John Marshall Bancorp, Inc.: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis of the consolidated financial condition and results of operations of the Company and its subsidiary should be read in conjunction with the consolidated financial statements and related notes presented in Item 1, Financial Statements, of this Form 10-Q. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate results of operations or trends in operations for any future periods.

Use of Non-GAAP Financial Measures

This discussion and analysis contains financial information determined by methods other than in accordance with GAAP. Management believes that the supplemental non-GAAP information provides a better comparison of period-to-period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. Non-GAAP measures used in this report consist of tax-equivalent net interest income and tax-equivalent net interest margin.

These disclosures should not be viewed as a substitute for or more important than financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Where the non-GAAP financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure, can be found within this discussion and analysis.

Cautionary Note on Forward-Looking Statements

In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. These forward-looking statements are based on our beliefs and assumptions and on the information available to us at the time that these disclosures were prepared, and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by such forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are reasonable, we can give no assurance such expectations will prove to have been correct. Should any known or unknown risks and uncertainties develop into actual events, those developments could have material adverse effects on our business, financial condition and results of operations. Factors that could have a material adverse effect on the operations of the Company and the Bank include, but are not limited to, the following:

• the concentration of our business in the Washington, D.C. metropolitan area and the effect of changes in the economic, political and environmental conditions on this market, including the ongoing shutdown of the U.S. Government and potential reductions in spending by the U.S. Government and related reductions in the federal workforce;
• adequacy of our allowance for loan credit losses, allowance for unfunded commitments credit losses, and allowance for credit losses associated with our held-to-maturity and available-for-sale securities portfolios;
• deterioration of our asset quality;
• future performance of our loan portfolio with respect to recently originated loans;
• the level of prepayments on loans and mortgage-backed securities;
• liquidity, interest rate and operational risks associated with our business;
• changes in our financial condition or results of operations that reduce capital;
• our ability to maintain existing deposit relationships or attract new deposit relationships;
• changes in consumer spending, borrowing and savings habits;
• inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments;
• changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve;
• additional risks related to new lines of business, products, product enhancements or services;
• increased competition with other financial institutions and fintech companies;
• adverse changes in the securities markets;
• changes in the financial condition or future prospects of issuers of securities that we own;
• our ability to maintain an effective risk management framework;
• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory structure and in regulatory fees and capital requirements;
• compliance with legislative or regulatory requirements;
• results of examination of us by our regulators, including the possibility that our regulators may require us to increase our allowance for credit losses or to write-down assets or take similar actions;
• potential claims, damages, and fines related to litigation or government actions;
• the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting;
• geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, negatively impacting business and economic conditions in the U.S. and abroad;
• the effects of weather-related or natural disasters, which may negatively affect our operations and/or our loan portfolio and increase our cost of conducting business;
• public health events (such as the COVID-19 pandemic) and governmental and societal responses thereto;
• technological risks and developments, and cyber threats, attacks, or events;
• changes in accounting policies and practices;
• our ability to successfully capitalize on growth opportunities;
• our ability to retain key employees;
• deteriorating economic conditions, either nationally or in our market area, including higher unemployment and lower real estate values;
• implications of our status as a smaller reporting company and as an emerging growth company; and
• other factors discussed in Item 1A. Risk Factors in the Company’s 2024 Annual Report on Form 10-K filed with the SEC on March 28, 2025.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary note.

Overview

We are a bank holding company headquartered in Reston, Virginia primarily serving the Washington, D.C. metropolitan area. The material business operations of our organization are performed through the Bank. As a result, the discussion and analysis within this section primarily relate to activities conducted at the Bank.

As with most community banks, the Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. To account for credit risk inherent in all loans, the Bank maintains an allowance for loan credit losses to absorb lifetime losses on existing loans. The Bank establishes and maintains this allowance by recording a provision for credit losses against earnings. In addition to net interest income, the Bank also generates income through service charges on deposits, insurance commission income, merchant services fee income, swap fee income and gain on sale of the guaranteed portion of SBA 7(a) loans. In order to maintain its operations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section.

As of September 30, 2025, the Company had total consolidated assets of $2.32 billion, total loans net of unearned income of $1.94 billion, total deposits of $1.97 billion and total shareholders’ equity of $259.7 million.

Critical Accounting Policies and Estimates

The Company’s accounting and reporting policies conform to GAAP, as well as general practices within the banking industry. Application of these principles requires 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 statements; 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.

Our most significant accounting policies are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to our audited financial statements for the year ended December 31, 2024, included in the Company’s 2024 Annual Report on Form 10-K filed with the SEC on March 28, 2025.

Selected Financial Data

The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of September 30, 2025 and 2024 and the selected income statement data for the three and nine months ended September 30, 2025 and 2024 have been derived from our consolidated financial statements.

(Dollars in thousands, except per share data)

N/M – Not meaningful

(1) ROAA is calculated by dividing year-to-date net income annualized by year-to-date average assets.

(2) ROAE is calculated by dividing year-to-date net income annualized by year-to-date average equity.

(3) Tax-equivalent net interest margin for all periods presented is reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

(4) Non-interest expense to average assets is calculated by dividing year-to-date annualized non-interest expense by year-to-date average assets.

(5) The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

Results of Operations - Nine months ended September 30, 2025 and September 30, 2024

Overview

The Company reported net income of $15.3 million for the nine months ended September 30, 2025, an increase of $3.0 million or 24.1% when compared to the nine months ended September 30, 2024. Diluted earnings per common share were $1.07 for the nine months ended September 30, 2025, compared to diluted earnings per common share of $0.87 for the nine months ended September 30, 2024, representing a 23.0% increase.

Net interest income for the nine months ended September 30, 2025 increased $7.6 million or 20.7% compared to the same period of 2024, driven primarily by the decrease in rates of interest-bearing liabilities coupled with increases in average balances and yields of the loan portfolio.

The Company recorded a $1.1 million provision for credit losses for the nine months ended September 30, 2025 compared to a $0.7 million recovery of credit losses for the nine months ended September 30, 2024. Additional discussion of the provision for credit losses is included below under the heading Provision for Credit Losses.

Non-interest income decreased $325 thousand during the nine months ended September 30, 2025 compared to the same period of 2024. The decrease was primarily driven by a $306 thousand decrease on the recorded gain on sale of the government guaranteed portion of the SBA 7(a) loans due to decreased sale activity along with a $53 thousand decrease in insurance commissions. These decreases were partially offset by a $66 thousand increase to the mark-to-market adjustments on the Company’s nonqualified deferred compensation plan and a $37 thousand increase in swap fee income.

Non-interest expense increased $1.7 million or 7.3% for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase in non-interest expense was predominantly due to a $1.4 million or 9.5% increase in salaries and employee benefits as the Company hired six business development officers during the preceding twelve months and incurred higher incentive compensation expense tied to performance. Other expenses increased $411 thousand or 5.8% for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. Increases in other expenses were primarily in data processing, state franchise tax and other general operating expenses. Furniture and equipment expenses increased $57 thousand or 6.3% for the nine months ended September 30, 2025 compared to the same period in 2024. The increase was due to investment and maintenance in technology. These increases were partially offset by a decrease in the Company’s occupancy expense, which declined by $125 thousand or 9.3% for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, as a result of the negotiation of more favorable rents on three branch locations.

The ROAA for the nine months ended September 30, 2025 and 2024 was 0.91% and 0.73%, respectively. The ROAE for the nine months ended September 30, 2025 and 2024 was 8.05% and 6.97%, respectively.

Net Interest Income and Net Interest Margin

The following table presents the average balance for each principal balance sheet category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the nine months ended September 30, 2025 and 2024.

Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

(Dollars in thousands)

N/M – Not meaningful

(1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

(2) The Company did not have any loans on nonaccrual as of September 30, 2025 or September 30, 2024.

(3) Tax-equivalent net interest margin adjusts for differences in tax treatment of interest income sources. The entire tax-equivalent adjustment is attributable to interest income on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the tax-equivalent components.

Tax-equivalent net interest margin as presented above is calculated by dividing tax-equivalent net interest income by total average earning assets. Net interest income, on a tax-equivalent basis, is a financial measure that the Company believes provides a more accurate picture of the interest margin for comparative purposes. Tax-equivalent net interest income 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 following table, “Tax-Equivalent Net Interest Income,” reconciles net interest income to tax-equivalent net interest income, which is a non-GAAP measure.

Tax-Equivalent Net Interest Income

(Dollars in thousands)

(1) Tax benefit was calculated using the federal statutory tax rate of 21%.

Net interest income increased $7.6 million or 20.6% on a fully tax-equivalent basis for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The increase in fully tax-equivalent net interest income was driven by the decrease in the cost of interest-bearing deposits combined with the increases in average balances and yields of the loan portfolio.

On a fully tax-equivalent basis, the net interest margin was 2.67% for the nine months ended September 30, 2025, compared to 2.20% for the nine months ended September 30, 2024. The 47 basis points increase in net interest margin was due to a combination of a 42 basis points decrease in the cost of interest-bearing liabilities and a 15 basis points increase in yields in interest-earning assets coupled with higher average loan balances and lower average borrowing balances.

The cost of interest-bearing liabilities was 3.41% for the nine months ended September 30, 2025 compared to 3.83% for the nine months ended September 30, 2024. Rates declined across all deposit categories, most notably in time deposits, money market accounts and NOW deposit accounts, which declined 26 basis points, 50 basis points and 47 basis points, respectively. Total cost of borrowings declined from 4.96% in the prior year period to 4.54% in the current year period, mainly as a result of the payoff of higher cost Bank Term Funding Program borrowings in September 2024, which were partially refinanced with lower cost FHLB advances. Average interest-bearing liabilities declined $27.5 million during the current period as compared to the prior year period, primarily driven by lower average balances of borrowings.

The loan portfolio’s yield for the nine months ended September 30, 2025 was 5.42% compared to 5.24% for the nine months ended September 30, 2024. The increase of 18 basis points was primarily attributable to an increase in yield on the Company’s variable rate loans as a result of an increase in interest rates subsequent to September 30, 2024 coupled with a higher weighted average yield on loans originated since the first nine months of 2024. Average loans increased $61.4 million between the nine months ended September 30, 2025 and 2024, which was primarily attributable to origination volume in the investor real estate, construction and development, and residential mortgage loan portfolios subsequent to September 30, 2024.

The yield on interest-bearing deposits due from banks for the nine months ended September 30, 2025 was 4.46% compared to 5.50% for the nine months ended September 30, 2024. The decrease of 104 basis points was due to three fed funds rate cuts totaling 75 basis points, which occurred after September 30, 2024.

The following table presents the effects of changing rates and volumes on tax-equivalent 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 net 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 to volume.

Rate/Volume Analysis

(Dollars in thousands)

(1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

(2) The Company did not have any loans on nonaccrual as of September 30, 2025 or September 30, 2024.

Interest Income

Interest income increased by $1.9 million or 2.4% to $84.2 million on a fully tax-equivalent basis for the nine months ended September 30, 2025 compared to $82.3 million for the nine months ended September 30, 2024, driven by both an increase in rates and volume on interest-earning assets, primarily attributable to the Company’s loan portfolio.

Fully tax-equivalent interest income on loans increased by approximately $4.9 million or 6.9% as a result of increases in rates and volume. Average loans increased $61.4 million between the nine months ended September 30, 2025 and 2024, which was primarily attributable to origination volume in the investor real estate, construction and development, and residential mortgage loan portfolios subsequent to September 30, 2024.

Fully tax-equivalent interest income on investment securities decreased by approximately $356 thousand or 9.1%, as a result of a decrease in volume. Average investment securities decreased approximately $31.2 million between the nine months ended September 30, 2025 and 2024, primarily due to maturities and the amortization of the portfolio.

Interest income on interest-bearing deposits in other banks decreased by $2.6 million or 37.6% as a result of lower yield and a decline in volume. The lower yield was directly related to three fed funds rate cuts totaling 75 basis points since September 30, 2024. Average interest-bearing deposits in other banks decreased approximately $39.0 million between the nine months ended September 30, 2025 and 2024, mainly due to funding of new loan originations and lower average balance of borrowings.

Interest Expense

Interest expense decreased by $5.7 million to $39.5 million for the nine months ended September 30, 2025 compared to $45.2 million for the nine months ended September 30, 2024, primarily due to a decrease in rates on deposits and a decrease in volume of borrowings. The decrease in rates on deposits was mainly a result of the repricing of the Company’s time deposits maturing subsequent to September 30, 2024 as a result of lower benchmark interest rates. The decrease in volume of borrowings was primarily a result of the Company’s payoff of higher cost Federal Reserve Bank’s Bank Term Funding Program borrowings in September 2024, which were partially refinanced with lower cost FHLB advances.

Provision for Credit Losses

The Company recorded a $1.1 million provision for credit losses for the nine months ended September 30, 2025 compared to a $0.7 million recovery of provision for credit losses for the nine months ended September 30, 2024. The provision for credit losses for the nine months ended September 30, 2025 that is directly attributable to the funded and unfunded loan portfolios was $997 thousand and $67 thousand, respectively.

The provision for credit losses during the nine months ended September 30, 2025 was primarily a result of changes in the composition and growth of the loan portfolio, updated economic forecasts used in the quantitative portion of the model and an assessment of management’s considerations of qualitative factors. See “Asset Quality” below for additional information on the credit quality of the loan portfolio.

Non-interest Income

The Company’s recurring sources of non-interest income consist primarily of interchange income, gains on sale of government guaranteed loans, service charges on deposit accounts and insurance commissions. Generally speaking, loan fees are included in interest income on the loan portfolio and not reported as non-interest income.

The following table summarizes non-interest income for the nine months ended September 30, 2025 and 2024.

(Dollars in thousands)

N/M – Not meaningful

Non-interest income decreased $325 thousand during the nine months ended September 30, 2025 compared to the same period of 2024. The decrease was primarily driven by a $306 thousand decrease on the recorded gain on sale of the government guaranteed portion of the SBA 7(a) loans due to decreased sale activity along with a $53 thousand decrease in insurance commissions. These decreases were partially offset by a $66 thousand increase to the mark-to-market adjustments on the Company’s nonqualified deferred compensation plan and a $37 thousand increase in customer swap fee income.

Non-interest Expense

Generally, non-interest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing banking services. The largest component of non-interest expense is salaries and employee benefits. Non-interest expense also includes operational expenses, such as occupancy and equipment expenses, data processing expenses, professional fees, advertising expenses and other general and administrative expenses, including FDIC assessments, and Virginia state franchise taxes.

The following table summarizes non-interest expense for the nine months ended September 30, 2025 and 2024.

(Dollars in thousands)

Non-interest expense increased $1.7 million or 7.3% during the nine months ended September 30, 2025 compared to the same period in 2024. The increase was primarily due to a $1.4 million increase in salaries and employee benefits, as a result of the Company hiring six business development officers in the preceding twelve months and an increase in incentive compensation tied to performance. The hiring of additional business development officers is an investment in the Bank’s future growth. As in the past, management expects these staffing additions will lead to subsequent increases in revenues. Incentive compensation expense accruals can fluctuate significantly from period to period, based upon the Company’s financial performance and condition measured against, among other evaluation criteria, our strategic plan and budget. State franchise taxes increased by $161 thousand due to a higher assessment base, mainly a result of the growth of the Company’s shareholder’s equity during the period. The $139 thousand increase in data processing was primarily due to contractual increases and volume-based activity. These increases were partially offset by a decrease in the Company’s occupancy expense, which declined by $125 thousand during the period due to the negotiation of more favorable rents on three branch locations.

Income Taxes

Income tax expense increased $882 thousand or 25.7% to $4.3 million for the nine months ended September 30, 2025 compared to $3.4 million for the nine months ended September 30, 2024. Our effective tax rate for the nine months ended September 30, 2025 increased to 22.0% compared to 21.7% for the same period ended September 30, 2024.

Results of Operations – Three Months Ended September 30, 2025 and September 30, 2024

Overview

The Company reported net income of $5.4 million for the three months ended September 30, 2025, an increase of $1.2 million or 27.6% when compared to $4.2 million for the three months ended September 30, 2024. Diluted earnings per common share were $0.38 for the three months ended September 30, 2025, compared to diluted earnings per common share of $0.30 for the three months ended September 30, 2024, an increase of 26.7%.

Net interest income for the three months ended September 30, 2025 increased $2.4 million or 18.6% to $15.6 million compared to $13.2 million for the three months ended September 30, 2024, driven primarily by the lower cost of interest-bearing deposits coupled with higher average balances and yields of loans. During the same period, interest income increased $0.5 million or 1.8%, driven by higher interest income on loans, while interest expense declined by $1.9 million or 12.6%, predominantly due to lower interest expense on time deposits, money market accounts, and borrowings. The annualized net interest margin for the three months ended September 30, 2025 was 2.72% as compared to 2.30% for the same period in 2024. The annualized tax-equivalent net interest margin (Non-GAAP) for the three months ended September 30, 2025 was 2.73% as compared to 2.30% for the same period in 2024.

The Company recorded a $356 thousand provision for credit losses for the three months ended September 30, 2025 compared to a provision for credit losses of $400 thousand for the three months ended September 30, 2024. Additional discussion of the provision for credit losses is included below under the heading Provision for Credit Losses.

Non-interest income increased $36 thousand during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was primarily attributable to a $101 thousand increase in customer swap fee income, partially offset by a $54 thousand reduction in gains recorded on sales of the guaranteed portions of SBA 7(a) loans due to lower sale activity.

Non-interest expense increased $1.0 million or 12.5% during the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to a $796 thousand or 16.3% increase in salaries and employee benefits, as discussed in the year-to-date results above. Other expenses grew due to a combination of higher state franchise taxes and general operating expenses. These increases were partially offset by lower occupancy expense, resulting from the negotiation of more favorable rents on three branch locations.

The ROAA for the three months ended September 30, 2025 and September 30, 2024 was 0.94% and 0.73%, respectively. The ROAE for the three months ended September 30, 2025 and September 30, 2024 was 8.31% and 7.00%, respectively.

Net Interest Income and Net Interest Margin

The following table presents the average balance for each principal balance sheet category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the three months ended September 30, 2025 and September 30, 2024.

Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

(Dollars in thousands)

N/M – Not meaningful

(1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

(2) The Company did not have any loans on nonaccrual as of September 30, 2025 or September 30, 2024.

(3) Tax-equivalent net interest margin adjusts for differences in tax treatment of interest income sources. The entire tax-equivalent adjustment is attributable to interest income on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the tax-equivalent components.

Tax-equivalent net interest margin as presented above is calculated by dividing tax-equivalent net interest income by total average earning assets. Net interest income, on a tax-equivalent basis, is a financial measure that the Company believes provides a more accurate picture of the interest margin for comparative purposes. Tax-equivalent net interest income 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 following table, “Tax-Equivalent Net Interest Income,” reconciles net interest income to tax-equivalent net interest income, which is a non-GAAP measure.

Tax-Equivalent Net Interest Income

(Dollars in thousands)

(1) Tax benefit was calculated using the federal statutory tax rate of 21%.

Tax-equivalent net interest income increased $2.4 million or 18.6% for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, driven primarily by the lower rates on interest-bearing deposits and an increase in loan yields coupled with the increase in the average balance of loans and the reduction in the average balance of borrowings.

On a fully tax-equivalent basis, the net interest margin was 2.73% for the three months ended September 30, 2025, compared to 2.30% for the three months ended September 30, 2024. The 43 basis points increase in net interest margin was primarily due to a 49 basis points reduction in rates on interest-bearing deposits and an 11 basis points increase in yields on the Company’s loans. In addition, average loans increased $93.8 million between the three months ended September 30, 2025 and the three months ended September 30, 2024, which was primarily attributable to origination volume in the investor real estate, construction and development, and residential mortgage loan portfolios subsequent to September 30, 2024.

The loan portfolio’s yield for the three months ended September 30, 2025 was 5.44% compared to 5.33% for the three months ended September 30, 2024. The increase of 11 basis points was primarily attributable to increase in yields on the Company’s commercial real estate and residential mortgage portfolios along with higher average loan balances.

The yield on interest-bearing deposits due from banks for the three months ended September 30, 2025 was 4.44% compared to 5.46% for the three months ended September 30, 2024. The decrease of 102 basis points was directly attributable to three fed funds rate cuts totaling 75 basis points over the preceding twelve months.

The cost of interest-bearing liabilities was 3.37% for the three months ended September 30, 2025 compared to 3.86% for the three months ended September 30, 2024. Rates declined across all deposit categories, predominantly within time deposits, money market accounts and NOW accounts, which declined 41 basis points, 52 basis points and 59 basis points, respectively. Total cost of borrowings declined from 4.88% for the prior year quarter to 4.52% in the most recent quarter, mainly as a result of the payoff of higher cost Bank Term Funding Program borrowings in September 2024, which were partially refinanced with lower cost FHLB advances.

The following table presents the effects of changing rates and volumes on tax-equivalent 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 net 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 to volume.

Rate/Volume Analysis

(Dollars in thousands)

(1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

(2) The Company did not have any loans on nonaccrual as of September 30, 2025 or September 30, 2024.

Interest Income

Interest income increased by $0.5 million or 1.8% to $29.0 million on a fully tax-equivalent basis for the three months ended September 30, 2025 compared to $28.5 million for the three months ended September 30, 2024, driven primarily by higher average balances and yields on the Company’s loan portfolio.

Fully tax-equivalent interest income on loans increased by $1.9 million or 7.8% as a result of volume and rates increases. Average loans increased $93.8 million between the three months ended September 30, 2025 and the three months ended September 30, 2024, which was primarily attributable to origination volume in the investor real estate, construction and development, and residential mortgage loan portfolios subsequent to September 30, 2024.

Fully tax-equivalent interest income on investment securities decreased by $73 thousand or 5.9% primarily as a result of a decrease in volume. Average investment securities decreased $27.6 million between the three months ended September 30, 2025 and September 30, 2024 mainly due to maturities and amortization.

Interest income on interest-bearing deposits in other banks decreased by $1.3 million as a result of decreases in rates and volume. Average interest-bearing deposits in other banks decreased $68.3 million between the three months ended September 30, 2025 and September 30, 2024.

Interest Expense

Interest expense decreased by $1.9 million to $13.3 million for the three months ended September 30, 2025 compared to $15.3 million for the three months ended September 30, 2024, primarily due to a decrease in rates on deposits and, to a lesser extent, the decrease in volume of borrowings. The decrease in rates on deposits was mainly a result of the repricing of the Company’s deposit accounts in conjunction with the decrease in benchmark interest rates that took place starting in September of 2024.

Provision for Credit Losses

The Company recorded a $356 thousand provision for credit losses for the three months ended September 30, 2025 compared to a provision for credit losses of $400 thousand for the three months ended September 30, 2024. The provision for credit losses for the three months ended September 30, 2025 that is directly attributable to the funded and unfunded loan portfolios was $415 thousand and a recovery of $59 thousand, respectively.

The provision for credit losses during the three months ended September 30, 2025 was directly attributable to the growth in the Company’s loan portfolio quarter-over-quarter, changes in the composition of the loan portfolio, and considerations of qualitative factors.

See “Asset Quality” section below for additional information on the credit quality of the loan portfolio.

Non-interest Income

The following table summarizes non-interest income for the three months ended September 30, 2025 and September 30, 2024.

(Dollars in thousands)

Non-interest income was $653 thousand for the three months ended September 30, 2025 compared to $617 thousand for the same period in the prior year. The $36 thousand increase in non-interest income was primarily attributable to a $101 thousand increase in customer swap fee income, partially offset by a $54 thousand reduction in gains recorded on sales of the guaranteed portions of SBA 7(a) loans due to lower sale activity.

Non-interest Expense

The following table summarizes non-interest expense for the three months ended September 30, 2025 and September 30, 2024.

(Dollars in thousands)

Non-interest expense increased $1.0 million or 12.5% during the three months ended September 30, 2025 compared to the three months ended September 30, 2024 primarily as a result of an increase in salaries and employee benefits expense, as discussed in the year-to-date results above. State franchise taxes increased by $67 thousand due to a higher assessment base, mainly a result of the growth of the Company’s shareholder’s equity during the period. Occupancy expense declined by $39 thousand, resulting from the negotiation of more favorable rents on three branch locations.

Income Taxes

Income tax expense increased $352 thousand to $1.5 million for the three months ended September 30, 2025 compared to $1.1 million for the three months ended September 30, 2024. Our effective tax rate for the three months ended September 30, 2025 was 21.3% compared to 20.7% for the same period ended September 30, 2024.

Discussion and Analysis of Financial Condition

Assets, Liabilities, and Shareholders’ Equity

The Company’s total assets increased $89.6 million or 4.0% to $2.32 billion at September 30, 2025 compared to $2.23 billion at December 31, 2024. The increase in total assets was predominantly attributable to increases in the Company’s loan portfolio and interest-bearing deposits in banks, which grew by $65.9 million or 3.5% and $38.3 million or 32.8% during the year, respectively, partially offset by a $16.6 million decrease in available-for-sale and held-to-maturity investment securities.

The Company’s total liabilities increased $76.5 million or 3.8% to $2.06 billion at September 30, 2025 compared to $1.99 billion at December 31, 2024. The increase in total liabilities was almost entirely due to a $76.4 million or 4.0% increase in total deposits.

Shareholders’ equity increased $13.1 million or 5.3% to $259.7 million at September 30, 2025 compared to $246.6 million at December 31, 2024. The increase in shareholders’ equity was primarily attributable to net income earned during the current year coupled with a decrease in accumulated other comprehensive loss due to lower market interest rates during the nine months ended September 30, 2025. This increase was partially offset by cash dividends paid and increased share count from shareholder option exercises and restricted share award issuances. The decrease in accumulated other comprehensive loss was attributable to an increase in the market value of our available-for-sale investment portfolio. Book value per share was $18.27 as of September 30, 2025 compared to $17.28 as of December 31, 2024, an increase of 5.7%. During the nine months ended September 30, 2025, the Company repurchased 95,103 shares of its common stock at a weighted average price of $17.33. The aggregate year-to-date repurchase activity was accretive to the Company’s book value per share.

Investment Securities

The Company maintains a primarily fixed income investment securities portfolio that had a total carrying value of $205.7 million at September 30, 2025 and $222.3 million at December 31, 2024. The investment portfolio provides liquidity, interest income, credit risk diversification, means to manage interest rate sensitivity and collateral for secured public funds and secured credit lines. Investment securities are classified as available-for-sale or held-to-maturity based on management’s investment strategy and management’s assessment of the intent and ability to hold the securities until maturity. Investment securities that we may sell prior to maturity in response to changes in management’s investment strategy, liquidity needs, interest rate risk profile or for other reasons are classified as available-for-sale. The Company also had restricted stock and equity securities within its investment securities portfolio with total carrying values of $7.6 million and $2.8 million, respectively, at both September 30, 2025 and December 31, 2024.

The Company purchased $14.0 million of investment securities during the nine months ended September 30, 2025, which were comprised of $13.0 million of agency mortgage-backed securities and $1.0 million of agency collateralized mortgage obligation securities. The Company did not sell any fixed income investment securities during the nine months ended September 30, 2025. The Company had $34.4 million in maturities and principal repayments on securities during the nine months ended September 30, 2025, which were comprised of $14.1 million of U.S. agency mortgage-backed securities, $10.8 million of U.S. Treasuries, $5.0 million of U.S. government and federal agencies securities and $4.5 million of U.S. agency collateralized mortgage obligation securities.

The following table summarizes the amortized cost and fair value of the Company’s fixed income investment portfolio as of September 30, 2025 and December 31, 2024, respectively.

(Dollars in thousands)

In the prevailing rate environments as of September 30, 2025 and December 31, 2024, the Company’s fixed income investment portfolio had an estimated weighted average remaining life of approximately 4.1 years and 4.2 years, respectively. The available-for-sale investment portfolio had an estimated weighted average remaining life of approximately 3.1 years at both September 30, 2025 and December 31, 2024, respectively. The held-to-maturity investment portfolio had an estimated weighted average remaining life of approximately 5.4 years and 6.0 years as of September 30, 2025 and December 31, 2024, respectively.

The following table summarizes the maturity composition of our fixed income investment securities as of September 30, 2025, including the weighted average yield of each maturity band. Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.

(Dollars in thousands)

Loan Portfolio

Gross loans, net of unearned income, increased $65.9 million to $1.94 billion as of September 30, 2025 compared to $1.87 billion as of December 31, 2024. The increase in loans from December 31, 2024, was primarily attributable to growth in commercial real estate loans, construction and development loans, and residential mortgage loans. The Company continues to maintain its disciplined underwriting standards while prudently pursuing loan growth opportunities that provide acceptable risk-adjusted returns.

The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of September 30, 2025 and December 31, 2024.

(Dollars in thousands)

Asset Quality

The Company maintains policies and procedures to promote sound underwriting and to mitigate credit risk. The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions.

The Company’s asset quality remained strong through the first nine months of 2025. The Company did not have any nonperforming assets, which includes nonperforming loans, OREO, or loans classified as substandard as of September 30, 2025. The Company had one loan that was 90 days past due and still accruing interest as of December 31, 2024. The loan paid off, in full, on January 7, 2025. As a result, the Company did not have any nonperforming loans, which consists of loans that are 90 days or more past due or loans placed on nonaccrual as of September 30, 2025.

The Company did not have any nonaccrual loans as of September 30, 2025 or December 31, 2024 nor were there any loans placed on nonaccrual during those periods. A loan is placed on nonaccrual status when (i) the Company is advised by the borrower that scheduled principal or interest payments cannot be met, (ii) when management’s best judgment indicates that payment in full of principal and interest can no longer be expected, or (iii) when any such loan or obligation becomes delinquent for 90 days, unless it is both well-secured and in the process of collection. As a result, the Company did not have any interest income that would have been recognized on nonaccrual loans for the three and nine months ended September 30, 2025 or the three and nine months ended September 30, 2024.

The following table summarizes the Company’s asset quality as of September 30, 2025 and December 31, 2024.

(Dollars in thousands)

N/M – Not meaningful

Allowance for Loan Credit Losses

Refer to the discussion in Note 1 of the audited financial statements and notes for the year ended December 31, 2024 contained in the Company’s 2024 Annual Report on Form 10-K for management’s approach to estimating the allowance for loan credit losses.

The Company recorded $1 thousand and $2 thousand of net recoveries during the three and nine months ended September 30, 2025 and 2024, respectively. At September 30, 2025, the allowance for loan credit losses was $19.7 million or 1.02% of outstanding loans, net of unearned income, compared to $18.7 million or 1.01% of outstanding loans, net of unearned income, at December 31, 2024. The increase in the allowance as a percentage of outstanding loans, net of unearned income, was primarily a result of changes in the composition of the loan portfolio coupled with the updates to the economic forecast and considerations of qualitative factors.

The following tables summarize the Company’s loan loss experience by loan portfolio for the three and nine months ended September 30, 2025 and 2024.

(Dollars in thousands)

N/M – Not meaningful

(1) The net (charge-off) recovery rate is calculated by dividing annualized total net (charge-offs) recoveries during the period by average gross loans outstanding during the period.

(2) The allowance coverage ratio is calculated by dividing the allowance for loan credit losses at the end of the period by gross loans, net of unearned income at the end of the period.

(3) The allowance to nonaccrual loans ratio is calculated by dividing the allowance for loan credit losses at the end of the period by nonaccrual loans at the end of the period.

(Dollars in thousands)

N/M – Not meaningful

(1) The net (charge-off) recovery rate is calculated by dividing annualized total net (charge-offs) recoveries during the period by average gross loans outstanding during the period.

(2) The allowance coverage ratio is calculated by dividing the allowance for loan credit losses at the end of the period by gross loans, net of unearned income at the end of the period.

(3) The allowance to nonaccrual loans ratio is calculated by dividing the allowance for loan credit losses at the end of the period by nonaccrual loans at the end of the period.

The following tables summarize the allowance for loan credit losses by portfolio with a comparison of the percentage composition in relation to total allowance for loan credit losses and total loans as of September 30, 2025 and December 31, 2024.

(Dollars in thousands)

(Dollars in thousands)

Management believes that the allowance for loan credit losses is adequate to absorb lifetime expected credit losses inherent in the portfolio as of September 30, 2025. There can be no assurance, however, that adjustments to the provision for (recovery of) credit losses will not be required in the future. Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in the Company’s market area; or changes in the circumstances of particular borrowers are criteria that could change and make adjustments to the provision for (recovery of) credit losses necessary.

Deposits

Total deposits increased $76.4 million or 4.0% to $1.97 billion as of September 30, 2025 compared to $1.89 billion as of December 31, 2024.

Non-interest bearing demand deposits increased $13.6 million or 3.1% to $446.9 million as of September 30, 2025 compared to $433.3 million at December 31, 2024. Non-interest bearing demand deposits represented 22.7% and 22.9% of total deposits at September 30, 2025 and December 31, 2024, respectively.

Interest-bearing deposits, which include NOW accounts, regular savings accounts, money market accounts, and time deposits, increased $62.8 million or 4.3% to $1.52 billion as of September 30, 2025 compared to $1.46 billion December 31, 2024. Interest-bearing deposits represented 77.3% and 77.1% of total deposits at September 30, 2025 and December 31, 2024, respectively.

The Company focuses on funding asset growth with deposit accounts, with an emphasis on core deposit growth, as its primary source of deposits. Core deposits consist of checking accounts, NOW accounts, money market accounts, regular savings accounts, time deposits, reciprocal IntraFi Demand® deposits, reciprocal IntraFi Money Market® deposits and reciprocal IntraFi CD® deposits. Core deposits totaled $1.67 billion or 84.7% of total deposits and $1.62 billion or 85.4% of total deposits at September 30, 2025 and December 31, 2024, respectively.

The following table sets forth the average balances of deposits and the average interest rates paid for the three months ended September 30, 2025 and 2024.

(Dollars in thousands)

The following table sets forth the average balances of deposits and the average interest rates paid for the nine months ended September 30, 2025 and 2024.

(Dollars in thousands)

The following table sets forth the maturity ranges of certificates of deposit with balances of $250,000 or more as of September 30, 2025.

(Dollars in thousands)

The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $843.4 million at September 30, 2025 and $816.7 million at December 31, 2024. Included in these amounts were $160.6 million and $157.4 million of public fund deposits that are collateralized as of September 30, 2025 and December 31, 2024, respectively. Deposits that were not insured or not collateralized represented 35% of total deposits at both September 30, 2025 and December 31, 2024, respectively.

Capital Resources

The Company is a bank holding company with less than $3 billion in assets and does not (i) have significant off balance sheet exposure, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Exchange Act. As a result, the Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement and is currently not subject to consolidated regulatory capital requirements.

The Bank is subject to capital adequacy standards adopted by the Federal Reserve, including the capital rules that implemented the Basel III regulatory capital reforms developed by the Basel Committee on Banking Supervision.

Note 11 to the Consolidated Financial Statements, included in Item 1 of this Form 10-Q, contains additional discussion and analysis regarding the Company and Bank’s regulatory capital requirements.

Shareholders’ equity increased $13.1 million or 5.3% to $259.7 million at September 30, 2025 compared to $246.6 million at December 31, 2024. During the nine months ended September 30, 2025, the increase in shareholders’ equity was primarily attributable to a $11.0 million increase in retained earnings, a result of the year-to-date net income exceeding the amount of dividends paid, coupled with a $2.9 million decrease in accumulated other comprehensive loss, due to lower market interest rates. Book value per share was $18.27 as of September 30, 2025 compared to $17.28 as of December 31, 2024.

In August of 2025, the Company’s Board of Directors authorized the extension of the Company’s stock repurchase program that was originally adopted in August of 2021. Under the stock repurchase program, the Company may repurchase up to 700,000 shares of its common stock, par value of $0.01 per share, or approximately 5% of its outstanding shares of common stock. The stock repurchase program will expire on August 31, 2026, or earlier if all the authorized shares have been repurchased. The Company repurchased 15,660 and 95,103 shares of its outstanding common stock under the program during the three and nine months ended September 30, 2025, respectively.

Liquidity

Liquidity reflects a financial institution’s ability to fund assets and meet current and future financial obligations. Liquidity is essential in all banks to meet customer withdrawals, compensate for balance sheet fluctuations, and provide funds for growth. Monitoring and managing both liquidity measurements is critical in developing prudent and effective balance sheet management. Management conducts liquidity stress testing on a quarterly basis to prepare for unexpected adverse scenarios and contemporaneously develops mitigating strategies to reduce losses in the event of an economic downturn.

The Company’s principal source of liquidity and funding is its deposit base. The level of deposits necessary to support the Company’s lending and investment activities is determined through monitoring loan demand.

In addition to the liquidity provided by balance sheet cash flows, the Company supplements its liquidity with additional sources such as secured borrowing credit lines with the FHLB and the Federal Reserve Bank. Specifically, the Company has pledged a portion of its commercial real estate and residential real estate loan portfolios to the FHLB and commercial loans to the Federal Reserve Bank. Based on collateral pledged as of September 30, 2025, the total FHLB available borrowing capacity was $446.9 million. Additional borrowing capacity with the Federal Reserve Bank was approximately $115.5 million as of September 30, 2025.

On September 3, 2024, the Company took out three fixed interest rate FHLB advances with terms of 18, 24, and 36 months. The interest rates on the advances range from 3.91% to 4.14%. At September 30, 2025, the Company had three outstanding FHLB advances totaling $56.0 million.

Total liquidity, defined as cash and cash equivalents, unencumbered securities at fair value, and available secured borrowing capacity, was $826.7 million at September 30, 2025 compared to $727.3 million at December 31, 2024.

In addition to available secured borrowing capacity, the Company had available federal funds lines with correspondent banks of $110.0 million at September 30, 2025.

Off-Balance Sheet Arrangements

The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit and financial guarantees which would impact the Company’s liquidity and capital resources to the extent customers accept and or use these commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors. For further information, see Note 7 to the Consolidated Financial Statements, included in Item 1 of this Form 10-Q, for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2025. Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and regulations are designed and operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the third fiscal quarter of 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes in the risk factors that were disclosed in Item 1A, under the caption “Risk Factors” in our 2024 Annual Report on Form 10-K, which we filed with the SEC on March 28, 2025.