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

The Bank makes fixed rate mortgage loans with terms of typically fifteen or thirty years through its subsidiarymortgage F&M Mortgage.division. These loans are funded by F&M Mortgage utilizing a line of credit at the Bank until sold to investors in the secondary market or transferred to the Bank and held in the loan portfolio.market.

The Company’s allowance model uses a remaining life or weighted average remaining maturity method with the portfolio segmented by federal call codes. Management considers the national unemployment rate,rate national gross domestic product, andas the core inflation index as external economic variablesvariable in developing the allowance and utilizes economic projections published by The Federal Reserve Bank of St. Louis for reasonable and supportable forecasts. The Company uses a reasonable and supportable period forecast period of 12 months. The qualitative estimate of the allowance for credit losses on loans (“ACLL”) is sensitive to these forecasts as economic conditions are the most influential qualitative factor. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. See Note 1 – “Nature of Banking Activities and Significant Accounting Policies” in Notes to the Consolidated Financial Statements for additional information concerning the determination of the allowance for credit losses on loans.

Net income for 20242025 was $7.3$11.2 million, an increase of $4.5$3.9 million or 162.90%54.14% from 2023’s2024’s net income of $2.8$7.3 million. Basic and diluted earnings per share were $2.07$3.16 and $0.80$2.07 for 20242025 and 2023,2024, respectively. The increase in net income for 20242025 was primarily the result of an increase in net interest income of $2.2$7.6 million coupledpartially withoffset aby decreasean increase in noninterest expenseexpenses of $4.3$2.6 million.

Return on average assets (“ROA”) measures how efficiently the Company uses its assets to produce net income. Some factors reflected within this measurement include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis,Company was 0.55%0.85% and 0.22%0.55% for 20242025 and 2023,2024, respectively.

Net interest income is the principal component of the Company’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Net interest income was $41.5 million for 2025 and $33.9 million for 2024 and $31.7 million for 2023,2024, which represents an increase of $2.2$7.6 million or 7.02%.22.39%. Total interest income was $67.8 million for 2025 and $64.5 million for 2024 and $56.4 million for 2023,2024, which represents an increase of $8.1$3.3 million or 14.31%5.07% for 2024.2025. Total interest expense was $26.2 million for 2025 and $30.6 million for 2024 and $24.7 million for 2023,2024, which represents ana increasedecrease of $5.8$4.3 million or 23.66%14.16% in 2024. The increase in total interest income, total interest expense and net interest income during 2024 was driven by the growth in interest-earning assets, interest-bearing liabilities and the repricing of assets and liabilities into higher rates.2025.

The net interest margin increased 7by 58 basis points from 2.70% for 2023 to 2.77% for 2024.2024 to 3.35% for 2025. The net interest margin is calculated by dividing net interest income by total average earning assets. Higher loan balances and the repricing of adjustable-rate loans contributed to an increase of $6.8$1.1 million in loan interest income, and incomeinterest fromon cashfederal andfunds securitiessold increased $1.2by $0.8 million due to higher average balances of federal funds sold in 2024.2025. In addition, interest income from investment securities increased by $1.6 million, due to higher yields on investments purchased during 2025. As a result, the yield on earning assets increased by 4619 basis points to 5.27%.5.46%.

HigherA ratesshift paid onfrom time deposits coupledto withmoney growthmarket inaccounts thatwas depositthe categoryprimary resulted in an increasedriver of $7.0the decrease of $2.6 million in deposit interest expense. TheInterest expense on time deposits and interest bearing demand accounts decreased $4.1 million and $0.2 million, respectively, and were partially offset by an increase of $1.7 million in deposit interest expense on savings accounts. Interest expense was offsetfurther reduced by lower interest expense on short-term borrowings, which declined by $1.2$1.9 millionmillion, due to no short-term advances from the gradual paydown of Federal Home Loan Bank (“FHLB”) advances during the year. The cost of fundsfunds, which is calculated as the interest expense on interest bearing liabilities plus noninterest bearing deposits divided by the total deposits, for the year was 2.51%,2.15%, which was 3836 basis points higherlower than 2023.2024.

The provision for credit losses totaled $2.3$2.7 million in 2024,2025, compared to a provision for credit losses of $1.0$2.3 million for 2023.2024. The provision comprised a $2.4$2.6 million provision for credit losses on loans and a $43$117 thousand recovery of provision for credit losses on unfunded commitments. The provision for credit losses in 20242025 increased primarily due to historicalhigher creditnet losscharge-offs, trendscontinued loan growth, and qualitativean factor adjustments for changesincrease in thereserves future economic forecasts impacting the automobile segment. This increase was partially offset by a reduction in the provision foron individually evaluatedanalyzed 1-4 family construction and owner-occupied commercial real estate loans, which either paid down, experienced collateral improvement, or transitioned to other real estate owned (“OREO”).loans.

Noninterest income increased by $649$405 thousand, or 6.41%3.76%, for the year ended December 31, 2024,2025, compared to December 31, 2023.2024. The increase was primarily driven by increases in wealthtitle managementinsurance income and mortgageATM bankingand income.check Wealthcard managementfees. Title insurance income increased by $459,000$375 thousand due to newincreased clienttitle referralspremium and theloan wealthclosing managementvolume. team’sATM proactiveand businesscheck developmentcard strategyfees increased by $249 thousand due to meetrenegotiated withinterchange existing clients and conduct relationship reviews. This resulted in increasing assets under management for existing clients and the acquisition of new relationships. Higher production boosted mortgage banking income which grew by $517,000.contracts. These increases were partially offset by decreases in one-timemortgage gainsbanking receivedincome of $553 thousand, due to a decrease in 2023originations of loans held for bank owned life insurance and a milestone gain on sale of a limited partnership investment.sale.

Income Tax Expense (Benefit)

Income tax expense was $638$1.7 thousandmillion for the year ended December 31, 2024,2025, an increase of $1.4$1.1 million from the income tax benefitexpense for the year ended December 31, 2023.2024. These amounts correspond to an effective tax rate of 8.05%13.47% and (36.84)%8.05% for 20242025 and 2023,2024, respectively. The effective tax rate is below the statutory rate of 21%, due primarily to tax credits on qualified affordable housing project investments as discussed in Note 87 – “Other Assets” in Notes to the Consolidated Financial Statements. The effective tax rate is also impacted by tax-exempt income on investment securities and bank owned life insurance. Note 1817 – “Income Tax Expense (Benefit)Taxes” in Notes to the Consolidated Financial Statements provides a reconciliation between income tax expense computed using the federal statutory income tax rate and the Company’s actual income tax expense (benefit) during 20242025 and 2023.2024.

Assets increased by $7.4$71.7 million to $1.37 billion as of December 31, 2025, compared to $1.30 billion as of December 31, 2024, compared to $1.29 billion as of December 31, 2023.2024. The increase in assets was primarily due to an increaseincreases in loans of $17.9$46.3 million andmillion, federal funds sold of $33.8$11.0 million, and securities of $17.7 million, which was offset by adecreases decreasein deferred tax assets of $41.0$2.5 million inand theother balanceassets of our$3.6 securities portfolio due to paydowns and maturities partially offset by an increase in fair value.million. The securities portfolio totaled $345.3 million at December 31, 2025, compared to $327.7 million at December 31, 2024,2024. comparedDeposits toincreased $368.7by $50.1 million and totaled $1.25 billion at December 31, 2023.2025, Depositscompared increased by $61.9 million and totaledto $1.20 billion at December 31, 2024, compared to $1.13 billion at December 31, 2023. Short-term debt of $60.0 million was paid off in 2024. Long-term debt increased $43by thousand$2.94 million to $6.98$9.92 million as of December 31, 2024,2025, compared to $6.93$6.98 million at December 31, 20232024, due to the amortizationissuance of debtsubordinated issuancenotes costs.in 2025.

For the year ended December 31, 2024,2025, unrealized losses on our holdings declined by $14.2 million compared to December 31, 2023,2024, resulting in an increase in the fair value of the portfolio. However, this increase was offset by maturities and paydowns on mortgage-backed securities, leading to a reduction in the portfolio from $368.7 million as of December 31, 2023, to $327.7 million as of December 31, 2024. Note 2 – “Securities” in Notes to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio as of December 31, 20242025 and 2023.2024.

The Bank is an active lender with a diverse loan portfolio that includes commercial and residential real estate loans, commercial loans, consumer loans, construction and land development loans, and home equity loans. The Bank’s lending activity is concentrated on individuals, and small and medium-sized businesses primarily in its market areas. Additional discussion on the segments of loans the Company originates and related risks is included in Note 1 - “Nature of Banking Activities and Significant Accounting PoliciesPolicies,” Note 3 “Loans,” and Note 34 -“Allowance Loans andfor Credit QualityLosses” in the Notes to the Consolidated Financial Statements.

Our primary source of income is derived from interest earned on loans. The loan portfolio, excluding the allowance for credit losses, or ACL, increased $17.9by $46.3 million, or 2.17%,5.51%, from $822.1 million at December 31, 2023 to $839.9 million at December 31, 2024.2024 to $886.3 million at December 31, 2025. Loan growth in 20242025 was primarily driven by consumerloans secured by farmland, residential mortgage loans, owner-occupied, and non-owner-occupied commercial real estate,estate commercial construction, and commercial and industrial lending.loans. The bankBank continues to expand organically by serving customers within its market and has also strengthened its portfolio by purchasing consumer real estate loans originated by its mortgage subsidiary. This growth was partially offset by a decline in the automobile loan portfolio,and asconstruction theand Bankland tighteneddevelopment creditloan standards for indirect consumer lending.portfolios.

The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. These include underwriting standards for new originations and ongoing monitoring and reporting of asset quality and adequacy of the allowance for credit losses. Management classifies non-performing assets as non-accrual loans, loans 90 days or more past due and still accruing, and other real estate owned, or OREO. OREO represents real property taken by the Bank when its customers do not meet the contractual obligation of their loans, either through foreclosure or through a deed in lieu thereof from the borrower. OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through brokerage channels. The Bank had no assets classified as OREO at December 31, 2025, compared to $77 thousand and $55 thousand in assets classified as OREO at December 31, 2024 and 2023, respectively.2024.

There were $7.2$6.0 million in total non-performing assets at December 31, 2024.2025. This is ana increasedecrease of $630$1.2 thousandmillion when compared to the December 31, 20232024 balance of $6.5$7.2 million. This increasedecrease resulted primarily from ana increasedecrease in nonaccrual loans. In 2024,2025, fourfourteen loans were added to nonaccrual status due to delinquent payments in the following segments: ownersecured occupiedby commercialfarmland, home equity – open end, real estate, otherowner occupied commercial real estate, agricultural loans, and commercial and industrial loans. These additions were offset by a 1-4 family construction loan moving to OREO, a loan secured by farmland being paid in full, a loan secured by farmland and aone loan in owner occupied commercial real estate paying down,off and a loan in other construction and land developmentanother returning to accrual status.status, an other commercial real estate loan paying off, and a commercial and industrial loan paying off.

Refer to the discussion in “Critical Accounting Policies” and Note 1 - “Nature of Banking Activities and Significant Accounting Policies” in Notes to Consolidated Financial Statements for management’s methodology to estimate the allowance for credit losses.

For the year ended December 31, 2024,2025, net charge-offs of loans totaled $2.6$2.9 million or 0.31%0.34% of average loans held for investment, compared to net charge-offs of $1.5$2.6 million or 0.19%0.31% for the year ended December 31, 2023.2024. A majority of the charge-offs in 20242025 and 20232024 related to the Company’s indirect automobile lending.lending, due to deteriorating economic conditions and higher inflation.

The provision for credit losses, including the recovery for unfunded commitments, was $2.3$2.7 million and $1.0$2.3 million for the years ended December 31, 20242025 and 2023,2024, respectively. The provision for credit losses in 2025 reflects $46.9 million in loan growth, coupled with $2.0 million in net charge offs in the automobile segment. The provision for credit losses in 2024 reflects $17.9 million in loan growth, coupled with $1.9 million in net charge offs in the automobile segment. Additionally, management adjusted qualitative factors in the model methodology for economic conditions based on changes in the economic forecast during the year,2025, changes in loan volume, and changes in past due trends. The provision for 2023 was primarily due to loan growth of $78.5 million and charge-offs in the automobile portfolio.

The provision for credit losses includes a recovery of $43$117 thousand and $57$43 thousand on the reserve for unfunded commitments for the years ended December 31, 20242025 and 2023,2024, respectively. The provision for credit losses on loans and for unfunded commitments net together as reflected in the provision for credit losses on the consolidated statements of income. See Note 4 - “Allowance for Credit Losses” in Notes to Consolidated Financial Statements for a summary of the activity in the allowance for credit losses for years ended December 31, 20242025 and 2023.2024.

(1) Averages as disclosed are based on the outstanding balances of the loans in each segment. These averages do nonot include net deferred costs and premiums.

Core deposits are the Company’s primary source of funding. Demand deposits, money market accounts, savings accounts, and time deposits provide a source of fee income and opportunities to build customer relationships. Total deposits were $1.2$1.25 billion and $1.1$1.20 billion at December 31, 20242025 and 2023,2024, respectively, which represents an increase of $61.9$50.1 million or 5.46%4.19% during 2024.2025. There was a shift in deposit mix when comparing the periods. AtAs of December 31, 2024,2025, there waswere a decreaseincreases in noninterest bearing demand, interest checking, and savings accounts, coupled with ana increasedecrease in time deposits compared to December 31, 2023.2024.

The following table shows the average deposit balances and average rates paid for 20242025 and 20232024 (dollars in thousands).

Total Shareholders’ Equity increased by $7.8$18.7 million to $86.1$104.8 million due to net income of $7.3$11.2 million and other comprehensive income of $3.6$10.8 million, offset by dividends to shareholders of $3.6$3.7 million. Other comprehensive income includes aan $4.0$11.2 million improvement in unrealized losses in the bond portfolio and a $315$434 thousand adjustment to the pension liability.

The Company uses a variety of traditional and on-balance-sheet tools to manage our interest rate risk. Gap analysis, which monitors the “gap” between interest-sensitive assets and liabilities, is one such tool. In addition, we use simulation modeling to forecast future balance sheet and income statement behavior. By studying the effects on net interest income of rising, stable, and falling interest rate scenarios, the Company can position itself to take advantage of anticipated interest rate movement, and protect usitself from unanticipated rate movements, by understanding the dynamic nature of ourits balance sheet components.

Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not required to comply with Basel III on a parent-only basis. As of December 31, 2024,2025, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules. The Company currently expects to continue to exceed required minimum capital ratios. See Note 1514 - “Regulatory Matters” in Notes to Consolidated Financial Statements for more information regarding the Company’s and its subsidiary bank’s capital ratios.

The Company, through its subsidiary Bank, operates under a charter issued by the Commonwealth of Virginia and provides financial products and services to consumers and businesses. As a state-chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the FRB. The Bank provides services to customers located primarily in the counties of Rockingham, Shenandoah, Augusta, and Augusta,Frederick, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at fourteen branch offices and a dealer finance division loan production office. The Company offers insurance, mortgage lending, and title insurance through the Bank and VST. The Company’s primary trade area services customers in the counties of Rockingham, Shenandoah, Augusta and Frederick, and the cities of Harrisonburg, Staunton, Waynesboro, and Winchester. In the second quarter of 2026, the Virginia Bureau of Financial Institutions approved the Bank’s application to open a new branch in Fauquier County in the city of Warrenton.

Certain statements in this report may contain “forward-looking statements” as defined by federal securities laws, which are subject to significant risks and uncertainties. These include statements regarding future plans, strategies, results, or expectations that are not historical facts, and are generally identified by the use of words such as “believe,” “expect,” “intend,” “anticipate,” “will,” “estimate,” “project,” “plan” or similar expressions or other statements concerning opinions or judgementsjudgments of the Company and its management about future events. These statements are based on estimates and assumptions, and our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Our actual results could differ materially from those contemplated by these forward-looking statements.

The Company’s critical accounting policies used in the preparation of the Consolidated Financial Statements as of MarchJune 31,30, 2026 were unchanged from the policies disclosed in the 2025 Form 10-K within the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See Note 1 to the Consolidated Financial Statements in Part I, Item 1 for additional information.

Comparing the Three-Month Periods Ending June 30, 2026 and June 30, 2025 Net income for the firstsecond quarter of 2026 was $3.2$5.4 million, or $0.91$1.50 per diluted share, compared to $2.5$3.0 million, or $0.70$0.83 per diluted share, for the firstsecond quarter of 2025—an increase of $769,000,$2.4 million, or $0.21$0.67 per diluted share. Return on average assets was 0.94%1.54% and return on average equity was 12.18%19.54% for the three months ended MarchJune 31,30, 2026, both improving from the prior-year period. The increase in net income was primarily the result of loan and investment securities growth, which contributed to a $1.2$1.3 million increase in interest income, along with a $756,000$514,000 decrease in interest expense. Net interest income increased to $11.4$12.3 million atfor Marchthe 31,three 2026months ended June 30, 2026, from $9.4$10.5 million atfor Marchthe 31,three months ended June 30, 2025. In addition, noninterest income increased $2.1 million, primarily due to the $4.8 million gain resulting from the sale of Bearing Insurance, in which the Company held an investment, and partially offset by a $3.5 million loss on the sale of investment securities. Noninterest expense increased $1.7 million, which was partially offset by a $918,000 decrease in the provision for credit losses.

Net interest income for firstsecond quarter 2026 was $11.4$12.3 million, an increase of $2.0$1.8 million over firstsecond quarter 2025. Interest income for firstsecond quarter 2026 increased $1.2$1.3 million due to loan and investment securities growth, while interest expense decreased $756,000$514,000 driven by a shift from higher-cost time deposits to lower-cost interest checking and money market accounts. Net interest margin for the quarter ended MarchJune 31,30, 2026 was 3.56%,3.79%, up 4131 basis points from the quarter ended MarchJune 31,30, 2025. The earning asset yield increasedwas 1unchanged basisat point to 5.44% from 5.43%.5.56%. Cost of interest-bearing liabilities decreased by 4536 basis points to 2.49%.2.37%. Interest expense on deposits decreased $830,000$594,000 due to a shift in the average balance of time deposits to lower-cost interest checking and money market accounts; however, interest expense on debt increased $74,000$81,000 due to higher interest rates on long-term debt and an increase of $2.9 million in average balances.

The following tabletables showsshow interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the threeperiods months ended March 31, 2026 and 2025indicated (dollars in thousands):

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During firstsecond quarter 2026, the Bank recorded a provision for credit losses of $309,000,$269,000, compared to a recovery of provision for credit losses of $104,000$1.2 million in firstsecond quarter 2025. The current quarter increasedecrease in provision was theprimarily result of a $10.6 million increase in total loans held for investment during the first quarter of 2026, compareddue to a decline$401,000 decrease in net charge-offs and a $904,000 decrease in nonperforming loans during second quarter 2026. In 2025, there was also an addition of $12.9 million$610,000 in thereserves firston threeindividually monthsanalyzed of 2025.loans. The provision also included a recovery of provision of $20,000$37,000 in the reserve for unfunded commitments that resulted from ana increasedecrease in outstanding loan commitments. At March 31, 2026, the ACL totaled $7.9 million or 0.88% of gross loans outstanding.

Non-interest income totaled $2.9$4.9 million for firstsecond quarter 2026, an increase of $50,000,$2.1 million, compared to firstsecond quarter 2025. The increase was primarily drivendue byto higherthe title$4.8 insurancemillion incomegain andresulting increasedfrom servicethe chargessale onof depositBearing accounts,Insurance, which was partially offset by lowerthe $3.5 million loss on the restructuring of the Bank’s AFS securities portfolio in June 2026, and increases of $281,000 in mortgage banking income and $235,000 in other operating income. Non-interest income to average assets decreasedincreased to 0.85%1.40% at MarchJune 31,30, 2026 compared to 0.88%0.86% at MarchJune 31,30, 2025.

Non-interest expenses totaled $10.3$10.4 million for firstsecond quarter 2026, compared to $9.5$8.7 million for the firstsecond quarter 2025, an increase of $789,000.$1.7 million. The increase was primarily attributable to increased compensationcompensation, anddue to increases in the number of full-time equivalent employees, legal and professional fees, ATM and check card fees, and other operating expenses, and was partially offset by a reduction in FDIC insurance expense. Salaries increased $174,000, largely due to the increase in the number of full-time equivalent employees and an increase in bonus accruals. Employee benefits increased $401,000 due to increases in payroll expenses, group insurance, and retirement contributions. Legal and professional fees increased $274,000 due to interim accounting assistance and other consulting fees. Non-interest expense to average assets for the quarter increased from 2.96%2.68% at MarchJune 31,30, 2025 to 3.01% at MarchJune 31,30, 2026.

On MarchJune 31,30, 2026, assets totaled $1.4 billion, an increase of $35.2$24.2 million since December 31, 2025. Cash and cash equivalents increaseddecreased $17.0$8.1 million to $85.9$60.8 million, primarily due to ana increasedecrease in Federal funds sold during the quarter.first six months of 2026. Total loans increased by $10.6$39.0 million to $896.9$925.3 million, including increases of $8.4$21.7 million in residential mortgage loans, $6.4$7.0 million in multifamily residentialloans, $5.8 million in home equity loans, $2.9$3.7 million in commercial and industrial loans, $2.9$5.6 million in nonowner‑occupied commercial real estate loans, $11.9 million in loans secured by farmland, and $2.8$4.7 million in other construction and land development loans. These increases were partially offset by declinesdecreases of $6.7$8.1 million in residential construction loans, $4.1 million in owner‑occupied commercial real estate loans, $4.3 million in residential construction loans, and $7.2$11.1 million in automobile loans. InvestmentAll securitiesremaining loan categories increased by $5.2a net $159,000. Investment securities decreased by $7.9 million due to sales of $29.8 million and purchases of $14.9$49.0 million, partiallyincluding offsetthe byrestructuring $8.9of millionthe AFS securities portfolio in paydownsJune of U.S. agency mortgage‑backed securities.2026. Total deposits grew by $29.9$12.2 million to $1.3 billion, with noninterest bearing deposits increasing by $10.9$14.7 million and a decline of $2.4 million in interest-bearing deposits increasing by $18.9 million.deposits. Long-term debt remained consistent at $9.9 million. Total shareholders’ equity rose by $1.8$8.1 million to $106.6$112.1 million.

The Company’s available-for-sale (AFS) securities portfolio is reported at fair value, based on market prices of comparable instruments. This portfolio mainly includes U.S. Treasury securities, U.S. agency and mortgage-backed securities issued by federal agencies, as well as municipal bonds and corporate debt securities. As of MarchJune 31,30, 2026, the total AFS securities were $350.5$337.5 million, updecreasing from $345.3 million on December 31, 2025.

This represents ana increasedecrease of $5.2$7.9 million, or 1.5%.2.3%. The average balance of the AFS securities portfolio during the first threesix months of 2026 was $348.5$346.5 million, compared to $319.1$327.0 million during the same period in 2025. The average AFS securities portfolio accounted for 26.7%26.6% and 26.3%26.9% of average earning assets for the threesix months ended MarchJune 31,30, 2026, and 2025, respectively. The increasedecrease in AFS securities is primarily due to sales of $29.8 million and purchases of $14.9$49.0 million, partiallyincluding offsetthe byrestructuring $8.9of the AFS securities portfolio in June 2026, as well as $23.2 million in paydowns of U.S. agency mortgage-backed securities in the bond portfolio.securities. Net unrealized losses related to the fair value of AFS securities were $21.8$19.4 million as of MarchJune 31,30, 2026, compared to $21.0 million as of December 31, 2025. This unrealized loss is attributed to rising market interest rates rather than credit quality. During the period, $8.9$22.3 million in mortgage-backed securities were paid down, all of which was reinvested in higher-yielding bonds. Scheduled maturities and paydowns are expected to total $54.4$31.9 million in the remaining ninesix months of 2026. The portfolio’s weighted average life is 4.464.70 years, with a modified duration of 3.573.73 years. The weighted average life may differ from the contractual maturities of the individual securities.

Loans Heldheld for Investmentinvestment totaled $896.9$925.3 million at MarchJune 31,30, 2026 and increased $10.6$39.0 million from $886.3 million at December 31, 2025. As a percentage of average earning assets, average loans were 63.9%69.1% for the threesix months ended MarchJune 31,30, 2026, compared with 68.4%68.8% for the threesix months ended MarchJune 31,30, 2025.

Loans Heldheld for Salesale totaled $3.7$2.6 million as of MarchJune 31,30, 2026, ana increasedecrease of $502,000$544,000 from $3.2 million on December 31, 2025. This category consists of mortgage loans, which are affected by interest rate changes, seasonal trends, and refinancing activity. All mortgage loans held for sale have been pre-committed to investors, effectively minimizing interest rate risk.

The Company’s loans held for investment portfolio is well-diversified, with first-lien, amortizing residential mortgage loans as the largest segment, representing 27.93%28.64% of total loans. Commercial real estate loans, including both owner-occupied and non-owner-occupied properties, compriserepresent $206.4$212.6 million, or 23.00%22.96% of the portfolio. Loans secured by farmland totaled $117.9$126.9 million, or 13.14%13.70% of the portfolio. Automobile loans, originated through the Company’s dealer finance division, totaltotaled $69.9$66.0 million, accounting for 7.79%7.13% of the portfolio. Following is a breakdown of the loan portfolio composition as of MarchJune 31,30, 2026, and December 31, 2025 (dollars in thousands):

Management has implemented a comprehensive analytical process to evaluate the adequacy of the allowance for credit losses. Refer to the discussion in Note 1 — Summary of Significant Accounting Policies in Notes to the Consolidated Financial Statements for management’s approach to estimating the ACL.

The current quarter provision for credit losses of $309,000$269,000 was a combination of $289,000$306,000 provision for the allowance for loan credit losses, plus $20,000$37,000 recovery of provision for the allowance for unfunded commitments. The current quarter provision of $289,000$306,000 was driven by net loan charge-offs of $198,000$131,000 and a $10.6$28.4 million increase in loan balances.balances in the current quarter.

As of MarchJune 31,30, 2026, year-to-date net charge-offs totaled $198,000,$328,000, updown from $187,000$719,000 during the same period ended MarchJune 31,30, 2025. Gross loans increased by $10.6$39.0 million in the first quartersix months of 2026 and loans individually analyzed decreased $1.4$2.2 million.million to $1.6 million at June 30, 2026 from $3.8 million at December 31, 2025. As of MarchJune 31,30, 2026, the ACL was $7.9$8.1 million, or 0.88%0.87% of loans held for investment, compared to $7.8 million, or 0.88% of loans held for investment, as of December 31, 2025. The allowance for credit losses as a percentage of loans remained stable during the quarter,first six months of 2026, reflecting loan growth in line with existing portfolio risk characteristics and strong recovery performance.

The reserve for unfunded commitments increaseddecreased from $764,000$766,000 at December 31, 2025, to $786,000$749,000 at MarchJune 31,30, 20262026, primarily due to decreases in loan commitments of $1.0 million in multifamily loans, which have a higher historical rate of funding. This decrease was partially offset by increases in loan commitments of $9.2 million in construction loans, $1.7$3.9 million in home equity loans, $2.7 million in loans secured by farmland, $1.7 million in agricultural loans, and $1.5 million in nonowner-occupied commercial real estate, partially offset by a decrease of $11.7 million in commercial and industrial loans.estate.

Management classifies nonperforming loans as nonaccrual loans and loans that are 90 days or more past due. Nonaccrual loans are those on which interest accruals have been suspended or permanently discontinued. The Company’s nonaccrual loans decreased $1.2$2.4 million from December 31, 2025, primarily due to the payoff of three owner-occupied commercial real estate loans and one home equity loan related to one customer relationship ($325,000) and, one owner-occupied commercial real estate loan ($1.0 million) becoming current during the first quarter, and the payoff of one real estate loan ($766,000) and the paydown of one owner-occupied commercial real estate loan ($275,000) in the second quarter. For more details on nonperforming loans by segment, see Note 34 Loans— Allowance for Credit Losses in Notes to the Consolidated Financial Statements.

The following table summarizes the Company’s non-performing assets as of MarchJune 31,30, 2026, and December 31, 2025 (in thousands):

The Company'sCompany’s main source of funding consists of deposits received from individuals, governmental entities and businesses located within the Company'sCompany’s service area. Deposit accounts include demand deposits, savings, money market, and certificates of deposit. Total deposits were $1.28$1.26 billion and $1.25 billion at MarchJune 31,30, 2026 and December 31, 2025, respectively. Noninterest bearing deposits increased $10.9$14.7 million and interest bearing deposits increaseddecreased $18.9$2.4 million.

Estimated uninsured deposits totaled approximately $177.7$179.0 million and $167.4 million at MarchJune 31,30, 2026, and December 31, 2025, respectively.

The following table shows the average balances of deposits and average interest rates paid as of Marchthe 31,periods 2026 and December 31, 2025indicated (dollars in thousands).

The following table sets forth maturity ranges of time deposits, as of MarchJune 31,30, 2026, that meet or exceed the FDIC insurance limit (in thousands).

Long-term debt remained stable at $9.9 million from December 31, 2025 to MarchJune 31,30, 2026 and consisted of $10.0 million in aggregate principal amount of 7.55% fixed to floating rate subordinated notes due November 1, 2035. The Notes will initially bear interest at 7.55% per annum from and including November 1, 2025 to, but excluding, November 1, 2030, payable semi-annually in arrears on May 1 and November 1 orof each year, commencing on May 1, 2026. From and including November 1, 2030 to but excluding November 1, 2035, or up to an early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate (SOFR) plus 424.5 basis points, payable quarterly in arrears. Beginning on November 1, 2030 through maturity, the Notes may be redeemed, at the Company’s option, on any scheduled interest payment date. The Notes will mature on November 1, 2035.

Total Shareholders’ equity at MarchJune 31,30, 2026, was $106.6$112.1 million, compared to $104.8$104.0 million at December 31, 2025. Shareholders’ equity increased $1.8$8.1 million due to net income of $3.2$8.6 million, $205,000 related to shares issued, $249,000 in stock‑based compensation expense, and $1.3 million in other comprehensive income, partially offset by other$1.9 comprehensivemillion lossin dividends paid, $136,000 in net vesting of $585,000restricted stock, and dividends$182,000 toin shareholdersdeferred ofcompensation $925,000.trust activity. Other comprehensive lossincome was the result of aan decreaseimprovement in the unrealized gainslosses on securities available for sale.

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, loans held for sale, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, credit availability at the Federal Reserve Bank, the purchase of brokered certificates of deposit, a corporate line of credit with a large correspondent bank, and debt and capital issuances. Management believes the Company’s current overall liquidity is sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

As of MarchJune 31,30, 2026, liquid assets totaled $121.5$92.9 million, or 8.6%6.7% of total assets, and liquid earning assets totaled $103.1$71.9 million, or 7.8%5.5% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. The Bank is scheduled to receive $54.4$31.9 million from bond paydowns and maturities by the end of 2026 which can be used to fund future loan growth and for other purposes.

At MarchJune 31,30, 2026 the Bank pledged investment securities with a collateral value totaling $113.1$88.3 million to the Federal Reserve System’s Discount Window. The Discount Window provides access to funding to help depository institutions manage their liquidity risks. The Bank did not borrow from the Discount Window during the first threesix months of 2026. In addition to the Discount Window, the Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million, and a secured line of credit with the FHLB with $201.4$205.2 million in available credit at MarchJune 31,30, 2026. The FHLB line of credit is secured by a blanket lien on qualifying loans in the residential, commercial, agricultural real estate, and home equity portfolios.

Uninsured deposits at MarchJune 31,30, 2026 were $177.7$179.0 million or 14% toof total deposits. In the unlikely event that uninsured deposit balances leave the Bank over a short period of time, management could more than satisfy the demand with liquid assets and FHLB borrowing capacity.

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Market values are calculated based on discounted cash flow analysis. The net economic value is the market value of all assets minus the market value of all liabilities. The change in net economic value of equity (“EVE”) over different rate environments is an indication of the longer- term repricing risk in the balance sheet. The same assumptions are used in the market value simulation as in the earnings simulation.

An asset-sensitive balance sheet structure implies that assets, such as loans and securities, will reprice faster than liabilities; consequently, net interest income should be positively affected in an increasing interest rate environment. Conversely, a liability-sensitive balance sheet structure implies that liabilities, such as deposits, will reprice faster than assets; consequently, net interest income should be positively affected in a decreasing interest rate environment. At MarchJune 31,30, 2026, the Company had $88.9$101.4 million more in liabilities repricing than assets subject to repricing in one year. This is a one-day position that is continually changing and is not necessarily indicative of our position at any other time.