Hawthorn Bancshares Inc.

11/07/2025 | Press release | Distributed by Public on 11/07/2025 14:25

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

Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, strategy, future performance and business of Hawthorn Bancshares, Inc., and its subsidiaries (collectively, the "Company", "we", "our", or "us"), including, without limitation statements that are not historical in nature, and statements preceded by, followed by or that include the words believes, expects, may, will, should, could, anticipates, estimates, intends, plans, hopesor similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, such possible events or factors such as: changes in economic conditions generally or in the Company's market area, changes in policies by regulatory agencies, governmental legislation and regulation, tariffs and trade disruptions, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company's market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, and cybersecurity threats and such other factors as described in described in the forward-looking statements under the caption Risk Factorsin Item 1A. of the Company's Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K"), and in other reports filed by us with the Securities and Exchange Commission ("SEC") from time to time. Other factors that have not been identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement, which speak only as of the date they were made. Except as required by law, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in its business, results of operations or financial condition over time. During the quarter ended September 30, 2025, there were no material changes to the Risk Factors disclosed in the Company's 2024 Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Certain accounting policies are considered most critical to the understanding of the Company's financial condition and results of operations. These critical accounting policies and estimates require management's most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experiences. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The Company has identified certain accounting policies as "critical accounting policies and estimates," consisting of those related to the allowance for credit losses, as described in the section captioned "Critical Accounting Policies and Estimates"incorporated by reference in Item 7, Management's Discussion and Analysis of Financial Condition and results of Operations included in the 2024 Form 10-K. There have been no changes in the Company's application of critical accounting policies and estimates since December 31, 2024.
Overview
Crucial to the Company's community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank, Hawthorn Bank (the "Bank"), the Company, with $1.93 billion in assets at September 30, 2025, provides a broad range of commercial and personal banking services. The Bank's specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business Administration ("SBA") loans, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. The Company also provides other financial services through its Wealth Management business, including trust services, estate planning, investment and asset management services and a comprehensive suite of cash management services. Beginning with the first quarter of 2025, the Company's Wealth Management business is reported as a separate reporting segment, and the Company operates two reporting segments, consisting of the Bank and the Wealth Management business. The geographic areas in which the Company provides products and services include the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area.
The Company's primary source of revenue is net interest income derived primarily from lending and deposit taking activities. Much of the Company's business is commercial, commercial real estate development, and residential mortgage lending. The Company's income from mortgage brokerage activities is directly dependent on mortgage rates and the level of home purchases and refinancing activity.
The success of the Company's growth strategy depends primarily on the ability of its banking subsidiary to generate an increasing level of loans and deposits at acceptable risk levels and on acceptable terms without significant increases in non-interest expenses relative to revenues generated. The Company's financial performance also depends, in part, on its ability to manage various portfolios and to successfully introduce additional financial products and services by expanding new and existing customer relationships, utilizing improved technology, and enhancing customer satisfaction. Furthermore, the success of the Company's growth strategy depends on its ability to maintain sufficient regulatory capital levels during periods in which general economic conditions are unfavorable and despite economic conditions being beyond its control.
The Company's subsidiary bank is a full-service bank that conducts general banking business, offering its customers checking and savings accounts, debit cards, certificates of deposit, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, residential real estate loans, single payment personal loans, installment loans and credit card accounts. In addition, the Bank provides trust and brokerage services.
The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. The operations of the Bank are supervised and regulated by the FDIC and the Missouri Division of Finance. Periodic examinations of the Bank are conducted by representatives of the FDIC and the Missouri Division of Finance. Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is subject to supervision and examination by the Board of Governors of the Federal Reserve System.
Executive Summary
The Company has prepared all of the consolidated financial information in this report in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") and the rules of the SEC. In preparing the consolidated financial statements in accordance with U.S. GAAP, the Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurances that actual results will not differ from those estimates.
As of and for the As of and for the
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands, except per share data) 2025 2024 2025 2024
Net interest income $ 16,865 $ 14,327 $ 48,301 $ 43,246
Provision for (release of) for credit losses 375 500 (16) 726
Non-interest income 3,716 3,783 10,724 10,798
Investment securities gains (losses), net 105 8 102 (7)
Non-interest expense 12,821 11,994 37,589 36,603
Income before income taxes 7,490 5,624 21,554 16,708
Income tax expense 1,358 1,050 3,938 3,049
Net income $ 6,132 $ 4,574 $ 17,616 $ 13,659
Basic earnings per share $ 0.89 $ 0.66 $ 2.54 $ 1.95
Diluted earnings per share $ 0.88 $ 0.66 $ 2.53 $ 1.95
Performance Ratios
Return on total assets 1.33% 1.00% 1.30% 1.00%
Return on stockholders' equity 15.21 12.87 15.13 13.24
Efficiency ratio(1)
62.30 66.23 63.68 67.73
Net interest margin, fully tax-equivalent 3.97 3.36 3.85 3.36
Average stockholders' equity to total assets 8.74 7.80 8.58 7.54
Market and per share data
Book value per share (2)
$ 23.76 $ 20.91
Market price per share $ 31.04 $ 25.03
Cash dividends declared on common stock $ 1,384 $ 1,327 $ 4,101 $ 3,850
(1)Efficiency ratio is calculated as non-interest expense as a percentage of revenue. Total revenue is calculated as net interest income plus non-interest income.
(2)Book value per share is calculated using weighted average shares.
As of and for the Three Months Ended
As of and for the Nine Months Ended
September 30, September 30,
(dollars in thousands, except per share data) 2025 2024 2025 2024
Capital Ratios
Stockholders' equity to assets 8.54% 8.09%
Total risk-based capital ratio 14.90 14.91
Tier 1 risk-based capital ratio 13.65 13.66
Common equity Tier 1 capital 10.71 10.53
Tier 1 leverage ratio(1)
11.97 11.33
Asset Quality
Non-performing loans $ 4,911 $ 4,066
Non-performing assets $ 7,336 $ 8,451
Net loan charge-offs $ 41 $ 636 $ 74 $ 2,682
Net charge-offs to average loans (2)
0.01% 0.17% 0.01% 0.24%
Allowance for credit losses to total loans 1.45 1.50
Non-performing loans to total loans 0.32 0.28
Non-performing assets to total loans 0.48 0.58
Non-performing assets to total assets 0.38 0.47
(1)Tier 1 leverage ratio is calculated by dividing Tier 1 capital by average total consolidated assets.
(2)Annualized
Results of Operations Highlights:
Consolidated net income was $6.1 million, or $0.88 per diluted share, and $17.6 million, or $2.53 per diluted share, for the three and nine months ended September 30, 2025, respectively, compared to $4.6 million, or $0.66 per diluted share, and $13.7 million, or $1.95 per diluted share, for the three and nine months ended September 30, 2024, respectively. For the three and nine months ended September 30, 2025, the return on average assets was 1.33% and 1.30%, respectively, the return on average stockholders' equity was 15.21% and 15.13%, respectively, and the efficiency ratio was 62.30% and 63.68%, respectively.
Net interest income was $16.9 million and $48.3 million for the three and nine months ended September 30, 2025, respectively, compared to $14.3 million and $43.2 million for the three and nine months ended September 30, 2024, respectively. Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.97% and 3.85% for the three and nine months ended September 30, 2025, respectively, compared to 3.36% for both the three and nine months ended September 30, 2024. The change to net interest margin on a fully taxable equivalent basis is discussed in greater detail under the Average Balance Sheet Data andRate and Volume Analysissections.
Non-interest income was $3.7 million and $10.7 million for the three and nine months ended September 30, 2025, respectively, compared to $3.8 million and $10.8 million for the three and nine months ended September 30, 2024, respectively. These changes are discussed in greater detail under the Non-interest Income and Expense section.
Non-interest expense was $12.8 million and $37.6 million for the three and nine months ended September 30, 2025, respectively, compared to $12.0 million and $36.6 million for the three and nine months ended September 30, 2024, respectively. These changes are discussed in greater detail under the Non-interest Income and Expensesection.
Balance Sheet Highlights:
Cash and cash equivalents- Cash and cash equivalents increased $48.9 million to $99.9 million as of September 30, 2025 compared to $51.0 million as of December 31, 2024, and increased $45.7 million compared to $54.2 million as of September 30, 2024. See the Liquidity Management section for further discussion.
Loans- Loans held for investment increased $47.8 million to $1.51 billion as of September 30, 2025 compared to $1.47 billion as of December 31, 2024, and increased $47.3 million compared to $1.47 billion as of September 30, 2024.
Asset quality- Non-performing assets totaled $7.3 million, or 0.48% of total loans, at September 30, 2025 compared to $4.2 million, or 0.29% of total loans, at December 31, 2024 and $8.5 million, or 0.58% of total loans, at September 30, 2024.
In the third quarter of 2025, the Company had net loan charge-offs of $0.04 million, or 0.01% of average loans, compared to net loan charge-offs $0.6 million, or 0.17% of average loans, in the same prior year quarter.
The allowance for credit losses was $21.9 million, or 1.45% of loans outstanding, at September 30, 2025 compared to $22.0 million, or 1.50% of loans outstanding, at December 31, 2024, and $21.9 million, or 1.50% of loans outstanding at September 30, 2024. These changes are discussed in greater detail under the Lending and Credit Managementsection.
Deposits- Total deposits decreased $7.3 million to $1.53 billion as of September 30, 2025 compared to $1.53 billion as of December 31, 2024, and increased $22.4 million compared to $1.50 billion as of September 30, 2024.
Federal Home Loan Bank ("FHLB") advances and other borrowings - Total FHLB advances and other borrowings increased $95.6 million to $177.1 million as of September 30, 2025, compared to $81.5 million as of December 31, 2024, and increased $80.6 million compared to $96.5 million as of September 30, 2024.
Capital- The Company maintains its "well capitalized" regulatory capital position. At September 30, 2025, capital ratios were as follows: total risk-based capital to risk-weighted assets 14.90%; tier 1 capital to risk-weighted assets 13.65%; tier 1 leverage 11.97%; and stockholders' equity to assets 8.54%.
Average Balance Sheet Data
Net interest incomeis the largest source of revenue resulting from the Company's lending, investing, borrowing, and deposit gathering activities. It is affected both by changes in the level of interest rates and changes in the amounts and mix of interest earning assets and interest bearing liabilities. The following tables present average balance sheet data, net interest income, average yields of earning assets, average costs of interest bearing liabilities, net interest spread and net interest margin on an FTE basis for each of the three and nine month periods ended September 30, 2025 and 2024, respectively. The average balances used in this table and other statistical data were calculated using average daily balances.
Three Months Ended September 30,
2025 2024
(dollars in thousands) Average Balance
Interest Income/ Expense(1)
Rate Earned/ Paid (1)
Average Balance
Interest Income/ Expense (1)
Rate Earned/ Paid (1)
ASSETS
Loans: (2)
Commercial $ 214,213 $ 3,821 7.08% $ 210,783 $ 3,592 6.78%
Real estate construction - residential 31,032 598 7.65 35,611 717 8.01
Real estate construction - commercial 64,791 1,277 7.82 61,546 1,269 8.20
Real estate mortgage - residential 378,863 5,597 5.86 369,068 5,235 5.64
Real estate mortgage - commercial 778,290 11,320 5.77 792,668 10,727 5.38
Installment and other consumer 10,950 186 6.74 15,977 235 5.85
Total loans 1,478,139 22,799 6.12 1,485,653 21,775 5.83
Loans held for sale 333 10 11.91 610 13 8.48
Investment securities:
U.S. Treasury 5,043 53 4.17 - - -
U.S. government and federal agency obligations 12,498 131 4.16 13,218 140 4.21
Obligations of states and political subdivisions 97,521 833 3.39 103,790 745 2.86
Mortgage-backed securities 76,014 729 3.80 61,907 530 3.41
Other debt securities 27,652 465 6.67 13,335 191 5.70
Total investment securities 218,728 2,211 4.01 192,250 1,606 3.32
Other investment securities 5,271 114 8.58 5,844 141 9.60
Interest bearing deposits in other financial institutions 21,590 256 4.70 34,099 469 5.47
Total interest earning assets 1,724,061 25,390 5.84% 1,718,456 24,004 5.56%
All other assets 126,307 117,429
Allowance for credit losses (21,688) (21,923)
Total assets $ 1,828,680 $ 1,813,962
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings $ 273,814 $ 1,164 1.69% $ 273,470 $ 1,612 2.35%
NOW accounts 158,379 581 1.46 190,084 677 1.42
Interest checking 147,609 1,308 3.52 121,423 1,372 4.50
Money market 207,184 983 1.88 221,794 1,249 2.24
Time deposits 314,846 2,523 3.18 319,279 2,834 3.53
Total interest bearing deposits 1,101,832 6,559 2.36 1,126,050 7,744 2.74
Federal funds purchased and securities sold under agreements to repurchase 72 1 5.51 29 - -
Federal Home Loan Bank advances and other borrowings 86,203 718 3.30 99,293 759 3.04
Subordinated notes 49,486 860 6.89 49,486 989 7.95
Total borrowings 135,761 1,579 4.61 148,808 1,748 4.67
Total interest bearing liabilities 1,237,593 8,138 2.61% 1,274,858 9,492 2.96%
Demand deposits 417,628 385,298
Other liabilities 13,559 12,375
Total liabilities 1,668,780 1,672,531
Stockholders' equity 159,900 141,431
Total liabilities and stockholders' equity $ 1,828,680 $ 1,813,962
Net interest income (FTE) $ 17,252 $ 14,512
Net interest spread (FTE) 3.23% 2.59%
Net interest margin (FTE) 3.97% 3.36%
Nine months ended September 30,
2025 2024
(dollars in thousands) Average Balance
Interest Income/ Expense(1)
Rate Earned/ Paid (1)
Average Balance
Interest Income/ Expense (1)
Rate Earned/ Paid (1)
ASSETS
Loans: (2)
Commercial $ 207,419 $ 10,493 6.76% $ 217,576 $ 10,847 6.66%
Real estate construction - residential 29,895 1,744 7.80 46,247 2,705 7.81
Real estate construction - commercial 70,411 4,068 7.72 70,452 3,788 7.18
Real estate mortgage - residential 373,517 16,283 5.83 371,072 15,716 5.66
Real estate mortgage - commercial 772,091 32,543 5.64 783,960 31,328 5.34
Installment and other consumer 12,060 587 6.51 17,916 780 5.82
Total loans 1,465,393 65,718 6.00 1,507,223 65,164 5.78
Loans held for sale 198 15 10.13 1,841 80 5.80
Investment securities:
U.S. Treasury 5,004 158 4.22 656 26 5.29
U.S. government and federal agency obligations 12,983 412 4.24 14,994 502 4.47
Obligations of states and political subdivisions 98,728 2,504 3.39 103,687 2,256 2.91
Mortgage-backed securities 78,223 2,272 3.88 54,356 1,270 3.12
Other debt securities 25,953 1,186 6.11 12,640 550 5.81
Total investment securities 220,891 6,532 3.95 186,333 4,604 3.30
Other investment securities 4,709 319 9.06 6,126 428 9.33
Interest bearing deposits in other financial institutions 23,066 795 4.61 41,149 1,732 5.62
Total interest earning assets 1,714,257 73,379 5.72% 1,742,672 72,008 5.52%
All other assets 123,118 109,477
Allowance for credit losses (21,918) (23,132)
Total assets $ 1,815,457 $ 1,829,017
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings $ 273,704 $ 3,669 1.79% $ 249,594 $ 3,912 2.09%
NOW accounts 184,341 1,988 1.44 197,898 2,084 1.41
Interest checking 143,650 3,975 3.70 128,420 4,359 4.53
Money market 206,771 2,839 1.84 226,115 3,679 2.17
Time deposits 306,050 7,409 3.24 333,923 8,744 3.50
Total interest bearing deposits 1,114,516 19,880 2.38 1,135,950 22,778 2.68
Federal funds purchased and securities sold under agreements to repurchase 58 2 4.61 10 1 13.36
Federal Home Loan Bank advances and other borrowings 73,673 1,621 2.94 105,050 2,438 3.10
Subordinated notes 49,486 2,568 6.94 49,486 2,964 8.00
Total borrowings 123,217 4,191 4.55 154,546 5,403 4.67
Total interest bearing liabilities 1,237,733 24,071 2.60% 1,290,496 28,181 2.92%
Demand deposits 409,219 389,003
Other liabilities 12,815 11,690
Total liabilities 1,659,767 1,691,189
Stockholders' equity 155,690 137,828
Total liabilities and stockholders' equity $ 1,815,457 $ 1,829,017
Net interest income (FTE) $ 49,308 $ 43,827
Net interest spread (FTE) 3.12% 2.60%
Net interest margin (FTE) 3.85% 3.36%
(1)Interest income and yields are presented on an FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the three and nine months ended September 30, 2025 and 2024. Such adjustments totaled $0.4 million and $0.2 million for the three months ended September 30, 2025 and 2024, respectively, compared to $1.0 million and $0.6 million for the nine months ended September 30, 2025 and 2024, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
Rate and Volume Analysis
The following table summarizes the changes in net interest income on an FTE basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates for the three and nine months ended September 30, 2025 compared to the three and nine months ending ended September 30, 2024, respectively. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.
Three Months Ended September 30, Nine Months Ended September 30,
2025 vs. 2024 2025 vs. 2024
Change due to Change due to
(dollars in thousands) Total Change Average Volume Average Rate Total Change Average Volume Average Rate
Interest income on a fully taxable equivalent basis: (1)
Loans: (2)
Commercial $ 229 $ 60 $ 169 $ (354) $ (513) $ 159
Real estate construction - residential (119) (89) (30) (961) (957) (4)
Real estate construction - commercial 8 65 (57) 280 (2) 282
Real estate mortgage - residential 362 141 221 567 105 462
Real estate mortgage - commercial 593 (198) 791 1,215 (482) 1,697
Installment and other consumer (49) (81) 32 (193) (278) 85
Loans held for sale (3) (7) 4 (65) (101) 36
Investment securities:
U.S. Treasury 53 53 - 132 139 (7)
U.S. government and federal agency obligations (9) (8) (1) (90) (65) (25)
Obligations of states and political subdivisions 88 (47) 135 248 (112) 360
Mortgage-backed securities 199 131 68 1,002 647 355
Other debt securities 274 237 37 636 609 27
Other investment securities (27) (14) (13) (109) (96) (13)
Interest bearing deposits in other financial institutions (213) (156) (57) (937) (665) (272)
Total interest income 1,386 87 1,299 1,371 (1,771) 3,142
Interest expense:
Savings $ (448) $ 2 $ (450) $ (243) $ 357 $ (600)
NOW accounts (96) (116) 20 (96) (145) 49
Interest checking (64) 265 (329) (384) 480 (864)
Money market (266) (78) (188) (840) (299) (541)
Time deposits (311) (39) (272) (1,335) (703) (632)
FHLB advances and other borrowings (41) (105) 64 (817) (698) (119)
Subordinated notes (129) - (129) (396) - (396)
Total interest expense (1,354) (71) (1,283) (4,110) (1,005) (3,105)
Net interest income on an FTE basis $ 2,740 $ 158 $ 2,582 $ 5,481 $ (766) $ 6,247
(1)Interest income and yields are presented on an FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the three and nine months ended September 30, 2025 and 2024, respectively. Such adjustments totaled $0.4 million and $1.0 million for the three and nine months ended September 30, 2025, respectively, compared to $0.2 million and $0.6 million for the three and nine months ended September 30, 2024, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
Financial results for the quarter ended September 30, 2025 compared to the quarter ended September 30, 2024, reflected an increase in net interest income on an FTE basis of $2.7 million, or 18.9%, and financial results for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 reflected an increase in net interest income on an FTE basis of $5.5 million, or 12.5%. Measured as a percentage of average earning assets, the net interest margin (expressed on an FTE basis) increased to 3.97% for the quarter ended September 30, 2025 compared to 3.36% for the quarter ended September 30, 2024, and increased to 3.85% for the nine months ended September 30, 2025 compared to 3.36% for the nine months ended September 30, 2024.
Average interest earning assets increased $5.6 million, or 0.3%, to $1.72 billion for the quarter ended September 30, 2025 compared to $1.72 billion for the quarter ended September 30, 2024, and average interest bearing liabilities decreased $37.3 million, or 2.9%, to $1.24 billion for the quarter ended September 30, 2025 compared to $1.27 billion for the quarter ended September 30, 2024.
Average interest earning assets decreased $28.4 million, or 1.6%, to $1.71 billion for the nine months ended September 30, 2025 compared to $1.74 billion for the nine months ended September 30, 2024, and average interest bearing liabilities decreased $52.8 million, or 4.1%, to $1.24 billion for the nine months ended September 30, 2025 compared to $1.29 billion for the nine months ended September 30, 2024.
Total interest income(expressed on an FTE basis) was $25.4 million and $73.4 million for the three and nine months ended September 30, 2025, respectively, compared to $24.0 million and $72.0 million for the three and nine months ended September 30, 2024, respectively. The Company's rates earned on interest earning assets were 5.84% and 5.72% for the three and nine months ended September 30, 2025, respectively, compared to 5.56% and 5.52% for the three and nine months ended September 30, 2024, respectively.
Interest income on loans held for investment(expressed on an FTE basis) was $22.8 million and $65.7 million for the three and nine months ended September 30, 2025, respectively, compared to $21.8 million and $65.2 million for the three and nine months ended September 30, 2024, respectively.
Average loans outstanding decreased $7.5 million, or 0.5%, to $1.48 billion for the quarter ended September 30, 2025 compared to $1.49 billion for the quarter ended September 30, 2024. The average yield on loans increased to 6.12% for the quarter ended September 30, 2025 compared to 5.83% for the quarter ended September 30, 2024.
Average loans outstanding decreased $41.8 million, or 2.8%, to $1.47 billion for the nine months ended September 30, 2025 compared to $1.51 billion for the nine months ended September 30, 2024. The average yield on loans increased to 6.00% for the nine months ended September 30, 2025 compared to 5.78% for the nine months ended September 30, 2024. See the Lending and Credit Managementsection for further discussion of changes in the composition of the lending portfolio.
Interest income on available-for-sale securities (expressed on an FTE basis) was $2.2 million and $6.5 million for the three and nine months ended September 30, 2025, respectively, compared to $1.6 million and $4.6 million for the three and nine months ended September 30, 2024, respectively.
Average securities increased $26.5 million, or 13.8%, to $218.7 million for the quarter ended September 30, 2025 compared to $192.3 million for the quarter ended September 30, 2024. The average yield on securities increased to 4.01% for the quarter ended September 30, 2025 compared to 3.32% for the quarter ended September 30, 2024.
Average securities increased $34.6 million, or 18.5%, to $220.9 million for the nine months ended September 30, 2025 compared to $186.3 million for the nine months ended September 30, 2024. The average yield on securities increased to 3.95% for the nine months ended September 30, 2025 compared to 3.30% for the nine months ended September 30, 2024. See the Liquidity Management section for further discussion.
Total interest expensewas $8.1 million and $24.1 million for the three and nine months ended September 30, 2025, respectively, compared to $9.5 million and $28.2 million for the three and nine months ended September 30, 2024, respectively. The Company's rates paid on interest bearing liabilities were 2.61% and 2.60% for the three and nine months ended September 30, 2025, respectively, compared to 2.96% and 2.92% for the three and nine months ended September 30, 2024, respectively. See the Liquidity Managementsection for further discussion.
Interest expense on depositswas $6.6 million and $19.9 million for the three and nine months ended September 30, 2025, respectively, compared to $7.7 million and $22.8 million for the three and nine months ended September 30, 2024, respectively.
Average interest bearing deposits decreased $24.2 million, or 2.2%, to $1.10 billion for the quarter ended September 30, 2025 compared to $1.13 billion for the quarter ended September 30, 2024. The average cost of deposits decreased to 2.36% for the quarter ended September 30, 2025 compared to 2.74% for the quarter ended September 30, 2024.
Average interest bearing deposits decreased $21.4 million, or 1.9%, to $1.11 billion for the nine months ended September 30, 2025 compared to $1.14 billion for the nine months ended September 30, 2024. The average cost of deposits decreased to 2.38% for the nine months ended September 30, 2025 compared to 2.68% for the nine months ended September 30, 2024.
Interest expense on borrowingswas $1.6 million and $4.2 million for the three and nine months ended September 30, 2025, respectively, compared to $1.7 million and $5.4 million for the three and nine months ended September 30, 2024, respectively.
Average borrowings decreased $13.0 million, or 8.8%, to $135.8 million for the quarter ended September 30, 2025 compared to $148.8 million for the quarter ended September 30, 2024. The average cost of borrowings decreased to 4.61% for the quarter ended September 30, 2025 compared to 4.67% for the quarter ended September 30, 2024.
Average borrowings decreased $31.3 million, or 20.3%, to $123.2 million for the nine months ended September 30, 2025 compared to $154.5 million for the nine months ended September 30, 2024. The average cost of borrowings decreased to 4.55% for the nine months ended September 30, 2025 compared to 4.67% for the nine months ended September 30, 2024.
Non-interest Income
The following table shows the principal components of non-interest income for the three and nine months ended September 30, 2025 and 2024.
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2025 2024 $ Change % Change 2025 2024 $ Change % Change
Service charges and other fees $ 928 $ 870 $ 58 6.7 % $ 2,781 $ 2,464 $ 317 12.9 %
Bank card income and fees 1,000 1,037 (37) (3.6) 2,929 3,084 (155) (5.0)
Earnings on bank-owned life insurance 513 520 (7) (1.3) 1,532 1,162 370 31.8
Wealth management revenue 651 422 229 54.3 1,667 1,251 416 33.3
Gain on sales of mortgage loans, net 78 111 (33) (29.7) 320 786 (466) (59.3)
Gains (losses) on other real estate owned, net - 262 (262) (100.0) (156) 751 (907) (120.8)
Other 546 561 (15) (2.7) 1,651 1,300 351 27.0
Total non-interest income $ 3,716 $ 3,783 $ (67) (1.8) % $ 10,724 $ 10,798 $ (74) (0.7) %
Non-interest income as a % of total revenue (1)
18.1 % 20.9 % 18.2 % 20.0 %
(1)Total revenue is calculated as net interest income plus non-interest income.
Total non-interest incomedecreased $0.1 million, or 1.8%, to $3.7 million for the quarter ended September 30, 2025 compared to $3.8 million for the quarter ended September 30, 2024, and decreased $0.1 million, or 0.7%, to $10.7 million from $10.8 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. Compared to the prior year quarter, the decrease was primarily due to lower gains on sales of mortgage loans and lower net gains (losses) on sales of other real estate owned, offset by increases in wealth management revenue and service charges and other fees.
Service charges and other feesincreased $0.1 million, or 6.7%, to $0.9 million for the quarter ended September 30, 2025 compared to $0.9 million for the quarter ended September 30, 2024 and increased $0.3 million, or 12.9%, to $2.8 million from $2.5 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. The increase for both the three and nine months ended September 30, 2025 was primarily attributable to an increase in service charge rates assessed on customer accounts beginning in the third quarter of 2024.
Earnings on bank-owned life insurance was $0.5 million for both quarters ended September 30, 2025 and September 30, 2024, and increased to $1.5 million for the nine months ended September 30, 2025 compared to $1.2 million for the nine months ended September 30, 2024. The Company purchased $35.0 million in bank-owned life insurance policies in the first quarter of 2024. The earnings generated from these policies are primarily derived from the investment returns on the cash value component.
Wealth management revenue increased $0.2 million, or 54.3%, to $0.7 million for the quarter ended September 30, 2025 compared to $0.4 million for the quarter ended September 30, 2024. For the nine months ended September 30, 2025,
wealth management revenue totaled $1.7 million, an increase of $0.4 million, or 33.3%, from $1.3 million for the nine months ended September 30, 2024. The increases for both the three and nine month periods ended September 30, 2025 were primarily attributable the Company's identification of a strategic opportunity to add resources and provide a structure for Wealth Management products and services.
Gain on sales of mortgage loanswas $0.1 million for both quarters ended September 30, 2025 and September 30, 2024, and decreased to $0.3 million for the nine months ended September 30, 2025 compared to $0.8 million for the nine months ended September 30, 2024. The Company sold mortgage loans totaling $2.2 million and $5.1 million for the three and nine months ended September 30, 2025, respectively, compared to $7.0 million and $45.0 million for the three and nine months ended September 30, 2024, respectively.
Gains (losses) on other real estate ownedwere zero for the quarter ended September 30, 2025 compared to gains of $0.3 million for the quarter ended September 30, 2024, and were losses of $0.2 million for the nine months ended September 30, 2025 compared to gains of $0.8 million for the nine months ended September 30, 2024. The Company sold the remaining parcel related to a foreclosed property in the second quarter of 2024, and the Company recognized a $0.4 million release of the valuation write-down. Moreover, the Company sold land previously intended for a new branch, resulting in a gain of $0.3 million in the third quarter of 2024.
Non-interest Expense
The following table shows the principal components of non-interest expense for the three and nine months ended September 30, 2025 and 2024.
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2025 2024 $ Change % Change 2025 2024 $ Change % Change
Salaries $ 5,738 $ 5,115 $ 623 12.2% $ 16,519 $ 15,757 $ 762 4.8%
Employee benefits 1,469 1,424 45 3.2 4,303 4,236 67 1.6
Occupancy expense, net 931 843 88 10.4 2,814 2,364 450 19.0
Furniture and equipment expense 683 787 (104) (13.2) 2,149 2,266 (117) (5.2)
Processing, network and bank card expense 1,372 1,480 (108) (7.3) 4,216 4,212 4 0.1
Legal, examination, and professional fees 470 378 92 24.3 1,391 1,713 (322) (18.8)
Advertising and promotion 252 198 54 27.3 624 711 (87) (12.2)
Postage, printing, and supplies 354 215 139 64.7 990 571 419 73.4
Other 1,552 1,554 (2) (0.1) 4,583 4,773 (190) (4.0)
Total non-interest expense $ 12,821 $ 11,994 $ 827 6.9% $ 37,589 $ 36,603 $ 986 2.7%
Efficiency ratio (1)
62.3 % 66.2 % 63.7 % 67.7 %
Number of full-time equivalent employees 259 268 259 268
(1)Efficiency ratio is calculated as non-interest expense as a percent of revenue. Total revenue is calculated as net interest income plus non-interest income.
Total non-interest expenseincreased $0.8 million, or 6.9%, to $12.8 million for the quarter ended September 30, 2025 compared to $12.0 million for the quarter ended September 30, 2024, and increased $1.0 million, or 2.7%, to $37.6 million for the nine months ended September 30, 2025 compared to $36.6 million for the nine months ended September 30, 2024.
Salariesexpense increased $0.6 million, or 12.2%, to $5.7 million for the quarter ended September 30, 2025 compared to $5.1 million for the quarter ended September 30, 2024, and increased $0.8 million, or 4.8%, to $16.5 million for the nine months ended September 30, 2025 compared to $15.8 million for the nine months ended September 30, 2024. The increases for both the three and nine months ended September 30, 2025 were primarily attributable to overall merit increases and focused recruiting efforts to hire more experienced candidates, which aligns with the Company's overall strategic plan.
Occupancy expense, net, increased $0.1 million, or 10.4%, to $0.9 million for the quarter ended September 30, 2025 compared to $0.8 million for the quarter ended September 30, 2024, and increased $0.5 million, or 19.0%, to $2.8 million for the nine months ended September 30, 2025 compared to $2.4 million for the nine months ended September 30, 2024.
The increases for both the three and nine months ended September 30, 2025 primarily resulted from the opening of two new branch locations and one new operations facility.
Furniture and equipment expensedecreased $0.1 million, or 13.2%, to $0.7 million for the quarter ended September 30, 2025 compared to $0.8 million for the quarter ended September 30, 2024, and decreased $0.1 million, or 5.2%, to $2.1 million for the nine months ended September 30, 2025 compared to $2.3 million for the nine months ended September 30, 2024.
Legal, examination and professional feesincreased $0.1 million, or 24.3%, to $0.5 million for the quarter ended September 30, 2025 compared to $0.4 million for the quarter ended September 30, 2024, and decreased $0.3 million, or 18.8%, to $1.4 million for the nine months ended September 30, 2025 compared to $1.7 million for the nine months ended September 30, 2024.
Advertising and promotion increased $0.05 million, or 27.3%, to $0.3 million for the quarter ended September 30, 2025 compared to $0.2 million for the quarter ended September 30, 2024, and decreased $0.1 million, or 12.2%, to $0.6 million for the nine months ended September 30, 2025 compared to $0.7 million for the nine months ended September 30, 2024.
Postage, printing and supplies increased $0.1 million, or 64.7%, to $0.4 million for the quarter ended September 30, 2025 compared to $0.2 million for the quarter ended September 30, 2024, and increased $0.4 million, or 73.4%, to $1.0 million for the nine months ended September 30, 2025 compared to $0.6 million for the nine months ended September 30, 2024. The increases for both the three and nine months ended September 30, 2025 were primarily the result of customer mailings related to an account consolidation project.
Income Taxes
Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 18.1% and 18.3% for the three and nine months ended September 30, 2025, respectively, compared to 18.7% and 18.2% for the three and nine months ended September 30, 2024, respectively. The effective tax rate for each of the three and nine months ended September 30, 2025 and 2024 was lower than the U.S. federal statutory rate of 21% primarily due to tax-free revenues.
Lending and Credit Management
Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 77.2% of total assets as of September 30, 2025 compared to 79.1% as of December 31, 2024.
Lending activities are conducted pursuant to an established loan policy approved by the Bank's Board of Directors. The Bank's credit review process is overseen by regional loan committees with established loan approval limits. In addition, the executive loan committee reviews all credit relationships in aggregate over an established dollar amount. The executive loan committee meets weekly and is comprised of senior managers of the Bank.
Major classifications within the Company's held-for-investment loan portfolio as of the dates indicated are as follows:
September 30, 2025 December 31, 2024
(dollars in thousands) Amount % of Loans Amount % of Loans
Commercial, financial, and agricultural $ 227,309 15.0 % $ 202,329 13.8 %
Real estate construction − residential
35,869 2.4 32,046 2.2
Real estate construction − commercial
77,466 5.1 80,435 5.4
Real estate mortgage − residential
376,508 24.9 361,735 24.7
Real estate mortgage − commercial
786,498 51.9 775,594 52.9
Installment and other consumer 10,352 0.7 14,021 1.0
Total loans held for investment $ 1,514,002 100.0 % $ 1,466,160 100.0 %
Commercial Real Estate Loans
Commercial real estate loans ("CRE") consist primarily of income-producing investment property loans. Additionally, CRE loans include 1-4 family property loans as well as land and development loans.
The following table shows the categories of the Company's non-owner occupied CRE loan portfolio at September 30, 2025 and December 31, 2024:
September 30, 2025 December 31, 2024
(dollars in thousands) Amount % of Loans Amount % of Loans
Multi Family $ 188,299 29.9 % $ 168,629 26.5 %
Retail 170,540 27.1 190,915 30.0
Hotel & Food Service 63,552 10.1 70,816 11.2
Office Buildings 52,187 8.3 47,042 7.4
Other Construction 46,275 7.3 39,696 6.3
1-4 Family Construction 35,869 5.7 32,045 5.0
Other Real Estate 21,438 3.4 27,053 4.3
Industrial 20,277 3.2 18,446 2.9
Land Subdivision 13,424 2.1 10,844 1.7
Residential Building Construction 10,458 1.7 20,413 3.2
Commercial and Institutional Building Construction 7,309 1.2 9,481 1.5
Total Commercial Real Estate - Non Owner Occupied $ 629,628 100.0 % $ 635,380 100.0 %
The Company extends credit to its local community markets through traditional real estate mortgage products. The Company does not participate in credit extension to sub-prime residential real estate markets. The Company does not lend funds for transactions defined as "highly leveraged" by bank regulatory authorities or for foreign loans. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loans that are not otherwise disclosed in the loan portfolio composition table.
Risk Elements of the Loan Portfolio
Management, internal loan review and the executive loan committee formally review all loans in excess of certain dollar amounts (periodically established) at least annually. Loans in excess of $2.0 million in the aggregate and all adversely classified credits identified by management are reviewed by the executive loan committee. In addition, all other loans are reviewed on a risk weighted selection process. The executive loan committee reviews and reports to the Board of Directors, at scheduled meetings: past due, classified, and watch list loans in order to classify or reclassify loans as loans requiring attention, special mention, substandard, doubtful, or loss. During this review, management will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is individually analyzed and in conjunction with current economic conditions and loss experience, reserves are estimated as further discussed below.
Loans not individually evaluated are aggregated and collectively analyzed. Management determined that segmenting loans not individually analyzed by the federal call report codes represents the most prudent way to consolidate loans by their associated risk qualities.
General reserves are recorded for collectively analyzed loans using a consistent methodology. Two different models are used for calculating the general reserve. The Discounted Cash Flow model considers quantitative peer group historic loss experience, forecasts over the estimated life of the loan pools, industry data, and qualitative or environmental factors, such as: lending policies and procedures; economic conditions; the nature, volume and terms of the portfolio; lending staff and management; past due loans; the loan review system; collateral values; concentrations of credit; and external factors. The Remaining Life model applies a long-term average loss rate calculated using peer data that is adjusted for qualitative or environmental factors such as those previously noted. The model used depends on the loan portfolio segment. Management
believes, but there can be no assurance, that these procedures keep management informed of potential problem loans. At September 30, 2025 and December 31, 2024, the ACL on loans included a qualitative adjustment of approximately $9.7 million and $11.2 million, respectively.
Non-Performing Assets
The following table summarizes non-performing assets at the dates indicated:
September 30, December 31,
(dollars in thousands) 2025 2024
Non-accrual loans:
Commercial, financial, and agricultural $ 2,004 $ 923
Real estate construction − residential - 454
Real estate construction − commercial - 49
Real estate mortgage − residential 1,508 963
Real estate mortgage − commercial 525 138
Installment and other consumer 19 10
Total 4,056 2,537
Loans contractually past due 90 days or more and still accruing:
Commercial, financial, and agricultural 500 -
Real estate mortgage − residential 352 207
Installment and other consumer 3 3
Total 855 210
Total non-performing loans (1)
4,911 2,747
Other real estate owned and repossessed assets 2,425 1,446
Total non-performing assets (2)
$ 7,336 $ 4,193
Loans held for investment $ 1,514,002 $ 1,466,160
Allowance for credit losses on loans $ 21,904 $ 22,044
Allowance for credit losses to loans 1.45 % 1.50 %
Non-accrual loans to total loans 0.27 0.17
Non-performing loans to loans(1)
0.32 0.19
Non-performing assets to loans (2)
0.48 0.29
Non-performing assets to assets (2)
0.38 0.23
Allowance for credit losses to non-accrual loans 540.04 868.90
Allowance for credit losses to non-performing loans 446.02 802.48
(1)Non-performing loans include loans 90 days past due and accruing and non-accrual loans.
(2)Non-performing assets include non-performing loans and other real estate owned and repossessed assets.
Total non-performing assets were $7.3 million, or 0.48% of total loans, at September 30, 2025 compared to $4.2 million, or 0.29% of total loans, at December 31, 2024.
Total non-accrual loans at September 30, 2025 increased $1.5 million, or 59.9%, to $4.1 million compared to $2.5 million at December 31, 2024. The increase in non-accrual loans since December 31, 2024 was primarily due to the movement of one commercial relationship to non-accrual status. There were $0.9 million in loans past due 90 days and still accruing interest at September 30, 2025 compared to $0.2 million at December 31, 2024. Other real estate and repossessed assets were $2.4 million and $1.4 million at September 30, 2025 and December 31, 2024, respectively.
Provision and Allowance for Credit Losses on Loans and Liability for Unfunded Commitments
Allowance for Credit Losses
The following table is a summary of the allocation of the allowance for credit losses at the end of the periods shown below:
September 30, 2025 December 31, 2024
(dollars in thousands) Amount % of loans to total loans Amount % of loans to total loans
Commercial, financial, and agricultural $ 2,421 15.0 % $ 1,560 13.8 %
Real estate construction − residential 421 2.4 578 2.2
Real estate construction − commercial 1,502 5.1 2,221 5.4
Real estate mortgage − residential 5,116 24.9 5,310 24.7
Real estate mortgage − commercial 12,127 51.9 12,305 52.9
Installment and other consumer 88 0.7 138 1.0
Unallocated 229 - (68) -
Total $ 21,904 100.0 % $ 22,044 100.0 %
The allowance for credit losses was $21.9 million, or 1.45% of loans outstanding, at September 30, 2025 compared to $22.0 million, or 1.50% of loans outstanding, at December 31, 2024. The ratio of the allowance for credit losses to non-performing loans was 446.02% at September 30, 2025, compared to 802.48% at December 31, 2024.
Provision for (Release of) Credit Losses
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2025 2024 2025 2024
Provision for (release of) credit losses on loans $ 375 $ 593 $ (66) $ 875
(Release of) provision for credit losses for off-balance sheet commitments - (93) 50 (149)
Total provision for (release of) credit losses $ 375 $ 500 $ (16) $ 726
The Company recognized provision for credit losses of $0.4 million and a release of provision for credit losses of $0.02 million for the three and nine months ended September 30, 2025, respectively, compared to $0.5 million and $0.7 million of provision for credit losses for the three and nine months ended September 30, 2024, respectively.
The following table summarizes the credit loss experience for the periods indicated:
Three Months Ended September 30,
2025 2024
(dollars in thousands) Net (Charge-offs) Recoveries Average Loans
Net (Charge-offs) Recoveries / Average Loans (1)
Net (Charge-offs) Recoveries Average Loans
Net (Charge-offs) Recoveries / Average Loans (1)
Commercial, financial, and agricultural $ 25 $ 214,213 0.05 % $ (254) $ 210,783 (0.48) %
Real estate construction − residential
- 31,032 - - 35,611 -
Real estate construction − commercial
- 64,791 - - 61,546 -
Real estate mortgage − residential
13 378,863 0.01 7 369,068 0.01
Real estate mortgage − commercial
(4) 778,290 - (343) 792,668 (0.17)
Installment and other consumer (75) 10,950 (2.72) (46) 15,977 (1.15)
Total $ (41) $ 1,478,139 (0.01) % $ (636) $ 1,485,653 (0.17) %
Nine Months Ended September 30,
2025 2024
(dollars in thousands) Net (Charge-offs) Recoveries Average Loans
Net (Charge-offs) Recoveries / Average Loans (1)
Net (Charge-offs) Recoveries Average Loans
Net (Charge-offs) Recoveries / Average Loans (1)
Commercial, financial, and agricultural $ 93 $ 207,419 0.06 % $ (2,122) $ 217,576 (1.30) %
Real estate construction − residential
- 29,895 - - 46,247 -
Real estate construction − commercial
- 70,411 - - 70,452 -
Real estate mortgage − residential
18 373,517 0.01 (11) 371,072 -
Real estate mortgage − commercial
18 772,091 - (433) 783,960 (0.07)
Installment and other consumer (203) 12,060 (2.25) (116) 17,916 (0.86)
Total $ (74) $ 1,465,393 (0.01) % $ (2,682) $ 1,507,223 (0.24) %
(1)Annualized ratio of net (charge-offs) recoveries to average loans by loan type.
Net Loan Charge-Offs/Recoveries
The Company's net charge-offs were $0.04 million and $0.07 million for the three and nine months ended September 30, 2025, respectively, compared to $0.6 million and $2.7 million of net charge-offs for the three and nine months ended September 30, 2024, respectively.
Loans Held for Sale
The Company designates certain long-term fixed rate personal real estate loans as held for sale. Loans held for sale are being carried at the lower of cost or estimated fair value. The loans are primarily sold to Freddie Mac, Fannie Mae, PennyMac and various other secondary market investors. There were $1.4 million loans held for sale at September 30, 2025, and no loans held for sale at December 31, 2024.
The Company generally does not retain long-term fixed rate residential mortgage loans in its portfolio. Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price. During the nine months ended September 30, 2025, the Company sold approximately $5.1 million of loans to investors compared to $45.0 million for the nine months ended September 30, 2024.
Liquidity and Capital Resources
Liquidity Management
The role of liquidity management is to ensure that funds are available to meet depositors' withdrawal and borrowers' credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity to meet these demands is provided by maturing assets, short-term liquid assets that can be converted to cash and the ability to attract funds from external sources, principally depositors. Due to the nature of services offered by the Company, management prefers to focus on transaction accounts and full-service relationships with customers as the primary sources of funding.
The Company's Asset/Liability Committee ("ALCO"), primarily made up of senior management, has direct oversight responsibility for the Company's liquidity position and profile. A combination of daily, weekly, and monthly reports provided to management detail the following: internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, available pricing and market access to the financial markets for capital, and exposure to contingent draws on the Company's liquidity.
The Company has a number of sources of funds to meet liquidity needs on a daily basis. The Company's most liquid assets are comprised of available-for-sale investment securities, not including other debt securities, federal funds sold, and excess reserves held at the Federal Reserve. The following table shows the Company's sources of funds as of September 30, 2025 and December 31, 2024.
(dollars in thousands) September 30, 2025 December 31, 2024
Other interest bearing deposits $ 82,262 $ 27,326
Certificates of deposit in other banks 1,000 1,000
Available-for-sale investment securities 216,705 218,652
Total $ 299,967 $ 246,978
Federal funds sold and resale agreements normally have overnight maturities and are used for general daily liquidity purposes. The fair value of the available-for-sale investment portfolio was $216.7 million at September 30, 2025 and included an unrealized net loss of $24.7 million. The portfolio includes projected maturities and mortgage-backed securities pay-downs of approximately $1.1 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company's borrowings.
The Company pledges portions of its investment securities portfolio to secure public fund deposits, federal funds purchase lines, securities sold under agreements to repurchase, borrowing capacity at the Federal Reserve Bank, and for other purposes as required or permitted by law. At September 30, 2025 and December 31, 2024, the Company's unpledged securities in the available-for-sale portfolio totaled approximately $124.1 million and $136.3 million, respectively.
Total investment securities pledged for these purposes were as follows as of September 30, 2025 and December 31, 2024:
(dollars in thousands) September 30, 2025 December 31, 2024
Federal Reserve Bank borrowings $ 8,064 $ 7,915
Other deposits 84,588 74,470
Total pledged, at fair value $ 92,652 $ 82,385
Liquidity is available from the Company's base of core customer deposits, defined as demand, interest checking, savings, money market deposit accounts, and time deposits less than $250,000, less all brokered deposits under $250,000. At September 30, 2025, such deposits totaled $1.44 billion and represented 94.1% of the Company's total deposits. These core deposits are normally less volatile and are often tied to other products of the Company through long lasting relationships.
Core deposits at September 30, 2025 and December 31, 2024 were as follows:
(dollars in thousands) September 30, 2025 December 31, 2024
Non-interest bearing demand $ 424,437 $ 385,022
Interest checking 309,089 381,877
Savings and money market 478,960 464,449
Other time deposits 223,514 201,438
Total $ 1,436,000 $ 1,432,786
Estimated uninsured deposits totaled $339.6 million, including $89.9 million of certificates of deposit, at September 30, 2025, compared to $352.0 million, including $100.4 million of certificates of deposit, at December 31, 2024. The Company's brokered deposits were consistent at $0.01 million at both September 30, 2025 and December 31, 2024.
Other components of liquidity are the level of borrowings from third-party sources and the availability of future credit. The Company's outside borrowings are comprised of federal funds purchased, advances from the Federal Home Loan Bank ("FHLB") and subordinated notes. Federal funds purchased are overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved credit lines. As of September 30, 2025, under agreements with these unaffiliated banks, the Bank may borrow up to $35.0 million in federal funds on an unsecured basis and $7.5 million on a secured basis. There were no federal funds purchased outstanding at September 30, 2025. The Company may periodically borrow additional short-term funds from the Federal Reserve Bank through the discount window, although no such borrowings were outstanding at September 30, 2025.
The Bank is a member of the FHLB and has access to credit products of the FHLB. As of September 30, 2025, the Bank had $177.0 million in outstanding borrowings with the FHLB. In addition, the Company has $49.5 million in outstanding subordinated notes issued to wholly-owned grantor trusts, funded by preferred securities issued by the trusts.
Borrowings outstanding at September 30, 2025 and December 31, 2024 were as follows:
(dollars in thousands) September 30, 2025 December 31, 2024
Federal Home Loan Bank advances $ 177,000 $ 81,425
Other borrowings 86 100
Subordinated notes 49,486 49,486
Total $ 226,572 $ 131,011
The Company pledges certain assets, including loans and investment securities to the Federal Reserve Bank, FHLB, and other correspondent banks as security to establish lines of credit and to borrow from these entities. Based on the type and value of collateral pledged, the FHLB establishes a collateral value from which the Company may draw advances against this collateral. This collateral is also used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company. The Federal Reserve Bank also establishes a collateral value of assets pledged to support borrowings from the discount window.
The following table reflects collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company as of September 30, 2025:
September 30, 2025
(dollars in thousands) FHLB Federal Reserve Bank Federal Funds Purchased Lines Total
Advance equivalent $ 406,573 $ 7,525 $ 35,000 $ 449,098
Letters of credit (46,375) - - (46,375)
Advances outstanding (177,000) - - (177,000)
Total available $ 183,198 $ 7,525 $ 35,000 $ 225,723
At September 30, 2025, loans of $742.0 million were pledged to the FHLB as collateral for borrowings and letters of credit. At September 30, 2025, investments with a market value of $8.1 million were pledged to secure federal funds purchase lines and borrowing capacity at the Federal Reserve Bank.
Based upon the above, management believes the Company has more than adequate liquidity, both on balance sheet and through additional funding capacity with the FHLB, the Federal Reserve Bank and Federal funds purchased lines, to meet future anticipated liquidity needs in both the short- and long-term.
Sources and Uses of Funds
Cash and cash equivalents were $99.9 million at September 30, 2025 compared to $51.0 million at December 31, 2024 and $54.2 million at September 30, 2024. The $45.7 million increase since September 30, 2024 resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statements of cash flows for the nine months ended September 30, 2025. Cash flow provided by operating activities consists mainly of net income adjusted for certain non-cash items. Operating activities provided total cash of $11.8 million for the nine months ended September 30, 2025.
Investing activities, consisting mainly of purchases, sales and maturities of available-for-sale securities, and changes in the level of the loan portfolio, used total cash of $44.6 million during the nine months ended September 30, 2025. The cash outflow primarily consisted of $18.8 million in purchases of securities and a $4.2 million net increase in FHLB stock, partially offset by $26.7 million of proceeds from maturities and calls of available-for-sale securities and a $47.9 million net increase in loans held for investment.
Financing activities provided total cash of $81.7 million during the nine months ended September 30, 2025, resulting primarily from a $39.4 million increase in demand deposits, a $34.4 million net decrease in FHLB advances, and an $11.6 million increase in time deposits, partially offset by a $58.3 million decrease in interest bearing transaction accounts.
In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company's various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company's liquidity. The Company had $384.9 million in unused loan commitments and standby letters of credit as of September 30, 2025. Although the Company's current liquidity resources are adequate to fund this commitment level, the nature of these commitments is such that the likelihood of such a funding demand is very low.
The Company is a legal entity, separate and distinct from the Bank, which must provide its own liquidity to meet its operating needs. The Company's ongoing liquidity needs primarily include funding its operating expenses, paying cash dividends to its shareholders and, to a lesser extent, repurchasing its shares of common stock. The Company paid cash dividends to its shareholders totaling approximately $4.0 million and $3.7 million during the nine months ended September 30, 2025 and 2024, respectively. A large portion of the Company's liquidity is obtained from the Bank in the form of dividends. The Bank declared $16.0 million and $15.0 million in dividends to the Company during the nine months ended September 30, 2025 and 2024, respectively. At September 30, 2025 and December 31, 2024, the Company had cash and cash equivalents totaling $21.8 million and $15.3 million, respectively. Subject to declaration by the Company's Board of Directors, the Company expects to continue paying quarterly cash dividends as a part of its current capital allocation strategy. Future dividends will be subject to the determination, declaration and discretion of the Company's Board of Directors and compliance with applicable regulatory capital requirements.
On June 5, 2025, the Company announced that its Board of Directors approved a new common stock repurchase program under which the Company may repurchase up to $10.0 million of its common stock, which replaced the Company's prior common stock repurchase program. Pursuant to the repurchase program, management is given discretion to determine the number and pricing of the shares to be repurchased, as well as the timing of any such repurchases. The timing and total amount of stock repurchases will depend on market and other conditions and may be made from time to time in open market purchases or privately negotiated transactions. The program has no termination date, may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. The Company repurchased 90,466 common shares under its repurchase programs during the first nine months of 2025 at an average cost of $27.72 per share totaling $2.5 million. As of September 30, 2025, $8.7 million remained available for share repurchases pursuant to the Company's current repurchase program.
On June 24, 2025, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission, which became effective on July 2, 2025. The shelf registration statement is intended to provide us with financial flexibility to raise capital from the offering of up to $150 million of any combination of common stock, preferred stock, debt securities, depositary shares, warrants, purchase contracts, purchase units, subscription rights and units in one or multiple offerings while the shelf registration statement is effective.
Capital Management
The Company and the Bank are subject to various regulatory capital requirements administered by federal and state 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 Company's consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.
The Basel III regulatory capital reforms adopted by U.S. federal regulatory authorities (the "Basel III Capital Rules"), among other things, (i) establish the capital measure called "Common Equity Tier 1" ("CET1"), (ii) specify that Tier 1 capital consists of CET1 and "Additional Tier 1 Capital" instruments meeting stated requirements, (iii) require that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) define the scope of the deductions/adjustments to the capital measures.
Additionally, the Basel III Capital Rules require that the Company maintain a 2.50% capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to average assets, each as defined in the regulations. Management believes, as of September 30, 2025, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company's capital ratios exceeded the regulatory definition of adequately capitalized as of both September 30, 2025 and December 31, 2024. Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be well-capitalized. The regulatory authorities can apply changes in classification of assets, and such changes may retroactively subject the Company to changes in capital ratios. Any such change could reduce one or more capital ratios below well-capitalized status. In addition, a change may result in imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material effect on our condition and results of operations. In addition, bank holding companies generally are required to maintain a Tier 1 leverage ratio of at least 4%.
Because the Bank had less than $15.0 billion in total consolidated assets as of December 31, 2009, the Company is allowed to continue including its trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.
Under the Basel III Capital Rules, at both September 30, 2025 and December 31, 2024, the Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table as the dates indicated:
Actual Minimum Capital Required - Basel III Fully Phased-In Required to be Considered Well- Capitalized
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
September 30, 2025
Total Capital (to risk-weighted assets):
Company $ 243,044 14.90 % $ 171,223 10.50 % $ - N.A.
Bank 222,863 13.76 170,038 10.50 161,941 10.00 %
Tier 1 Capital (to risk-weighted assets):
Company $ 222,651 13.65 % $ 138,609 8.50 % $ - N.A.
Bank 202,609 12.51 137,650 8.50 129,553 8.00 %
Common Equity Tier 1 Capital (to risk-weighted assets):
Company $ 174,651 10.71 % $ 114,149 7.00 % $ - N.A.
Bank 202,609 12.51 113,358 7.00 105,261 6.50 %
Tier 1 leverage ratio (to adjusted average assets):
Company $ 222,651 11.97 % $ 74,389 4.00 % $ - N.A.
Bank 202,609 10.96 73,947 4.00 92,434 5.00 %
December 31, 2024
Total Capital (to risk-weighted assets):
Company $ 232,400 14.79 % $ 164,953 10.50 % $ - N.A.
Bank 219,410 14.10 163,365 10.50 155,586 10.00 %
Tier 1 Capital (to risk-weighted assets):
Company $ 212,780 13.54 % $ 133,533 8.50 % $ - N.A.
Bank 199,960 12.85 132,248 8.50 124,469 8.00 %
Common Equity Tier 1 Capital (to risk-weighted assets):
Company $ 164,780 10.49 % $ 109,968 7.00 % $ - N.A.
Bank 199,960 12.85 108,910 7.00 101,131 6.50 %
Tier 1 leverage ratio:
Company $ 212,780 11.46 % $ 74,261 4.00 % $ - N.A.
Bank 199,960 10.83 73,847 4.00 92,309 5.00 %
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