BVFL 10-K & 10-Q changes, risk factors and insider trading

To the extent that borrowers have more than one commercial real estate loan outstanding, an adverse development with respect to one loan or one credit relationship could expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan. If we foreclose on these loans, our holding period for the collateral typically is longer than for a single or multi-family residential property because there are fewer potential purchasers of the collateral. Furthermore, if loans that are collateralized by commercial real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for credit losses and adversely affect our operating results and financial condition.

While there is not a single employer or industry in our market area on which a significant number of our customers are dependent, a substantial portion of our loan portfolio is comprised of loans secured by property located in Baltimore City and Anne Arundel, Baltimore and Harford Counties in the Baltimore metropolitan area and Dorchester and Talbot Counties on the Eastern Shore of Maryland. This makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as unemployment, recession, a catastrophic event or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values caused by economic conditions, recent changes in tax laws or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. Further, deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our allowance for credit losses, which in turn could necessitate an increase in our provision for credit losses and a resulting reduction to our earnings and capital.

We maintain an allowance for credit losses, which is established through a provision for credit losses that represents management’s best estimate of the current expected losses within the loan portfolio. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for credit losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions or the results of our analyses are incorrect, our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. In addition, our emphasis on loan growth and on increasing our portfoliosportfolio of commercial real estate loans, as well as any future credit deterioration or changes in economic conditions could require us to increase our allowance for credit losses in the future. At December 31, 2024,2025, our allowance for credit losses was 1.15%0.85% of total loans and 212.55%284.72% of non-performing loans. Material additions to our allowance would materially decrease our net income.

We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more we earn. When interest rates change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause changes in our spread which can adversely affect our income. ForOur interest-bearing liabilities generally have shorter contractual maturities than our interest-earning assets. Furthermore, the pastrates severalwe years,earn BVon Financialour hasother been asset sensitive, which indicates thatinterest-earning assets and the rates we pay on our interest-bearing liabilities are generally repricefixed faster than liabilities. Infor a risingcontractual rateperiod environment,of assettime. sensitivityThis isimbalance preferablecan ascreate itsignificant resultsearnings involatility improvementbecause to our netmarket interest margin,rates however,change over time. Generally, in a fallingperiod of declining interest raterates, environment,the beinginterest assetincome sensitivewe earn on our interest-earning assets may resultdecrease more rapidly than the interest we pay on our interest-bearing liabilities, as borrowers prepay mortgage loans and as mortgage-backed securities and callable investment securities are called, requiring us to reinvest those cash flows at lower, prevailing interest rates. Conversely, in a decreaseperiod inof rising interest rates, the interest income we earn on our netinterest-earning assets may not increase as rapidly as the interest margin.we pay on deposits and other interest-bearing liabilities.

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets, and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.

A significant decline in general economic conditions caused by inflation, recession, tariffs, acts of terrorism, civil unrest, an outbreak of hostilities or other international or domestic calamities, an epidemic or pandemic, unemployment or other factors beyond our control could negatively affect the markets in which we do business, the value of our loans, investments, and collateral securing our loans, the level of our classified assets, reduce the demand for our products and services, and/or adversely affect our financial results and our banking operations. Economic conditions, especially local conditions, could have the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations:

Most of our loans are inside of our market area and, as a result, we have a greater risk of loan defaults and losses in the event of a further economic downturn in our market area, as adverse economic conditions may have a negative effect on the ability of our borrowers to make timely payments of their loans. . Because of our geographic concentration, a downturn in the local economies could make it more difficult to attract loans and deposits, and could cause higher losses and delinquencies on our loans than if the loans were more geographically diversified. A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans, investments, and collateral securing our loans, our rate of growth and our ongoing operations, costs and profitability. Any of these negative events may result in higher-than-expected loan delinquencies, increase our levels of non-performing and classified assets, and reduce demand for our products and services, which may cause us to incur losses and may adversely affect our capital, liquidity and financial condition. According to published data, our market area has not experienced any material declines in real estate values during the last year or any material increase in the number of foreclosure proceedings.

Inflation risk iscan thenegatively risk thatimpact the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. Inflation rose sharply at the end of 2021 and remained atelevated elevatedthrough the first half of calendar 2024, before beginning to moderate in the latter half of 2024 and into calendar 2025. However, inflation levels throughcontinue 2024.to exceed the Federal Reserve Board’s long-term target of 2.0%. As inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.

Any material interruption in our customers’ supply chains, such as a material interruption of the resources required to conduct their business resulting from interruptions in service by third-party providers, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, restrictions in federal subsidies or grants, social or labor unrest, natural disasters, epidemics or pandemics or political disputes and military conflicts, that cause a material disruption in our customers' supply chains, could have a negative impact on their business and ability to repay their borrowings with us. In the event of disruptions in our customers’ supply chains, the labor and materials they rely on in the ordinary course of business may not be available at reasonable rates or at all. Additionally, changes in distribution of federal funds or freezing of federal funds, including reductions in federal workforce causing unemployment, could have an adverse effect on the ability of consumers and businesses to pay debts and/or affect the demand for loans and deposits.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize generating transaction accounts, we cannot guarantee if and when this will occur. Further, the considerable competition for deposits in our market area also has made, and may continue to make, it difficult for us to obtain reasonably priced deposits. Moreover, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. If we are not able to increase our lower-cost transactional deposits at a level necessary to fund our asset growth or deposit outflows, we may be forced seek other sources of funds, including other certificates of deposit, FHLB advances, brokered deposits and lines of credit to meet the borrowing and deposit withdrawal requirements of our customers, which may be more expensive and have an adverse effect on our net interest margin and profitability. In this regard, total deposits increased $17.4$24.6 million, or 2.7%,3.8%, to $676.1 million at December 31, 2025 from $651.5 million at December 31, 2024 from $634.1 million at December 31, 2023.2024. At December 31, 2024,2025, the Company had $15.0$35.0 million of outstanding advances from the FederalFHLB Homeand Loan Bank $50.0$50.3 million in brokered deposits.

BayVanguard Bank is subject to extensive regulation, supervision and examination by the OCFR and the FDIC, and BV Financial is subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the federal deposit insurance fund and the depositors of BayVanguard Bank, rather than for our stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the adequacy of the level of our allowance for credit losses. These regulations, along with existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, executive orders, legislation or supervisory action, may have a material impact on our operations. Further, compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits. Their use also affects interest rates charged on loans or paid on deposits. The FRB’s policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect our net interest margin. Its policies can also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans. The monetary policies and regulations of the FRB have had a significant effect on the overall economy and the operating results of financial institutions in the past and are expected to continue to do so in the future.

We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, cybersecurity incidents and questionable or fraudulent activities of our customers. In addition, third parties with whom the Company has relationships may take actions over which the Company has limited control that could negatively impact perceptions about the Company or the financial services industry. The proliferation of social media may increase the likelihood that negative information about the Company, whether or not accurate, could impact the Company’s reputation and business. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers and employees, costly litigation and increased governmental regulation, any or all of which could adversely affect our business and operating results.

Summary of Financial Condition and Operating Results. At December 31, 2024,2025, we had $911.8$912.2 million in consolidated assets, an increase of $26.6 million,$392,000, or 3.0%,0.04%, from $885.3$911.8 million at December 31, 2023.2024. The increase was due primarily to a $33.0$19.2 million increase in net loans receivable to $729.2$748.5 million at December 31, 2024, and a $2.5 million increase in available for-for-sale securities,2025, partially offset by a decrease of $3.2$14.8 million decrease in cash and cash equivalents and a $4.2$4.0 million decrease in heldsecurities toavailable maturityfor securities.sale. Total liabilities increased $30.1$12.1 million, or 4.4%,1.7%, from $686.2 million at December 31, 2023 to $716.3 million at December 31, 2024.2024 to $728.4 million at December 31, 2025. The increase was primarily due to an increase in total deposits of $17.4$24.6 million, andpartially anoffset increaseby a decrease in borrowings of $12.6$14.9 million.

Stockholders’ equity decreased $3.6$11.7 million,million or 1.8%,6.0%, to $195.5$183.8 million at December 31, 2024,2025, primarily due to the$30.0 $17.8million in stock repurchases, offset by $13.5 million of repurchasednet commonincome stock,and partially offset by the $11.7$4.2 million in netother income.adjustments, primarily equity compensation. During the year, the Company repurchased 1,823,997 shares of common stock at an average cost of $16.23.

Net income decreasedincreased $2.0$1.8 million, or 14.5%,15.1%, to $13.5 million for the year ended December 31, 2025, compared to $11.7 million for the year ended December 31, 2024, compared to $13.7 million for the year ended December 31, 2023.2024. The decreaseincrease was due primarily to an increase of $2.1$3.0 million in noninterestinterest expenseincome and aan $1.2 million decreaseincrease in noninterestthe income,recovery partiallyof provision for credit losses of $2.2 million, offset by a $1.0$1.3 million increase in net interest income.expense, a $1.7 million increase in non-interest expense, and a $700,000 increase in income tax expense.

Grow our loan portfolio with an emphasis on commercial real estate and residential mortgage lending. While we intend to continue to focus on the origination of commercial real estate loans, we intend to remain a residential mortgage lender in our market area and maintain a balance between the commercial real estate and residential mortgage portfolios. We originated $77.5$52.8 million of commercial real estate and $14.2$32.9 million of residential mortgages loans during the year ended December 31, 2024.2025. At December 31, 2024,2025, $411.3$401.4 million, or 55.8%,53.2%, of our total loan portfolio consisted of commercial real estate loans and $241.7$258.5 million, or 32.8%,34.2%, of our total loan portfolio consisted of residential mortgages. Additionally, the Bank purchased a package of $14.0 million of one-to-four family owner occupied residential mortgages.

Manage credit risk to maintain a low level of non-performing assets. We believe that maintaining strong asset quality is paramount to our long-term success. We follow conservative underwriting guidelines with sound loan administration, and focus on originating loans secured by real estate. This includes enhanced loan monitoring of higher risk portfolio segments, higher risk individual loans and larger relationships within the portfolio, and frequent loan grade review. In 2024, our largest loan on non-accrual, a $3.8 million investor commercial real estate loan paid off. Our non-performing assets totaled $4.2$2.3 million, or 0.46%0.25% of total assets, at December 31, 2024.2025. Our total non-performing loans to total loans ratio was 0.54%0.30% at December 31, 2024.2025.

Goodwill. The excess purchase price over the fair value of net assets from acquisitions, or goodwill, is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates it is likely impairment has occurred. Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying amount. In any given year BV Financial may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If it is not more likely than not that the fair value of the reporting unit is in excess of the carrying value, or if BV Financial elects to bypass the qualitative assessment, a quantitative impairment test is performed. In performing a quantitative test for impairment, the fair value of net assets is estimated based on analyses of BV Financial’s market value, discounted cash flows, and peer values. The determination of goodwill impairment is sensitive to market-based economics and other key assumptions used in determining or allocating fair value. Variability in the market and changes in assumptions or subjective measurements used to estimate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations.

Total assets were $912.2 million at December 31, 2025, an increase of $392,000, or 0.04%, from $911.8 million at December 31, 2024, an increase of $26.5 million, or 3.0%, from $885.3 million at December 31, 2023.2024. The increase was due primarily to a $33.0$19.2 million increase in net loans receivable to $729.2$748.5 million at December 31, 2024, and a $2.5 million increase in securities available for sale partially2025, offset by a $4.2 million decrease in securities held to maturity, a $3.2$14.8 million decrease in cash and cash equivalentsequivalents, and decreasesa $4.0 million decrease in premisessecurities andavailable equipmentfor and other assets.sale.

Cash and cash equivalents decreased $3.2$14.8 million, or 4.4%,21.0%, to $70.5 million at Decemer 31, 2024 from $73.7$55.7 million at December 31, 2023.2025 from $70.5 million at December 31, 2024 as excess cash was used to fund loans and repay the Company's subordinated debt.

Securities available for sale (“AFS”) increaseddecreased $2.5$4.0 million, or 7.2%,10.8%, to $33.2 million at December 31, 2025 from $37.3 million at December 31, 2024 from $34.8 million at December 31, 2023.2024. Securities held to maturity ("HTM") decreased $4.2 million$243,000 or 41.2%4.1% to $6.0$5.7 million at December 31, 2024.2025. MaturitiesThe decreases were due to pay-downs and paydowns in the HTM portfolio were replaced, as deemed necessary by securities in the AFS portfolio.maturities.

Management monitors and manages the investment portfolio on a monthly basis and believes the risks inherent risks in the portfolio are acceptable. AFS securities are reviewed each quarter to determine whether a decline in the fair value of the securities is a result of a deterioration in credit quality. No reserve for credit losses has been recorded on AFS securities.

Gross unrealized losses on AFS securities at December 31, 20242025 and 20232024 were $2.3$1.6 million and $2.7$2.3 million, respectively. The unrealized losses are the result of changes in interest rates since the securities were issued. The Company intends to, and has the ability to, hold investment securities with unrealized losses until they mature, at which time the Company willexpects to receive pay-offs in full for the security.

The AFS portfolio holds 96%,91%, or $35.7$31.7 millionmillion, of its portfolio in securities issued by Government Sponsored Enterprises ("GSE") backed by the full faith and credit of the United States Government. The remainder of the portfolio consists of bonds issued by bank holding companies.

The held-to-maturity ("HTM") portfolio consists of $2.8$2.5 million in securities issued by GSEs and $3.2 million in securities issued by bank holding companies. At December 31, 20242025 and 2023,2024, the securities in the HTM portfolio not issued by a GSE hashad an allowance for credit loss of $4,000$2,000 and $6,000,$4,000, respectively.

Net loans receivable increased $33.0$19.2 million, or 4.74%,2.6%, to $748.5 million at December 31, 2025 from $729.2 million at December 31, 2024 from $696.2 million at December 31, 2023.2024. Increases in investor commercial real estate, 1-4 family owner occupied, construction loans and commercial loans offset decreases in owner occupied commercial real estate loans, commercial investor loans, non-owner occupied 1-4one- to four- family loans, farm loans, consumer loans and loans guaranteed by the U.S. Government.

Total liabilities increased $30.1$12.1 million, or 1.7%, to $728.4 million orat 4.4%,December to31, 2025 from $716.3 million at December 31, 2024 from $686.2 million at December 31, 2023.2024. The increase was primarily due to aan increase in total deposits of $17.4$24.6 million, andpartially anoffset increaseby a decrease in borrowings of $12.6$14.9 million.

Total deposits increased $17.4$24.6 million, or 2.7%,3.8%, to $676.1 million at December 31, 2025 from $651.5 million at December 31, 20242024. fromInterest-bearing $634.1deposits increased $16.0 million, or 3.1%, to $537.7 million at December 31, 2023.2025 Interest-bearing deposits increased $36.3 million, or 7.5%, tofrom $521.8 million at December 31, 20242024, fromprimarily $492.1due to the $14.0 million increase in certificates of deposit. Noninterest bearing deposits increased $8.6 million, or 6.7%, to $138.4 million at December 31, 2023.2025 Noninterest bearing deposits decreased $12.3 million, or 8.7%, tofrom $129.7 million at December 31, 2024 from $142.0 million at December 31, 2023. The Company utilized $50 million in brokered certificates of deposits with five year terms to replace a $16.5 million reduction in retail certificates of deposit and to fund loan growth.2024.

The Company had $15.0$35.0 million of Federal Home Loan BankFHLB borrowings at December 31, 20242025 compared to $0$15.0 million in Federal Home Loan BankFHLB borrowings at December 31, 2023.2024. The increased borrowings from the FHLB replaced the $35.0 million in subordinated debt issued in 2020 and paid off in 2025.

Stockholders’ equity decreased $3.6$11.7 million or 1.8%,6.0%, to $195.5$183.8 million at December 31, 2024.2025 primarily due to $30.0 million in stock repurchases, offset by $13.5 million of net income and $4.2 million in other adjustments, primarily equity compensation. During the year, the Company repurchased 1.1 million1,823,997 shares of common stock at an average cost of $16.27. The reduction in stockholders equity resulting from the repurchase program exceeded net income and other adjustments.$16.23.

Total interest income increased 7.523.0 %million, or 6.48% for the year ended December 31, 20242025 when compared to the year ended December 31, 2023.2024. Interest income on loans increased by $3.3$4.6 million or 8.6%.11.2%. Higher yields on loans contributed $2.6$2.0 million to the increase while an increase in the average balance outstanding contributed $673,000$2.6 million to the increase.

Interest income on investment securities available-for-sale increased by $163,000$7,000 or 14.1%0.5% as the increase in yields on new purchases and the adjustable-rate portion of the portfoliowere offset by a decline in the average balance of AFS investments.

Other interest income primarily consists of interest earned on overnight cash investments. Interest income in this category decreased by $108,000,$1.4 million, or 2.6%,35.7%, primarily due to lower average balances.

Total interest expense increased by $2.3$1.3 million or 25.1%11.4% to $12.8 million for the year ended December 31, 2025 from $11.5 million for the year ended December 31, 20242024. from $9.2 million forBoth the year ended December 31, 2023. The increase in the average balance of deposits and borrowings and the cost of interest-bearing deposits was the primary driver indrove the increase in total interest expense.

Interest paid on interest-bearing deposits increased by $3.4$1.7 million or 61.1%18.4% for the year ended December 31, 20242025 compared to the year ended December 31, 2023. The impact of higher rates paid offset a lower average balance on these deposits.2024. Higher rates paid on deposits were influenced by, among other factors, the Federal Reserve rate increases during the year, intense competition for deposits in the Bank's market area, and a greater percentage of deposits consisting of higher-yielding certificates of deposit. Non-interest bearing deposits decreased in the year as customers took advantage of higher market interest rates to redeploy their excess cash into interest-bearing products.

Interest expense on advances from the FHLB decreasedincreased by $1.4 million$277,000 for the year ended December 31, 20242025 as the Bank hadutilized aFHLB noborrowings advancesto outstanding forreplace the majority$35.0 ofmillion thein year.subordinated debt issued in 2020.

Interest expense on subordinated debt increaseddecreased by $286,000,$628,000, or 13.2%,25.6%, during the year. The increasedecrease was due primarily to the pay-off of $3.0 million in junior subordinated debt which included the write-off (increase in interest expense) of the remaining purchase accounting fair market value adjustment of $566,000.$566,000 during 2024.

Net interest income before the provision for credit losses was $35.2$36.9 million for the year ended December 31, 2024,2025, compared to $34.2$35.2 million in the year ended December 31, 2023.2024. The net interest margin for the year ended December 31, 20242025 was 4.27%4.35% compared to 4.23%4.27% for the year ended December 31, 2023.2024.

The $203,000$2.4 million credit to the provision for credit losses consisted of a $347,000$2.2 million credit to the allowance for credit losses - loansloans, and a $2,000 credit to the allowance for credit losses - HTM securities offsetand bya an$259,000 allowancecredit of $146,000 into the allowances for credit lossesallowance for off balance sheet commitments. In the year ended December 31, 2023,2025, net recoveries of previously charged-off loans totaled $314,000.$83,000. These recoveries directly reduced the required increaseamount inof the allowance for credit losses-loans.

Non-interestFor the year ended December 31, 2025 noninterest expense increasedtotaled $2.1$23.2 million compared to $21.5 million for the year ended December 31, 20242024. from $19.4 million for the year ended December 31, 2023. The increase was due primarily to increases in compensationCompensation and benefits increased by 15.9% due to increasesa infull salariesyear and theof costs of the equity awards granted after the stockholders approved the 2024 Equity Incentive Plan.Plan compared to four months of costs of the plan in 2024. During the year ended December 31, 2025 expense related to this plan was $3.9 million as compared to $1.5 million in the year ended December 31, 2024.

growing our volume of core deposit accounts;

The floating ratefloating-rate securities in the available-for-sale portfolio will reprice lower with a short (quarterly) lag.

New assets (loans &and investment securities) will be placed on the balance sheet at the lower current market interest rates.

Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan BankFHLB of Atlanta. At December 31, 20242025 and December 31, 2023,2024, we had $157.5$171.6 million and $150.0$157.5 million available under a line of credit with the Federal Home Loan BankFHLB of Atlanta, and had $15.0$35.0 million and $0$15 million outstanding as of December 31, 20242025 and December 31, 2023,2024, respectively, with the Federal Home Loan BankFHLB of Atlanta. In addition, at December 31, 20242025 and December 31, 2023,2024, the Bank had $23.0$29.0 million and $25.0$23.0 million in unfunded letters of credit used to secure municipal deposits outstanding against the line of credit with the Federal Home Loan BankFHLB of Atlanta.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $16.1$19.0 million and $15.2$16.1 million for the years ended December 31, 20242025 and 2023,2024, respectively. Net cash (used in) provided by investing activities, which consists primarily of investments in loans and securities, was $(32.5)$13.3 million and $(35.2)$32.5 million for the years ended December 31, 20242025 and 2023,2024, respectively. Net cash provided by (used in) financing activities, consisting primarily of changes in deposits and advances and the repayment of advances to the Federal Home Loan Bank,FHLB, was $13.2 million and $25.1$20.5 million for the yearsyear ended December 31, 20242025 andcompared 2023,to respectively.net cash provided of $13.2 million for the year ended December 31, 2024.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Time deposits that are scheduled to mature in less than one year from December 31, 20242025 totaled $107.5$79.9 million. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan BankFHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Capital Resources. At December 31, 2024,2025, BayVanguard Bank exceeded all of its regulatory capital requirements, and was categorized as well capitalized at December 31, 2024.capitalized. Management is not aware of any conditions or events since the most recent notification that would change our category.

This Quarterly Report on Form 10-Q contains forward-looking statements,statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for credit lossesACL;

changes in the economic assumptions and methodology used to calculate the allowance for credit lossesACL;

the imposition of tariffs or other domestic or international governmental policiespolicies, trade restrictions and retaliatory responsesmeasures impacting our borrowers and the broader economy;

the failure to maintain current technologies and/or successfully implement future information technology enhancements and the operational risks associated with the adoption of artificial intelligence and other emerging technologies;

our ability to attract and retain key employees;

The ACL is an estimate of the expected credit losses for loans held for investment and for off-balance sheet exposures. ASC 326, "Financial Instruments-Credit Losses," requires an immediate recognition of the credit losses expected to occur over the lifetime of a financial asset whether originated or purchased. Charge-offs are recorded to the ACL when management believes a loan is uncollectible. Subsequent recoveries, if any, are credited to the ACL. Management believes the ACL is maintained in accordance with GAAP and in compliance with appropriate regulatory guidelines. The ACL includes quantitative estimates of losses for collectively and individually evaluated loans. The quantitative estimate for collectively evaluated loans (other than investor commercial real estate loans) is determined using the average charge-off method that utilizes historical losses for all Maryland banks with assets less than $1 billion beginning in March 2000. The investor commercial real estate portfolio utilizes the national loss history for banks with assets less than $1 billion over the same time period. Investor CREcommercial real estate loans are made nationwide, therefore, management deems it appropriate to utilize national loss rates when evaluating this portfolio. Adjustments are made to the historical loss factors under each scenario for economic conditions, portfolio concentrations, collateral values, the level and trend of delinquent and non-accrual loans and internal changes in staffing, loan policies and monitoring of the portfolio. Loans are selected for individual evaluation primarily based on their payment status and whether the loan has been placed on non-accrual status. Loans on non-accrual status include all loans greater than 90 days delinquent and other loans with weaknesses sufficient for management to place these loans on non-accrual status. The ACL is measured on a collective basis when similar risk factors exist as determined by internal loan coding and assignment to a portfolio segment. The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model's calculation also uses an adjustment for a 12-month forecast period utilizing the most recent 12-month economic forecast from the Federal Reserve Board for national gross domestic product ("GDP") and the national unemployment rate. The model compares the average history of loss rates described above to the forecasted GDP and unemployment to determine the necessity and amount of any forward-looking adjustment. The establishment of the ACL is significantly affected by management's judgment and by economic and other uncertainties, and different amounts may be reported under different conditions or assumptions. The Federal Deposit Insurance Corporation and the Maryland Office of the Commissioner of Financial Regulation, as an integral part of their examination process, periodically review the ACL for reasonableness and, as a result of such reviews, we may be required to increase our ACL or recognize loan charge-offs. The calculation of ACL excludes accrued interest receivable balances because these balances are reversed in a timely manner against previously recognized interest income when a loan is placed on non-accrual.

At MarchJune 31,30, 2026, we had a net deferred tax asset totaling $7.4$7.6 million. In accordance with ASC Topic 740 “Income Taxes,” we use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting deferred tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are subjective and are reviewed on a regular basis as regulatory, economic or business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect income. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize its federal and state deferred tax asset.

Comparison of Financial Condition at MarchJune 31,30, 2026 (unaudited) and December 31, 2025

Assets. Total assets were $910.9$877.9 million at MarchJune 31,30, 2026, a decrease of $1.3$34.3 million, or 0.15%,3.8%, from $912.2 million at December 31, 2025. The decrease was due primarily to the decrease of $19.3$44.3 million in loans, partially offset by an increase of $18.9$13.2 million in cash and cash equivalents.

Cash and Cash Equivalents. Cash and cash equivalents increased $18.9$13.2 million, or 33.9%,23.8%, to $74.6$68.9 million at MarchJune 31,30, 2026 from $55.7 million at December 31, 2025. The increase in cash was primarily a result of the pay-downs in loans.

Loans. Loans receivable decreased $19.3$44.3 million, or 2.6%,5.9%, to $735.6$710.6 million at MarchJune 31,30, 2026 from $754.9 million at December 31, 2025. Real estate loans decreased $11.3$32.1 million while consumer and commercial loans decreased $8.0$12.2 million.

Allowance for Credit Losses. The allowance for credit losses – loans decreased $38,000$223,000 to $6.4$6.2 million at MarchJune 31,30, 2026 compared to $6.4 million at December 31, 2025. The ratio of our allowance for credit losses to total loans was 0.87% at MarchJune 31,30, 2026 compared to 0.85% at December 31, 2025, while the allowance for credit losses to non-performing loans was 282.9%182.1% at MarchJune 31,30, 2026 compared to 284.7% at December 31, 2025.

Securities. Securities available for sale decreased by $336,000,$1.0 million, or 1.0%,3.0%, from December 31, 2025 as paydowns and maturities were not fully replaced with new purchases. The held-to-maturity portfolio experienced a slight decrease due to paydowns.

Liabilities. Total liabilities decreased $1.2$33.7 million, or 0.16%,4.6%, to $727.2$694.8 million at MarchJune 31,30, 2026 from $728.4 million at December 31, 2025. The decrease was due primarily to the decrease in depositsFHLB offsetborrowings byof an$35.0 increasemillion. inThe otherCompany liabilities.had no advances outstanding at June 30, 2026.

Deposits. Total deposits decreased $2.6 million,$204,000, or 0.38%0.03% to $673.5$675.9 million at MarchJune 31,30, 2026 from $676.1 million at December 31, 2025. Interest-bearing deposits decreased $3.5 million,$228,000, or 0.7%,0.04%, to $534.2$537.5 million at MarchJune 31,30, 2026 from $537.7 million at December 31, 2025.2025, Noninterestwhile noninterest bearing deposits increasedremained $1.0 million, or 0.7%, to $139.3 millionunchanged at March 31, 2026 from $138.4 million at December 31, 2025.million.

Stockholders’ Equity. Stockholders’ equity decreased $167,000,$603,000, or 0.1%,0.3%, to $183.6$183.2 million at MarchJune 31,30, 2026 from $183.8 million at December 31, 2025 aprimarily due to $2.0 million in stock repurchases offset by net income, and the impact of equity compensation plans.income.

Comparison of Operating Results for the Three Months Ended MarchJune 31,30, 2026 and 2025

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances only. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Average balances exclude loans held for sale, if applicable. Net deferred loan origination fees totaled $2.3$2.2 million and $2.2$2.3 million at MarchJune 31,30, 2026 and 2025, respectively.

The following table sets forth the effects of changing rates and volumes on our net interest income for the three months ended MarchJune 31,30, 2026 and 2025. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by current rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately based on the changes due to rate and volume.

Net Income. Net income was $1.1 million or $0.13 per diluted share for the three months ended March 31, 2026 compared to $2.6 million or $0.21 per diluted share for the three months ended March 31, 2025. The decreases were due to higher compensation expenses and smaller credits to the provision for credit losses offsetting higher net interest and other income. As previously disclosed in a Form 8-K filed with the Securities and Exchange Commission, compensation expense for the quarter includes the $2.2 million payment made to the former Co-President and CEO upon his retirement Interest Income. Interest income increaseddecreased $201,000,$61,000, or 1.69%,0.5%, to $12.1$12.2 million for the three months ended MarchJune 31,30, 2026 from $11.9$12.3 million for the three months ended MarchJune 31,30, 2025. The increasedecrease was due primarily to ana increasedecrease in interest income on loans,loans and securities, partially offset by aan decreaseincrease in other interest income on cash and cash equivalents. Interest income on loans increaseddecreased $402,000,$169,000, or 3.7%,1.5%, to $11.1$11.2 million for the three months ended MarchJune 31,30, 2026 from $10.7$11.3 million for the three months ended MarchJune 31,30, 2025 due primarily to increasesdecreases in the average yieldbalances onof loans.$30.9 million. The weighted average yield on loans increased 2217 basis points to 6.11%6.21% for the three months ended MarchJune 31,30, 2026 compared to 5.89%6.04% for the three months ended MarchJune 31,30, 2025, as variable rate loans reset to higher interest rates and the rates on new loans exceeded the rates on paid off loans due to the higher interest rate environment. Interest income on cash and cash equivalents decreasedincreased $138,000$151,000 to $605,000$713,000 for the three months ended MarchJune 31,30, 2026 from $743,000$562,000 for the three months ended MarchJune 31,30, 2025 primarily due to aan decreaseincrease in average balance of $1.6$24.0 million and a decrease in teh average yield.million.

Interest Expense. Interest expense decreased $267,000$443,000 or 8.3%14.2% to $3.0$2.7 million for the three months ended MarchJune 31,30, 2026 from $3.2$3.1 million at MarchJune 31, 2025. Interest expense on FHLB advances for the three months ended March 31, 2026 was $319,000 compared to $171,000 for the three months ended March 31,30, 2025. The increasedecrease in interest expense onwas FHLB advances wasprimarily due to the Bank'spay-off utilizationof the subordinated debentures in December 2025, and the early pay-off of FHLB borrowings towhich replace the $35.0 millionresulted in subordinateda debtgain issued(decrease in 2020interest that was redeemedexpense) in DecemberJune 2025.2026.

Net Interest Income. Net interest income was $9.1$9.5 million for the three months ended MarchJune 31,30, 2026 compared to $8.6$9.2 million for the three months ended MarchJune 31,30, 2025. The net interest margin for the three months ended MarchJune 31,30, 2026 was 4.36%4.58% compared to 4.12%4.36% for the three months ended MarchJune 31,30, 2025. The increase in net interest income was primarily due primarilyto higher yields on interest earning assets and lower interest expense due to the Bank's utilizationpay-offs of lower cost Federal Home Loan Bank borrowings to replace the $35.0 million in subordinated debt that was paid off in December 2025 and higher rates earned on the loan portfolio, offset by lower yields on other interest-earning assets.borrowings.

Provision for Credit Losses. The Company recorded a reversalrecovery of the provision for credit losses of $11,000$216,000 for the three months ended MarchJune 31,30, 2026 compared to a provision for credit losses of $297,000$178,000 for the three months ended MarchJune 31,30, 2025. Our allowance for credit losses - loans was $6.2 million at June 30, 2026 and $6.4 million at March 31, 2026 and December 31, 2025. The ratio of our allowance for credit losses - loans to total loans was 0.87% at MarchJune 31,30, 2026 compared to 0.85% at December 31, 2025, while the allowance for credit losses - loans to non-performing loans was 282.88%182.1% at MarchJune 31,30, 2026 compared to 284.72%284.7% at December 31, 2025.

Non-interest Income. For the three months ended MarchJune 31,30, 2026, noninterest income totaled approximately $528,000$467,000 compared to $530,000$714,000 for the quarter ended MarchJune 31,30, 2025. The decrease was attributable to the $135,000 write-down of a former branch location to estimated sales proceeds and lower miscellaneous fees on loans and deposits.

Income Tax Expense. For the three months ended MarchJune 31,30, 2026, income tax expense was $961,000$1.3 million for an effective tax rate of 46.8%.26.8%. For the three months months ended MarchJune 31,30, 2025, income tax expense was $599,000$1.1 million for an effective tax rate of 22.2%. The increase in the effective tax rate is primarily attributable to the non-deductible portion of the executive transition payment.27.3%.

Asset Quality. Non-performing loansassets at MarchJune 31,30, 2026 totaled $2.6$3.4 million, all nonperforming loans, compared to $2.3 million at December 31, 2025.2025, Thealso Companyall hadnonperforming no foreclosed real estate at either period.loans. At MarchJune 31,30, 2026, the allowance for credit losses on loans was $6.4$6.2 million, which represented 0.87% of total loans and 282.9%182.1% of non-performing loans compared to $6.4 million at December 31, 2025, which represented 0.85% of total loans and 284.7% of non-performing loans.

Liquidity. Liquidity describes our ability to meet financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities and proceeds from maturities of securities. We also have the ability to borrow from the FHLB. At MarchJune 31,30, 2026, we had a $108.4$142.3 million available under a line of credit with the FHLB.FHLB, with no borrowings outstanding. The Company also has a $20.0 million short-term unsecured facility from a correspondent bank.

While maturities and scheduled amortization of loans and securities can be a predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments, including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. We are committed to maintaining a strong liquidity position.

We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. At MarchJune 31,30, 2026, the Company had $50.3$50.1 million in brokered deposits compared to $50.0$50.3 million in brokered deposits at MarchJune 31,30, 2025. In addition, we had $58.9$56.7 million of municipal deposits at MarchJune 31,30, 2026, which represented 8.7%8.4% of total deposits. The Bank's uninsured deposits totaled $149.5$150.1 million, or 22.0%22.2% of total deposits, of which $53.7$52.9 million were secured using the market value of pledged collateral or letters of credit issued by FHLB, and an additional $6.1$4.6 million were deposits of the Company at the Bank.

Capital Resources. At MarchJune 31,30, 2026, the Bank exceeded all of its regulatory capital requirements and was categorized as well capitalized. Management is not aware of any conditions or events since the most recent notification that would change our category.