FVCBankcorp, Inc.: Form 10-Q for the period ended Mar 31, 2025
Filed with the SEC on May 14, 2025 and accepted by EDGAR at May 14, 2025, 09:58 ET.
Management's discussion and analysis
As filed, 76,944 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
The following presents management’s discussion and analysis of our consolidated financial condition at March 31, 2025 and December 31, 2024 and the results of our operations for the three months ended March 31, 2025 and 2024. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024. Results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results of operations for the balance of 2025, or for any other period. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q, as well as other periodic reports filed with the U.S. Securities and Exchange Commission (the "SEC"), and written or oral communications made from time to time by or on behalf of FVCBankcorp, Inc. and our subsidiary (the “Company”), may contain statements relating to future events or our future results that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements.
The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:
- general business and economic conditions, including higher inflation and its impacts, nationally or in the markets that we serve could adversely affect, among other things, real estate valuations, unemployment levels, the ability of businesses to remain viable, consumer and business confidence, and consumer or business spending, which could lead to decreases in demand for loans, deposits, and other financial services that we provide and increases in loan delinquencies and defaults;
- the concentration of our business in and around the Washington, D.C. metropolitan area and the effects of changes in the economic, political, and environmental conditions on this market, including potential reductions in spending by the U.S. government and related reductions in the federal workforce;
- the impact of the interest rate environment on our business, financial condition and results of operation, and its impact on the composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities;
- changes in our liquidity requirements could be adversely affected by changes in our assets and liabilities;
- changes in the assumptions underlying the establishment of reserves for possible credit losses and the possibility that future credit losses may be higher than currently expected;
- the management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of loan collateral and the ability to sell collateral upon any foreclosure;
- changes in market conditions, specifically declines in the commercial and residential real estate market, volatility and disruption of the capital and credit markets, and soundness of other financial institutions that we do business with;
- the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve"), inflation, interest rate, market and monetary fluctuations;
- our investment securities portfolio is subject to credit risk, market risk, and liquidity risk as well as changes in the estimates used to value the securities in the portfolio;
- declines in our common stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to record a noncash impairment charge to earnings in future periods;
- potential exposure to fraud, negligence, computer theft and cyber-crime, and our ability to maintain the security of our data processing and information technology systems;
- the impact of changes in bank regulatory conditions, including laws, regulations and policies concerning capital requirements, deposit insurance premiums, taxes, securities, and the application thereof by regulatory bodies;
- the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board ("FASB") or other accounting standards setting bodies;
- competitive pressures among financial services companies, including the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;
- the effect of acquisitions and partnerships we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;
- our involvement, from time to time, in legal proceedings and examination and remedial actions by regulators;
- geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism, or actions taken by the United States or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; and
- the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues or emergencies, and other catastrophic events.
The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in our Annual Report on Form 10-K for the year ended December 31, 2024, including those discussed in the section entitled “Risk Factors”. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect our operations, financial condition, or results of operations.
Overview
We are a bank holding company headquartered in Fairfax County, Virginia. Our sole subsidiary, FVCbank (the "Bank"), was formed in November 2007 as a community-oriented, locally-owned and managed commercial bank under the laws of the Commonwealth of Virginia. The Bank offers a wide range of traditional bank loan and deposit products and services to both our commercial and retail customers. Our commercial relationship officers focus on attracting small and medium sized businesses, commercial real estate developers and builders, including government contractors, non-profit organizations, and professionals. Our approach to our market features competitive customized financial services offered to customers and prospects in a personal relationship context by seasoned professionals.
Net interest income is our primary source of revenue. We define revenue as net interest income plus noninterest income. We manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely. In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit. In addition to net interest income, noninterest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, income from our minority membership interest in Atlantic Coast Mortgage, LLC ("ACM"), merchant services fee income, insurance commission income, income from bank owned life insurance ("BOLI"), and gains and losses on sales of investment securities available-for-sale.
Critical Accounting Policies
General
The accounting principles we apply under the accounting principles generally accepted in the United States of America ("GAAP") are complex and require management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions, and estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.
The accounting policies we view as critical are those relating to judgments, assumptions, and estimates regarding the determination of the allowance for credit losses on our loan portfolio.
Allowance for Credit Losses - Loans
We maintain the allowance for credit losses ("ACL") at a level that represents management’s best estimate of expected losses in our loan portfolio.
Accounting Standards Codification ("ASC") 326 requires that an estimate of expected credit losses be immediately recognized and reevaluated over the contractual life of the financial asset. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Recoveries are recorded to the extent they do not exceed the aggregate of amounts previously charged-off.
Reserves on loans that do not share risk characteristics are evaluated on an individual basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. The remainder of the portfolio, representing all loans not evaluated individually, is segmented based on call report code and processed through a non-discounted cash flow valuation model. In particular, loan-level probability of default ("PD") and severity (also referred to as loss given default ("LGD")) is applied to derive a baseline expected loss as of the valuation date. These expected default and severity rates, which are regression-derived and based on peer historical loan-level performance data, are calibrated to incorporate our reasonable and supportable forecast of future losses as well as any necessary qualitative adjustments.
Typically, financial institutions use their historical loss experience and trends in losses for each loan segment which are then adjusted for portfolio trends and economic and environmental factors in determining the ACL. Since the Bank’s inception in 2007, we have experienced minimal loss history within our loan portfolio. Due to the fact that limited internal loss history exists to generate statistical significance, we determined it was most prudent to rely on peer data when deriving our best estimate of PD and LGD. As part of our estimation process, we will continue to assess the reasonableness of the data, assumptions, and model methodology utilized to derive our allowance for credit losses.
For each of the modeled loan segments, we generate cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates, and LGD rates. The modeling of expected prepayment speeds is based on internal loan-level historical data. For our cash flow model, we utilize national unemployment for reasonable and supportable forecasting of expected default. To further adjust the ACL for expected losses not already within the quantitative component of the calculation, we may consider qualitative factors as prescribed in ASC 326.
While our methodology in establishing the ACL attributes portions of a combined reserve to multiple elements, we believe that the combined allowance for credit losses (which is inclusive of the reserve for unfunded commitments) represents the most appropriate coverage metric for loss absorption purposes.
The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires us to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. Changes in conditions, including unforeseen events, changes in asset-specific risk characteristics, and other economic factors, both within and outside our control, may indicate the need for an increase or decrease in the ACL on loans. While we make every effort to utilize the best information available in making our assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways. Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others. Our methodology utilized in the estimation of the ACL, which is performed at least quarterly, is designed to be dynamic and responsive to changes in our loan portfolio credit quality, composition, and forecasted economic conditions. The review of the reasonableness and appropriateness of the ACL is reviewed by the ACL Committee for approval as of the valuation date. Additionally, information is provided to the Board of Directors on a quarterly basis along with our consolidated financial statements.
Credit losses are an inherent part of our business and, although we believe the methodologies for determining the ACL and the current level of the allowance are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.
Results of Operations— Three Months Ended March 31, 2025 and 2024
Overview
For the three months ended March 31, 2025, we recorded net income of $5.2 million, or $0.28 diluted earnings per share, compared to net income of $1.3 million, or $0.07 diluted earnings per share for the three months ended March 31, 2024, an increase of $3.8 million. Net income for the three months ended March 31, 2024 included the surrender of certain BOLI policies with an aggregate cash surrender value of $48.0 million. Upon the surrender, we received a cash payout and were required to accrue additional income tax on the appreciation of those policies which had previously been treated as tax-exempt income. This resulted in additional statutory income tax expense of $1.6 million and tax penalties of $722 thousand. The tax penalties related to the surrender of the BOLI were recorded in income tax expense.
Net interest income for the three months ended March 31, 2025 was $15.1 million, compared to $12.8 million for the same period of 2024, an increase of $2.3 million, or 18%. Provision for credit losses for the three months ended March 31, 2025 was $200 thousand, compared to none for the same period of 2024. Noninterest income was $671 thousand and $395 thousand for the three months ended March 31, 2025 and 2024, respectively, an increase of $276 thousand, or 70%. Noninterest expense was $9.1 million and $8.6 million for the three months ended March 31, 2025 and 2024, respectively, an increase of $508 thousand, or 6%.
The annualized return on average assets for the three months ended March 31, 2025 and 2024 was 0.94% and 0.25%, respectively. The annualized return on average equity for the three months ended March 31, 2025 and 2024 was 8.61% and 2.44%, respectively.
Commercial bank operating earnings, which exclude the above mentioned nonrecurring taxes on the surrender of our BOLI policies, for the three months ended March 31, 2025 and March 31, 2024 were $5.2 million and $3.7 million, respectively, an increase of $1.4 million, or 38%. Diluted commercial bank operating earnings per share for the three months ended March 31, 2025 and March 31, 2024 were $0.28 and $0.20, respectively.
We consider commercial bank operating earnings a useful financial measure of our operating performance. Commercial bank operating earnings is determined by methods other than in accordance with GAAP. A reconciliation of non-GAAP financial measures to their most comparable financial measure in accordance with GAAP can be found in the tables below.
Reconciliation of Net Income (GAAP) to Commercial Bank Operating Earnings (Non-GAAP)
For the Three Months Ended March 31, 2025 and 2024
(Dollars in thousands, except per share data)
| For the Three Months Ended March 31, 2025 | 2024 | |
|---|---|---|
| Net income (as reported) | $5,165 | $1,340 |
| Non-recurring tax and 10% modified endowment contract penalty on early surrender of BOLI policies | — | 2,386 |
| Non-GAAP commercial bank operating earnings, excluding above items | $5,165 | $3,726 |
| Earnings per share - basic (GAAP net income) | $0.28 | $0.08 |
| Adjustments to Earnings per share - Non-GAAP expenses including provision for income taxes | $— | $0.13 |
| Earnings per share - basic (non-GAAP commercial bank operating earnings) | $0.28 | $0.21 |
| Earnings per share - diluted (GAAP net income) | $0.28 | $0.07 |
| Adjustments to earnings per share - Non-GAAP expenses including provision for income taxes | $— | $0.13 |
| Adjustments to earnings per share - diluted (non-GAAP commercial bank operating earnings) | $0.28 | $0.20 |
| Return on average assets (GAAP net income) | 0.94% | 0.25% |
| Non-GAAP adjustments to expenses including provision for income taxes | —% | 0.44% |
| Adjusted return on average assets (non‑GAAP commercial bank operating earnings) | 0.94% | 0.69% |
| Return on average equity (GAAP net income) | 8.61% | 2.44% |
| Non-GAAP adjustments to expenses including provision for income taxes | —% | 4.33% |
| Adjusted return on average equity (non‑GAAP commercial bank operating earnings) | 8.61% | 6.77% |
38
Net Interest Income/Margin
The following table presents average balance information, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended March 31, 2025 and 2024.
Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities
For the Three Months Ended March 31, 2025 and 2024
(Dollars in thousands)
| Assets Interest‑earning assets: Loans receivable, net of fees | 2025 Average Balance | Interest Income/ Expense | Average Yield/ Rate | 2024 Average Balance | Interest Income/ Expense | Average Yield/ Rate |
|---|---|---|---|---|---|---|
| Commercial real estate | $1,027,564 | $12,885 | 5.02% | $1,091,088 | $13,561 | 4.97% |
| Commercial and industrial | 324,023 | 6,369 | 7.86% | 228,147 | 4,361 | 7.65% |
| Commercial construction | 165,111 | 2,969 | 7.19% | 152,535 | 2,752 | 7.22% |
| Consumer real estate | 319,946 | 3,822 | 4.78% | 358,886 | 4,439 | 4.95% |
| Warehouse facilities | 21,847 | 347 | 6.35% | 4,531 | 88 | 7.77% |
| Consumer nonresidential | 8,102 | 161 | 7.95% | 5,700 | 113 | 7.96% |
| Total loans(1) | 1,866,593 | 26,553 | 5.69% | 1,840,887 | 25,314 | 5.50% |
| Investment securities(2) | 198,776 | 1,041 | 2.09% | 215,020 | 1,141 | 2.12% |
| Interest-bearing deposits at other financial institutions | 87,840 | 963 | 4.39% | 27,533 | 372 | 5.44% |
| Total interest‑earning assets and interest income | $2,153,209 | $28,557 | 5.31% | $2,083,440 | $26,827 | 5.15% |
| Noninterest‑earning assets: | ||||||
| Cash and due from banks | 11,138 | 5,946 | ||||
| Premises and equipment, net | 849 | 976 | ||||
| Accrued interest and other assets | 54,981 | 87,983 | ||||
| Allowance for credit losses | (18,195) | (18,882) | ||||
| Total assets | $2,201,982 | $2,159,463 | ||||
| Liabilities and Stockholders' Equity | ||||||
| Interest ‑ bearing liabilities: | ||||||
| Interest ‑ bearing deposits: | ||||||
| Interest checking | $617,141 | $4,821 | 3.17% | $499,923 | $3,942 | 3.17% |
| Savings and money markets | 390,467 | 3,141 | 3.26% | 300,371 | 2,507 | 3.36% |
| Time deposits | 256,389 | 2,680 | 4.24% | 300,873 | 3,208 | 4.29% |
| Wholesale deposits | 249,888 | 2,150 | 3.49% | 305,392 | 2,884 | 3.80% |
| Total interest ‑ bearing deposits | 1,513,885 | 12,792 | 3.43% | 1,406,559 | 12,541 | 3.59% |
| Other borrowed funds | 50,000 | 468 | 3.80% | 107,830 | 1,237 | 4.61% |
| Subordinated notes, net of issuance costs | 18,699 | 245 | 5.32% | 19,624 | 257 | 5.28% |
| Total interest‑bearing liabilities and interest expense | $1,582,584 | $13,505 | 3.46% | $1,534,013 | $14,035 | 3.68% |
| Noninterest‑bearing liabilities: | ||||||
| Demand deposits | 354,629 | 380,119 | ||||
| Other liabilities | 24,747 | 25,288 | ||||
| Common stockholders' equity | 240,022 | 220,043 | ||||
| Total liabilities and stockholders' equity | $2,201,982 | $2,159,463 | ||||
| Net interest income and net interest margin | $15,052 | 2.83% | $12,792 | 2.47% |
(1) Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the quarters presented. Net loan fees and late charges included in interest income on loans totaled $670 thousand and $404 thousand for the quarters ended March 31, 2025 and 2024, respectively.
(2) The average balances for investment securities includes restricted stock
The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.
Rate and Volume Analysis
For the Three Months Ended March 31, 2025 and 2024
(Dollars in thousands)
| Interest income: Loans(1): | 2025 Compared to 2024 Average Volume | Average Rate | Increase (Decrease) |
|---|---|---|---|
| Commercial real estate | $(790) | $114 | $(676) |
| Commercial and industrial | 1,832 | 176 | 2,008 |
| Commercial construction | 227 | (10) | 217 |
| Consumer residential | (482) | (135) | (617) |
| Warehouse facilities | 336 | (77) | 259 |
| Consumer nonresidential | 48 | — | 48 |
| Total loans | 1,171 | 68 | 1,239 |
| Investment securities(2) | (87) | (11) | (98) |
| Deposits at other financial institutions and federal funds sold | 808 | (232) | 577 |
| Total interest income | 1,892 | (174) | 1,718 |
| Interest expense: | |||
| Interest - bearing deposits: | |||
| Interest checking | 884 | (5) | 879 |
| Savings and money markets | 726 | (92) | 634 |
| Time deposits | (498) | (30) | (528) |
| Wholesale deposits | (520) | (214) | (734) |
| Total interest - bearing deposits | 592 | (341) | 251 |
| Other borrowed funds | (669) | (100) | (769) |
| Subordinated notes, net of issuance costs | (14) | 2 | (12) |
| Total interest expense | (91) | (439) | (530) |
| Net interest income | $1,983 | $265 | $2,248 |
(1) Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the years presented.
(2) Includes the impact of restricted stock
Net interest income totaled $15.1 million for the three months ended March 31, 2025 compared to $12.8 million for the three months ended March 31, 2024, an increase of $2.3 million, or 18%. The increase in net interest income is primarily due to an increase in loan interest income as the loan portfolio reprices in this higher interest rate environment.
Our net interest margin for the three months ended March 31, 2025 and 2024 was 2.83% and 2.47%, respectively, an increase of 36 basis points, or 15%. The increase in our net interest margin was a result of continued repricing of our loan renewals and newly originated loans to current market interest rates over the past year. We have also reduced the cost of our funding sources simultaneously with federal funds rate decisions during 2024. The yield on interest-earning assets increased 16 basis points to 5.31% for the three months ended March 31, 2025, compared to 5.15% for the same period of 2024, a result of the increased rate environment over the past year. Our cost of funds decreased 12 basis points to 2.83% for the three months ended March 31, 2025, compared to 2.95% for the same period of 2024.
Average interest-earning assets increased $69.8 million, or 3%, to $2.15 billion at March 31, 2025 compared to $2.08 billion at March 31, 2024. This increase was primarily related to an increase in interest-bearing deposits held at other financial institutions. Total interest income increased $1.7 million, or 6%, to $28.6 million for the three months ended March 31, 2025 compared to $26.8 million for the three months ended March 31, 2024. The increase in our average volume was the main driver to the increase in our interest income, contributing $1.9 million of the increase for the three months ended March 31, 2025 compared to the year ago quarter, offset by a decrease in the average rate which decreased interest income $164 thousand.
Average loans receivable increased $25.7 million to $1.87 billion for the three months ended March 31, 2025, compared to $1.84 billion for the three months ended March 31, 2024. The yield on average loans increased 19 basis points to 5.69% for the three months ended March 31, 2025. The increase in our average loan yields was primarily a result of the repricing of the loan portfolio at higher interest rates. Average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in 2025 and 2024.
Average interest-earning deposits at other financial institutions, consisting primarily of excess cash reserves maintained at the Federal Reserve, increased $60.3 million to $87.8 million for the quarter ended March 31, 2025, compared to $27.5 million for the quarter ended March 31, 2024. The yield on average interest-earning deposits at other financial institutions decreased 99 basis points to 4.45% for the quarter ended March 31, 2025 compared to the same period of 2024, primarily as a result of the Federal Open Market Committee's decision to decrease its targeted federal funds rate 100 basis points during 2024.
Total average interest-bearing liabilities increased $48.6 million to $1.58 billion at March 31, 2025 compared to $1.53 billion at March 31, 2024. Conversely, interest expense decreased $530 thousand to $13.5 million for the three months ended March 31, 2025 compared to $14.0 million for the three months ended March 31, 2024. The decrease in the average rate contributed $439 thousand to the decrease in interest expense for the first quarter of 2025 compared to the same period of 2024.
Total average interest-bearing deposits increased $107.3 million to $1.51 billion at March 31, 2025 compared to $1.41 billion at March 31, 2024. Interest expense on deposits increased $251 thousand to $12.8 million for the three months ended March 31, 2025 compared to $12.5 million for the three months ended March 31, 2024, primarily a result of the increase in average total interest-bearing deposits for the three months ended March 31, 2025. Average noninterest-bearing deposits decreased $25.5 million, or 7%, to $354.6 million for the three months ended March 31, 2025, compared to $380.1 million for the three months ended March 31, 2024, as customers continue to move excess funds from noninterest-bearing to interest-bearing deposit products. Average interest checking deposits increased $117.2 million to $617.1 million for the three months ended March 31, 2025 compared to $499.9 million for the three months ended March 31, 2024. Average savings and money market deposits increased $90.1 million to $390.5 million for the three months ended March 31, 2025 compared to $300.4 million for the same period of 2024. Average time deposits decreased $44.5 million to $256.4 million for the three months ended March 31, 2025 compared to $300.9 million for the three months ended March 31, 2024. Average wholesale deposits decreased $55.5 million to $249.9 million for the three months ended March 31, 2025 compared to $305.4 million for the three months ended March 31, 2024.
Average other borrowed funds decreased $57.8 million to $50.0 million for the quarter ended March 31, 2025, compared to $107.8 million for the quarter ended March 31, 2024. Interest expense on other borrowed funds decreased
$769 thousand for the quarter ended March 31, 2025 to $468 thousand compared to $1.2 million for the same period of 2024.
Provision Expense and Allowance for Credit Losses
Our policy is to maintain the ACL at a level that represents our best estimate of expected losses in the loan portfolio as of the valuation date. Both the amount of the provision and the level of the allowance for credit losses are impacted by many factors, including general and industry-specific economic conditions, actual and expected credit losses, historical trends and specific conditions of individual borrowers.
We recorded a provision for credit losses of $200 thousand for the three months ended March 31, 2025 and $0 for the three months ended March 31, 2024. The allowance for credit losses was $18.4 million and $18.1 million at March 31, 2025 and December 31, 2024, respectively. Our allowance for credit losses as a percent of total loans, net of deferred fees and costs, was 0.98% and 0.97% at March 31, 2025 and December 31, 2024, respectively.
We lend to well-established and relationship-driven borrowers which has contributed to our track record of low historical credit losses. We continue to maintain our disciplined credit guidelines during the current rate environment. We proactively monitor the impact of interest rates on our adjustable loans as the industry navigates through this economic cycle of increased inflation and higher interest rates. Nonperforming loans, net of fees, at March 31, 2025 totaled $10.7 million, or 0.48% of total assets, compared to $12.8 million, or 0.58%, of total assets at December 31, 2024. We had no other real estate owned at March 31, 2025 and December 31, 2024, respectively. We recorded net recoveries of $139 thousand and $30 thousand for the quarters ended March 31, 2025 and 2024, respectively.
See “Asset Quality” below for additional information on the credit quality of the loan portfolio.
Noninterest Income
The following table provides detail for noninterest income for the three months ended March 31, 2025 and 2024.
Noninterest Income
For the Three Months Ended March 31, 2025 and 2024
(Dollars in thousands)
| For the Three Months Ended March 31, 2025 | 2024 Amount | Change from Prior Year Percent | ||
|---|---|---|---|---|
| Service charges on deposit accounts | $270 | $261 | $9 | 3.4% |
| Fees on loans | 77 | 49 | 28 | 57.1% |
| BOLI income | 70 | 190 | (120) | (63.2)% |
| Income (loss) from minority membership interest | 141 | (203) | 344 | (169.5)% |
| Other fee income | 113 | 98 | 15 | 15.3% |
| Total noninterest income | $671 | $395 | $276 | 69.9% |
Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results. For the three months ended March 31, 2025 and 2024, we recorded noninterest income of $671 thousand and $395 thousand, respectively, an increase of $276 thousand, or 70%.
We recorded income from our minority membership interest in ACM totaling $141 thousand for the three months ended March 31, 2025, compared to a loss of $203 thousand for same period of 2024.
Fee income from loans was $77 thousand for the quarter ended March 31, 2025, compared to $49 thousand for the same period of 2024. Service charges on deposits were $270 thousand for the quarter ended March 31, 2025, compared to $261 thousand for the same period of 2024, an increase of $9 thousand, or 3%. Income from BOLI decreased to
$70 thousand for the three months ended March 31, 2025 compared to $190 thousand for same period of 2024, the decrease a result of our surrendered BOLI policies which occurred during the first quarter of 2024.
Noninterest Expense
The following table reflects the components of noninterest expense for the three months ended March 31, 2025 and 2024.
Noninterest Expense
For the Three Months Ended March 31, 2025 and 2024
(Dollars in thousands)
| For the Three Months Ended March 31, 2025 | 2024 Amount | Change from Prior Year Percent | ||
|---|---|---|---|---|
| Salaries and employee benefits | $4,783 | $4,531 | $252 | 5.6% |
| Occupancy expense | 529 | 522 | 7 | 1.3% |
| Internet banking and software expense | 825 | 694 | 131 | 18.9% |
| Data processing and network administration | 619 | 635 | (16) | (2.5)% |
| State franchise taxes | 596 | 589 | 7 | 1.2% |
| Audit, legal and consulting fees | 242 | 243 | (1) | (0.4)% |
| Loan related expenses | 279 | 222 | 57 | 25.7% |
| FDIC insurance | 330 | 345 | (15) | (4.3)% |
| Marketing, business development and advertising | 169 | 204 | (35) | (17.2)% |
| Director fees | 150 | 135 | 15 | 11.1% |
| Postage, courier and telephone | 18 | 45 | (27) | (60.0)% |
| Core deposit intangible amortization | 35 | 45 | (10) | (22.2)% |
| Other operating expenses | 557 | 415 | 142 | 34.2% |
| Total noninterest expense | $9,132 | $8,625 | $572 | 6.6% |
Noninterest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Noninterest expense was $9.1 million and $8.6 million for the three months ended March 31, 2025 and 2024, respectively.
Salaries and benefits expense increased $252 thousand to $4.8 million for the three months ended March 31, 2025 compared to $4.5 million for the same period of 2024, which was primarily related to an increase in payroll taxes and other incentive accruals during the first quarter of 2025. Internet banking and software expense increased $131 thousand to $825 thousand for the three months ended March 31, 2025, compared to $694 thousand for the same period of 2024.
Income Taxes
We recorded a provision for income tax expense of $1.2 million for the three months ended March 31, 2025, compared to the provision for income tax expense of $3.2 million for the three months ended March 31, 2024. Income tax expense for the three months ended March 31, 2024 includes $2.4 million in taxes and penalties related to the surrender of our BOLI policies. These were in part offset by discrete tax benefits recorded as a result of nonqualified option exercises that occurred during the quarter ended March 31, 2024.
Discussion and Analysis of Financial Condition
Overview
At March 31, 2025, total assets were $2.24 billion, an increase of $41.8 million, from $2.20 billion at December 31, 2024. Investments in debt securities were $159.0 million at March 31, 2025, an increase of $2.2 million, from $156.7 million at December 31, 2024. Total deposits increased $36.0 million, or 2%, to $1.91 billion at March 31, 2025, from $1.87 billion at December 31, 2024. We had Federal Home Loan Bank of Atlanta ("FHLB") advances outstanding totaling $50.0 million at each of March 31, 2025 and December 31, 2024. Subordinated debt, net of unamortized issuance costs, totaled $18.7 million at each of March 31, 2025 and December 31, 2024.
Loans Receivable, Net
Loans receivable, net of deferred fees, were $1.88 billion at March 31, 2025 and $1.87 billion at December 31, 2024, an increase of $11.9 million, or 1%.
Commercial real estate loans totaled $1.01 billion and $1.04 billion at March 31, 2025 and December 31, 2024, respectively, and were approximately 54% and 56% of the total loans receivable at such dates, respectively. Owner-occupied commercial real estate loans were $182.5 million at March 31, 2025 compared to $187.8 million at December 31, 2024. Nonowner-occupied commercial real estate loans were $828.2 million at March 31, 2025 compared to $850.1 million at December 31, 2024. Commercial construction loans totaled $165.7 million at March 31, 2025, compared to $162.4 million at December 31, 2024 and comprised of 9% of total loans receivable at such dates, respectively. Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 357% of our total risk-based capital at March 31, 2025. Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage the portfolio in a disciplined manner and have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Additional information on the stratification of these portfolio segments can be found below under "Asset Quality".
Commercial and industrial loans increased $46.7 million to $383.3 million at March 31, 2025, an increase of 14%, from $336.7 million at December 31, 2024. Consumer real estate loans decreased $10.3 million to $315.0 million at March 31, 2025, from $325.3 million at December 31, 2024, primarily a result of principal repayments during the first quarter of 2025.
The following table presents the composition of our loans receivable portfolio at March 31, 2025 and December 31, 2024.
Loans Receivable
At March 31, 2025 and December 31, 2024
(Dollars in thousands)
| March 31, 2025 | December 31, 2024 | |
|---|---|---|
| Commercial real estate | $1,009,842 | $1,038,307 |
| Commercial and industrial | 383,327 | 336,662 |
| Commercial construction | 165,665 | 162,367 |
| Consumer real estate | 314,971 | 325,313 |
| Consumer nonresidential | 8,328 | 7,586 |
| Total loans, net of fees | 1,882,133 | 1,870,235 |
| Less: | ||
| Allowance for credit losses on loans | 18,422 | 18,129 |
| Loans receivable, net | $1,863,711 | $1,852,106 |
Asset Quality
Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were $10.7 million and $12.8 million at March 31, 2025 and December 31, 2024, respectively, a decrease of $2.1 million. The decrease in nonperforming loans at March 31, 2025 is primarily due to a decrease in loans past due over 90 days at March 31, 2025. Loans that we have classified as nonperforming are a result of customer specific deterioration, mostly financial in nature, that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio. For each of our criticized assets, we individually evaluate each loan, generally through the performance of a collateral analysis to determine the amount of allowance required. As a result of the analysis completed, we had a reserve for individually assessed loans totaling $462 thousand and $468 thousand at March 31, 2025 and December 31, 2024, respectively. Our ratio of nonperforming loans to total assets was 0.48% and 0.58% at March 31, 2025 and December 31, 2024, respectively. We had no other real estate owned and there were no loan modifications for borrowers who were experiencing financial difficulty during the quarters ended March 31, 2025 and December 31, 2024.
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At March 31, 2025, we had $4.6 million in loans identified as special mention, an increase of $1.3 million from December 31, 2024. Special mention rated loans have a potential weakness that deserves our close attention; however, the borrower continues to pay in accordance with their contractual terms, unless modified and disclosed. The increase from December 31, 2024 was primarily a result of downgrading two loan relationships to special mention during the first quarter of 2025. Loans rated as special mention are generally considered to be well-secured, and are not individually evaluated.
At March 31, 2025, we had $10.7 million in loans identified as substandard, a decrease of $459 thousand from $11.2 million as of December 31, 2024, which was primarily a result of one loan being upgraded during the first quarter of 2025. Substandard rated loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. At March 31, 2025, reserves for individually assessed loans totaling $462 thousand were allocated within the allowance for credit losses to supplement any shortfall of collateral.
We recorded annualized net recoveries of (0.03)% and (0.01)% for the three months ended March 31, 2025 and 2024, respectively. The following table provides additional information on our asset quality for the dates presented.
Nonperforming Loans and Assets
At March 31, 2025 and December 31, 2024
(Dollars in thousands)
| Nonperforming assets: | March 31, 2025 | December 31, 2024 |
|---|---|---|
| Nonaccrual loans, gross | $10,747 | $11,241 |
| Loans contractually past‑due 90 days or more and still accruing | — | 1,619 |
| Total nonperforming loans (NPLs) | $10,747 | $12,860 |
| Total nonperforming assets (NPAs) | $10,747 | $12,860 |
| NPLs/Total Assets | 0.48% | 0.58% |
| NPAs/Total Assets | 0.48% | 0.58% |
| Allowance for credit losses on loans/NPLs | 171.42% | 140.97% |
We closely and proactively monitor the effects of recent market activity. As mentioned above, our commercial real estate loan portfolio totaled $1.01 billion, or 54% of total loans, at March 31, 2025 and $1.04 billion, or 56% of total loans, at December 31, 2024. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portfolio in a disciplined manner, and have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring, and administrative practices. Included in commercial real estate are loans secured by office properties totaling $121.9 million, or 6% of total loans, which are primarily located in the Virginia and Maryland suburbs of our market area, with only $2.3 million, or 0.12% of total loans, located in Washington, D.C. Loans secured by retail properties total $244.9 million, or 13% of total loans, at March 31, 2025. Loans secured by multi-family commercial properties totaled $158.9 million, or 8% of total loans, at March 31, 2025.
The following table provides further stratification of these and additional classes of commercial real estate and construction loans at March 31, 2025 (dollars in thousands).
| Owner Occupied Commercial Real Estate Asset Class | Average Loan-to-Value (1) | Number of Total Loans | Bank Owned Principal (2) | Non-Owner Occupied Commercial Real Estate Average Loan-to-Value (1) | Number of Total Loans | Bank Owned Principal (2) | Top 3 Geographic Concentration | Construction Number of Total Loans | Bank Owned Principal (2) | Total CRE Total Bank Owned Principal (2) | % of Total Loans |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Office, Class A | 66% | 6 | $7,322 | 17% | 1 | $2,960 | Counties of Fairfax and Loudoun, VA and Montgomery County, MD | — | $— | $10,282 | |
| Office, Class B | 50% | 26 | 9,861 | 44% | 28 | 55,864 | — | — | 65,725 | ||
| Office, Class C | 49% | 8 | 4,649 | 36% | 8 | 1,812 | 1 | 848 | 7,309 | ||
| Office, Medical | 36% | 7 | 1,060 | 44% | 5 | 26,776 | 1 | 10,713 | 38,549 | ||
| Subtotal | 47 | $22,892 | 42 | $87,412 | 2 | $11,561 | $121,865 | 6% | |||
| Retail- Neighborhood/Community Shop | — | $— | 43% | 31 | $86,204 | Counties of Prince George's and Montgomery, MD and Fairfax County, VA | 1 | $5,561 | $91,765 | ||
| Retail- Restaurant | 51% | 7 | 6,113 | 43% | 16 | 25,543 | — | — | 31,656 | ||
| Retail- Single Tenant | 56% | 5 | 1,894 | 44% | 17 | 34,206 | — | — | 36,100 | ||
| Retail- Anchored,Other | 0 | — | 51% | 12 | 35,090 | — | — | 35,090 | |||
| Retail- Grocery-anchored | — | — | 41% | 8 | 50,321 | — | — | 50,321 | |||
| Subtotal | 12 | $8,007 | 84 | $231,364 | 1 | $5,561 | $244,932 | 13% | |||
| Multi-family, Class A (Market) | — | $— | 30% | 2 | $1,435 | Washington, D.C., Baltimore City, MD and Richmond City, VA | 1 | $1,297 | $2,732 | ||
| Multi-family, Class B (Market) | — | — | 65% | 20 | 66,402 | 1 | 3,969 | 70,371 | |||
| Multi-family, Class C (Market) | — | — | 55% | 58 | 72,698 | 1 | 997 | 73,695 | |||
| Multi-Family-Affordable Housing | — | — | 43% | 5 | 12,071 | 0 | — | 12,071 | |||
| Subtotal | — | $— | 85 | $152,606 | 3 | $6,263 | $158,869 | 8% | |||
| Industrial | 47% | 39 | $62,641 | 46% | 39 | $122,197 | Counties of Prince William and Fairfax, VA and Howard County, MD | 1 | $1,962 | $186,800 | |
| Warehouse | 50% | 14 | 18,599 | 28% | 7 | 9,117 | — | — | 27,716 | ||
| Flex | 45% | 12 | 9,988 | 53% | 14 | 56,156 | 3 | 792 | 66,936 | ||
| Subtotal | 65 | $91,228 | 60 | $187,470 | 4 | $2,754 | $281,452 | 15% | |||
| Hotels | $— | 42% | 9 | $54,365 | 1 | $7,761 | $62,126 | 3% | |||
| Mixed Use | 44% | 10 | 5,675 | 59% | 32 | 53,869 | — | — | 59,544 | 3% | |
| Land | — | — | 26 | $60,859 | $60,859 | 3% | |||||
| 1- 4 family construction | — | — | 7 | 45,986 | 45,986 | 2% | |||||
| Other (including net deferred fees) | 55,066 | 59,888 | 24,920 | 139,874 | 7% | ||||||
| Total commercial real estate and construction loans, net of fees, at March 31, 2025 | $182,868 | $826,974 | $165,665 | $1,175,507 | 62% | ||||||
| Total commercial real estate and construction loans, net of fees, at December 31, 2024 | $188,182 | $850,125 | $162,367 | $1,200,674 | 64% |
(1).Loan-to-value is based on collateral valuation at origination date against current bank owned principal.
(2).Bank-owned principal is not adjusted for deferred fees and costs.
(3).Minimum debt service coverage policy is 1.30x for owner occupied and 1.25x for non-owner occupied at origination.
The loans shown in the above table exhibit strong credit quality, with one classified delinquency at March 31, 2025 totaling $10.2 million, which has a specific reserve of $462 thousand. During our assessment of the allowance for credit losses on loans, we addressed the credit risks associated with these portfolio segments and believe that as a result of our conservative underwriting discipline at loan origination and our ongoing loan monitoring procedures, we have appropriately reserved for possible credit concerns in the event of a downturn in economic activity.
At March 31, 2025 and 2024, there were no performing loans considered potential problem loans. Potential problem loans are defined as loans that are not included in the 90 days or more past due, nonaccrual, or restructured categories, but for which known information about possible credit problems causes us to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories. We take a conservative approach with respect to risk rating loans in our portfolio. Based upon the status as a potential problem loan, these loans receive heightened scrutiny and ongoing intensive risk management. Additionally, our allowance for credit losses on loans estimation methodology adjusts expected losses to calibrate the likelihood of a default event to occur through the use of risk ratings.
Unexpected changes in economic growth could adversely affect our loan portfolio, including causing increases in delinquencies and default rates, which would adversely impact our charge-offs, allowance for credit losses, and provision for credit losses. Deterioration in real estate values, employment data and household incomes may also result in higher credit losses for us. Also, in the ordinary course of business, we may be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer. A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively impact our business, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities and industries, may not function as we have anticipated.
See “Critical Accounting Policies” above for more information on our allowance for credit losses methodology.
The following tables present additional information pertaining to the activity in and allocation of the allowance for credit losses on loans by loan type and the percentage of the loan type to the total loan portfolio for the periods and at the dates presented. The allocation of the allowance for credit losses on loans to a category of loans is not necessarily indicative of future losses or charge-offs, and does not restrict the use of the allowance to any specific category of loans.
Allowance for Credit Losses on Loans
For the Three Months Ended March 31, 2025 and 2024
(Dollars in thousands)
| 2025 Net (charge-offs) recoveries | Percentage of net charge-offs to average loans outstanding during the year | 2024 Net (charge-offs) recoveries | Percentage of net charge-offs to average loans outstanding during the year | |
|---|---|---|---|---|
| Commercial real estate | $— | —% | $— | —% |
| Commercial and industrial | 136 | 0.01% | — | —% |
| Consumer residential | — | —% | — | —% |
| Consumer nonresidential | 3 | —% | 30 | 0.01% |
| Total | $139 | 0.01% | $30 | 0.01% |
| Average loans outstanding during the period | $1,866,593 | $1,840,887 | ||
| At March 31, | ||||
| 2025 | 2024 | |||
| Allowance for credit losses on loans receivable, net of fees | 0.98% | 1.02% |
Allocation of the Allowance for Credit Losses on Loans
At March 31, 2025 and December 31, 2024
(Dollars in thousands)
| 2025 Allocation | % of Total* | 2024 Allocation | % of Total* | |
|---|---|---|---|---|
| Commercial real estate | $8,976 | 48.72% | $9,434 | 52.04% |
| Commercial and industrial | 3,687 | 20.01% | 3,139 | 17.31% |
| Commercial construction | 2,029 | 11.01% | 1,713 | 9.45% |
| Consumer residential | 3,636 | 19.74% | 3,775 | 20.82% |
| Consumer nonresidential | 94 | 0.51% | 68 | 0.38% |
| Total allowance for credit losses | $18,422 | 100.00% | $18,129 | 100.00% |
48
* Percentage of loan type to the total loan portfolio.
Investment Securities
Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale and investment securities held-to-maturity. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management, or regulatory capital management. Investment securities held-to-maturity at each of March 31, 2025 and 2024 totaled $265 thousand, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was $158.7 million at March 31, 2025, an increase of $2.2 million, or 1%, from $156.5 million at December 31, 2024, primarily due to an increase in the market value of the investment securities portfolio totaling $4.6 million offset by principal repayments and maturities of $3.3 million.
As of March 31, 2025 and December 31, 2024, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. The effective duration of the investment securities portfolio continues to be slightly over five years, which is within the industry average. Investment securities that were pledged to secure public deposits totaled $20.2 million and $55.3 million at March 31, 2025 and December 31, 2024, respectively.
In accordance with ASC 326, we complete periodic assessments on at least a quarterly basis to determine if credit deterioration exists within our investment securities portfolio and if an allowance for credit losses would be required as of a valuation date. As a result of the assessment performed as of March 31, 2025, the investment securities with unrealized losses are a result of pricing changes due to recent rising interest rate conditions in the current market environment and not as a result of credit deterioration. Contractual cash flows for agency-backed portfolios are guaranteed and funded by the U.S. government. Municipal securities have third party protective elements and there are no negative indications that the contractual cash flows will not be received when due. We do not intend to sell nor do we believe we will be required to sell any of our investment securities portfolio prior to the recovery of the amortized cost as of the valuation date. As such, no impairment was recognized for our investment securities portfolio as of March 31, 2025.
We hold restricted investments in equities of the Federal Reserve Bank of Richmond ("FRB") and FHLB. At March 31, 2025, we owned $3.6 million in FRB stock and $4.0 million in FHLB stock. At December 31, 2024, we owned $4.1 million in FRB stock and $4.0 million in FHLB stock.
The following table presents the weighted average yields of our investment portfolio for each of the maturity ranges at March 31, 2025 and December 31, 2024.
Investment Securities by Stated Yields
At March 31, 2025 and December 31, 2024
| Held‑to‑maturity | At March 31, 2025 Within One Year Weighted Average Yield | One to Five Years Weighted Average Yield | Five to Ten Years Weighted Average Yield | Over Ten Years Weighted Average Yield | Total Weighted Average Yield |
|---|---|---|---|---|---|
| Securities of state and local municipalities tax exempt | —% | 2.32% | —% | —% | 2.32% |
| Total held‑to‑maturity securities | —% | 2.32% | —% | —% | 2.32% |
| Available‑for‑sale | |||||
| Securities of U.S. government and federal agencies | — | 1.75 | 1.55 | — | 1.59 |
| Securities of state and local municipalities | — | — | — | 2.92 | 2.92 |
| Corporate bonds | — | 9.19 | 4.01 | — | 4.50 |
| Mortgaged‑backed securities | — | 2.08 | 4.32 | 1.61 | 1.66 |
| Total available‑for‑sale securities | —% | 5.17% | 3.34% | 1.62% | 1.94% |
| Total investment securities | —% | 4.98% | 3.34% | 1.62% | 1.94% |
| Held‑to‑maturity | At December 31, 2024 Within One Year Weighted Average Yield | One to Five Years Weighted Average Yield | Five to Ten Years Weighted Average Yield | Over Ten Years Weighted Average Yield | Total Weighted Average Yield |
|---|---|---|---|---|---|
| Securities of state and local municipalities tax exempt | —% | 2.32% | —% | —% | 2.32% |
| Total held‑to‑maturity securities | —% | 2.32% | —% | —% | 2.32% |
| Available‑for‑sale | |||||
| Securities of U.S. government and federal agencies | — | 1.75 | 1.55 | — | 1.59 |
| Securities of state and local municipalities | — | — | — | 2.92 | 2.92 |
| Corporate bonds | — | 9.26 | 4.01 | — | 4.50 |
| Mortgaged‑backed securities | — | 2.09 | 4.31 | 1.59 | 1.63 |
| Total available‑for‑sale securities | —% | 5.19% | 3.34% | 1.59% | 1.92% |
| Total investment securities | —% | 5.01% | 3.34% | 1.59% | 1.92% |
50
Deposits and Other Borrowed Funds
The following table sets forth the average balances of deposits and the percentage of each category to total average deposits for the three months ended March 31, 2025 and 2024:
Average Deposit Balances
For the three months ended March 31, 2025 and 2024
(Dollars in thousands)
| March 31, 2025 | March 31, 2024 | |||
|---|---|---|---|---|
| Noninterest-bearing demand | $354,629 | 18.98% | $380,119 | 21.28% |
| Interest-bearing deposits | ||||
| Interest checking | 617,141 | 33.03% | 499,923 | 27.98% |
| Savings and money markets | 390,467 | 20.90% | 300,371 | 16.81% |
| Certificate of deposits, $100,000 to $249,999 | 67,063 | 3.59% | 102,943 | 5.76% |
| Certificate of deposits, $250,000 or more | 189,326 | 10.13% | 197,930 | 11.08% |
| Wholesale deposits | 249,888 | 13.37% | 305,392 | 17.09% |
| Total | $1,868,514 | 100.00% | $1,786,678 | 100.00% |
Total deposits increased $36.0 million, or 2%, to $1.91 billion at March 31, 2025 from $1.87 billion at December 31, 2024. Noninterest-bearing deposits were $367.1 million at March 31, 2025, or 19.3% of total deposits. Interest checking deposits decreased $6.0 million to $617.8 million at March 31, 2025 compared to $623.8 million at December 31, 2024. Savings and money market deposits increased $13.7 million, or 4%, to $396.8 million at March 31, 2025 compared to $383.1 million at December 31, 2024. Time deposits increased $26.8 million, or 11%, to $274.9 million at March 31, 2025 from $248.2 million at December 31, 2024.
Wholesale deposits were $249.9 million at each of March 31, 2025 and December 31, 2024. Wholesale deposits are partially fixed at a weighted average rate of 3.44% as we have executed $250.0 million in pay-fixed/receive-floating interest rate swaps to reduce funding costs. In addition, we are a member of the IntraFi Network (“IntraFi”), which gives us the ability to offer Certificates of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) products to our customers who seek to maximize Federal Deposit Insurance Corporation ("FDIC") insurance protection. When a customer places a large deposit with us for IntraFi, funds are placed into certificates of deposit or other deposit products with other banks in the CDARS and ICS networks in increments of less than $250 thousand so that principal and interest are eligible for FDIC insurance protection. These deposits are part of our core deposit base. At March 31, 2025 and December 31, 2024, we had $328.8 million and $269.7 million, respectively, in CDARS reciprocal and ICS reciprocal products.
As of March 31, 2025, the estimated amount of total uninsured deposits (including collateralized deposits) was $777.9 million, or 41%, of total deposits. The estimate of uninsured deposits generally represents the portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank's regulatory reporting requirements. When excluding collateralized deposits, our estimate of uninsured deposits decreases to $577.1 million, or 30.2% of total deposits at March 31, 2025.
The following table reports maturities of the estimated amount of uninsured certificates of deposit at March 31, 2025.
Certificates of Deposit Greater than $250,000
At March 31, 2025
(Dollars in thousands)
| March 31, 2025 | |
|---|---|
| Three months or less | $61,044 |
| Over three months through six months | 28,159 |
| Over six months through twelve months | 55,412 |
| Over twelve months | 41,510 |
| $186,125 |
Other borrowed funds, which are comprised of FHLB advances, were $50.0 million at each of March 31, 2025 and December 31, 2024. Subordinated debt, net of unamortized issuance costs, totaled $18.7 million at March 31, 2025 and December 31, 2024. At March 31, 2025 and December 31, 2024, we did not have any federal funds purchased. Our FHLB advances have pay-fixed/receive-floating interest rate swaps to reduce our funding costs, and as such, the weighted average rate of these FHLB advances was 3.60% at each of March 31, 2025 and December 31, 2024, respectively.
Total wholesale funding (including wholesale deposits and FHLB advances) remained unchanged at $299.9 million, at March 31, 2025 compared to December 31, 2024.
Capital Resources
Capital adequacy is an important measure of financial stability and performance. Our objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence.
Regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profile of the financial institution. The minimum capital requirements for the Bank are: (i) a Common Equity Tier 1 ("CET1") capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total risk-based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Additionally, a capital conservation buffer requirement of 2.5% of risk-weighted assets is designed to absorb losses during periods of economic stress and is applicable to the Bank’s CET1 capital, Tier 1 capital and total capital ratios. Including the conservation buffer, we currently consider the Bank’s minimum capital ratios to be as follows: 7.00% for CET1; 8.50% for Tier 1 capital; and 10.50% for total capital. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the minimum plus the conservation buffer will face constraints on dividends, equity repurchases, and compensation.
We believe that the Bank met all capital adequacy requirements to which it was subject as of March 31, 2025 and December 31, 2024.
Shareholders' equity at March 31, 2025 was $242.3 million, an increase of $7.0 million, compared to $235.4 million at December 31, 2024. Net income recorded for the quarter ended March 31, 2025 contributed $5.2 million to the increase in shareholders' equity. Accumulated other comprehensive loss decreased $1.4 million during the three months ended March 31, 2025, primarily as a result of the increase in the market value of our investment securities portfolio.
Total shareholders' equity to total assets at March 31, 2025 and December 31, 2024 was 10.8% and 10.7%, respectively. Tangible book value per share (a non-GAAP financial measure which is defined in the table below) at March 31, 2025 and December 31, 2024 was $12.75 and $12.52, respectively.
As noted above, regulatory capital levels for the Bank meets those established for "well capitalized" institutions. While we are currently considered "well capitalized," we may from time to time find it necessary to access the capital markets to meet our growth objectives or capitalize on specific business opportunities.
As the Company is a bank holding company with less than $3 billion in assets, and which does not (i) conduct significant off-balance sheet activities, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), it is not currently subject to risk-based capital requirements adopted by the Federal Reserve, pursuant to the small bank holding company policy statement. The Federal Reserve has not historically deemed a bank holding company ineligible for application of the small bank holding company policy statement solely because its common stock is registered under the Exchange Act. There can be no assurance that the Federal Reserve will continue this practice.
The following tables shows the minimum capital requirements and the Bank's capital position at March 31, 2025 and December 31, 2024.
Bank Capital Components
At March 31, 2025 and December 31, 2024
(Dollars in thousands)
| At March 31, 2025 | Actual Amount | Ratio | Minimum Capital Requirement (1) Amount | Ratio | Minimum to be Well Capitalized Under Prompt Corrective Action Amount | Ratio | ||
|---|---|---|---|---|---|---|---|---|
| Total risk-based capital | $283,678 | 15.07% | $197,602 | > | 10.50% | $181,192 | > | 10.00% |
| Tier 1 risk-based capital | 264,699 | 14.07% | 159,963 | > | 8.50% | 150,554 | > | 8.00% |
| Common equity tier 1 capital | 264,699 | 14.07% | 131,734 | > | 7.00% | 122,325 | > | 6.50% |
| Leverage capital ratio | 264,699 | 11.92% | 88,824 | > | 4.00% | 111,030 | > | 5.00% |
| At December 31, 2024 | ||||||||
| Total risk-based capital | $277,248 | 14.73% | $197,582 | > | 10.50% | $188,174 | > | 10.00% |
| Tier 1 risk-based capital | 258,608 | 13.74% | 159,948 | > | 8.50% | 150,539 | > | 8.00% |
| Common equity tier 1 capital | 258,608 | 13.74% | 131,722 | > | 7.00% | 122,313 | > | 6.50% |
| Leverage capital ratio | 258,608 | 11.74% | 88,115 | > | 4.00% | 110,144 | > | 5.00% |
(1).Includes capital conservation buffer.
Reconciliation of Book Value (GAAP) to Tangible Book Value (non-GAAP)
At March 31, 2025 and December 31, 2024
(Dollars in thousands, except per share data)
| 2025 | 2024 | |
|---|---|---|
| Total stockholders' equity (GAAP) | $242,328 | $235,354 |
| Less: goodwill and intangibles, net | (7,385) | (7,420) |
| Tangible Common Equity (non-GAAP) | $234,943 | $227,934 |
| Book value per common share (GAAP) | $13.17 | $12.93 |
| Less: intangible book value per common share | (0.42) | (0.41) |
| Tangible book value per common share (non-GAAP) | $12.75 | $12.52 |
Liquidity
Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers. We must be able to meet these needs by obtaining funding from depositors or other lenders or by converting non-cash items into cash. The objective of our liquidity management program is to ensure that we always have sufficient resources to meet the demands of our depositors and borrowers. Stable core deposits and a strong capital position provide the base for our liquidity position. We believe we have demonstrated our ability to attract deposits because of our convenient branch locations, personal service, technology and pricing. As of March 31, 2025, estimated uninsured deposits (excluding collateralized deposits) for the Bank were 30.2% of total deposits and were 31.2% at December 31, 2024.
In addition to deposits, we have access to the various wholesale funding markets. These markets include the brokered certificate of deposit market and the federal funds market. We are a member of the IntraFi Network, which allows banking customers to access FDIC insurance protection on deposits through the Bank which exceed FDIC insurance limits. As part of our membership with the IntraFi Network, we have one-way authority for both their CDARs and ICS products which provides the Bank the ability to access additional wholesale funding as needed. We also maintain secured lines of credit with the FRB and the FHLB for which we can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces our reliance on any one source for funding.
Liquid assets, which include cash and due from banks, federal funds sold and investment securities available for sale, totaled $282.6 million at March 31, 2025, or 13% of total assets, an increase from $247.4 million, or 11% of total assets, at December 31, 2024. At March 31, 2025 and December 31, 2024, investment securities available-for-sale that were pledged as collateral for municipal deposits totaled $20.2 million and $55.1 million, respectively.
Cash flow from amortizing assets or maturing assets also provides funding to meet the needs of depositors and borrowers.
Secondary Liquidity Available and In Use
At March 31, 2025
(Dollars in millions)
| Liquidity in Use | Liquidity Available | |
|---|---|---|
| FHLB secured borrowings (1) | $130,000 | $496,232 |
| FRB discount window secured borrowings (2) | — | 148,239 |
| Unsecured federal fund purchase lines | — | 210,196 |
| Total | $130,000 | $854,667 |
(1) The Bank has pledged a portion of the commercial real estate and residential loan portfolio to the FHLB to secure the line of credit. The Bank has obtained a letter of credit of $130 million to secure public funds.
(2) The Bank has pledged a portion of the commercial and industrial loan portfolio to the FRB to secure the line of the credit.
We have established a formal liquidity contingency plan which establishes a liquidity management team and provides guidelines for liquidity management. For our liquidity management program, we first determine our current liquidity position and then forecast liquidity based on anticipated changes in the balance sheet. In this forecast, we expect to maintain a liquidity cushion. We also stress test our liquidity position under several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushion and for liquidity cushions for each stress scenario have been established. We believe that we have sufficient resources to meet our liquidity needs.
Liquidity is essential to our business. Our liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of cash, including deposits. This situation may arise due to circumstances that we may be unable to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or us. Our ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events. While we believe we have a healthy liquidity position and do not anticipate the loss of deposits of any of the significant deposit customers, any of the factors discussed above could materially impact our liquidity position in the future.
Financial Instruments with Off-Balance-Sheet Risk and Credit Risk
We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.
The Bank’s maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. We evaluate each customer’s credit worthiness on a case-by-case basis and require collateral to support financial instruments when deemed necessary. The amount of collateral obtained upon extension of credit is based on our evaluation of the counterparty. Collateral held varies but may include deposits held by us, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates of up to one year or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These instruments represent obligations to extend credit or guarantee borrowings and are not recorded on the consolidated statements of financial condition. The rates and terms of these instruments are competitive with others in the market in which we do business.
Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may not be drawn upon to the total extent to which we have committed.
Standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We hold certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.
With the exception of these off-balance sheet arrangements, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, changes in financial condition, revenue, expenses, capital expenditures, or capital resources, that is material to our business.
At March 31, 2025 and December 31, 2024, unused commitments to fund loans and lines of credit totaled $186.3 million and $196.7 million, respectively. Commercial and standby letters of credit totaled $24.3 million at March 31, 2025 and $25.2 million at December 31, 2024.
Controls and procedures
As filed, 1,262 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
The Company maintains disclosure controls and procedures (as defined in Rule 13a - 15(e) under the Exchange Act). As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer. Based on and as of the date of such evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective.
The Company also maintains a system of internal accounting controls that is designed to provide assurance that assets are safeguarded and that transactions are executed in accordance with management’s authorization and are properly recorded. This system is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel, and an internal audit program to monitor its effectiveness. There were no changes in our internal controls over financial reporting that occurred during our last fiscal quarter that materially affected, or are likely to materially affect, our internal controls over financial reporting.
Risk factors
As filed, 148 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
There have been no material changes in the risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2025-03-31. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2025-01-01 to 2025-03-31 | $382.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Income tax | 3 months2025-01-01 to 2025-03-31 | $1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2025-01-01 to 2025-03-31 | $5.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2025-01-01 to 2025-03-31 | $0.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2025-01-01 to 2025-03-31 | $0.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2025-01-01 to 2025-03-31 | 18,466,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months2025-01-01 to 2025-03-31 | $5.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months2025-01-01 to 2025-03-31 | $16.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Total assets | At period end2025-03-31 | $2.24bn | us-gaap:Assets |
| Total liabilities | At period end2025-03-31 | $2.00bn | us-gaap:Liabilities |
| Shareholders' equity | At period end2025-03-31 | $242.3m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001675644-25-000090. Last ingested by Listed: Nov 5, 2026, 13:22 ET. Listed shows no prices and gives no investment advice.