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

Deterioration in economic conditions could adversely affect our business. Our business is directly affected by general economic and market conditions; broad trends in industry and finance; legislative and regulatory changes; changes in governmental monetary and fiscal policies, including trade policies and tariffs; level and volatility of interest rates; and inflation, all of which are beyond our control. Prolonged periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expenses related to talent acquisition and retention, and negatively impacting the demand for our products and services. Additionally, inflation and supply chain disruptions for our consumers and clients may lead to a decrease in consumer and client’s purchasing power and an increase in default rates on our loans. Any deterioration in economic conditions, in particular a prolonged economic slowdown within our geographic region or a broader disruption in the economy, possibly as a result of a pandemic or other widespread public health emergency, acts of terrorism or outbreak of domestic or international hostilities (including the ongoing military conflictsconflict betweenwith Russia and Ukraine and in the Middle EastIran), could result in the following consequences, any of which could hurt our business materially: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decline in demand for our products and services; a deterioration in the value of collateral for loans made by our various business segments; and changes in the fair value of financial instruments held by the Corporation or its subsidiaries.

The policies of the Federal Reserve affect us significantly. The Federal Reserve regulates the supply of money and credit in the U.S. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower's products and services. This could adversely affect the borrower’s earnings and ability to repay a loan, which could have an adverse effect on our financial condition and results of operations. Alternatively, an expansion of the money supply could make it easier for a borrower to obtain a loan from another financial institution at a lower interest rate, resulting in a payoff of that borrower’s higher rate loan with us, and which could have an adverse effect on our financial condition and results of operations. If interest rates were to decline quickly, our net interest margin could be adversely affected in the short term as our assets typically reprice downward more quickly than our deposits and borrowings.

We provide full-service banking and other financial services throughout eastern and central Virginia, mortgage banking in Virginia and the surrounding states, and consumer finance activities primarily throughout the Mid-Atlantic, Midwest and Southern United States. Our lending and deposit activities are directly affected by, and our financial success depends on, economic conditions within these markets, as well as conditions in the industries on which those markets are economically dependent. A deterioration in local economic conditions or in the condition of an industry on which a local market depends, such as the U.S. federal government and related contractors or the U.S. military and related defense contractors and industries, could adversely affect such factors as unemployment rates, business formations and expansions and housing market conditions. Adverse developments in any of these factors could result in among other things, a decline in loan demand, a reduction in the number of credit-worthy borrowers seeking loans, an increase in delinquencies, defaults and foreclosures, an increase in classified and nonaccrual loans, a decrease in the value of loan collateral, and a decline in the financial condition of borrowers and guarantors, any of which could adversely affect our financial condition or business.

The Corporation also invests in the debt securities of corporate issuers, primarily financial institutions, that the Corporation views as having a strong financial position and earnings potential. However, a deterioration in economic or other conditions in the localities in which these institutions do business in could adversely affect their financial condition and results of operations, and therefore adversely affect the value of our investments. Additionally, thea majorityportion of the debt securities in which we have invested remained in an unrealized loss position as of December 31, 2024,2025, due primarily to increases in interest rates after we purchased those debt securities. If the Corporation is forced to sell debt securities in an unrealized loss position for liquidity or other needs or it determines that there is credit loss with respect to any of the Corporation’s debt securities, the Corporation may be forced to recognize those losses or an impairment charge in net income.

Our mortgage banking segment has historically provided a significant portion of our noninterest income by generating gains on sales of mortgage loans that we originate. Interest rates, housing inventory, housing demand, inflation, cash buyers, new mortgage lending regulations and other market conditions, such as the number of third-party investors and their demand to purchase mortgage loans, have a direct effect on loan originations across the industry. In particular, in the current higher interest rate environment (when compared to 2020 to 2022), our originations of mortgage loans have decreased, resulting in fewer loans available to be sold to investors, which has resulted in a decrease in noninterest income that may continue into future periods, and which may occur during other periods of rising interest rates. In addition, our results of operations are affected by the amount of noninterest expenses (including for personnel and systems infrastructure) associated with mortgage banking activities. During periods of reduced loan demand, our results of operations may be adversely affected if we are unable to reduce expenses commensurate with the decline in mortgage loan origination activity.

Making loans is an essential element of our business. The risk of nonpayment is affected by a number of factors, including but not limited to: the duration of the credit; credit risks of a particular customer; inflation; changes in economic and industry conditions; and, in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral. Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices, our loans may not be repaid. We attempt to maintain an appropriate allowance for credit losses to provide for losses in our loan portfolio. BecauseThe anyprocess to determine the allowance for credit losses uses models and assumptions that require us to make difficult and complex judgments that are often interrelated. This includes forecasting how borrowers will perform in changing and unprecedented economic conditions. The ability of our borrowers to repay their obligations will likely be impacted by changes in future economic conditions, which in turn could impact the accuracy of our loss forecasts and allowance estimates. There is also the possibility that we have failed or will fail to accurately identify the appropriate economic indicators, to accurately estimate the timing of future changes in economic conditions, or to estimate accurately the impacts of future changes in economic conditions to our borrowers, which similarly could impact the accuracy of our loss forecasts and allowance estimates. If the models, estimates, and assumptions we use to establish reserves or the judgments we make in extending credit to our borrowers prove inaccurate in predicting future events, we may suffer unexpected losses. The allowance for credit losses is necessarilyour subjectivebest estimate of expected credit losses; however, there is no guarantee that it will be sufficient to address credit losses, particularly if the economic outlook deteriorates significantly and thequickly. accuracyIn ofsuch anyan estimate depends on the outcome of future events that are not within our control,event, we facemay the risk that charge-offs in future periods will exceedincrease our allowance for credit losseslosses, which would reduce our earnings. Additionally, to the extent that economic conditions worsen, impacting our consumer and thatcommercial additionalborrowers or underlying collateral, and credit losses are worse than expected, as may be caused by inflation, an economic recession or otherwise, we may increase our provision for creditloan losses will be required,losses, which wouldcould have an adverse effect on theour Corporation’sbusiness, netfinancial income.condition, and results of operations. Although we believe our allowance for credit losses is adequate to absorb expected losses that are inherent in our loan portfolio, we cannot predict the timing or severity of such losses nor give any assurance that our allowance will be adequate in the future.

Events in the financial services industry, including bank closures, can cause general uncertainty and concern regarding the adequacy of liquidity of the financial services industry generally. While we rely on different sources of funding to meet potential liquidity needs, our business strategies are largely based on access to funding from customer deposits and supplemental funding provided by wholesale or other secondary liquidity sources. Deposit levels may be affected by various industry factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, conditions in the financial services industry specifically and general economic conditions that impact the amount of liquidity in the economy and savings levels, and also by factors that impact customers’ perception of our financial condition and capital and liquidity levels. Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry, or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar events, have in the past and may in the future lead to erosion of customer confidence in the banking system, deposit volatility, liquidity issues, stock price volatility, increased regulatory scrutiny, and other adverse developments. The bank closures in the first half of 2023 led to such disruption and volatility in the financial services industry generally, including deposit outflows and increasing liquidity needs at many regional banks, which led banking regulators to take extraordinary actions to insure otherwise uninsured deposit accounts at the closed banks and to permit such banks’ depositors to promptly access all funds on deposit. The response to bank closures by the U.S. Government, including the U.S. Department of the Treasury, the FDIC, and the Federal Reserve, cannot be predicted and the policies and regulations implemented in response to past bank closures cannot be expected to be extended or repeated in response to a future bank closure. The Corporation cannot predict to what extent any such steps taken by the banking regulators will be effective in calming the financial markets and financial services industry generally, preventing further bank closures, or reducing the risk of deposit outflows, and particularly sudden deposit outflows, from banks. As a result of this uncertainty, we face the potential for deposit outflows, increased borrowing and funding costs, and increased competition for liquidity, any of which could have a material adverse impact on our financial performance or financial condition.

In the ordinary course of business, the Corporation collects and stores sensitive data, including proprietary business information and personally identifiable information of our customers and employees, in systems and on networks, including those hosted by third-party vendors. The secure processing, maintenance and use of this information is critical to operations and the Corporation’s business strategy. The Corporation has invested in information security technologies and continually reviews processes and practices that are designed to protect its networks, computers and data from damage or unauthorized access, including periodically those employed by third-party vendors that host the Corporation’s data and applications. Despite these security measures, the Corporation’s computer systems and infrastructure may be vulnerable to attacks by hackers or may be breached due to employee error, malfeasance or other disruptions. SecurityWe, breaches,our customers, regulators and other third parties, including cybersecurityother incidents,financial identityservices theftinstitutions and hackingcompanies events,engaged in data processing, have been experiencedsubject byto, severaland ofare likely to continue to be the world’starget largestof, financial institutions that utilize sophisticated security tools to prevent such breaches, incidents and events.cyber-attacks. Any security breach that we experience could result in legal claims, regulatory penalties, disruption in operation, remediation expenses, costs associated with customer notification and credit monitoring services, increased insurance premiums, loss of customers and business partners and damage to the Corporation’s reputation. We rely on customary security systems and procedures to provide the security and authentication necessary to effect secure collection, transmission and storage of sensitive data. These systems and procedures include but are not limited to (i) regular penetration testing of our network, (ii) regular employee training programs on sound security practices and awareness of security threats, (iii) deployment of tools to monitor our network including intrusion prevention and detection systems, electronic mail spam filters, anti-virus, anti-malware, anti-ransomware, resource logging and patch management, (iv) multifactor authentication for customers using treasury management tools and employees who access our network from outside of our premises, and (v) enforcement of security policies and procedures for the additions and maintenance of user access and rights to resources. However, because the techniques used to obtain unauthorized access, or to disable or degrade systems change frequently and are often not recognized until launched against a target, even with all reasonable security efforts, the Corporation may be unable to anticipate these techniques or to implement adequate protective measures. Additionally, as cyber threats continue to evolve, the Corporation may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents.

Certain key applications, including our core data processing are outsourced to third partythird-party providers. If our thirdthird- party providers encounter difficulties or if we have difficulty in communicating with such third parties, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations and reputation. Additionally, in recent years banking regulators have focused on the responsibilities of financial institutions to supervise vendors and other third-party service providers. We may have to dedicate significant resources to manage risks and regulatory burdens presented by our relationship with vendors and third-party service providers, including our data processing and cybersecurity service providers.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products, systems and services, which may require substantial initial investment to be implemented, including the cost of modifying or adapting existing products, systems and services.services, and we anticipate that new technologies will continue to emerge. The Corporation invests in new technology to enhance customer service, and to increase efficiency and reduce operating costs. Our future success will depend in part upon our ability to create synergies in our operations through the use of technology and to facilitate the ability of customers to engage in financial transactions in a manner that enhances the customer experience. We cannot give any assurance that technological improvements will increase operational efficiency or that we will be able to effectively implement new technology-driven products, systems and services or be successful in marketing new products and services to our customers. A failure to maintain or enhance a competitive position with respect to technology, whether because of a failure to anticipate customer expectations, substantially fewer resources to invest in technological improvements than larger competitors, or because our technological developments fail to perform as desired or are not implemented in a timely manner, could result in higher operating costs, decreased customer satisfaction, and lower market share. An inability to effectively implement new technology and realize operational efficiencies could result in the loss of initial investments in such projects and higher operating costs. Either of these outcomes could have a material adverse impact on our financial condition and results of operations.

We orand our third-party vendors, clients or counterparties mayhave begun to develop and incorporate and will likely continue to develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI presentspresent several potential risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility. Additionally, malicious actors are increasingly using AI, including generative AI, to create sophisticated scams, deepfakes, and phishing attacks, which may result in unauthorized account access or financial losses. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.

We are subject to numerous laws, regulations and supervision from both federal and state agencies. Our compliance with these laws is costly and potentially restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of our offices. Failure to comply with these laws and regulations could result in financial, structural and operational penalties, including receivership. In addition, establishing systems and processes to achieve compliance with these laws and regulations may increase our costs and/or limit our ability to pursue certain business opportunities.

Laws and regulations, and any interpretations and applications with respect thereto, generally are intended to benefit consumers, borrowers and depositors, but not stockholders. The legislative and regulatory environment is beyond our control, may change rapidly and unpredictably and may negatively influence our revenues, costs, earnings, and capital levels. Our success depends on our ability to maintain compliance with both existing and new laws and regulations. Further, the financial services industry has recently faced more aggressive enforcement of laws at federal, state and local levels, particularly in connection with practices that they deem to harm consumers or the financial system more generally.

Future legislation, regulation and government policy, particularly following changes in political leadership and policymakers in the federal government, could affect the banking industry as a whole, including the Corporation’s business and results of operations, in ways that are difficult to predict. In addition, the Corporation’s results of operations could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies, or as a result of changes in supervision, examination and enforcement priorities and policies of government agencies. See “Regulation and Supervision” included in Item 1. Business, of this Annual Report on Form 10-K for a more detailed description of the certain regulatory requirements applicable to the Corporation.

At this time, it is difficult to predict the legislative and regulatory changes that will result from the combination of the newcurrent presidential administration and both Houses of Congress having majority memberships from the same political party. It appears that the newcurrent presidential administration willis seekseeking to implement a regulatory reform agenda that is significantly different than that of the previous administration, impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies. Furthermore, the change in presidential administration has, and is expected to continue to, result in certain changes in the leadership and senior staffs of the federal banking agencies. Such changes are likely to impact the rulemaking, supervision, examination and enforcement priorities and policies of the agencies. In addition, changes in key personnel at the agencies that regulate such banking organizations, including the federal banking agencies, may result in differing interpretations of existing rules and guidelines and potentially different enforcement priorities. The potential impact of any changes in agency personnel, policies, priorities, regulations and interpretations on the financial services sector, including us, cannot be predicted.

The newcurrent presidential administration and Congress also may cause broader economic changes due to changes in governing ideology and governing style, as well as changes to the size, scope and operations of the federal government. These changes could have varied effects on the economy that are difficult to predict. For example, changes in trade and fiscal policy could affect broader patterns of trade and economic growth. Additionally, comprehensive changes to the federal government could be materially adverse to the regional and local economies where we conduct business and to our customers, which, in turn, could be materially adverse to our business, financial condition and results of operations.

The CFPB significantly influences consumer financial laws, regulation and policy through rulemaking related to enforcement of the Dodd-Frank Act’s prohibitions against unfair, deceptive and abusive consumer finance products or practices, which are directly affectingaffect the business operations of financial institutions offering consumer financial products or services, including the Corporation. This agency’s broad rulemaking authority includes identifying practices or acts that are unfair, deceptive or abusive in connection with any consumer financial transaction, financial product or service. In particular, the CFPB’s interpretation of the Dodd-Frank Act’s prohibitions against unfair, deceptive and abusive consumer finance products or practices and the application of those prohibitions to so-called “junk fees” may ultimately affect products or services currently offered by the Corporation and its subsidiaries and may affect the amount of revenue that may be derived from these products and services in the future, especially revenue from overdraft products offered by the Bank. Although the CFPB has jurisdiction over banks with $10 billion or greater in assets, rules, regulations and policies issued by the CFPB may also apply to the Corporation or its subsidiaries by virtue of the adoption of such policies and practices by the Federal Reserve and the FDIC. Further, the CFPB may include its own examiners in regulatory examinations by the Corporation’s primary regulators. The limitations and restrictions imposed by the CFPB may produce significant, material effects on our business, financial condition and results of operations. There is ongoing uncertainty as to the CFPB’s regulations and approach to enforcement and supervision; although, the current leadership of the CFPB has indicated intentions to rescind or revise many regulations, as well as to narrow its enforcement and supervision. We cannot currently predict the impact of such changes on our business, financial condition and results of operation.

Although our common stock is listed for trading on NASDAQ Global Select Market, the trading volume in our common stock may be lower than that of other larger financial institutions. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given these factors, a shareholder may have difficulty selling shares of our common stock at an attractive price (or at all). Additionally, shareholders may not be able to sell a substantial number of our common stock shares for the same price at which shareholders could sell a smaller number of shares. Given the potential for lower relative trading volume in our common stock, significant sales of the common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of these sales or perceptions.

Although the Corporation has historically paid cash dividends to holders of its common stock, holders of common stock are not entitled to receive dividends. Financial, regulatory or economic factors may cause the Corporation’s Board of Directors to consider, among other actions, the suspension or reduction of dividends paid on the Corporation’s common stock. Furthermore, the Corporation is a bank holding company that conducts substantially all of its operations through its subsidiaries, including the Bank. As a result, the Corporation relies on dividends from the Bank for substantially all of its revenues. There are various regulatory restrictions on the ability of the Bank to pay dividends or make other payments to the Corporation, and the Corporation’s right to participate in a distribution of assets upon the Bank’s liquidation or reorganization is subject to the prior claims of the Bank’s creditors. For information on these regulatory restrictions on the ability of the Bank to pay dividends to the Corporation, see Part I – Item I – “Regulation and Supervision – Limits on Dividends.” If the Bank is unable to pay dividends to the Corporation, the Corporation may not be able to service its outstanding borrowings and other debt, pay its other obligations or pay a cash dividend to the holders of the Corporation’s common stock, and the Corporation’s business, financial condition and results of operations may be materially adversely affected.

Our common stock price has been volatile in the past, and several factors could cause the price to fluctuate in the future. These factors include, but are not limited to, actual or anticipated variations in earnings, changes in analysts’ recommendations or projections with regard to our common stock or the markets and businesses in which we operate, operations and stock performance of other companies deemed to be our peers, and reports of trends and concerns and other issues related to the financial services industry.industry, changes in government regulations, geopolitical conditions such as acts or threats of terrorism, military conflicts, the effects (or perceived effects) of pandemics and trade relations, and the realization of any of the other risks presented in this Form 10-K. Fluctuations in our common stock price may be unrelated to our performance. General market declines or market volatility in the future, especially in the financial institutions sector, could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

We believe that our growth and future success will depend in large part on the skills of our executive officers. We also depend upon the experience of the officers of our subsidiaries and on their relationships with the communities they serve. The loss of the services of one or more of these officers could disrupt our operations and impair our ability to implement our business strategy, and we may not be able to find adequate replacements, which could adversely affect our business, financial condition and results of operations.

TheFrom time to time, the Corporation or any of its subsidiaries or their respective directors and management are or may bebecome involved from time to time in a variety of litigation arising out of its business, and the Corporation operates in a legal and regulatory environment that exposes it to potential significant litigation risk. The Corporation’s insurance may not cover all claims that may be asserted against it in legal or administrative actions or costs that it may incur defending such actions, and any claims asserted against it, regardless of merit or eventual outcome, may harm the Corporation’s reputation. Should the ultimate judgments or settlements and/or costs incurred in any litigation exceed any applicable insurance coverage, they could have a material adverse effect on the Corporation’s financial condition and results of operation for any period.

Total consolidated equity increased $9.5$35.4 million at December 31, 20242025 compared to December 31, 2023,2024, due primarily to net income and lower unrealized losses in the market value of securities available for sale, which are recognized as a component of other comprehensive income, partially offset by share repurchases and dividends paid on the Corporation’s common stock. The Corporation’s securities available for sale are fixed income debt securities,securities and their unrealized loss position, a component of other comprehensive income,position is a result of increased market interest rates since they were purchased. The Corporation expects to recover its investments in debt securities through scheduled payments of principal and interest. Unrealized losses are not expected to affect the earnings or regulatory capital of the Corporation or C&F Bank. The accumulated other comprehensive loss related to the Corporation’s securities available for sale, net of deferred income taxes, decreased to $10.2 million at December 31, 2025, compared to $23.7 million at December 31, 2024, compared to $25.0 million at December 31, 20232024 due primarily to fluctuations in debt security market interest rates and a decrease in the balance of securities available for sale in an unrealized loss position as a result of maturities, calls and paydowns outpacing purchases.paydowns.

The Corporation’s Board of Directors continued its historical practice of paying dividends in 2024.2025. For each of the yearsyear ended December 31, 2024 and 2023,2025, the Corporation declared dividends oftotaling $1.84 per share, compared to $1.76 per share.share for the year ended December 31, 2024. The Board of Directors of the Corporation continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital levels and requirements and expected future earnings. In making its decision on the payment of dividends on the Corporation’s common stock, the Corporation’s Board of Directors considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder returns, growth expectations and other factors.

In December 2024, the Board of Directors authorized a new program, effective January 1, 2025 through December 31, 2025, to repurchase up to $5.0 million of the Corporation’s common stock (the 2025 Repurchase Program). RepurchasesDuring the year ended December 31, 2025, the Corporation did not make any repurchases of its common stock under the 2025 Repurchase Program may be made through privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and shares repurchased will be returned to the status of authorized and unissued shares of common stock.Program.

Allowance for Credit Losses: We establish the allowance for credit losses through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. The measurement of the allowance for credit losses on commercial and consumer loans is based in part on forecaststhe twelve-month forecast of the national unemployment rate, which we believe to be indicative of risk factors related to the collectability of commercial and consumer loans. Forecasts of the national unemployment rate are derived from the Federal Open Markets Committee of the Federal Reserve Board. For periods beyond those for which reasonable and supportable forecasts are available, projections are based on a reversion of the national unemployment rate from the last forecast to a historical average level over the following six months. In addition, management’s estimate of expected credit losses is based on the remaining life of loans held for investment, andwhich is affected in part by changes in expected prepayment behavior may result in changesand in the remainingnature lifeand volume of loansthe andloan expected credit losses.portfolio. Management also assesses the risk of credit losses arising from external factors, such as changes in general market, economic and business conditions; the nature and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances and the value of underlying collateralcollateral, to make qualitative adjustments in determining the recorded balance of the allowance for credit losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. InThese evaluatingfactors outside of the Corporation’s control are difficult to predict and can have significant impacts on the level of allowance that is required, which can be different than the allowance,level werecorded considerbased aon rangethe ofthen-existing possibleloan assumptionsportfolio, unemployment rate forecast and outcomesother related to the variousexternal factors identifiedthat above.were The level of the allowance is particularly sensitive to changesused in the actualqualitative andadjustments forecastedat nationalthat unemployment rate and changes in current conditions or reasonably expected future conditions affecting the collectability of loans.time.

Goodwill: The Corporation’s goodwill was recognized in connection with past business combinations and is reported at the community banking segment and the consumer finance segment. The Corporation reviews the carrying value of goodwill at least annually or more frequently if certain impairment indicators exist. In testing goodwill for impairment, the Corporation may first consider qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further testing is required and the goodwill of the reporting unit is not impaired. If the Corporation elects to bypass the qualitative assessment or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the fair value of the reporting unit is compared with its carrying value to determine whether an impairment exists. In the last evaluation of goodwill at the community banking segment and the consumer finance segment, which was the annual evaluation in the fourth quarter of 2024, the Corporation concluded that no impairment existed based on an assessment of qualitative factors.

The following table shows the average balance sheets, the amounts of interest earned on earning assets, with related yields, and interest expense on interest-bearing liabilities, with related rates, for each of the years ended December 31, 2024,2025, 20232024 and 2022.2023. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21 percent that was applicable for all periods presented. Average balances of securities available for sale are included at amortized cost. Loans include loans held for sale. Loans placed on a nonaccrual status are included in the balances and are included in the computation of yields, but had no material effect. Accretion and amortization of fair value purchase adjustments related to business combinations are included in the computation of yields on loans and investments and on the cost of borrowings, but had no material effect.

Net interest income, on a taxable-equivalent basis, for 20242025 decreasedincreased to $97.9$107.4 million, compared to $98.7$97.9 million for 2023,2024, due primarily to ahigher decreaseaverage balances of earning assets and an increase in net interest margin,margin. Average earning assets grew $171.5 million, or 7.2 percent, to $2.55 billion for 2025 compared to $2.38 billion for 2024, and net interest margin increased 9 basis points to 4.21 percent in 2025 compared to 4.12 percent in 2024. Net interest margin increased due primarily to higher average interest rates on securities available for sale, a shift in the mix of interest-earning assets towards higher-earning assets and lower average interest rates on deposits, partially offset by higher average balancescost of earning assets. Average earning assets grew $92.6 million, or 4.1 percent, to $2.38 billion for 2024 compared to $2.29 billion for 2023, and net interest margin decreased 19 basis points to 4.12 percent in 2024 compared to 4.31 percent in 2023. Net interest margin decreased due primarily to an increase in costs of interest-bearing deposits and a shift to higher cost deposits, partially offset by an increase in yields and balances of earning assets and a change in the mix of securities and loans.borrowings. The Federal Reserve Bank increaseddecreased the target federal funds interest rate from an upper limit of 5.50 percent at December 31, 2023 to 4.50 percent at December 31, 20222024 and to 5.503.75 percent by December 31, 2023, where it remained unchanged until September 2024, and decreased it to 4.50 percent by December 31, 2024.2025. The yield on interest-earning assets and cost of interest-bearing liabilities increased by 457 basis points and 85decreased by 5 basis points, respectively, for 2024,2025, compared to 2023.2024.

Average loans, which includes both loans held for investment and loans held for sale, increased $172.0$132.0 million to $2.02 billion for 2025, compared to $1.89 billion for 2024, compared to $1.71 billion for 2023.2024. Average loans held for investment at the community banking segment increased $164.0$138.4 million, or 13.510.0 percent, to $1.52 billion for 2025, compared to $1.38 billion for 2024, compared to $1.21 billion for 2023, due primarily to growth in the construction, commercial real estateestate, land acquisition and residentialdevelopment mortgageand equity lines segments of the loan portfolio. Average loans held for investment at the consumer finance segment increaseddecreased $2.9$12.3 million, or one2.6 percent, to $464.4 million for 2025, compared to $476.8 million for 2024, compared to $473.9 million for 2023, due primarily to highera averagedecrease balancesin marine and recreational vehicle (RV) loans as the third party administrator of that program significantly decreased sales of those loans to outside parties during 2025, which led to the consumer finance segment ending future purchases under the program during the third quarter of 2025. The marine and RV portfolio is expected to run off over the next several years as scheduled borrower payments are made on the existing loans. Average loans at the mortgage banking segment, which consist primarily of loans held for sale, increased $5.1$6.0 million, or 20.119.5 percent, to $36.7 million for 2025, compared to $30.7 million for 2024, compared to $25.6 million for 2023, due primarily to higher mortgage loan production volume in 20242025 compared to 2023.2024.

Average securities available for sale decreasedincreased $81.3$7.6 million to $463.2 million for 2025, compared to $455.6 million for 2024, compared to $536.9 million for 2023, due primarily to purchases of mortgage-backed securities outpacing maturities, calls and paydowns outpacingthroughout purchases.the portfolio. The average yield on the securities portfolio on a taxable-equivalent basis increased 2846 basis points to 3.11 percent for 2025, compared to 2.65 percent for 2024, compared to 2.37 percent for 2023, due primarily to thepurchases of securities during recent periods at higher interestaverage rateyields environmentrelative to the average yield of the portfolio as a whole and thelower maturityprepayment ofactivity lower-yieldingon securities.mortgage-backed securities, which resulted in lower premium amortization.

Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the Federal Reserve Bank, increased $1.8$31.8 million to $69.1 million for 2025, compared to $37.2 million for 2024, compared to $35.4 million for 2023.2024. The average yield on interest-bearing deposits in other banks increaseddecreased 177 basis points to 3.62 percent for 2025, compared to 3.69 percent for 2024, compared to 3.52 percent for 20232024 due to the higherdecrease in the federal funds interest rate environmentbeginning duringin theSeptember majority of 2024 compared to 2023.2025.

Average savings and money market and interest-bearing demand deposits combined decreasedincreased $76.9$46.3 million to $850.7 million for 2025, compared to $804.4 million for 2024, compared to $881.3 million for 2023, and average noninterest-bearing demand deposits decreasedincreased $38.7$20.9 million to $557.7 million for 2025, compared to $536.8 million for 2024, compared to $575.5 million for 2023.2024. Average time deposits increased $226.4$85.0 million to $852.8 million for 2025, compared to $767.7 million for 2024, compared to $541.3 million for 2023. The decreases in non-time deposits and increase in time deposits are due primarily to customers seeking higher yielding opportunities as a result of higher interest rates paid on time deposits.2024. The average cost of interest-bearing deposits increaseddecreased 9910 basis points to 2.32 percent for 2025, compared to 2.42 percent for 2024, compared to 1.43 percent for 2023, due primarily to higherdecreases in interest rates paid on time deposits, partially offset by an increase in the rates paid on savings and money market anddeposit timeaccounts. deposits,A aportion shiftof the increases in composition towards timeaverage deposits amidwas due to the higherwind-down interestof ratethe environmentrepurchase andagreement increasedprogram competitionwith forcertain deposits.commercial deposit customers during the third quarter of 2025.

The Corporation believes that the effects of declining market interest rates, if continued into 2025,2026, could adversely affect its net interest margin in the short term as its assets typically reprice downward more quickly than its deposits and borrowings. The majority of the Corporation’s time deposits have repriced within the past year; however, the Corporation anticipates further declines in the cost of deposits due to the most recent decreases in market interest rates in September, October and December 2025. The Corporation also believes any such adverse impacts could be somewhat mitigated by renewals of fixed rate loans originated during periods of lower interest rates and purchases of securities available for sale in the currentwith higher interest rate environment.rates. The ultimate effect of thesemarket factorsfactors, including monetary policy actions taken by the Federal Reserve, on the Corporation’s net interest margin will also depend on other factors, including the Corporation’s ability to grow loans at the community banking segment and consumer finance segments,segment, to compete for deposits, and the extent of its reliance on borrowings. The Corporation gives no assurance as to the timing or extent of changes in market interest rates or the impact of those changes or any other factor on the Corporation's ability to compete for loans and deposits or on its net interest margin. If market interest rates were to rise, net interest margin could be positively affected in the short term as the Corporation generally expects its assets to reprice upward more quickly than its deposits and borrowings.

Total noninterest income increased $923,000,$4.1 million, or 3.113.4 percent, for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023. The increase in noninterest income was2024 due primarily to higher wealth management services income as assets under management increased, higher volume of mortgage loan production at the mortgage banking segment which resulted in higher gains on sales of loans and higher mortgage banking fee income, higher investmentmortgage lender services income from other equity interests, and higher other income from bank owned life insurance policies, partially offset by fluctuations in unrealized gains and losses on investments held in the rabbi trust.trust, partially offset by lower investment income from other equity interests and lower other income.

Income tax expense on 20242025 earnings was $4.2$6.1 million, resulting in an effective tax rate of 17.518.4 percent, compared with $5.4$4.2 million, or 18.617.5 percent, in 2023.2024. The Corporation’s consolidated effective tax rate for the year ended December 31, 20242025 was lowerhigher compared to the year ended December 31, 20232024 due primarily to lower tax benefits of tax-exempt income that was higher as a percentage of pre-tax income inand 2024 compared to 2023, lowerhigher state income taxes in 2024 as a greater share of income before taxes was earned at C&F Bank, which is not subject to state income tax but rather state franchise tax, which is included in noninterest expense, and an increase in the tax benefit in 2024, compared to 2023, related to the appreciation of vested equity awards since the time they were granted.taxes.

Net interest income for the community banking segment decreasedincreased $2.6$10.1 million for the year ended December 31, 2024,2025 compared to the year ended December 31, 20232024 due primarily to aan decreaseincrease in net interest margin,margin partially offset byand higher average balances of earning assets. Interest income allocated to the community banking segment includes interest income on loans to the consumer finance and mortgage banking segments. These transactions are eliminated to reach consolidated totals.

Community banking segment loans, excluding loans to the consumer finance and mortgage banking segments, increased $180.0$136.7 million, or 14.19.4 percent, to $1.6 billion at December 31, 2025, compared to $1.5 billion at December 31, 2024, compared to $1.3 billion at December 31, 2023, due primarily to growth in the commercial real estate, construction, land acquisition and development and residentialequity mortgagelines segments of the loan portfolio. Deposits increased $104.7$174.9 million, or 5.18.1 percent, to $2.3 billion at December 31, 2025, compared to $2.2 billion at December 31, 2024, compared to $2.1 billion at December 31, 2023.2024.

The community banking segment recorded a net reversal of provision for credit losses of $50,000 for the year ended December 31, 2025, compared to a provision for credit losses of $1.7 million for the year ended December 31, 2024,2024. comparedThe allowance for credit losses as a percentage of total loans decreased to $1.61.10 millionpercent for the year endedat December 31, 2023,2025 from 1.20 percent at December 31, 2024. This decrease is due primarily to the resolution of a nonperforming commercial real estate loan that had carried a specific reserve and growth in loans with shorter expected lives, which resulted in lower estimated losses over the life of the loan, partially offset by growth in the loan portfolio. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

The mortgage banking segment reported net income of $2.3 million for the year ended December 31, 2025, compared to $1.1 million for the year ended December 31, 2024, compared to $465,000 for the year ended December 31, 2023, due primarily to:

TheDespite the sustained elevated level of mortgage interest rates, combined with higher home prices and lowerlow levels of inventory, led to a level of mortgage loan originations in 2024 and 2023 for the industry that is lower than recent historical averages. Mortgage loan originations for the mortgage banking segment loan originations increased 5.828.9 percent for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023.2024. Gains on sales of loans, while driven in part by mortgage loan originations, also includes the effects of changes in locked loan commitments, which reflect the volume of mortgage loan applications that are in process and have not closed. Lock-adjusted originations for the mortgage banking segment increased by 11.327.0 percent for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. Locked loan commitments increased by $5.3 million in the year ended December 31, 2025 and increased by $13.1 million in the year ended December 31, 2024 and decreased by $16.1 million in the year ended December 31, 2023.2024. Locked loan commitments were $44.6 million at December 31, 2025, compared to $39.3 million at December 31, 2024,2024 compared toand $26.2 million at December 31, 2023 and $42.3 million at December 31, 2022.2023. Mortgage loan segment originations include originations of loans sold to the community banking segment, at prices similar to those paid by third-party investors. All interest expense allocated to the mortgage banking segment is from interest expense on borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

Through the Lender Solutions division of the mortgage banking segment, mortgage lender services fee income is derived from providing mortgage origination functions to third-party mortgage lenders for a fee. Mortgage lender services fee income increased for the year ended December 31, 20242025 compared to the year ended December 31, 2023,2024, due primarily to increasesincreased mortgage loan volume in the industry, an increase in fees and types of services providedprovided, and thean fees charged, partially offset by a decreaseincrease in the number of institutionalthird-party customers.mortgage lenders serviced.

The mortgage banking segment recorded a net reversal of provision for indemnification losses of $190,000 for the year ended December 31, 2025 compared to a net reversal of provision for indemnification losses of $460,000 for the year ended December 31, 2024 compared to a net reversal of provision for indemnification losses of $585,000 for the year ended December 31, 2023. The mortgage banking segment increased reserves for indemnification losses during 2020 based on widespread forbearance on mortgage loans and economic uncertainty related to the COVID-19 pandemic.2024. The release of indemnification reserves in 20242025 and 20232024 was due primarily to lower volume of mortgage loan originations in recent years, improvement in the mortgage banking segment’s assessment of borrower payment performance, lower volume of mortgage loan originations in recent yearsperformance and other factors affecting expected losses on mortgage loans sold in the secondary market, such as time since origination. The net releases in 2025 decreased compared to 2024 due primarily to the increased mortgage loan originations in 2025 compared to 2024. Management believes that the indemnification reserve is sufficient to absorb losses related to loans that have been sold in the secondary market.

The consumer finance segment recorded provision for credit losses of $11.6 million for each of the yearyears ended December 31, 2024,2025 and 2024. The allowance for credit losses as a percentage of total loans was 4.79 percent at December 31, 2025 compared to $6.74.86 millionpercent for the year endedat December 31, 2023, due primarily to an increase in the number of delinquent loans, the number of repossessions, and the average amount charged-off when a loan was uncollectable. Loans charged-off in 2024 and 2023 were primarily purchased in 2021 and 2022, when the wholesale values of automobiles were higher. Wholesale values of automobiles were generally lower in 2024 than 2023, resulting in larger amounts charged-off per loan.2024. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected. If loan performance deteriorates resulting in further elevated delinquencies or net charge-offs, the provision for credit losses may increase in future periods.

For commercial (except for loans to states and political subdivisions) and consumer loans, cash flow projections and estimated expected losses are based in part on forecasts of the national unemployment rate that are reasonable and supportable and external observations of historical loan losses. Forecasts of the national unemployment rate are derived from the Federal Open Markets Committee of the Federal Reserve Board. For periods beyond those for which reasonable and supportable forecasts are available, projections are based on a reversion of the national unemployment rate from the last forecast to a historical average level over the following six months. Cash flow projections and estimated expected losses for loans to states and political subdivisions are based on external loss observations for state and municipal debt obligations. For consumer finance loans, cash flow projections and estimated expected losses reflect historical average loss experience based on internal observations for automobile loans and based on external loss observations for marine and recreational vehicle (RV) loans.

The allowance for credit losses represents an amount that, in our judgment, reduces the recorded investment in loans to the net amount expected to be collected. The provision for credit losses increases the allowance, and loans charged off, net of recoveries, reduce the allowance. Balances and ratios presented as of December 31, 2024 and 2023 are in accordance with ASC 326, whereas balances and ratios presented as of December 31, 2022 or a prior date are presented in accordance with the previously applicable GAAP. The following tables present the Corporation’s credit loss experience for the periods indicated.

Loans are required to be measured at amortized cost and to be presented at the net amount expected to be collected. Credit losses on available for sale debt securities are accounted for as an allowance for credit losses, which is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value and the amount expected to be collected on the financial asset. The Corporation concluded that a credit loss did not exist in its securities portfolio at December 31, 2025, and no allowance for credit losses has been recognized. Off balance sheet credit exposures, including loan commitments, are not recorded on balance sheet, but expected credit losses arising from off balance sheet credit exposures are recorded as a reserve for unfunded commitments and reported in Other Liabilities. The following table presents the Corporation’s reserve for unfunded commitments for the periods indicated.

The allowance for credit losses on loans and available for sale debt securities and the reserve for unfunded commitments are established through a provision for credit losses charged against earnings. Amounts reported for the year ended December 31, 2024 and 2023 are in accordance with ASC 326, whereas amounts reported for the period prior to January 1, 2023 are presented in accordance with the previously applicable GAAP. The following table presents a breakdown of the provision for credit losses for the periods indicated:

The following table presents the changes in the OREO balance for 2024. There was no OREO activity for the yearyears ended December 31, 2023.2025 and 2024.

The community banking segment’s nonaccrual loans were $1.1 million at December 31, 2025 compared to $333,000 at December 31, 20242024. The increase in nonaccrual loans compared to $406,000 at December 31, 2023.2024 is due primarily to the downgrade of one residential mortgage relationship in the first quarter of 2025. If interest on loans on nonaccrual at December 31, 20242025 had been recognized throughout the year, the community banking segment would have recorded additional gross interest income in 20242025 of $19,000.$76,000. OREO activity for the year ended December 31, 2024 related to properties previously used by the Bank as branches, which were consolidated into nearby branches during the year.branches. The community banking segment recorded $1.7$50,000 millionin net reversals in provision for credit losses for the year ended December 31, 2024,2025, compared to $1.6$1.7 million for the year ended December 31, 2023.2024. At both December 31, 2025 and 2024, the allowance for credit losses increased towas $17.4 million, compared to $16.1 million at December 31, 2023. The increase in provision for credit losses and in the allowance for credit losses is due primarily to growth in the loan portfolio.million. At December 31, 2024,2025, the allowance for credit losses decreased to 1.201.10 percent of total loans, compared to 1.261.20 percent at December 31, 2023,2024, due primarily to the resolution of a nonperforming commercial real estate loan that had carried a specific reserve and growth in loans with shorter expected lives, which resultsresulted in lower estimated losses over the life of the loan, aspartially well as improving asset quality as measuredoffset by declininggrowth balancesin ofthe specialloan mention and substandard rated loans, and sustained low levels of delinquencies.portfolio. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

Nonaccrual loans at the consumer finance segment decreasedincreased to $1.0 million at December 31, 2025 from $614,000 at December 31, 2024 from $892,000 at December 31, 2023.2024. Nonaccrual consumer finance loans remain low relative to the allowance for credit losses and the total consumer finance loan portfolio because the consumer finance segment generally initiates repossession of loan collateral once a loan becomes more than 60 days delinquent. Repossessed vehicles of the consumer finance segment are classified as other assets and consist only of vehicles the Corporation has the legal right to sell. Prior to the reclassification from loans to repossessed vehicles, the difference between the carrying amount of each loan and the fair value of each vehicle (i.e. the deficiency) is charged against the allowance for credit losses. At December 31, 2024,2025, repossessed vehicles at fair value less estimated costs to sell included in other assets totaled $779,000,$937,000, compared to $646,000$779,000 at December 31, 2023.2024. If interest on loans on nonaccrual at December 31, 20242025 had been recognized throughout the year, the consumer finance segment would have recorded additional gross interest income in 20242025 of $5,000.$8,000.

The consumer finance segment experienced net charge-offs at a rate of 2.622.59 percent of average total loans for the year ended December 31, 2024,2025, compared to 1.992.62 percent for the year ended December 31, 2023, due primarily to an increase in the number of delinquent loans, the number of repossessions and the average amount charged-off when a loan was uncollectable. Loans charged-off in 2024 and 2023 were primarily purchased in 2021 and 2022, when the wholesale values of automobiles were higher. Wholesale values of automobiles were generally lower in 2024 than 2023, resulting in larger amounts charged-off per loan.2024. At December 31, 2024,2025, total delinquent loans as a percentage of total loans was 3.904.38 percent, compared to 4.093.90 percent at December 31, 2023.2024. The allowance for credit losses was $22.3 million at December 31, 2025, compared to $22.7 million at December 31, 2024, compared to $23.6 million at December 31, 2023.2024. The allowance for credit losses as a percentage of total loans decreased to 4.79 percent at December 31, 2025, compared to 4.86 percent at December 31, 2024,2024 compareddue primarily to 5.03changes percentin atqualitative Decembermodel 31, 2023,adjustments primarily asrelated ato resultthe relative stabilization of acollateral larger share of loans outstanding to borrowers with stronger credit scores at origination, which are estimated to have lower losses over the life of the loan. Net charge-offsvalues during 2020 through 2023 were at historic lows following the COVID -19 pandemic and were anticipated to increase after the expiration of government stimulus and enhanced unemployment benefits that benefited borrowers. A return to pre-pandemic charge-off levels had been reflected in the estimates of the allowance for credit losses in prior periods.2025. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

The consumer finance segment is an indirect lender that provides automobile financing through lending programs that are designed to serve customers in both the prime and “non-prime” markets, including those who may have limited access to traditional automobile financing due to having experienced prior credit difficulties. The preferred automobile is a later model, low mileage used vehicle because the value of new vehicles typically depreciates rapidly. In addition to automobile financing, marine and RV loan contracts arewere also purchased on an indirect basis through a referral program administered by a third party. The marine and RV loan contracts arewere for prime loans averaging less than $50,000 made to individuals with higher credit scores. The third party administrator of that program significantly decreased sales of those loans to outside parties during 2025, which led to the consumer finance segment ending future purchases during the third quarter of 2025. The marine and RV portfolio is expected to run off over the next several years as scheduled borrower payments are made on the existing loans.

TheAs the consumer finance segment’s focuscustomers has includedinclude non-prime borrowers and, therefore,borrowers, the anticipated rates of delinquencies, defaults, repossessions and losses on the consumer finance loans are higher than those experienced in the general automobile finance industry and could be more dramatically affected by changes in general economic conditions. Changes in economic conditions may also affect consumer demand for used automobiles and values of automobiles securing outstanding loans, due to changes in demand or changes in levels of inventory of used automobiles, which may directly affect the amount of a loss incurred by the consumer finance segment in the event of default. While wethe manageconsumer finance segment manages the higher risk inherent in loans made to “non-prime” borrowers through theits underwriting criteria, portfolio management and collection methodsmethods, employedno byguarantees thecan consumerbe finance segment, we cannot guaranteemade that these criteria or methods will afford adequate protection against these risks. With the consumer finance segment’s scorecard model for purchasing loan contracts, the credit-worthiness of borrowers at origination has improved for automobile loans purchased and the level of credit losses experienced has decreased relative to long-term historical averages. WeNo cannotassurances providecan anybe assurancemade that the consumer finance segment’s net charge-off ratio will not increase in future periods. However, we believe that the current allowance for credit losses is adequate to reflect the net amount expected to be collected on existing consumer finance segment loans that may become uncollectible. If factors influencing the consumer finance segment result in higher net charge-off ratios in future periods, the consumer finance segment may need to increase the level of its allowance for credit losses through additional provisions for credit losses, which could negatively affect future earnings of the consumer finance segment.

At December 31, 2024,2025, the Corporation had total assets of $2.56$2.77 billion compared to $2.44$2.56 billion at December 31, 2023.2024. The increase was attributable primarily to increases in loans held for investment, partially offset by a decrease in available for sale securities and loans held for sale and was funded by growth in deposits and long-term borrowings.deposits. The significant components of the Corporation’s Consolidated Balance Sheets are discussed below.

Our primary financial goals are to maximize the Corporation’s earnings and to deploy capital in profitable growth initiatives that will enhance long-term shareholder value. We track three primary financial performance measures in order to assess the level of success in achieving these goals: (1) return on average assets (ROA), (2) return on average equity (ROE), and (3) growth in earnings. In addition to these financial performance measures, we track the performance of the Corporation’s three business segments: community banking, mortgage banking, and consumer finance. We balance these financial measures with acceptable levels of interest rate risk, while satisfying liquidity and capital requirements and monitoring asset quality. We also actively manage our capital through growth, dividends and share repurchases, while considering the need to maintain a strong capital position. The following table presents selected financial performance highlights for the periods indicated.indicated:

Consolidated net income increased $1.4$859,000 and $2.3 million for the second quarter and first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to higher net income at the community banking and mortgage banking segments, partially offset by alower net lossincome at the standalone Corporation, included in “Other” in the table above, and consumer finance segment. A discussion of the performance of our business segments is included under the heading “Business Segments” in the “Results of Operations” section of this discussion and analysis.

Key factors affecting comparison for the second quarter and first quartersix months of 2026 are as follows.

Total equity was $266.1 million at March 31, 2026 compared to $262.3 million at December 31, 2025. Under regulatory capital standards, the Corporation’s tier 1 risk-based capital and total risk-based capital ratios at MarchJune 31,30, 2026 were 12.112.3 percent and 15.115.3 percent, respectively, compared to 12.2 percent and 15.2 percent, respectively, at December 31, 2025. At MarchJune 31,30, 2026, the book value per share of the Corporation’s common stock was $81.73$85.46 and tangible book value per share, which is a non-GAAP financial measure, was $73.70,$77.45, compared to $80.64 and $72.60, respectively, at December 31, 2025.

Total consolidated equity increased $3.8$16.1 million to $278.4 million at MarchJune 31,30, 2026 compared to $262.3 million at December 31, 2025 due primarily to net income, partially offset by dividends paid on the Corporation’s common stockincome and higher netlower unrealized losses in the market value of securities available for sale, which are recognized as a component of other comprehensive income.income, partially offset by dividends paid on the Corporation’s common stock. The Corporation’s securities available for sale are fixed income debt securities and their net unrealized loss position is a result of increased market interest rates since they were purchased. The Corporation expects to recover its investments in debt securities through scheduled payments of principal and interest. Unrealized losses are not expected to affect the earnings or regulatory capital of the Corporation or C&F Bank. The accumulated other comprehensive loss related to the Corporation’s securities available for sale, net of deferred income taxes, increaseddecreased to $11.7$6.7 million at MarchJune 31,30, 2026,2026 compared to $10.2 million at December 31, 2025 due primarily to fluctuationsthe Portfolio Restructuring in debtthe securitysecond marketquarter interestof rates.2026.

The Corporation’s Board of Directors declared a quarterly cash dividend of 48 cents per share during the firstsecond quarter of 2026, which was paid on AprilJuly 1, 2026. This dividend represents a payout ratio of 23.118.3 percent of earnings per share for the firstsecond quarter of 2026. The Board of Directors of the Corporation continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital levels and requirements and expected future earnings. In making its decision on the payment of dividends on the Corporation’s common stock, the Corporation’s Board of Directors considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder returns, growth expectations and other factors.

The Corporation has a share repurchase program, effective January 1, 2026 through December 31, 2026, that was authorized by the Board of Directors to repurchase up to $5.0 million of the Corporation’s common stock (the 2026 Repurchase Program). During the second quarter and first quartersix months of 2026, the Corporation repurchased 4,2794,095 and 8,374 shares, or $309,000,$312,000 and $621,000, respectively, of its common stock under the 2026 Repurchase Program.

Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. The measurement of the allowance for credit losses on commercial and consumer loans is based in part on the twelve-month forecast of the national unemployment rate, which we believe to be indicative of risk factors related to the collectability of commercial and consumer loans. Forecasts of the national unemployment rate are derived from the Federal Open MarketsMarket Committee of the Federal Reserve Board. For periods beyond those for which reasonable and supportable forecasts are available, projections are based on a reversion of the national unemployment rate from the last forecast to a historical average level over the following six months. In addition, management’s estimate of expected credit losses is based on the remaining life of loans held for investment, which is affected in part by changes in expected prepayment behavior and in the nature and volume of the loan portfolio. Management also assesses the risk of credit losses arising from external factors, such as changes in general market, economic and business conditions and the value of underlying collateral, to make qualitative adjustments in determining the recorded balance of the allowance for credit losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. These factors outside of the Corporation’s control are difficult to predict and can have significant impacts on the level of allowance that is required, which can be different than the level recorded based on the then-existing loan portfolio, unemployment rate forecast and other external factors that were used in the qualitative adjustments at that time.

The following table shows the average balance sheets, the amounts of interest earned on earning assets, with related yields, and interest expense on interest-bearing liabilities, with related rates, for the three and six months ended MarchJune 31,30, 2026 and 2025. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21 percent that was applicable for all periods presented. Average balances of securities available for sale are included at amortized cost. Loans include loans held for sale. Loans placed on a nonaccrual status are included in the balances and are included in the computation of yields, but had no material effect for all periods presented.

Net interest income, on a taxable-equivalent basis, for the second quarter and first quartersix months of 2026 increased to $28.0$29.4 million and $57.5 million, respectively, compared to $25.3$26.8 million and $52.1 million for the same periodperiods in 2025 due primarily to higher average balances of interest-earning assets and higher net interest margin. Annualized net interest margin increased 1114 basis points to 4.274.41 percent for the second quarter of 2026 compared to the same period of 2025 and increased 13 basis points to 4.34 percent for the first quartersix months of 2026 compared to the same period of 2025 due primarily to higher average interest rates on securities and lower average interest rates on deposits, partially offset by higher average cost of borrowings. The Federal Reserve Bank (FRB) target federal funds interest rate was at an upper limit of 4.50 percent at December 31, 2024 until the FRBFederal Open Market Committee began decreasing it in September 2025, decreasing it to 3.75 percent by December 31, 2025, where it remained during the first quartersix months of 2026. The yield on interest-earning assets increased by 69 basis points and 7 basis points for the firstsecond quarter and first six months of 20262026, respectively, compared to the same periodperiods in 2025. The cost of interest-bearing liabilities decreased by 9 basis points and 10 basis points for the firstsecond quarter and first six months of 20262026, respectively, compared to the same periodperiods in 2025. Average earning assets increased $193.8$160.2 million and $176.9 million for the firstsecond quarter and first six months of 20262026, respectively, compared to the same periodperiods in 2025. Average interest-bearing liabilities increased $157.5$130.4 million and $143.9 million for the firstsecond quarter and first six months of 20262026, respectively, compared to the same periodperiods in 2025. Average noninterest-bearing demand deposits decreased $610,000 and increased $13.5$6.4 million for the firstsecond quarter and first six months of 20262026, respectively, compared to the same periodperiods in 2025.

Average loans, which includes both loans held for investment and loans held for sale, increased $152.0$135.4 million to $2.11$2.14 billion for the second quarter of 2026 and increased $143.7 million to $2.13 billion for the first quartersix months of 2026 compared to the same periodperiods in 2025. Average loans at the community banking segment increased $135.2$132.2 million, or 9.28.8 percent, for the second quarter of 2026 and increased $133.7 million, or 9.0 percent, for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to growth in the commercial real estate,estate and land acquisition and development, and equity linesdevelopment segments of the loan portfolio. Average loans at the consumer finance segment decreased $1.0$4.7 million, or 1.0 percent, for the second quarter of 2026 and decreased $2.9 million, or less than one percent, for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to a decrease in marine and recreational vehicle (RV) loans as the third party administrator of that program significantly decreased sales of those loans to outside parties during 2025, which led to the consumer finance segment ending future purchases under the program during the third quarter of 2025. The marine and recreational vehicle (RV) portfolio is expected to run off over thetime, nextsubject severalto yearsnormal asrepayment scheduledactivity borrowerand paymentscredit are made on the existing loans.performance. Average loans at the mortgage banking segment, which consist of loans held for sale, increased $17.8$7.9 million, or 84.717.3 percent, for the second quarter of 2026 and increased $12.8 million, or 38.3 percent, for the first quartersix months of 2026 compared to the same periodperiods in 2025.

Average loan yields decreased 6 basis points to 6.68 percent for the second quarter of 2026 and decreased 5 basis points to 6.69 percent for the first six months of 2026 compared to the same periods in 2025 due primarily to a mix shift in the portfolio with growth in loans at the community banking segment, which has lower yields than loans at the consumer finance segment. The community banking segment average loan yield increased 52 basis points to 5.575.61 percent for the second quarter of 2026 and increased 4 basis points to 5.59 percent for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to renewals of fixed rate loans originated during periods of lower interest rates. The consumer finance segment average loan yield increased 116 basis points to 10.6710.55 percent for the second quarter of 2026 and increased 8 basis points to 10.61 percent for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to a mix shift in the loan portfolio with the termination of the marine and RV loans program and the portfolio composition in general shifting towards originations within the past three years, when interest rates were higher, as balances on loans originated prior to that in periods of lower interest rates decline. The mortgage banking segment average loan yield decreased 9129 basis points to 5.656.09 percent for the second quarter of 2026 and decreased 53 basis points to 5.91 percent for the first quartersix months of 2026 compared to the same periodperiods in 2025 due to fluctuations in mortgage interest rates.

Average securities available for sale increased $18.2$11.5 million to $476.6$473.8 million for the second quarter of 2026 and increased $14.8 million to $475.2 million for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to purchases of corporate debt and mortgage-backed securities outpacing maturities, calls and paydowns.2025. The average yield on the securities portfolioportfolio, on a taxable-equivalent basisbasis, increased 5074 basis points to 3.423.79 percent for the second quarter of 2026 and increased 61 basis points to 3.60 percent for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to purchasesthe Portfolio Restructuring during the second quarter of 2026. In the Portfolio Restructuring, the community banking segment sold $72.6 million in book value of securities duringwith recenta periods at higher average yields relative to theweighted average yield of 1.40% and representing approximately 14.7% of the portfolioentire assecurities portfolio, and purchased approximately $67.8 million of securities with a whole.weighted average yield of 4.70%.

Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the FRB, increased $23.6$13.3 million to $79.4$61.5 million for the second quarter of 2026 and increased $18.4 million to $70.4 million for the first quartersix months of 2026 compared to the same periodperiods in 2025. The average yield on interest-bearing deposits in other banks decreased 3336 basis points for the second quarter of 2026 and decreased 34 basis points for the first quartersix months of 2026 compared to the same periods of 2025 due primarily to the decreases in the federal funds interest rate beginning in September 2025.

Average savings and money market and interest-bearing demand deposits combined increased $80.2$59.8 million to $901.7$895.1 million for the second quarter of 2026 and increased $69.9 million to $898.4 million for the first quartersix months of 2026 compared to the same periodperiods in 2025. Average noninterest-bearing demand deposits decreased $610,000 to $567.8 million for the second quarter of 2026 and increased $13.5$6.4 million to $558.9$563.3 million for the first quartersix months of 2026 compared to the same periodperiods in 2025. Average time deposits increased $86.9$90.3 million to $908.8$920.7 million for the second quarter of 2026 and increased $88.6 million to $914.8 million for the first quartersix months of 2026 compared to the same periodperiods in 2025. The average cost of interest-bearing deposits decreased 1914 basis points to 2.212.16 percent for the second quarter of 2026 and decreased 17 basis points to 2.18 percent for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to decreases in interest rates paid on time deposits. A portion of the increases in average deposits was due to the wind-down of the repurchase agreement program with certain commercial deposit customers during the third quarter of 2025. The average balance of these repurchase agreements was $28.2$23.9 million at MarchJune 31,30, 2025.

Average borrowings decreased $9.5$19.6 million to $112.3$103.5 million for the second quarter of 2026 and decreased $14.6 million to $107.9 million for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to the wind-down of the repurchase agreement program,program and decreases in FHLB advances, partially offset by higher average balances of subordinated debt.notes. The average cost of borrowings increased 169139 basis points to 5.77 percent for the second quarter of 2026 and increased 154 basis points to 5.72 percent for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to higher rates paid on subordinated debtnotes and a shift in the mix of borrowings. The Corporation issued new subordinated notes with an aggregate principal amount of $40.0 million in the second quarter of 2025, which initially bear interest at a fixed rate of 7.50%, and concurrently repurchased its previously issued subordinated notes with aggregate principal amount of $20.0 million, which were to transition from a fixed rate of 4.875% to a floating rate at the then current three-month SOFR plus 475.5 basis points during the third quarter of 2025.

The Corporation gives no assurance as to the timing or extent of changes in market interest rates or the impact of those changes or any other factor on the Corporation's ability to compete for loans and deposits or on its net interest margin. The Corporation believes that the effects of decliningif market interest rates,rates ifwere continuedto in 2026, could adversely affect itsdecline, net interest margin could be adversely affected in the short term as its assets typically reprice downward more quickly than its deposits and borrowings. The majority of the Corporation’s time deposits have repriced within the past year and while some further declines in the cost of deposits are anticipated as certain time deposits reprice following the Federal Reserve’s lowering of the target federal funds interest rate during the third and fourth quarters of 2025, significant further decreases are not expected unless there are additional decreases in market interest rates or shifts in the mix of deposits. The Corporation also believes any such adverse impacts could be somewhat mitigated by renewals of fixed rate loans originated during periods of lower interest rates and purchases of securities available for sale with higher interest rates.rates, including those purchased in the Portfolio Restructuring. If market interest rates were to rise, net interest margin could be positively affected in the short term as the Corporation generally expects its assets to reprice upward more quickly than its deposits and borrowings. The interest rate environment has grown increasingly uncertain during the first quartersix months of 2026 and the ultimate effect of market factors, including monetary policy actions taken by the Federal Reserve, on the Corporation’s net interest margin will also depend on other factors, including the Corporation’s ability to grow loans at the community banking and consumer finance segments, to compete for deposits, and the extent of its reliance on borrowings. The Corporation gives no assurance as to the timing or extent of changes in market interest rates or the impact of those changes or any other factor on the Corporation's ability to compete for loans and deposits or on its net interest margin. If market interest rates were to rise, net interest margin could be positively affected in the short term as the Corporation generally expects its assets to reprice upward more quickly than its deposits and borrowings.

Total noninterest income increased $977,000,$1.9 million, or 12.919.6 percent, for the firstsecond quarter of 2026 compared to the same period in 2025 due primarily to higher investment income from other equity interests related to the sale of the Bearing equity interest, fluctuations in unrealized gains and losses on investments held in the rabbi trust and higher volume of mortgage loan production at the mortgage banking segment which resulted in higher gains on sales of loans and higher mortgage banking fee income,income and higher mortgage lender services income, and higher investment income from other equity interests, partially offset by fluctuations in unrealized gains andnet losses on investments held in the rabbiPortfolio trust.Restructuring.

Total noninterest expenses increased $1.3$2.7 million, or 5.411.0 percent, in the second quarter of 2026 and increased $4.0 million, or 8.3 percent, for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to higher salaries and employee benefits due to the addition of a seasoned lending team with the expansion into Southwest Virginia in the third quarter of 2025, annual compensation adjustments, increased employee incentive accruals associated with improved financial performance and higher commissions from increased volume of mortgage loan production, as well as higher data processingprocessing, occupancy expense and loan processing and collection expenses, partially offset by fluctuations in deferred compensation liabilities.expenses.

Changes in deferred compensation plan liabilities are offset by unrealized gains and losses on investments held in the Corporation’s rabbi trust and are recorded in noninterest income.

The Corporation’s consolidated effective income tax rate was 18.620.6 percent and 19.7 percent for the firstsecond quarter and first six months of 20262026, respectively, compared to 17.319.3 percent and 18.5 percent for the same periodperiods in 2025 due primarily to athe highertax shareimpact of incomethe atsale of the mortgageBearing bankingequity segment, which is subject to state income taxes,interest and lower income tax windfall related to the amount deductible upon vesting of restricted stock awards.

The community banking segment reported net income of $7.1$8.2 million and $15.3 million for the firstsecond quarter and first six months of 20262026, respectively, compared to $5.4$7.1 million and $12.6 million for the same periodperiods in 2025 due primarily to:

Net interest income for the community banking segment increased by $2.9$2.7 million to $21.6$23.0 million for the second quarter of 2026 and increased $5.5 million to $44.6 million for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to an increase in net interest margin and higher average balances of earning assets. Average interest-earning asset yields were higher for the second quarter and first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to higher average interest rates on securities available for sale. In the Portfolio Restructuring, the community banking segment sold $72.6 million in book value of securities with a weighted average yield of 1.40% and representing approximately 14.7% of the entire securities portfolio, and purchased approximately $67.8 million of securities with a weighted average yield of 4.70%. The average cost of interest-bearing liabilities werewas lower for the second quarter and first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to decreases in interest rates paid on time deposits. Interest income allocated to the community banking segment includes interest income on loans to the consumer finance and mortgage banking segments. These transactions are eliminated to reach consolidated totals.

The community banking segment recorded provision for credit losses of $300,000$150,000 and $450,000 for the second quarter and first quartersix months of 2026 compared to net reversals of provision for credit losses of $100,000$300,000 and $200,000 for the same periodperiods in 2025. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

Noninterest income increased for the second quarter and first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to higher investment income from other equity interests andfrom higherthe interchangesale income.of the Bearing equity interest, partially offset by net losses on sales of available for sale securities from the Portfolio Restructuring. Noninterest expenses increased for the second quarter and first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to higher salaries and employee benefitsbenefits, occupancy expense and higher data processing expenses.

The mortgage banking segment reported net income of $910,000$1.1 million and $2.0 million for the firstsecond quarter and first six months of 20262026, respectively, compared to $431,000$985,000 and $1.4 million for the same periodperiods in 2025 due primarily to:

Mortgage banking segment loan originations increased 57.99.5 percent and 26.3 percent for the firstsecond quarter and first six months of 20262026, respectively, compared to the same periodperiods in 2025 as the mortgage interest rate environment haswas becomegenerally more favorable,favorable during the 2026 periods than the comparable periods of 2025, which led to an increase in both purchases and refinancings. Gains on sales of loans, while driven in part by mortgage loan originations, also includes the effects of changes in locked loan commitments, which reflect the volume of mortgage loan applications that are in process and have not closed. Lock-adjusted originations for the mortgage banking segment increased 56.79.4 percent and 29.1 percent for the firstsecond quarter and first six months of 20262026, respectively, compared to the same periodperiods in 2025. Locked loan commitments were $90.9$74.4 million at MarchJune 31,30, 2026 compared to $44.6 million and $71.8$56.4 million at December 31, 2025 and MarchJune 31,30, 2025, respectively. Mortgage banking segment loan originations include originations of loans sold to the community banking segment, at prices similar to those paid by third-party investors. All interest expense at the mortgage banking segment is from variable rate borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

Through the Lender Solutions division of the mortgage banking segment, mortgage lender services fee income is derived from providing mortgage origination functions to third-party mortgage lenders for a fee. Mortgage lender services fee income increased to $820,000$969,000 and $1.8 million for the firstsecond quarter and first six months of 20262026, respectively, compared to $541,000$764,000 and $1.3 million for the same periodperiods in 2025 due primarily to increased mortgage loan volume in the industry. Mortgage originations functions were also previously provided to the community banking segment, at prices similar to those paid by third-party lenders. These transactions are eliminated to reach consolidated totals.

During the second quarter and first quartersix months of 2026, the mortgage banking segment recorded net reversals of provision for indemnification losses of $35,000$25,000 and $60,000, respectively, compared to net reversals of provision for indemnification losses of $25,000$35,000 and $60,000 for the same periodperiods in 2025. The release of indemnification reserves in 2026 and 2025 was due primarily to lower volume of mortgage loan originations in recent years compared to years prior when the indemnification reserve was increased due to higher volume coming out of the pandemic, improvement in the mortgage banking segment’s assessment of borrower payment performance and other factors affecting expected losses on mortgage loans sold in the secondary market, such as time since origination. Management believes that the indemnification reserve is sufficient to absorb losses related to loans that have been sold in the secondary market.

The consumer finance segment reported a net lossincome of $81,000$538,000 and $457,000 for the firstsecond quarter and first six months of 20262026, respectively, compared to net income of $226,000$539,000 and $765,000 for the same periodperiods in 2025 due primarily to:

Average loans decreased $1.0$4.7 million, or 1.0 percent, for the second quarter of 2026 and decreased $2.9 million, or less than one percent, for the first quartersix months of 2026 compared to the same periodperiods in 2025 due primarily to a decrease in marine and recreational vehicle loans as the third party administrator of that program significantly decreased sales of those loans to outside parties during 2025, which led to the consumer finance segment ending future purchases under the program during the third quarter of 2025. The marine and recreational vehicle portfolio is expected to run off over thetime, nextsubject severalto yearsnormal asrepayment scheduledactivity borrowerand paymentscredit are made on the existing loans.performance. All interest expense at the consumer finance segment is from fixed and variable rate borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

The consumer finance segment recorded $3.3$2.5 million and $5.8 million in provision for credit losses for the firstsecond quarter and first six months of 20262026, respectively, compared to $2.9$2.4 million and $5.3 million for the same periodperiods in 2025. Net charge-offs as a percentage of total loans increased due primarily to an increase in delinquent loans experienced during 2026 and, for the second quarter, a mix shift in the portfolio as the marine and repossessions.RV loans balance continued to decrease. If loan performance deteriorates, resulting in further elevated delinquencies or net charge-offs, the provision for credit losses may increase in future periods.

Loans are required to be measured at amortized cost and to be presented at the net amount expected to be collected. Credit losses on available for sale debt securities are accounted for as an allowance for credit losses, which is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value and the amount expected to be collected on the financial asset. The Corporation concluded that a credit loss did not exist in its securities portfolio at MarchJune 31,30, 2026, and no allowance for credit losses has been recognized. Off balance sheet credit exposures, including loan commitments, are not recorded on balance sheet, but expected credit losses arising from off balance sheet credit exposures are recorded as a reserve for unfunded commitments and reported in Other Liabilities. The following table presents the Corporation’s reserve for unfunded commitments for the periods indicated.

Loans by credit quality indicators as of MarchJune 31,30, 2026 were as follows:

1At MarchJune 31,30, 2026, the Corporation did not have any loans classified as Doubtful or Loss.

Table 15 summarizes the Corporation’s credit ratios on a consolidated basis and Table 16 summarizes nonperforming assets by principal business segment as of MarchJune 31,30, 2026 and December 31, 2025. The mortgage banking segment did not have any nonperforming assets as Marchof 31,June 30, 2026 or December 31, 2025.

The community banking segment’s nonaccrual loans were $1.2 million at June 30, 2026 compared to $1.1 million at both March 31, 2026 and December 31, 2025. The community banking segment recorded aprovision for credit losses of $150,000 and $450,000 for the second quarter and first six months of 2026, respectively, compared to net reversals of provision for credit losses of $300,000 forand the first quarter of 2026 compared to a provision for credit losses of $100,000$200,000 for the same periodperiods in 2025. At MarchJune 31,30, 2026, the allowance for credit losses increased to $17.6 million compared to $17.4 million at December 31, 2025. The allowance for credit losses as a percentage of total loans decreased to 1.091.06 percent at MarchJune 31,30, 2026 from 1.10 percent at December 31, 2025.2025 due primarily to changes in the forecast of key credit loss model assumptions, which includes the forecast of the national unemployment rate derived from the Federal Open Market Committee of the Federal Reserve Board. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

Nonaccrual loans at the consumer finance segment were $913,000$645,000 at MarchJune 31,30, 2026 compared to $1.0 million at December 31, 2025. Nonaccrual consumer finance loans remain low relative to the allowance for credit losses and the total consumer finance loan portfolio because the consumer finance segment generally initiates repossession of loan collateral once a loan becomes more than 60 days delinquent. Repossessed vehicles of the consumer finance segment are classified as other assets and consist only of vehicles the Corporation has the legal right to sell. Prior to the reclassification from loans to repossessed vehicles, the difference between the carrying amount of each loan and the fair value of each vehicle (i.e. the deficiency) is charged against the allowance for credit losses. At MarchJune 31,30, 2026, repossessed vehicles available for sale totaled $879,000$782,000 compared to $937,000 at December 31, 2025.

The consumer finance segment experienced net charge-offs at an annualized rate of 2.982.60 percent of average total loans for the first quartersix months of 2026 compared to 2.642.42 percent for the same period of 2025 due primarily to an increase in delinquent loans experienced during 2026 and, for the second quarter, a mix shift in the portfolio as the marine and repossessions.RV loans balance continued to decrease. At MarchJune 31,30, 2026, total delinquent loans as a percentage of total loans was 3.353.56 percent compared to 4.38 percent at December 31, 2025 and 3.053.81 percent at MarchJune 31,30, 2025. The allowance for credit losses was $22.1 million, or 4.804.83 percent of total loans, at MarchJune 31,30, 2026 compared to $22.3 million, or 4.79 percent of total loans, at December 31, 2025.

The consumer finance segment at times offers payment deferrals to borrowers as a portfolio management technique to achieve higher ultimate cash collections on select loan accounts. A significant reliance on deferrals as a means of managing collections may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio. Average amounts of payment deferrals of automobile loans on a monthly basis, which are not included in delinquent loans, were 1.341.40 percent and 1.37 percent of average automobile loans outstanding during the firstsecond quarter and first six months of 20262026, respectively, compared to 2.501.73 percent and 1.74 percent during the fourthsame quarterperiods of 20252025, and 1.751.34 percent during the first quarter of 2025.2026.

The consumer finance segment is an indirect lender that provides automobile financing through lending programs that are designed to serve customers in both the “prime” and “non-prime” markets, including those who may have limited access to traditional automobile financing due to having experienced prior credit difficulties. The preferred automobile is a later model, low mileage used vehicle because the value of new vehicles typically depreciates rapidly. In addition to automobile financing, marine and RV loan contracts were also previously purchased on an indirect basis through a referral program administered by a third party. The marine and RV loan contracts were for “prime” loans averaging less than $50,000 made to individuals with higher credit scores. The third party administrator of that program significantly decreased sales of those loans to outside parties during 2025, which led to the consumer finance segment ending future purchases during the third quarter of 2025. The marine and RV portfolio is expected to run off over thetime, nextsubject severalto yearsnormal asrepayment scheduledactivity borrowerand paymentscredit are made on the existing loans.performance.

The consumer finance segment’s focusborrowers hashave included those considered “non-prime” borrowers and, therefore, the anticipated rates of delinquencies, defaults, repossessions and losses on the consumer finance loans aremay be higher than those experienced in the general automobile finance industry and could be more dramatically affected by changes in general economic conditions. Changes in economic conditions may also affect consumer demand for used automobiles and values of automobiles securing outstanding loans, due to changes in demand or changes in levels of inventory of used automobiles, which may directly affect the amount of a loss incurred by the consumer finance segment in the event of default. While we manage the higher risk inherent in loans made to “non-prime” borrowers through the underwriting criteria, portfolio management and collection methods employed by the consumer finance segment, we cannot guarantee that these criteria or methods will afford adequate protection against these risks. With the consumer finance segment’s scorecard model for purchasing loan contracts, the credit-worthiness of borrowers at origination has improved for automobile loans purchased, however, we cannot provide any assurances regarding the level of the consumer finance segment’s net charge-off ratio in future periods. However, we believe that the current allowance for credit losses is adequate to reflect the net amount expected to be collected on existing consumer finance segment loans that may become uncollectible. If factors influencing the consumer finance segment result in higher net charge-off ratios in future periods, the consumer finance segment may need to increase the level of its allowance for credit losses through additional provisions for credit losses, which could negatively affect future earnings of the consumer finance segment.

At MarchJune 31,30, 2026, the Corporation had total assets of $2.8 billion, an increase of $45.3$41.5 million since December 31, 2025. The increase was attributable primarily to growth in loans held for investment,investment and loans held for sale and available for sale securities,sale, funded by growth in deposits.deposits and earnings. The significant components of the Corporation’s Consolidated Balance Sheets are discussed below.

During the first quartersix months of 2026, loans held for investment increased $20.5$58.2 million to $2.04$2.1 billion at MarchJune 31,30, 2026 due primarily to growth in commercial real estate and land acquisition and development loans, partially offset by a decrease in construction loans at the community banking segment.

The investment portfolio plays a primary role in the management of the Corporation’s interest rate sensitivity. In addition, the portfolio serves as a source of liquidity and is used as needed to meet collateral requirements. The investment portfolio consists of securities available for sale, which may be sold in response to changes in market interest rates, changes in prepayment risk, increases in loan demand, general liquidity needs and other similar factors. These securities are carried at estimated fair value. At MarchJune 31,30, 2026 and December 31, 2025, all debt securities in the Corporation’s investment portfolio were classified as available for sale.

For more information about the Corporation’s securities available for sale, including information about securities in an unrealized loss position at MarchJune 31,30, 2026 and December 31, 2025, see Part I, Item 1, “Financial Statements” under the heading “Note 2: Securities” in this Quarterly Report on Form 10-Q.

The following table presents additional information pertaining to the composition of the securities portfolio at amortized cost, by the earlier of contractual maturity or expected maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties. The total effective duration of the investment portfolio was 3.7 years as of MarchJune 31,30, 2026.

During the first quartersix months of 2026, deposits increased $53.7$19.6 million to $2.40$2.37 billion at MarchJune 31,30, 2026 due primarily to increases in time deposits and noninterest-bearing demand deposits, partially offset by a decrease in savings, money market and interest-bearing demand deposits. The increase in deposits was due in part to higher average balances within deposit accounts and the opening of new deposit accounts. TheMunicipal Corporationdeposits haddecreased $143.5$22.7 million in municipal deposits at March 31, 2026 compared to $162.4$139.7 million at DecemberJune 31,30, 2025.2026 due primarily to seasonal factors caused by the timing of tax collections.

The Corporation had $18.0 million and $25.0 million in brokered time deposits outstanding at MarchJune 31,30, 2026 and December 31, 2025, respectively. The Corporation may continue to use brokered deposits on a limited basis as a means of maintaining and diversifying liquidity and funding sources.