Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations .
Introduction
This Management’s Discussion and Analysis and related financial data are presented to assist in the understanding and evaluation of the financial condition and results of operations for the Company and the Bank, as of December 31, 2025 and 2024, and for the years ended December 31, 2025 and 2024. This section should be read in conjunction with the consolidated financial statements and related footnotes.
RECENT TRANSACTIONS
During the year ended December 31, 2024, the Company’s financial condition and results of operations were significantly impacted by two transactions. On December 23, 2024, the Company completed the underwritten public offering and sale of 1,150,000 shares of its common stock at $26.00 per share, resulting in net proceeds to the Company of approximately $28 million (the “Offering”). Immediately subsequent to the Offering, the Company utilized a portion of the net proceeds from the Offering to reposition a substantial portion of the Company’s available-for-sale debt securities portfolio. The Company undertook the repositioning transactions with the objective of increasing the profitability of its investment portfolio, improving liquidity, strengthening its capital position and supporting future growth. Please see “Financial Condition—Securities” below for more information on the repositioning transactions.
Critical Accounting Policies
Note 2 to the Company’s consolidated financial statements lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the Company and its results of operations.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and the determination of goodwill impairment. Please refer to the discussion of the allowance for credit losses calculation under “Allowance for Credit Losses and Non-performing Assets” in the “Financial Condition” section.
In connection with the acquisition of North Penn in 2011, we recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition. In connection with the acquisition of Delaware in 2016, we recorded goodwill in the amount of $1.6 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition. In connection with the acquisition of UpState in July 2020, we recorded goodwill in the amount of $17.9 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition. Goodwill is tested annually and deemed impaired when the carrying value of goodwill exceeds its implied fair value.
OVERVIEW
The following table provides an overview of selected financial data:
For the years ended December 31, (Dollars in thousands, except per share data)
Net interest income
Provision for credit losses
Other income before (losses) gains on sales of loans and investments
Net realized gains (losses) on sales of loans and securities
Other expenses
Income (loss) before income taxes
Income tax expense (benefit)
NET INCOME (LOSS)
Net income (loss) per share-Basic
-Diluted
Cash dividends paid
Dividend pay-out ratio
Return on average assets
Return on average equity
BALANCES AT YEAR-END
Total assets
Loans receivable
Allowance for credit losses
Total deposits
Stockholders’ equity
Trust assets under management
Book value per share
Tier 1 Capital to risk-adjusted assets
Total Capital to risk-adjusted assets
Allowance for credit losses to total loans
Non-performing assets to total assets
FINANCIAL CONDITION
Total Assets
Total assets as of December 31, 2025 were $2.425 billion compared to $2.317 billion as of year-end 2024, an increase of $107.4 million. The increase in total assets was primarily attributable to a $139.8 million increase in loans receivable, offset by a $27.9 million decrease in cash and cash equivalents.
Loans Receivable
As of December 31, 2025, loans receivable totaled $1.853 billion compared to $1.714 billion as of year-end 2024, an increase of $139.8 million due primarily to a $42.6 million increase in consumer loans, an increase of $33.4 million in commercial real estate loans, and an increase of $32.4 million in construction loans.
The Bank’s loan products include loans for personal and business use. Personal lending includes mortgage lending to finance principal residences and, to a lesser extent, second home dwellings. The Bank’s loan products include fixed-rate mortgage products with terms up to 30 years which may be sold in the secondary market through the Federal National Mortgage Association (“Fannie Mae”) or the FHLB, or held in the Bank’s portfolio to the extent consistent with our asset/liability management strategies. Fixed-rate home equity loans are originated on terms up to 180 months. Home equity lines of credit tied to the prime rate are also offered. The Bank also offers indirect dealer financing of automobiles (new and used), boats, and recreational vehicles through a limited network of dealers in Northeast Pennsylvania and the Southern Tier of New York. At December 31, 2025, there were $328.0 million of indirect loans in the consumer loan portfolio.
Commercial loans and commercial mortgages are provided to local small and mid-sized businesses at a variety of terms and rate structures. Commercial lending activities include lines of credit, revolving credit, term loans, mortgages, various forms of secured
lending and a limited amount of letter of credit facilities. The rate structure may be fixed, immediately repricing tied to the prime rate or adjustable at set intervals. Also included in commercial loans are municipal finance lending in which the Bank has been active in recent years. Municipal lending includes both general obligations of local taxing authorities and revenue obligations of specific revenue producing projects such as sewer authorities and educational units. At December 31, 2025, the Bank had approximately $178.7 million in loans on commercial rentals, as well as $116.6 million of loans outstanding on residential rentals.
The Bank’s construction lending has primarily involved lending for commercial construction projects and for single-family residences. All loans for the construction of speculative sale homes have a loan-to-value ratio of not more than 80%. For both commercial and single-family projects, loan proceeds are disbursed during the construction phase according to a draw schedule based on the stage of completion. Construction projects are inspected by contracted inspectors or bank personnel. Construction loans are underwritten on the basis of the estimated value of the property as completed. For commercial projects, the Bank typically also provides the permanent financing after the construction period, as a commercial mortgage.
The Bank also, from time to time, originates loans secured by undeveloped land. Land loans granted to individuals have a term of up to five years. Land loans granted to developers may have an interest only period during development. The substantial majority of land loans have a loan-to-value ratio not exceeding 75%. The Bank has limited its exposure to land loans but may expand its lending on raw land, as market conditions allow, to qualified borrowers experienced in the development and sale of raw land.
Loans involving construction financing and loans on raw land have a higher level of risk than loans for the purchase of existing homes since collateral values, land values, development costs and construction costs can only be estimated at the time the loan is approved. The Bank has sought to minimize its risk in construction lending and in lending for the purchase of raw land by offering such financing primarily to builders and developers to whom the Bank has loaned funds in the past and to persons who have previous experience in such projects. The Bank also limits construction lending and loans on raw land to its market area, with which management is familiar.
Adjustable-rate loans decrease the risks associated with changes in interest rates by periodically repricing, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for payment default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate may also be limited by the maximum periodic interest rate adjustment permitted in certain adjustable-rate mortgage loan documents, and, therefore is potentially limited in effectiveness during periods of rapidly rising interest rates. These risks have not had an adverse effect on the Bank.
Consumer lending, including indirect financing, provides benefits to the Bank’s asset/liability management program by reducing the Bank’s exposure to interest rate changes, due to their generally shorter terms. Such loans may entail additional credit risks compared to owner-occupied residential mortgage lending especially when unsecured or secured by collateral such as automobiles that depreciate rapidly.
Commercial lending including real-estate related loans entail significant additional risks when compared with residential real estate and consumer lending. For example, commercial loans typically involve larger loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the project and these risks can be significantly impacted by the cash flow of the borrowers and market conditions for commercial office, retail, and warehouse space. In periods of decreasing cash flows, the commercial borrower may permit a lapse in general maintenance of the property causing the value of the underlying collateral to deteriorate. The liquidation of commercial property is often more costly and may involve more time to sell than residential real estate. The Bank offsets such factors with requiring more owner equity, a lower loan to value ratio and by obtaining the personal guaranties of the principals. In addition, a majority of the Bank’s commercial real estate portfolio is owner-occupied property.
Commercial loans and leases are considered to have a higher degree of credit risk than secured real estate lending. The repayment of unsecured commercial business loans is wholly dependent on the success of the borrower’s business, while secured commercial business loans may be secured by collateral that may not be readily marketable in the event of default. Municipal financing includes lending to local taxing authorities and revenue-producing projects. Such loans may constitute the general obligation of the taxing authority or may rely on a specific revenue source which is responsible for the repayment of the debt. General obligations are considered to carry a lower level of risk than other loan types since they are backed by the full faith and credit of the taxing authority. Revenue obligations are backed solely by revenues generated by the project financed and repayment may be affected by the success of the project.
Due to the type and nature of the collateral, consumer lending generally involves more credit risk when compared with residential real estate lending. Consumer lending collections are typically dependent on the borrower’s continuing financial stability, and thus, are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance. The remaining deficiency is usually turned over to a collection agency.
There are additional risks associated with indirect lending since we must rely on the dealer to provide accurate information to us and accurate disclosures to the borrowers. These loans are principally done on a non-recourse basis. We seek to mitigate these risks by only dealing with dealers with whom we have a long-standing relationship.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) prohibits lenders from making residential mortgages unless the lender makes a reasonable and good faith determination that the borrower has a reasonable ability to repay the mortgage loan according to its terms. A borrower may recover statutory damages equal to all finance charges and fees paid within three years of a violation of the ability-to-repay rule and may raise a violation as a defense to foreclosure at any time. As authorized by the Dodd-Frank Act, the Consumer Financial Protection Bureau (“CFPB”) has adopted regulations defining “qualified mortgages” that are presumed to comply with the Dodd-Frank Act’s ability-to-repay rules. Under the CFPB regulations, qualified mortgages must satisfy the following criteria: (i) no negative amortization, interest-only payments, balloon payments, or term greater than 30 years; (ii) no points or fees in excess of 3% of the loan amount for loans over $100,000; (iii) borrower’s income and assets are verified and documented; and (iv) the borrower’s debt-to-income ratio generally may not exceed 43%. Qualified mortgages are conclusively presumed to comply with the ability-to-pay rule unless the mortgage is a “higher cost” mortgage, in which case the presumption is rebuttable. Under the Economic Growth, Regulatory Relief, and Consumer Protection Act, enacted in 2018, residential mortgages originated for portfolio by insured depository institutions, like the Bank, with less than $10 billion in total consolidated assets will be treated as qualified mortgages; provided that the mortgage terms do not include interest-only payments or negative amortization, total points and fees do not exceed 3% of the loan amount, prepayment penalties are not in excess of those permitted for qualified mortgages under Regulation Z and the lender has considered and documented the debt, income and financial resources of the borrower.
The Bank has established various lending limits for its officers and also maintains an Officer Loan Committee to approve higher loan amounts. The Officer Loan Committee is comprised of the President and Chief Executive Officer, Chief Lending Officer and other Bank officers. The Officer Loan Committee has the authority to approve all loans up to set limits based on the type of loan and the collateral. Requests in excess of these limits must be submitted to the Directors’ Loan Committee or Board of Directors for approval. Additionally, the President and Chief Executive Officer, and the Chief Lending Officer and other officers have the authority to approve secured and unsecured loans up to amounts approved by the Board of Directors and maintained in the Bank’s Loan Policy. Notwithstanding individual lending authority, certain loan policy exceptions must be submitted to the Officer Loan Committee for approval.
Hazard insurance coverage is required on all properties securing loans made by the Bank. Flood insurance is also required, when applicable.
Loan applicants are notified of the credit decision by letter. If the loan is approved, the loan commitment specifies the terms and conditions of the proposed loan including the amount, interest rate, amortization term, a brief description of the required collateral, and the required insurance coverage. The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property serving as collateral and title insurance, and these applicable insurances must be maintained during the full term of the loan.
The following table sets forth maturities and interest rate sensitivity for selected categories of loans as of December 31, 2025. Scheduled repayments are reported in the maturity category in which payment is due. Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as due in one year or less.
One Year or Less
After One to Five Years
After Five Years Through 15 years
After 15 years
Total
(dollars in thousands)
Real Estate:
Residential
Commercial
Agricultural
Construction
Commercial loans
Other agricultural loans
Consumer loans
Total
Loans with fixed rates
Loans with floating rates
Total
allowance for CREDIT Losses
The allowance for credit losses totaled $19,882,000 as of December 31, 2025, and represented 1.07% of total loans receivable compared to $19,843,000 and 1.16% of total loans as of year-end 2024. Net charge-offs for 2025 totaled $1,890,000 and represented 0.11% of average loans compared to $1,671,000 and 0.10% of average loans in 2024.
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the allowance for credit losses. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the allowance.
The Company has limited exposure to higher-risk loans. The Company does not originate option ARM products, interest only loans, sub-prime loans or loans with initial teaser rates in its residential real estate portfolio. As of December 31, 2025, the Company had $21,122,000 of junior lien home equity loans. For the year ended December 31, 2025, there were $0 of charge-offs in this portfolio, with recoveries of $0.
Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Our lending activity is heavily concentrated in the geographic market areas we serve. At December 31, 2025, the Company had no concentrations of loans in any one industry exceeding 10% of its total loan portfolio. An industry for this purpose is defined as a group of businesses that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Banking regulators have established guidelines of less than 100% of tier 1 capital plus allowance for credit losses in construction lending and less than 300% of tier 1 capital plus allowance for credit losses in commercial real estate lending that management monitors as part of the risk management process. The construction concentration ratio is a percentage of the outstanding construction and land development loans to total tier 1 capital plus allowance for credit losses. The commercial real estate concentration ratio is a percentage of the outstanding balance of non-owner occupied commercial real estate, multifamily, and construction and land development loans to tier 1 capital plus allowance for credit losses. Management strives to operate within the thresholds set forth above.
As of December 31, 2025, the Company had $750.2 million of commercial real estate loans, which represented 40.5% of total loans outstanding. Non-owner occupied commercial real estate loans totaled $186.3 million, or 10.1% of total loans outstanding and 79.6% of regulatory capital requirements. As of December 31, 2025, the Company had $85.4 million of construction loans, which represented 4.6% of total loans outstanding and 36.5% of regulatory capital requirements.
As of December 31, 2025 and 2024, the Company considered its concentration of credit risk to be acceptable. As of December 31, 2025, the highest concentrations are in commercial rentals and the hotels/motels category, with loans outstanding of $178.7 million, or 9.7% of loans outstanding, to commercial rentals, and $125.1 million, or 6.8% of loans outstanding, to hotels/motels. For the year ended December 31, 2025, the Company recognized charge offs of $0 on commercial rentals and $0 on hotels/motels. The Company recognized charge offs of $0 on commercial rentals and $0 on residential rentals in 2024, the highest concentrations in 2024.
The following table sets forth information with respect to the Bank’s allowance for credit losses as of December 31, 2025 and 2024:
As of December 31,
(dollars in thousands)
Total loans receivable, net of deferred fees
Allowance balance at beginning of period
Net (charge-offs) recoveries:
Real Estate-Residential
Real Estate-Commercial
Real Estate-Agricultural
Real Estate-Construction
Commercial loans
Other agricultural loans
Consumer
Total
Provision Expense
Allowance balance at end of period
Average loans receivable:
Real Estate-Residential
Real Estate-Commercial
Real Estate-Agricultural
Real Estate-Construction
Commercial loans
Other agricultural loans
Consumer
Total average loans outstanding
Net (charge-offs) recoveries as a percent of average loans outstanding
Real Estate-Residential
Real Estate-Commercial
Real Estate-Agricultural
Real Estate-Construction
Commercial loans
Other agricultural loans
Consumer
Total net charge-offs
Credit Quality Ratios:
As a percent of year-end loans, net of unearned income:
Allowance for credit losses
Nonaccrual loans
Nonperforming loans
Allowance for credit losses to nonaccrual loans
Allowance for credit losses to nonperforming loans
During the twelve month period ended December 31, 2025, the Bank recognized net charge-offs in the amount of $1,890,000 compared to the $1,671,000 of net charge-offs reported for the twelve months ended December 31, 2024. The provision for credit losses decreased to $1,773,000 for the twelve months ended December 31, 2025, compared to $2,673,000 for the twelve months ended December 31, 2024.
The following table sets forth the allocation of the Bank’s allowance for credit losses by loan category and the percent of loans in each category to total loans at the date indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which credit losses may occur. The total allowance is available to absorb losses from any type of loan.
As of December 31,
Allowance
Allowance
for Credit
ACL
Loans
for Credit
ACL
Loans
Losses on
to Total
to Total
Losses on
to Total
to Total
Loans
ACL
Loans
Loans
ACL
Loans
(dollars in thousands)
Real estate – residential
Real estate – commercial
Real estate – agricultural
Real estate – construction
Commercial
Other agricultural loans
Consumer
Total
Non-Performing Assets
Non-performing assets consist of non-performing loans and real estate owned as a result of foreclosure, which is held for sale. Loans are placed on non-accrual status when management believes that a borrower’s financial condition is such that collection of interest is doubtful. Commercial and real estate related loans are generally placed on non-accrual when interest is 90 days delinquent. When loans are placed on non-accrual, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses.
The following table sets forth information regarding non-performing loans and real estate as of December 31, 2025 and 2024:
As of December 31,
(dollars in thousands)
Non-accrual loans:
Real Estate loans
Residential
Commercial
Agricultural
Construction
Commercial
Other agricultural loans
Consumer loans
Total non-accrual loans*
Accruing loans which are contractually past-due 90 days or more
Total non-performing loans
Foreclosed real estate
Total non-performing assets
Securities
The securities portfolio consists of U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities issued by government sponsored entities and municipal obligations. The Company classifies its investments into two categories: held to maturity (HTM) and available for sale (AFS). The Company does not have trading securities. Securities classified as HTM are those in which the Company has the ability and the intent to hold the security until contractual maturity. As of December 31, 2025, there were no securities carried in the HTM portfolio. Securities classified as AFS are eligible to be sold due to liquidity needs or interest rate risk management. These securities are adjusted to and carried at their fair value with any unrealized gains or losses recorded net of deferred income taxes, as an adjustment to capital and reported in the equity section of the Consolidated Balance Sheet as other comprehensive income. As of December 31, 2025, $408.8 million of securities were so classified and carried at their fair value, with unrealized losses, net of tax, of $21.9 million included in accumulated other comprehensive income (loss) as a component of stockholders’ equity. The Company considers its investment portfolio a source of earnings and liquidity. Investment securities may also be pledged to secure public deposits and customer repurchase agreements.
As of December 31, 2025, the average life of the portfolio was 6.0 years. Purchases for the year totaled $63.3 million, while maturities and principal reductions totaled $67.8 million and proceeds from sales were $0 million.
The following table sets forth certain information regarding securities not carried at fair value through earnings, weighted average yields, and maturities of the Company’s securities portfolio as of December 31, 2025. Yields on tax-exempt securities are stated on a fully taxable equivalent basis using a Federal tax rate of 21%. Actual maturities may differ from contractual maturities as certain instruments have call features which allow prepayment of obligations. Maturity on the mortgage-backed securities is based upon contractual terms, the average life may differ as a result of changes in cash flow.
After One
After Five
Total Investment
One Year or Less
Through Five Years
Through Ten Years
After Ten Years
Securities
Carrying
Average
Carrying
Average
Carrying
Average
Carrying
Average
Carrying
Average
Value
Yield
Value
Yield
Value
Yield
Value
Yield
Value
Yield
(dollars in thousands)
U.S. Treasury securities
U.S. Government agencies
State and political subdivision
Corporate Securities
Mortgage-backed securities - government sponsored entities
Total Investment Securities
The portfolio had 8 adjustable-rate instrument as of December 31, 2025 and one adjustable-rate instrument as of December 31, 2024. The portfolio contained no private label mortgage-backed securities, collateralized debt obligations (CDOs), or trust preferred securities, and no off-balance sheet derivatives were in use. As of December 31, 2025, the portfolio did not contain any step-up bonds. The mortgage-backed securities portfolio includes pass-through bonds and collateralized mortgage obligations (CMO’s) issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).
The Company evaluates the securities in its portfolio for credit losses as fair value declines below cost. In estimating credit losses, management considers the financial condition and near-term prospects of the issuer. As of December 31, 2025, the Company held 189 investment securities in a loss position, which had a combined unrealized loss of $30.7 million. Management believes that these losses are principally due to changes in interest rates and concluded that the decline in the value of these securities was not indicative of a credit loss. The Company did not recognize any credit losses on the available-for-sale debt securities for the twelve months ended December 31, 2025 and 2024.
In December 2024, the Company repositioned its available-for-sale debt securities portfolio. The repositioning was accomplished by the sale of debt securities with an amortized cost basis of approximately $175 million and an average yield of 1.98%. The Company recognized a pre-tax loss of $20 million on these sales. The Company purchased approximately $155 million of new debt securities with an annual yield of 5.17%. Additionally, the Company undertook full repayment of $60 million of borrowings under the Federal Reserve Bank Term Funding Program ($40 million in December 2024 and $20 million in January 2025). The Company also completed an underwritten public offering and sale of 1,150,000 shares of its common stock at $26.00 per share, resulting in net proceeds to the Company of approximately $28 million in December 2024 in connection with these repositioning activities.
DEPOSITS
The Bank provides a full range of deposit products to its retail, business and municipal customers. These include interest-bearing and noninterest bearing transaction accounts, statement savings and money market accounts. Certificate of deposit terms range up to five years for retail instruments. As of December 31, 2025, the Bank did not have any brokered deposits obtained through internet listing services. As of December 31, 2025, broker deposits that were secured through Cede & Co totaled $33.2 million. The Bank participates in the Jumbo CD ($250,000 and over) markets with local municipalities and school districts which are typically priced on a competitive bid basis. Other services the Bank offers its customers include IntraFi CDARS and ICS, cash management, direct deposit, Remote Deposit Capture, mobile deposit capture, Zelle and Automated Clearing House (ACH) activity. The Bank operates thirty automated teller machines and is affiliated with the MoneyPass® ATM network. Internet banking including bill-pay is offered through the website at wayne.bank. Other services, such as eStatements and mobile banking are available online.
The following table sets forth information regarding deposit categories of the Company.
Years Ended December 31,
Average
Average
Balance
Rate Paid
Balance
Rate Paid
(dollars in thousands)
Noninterest-bearing demand
Interest-bearing demand
Money Market
Savings
Time
Total
As of December 31, 2025 and 2024, the total of uninsured deposits of the Company was $833,097,000 and $698,357,000, respectively. Total uninsured deposits is calculated based on regulatory reporting requirements and reflects the portion of any deposit of a customer at an insured depository institution that exceeds the applicable FDIC insurance coverage for that depositor at that institution and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regime.
As of December 31, 2025, the total of U.S. time deposits in excess of the FDIC insurance limits were $289,851,000. Time deposits over $250,000, which consist principally of school district funds, other public funds and short-term deposits from large commercial customers, with maturities are generally less than one year. These deposits are subject to competitive bid and the Company bases its bid on current interest rates, loan demand, investment portfolio structure and the relative cost of other funding sources.
The following table indicates the amount of time deposits that are uninsured by time remaining until maturity as of December 31, 2025:
Amount
(in thousands)
Three months or less
Over 3 through 6 months
Over 6 months through 12 months
Over 12 months
Total deposits as of December 31, 2025, were $2.079 billion, an increase of $219.5 million from December 31, 2024. Non-maturity interest-bearing deposits increased $83.6 million in 2025, while non-interest bearing demand deposits increased $38.1 million. Time deposits increased $97.8 million during 2025.
As of December 31, 2025, non-interest bearing demand deposits totaled $419.6 million compared to $381.5 million at December 31, 2024. Cash management accounts in the form of securities sold under agreements to repurchase included in short-term borrowings, totaled $0 at December 31, 2025 compared to $36.3 million as of December 31, 2024. These balances represent commercial and municipal customers’ funds invested in overnight securities. The Company considers these accounts as a source of core funding.
RESULTS OF OPERATIONS
This Annual Report contains or references fully taxable-equivalent interest income and net interest income, which are non-GAAP financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using a marginal tax rate of 21%. We believe the presentation of interest income and net interest income on a fully taxable-equivalent basis ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.
Summary
Net income for the Company for the year ended December 31, 2025 was $27,755,000, compared to the net loss of $160,000 in the year ended December 31, 2024. Earnings per share on a fully diluted basis were $3.01 for 2025 compared to losses per share on fully diluted basis of $0.02 in 2024. The return on average assets for the year ended December 31, 2025, was 1.17%, and the return on average equity was 12.22%, compared to (0.01)% and (0.09)%, respectively, for the year ended December 31, 2024. Net interest income increased $16,133,000 for the year ended December 31, 2025.
For the year ended December 31, 2025, fully taxable equivalent (“fte”) net interest income totaled $79,099,000, an increase of $16,089,000 from the year ended December 31, 2024 total. Average loans outstanding increased $145.4 million in 2025, which contributed to an increase in interest income (fte) of $10.6 million. During the year ended December 31, 2025, average interest-bearing deposits increased $169.6 million, which contributed to an increase in interest expense of $1.3 million. The cost of borrowed funds decreased $3.5 million in 2025, compared to the prior year due to a decrease in borrowings. During the year ended December 31, 2025, the resulting net interest spread (fte) decreased to 2.81% compared to 2.17% at December 31, 2024, due to a 0.38% increase in the yield earned, and a 0.26% decrease in the cost of funds.
Total other income was $9,617,000 for the year ended December 31, 2025, compared to a loss of $11,151,000 in the prior year, an increase of $20,768,000. Net realized losses on sales of securities decreased $19,962,000 during the year ended December 31, 2025, primarily as a result of the repositioning of the securities portfolio in December 2024, while gains on the sale of foreclosed real estate owned and gains on sale of loans increased $99,000 in aggregate. Earnings and proceeds on life insurance policies increased $32,000 in 2025 compared to 2024, while all other items of other income increased $675,000, net, in 2025.
During the year ended December 31, 2025, other expenses were $51,149,000, compared to $48,625,000 for the year ended December 31, 2024, an increase of $2,524,000. Salaries and benefits costs increased $1,910,000 in 2025, while merger related expenses increased $1,238,000, and furniture and equipment expenses increased $284,000. All other operating expenses decreased $908,000, net, in 2025. Income tax expense for the 2025 year totaled $7,264,000, compared to an income tax benefit of $98,000 from the 2024 year ended. The effective tax rate in 2025 was 20.7% compared to 38.0% in 2024.
The following table sets forth changes in net income (loss) (in thousands):
Net loss 2024
Net interest income
Provision for credit losses
Net gains on sales of loans and securities
Net gains on sales of foreclosed real estate
Other income
Salaries and employee benefits
Occupancy, furniture and equipment
Data processing and related operations
Advertising
FDIC insurance assessment
Indirect dealer fees
Shares tax expense
Merger related
Other expenses
Income tax expense
Net income 2025
NET INTEREST INCOME
Net interest income (fte) totaled $79,099,000 for the year ended December 31, 2025 compared to $63,010,000 for 2024, an increase of $16,089,000. The resulting fte net interest spread and net interest margin were 2.81% and 3.49%, respectively, in 2025 compared to 2.17% and 2.91%, respectively, in 2024.
Interest income (fte) for the year ended December 31, 2025 totaled $127,303,000 compared to $113,399,000 in 2024. The fte yield on average earning assets was 5.62%, increasing 38 basis points from the 5.24% reported last year. The tax-equivalent yield on total loans was 6.16% in 2025, increasing from 6.06% in 2024, while average loans outstanding increased $145.4 million, resulting in an increase in interest income (fte) from loans of $10.6 million. The yield on securities increased 123 basis points in 2025 due primarily to the repositioning of the portfolio in December 2024. During the year ended December 31, 2025, while average securities outstanding decreased $20.8 million, interest income (fte) from securities outstanding, increased $5.0 million from the year ended December 31, 2024.
Interest expense was $48,204,000 for the year ended December 31, 2025, which resulted in an average cost of interest-bearing liabilities of 2.81% compared to total interest expense of $50,389,000 during the year ended December 31, 2024, with an average cost of 3.07%. Total interest-bearing deposits cost was 2.71% for the year ended December 31, 2025, which was a decrease of 23 basis points over the 2024 fiscal year ended. The decrease in cost was due primarily to time certificates of deposit that repriced to current market rates upon maturity, resulting in a decrease in the interest rate paid from 4.18% in 2024 to 3.81% in 2025, along with a decrease in the interest-bearing demand and money market from 2.21% in 2024 to 2.04% in 2025, and a decrease in savings from 0.32% in 2024 to 0.24% in 2025.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $1,773,000 in 2025 compared to $2,673,000 in 2024. Net charge-offs for the year ended December 31, 2025 decreased to $1,890,000 from net charge-offs of $1,671,000 for the year ended December 31, 2024.
The Company makes provisions for, or releases of, credit losses in an amount necessary to maintain the allowance for credit losses at an acceptable level under the current expected credit loss methodology analysis.
OTHER INCOME
Total other income was $9,617,000 for the year ended December 31, 2025, compared to a loss of other income of $11,151,000 for the year ended December 31, 2024, an increase of $20,768,000. Net realized losses on sales of securities decreased $19,962,000 to $0 during the year ended December 31, 2025, primarily as a result of the repositioning of the securities portfolio in December 2024. Service charges and fees increased $462,000 and gains on sale of loans increased $131,000. All other items of other income increased $213,000, net, during the year ended December 31, 2025.
Other Income (dollars in thousands)
For the year ended December 31
The following table shows total other income:
Service charges and fees
Income from fiduciary activities
Net realized (losses) gains on sales of securities
Net gain on sale of loans
Net gain on sale of foreclosed real estate owned
Earnings and proceeds on life insurance policies
Other
Total
OTHER EXPENSES
Other expenses totaled $51,149,000 for the year ended December 31, 2025, compared to $48,625,000 in the 2024 fiscal year. For the year ended December 31, 2025, salaries and employee benefits increased $1,910,000 to $26,928,000, while merger related expenses increased $1,238,000. Furniture and equipment expenses increased $284,000 to $1,405,000 during the year ended December 31, 2025, compared to $1,121,000 for the year ended December 31, 2024. During the year ended December 31, 2025, all other operating expenses decreased $908,000, net. The Company’s efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income excluding losses on securities sales was 58.2% in 2025 compared to 68.5% in 2024. Please see “Non-GAAP Financial Measures” later in this discussion for more information on this Non-GAAP Financial Measure.
Other Expenses (dollars in thousands)
For the year ended December 31
The following table shows total other expenses:
Salaries
Employee benefits
Occupancy
Furniture and equipment
Data processing and related operations
Federal Deposit Insurance Corporation insurance assessment
Advertising
Professional fees
Postage and telephone
Taxes, other than income
Foreclosed real estate
Amortization of intangible assets
Merger related
Other
Total
INCOME TAXES
Income tax expense for the year ended December 31, 2025 totaled $7,264,000, which resulted in an effective tax rate of 20.7%, compared to an income tax benefit of $98,000 and 38.0% for 2024.
CAPITAL AND DIVIDENDS
Total stockholders’ equity as of December 31, 2025 was $242.2 million, compared to $213.5 million as of December 31, 2024. Earnings retention, net of an $11.6 million reduction resulting from cash dividends declared, contributed to the increase. Fluctuations in interest rates during the year ended December 31, 2025, impacted the fair value of the Company’s Available-for-Sale securities, and contributed to $11.8 million increase in accumulated other comprehensive income. As of December 31, 2025 the Company had a leverage capital ratio of 9.65%, a Tier 1 risk-based capital ratio and a common equity Tier 1 risk-based capital ratio of 12.37%, and a total risk-based capital ratio of 13.41%, compared to 9.36%, 12.35% and 13.45%, respectively, at December 31, 2024.
NON-GAAP FINANCIAL MEASURES
This Annual Report contains or references fully taxable-equivalent interest income and net interest income, which are non-GAAP financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using a marginal tax rate of 21%. We believe the presentation of interest income and net interest income on a fully taxable-equivalent basis ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.
The following table reconciles net interest income to net interest income on a fully taxable-equivalent basis:
(dollars in thousands)
Years ended December 31,
Net interest income
Tax-equivalent basis adjustment
using a 21% marginal tax rate
Net interest income on a fully
taxable equivalent basis
The following table provides a reconciliation between certain GAAP financial measures (net interest income and other expense) and the related non-GAAP measures to derive the efficiency ratio measure:
(dollars in thousands)
Years ended December 31,
Net interest income
Other income
Add back net realized (losses) gains on sales of securities
Total adjusted revenue
Other Expenses
Efficiency ratio
CONSOLIDATED AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES
(Tax-Equivalent Basis, dollars in thousands)
Year Ended December 31
Average
Average
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
ASSETS
Interest-earning assets:
Interest-bearing deposits with banks
Securities available for sale:
Taxable
Tax-exempt (1)
Total securities available for sale
Loans receivable (1)(3)(4)
Total interest-earning assets
Noninterest earning assets:
Cash and due from banks
Allowance for credit losses
Other assets
Total noninterest earning assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing demand and money market
Savings
Time
Total interest-bearing deposits
Short-term borrowings
Other borrowings
Total interest-bearing liabilities
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits
Other liabilities
Total noninterest-bearing liabilities
Stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
Net Interest Income/spread
(tax equivalent basis)
Tax-equivalent basis adjustment
Net Interest Income
Net interest margin
(tax equivalent basis)
(1) Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 21%.
(2) Average balances have been calculated based on daily balances.
(3) Loan balances include non-accrual loans and are net of unearned income.
(4) Loan yields include the effect of amortization of purchased credit marks and deferred fees net of costs.
RATE/VOLUME ANALYSIS
The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income and interest expense.
Increase/(Decrease)
(dollars in thousands)
2025 compared to 2024
Variance due to
Volume
Rate
Net
INTEREST-EARNING ASSETS:
Interest-bearing deposits
Securities available for sale:
Taxable
Tax-exempt securities
Total securities available for sale
Loans receivable
Total interest-earning assets
INTEREST-BEARING LIABILITIES
Interest-bearing demand and money market
Savings
Time
Total interest-bearing deposits
Short-term borrowings
Other borrowings
Total interest-bearing liabilities
Net interest income (tax-equivalent basis)
Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.
