Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions, market risk arises primarily from interest rate risk inherent in lending, investment, and deposit-taking activities. Interest rate risk can arise from timing differences in the repricing and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time, depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve, where interest rates increase or decrease in a non-parallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and SOFR (basis risk).
Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a financial institution’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value. However, excessive interest rate risk can threaten a financial institution’s earnings, capital, liquidity, and solvency. The Company’s ALCO is responsible for reviewing the interest rate sensitivity position of the institution, establishing policies to monitor and limit exposure to this type of risk, and employing strategies to ensure our asset-liability structure produces the maximum yield-cost spread available based on current market conditions. The Company’s Investment / Interest Rate Risk Committee, a committee of the Board of Directors, reviews and approves the policies established by ALCO.
Earnings Simulation Modeling
The ALCO uses an asset liability model (“ALM”) to forecast earning simulations that measure the sensitivity of net interest income to changes in interest rates. The ALM calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that support the ALM process. The ALCO derives the assumptions used in the ALM from historical trends and management’s outlook, including expected loan growth, loan prepayment rates, deposit growth rates, changes to deposit product betas and non-maturity deposit decay rates, and projected yields and rates. The ALM assumes that all maturities, calls, and prepayments in the securities portfolio are reinvested in like instruments. These assumptions may not be realized and unanticipated events and circumstances may also occur that cause the assumptions to be inaccurate. The ALM also does not take into account any future actions management may take to mitigate the impact of unforeseen interest rate changes. A sensitivity analysis for deposit betas, deposit decay rates and loan prepayment speeds is performed at least annually within the ALM to help ALCO better understand the impact of these critical assumptions on the ALM results. The ALCO reviews the assumptions of the ALM at least quarterly and periodically adjusts the ALM assumptions when deemed appropriate.
The ALCO also uses different interest rate scenarios and shifts in yield curve shapes to measure the sensitivity of earnings to various interest rate environments. Interest rates on unique asset and liability accounts move differently when the short-term market rate changes. These differences are reflected in the different rate scenarios utilized by the ALM. For earning simulations, our policy guidelines limit the change in net interest income over a 12-month and 24-month horizon using rate shocks of +/- 100, 200, 300, 400 basis points and for non-parallel yield curve shift scenarios. We have temporarily suspended the + 300 and + 400 basis point rate shock analyses. Due to the FOMC’s recent actions to reduce the Fed Funds Target Rate by 25 bps during each of its September 2025, October 2025 and December 2025 meetings and the current rate forecast that implies the FOMC may continue to reduce the Fed Funds Target Rate during 2026, we believe the impact to net interest income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position or project a probable interest rate environment for the foreseeable future.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following tables reflect the earnings simulation results at the dates presented utilizing a forecasted static balance sheet over the next twelve months. All percentage changes presented are within prescribed ranges set by ALCO.
December 31, 2025 December 31, 2024
Change in Interest Rate (basis points) % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income
200 (1.0) % 1.9 %
100 (0.3) % 1.1 %
-100 3.1 % 2.1 %
-200 6.2 % 4.6 %
-300 6.1 % 6.8 %
-400 4.8 % 6.6 %
The results from the earnings simulation imply that the Company’s balance sheet is liability sensitive at December 31, 2025 and December 31, 2024. The above table indicates that as of December 31, 2025, in a rising interest rate environment, the Company is positioned to have a small decrease in net interest income due to the balance sheet composition, related maturity structures, and repricing correlations to market interest rates for assets and liabilities. In a declining interest rate environment, the Company is positioned to have an increase in net interest income driven by the same factors discussed above and below. The liability sensitive position at December 31, 2025 is due to a variety of factors which include 1) higher than market rate unfunded loan commitments that were originated during 2024 and early 2025 with fixed rates that are assumed to draw down, or convert to funded loan balances, during the next twelve months, 2) shortened maturities of the time deposit portfolio due to shorter term time deposit promotional campaigns in response to the inversion in the shorter end of the yield curve where financial institutions typically offer time deposit products (overnight out to five years) that began early in the first quarter of 2023 and continues today, and 3) more aggressive non maturing deposit betas utilized in a rates down environment versus a rates up environment based on bank specific non-maturing deposit rate beta assumptions observed during the most recent rate cycle.
Economic Value of Equity Modeling
Economic value of equity simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. The ALM calculates the economic value of equity based on DCF analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value of equity over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The Company uses the same assumptions in the economic value of equity simulation model as in the earnings simulation model. The economic value of equity simulation model uses instantaneous rate shocks to the balance sheet. For economic value of equity simulation, our policy guidelines limit the change in economic value of equity given changes in rates of +/- 100, 200, 300, 400 basis points and for non-parallel yield curve shift scenarios. We have temporarily suspended the + 300 and + 400 basis point rate shock analyses. Due to the FOMC’s recent actions to reduce the Fed Funds Target Rate by 25 bps during each of its September 2025, October 2025 and December 2025 meetings and the current rate forecast that implies the FOMC may continue to reduce the Fed Funds Target Rate during 2026, we believe the impact to net interest income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position or project a probable interest rate environment for the foreseeable future.
Results for the economic value of equity modeling are driven primarily by the shape of the underlying yield curves and option-adjusted spreads used to discount the projected cash flows of assets and liabilities, and the assumed life span of the assets and liabilities being discounted.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (continued)
The following tables reflect the economic value of equity analyses results at the dates presented. All percentage changes presented are within prescribed ranges set by management.
December 31, 2025 December 31, 2024
Change in Interest Rate (basis points) % Change in Economic Value of Equity % Change in Economic Value of Equity
200 (7.9) % (8.3) %
100 (3.1) % (3.3) %
-100 2.0 % 2.4 %
-200 2.6 % 3.8 %
-300 (0.4) % 2.9 %
-400 (9.9) % (1.9) %
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements
Consolidated Balance Sheets
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Consolidated Statements of Income
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Consolidated Statements of Comprehensive Income (Loss)
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Consolidated Statements of Changes in Shareholders’ Equity
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Consolidated Statements of Cash Flows
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Notes to Consolidated Financial Statements
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Report of Crowe LLP, Independent Registered Public Accounting Firm (PCAOB ID 173 ), on Consolidated Financial Statements and Effectiveness of Internal Controls Over Financial Reporting
138
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued)
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Share Data) December 31,
2025 December 31,
2024
ASSETS
Cash and Due From Banks, including Interest-Bearing Deposits of $ 68,227 at December 31, 2025 and $ 91,563 at December 31, 2024
$ 105,163 $ 131,171
Securities Available-for-Sale, at Fair Value (amortized cost of $ 745,366 and $ 800,741 , respectively)
691,612 718,400
Equity Securities 10,291 10,041
Loans Held-for-Sale 339 —
Portfolio Loans 3,879,560 3,624,826
Allowance for Credit Losses ( 71,491 ) ( 75,600 )
Portfolio Loans, net 3,808,069 3,549,226
Bank Premises and Equipment, net 72,497 74,329
Goodwill 1,193 —
Core Deposit Intangible 940 —
Other Real Estate Owned, net 142 659
Other Restricted Stock, at Cost 16,830 6,487
Bank Owned Life Insurance 44,811 59,588
Other Assets 100,035 109,288
Total Assets $ 4,851,922 $ 4,659,189
LIABILITIES
Deposits:
Noninterest-Bearing Demand $ 620,473 $ 634,436
Interest-Bearing Demand 808,171 726,947
Money Market 553,964 512,162
Savings 326,182 355,506
Certificates of Deposit 1,902,099 1,924,370
Total Deposits 4,210,889 4,153,421
Federal Home Loan Bank Borrowings 178,500 70,000
Reserve for Unfunded Loan Commitments 2,992 3,186
Other Liabilities 39,844 48,269
Total Liabilities 4,432,225 4,274,876
Commitment and Contingencies - see NOTE 20 .
SHAREHOLDERS’ EQUITY
Common Stock, Par Value $ 1.00 Per Share, Authorized 100,000,000 Shares;
Outstanding - 22,083,007 shares at December 31, 2025, and
23,069,175 shares at December 31, 2024
22,083 23,069
Additional Paid-in Capital 74,806 92,159
Retained Earnings 364,968 333,606
Accumulated Other Comprehensive Loss ( 42,160 ) ( 64,521 )
Total Shareholders’ Equity 419,697 384,313
Total Liabilities and Shareholders’ Equity $ 4,851,922 $ 4,659,189
See accompanying notes to audited Consolidated Financial Statements.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued)
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(Dollars in Thousands Except per Share Data) 2025 2024 2023
INTEREST INCOME
Loans, including fees
Taxable $ 199,986 $ 186,001 $ 159,317
Non-Taxable 2,259 2,648 3,143
Investment Securities
Taxable 26,288 29,510 30,804
Non-Taxable 265 269 634
Federal Reserve Bank Excess Reserves 2,540 2,204 1,002
Interest on Bank Deposits 268 85 64
Dividend Income 616 1,012 1,456
Total Interest Income 232,222 221,729 196,420
Interest Expense
Interest Expense on Deposits 96,184 95,431 52,628
Interest Expense on Federal Funds Purchased — — 368
Interest on Other Borrowings 5,218 11,841 21,114
Total Interest Expense 101,402 107,272 74,110
NET INTEREST INCOME 130,820 114,457 122,310
(Recovery) Provision for Credit Losses ( 3,637 ) ( 5,039 ) 5,500
(Recovery) Provision for Unfunded Commitments ( 194 ) ( 7 ) 901
Net Interest Income After (Recovery) Provision for Credit Losses 134,651 119,503 115,909
NONINTEREST INCOME
Gains (Losses) on Sales of Securities, net 46 68 ( 1,521 )
Service Charges, Commissions and Fees 7,312 7,393 7,155
Debit Card Interchange Fees 7,935 7,843 7,828
Insurance Commissions 2,728 3,685 1,945
Bank Owned Life Insurance Income 1,511 1,473 1,381
Commercial Loan Swap Fee Income — — 139
Other 2,872 906 1,351
Total Noninterest Income 22,404 21,368 18,278
NONINTEREST EXPENSE
Salaries and Employee Benefits 57,743 57,908 55,856
Occupancy Expense, net 17,620 15,608 14,028
FDIC Insurance Expense 5,843 6,200 4,904
Other Taxes 3,612 3,559 3,292
Advertising Expense 3,171 2,540 1,693
Telephone Expense 1,216 1,393 1,842
Professional and Legal Fees 6,877 5,675 6,210
Data Processing 5,698 4,919 3,920
Debit Card Expense 4,192 3,423 2,875
Other 11,082 8,777 10,846
Total Noninterest Expense 117,054 110,002 105,466
Income Before Income Taxes 40,001 30,869 28,721
Income Tax Provision 8,639 6,346 5,337
Net Income $ 31,362 $ 24,523 $ 23,384
Earnings per Common Share:
Basic Earnings per Common Share $ 1.38 $ 1.06 $ 1.00
Diluted Earnings per Common Share $ 1.38 $ 1.06 $ 1.00
Average Shares Outstanding-Basic 22,456,705 22,817,149 23,240,543
Average Shares Outstanding-Diluted 22,456,705 22,817,149 23,240,543
See accompanying notes to audited Consolidated Financial Statements.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
(Dollars in Thousands) 2025 2024 2023
Net Income $ 31,362 $ 24,523 $ 23,384
Other Comprehensive Income:
Net Unrealized Gains on Securities Available-for-Sale:
Net Unrealized Gains Arising during the Period 28,633 9,270 16,370
Reclassification Adjustment for (Gains) Losses included in Net Income ( 46 ) ( 68 ) 1,521
Tax Effect ( 6,226 ) ( 2,284 ) ( 3,714 )
Net Unrealized Gains Recognized in Other Comprehensive Income 22,361 6,918 14,177
Other Comprehensive Income: 22,361 6,918 14,177
Comprehensive Income $ 53,723 $ 31,441 $ 37,561
See accompanying notes to audited Consolidated Financial Statements.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31,
(Dollars in Thousands) Common Stock Additional Paid-in
Capital Retained Earnings Accumulated Other
Comprehensive Income
(Loss) Total Shareholder's
Equity
Balance December 31, 2022 $ 23,957 $ 104,693 $ 285,593 $ ( 85,616 ) $ 328,627
Cumulative Effect of the Adoption of ASU 2023-02 — — 106 — 106
Balance at January 1, 2023 $ 23,957 $ 104,693 $ 285,699 $ ( 85,616 ) $ 328,733
Net Income — — 23,384 — 23,384
Other Comprehensive Income, Net of Tax — — — 14,177 14,177
1% Excise Tax on Stock Buybacks — ( 153 ) — — ( 153 )
Repurchase of Common Stock ( 1,132,232 shares)
( 1,132 ) ( 15,284 ) — — ( 16,416 )
Forfeiture of Restricted Stock ( 5,333 shares)
( 5 ) ( 38 ) — — ( 43 )
Issuance of Restricted Stock ( 137,097 shares)
137 ( 137 ) — — —
Recognition of Restricted Stock Compensation Expense — 1,561 — — 1,561
Balance December 31, 2023 $ 22,957 $ 90,642 $ 309,083 $ ( 71,439 ) $ 351,243
Net Income — — 24,523 — 24,523
Other Comprehensive Income, Net of Tax — — — 6,918 6,918
Forfeiture of Restricted Stock ( 15,244 shares)
( 16 ) ( 107 ) — — ( 123 )
Issuance of Restricted Stock ( 128,115 shares)
128 ( 128 ) — — —
Recognition of Restricted Stock Compensation Expense
— 1,752 — — 1,752
Balance December 31, 2024 $ 23,069 $ 92,159 $ 333,606 $ ( 64,521 ) $ 384,313
Net Income — — 31,362 — 31,362
Other Comprehensive Income, Net of Tax — — — 22,361 22,361
1% Excise Tax on Stock Buybacks — ( 181 ) — — ( 181 )
Repurchase of Common Stock ( 1,124,690 shares)
( 1,125 ) ( 18,875 ) — — ( 20,000 )
Forfeiture of Restricted Stock ( 23,670 shares)
( 23 ) ( 206 ) — — ( 229 )
Issuance of Restricted Stock ( 162,192 shares)
162 ( 162 ) — — —
Recognition of Restricted Stock Compensation Expense
— 2,071 — — 2,071
Balance December 31, 2025 $ 22,083 $ 74,806 $ 364,968 $ ( 42,160 ) $ 419,697
See accompanying notes to audited Consolidated Financial Statements.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Dollars in Thousands) 2025 2024 2023
OPERATING ACTIVITIES
Net Income $ 31,362 $ 24,523 $ 23,384
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
(Recovery) Provision for Credit Losses, including (Recovery) Provision for Unfunded Commitments ( 3,831 ) ( 5,046 ) 6,401
Origination of Loans Held-for-Sale ( 29,524 ) ( 8,953 ) ( 6,758 )
Proceeds From Loans Held-for-Sale 29,342 9,091 6,867
Depreciation/Amortization of Bank Premises and Equipment 7,859 7,055 6,248
Provision for Deferred Taxes 2,171 2,689 368
Net Amortization of Securities 3,172 3,592 6,354
Tax Credit Amortization 649 517 2,101
Gains on Sales of Loans Held-for-Sale ( 157 ) ( 138 ) ( 109 )
(Gains) Losses on Sales of Securities, net ( 46 ) ( 68 ) 1,521
Unrealized Gain on Equity Securities ( 250 ) ( 41 ) —
Commercial Loan Swap Derivative Loss 107 12 219
Increase in the Value of Life Insurance Contracts ( 1,511 ) ( 1,473 ) ( 1,381 )
Gain on Bank Owned Life Insurance Death Benefit ( 1,882 ) — —
1035 Exchange Fee on Bank Owned Life Insurance 660 — —
Balance Sheet Hedge Fair Value Adjustment 140 125 —
Recognition of Restricted Stock Compensation Expense 2,071 1,752 1,561
Decrease (Increase) in Other Assets 1,859 1,614 ( 3,849 )
(Decrease) Increase in Other Liabilities ( 2,329 ) 1,687 3,803
Net Cash Provided By Operating Activities 39,862 36,938 46,730
INVESTING ACTIVITIES
Securities Available-for-Sale:
Proceeds from Sales 19,010 17,953 43,323
Proceeds from Maturities, Redemptions, and Paydowns 96,923 63,454 48,901
Purchases ( 63,684 ) ( 15,126 ) ( 24,938 )
Purchase of Equity Securities — ( 10,000 ) —
Purchase of Bank Premises and Equipment, Net ( 8,055 ) ( 8,133 ) ( 9,798 )
Net Cash Acquired from Branch Purchase 53,573 — —
(Purchase) Redemption of Other Restricted Stock, net ( 10,343 ) 15,139 ( 11,886 )
Loan Originations, net ( 255,303 ) ( 135,888 ) ( 359,407 )
Proceeds from Death Benefit on Bank Owned Life Insurance 3,077 — —
Proceeds from Surrender of BOLI Policies 7,273 — —
Proceeds from Sales and Payments of Other Real Estate Owned 1,618 4,199 6,794
Net Cash Used In Investing Activities ( 155,911 ) ( 68,402 ) ( 307,011 )
FINANCING ACTIVITIES
Net Change in Demand, Money Markets and Savings Accounts 29,811 93,787 ( 235,748 )
(Decrease) Increase in Certificates of Deposits ( 28,270 ) 337,719 325,125
Proceeds from Federal Home Loan Bank Borrowings 610,000 1,870,000 3,441,685
Repayments on Federal Home Loan Bank Borrowings ( 501,500 ) ( 2,193,400 ) ( 3,228,835 )
Repayments from Federal Funds Purchased, net — — ( 17,870 )
Repurchase of Common Stock ( 20,000 ) — ( 16,416 )
Net Cash Provided By Financing Activities 90,041 108,106 267,941
Net (Decrease) Increase in Cash and Cash Equivalents ( 26,008 ) 76,642 7,660
Cash and Cash Equivalents at Beginning of Period 131,171 54,529 46,869
Cash and Cash Equivalents at End of Period $ 105,163 $ 131,171 $ 54,529
See accompanying notes to audited Consolidated Financial Statements.
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