Tri-County Financial Group, Inc.

What they do

The Company conducts most of its business through First State Bank, founded in 1940, which operates 19 branch offices in 18 north central Illinois communities including Batavia, Bloomington, Champaign, Geneva, Ottawa, Peru, Princeton, Streator and Sycamore. The Bank originates and services commercial loans (including commercial and industrial), real estate loans (commercial real estate, agricultural real estate and one-to-four family residential mortgages), and agricultural operating loans, funded mainly by demand, savings, money market and time deposits plus FHLB Chicago borrowings and repurchase agreements. Subsidiaries are First State Mortgage Services, LLC (residential mortgage lending, headquartered in Bloomington with a loan production office in Sussex, Wisconsin) and Tri-County Insurance Services, Inc. d/b/a First State Insurance (home, auto, health, life, farm, crop hail and multi-peril insurance).

Revenue drivers

• Net interest income — The primary earnings source, driven by the loan and securities portfolios funded by deposits and FHLB advances; third quarter 2025 net interest income was $13.0 million, up 19% from $10.9 million a year earlier.
• Non-interest income — Derived from sales of one-to-four family residential mortgage loans, loan servicing, trust and insurance services, and customer deposit services; $4.4 million in Q3 2025, down 1% from $4.5 million in Q3 2024.
• Loan portfolio — Total loans were $1.31 billion at September 30, 2025, up $38.5 million or 3% year over year, spanning commercial, commercial real estate, agricultural and consumer categories.
• Investment portfolio — Entirely available-for-sale debt securities, totaling $154.1 million at September 30, 2025, up $7.5 million or 5% year over year; none held-to-maturity.

Recent performance

Net income for the third quarter of 2025 was $3.7 million ($1.56 per share), compared with $3.1 million ($1.27 per share) in the third quarter of 2024. For the nine months ended September 30, 2025, net income was $9.8 million ($4.09 per share) versus $8.0 million ($3.33 per share) a year earlier. Net interest income rose 19% to $13.0 million while non-interest expense increased $0.7 million to $12.1 million and credit loss expense was $0.3 million. Total deposits were $1.253 billion at September 30, 2025, down $4.3 million year over year, but excluding brokered deposits they increased about $38 million; FHLB advances rose to $121.9 million from $74.9 million. Nonperforming loans were 0.54% of total loans, up from 0.41%, and the allowance for credit losses was $14.8 million, or 1.13% of gross loans.

Strategy

Management emphasized continued repricing of the loan portfolio, which it expects to support increased yields on earning assets and lower funding costs, and stated that solid earnings performance should continue. The Company is pursuing deposit growth strategies in a competitive market while monitoring local competition on rates and maintaining what it describes as exceptional community banking services. It characterizes its diversified balance sheet and lines of business as strongly positioned. Prior expansion came through branch openings and acquisitions of smaller banks, and ancillary businesses First State Mortgage and First State Insurance operate out of bank branches or ancillary facilities.

Risks

• Credit risk in a concentrated loan mix — Most loans are commercial, real estate, agricultural or residential real estate, each with distinct risks, and nonperforming loans rose to 0.54% of total loans at September 30, 2025 from 0.41% a year earlier.
• Local economic dependence — Results depend heavily on business conditions in north central Illinois and the state of Illinois generally, affecting borrowers' ability to repay and collateral values.
• Mortgage subsidiary losses — The 10-K cites FSM's continuing net losses and a challenging interest rate environment, which required a quantitative goodwill impairment test using a third-party valuation of FSM's equity.
• Funding mix and deposit competition — Funding relies on demand, savings and time deposits plus securities sold under repurchase agreements and FHLB Chicago borrowings, with FHLB advances rising to $121.9 million at September 30, 2025 from $74.9 million a year earlier.

Outlook

Management stated that it believes solid earnings performance will continue, citing repricing in the loan portfolio, increased yields on earning assets and lower funding costs. It said asset quality remains strong and that it continues deposit growth strategies in a competitive market while monitoring local competition. The Company describes its diversified balance sheet and lines of business as being in a strong position.