EAGLE FINANCIAL SERVICES INC

Previous wording

Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank. The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law. At March 31, 2025, the Company had total assets of $1.90 billion, net loans of $1.44 billion, total deposits of $1.61 billion, and shareholders’ equity of $176.5 million. The Company’s net loss was $7.0 million for the three months ended March 31, 2025.

Current wording

Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank. The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law. At June 30, 2025, the Company had total assets of $2.04 billion, net loans of $1.42 billion, total deposits of $1.77 billion, and shareholders’ equity of $179.6 million. The Company’s net loss was $1.7 million for the six months ended June 30, 2025.

Previous wording

Net income (loss) for the three months ended March 31, 2025, was $(7.0 million) compared to $2.5 million for the three months ended March 31, 2024. (Loss) earnings per share, basic and diluted, were $(1.53) and $0.72 for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Net income for the three months ended June 30, 2025, was $5.3 million compared to $3.2 million for the three months ended June 30, 2024 and, for the six months ended June 30, 2025 and 2024, net (loss) income was ($1.7 million) and $5.7 million, respectively. Earnings (loss) per share, basic and diluted, were $0.98 and $0.89 for the three months ended June 30, 2025 and 2024, respectively, and $(0.34) and $1.61 for the six months ended June 30, 2025 and 2024, respectively.

Previous wording

Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, for the three months ended March 31, 2025 and 2024 was (1.48)% and 0.58%, respectively.

Current wording

Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, for the three months ended June 30, 2025 and 2024 was 1.09% and 0.72%, respectively. For the six months ended June 30, 2025 and 2024 annualized ROA was (0.18)% and 0.65%, respectively.

Previous wording

Return on average equity ("ROE") measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by shareholders. The ROE of the Company, on an annualized basis, for the three months ended March 31, 2025 and 2024 was (20.75)% and 9.53%, respectively.

Current wording

Return on average equity ("ROE") measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by shareholders. The ROE of the Company, on an annualized basis, for the three months ended June 30, 2025 and 2024 was 11.93% and 11.89%, respectively, and for the six months ended June 30, 2025 and 2024 was (2.19)% and 10.71%, respectively.

Previous wording

The Company's operating results for the three months ended March 31, 2025 were significantly impacted by the recognized loss on the sale of available for sale securities as part of its balance sheet repositioning strategy. The sale resulted in a net of tax loss of $9.8 million, or $(2.15) per share, and reduced ROA and ROE, on an annualized basis, by 2.07% and 29.21%, respectively, for the three months ended March 31, 2025. Going forward, the repositioning is expected to improve core net income, net interest income, net interest margin, and return on average assets.

Current wording

The Company's operating results for the six months ended June 30, 2025 were significantly impacted by the recognized loss on the sale of available for sale securities as part of its balance sheet repositioning strategy completed in the first quarter of 2025. The sale resulted in a net of tax loss of $9.8 million, or $(1.97) per share, and reduced ROA and ROE, on an annualized basis, by 1.03% and 12.62%, respectively, for the six months ended June 30, 2025. The balance sheet repositioning resulted in an increase in interest and dividend income earned on the available for sale investment securities portfolio for three and six months ended June 30, 2025 of $362 thousand and $291 thousand, respectively, compared to the same periods in 2024.

Previous wording

Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. Net interest income was $13.3 million and $12.4 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $921 thousand, or 7.42%. For the three months ended March 31, 2025, net interest income increased from the 2024 period primarily due to an increase in the average balance of interest-earning assets of $148.1 million compared to a $90.9 million increase in the average balance of interest-bearing liabilities, while average yields earned and rates paid were relatively stable period over period. For the three months ended March 31, 2025 and 2024, the average yield on interest-earning assets was 5.25% and 5.28%, respectively and the average rate paid on interest-bearing liabilities was 3.12% and 3.10%, respectively.

Current wording

Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. Net interest income was $15.7 million and $12.2 million for the three months ended June 30, 2025 and 2024, respectively, an increase of $3.5 million, or 29.1%. Net interest income was $29.0 million and $24.6 million for the six months ended June 30, 2025 and 2024, respectively, which represents an increase of $4.4 million, or 18.2%. The year-over-year increases for both periods primarily reflects the impact of the balance sheet repositioning strategy, which raised capital and cash on hand and replaced lower-yielding investment securities with higher yielding securities. Declining average rates paid on interest-bearing deposits and maturities of FHLB advances also impacted net interest income.

Previous wording

The Company's net interest spread and net interest margin decreased five basis points and two basis points, respectively, for the three months ended March 31, 2025 compared to three months ended March 31, 2024.

Current wording

The Company's net interest spread and net interest margin increased 19 basis points and 24 basis points, respectively, for the six months ended June 30, 2025 compared to six months ended June 30, 2024. For the three months ended June 30, 2025, the Company's net interest spread and net interest margin increased 43 basis points and 50 basis points, respectively, compared to the three months ended June 30, 2024.

Previous wording

Total interest and dividend income was $23.5 million and $21.9 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $1.6 million, or 7.30%. The increase in interest income was driven by an increase in the average balance of the interest-earning assets and a 35 basis point increase in the average yield on securities. Average interest-earning assets increased $148.1 million, or 8.86%, when comparing the three months ended March 31, 2024 to the three months ended March 31, 2025, while the average yield on earning assets decreased by three basis points over the same period. While the average yield on total earning assets decreased by three basis points during the three months ended March 31, 2025, the income impact was offset by the average yield earned on securities as well as the overall increase in average balances, which outpaced the increase in average balances on total interest-bearing liabilities. The main driver of the increase in the total average earning asset balances during three months ended March 31, 2025 was interest-bearing deposits in other banks reflecting proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025.

Current wording

Total interest and dividend income was $48.3 million and $43.7 million for the six months ended June 30, 2025 and 2024, respectively, which represents an increase of $4.6 million, or 10.71%. Total interest and dividend income for the three months ended June 30, 2025 and 2024 was $24.8 million and $21.7 million, respectively, which represents an increase of $3.1 million, or 14.15%. The increases in interest income during the 2025 periods were driven by increases in the average balance of the interest-earning assets, specifically federal funds sold and deposits in other banks, and increases in the average yield on securities driven by the newly restructured securities portfolio, mostly offset by a decline in the yield earned on federal funds sold and deposits in other banks. Average interest-earning assets increased $157.4 million, or 9.41%, during the six months ended June 30, 2025 compared to the six months ended June 30, 2024, while the average yield on earning assets increased by eight basis points over the same period, primarily reflecting a 104 basis point increase attributable to the securities portfolio offset by an 88 basis point decrease attributable to federal funds sold and interest-bearing deposits in other banks. For the three months ended June 30, 2025 the average balance of earning assets increased $166.7 million and the average yield increased 19 basis points compared to the three months ended June 30, 2024. The 19 basis point increase was largely comprised of a 175 basis point increase in the securities portfolio average yield and an 88 basis point decrease in the average yield on federal funds sold and interest-bearing deposits in other banks.

Previous wording

Total interest expense was $10.2 million and $9.5 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $678 thousand, or 7.15%. Growth of higher-paying deposit accounts was the main driver for the increase in interest expense during the three months ended March 31, 2025. Interest expense on deposit accounts increased $1.1 million, or 14.55%, during the three months ended March 31, 2025, of which $1.0 million was attributable to time deposits. During the three months ended March 31, 2025 and 2024 the average balance of interest-bearing deposits was $1.18 billion and $1.05 billion, respectively. Competition for and rates paid on deposit accounts continues to be strong. The average rate paid on interest-bearing deposits for the three months ended March 31, 2025 was 2.92% compared to 2.83% for the three months ended March 31, 2024. Partially offsetting the increase in deposit interest expense was a $402 thousand decrease in interest expense on FHLB advances during the three months ended March 31, 2025. The average balance of FHLB advances was $110.6 million and $145.9 million with an average rate of 4.80% and 4.72% during the three months ended March 31, 2025 and 2024, respectively. The decrease in the average balance of FHLB advances was due to net payoffs during the first quarter of 2025, including a prepayment, reflecting usage of cash from the capital raise to lower borrowings levels.

Current wording

Total interest expense was $19.3 million and $19.1 million for the six months ended June 30, 2025 and 2024, respectively, which represents an increase of $213 thousand, or 1.12%. Total interest expense was $9.1 million and $9.6 million for the three months ended June 30, 2025 and 2024, respectively, which represents a decrease of $465 thousand, or 4.85%. Balance growth in higher paying deposit accounts partially offset by lower rates paid on these deposits and balance declines in FHLB advances were the main drivers for the change in interest expense during the six months ended June 30, 2025 compared to the same period in 2024. The $213 thousand increase in interest expense during the six months ended June 30, 2025 is comprised of a $1.8 million, or 12.24%, increase attributable primarily to time deposit accounts and a $1.6 million, or 47.19%, decrease attributable to FHLB advances. Time deposits contributed $1.6 million of the $1.8 million increase in deposit interest expense due to average balance increases of $39.1 million and $57.0 million on time deposits of $250,000 or more and time deposits of less than $250,000, respectively, and declines in the average rate paid of 27 basis points and 19 basis points, respectively. During the six months ended June 30, 2025 and 2024 the average balance of total interest-bearing deposits was $1.19 billion and $1.05 billion, respectively, and the average rate paid was 2.85% for both the six months ended June 30, 2025 and 2024. Competition for and rates paid on deposit accounts continues to be strong. The $1.6 million decrease in interest expense on FHLB advances was due to advance maturities during the six months ended June 30, 2025 reducing the average balance by $70.0 million compared to the 2024 prior year period. These matured advances were not replaced as the Company has reduced its reliance on wholesale borrowings since completing its capital raise during the first quarter of 2025.

Previous wording

The net interest margin was 2.98% and 3.00% for the three months ended March 31, 2025 and 2024, respectively. The net interest margin is calculated on a tax-equivalent basis. 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 tax rate used to calculate the tax benefit was 21% for 2025 and 2024.

Current wording

The net interest margin was 3.20% and 2.96% for the six months ended June 30, 2025 and 2024, respectively, and 3.42% and 2.92% for the three months ended June 30, 2025 and 2024, respectively. The net interest margin is calculated on a tax-equivalent basis. Tax-equivalent net interest income (Non-GAAP) is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2025 and 2024.

Previous wording

The tax-equivalent yield on earning assets was 5.25% for the three months ended March 31, 2025 compared to 5.28% for the three months ended March 31, 2024, a decrease of three basis points during the current year period. The tax-equivalent yield on securities increased 35 basis points for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The tax equivalent yield on loans increased three basis points from 5.54% for the three months ended March 31, 2024 to 5.57% for the same time period in 2025.

Current wording

The tax-equivalent yield on earning assets was 5.33% for the six months ended June 30, 2025 compared to 5.25% for the six months ended June 30, 2024, an increase of eight basis points during the current year period. The tax-equivalent yield on securities increased 104 basis points for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The tax equivalent yield on loans increased 12 basis points from 5.50% for the six months ended June 30, 2024 to 5.62% for the same time period in 2025. For the three months ended June 30, 2025 and 2024, the tax-equivalent yield on earning assets was 5.41% and 5.22%, respectively, an increase of 19 basis points in the current year period. The tax-equivalent yields on securities and loans also increased during the three month period in 2025 compared to 2024 by 175 basis points and 21 basis points, respectively.

Previous wording

The three basis point decrease in the tax-equivalent yield on earning assets for the three months ended March 31, 2025 reflects nominal growth in average loan balances and a reduction in average balances of securities, bolstered by the impact of the proceeds received from the public offering.

Current wording

The increase in the tax-equivalent yield on earning assets for the three and six months ended June 30, 2025 reflects the impact of the balance sheet repositioning transactions, which replaced lower-yielding investment securities with higher yielding securities, higher yielding loan originations, and increased average balances of federal funds sold and interest-bearing deposits in other banks, which were bolstered by the impact of the proceeds received from the public offering and increased deposit balances.

Previous wording

The provision for credit losses for the three months ended March 31, 2025 and 2024 was $1.2 million and $475 thousand, respectively. The provision for credit losses for the three months ended March 31, 2025 resulted largely from a $1.1 million provision against the commercial real estate portfolio due to charge-offs of $971 thousand, and specific reserves on two individually evaluated relationships of $152 thousand as compared to the prior measurement period. Commercial real estate charge-offs of $971 thousand during the three months ended March 31, 2025 reflect one relationship of four loans totaling $11.5 million.

Current wording

The provision for credit losses for the six months ended June 30, 2025 and 2024 was $1.9 million and $656 thousand, respectively. The provision for credit losses for the three months ended June 30, 2025 and 2024 was $668 thousand and $181 thousand, respectively. The provision for credit losses for the six months ended June 30, 2025 resulted largely from a $3.1 million provision against the commercial real estate portfolio due to charge-offs of $971 thousand and specific reserves of $1.1 million, reflecting one individually evaluated relationship of four loans totaling $11.5 million. Additional specific reserves of $381 thousand represent five commercial and industrial loan relationships with loan balances totaling $1.2 million. Partially offsetting these increases were recoveries and decreases in loan balances.

Previous wording

Total noninterest (loss) income was $(8.6) million and $3.5 million for the three months ended March 31, 2025 and 2024, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three months ended March 31, 2025 and 2024, which are included within the respective Consolidated Statements of Operations headings. Variances that the Company believes require explanation are discussed below the table.

Current wording

Total noninterest income (loss) was $4.9 million and $4.3 million for the three months ended June 30, 2025 and 2024, respectively and for the six months ended June 30, 2025 and 2024 was $(3.6) million and $7.8 million, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three and six months ended June 30, 2025 and 2024, which are included within the respective Consolidated Statements of Operations headings. Variances that the Company believes require explanation are discussed below the table.

Previous wording

Wealth management fee income increased from 2024 to 2025. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management which has increased over the 2024 year period. Additionally, per transaction fees for estates and other services have also contributed to the year over year increase in revenue. These increases were partially offset by a decline in investment sales.

Current wording

Wealth management fee income increased from 2024 to 2025. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management which has increased over the 2024 year period. Additionally, per transaction fees for estates and other services have also contributed to the year over year increase in revenue.

Previous wording

The Company executed balance sheet repositioning transactions within its investment securities portfolio during March 2025. The sale of $99.2 million of available for sale debt securities, with a fair value of $86.8 million, resulted in a net pre-tax loss of $12.4 million. Management utilized the proceeds from the public offering capital raise completed in February 2025 to enable the balance sheet repositioning effected during the quarter.

Current wording

The Company executed balance sheet repositioning transactions within its investment securities portfolio during March 2025. The sale of $99.2 million of available for sale debt securities, with a fair value of $86.8 million, resulted in a net pre-tax loss of $12.4 million during the six months ended June 30, 2025. Management utilized the proceeds from the public offering capital raise completed in February 2025 to enable the balance sheet repositioning.

Previous wording

Gain on sale of loans increased during the three months ended March 31, 2025 when compared to the same period in 2024. The Company sold $35.7 million in mortgage loans on the secondary market, consisting of $14.9 million of loans originated for sale and a pool of $18.8 million residential mortgage loans held for investment, and $2.0 million SBA commercial loans during the three months ended March 31, 2025. This compares to loan sales consisting of $10.9 million in mortgage loans during the three months ended March 31, 2024. Loan sales resulted in gains of $429 thousand and $161 thousand during the three months ended March 31, 2025 and 2024, respectively. The Company intends to continue originating mortgage loans for sale, whereas the mortgage portfolio sale was completed early in the 2025 quarter, at par, and ahead of the Company's public offering in order to bolster on-balance sheet liquidity.

Current wording

Gain on sale of loans increased during the three and six months ended June 30, 2025 when compared to the same period in 2024. The Company sold $50.8 million in mortgage loans on the secondary market, consisting of $32.0 million of loans originated for sale and a pool of $18.8 million residential mortgage loans held for investment, and $9.9 million SBA commercial loans during the six months ended June 30, 2025. This compares to loan sales consisting of $25.5 million in mortgage loans and $2.6 million SBA commercial loans during the six months ended June 30, 2024. Loan sales resulted in gains of $1.5 million and $653 thousand during the six months ended June 30, 2025 and 2024, respectively. Gain on loan sales during the three months ended June 30, 2025 and 2024 was $1.1 million and $492 thousand, respectively, reflecting sales of $17.1 million mortgage loans and $8.4 million SBA commercial loans. The Company intends to continue originating mortgage loans for sale, whereas the mortgage portfolio sale was completed early in the 2025 quarter, at par, and ahead of the Company's public offering in order to bolster on-balance sheet liquidity.

Previous wording

Income from holdings in small business investment companies decreased $107 thousand the three months ended March 31, 2025 compared to the same period in 2024. The decreases during the current year period can be mainly attributed to lower cash distributions received, based on the results of their performance and timing of distributions.

Current wording

Income from holdings in small business investment companies decreased $126 thousand and $232 thousand the three and six months ended June 30, 2025, respectively, compared to the same period in 2024. The decreases during the current year period can be mainly attributed to lower cash distributions received, based on the results of their performance and timing of distributions.

Previous wording

Total noninterest expenses increased $212 thousand, or 1.71% for the three months ended March 31, 2025 compared to the same period in 2024. The following table presents the components of noninterest expense for the three months ended March 31, 2025 and 2024, which are included within the respective Consolidated Statements of Operations headings. Variances that the Company believes require explanation are discussed below the table.

Current wording

Total noninterest expenses increased $889 thousand, or 7.11%, for the three months ended June 30, 2025 and $1.1 million, or 4.42%, for the six months ended June 30, 2025 compared to the same periods in 2024. The following table presents the components of noninterest expense for the three and six months ended June 30, 2025 and 2024, which are included within the respective Consolidated Statements of Operations headings. Variances that the Company believes require explanation are discussed below the table.

Previous wording

Salaries and employee benefits decreased during the three months ended March 31, 2025 over 2024, reflecting minimal decreases in salaries and bonuses mostly offset by an increase in the annual incentive plan expense. The Company's number of full-time equivalent employees ("FTE's") has decreased from 238 at March 31, 2024 to 233 at March 31, 2025.

Current wording

Salaries and employee benefits increased during the three and six months ended June 30, 2025 over 2024, reflecting increases in salaries, commission and employee insurance expense, partially offset by a decrease in the annual incentive plan expense. The Company's number of full-time equivalent employees ("FTE's") has increased from 244 at June 30, 2024 to 245 at June 30, 2025.

Previous wording

Occupancy expenses increased during three months ended March 31, 2025 largely due to the impact of the sales-leaseback transaction of the Company's operating center and branch building in December 2024. Rental expense increased $153 thousand, which was partially offset by a decrease in building depreciation. The increase in rental expense also reflects a new long-term lease executed during the first quarter of 2025 as the Company is moving its current loan production office and establishing a full-service branch in McLean, Viriginia.

Current wording

Occupancy expenses increased during the three and six months ended June 30, 2025 largely due to the impact of the sales-leaseback transaction of the Company's operating center and branch building in December 2024. Rental expense, net of building depreciation increased $137 thousand and $250 thousand, during the three and six months ended June 30, 2025, respectively, compared to the 2024 periods. The increase in rental expense also reflects a new long-term lease executed during the first quarter of 2025 as the Company is moving its current loan production office and establishing a full-service branch in McLean, Viriginia.

Previous wording

Advertising and marketing expenses decreased during the three months ended March 31, 2025 compared to the same period in 2024, reflecting fewer advertising campaigns.

Current wording

Advertising and marketing expenses decreased during the three and six months ended June 30, 2025 compared to the same periods in 2024, reflecting fewer advertising campaigns and a marketing bonus credit related to the Bank's credit card provider relationship.

Previous wording

Three repossessed marine vessels were sold during the three months ended March 31, 2025, resulting in the recognition of a $133 thousand loss. There were no sales of repossessed assets during the three months ended March 31, 2024.

Current wording

Three repossessed marine vessels were sold during the first quarter of 2025, resulting in the recognition of a $133 thousand loss during the six months ended June 30, 2025. There were no sales of repossessed assets during the three months ended June 30, 2025 or the three and six months ended June 30, 2024.

Previous wording

FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the three months ended March 31, 2025 over 2024. The decrease in FDIC assessment for the three months ended March 31, 2025 reflects an improvement in the financial ratios portion of the assessment rate, largely due to the decline in the one-year asset growth factor.

Current wording

FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the three and six months ended June 30, 2025 over 2024. The decrease in FDIC assessment reflects an improvement in the capital and financial ratio portion of the assessment rate, due to the capital raise completed in early 2025.

Previous wording

Professional fees increased during the three months ended March 31, 2025 and the same period in 2024 primarily due to legal fees related to loan matters.

Current wording

Professional fees increased during the three and six months ended June 30, 2025 compared to the same periods in 2024 primarily due to legal fees related to loan matters and outside recruitment services.

Previous wording

The efficiency ratio of the Company was 72.20% and 77.73% for the three months ended March 31, 2025 and 2024, respectively. The improvement in the efficiency ratio during 2025 reflects an increase in interest and noninterest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income. The Company adjusts for non-recurring items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed assets, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.

Current wording

The efficiency ratio of the Company was 64.91% and 77.00% for the three months ended June 30, 2025 and 2024, respectively. The efficiency ratio of the Company was 68.23% and 77.36% for the six months ended June 30, 2025 and 2024, respectively. The improvement in the efficiency ratio during 2025 reflects an increase in net interest and noninterest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income (loss). The Company adjusts for non-recurring items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed assets, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.

Previous wording

The calculation of the efficiency ratio for the three months ended March 31, 2025 and 2024 was as follows:

Current wording

The calculation of the efficiency ratio for the three and six months ended June 30, 2025 and 2024 was as follows:

Previous wording

An income tax benefit of $2.1 million was recognized during the three months ended March 31, 2025 compared to income tax expense of $495 thousand during the three months ended March 31, 2024. The effective tax rate was 22.85% and 16.27% for the three months ended March 31, 2025 and 2024, respectively. The year over year comparison includes tax-exempt income on investment securities and loans, BOLI income, income tax credits on qualified affordable housing project investments, and qualified rehabilitation credits. Additionally, during the three months ended March 31, 2025, the effective tax rate was also impacted by the balance sheet repositioning transactions. Qualified affordable housing project investments are discussed in Note 11 to the Consolidated Financial Statements.

Current wording

Income tax expense of $1.3 million and $585 thousand was recognized during the three months ended June 30, 2025 and 2024, respectively. For the six months ended June 30, 2025 an income tax benefit of $788 thousand was recognized compared to income tax expense of $1.1 million during the six months ended June 30, 2024. The effective tax rate was 19.52% and 15.52% for the three months ended June 30, 2025 and 2024, respectively. The effective tax (benefit) rate for six months ended June 30, 2025 and 2024 was (31.62%) and 15.85%, respectively. The year over year comparisons include tax-exempt income on investment securities and loans, BOLI income, income tax credits on qualified affordable housing project investments, and qualified rehabilitation credits. Additionally, during the six months ended June 30, 2025, the effective tax (benefit) rate was also impacted by the balance sheet repositioning transactions. Qualified affordable housing project investments are discussed in Note 11 to the Consolidated Financial Statements.

Previous wording

The following table presents a summarized statement of operations for the community banking business segment for the three months ended March 31, 2025 and 2024:

Current wording

The following table presents a summarized statement of operations for the community banking business segment for the three and six months ended June 30, 2025 and 2024:

Previous wording

Net interest income increased $1.4 million during the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 due to income earned on non-marine loans and higher levels of earning deposit balances in other other banks partially offset by an increase in interest-bearing deposit expense. Higher levels of deposits balances in other banks reflects proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025.

Current wording

Net interest income increased during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 primarily due to income earned on: i) non-marine loans; ii) the investment securities portfolio, which was restructured in the first quarter of 2025 to sell and replace lower yielding investments with higher yielding securities; iii) higher levels of earning deposit balances in other other banks; and iv) reduction in borrowings expense as FHLB advances have matured. These increases were partially offset by an increase in interest-bearing deposit expense due to growth in average balances. Higher levels of interest-earning deposits balances in other banks reflects proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025, as well as increases in customer deposit balances.

Previous wording

Provision for credit losses increased primarily due to charge-offs totaling $971 thousand related to a $11.5 million commercial real estate loan relationship.

Current wording

Provision for credit losses increased primarily due to charge-offs totaling $971 thousand and a specific reserve of $1.1 million related to a $11.5 million commercial real estate loan relationship, partially offset by recoveries and decreases in loan balances.

Previous wording

The decrease in income tax expense was directly related to the recognized loss on the sale of securities.

Current wording

The decrease in income tax expense during the six months ended June 30, 2025 was directly related to the recognized loss on the sale of securities.

Previous wording

The following table presents a summarized statement of operations for the marine lending segment for the three months ended March 31, 2025 and 2024:

Current wording

The following table presents a summarized statement of operations for the marine lending segment for the three and six months ended June 30, 2025 and 2024:

Previous wording

Marine Lending net revenues declined $512 thousand for the three months ended March 31, 2025 compared to the corresponding period in 2024. This was due to pay downs in the portfolio, which are not being replaced with new loan originations. The marine loan portfolio totaled $203.5 million and $247.0 million at March 31, 2025 and March 31, 2024, respectively.

Current wording

Marine Lending net revenues declined $149 thousand and $661 thousand for the three and six months ended June 30, 2025 compared to the corresponding periods in 2024. This was due to pay downs in the portfolio, which are not being replaced with new loan originations. The marine loan portfolio totaled $196.4 million and $236.9 million at June 30, 2025 and June 30, 2024, respectively.

Previous wording

The following table presents a summarized statement of operations for the wealth management segment for the three months ended March 31, 2025 and 2024:

Current wording

The following table presents a summarized statement of operations for the wealth management segment for the three and six months ended June 30, 2025 and 2024:

Previous wording

Net revenue increased during the three months ended March 31, 2025 over the three months ended March 31, 2024 due to increases in trust services income reflecting fees earned on a higher level of assets under management and estate settlements.

Current wording

Net revenue increased during the three and six months ended June 30, 2025 over the 2024 periods due to increases in trust services income reflecting fees earned on a higher level of assets under management and estate settlements and increases in investment sales revenue.

Previous wording

Total securities available for sale were $109.9 million at March 31, 2025, compared to $121.3 million at December 31, 2024. This represents a decrease of $11.4 million, or 9.45%. The Company purchased $75.9 million of securities during the three months ended March 31, 2025. The Company had total maturities, calls, and principal repayments of $3.3 million and sales of $99.2 million during the three months ended March 31, 2025. Note 4 to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio at March 31, 2025 and December 31, 2024. The Company had a net unrealized loss on available for sale securities of $8.4 million at March 31, 2025 as compared to a net unrealized loss of $23.6 million at December 31, 2024. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).

Current wording

Total securities available for sale were $120.9 million at June 30, 2025, compared to $121.3 million at December 31, 2024. This represents a decrease of $423 thousand, or 0.35%. The Company purchased $91.2 million of securities during the six months ended June 30, 2025. The Company had total maturities, calls, and principal repayments of $6.9 million and sales of $99.2 million during the six months ended June 30, 2025. Note 4 to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio at June 30, 2025 and December 31, 2024. The Company had a net unrealized loss on available for sale securities of $9.2 million at June 30, 2025 as compared to a net unrealized loss of $23.6 million at December 31, 2024. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).

Previous wording

During March 2025, balance sheet repositioning transactions were comprised of sales of available for sale debt securities with an amortized cost balance of $99.2 million (fair value of $86.8 million) and a weighted average yield of 1.72%, with proceeds reinvested into purchases of $66.0 million of available for sale debt securities with a weighted average yield of 4.72%. The total sales of $99.2 million represented 68.48% of December 31, 2024 securities balance. The majority of these repositioning sales and purchases consisted of mortgage-backed securities. The sale of debt securities resulted in a net pre-tax realized loss of $12.4 million (after-tax of $9.8 million) that was recognized in the first quarter of 2025. The Company also purchased U.S. Treasury notes totaling $9.9 million prior to the repositioning to maintain pledging levels throughout the repositioning period.

Current wording

During March 2025, balance sheet repositioning transactions were comprised of sales of available for sale debt securities with an amortized cost balance of $99.2 million (fair value of $86.8 million) and a weighted average yield of 1.72%, with proceeds reinvested into purchases of $66.0 million of available for sale debt securities with a weighted average yield of 4.72%. The total sales of $99.2 million represented 68.48% of December 31, 2024 securities balance. The majority of these repositioning sales and purchases consisted of mortgage-backed securities. The sale of debt securities resulted in a net pre-tax realized loss of $12.4 million (after-tax of $9.8 million) that was recognized in the first quarter of 2025. In addition to the repositioning transactions, the Company purchased U.S. Treasury notes totaling $9.9 million prior to the repositioning to maintain pledging levels throughout the repositioning period and has also made subsequent purchases.

Previous wording

The primary cause of the unrealized losses at March 31, 2025 and December 31, 2024 was changes in market interest rates and other market conditions and not credit concerns of the issuers over the time between purchase and measurement periods. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.

Current wording

The primary cause of the unrealized losses at June 30, 2025 and December 31, 2024 was changes in market interest rates, rather than other market conditions or credit concerns of the issuers over the time between purchase and measurement periods. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.

Previous wording

The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Gross loans were $1.45 billion and $1.47 billion at March 31, 2025 and December 31, 2024, respectively. This represents a decrease of $14.8 million, or 1.01%, during the three months ended March 31, 2025. The ratio of gross loans to deposits decreased during the three months ended March 31, 2025 from 93.14% at December 31, 2024 to 89.99% at March 31, 2025 reflecting the decrease in gross loans, compounded by a 2.45% increase in deposits during the same time period.

Current wording

The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Gross loans were $1.44 billion and $1.47 billion at June 30, 2025 and December 31, 2024, respectively. This represents a decrease of $28.4 million, or 1.94%, during the six months ended June 30, 2025. The ratio of gross loans to deposits decreased during the six months ended June 30, 2025 from 93.14% at December 31, 2024 to 81.44% at June 30, 2025 reflecting the decrease in gross loans, compounded by a 12.15% increase in deposits during the same time period.