction period, all shares are considered outstanding and dividends are paid to the grantee. Outside directors are periodically granted restricted shares which vest over a period of one year . Executive officers have been granted restricted shares which vest over a three year service period and restricted shares which cliff vest based on meeting performance measures over a three year period. Certain non-executive officers have also been granted restricted shares which vest over a three year service period.
The following table presents the activity for restricted stock awards for the years ended December 31, 2025 and 2024:
Twelve Months Ended
December 31,
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Nonvested, beginning of period
Granted
Vested
Forfeited
Nonvested, end of period
The Company recognizes compensation expense over the restricted period based on the fair value of the Company's stock on the grant date. Compensation expense was $ 1.2 million and $ 912 thousand during December 31, 2025 and 2024 , respectively. The total grant date fair value of restricted stock which vested was $ 1.1 million and $ 1.0 million for the years ended December 31, 2025 and 2024 , respectively. The total vest date fair value of restricted stock which vested was $ 1.2 million and $ 883 thousand for the years ended December 31, 2025 and 2024, respectively. Unrecognized compensation cost related to unvested restricted stock was $ 730 thousand at December 31, 2025 . This amount is expected to be recognized over a weighted average period of 1.75 years. The Company's policy is to recognize forfeitures as they occur.
NOTE 11. Employee Benefits
The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of salary on a pretax basis, subject to certain IRS limits. The Company matches 50 percent of employee contributions, on a maximum of six percent of salary deferred. The 401(k) plan includes a non-elective safe-harbor employer contribution and an age-weighted employer contribution. Qualifying employees receive non-elective safe-harbor contributions equal to three percent of their salary. Company match and safe-harbor contributions are contributed each pay period. Qualifying employees will receive an additional annual contribution based on their age and years of service. The percentage of salary for the age-weighted contribution increases on both factors, age and years of service, with a minimum of one percent of salary and a maximum of ten percent of salary. Contributions under the plan amounted to $ 2.4 million and $ 2.2 million in 2025 and 2024, respectively.
The Company has established an Executive Supplemental Income Plan for certain key employees. Benefits are to be paid in monthly installments following retirement or death. The agreement provides that if employment is terminated for reasons other than death or disability prior to age 65 , the amount of benefits could be reduced or forfeited. The executive supplemental income benefit liability was $ 0 and $ 4 thousand at December 31, 2025 and 2024 , respectively. The executive supplemental income benefit expense, based on the present value of the retirement benefits, was $ 19 thousand in 2025 and $ 27 thousand in 2024. The plan is unfunded; however, life insurance has been acquired on the lives of these employees in amounts sufficient to discharge the plan’s obligations.
NOTE 12. Commitments and Contingencies
In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities, which are not reflected in the accompanying financial statements. These commitments and contingent liabilities include various guarantees, commitments to extend credit and standby letters of credit. The Company does not anticipate any material losses as a result of these commitments.
During the normal course of business, various legal claims arise from time to time which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.
The Bank was required to maintain a total compensating balance on deposit with two correspondent banks in the amount of $ 250 thousand at December 31, 2025 and 2024.
See Note 18 with respect to financial instruments with off-balance-sheet risk.
NOTE 13. Leases
The Company leases certain office properties and equipment used in its operations in the normal course of business. Leases greater than 12 months in duration are recorded in the consolidated balance sheets at the lease commencement date and are classified as either operating or finance leases based on the Company's assessment of the underlying agreement. During the first quarter of 2025, the Company entered into a long-term lease with the intention of establishing a full-service branch in McLean, Virginia and moving the Tysons loan production office into the new location, which opened in September 2025. The new lease replaced an expiring lease and resulted in the initial recognition of a right-of-use asset and lease liability of $ 773 thousand.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s five long-term lease agreements are classified as operating leases. These leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liability to the extent the options are reasonably certain of being exercised. These lease agreements do not provide for residual value guarantee and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. Right-of-use assets and lease liabilities are included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets.
The following tables present information about the Company’s leases:
(dollars in thousands)
December 31, 2025
December 31, 2024
Lease liabilities
Right-of-use assets
Weighted average remaining lease term
12 years
12 years
Weighted average discount rate
Twelve Months Ended
Lease Cost
December 31, 2025
December 31, 2024
Operating lease cost
Short-term lease cost
Total lease cost
Cash paid for amounts included in the measurement of lease liabilities
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities is as follows:
(dollars in thousands)
Lease payments due
December 31, 2025
Twelve months ending December 31, 2026
Twelve months ending December 31, 2027
Twelve months ending December 31, 2028
Twelve months ending December 31, 2029
Twelve months ending December 31, 2030
Thereafter
Total undiscounted cash flows
Discount
Lease liabilities
NOTE 14. Transactions with Directors and Officers
The Bank grants loans to and accepts deposits from its directors, principal officers and related parties of such persons during the ordinary course of business as presented in the following table during the twelve months ended December 31, 2025 and 2024:
December 31,
(in thousands)
Balance, beginning
New loans
Repayments
Balance, ending
The aggregate balance of deposits from directors, principal officers and their related parties was $ 7.0 million and $ 7.4 million at December 31, 2025 and 2024 , respectively.
NOTE 15. Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Bank utilizes the risk-based capital framework for its presentation of capital amounts and ratios.
At December 31, 2025, and 2024, management believes the Bank met all capital adequacy requirements to which it was subject. Additionally, at December 31, 2025, the most recent notification from the Federal Reserve categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.
The following table presents the Bank’s actual capital amounts and ratios at December 31, 2025 and 2024:
Actual
Minimum Capital
Requirement
Minimum To Be
Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dollars in thousands)
December 31, 2025
Common Equity Tier 1 Capital to Risk Weighted Assets
Total Capital to Risk Weighted Assets
Tier 1 Capital to Risk Weighted Assets
Tier 1 Capital to Average Assets
December 31, 2024
Common Equity Tier 1 Capital to Risk Weighted Assets
Total Capital to Risk Weighted Assets
Tier 1 Capital to Risk Weighted Assets
Tier 1 Capital to Average Assets
In addition to the minimum regulatory capital required for capital adequacy purposes under the risk-based capital framework, financial institutions also required to maintain a minimum capital conservation buffer of greater than 2.5 % in order to avoid restrictions on capital distributions and other payments. At December 31, 2025 and 2024, t he Bank's capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer.
NOTE 16. Restrictions On Dividends, Loans and Advance s
Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company. The total amount of dividends which may be paid at any date is generally limited to the lesser of the Bank’s retained earnings or the three preceding years’ undistributed net income of the Bank. Loans or advances are limited to 10% of the Bank’s capital stock and surplus on a secured basis. Capital stock and surplus is defined as tier 1 and tier 2 capital under the risk-based capital guidelines. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.
At December 31, 2025 , the Bank’s retained earnings available for the payment of dividends to the Company was $ 28.4 million. Accordingly, $ 189.0 million of the Company’s equity in the net assets of the Bank was restricted at December 31, 2025 . Funds available for loans or advances by the Bank to the Company amounted to $ 23.8 million at December 31, 2025.
NOTE 17. Dividend Investment Plan
The Company has a Dividend Investment Plan, which allows participants’ dividends to purchase additional shares of common stock at its fair market value on each dividend record date. Shares of common stock purchased through the Plan can be purchased at a price equal to the market price of the shares. No changes have been made to the operation of the dividend reinvestment features of the Plan during 2025 and 2024.
NOTE 18. Financial Instruments with Off-Balance-Sheet Risk
The Company, through its subsidiary bank, is a party to credit related 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, unfunded commitments under lines of credit, and commercial and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Company’s exposure to credit losses is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Unfunded loan commitments that are not unconditionally cancelable by the Company are measured for expected credit losses under ASC 326. At December 31, 2025 and 2024 , the unfunded loan commitments reserve balance totaled $ 326 thousand and $ 505 thousand, respectively.
At December 31, 2025 and 2024, the following financial instruments were outstanding whose contract amounts represent credit risk:
December 31, 2025
December 31, 2024
(dollars in thousands)
Commitments to extend credit
Unfunded commitments under lines of credit
Commercial and standby letters of credit
Commitments to extend credit are agreements to lend to a customer as long as the terms offered are acceptable and certain other conditions are met. Commitments generally have fixed expiration dates or other termination clauses. Since these commitments may expire or terminate, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, with regards to these commitments, is based on management’s credit evaluation of the customer.
Unfunded commitments under lines of credit are contracts for possible future extensions of credit to existing customers. Unfunded commitments under lines of credit include, but are not limited to, home equity lines of credit, overdraft protection lines of credit, credit cards, and unsecured and secured commercial lines of credit. The terms and conditions of these commitments vary depending on the line of credit’s purpose, collateral, and maturity. The amount disclosed above represents total unused lines of credit for which a contract with the Bank has been established.
Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in granting loans to customers. The Bank holds collateral supporting these commitments if it is deemed necessary. Collateralized outstanding letters of credit totaled $ 3.9 million and $ 2.5 million at December 31, 2025 and 2024, respectively.
The Bank has cash accounts in other commercial banks. The amount on deposit in these banks at December 31, 2025 exceeded the insurance limits of the Federal Deposit Insurance Corporation by $ 20.3 million.
NOTE 19. Revenue Recognition
Substantially all of the Company's revenue from contracts with customers that is within the scope of ASC 606, "Revenue from Contracts with Customers" is reported within noninterest income. A limited amount of other in-scope items such as gains and
losses on other real estate owned are recorded in noninterest expense. The recognition of interest income and certain sources of noninterest income (e.g. gains on securities transactions, bank owned life insurance income, etc.) are governed by other areas of U.S. GAAP. Significant revenue streams that are within the scope of ASC 606 and included in noninterest income are discussed in the following paragraphs.
Income from Fiduciary Activities
Trust asset management fee income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. Estate management fees are based upon the size of the estate. Revenue for estate management fees are recorded periodically, according to a fee schedule and are based on the services that have been provided. The Company does not earn performance-based incentives on customer products sold. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
Service Charges on Deposit Accounts
Service charges on deposit accounts are principally comprised of overdrawn account fees, account maintenance charges and other activity based fees. The Company’s performance obligations on revenue generated from deposit accounts are generally satisfied immediately, when the transaction occurs, or by month-end. Typically, the duration of a contract does not extend beyond the services performed. Due to the short duration of most customer contracts which generate these sources of noninterest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized.
Other Service Charges and Fees
The majority of the Company’s noninterest income is derived from short term contracts associated with services provided for other ancillary services such as ATM fees, safe deposit box fees and loan servicing fees. The Company’s performance obligations on revenue generated from these ancillary services are generally satisfied immediately, when the transaction occurs, or by month-end. Typically, the duration of a contract does not extend beyond the services performed. Due to the short duration of most customer contracts which generate these sources of noninterest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. Since the rentals and renewals occur fairly consistently, revenue is recognized on a basis consistent with the duration of the performance obligation.
The Company earns interchange fees from credit cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly.
Noninterest income and the related amounts that are from contracts with customers within the scope of ASC 606 disaggregated by major source, for the years ended December 31, 2025 and 2024 consisted of the following:
December 31, 2025
December 31, 2024
Revenue (1)
ASC 606 Revenue (2)
Revenue (1)
ASC 606 Revenue (2)
(in thousands)
Noninterest income:
Wealth management fees
Trust asset management fees
Brokerage commissions
Service charges on deposit accounts
Overdrawn account fees
Monthly and other service charges
Other service charges and fees:
Interchange fees
ATM fees
Other charges and fees
(Loss) gain on the sale and disposal of bank premises and equipment
(Loss) on sale of securities
Gain on sale of loans
Small business investment company income
Bank owned life insurance income
Other operating income
Total noninterest income
As reported in the Audited Consolidated Statements of Income.
(2) Revenue from contracts with customers in scope of ASC 606.
Contract Balances
The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of December 31, 2025 and December 31, 2024 , the Company did not have any significant contract balances.
NOTE 20. Quarterly Condensed Statements of Income - Unaudited
The Company’s quarterly net income, net income per common share and dividends per common share during 2025 and 2024 are summarized as follows:
March 31
June 30
September 30
December 31
(in thousands, except per share amounts)
Total interest and dividend income
Net interest income after provision for credit losses
Noninterest (loss) income
Noninterest expenses
(Loss) income before income taxes
Net (loss) income
Net (loss) income per common share, basic
Net (loss) income per common share, diluted
Dividends per common share
March 31
June 30
September 30
December 31
(in thousands, except per share amounts)
Total interest and dividend income
Net interest income after provision for credit losses
Noninterest income
Noninterest expenses
Income before income taxes
Net income
Net income per common share, basic
Net income per common share, diluted
Dividends per common share
NOTE 21. Fair Value Measurements
GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants as of the measurement date.
“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following section provides a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy:
Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
Derivative instruments are recorded at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.
The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at December 31, 2025 and December 31, 2024:
Fair Value Measurements at
December 31, 2025
Using
Balance as of
Quoted Prices
in Active
Markets
for Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
December 31, 2025
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies
U.S. treasury notes
Mortgage-backed securities
Collateralized mortgage obligations
Subordinated debt
Derivative:
Interest rate swaps on loans
Total assets at fair value
Liabilities:
Interest rate swaps on loans
Fair value swap
Total liabilities at fair value
Fair Value Measurements at
December 31, 2024
Using
Balance as of
Quoted Prices
in Active
Markets for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
December 31, 2024
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies
Mortgage-backed securities
Obligations of states and political subdivisions
Subordinated debt
Derivative:
Interest rate swaps on loans
Fair value swap
Total assets at fair value
Liabilities:
Interest rate swaps on loans
Total liabilities at fair value
The table below presents a reconciliation for all assets measured at fair value on a recurring basis classified as Level 3 for the year ended December 31, 2025:
Subordinated Debt Securities AFS
(in thousands)
Balance of recurring Level 3 assets at January 1
Total gains (losses) included in net income
Total gains (losses) included in OCI
Purchases
Sales
Issuances
Settlements
Transfer into Level 3
Transfer out of Level 3
Balance of recurring Level 3 assets at December 31
Level 3 securities at December 31, 2025 consisted of one newly issued corporate subordinated debt security for which no pricing information was available and therefore priced at book value. There were no assets measured at fair value on a recurring basis classified as Level 3 for the year ended December 31, 2024.
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:
Individually Evaluated Collateral-Dependent Loans: The estimated fair value of individually evaluated collateral-dependent loans is based on the value of the underlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, equipment, inventory, accounts receivable, and/or other business assets. The value of real estate collateral is determined using a market valuation approach based on an appraisal conducted by an independent, licensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the Consolidated Statements of Income. At December 31, 2025 , there were four collateral-dependent relationships totaling $ 2.7 million, which were individually evaluated and carried at a fair value of $ 2.3 million. Three relationships represent five commercial business loans collateralized by equipment and one relationship is collateralized by commercial real estate. At December 31, 2024 there were two collateral-dependent relationships totaling $ 908 thousand, which were individually evaluated and are being carried at fair value of $ 659 thousand .
Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses on loans. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as collateral-dependent loans described above. We believe that the fair value component in its valuation follows the provisions of GAAP . The Company held no other real estate owned at December 31, 2025 and December 31, 2024.
Repossessed Assets: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the asset, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant improvements are capitalized, whereas costs relating to holding assets are expensed. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of an asset to fair value less cost to sell. The fair value measurement of repossessed assets is assessed in the same manner as collateral dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held $ 135 thousand and $ 514 thousand at December 31, 2025 and December 31, 2024, respectively, consisting of marine vessels. Repossessed assets are included in other assets in the Consolidated Balance Sheets.
Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value. These loans consisted of one-to-four family residential loans originated for sale in the secondary market at December 31, 2025 . Fair value is based on prices the secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). The Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale at December 31, 2025 and December 31, 2024.
The following tables summarize the Company’s financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at December 31, 2025 and 2024:
Carrying value at
December 31, 2025
Balance as of
Quoted Prices in
Active Markets for Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable
Inputs
December 31, 2025
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Financial Assets:
Collateral dependent individually evaluated loans
Nonfinancial Assets:
Repossessed assets
Carrying value at
December 31, 2024
Balance as of
Quoted Prices in
Active Markets for Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable
Inputs
December 31, 2024
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Financial Assets:
Impaired loans
Nonfinancial Assets:
Reposessed assets
The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis at December 31, 2025 and 2024:
Quantitative information about Level 3 Fair Value Measurements
December 31, 2025
Valuation Technique(s)
Unobservable Input
Range
Weighted Average (1)
Assets:
Collateral dependent individually evaluated loans
Discounted value
Selling cost and appraisal discount
Repossessed assets
Offer value
Selling cost
December 31, 2024
Valuation Technique(s)
Unobservable Input
Range
Weighted Average (1)
Assets:
Collateral dependent individually evaluated loans
Discounted value
Selling cost and appraisal discount
Repossessed assets
Discounted appraised value
Selling cost
Weighted based on the relative fair values of the specific items measured at fair value.
The carrying amount and fair value of the Company’s financial instruments at December 31, 2025 and 2024 were as follows:
Fair Value Measurements at
December 31, 2025
Using
Carrying
Value
Quoted
Prices
in Active
Markets
for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Fair Value
December 31, 2025
(Level 1)
(Level 2)
(Level 3)
December 31, 2025
(in thousands)
Financial Assets:
Cash and short-term investments
Securities available for sale
Restricted Investments
Loans held for sale
Loans, net
Bank owned life insurance
Accrued interest receivable
Derivative assets
Financial Liabilities:
Deposits
Federal Home Loan Bank advances, long-term
Subordinated debt
Accrued interest payable
Derivative liabilities
Fair Value Measurements at
December 31, 2024
Using
Carrying
Value
Quoted Prices
in Active
Markets
for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Fair Value
December 31, 2024
(Level 1)
(Level 2)
(Level 3)
December 31, 2024
(in thousands)
Financial Assets:
Cash and short-term investments
Securities available for sale
Restricted Investments
Loans held for sale
Loans, net
Bank owned life insurance
Accrued interest receivable
Derivative assets
Financial Liabilities:
Deposits
Federal Home Loan Bank advances, short-term
Federal Home Loan Bank advances, long-term
Subordinated debt
Accrued interest payable
Derivative liabilities
The Company assumes interest rate risk (the risk that general interest rate levels will change) during its normal operations. As a result, the fair value of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities in order to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay their principal balance in a rising rate environment and more likely to do so in a falling rate environment. Conversely, depositors who are receiving fixed rate interest payments are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting the terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
NOTE 22. Change in Accumulated Other Comprehensive (Loss)
Accumulated other comprehensive (loss) includes unrealized gains and losses on available for sale securities and changes in benefit obligations and plan assets for the post retirement benefit plan. Changes to accumulated other comprehensive (loss) are presented net of tax as a component of equity. Reclassifications out of accumulated other comprehensive (loss) are recorded in the Consolidated Statements of Income either as a gain or loss.
Changes to accumulated other comprehensive (loss) by components are shown in the following tables for the years ended December 31, 2025 and 2024:
Twelve Months Ended
December 31,
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Change in
Benefit
Obligations
and Plan
Assets
for the
Post
Retirement
Benefit
Plan
Total
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Change in
Benefit
Obligations
and Plan
Assets for
the Post
Retirement
Benefit
Plan
Total
(dollars in thousands)
January 1
Other comprehensive income (loss) before reclassifications
Reclassifications of realized losses into earnings
Tax effect of current period changes
Current period changes net of taxes
December 31
For the year ended December 31, 2025 , the reclassification out of accumulated other comprehensive loss represents the realized loss on the sale of available for sale securities, which appears as loss on the sale of securities in the Consolidated Statements of Income. The tax benefit related to this reclassification was $ 2.6 million and was included in income tax expense in the Consolidated Statements of Income. For the year ended December 31, 2024, there were no reclassifications out of accumulated other comprehensive loss.
NOTE 23. Condensed Financial Information – Parent Company Only
The following tables present parent company only condensed financial statements of the Company, reflecting the investment in the Bank on the equity basis of accounting. The Statements of Changes in Shareholders' Equity for the parent company only are identical to the Consolidated Statements of Changes in Shareholders' Equity and are therefore not presented.
Balance Sheets
December 31, 2025 and 2024
(dollars in thousands)
Assets
Cash held in subsidiary bank
Investment in subsidiary
Other assets
Total assets
Liabilities and Shareholders’ Equity
Subordinated debt
Other liabilities
Total liabilities
Shareholders’ Equity
Common stock
Surplus
Retained earnings
Accumulated other comprehensive (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
Statements of Income
Years Ended December 31, 2025 and 2024
(dollars in thousands)
Income
Dividends from subsidiary bank
Total income
Expenses
Interest expense on subordinated debt
Other operating expenses
Total expenses
Income before income (benefit) tax and equity in undistributed earnings of subsidiary bank
Income Tax (Benefit)
(Loss) income before equity in undistributed earnings of subsidiary bank
Equity in Undistributed Net Income of Subsidiary Bank
Net income
Comprehensive income
Statements of Cash Flows
Years Ended December 31, 2025 and 2024
(dollars in thousands)
Cash Flows from Operating Activities
Net Income
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Stock-based compensation expense
Undistributed earnings of subsidiary bank
Amortization of debt issuance costs
Changes in assets and liabilities:
(Increase) decrease in other assets
Net cash (used in) provided by operating activities
Cash Flows from Investing Activities
Capital contribution to bank subsidiary
Net cash (used in) investing activities
Cash Flows from Financing Activities
Cash dividends paid
Net proceeds from issuance of common stock in public offering
Retirement of common stock
Net cash provided by (used in) financing activities
(Decrease) increase in cash
Cash
Beginning
Ending
NOTE 24. Other Real Estate Owned & Repossessed Assets
The following table is a summary of other real estate owned ("OREO") and repossessed asset activity for the twelve months ended December 31, 2025 and 2024.
For the Year Ended
For the Year Ended
December 31, 2025
December 31, 2024
Other Real Estate Owned
Repossessed Assets
Other Real Estate Owned
Repossessed Assets
(in thousands)
Balance, beginning
Transfer from loans
Sales proceeds
Loss on sales
Valuation adjustments
Balance, ending
The classifications of OREO and repossessed assets in the consolidated balance sheets at December 31, 2025 and 2024 were as follows:
As of December 31,
(in thousands)
Other Real Estate Owned:
Construction and Farmland
Residential Real Estate
Commercial Real Estate
Less valuation allowance
Other Real Estate Subtotal
Repossessed Assets:
Marine Vessels
Less valuation allowance
Repossessed Asset Subtotal
Total
There were no real estate loans in the process of foreclosure at December 31, 2025 and December 31, 2024 .
The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.
At December 31, 2025 and 2024 , the balance of the investments for qualified affordable housing projects was $ 977 thousand and $ 1.3 million, respectively. These balances are reflected in Other assets on the Consolidated Balance Sheets. There were no unfunded commitments related to the Company's qualified affordable housing projects at December 31, 2025 and 2024.
During the twelve months ended December 31, 2025 and 2024 , the Company recognized amortization expense of $ 269 thousand and $ 295 thousand. A mortization expense was included within income tax expense on the Consolidated Statements of Income.
Total estimated credits to be received during 2025 are $ 275 thousand based on the most recent quarterly estimates received from the funds. Total tax credits and other tax benefits recognized during 2025 and 2024 were $ 275 thousand and $ 304 thousand, respectively.
NOTE 26. Derivatives
The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates, and to assist customers with their risk management objectives. Derivative contracts that are not designated in a qualifying hedging relationships include customer accommodation loan swaps.
On August 15, 2024, the Company executed a 2-year, 3.862 % pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $ 35.0 million. The Company receives a variable rate equal to daily secured overnight financing rate ("SOFR"). This swap will terminate on August 15, 2026. The Company designated the fair value swap under the portfolio layer method ("PLM"). Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period. Adjustments are made to record the swap at fair value as either an other asset or other liability on the Consolidated Balance Sheets, with changes in fair value recognized in net loans. The carrying value of the fair value swap on the Consolidated Balance Sheets is also adjusted through loan interest income, based on changes in the fair value attributable to changes in the hedged risk.
The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset at December 31, 2025 and 2024.
December 31, 2025
December 31, 2024
Carrying Amount of Hedged Asset
Cumulative Amount of Fair Value Adjustment
Carrying Amount of Hedged Asset
Cumulative Amount of Fair Value Adjustment
(in thousands)
Loans receivable (1)
(1) These amounts include the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the hedged period. As of December 31, 2025 and 2024 , the amortized cost basis of the closed portfolio used in this hedging relationship was $ 473.3 million and $ 506.4 million, respectively, and the cumulative basis adjustment associated with this hedging relationship was $ 105 thousand and $( 84 ) thousand, respectively. At December 31, 2025 and 2024 , the amount of the designated hedged item was $ 35.0 million.
The following table summarizes the effect of the fair value hedging relationship recognized in the consolidated statements of income for the twelve months ended December 31, 2025 and 2024.
Twelve Months Ended
December 31,
(in thousands)
Hedged asset
Fair value derivative designated as hedging instrument
Total gain recognized in the consolidated statement of income within interest and fees on loans
The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back loan swaps are derivative financial instruments and are reported at fair value in “other assets” and “other liabilities” in the Consolidated Balance Sheets. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of the swaps with borrowers and the swaps with dealer counterparties.
The following tables summarize key elements of the Company's derivative instruments at December 31, 2025 and 2024.
December 31, 2025
Notional Amount
Assets
Liabilities
(in thousands)
Derivatives designated as hedging instruments:
Fair value swap
Derivatives not designated as hedging instruments:
Customer-related interest rate swap contracts:
Matched interest rate swaps with borrower
Matched interest rate swaps with counterparty
December 31, 2024
Notional Amount
Assets
Liabilities
(in thousands)
Derivatives designated as hedging instruments:
Fair value swap
Derivatives not designated as hedging instruments:
Customer-related interest rate swap contracts:
Matched interest rate swaps with borrower
Matched interest rate swaps with counterparty
NOTE 27. Business Segments
The Company has three reportable operating segments: community banking, marine lending and wealth management.
The community banking segment offers a wide range of retail and commercial banking services in the form of loan and deposit products. Revenues consist primarily of net interest income related to investments in non-marine loans and securities and outstanding deposits and borrowings, fees earned on deposit accounts and debit card interchange activity. During the first quarter of 2025 the Company executed a balance sheet repositioning of its investment securities portfolio, selling available for sale securities with an amortized cost balance of $ 99.2 million resulting in a net realized pre-tax loss of $ 12.4 million and reinvesting $ 66.0 million into purchases of available for sale securities. For the year ended December 31, 2024, non-interest community banking revenue included a realized pre-tax gain of $ 3.9 million due to the sale of the Company's operating center and branch building in a sales-leaseback transaction.
Revenue from marine lending operations consist primarily of net interest income related to commercial and consumer marine vessel retail loans originated through August 2023, at which time the Company ceased accepting new marine lending business. The balance of the marine loan portfolio, which constitutes a significant portion of the Company's assets, revenues, and earnings, totaled $ 175.6 million at December 31, 2025 and $ 210.1 million at December 31, 2024. This balance will continue to decline as the loans are repaid.
The wealth management segment offers both a trust department and investment services. Trust department services include a full range of personal and retirement plan services, and investment services products include, among other products, annuities, IRA's, life insurance, fixed income investing, and full service or discount brokerage services. Non-deposit investment products are offered through a third-party service provider.
Financial information of the parent company is included in the "All Other" category. The parent company's revenue and expenses are comprised primarily of interest expense associated with subordinated debt.
The Company's segment structure reflects the financial information and reports used by our chief operating decision maker to make decisions regarding the business, including resource allocations and performance. Our Chief Executive Officer is the chief operating decision maker ("CODM"). We evaluate performance and allocate resources based on the operating income of each operating segment. The CODM uses segment operating income in the annual budget process. The operating income of each operating segment includes the revenues of the segment less expenses that are directly related to those revenues. Operating overhead, shared costs and share-based compensation costs are included in Community Banking.
The following table provides income and asset information as of and for the twelve months ended December 31, 2025 and 2024, which are included within the Consolidated Balance Sheets and Consolidated Statements of Income.
