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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30,
2025
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:
001-42512
EAGLE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Virginia
54-1601306
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2 East Main Street
P.O. Box 391
Berryville
,
VA
22611
(Address of principal executive offices)
(Zip Code)
(540)
955-2510
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, Par Value $2.50
EFSI
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of November
7, 2025 was
5,376,346
.
Securities available for sale, at fair value, amortized cost of $
128,454
and $
144,929
, respectively
121,379
121,330
Restricted investments, at cost
3,786
7,557
Loans held for sale
3,479
2,660
Loans
1,459,928
1,467,049
Allowance for credit losses
(
14,810
)
(
15,027
)
Net Loans
$
1,445,118
$
1,452,022
Bank premises and equipment, net
14,878
14,339
Bank owned life insurance
31,440
30,621
Other assets
44,264
44,527
Total assets
$
1,932,473
$
1,866,215
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest bearing demand deposits
$
521,149
$
406,180
Savings and interest bearing demand deposits
687,530
679,330
Time deposits
446,369
489,646
Total deposits
$
1,655,048
$
1,575,156
Federal funds purchased
101
—
Federal Home Loan Bank advances, short-term
—
25,000
Federal Home Loan Bank advances, long-term
40,000
95,000
Subordinated debt, net of unamortized issuance costs
29,562
29,512
Other liabilities
22,181
22,560
Total liabilities
$
1,746,892
$
1,747,228
Commitments and contingencies
Shareholders’ Equity
Preferred stock, $
10
par value;
500,000
shares authorized and unissued
$
—
$
—
Common stock, $
2.50
par value; authorized
10,000,000
shares; issued and outstanding 2025,
5,376,346
including
72,107
shares of unvested restricted stock; issued and outstanding 2024,
3,549,581
including
64,043
shares of unvested restricted stock
13,260
8,714
Surplus
64,458
14,901
Retained earnings
113,448
114,012
Accumulated other comprehensive loss
(
5,585
)
(
18,640
)
Total shareholders’ equity
$
185,581
$
118,987
Total liabilities and shareholders’ equity
$
1,932,473
$
1,866,215
See Notes to Consolidated Financial Statements
* Derived from the consolidated audited financial statements.
Unrealized gain on available for sale securities, net of reclassification adjustments, net of deferred income tax of $
455
and $
1,152
for the three months ended September 30, 2025 and 2024, respectively, and $
3,469
and $
952
for the nine months ended September 30, 2025 and 2024, respectively
1,711
4,333
13,055
3,580
Changes in benefit obligations and plan assets for post retirement benefit plans, net of reclassification adjustments, net of deferred income tax of $
0
and $
0
for the three months ended September 30, 2025 and 2024, respectively, and $
0
and $
1
for the nine months ended September 30, 2025 and 2024, respectively
Notes to Consolidated Finan
cial Statements (Unaudited)
September 30, 2025
NOTE 1. General
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP.
In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at September 30, 2025 and December 31, 2024, the results of operations and the changes in shareholders' equity for the three and nine months ended September 30, 2025 and 2024, and cash flows for the nine months ended September 30, 2025 and 2024. The results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”).
Eagle Financial Services, Inc. (the "Company") owns
100
% of Bank of Clarke (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and t
ransactions between the Company and the Bank have been eliminated.
Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations. None of the reclassifications were of a material nature and they had no effect on prior year net income or shareholders' equity.
Application of the principles of GAAP and practices within the banking industry require management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statement; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance of credit losses on loans.
The Company's significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the Company's 2024 Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2024.
NOTE 2. Stock-Based Compensation Plan
On May 16, 2023, the Company’s shareholders approved the 2023 Stock Incentive Plan which allows key employees and directors to increase their personal financial interest in the Company. The 2023 plan permits the issuance of incentive stock options and non-qualified stock options and the award of common stock, restricted stock, and stock units. The plan authorizes the issuance of up to
250,000
shares of common stock. The 2023 Stock Incentive Plan replaced the 2014 Stock Incentive Plan.
The Company periodically grants restricted stock to its directors, executive officers and certain non-executive officers. Restricted stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restricted period, all shares are considered outstanding and dividends are paid to the grantee. Outside directors are periodically granted restricted shares which vest over a period of
one year
.
Executive officers have been
granted
restricted shares which vest over a
three year
service period and restricted shares which cliff vest based on meeting performance measures over a
three year
period. Certain non-executive officers also have been granted restricted shares which vest over a
three year
service period. The Company recognizes compensation expense over the restricted period based on the fair value of the Company's stock on the grant date. The Company's policy is to recognize forfeitures as they occur. As of
September 30, 2025, there w
as $
1.1
million of
unrecognized compensation cost related to nonvested restricted stock, with a weighted average remaining term of
1.87
years.
The following table presents restricted stock activity for the
nine months ended September 30, 2025 and 2024:
Nine Months Ended
September 30,
2025
2024
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Nonvested, beginning of period
64,043
$
32.02
56,914
$
35.06
Granted
39,545
36.40
41,940
30.00
Vested
(
30,606
)
33.02
(
29,426
)
34.40
Forfeited
(
875
)
35.95
(
5,385
)
35.38
Nonvested, end of period
72,107
$
33.95
64,043
$
32.02
NOTE 3. Earnings Per Common Share
Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of dividend participation and voting rights. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The number of potential common shares is determined using the treasury method.
The following table shows the weighted average number of shares used in computing earnings per share for the
three and nine months ended September 30, 2025 and 2024. During 2025 and 2024
, there were
no
potentially dilutive securities outstanding.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2025
2024
2025
2024
Average number of common shares outstanding used to calculate basic and diluted earnings per share
Amortized costs and fair values of securities available for sale at
September 30, 2025 and December 31, 2024 were as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Fair Value
September 30, 2025
(in thousands)
Obligations of U.S. government corporations and agencies
$
7,571
$
24
$
(
21
)
$
7,574
U.S. treasury securities
9,999
9
—
10,008
Mortgage-backed securities
83,800
414
(
7,051
)
77,163
Collateralized mortgage obligations
22,834
55
(
100
)
22,789
Subordinated debt
4,250
8
(
413
)
3,845
$
128,454
$
510
$
(
7,585
)
$
121,379
December 31, 2024
(in thousands)
Obligations of U.S. government corporations and agencies
$
8,198
$
—
$
(
530
)
$
7,668
Mortgage-backed securities
127,061
—
(
22,094
)
104,967
Obligations of states and political subdivisions
4,920
—
(
275
)
4,645
Subordinated debt
4,750
—
(
700
)
4,050
$
144,929
$
—
$
(
23,599
)
$
121,330
The Company has elected to exclude accrued interest receivable, totaling $
545
thousand at
September 30, 2025, from the amortized cost basis of securities. The deferred tax asset on the securities portfolio at September 30, 2025 and December 31, 2024
was $
1.5
million and $
5.0
million, respectively, and is included in Other Assets in the Consolidated Balance Sheets.
In March 2025, balance sheet repositioning transactions were executed. The Bank sold available for sale securities with an amortized cost balance of $
99.2
million and reinvested $
66.0
million into purchases of available for sale securities. The sale of securities resulted in a net realized pre-tax loss of $
12.4
million recognized during
nine months ended September 30, 2025. There were no sales of available for sale securities during the three months ended September 30, 2025 or the three and nine months ended September 30, 2024.
The following table summarizes amounts related to the sale of available for sale securities:
The amortized cost and estimated fair value of securities at
September 30, 2025, by the earlier of contractual maturity or expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.
Amortized Cost
Fair Value
(in thousands)
Due in one year or less
$
9,999
$
10,008
Due after one year through five years
13,492
13,579
Due after five years through ten years
19,569
19,290
Due after ten years
85,394
78,502
$
128,454
$
121,379
The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at
September 30, 2025 and December 31, 2024 were as follows:
Less than 12 months
12 months or more
Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
September 30, 2025
(in thousands)
Obligations of U.S. government corporations and agencies
$
3,787
$
21
$
—
$
—
$
3,787
$
21
U.S. treasury securities
—
—
—
—
—
—
Mortgage-backed securities
—
—
29,921
7,051
29,921
7,051
Collateralized mortgage obligations
15,384
100
—
—
15,384
100
Subordinated debt
—
—
2,837
413
2,837
413
Total
$
19,171
$
121
$
32,758
$
7,464
$
51,929
$
7,585
Less than 12 months
12 months or more
Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
December 31, 2024
(in thousands)
Obligations of U.S. government corporations and agencies
$
—
$
—
$
7,668
$
530
$
7,668
$
530
Mortgage-backed securities
—
—
104,967
22,094
104,967
22,094
Obligations of states and political subdivisions
—
—
4,645
275
4,645
275
Subordinated debt
—
—
3,550
700
3,550
700
Total
$
—
$
—
$
120,830
$
23,599
$
120,830
$
23,599
The reference point for determining when securities are in an unrealized loss position is month end. As such, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.
There were
38
debt securities with a fair value below the amortized cost basis, totaling $
51.9
million of aggregate fair value as of
September 30, 2025. The Company concluded that a credit loss does not exist in its securities portfolio at September 30, 2025 based on the fact that (1) changes in fair value were caused by non-credit-related factors, primarily fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) as of September 30, 2025, the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not that the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest. Additionally, the Company’s mortgage-backed securities and obligations of U.S. government corporations and agencies are entirely issued by either U.S. government agencies or U.S. government-sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. government, that investors in such mortgage-backed securities will receive timely principal and interest payments.
Securities having carrying v
alues of $
4.0
mi
llion, $
3.0
million and $
92.4
million at
September 30, 2025 were pledged as security for trust accounts, a deposit relationship and for borrowing capacity at the Federal Reserve Bank discount window, respectively.
The composition of restricted investments at
September 30, 2025 and December 31, 2024 was as follows:
September 30, 2025
December 31, 2024
(in thousands)
Federal Reserve Bank Stock
$
344
$
344
Federal Home Loan Bank Stock
3,302
7,073
Community Bankers’ Bank Stock
140
140
$
3,786
$
7,557
NOTE 5. Loans and Allowance for Credit Losses on Loans
The composition of loans at
September 30, 2025 and December 31, 2024 was as follows:
September 30,
December 31,
2025
2024
(in thousands)
Mortgage real estate loans:
Construction & Secured by Farmland
$
84,467
$
95,200
HELOCs
54,549
50,646
Residential First Lien - Investor
103,942
105,910
Residential First Lien - Owner Occupied
178,725
194,065
Residential Junior Liens
10,497
11,184
Commercial - Owner Occupied
290,931
272,236
Commercial - Non-Owner Occupied & Multifamily
398,076
367,680
Commercial and industrial loans:
SBA PPP loans
10
28
Other commercial and industrial loans
103,414
110,315
Marine loans
185,938
210,095
Consumer loans
29,422
31,017
Overdrafts
297
309
Other loans
13,895
11,911
Total loans
$
1,454,163
$
1,460,596
Net deferred loan costs and premiums
5,765
6,453
Allowance for credit losses
(
14,810
)
(
15,027
)
$
1,445,118
$
1,452,022
At September 30, 2025
, the Company was servicing $
35.1
million of loans for other financial institutions which are not included in the table above.
Also excluded from the table above are net servicing assets of $
553
thousand
at September 30, 2025, which are recorded in Other Assets in the Consolidated Balance Sheets. When loans are sold with servicing retained, servicing assets are recorded which represent the Company's right to service loans that were sold. Servicing assets are initially recorded by the Company at fair value and are subsequently amortized in proportion to, and over the period of, estimated net servicing income.
Changes in the allowance for credit losses on loans for the
three and nine months ended September 30, 2025 and 2024 and year-ended December 31, 2024 were as follows:
Three Months Ended
Year Ended
Nine Months Ended
September 30,
December 31,
September 30,
2025
2024
2024
2025
2024
(in thousands)
Balance, beginning
$
15,979
$
15,014
$
14,493
$
15,027
$
14,493
Provision for credit losses
1,131
1,526
2,525
3,133
2,315
Recoveries added to the allowance
117
145
853
478
754
Credit losses charged to the allowance
(
2,417
)
(
1,382
)
(
2,844
)
(
3,828
)
(
2,259
)
Balance, ending
$
14,810
$
15,303
$
15,027
$
14,810
$
15,303
Past due loans by class at
September 30, 2025 and December 31, 2024 were as follows:
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:
September 30, 2025
December 31, 2024
(in thousands)
(in thousands)
(in thousands)
Real Estate Collateral
Other Collateral
Total
Real Estate Collateral
Other Collateral
Total
Mortgage real estate loans:
Construction & Secured by Farmland
$
428
$
—
$
428
$
—
$
—
$
—
HELOCs
—
—
—
—
—
—
Residential First Lien - Investor
98
—
98
—
—
—
Residential First Lien - Owner Occupied
483
—
483
318
—
318
Residential Junior Liens
—
—
—
—
—
—
Commercial - Owner Occupied
5,097
—
5,097
739
—
739
Commercial - Non-Owner Occupied & Multifamily
5,455
—
5,455
—
—
—
Commercial and industrial loans:
SBA PPP loans
—
—
—
—
—
—
Other commercial and industrial loans
—
1,449
1,449
—
908
908
Marine loans
—
—
—
—
—
—
Consumer loans
83
—
83
83
—
83
Overdrafts
—
—
—
—
—
—
Other loans
—
—
—
—
—
—
$
11,644
$
1,449
$
13,093
$
1,140
$
908
$
2,048
The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended September 30, 2025.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The following table presents risk ratings by loan portfolio segment and origination year. Description of these ratings are as follows:
Pass
Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner.
Special Mention
Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. Loan relationships with stale financial statements at their annual review will also cause a downgrade to special mention until current financials are received and upgrade is approved. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt.
Classified
Classified loans include loans rated Substandard, Doubtful and Loss.
•
Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt.
•
Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions.
•
Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted.
Credit quality information by class at
September 30, 2025 and gross charge-offs by year of origination for the nine months ended September 30, 2025 was as follows:
Credit quality information by class at December 31, 2024 and gross charge-offs by year of origination for the year ended December 31, 2024 was as follows:
Unfunded Commitments: The Company maintains a separate reserve for credit losses on unfunded commitments, which is included in Other Liabilities on the Consolidated Balance Sheet. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the Consolidated Statement of Income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, utilizing the same models and approaches for the Company's other loan portfolio segments, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that maybe drawn prior to the cancellation of the arrangement.
During the three and nine months ended September 30, 2025
, a reduction to the unfunded commitment reserve of $
19
thousand and $
120
thousand, respectively, was recorded as a credit to the provision for credit losses in the consolidated statement of income. During the
three months ended September 30, 2024
, an increase to the unfunded commitment reserve of $
19
thousand was recorded, thereby increasing the provision for credit losses in the consolidated income statement. During the
nine months ended September 30, 2024
, a decrease of $
115
thousand was recorded to the provision for credit losses, thereby reducing the unfunded commitment reserve. The reserve for unfunded commitments at
September 30, 2025 and 2024 and December 31, 2024
was $
385
thousand, $
364
thousand, and $
505
thousand, respectively.
Restructurings for Borrowers Experiencing Financial Difficulty: A loan that has been modified is considered a troubled loan modification when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows. The following table presents the amortized cost of loans that were modified during the three and nine months ended September 30, 2025
by loan portfolio segment.
There were no loan modifications to borrowers experiencing financial difficulty during the
three and nine months ended September 30, 2024.
Three Months Ended September 30,
For the Nine Months Ended September 30,
2025
2025
(dollars in thousands)
Collateral Dependent Foreclosure
Total
% of Total Class of Loans
Collateral Dependent Foreclosure
Total
% of Total Class of Loans
Mortgage real estate loans:
Commercial - Non-Owner Occupied & Multifamily
$
5,455
$
5,455
1.37
%
$
5,455
$
5,455
1.37
%
Total
$
5,455
$
5,455
$
5,455
$
5,455
This balance is one relationship comprised of three residential multifamily income producing properties in Washington D.C. (the District), and the Bank has been granted receivership. The Bank is actively working with the receiver to update the properties and ready them for sale while continuing to collect the housing payments directly from the District. These loans are on nonaccrual status and are
90
or more days past due.
There were no loans to borrowers experiencing financial difficulty that had a payment default during the three and nine months ended September 30, 2024
and were modified in the twelve months prior to that default. Default is determined at
30
days or more past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance of credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.
The composition of deposits at
September 30, 2025 and December 31, 2024 was as follows:
September 30, 2025
December 31, 2024
(in thousands)
Noninterest bearing demand deposits
$
521,149
$
406,180
Savings and interest bearing demand deposits:
NOW accounts
$
293,739
$
278,835
Money market accounts
269,401
269,115
Regular savings accounts
124,390
131,380
$
687,530
$
679,330
Time deposits:
Balances of less than $250,000
$
262,174
$
293,864
Balances of $250,000 and more
184,195
195,782
$
446,369
$
489,646
$
1,655,048
$
1,575,156
NOTE 7. Leases
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Right-of-use assets and lease liabilities are included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets. During the first quarter of 2025, the Company entered into a long-term lease with the intention of establishing a full-service branch in McLean, Virginia and moving the Tysons loan production office into the new location. The new lease will replace an expiring lease and resulted in the initial recognition of a right-of-use asset and lease liability of $
773
thousand.
The Company’s six long-term lease agreements are classified as operating leases. These leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liability to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for a residual value guarantee and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about the Company’s leases:
(dollars in thousands)
September 30, 2025
December 31, 2024
Lease liabilities
$
10,019
$
9,779
Right-of-use assets
$
9,641
$
9,465
Weighted average remaining lease term
12 years
12 years
Weighted average discount rate
4.24
%
4.16
%
Three Months Ended
Nine Months Ended
Lease Cost
September 30, 2025
September 30, 2024
September 30, 2025
September 30, 2024
Operating lease cost
$
310
$
132
$
904
$
396
Short-term lease cost
4
4
11
11
Total lease cost
$
314
$
136
$
915
$
407
Cash paid for amounts included in the measurement of lease liabilities
$
279
$
120
$
788
$
359
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities is as follows:
(dollars in thousands)
As of
Lease payments due
September 30, 2025
2025, remainder
$
280
2026
1,022
2027
1,035
2028
1,058
2029
1,083
Thereafter
8,564
Total undiscounted cash flows
$
13,042
Discount
(
3,023
)
Lease liabilities
$
10,019
NOTE 8. Fair Value Measurements
GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•
Level 2
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following section provides a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy:
Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
Derivative instruments are recorded at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.
The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at
September 30, 2025 and December 31, 2024:
Fair Value Measurements at
September 30, 2025
Using
Balance as of
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
September 30, 2025
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies
$
7,574
$
—
$
7,574
$
—
U.S. Treasury securities
10,008
—
10,008
—
Mortgage-backed securities
77,163
—
77,163
—
Collateralized mortgage obligations
22,789
22,789
Subordinated debt
3,845
—
3,345
500
Derivative:
Interest rate swaps on loans
1,127
—
1,127
—
Total assets at fair value
$
122,506
$
—
$
122,006
$
500
Liabilities:
Interest rate swaps on loans
$
1,127
$
—
$
1,127
$
—
Fair value swap
69
—
69
—
Total liabilities at fair value
$
1,196
$
—
$
1,196
$
—
Fair Value Measurements at
December 31, 2024
Using
Balance as of
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
December 31, 2024
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies
The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis classified as Level 3 for the periods indicated. Level 3 securities for
three and nine months ended September 30, 2025 consisted of one newly issued corporate subordinated debt security for which no pricing information was available and therefore priced at book value.
Level 3 Recurring Fair Value Measurements As Of and For The
Three Months Ended September 30,
Nine Months Ended September 30,
2025
2024
2025
2024
(in thousands)
(in thousands)
Beginning balance
$
—
$
—
$
—
$
—
Purchases
500
—
500
—
Sales
—
—
—
—
Issuances
—
—
—
—
Settlements
—
—
—
—
Total Gains (Losses) included in Net Income
—
—
—
—
Total Gains (Losses) included in OCI
—
—
—
—
Transfer into Level 3
—
—
—
—
Transfer out of Level 3
—
—
—
—
Total assets at fair value
$
500
$
—
$
500
$
—
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:
Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). The Company records any fair value adjustments on a nonrecurring basis.
No
nonrecurring fair value adjustments were recorded on loans held for sale during
nine months ended September 30, 2025 and the year ended December 31, 2024.
Individually Evaluated Collateral-Dependent Loans: The estimated fair value of individually evaluated collateral-dependent loans is based on the value of the underlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, marine vessels, equipment, inventory, accounts receivable, and/or other business assets. The value of real estate collateral is determined using a market valuation approach based on an appraisal conducted by an independent, licensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the Consolidated Statements of Income. At September 30, 2025
collateral-dependent loans totaling $
2.3
million were individually evaluated and being carried at fair value of $
2.0
million, the majority of which represents one relationship consisting of an owner occupied commercial real estate loan totaling $
1.8
million. The remaining collateral-dependent loans of $
478
thousand at
September 30, 2025 were commercial business loans collateralized by equipment. At December 31, 2024
there were two collateral-dependent relationships totaling $
908
thousand, which were individually evaluated and being carried at fair value of $
659
thousand. These two relationships consist of four commercial business loans collateralized by equipment.
Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s
fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as collateral-dependent loans described above. We believe that the fair value follows the provisions of GAAP.
The Company held
no
other real estate owned at
September 30, 2025 or December 31, 2024.
Repossessed Assets: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the asset, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant improvements are capitalized, whereas costs relating to holding assets are expensed. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of an asset to fair value less cost to sell. The fair value measurement of repossessed assets is assessed in the same manner as collateral dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held $
1.0
million and $
514
thousand at
September 30, 2025 and December 31, 2024, respectively. Repossessed assets are included in Other Assets in the Consolidated Balance Sheets.
The following table summarizes the Company's financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at
September 30, 2025 and December 31, 2024.
Carrying value at
September 30, 2025
Balance as of
Identical
Assets
Observable
Inputs
Unobservable
Inputs
September 30, 2025
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Financial Assets:
Collateral-dependent loans
$
1,989
$
—
$
—
$
1,989
Nonfinancial Assets:
Repossessed assets
1,009
—
—
1,009
Carrying value at
December 31, 2024
Balance as of
Quoted Prices
in Active
Markets
for Identical
Assets
The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial and nonfinancial assets measured at fair value on a nonrecurring basis for
September 30, 2025 and December 31, 2024.
Quantitative information about Level 3 Fair Value Measurements
September 30, 2025
Valuation Technique(s)
Unobservable Input
Range
Weighted Average (1)
Assets:
Collateral dependent individually evaluated loans
Discounted value
Selling cost and appraisal discount
6
% -
31
%
9
%
Repossessed assets
Discounted appraised value
Selling cost
10
%
10
%
Quantitative information about Level 3 Fair Value Measurements
December 31, 2024
Valuation Technique(s)
Unobservable Input
Range
Weighted Average (1)
Assets:
Collateral dependent individually evaluated loans
Discounted value
Selling cost and appraisal discount
16
%
16
%
Repossessed assets
Discounted appraised value
Selling cost
10
%
10
%
(1) Weighted based on the relative fair value of the specific items measured at fair value.
Quoted Prices
in Active
Markets for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Fair Value
as of
December 31, 2024
(Level 1)
(Level 2)
(Level 3)
December 31, 2024
(in thousands)
Financial assets:
Cash and short-term investments
$
193,159
$
193,159
$
—
$
—
$
193,159
Securities
121,330
—
121,330
—
121,330
Restricted Investments
7,557
—
7,557
—
7,557
Loans held for sale
2,660
—
2,660
—
2,660
Loans, net
1,452,022
—
—
1,358,734
1,358,734
Bank owned life insurance
30,621
—
30,621
—
30,621
Accrued interest receivable
5,149
—
5,149
—
5,149
Derivative assets
1,559
—
1,559
—
1,559
Financial liabilities:
Deposits
$
1,575,156
$
—
$
1,575,743
$
—
$
1,575,743
Federal Home Loan Bank advances, short-term
25,000
—
25,006
—
25,006
Federal Home Loan Bank advances, long-term
95,000
—
95,242
—
95,242
Subordinated debt, net of unamortized issuance costs
29,512
—
26,148
—
26,148
Accrued interest payable
2,249
—
2,249
—
2,249
Derivative liabilities
1,466
—
1,466
—
1,466
NOTE 9. Change in Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss includes unrealized gains and losses on available for sale securities and changes in benefit obligations and plan assets for the post retirement benefit plan. Changes to accumulated other comprehensive loss are presented net of their tax effect as a component of equity. Reclassifications out of accumulated other comprehensive loss are recorded in the Consolidated Statements of Income either as a gain or loss.
Changes to accumulated other comprehensive loss by component are shown in the following table for the periods indicated:
Three Months Ended
September 30,
2025
2024
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Change in
Benefit
Obligations
and Plan
Assets for
the Post
Retirement
Benefit
Plan
Total
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Change in
Benefit
Obligations
and Plan
Assets for
the Post
Retirement
Benefit
Plan
Total
(dollars in thousands)
(dollars in thousands)
June 1
$
(
7,301
)
$
5
$
(
7,296
)
$
(
18,773
)
$
10
$
(
18,763
)
Other comprehensive income before reclassifications
2,166
—
2,166
5,485
—
5,485
Tax effect of current period changes
(
455
)
—
(
455
)
(
1,152
)
—
(
1,152
)
Current period changes net of taxes
1,711
—
1,711
4,333
—
4,333
September 30
$
(
5,590
)
$
5
$
(
5,585
)
$
(
14,440
)
$
10
$
(
14,430
)
Nine Months Ended
September 30,
2025
2024
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Change in
Benefit
Obligations
and Plan
Assets for
the Post
Retirement
Benefit
Plan
Total
Unrealized
Gains and
Losses on
Available
for Sale
Securities
Change in
Benefit
Obligations
and Plan
Assets for
the Post
Retirement
Benefit
Plan
Total
(dollars in thousands)
(dollars in thousands)
January 1
$
(
18,645
)
$
5
$
(
18,640
)
$
(
18,020
)
$
14
$
(
18,006
)
Other comprehensive income (loss) before reclassifications
28,949
—
28,949
4,532
(
5
)
4,527
Reclassification of realized losses into earnings
(
12,425
)
—
(
12,425
)
—
—
—
Tax effect of current period changes
(
3,469
)
—
(
3,469
)
(
952
)
1
(
951
)
Current period changes net of taxes
13,055
—
13,055
3,580
(
4
)
3,576
September 30
$
(
5,590
)
$
5
$
(
5,585
)
$
(
14,440
)
$
10
$
(
14,430
)
For the nine months ended September 30, 2025
, the reclassification out of accumulated other comprehensive loss represents the realized loss on the sale of available for sale securities, which appears as loss on the sale of securities in the Consolidated Statements of Income. The tax benefit related to this reclassification was $
2.6
million and was included in income tax expense in the Consolidated Statements of Income.
NOTE 10. Other Real Estate Owned & Repossessed Assets
The following table is a summary of other real estate owned (“OREO”) and repossessed asset activity for the
nine months ended September 30, 2025 and 2024 and the year ended December 31, 2024:
Nine Months Ended
Year Ended
Nine Months Ended
September 30,
December 31,
September 30,
2025
2024
2024
(in thousands)
Balance, beginning
$
514
$
304
$
304
Transfer from loans
1,009
525
111
Sales proceeds
(
381
)
(
111
)
(
112
)
Loss on sales
(
133
)
(
204
)
(
204
)
Valuation adjustments
—
—
—
Balance, ending
$
1,009
$
514
$
99
The balance at September 30, 2025 and December 31, 2024 represents repossessed marine vessels and at September 30, 2024, the balance represents repossessed assets including a marine vessel and commercial vehicles.
There was one loan collateralized by residential real estate
with a balance of $
98
thousand
in the process of foreclosure at September 30, 2025
and
none
at
December 31, 2024
.
The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.
At September 30, 2025 and December 31, 2024
, the balance of the investment for qualified affordable housing projects was $
1.1
million and $
1.3
million, respectively. These balances are reflected in Other Assets on the Consolidated Balance Sheets. Total unfunded commitments related to the investments in qualified affordable housing projects totaled
zero
at both
September 30, 2025 and December 31, 2024.
During the three months ended September 30, 2025 and September 30, 2024
, the Company recognized amortization expense of $
67
thousand and $
74
thousand, respectively. Amortization expense during the
nine months ended September 30, 2025 and 2024
was $
202
thousand and $
221
thousand, respectively. A
mortization expense is included in income tax expense on the Consolidated Statements of Income.
Total estimated credits to be received during 2025 are
$
275
thousand
based on the most recent quarterly estimates received from the funds. Total tax credits and other tax benefits recognized during the nine months ended September 30, 2025 and 2024, were
$
206
thousand and $
228
thousand, respectively
.
NOTE 12
. Recent Accounting Pronouncements and Other Authoritative Guidance
Pending Adoption
In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, "Income Taxes (Topic 740), Improvements to Income Tax Disclosures." The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity's applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU was effective for the Company on January 1, 2025 and will be presented in its annual financial statements on Form 10-K for the year ended December 31, 2025. The Company does not expect there to be a material impact on its consolidated financial statements.
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company's financial position, results of operations or cash flows.
NOTE 13. Revenue Recognition
Substantially all of the Company's revenue from contracts with customers that is within the scope of ASC 606, "Revenue from Contracts with Customers" is reported within noninterest income. A limited amount of other in-scope items such as gains and losses on other real estate owned are recorded in noninterest expense. The recognition of interest income and certain sources of noninterest income (e.g. gains on securities transactions, bank owned life insurance income, etc.) are governed by other areas of U.S. GAAP. Significant revenue streams that are within the scope of ASC 606 and included in noninterest income are discussed in the following paragraphs.
Income from Fiduciary Activities
Trust asset management fee income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
Service Charges on Deposit Accounts
Service charges on deposit accounts are principally comprised of overdrawn account fees, account maintenance charges and other activity based fees. The Company’s performance obligations on revenue generated from deposit accounts are generally satisfied immediately, when the transaction occurs, or by month-end. Typically, the duration of a contract does not extend beyond the services performed. Due to the short duration of most customer contracts which generate these sources of noninterest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized.
Other Service Charges and Fees
The majority of the Company’s noninterest income is derived from short term contracts associated with services provided for other ancillary services such as ATM fees, brokerage commissions and loan servicing fees. The Company’s performance
obligations on revenue generated from these ancillary services are generally satisfied immediately, when the transaction occurs, or by month-end. Typically, the duration of a contract does not extend beyond the services performed. Due to the short duration of most customer contracts which generate these sources of noninterest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized.
The Company earns interchange fees from credit cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly.
Noninterest income (loss) and the related amounts that are from contracts with customers within the scope of ASC 606 disaggregated by major source, for the
three and nine months ended September 30, 2025 and 2024 consisted of the following:
Three Months Ended
September 30,
Three Months Ended
September 30,
2025
2024
Revenue (1)
ASC 606 Revenue (2)
Revenue (1)
ASC 606 Revenue (2)
(in thousands)
Noninterest income :
Wealth management fees
Trust asset management fees
$
1,428
$
1,428
$
1,163
$
1,163
Brokerage commissions
399
399
352
352
Service charges on deposit accounts
Overdrawn account fees
425
425
406
406
Monthly and other service charges
133
133
112
112
Other service charges and fees:
Interchange fees
906
906
868
868
ATM fees
98
98
95
95
Other charges and fees
147
169
154
167
(Loss) on the sale and disposal of bank premises and equipment
(
2
)
(
2
)
—
—
Gain on sale of loans
1,012
—
627
—
Small business investment company income
58
—
496
—
Bank owned life insurance income
268
—
930
—
Other operating income
293
103
48
37
Total noninterest income
$
5,165
$
3,659
$
5,251
$
3,200
(1)
As reported in the Unaudited Consolidated Statements of Income.
(2)
Revenue from contracts with customers in scope of ASC 606
.
(Loss) on the sale and disposal of bank premises and equipment
(
18
)
(
18
)
(
11
)
(
11
)
(Loss) on sale of securities
(
12,425
)
—
—
—
Gain on sale of loans
2,545
—
1,280
—
Small business investment company income
211
—
882
—
Bank owned life insurance income
819
—
1,721
—
Other operating income
488
273
242
213
Total noninterest income
$
1,528
$
10,196
$
13,036
$
9,115
(1)
As reported in the Unaudited Consolidated Statements of Income
.
(2)
Revenue from contracts with customers in scope of ASC 606.
Contract Balances
The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2025 and December 31, 2024
, the Company did not have any significant contract balances.
NOTE 14. Borrowings
On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $
30.0
million in aggregate principal amount of its
4.50
% Fixed-to-Floating Rate Subordinated Notes due April 1, 2032 (the “Notes”).
The Notes were structured to qualify as Tier 2 capital for regulatory capital purposes at the holding company and bear an initial interest rate of
4.50
% until
April 1, 2027
, with interest during this period payable semi-annually in arrears. From and including April 1, 2027, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month SOFR, plus
2.35
%, with interest during this period paya
ble quarterly in arrears. The Notes are redeemable by the Company at its option, in whole or in part, on or after
April 1, 2027
. Initial debt issuance costs were $
673
thousand. The debt balance of $
30.0
million is presented net of unamortized issuance costs of $
438
thousand at
September 30, 2025.
The Company had $
40.0
million in total borrowings with the Federal Home Loan Bank of Atlanta ("FHLB") at
September 30, 2025
, classified as long-term borrowings. The interest rate on the $
40
million long-term borrowings with the FHLB is
4.83
%
and
is
due in
2026
. At
December 31, 2024
, the Company had $
95.0
million in long-term and $
25.0
million in short-term outstanding borrowings with the FHLB. The Company had $
80.5
million in irrevocable letters of credit at
September 30, 2025
with the FHLB to secure public deposits.
NOTE 15. Derivatives
The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates, and to assist customers with their risk management objectives. Derivative contracts that are not designated in a qualifying hedging relationships include customer accommodation loan swaps.
On August 15, 2024, the Company executed a 2-year,
3.862
% pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $
35.0
million. The Company receives a variable rate equal to the daily secured overnight financing rate ("SOFR"). This swap will terminate on August 15, 2026. The Company designated the fair value swap under the portfolio layer method ("PLM"). Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period. Adjustments will be made to record the swap at fair value as either an other asset or other liability on the Consolidated Balance Sheets, with changes in fair value recognized in net loans. The carrying value of the fair value swap on the Consolidated Balance Sheets will also be adjusted through loan interest income, based on changes in the fair value attributable to changes in the hedged risk.
The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset as of
September 30, 2025 and December 31, 2024.
September 30, 2025
December 31, 2024
Carrying Amount of Hedged Asset
Cumulative Amount of Fair Value Adjustment
Carrying Amount of Hedged Asset
Cumulative Amount of Fair Value Adjustment
(in thousands)
Loans receivable
(1)
$
35,092
$
92
$
34,916
$
(
84
)
(1)
These amounts include the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the hedged period. As of
September 30, 2025, the amortized cost basis of the closed portfolio used in this hedging relationship was
$
495.7
million a
nd the cumulative basis adjustment associated with this hedging relationship was $
92
thousand. At
September 30, 2025
, the amount of the designated hedged item was $
35.0
million.
The following table summarizes the effect of the fair value hedging relationship recognized in the Consolidated Statements of Income for the
three and nine months ended September 30, 2025.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2025
2024
2025
2024
(in thousands)
Hedged asset
$
41
$
61
$
124
$
61
Fair value derivative designated as hedging instrument
8
7
13
7
Total gain recognized in the consolidated statement of income within interest and fees on loans
The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back loan swaps are derivative financial instruments and are reported at fair value in “other assets” and “other liabilities” in the Consolidated Balance Sheets. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of the swaps with borrowers and the swaps with dealer counterparties.
The following tables summarize key elements of the Company's derivative instruments at
September 30, 2025 and December 31, 2024.
September 30, 2025
Notional Amount
Assets
Liabilities
(in thousands)
Derivatives designated as hedging instruments:
Fair value swap
$
35,000
$
—
$
69
Derivatives not designated as hedging instruments:
Customer-related interest rate swap contracts:
Matched interest rate swaps with borrower
$
44,046
$
636
$
491
Matched interest rate swaps with counterparty
44,046
491
636
December 31, 2024
Notional Amount
Assets
Liabilities
(in thousands)
Derivatives designated as hedging instruments:
Fair value swap
$
35,000
$
93
$
—
Derivatives not designated as hedging instruments:
Customer-related interest rate swap contracts:
Matched interest rate swaps with borrower
$
44,203
$
276
$
1,190
Matched interest rate swaps with counterparty
44,203
1,190
276
NOTE 16.
Business Segments
The Company has
three
reportable operating segments: community banking, marine lending and wealth management.
The community banking segment offers a wide range of retail and community banking services in the form of loan and deposit products. Revenues consist primarily of net interest income related to investments in non-marine loans and securities and outstanding deposits and borrowings, fees earned on deposit accounts and debit card interchange activity. During the first quarter of 2025
the Company sold available for sale securities with an amortized cost of $
99.2
million, which resulted in a net realized pre-tax loss of $
12.4
million. This loss on the sale of securities is the main driver of the community banking segment's reported net loss, total noninterest loss and income tax benefit for the
nine months ended September 30, 2025.
Revenue from marine lending operations consist primarily of net interest income related to commercial and consumer marine vessel loans originated through August 2023, at which time the Company ceased accepting new marine lending business. The balance of the marine loan portfolio, which constitutes a significant portion of the Company's assets, revenues, and earnings, totaled $
185.9
million and $
210.1
million at
September 30, 2025 and December 31, 2024, respectively. This balance will continue to decline as the loans are repaid.
The wealth management segment offers both a trust department and investment services. Trust department services include a full range of personal and retirement plan services, and investment services products include, among other products, annuities, IRA's, life insurance, fixed income investing, and full service or discount brokerage services. Non-deposit investment products are offered through a third-party service provider.
Financial information of the parent company is included in the "All Other" category. The parent company's revenue and expenses are comprised primarily of interest expense associated with subordinated debt.
The Company's segment structure reflects the financial information and reports used by our chief operating decision maker to make decisions regarding the business, including resource allocations and performance. Our Chief Executive Officer is the chief operating decision maker ("CODM"). We evaluate performance and allocate resources based on the operating income of each operating segment. The CODM uses segment operating income in the annual budget process. The operating income of each operating segment includes the revenues of the segment less expenses that are directly related to those revenues. Operating overhead, shared costs and share-based compensation costs are included in Community Banking. As such, expenses may not be representative of the costs expected to be incurred if the specific business segments operated as stand-alone entities. The Company expects it will continue to evaluate its business segments and internal reporting structure, including the production of discrete financial information to the CODM.
The following tables provide income and asset information as of
September 30, 2025 and December 31, 2024 and for three and nine months ended September 30, 2025 and 2024, which are included within the Consolidated Balance Sheets and Consolidated Statements of Income.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The purpose of this discussion is to focus on certain information relevant to the Company’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the Company’s Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2024, and in conjunction with the Unaudited Consolidated Financial Statements and notes thereto presented in Part I, Item 1, Financial Statements, of this Form 10-Q. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results for the full-year ending December 31, 2025 or any future period.
GENERAL
Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank.
The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and mortgage-backed securities, municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law.
The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with its customers, employees, communities, and shareholders.
At September 30, 2025, the Company had total assets of $1.93 billion, net loans of $1.45 billion, total deposits of $1.66 billion, and shareholders’ equity of $185.6 million.
During the first quarter of 2025 the Company executed a balance sheet repositioning of its investment securities portfolio, selling available for sale securities with an amortized cost balance of $99.2 million resulting in a net realized pre-tax loss of $12.4 million and reinvesting $66.0 million into purchases of available for sale securities. Additionally, the Company completed an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. Net proceeds from the offering were $53.5 million.
CRITICAL ACCOUNTING ESTIMATES
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions. Actual results could differ from those estimates. The accounting estimate with the greatest uncertainty and susceptibility to significant near-term change for the Company is the allowance for credit losses on loans.
Allowance for Credit Losses on Loans
The Company establishes the allowance for credit losses through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans.
This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including non-GAAP net income, non-GAAP noninterest income, non-GAAP earnings per share, non-GAAP return on average equity and average assets, tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.
The realized loss on the sale of the available for sale securities, which resulted from the balance sheet repositioning transactions during the first quarter of 2025, significantly impacted the Company's operating results and certain performance metrics and ratios. The following table reconciles the GAAP reported measure to the adjusted non-GAAP measure to show the impact of the loss on sales of securities during the three and nine months ended September 30, 2025.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in thousands except for per share data)
2025
2024
2025
2024
GAAP Net income
$
5,584
$
3,424
$
3,880
$
9,157
Adjustments to net income:
Loss on sales of securities
—
—
12,425
—
Tax effect of adjustments to net income
—
—
(2,609
)
—
Non-GAAP Net income
$
5,584
$
3,424
$
13,696
$
9,157
GAAP Noninterest income
$
5,165
$
5,251
$
1,528
$
13,036
Adjustments to noninterest income:
Loss on sales of securities
—
—
12,425
—
Non-GAAP Noninterest income
$
5,165
$
5,251
$
13,953
$
13,036
Earnings per share, basic and diluted (GAAP)
$
1.04
$
0.97
$
0.76
$
2.58
Effect of adjustments to net income
—
—
1.92
—
Non-GAAP Earnings per share, basic and diluted
$
1.04
$
0.97
$
2.68
$
2.58
Annualized return on average equity
12.20
%
11.99
%
3.14
%
11.16
%
Effect of adjustments to net income
—
%
—
%
7.94
%
—
%
Non-GAAP Annualized return on average equity
12.20
%
11.99
%
11.08
%
11.16
%
Annualized return on average assets
1.10
%
0.75
%
0.27
%
0.69
%
Effect of adjustments to net income
—
%
—
%
0.67
%
—
%
Non-GAAP Annualized return on average assets
1.10
%
0.75
%
0.94
%
0.69
%
For additional information and calculations of tax-equivalent net interest income and efficiency ratio, see the sections entitled "Tax-Equivalent Net Interest Income" and "Efficiency Ratio" below.
This report contains statements that are "forward looking statements." The Company may also make forward looking statements in other documents that are filed with the Securities and Exchange Commission, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors, or employees. Forward looking statements include statements regarding our expectations, intentions, and objectives, or other expressions that predict or indicate future events and trends and which do not relate to historical matters. The words “believe,” “expect,” “may,” “will,” “should,” "could," “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. You should not rely on forward looking statements, as they involve known and unknown risks, uncertainties, and other factors, some of which are beyond our control. These risks, uncertainties, and other factors may cause our actual results, performance, or achievements to be materially different than the anticipated future results, performance, or achievements expressed or implied by the forward looking statements.
Some of the factors that might cause these differences include the following:
•
difficult market conditions in our industry;
•
the ability to successfully manage growth or implement growth strategies if the Bank is unable to identify attractive markets, locations or opportunities to expand in the future or if the Bank is unable to successfully integrate new branches, business lines or other growth opportunities into its existing operations;
•
competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;
•
the successful management of interest rate risk;
•
risks inherent in making loans such as repayment risks and fluctuating collateral values;
•
the Company's ability to successfully resolve non-performing assets;
•
changes in general economic and business conditions in the Bank’s market area;
•
reliance on the Bank’s management team, including the ability to attract and retain key personnel;
•
changes in interest rates and interest rate policies;
•
maintaining capital levels adequate to support growth;
•
maintaining cost controls and asset qualities as new branches are opened or acquired;
•
demand, development and acceptance of new products and services;
•
deposit flows;
•
the Bank's ability to manage liquidity;
•
the cost and availability of secondary funding sources;
•
effects of soundness of other financial institutions;
•
problems with technology utilized by the Bank;
•
changing trends in customer profiles and behavior;
•
geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;
•
the economic impact of duties, tariffs or other barriers or restrictions on trade, any retaliatory counter measures, or the volatility and uncertainty arising there from;
•
political developments, including government shutdowns, and other significant disruptions and changes in the funding, size, scope, and efficiencies of the federal government, its agencies and services;
•
the Company's potential exposure to fraud, negligence, computer theft, and cyber-crime;
•
potential impact on us of existing and future legislation and regulations;
•
changes in accounting policies and banking and other law and regulations; and
•
other factors described in Item 1A., "Risk Factors," in the Company's 2024 Form 10-K.
You should carefully review all of these factors and you should be aware that there may be other factors that cause these differences. These forward looking statements were based on information, plans, and estimates at the date of this report, and we assume no obligation to update any forward looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
The following table presents a summarized consolidated statement of income and performance metrics and ratios for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in thousands except for per share data)
2025
2024
2025
2024
Net Income:
Net interest income
$
17,199
$
13,157
$
46,233
$
37,728
Provision for credit losses
1,112
1,544
3,013
2,200
Noninterest income
5,165
5,251
1,528
13,036
Noninterest expense
14,344
12,890
40,332
37,777
Income tax expense
1,324
550
536
1,630
Net income
$
5,584
$
3,424
$
3,880
$
9,157
Earnings per share, basic and diluted
$
1.04
$
0.97
$
0.76
$
2.58
Annualized return on average equity
12.20
%
11.99
%
3.14
%
11.16
%
Annualized return on average assets
1.10
%
0.75
%
0.27
%
0.69
%
The Company's net income increased $2.2 million, or 63.1%, during the three months ended September 30, 2025, compared to the three months ended September 30, 2024 and decreased $5.3 million, or 57.6%, during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. During the nine months ended September 30, 2025, net income was significantly impacted by a recognized loss on the sale of available for sale securities totaling $9.8 million, net of tax, while both the three and nine month periods in 2025 experienced a strong increase in net interest income over the corresponding 2024 periods.
Return on average equity ("ROE") measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by shareholders.
Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control.
Average Balances, Income and Expenses, Yields and Rates (Tax-Equivalent Basis)
The following table shows average balance, interest, and yield/rate information, as well as net interest margin on a tax- equivalent basis for the three months ended September 30, 2025 and 2024 (dollars in thousands):
September 30, 2025
September 30, 2024
Interest
Average
Interest
Average
Average
Income/
Yield/
Average
Income/
Yield/
Assets:
Balance
Expense
Rate
(2)
Balance
Expense
Rate (2)
Securities:
Taxable
$
124,891
$
1,353
4.30
%
$
137,183
$
869
2.52
%
Tax-Exempt
(1)
—
—
—
%
493
5
4.03
%
Total Securities
$
124,891
$
1,353
4.30
%
$
137,676
$
874
2.53
%
Loans:
Taxable
1,423,586
20,626
5.75
%
1,461,660
21,041
5.73
%
Non-accrual
15,058
—
—
%
2,553
—
—
%
Tax-Exempt
(1)
9,454
121
5.08
%
10,162
129
5.04
%
Total Loans
$
1,448,098
$
20,747
5.68
%
$
1,474,375
$
21,170
5.71
%
Federal funds sold and interest-bearing deposits in other banks
336,562
3,858
4.55
%
120,272
1,670
5.52
%
Total earning assets
$
1,909,551
$
25,958
5.39
%
$
1,732,323
$
23,714
5.45
%
Allowance for credit losses on loans
(15,699
)
(14,729
)
Total non-earning assets
118,550
105,884
Total assets
$
2,012,402
$
1,823,478
Liabilities and Shareholders' Equity:
Interest-bearing deposits:
NOW accounts
$
314,742
$
1,863
2.35
%
$
254,996
$
1,535
2.39
%
Money market accounts
267,787
1,478
2.19
%
261,653
1,555
2.36
%
Savings accounts
125,512
35
0.11
%
132,983
38
0.11
%
Time deposits:
$250,000 and more
170,124
1,761
4.11
%
159,761
1,932
4.81
%
Less than $250,000
281,617
2,749
3.87
%
294,579
3,359
4.54
%
Total interest-bearing deposits
$
1,159,782
$
7,886
2.70
%
$
1,103,972
$
8,419
3.03
%
Federal funds purchased
7
—
NM
12
—
NM
Federal Home Loan Bank advances
40,000
494
4.90
%
148,804
1,756
4.69
%
Subordinated debt, net
29,552
354
4.75
%
29,484
354
4.78
%
Total interest-bearing liabilities
$
1,229,341
$
8,734
2.82
%
$
1,282,272
$
10,529
3.27
%
Noninterest-bearing liabilities:
Demand deposits
579,568
409,753
Other Liabilities
21,863
17,838
Total liabilities
$
1,830,772
$
1,709,863
Shareholders' equity
181,630
113,615
Total liabilities and shareholders' equity
$
2,012,402
$
1,823,478
Net interest income
$
17,224
$
13,185
Net interest spread
2.57
%
2.18
%
Interest expense as a percent of average earning assets
1.81
%
2.42
%
Net interest margin (non-GAAP)
(3)
3.58
%
3.03
%
(1)
Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21% (Non-GAAP).
(2)
Annualized.
(3)
Refer to section entitled "Tax-Equivalent Net Interest Income" for the reconciliation of tax-equivalent net interest income.
The following table shows average balance, interest, and yield/rate information, as well as net interest margin on a tax- equivalent basis for the nine months ended September 30, 2025 and 2024 (dollars in thousands):
September 30, 2025
September 30, 2024
Interest
Average
Interest
Average
Average
Income/
Yield/
Average
Income/
Yield/
Assets:
Balance
Expense
Rate
(2)
Balance
Expense
Rate (2)
Securities:
Taxable
$
119,351
$
3,457
3.87
%
$
139,150
$
2,677
2.57
%
Tax-Exempt
(1)
116
4
4.61
%
495
15
4.10
%
Total Securities
$
119,467
$
3,461
3.87
%
$
139,645
$
2,692
2.58
%
Loans:
Taxable
1,428,186
60,806
5.69
%
1,440,024
60,320
5.60
%
Non-accrual
11,825
—
—
%
4,251
—
—
%
Tax-Exempt
(1)
9,859
374
5.07
%
10,489
394
5.02
%
Total Loans
$
1,449,870
$
61,180
5.64
%
$
1,454,764
$
60,714
5.57
%
Federal funds sold and interest-bearing deposits in other banks
288,033
9,688
4.50
%
98,872
4,007
5.41
%
Total earning assets
$
1,857,370
$
74,329
5.35
%
$
1,693,281
$
67,413
5.32
%
Allowance for credit losses on loans
(15,457
)
(14,623
)
Total non-earning assets
109,072
104,748
Total assets
$
1,950,985
$
1,783,406
Liabilities and Shareholders' Equity:
Interest-bearing deposits:
NOW accounts
$
298,045
$
4,958
2.22
%
$
256,741
$
4,570
2.38
%
Money market accounts
271,758
4,511
2.22
%
262,319
4,431
2.26
%
Savings accounts
129,500
108
0.11
%
136,019
118
0.12
%
Time deposits:
$250,000 and more
176,676
5,788
4.38
%
147,241
5,284
4.79
%
Less than $250,000
300,965
9,288
4.13
%
267,502
8,955
4.77
%
Total interest-bearing deposits
$
1,176,944
$
24,653
2.80
%
$
1,069,822
$
23,358
2.92
%
Federal funds purchased
5
—
NM
13
—
NM
Federal Home Loan Bank advances
63,535
2,301
4.84
%
146,606
5,178
4.72
%
Subordinated debt, net
29,535
1,063
4.81
%
29,467
1,063
4.82
%
Total interest-bearing liabilities
$
1,270,019
$
28,017
2.95
%
$
1,245,908
$
29,599
3.17
%
Noninterest-bearing liabilities:
Demand deposits
494,034
410,679
Other Liabilities
21,736
17,201
Total liabilities
$
1,785,789
$
1,673,788
Shareholders' equity
165,196
109,618
Total liabilities and shareholders' equity
$
1,950,985
$
1,783,406
Net interest income
$
46,312
$
37,814
Net interest spread
2.40
%
2.15
%
Interest expense as a percent of average earning assets
2.02
%
2.33
%
Net interest margin (non-GAAP)
(3)
3.33
%
2.98
%
(1)
Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21% (Non-GAAP).
(2)
Annualized.
(3)
Refer to section entitled "Tax-Equivalent Net Interest Income" for the reconciliation of tax-equivalent net interest income.
The following table reconciles tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income. Tax-equivalent net interest income (Non-GAAP) is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2025 and 2024.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2025
2024
2025
2024
(in thousands)
(in thousands)
GAAP Financial Measurements:
Interest Income - Loans
$
20,722
$
21,143
$
61,102
$
60,631
Interest Income - Securities and Other Interest-Earnings Assets
5,211
2,543
13,148
6,696
Interest Expense - Deposits
7,886
8,419
24,653
23,358
Interest Expense - Borrowings
848
2,110
3,364
6,241
Total Net Interest Income
$
17,199
$
13,157
$
46,233
$
37,728
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income - Loans
(1)
$
25
$
27
$
78
$
83
Add: Tax Benefit on Tax-Exempt Interest Income - Securities
(1)
—
1
1
3
Total Tax Benefit on Tax-Exempt Interest Income
$
25
$
28
$
79
$
86
Tax-Equivalent Net Interest Income
$
17,224
$
13,185
$
46,312
$
37,814
(1)
Tax benefit was calculated using the federal statutory tax rate of 21%.
Net Interest Income
Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates.
The year-over-year improvements in net interest income, tax-equivalent net interest income, net interest spread, and net interest margin primarily reflect the impact of the balance sheet repositioning strategy, pursuant to which the Company raised capital, increased cash on hand and replaced lower-yielding investment securities with higher yielding securities. Declining average rates paid on interest-bearing deposits and maturities of FHLB advances also contributed to the increase in net interest income, which was partially offset by higher average balances of time deposits during the 2025 periods.
Net interest income, on a tax-equivalent basis, was $17.2 million and $13.2 million for the three months ended September 30, 2025 and 2024, respectively, an increase of $4.0 million, or 30.6%. For the nine months ended September 30, 2025 and 2024, net interest income, on a tax-equivalent basis, was $46.3 million and $37.8 million, respectively, which represents an increase of $8.5 million, or 22.5%.
The Company's net interest spread and net interest margin increased 25 basis points and 35 basis points, respectively, for the nine months ended September 30, 2025 compared to nine months ended September 30, 2024. For the three months ended September 30, 2025, the Company's net interest spread and net interest margin increased 39 basis points and 55 basis points, respectively, compared to the three months ended September 30, 2024. Ongoing margin pressures include deposit pricing, the Bank's continued strategy of originating mortgage loans for sale, and an increase in nonaccrual loans during the nine months ended September 30, 2025.
Total average balance of securities decreased by $12.8 million and $20.2 million for the three and nine months ended September 30, 2025, respectively, from the average balances in the prior year periods primarily due to routine paydowns and maturities in the portfolio. The average yield on securities increased 177 basis points and 129 basis points during the three and nine months ended September 30, 2025, respectively, compared to the three and nine months ended September 30, 2024 reflecting the sale of lower-yielding securities and reinvestment into higher-yielding securities in the first quarter of 2025.
The total average loan balances for the three and nine months ended September 30, 2025 decreased $26.3 million and $4.9 million, respectively, from the same periods in 2024 largely reflecting the sale of a pool of mortgage loans totaling $18.8 million early in the first quarter of 2025 ahead of the Company's public offering and continuing paydowns and payoffs in the marine loan portfolio as the Company is no longer accepting new marine business. These decreases were partially offset by new loan growth in the commercial real estate loan portfolios.
Total average balance of federal funds sold and interest-bearing deposits in other banks have increased $216.3 million and $189.2 million during the three and nine months ended September 30, 2025, respectively, compared to the three and nine months ended September 30, 2024, which were bolstered by the impact of the proceeds received from the public offering and increased deposit balances.
Total average interest-bearing deposit balances for three and nine months ended September 30, 2025 increased $55.8 million $107.1 million, respectively, from the same periods in 2024. These increases were primarily in NOW accounts and time deposits. The average rate paid on interest-bearing deposits has decreased 33 basis points and 12 basis points during the three and nine months ended September 30, 2025, respectively, compared to the three and nine months ended September 30, 2024 reflecting lower short-term market interest rates.
The average balance of FHLB advances decreased $108.8 million and $83.1 million during the three and nine months ended September 30, 2025, respectively, compared to the three and nine months ended September 30, 2024 due to maturing advances that were not replaced with new borrowings.
Interest income and expense are affected by fluctuation in interest rates, by changes in the volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each. The following table provides information about changes in rate and volume (dollars in thousands):
Three Months Ended September 30, 2025 from 2024
Nine Months Ended September 30, 2025 from 2024
Increase (Decrease)
Due to:
Increase (Decrease)
Due to:
Volume
Rate
Total
Volume
Rate
Total
Earning Assets:
Securities:
Taxable
$
(70
)
$
554
$
484
$
(305
)
$
1,085
$
780
Tax-exempt
(3
)
(2
)
(5
)
(13
)
2
(11
)
Loans:
Taxable
(479
)
64
(415
)
(509
)
995
486
Tax-exempt
(9
)
1
(8
)
(24
)
4
(20
)
Federal funds sold and interest-bearing deposits in other banks
2,425
(237
)
2,188
6,229
(548
)
5,681
Total earning assets
$
1,864
$
380
$
2,244
$
5,378
$
1,538
$
6,916
Interest-Bearing Liabilities:
NOW accounts
$
353
$
(25
)
$
328
$
667
$
(279
)
$
388
Money market accounts
37
(114
)
(77
)
157
(77
)
80
Savings accounts
(3
)
—
(3
)
(4
)
(6
)
(10
)
Time deposits:
$250,000 and more
138
(309
)
(171
)
881
(377
)
504
Less than $250,000
(140
)
(470
)
(610
)
850
(517
)
333
Total interest-bearing deposits
$
385
$
(918
)
$
(533
)
$
2,551
$
(1,256
)
$
1,295
Federal funds purchased
$
—
$
—
$
—
$
—
$
—
$
—
Federal Home Loan Bank advances
(1,344
)
82
(1,262
)
(3,012
)
135
(2,877
)
Subordinated debt
—
—
—
—
—
—
Total interest-bearing liabilities
$
(959
)
$
(836
)
$
(1,795
)
$
(461
)
$
(1,121
)
$
(1,582
)
Change in net interest income
$
2,823
$
1,216
$
4,039
$
5,839
$
2,659
$
8,498
Provision for Credit Losses
The provision for credit losses results from management's review of the adequacy of the allowance for credit losses. The allowance for credit losses is management’s estimate, at the reporting date, of expected lifetime credit losses and includes consideration of current forecasted economic conditions. Estimating the amount required to maintain an adequate allowance for credit losses involves a high degree of judgment.
The following table presents the provision for credit losses:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in thousands)
2025
2024
$ Change
% Change
2025
2024
$ Change
% Change
Provision for credit losses on loans
$
1,131
$
1,526
$
(395
)
(26
)%
$
3,133
$
2,315
$
818
35
%
Provison for credit losses on unfunded commitments
(19
)
18
(37
)
(206
)%
(120
)
(115
)
(5
)
4
%
Provison for credit losses
$
1,112
$
1,544
$
(432
)
(28
)%
$
3,013
$
2,200
$
813
37
%
The provision for credit losses for the three and nine months ended September 30, 2025 and 2024 included the impact of net losses and specific reserve allocations on individually evaluated nonaccrual loans and reflected management's estimate of forecasted economic conditions and changes in loan balances.
During the three months ended September 30, 2025 and 2024, net charge-offs totaled $2.3 million and $1.2 million, respectively, and $3.4 million and $1.5 million during the nine months ended September 30, 2025 and 2024.
Specific reserve allocations totaled $333 thousand at September 30, 2025 reflecting three commercial loan relationships and totaled $268 thousand at September 30, 2024, allocated to one commercial loan relationship.
Noninterest Income
Total noninterest income was $5.2 million and $5.3 million for the three months ended September 30, 2025 and 2024, respectively, and $1.5 million and $13.0 million, respectively for the nine months ended September 30, 2025 and 2024. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three and nine months ended September 30, 2025 and 2024, which are included within the respective Consolidated Statements of Income headings.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in thousands)
2025
2024
$ Change
% Change
2025
2024
$ Change
% Change
Wealth management fees
$
1,827
$
1,515
$
312
21
%
$
5,158
$
4,244
$
914
22
%
Service charges on deposit accounts
558
518
40
8
%
1,567
1,428
139
10
%
Other service charges and fees
1,151
1,117
34
3
%
3,183
3,250
(67
)
(2
)%
(Loss) on sale of securities
—
—
—
NM
(12,425
)
—
(12,425
)
NM
(Loss) on disposal of bank premises and equipment
(2
)
—
(2
)
NM
(18
)
(11
)
(7
)
64
%
Gain on sale of loans
1,012
627
385
61
%
2,545
1,280
1,265
99
%
Small business investment company income
58
496
(438
)
(88
)%
211
882
(671
)
(76
)%
Bank owned life insurance income
268
930
(662
)
(71
)%
819
1,721
(902
)
(52
)%
Other operating income
293
48
245
510
%
488
242
246
102
%
Total noninterest income (loss)
$
5,165
$
5,251
$
(86
)
(2
)%
$
1,528
$
13,036
$
(11,508
)
(88
)%
NM - Not Meaningful
Wealth management fee income increased from 2024 to 2025. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management which has increased over
the 2024 year period. Additionally, per transaction fees for estates and other services have also contributed to the year over year increase in revenue.
The increase in service charges on deposit accounts during 2025 reflects growth in the number of accounts as well as higher levels of overdraft charges.
The Company executed balance sheet repositioning transactions within its investment securities portfolio during March 2025. The sale of $99.2 million of available for sale debt securities, with a fair value of $86.8 million, resulted in a net pre-tax loss of $12.4 million during the nine months ended September 30, 2025. Management utilized the proceeds from the public offering capital raise completed in February 2025 to enable the balance sheet repositioning.
Gain on sale of loans increased during the three and nine months ended September 30, 2025 when compared to the same periods in 2024. The Company sold $72.3 million in mortgage loans on the secondary market, consisting of $53.5 million of loans originated for sale and a $18.8 million pool of residential mortgage loans held for investment, and $16.3 million of SBA commercial loans during the nine months ended September 30, 2025. This compares to loan sales consisting of $40.4 million in mortgage loans and $6.9 million SBA commercial loans during the nine months ended September 30, 2024. The Company intends to continue originating mortgage loans for sale, whereas the mortgage portfolio sale was completed in the first quarter of 2025, at par, and ahead of the Company's public offering in order to bolster on-balance sheet liquidity.
Gain on loan sales during the three months ended September 30, 2025 and 2024 reflected sales of $21.6 million and $14.9 million of mortgage loans, respectively, and $6.4 million and $4.2 million of SBA commercial loans, respectively.
Income from holdings in small business investment companies decreased during three and nine months ended September 30, 2025, respectively, compared to the same period in 2024. The decreases during the current year period are mainly attributed to lower cash distributions received, based on the results of their performance and timing of distributions.
Bank owned life insurance income ("BOLI") decreased during three and nine months ended September 30, 2025 due to BOLI settlements received during the prior year periods.
Other operating income increased for the three and nine months ended September 30, 2025 due to loan swap fee income recognized on agreements with initial notional balances totaling $15.7 million, which resulted in a gain of $179 thousand. There was no loan swap fee income generated during the three and nine months ended September 30, 2024.
Total noninterest expenses increased $1.5 million, or 11.28%, for the three months ended September 30, 2025 and $2.6 million, or 6.76%, for the nine months ended September 30, 2025 compared to the same periods in 2024. The following table presents the components of noninterest expense for the three and nine months ended September 30, 2025 and 2024, which are included within the respective Consolidated Statements of Income headings.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in thousands)
2025
2024
$ Change
% Change
2025
2024
$ Change
% Change
Salaries and employee benefits
$
8,717
$
7,548
$
1,169
15
%
$
23,741
$
22,086
$
1,655
7
%
Occupancy expenses
691
530
161
30
%
1,951
1,569
382
24
%
Equipment expenses
437
427
10
2
%
1,261
1,201
60
5
%
Advertising and marketing expenses
317
247
70
28
%
652
729
(77
)
(11
)%
Stationary and supplies
37
35
2
6
%
114
91
23
25
%
ATM network fees
327
406
(79
)
(19
)%
1,021
1,159
(138
)
(12
)%
Loss on sale of repossessed assets
—
204
(204
)
(100
)%
133
204
(71
)
(35
)%
FDIC assessment
172
343
(171
)
(50
)%
748
1,103
(355
)
(32
)%
Computer software expense
389
226
163
72
%
996
680
316
46
%
Bank franchise tax
388
342
46
13
%
1,136
1,011
125
12
%
Professional fees
493
408
85
21
%
1,697
1,425
272
19
%
Data processing fees
469
679
(210
)
(31
)%
1,652
1,802
(150
)
(8
)%
Other operating expenses
1,907
1,495
412
28
%
5,230
4,717
513
11
%
Total noninterest expenses
$
14,344
$
12,890
$
1,454
11
%
$
40,332
$
37,777
$
2,555
7
%
NM - Not Meaningful
Salaries and employee benefits increased during the three and nine months ended September 30, 2025 over 2024, reflecting increases in salaries, commission and employee insurance expense, and annual incentive plan expense. The Company's number of full-time equivalent employees ("FTE's") has increased from 233 at September 30, 2024 to 249 at September 30, 2025.
Occupancy expenses increased during the three and nine months ended September 30, 2025 largely due to the impact of the sales-leaseback transaction of the Company's operating center and branch building in December 2024. Rental expense, net of building depreciation increased $133 thousand and $382 thousand, during the three and nine months ended September 30, 2025, respectively, compared to the 2024 periods. The increase in rental expense also reflects a new long-term lease executed during the first quarter of 2025 as the Company has moved its standalone loan production office and established a full-service branch in McLean, Viriginia.
Three repossessed marine vessels were sold during the first quarter of 2025, resulting in the recognition of a $133 thousand loss during the nine months ended September 30, 2025. There were no sales of repossessed assets during the three months ended September 30, 2025 compared to the sale of one repossessed marine vessel during the three and nine months ended September 30, 2024, which resulted in a loss of $204 thousand.
FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the three and nine months ended September 30, 2025 compared to the same periods in 2024. The decrease in FDIC assessment reflects an improvement in the capital and financial ratio portion of the assessment rate, largely due to the capital raise completed in early 2025.
Computer software expenses increased during the three and nine months ended September 30, 2025 as the Company continues to invest in technology to enhance systems security and drive operational efficiencies.
Professional fees increased during the three and nine months ended September 30, 2025 compared to the same periods in 2024 primarily due to legal fees related to loan matters, outside recruitment services, and internal audit services.
Data processing fees decreased reflecting core provider pricing discounts recognized during 2025.
Other operating expenses increased by $412 thousand, or 27.56%, and $513 thousand, or 10.88%, during the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024, largely reflecting a higher level of fraudulent activity related to customer accounts, higher expenses related to volume based costs and loan collection costs, an increase in director expenses, and greater travel costs related to investor relations activities.
Efficiency Ratio
The efficiency ratio of the Company was 64.06% and 71.34% for the three months ended September 30, 2025 and 2024, respectively, and 66.68% and 75.22% for the nine months ended September 30, 2025 and 2024, respectively. The improvement in the efficiency ratio during 2025 reflects an increase in net interest and noninterest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income. The Company adjusts for non-recurring items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed assets, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.
The calculation of the efficiency ratio for the three and nine months ended September 30, 2025 and 2024 was as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2025
2024
2025
2024
(in thousands)
(in thousands)
Summary of Operating Results:
Noninterest expenses (GAAP)
$
14,344
$
12,890
$
40,332
$
37,777
Less: Loss on sale of repossessed assets
—
204
133
204
Adjusted noninterest expenses (Non-GAAP)
$
14,344
$
12,686
$
40,199
$
37,573
Net interest income
17,199
13,157
46,233
37,728
Noninterest income (GAAP)
5,165
5,251
1,528
13,036
Less: (Loss) on the sale and disposal of premises and equipment
(2
)
—
(18
)
(11
)
Less: (Loss) on the sale of securities
—
—
(12,425
)
—
Less: Income from life insurance proceeds
—
653
—
907
Adjusted noninterest income (Non-GAAP)
$
5,167
$
4,598
$
13,971
$
12,140
Tax equivalent adjustment
(1)
25
28
79
86
Total net interest income and noninterest income, adjusted (Non-GAAP)
$
22,391
$
17,783
$
60,283
$
49,954
Efficiency ratio
64.06
%
71.34
%
66.68
%
75.22
%
(1)
Includes tax-equivalent adjustments on loans and securities using the federal statutory tax rate of 21%.
The following table presents the Company's income tax provision and applicable tax rates for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in thousands)
2025
2024
2025
2024
Income tax expense
$
1,324
$
550
$
536
$
1,630
Adjusted income tax expense (non-GAAP)
1,324
550
3,145
1,630
Effective income tax rate
19.17
%
13.84
%
12.14
%
15.11
%
Adjusted effective income tax rate (non-GAAP)
19.17
%
13.84
%
18.68
%
15.11
%
The year over year comparisons include tax-exempt income on investment securities and loans, BOLI income, income tax credits on qualified affordable housing project investments, and qualified rehabilitation credits. Additionally, during the nine months ended September 30, 2025, the effective tax rate was impacted by the balance sheet repositioning transactions, which resulted in a pre-tax loss of $12.4 million with an associated tax benefit of $2.6 million, calculated by using the federal statutory tax rate of 21%. Qualified affordable housing project investments are discussed in Note 11 to the Consolidated Financial Statements.
Business Segments
The Company has three reportable operating segments: community banking, marine lending and wealth management. See Note 16 to the Consolidated Financial Statements.
The following table presents a summarized statement of income for the community banking business segment for the three and nine months ended September 30, 2025 and 2024:
Net interest income increased during the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 primarily due to income earned on: i) non-marine loans; ii) the investment securities portfolio, which was restructured in the first quarter of 2025 to sell and replace lower yielding investments with higher yielding securities; iii) higher levels of earning deposit balances in other other banks; and iv) reduction in borrowings expense as FHLB advances have matured. These increases were partially offset by an increase in interest-bearing deposit expense due to growth in average balances. Higher levels of interest-earning deposits balances in other banks reflects proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025, as well as increases in customer deposit balances.
Provision for credit losses reflects charge-offs totaling $2.0 million and $3.2 million for the three and nine months ended September 30, 2025, specific reserves of $333 thousand related to three commercial loans totaling $2.3 million, partially offset by recoveries and decreases in loan balances.
Loss on the sale of securities resulted from the Company's execution of balance sheet repositioning transactions within its investment securities portfolio in March 2025. Available for sale debt securities totaling $99.2 million, with a fair value of $86.8 million, were sold resulting in a net pre-tax loss of $12.4 million.
The decrease in income tax expense during the nine months ended September 30, 2025 was directly related to the recognized loss on the sale of securities.
The following table presents a summarized statement of income for the marine lending segment for the three and nine months ended September 30, 2025 and 2024:
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
(dollars in thousands)
2025
2024
$ Change
% Change
2025
2024
$ Change
% Change
Net interest income
$
1,590
$
1,615
$
(25
)
(2
)%
$
4,719
$
5,405
$
(686
)
(13
)%
Net Revenue
1,590
1,615
(25
)
(2
)%
4,719
5,405
(686
)
(13
)%
Provision for (recovery of) credit losses
561
(65
)
626
(963
)%
291
298
(7
)
(2
)%
Noninterest expense
96
114
(18
)
(16
)%
326
467
(141
)
(30
)%
Income before taxes
933
1,566
(633
)
(40
)%
4,102
4,640
(538
)
(12
)%
Income tax expense
198
328
(130
)
(40
)%
863
974
(111
)
(11
)%
Net Income
$
735
$
1,238
$
(503
)
(41
)%
$
3,239
$
3,666
$
(427
)
(12
)%
Net revenues declined due to pay downs in the portfolio, which are not being replaced with new loan originations. The marine loan portfolio totaled $185.9 million and $225.9 million at September 30, 2025 and September 30, 2024, respectively.
Provision for credit losses increased reflecting charge-off activity partially offset by declining loan balances during the three months ended September 30, 2025 compared to the three months ended September 30, 2024.
The following table presents a summarized statement of income for the wealth management segment for the three and nine months ended September 30, 2025 and 2024:
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
(dollars in thousands)
2025
2024
$ Change
% Change
2025
2024
$ Change
% Change
Other noninterest income
$
1,869
$
1,515
$
354
23.37
%
$
5,286
$
4,244
$
1,042
24.55
%
Net Revenue
1,869
1,515
354
23
%
5,286
4,244
1,042
25
%
Noninterest expense
839
727
112
15
%
2,298
2,074
224
11
%
Income before taxes
1,030
788
242
31
%
2,988
2,170
818
38
%
Income tax expense
216
166
50
30
%
627
456
171
38
%
Net Income
$
814
$
622
$
192
31
%
$
2,361
$
1,714
$
647
38
%
Net revenue increased during the three and nine months ended September 30, 2025 over the 2024 periods due to increases in trust services income reflecting fees earned on a higher level of assets under management and estate settlements and increases in investment sales revenue. The increase in noninterest expense reflects increases in salaries and employee benefits expenses.
FINANCIAL CONDITION
Two significant events impacting the Company's financial condition occurred during the first quarter of 2025. On February 13, 2025, the Company completed an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. The net proceeds from the offering were $53.5 million. During March 2025, the Company executed balance sheet repositioning transactions within its investment securities portfolio. The execution of these events was to support continued organic growth and capital generation. These are further described in their corresponding paragraphs below.
Securities
The carrying amounts of the Company's available for sale securities are as follows:
September 30, 2025
December 31, 2024
(dollars in thousands)
Amount
Percent
Amount
Percent
Obligations of U.S. government corporations and agencies
$
7,574
6
%
$
7,668
6
%
U.S. Treasury securities
10,008
8
%
—
0
%
Mortgage-backed securities
77,163
64
%
104,967
87
%
Collateralized mortgage obligations
22,789
19
%
—
0
%
Obligations of states and political subdivisions
—
0
%
4,645
4
%
Subordinated debt
3,845
3
%
4,050
3
%
Total securities available for sale at fair value
$
121,379
100
%
$
121,330
100
%
Total securities available for sale increased $49 thousand, or 0.04% during 2025. The Company purchased $102.2 million of securities during the nine months ended September 30, 2025, which includes $66.0 million as part of the balance sheet repositioning transactions in the first quarter of 2025. The Company had total maturities, calls, and principal repayments of $19.8 million and sales of $99.2 million during the nine months ended September 30, 2025.
Net unrealized loss on available for sale securities was $7.1 million at September 30, 2025 as compared to a net unrealized loss of $23.6 million at December 31, 2024. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).
During March 2025, balance sheet repositioning transactions were comprised of sales of available for sale debt securities with an amortized cost balance of $99.2 million (fair value of $86.8 million) and a weighted average yield of 1.72%, with proceeds
reinvested into purchases of $66.0 million of available for sale debt securities with a weighted average yield of 4.72%. The total sales of $99.2 million represented 68.48% of December 31, 2024 securities balance. The majority of these repositioning sales and purchases consisted of mortgage-backed securities. The sale of debt securities resulted in a net pre-tax realized loss of $12.4 million (after-tax of $9.8 million) that was recognized in the first quarter of 2025. In addition to the repositioning transactions, the Company purchased U.S. Treasury notes totaling $9.9 million prior to the repositioning to maintain pledging levels throughout the repositioning period and has also made subsequent purchases.
The primary cause of the unrealized losses at September 30, 2025 and December 31, 2024 was changes in market interest rates, rather than other market conditions or credit concerns of the issuers over the time between purchase and measurement periods. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.
Loan Portfolio
The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Details of the Company's loan portfolio are presented below:
Gross loans were $1.46 billion and $1.47 billion at September 30, 2025 and December 31, 2024, respectively. This represents a decrease of $7.1 million, or 0.49%, during the nine months ended September 30, 2025. The ratio of gross loans to deposits decreased during the nine months ended September 30, 2025 from 93.14% at December 31, 2024 to 88.21% at September 30, 2025 reflecting the decrease in gross loans, compounded by a 5.07% increase in deposits during the same time period.
The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. Loan sales, paydowns within the marine portfolio, and significant payoffs of commercial and industrial loans related to the sales of two customers' businesses caused the balance of gross loans to experience a net decline, while being partially offset by growth in the commercial real estate loans portfolios.
During the nine months ended September 30, 2025, through the normal course of business, $88.6 million in loans were sold, consisting primarily of mortgage loans. Included in total loans sold was a pool of residential mortgage loans totaling $18.8 million, which was sold at par. This pool was sold in January 2025, ahead of the Company's public offering, to bolster on-balance sheet liquidity.
Residential real estate loans decreased primarily due to the portfolio loan sale in early 2025.
Commercial real estate loans increased during the nine months ended September 30, 2025 with growth in both owner occupied and non-owner occupied portfolios. The increase was due to strong originations, including a large construction loan that converted to permanent financing.
The majority of the decrease in construction and secured by farmland loans was due to a large construction loan which converted to permanent financing in the owner-occupied commercial real estate portfolio.
Marine loans are declining due to normal paydowns and payoffs only as the Company is no longer accepting new marine business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid.
Allowance for Credit Losses on Loans
The purpose of, and the methods for, measuring the allowance for credit losses on loans are discussed in Note 1 to the Consolidated Financial Statements in the 2024 Form 10-K.
The following table presents the activity in the allowance for credit losses on loans and related ratios for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in thousands)
2025
2024
2025
2024
Balance at beginning of period
$
15,979
$
15,014
$
15,027
$
14,493
Charge-Offs
Construction & secured by farmland
—
—
—
(94
)
Residential real estate
—
(65
)
(30
)
(127
)
Commercial real estate
(1,660
)
—
(2,631
)
(7
)
Commercial
(219
)
(8
)
(353
)
(83
)
Marine
(467
)
(1,004
)
(581
)
(1,457
)
Consumer
(37
)
(259
)
(127
)
(376
)
Other
(34
)
(46
)
(106
)
(115
)
Total charge-off's
(2,417
)
(1,382
)
(3,828
)
(2,259
)
Recoveries
Construction & secured by farmland
1
94
4
100
Residential real estate
44
4
296
304
Commercial real estate
—
—
—
162
Commercial
32
14
110
44
Marine
—
—
—
—
Consumer
21
28
34
132
Other
19
5
34
12
Total recoveries
117
145
478
754
Net charge-off's
(2,300
)
(1,237
)
(3,350
)
(1,505
)
Provision for credit losses on loans
1,131
1,526
3,133
2,315
Balance at end of period
$
14,810
$
15,303
$
14,810
$
15,303
Net charge-off's to average loans (annualized)
0.63
%
0.33
%
0.31
%
0.14
%
Allowance for credit losses on loans as a percentage of gross loans
1.01
%
1.03
%
1.01
%
1.03
%
Charge-offs during the three months ended September 30, 2025 primarily consisted of losses on three marine vessels that were repossessed, a nonaccrual owner-occupied commercial real estate loan, and a $1.2 million deficiency balance related to non-owner occupied commercial loan relationship consisting of four residential multifamily income producing properties. Total charge-offs for this relationship during the nine months ended September 30, 2025 were $2.2 million, representing over 50% of the total year-to-date charge-offs. The Company does not anticipate having to make any further significant write-downs on the three remaining properties after the sale of the fourth and largest property during the third quarter of 2025.
Recoveries were $478 thousand and $754 thousand for the nine months ended September 30, 2025 and 2024, respectively, resulting in net charge-offs of $3.4 million and $1.5 million for the nine months ended September 30, 2025 and 2024, respectively.
The reduction of two basis points in the allowance for credit losses on loans to gross loans ratio largely reflects the combined impact of the change in mix of loan pool balances and associated reserve factors applied. Declining loan balances and a net decrease in the total loss factor for the construction and secured by farmland, residential first lien, and marine portfolios more than offset the balance growth and loss factor increase in the commercial real estate portfolio during the nine months ended September 30, 2025 compared to the prior year.
Management believes that the allowance for credit losses on loans is currently adequate to absorb the current expected losses in the loan portfolio.
Credit Risk, Nonperforming Assets and Other Assets
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk on a quarterly basis. The following table presents credit risk ratings as of September 30, 2025 and December 31, 2024:
September 30, 2025
December 31, 2024
(dollars in thousands)
Amount
Percent to Total Loans
Amount
Percent to Total Loans
Risk categories
Pass
$
1,390,875
96
%
$
1,405,997
96
%
Special Mention
48,523
3
%
50,081
3
%
Classified
14,765
1
%
4,518
1
%
Total loans
$
1,454,163
100
%
$
1,460,596
100
%
Loans risk rated as special mention, which exhibit negative trends and potential weaknesses include loans with stale financial information. Of the total special mention loans, $32.6 million had stale financial information at September 30, 2025 compared to $45.0 million at December 31, 2024.
Loans risk rated as classified, include substandard, doubtful, and loss loans increased primarily due to two large commercial real estate relationships being placed on nonaccrual status during the first quarter of 2025, including a $2.2 million owner-occupied relationship and an $5.5 million non-owner occupied relationship. Two additional commercial real estate relationships, each totaling $1.8 million, were added to nonaccrual loans during the third quarter of 2025.
All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity.
Nonperforming assets increased by $11.7 million during the nine months ended September 30, 2025, primarily reflecting an increase in nonaccrual loans and repossessed assets. Nonperforming assets and related ratios are detailed in the table below:
(dollars in thousands)
September 30, 2025
December 31, 2024
Nonaccrual loans
$
13,167
$
2,072
Loans past due 90 days or more and accruing interest
91
—
Other real estate owned and repossessed assets
1,009
514
Total nonperforming assets
$
14,267
$
2,586
Allowance for credit losses on loans
$
14,810
$
15,027
Gross loans
$
1,459,928
$
1,467,049
Allowance for credit losses on loans to nonperforming assets
104
%
581
%
Allowance for credit losses on loans to total gross loans
1.01
%
1.02
%
Allowance for credit losses on loans to nonaccrual loans
112
%
725
%
Nonaccrual loans to total gross loans
0.90
%
0.14
%
Non-performing assets to period end gross loans, other real estate owned and repossessed assets
Total past due loans, as disclosed in Note 5 to the Consolidated Financial Statements, increased to $16.1 million at September 30, 2025 compared to $4.5 million at December 31, 2024. The $11.6 million increase in past due loans primarily reflects loans secured by real estate. One non-owner occupied commercial real estate relationship accounts for $5.5 million of the total increase, comprised of three residential multifamily income producing properties as of September 30, 2025 after the sale of a fourth property, which was the largest loan in the relationship at $5.9 million, during the third quarter of 2025. The Company has been granted receivership on the remaining three properties and is actively with the receiver to update the properties and ready them for sale while continuing to collect the housing payments.
Nonaccrual loans are risk rated as classified and comprised the majority of the classified loan balance as previously described. Management evaluates the financial condition of borrowers and the value of any collateral on nonaccrual loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans and are reflected in the allowance for credit losses on loans. At September 30, 2025 total specific reserves of $333 thousand were required on one owner occupied commercial real estate relationship and two commercial business loan relationships due to a potential deficiency in collateral value, compared to specific reserves of $248 thousand at December 31, 2024.
Loans are placed on nonaccrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses to principal that require additional provisions for credit losses to be charged against earnings.
For real estate loans, upon foreclosure, the balance of the loan is transferred to OREO and carried at the fair value of the property based on current appraisals and other current market trends, less estimated selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off to the allowance for credit losses. A review of the recorded property value is performed in conjunction with normal quarterly reviews, and if market conditions indicate that the recorded value exceeds the fair value, additional write downs of the property value are charged directly to operations.
Deposits
Total deposits were $1.66 billion and $1.58 billion at September 30, 2025 and December 31, 2024, respectively. This represents an increase of $79.9 million or 5.07% during the nine months ended September 30, 2025. The majority of this increase was due to large deposits in non-interest bearing accounts received during the second quarter 2025 primarily related to sales proceeds of two customers' businesses with a remaining balance of $79.4 million at September 30, 2025.
The following table provides the composition of total deposits at September 30, 2025 and December 31, 2024.
The total increase in deposits was primarily in non-core accounts, which increased $64.9 million while core accounts increased $14.9 million. Core deposits consist of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, excluding wholesale or brokered deposits. The aforementioned deposit inflow related to sales proceeds from two customers' businesses was considered to be non-core as the Company is currently unsure of what portion of the funds will remain at the Bank and for how long.
In general, deposit pricing is done in response to monetary policy actions and yield curve changes. Local competition for funds also affects the cost of time deposits. Marketing efforts, including rate specials, are utilized to maintain maturing accounts and to acquire new time deposit accounts. At September 30, 2025, over 88% of deposits were fully FDIC insured.
CAPITAL RESOURCES
The Bank continues to be a well capitalized financial institution. Total shareholders’ equity at September 30, 2025 was $185.6 million, reflecting a percentage of total assets of 9.60%, as compared to $119.0 million and 6.38% at December 31, 2024. The $66.6 million increase in shareholders’ equity was primarily due to net proceeds of $53.5 million received from the completion of an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. An additional increase of $13.1 million is due to a decrease in unrealized losses on the securities available for sale portfolio largely reflecting the impact of the balance sheet repositioning. This increase in shareholders' equity was further enhanced by a net operating income of $3.9 million and partially offset by $4.4 million in dividends declared for the nine months ended September 30, 2025. During the nine months ended September 30, 2025 and 2024, the Company declared dividends of $0.93 and $0.90 per share, respectively. The Company has a Dividend Investment Plan that allows shareholders to reinvest dividends in Company stock.
At September 30, 2025, the Bank met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions. The Bank monitors these ratios on a quarterly basis and has several strategies, including without limitation the issuance of common stock, to ensure that these ratios remain above regulatory minimums. The Bank's capital amounts and ratios are presented using the Federal Reserve's risk-based capital framework.
Effective January 1, 2015, the Federal Reserve issued final risk-based capital rules to align with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. The final rules require the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. In addition, a capital conservation buffer requirement of 2.5% was effective January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with any ratio (excluding the leverage ratio) above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The capital conservation buffer rule requires the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
At September 30, 2025 and December 31, 2024, the Bank's capital ratios were as follows: Common equity Tier 1 capital was 14.29% and 11.04%, respectively, Tier 1 risk-based capital was 14.29% and 11.04%, respectively, Total risk-based capital was 15.25% and 12.00%, respectively, and Tier 1 leverage was 10.78% and 8.79%, respectively. The increase in the Bank's capital ratios was due to the completion of the Company's public offering in February 2025.
Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements
.
On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $30.0 million in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due April 1, 2032. See Note 14 to the Consolidated Financial Statements included in this Form 10-Q, for discussion of subordinated debt.
LIQUIDITY
Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or with the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks, federal funds sold, unpledged securities classified as available for sale and loans maturing within one year. At September 30, 2025, liquid assets totaled $467.7 million as compared to $335.9 million at December 31, 2024. These amounts represented 26.78% and 19.22% of total liabilities at September 30, 2025 and December 31, 2024, respectively. The increase during the first nine months of 2025 reflects the increased cash on hand from the net proceeds of the capital raise and higher levels of deposits, as well as an increase in the balance of loans maturing within one year. The Company generally attempts to minimize liquidity demand by primarily utilizing core deposits to fund asset growth. Securities provide a constant source of liquidity through paydowns and maturities. Also, the Company maintains short-term borrowing arrangements, namely federal funds lines of credit, with larger financial institutions as an additional source of liquidity. The Bank’s membership with the Federal Home Loan Bank of Atlanta provides a source of borrowings with numerous rate and term structures. The Company’s senior management monitors the liquidity position regularly and attempts to maintain a position which utilizes available funds most efficiently.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes in off-balance sheet arrangements and contractual obligations as reported in the 2024 Form 10-K.
Item 3. Quantitative and Qualitati
ve Disclosures about Market Risk
There have been no material changes in Quantitative and Qualitative Disclosures about Market Risk as reported in the 2024 Form 10-K.
Item 4. Controls
and Procedures
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2025 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). The Company is currently using the 2013 COSO Framework.
There were no changes in the Company’s internal control over financial reporting during the Company’s three months ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
There are no material pending legal proceedings to which the Company is a party or of which the property of the Company is subject.
Item 1A. Ri
sk Factors
There were no material changes to the Company’s risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024.
Item 2. Unregistered Sales of Equi
ty Securities and Use of Proceeds
The following table details the Company's purchases of its common stock during the third quarter of 2025 pursuant to its Stock Repurchase Program ("the Program"). On June 18, 2025, the Board of Directors of the Company re-authorized the purchase of up to 150,000 shares for repurchase under the Program. The Program expires on June 30, 2026.
Issuer Purchases of Equity Securities
Total Number
of Shares
Purchased
Average Price
Paid Per Share
Total Number
of Shares
Purchased as
Part of
Publicly
Announced Plan
Maximum
Number of
Shares that
may Yet Be
Purchased
Under the
Plan
150,000
July 1 - July 31, 2025
—
$
—
—
150,000
August 1 - August 31, 2025
—
—
—
150,000
September 1 - September 30, 2025
—
—
—
150,000
—
$
—
—
150,000
Item 3. Defaults Upo
n Senior Securities
None.
Item 4. Mine Saf
ety Disclosures
None.
Item 5. Other
Information
During the fiscal quarter ended September 30, 2025
, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934)
adopted
or
terminated
a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following materials from the Eagle Financial Services, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 formatted in Inline Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) notes to Consolidated Financial Statements.
104
The cover page from the Eagle Financial Services, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 formatted in Inline XBRL (included with Exhibit 101).
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, this 13th day of November, 2025.
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