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

Our investment securities portfolio as a whole is exposed to credit risk associated with rating agency downgrades and defaults of the issuers of those securities. We measure expected credit losses on our investment portfolio through our current expected credit loss (“CECL”) estimate. Increases to the provision for credit losses would have a negative impact on our results of operations and regulatory capital ratios. Additionally, an insufficient CECL provision may result in additional losses that would have an adverse impact on our results of operations. The investment portfolio’s performance, including the existence of unrealized and unrecognized losses in the portfolio, also may create reputational risk for us, particularly in conjunction with the conditions of the banking industry generally, that could result in deposit outflows or reduced access to funding, or negatively impact our ability to attract and retain prospective customers.

Moreover, we are considered a “user” of consumer reports provided by consumer reporting agencies under the FCRA,Fair Credit Reporting Act (“FCRA”), as amended by the Fair and Accurate Credit Transactions Act. FCRA regulates and protects consumer information collected by consumer reporting agencies and imposes specific obligations on “users” of consumer reports. Such obligations may include restricting the sharing of information contained in a consumer report, notifying consumers when such reports are used to make an adverse decision, and, in the context of completing employee background checks, providing a notice containing certain disclosures to the consumer and obtaining their consent.

We use various technologies in conducting our businesses, including telecommunication, data processing, computers, automation, internet-based banking, and debit cards. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. Our future success depends, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers. In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively. In addition, cloud technologies are also critical to the operation of our systems, and our reliance on cloud technologies is growing. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business, financial condition and results of operations.

For the years ended December 31, 20242025 and 2023,2024, net income was $20.6$24.5 million and $15.1$20.6 million, respectively, on a GAAP (generally accepted accounting principles (“GAAP”) basis. Net income for the year ended December 31, 2025 was inclusive of a $1.3 million write-down, net of tax, on other real estate owned (“OREO”) property, a $0.2 million loss, net of tax, on disposal of fixed assets, and a $0.1 million gain, net of tax, on sale of available-for-sale (“AFS”) investment securities and adjusted net income was $25.8 million on a non-GAAP basis. Net income for the year ended December 31, 2024 was inclusive of a $0.4 million,million increase in expenses, net of tax, in increased expenses related to announced branch closures that occurred on February 29, 2024 and adjusted net income was $21.0 million on a non-GAAP basis. Net income for the year ended December 31, 2023 was inclusive of a $3.3 million loss, net of tax, on the sale of securities and $0.5 million, net of tax, in increased expenses related to announced branch closures and adjusted net income was $18.8 million on a non-GAAP basis.

The provision for credit losses on loans was $2.3 million for the year ended December 31, 2025 and $2.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31, 2023.2024. Net charge-offs of $2.2$1.0 million were recorded for the year ended December 31, 2024,2025, compared to $0.9$2.2 million for 2023.2024. The ratio of the ACL to loans outstanding was 1.28% at December 31, 2025 compared to 1.23% at December 31, 2024 compared to 1.24% at December 31, 2023.2024.

Other operating income, including net gains/(losses) on sales of mortgage loans andloans, sales of investment securities,securities and disposal of fixed assets, increased by approximately $5.4$0.7 million when compared to 2023.2024. This increase was primarily relatedattributable to a $4.2$0.7 million loss recognized through the sale of available-for-sale (“AFS”) investment securities as part of a strategic balance sheet restructuringincrease in the fourth quarter of 2023. Wealthwealth management income, which includes trust department revenue and brokerage commissions, increaseddriven by $1.1 million due to improving market conditions, increased annuity salessales, and growth in new and existing customer relationships. ServiceNet gains, service charge income and debit card income waswere stable when comparing 2024the year ended December 31, 2025 to 2023.the same period of 2024.

Outstanding gross loans of $1.5 billion at December 31, 20242025 reflected growth of $74.1$40.9 million in 2024.2025. Since December 31, 2023,2024, commercial real estate loans increased by $32.7$44.4 million, acquisition and development loans increaseddecreased by $18.2$5.0 million,million as construction projects were completed and rolled into permanent financing, commercial and industrial loans increaseddecreased by $12.9$10.5 million, residential mortgage loans increased by $18.9$18.1 million, and consumer loans decreased by $8.6$6.1 million.million as production continued to be outpaced by amortization. Commercial growth was offset during 2025 by unusually high payoffs as a result of clients utilizing cash to repay or consolidate debt.

As of December 31, 2024,2025, the Corporationwe had approximately $140.0 million in unsecured lines of credit with itsour correspondent banks, $36.6$83.9 million available through a secured line of credit with the Federal Reserve Discount Window, and approximately $213.6$261.6 million of secured borrowings with the FHLB. Additionally, thewe Corporation hashave access to the brokered money market and certificates of deposit markets.

The provision for credit losses for loans was $2.3 million for the year ended December 31, 2025 and $2.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31, 2023.2024. Net charge-offs of $2.2$1.0 million were recorded for the year ended December 31, 20242025 compared to net charge-offs of $0.9$2.2 million for 2023.2024. The ratio of the ACL to loans outstanding was 1.28% at December 31, 2025 compared to 1.23% at December 31, 2024 compared to 1.24% at December 31, 2023.2024. The ACL reflects a level commensurate with the risk inherent in our loan portfolio.

The following table shows the components of net gains for the yearyears ended December 31, 20242025 and net losses for the year ended December 31, 2023.2024.

We recognized a tax expense of $8.0 million in 2025 compared to a tax expense of $6.7 million in 2024 compared to a tax expense of $4.4 million in 2023.2024. See the discussion under “Income Taxes” in Note 12 to the Consolidated Financial Statements presented elsewhere in this annual report for a detailed analysis of our deferred tax assets and liabilities. Our effective income tax ratesrate as a percentage of income for the years ended December 31, 20242025 and December 31, 20232024 werewas 24.5%24.6% and 22.7%,24.5%, respectively. The increase in the tax rate for the 20242025 period was primarily related to changes in allocations of state income tax expense.

At December 31, 2024,2025, the Corporation had Maryland Net Operating Losses (“NOLs”) of $36.3.$34.9 million for which a deferred tax asset of $2.4$2.3 million has been recorded. There was also a Maryland state interest expense carryforward of $3.9$4.4 million, for which a deferred tax asset of $0.3 million has been recorded. There has been and continues to be a full valuation allowance on these NOLs and interest expense deferred tax assets, based on management’s belief that it is more likely than not that these NOLs will not be realized prior to the expiration of their carry-forward periods because the Corporation will not generate sufficient taxable income in the future to fully utilize the NOLs. The valuation allowance was $2.6 million andat $2.8 million atboth December 31, 20242025 and 2023, respectively.2024.

The following non-GAAP financial measures exclude lossesnet gains on the sale of AFSinvestment securitiessecurities, losses on disposal of fixed assets and a write-down of OREO in 20232025 and accelerated depreciation and lease termination expenses related to the branch closures that occurred on February 29,in 2024.

As indicated below, the total interest-earning asset mix remained relatively constant at December 31, 20242025 aswhen compared to December 31, 2023.2024. The mix for each year is illustrated below.

Outstanding gross loans of $1.5 billion at December 31, 20242025 reflected growth of $74.1$40.9 million in 2024.2025. Since December 31, 2023,2024, commercial real estate loans increased by $32.7$44.4 million, acquisition and development loans increaseddecreased by $18.2$5.0 million,million as construction projects were completed and rolled into permanent financing, commercial and industrial loans increaseddecreased by $12.9$10.5 million, residential mortgage loans increased $18.9by $18.1 million, and consumer loans decreased by $8.6$6.1 million.million as production continued to be outpaced by amortization. Commercial growth was offset during 2025 by unusually high payoffs as a result of clients utilizing cash to repay or consolidate debt.

New commercial loan production for the year ended December 31, 20242025 was approximately $247.0 million, which compares to $189.5 million.million Thefor pipelinethe ofyear commercial loans as ofended December 31, 20242024. wasThe commercial pipeline continued to be strong at December 31, 2025 at $61.0 million, and unfunded, commercial construction loans totaled approximately $11.5$46.5 million. Commercial amortization and payoffs were approximately $114.1$170.5 million throughfor the year ended December 31, 2024 due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.2025.

New residential mortgage loan production for year ended December 31, 20242025 was approximately $73.5$76.7 million, with most of this production comprised of in-house loans. The pipeline of in-house, portfolio loans as ofat December 31, 20242025 was $5.3$4.5 million. TheUnfunded commitments related to residential mortgageconstruction productionloans leveltotaled declined$14.5 inmillion theat fourthDecember quarter31, of 2024 due to the increasing interest rates and seasonality of this line of business.2025.

A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $0.1 million$100,000 or greater; otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan.flows. For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “NonrecurringIndividually Loansevaluated loans” section in Note 17, Fair Value of Financial Instruments.

From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things. The below table shows details of loans modified to borrowers experiencing financial difficulty at December 31, 2024:

All loans presented in the table above were performing in accordance with their modified terms at December 31, 2024 Effective January 1, 2023, we adopted the accounting guidance in FASB’s Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, universally referred to as CECL. In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology of CECL. Refer to Note 5, Loans and Related Allowance for Credit Losses, for further discussion of these portfolio segments. The adoption of ASU 2016-13 resulted in a Day 1 adjustment of $2.9 million to our ACL, including an increase of $2.0 million to the ACL for loans and $0.9 million to the ACL for unfunded commitments. The Corporation recorded a net decrease to retained earnings of $2.2 million as of January 1, 2023 for the cumulative effect of adopting ASU 2016-13.

The ACL was $19.5 million at December 31, 2025 compared to $18.2 million at December 31, 2024 compared to $17.5 million at December 31, 2023.2024. The provision for credit losses on loans was $2.3 million for the year ended December 31, 2025 compared to $2.9 million for the year ended December 31, 2024 compared to $1.7 million for the year ended December 31, 2023.2024. The provision expense recorded in 20242025 was primarily related to thecharge-offs movementrecorded ofin approximately $12.1 million ofour commercial and industrial loansportfolio toand non-accrualgrowth in the first quarter of 2024 andour loan growth offset in future quarters related to reduction in non-accruals, strong asset quality and improvements in qualitative factors.portfolio. Net charge-offs of $1.0 million and $2.2 million were recorded for the yearyears ended December 31, 20242025 and $0.92024, million for the year ended December 31, 2023.respectively. The ratio of the ACL to loans outstanding was 1.28% at December 31, 2025 and 1.23% at December 31, 2024 and 1.24% at December 31, 2023.2024.

The ratio of net charge-offscharge offs to average loans for the year ended December 31, 2024 was an annualized 0.16% compared to 0.07% for the year ended December 31, 2023.2025 and 0.16% for the year ended December 31, 2024. The increase in net charge-offs was related to our commercial and industrial portfolio charge-offshad net charge offs of equipment0.33% loanand balances0.50% for the years ended December 31, 2025 and 2024, respectively, due primarily to charge offs on one non-accrual relationshipcommercial during 2024.relationship. The consumeracquisition and development portfolio had net recoveries of 0.33% and 0.06% for the years ended December 31, 2025 and 2024, respectively. This shift in the acquisition and development portfolio was due primarily to recoveries recognized in 2025 related to one relationship previously charged off in 2016 as additional collateral was brought into OREO in the third quarter of 2025. The decrease in net charge offs alsoin increasedconsumer duringloans 2024in related2025 towas $0.4primarily driven by approximately $0.3 million in charge-offscharge offs of overdrawn demand deposit balances during the first quarter andof $0.12024. million in charge offsDetails of studentthe ratios, by loan accounts.type, are shown below. Our special assets team continues to effectivelyactively collect on charged-off loans, resulting in ongoing overall low net charge-off ratios.

The total fair value of AFS securities was $94.5$107.1 million and the book value of HTM securities totaled $175.6$171.5 million at December 31, 2024,2025, representing an increase of $12.7 million and a decrease of $2.7 million and $38.8$4.1 million, respectively, since December 31, 2023. In 2024, $37.5 million in U.S. Treasury bonds matured and the proceeds were used to repay the $40.0 million FHLB advance that matured in March. Additionally, there were $15.0 million in maturities, calls, and principal paydowns in the portfolio.2024. New investment purchases in the amount of $11.2$24.6 million were made during 20242025 to enhance the overall yield of the portfolio. Management intends to hold the portfolio relatively stable in 20252026 by reinvesting cashflows back into the portfolio to enhance the overall yield of the portfolio. The investment portfolio is primarily utilized for liquidity purposes, management of interest sensitivity and collateralization needs.

Approximately $79.8$91.1 million of the AFS portfolio was valued using Level 2 pricing and had net unrealized losses of $17.7$13.9 million at December 31, 2024.2025. The remaining $14.7$16.0 million of the AFS securities represents the collateralized debt obligation (“CDO”) portfolio, which was valued using significant unobservable inputs, or Level 3 pricing. The $4.0$2.8 million in net unrealized losses associated with the CDO portfolio relates to nine pooled trust preferred securities. There have been no changes to the ratings or payment status of the CDO portfolio in 2025.

AtSee December“Liquidity 31,Sources” 2024,above wefor haddiscussion on additional borrowing capacity withavailable theto FHLBus totalingat $213.6December million,31, an additional $140.0 million of unused lines of credit with correspondent financial institutions, and $36.6 million of an unused secured line of credit with the Federal Reserve Discount Window.2025. See Note 9 to the Consolidated Financial Statements presented elsewhere in this annual report for further details about our borrowings and additional borrowing capacity, which is incorporated herein by reference.

We require capital to fund loans, satisfy our obligations under the Bank’s letters of credit, meet the deposit withdraw demands of the Bank’s customers, and satisfy our other monetary obligations. To the extent that deposits are not adequate to fund our capital requirements, we can rely on the funding sources identified below under the heading “Liquidity Management”. At December 31, 2024, the Bank had $140.0 million available through unsecured lines of credit with correspondent banks, $36.6 million net available through a secured line of credit with the Federal Reserve Discount Window and approximately $213.6 million net available through the FHLB. Management is not aware of any demands, commitments, events or uncertainties that are likely to materially affect our ability to meet our future capital requirements.

In addition to operational requirements, the Bank and the Corporation areis subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators. These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit. Detailed information about these capital regulations and their requirements is set forth in the “Supervision and Regulation” section of Item 1 of Part I of this annual report under the heading “Capital Requirements”.

At December 31, 2024, the Corporation’s total risk-based capital ratio was 15.92% and2025, the Bank’s total risk-based capital ratio was 14.59%, both of15.19%, which werewas well above the regulatory minimum of 8%. The total risk-based capital ratios of the Corporation and the Bank at December 31, 20232024 werewas 15.64% and 14.05%, respectively.14.59%.

At MarchJune 31,30, 2026, the Corporation’s total assets were $2.0$2.1 billion, net loans were $1.5$1.6 billion, and deposits were $1.8$1.7 billion. Shareholders’ equity at MarchJune 31,30, 2026 was $205.3$212.4 million.

The $0.9 million increase in quarterlyConsolidated net income decreased by $0.3 million for the second quarter of 2026 when compared to the firstsecond quarter of 20252025. The decrease was primarily driven by an increase in other expense as a $2.1result of a one-time, $1.7 million, net of tax, consulting expense related to core processing system contract negotiations. This increase was partially offset by a $1.9 million increase in net interest income, an increase of $0.4$0.3 million in non-interest income, inclusive of gains, partially offset byand a $0.2$0.1 million increasedecrease in provision for credit losses as a result of increased off-balance sheet loan commitments, an increase in non-interest expense of $1.1 million, and an increase in income tax expense of $0.3 million.losses. Comparing the firstsecond quarter of 2026 to the same period of 2025, interest and fees on loans increased by $0.7$1.5 million resultingas froma result of new loans booked at higher rates late in 2025 and the continued repricing of adjustable-rate loans. Interest expense decreased by $0.4$0.6 million when comparing year-over-year quarterly expense,expense resultingas froma result of the repayment of a $25.0 million brokered certificate of deposit in January 2026 and $65.0 million in Federal Home Loan Bank (“FHLB”) borrowings in March 2026. Other operating income increased by $0.4$0.3 million,million driven by an increase in trust and brokerage income of $0.2$0.3 million resultingas froma result of increased production and afavorable $0.2market millionvalues increaseon inassets bankunder owned life insurance (“BOLI”) related to a one-time death benefit received in the first quarter of 2026.management. Other operating expenses increased by $1.1$2.8 million,million driven by the one-time core processing system contract negotiations discussed above, a $0.9$0.8 million increase in salaries and benefits as a result of filling open positions throughoutin 2025,late 2025 and 2026, normal merit increases in April 20252026 and increased incentive payouts, partially offset by reduced life and health insurance expense due to reduced claims and an increase in the reduction of costs associated with loan originations related to increased loan production. Professional services expenses increased by $0.1 million and data processing expenses increased by $0.2 million. These increases were partially offset by reductions in other expenses such as miscellaneous loan fees and net periodic pension expenses.

The table below summarizes net interest income for the six- and three-month periods ended MarchJune 31,30, 2026 and 2025.

The following table sets forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the six- and three-month periods ended MarchJune 31,30, 2026 and 2025:

Net interest income, on a non-GAAP, FTE basis, increased by $2.1$1.9 million for the firstsecond quarter of 2026 when compared to the firstsecond quarter of 2025. This increase was driven by an increase of $1.7$1.3 million in interest income. Interest income on loans increased by $0.7$1.5 million due to the increase of 2115 basis points in overall yield on the loan portfolio as new loans were booked at higher rates during 2025 and 2026 as well as the upward repricing of adjustable-rate loans. Investment income increasedremained slightly by $0.1 millionstable as management continuescontinued to reinvest cashflows back into the portfolio resulting in an increase in yield of 1412 basis points. Interest income on federal funds sold increaseddecreased by $0.8$0.3 million due to ana increasedecrease of $87.2$22.2 million in average cash balances held at the Federal Reserve Bank as a result of strong depositloan growth in 2025.the second quarter of 2026. Interest expense,expense decreased by $0.6 million in the firstsecond quarter of 2026 decreased by $0.4 million when compared to the firstsecond quarter of 2025. Interest on deposits remainedincreased stableslightly by $0.2 million despite aan $95.9$84.4 million increase in average deposit balances, primarily in interest bearing demand and money market deposits. Long-term borrowing interest expense decreased by $0.3$0.8 million due to a decrease of average balances of $90.0 million for the firstsecond quarter of 2026 when compared to the same period of 2025 dueprimarily related to the repayment of $65.0 million and $25.0 million of FHLB advances at their maturitymaturities in March of 2026.2026 and September of 2025, respectively.

The following tabletables setsset forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the six- and three-month periods ended MarchJune 31,30, 2026 and 2025:

Specific allocations have been made for loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance, and the qualitative factors affecting the estimated allowance for credit losses (“ACL”) have been adjusted based on the current economic environment and the characteristics of the loan portfolio. The provision for credit losses was $0.8 million for the quarter ended June 30, 2026 compared to $0.9 million for the quarter ended MarchJune 31,30, 20262025. comparedProvision tofor $0.7credit losses was $1.7 million and $1.5 million for the quarterfirst endedsix Marchmonths 31,of 2025.2026 and 2025, respectively.

The composition of other operating income for the six- and three-month periods ended MarchJune 31,30, 2026 and 2025 is illustrated in the following table:

The composition of other operating expenses for the six- and three-month periods ended MarchJune 31,30, 2026 and 2025 is illustrated in the following table:

In reporting interim financial information, income tax provisions should be determined under the procedures set forth in Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (Section 740-270-30). This guidance provides that at the end of each interim period, an entity should make its best estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined should be used in providing for income taxes on a current year-to-date basis. The effective tax rate should reflect anticipated investment tax credits, capital gains rates, and other available tax planning alternatives. In arriving at this effective tax rate, however, no effect should be included for the tax related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect in reports for the interim period or for the fiscal year. The effective income tax rates, as a percentage of income, for the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025 were both24.1% 24.6%.and 24.7%, respectively.

The following table sets forth certain selected financial data for the six- and three-month periods ended MarchJune 31,30, 2026 and 2025 under GAAP (as reported) and non-GAAP. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with GAAP in the United States. Management believes that the presentation of non-GAAP financial measures provides investors with a greater understanding of the Corporation’s operating results in addition to the results measured in accordance with GAAP. While management uses these non-GAAP measures in its analysis of the Corporation’s performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP.

Total assets at MarchJune 31,30, 2026 were $2.0$2.1 billion, representing a $48.4$5.4 million decrease since December 31, 2025. During the firstsix quartermonths of 2026, cash and interest-bearing deposits in other banks decreased by $41.8$46.4 million. The investment portfolio increaseddecreased by $3.2$0.2 million. The decreases were partially offset by increases in gross loans of $50.4 million as cashflowswell as an increase in pension assets of the bonds were reinvested in the first quarter of 2026 in an effort to gain yield before long-term rates decline. Gross loans increased slightly by $3.8 million. While loan production was strong during the quarter, amortization and unusually high payoffs exceeded growth levels. Pension assets decreased by $0.8$3.2 million due to decreasedincreased market values.

Total liabilities at MarchJune 31,30, 2026 were $1.8$1.9 billion, representing a $50.1$14.1 million decrease since December 31, 2025. Total deposits increased by $15.5$0.4 million when compared to December 31, 2025. In January 2026, a $25.0 million brokered certificate of deposit with an interest rate of 4.23% matured and was repaid. Savings and money market accounts increased by $44.4$27.6 million due primarily to the expansion of current and new relationships throughout the first threesix months of 2026. Non-interest-bearing demand deposits decreased by $1.7$11.6 million and interest-bearing demand deposits decreasedincreased by $1.4$13.3 million due primarily to seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers.million. Retail time deposits decreased by $0.8$3.9 million since December 31, 2025. Short-term borrowings increased by $51.6 million at June 30, 2026 when compared to December 31, 2025 as a result of overnight borrowings in anticipation of loan funding. These borrowings were subsequently fully repaid in July.

Outstanding loans of $1.5$1.6 billion at MarchJune 31,30, 2026 reflected a $3.8$50.4 million increase since December 31, 2025. Since December 31, 2025, commercial real estate loans increased by $38.7$55.0 million as a result of new customerbusiness relationships as well as additional growth in existing relationships; acquisition and development loans increased by $7.5$11.9 million; commercial and industrial loans decreased by $30.8$35.0 million as a result of payoffs related to approximately $15.0 million due to competitive pricing, approximately $5.3 million related to sales of businesses, and approximately $8.0 million as a result of a refinance to another institution;institution, residentialand the payoff of a floorplan line of credit. Residential mortgage loans decreasedincreased by $10.6$10.2 million as a result of robust mortgage production booked in house as opposed to the selling to the secondary market outlets, offset slightly by normal amortization; and consumer loans decreasedincreased by $1.0$8.3 million.million related to the purchase of a consumer loan pool in the second quarter of 2026.

New commercial loan production for the threesecond monthsquarter ended March 31,of 2026 was approximately $98.0$66.0 million. The pipeline of commercial loans as of MarchJune 31,30, 2026 was robust, and unfunded committed commercial construction loans totaled approximately $43.0$42.0 million. Commercial amortization and payoffs were approximately $43.0$71.6 million through MarchJune 31,30, 2026, due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.

New consumer mortgage loan production for the firstsecond quarter of 2026 was approximately $16.0$33.9 million, with most of this production comprised of in-house mortgages. The pipeline of in-house, portfolio loans as of MarchJune 31,30, 2026 was $17.5$20.0 million. Unfunded commitments related to residential construction loans totaled $14.4$20.7 million at MarchJune 31,30, 2026.

The following table presents loans in our commercial real estate portfolio by industry type at MarchJune 31,30, 2026.

The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources. Management evaluates the variability of market conditions by examining the peak and trough of economic cycles. These peaks and troughs are used to stress the base case model to develop a range of potential outcomes. Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio. For the three-monthsix-month period ended MarchJune 31,30, 2026, the range of outcomes would produce a 26%16% reduction or a 44%43% increase in reserves based on the best-case and worst-case scenarios, respectively.

The following table presents a summary of the activity in the ACL for the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025:

The following table presents a summary of charge-offs and recoveries as a percent to their applicable portfolio for the three-monthsix- month periods ended MarchJune 31,30, 2026 and 2025:

At MarchJune 31,30, 2026, the total amortized cost basis of the available-for-sale investment portfolio was $126.3$125.1 million compared to a fair value of $109.0$108.0 million. Unrealized gains and losses on available-for-sale securities are reflected in accumulated other comprehensive loss, net of tax, and a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $172.8$170.4 million compared to a fair value of $148.9$146.4 million.

Total fair value of investment securities available for sale increased by $1.9$0.9 million since December 31, 2025. At MarchJune 31,30, 2026, the securities classified as available-for-sale included a net unrealized loss of $17.3$17.1 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.

Total amortized cost of securities held to maturity increaseddecreased by $1.3$1.1 million since December 31, 2025 due to security paydowns, net of new security purchases.

Approximately $92.8$92.9 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $14.7$14.9 million at MarchJune 31,30, 2026. The remaining $16.2$15.1 million of the available-for-sale securities represents the entire collateralized debt obligation portfolio, which was valued using significant unobservable inputs (Level 3 assets). The $2.6$2.1 million in net unrealized losses associated with this portfolio relates to nineeight pooled trust preferred securities that comprise the collateralized debt obligation portfolio.

The following table summarizes the percentage of deposits that are insured by deposit insurance or otherwise fully collateralized by securities compared to uninsured deposits as of MarchJune 31,30, 2026 and December 31, 2025.

The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of MarchJune 31,30, 2026 and December 31, 2025.

Short-term borrowings increased by $1.9$51.6 million duedriven toby increased balances in the overnight investmentborrowings sweepof product.$50.0 million in anticipation of loan funding. The $50.0 million was subsequently repaid in July 2026. Long-term borrowings decreased by $65.0 million due to the full repayment of $65.0 million in FHLB advances at their maturities in March 2026.

The following table presents sources of liquidity available to the Corporation as of MarchJune 31,30, 2026.

At MarchJune 31,30, 2026, we were asset sensitive.

NII modeling allows management to view how changes in interest rates will affect the spread between the yield paidearned on assets and the cost of deposits and borrowed funds. Unlike traditional Gap modeling, NII modeling takes into account the different degree to which installments in the same repricing period will adjust to a change in interest rates. It also allows the use of different assumptions in a falling versus a rising rate environment. The period considered by the NII modeling is the next eight quarters.

NPV / EVE modeling focuses on the change in the market value of equity. NPV / EVE is defined as the market value of assets less the market value of liabilities plus/minus the market value of any off-balance sheet positions. By effectively looking at the present value of all future cash flows on or off the balance sheet, NPV / EVE modeling takes a longer-term view of interest rate risk. This complements the shorter-term view of the NII modeling.

Based on the simulation analysis performed at MarchJune 31,30, 2026 and December 31, 2025, management estimated the following changes in net interest income, assuming the indicated rate changes:

The Corporation became slightly moreless asset sensitive as of MarchJune 31,30, 2026 when compared to December 31, 2025 as a result of increased reductions of liabilities related to theovernight repaymentborrowings ofat theJune brokered30, CD and FHLB borrowings.2026. All changes in net interest income from our simulation analysis remain within our policy limits.

This estimate is based on assumptions that may be affected by unforeseeable changes in the general interest rate environment and any number of unforeseeable factors. Rates on different assets and liabilities within a single maturity category adjust to changes in interest rates to varying degrees and over varying periods of time. The relationshipsrelationship between lending rates and rates paid on purchased funds are not constant over time. Management can respond to current or anticipated market conditions by lengthening or shortening the Bank’s sensitivity through loan repricings or changing its funding mix. The rate of growth in interest-free sources of funds will influence the level of interest-sensitive funding sources. In addition, the absolute level of interest rates will affect the volume of earning assets and funding sources. As a result of these limitations, the interest-sensitive gap is only one factor to be considered in estimating the net interest margin.

As of both MarchJune 31,30, 2026 and December 31, 2025, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.

The Corporation enters into contractual obligations in the normal course of business. Among these obligations are FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment. ComparingShort-term Marchborrowings 31,increased by $51.6 million at June 30, 2026 when compared to December 31, 2025,2025 short-termas a result of overnight borrowings increasedin byanticipation $1.9of millionloan duefunding. toThese increasesborrowings were subsequently fully repaid in the overnight investment sweep product. Long-term borrowings decreased by $65.0 million due to the full repayment of $65.0 million in FHLB advances at their maturities in MarchJuly 2026.

The increase of $29.2$31.1 million in commitments at MarchJune 31,30, 2026 when compared to December 31, 2025 was primarily due to new commercial business commitments originated during the first quartersix months of 2026.

For the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025, net credit loss expense/(credit) for off-balance sheet exposures was approximately $0.2 million and ($1,000),$0.1 million, respectively. For the three-month periods ended June 30, 2026 and 2025, net credit loss expense for off-balance sheet exposures was $45,000 and $0.1 million, respectively.