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

An investment in the Company’s common stock involves certain risks, including those described below. In addition to the other information set forth in this Form 10-K, investors in the Company’s securities should carefully consider the factors discussed below. These factors, either alone or taken together, could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, capital position, and prospects. One or more of these could cause the Company’s actualfuture results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline. References to past events in these risk factors are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future.

The Company offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, residential mortgages, home equity loans and lines of credit, consumer and other loans. Many of these loans are secured by real estate (both residential and commercial). As of December 31, 2024,2025, 84.6%83.7% of all loans were secured by mortgages on real property. Substantially all of the Company’s real property collateral is located in its market area. If there is a decline in real estate values, especially in the Company’s market area, the collateral for loans would deteriorate and provide significantly less security to the Company. In the event the Company forecloses on a loan that is collateralized with property having reduced market value, the Company may suffer a recoveryloss loss.upon liquidation of the collateral.

As of December 31, 2024,2025, the Bank hadheld approximately $478,078$467,783 in loans secured by commercial real estate, representing approximately 48.4%46.8% of total loans outstanding at that date. The real estate consists primarily of multi-family housing, non-owner-operatednon-owner-occupied properties and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the owner’s business or the rental of the property to service the debt. Cash flows may be affected significantly by general economic conditions, and a downturn in the local economy or in occupancy rates in the local economy where the property is located could increase the likelihood of default. Because the Bank’s loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in the percentage of nonperforming loans. An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the provision for credit losses and an increase in charge-offs, all of which could have a material adverse effect on the Company’s financial condition.

The Company is subject to a variety of operational risks, including reputational, legal, and compliance risk, and the risk of fraud ortor hefttheft by employees, directors, or outsiders.

The authorities who promulgate accounting standards, including the Financial Accounting Standards Board (“FASB”), SEC, and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes are difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in the restatement of consolidated financial statements for prior periods. Such changes could also require the Company to incur additional personnel or technology costs. Notably, guidance issued in June 2016 required a change in the calculation of credit reserves from using an incurred loss model to using the current expected credit losses model (“CECL”), effective January 1, 2023. To implement the standard, the Company incurred costs related to documentation, technology, training and increased audit expenses to validate the model. Adoption increased our credit reserves and reduced capital. Post adoption, the ACLL may experience increased volatility associated with change in forecasts that will impact profit and loss and various financial metrics. Please refer to Note 1 of Notes to Consolidated Financial Statements for further information on CECL.

Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantlynegatively impact the Company’s business.

The current and anticipated effects of climate change are creating concern for the state of the global environment. The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict how specifically climate change may impact the Company’s financial condition and results of operations; however, the physical effects of climate change may also directly impact the Company. Specifically, unpredictable and more frequent weather disasters may adversely impact the value of real property securing the loans in the Company’s loan portfolio. Additionally, if insurance obtained by borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to borrowers, the collateral securing loans may be negatively impacted by climate change, which could impact the Company’s financial condition and results of operations. Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on customers and impact the communities in which the Company operates. Overall, climate change, its effects and the resulting unknown impact, could have a material adverse effect on the Company’s financial condition and results of operations.

inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments, the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged, the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses, general and local economic conditions, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the OCC, the Federal Reserve, the CFPB and the FDIC, and the impact of any policies or programs implemented pursuant to financial reform legislation, unanticipated increases in the level of unemployment in the Company’s market, the quality or composition of the loan and/or investment portfolios, demandour forability loanto products,maintain existing deposit flows,relationships competition,or attract new deposit relationships, changes in consumer spending, borrowing and savings habits, increased competition with other financial institutions and fintech companies, demand for financial services in the Company’s market, the real estate market in the Company’s market, laws, regulations and policies impacting financial institutions, technological risks and developments, and cyber-threats, attacks or events, the Company’s technology initiatives, geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events, the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment, performance by the Company’s counterparties or vendors, applicable accounting principles, policies and guidelines, and risks associated with mergers, acquisitions, and other expansion activities.

The Company’s consolidated financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. Although the economics of the Company’s transactions may not change, the timing of events that would impact the transactions could change.

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 designates the following policies as critical: those policies governing the allowanceACLL for credit losses, goodwill,and the pension plan, core deposit intangibles and loans acquired in a business combination.plan. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Please refer to Note 1 of Notes to Consolidated Financial Statements for information on these and other accounting policies.

Loans,Organic growth accounted for the increase in loans, net of deferred fees and costs and the ACLL, increased when December 31, 20242025 is compared with December 31, 2023,2024. primarily due toWhile the FCBFederal acquisition.Reserve's Therate highercuts in 2024 and 2025 were favorable for the net interest margin, the interest rate environment continues to restrain loan demand. The Company is positioned to continue to make every loan that meets its underwriting standards.

Securities available for sale areincreased presentedfrom atthe prior year due to purchases of $83,872 and improvement in fair valuevalue, as of each reporting date. The fair value of bondswhich moves inversely to interest rate changes and expectations of interest rate changes. Most of the Company’s securities were purchased during periods prior to the Federal Reserve’s interest rate increases that began in March of 2022. The portfolio decreased during 2024 due to maturities and pay downs. Further detail is provided in the “Balance Sheet” section below.

The Company monitors asset quality indicators in managing credit risk and in determining the ACLL and provision for credit losses. WhenNonaccrual loans improved when December 31, 20242025 is compared with December 31, 2023,2024, nonaccrualdue loansto improved.the return of one loan relationship to accrual status. The net charge-off ratio remained at the same low level and accruing loans past due 90 days or more increased,increased thoughslightly, but remain at historically low levels.low.

The Company believes that sufficientdedicates resources have been dedicated to resolving problem assets, and exposure to loss is somewhat mitigated by sufficient collateralization. More information about nonaccrual and past due loans is provided in Note 1 and Note 5 of Notes to Consolidated Financial Statements. The Company continues to carefully monitor risk levels within the loan portfolio.

The net interest margin for the year ended December 31, 20242025 decreasedincreased when compared with the year ended December 31, 2023.2024. Loans,Loans repriced upward while the Federal Reserve's interest rate cuts resulted in lower yields on adjustable rate securities and interest bearing deposit assetsassets, repricedas upward,well butas didlower not fully offset higher interest expense. The Federal Reserve's interest rate cuts during the last four monthscost of 2024deposits. immediately decreased interest rates on deposits with pricing based on the prime interest rate, however currentCurrent interest rates are still at a level that will allow interest income and theimproved yield on earning assets to growloans as adjustable loans reach repricing dates.

Provision for (Recovery of) Provision for Credit Losses

ProvisionThe expenseCompany recovered provision of $16 for the year ended December 31, 20242025 was, $1,227,made reflectingup of a recovery of credit losses on funded loans of $63 partially offset by provision for credit losses for funded loans of $1,242 and recovery of credit losses foron unfunded loan balances of $15.$47. ProvisionFor forthe fundedyear loansended December 31, 2024, the Company recorded a net provision of $1,227, which included $1,290 ina provision of $1,290 for non-PCD loans recorded upon acquisition date,of FCB, offset by $48 resultingrecovery fromreflecting changes in the Company's assessment of credit risk.risk Forfor theboth year ended December 31, 2023, the Company recorded a net recovery of $1,261, reflecting an improvement in portfolio metricsfunded and economicunfunded conditionsloan when compared with December 31, 2022.balances. More information about the ACLL is provided in “Balance Sheet – Loans – Allowance for Credit Losses” below and in Notes 1 and 5 of Notes to Consolidated Financial Statements.

Service charges on deposit accounts increased when the year ended December 31, 20242025 is compared with the year ended December 31, 2023, primarily2024, due to changes in fee structure, the FCB acquisition, and increased customer use of the Bank’s overdraft program. Service charges on deposit accounts also include account maintenance fees,program, ATM fees and wire transfer fees.

Other service charges and fees decreased when 20242025 is compared with 2023,2024, due to nonrecurring fee income received in 2024 and lower fees associated with lettersnon-customer use of creditNBB and one time fee income received in 2023.ATMs. Other service charges and fees also include charges for official checks, income from the sale of checks to customers, safe deposit box rent, and income from commissions on the sale of credit life, accident and health insurance.

Credit and debit card fees, net, decreasedincreased when 20242025 is compared with 20232024 due to highercontract processingre-negotiation costs.associated Credit and debit card fees are presented net of certain processing expenses and are dependent onwith the volumecore ofsystem transactions.conversion.

Trust income increased when the year ended December 31, 20242025 is compared with the year ended December 31, 20232024, duereflecting tothe higherCompany's volume.investment in business development. Trust fees are generated from a number of different types of accounts, including estates, personal trusts, employee benefit trusts, investment management accounts, attorney-in-fact accounts and guardianships. Trust income varies depending on the number and type of accounts under management and financial market conditions.

Other income includes dividends, adjustments to partnership basis in investments, commissions from investment and insurance sales and other miscellaneous components. DuringImproved 2023,commissions from investment and insurance sales and a vendor incentive payment drove the Companyincrease recordedfrom income2024 ofto $232 upon receipt of a contract contingency payment.2025.

Salaries and employee benefits, which include payroll taxes, health insurance, contributions to the employee stock ownership plan and employee 401(k), plan, pension expense,service costs, incentives and salary continuationcontinuation, increased when 20242025 is compared with 2023,2024, reflecting the addition of FCB employees.employees and normal merit adjustments.

When the year ended December 31, 20242025 is compared with the year ended December 31, 2023,2024, occupancy, furniture and fixtures expense and data processing and ATM expense increased due to ATM upgrades, higher maintenance costs,costs and additionaldepreciation related to assets acquired from FCB.FCB, infrastructure investment and the opening of the Roanoke branch.

Franchise tax expense increaseddecreased from 20232024 to 2024.2025. Franchise taxes are levied by the states in which NBB operates and are based upon NBB’s total equity at the prior year-end, adjusted for real estate taxes and certain other items.

Merger-related expenses included legal, accounting, regulatory, and executive and employee severance costs associated with the FCB acquisition. The Company does not expect any further material expense related to the transaction.

inflation and changes in interest rates that may reduce our margins or reduce the fair value of financial instruments, the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged, the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses, general and local economic conditions, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation (“FDIC”), and the impact of any policies or programs implemented pursuant to financial reform legislation, unanticipated increases in the level of unemployment in the Company’s market, the quality or composition of the loan and/or investment portfolios, our ability to maintain existing deposit relationships or attract new deposit relationships, changes in consumer spending, borrowing and savings habits, increased competition with other financial institutions and fintech companies, demand for financial services in the Company’s market, the real estate market in the Company’s market, laws, regulations and policies impacting financial institutions, technological risks and developments, and cyber-threats, attacks or events, the Company’s technology initiatives, geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events, the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment, performance by the Company’s counterparties or vendors, applicable accounting principles, policies and guidelines, and risks associated with mergers, acquisitions, and other expansion activities.

The Company’s consolidated financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. Although the economics of the Company’s transactions may not change, the timing of events that would impact the transactions could change.

The Company employs a discounted cash flow ("DCFCF") model whereby each loan’s cash flows are projected according to each loan's contractual terms and modified by internalprepayment rates and loss rates. Prepayment rates are sourced from the Company’s historical prepaymentexperience. rates.Loss Cash flowsrates are then discounted at the loan's effective interest rate, modified by loss rates determinedcalculated using the probability of default ("PD") and loss given default ("LGD") sourced from internal and peer historical experience, and adjusted for a forecast variable. The modified cash flows are then discounted at the loan's contractual interest rate. Application of historical prepayment rates to project cash flows lowers the ACLL.ACL Historical prepayment ratesand may not be representative of realized prepayment rates. Similarly, historicalHistorical loss experience modifiedand bythe impact of the forecast variable may not be representative of realized loss experience.

Key to loss rate application is the Company's risk grading system, which is governed by a robust policy. Loss rates are calculated and applied by risk grade. Management relies upon risk grades to identify loans with risk characteristics that are different from other loans within a segment. Loans graded special mention or classified and that exceed a value threshold are individually evaluated. If management determines that a borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. Specific reserves for other individually evaluated loans are estimated using a DCFCF approach. Cash flows are determined by analyzing the borrower's ability to repay and economic conditions affecting the borrower's industry, discounted at loss rates appropriate to the risk grade. The ultimate recoverability of the loan may be higher or lower than the specific reserve.

The Company adjusts collectively-evaluated DCFCF model results for qualitative risk factors that are not inherent in historical losses, but are relevant in assessing expected credit losses within the loan portfolio. Risks considered include the impact of changes in (i) economic conditions, (ii) the nature and volume of the loan portfolio, (iii) the existence, growth and effect of any concentrations in credit, (iv) lending policies and procedures, including underwriting standards and practices, (v) the quality of the credit review function, (vi) the experience, ability and depth of lending management and staff, (vii) the volume and severity of past due loans, (viii) the value of underlying collateral for collateral-dependent loans, and (ix) other factors such as the regulatory, legal and competitive environments. Because of low loss rate history, statistical correlation between losses and qualitative risk factors is not possible and adjustments are based upon management judgment. Management assesses each factor and determines the adjustment to the ACLL based upon a documented and consistently applied methodology. Management's assessment mymay be higher or lower than actual impact.

The estimation of the ACLL involves analysis of internal and external variables, methodologies, assumptions and management’s judgment and experience. These judgments are inherently subjective and actual losses could be greater or less than the estimate.Futureestimate. Future estimates of the ACLL could increase or decrease based on changes in the financial condition of individual borrowers,concentrationsborrowers, concentrations of various types of loans, economic conditions or the markets in which collateral may be sold. The estimate of the ACLL determines the amount of provision expense and directly affects our financial results.

Key to understanding theThe Company’s results of operations and financial position isare heavily influenced by the interest rate environment. The Federal Reserve's interest rate cuts between September 20252024 and DecemberSeptember of 2025 eased deposit pricing pressure but remain at a level that allows adjustable rate loans to reprice higher than their previous rates. TheAlso Companyinfluential completedto the Company's results are a gain on the sale of an equity investment offset by a loss on the sale of securities in 2026, and a core system conversion completed during the second quarter of 2025, with related expenses presented in core system conversion expense presented on the Consolidated Statements of Income. Expanded discussion of significant items for 2026 and 2025 is provided in subsequent sections.

The following table presents the Company’s key performance indicators for the periods indicated.indicated:

Average dilutive common shares were 2,7833,241 and 1,9823,013 for the three and six months ended MarchJune 31,30, 20262026, and 2025,2,665 respectively.and 2,325 for the three and six months ended June 30, 2025. Dilutive common shares stem from unvested restricted stock.

Net income for the three and six months ended MarchJune 31,30, 2026 increased when compared with the comparable periodperiods of 2025, due to net interest margin expansion.expansion Analysisand ofcore theconversion related expenses in 2025. The net interest margin as well as key noninterest income and expense items are presenteddiscussed below.

The Company uses the net interest margin (non-GAAP) to measure profitability of interest generating activities, as a percentage of total interest-earning assets. The Company’s net interest margin is calculated on a fully taxable equivalent (“FTE”) basis. The portion of interest income that is nontaxable is grossed up to the tax equivalent by adding the tax benefit based on a tax rate of 21%. Annualized FTE net interest income is divided by total average earning assets to calculate the net interest margin. The following tables present the reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, for the periods indicated.indicated:

The efficiency ratio (non-GAAP) is computed by dividing noninterest expense by the sum of FTE net interest income and noninterest income, excluding certain items the Company’s management deems unusual or non-recurring. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. The components of the efficiency ratio calculation for the periods indicated are summarized in the following table.

The adjusted return on average assets (non-GAAP) and adjusted return on average equity (non-GAAP) are measures of profitability, calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively. Significant income or expenses that are unusual or not expected to recur during the year are not annualized, in order to reduce distortion within the ratios. The tables below present the reconciliation of adjusted annualized net income, which is not a measurement under GAAP, for the periods indicated.

The following tables showpresent interest‑earning assets and interest‑bearing liabilities, the interest earned or paid, the average yield or rate on the daily average balance outstanding, net interest income and net interest margin for the periods indicated.

Included in interest income are loan fees of $202$169 and $87$113 for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Also included in interest income is accretion of discounts on acquired loans of $417$177 and $251$363 for the three months ended MarchJune 31,30, 2026 and 2025.2025, respectively.

Included in interest expense is amortization of premium on acquired time deposits of $18$16 and $58$43 for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

When the three and six months ended MarchJune 31,30, 2026 and 2025 are compared, theimprovement yield on earning assets increased and the cost of interest bearing liabilities decreased, improvingin the net interest margin.margin stemmed from higher yields on loans and securities and lower cost of time deposits and interest bearing demand deposits, somewhat offset by lower yield on interest-bearing deposit assets. The Federal Reserve's interest rate cuts between September 2024 and December 2025 immediately reduced expense for deposits with pricing based on the prime interest rate. Current interest rates are still at a level that will allow improved interest income as loans continue to reach repricing dates.

Credit and debit card fees, net, increased when the three and six months ended MarchJune 31,30, 2026 are compared with the comparable periodperiods of 2025, due to contractimproved re-negotiationterms associatedfor withinterchange fee income stemming from the the core system conversion.conversion in May of 2025.

DataTotal processingnoninterest expensesexpense decreased when the three and six months ended MarchJune 31,30, 2026 are compared with the comparable periodperiods of 20252025. dueDuring to2025, savingsthe relatedCompany torecorded specific expense for the core system conversion.conversion, as well as associated marketing and mailing expense included in other noninterest expense.

ProfessionalSalaries servicesand employee benefits include legal,payroll audittaxes, health insurance, contributions to the employee stock ownership plan and consultingemployee expenses,401(k), whichpension increasedexpense, whenincentives and salary continuation. When the three and six months ended MarchJune 31,30, 2026 are compared with the comparable periodperiods of 20252025, duethe toincrease was driven by higher auditincentive and consultingmedical fees.insurance expense.

OtherData operatingprocessing expense decreasedincreased when thethree threeand six months ended MarchJune 31,30, 2026 are compared with the comparable periodperiods of 2025.2025 Thedue categoryto ofhigher other operating expenses includes expense for marketingmaintenance and businesscommunications development,infrastructure supplies,expense, non-serviceas pensionwell cost and charitable donations, among others. Included in various categories of noninterest expense areas expenses to manage cybersecurity risk. The cost of these measures was $131$151 for the three months ended MarchJune 31,30, 2026 and $81$100 for the three months ended MarchJune 31,30, 2025. For the six months ended June 30, 2026, total cybersecurity expense was $283 compared with $141 for the six months ended June 30, 2025. The Company places high priority on cybersecurity. The decrease in expense reflects renegotiation of contracts and licensing.

The Company’s income tax expense was $1,048 for the three months ended MarchJune 31,30, 2026 compared with $362 for the same period in 2025.The Company's income tax expense was $1,066$2,114 for the six months ended June 30, 2026 and effective tax rate was 17.63%.17.44%. For the threesix months ended MarchJune 31,30, 2025, the Company’s income tax expense was $666$1,028 and effective tax rate was 17.07%.15.69%. The effective tax rate increased due to comparable levels of nontaxable income while pre-tax earnings increased during the period.increased.

The Company’s risk analysis as of MarchJune 31,30, 2026 determined an ACLL of $9,739,$10,047, or 0.98%0.99% of loans net of deferred fees and costs. This compares with an ACLLallowance of $9,892 as of December 31, 2025, or 0.99% of loans. To determine the appropriate level of the ACLL, the Company considers credit risk for individually evaluated loans and for groups of collectivelyloans evaluated loans.collectively.

Individually evaluated loans were $8,898$10,030 as of MarchJune 31,30, 2026 and $8,802 as of December 31, 2025. As of both reporting dates, two individually evaluated loans were collateral dependent but were adequately collateralized and did not result in an individual allocation. The remaining individually evaluated loans were measured using the discounted cash flow method, resulting in an allocation of $106.$138 as of June 30, 2026 and $106 as of December 31, 2025.

Collectively evaluated loans totaled $987,166,$1,005,382, with an ACLL of $9,633$9,909 as of MarchJune 31,30, 2026. As of December 31, 2025, collectively evaluated loans totaled $991,124, with an allowance of $9,786.

The Company applies national unemployment forecasts to project cash flows. The Company determined that 12 months represents a reasonable and supportable forecast period as of MarchJune 31,30, 2026, and set a period of 12 months to revert to historical losses on a straight-line basis. The forecast applied as of MarchJune 31,30, 2026 projects that unemployment will increaseslightly slightlydecrease over the next 12 months,months higherat a lower level than the forecast applied as of December 31, 2025. The higherlower unemployment forecast increaseddecreased the required level of the ACLL when MarchJune 31,30, 2026 is compared with December 31, 2025.

Higher bankruptcy filings indicate heightened credit risk and increase the ACLL, while lower bankruptcy filings have a beneficial impact on credit risk. Compared with data available as of December 31, 2025, business bankruptcy filings increased whileand personal bankruptcies filings decreased.

Residential vacancy rates and housing inventory are used to measure the health of the housing market. The housing market directly or indirectly affects all loan classes..classes. Higher vacancy and inventory levels increase credit risk. The residential vacancy rate available as of MarchJune 31,30, 2026 wasdecreased atcompared a lower level thanto the data incorporated into the December 31, 2025 calculation.calculation, resulting in a lower allocation. Housing datainventory availableincreased aswhen ofJune March 31,30, 2026 showedis slightlycompared lower inventory than as ofwith December 31, 2025, resulting in a lowerhigher allocation.

Accruing past due loans are analyzed at the class level and compared with previous levels. Increases in past due loans indicate heightened credit risk. Accruing loans past due 30-89 days were 0.29%0.30% of total loans as of MarchJune 31,30, 2026, a decrease from 0.35% as of December 31, 2025.

The Company considers other factors that impact credit risk, including the competitive, legal and regulatory environments, changes in lending policies and loan review, changes in lending managementmanagement, and high risk loans.

Competitive, legal and regulatory environments were evaluated for changes that would affect credit risk. Higher competition for loans is deemed to increase credit risk, while lower competition decreasesis deemed to decrease credit risk. CompetitionThe remainedCompany's atevaluation similarfound levelsslightly tolower thosecompetitive atpressure when compared with December 31, 2025. The legal and regulatory environments also remain in a similar posture to December 31, 2025.