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

We target our business development and marketing strategy largely to serve the banking and financial services needs of small to medium-sized businesses. These small to medium-sized businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger companies. If general economic conditions negatively impact our primary Ohio and West Virginia Virginia markets or the other geographic markets in which we operate,markets, our results of operations and financial condition may be negatively affected.

We are subject to periodic reviews from state and federal regulators, which may impact our operations and our financial condition. As part of the regulatory review, thefinancial loanassets portfoliomeasured at amortized cost (loans and securities), off-balance sheet credit exposures, and the allowance for loancredit losses are evaluated. As a result, the incurredexpected credit loss identified on loans, or the assigned loan rating could change and may require us to increase our provision for loan lossescredit orlosses. This could be impacted by increases in asset risk coming from declines in asset quality, loan charge-offs.loss Inexperience, addition,and anyother downgraderelevant ineconomic loan ratings could impact our level of impaired loans or classified assets.factors. Any increase in our provisionallowance for loancredit losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on our financial condition and results of operations. Findings of deficiencies in compliance with regulations could result in restrictions on our activities or even a loss in our financial holding company status.

Commercial and commercial real estate loans comprise a significant portion of our loan portfolio. Commercial loans generally are viewed viewed as having a higher credit risk than residential real estate or consumer loans because they usually involve larger loan balances to a single borrower and are more susceptible to a risk of default during an economic downturn. Since our loan portfolio portfolio contains a significant number of commercial and commercial real estate loans, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans,loans and ultimately could have a material adverse effect on our earnings and financial condition. We may also have concentrated credit exposure to a particular industry, resulting in a risk of a material adverse effect on our earnings or financial condition if there is an event adversely affecting that industry.

Our loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which could have a material adverse effect on our operating results. In accordance with GAAP, we maintain an allowance for credit losses to provide for loan loan defaults and non-performance, which when combined, we refer to as the allowance for credit losses. Our allowance for credit losses may not be adequate to cover actual credit losses, and future provisions for credit losses could have a material material adverse effect on our operating results. Our allowance for credit losses is based upon a number of relevant factors, including, but not limited to, trends in the level of nonperforming assets and classified loans, current economic conditions in the primary lending area, prior experience, possible losses arising from specific problem loans, and our evaluation of the risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for credit losses. Moreover, the Financial Accounting Standards Board (“FASB”) has changed its requirements for establishing the allowance, which was effective for us in the first quarter of 2023. We cannot assure you that we will not further increase the allowance for credit losses or that regulators will not require us to increase this allowance. Either of these occurrences could have a material adverse effect on our financial condition and results of operations.

Operational system failures and service interruptions. We collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both us and third-party service providers. Our dependence upon automated systems to record and process the Bank’s transactions poses the risk that technical system flaws, employee errors, tampering or manipulation of those systems, or attacks by third parties will result in losses and may be difficult to detect. Our inability to use these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. In recent years, some banks have experienced denial of service attacks in which individuals or organizations flood the bank's website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions. We could also be adversely affected if one of our employees or a third-party service provider causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. We are further exposed to the risk that third-party service providers may be unable to fulfill their contractual obligations or will be affected by the same risks as the Bank has. These disruptions may interfere with service to the Bank’s customers, cause additional regulatory scrutiny and result in a financial loss or liability. We are also at risk of the impact of natural disasters, terrorism, and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.

Employee errors, misconduct, and fraud. Employees could engage in fraudulent, improper, or unauthorized activities on behalf of clients or improper use of confidential information. We may not be able to prevent employee errors or misconduct, and the precautions we take to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject us to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.

Cyber-attacks and data security breaches. Management cannot be certain that the security controls we have adopted will prevent unauthorized access to our computer systems or those of our third-party service providers, whom we require to maintain similar controls. A security breach of the computer systems and loss of confidential information, such as customer account numbers or personal information, could result in a loss of customers’ confidence and, thus, loss of business. In addition, unauthorized access to or use of sensitive data could subject us to litigation and liability and costs to prevent further such occurrences.

Our primary funding and liquidity source to support our business strategies is a stable customer deposit base. Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, banking industry conditions that can impact customers perceptions of the safety and soundness of the banking industry generally or of specific financial institutions, and general economic conditions. In addition, a significant portion of our deposits are not insured above applicable FDIC limits. Uninsured depositors, including certain commercial and public‑sector depositors, may be more likely to withdraw funds rapidly in response to adverse news about us or the banking industry generally, or in response to perceived or actual market stress. Rapid or unexpected withdrawals of uninsured deposits could materially increase our funding costs or adversely affect our liquidity position and financial condition. If our deposit levels fall, we could lose a relatively low-cost source of fundingfunding, and our interest expense would likely increase as we obtain alternative funding to replace lost deposits. If local customer deposits are not sufficient to fund our normal operations and growth, we will look to outside sources, such as lines of credit with both the Federal Home Loan Bank of Cincinnati (“FHLB”) and FRB, brokered CDs, a federal funds line with a correspondent bank, and available funds from select deposit placement services. Although the Bank has historically been able to replace maturing deposits and advances, no assurance can be given that the Bank would be able to replace such funds in the future if our financial condition were to change. If we are required to rely more heavily on more expensive funding sources to support asset growth, our revenues may not increase proportionately to cover our costs, which would have a negative impact to profitability and the net interest margin.

Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition imposition of restrictions on the operation of an institution, the classification of assets held by an institution, the adequacy of an institution’s allowance for loancredit losses and the ability to complete acquisitions. Additionally, actions by regulatory regulatory agencies against us could cause us to devote significant time and resources to defending our business and may lead to penalties that materially affect us and our shareholders. Even the reduction of regulatory restrictions could have an adverse effect on us and our shareholders if such lessening of restrictions increases competition within our industry or market area.

Entities that set generally applicable accounting standards, such as the FASB,Financial Accounting Standards Board, the Securities and Exchange Commission, and other regulatory boards, periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be difficult to predict and can materially affect how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, which would result in the restatement of our financial statements for prior periods.

Certain statements contained in this quarterly report on Form 10-Q (the “report”) and other publicly available documents incorporated herein by reference constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as “believes,” “anticipates,” “expects,” “intends,” “plan,plans,” “goal,goals,” “seek,seeks,” “project,projects,” “estimate,estimates,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and other similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, particularly with regard to developments related to the current economic and geopolitical landscape, and which could cause actual results to differ materially from those expressed in such forward looking statements. However, it is difficult to predict the effect of known factors, and Ohio Valley Banc Corp. (“Ohio Valley”) cannot anticipate all factors that could affect future results. Important factors that could cause actual results to differ materially from expectations expressed in or implied in forward looking statements include, but are not limited to: the effects of fluctuating interest rates on our customers’ operations and financial condition; changes in political, economic or other factors, such as inflation rates, recessionary or expansive trends, taxes, tariffs, the effects of implementation of legislation and the continuing economic uncertainty in various parts of the world; competitive pressures; the level of defaults and prepayment on loans made by Ohio Valley and its direct and indirect subsidiaries (collectively, the “Company”); unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes. Additional detailed information concerning such factors is available in the Company’s filings with the Securities and Exchange Commission, under the Exchange Act, including the disclosure under the heading “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 and elsewhere in this document (including, without limitation, in conjunction with the forward looking statements themselves and under the heading “Critical Accounting Estimates”). All forward looking statements are qualified in their entirety by these and other cautionary statements that the Company makes from time to time in its other SEC filings and public communications. Readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any duty to update or revise any forward looking statements, whether as a result of new information, unanticipated future events or otherwise, except as required by applicable law.

FINANCIAL RESULTS OVERVIEW: Net income totaled $4,297$2,927 during the first second quarter of 2026, a decrease of $109$1,283 from the same period in 2025. Earnings per share for the firstsecond quarter of 2026 finished at $.91$.62 per share, compared to $.94$.89 per share during the second quarter of 2025. Net income totaled $7,224 during the first six months of 2026, a decrease of $1,392 from the same period in 2025. Earnings per share during the first quartersix months of 2026 finished at $1.53 per share, compared to $1.83 per share during the first six months of 2025. Lower net earnings had a corresponding impact on the Company’s annualized net income to average asset ratio, or return on assets, which decreased 12 42 basis points to 1.08%0.70% during the second quarter of 2026, and decreased 27 basis points to 0.89% during the first quartersix months of 2026, compared to the same period periods in 2025. In addition, the Company’s net income to average equity ratio, or return on equity, decreased 165397 basis points to 10.17%6.82% during the second quarter of 2026, and decreased 282 basis points to 8.48% during the first quartersix months of 2026, compared to the same periodperiods in 2025.

During the three and six months ended MarchJune 31,30, 2026, net interest income increased $1,748,$863, or 13.3%,5.9%, and $2,611, or 9.4%, over the same period periods in 2025. ThisThe increaseincreases waswere primarily related to a $120,686$177,570 and $149,285 increase in average earning assets,assets during the quarterly and year-to-date periods. This was led mostly by a 14.0%14.7% and 14.4% increase in average loans.loans during the three and six months ended June 30, 2026 compared to the same periods in 2025. The growth in average loans was related to the commercial and residential real estate lending segments. The emphasis on higher-yielding loan growth during the first quarterhalf of 2026 contributed to lower average securities andduring interest-bearingthe deposits with banks, which decreased 5.5%three and 14.3%,six respectively,months comparedended toJune the30, same period in 2025.2026. The decrease in average securities was also impacted by a reduced need for securities to be pledged as collateral to secure public fund deposits. EarningsNet interest earnings were furthernegatively enhancedaffected by a higher lower net interest margin, which finisheddecreased at24 4.01%basis atpoints Marchduring 31,the 2026second quarter of 2026, and decreased 4 basis points during the first half of 2026, compared to 3.85%the atsame Marchperiods 31,in 2025. Margin growthcontraction, wasespecially related to an increase induring the yield on earning assets, which outpaced the increase in average costs associated with the Company’s funding sources. The improvement to earning asset yields was directly related to the growth in higher-yielding loans and a 59 basis point improvement in the average yield on securities. The growth in average securities yield quarter, was largely impacted by several bondthe transactionseffects of an $817 market discount on purchased loans that occurredwas inrecorded to interest income during the second quarter of 2025 thatcompared replacedto lower-yieldingno taxablemarket securitiesdiscount withincome similarduring taxable2026. securitiesMargin decreases were also impacted by the cost of funding sources increasing at highera ratesgreater ofpace return.than the yield on earning assets. The cost of funding sources increased primarily withinas the Company’s Negotiable Order composition of Withdrawal (“NOW”)funding andsources savingsshifted accounts,to while the averagehigher cost on certificates of deposit (“CDs”) decreased.from promotional offerings, and higher money market accounts from individual and business customers.

During the three and six months ended MarchJune 31,30, 2026, the Company’s provision for credit loss expense increased $1,206$2,607 and $3,813, when compared to the same periodperiods in 2025. The increase resulted primarily from $4,531 aand $2,031$6,561 in specific allocationallocations on two collateral dependent loans.loans during Thisthe increasethree and six months ended June 30, 2026. These increases in reserves waswere partially offset by a net decrease in modeled loss rates and a decrease in certain qualitative risk factors and lower net charge offs.

During the three and six months ended MarchJune 31,30, 2026, noninterest expense increased $483,$196, or 4.5%,1.8%, and $679, or 3.1%, over the same periodperiods in 2025. Noninterest expense was impacted impacted mostly by salaries and employee benefits, which increased $335$359 and $694 during the three and six months ended June 30, 2026 over the same periods in 2025 due to annual merit increases and higher health insurance premiums. Other noninterest expense was up $251 and $278 during the three and six months ended June 30, 2026 over the same periods in 2025 due to higher state taxes, loan costs, and other miscellaneous expenses associated with troubled credits. Also increasing was software expense,expense and FDIC insurance, which waswere collectively up $151 $132and $341 during the three and six months ended June 30, 2026 over 2025,the resultingsame periods fromin 2025. Software costs increased due to the investment in software to enhance enhance internal processes.processes, Noninterest expense was further impacted by a $58 increase inwhile FDIC insurancepremiums expenseincreased relateddue to a higher assessment base and an increase in the assessment rate in relation to higher nonperforming loans. Partially offsetting increases in noninterest expense were lower data processing expenses, which decreased $605 and $619 during the three and six months ended June 30, 2026 over the same periods in 2025. This was due to a $544 recovery from a vendor in the second quarter of 2026 for a billing error.

The $190$319 decreaseand $509 decreases in the Company’s provision for income taxes during the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025, waswere largely due to the decrease in operating income affected by the factors mentioned above, as well as a decrease in the effective tax rate.

At MarchJune 31,30, 2026, total assets were $1,677,502,$1,661,436, an increase of $94,848$78,782 from year-end 2025. The increase in assets was primarily the result of a $78,020 $50,096 increase in loans, and a $31,513 increase in interest-bearing deposits with banks,banks. Loan growth was led by a 5.7% increase in the Company’s commercial loan portfolio, and ana $18,7964.5% increase in loans.the Company’s residential real estate loan portfolio. The increase in interest-bearing deposits with banks was primarily associated with balances maintained at the Federal Reserve Bank (“Federal ReserveFRB”) that were impacted by the first quarteryear-to-date growth in both interest- and noninterest-bearing deposit liabilities.

At MarchJune 31,30, 2026, total liabilities were $1,506,222, $1,488,050, up $93,825$75,653 from year-end 2025. Contributing most to this increase were higher interest-bearing deposit balances, up $75,378$73,604 from year-end 2025, consisting of higher balances from time deposits (+11.3%8.8%) and savings, negotiable order of withdrawal ("NOW") and money market balances (+3.8%5.8%), while noninterest-bearing demand deposits increased 5.9%1.6% from year-end 2025.

At MarchJune 31,30, 2026, total shareholders' equity was $171,280, $173,386, up $1,023$3,129 from December 31, 2025. This increase consisted of year-to-date net income being partially offset by year-to-date cash dividends paid and an after-tax increase in net unrealized losses on AFS securities and year-to-date cash dividends paid.securities. Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums.

Comparison of Financial Condition at MarchJune 31,30, 2026 and December 31, 2025 The following discussion focuses in more detail on the consolidated financial condition of the Company at MarchJune 31,30, 2026 compared to December 31, 2025. This discussion should be read in conjunction with the interim consolidated financial statements and the notes included in this Form 10‑Q.

At MarchJune 31,30, 2026, cash and cash equivalents were $125,327, $78,084, an increase of $79,430,$32,187, or 173.1%,70.1%, from December 31, 2025. The increase came primarily from interest-bearing deposits with banks, which were up $78,020,$31,513, or 251.3%, 101.5%, from year-end 2025. The Company’s interest-bearing FRB clearing account contributed most to the increase in interest-bearing deposits with banks, representing 87%80% of cash and cash equivalents at MarchJune 31,30, 2026. The Company utilizes its interest-bearing FRB clearing account to manage excess funds, as well as to assist in funding earning asset growth. The increase in excess funds during the first three monthshalf of 2026 resulted primarily from growth in total deposits, which were up 7.1%5.9% from year-end 2025. The interest rate paid on both the required and excess reserve balances of the FRB is based on the targeted federal funds rate established by the Federal Open Market Committee (“FOMC”). During the first quarterhalf of 2026, the FOMC took no action to reduce the targeted federal funds rate, which remains at a target range of 3.50% to 3.75%. The interest-bearing deposit balances in the FRB are 100% secured by the U.S. Government.

The balance of total investment securities decreased $2,484, $3,342, or 1.0%1.3% from year-end 2025. The decrease came mostly from U.S. Government and U.S. Government agency (“Agency”) mortgage-backed and U.S. Government securities, which were collectively down $2,441,$3,654, or 1.0%,1.5%, from year-end 2025. During the first three monthshalf of 2026, total purchases, net of maturities, for both AgencyU.S. mortgage-backedGovernment and U.S. GovernmentAgency mortgage-backed securities totaled $9,677. $17,152. This was completely offset by $9,681 $19,189 in principal repayments coming mostly from Agency mortgage-backed securities. The monthly repayment of principal has been the primary advantage of Agency mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date. At MarchJune 31,30, 2026, the Company’s investment securities portfolio was comprised mostly of Agency mortgage-backed securities at 62.3%63.0% of total investments, while U.S. Government securities represented 33.6%.32.7%.

Included in the factors mentioned above were changes in net unrealized losses associated with AFS debt securities. During the first three months half of 2026, an increase in long-term market rates led to a $2,810$2,352 decrease in the fair value associated with the Company’s AFS securities at MarchJune 31,30, 2026. The fair value of an investment security moves inversely to interest rates, so as rates increased, the fair value decreased, causing the unrealized loss in the portfolio to increase. These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity.

Residential real estate loans consist of loans to individuals for the purchase of 1-4 family primary residences with repayment primarily through wage or other income sources of the individual borrower. The Company’s loss exposure to these loans is dependentdpendent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination.

As of MarchJune 31,30, 2026

CommercialThe growth in commercial loans werewas alsopartially positively impactedoffset by a an increasedecrease in the commercial and industrial portfolio, which was updown $3,758, $1,232, or 2.2%,0.7%, from year-end 2025. The growthdecrease was impacted by an increase in principal larger loan originationsrepayments during the quarter.first half of 2026. While management believes lending opportunities exist in the Company’s markets, future commercial lending activities will depend upon economic and other related conditions, such as general demand for loans in the Company’s primary markets, interest rates offered by the Company, and the effects of competitive pressure and normal underwriting considerations. Management will continue to place emphasis on its commercial lending, which generally yields a higher return on investment as compared to other types of loans.

At MarchJune 31,30, 2026, residential real estate loans represented the second largest segment of the Company’s total loan portfolio at 34.9%. 35.1%. During 2026, mortgage rates remained elevated relative to variable rate options, which provided the Company with lessfewer opportunities to originate and sell long-term fixed-rate residential mortgages to the Federal Home Loan Mortgage Corporation. Due to the elevated mortgage rates, mortgage customers were were selecting more in-house variable rate mortgage products than long-term fixed rate products, which enhanced the growth in the portfolio. As a result, residential real estate loans increased $5,841,$19,013, or 1.4%,4.5%, from year-end 2025.

The increases in the Company’s commercial and residential real estate loan portfolios at MarchJune 31,30, 2026 were partially offset by a decrease in the Company’s consumer loan portfolio, which was down $5,009, $5,396, or 3.6%,3.8%, from year-end 2025. This change was impacted by a $3,411,$5,412, or 6.4%, decrease in other consumer loans from year-end 2025, impacted by principal repayments and payoffs. Decreases in consumer loans also came from a $2,876, or 7.7%, 14.5%, decrease in automobile loans. This was directly impacted by management’s strategy to place more emphasis on higher yielding loan portfolios (i.e. commercial, and to a smaller extent, residential real estate). Indirect automobile loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return. As a result, the Company exited the indirect lending business for automobiles and recreational vehicles in 2024. Decreases in consumer loans also came from a $4,185, or 7.9%, decrease in other consumer loans from year-end 2025, impacted by principal repayments and payoffs. Decreases in consumer loans were partially offset by a $1,278,$4,201, or 2.5%, 8.3%, increase in home equity lines of credit.

For AFS debt securities, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized costs basis is due to credit-related factors or noncredit-related factors. Upon adoption As of ASCJune 326 on January 1, 2023, and as of March 31,30, 2026, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis were due to non-credit related factors. Therefore, no ACL was recorded, and no provision expense was recognized during the three six months ended MarchJune 31,30, 2026.

For HTM debt securities, the Company evaluates the securities collectively by major security type at each measurement date to determine expected credit losses based on the issuer’s bond rating, historical loss, financial condition, and timely principal and interest payments. At MarchJune 31,30, 2026, the ACL for HTM debt securities was $1 based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating index. This compares to an ACL of $1 at December 31, 2025.

As of MarchJune 31,30, 2026, the ACL for loans totaled $12,943,$16,610, or 1.07%, 1.33%, of total loans. As of December 31, 2025, the ACL for loans totaled $11,519, or 0.96%, of total loans. The $1,424,$5,091, or 12.4%,44.2%, increase in the ACL was impacted by a $2,031$6,561 increase in specific reserves on loans individually evaluated for impairment from year-end 2025. During the first quarterhalf of 2026, the Company individually evaluated the commercial real estate loans of two borrowers for expected credit loss. Of the two stressed loan relationships, one is a commercial and industrial loan to an automobile dealership and the other is a commercial real estate loan for the construction of a hotel. After measuring the fair value of the loans’ collateral to the loans’ recorded investment, the Company identified $2,031 $6,561 in expected losses based on the impairment associated with the borrowers’ collateral. This resulted in a corresponding charge to provision expense to establish the specific allocation within the ACL at MarchJune 31,30, 2026. The Company increase inconsiders the ACLspecific wasallocations alsoto impactedbe byrelated additionalto reservesthis associatedspecific withgroup of loan growthrelationships and not reflective of $18,796a duringbroader the first quarter of 2026 compared to an $18,529 decreasedeterioration in loan balances during the first quarter of 2025. These increases in specific and general reserves were partially offset by the improvements in certain qualitative risk factors that included improved portfolio terms,credit such as reduced exposure to variable rate loans repricing higher and a positive net charge-off trend for consumer loans due to exiting indirect lending, along with improved general economic conditions. The Company also experienced a decrease in modeled loss rates due to the improvements in GDP and unemployment projections.quality.

The Company experienced higher delinquency levels as compared to year-end 2025. Nonperforming loans to total loans increased to 1.64%1.44% at MarchJune 31,30, 2026, compared to 1.40% at December 31, 2025, while nonperforming assets to total assets increased to 1.19%1.08% at MarchJune 31,30, 2026, compared to 1.06% at December 31, 2025. The increase in nonperforming loans was primarily related to one commercial loan being placed on nonaccrual status during the first quarter of 2026. The loan is secured by commercial real estate and was identified as having collateral impairment, which required a specific allocation of the ACL at MarchJune 31,30, 2026.

Management believes that the ACL at MarchJune 31,30, 2026 was appropriate to absorb expected losses in the loan portfolio. Changes in the circumstances of particular borrowers, as well as adverse developments in the economy, are factors that could change, and management will make adjustments to the ACL as needed. Asset quality will continue to remain a key focus of the Company as management continues to stress not just loan growth, but quality in loan underwriting.

Deposits are used as part of the Company’s liquidity management strategy to meet obligations for depositor withdrawals, fund the borrowing needs of loan customers, and fund ongoing operations. Deposits continue to be the most significant source of funds used by the Company to support earning assets. Total deposits at MarchJune 31,30, 2026 increased $94,007,$78,761, or 7.1%,5.9%, from year-end 2025. The increase in deposits came primarily from interest-bearing deposit balances, which were up by $75,378,$73,604, or 7.4%, 7.2%, from year-end 2025, while noninterest-bearing deposits increased $18,629, $5,157, or 5.9%,1.6%, from year-end 2025.

The increase in interest-bearing deposits came primarily from time deposit balances, which increased $55,323,$43,136, or 11.3%,8.8%, from year-end 2025, $47,575$58,854 of which was a result of an increase in retail time deposits. The Company targeted growth in retail CDs by promoting a special CD rate during the first quarterhalf of 2026 to assist in funding loan growth. TheThis resulted in the Company alsoutilizing utilizedless more wholesale CDs to help fund earning asset demand, which increaseddecreased $7,748$15,718 from year-end 2025.

Savings and money market balances also increased $8,053,$25,971, or 2.6%,8.4%, from year-end 2025. The increase came primarily from money market accounts, which increased $4,913$24,264 from year-end 2025, impacted mostly by increases in the Company’s tiered money market product (Money Fund) that was introduced in 2023 and offers a higher rate on tiered deposit balances.balances to both individual and business customers. Savings account balances balances increased $3,140$1,707 impacted mostly by the Company’s statement savings account product.

Other borrowed funds were $43,529 $41,822 at MarchJune 31,30, 2026, a decrease of $1,319,$3,026, or 2.9%,6.7%, from year-end 2025. The decrease was related to the scheduled principal amortization for applicable FHLB advances. While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize various wholesale funding sources to help manage interest rate sensitivity and liquidity.

Total shareholders' equity at March 31,June 30, 2026 increased $1,023,$3,129, or 0.6%,1.8%, to finish at $171,280,$173,386, as compared to $170,257 at December 31, 2025. This was primarily from year-to-date net income partially offset by cash dividends paid and a decrease in accumulated other comprehensive income. The decrease in accumulated other comprehensive income was related to the $2,190,$1,833, net of tax, market depreciation of AFS securities due to an increase in market interest rates.

For the Three and Six Months Ended

MarchJune 31,30, 2026 and 2025

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three and six months ended March 31,June 30, 2026, compared to the same period in 2025. This discussion should be read in conjunction with the interim consolidated financial statements and the notes included in this Form 10‑Q.

The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense incurred on interest-bearing liabilities. During the three and six months ended MarchJune 31,30, 2026, net interest income increased $1,748,$863, or 13.3%,5.9%, and $2,611, or 9.4%, compared to the same period periods in 2025.2025, respectively. The quarterly improvementand year-to-date improvements during 2026 came from average earning asset growthgrowth, andpartially offset by a decrease in the net interest margin. The averageAverage asset growth was impacted primarily by a composition shift into higher-yielding loans whichand contributedinterest-bearing todeposits with banks, while the margin improvement,fell combinedas withour afunding decreaseexpenses inoutpaced the average costreturns on our CDsearning that helped minimize the higher average costs paid on deposits and borrowings.assets.

Total interest and fee income recognized on the Company’s earning assets increased $2,709,$2,439, or 16.2%,11.6%, during the firstsecond quarter of 2026, and $5,114, or 12.5%, during the six months ended June 30, 2026, compared to the same period periods in 2025. The earnings growth was impacted by interest on loans, which increased $2,737,$1,995, or 17.3%,11.6%, and $4,732, or 14.3%, during the three and six months ended June 30, 2026, compared to the same periodperiods in 2025. This improvement was mostly impacted by increases in both average loan balancesbalances, which increased $156,821 during the second quarter of 2026 and loan yields. Overall, average loans increased $146,436$151,658 during the first quarterhalf of 2026,2026. Balance increases came primarily from the commercial and residential real estate loan portfolios due to higher commercial loan volume and a consumer preference for short-term, variable rate residential real estate loans. LoanThe effects of average loan growth on revenue improvement alsowere camepartially fromoffset by average loan yields increasingdecreasing 1221 basis points to 6.65%6.61% during the second quarter of 2026 and decreasing 5 basis points to 6.63% during the first quarterhalf of 2026, compared to the same periodperiods in 2025. The loan yield increasedecreases wascame mostlyprimarily impacted byfrom the income recognition of an $817 market discount on one purchased commercial and residential real estate industrial loan portfolios.that paid off during the second quarter of 2025. While the market discount benefited loan yields in 2025, the Company recognized no market discount income on purchased loans during the same periods in 2026, causing loan yields to decrease. At June 30, 2026, the Company had one purchased commercial and industrial loan remaining with an unrecognized market discount of $1,052.

Total interest income from interest-bearing deposits with banks decreasedincreased $244,$327, or 29.5%,51.2%, during the second quarter of 2026, and increased $83, or 5.7%, during the first quarterhalf of 2026, compared to the same period periods in 2025. This was largely from average balance decreasesincreases with the Company’s interest-bearing FRB clearing account, which decreasedincreased $11,360$44,629 and $16,789 during the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025. Balances in the FRB clearing balancesaccount wereincreased used primarily from interest-bearing deposit growth and net proceeds from securities, which provided more than enough FRB clearing deposits to assisthelp in fundingfund loan growth, which contributed to the average balance decrease of FRB fundsgrowth during 2026. Further impacting lower interest Interest income from the FRB clearing account werewas negatively impacted by short-term rate decreases during 2025. Between September and December 2025, the FRB took action to reduce the rate associated with the FRB clearing account by 75 basis points due to inflationary pressures, which lowered the target federal funds rate to a range of 3.50% to 3.75% going into 2026. These decreases in interest rates had a negative impact on the FRB clearing account’s interest earnings during the firstthree and quartersix ofmonths ended June 30, 2026.

Total interest expense incurred on the Company’s interest-bearing liabilities increased $927,$1,576, or 13.9%,24.2%, during the second quarter of 2026, and $2,503, or 19.0%, during the first quarterhalf of 2026, compared to the same periodperiods in 2025. The increaseincreases waswere impacted by a $100,539, or 10.2%, increase in average interest-bearing liability liabilities,growth during both periods, coming mostly from higher time, savings, and money market deposit balances. The increase in time deposit balances was impacted by the Company’s strategy to raise additional retail deposits during the first quarter of 2026 by offering special CD rate offerings during that time.offerings. The increase in savings and money market account balances were mostly impacted by deposit growth within the Company’s tiered money market product (Money Fund) that offered competitive rates rates.to both individual and business customers. These increases were partially offset by a decrease in average NOW account balances, which came largely from lower public fund balances from a year ago.

The growth in interest expense from higher average interest-bearing liabilities was further impacted by a higher average cost on average interest-bearing liabilities during 2026. The average rates on the Company’s savings, NOW, and money market balances increased 716 basis points to 1.47% 1.57% during the second quarter of 2026, and increased 12 basis points during the first quarterhalf of 2026, as product rates on tiered money market accounts adjusted upward, while public fund NOW account balances shifted to a new higher-costing cash sweep product offered by the Bank. While product rates on various savings, NOW, and money market products increased, the Company experienced a decrease in the weighted average cost of its time deposit balances. Prior to 2025, market competition for deposits had resulted in higher rates on short-term CD offerings. Since then, product rates on retail CDs have decreased during 2025 and into 2026. The Company’s strategy to fund loan growth by raising additional retail deposits through special CD rate offerings was in effect during the second half of 2025. This has allowed a large portion of these short-term retail CDs to renew at lower rates during the firstthree quarterand ofsix months ended June 30, 2026. As a result of the rate repricings on retail CDs, the average cost associated with time deposits decreased by 3016 basis points to 4.04%3.96% during the second quarter of 2026 and decreased 23 basis points to 4.00% during the first three monthshalf of 2026, compared to the same periodperiods in 2025. This helped to reduce the expense impacts of higher average deposit balances, and the average rate increases in specific savings, NOW and money market products.

Provision for credit losses is recorded to achieve an ACL that is adequate to absorb estimated losses inherent in the Company’s loan portfolio, unfunded loans, and HTM debt securities. Management performs, on a quarterly basis, a detailed analysis of the ACL that encompasses asset portfolio composition, asset quality, loss experience and other relevant economic factors. For the three months ended March 31,June 30, 2026, the Company’s provision for credit losses expense totaled $3,755, an increase of $2,607 over the three months ended June 30, 2025. For the six months ended June 30, 2026, the Company’s provision for credit losses expense totaled $1,622,$5,377, an increase of $1,206$3,813 over the threesix months ended MarchJune 31,30, 2025.

The increases in provision for credit loss expense forduring theboth firstperiods quarter of 2026 waswere primarily related to the establishment of a specific allocationallocations oftotaling $2,031$4,531 and $6,561 during the three and six months ended June 30, 2026 on two commercial loan relationships that were deemed to be collateral dependent. In addition, provision for credit loss expense was required to cover net charge-offs of $278 and higher general reserves for the $18,796 increase in loans sinceduring December 31, 2025.2026. These increases in reserves were partially offset by the improvements in certain qualitative risk factors that contributed to a $1,234 decrease in reserves during the second quarter of 2026, and a $2,242 decrease in reserves during the first half of 2026, compared to the same periods in 2025. Factors contributing to lower qualitative risk included improved portfolio terms, such as reduced exposure to variable rate loans repricing higher and a positive net charge-off trend for consumer loans due to exiting indirect lending, along with improvedlower generalmodeled economicloss conditions.rates in relation to the improvement in unemployment projections. The Company also experienced less net charge-offs, which contributed to a $168 and $315 decrease in provision expense during the three and six months ended June 30, 2026.

Credit loss expense during the quarter2026 was also impacted by unfunded commitments on off-balance sheet liabilities, which decreased $20$175 and $195 during the first quarterthree and ofsix months ended June 30, 2026, compared to the same periodperiods in 2025. The impact came mostly from lower loss rates on commercial lines during both the first quarter of 2026.periods.

Noninterest expense increased $483,$196, or 4.5%,1.8%, during the three months ended MarchJune 31,30, 2026, and increased $679, or 3.1%, during the six months ended June 30, 2026, compared to the same periodperiods in 2025. TheContributing most to the increase was the Company’s largest noninterest expense, salaries and employee benefits, which increased $335,$359, or 5.6%,5.8%, during the three months ended June 30, 2026, and $694, or 5.7%, during the six months ended MarchJune 31, 30, 2026, compared to the same periodperiods in 2025. The expense increase was primarily related to annual merit increases and tohigher health insurance premiums.