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

In recent years commercial real estate markets both nationally and locally have been adversely affected by thea COVID-19weakening pandemic. Remote employee work opportunities during the pandemic have impacted, and may continue to impact, the occupancy of commercial properties.demand. Weakness in our commercial real estate market could result in an increased delinquency rate and losses from these loans. We believe that the resilience of our market and borrowers provides an ability to adjust to and withstand such risks. However, increased losses from this portfolio could have an adverse effect on our business, financial condition and results of operations.

We may be required to increase our provisions for credit losses and to charge off loans in the future, whichfuture; increases in provision and chargescharge offs could materially adversely affect us.

There is no precise method of predicting the timing of loancredit losses. We can give no assurance that our allowance for credit losses is or will be sufficient to absorb actual loancredit losses. We maintain an allowance for credit losses on loans, which is a reserve established through a provision for credit losses charged to expense, that represents management’s estimable and observable losses within the existing portfolio of loans. The level of the allowance reflects management’s evaluation of, among other factors, the status of specific individually evaluated loans, trends in historical loss experience, delinquency trends, credit concentrations and economic conditions within our market area. The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and judgment and requires us to make significant estimates of current and expected future credit risks and future trends, any or all of which may undergo subsequent material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for credit losses. Increases in nonperformingnon-performing loans may have a significantan impact on our allowance for credit losses.

Among other sources of funds, we rely heavily on deposits for funds to make loans and provide for our other liquidity needs. However, our loan demand has historically exceeded the rate at which we have been able to build core deposits for which there is substantial competition from a variety of different competitors, so we have relied on interest-sensitive deposits, including wholesale deposits, as sources of funds. Those deposits may not be as stable as other types of deposits and, inIn the future, depositors may not renew thosethese deposits when they mature, or we may have to pay a higher rate of interest to attract or retain them or to replace them with other deposits or with funds from other sources. Not being able to attract deposits, or to retain or replace them as they mature, would adversely affect our liquidity. Paying higher deposit rates to attract, retain or replace those deposits could have a negative effect on our interest margin and operating results. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operation.

We cannot be certain as to our ability to manage increased levels of assets and liabilities without increased expenses and higher levels of nonperformingnon-performing assets. We may be required to make additional investments in equipment and personnel to manage higher asset levels and loan balances, which may adversely affect earnings, shareholder returns, and our efficiency ratio. Increases in operating expenses or nonperformingnon-performing assets may decrease our earnings and the value of the Company’s capital stock.

Our success depends, to a certain extent, upon general business economic and political conditions, local and national, as well as governmental monetary policies. Conditions such as inflation, tariffs, recession, unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore our growth and earnings. In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with or between other countries may have a destabilizing effect on financial markets and economic activity. Economic pressure on consumers, businesses and overall economic uncertainty may result in changes in spending, borrowing, and saving habits. These economic conditions and other negative developments in the domestic or international credit markets and economies may significantly affect the markets in which we do business. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.

Inflation began to rise sharply at the beginning of 2022 and remained at an elevated level throughfor thea presentperiod of time. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition.

We are subject to extensive regulation, supervision and examination by the Federal Reserve, our primary federal regulator, the Virginia Bureau of Financial Institutions, our chartering authority and the FDIC, as insurer of our deposits. Such regulation and supervision govern the activities in which we may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our capital stock. Various consumersconsumer and compliance laws also affect our operations.

The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. The Company’s critical accounting policiespolicy relaterelates to (1) the allowance for credit losses,losses. (2) fair value of financial instruments, and (3) derivative financial instruments. TheseThis critical accounting policiespolicy requirerequires the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

Allowance for Credit Losses: On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. Changes in conditions, including unforeseen events, changes in asset-specific risk characteristics, and other economic factors, both within and outside the Company’s control, may indicate the need for an increase or decrease in the ACL on loans. While management makes every effort to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways. Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others. See Note 1. Organization, Basis of Presentation, and Impact of Recently Issued Accounting Pronouncements for a more detailed description of methodology and impact of adoption.

Net lossincome for the year ended December 31, 2024,2025, was $10.0$15.6 million, aan decreaseincrease of $36.6$25.6 million, or 137.5% compared to a net incomeloss of $26.6$10.0 million earned duringfor the year ended December 31, 2023.2024. The decreaseincrease in net income was due to increasesa decrease in interest expense of $24.4$10.0 million and ana increasedecrease of non-interest expenses of $27.4$18.4 million compared to the same period in the prior year.

Net interest income before provision for credit losses totaled $69.5 million for the year ended December 31, 2025, compared to $62.6 million for the year ended December 31, 2024, compared to $76.7 million for the year ended December 31, 2023.2024. The decreaseincrease in net interest income was driven by ana increasedecrease in deposit interest expense discussed below, for the year ended December 31, 2024.2025.

The net interest margin was 3.46% for the year ended December 31, 2025, compared to 3.13% for the year ended December 31, 2024, compared to 4.15% for the year ended December 31, 2023, on a fully tax equivalent basis. The decreaseincrease in net interest margin primarily resulted from ana increasedecrease of interest expense on our interestinterest-bearing bearing liabilities that outpaced the increase in interest income.liabilities. The primary drivers of increaseddecreased interest expense came from cost management on demand, money market, and time deposits.deposits Theduring 2025. Additionally, the federal funds target rate remainingdecreasing highby 75 basis points in 20242025 impacted our maturing wholesale deposits that had to repricerepriced in a higherlower interest rate environment, which increased margin pressure on our loan portfolio and other interest earning assets. Management made efforts to replace these deposits with callable wholesale deposits, allowing more optionality for future rate movements.environment.

The yield for the year ended December 31, 20242025 for the loan portfolio was 7.02%6.82% compared to 7.02% for the year ended December 31, 2023.2024. The unchangingdecreasing yield primarily reflects the maturityrepricing of lower yielding loans and higher yields on new and variable rate loans basedat onlower rates in 2025 compared to higher interest rates duringin theprior year.years. The Federal Reserve maintained itsReserve's targeted benchmark interest rate at the range ofwas 525 - 550 basis points through September 2024. The rangedrange was lowered to 425 - 450 by December 2024.2024 Maintainingand higherlowered ratesagain starting in 2024September with2025 to a slight rate decrease in the last quarterrange of 2024350 impacted- yields375 obtainedby onDecember new loans throughout the year.2025.

For the year ended December 31, 2024,2025, the yield on the taxable investment securities portfolio was 3.08%3.26% compared to 3.20%3.08% for the year ended December 31, 2023.2024. For the year ended December 31, 2024,2025, the yield on the tax-exempt investment securities portfolio was 3.80%3.85% compared to 3.57%3.80% for the year ended December 31, 2023.2024. The increase in yield on the tax-exempt investment securities was primarily due to rates on variable securities remaining high with the current rate environment and lower yields on investment securities maturing during the period.

The rate paid on interest bearinginterest-bearing deposits increaseddecreased to 3.92% during the year ended December 31, 2025, from 4.70% during the year ended December 31, 2024, from 3.57% during the year ended December 31, 2023.2024. This increasedecrease was a result of higherlower rates paid on all outstanding deposits in conjunction with the higherdecreasing rate environment throughout the year.

The rate paid on FHLB borrowings and federal funds purchased for the year ended December 31, 20242025 was 5.61%0.00% and 5.78%,4.71%, respectively, compared to the prior year of 4.90%5.61% for FHLB borrowings and 5.36%5.78% for federal funds purchased. This increasedecrease was a result of higherlower rates paid on all outstanding borrowings in conjunction with the higherdecreasing rate environment throughout the year.

We establish a provision for credit losses, which is charged to operations, in order to maintain the allowance for credit losses at a level we consider necessary to absorb expected credit losses that are both probable and reasonably estimated at the balance sheet date. In determining the level of the allowance for credit and off-balance sheet losses, we consider past and current loss experience, evaluations of real estate collateral, current and future economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available or economic conditions change.

The provision for credit losses on loans increaseddecreased to a recovery of credit loss provision of $7.5$0.1 million for the year ended December 31, 2024,2025, compared to the prior year which ended at a credit loss provision of $1.9$7.5 million. The provision for credit losses on off-balance sheet exposure was a net recoveryprovision of $722,000$48,000 compared to the prior year which ended with a net recovery of $301,000.$0.7 million. The increasedecrease in provision for credit losses on loans was primarily driven by loan growth andless charge offs taken in 2024 as well as increasing qualitative factors within our model assumptions for increased levels of past dues, higher levels of nonperforming loans as of December 31, 20242025 compared to December 31, 2023, and potential weaknesses in underlying collateral for certain asset classes.2024. The recovery of credit losses for off-balance sheet exposure was driven by fluctuations in our revolving credit line utilization rates as of December 31, 2024.2025. Loan originations decreased $73.6$21.6 million, which totaled $447.6 million for the year ended December 31, 2023 compared to loan originations of $374.0 million for the year ended December 31, 2024.2024 compared to loan originations of $352.5 million for the year ended December 31, 2025. Non-performing loans were $1.0 million at December 31, 2023 and $21.7 million at December 31, 2024.2024 and $31.5 million at December 31, 2025.

During the year ended December 31, 2024,2025, classified loans increased $36.2$26.8 million for a balance of $57.4$84.2 million. During the year ended December 31, 2024,2025, criticized loans increased $66.3$25.2 million to $85.3$110.5 million. During the year ended December 31, 2024,2025, watch list loans increased $63.9$46.1 million to $122.6$168.7 million. Management does not believe any significant loss exposure currently exists in these loans. All classified loans are considered individually evaluated and have strong collateral positions, with satisfactory loan-to-value (LTVs) ratios. Criticized loans continue to perform, are well collateralized, and show improving trends. During the year ended December 31, 2025, there was $0.9 million in charge-offs recorded and recoveries of $0.8 million were received. During the year ended December 31, 2024, there was $4.6 million in charge-offs recorded and recoveries of $28,000 were received. During the year ended December 31, 2023, there was $468,000 in charge-offs recorded and recoveries received of $22,000.$28,000.

Discussion of provision for loancredit losses for the year ended December 31, 20222023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “"Provision for LoanCredit Losses” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022,2023, which was filed with the SEC on March 23,20, 2023,2024, and is incorporated herein by reference.

Our primary sources of non-interest income are service charges on deposit accounts, such as interchange fees and statement fees, and income earned on bank owned life insurance,insurance. feesThe earnedfollowing fromtable executingpresents, interest rate swaps on commercial loans, and gains realized onfor the saleperiods indicated, the major categories of thenon-interest guaranteed portion of Small Business Administration (“SBA”) loans.income:

Non-interest income decreasedincreased $0.1$0.8 million, or 2.6%,23.8%, to $3.3$4.0 million for the year ended December 31, 20242025 from $3.3 million for the year ended December 31, 2023.2024. The decreaseincrease in non-interest income was primarily due to a decrease$0.3 million gain on retirement of subordinated debt and an increase in deposit account service charges and other fee income forof the$0.2 year ended December 31, 2024. The Company did not recognize any fees on interest rate swaps for commercial loansmillion for the year ended December 31, 2024 or December 31, 2023. The Company also recognized $251,000 in planned operating losses in other fee income related to two New Market Tax Credit investments during the year ended December 31, 2023.2025. Bank owned life insurance income increased $120,000$0.1 million for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023,2024, due to the highelevated rate environment throughout 2024. The deposit service fees decreased $153,000 for the year ended December 31, 2024, as compared to the same period in 2023, due to a decrease in customer activity.2025.

Non-interest expense increaseddecreased $27.4$18.4 million or 60.0%25.2% to $54.6 million for the year ended December 31, 2025 from $73.0 million for the year ended December 31, 2024 from $45.6 million for the year ended December 31, 2023 primarily as a result of the impairment of the computer software intangible of $19.7 million,million increases in salary and employee benefits of $2.2 million, outside services of $1.6 million, and furniture and equipment expenses of $849,000. Management performed an impairment analysis on the computer software intangible assetrecognized during the three monthsyear ended December 31, 2024 and determined that the intangible had become fully impaired, which led to a charge of $19.7 million to the income statement.2024. Salaries and employee benefits expense increased by $2.2$1.1 million to $31.6 million for the year ended December 31, 2025 from $30.5 million for the year ended December 31, 20242024. fromFDIC $28.3insurance expense increased $0.8 million to $2.1 million for the year ended December 31, 20232025, primarilyfrom $1.3 million for the year ended December 31, 2024 due to significant deposit growth earlier in the year, as athose resultdeposits ofwere increasingtemporary, ourwe personnelexpect teamthis membersexpense byto 18return employees.to Outsideprevious serviceslevels. Other operating expenses decreased $0.7 million from $5.8 million for the year ended December 31, 2024 to $5.2 million for the year ended December 31, 2025 due to expense management. Furniture and equipment expenses increased $1.6$0.2 million, or 77.4%,million to $3.8 million for the year ended December 31, 2025 from $3.6 million for the year ended December 31, 2024 from $2.0 million for the year ended December 31, 2023. Furniture and equipment expenses increased $849,000, or 30%, to $3.6 million for the year ended December 31, 2024 from $2.8 million for the year ended December 31, 2023.2024. Many of the non-interest expense categories remain consistent for the year ended December 31, 20242025 compared to the year ended December 31, 20232024 as management continues to exercise judicious expense controls.

Income tax expense decreasedincreased $10.2$7.4 million or 162.9%,188.6%, to a tax expense of $3.5 million for the year ended December 31, 2025 from a tax benefit of $3.9 million for the year ended December 31, 2024 from a tax expense of $6.2 million for the year ended December 31, 2023.2024. The decreaseincrease in federal income tax expense for the year ended December 31, 20242025 compared to the same period a year earlier was driven by the return to net income for the year ended December 31, 2025 from a net loss recorded for the year ended December 31, 2024 due to the decline in net interest income given the impact of the highly competitive deposit interest rate environment and the impairment of the computer software intangible asset.2024. For the year ended December 31, 2024,2025, the Bank had an effective tax benefit rate of 28.2%,18.2%, compared to effective federal taxbenefit rate of 19.0%28.2% for the year ended December 31, 2023.2024.

Our primary source of income is derived from interest earned on loans. Our loan portfolio consists of loans secured by real estate as well as commercial business loans and consumer loans, substantially all of which are secured by corresponding deposits at the Bank.loans. Our loan customers primarily consist of small- to medium-sized businesses, professionals, real estate investors, small residential builders and individuals. Our owner occupied and investment commercial real estate loans, residential construction loans and commercial business loans provide us with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals. Our lending activities are principally directed to our market area consisting of the Washington, D.C. and Northern Virginia metropolitan areas.

The Company holds a concentration in commercial real estate loans. The Board has set a risk tolerance level of 150% and 375% of consolidated risk-based capital for construction, land development and other land loans and commercial real estate loans. As of December 31, 2024,2025, construction, land development and other land loans represented 131.9%97.6% of consolidated risk-based capital. Total commercial real estate loans as defined by the Agency guidance represented 393.8%354.6% of consolidated risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio by 72%. The Company has temporarily exceeded the target level for the commercial real estate segment and is working quickly to bring this segment back within the Board tolerance level.45%.

We stress test earning assets using a worst-case methodology on a quarterly basis and measure the results against the Bank's risk-based capital. For commercial loans, residential real estate loans, owner-occupied commercial real estate loans and consumer installment loans, we multiply the total outstanding amount for each loan category by our highest quarter historical loss for that category as a surrogate in order to calculate a stressed loss.

The Company’s asset quality remained strongresilient during the year ended December 31, 2024.2025. NonperformingNon-performing assets, which includes nonaccrualnon-accrual loans, accruing loans 90 days past due, and other real estate owned totaled $33.2 million at December 31, 2025, and $21.7 million at December 31, 2024, and $1.0 million at December 31, 2023.2024.

A loan’s past due status is based on the contractual due date of the most delinquent payment due. All loans which are 30 or more days past due at the end of the month are reported to the Board of Directors. Commercial loans are generally placed on nonaccrualnon-accrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Consumer loans are generally placed on nonaccrualnon-accrual status when the collection of principal or interest is 120 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on nonaccrualnon-accrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed.

As a percentage of total assets, nonperformingnon-performing assets were 1.50% at December 31, 2025, compared with 0.97% at December 31, 2024, compared with 0.05% at December 31, 2023.2024. As of December 31, 2024,2025, the Company had $21.7$31.5 million in loans on nonaccrual status. During the last quarter of the year ended December 31, 2024, nonperforming assets trended positively with loans on nonaccrualnon-accrual status decreasingand by $6.7$1.7 million orin 23.5%.other real estate owned.

Interest income that would have been recorded for the years ended December 31, 20242025 and 20232024 had non-accruing loans been current according to their original terms was $1.9$1.4 million and $133,092,$1.9 million, respectively.

The Company further describes loans that were modified during the year ended December 31, 2025 and 2024 in Note 5 of Notes to Consolidated Financial Statements.

At December 31, 2024,2025, our allowance for credit losses on loans represented 1.06%1.04% of total loans and we had $21.7$31.5 million in non-performing loans. The allowance for credit losses on loans increaseddecreased to $19.3 million at December 31, 2025 from $19.5 million at December 31, 2024 fromdue $16.5to millionthe atincrease in collateral dependent loans during the year ended December 31, 20232025, as a direct resultall of loanwhich growthare fully collateralized and chargedo offsnot takenrequire inspecific 2024 as well as increasing qualitative factors within our model assumptions for increased levels of past dues and potential weaknesses in underlying collateral for certain asset classes.reserves. There were $24,000 and $4.5 million in net loan charge-offs and $446,000 in net loan charge-offs during the years ended December 31, 20242025 and December 31, 2023,2024, respectively.

Total deposits increaseddecreased by $221.7$8.6 million from December 31, 20232024 to December 31, 2024.2025. Wholesale deposits, which are included in the table below, totaled $468.1$498.5 million and $433.0$468.1 million at December 31, 2024,2025, and December 31, 2023,2024, respectively. The following table presents the Company’s average deposits segregated by major category for the years ended December 31, 20242025 and December 31, 20232024:

The pronounced shift from non-interest bearingnon-interest-bearing demand deposits into money market demand and time deposits was driven by market conditions emanating from the large-bank failures in the first half of 2023. In order for us to maintain the customer relationships, we needed to shift the deposits into accounts where we could provide excess FDIC insurance coverage. We also gained in money market demand and time deposits as customers brought additional funds into the Company.

The Company uses wholesale deposits as a funding source in addition to customer deposits. Wholesale deposits provide a diversified and stable source of funding duringthat timesgenerally ofhas marketstated volatility.maturities. As of December 31, 2024,2025, the Company had $468.1$498.5 million of total wholesale deposit funding sources, an increase of $35.1$30.4 million compared to December 31, 2023,2024, which totaled $433.0$468.1 million.

Given the interest rate environment and strategic initiatives, the Company replaced maturing lowerhigher yielding wholesale CDs with higherlower market rate CDs. Many replacement CDs include call options at our discretion if economic conditions change. The Company also utilized additional wholesale demand deposits to provide liquidity and more effectively balance our interest rate sensitivity. During the year ended December 31, 2024,2025, total wholesale deposit funding accounted for approximately 28%35% of our interest expense.

The following table sets forth by interest rate rangesranges, information concerning the maturities of our certificates of deposit as of December 31, 2024.2025.

We may obtain advances from the Federal Home Loan Bank of RichmondAtlanta upon the security of the common stock we own in that bank and certain of our residential and commercial mortgage loans, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending.

At December 31, 20242025 and 2023,2024, we were permitted to borrow up to an aggregate total of $544.8$587.8 million and $504.8$544.8 million, respectively, from the Federal Home Loan Bank of Richmond.Atlanta. There were Federal Home Loan Bank borrowings outstanding of $0 at December 31, 2024,2025, and December 31, 2023,2024, respectively. Additionally, as of December 31, 20242025 and 20232024 we had credit availability of $144.0 million and $114.0$144.0 million with correspondent banks for short-term liquidity needs, if necessary. Borrowings were $0 million and $15.0 outstanding at December 31, 20242025 and 2023,2024, respectively, under this facility.

The liability portion of the balance sheet provides liquidity through various customers’ interest-bearing and noninterest-bearingnon-interest-bearing deposit accounts and through FHLB and other borrowings. Wholesale deposits, federal funds purchased, and other short-term borrowings are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $14.7$14.8 million, $31.6$14.7 million, and $33.5$31.6 million for the twelve months ended December 31, 2024,2025, December 31, 2023,2024, and December 31, 2022,2023, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $122.3$38.4 million, $130.7$122.3 million, and $228.7$130.7 million for the twelve months ended December 31, 2024,2025, December 31, 2023,2024, and December 31, 2022,2023, respectively. There were no sales of available-for-sale debt securities in 2025, 2024, 2023, or 2022.2023. Net cash used in financing activities was $21.4 million for the twelve months ended December 31, 2025 and net cash provided by financing activities was $200.7 million, $83.0 million,million and $232.6$83.0 million, for the twelve months ended December 31, 2024, 2023,2024 and 2022,2023, respectively, which consisted primarily of increasesdecreases in interest bearinginterest-bearing deposits and federalrepurchase fundsof purchasedcommon stock for the twelve months ended December 31, 2024. There were repayments of $15.0 million in federal funds purchased for year ended 2024 and repayments of $100.0 million in FHLB advances for the year ended 2023.2025.

The following discussion and analysis is intended as a review of significant factors affecting the Company’s consolidated financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K, which contains audited consolidated financial statements of the Company as of and for the year ended December 31, 2025, previously filed with the SEC on March 13, 2026. Results for the three and six months ended MarchJune 31,30, 2026 are not necessarily indicative of results for the year ending December 31, 2026 or any future period.

MainStreet Bank is a community commercial bank incorporated in and chartered by the Commonwealth of Virginia. The Bank is a member of the Federal Reserve Bank of Richmond, and its deposits are insured by the FDIC. The Bank opened for business on May 26, 2004, and is headquartered in Fairfax, Virginia. We currently operate seven Bank branches; located in Herndon, Fairfax, McLean, Clarendon, Leesburg, and Middleburg in Virginia, and one in Washington D.C. The Bank has twoone subsidiaries,subsidiary, botha limited liability companies,company, that it uses to hold real estate acquired through foreclosure.

The Company's business is focused on core banking where we offer a full range of banking services to individuals, small to medium-sized businessesbusinesses, and professionals through both traditional and electronic delivery.

We were the first community bank in the Washington, D.C. metropolitan area to offer a full online business banking solution, including remote check scanners on a business customer’s desktop. We offer mobile banking apps for iPhones, iPads and Android devices that provide for remote deposit of checks. In addition, we were the first bank headquartered in the Commonwealth of Virginia to offer CDARS, the Certificate of Deposit Account Registry Service. We offer our customers a suite of reciprocal deposit options through IntraFI, an innovative reciprocal deposit placement serviceservices that offersoffer additional FDIC insurance on deposits up to $265 million.deposits. We believe that enhanced electronic delivery systems and technology increase profitability through greater productivity and cost control and allow us to offer new and better products and services.

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of MarchJune 31,30, 2026, have remained unchanged since our Annual Report on Form 10-K for the year ended December 31, 2025 was filed, unless noted herein. Any changes are discussed under "Recently Adopted Accounting Developments" in Note 1 of the Notes to Consolidated Financial Statements.filed.

Comparison of Statements of Income for the Three Months Ended MarchJune 31,30, 2026 and 2025

Total interest income decreased $1.7$2.2 million for the three months ended MarchJune 31,30, 2026 from the same period in 2025. The decrease was primarily the result of a decrease in interest and fees on loans of $1.6$1.7 million, which was impacted by the collection of $1.3 million dueof to changes inaccrued interest rates.on a fully repaid non-accrual loan during the three months ended June 30, 2025. Total interest expense decreased $2.7$1.6 million for the three months ended MarchJune 31,30, 2026 from the same period in 2025 due to fluctuationsdecreases in deposit interest expense described below. Net interest income increaseddecreased $1.0$0.6 million for the three months ended MarchJune 31,30, 2026 from the same period in 2025. The recoveryprovision offor credit losses was $0.1$0.6 million for the three months ended MarchJune 31,30, 2026 compared to noa provisionrecovery forof credit losses for the three months ended March 31, 2025. Non-interest income decreasedof $0.5 million for the three months ended MarchJune 31,30, 2025. Non-interest income decreased $0.2 million for the three months ended June 30, 2026 from the same period in 2025. The decrease in non-interest income was primarily due to athe $0.7 million lossgain on saleretirement of othersubordinated realdebt estateof owned.$68,000 and gain on equity securities of $103,000 that took place during the three months ended June 30, 2025 but not in the three months ended June 30, 2026. Non-interest expense decreased by $1.6$2.2 million for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025, primarily due to decreases in salaries and employee benefits, outside services, furniture and equipment, and advertising and marketingmarketing, and FDIC insurance expenses. Net income increased $1.6$0.1 million to $4.1$4.7 million for the three months ended MarchJune 31,30, 2026 from $2.5$4.6 million for the three months ended MarchJune 31,30, 2025. The increase in net income was primarily driven by the decrease in deposit interest expense as well as a decrease in non-interest expense.

Total interest income decreased $1.7$2.2 million or 5.3%,6.4%, to $31.3$32.2 million for the three months ended MarchJune 31,30, 2026 from $33.0$34.4 million for the three months ended MarchJune 31,30, 2025, on a tax equivalent basis. The decrease was primarily the result of a decrease in interest and fees on loans of $1.6$1.7 million.million, which was impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. Total average interest-earning assets increased $13.3$64.3 million, to $2.05$2.08 billion for the three months ended MarchJune 31,30, 2026 from $2.04$2.02 billion for the same period in 2025 primarily because of an increase of $25.3$100.2 million in the average balance of loans offset by a decrease of $9.5$32.8 million in the average balance of federal funds sold and interest bearing deposits at other financial institutions and a $2.4$3.0 million decrease in the average balance of investment securities. The average yield on our interest-earning assets decreased 3864 basis points to 6.19%6.20% for the three months ended MarchJune 31,30, 2026 as compared to 6.57%6.84% for the three months ended MarchJune 31,30, 20252025, primarilywhich duewas toimpacted marketby conditions.the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. For the three months ended MarchJune 31,30, 2026, the Company reversed $610,000$108,000 in accrued interest income in relation to loans placed on non-accrual, as compared to $104,000$128,000 for the three months ended MarchJune 31,30, 2025. During the three months ended MarchJune 31,30, 2026, $206,000$34,000 of accrued interest reversed in 2025 was recovered and $80,000 of interest was received related to a refund of federal income taxes,recovered, for a net adjustment of $324,000$74,000 to interest income.

Interest and fees on loans decreased $1.6$1.7 million, to $29.5$30.7 million for the three months ended MarchJune 31,30, 2026 from $31.1$32.4 million for the same period in 2025. There was a 4473 basis point decrease in the average loans yields, which was 6.42% for the three months ended MarchJune 31,30, 2026 compared to 6.86%7.15% for the three months ended MarchJune 31,30, 2025. Both of these decreases were primarily impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. The average balance of loans increased $25.3$100.2 million for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025. The weighted average interest rate of loans originated during the three months ended June 30, 2026 was 7.00%.

Interest income on federal funds sold and interest-earning deposits decreased by $0.17$0.5 million to $1.00$0.6 million for the three months ended MarchJune 31,30, 2026, from $1.17$1.1 million for the three months ended MarchJune 31,30, 2025. The average balance of interest-earning deposits and federal funds sold decreased $9.5$32.8 million to $102.2$75.5 million for the three months ended MarchJune 31,30, 2026 from $111.7$108.3 million for the same period in 2025. The average yield on federal funds sold and interest-earning deposits decreased to 3.95%3.40% for the three months ended MarchJune 31,30, 2026 from 4.24% for the same period in 2025.

Interest on investment securities was $0.8 million for the three months ended MarchJune 31,30, 2026 and $0.8 million for the three months ended MarchJune 31,30, 2025 on a fully tax-equivalent basis. Interest on investments in U.S. Government Agencies and U.S. Municipals was $0.4 million for the three months ended MarchJune 31,30, 2026 and $0.4 million for the three months ended MarchJune 31,30, 2025. Interest on mortgage-backed securities was $0.1 million and $0.1 million for the three months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025. Subordinated debt interest income was $0.2 million for the three months ended MarchJune 31,30, 2026, and $0.1 million for the three months ended MarchJune 31,30, 2025. The average yield on taxable securities increased 2018 basis points, to 3.41%3.45% and the average yield on tax-exempt securities increased 23 basis points, to 4.07%4.06% on a tax equivalent basis for the three months ended MarchJune 31,30, 2026, fromcompared 3.84%, respectively, forto the same period in 2025. Due to the increase in average yield, interest on investment securities increased despite the average balance of investment securities decreasing by $2.4$3.0 million, to $85.9$85.3 million for the three months ended MarchJune 31,30, 2026, from $88.3 million for the three months ended MarchJune 31,30, 2025.

Total interest expense decreased $2.7$1.6 million to $13.7$13.9 million for the three months ended MarchJune 31,30, 2026 from $16.5$15.5 million for the three months ended MarchJune 31,30, 2025, primarily due to a $2.7$1.8 million decrease in interest expense on interest bearing deposits and offset by a $0.1 million decreaseincrease in total interest expense paid on borrowings.

Interest expense on deposits decreased $2.7$1.8 million to $12.9 million for the three months ended MarchJune 31,30, 2026 from $15.6$14.7 million for the three months ended MarchJune 31,30, 2025 primarily as a result of a decrease in yields on cost of funds. The increase in average balance of interest-bearing deposits wasincreased $4.9by $40.0 million to $1.52$1.54 billion during the three months ended MarchJune 31,30, 2026 as compared to $1.52$1.50 billion for the three months ended MarchJune 31,30, 2025. The increase in the average balance of interest-bearing deposits was primarily a result of a $67.1$59.5 million increase in the average balance of savings and NOW deposits and a $8.2 million increase in interest-bearing demand deposits, offset by a $46.0 million decrease in the average balance of money market deposit accounts and a $24.4$22.0 million increase in the average balance of savings and NOW deposits, offset by a $43.0 million decrease in the average balance of time deposits, during the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025. The average cost of interest-bearing deposits was 3.45%3.38% for the three months ended MarchJune 31,30, 2026, compared to 4.17%3.94% for the three months ended MarchJune 31,30, 2025. The average rate paid on money market deposits decreased 6960 basis points to 3.29%3.34% for the three months ended MarchJune 31,30, 2026 from 3.98%3.94% for the three months ended MarchJune 31,30, 2025. The average rate paid on interest-bearing demand deposits decreased 7955 basis points to 3.02%3.03% for the three months ended MarchJune 31,30, 2026 from 3.81%3.58% for the three months ended MarchJune 31,30, 2025 primarily due to the interest rate environment and our ability to reprice these deposits.2025. The average rate paid on savings and NOW deposits decreased 1512 basis points to 1.17%1.20% for the three months ended MarchJune 31,30, 2026 from 1.32% for the three months ended MarchJune 31,30, 2025. The average cost of time deposits decreased by 5852 basis points to 4.01%3.87% for the three months ended MarchJune 31,30, 2026 as compared to 4.59%4.39% for the three months ended MarchJune 31,30, 2025. The average balance of non-interest bearing demand deposits and other liabilities increased $15.8$24.3 million to $369.5$378.9 million for the three months ended MarchJune 31,30, 2026, compared to $353.7$354.6 million for the three months ended MarchJune 31,30, 2025. The increase was primarily the result of an increase non-interest bearing demand deposits.

Net interest income increaseddecreased approximately $1.0$0.6 million, or 6.0%,2.9%, to $17.6$18.3 million for the three months ended MarchJune 31,30, 2026 from $16.6$18.9 million for the three months ended MarchJune 31,30, 2025, on a tax equivalent basis. Our net interest-earning assets increased $14.5$16.9 million to $459.2$465.8 million for the three months ended MarchJune 31,30, 2026 from $444.7$449.0 million for the three months ended MarchJune 31,30, 2025. The interest rate spread increaseddecreased by 3111 basis points to 2.69%2.76% for the three months ended MarchJune 31,30, 2026 from 2.38%2.87% for the three months ended MarchJune 31,30, 2025, on a tax equivalent basis. The net interest margin increaseddecreased by 1722 basis pointpoints from 3.30%3.75% for the three months ended MarchJune 31,30, 2025 to 3.47%3.53% for the three months ended MarchJune 31,30, 2026 on a tax equivalent basis. These decreases were primarily impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. The interest rate spread and net interest margin are more comparable for the three months ended June 30, 2026 and the three months ended June 30, 2025 if the interest recovery is excluded. Refer to “Use of Certain Non-GAAP Financial Measures,” below, for a reconciliation of adjusted net interest margin.

Management believes that the allowance for credit losses recorded for the period ended MarchJune 31,30, 2026 reflects a balance sufficient to provide for each allowance segment, using objective data and information available to us at this time in evaluating our standard analysis of local/national economic data, changes in underwriting quality, portfolio concentrations, experience of lending team, credit quality and supportable forecasts. We will continuously review the credit portfolio to determine the depth and breadth of potential credit losses. As we obtain additional information and to more accurately assess the full nature and extent of any elevated risk to the credit portfolio that may arise, additional provision expenses may be required.

The provision for credit losses on loans was $0$0.2 million for the three months ended MarchJune 31,30, 2026 andgiven Marchloan 31,growth 2025.during Therethe wasperiod, nocompared provisionto fora recovery of credit losses on loans of $0.5 million for the three months ended MarchJune 31,30, 20262025. dueLoan to increases in collateral dependent loans,originations, which weretotaled individuallyapproximately evaluated$50.9 and determined not to require an allowance for credit losses, and charge-offs incurred offset by loan growthmillion for the period.three months ended June 30, 2025 increased $57.6 million to $108.5 million for the three months ended June 30, 2026. During the three months ended MarchJune 31,30, 2026, there were $0.3 millionno charge-offs incurred and recoveries of $23,000$14,000 were received. During the three months ended MarchJune 31,30, 2025, there were $0.0$0.6 million in charge-offs incurred and recoveries of $10,000$0.7 million were received. Loan originations, which totaled approximately $33.2 million for the three months ended March 31, 2025 increased $2.0 million to $35.2 million for the three months ended March 31, 2026.

The recoveryprovision offor credit losses on off-balance sheet credit exposure was $0.1$0.3 million for the three months ended MarchJune 31,30, 2026 compared to a recovery of credit losses of $0.0$15,000 for the three months ended MarchJune 31,30, 2025. The recoveryprovision offor credit losses on off-balance sheet credit exposure for the three months ended MarchJune 31,30, 2026 was primarily related to decreasesincreases in expectedunfunded commitment levels and fluctuations in utilization rates.

Non-interest income decreased $0.5$0.2 million, or 56.7%,16.1%, to $0.4 million for the three months ended March 31, 2026 from $0.9 million for the three months ended MarchJune 31,30, 2026 from $1.1 million for the three months ended June 30, 2025. The decrease in non-interest income was primarily due to athe $0.7 million lossgain on the saleretirement of othersubordinated realdebt estateof owned$68,000 and gain on equity securities of $103,000 that took place during the three months ended MarchJune 31,30, 2026.2025 Thisbut is offset by an increase of $0.2 millionnot in other non-interest income due to a prepayment fee recognized during the three months ended MarchJune 31,30, 2026. The Company continues to focus on increasing non-interest income as it continues to add services that strategically benefit our customers.

Non-interest expense decreased $1.6$2.2 million, or 11.5%,15.1%, to $12.7$12.5 million for the three months ended MarchJune 31,30, 2026, from $14.3$14.7 million for the three months ended MarchJune 31,30, 2025 primarily because of continued expense management efforts across the Company. Salaries and employee benefits decreased $0.8 million to $7.6$7.5 million for the three months ended MarchJune 31,30, 2026, from $8.4$8.3 million for the three months ended MarchJune 31,30, 2025 due to lessa decrease in full time employees compared to last year. Outside services, which includes professional fees for attorneys, accountants, consultants, and cloud services, decreased $0.7$0.8 million to $0.4 million for the three months ended June 30, 2026, from $1.3 million for the three months ended June 30, 2025. Furniture and equipment expenses decreased approximately $0.4 million to $0.8 million for the three months ended June 30, 2026, from $1.1 million for the three months ended June 30, 2025. FDIC insurance expense decreased $0.4 million to $0.5 million for the three months ended MarchJune 31,30, 2026, from $1.2$0.9 million for the three months ended MarchJune 31,30, 2025, due to the stabilized level of deposits compared to the temporary surge experienced at the end of 2025. FurnitureAdvertising and equipmentmarketing expensesexpense decreased approximately $0.3$0.1 million to $0.8$0.4 million for the three months ended MarchJune 31, 2026, from $1.0 million for the three months ended March 31, 2025. Advertising and marketing decreased approximately $0.2 million to $0.3 million for the three months ended March 31,30, 2026, from $0.5 million for the three months ended MarchJune 31,30, 2025. TheseOther decreases were offset by an increase in other real estate ownedoperating expenses ofincreased $0.2$0.4 million to $1.6 million for the three months ended MarchJune 31,30, 2026, comparedfrom $1.2 million primarily due to $0workout forexpenses theas threewe monthswork endedthrough Marcha 31,small 2025.number of problem credits.

Income tax expense increased $0.6$0.3 million or 84.5%,27.5%, to $1.3$1.4 million for the three months ended MarchJune 31,30, 2026 from $0.7$1.1 million for the three months ended MarchJune 31,30, 2025. The increase in federal income tax expense for the three months ended MarchJune 31,30, 2026 compared to the same period a year ago was driven by increased estimated tax rates and the increase in income before income taxes of $2.3$0.4 million, to income before income tax of $5.4$6.0 million for the three months ended MarchJune 31,30, 2026 compared to income before income tax expense of $3.1$5.7 million for the same period in the prior year. The Company accrues taxes based on an estimated tax rate basis using inputs and assumptions about pre-tax income. As the inputs and assumptions change, the estimated tax accruals will change throughout the year. The Company also invests in projects that have tax credit benefits in order to help reduce its overall tax liability, timing of these tax credits are layered into our overall assessment. At June 30, 2026, these tax credits exceed the total tax liability and therefore, are not fully utilized, which causes the effective income tax expense rate to increase. For the three months ended June 30, 2026, the Company had an effective income tax expense rate of 22.52%, compared to 18.82% for the three months ended June 30, 2025. The Company has included assessments in income tax expense for potential state tax liabilities which totaled $149,000$0.2 million for the three months ended MarchJune 31,30, 2026 and $79,000$0.1 million for the three months ended MarchJune 31,30, 2025. For the three months ended March 31, 2026, the Company had an effective income tax expense rate of 23.48%, compared to 21.75% for the three months ended March 31, 2025.

Comparison of Statements of FinancialIncome Conditionfor atthe MarchSix 31,Months Ended June 30, 2026 and December 31, 2025

Total assets increased $10.6$30.4 million, or 0.5%,1.4%, to $2.22$2.24 billion at MarchJune 31,30, 2026 from $2.21 billion at December 31, 2025. The increase was primarily the result of an increase in net loans of $9.1$86.5 million as of MarchJune 31,30, 2026, anoffset increaseby a decrease in cash and cash equivalents of $5.4$53.5 million, offset by a decrease of $1.0$1.3 million in accrued interest and other receivables,assets, a decrease of $0.9 million in investment securities discussed below, and a decrease of $1.4 million in other assets.real estate owned of $0.8 million.

Investment securities decreased $0.9 million, or 1.3%,1.2%, from $71.8 million at December 31, 2025 to $70.8$70.9 million at MarchJune 31,30, 2026. The decrease was primarily due to onecalls, callmaturities, and scheduled paydowns on available-for-sale securities. At MarchJune 30, 2026 and December 31, 2026,2025, our held-to-maturity portion of the securities portfolio, at amortized cost, was $13.8 million,million. andAt ourJune 30, 2026, the available-for-sale portion of the securities portfolio, at fair value, was $57.0$57.1 million compared to our held-to-maturity portion of the securities portfolio of $13.8 million and our available-for-sale portion of the securities portfolio of $58.0 million at December 31, 2025.

Net loans increased $9.1$86.5 million, or 0.5%,4.7%, to $1.85$1.93 billion at MarchJune 31,30, 2026 from $1.84 billion at December 31, 2025. Residential real estate loans increased $6.7$23.8 million, or 1.5%,million to $448.3$465.4 million at MarchJune 31,30, 2026 from $441.6 million at December 31, 2025. Commercial real estate loans increased by $9.8$56.1 million from $1.01 billion at December 31, 2025 to $1.02$1.07 billion at MarchJune 31,30, 2026. Commercial and industrial loans decreased by $6.2$5.6 million from $107.0 million at December 31, 2025 to $100.8$101.4 million at MarchJune 31,30, 2026. Construction and land development loans decreasedincreased $1.7$12.2 million to $299.0$312.9 million at MarchJune 31,30, 2026 from $300.7 million at December 31, 2025. Consumer loans increased by $84,000$131,000 from $1.1 million at December 31, 2025 to $1.2$1.3 million at MarchJune 31,30, 2026.

The federal banking Agencies issued guidance in 2006 which addresses institutions with increased concentrations of commercial real estate (CRE) loans. The guidance does not establish specific CRE lending limits; rather, it promotes sound risk management practices and appropriate levels of capital that will enable institutions to continue to pursue CRE lending in a safe and sound manner. In developing this guidance, the Agencies recognized that different types of CRE lending present different levels of risk, and that consideration should be given to the lower risk profiles and historically superior performance of certain types of CRE, such as well-structured multifamily housing finance, when compared to others, such as speculative office space construction. As discussed under “CRE Concentration Assessments,” institutionsInstitutions are encouraged to segment their CRE portfolios to acknowledge these distinctions for risk management purposes. The guidance focuses on those CRE loans for which the cash flow from the real estate is the primary source of repayment rather than loans to a borrower for which real estate collateral is taken as a secondary source of repayment or through an abundance of caution. Thus, for the purposes of the guidance, CRE loans include those loans with risk profiles sensitive to the condition of the general CRE market (for example, market demand, changes in capitalization rates, vacancy rates, or rents). CRE loans are land development and construction loans (including 1- to 4-family residential and commercial construction loans) and other land loans. CRE loans also include loans secured by multifamily property, and nonfarm nonresidential property where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Excluded from the scope of this Guidance are loans secured by nonfarm nonresidential properties where the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.

The Company holds a concentration in commercial real estate loans. As of MarchJune 31,30, 2026, construction, land development and other land loans represented 100.1%103.5% of consolidated risk-based capital. Total commercial real estate loans as defined by the Agency guidance represented 367.6%379.3% of consolidated risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio by 39.0%.47%. At June 30, 2026, CRE loans as defined by the Agency guidance represented 59% of total loans, an increase of $54.5 million from December 31, 2025.

Our risk management process begins with a robust underwriting program. The underwriting and risk rating of all loans is completed by an underwriting team that is independent of the originating lender(s). The underwriting analysis of commercial real estate loans includes pre-origination stress testing utilizing the portfolio stress testing methods to fully understand the potential exposure before we originate the credit. Once originated, management actively monitors concentration, and each loan receives ongoing quarterly stress tests to evaluate the risk profile over the life of the credit.

The total estimated stress test loss is deducted from capital and we recalculate the capital ratios. As shown in the tables below, as of MarchJune 31,30, 2026 and December 31, 2025, the post-stress capital ratios well exceed our Board target ratios as well as Agency minimums (with buffer). For Non-Owner Occupied CRE & Multifamily the stress test is bifurcated with a low-end loss estimate and high-end estimate. The Low Estimate produces loss amounts for loans that are flagged for default (per the model) and floors the loss amount at zero. The High Estimate executes similar to the low estimate but floors the Loss-Given-Default rate at 10%, per Basel Committee on Banking Supervision rules. It also has a collective loss held on all loans regardless of if the loan is flagged for default.

The following two tables break down the MarchJune 31,30, 2026 and December 31, 2025 non-owner occupied CRE portfolio balances by showing the current balance in each sub-category and location. The tables also display very favorable weighted average interest rates and weighted average loan-to-values for both periods. The weighted average occupancy percentages are also broadly favorable for both periods.

The following two tables depict a well-diversified portfolio of owner-occupied commercial real estate as of MarchJune 31,30, 2026 and December 31, 2025. The properties are distributed nicely among the Company's footprint. This loan segment continues to perform very well and is supported by strong loan-to-values (LTVs). The following table sets forth our owner-occupied CRE portfolio by the business industry groups that occupy the properties for the periods indicated.

Past due loans excluding non-performing loans, were $17.8$15.5 million as of MarchJune 31,30, 2026 compared to $33.3 million as of December 31, 2025. As of MarchJune 31,30, 2026, criticized loans increased $0.5$5.1 million and classified loans increased $27.1$31.5 million when compared to December 31, 2025, to a balance of $111.0$115.6 million and $111.3$115.7 million, respectively. The majority of classified loans is made up of 7seven relationships that experienced increases in operating costs, vacancies, and liquidity tightening as a result of the prolonged impacts of the federal government shut down, Washington D.C. government policies, and sustained elevated interest rates. Non-performing loans were $53.8$61.3 million at MarchJune 31,30, 2026, an increase of $22.3$29.8 million compared to $31.5 million at December 31, 2025. Approximately 46%40% of this balance is attributable to two relationships and the remaining 54%60% is confined to eighteleven relationships that experienced liquidity constraints. Additionally, as interest rates rose significantly starting March 2022 and largely sustained despite recent rate cuts, management believes in taking a proactive approach to risk management in the loan portfolio, particularly as credits are due to reprice in a new rate environment. The Company routinely charges off potential exposure as identified and analyzed, and executes the best course of action expected to minimize any further loss exposure. All classified loans and non-performing loans are considered individually evaluated and have strong collateral positions, with satisfactorygood loan-to-value (LTVs) ratios. As such, the increase in classified loans andWhile non-performing loans resulted in a decrease to the allowance for credit losses which was offset by loan growthincreased during the threequarter, monthsthe endedlevels Marchremain 31,manageable 2026.and management is diligently working towards positive resolutions.