Item 2. Management’s Discussion and Analysis
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Management’s discussion and analysis of the financial condition and results of operations at and for the three and six months ended June 30, 2026 and 2025 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “could,” “might,” “indicate,” “would,” “contemplate,” “continue,” “target,” “forecast,” “outlook,” “guidance,” “objective,” “goal,” “strategy,” “potential,” “predict,” “projection,” “trend,” “designed to,” “opportunity,” “positioned to,” and other similar expressions or the negative of these terms. These forward-looking statements include, but are not limited to:
● statements of our goals, intentions and expectations;
● statements regarding our business plans, prospects, growth and operating strategies;
● statements regarding the quality of our loan portfolio;
● statements of our future exposure to the interest rate risk inherent in our assets and liabilities; and
● estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
● weakening in the United States economy in general and the regional and local economies within the Company’s market area;
● the effects of inflationary pressures, labor market shortages and/or supply chain issues;
● the instability or volatility in financial markets and unfavorable general business conditions, globally, nationally or regionally, whether caused by geopolitical concerns, recent disruptions in the banking industry, or other factors;
● unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;
● changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights assets, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;
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● changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses on loans;
● the effect of any change in federal government enforcement of federal laws affecting the cannabis industry;
● changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;
● our ability to access cost-effective funding;
● fluctuations in real estate values and both residential and commercial real estate market conditions;
● demand for loans and deposits in our market area;
● our ability to implement and change our business strategies;
● competition among depository and other financial institutions;
● adverse changes in the securities or secondary mortgage markets;
● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;
● changes in the quality or composition of our loan or investment portfolios;
● technological changes that may be more difficult or expensive than expected;
● the inability of third-party providers to perform as expected;
● a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
● our ability to manage market risk, interest rate risk, credit risk, compliance risk, and operational risk;
● our ability to enter new markets successfully and capitalize on growth opportunities;
● changes in consumer spending, borrowing and savings habits;
● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
● our ability to attract and retain key employees; and
● changes in the financial condition, results of operations or future prospects of issuers of securities that we own.
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
There are no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 3, 2026.
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Non-GAAP Financial Measures
In addition to results presented in accordance with U.S. GAAP, this quarterly report on Form 10-Q contains certain non-GAAP financial measures, including pre-provision net revenue, operating net income, operating pre-tax income, operating noninterest expense, operating noninterest income, operating effective tax rate, operating earnings per share, basic, operating earnings per share, diluted, operating return on average assets, operating return on average shareholders’ equity, operating efficiency ratio, tangible shareholders’ equity, tangible assets and tangible book value per share. The Company presents certain non-GAAP financial measures, which management uses to evaluate the Company’s performance, and which exclude the effects of certain transactions, non-cash items and U.S. GAAP adjustments that we believe are unrelated to our core business and are therefore not necessarily indicative of the Company’s current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into our core businesses as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding U.S. GAAP financial measures. These unaudited disclosures should not be viewed as a substitute for financial results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.
For the Three Months Ended
For the Six Months Ended
June 30, 2026
June 30, 2025
June 30, 2026
June 30, 2025
Net income (GAAP)
$
21,123
$
14,579
$
36,107
$
27,234
Add (Subtract):
Adjustments to net income:
Defined benefit pension termination expense
—
—
—
1,217
Non-recurring fees for business line expansion
649
—
1,149
—
BOLI surrender tax and modified endowment contract penalty
27
64
78
218
Merger and acquisition expenses
296
530
830
530
Total adjustments to net income
$
972
$
594
$
2,057
$
1,965
Less net tax benefit associated with pre-tax non-GAAP adjustments to net income
218
130
485
463
Non-GAAP adjustments, net of tax
754
464
1,572
1,502
Operating net income (non-GAAP)
$
21,877
$
15,043
$
37,679
$
28,736
Weighted average common shares outstanding, basic
39,693,140
37,191,460
39,881,259
37,668,741
Weighted average common shares outstanding, diluted
40,000,305
37,550,409
40,260,469
37,848,215
Operating earnings per share, basic (non-GAAP)
$
0.55
$
0.40
0.94
0.76
Operating earnings per share, diluted (non-GAAP)
$
0.55
$
0.40
0.94
0.76
Pre-tax income (GAAP)
$
27,494
$
18,719
$
47,846
$
36,288
Add (Subtract):
Adjustments to pre-tax income:
Defined benefit pension termination expense
—
—
—
1,217
Non-recurring fees for business line expansion
649
—
1,149
—
Merger and acquisition expenses
296
530
830
530
Total adjustments to pre-tax income
945
530
1,979
1,747
Operating pre-tax income (non-GAAP)
$
28,439
$
19,249
$
49,825
$
38,035
Noninterest expense (GAAP)
$
44,017
$
29,405
$
86,717
$
58,085
Subtract (Add):
Adjustments to noninterest expense:
Defined benefit pension termination refund
—
—
—
1,217
Non-recurring fees for business line expansion
649
—
1,149
—
Merger and acquisition expenses
296
530
830
530
Total impact of non-GAAP noninterest expense adjustments
$
945
$
530
$
1,979
$
1,747
Noninterest expense on an operating basis (non-GAAP)
$
43,072
$
28,875
$
84,738
$
56,338
Operating net income (non-GAAP)
$
21,877
$
15,043
$
37,679
$
28,736
Average assets
7,241,524
5,179,324
7,109,032
5,163,492
Operating return on average assets (non-GAAP)
1.21%
1.16%
1.07%
1.12%
Average shareholders’ equity
$
844,443
$
745,670
$
852,926
$
751,473
Operating return on average shareholders' equity (non-GAAP)
10.39%
8.09%
8.91%
7.71%
Noninterest expense on an operating basis (non-GAAP)
$
43,072
$
28,875
$
84,738
$
56,338
Total pre-provision net revenue (net interest income plus total noninterest income)
74,704
51,285
144,084
98,692
Operating efficiency ratio (non-GAAP)
57.66%
56.30%
58.81%
57.08%
Income tax expense (GAAP)
$
6,371
$
4,140
$
11,739
$
9,054
Subtract (Add):
Adjustments to income tax expense:
Net tax benefit associated with pre-tax non-GAAP adjustments to net income
218
130
485
463
BOLI surrender tax and modified endowment contract penalty
(27)
(64)
78
(218)
Total impact of non-GAAP income tax expense adjustments
$
191
$
66
563
$
245
Income tax expense on an operating basis (non-GAAP)
$
6,562
$
4,206
11,176
$
8,809
Operating effective tax rate (non-GAAP)
23.1%
21.9%
23.4%
24.3%
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As of
June 30, 2026
December 31, 2025
Total shareholders’ equity (GAAP)
$
842,002
$
858,932
Subtract:
Intangible assets (core deposit intangible)
31,023
37,815
Total tangible shareholders’ equity (non-GAAP)
810,979
821,117
Total assets (GAAP)
$
7,446,880
$
7,006,388
Subtract:
Intangible assets (core deposit intangible)
31,023
37,815
Total tangible assets (non-GAAP)
$
7,415,857
$
6,968,573
Tangible shareholders' equity / tangible assets (non-GAAP)
10.94%
11.78%
Total common shares outstanding
43,818,490
45,770,128
Tangible book value per share (non-GAAP)
$
18.51
$
17.94
Comparison of Financial Condition as of June 30, 2026 and December 31, 2025
Total Assets. Total assets increased $440.5 million, or 6.3%, to $7.45 billion as of June 30, 2026 from $7.01 billion as of December 31, 2025. The increase was primarily driven by increases in net loans and non-public investments, offset partially by decreases in cash and cash equivalents and BOLI.
Cash and Cash Equivalents. Cash and cash equivalents decreased $7.7 million, or 1.9%, to $400.2 million as of June 30, 2026 from $407.9 million as of December 31, 2025. The decrease in cash and cash equivalents was primarily a result of the repurchase of 2,207,236 shares during the six months ended June 30, 2026.
Available-for-Sale Securities. Available-for-sale securities increased $3.7 million, or 1.4%, to $272.6 million as of June 30, 2026 from $269.0 million as of December 31, 2025, primarily as a result of purchases of U.S. Treasuries, Government Agency debt securities and mortgage-backed securities.
Loans. Net loans increased $442.1 million, or 7.5%, to $6.34 billion as of June 30, 2026 from $5.90 billion as of December 31, 2025. The increase resulted primarily from increases in: commercial real estate loans, which increased $197.5 million, or 10.3%; commercial and industrial loans, which increased $140.1 million, or 13.9%; residential real estate loans, including home equity loans, of $56.5 million, or 4.3%; multi-family loans of $50.2 million, or 9.7%; construction and land development loans of $35.1 million, or 4.8%; and consumer loans of $23.3 million, or 11.4%, partially offset by a decrease in mortgage warehouse loans of $63.3 million, or 22.5%. The increase in our loan portfolio reflects our strategy to prudently grow the balance sheet by continuing to diversify into higher-yielding loans to improve net margins and manage interest rate risk.
Loans to borrowers in the cannabis loan industry increased $137.6 million, or 34.0%, to $542.4 million as of June 30, 2026 from $404.8 million as of December 31, 2025. Of those totals, $374.2 million and $228.8 million at June 30, 2026 and December 31, 2025, respectively, were direct loans to cannabis companies and were collateralized by real estate
Collateral dependent loans increased $42.0 million, or 99.9%, to $84.1 million as of June 30, 2026, from $42.0 million as of December 31, 2025, primarily driven by one CRE relationship that is well collateralized, paying as expected and with no required specific reserve.
Deposits. Deposits increased $466.3 million, or 8.0%, to $6.32 billion as of June 30, 2026 from $5.85 billion as of December 31, 2025. Core deposits (which we define as all deposits including certificates of deposit, other than brokered deposits) increased $282.1 million, or 5.3%, to $5.60 billion as of June 30, 2026 from $5.32 billion as of December 31, 2025. The increase in deposits was the result of growth in customer deposits, which primarily included the following: noninterest-bearing demand deposits, which increased $125.4 million, or 15.2%; NOW accounts, which increased $92.1 million, or 13.9%; and customer certificates of deposit, which increased $59.0 million, or 4.9%. Brokered deposits increased $184.2 million, or 34.4%, to $719.9 million as of June 30, 2026 from $535.7 million as of December 31, 2025.
Deposits from customers in the cannabis industry increased $69.1 million, or 15.2%, to $522.1 million as of June 30, 2026 from $453.0 million as of December 31, 2025.
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FHLB Borrowings. FHLB borrowings decreased $15.0 million, or 7.6%, to $181.2 million as of June 30, 2026 from $196.2 million as of December 31, 2025, primarily driven by deposit growth outpacing loan growth.
Shareholders’ Equity. Total shareholders’ equity decreased $16.9 million, or 2.0%, to $842.0 million as of June 30, 2026 from $858.9 million as of December 31, 2025, due to the $43.0 million decrease in additional paid-in capital resulting from the completion of our share repurchase program in which we repurchased a total of 2,207,236 shares during the six months ended June 30, 2026 at an all-in weighted average cost of $20.96 per share totaling $46.3 million, together with a $4.8 million, or 153.9%, increase in other comprehensive loss as a result of the interest rate environment negatively impacting the value of our AFS securities portfolio and our balance sheet hedges, partially offset by net income of $36.1 million during the six months ended June 30, 2026.
Comparison of Operating Results for the Three Months Ended June 30, 2026 and 2025
Net Income. Net income increased $6.5 million, or 44.9%, to $21.1 million, or $0.53 per diluted common share, for the quarter ended June 30, 2026, compared to net income of $14.6 million, or $0.39 per diluted common share, for the quarter ended June 30, 2025. Net interest income increased $22.1 million, or 47.1%, and noninterest income increased $1.3 million, or 29.9%, partially offset by increased noninterest expense of $14.6 million, or 49.7%, and increased income tax expense of $2.2 million, or 53.9%.
Operating net income, excluding one-time charges, amounted to $21.9 million, or $0.55 per basic and diluted share for the quarter ended June 30, 2026 compared to operating net income, excluding one-time charges, of $15.0 million, or $0.40 per basic and diluted share, for the quarter ended June 30, 2025, which represents an increase of $6.8 million, or 45.4%.
The material one-time charges for the quarter ended June 30, 2026 were:
● Non-recurring fees for business line expansion of $649,000 ($499,000 net of tax);
● Final merger and acquisition costs of $296,000 ($227,000 net of tax) related to the Company’s acquisition of Provident; and
● Tax expense and a modified endowment contract penalty of $27,000 related to the surrender of BOLI policies acquired from BankProv.
The material one-time charges for the quarter ended June 30, 2025 were:
● Merger and acquisition costs of $530,000 ($400,000 net of tax) related to the Company’s acquisition of Provident; and
● Income tax expense and a modified endowment contract penalty of $64,000 related to the surrender of BOLI policies.
Interest and Dividend Income. Interest and dividend income increased $31.9 million, or 40.0%, to $111.8 million for the quarter ended June 30, 2026 from $79.8 million for the quarter ended June 30, 2025, primarily due to increased interest and fees on loans of $31.9 million, or 42.6%. The increase in interest and fees on loans was primarily due to an increase of $1.90 billion, or 42.4%, in the average balance of the loan portfolio to $6.38 billion for the quarter ended June 30, 2026 from $4.48 billion for the quarter ended June 30, 2025, reflecting the Provident acquisition, which was completed on November 14, 2025 and the growth of our commercial and construction loan portfolios.
Average interest-earning assets increased $1.99 billion, or 40.2%, to $6.93 billion for the quarter ended June 30, 2026 from $4.94 billion for the quarter ended June 30, 2025. The yield on interest-earning assets decreased 1 basis point to 6.47% for the quarter ended June 30, 2026 from 6.48% for the quarter ended June 30, 2025.
Interest and dividend income included $2.0 million of fair value mark accretion related to the acquisition of Provident, representing 1.8% or 5 basis points of net interest margin, during the three months ended June 30, 2026. The Company recorded no fair value mark accretion during the three months ended June 30, 2025.
Interest Expense. Total interest expense increased $9.8 million, or 29.9%, to $42.6 million for the quarter ended June 30, 2026 from $32.8 million for the quarter ended June 30, 2025.
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Interest expense on deposits increased $9.0 million, or 28.4%, to $40.7 million for the quarter ended June 30, 2026 from $31.7 million for the quarter ended June 30, 2025. The increase in interest expense on deposits was primarily driven by an increase in the average balance of certificates of deposit and individual retirement accounts of $629.6 million, or 32.0%, to $2.59 billion for the quarter ended June 30, 2026 from $1.96 billion for the quarter ended June 30, 2025 and an increase in the average balance of money market accounts of $610.2 million, or 56.0%, to $1.70 billion for the quarter ended June 30, 2026 from $1.09 billion for the quarter ended June 30, 2025, partially offset by a decrease in the weighted average rate on certificates of deposit and individual retirement accounts of 42 basis points to 3.91% for the quarter ended June 30, 2026 from 4.34% for the quarter ended June 30, 2025.
Interest expense on borrowings increased $810,000, or 70.4%, to $2.0 million for the quarter ended June 30, 2026 from $1.2 million for the quarter ended June 30, 2025, primarily from the increase in the average balance of FHLB borrowings of $105.6 million, or 102.1%, to $209.0 million during the quarter ended June 30, 2026 from $103.4 million for the quarter ended June 30, 2025.
Net Interest Income. Net interest income increased $22.1 million, or 47.1%, to $69.1 million for the quarter ended June 30, 2026 from $47.0 million for the quarter ended June 30, 2025, primarily due to a $1.99 billion, or 40.2%, increase in the average balance of interest-earning assets to $6.93 billion for the quarter ended June 30, 2026 from $4.94 billion for the quarter ended June 30, 2025 and a decrease in the weighted average rate on interest-bearing liabilities of 36 basis points to 3.16% for the quarter ended June 30, 2026 from 3.52% for the quarter ended June 30, 2025. These increases were partially offset by an increase in the average balance of interest-bearing liabilities of $1.67 billion, or 44.5%, to $5.42 billion at June 30, 2026 from $3.75 billion at June 30, 2025.
Provision for Credit Losses. Based on management’s analysis of the adequacy of the ACL, a provision of $3.2 million was recorded for the quarter ended June 30, 2026, of which $3.0 million related to the provision for credit losses on loans, compared to a provision of $3.2 million for the quarter ended June 30, 2025, which included a $4.2 million provision for credit losses on loans. The decrease in the provision for credit losses on loans was primarily driven by prior quarter reserve increases from updated peer proxies to better reflect geographic composition and construction to permanent amortization adjustments, partially offset by current quarter other consumer charge-off replenishment and higher C&I impaired reserves. The provision for credit losses on unfunded commitments increased $1.2 million during the three months ended June 30, 2026 as a result of an increase in unfunded commitments during the quarter ended June 30, 2026.
Noninterest Income. Noninterest income increased $1.3 million, or 29.9%, to $5.6 million for the quarter ended June 30, 2026 from $4.3 million for the quarter ended June 30, 2025. The increase resulted primarily from increased customer service fees of $1.1 million, or 44.1%, due to higher cash management, loan and debit card fees.
The table below sets forth our noninterest income for the quarters ended June 30, 2026 and 2025:
Three Months Ended
Change
June 30, 2026
June 30, 2025
Amount
Percent
(Dollars in thousands)
Customer service fees
$
3,681
$
2,554
$
1,127
44.13%
Increase in cash surrender value of BOLI
962
787
175
22.24%
Mortgage banking income
92
120
(28)
(23.33)%
Swap contract income
72
524
(452)
(86.26)%
Gain on sale of loans, net
227
21
206
980.95%
Other income
525
272
253
93.01%
Total noninterest income
$
5,559
$
4,278
$
1,281
29.94%
Noninterest Expense. Noninterest expense increased $14.6 million, or 49.7%, to $44.0 million for the quarter ended June 30, 2026 from $29.4 million for the quarter ended June 30, 2025. Salaries and employee benefit expenses increased $7.0 million, or 37.6%, resulting primarily from a $4.1 million increase in employee compensation, a $1.1 million increase in medical and dental benefits and a $541,000 increase in employee bonus expense, all due to headcount increases related to the Provident acquisition and the Company’s continued organic growth, and a $525,000 increase in stock-based compensation as a result of the grants made during the current year.
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Data processing expenses increased $2.4 million, or 96.5% primarily driven by our continued investment in technology and systems in support of upcoming revenue initiatives, requiring the operation of systems in parallel for a period of time while new systems are implemented. General and administrative expenses increased $2.1 million, or 98.6%, primarily driven by our acquisition of Provident resulting in $855,000 in additional core deposit intangible amortization expense, in addition to $319,000 in increased tax credit amortization expense, $169,000 in increased education and training expenses, $144,000 in increased utilities expenses and $124,000 in increased bank supplies expense all driven by our acquisition of Provident. Occupancy and equipment expenses increased $1.0 million, or 68.5%, primarily driven by our acquisition of Provident, as well as the opening of two new branches.
The table below sets forth our noninterest expense for the quarters ended June 30, 2026 and 2025:
Three Months Ended
Change
June 30, 2026
June 30, 2025
Amount
Percent
(Dollars in thousands)
Salaries and employee benefits
$
25,549
$
18,567
$
6,982
37.60%
Data processing expenses
4,899
2,493
2,406
96.51%
Director and professional service fees
3,816
2,943
873
29.66%
Occupancy and equipment expenses
2,468
1,465
1,003
68.46%
FDIC and state insurance assessments
1,584
883
701
79.39%
Marketing and charitable contribution expenses
1,530
954
576
60.38%
General and administrative expenses
4,171
2,100
2,071
98.62%
Total noninterest expense
$
44,017
$
29,405
$
14,612
49.69%
Income Tax Expense. Income tax expense increased $2.2 million, or 53.9%, to $6.4 million for the quarter ended June 30, 2026 from $4.1 million for the quarter ended June 30, 2025. The effective tax rate was 23.2% and 22.1% for the quarters ended June 30, 2026 and 2025, respectively. The increase in tax expense was from higher pre-tax income during the quarter ended June 30, 2026 compared to June 30, 2025.
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Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Non-accrual loans were included in the computation of average balances. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense; such fees, discounts and premiums were not material for the periods presented.
Three Months Ended
June 30, 2026
June 30, 2025
Average
Average
Outstanding
Average
Outstanding
Average
Balance
Interest
Yield/Rate (4)
Balance
Interest
Yield/Rate (4)
(Dollars in thousands)
Interest-earning assets:
Loans
$
6,377,025
$
106,574
6.70
%
$
4,479,478
$
74,719
6.69
%
Securities
279,196
2,758
3.96
%
232,812
2,307
3.97
%
Other investments (5)
34,301
612
7.16
%
28,525
605
8.51
%
Short-term investments (5)
237,667
1,848
3.12
%
200,524
2,217
4.43
%
Total interest-earning assets
6,928,189
111,792
6.47
%
4,941,339
79,848
6.48
%
Non-interest-earning assets
394,611
277,915
Allowance for credit losses
(81,276)
(39,930)
Total assets
$
7,241,524
$
5,179,324
Interest-bearing liabilities:
Savings accounts
$
210,544
324
0.62
%
$
119,736
134
0.45
%
NOW accounts
701,167
2,265
1.30
%
469,472
1,259
1.08
%
Money market accounts
1,700,366
12,783
3.02
%
1,090,163
9,062
3.33
%
Certificates of deposit and individual retirement accounts
2,594,290
25,314
3.91
%
1,964,678
21,235
4.34
%
Total interest-bearing deposits
5,206,367
40,686
3.13
%
3,644,049
31,690
3.49
%
FHLB borrowings
209,002
1,961
3.76
%
103,406
1,151
4.46
%
Total interest-bearing liabilities
5,415,369
42,647
3.16
%
3,747,455
32,841
3.52
%
Non-interest-bearing deposits
883,487
593,136
Other non-interest-bearing liabilities
98,225
93,063
Total liabilities
6,397,081
4,433,654
Shareholders' equity
844,443
745,670
Total liabilities and shareholders' equity
$
7,241,524
$
5,179,324
Net interest income
$
69,145
$
47,007
Net interest rate spread (1)
3.31
%
2.96
%
Net interest-earning assets (2)
$
1,512,820
$
1,193,884
Net interest margin (3)
4.00
%
3.82
%
Average interest-earning assets to interest-bearing liabilities
127.94
%
131.86
%
(2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average total interest-earning assets.
(5) Annualized.
(6) Other investments are comprised of Federal Reserve Bank (“FRB”) stock, FHLB stock and swap collateral accounts. Short-term investments are comprised of cash and cash equivalents
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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to volume and the changes due to rate. There were no out-of-period items or adjustments required to be excluded from the table below.
Three Months Ended
June 30, 2026 vs. 2025
Increase (Decrease) Due to
Total
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
31,712
$
143
$
31,855
Securities
458
(7)
451
Other investments
32
(25)
7
Short-term investments
613
(982)
(369)
Total interest-earning assets
32,815
(871)
31,944
Interest-bearing liabilities:
Savings accounts
127
63
190
NOW accounts
711
295
1,006
Money market accounts
4,487
(766)
3,721
Certificates of deposit and individual retirement accounts
5,855
(1,776)
4,079
Total interest-bearing deposits
11,180
(2,184)
8,996
Federal Home Loan Bank advances
957
(147)
810
Total interest-bearing liabilities
12,137
(2,331)
9,806
Change in net interest income
$
20,678
$
1,460
$
22,138
Comparison of Operating Results for the Six Months Ended June 30, 2026 and 2025
Net Income. Net income increased approximately $8.9 million, or 32.6%, to $36.1 million, or $0.90 per diluted common share, for the six months ended June 30, 2026, compared to net income of $27.2 million, or $0.72 per diluted common share, for the six months ended June 30, 2025. The increase was primarily due to increased net interest income of $43.5 million, or 48.0%, partially offset by increased noninterest expense of $28.6 million, or 49.3%, and increased provision for credit losses of $5.2 million, or 120.4%.
Operating net income, excluding one-time charges, amounted to $37.7 million, or $0.94 per diluted share, for the six months ended June 30, 2026 compared to operating net income, excluding one-time charges, of $28.7 million, or $0.76 per diluted share, for the six months ended June 30, 2025, an increase of $8.9 million, or 31.1%.
The material one-time charges for the six months ended June 30, 2026 were:
● Non-recurring fees for business line expansion of $1.2 million ($867,000 net of tax);
● Final merger and acquisition costs of $830,000 ($626,000 net of tax) related to the Company’s completed acquisition of Provident; and
● Tax expense and a modified endowment contract penalty of $77,000 related to the surrender of BOLI policies acquired from Provident.
The material one-time charges for the six months ended June 30, 2025 were:
● Defined benefit pension termination expenses of $1.2 million ($917,000 net of tax);
● Merger and acquisition costs of $530,000 ($400,000 net of tax) related to the Company’s acquisition of Provident and;
● Tax expense and a modified endowment contract penalty of $218,000 related to the surrender of BOLI policies.
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Interest and Dividend Income. Interest and dividend income increased $60.8 million, or 38.8%, to $217.5 million for the six months ended June 30, 2026 from $156.7 million for the six months ended June 30, 2025, primarily due to a $60.5 million, or 41.4%, increase in interest and fees on loans, reflecting the Provident acquisition and the growth of our commercial and construction loan portfolios. The increase in interest and fees on loans was primarily due to an increase of $1.81 billion, or 40.9%, in the average balance of the loan portfolio to $6.23 billion for the six months ended June 30, 2026 from $4.42 billion for the six months ended June 30, 2025 reflecting the Provident acquisition, which was completed on November 14, 2025, and the growth of our commercial and construction loan portfolios.
Average interest-earning assets increased $1.89 billion, or 38.5%, to $6.81 billion for the six months ended June 30, 2026 from $4.92 billion for the six months ended June 30, 2025. The yield on interest-earning assets increased 1 basis point to 6.44% for the six months ended June 30, 2026 from 6.43% for the six months ended June 30, 2025.
Interest Expense. Total interest expense increased $17.3 million, or 26.1%, to $83.5 million for the six months ended June 30, 2026 from $66.2 million for the six months ended June 30, 2025. Interest expense on deposit accounts increased $16.3 million, or 25.6%, to $80.3 million for the six months ended June 30, 2026 from $63.9 million for the six months ended June 30, 2025. The increase was primarily due to an increase in the average balance of certificate of deposit and individual retirement accounts of $574.1 million, or 29.1%, to $2.55 billion for the six months ended June 30, 2026 from $1.97 billion for the six months ended June 30, 2025, an increase in the average balance of money market accounts of $624.3 million, or 57.7% to $1.71 billion for the six months ended June 30, 2026 from $1.08 billion for the six months ended June 30, 2025 and an increase in the average balance of FHLB borrowings of $75.1 million, or 77.2%, to $172.4 million for the six months ended June 30, 2026 from $97.3 million for the six months ended June 30, 2025, partially offset by a decrease in the weighted average rate on certificate of deposit and individual retirement accounts of 51 basis points to 3.95% for the six months ended June 30, 2026 from 4.46% for the six months ended June 30, 2025.
Net Interest Income. Net interest income increased $43.5 million, or 48.0%, to $134.0 million for the six months ended June 30, 2026 from $90.5 million for the six months ended June 30, 2025, primarily due to a $1.89 billion, or 38.5%, increase in the average balance of interest-earning assets to $6.81 billion for the six months ended June 30, 2026 from $4.92 billion for the six months ended June 30, 2025 and a decrease in the weighted average rate on interest-bearing liabilities of 40 basis points to 3.17% for the six months ended June 30, 2026 from 3.57% for the six months ended June 30, 2025. These increases were offset partially by an increase in the average balance of interest-bearing liabilities of $1.57 billion, or 41.9%, to $5.30 billion for the six months ended June 30, 2026 from $3.74 billion for the six months ended June 30, 2025.
Provision for Credit Losses. Based on management’s analysis of the adequacy of the ACL, a provision of $9.5 million was recorded for the six months ended June 30, 2026, of which $9.4 million related to the provision for credit losses on loans, compared to a provision of $4.3 million for the six months ended June 30, 2025, which included a $5.2 million provision for credit losses on loans. The increase of $4.2 million, or 80.6%, in the provision for credit losses on loans was primarily driven by loan growth, additional specific reserves on PCD loans from our acquisition of Provident, larger peer commercial real estate credit losses impacting quantitative reserves, and an elevated qualitative factor risk grade for the commercial and industrial loan portfolio. The provision for credit losses on unfunded commitments increased $1.0 million, or 116.6%, during the six months ended June 30, 2026 as a result of increased unfunded commitments.
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Noninterest Income. Noninterest income increased $1.9 million, or 23.4%, to $10.1 million for the six months ended June 30, 2026 from $8.2 million for the six months ended June 30, 2025. The increase resulted primarily from increased customer service fees of $1.7 million, or 33.3%, due to higher cash management, debit card and interchange fees. The table below sets forth our noninterest income for the six months ended June 30, 2026 and 2025:
Six Months Ended
June 30,
Change
2026
2025
Amount
Percent
(Dollars in thousands)
Customer service fees
$
6,812
$
5,112
$
1,700
33.26%
Increase in cash surrender value of BOLI
1,815
1,818
(3)
(0.17)%
Mortgage banking income
211
269
(58)
(21.56)%
Swap contract income
273
612
(339)
(55.39)%
Gain on sale of loans, net
226
48
178
370.83%
Other income
735
301
434
144.19%
Total noninterest income
$
10,072
$
8,160
$
1,912
23.43%
Noninterest Expense. Noninterest expense increased $28.6 million, or 49.3%, to $86.7 million for the six months ended June 30, 2026 from $58.1 million for the six months ended June 30, 2025. Salaries and employee benefit expenses increased $13.3 million, or 35.3%, primarily from an $8.6 million increase in employee compensation expense, a $1.9 million increase in medical and dental benefits expense, a $1.3 million increase in employee bonus expense, a $539,000 increase in federal payroll taxes and a $577,000 increase in 401(k) match expenses driven by two quarters of increased headcount from the Provident acquisition and the hiring of additional employees consistent with our organic growth and a $1.0 million increase in employee stock compensation expense resulting from the original grants being awarded in April 2025 driving lower expense during the six months ended June 30, 2025, offset partially by a $1.2 million decrease in pension expenses due to completion of the plan liquidation during 2025.
General and administrative expenses increased $4.8 million, or 136.9%, primarily driven by our acquisition of Provident resulting in $1.7 million in additional core deposit intangible amortization expense. Also contributing to the increase in general and administrative expenses were $672,000 in increased tax credit amortization expense, $299,000 in increased trailing Provident acquisition expenses and $224,000 in increased education and training expenses, $148,000 in increased travel expenses, $165,000 in increased utilities expenses, $124,000 in armored courier expenses, $124,000 in loan workout expenses and $123,000 in increased bank supplies expense, all of which were driven by our acquisition of Provident. Data processing expenses increased $4.1 million, or 77.6%, during the six months ended June 30, 2026, primarily the result of our significant investment in technology and systems, as well as two full quarters of increased transactional volume from the Provident acquisition.
Occupancy and equipment expenses increased $2.8 million, or 54.5%, primarily driven by our acquisition of Provident, as well as, the opening of two new branches. Marketing and charitable contribution expenses increased $1.9 million, or 62.8%, primarily driven by our continued community investment, our acquisition of Provident and the opening of two new branches. FDIC and state assessment expenses increased $1.0 million, or 61.3%, primarily driven by our acquisition of Provident driving up our average balances and related assessments.
The table below sets forth our noninterest expense for the six months ended June 30, 2026 and 2025:
Six Months Ended
June 30,
Change
2026
2025
Amount
Percent
(Dollars in thousands)
Salaries and employee benefits
$
51,017
$
37,717
$
13,300
35.26%
Data processing expenses
9,338
5,258
4,080
77.60%
Director and professional service fees
7,865
5,090
2,775
54.52%
Occupancy and equipment expenses
4,958
3,045
1,913
62.82%
Marketing and charitable contribution expenses
2,563
1,800
763
42.39%
FDIC and state insurance assessments
2,736
1,696
1,040
61.32%
General and administrative expenses
8,240
3,479
4,761
136.85%
Total noninterest expense
$
86,717
$
58,085
$
28,632
49.29%
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Income Tax Expense. Income tax expense increased $2.7 million, or 29.7%, to $11.7 million for the six months ended June 30, 2026 from $9.1 million for the six months ended June 30, 2025, mainly resulting from the increase in net income during the quarter ended June 30, 2026. The effective tax rate was 24.5% and 25.0% for the six months ended June 30, 2026 and 2025, respectively.
Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Non-accrual loans were included in the computation of average balances. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense; such fees, discounts and premiums were not material for the periods presented.
Six Months Ended
June 30, 2026
June 30, 2025
Average
Average
Outstanding
Average
Outstanding
Average
Balance
Interest
Yield/Rate (4)
Balance
Interest
Yield/Rate (4)
Interest-earning assets:
Loans
$
6,234,418
$
206,614
6.68
%
$
4,423,154
$
146,159
6.66
%
Securities
276,268
5,466
3.99
%
231,616
4,596
4.00
%
Other investments (5)
31,305
878
5.66
%
28,030
823
5.92
%
Short-term investments (5)
266,371
4,519
3.42
%
232,733
5,119
4.44
%
Total interest-earning assets
6,808,362
217,477
6.44
%
4,915,533
156,697
6.43
%
Non-interest-earning assets
385,340
287,270
Allowance for credit losses
(84,670)
(39,311)
Total assets
$
7,109,032
$
5,163,492
Interest-bearing liabilities:
Savings accounts
$
209,120
587
0.57
%
$
116,760
180
0.31
%
NOW accounts
670,428
4,270
1.28
%
469,968
2,267
0.97
%
Money market accounts
1,705,988
25,515
3.02
%
1,081,650
17,840
3.33
%
Certificates of deposit and individual retirement accounts
2,546,020
49,893
3.95
%
1,971,891
43,642
4.46
%
Total interest-bearing deposits
5,131,556
80,265
3.15
%
3,640,269
63,929
3.54
%
FHLB borrowings
172,425
3,200
3.74
%
97,321
2,236
4.63
%
Total interest-bearing liabilities
5,303,981
83,465
3.17
%
3,737,590
66,165
3.57
%
Non-interest-bearing deposits
854,325
582,878
Other non-interest-bearing liabilities
97,800
91,551
Total liabilities
6,256,106
4,412,019
Shareholders' equity
852,926
751,473
Total liabilities and shareholders' equity
$
7,109,032
$
5,163,492
Net interest income
$
134,012
$
90,532
Net interest rate spread (1)
3.27
%
2.86
%
Net interest-earning assets (2)
$
1,504,381
$
1,177,943
Net interest margin (3)
3.97
%
3.71
%
Average interest-earning assets to interest-bearing liabilities
128.36
%
131.52
%
(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.
(4) Annualized.
(5) Other investments are comprised of FRB stock, FHLB stock and swap collateral accounts. Short-term investments are comprised of cash and cash equivalents
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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
Six Months Ended
June 30, 2026 vs. 2025
Increase (Decrease) Due to
Total
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
60,026
$
429
$
60,455
Securities
883
(13)
870
Other
89
(34)
55
Short-term investments
1,030
(1,630)
(600)
Total interest-earning assets
62,028
(1,248)
60,780
Interest-bearing liabilities:
Savings accounts
200
207
407
NOW accounts
1,144
859
2,003
Money market accounts
9,153
(1,478)
7,675
Certificates of deposit and individual retirement accounts
10,306
(4,055)
6,251
Total interest-bearing deposits
20,803
(4,467)
16,336
Federal Home Loan Bank advances
1,284
(320)
964
Total interest-bearing liabilities
22,087
(4,787)
17,300
Change in net interest income
$
39,941
$
3,539
$
43,480
Management of Market Risk
General . The Bank’s most significant form of market risk is interest rate risk as the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our ERM Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our Board of Directors. The ERM Committee meets at least quarterly, is comprised of directors, executive officers and certain members of senior management, and reports to the full Board of Directors on at least a quarterly basis. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:
● maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;
● maintaining a prudent level of liquidity;
● maintaining a prudent level of off-balance sheet funding capacity;
● growing our volume of core deposit accounts;
● utilizing our AFS securities portfolio and interest rate swaps as part of our balance sheet asset and liability and interest rate risk management strategy intended to reduce the impact of movements in interest rates on net interest income and the economic value of equity;
● managing our utilization of wholesale funding with borrowings from the FHLB, FRB and brokered deposits in a prudent manner;
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● continuing to diversify our loan portfolio by adding more commercial-related loans and consumer loans, which typically have shorter maturities and/or balloon payments; and
● continuing to price our one-to-four family residential real estate loan products in a way that encourages borrowers to select our adjustable-rate loans as opposed to longer-term, fixed-rate loans.
Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well as originating loans with variable interest rates, helps to match the maturities and interest rates of our assets and liabilities better, thereby reducing the exposure of our net interest income to changes in market interest rates.
On occasion, we have employed various financial risk methodologies that are intended to limit, or “hedge,” the adverse effects of rising or decreasing interest rates on our loan portfolios and short-term liabilities. We also engage in hedging strategies with respect to arrangements where our customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa. Our hedging activity varies based on the level and volatility of interest rates and other changing market conditions.
Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We first estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by various basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column in the table below.
The following table sets forth, as of June 30, 2026, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.
At June 30, 2026
Change in Interest Rates
Net Interest Income
Year 1 Change from
(basis points) (1)
Year 1 Forecast
Level
(Dollars in thousands)
300
294,250
7.0
%
200
286,254
4.1
%
100
281,644
2.5
%
Level
274,904
—
%
(100)
270,584
(1.6)
%
(200)
267,636
(2.6)
%
(300)
266,213
(3.2)
%
(1) Assumes an immediate uniform change in interest rates at all maturities.
The table above indicates that as of June 30, 2026, we would have experienced a 4.1% increase in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 2.6% decrease in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.
Economic Value of Equity (“EVE”) . We also compute amounts by which the net present value of our assets and liabilities, or EVE, would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value.
The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200 and 300 basis point increments or decreases instantaneously by 100, 200 and 300 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.
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The following table sets forth, as of June 30, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.
Estimated Increase
At June 30, 2026
Estimated
(Decrease) in EVE
Change in Interest Rates (basis points) (1)
EVE (2)
Amount
Percent
(Dollars in thousands)
300
1,213,303
(115,549)
(8.7)
%
200
1,266,105
(62,747)
(4.7)
%
100
1,314,604
(14,248)
(1.1)
%
Level
1,328,852
N/A
—
%
(100)
1,353,570
24,718
1.9
%
(200)
1,335,599
6,747
0.5
%
(300)
1,286,673
(42,179)
(3.2)
%
(1) Assumes an immediate uniform change in interest rates at all maturities.
The table above indicates that as of June 30, 2026, we would have experienced a 4.7% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.5% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income and EVE tables presented above assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ materially. Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits, derivatives and borrowings.
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the FHLB and the Discount Window at the FRB. As of June 30, 2026, we had outstanding advances of $181.2 million from the FHLB. As of June 30, 2026, we had unused borrowing capacity of $762.0 million with the FHLB. At June 30, 2026, the Bank had $1.12 billion available from the discount window under the Borrower in Custody (“BIC”) program at the FRB. Additionally, as of June 30, 2026, we had $719.9 million of brokered deposits and pursuant to our internal liquidity policy, which allows us to utilize brokered deposits up to 25.0% of our total assets, we had an additional capacity of up to approximately $1.14 billion of brokered deposits. Uninsured deposits were $1.78 billion and $1.66 billion as of June 30, 2026 and December 31, 2025, respectively.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.
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At June 30, 2026, we had $16.7 million in outstanding commitments to originate loans. In addition, we had $816.1 million in unused lines of credit to borrowers, $509.5 million in unused mortgage warehouse lines, $389.6 million in unadvanced construction loans and $7.6 million in letters of credit outstanding.
Non-brokered certificates of deposit due within one year of June 30, 2026 totaled $1.93 billion, or 30.5%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits, FHLB advances and FRB borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the non-brokered certificates of deposit due on or before June 30, 2026, or on our other interest-bearing deposit accounts. We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of June 30, 2026.
Our primary investing activity is originating loans. During the six months ended June 30, 2026, we originated $428.4 million of loans, net of repayments.
Financing activities consist primarily of activity in deposit accounts and FHLB advances. We experienced net increases in total deposits of $466.3 million for the six months ended June 30, 2026. At June 30, 2026 and December 31, 2025, the level of brokered time deposits was $719.9 million and $535.7 million, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors. FHLB advances decreased $15.0 million during the six months ended June 30, 2026.
For additional information, see the consolidated statements of cash flows for the six months ended June 30, 2026 and 2025 included as part of the consolidated financial statements appearing elsewhere in this quarterly report on Form 10-Q.
We are committed to maintaining a strong liquidity position. We continuously monitor our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate by management. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding planning process, which provides the basis for the identification of our liquidity needs. We anticipate that we will have sufficient funds to meet our current funding commitments. In addition, based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.
As of June 30, 2026, Needham Bank and the Company exceeded all of their regulatory capital requirements, and were categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 11 of the notes to consolidated financial statements.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this quarterly report on Form 10-Q have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this Item is incorporated by reference to the discussion of market risk in Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management of Market Risk.”
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