FXNC 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; changes in interest rates; and inflation, all of which are beyond our control. The growth in economic activity and in the demand for goods and services, coupled with labor shortages, supply chain disruptions and other factors, has contributed to rising inflationary pressures, the Federal Reserve’s responsive interest rate hikes, and the risk of recession. A deterioration in economic conditions, in particular a prolonged economic slowdown within our geographic region or a broader disruption in the economyeconomy, 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 Company or its subsidiaries.

We provide full-service banking and other financial services throughout the Company’s market areas, which include the Shenandoah Valley, Roanoke Valley, Richmond, south-central regions of Virginia, and northern North Carolina. Our loan 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 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.

Like all financial institutions, the Company maintains an allowance for credit losses (ACL) to provide for loans and securities that may not repay in their entirety. The Company believes that it maintains an ACL at a level adequate to absorb expected losses inherent in the loan and securities portfolios as of the corresponding balance sheet date and in compliance with applicable accounting and regulatory guidance. However, the ACL may not be sufficient to cover actual losses and future provisions for credit losses could materially and adversely affect the Company’s operating results. Accounting measurements related to impairment and the allowance for credit losses require significant estimates that are subject to uncertainty and changes relating to new information and changing circumstances. The significant uncertainties surrounding the ability of the Company’s borrowers to execute their business models successfully through changing economic environments, competitive challenges, and other factors complicate the Company’s estimates of the risk of loss and amount of loss on any loan or security. Because of the degree of uncertainty and susceptibility of these factors to change, the actual losses may vary from current estimates. The Company expects fluctuations in the credit loss provisions due to the uncertain economic conditions.

Our mortgage department contributes to our noninterest income. We generate income from brokered mortgage loans and gains on sales of mortgage loans primarily from loans that we source and/or originate. Interest rates, housing inventory, housing demand, cash buyers, new mortgage lending regulations and other market conditions have a direct effect on loan originations across the industry. During 2023 and 2024, revenues from mortgage banking decreased significantly from historical levels, primarily due to lower mortgage volumes as market interest rates increased and the demand for mortgages declined. LoanWhile brokered mortgage fees increased in 2025, loan production levels may continue to suffer if there is a sustained slowdown in the housing markets in which the Company conducts business or tightening credit conditions. Any sustained period of decreased activity caused by an economic downturn, fewer refinancing transactions, higher interest rates, housing price pressure, or loan underwriting restrictions would adversely affect the Company’s mortgage originations and, consequently, noninterest income from its mortgage operations. 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 to the extent that we are unable to reduce expenses commensurate with the decline in mortgage loan origination activity.

In addition, changes in interest rates may negatively affect both the returns on and market value of our investment securities. As we experienced due to rising interest rates in 2023 and 2024, interestInterest rate changes can reduce unrealized gains or increase unrealized losses in our portfolio and thereby negatively impact our accumulated other comprehensive income and equity levels. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position. Additionally, actual investment income and cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated at the time of investment or subsequently as a result of changes in interest rates and market conditions. These occurrences could have a material adverse effect on our net interest income or our results of operations.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, general-purpose reloadable prepaid cards, or in other types of assets, including crypto currenciescurrencies, Stablecoins, or other digital assets. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks. Large technology companies offering embedded financial services, digital wallets, and payment platforms have also increased competitive pressures and may accelerate customer migration away from traditional banking products. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the loss of deposits as a lower cost source of funds could have a material adverse effect on our financial condition and results of operations.

We rely on the secure processing, storage, and transmission of confidential and other information in our and our vendors' computer systems and networks. While we have policies and procedures designed to prevent or limit the effect of a possible security breach, our computer systems, software, and networks, including those of our vendors, may be vulnerable to unauthorized access, computer viruses, or other malicious code, and other events that could have a security impact. To date, the Company has not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, but the Company’s systems and those of its customers and third-party service providers are under constant threat and it is possible that the Company could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by the Company and its customers. The continued evolution and increased usage of artificial intelligence technologies may further increase these risks. If one or more such events occur, this potentially could jeopardize our customers’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks or those of our vendors, or otherwise cause interruptions or malfunctions in our or our customers’ operations or result in the loss of money. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

We are a relationship-driven organization. A key aspect of our business strategy is for our seniorbanking officers to have primary contact with our customers. Our growth and development to date have been, in large part, a result of these personalized relationships with our customer base.

Our senior officers have considerable experience in the banking industry and related financial services and are extremely valuable and would be difficult to replace. The loss of the services of these officers could have a material adverse effect upon future prospects. Although we believe the Company has excellent employee relations and provides competitive compensation to its senior officers, we cannot offer any assurance that they and other key employees will remain employed by us. The unexpected loss of services of one or more of these key employees could have a material adverse effect on operations and possibly result in reduced revenues or increased expenses.

The successful implementation of our business strategy will require us to continue to attract, hire, motivate and retain skilled personnel to develop new customer relationships as well as new financial products and services. The market for qualified management personnel is competitive, which has contributed to salary and employee benefit costs that have risen and are expected to continue to rise, which may have an adverse effect on the Company’s net income. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out our strategy is often lengthy, and we may not be able to effectively integrate these individuals into our operations. Our inability to identify, recruit and retain talented personnel to manage our operations effectively and in a timely manner could limit our growth, which could materially adversely affect our business.

The Company expects that the Trump administration will seek to implement a regulatory agenda that could reduce and streamline certain prudential and regulatory requirements applicable to banking organizations at a federal level. At this time, however, it is significantlyunclear different than that ofwhat the Bidenimpacts administration, impactingto the rulemaking, supervision, examination, and enforcement priorities of the federal banking agencies.agencies Atwill this time, it is unclearbe, what laws, regulations, and policies may changechange, and whether future changes or uncertainty surrounding future changes will adversely affect the Company’s operating environmentenvironment, and therefore its business, financial condition, and results of operations.

Increasing scrutiny and evolvingEvolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (ESG) practices may impose additional costs on the Company or expose it to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESGcorporate practicessocial responsibility, environmental concerns, governance and disclosures,related especiallypractices. Failure to act responsibly or in line with regulatory and stakeholder expectations in a number of areas, such as they relate to climate risk, human capital and hiring practices, thehuman diversity of the work force, racial and social justice issues,rights, support for local communities, and corporate governance and transparency.transparency, Newcould rulesnegatively impact the Company’s reputation, ability to do business with certain partners, and regulationsstock alsoprice. could result in new or more stringent forms of ESG oversight and reporting, diligence, and disclosure. Complying with ESG-relatedThe rules, regulations and/or stakeholder expectations of regulators, customers, investors, associates, and other stakeholders with respect to these matters continue to evolve, which could result in increases to the Company’s overall operational costs and increased management time and attention. Further, failureas these rules, regulations and expectations continue to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards or to act responsibly in these areas could negatively impactevolve, the Company’s reputation,stakeholders abilitymay tohave dodiffering businessviews withon certainrelated partners,matters. andScrutiny, stockor price.the Conversely,perception ifthat the Company’s efforts around diversity and inclusion and other ESG-related areas are perceived as too ambitious,ambitious or misdirected, could expose the Company mayto bethe subjectrisk toof investigations, litigation and other proceedings andor reputational harm. If the Company is unable to meet its reputationsocial- mayor beenvironmentally-related damaged.goals Adverseor incidentsevolving and divergent stakeholder expectations and industry standards, it could negatively impact the value of the Company’s brand, the cost of its operations and/or relationships with customers, investors or employees, any of which could adversely affect its business and results.

Net income decreasedincreased by $2.6$10.7 million to $17.7 million, or $1.96 per diluted share, for the year ended December 31, 2025, compared to $7.0 million, or $1.00 per diluted share, for the year ended December 31, 2024, compared to $9.6 million, or $1.53 per diluted share, for the same period in 2023.2024. Return on average assets was 0.44%0.87% and return on average equity was 5.33%10.10% for the year ended December 31, 2024,2025, compared to 0.71%0.44% and 8.59%,5.33%, respectively, for the year ended December 31, 2023.2024.

The $2.6$10.7 million decreaseincrease in net income resulted from a $8.1$20.8 million increase in net interest income, a $5.9 million decrease in merger expenses associated with the Touchstone acquisition andacquisition, a $1.7$5.0 million increasedecrease in provision for credit losses partially associated with the acquisition.acquisition, and a $638 thousand increase in noninterest income. These unfavorablefavorable variances were partially offset by a $9.0$12.5 million, or 21%, increase in net interest income, a $4.6 million, or 39%,24%, increase in noninterest income,expense and a $1.1$3.2 million decreaseincrease in income tax expense.

Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on interest-earning assets, predominantly loans and securities, exceeds interest expense on interest-bearing liabilities, including deposits, other borrowings, subordinated debt, and junior subordinated debt. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, are the components that impact the level of net interest income. The net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets. The provision for credit losses, noninterest income, noninterest expense and income tax expense are the other components that determine net income. Noninterest income and expense primarily consists of income from service charges on deposit accounts, ATM and check card income, wealth management income, income from other customer services, and income from bank owned life insurance,insurance. Noninterest expense primarily consists of salaries and generalbenefits, occupancy and administrativeequipment expenses, marketing expenses, legal and professional fees, data processing expenses, atm and check card expenses, FDIC assessments, bank franchise taxes, merger expenses and other operating expenses.

The increase in total interest income was primarily attributable to a $14.2$21.7 million, or 29%,34%, increase in interest income and fees on loans. The increase in interest income on loans was attributable to a 52-basis12-basis point increase in the yield on loans and a 17%31.5% increase in average loan balances compared to the prior year in part due to the acquisition of Touchstone.

The increase in total interest expense was attributable to a $7.3$3.3 million increase in interest expense on deposits.deposits Theoffset higherby a $2.0 million decrease in interest expense on depositsother resultedborrowings. fromAlthough there was a 51-basis31-basis point increasedecrease in the cost of interest-bearing depositsliabilities, andinterest expense increased due to a 17%31.9% increase in average interest-bearing deposits in part due to the acquisition of Touchstone. The increase in the cost of deposits was also impacted by a change in the composition of the deposit portfolio as lower cost deposit balances decreased, while higher cost deposit balances increased.

The net interest margin was 3.51%3.88% for the year ended December 31, 2024,2025, compared to the 3.41%3.51% for the prior year as the increase in the yield on earning assets exceeded the increase in cost of funds during 2024.2025. Net accretion income related to acquisition accounting was $408$1.1 thousand,million, or a three-basissix-basis point incremental increase to the net interest margin.

Provision for credit losses totaled $7.9$2.9 million in 2024,2025, compared to a provision for credit losses of $6.2$7.9 million for the prior year. The 2025 provision was comprised of a $7.8$2.8 million provision for credit losses on loans which includes $3.8 million Day-One provision on Non-PCD loans purchased from Touchstone,loans, a $73$141 thousand provision for credit losses on unfunded commitments, and a $12 thousand recovery of credit losses on held-to-maturity securities. Included in the provision for credit losses for the fourth quarter of 2024 was a $3.8 million initial provision expense on non-purchased credit deteriorated (PCD) loans acquired from Touchstone.

Noninterest income totaled $16.4$17.0 million for the year, which was aan increase of $4.6$638 million,thousand, or 39%,3.9%, compared to $11.8$16.4 million for the prior year. The increase was primarily afrom resultincreases in ATM and check card fees of a$1.3 bargainmillion, purchaseor gain38.7%, and service charges on deposit accounts of $2.9$833 millionthousand, relatedor to the Touchstone acquisition and a recovery on a purchased loan of $1.2 million.26.7%. Noninterest income categories with moderate increases over the prior year included brokered mortgage fees which increased $133$397 thousand, or 112%,157.5%, income from bank owned life insurance which increased $389 thousand, or 51.5%, and fees for other customer services which increased $196$221 thousand, or 25%,22.9%. wealthThese managementincreases feeswere whichoffset increasedby $497a thousand,decrease orof 16%,$2.6 andmillion servicefrom chargesthe bargain purchase gain recognized on deposits which increased $342 thousand, or 12%. Categories that decreased over the prior year included gain on saleacquisition of other investment which decreased $146 thousand, or 78%, and ATM and check card fees which decreased $144 thousand, or 4%.Touchstone.

Noninterest expense increased $15.7$12.5 million, or 42%,23.6%, for the year ended December 31, 2024,2025, compared to the prior year. The increase was primarily a result of mergersalaries and employee benefits of $8.5 million and other operating expenses of $8.1$3.0 million and core deposit intangible amortization expense of $443 thousand.million. Categories with moderate increases over the prior year included salariesoccupancy and employee benefitsexpense which increased $4.1$1.5 million, or 19%,56.8%, amortization expense which increased $1.3 million, or 283.3%, equipment expense which increased $754$1.2 thousand,million, or 32%, legal37.5%, and professionaldata processing expense which increased $346$858 thousand, or 21%,61.1%. occupancyThe expenseincrease whichwas increasedprimarily $419 thousand, or 19%, FDIC assessment increaseddriven by $227the thousand,Touchstone ormerger 36%,resulting and other operating expense whichin increased $706 thousand, or 16%. Each of these line items included the operating expenses ofdue Touchstoneto foroperating theadditional lastbranches, threeduplicative monthsexpenses ofincurred 2024.prior to system integration, and amortization expense due to time deposit accretion on time deposits acquired from Touchstone. Other operating expense increased from higher recruiting expense, directors fees, debit card cashpromotion expense, education and training, loan collection expense, item processing expense, core deposit intangible expense, and courier and armored services. These increases were offset by a decrease in merger expenses from prior year of $5.9 million, or 73.4%.

Income tax expense decreasedincreased $1.1$3.2 million during the year ended December 31, 20242025 compared to the prior year. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the yearyears ended December 31, 2025 and 2024 and 2023.. The difference was a result of an increase in net permanent tax deductions, primarily comprised of tax-exempt bargain purchase gain, interest income and income from bank owned life insurance. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in this Form 10-K.

Total assets increased $591.0$27.7 million during the year and totaled $2.0 billion at December 31, 2024.2025. The increase was primarily attributable to a $493.1 million increase in loans, net of allowance, a $68.0 million increase in interest-bearing deposits in banks, and a $11.0$53.7 million increase in securities available for sale,sale. whichThis wereincrease partiallywas offset by a $38.5$15.2 million decrease in loans, net of allowance for credit losses, $6.9 million decrease in securities held to maturity.maturity, Theand increasea $4.1 million decrease in thecash loanand portfoliodue wasfrom impacted by $479.7 million of loans acquired on October 1, 2024, through the acquisition of Touchstone.banks.

Total shareholders' equityliabilities increased $50.3$8.0 million toduring $166.5the millionyear and totaled $1.9 billion at December 31, 2024, compared to $116.3 million at December 31, 2023.2025. The increase was primarily attributable to theother issuanceborrowings of common$25.0 stockmillion infrom the amountFederal ofHome $3.3Loan Bank. Subordinated debt decreased by $12.9 million due to redemptions and surplustotal ofdeposits $43.5decreased millionby in$4.2 the acquisition of Touchstone. Other notable increases include a $2.7 million increase in retained earnings.million.

Loans increaseddecreased $497.6$16.9 million to $1.4 billion at December 31, 2025, compared to $1.5 billion at December 31, 2024, compared to $969.4 million at December 31, 2023 in large part due to the Touchstone acquisition.2024. Other real estate loans increased by $224.9 million, residential real estate loans increased by $203.2$24.8 million, construction and land development loans increased by $31.8$3.9 million, commercial, and industrial loans increaseddecreased by $28.3$23.4 million, residential real estate loans decreased by $19.9 million, and consumer and other loans increaseddecreased by $9.4$2.3 million.

Management classifies non-performing assets as non-accrual loans and 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 and properties originally acquired for branch operations or expansion but no longer intended to be used for that purpose. 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 $0 and $53 thousand and $0 in assets classified as OREO at December 31, 20242025 and 2023,2024, respectively.

Non-performing assets totaled $7.0$4.7 million and $6.8$7.0 million at December 31, 20242025 and 2023,2024, representing approximately 0.35%0.23% and 0.48%0.35% of total assets, respectively. Non-performing assets consisted of $4.7 million and $7.0 million of non-accrual loans at December 31, 2024.2025 Non-performingand assets2024, consisted of $6.8 million of non-accrual loans at December 31, 2023.respectively.

At December 31, 2024,2025, 68%56.2% of non-performing assets were commercial and industrial loans, 31%42.9% were residential real estate loans, and 1%1.0% were construction loans. Non-performing assets could increase due to the deterioration of other loans identified by management as potential problem loans. Other potential problem loans are defined as performing loans that possess certain risks, including the borrower’s ability to pay and the collateral value securing the loan, that management has identified that may result in the loans not being repaid in accordance with their terms. Other potential problem loans totaled $9.1$6.4 million and $287$9.1 thousandmillion at December 31, 20242025 and December 31, 2023,2024, respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers’ ability to meet their debt requirements.

There were no loans greater than 90 days past due and still accruing at December 31, 2025. There were $365 thousand in loans greater than 90 days past due and still accruing at December 31, 2024. There were $524 thousand in loans greater than 90 days past due and still accruing at December 31, 2023.

The ACLL represents management’s analysis of the existing loan portfolio and related credit risks. The provision for credit losses is based upon management’s current estimate of the amount required to maintain an adequate ACLL reflective of the risks in the loan portfolio. The allowance for credit losses on loans totaled $14.7 million at December 31, 2025 and $16.4 million at December 31, 2024 and $12.0 million at December 31, 2023 , representing 1.12%1.02% and 1.24%1.12% of total loans, respectively. The Company determined that the historical loss analysis and the qualitative adjustment factors that established the collectively evaluated reserve component of the ACLL were appropriate at December 31, 20242025 . The allowance for credit losses on loans as a percentage of total loans decreased to 1.12% at December 31, 2024 compared to 1.24% at December 31, 2023. While the collectively evaluated reserve increaseddecreased $4.1$395 millionthousand and the individually evaluated reserve component of the ACLL increaseddecreased $374$1.3 thousand, the increased reserve was impacted by an increase in total loans of $497.6 million, or 51.3%, during the same period.million.

Recoveries of credit losses of $682$1.5 thousandmillion and $360$29 thousand were recorded in the 1-4other familyreal residentialestate and consumerconstruction and otherland development loans classes during the year ended December 31, 2024.2025. The recoveries of credit losses resulted primarily from a decrease in the collectively evaluated reserve. These recoveries were offset by provision for credit losses totaling $5.0$4.3 million in the construction1-4 family residential, consumer and land development, other real estate,loans, and commercial and industrial loan classes. For more detailed information regarding the provision for credit losses on loans, see Note 5 to the Consolidated Financial Statements included in this Form 10-K.

Securities totaled $277.3$326.0 million at December 31, 2024,2025, aan decreaseincrease of $25.9$48.7 million, or 8.5%,17.6%, from $303.2$277.3 million at the end of 2023.2024. Investment securities are comprised of U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities. As of December 31, 2024,2025, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $62$363 thousand and $61$62 thousand at December 31, 20242025 and 2023,2024, respectively. Gross unrealized losses in the available for sale portfolio totaled $22.1$14.8 million and $20.7$22.1 million at December 31, 20242025 and 2023,2024, respectively. Gross unrealized gains in the held to maturity portfolio totaled $95$98 thousand and $107$8 thousand at December 31, 20242025 and 2023,2024, respectively. Gross unrealized losses in the held to maturity portfolio totaled $11.0$6.8 million and $10.8$11.0 million at December 31, 20242025 and 2023,2024, respectively. The change in the unrealized gains and losses of investment securities from December 31, 20232024 to December 31, 20242025 was related to changes in market interest rates and was not related to credit concerns of the issuers.

On September 1, 2022, the Bank transferred 24 securities designated as available for sale with a combined book value of $82.2 million, market value of $74.4 million, and unrealized loss of $7.8 million, to securities designated held to maturity. The unrealized loss is being amortized monthly over the life of the securities with an increase to the carrying value of securities and a decrease to the related accumulated other comprehensive loss, which is included in the shareholders’ equity section of the Company’s balance sheet. The amortization of the unrealized loss on the transferred securities totaled $957 thousand, or $756 thousand net of tax, for the year ended December 31, 2025. The amortization of the unrealized loss on the transferred securities totaled $1.0 million, or $791 thousand net of tax, for the year ended December 31, 2024. The securities selected for transfer had larger potential decreases in their fair market values in higher interest rate environments than most of the other securities in the available for sale portfolio and included U.S. Treasury, agency, municipal and commercial mortgage-backed securities. The securities were transferred to mitigate the potential unfavorable impact that higher market interest rates may have on the carrying value of the securities and on the related accumulated other comprehensive loss. Securities designated as held to maturity are carried on the balance sheet at amortized cost, while securities designated as available for sale are carried at fair market value.

As of December 31, 2024,2025, the Company did not own securities of any issuer for which the aggregate book value of the securities of such issuer exceeded tentwelve percent of shareholders’ equity.

At December 31, 2024,2025, deposits totaled $1.8 billion, increasingdecreasing by $570.1$4.2 million, from $1.2$1.8 billion at December 31, 2023.2024. At December 31, 2024,2025, noninterest-bearing demand deposits, savings and interest-bearing demand deposits, and time deposits composed 29%,28%, 51%,52%, and 20% of total deposits, respectively, compared to 31%,29%, 54%,51%, and 15%20% at December 31, 2023.2024.

Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, unpledged securities held-to-maturity, at par, and available lines of credit totaled $819.0 million on December 31, 2025, and $758.0 million on December 31, 2024, and $512.7 million on December 31, 2023.2024. Available lines of credit from other institutions included in the total amount above was $556.2 million on December 31, 2025, and $562.5 million on December 31, 2024, and $351.4 million on December 31, 2023.2024. The available lines of credit were comprised of secured and unsecured lines of credit and the Bank had no$25.0 borrowingsmillion and $0 on the lines as of December 31, 20242025 and December 31, 2023.2024, respectively.

The Bank maintains liquidity to fund loan growth and meet the potential demand from its deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $538.2 million on December 31, 2025, and $537.0 million on December 31, 2024, and $368.2 million on December 31, 2023.2024. Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $448.8 million on December 31, 2025, and $319.1 million on December 31, 2024,2024. andMunicipal $286.2deposits millionare onpartially Decembersecured 31,with 2023.pledged investment securities.

The minimum capital level requirements applicable to the Bank under the final rules are as follows: a new common equity Tier 1 capital ratio of 4.5%; a Tier 1 capital ratio of 6%; a total capital ratio of 8%; and a Tier 1 leverage ratio of 4% for all institutions. The final rules also established a “capital conservation buffer” above the new regulatory minimum capital requirements. The capital conservation buffer was phased-in over four years and, as fully implemented effective January 1, 2019, requires a buffer of 2.5% of risk-weighted assets. This results in the following minimum capital ratios beginning in 2019: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. Management believes, as of December 31, 20242025 and December 31, 2023,2024, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.

The Company issued $5.0 million of subordinated debt in June 2020. The purpose of the issuance was primarily to further strengthen holding company liquidity and to remain a source of strength for the Bank in the event of a severe economic downturn. The Company used the proceeds of the issuance for general corporate purposes. The subordinated debt issued consisted of a 5.50% fixed-to-floating rate subordinated note due 2030 issued to an institutional investor and was structured to qualify as Tier 2 capital under bank regulatory guidelines. The floating rate period for this subordinated note beginsbegan July 1, 2025, accordingly the related interest expense could increase during the floating rate period.2025. The Company assumed two subordinated debt issuances from the acquisition of Touchstone. The subordinated debt assumed consisted of aan $8.0 million issuance at a 6.00% fixed-to-floating rate subordinated note callable due 2030. The floating rate period for this subordinated note beginsbegan August 15, 2025, accordingly the related interest expense could increase during the floating rate period.2025. The subordinated debt assumed also consisted of a $10.0 million issuance at a 4.00% fixed-to-floating rate subordinated note due 2032. During the fourth quarter of 2025, the Company redeemed $13 million in subordinated debt, at par, including redemptions of the 5.50% fixed-to-floating rate subordinated note due 2030 on October 1, 2025 ($5 million) and the 6.00% fixed-to-floating rate subordinated note due 2030 on November 15, 2025 ($8 million). There was no gain or loss recognized on these redemptions. These capital redemptions had minimal impact on the total risk-based capital ratio and should position the Company for improved profitability in future periods

First National Corporation (the Company) makes forward-looking statements in this Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding profitability, liquidity, adequacy of capital, allowance for credit losses, interest rate sensitivity, market risk, and growthstrategy, strategy,including with respect to pending branch sales and other branch optimization initiatives, as well as certain financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements. These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:

Because of these and other uncertainties, actual results may be materially different from the results indicated by these forward-looking statements. In addition, past results of operations do not necessarily indicate future results. The following discussion and analysis of the financial condition aton MarchJune 31,30, 2026 and statements of income of the Company for the three and six months ended MarchJune 31,30, 2026 and 2025 should be read in conjunction with the consolidated financial statements and related notes included in Part I, Item 1, of this Form 10-Q and in Part II, Item 8, of the Form 10-K for the period endingended December 31, 2025. The statements of income for the three and six months ended MarchJune 31,30, 2026 may not be indicative of the results to be achieved for the year.

First Bank Financial Services, Inc. owns an interest in an entity that provides title insurance services. Shen-Valley Land Holdings, LLC was formed to hold other real estate owned and future office sites. McKenney Group, LLC owns an interest in an entity that provides insurance services. The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities and are not included in the Company’s consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities. The Company is not the primary beneficiary of the Trusts and, accordingly, the Trusts are not consolidated.

The primary source of revenue is from net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense and typically represents between 75% and 85% of the Company’s total revenue. Interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets. The Bank’sCompany’s interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid. In addition to net interest income, noninterest income is the other source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits, fee income from wealth management services, and ATM and check card fees.

Primary expense categories are salaries and employee benefits, which comprised 56%55% of noninterest expenses for the threesix months ended MarchJune 31,30, 2026, followed by other operating expense, which comprised 10%11% of noninterest expenses. The provision for credit losses is also typically a primary expense of the Bank.Company. The provision is determined by factors that include net charge-offs, asset quality, economic conditions, and loan growth. Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company’s control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses.

Comparing the Three-Month Periods EndingEnded MarchJune 31,30, 2026 and MarchJune 31,30, 2025

Net income increased $3.3by million$692 thousand to $4.9$5.7 million, or $0.54$0.63 per diluted share, for the three months ended MarchJune 31,30, 2026 , compared to $1.6$5.1 million, or $0.18$0.56 per diluted share, for the same period in 2025 . Return on average assets was 0.98%1.11% and return on average equity was 10.51%12.03% for the firstsecond quarter of 2026 , compared to 0.32%1.00% and 3.85%,11.85%, respectively, for the same period in 2025 .

The increase in net income resulted primarily from a $1.2$1.4 million increase in net interest income, a $1.9 million increase in net interest income after provision for credit losses and a decrease$129 thousand increase in noninterest income, which was partially offset by an increase in noninterest expenses of $2.4$1.2 million primarily related to the Touchstone acquisition.million.

Net interest income increased by $1.2$1.4 million as total interest expense decreased by $918$965 thousand and total interest income increased by $307$468 thousand. Net interest income was positively impacted by a $17.0$48.3 million, or 0.9%,2.5%, increase in average earning assets with a 2-basis4-basis point increasedecrease in yield and ana $8.9$38.1 million, or 0.7%,2.9%, increase in interest bearing liabilities with a 30-basis34-basis point decrease in yield.rate. Net interest income was positively impacted bywith a 22-basis20-basis point increase in the net interest margin to 3.99%.4.15%. There were positive impacts to the loan portfolio yield in both quarters due to merger related accretion income and excluding those impacts loan yields were higher in the second quarter of 2026 compared to the same period in 2025.

Our provision for credit losses decreased by $382$485 thousand for the firstsecond quarter of 2026. The provision for credit losses totaled $450$426 thousand and was comprised of a $521$350 thousand provision for credit losses on loans, a $56$79 thousand reduction in provision for credit losses on unfunded commitments, and a $15$3 thousand reduction in the credit losses on securities held-to-maturity. For the same period of 2025, the provision for credit losses totaled $832$911 thousand.

Noninterest income increased by $213$129 thousand in the firstsecond quarter of 2026 primarily from increases in other operating income and ATMfees andfor checkother cardcustomer fees,services, offset by a decreasedecreases in services charges on deposit accounts.accounts and the gain on subordinated debt in 2025. The increase in other operating income increase was driven by income from limited partnership investments in SBIC.SBIC and recognition of a previously deferred gain on investment receivable.

Noninterest expenses decreased by $2.4$1.1 million and were primarily attributable to a $1.9$2.0 million decrease in merger expenses, a $368$547 thousand decrease in other operating expense, and a $437 thousand decrease in data processing expense, and a $298 thousand decrease in internet banking expense. The decreases are primarily driven by fewer merger related expenses following the operational merger of Touchstone in the first quarter of prior year. During the first quarter of 2025 the company was operating duplicative technology platforms due to the Touchstone acquisition in late 2024. The decreases in noninterest expenses were partially offset by a $293$1.3 thousandmillion increase in salaries and employee benefits.

This report refers to the efficiency ratio, which is computed by dividing noninterest expense, excluding amortization of intangibles, net gains (loss) on disposal of premises and equipment, other real estate owned (income) expense,, net, and merger related expenses, by the sum of net interest income on a tax-equivalent basis and noninterest income.income, excluding net (gain) on subordinated debt payoff, (gain) on disposal of premises and equipment, and (gain) on securities. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with GAAP and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for or more important than GAAP. The methodology for determining this measurement may differ among companies. The Company, in referring to its net income, is referring to income under GAAP. The components of the efficiency ratio calculation are summarized in the following table (dollars in thousands).

Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. The Company provides additional information on its critical accounting policies and estimates under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” and in Note 1 in its 2025 Form 10-K10-K. andThere inhave Notebeen 1no “Significantchanges Accountingsince Policiesthat and Estimates” in Part I, Item 1 of this Quarterly Report.time.

Three Month Period Ended MarchJune 31,30, 2026

Net income increased $3.3by million$692 thousand to $4.9$5.7 million, or $0.54$0.63 per diluted share, for the three months ended MarchJune 31,30, 2026, compared to $1.6$5.1 million, or $0.18$0.56 per diluted share, for the same period in 2025. Return on average assets was 0.98%1.11% and return on average equity was 10.51%12.03% for the firstsecond quarter of 2026, compared to 0.32%1.00% and 3.85%,11.85%, respectively, for the same period in 2025. The increase in net income resulted primarily from a $1.6$1.4 million increase in net interest income, a $1.9 million increase in net interest income after provision for credit losses, and aan $2.4increase millionof decrease$129 thousand in noninterest expenses,income, primarilyoffset relatedby toan theincrease Touchstonein acquisition.noninterest expenses of $1.2 million.

Three Month Period Ended MarchJune 31,30, 2026

Net interest income increased $1.2$1.4 million, or 7.0%,7.7%, to $18.7$20.0 million for the firstsecond quarter of 2026 compared to the same period in the prior year. Total interest expense decreased by $918$965 thousand, and interest income increased by $307$468 thousand. Net interest income was positively impacted by a 22-basis20-basis point increase in the net interest margin and a $17.0$48.3 million, or 0.9%,2.5%, increase in average earning assets which was offset by ana $8.9$38.1 million, or 0.7%,2.9%, increase in average interest-bearing liabilities.

The increase in total interest income was attributable to a $378$551 thousand, or 1.8%,2.6%, increase in interest income and fees on loans and a $472$530 thousand, or 35.9%,40.4%, increase in taxable interest on securities, offset by a $501$603 thousand, or 30.0%,31.9%, decrease in interest on deposits in banks. The increase in interest income on loans was impacted by net accretion income related to acquisition accounting of $211$245 thousand in the firstsecond quarter of 2026 compared to net amortizationaccretion expenseincome of $36$907 thousand in the firstsecond quarter of 2025. Interest income on securities increased consistentconsistently with purchases made since the prior year.

The decrease in total interest expense was attributable to a $624$670 thousand, or 10.3%,11.0%, decrease in interest expense on deposits and a $299$298 thousand, or 64.0%,63.7%, decrease on interest expense on subordinated debt. The net interest margin was positively impacted by a 23-basis28-basis point decrease in the cost of interest-bearing deposits. The decrease in subordinated debt and related interest expense was due to redemptions of subordinated debt during the fourth quarter of the prior year.

The net interest margin was 3.99%4.15% for the firstsecond quarter of 2026 compared to 3.77%3.95% for the same period in the prior year. When compared to the firstsecond quarter of 2025, the net interest margin increased by 22-basis20-basis points with the cost of funds decrease consistentrelated withto the federal funds rate cuts in late 2025. The yield on earning assets was impacted by net accretion income related to acquisition accounting of $211$245 thousand in the firstsecond quarter for a 4-basis5-basis point increase to the net interest margin.margin compared to net accretion income of 19-basis points or $907 thousand in the second quarter of 2025.

The provision for credit losses totaled $450$426 thousand for the three-month period ended MarchJune 31,30, 2026, compared to $832$911 thousand for the same period of the prior year. The provision was comprised of a $521$350 thousand provision for credit losses on loans, a $15$79 thousand reduction in provision of credit losses on held-to-maturity securities, and a $56$3 thousand reduction in provision of credit losses on unfunded commitments. As compared to the same period of the prior year, the decrease in provision for credit losses is driven by a decrease in the specific reserves on loans during the quarter.loans. The decrease in provision resulted in a slightly lower allowance to total loans of 1.00% aton MarchJune 31,30, 2026 compared to 1.02%1.05% aton MarchJune 31,30, 2025.

Noninterest income increased $213$129 thousand, or 5.9%,3.3%, to $3.8$4.0 million for the firstsecond quarter of 2026, compared to the same period of 2025. The increase resulted from increases in other operating income of $191$149 thousand, fees for other customer services of $65 thousand, and gain on disposal of premises and equipment of $56 thousand; offset by decreases in service charges of $107 thousand and ATMa andgain checkon card feesredemption of $51subordinated thousand,debt offsetof by$80 a decreasethousand in services charges of $89 thousand.2025. The other operating income increase was driven by income from limited partnership investments in SBIC.SBIC and gain on insurance.

Noninterest expenses decreasedincreased $2.4$1.2 million, or 12.8%,8.2%, to $16.0$16.4 million for the three-month period ended MarchJune 31,30, 2026, compared to the same period one year ago. The decreaseincrease was primarily attributable to a $1.9 million, or 100%, decrease in merger expenses, a $368$973 thousand, or 48.3%,12.1%, decreaseincrease in datasalaries processingand employee benefits expense, a $190 thousand, or 66.4%, increase in marketing expense, and a $298$148 thousand, or 84.9%,24.9%, decreaseincrease in internet banking expense,legal and $187professional fees. The increases were offset by decreases of $92 thousand, or 45.2%,100.0%, in merger expense and $91 thousand, or 28.9%, decrease in FDIC expense. The decreasesincrease in merger expenses, data processing expense,salaries and interestemployee bankingbenefits expensesexpense werewas driven by theadditional Touchstone mergerproduction and operatingsupport twostaff coresalaries, systemsinsurance, untilcommissions, operationaland mergeremployee benefits in 2026. The increase in marketing was due to outsourced providers for digital marketing, and professional fees increased due to advisory related to the firstNorth quarterCarolina ofbranch 2025.sale. The decrease in FDIC expense was due to changes to financial ratios in the assessment calculation driven by theimproved dividendcapital distributed to the Company during the second quarter of 2025. The decreases in noninterest expenses were partially offset by a $293 thousand increase in salarieslevels and employeeregulatory benefits.ratings.

Income tax expense increased $884$109 thousand to $1.2$1.4 million for the firstsecond quarter of 2026, compared to the same period one year ago. The effective tax rate for the firstsecond quarter of 2026 was 19.5% compared to 15.7%20.3% for the same period in 2025. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the three months ended MarchJune 31,30, 2026 and 2025. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and nondeductible merger expenses. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Assets totaled $2.076 billion aton MarchJune 31,30, 2026, which was an increase of $37.8$37.7 million or 7.4%3.7% (annualized) from December 31, 2025. The asset composition did not significantly change during the first threesix months of the year as interest-bearing deposits in banks increased by $25.1$2.8 million and loans, net of the allowance for credit losses, increased by $14.7$37.4 million, while total securities decreased by $1.5$3.2 million.

Total liabilities increased by $35.5$30.3 million during the three-monthsix-month period ended MarchJune 31,30, 2026, primarily from changes in customer deposits. Deposit balances and the composition of deposits as of MarchJune 31,30, 2026 changed as noninterest-bearing deposits increased $14.4$10.7 million, savings and interest-bearing deposits increased $26.8$27.1 million, and time deposits decreased $3.5$6.2 million from December 31, 2025.

Total shareholders’ equity increased by $2.4$7.4 million during the first threesix months of 2026, primarily from a $3.4$7.6 million increase in retained earnings and a $1.2$637 millionthousand reduction in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was attributable to unrealized holding losses in the available-for-sale securities portfolio. The Bank's capital ratios continued to exceed the minimum capital requirements for regulatory purposes.

Loans totaled $1.450$1.487 billion aton MarchJune 31,30, 2026, which was a $14.7$37.7 million or 4.1%5.2% (annualized) increase from December 31, 2025, and a $14.5$44.3 million, or 4.0% (annualized),3.1%, increase over MarchJune 31,30, 2025.The2025. The change in loans over the periods did not have a significant impact on the composition of the loan portfolio. The loan portfolio was primarily comprised of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, and commercial and industrial loans, which totaled 36%,35%, 49%,48%, and 8% of the loan portfolio, respectively, aton MarchJune 31,30, 2026, and 36%, 48%, and 8% of the loan portfolio, respectively, aton December 31, 2025.

The loan portfolio includes loans that were acquired through business combinations and loans that were purchased through a third-party loan originator. Loans acquired through business combinations included unaccreted discounts, net of unamortized premiums totaling $12.9$12.5 million and $13.2 million, as of MarchJune 31,30, 2026 and December 31, 2025, respectively. Loans purchased from a third-party that originated and serviced loans to health care professionals totaledwere $12.7$8.5 million as of MarchJune 31,30, 2026, which includedplus unamortized premiums totaling $3.7$3.4 million, compared to loans totalingof $14.1$10.0 million as of December 31, 2025, which includedplus unamortized premiums totaling $4.1 million.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balancesbalance less the allowance for credit losses, any deferred fees or costs on originated loans, and any premiums or discounts on acquired and purchased loans. Interest income is accrued and credited to income based on the unpaid principal balance. Loan origination fees, net of certain origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Interest income includes amortization of premiums and accretion of discounts on purchased loans, recognized over the life of the loans.

Management classifies non-performing assets as non-accrual loans and OREO. Non-performing assets totaled $4.4 million and $4.7 million aton MarchJune 31,30, 20262026, and December 31, 2025, representing approximately 0.21% and 0.23% of total assets,assets respectively.at each date. Nonaccrual loans totaled $4.4 million and $4.7 million aton MarchJune 31,30, 20262026, and December 31, 2025, respectively.2025. There was no OREO aton MarchJune 31,30, 20262026, and December 31, 2025. The Bank did not have any consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings were in process as of MarchJune 31,30, 2026. There were no loans past due 90 days or more and accruing interest aton MarchJune 31,30, 20262026, and December 31, 2025.

On MarchJune 31,30, 2026 commercial and industrial loans and residential real estate loans comprised 52%50% and 47%49% of non-performing assets, respectively. Non-performing assets could increase due to other loans identified by management as potential problem loans. Other potential problem loans are defined as performing loans that possess certain risks, including the borrower’s ability to pay and the collateral value securing the loan, that management has identified that may result in the loans not being repaid in accordance with their terms. Other potential problem loans totaled $2.8 million and $6.4 million aton MarchJune 31,30, 2026 and December 31, 2025 , respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers’customer's ability to meet their debt requirements.

The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals. The finance company operated a program that historically provided credit support to the Company through, among other things, the repurchase of their loans and unamortized loan premiums when loans did not pay according to the loan agreements. The finance company no longer offers this credit support. On MarchJune 31,30, 2026 , loans purchased from the finance company totaled $12.7$11.9 million, which was comprised of $9.0$8.5 million of loan balances and unamortized premiums totaling $3.7$3.4 million. As of MarchJune 31,30, 2026 , $1.8 million of these loans were non-accrual including premiums totaling $638$653 thousand and thus were individually evaluated. Specific reserves on these individually evaluated loans totaled $1.2$1.3 million and were included in the Company’s allowance for credit losses on loans. The remaining $10.9$10.1 million of loans with premiums totaling $3.0$2.7 million were considered performing and were included in the calculation of the collectively evaluated component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. OnAs of MarchJune 31,30, 2026 , there was a total of 123117 loans purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 5.15.0 years.

Management believes, based upon its review and analysis, that the BankCompany has sufficient reserves to cover expected losses inherent within the loan portfolio. For each period presented, the provision for credit losses charged to expense was based on management’s judgment after taking into consideration all factors connected with the collectability of the existing portfolio. Management considers economic conditions, historical losses, past due percentages, internally generated loan quality reports, prepayment speeds, curtailment rates for each loan category and other relevant factors when evaluating the loan portfolio. The allowance for credit losses on loans totaled $14.7$14.9 million, or 1.00% of total loans on MarchJune 31,30, 2026, compared to $14.7 million, or 1.02% of total loans on December 31, 2025. The decrease in allowance for credit losses to total loans from the prior period is primarily driven by lowera decrease in reserve percentage on individually analyzed loans balances following charge-offs recorded during the quarter.loans. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers. For further discussion regarding the allowance for credit losses, see “Critical Accounting Policies” above.

On MarchJune 31,30, 2026 securities totaled $324.6$322.8 million, a decrease of $1.4$3.2 million, or 1.8%2.0% (annualized), from $326.0 million aton December 31, 2025. Investment securities are comprised of U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities. As of MarchJune 31,30, 2026, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $120$78 thousand and $363 thousand aton MarchJune 31,30, 2026 and December 31, 2025, respectively. Gross unrealized losses in the available for sale portfolio totaled $16.3$15.8 million and $14.8 million aton MarchJune 31,30, 20262026, and December 31, 2025, respectively. Gross unrealized gains in the held to maturity portfolio totaled $10$71 thousand and $98 thousand aton MarchJune 31,30, 20262026, and December 31, 2025, respectively. Gross unrealized losses in the held to maturity portfolio totaled $7.2 million and $6.8 million aton MarchJune 31,30, 20262026, and December 31, 2025, respectively. The change in the unrealized gains and losses of investment securities from December 31, 20252025, to MarchJune 31,30, 20262026, was related to changes in market interest rates and was not related to credit concerns of the issuers.

Deposits totaled $1.837$1.831 billion on MarchJune 31,30, 2026, which was a $37.7$31.6 million, or 8.4%3.5% (annualized), increase from December 31, 2025, and a $12.3$28.0 million, or 2.7% (annualized),1.6%, increase from MarchJune 31,30, 2025. Noninterest-bearing deposits, savings and interest-bearing deposits, and time deposits, totaled 28%, 52%, and 20%, of total deposits, respectively on MarchJune 31,30, 2026, compared to 28%, 52%, and 20%, on December 31, 2025, and 30%, 50%, and 20%, on MarchJune 31,30, 2025. The composition of the deposit portfolio remained largely consistent with the prior period.

The Company has one issuance of subordinated debt aton MarchJune 31,30, 2026 that consists of $9.5 million outstanding of 4.00% fixed-to-floating rate subordinated notes due 2032. The original issuance of $10 million was assumed during the acquisition of Touchstone, and the Company repurchased $500 thousand of the notes during the second quarter of 2025 when the noteholder bank was acquired.

Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, and available lines of credit totaled $764.2$747.8 million on MarchJune 31,30, 2026, $819.0 million on December 31, 2025, and $800.2 million on MarchJune 31,30, 2025.

The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaledwere $558.9$573.8 million on MarchJune 31,30, 2026, $538.2 million on December 31, 2025, and $549.3$545.7 million on MarchJune 31,30, 2025. Excluding municipal deposits that have collateral pledged, the estimated amount of uninsured customer deposits totaledwere $461.3$466.9 million on MarchJune 31,30, 2026, $448.8 million on December 31, 2025, and $458.7$451.9 million on MarchJune 31,30, 2025.