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

A discussion and analysis of the Company’s operating results and financial condition are presented in the following narrative and financial tables. TheThis commentsdiscussion areis intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 31 through 7069 of this Annual Report. References to changes in assets and liabilities represent end-of-period balances unless otherwise noted. Statements contained in this Annual Report, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Amounts herein could vary because of market and other factors. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents periodically filed by the Company with the SEC. Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “might,” “planned,” “estimated,” “potential,” and similar words. Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, expected or anticipated revenue, results of operations and business of the Company that are subject to various factors, which could cause actual results to differ materially from these estimates. These factors include, but are not limited to: increases in our past due loans and provision for credit losses that may result from local and/or broader economic effects, including the impacts of inflation and constraints on the availability of credit that may impact our borrowers; declines in general economic conditions, including increased stress in the financial markets; changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services. Any use of “we” or “our” in the following discussion refers to the Company on a consolidated basis.

The Company’s total assets increased $56.2$67.5 million from $1.07 billion at December 31, 2023 to $1.13 billion at December 31, 2024.2024 to $1.20 billion at December 31, 2025. Cash and cash equivalents decreasedincreased $11.2$21.1 million during the same period as thea Companyresult utilized the cash and cash equivalents to fundof growth of 12.6% in thecustomer loans held for its investment portfolio.deposits.

Investment securities consist of securities available for sale and securities held to maturity. Total investment securities decreasedincreased $5.5$20.0 million, or 1.5%,5.5%, from $365.3 million at December 31, 2023 to $359.7 million at December 31, 2024.2024 to $379.7 million at December 31, 2025. At December 31, 2024,2025, the Company had net unrealized losses on securities available for sale of $32.1$21.5 million, compared to net unrealized losses of $32.6$32.1 million at December 31, 2023.2024. The allowance for credit losses on securities held to maturity was $56,000$68,000 at December 31, 2023.2024. During 2024,2025, a provisionrecovery of $12,000$23,000 was recorded against the allowance for credit losses on securities held to maturity bringing the balance to $68,000,$45,000, with an amortized cost basis of $26.7$22.0 million, at December 31, 2024.2025.

During 2024,2025, the unrealized gain on equity securities increaseddecreased by $32,000,$31,000, resulting in a fair value of $303,000 at December 31, 2025, compared to a fair value of $334,000 at December 31, 2024, compared to a fair value of $302,000 at December 31, 2023.2024.

Loans held for sale decreasedincreased $134,000$4.5 million from December 31, 20232024 to $4.6$9.0 million at December 31, 2024.2025. Loans held for investment increased $74.3$23.2 million, or 12.6%,3.5%, from $592.1 million at December 31, 2023 to $666.4 million at December 31, 2024.2024 to $689.6 million at December 31, 2025. The Company experienced net growth in all loan sectors with the exception of loans categorized as “ConsumerReal Estate 1-4 Family Construction,” “Consumer,” and “Commercial - Other”.

The allowance for credit losses on loans was $5.6$5.8 million at December 31, 2023,2024, which represented 0.94%0.87% of the total loans held for investment. At December 31, 2024,2025, the allowance for credit losses on loans was $5.8$6.4 million, or 0.87%0.93% of total loans held for investment. Additional discussion regarding the allowance is included in the Asset Quality section below.

Customer deposits, our primary funding source, experienced a $48.5$50.5 million increase during the year, increasing from $981.7$1.03 millionbillion to $1.03$1.08 billion at December 31, 2024,2025, a 4.9% increase. OrganicThe deposit growth, combined with promotional time deposit offerings, contributed to theoverall increase in totaldeposits deposits.is attributable to organic deposit growth. During 2024,2025, demand noninterest-bearing checking accounts increaseddecreased $2.4$2.8 million,million and time deposits increased $76.6 million as customers took advantage of higher rates offered on promotional time deposit products. Interestinterest checking and money market accounts decreasedincreased $22.2$26.3 million. Savings deposits increased $12.1 million and savingstime deposits decreasedincreased $8.2$14.9 million during the twelve-month period ended December 31, 2024. The decrease in interest checking, money market and savings accounts is primarily related to the movement of funds into the Company’s higher yielding time deposits.2025.

During 2024, the Company’s net borrowings increased by $92,000. Borrowings consist of both short-term and long-term borrowed funds. The Company has access to both short-term and long-term advances from the Federal Home Loan Bank. At December 31, 20242025 and 2023,2024, there were no outstanding Federal Home Loan Bank advances. During 2025, the Company’s net borrowings decreased by $1.5 million due to the closing of a master note account that carried a balance of $1.1 million. Short-term borrowings consisted of $1.4 million$25,000 in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.2$29.0 million, net of unamortized debt issuance costs of $231,000,$154,000, at December 31, 2024.2025.

Other changes in the Company’s liabilities are related to aan decreaseincrease of $348,000$558,000 in other liabilities from December 31, 20232024 to December 31, 20242025 resulting primarily from aan reductionincrease in theSERP reservebalances, which increased $855,000 for federalthe incomeyear. taxThis payable.increase was largely offset by a decrease of $428,000 in lease liability as leases approach expiration.

At December 31, 2024,2025, total shareholders’ equity was $57.7$75.6 million, an increase of $8.2$17.9 million from December 31, 2023.2024. Net income for the year ended December 31, 20242025 was $9.9$11.4 million. Improvement in the unrealized loss position on our available for sale securities portfolio contributed $373,000$8.2 million to the increase in shareholders'shareholders’ equity during the same period. During the twelve-month period ended December 31, 2024,2025, the Company repurchased 184,478110,939 shares of common stock at a total cost of $1.5$1.1 million, and the Company paid $566,000$565,000 in dividends attributable to noncontrolling interest. See Note 1 (Significant Accounting Policies) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest. At December 31, 2024,2025, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.

Uwharrie Capital Corp reported net income of $11.4 million for the twelve months ended December 31, 2025, compared to $9.9 million for the twelve months ended December 31, 2024, compared to $8.6 million for the twelve months ended December 31, 2023, an increase of $1.3$1.4 million. Net income available to common shareholders was $9.3$10.8 million, or $1.30$1.49 per common share, for the year ended December 31, 2024,2025, compared to net income available to common shareholders of $8.0$9.3 million, or $1.09$1.26 per common share, for the sameyear periodended inDecember 2023.31, 2024. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.

Net interest income increased $3.2$2.9 million to a total of $35.9$38.9 million for the twelve months ended December 31, 20242025 from the $32.7$35.9 million reported for the comparative period in 2023.2024. The average yield on our interest-earning assets increased 504 basis points to 5.15%,5.19%, while the average rate paid for interest-bearing liabilities increaseddecreased 6210 basis points to 2.43%.2.33%. These changes resulted in a net decreaseincrease of 1113 basis points in our interest rate spread, from 2.84% in 2023 to 2.73% in 2024.2024 to 2.86% in 2025. Our net interest margin for 20242025 was 3.40%,3.50%, compared to 3.34%3.40% in 2023.2024. As a part of the loan agreements, a portion of the Company’s loan portfolio has interest rate floors and caps. The interest rate floor feature allows the Company to maintain a more favorable interest margin despite a decline in rates; however, the interest rate cap could hurt the margin in a rising rate environment. Financial Table 1 presents a detailed analysis of the components of the Company’s net interest income, while Financial Table 2 summarizes the effects on net interest income from changes in interest rates and in the dollar volume of the components of interest-earning assets and interest-bearing liabilities. Financial Table 1 and Table 2, as well other Financial Tables referenced here appear at the end of this discussion and analysis.

The net provision for credit losses was $528,000$726,000 for the twelve months ended December 31, 2024,2025, compared to a net provision of $1.5 million$528,000 for the same period in 2023.2024. There were net loan charge-offs of $270,000$160,000 for the twelve months ended December 31, 2024,2025, as compared to net loan charge-offs of $631,000$270,000 during the same period of 2023.2024. Refer to the Asset Quality section below for further information.

The Company generates most of its revenue from net interest income; however, diversification of our revenue sources is a key strategic initiative to our long-term success. Noninterest income increased 2.8%,15.6%, from $9.5 million in 2023, to $9.7 million in 2024, to $11.3 million in 2025, an increase of $268,000.$1.5 million. This improvement is primarily related to positivean increase of $1.1 million in income from mortgage banking, driven by increased mortgage production during 2025. Positive market value adjustments on supplemental executive retirement plans totaling $428,000$293,000 and an increase of $360,000$325,000 in other service fees and commissions.commissions Thesealso increasescontributed wereto offsetthe byoverall a decrease in income from mortgage banking of $378,000.increase.

Noninterest expense for the year ended December 31, 20242025 was $32.4$34.8 million compared to $29.9$32.4 million for 2023,2024, an increase of $2.5$2.4 million. Salaries and employee benefits, the largest component of noninterest expense, increased $1.5$1.6 millionmillion, from $19.3$20.8 million for the periodtwelve endingmonths ended December 31, 20232024 to $20.8$22.4 million for 2024the twelve months ended December 31, 2025 due to salarywage increases and more commissions paid on increasedgreater mortgage production during the 2024 period.2025. Additionally, positive market value adjustments on supplemental executive retirement plans contributed $428,000$293,000 to the increase in noninterest expense. Financial Table 5 reflects the additional breakdown of other noninterest expense.

The Company had income tax expense of $3.3 million for 2025 at an effective tax rate of 22.26% compared to income tax expense of $2.9 million for 2024 at an effective tax rate of 22.35% compared to income tax expense of $2.2 million in 2023 with an effective tax rate of 20.14%.22.35%. The year-over-year increasedecrease in the effective tax rate is due, in part, to a $63,000$44,000 charge to income tax expense during 2025, compared to a charge of $63,000 during the twelve-month period ended December 31, 2024, as a result of revaluing the North Carolina deferred tax asset for unrealized losses on the available for sale securities portfolio. Income taxes computed at the statutory rate are affected primarily by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank owned life insurance.

ThePreviously, the Company individually reviewsreviewed loans with total relationship exposure greater than or equal to $100,000 that aredo not share the same risk characteristics as other loans and were determined to be collateral dependent. TheseBeginning in the last quarter of 2025, the Company expanded its individual review process to include loans that do not share the same risk characteristics as loans in the collectively assessed population, regardless of collateral dependence. Individually assessed loans determined to be collateral dependent loans are evaluated based on the fair value of the underlying collateralcollateral, as repayment of the loan is expected to be madederived through the operation or sale of the collateral. Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are basedmeasured onusing the fair value of collateral at the reporting datedate, adjusted for selling costs as appropriate. Loans that are not deemed collateral dependent are assigned a probability of default based on default history. If the loan has defaulted, it will be assigned a 100% probability of default; otherwise, it will be assigned a probability of default based on the Company’s historical experience, which is higher than the forecasted probability of default applied in the collectively assessed portfolio. This evaluation is inherently subjective, as it requires material estimates, including internal and external appraisal services. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit losses on loans and may require additions for estimated losses based upon judgments different from those of management.

At December 31, 2025, the level of our individually evaluated loans was $5.0 million, and the allowance for credit losses related to individually evaluated loans was $179,000. The allowance, expressed as a percentage of gross loans held for investment, decreasedincreased sevensix basis points from 0.94% at December 31, 2023 to 0.87% at December 31, 2024.2024 to 0.93% at December 31, 2025. During the second quarter of 2025, the Company implemented a change in estimate of the allowance model which altered the allocation of these percentages between the collectively assessed population and qualitative factors. The collectively assessed portion decreased from 0.75% at December 31, 2024 to 0.53% at December 31, 2025, and the qualitative factors portion increased from 0.12% to 0.40% over the same period. The ratio of nonaccrual loans to total loans decreasedincreased from 0.19% at December 31, 2023 to 0.03% at December 31, 2024,2024 to 0.05% at December 31, 2025, and was related to the $909,000$185,000 decreaseincrease in nonaccrual loans. SixFour loans totaling $847,000$360,000 were converted to nonaccrual during 2024.2025. These additions were offset by paydowns of $23,000,$46,000, six loans totaling $1.4 million that were paid off, threetwo loans that were charged off for $309,000,$88,000, and one loan oftotaling $16,000$40,000 that was removedmoved fromto nonaccrualother status.real estate owned and the underlying collateral was subsequently sold.

The phase-in period for the rules became effective for the Company and its subsidiary bank on January 1, 2015, with full compliance of all the rules’ requirements phased in over a multi-year schedule, becoming fully phased-in on January 1, 2019. Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is exempt from Basel III. As of December 31, 2024,2025, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules.

The Board of Directors of Uwharrie Capital Corp declared a 3.0% stock dividend in 2025 and a 2.0% stock dividend in 2024 and 2023 and a 2.5% stock dividend in 2022.2023. All references in this Annual Report to net income per share and weighted average common and common equivalent shares outstanding reflect the effects of these stock dividends.

The objective of the Company’s liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise. Liquidity is managed primarily by the selection of asset mix and the maturity mix of liabilities. The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flowflows generated by investments. Maturities and the marketability of securities provide a source of liquidity to meet deposit fluctuations. Maturities of the securities portfolio are presented in Financial Table 3. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 38.8%40.5% and 36.5%38.8% of total deposits at December 31, 20242025 and 2023,2024, respectively.

At December 31, 2024,2025, short-term borrowings totaled $1.4 million.$25,000. Long-term debt at that date consisted solely of $29.2$29.0 million of junior subordinated debt, net of issuance costs. Other contractual obligations of the Company exist in the form of operating leases and deposits. Obligations for operating leases and deposits totaled $1.2 million$768,000 and $1.0$1.1 billion, respectively, at December 31, 2024.2025. Note 7 (Leases) and Note 8 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.

On a regular basis, the allowance for credit losses is evaluated both individually and collectively by loan segments. The Company measures expected credit losses for loans on a collective basis when similar risk characteristics exist. However, loans with total relationship exposure greater than or equal to $100,000 that aredo determinednot toshare bethe collateralsame dependentrisk characteristics as loans in the collectively assessed population are individually reviewed. Appropriately dividing the loan portfolio into different segments with similar risk characteristics aids in providing a more accurate estimation of the portfolio’s expected credit losses. The Company’s methodology for estimating lifetime credit losses is well documented and supported by internal controls, and validation of the process is performed on a recurring basis.

The Company models immediate rising and declining rate shocks of up to 4% (in 1% intervals) on its subsidiary bank, using a static balance sheet for a two-year horizon, as preferred by regulators. The most recent consolidated 2% rate shock projections for a one-year horizon,horizon indicates a negative impact of (0.43%)9.19% on Margin in a rates-down scenario and a negativepositive impact of (3.40%) on Margin0.92% in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is liability-sensitivemore asset-sensitive and may experience some negative impact to earnings should interest rates increase.decrease. The Bank has the potential to benefit from aan decliningincreasing interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the potential benefit.

The principal goals for asset liability management for the Company are to maintain adequate levels and sources of liquidity and to manage interest rate risk. Interest rate risk management attempts to balance the effects of interest rate changes on both interest-sensitive assets and interest-sensitive liabilities to protect Margin from wide fluctuations as a result of changes in market interest rates. To that end, management has recommended and the Board of Directors has approved policy limits that minimize the downside risk from interest rate shifts. The aforementioned ratios are within those stated limits of -18% for the respective modeled scenarios at the subsidiary bank and combined. Managing interest rate risk is an important factor to the long-term viability of the Company since Margin is such a large component of earnings. The Company’s Asset Liability Management Committee (ALCO) monitors market changes in interest rates and assists with the pricing of loans and deposit products while considering the funding source needs, asset growth projections, and necessary operating liquidity.

Comparison of Financial Condition at MarchJune 31,30, 2026 and December 31, 2025.

During the threesix months ended MarchJune 31,30, 2026, the Company’s total assets increased by $52.9$25.8 million, from $1.20 billion to $1.25$1.22 billion. Cash and cash equivalents increased by $42.9$18.4 million during the threesix months ended MarchJune 31,30, 2026, from $73.3 million to $116.2$91.7 million. The increase in cash and cash equivalents is the result of growth in deposits.

Investment securities consist of securities available for sale and securities held to maturity. For the three-monthsix-month period ended MarchJune 31,30, 2026, investment securities increased by $9.1$2.0 million from $379.7 million at December 31, 2025 to $388.8$381.7 million at MarchJune 31,30, 2026. At MarchJune 31,30, 2026, the Company had net unrealized losses on securities available for sale of $23.7$22.3 million, compared to net unrealized losses of $21.5 million at December 31, 2025, a deterioration of $2.2 million.$722,000. The allowance for credit losses on securities held to maturity was $45,000$44,000 at MarchJune 31,30, 2026 and $45,000 at December 31, 2025. The amortized cost basis of securities held to maturity totaledwas $22.0 million at Marchboth 31,June 30, 2026 and December 31, 2025, respectively.2025.

Loans held for sale increaseddecreased by $2.3$1.2 million from December 31, 2025 to $11.3$7.8 million at MarchJune 31,30, 2026. Loans held for investment decreasedincreased from $689.6 million at December 31, 2025 to $686.0$692.2 million at MarchJune 31,30, 2026, aan decreaseincrease of $3.6$2.7 million. The Company experienced a net decreaseincrease in all loan sectors with the exception of commercialreal constructionestate loanscommercial, real estate residential, and residential constructionconsumer loans.

The allowance for credit losses on loans was $6.4$6.0 million at MarchJune 31,30, 2026, which represented 0.86% of total loans held for investment, compared to $6.4 million, or 0.93% of total loans held for investment, at March 31, 2026 and December 31, 2025. Additional discussion regarding the allowance is included in the Asset Quality section below.

Other changes in the Company’s consolidated assets are primarily related to deferredpremises taxand assets,equipment, which increased by $471,000$2.0 million from $6.8$14.7 million at December 31, 2025 to $7.3$16.7 million at MarchJune 31, 2026 as a result of the decline in fair value of the available for sale securities portfolio. Premises and equipment increased by $907,000 from $14.7 million as of December 31, 2025 to $15.6 million at March 31,30, 2026 related to construction expenses for a new branch in Mount Pleasant, North Carolina, which will replace the currently leased branch location. MortgageOther banking derivativesassets increased by $357,000$628,000 during the first threesix months ofended June 30, 2026, primarily relateddue to a $232,000$392,000 increase in thesupplemental valueexecutive ofretirement TBAs.plan The(“SERP”) valueaccount ofbalances, IRLCsdriven appreciatedby $167,000annual duringCompany contributions and favorable market performance. In addition, the three-monthCompany’s periodinvestment endedin Marcha 31,Small 2026Business asInvestment theCompany notional amount of the mortgage pipeline(“SBIC”) increased $21.8by million.$266,000.

Customer deposits, our primary funding source, experienced agrowth $50.6of $18.3 million increase during the three-monthsix-month period ended MarchJune 31,30, 2026, increasing from $1.08 billion to $1.13$1.10 billion. The overall increase in deposits is attributable to organic deposit growth. Demand noninterest-bearing checking accounts increased $29.6by $25.7 million andwhile interest checking and money market accounts increaseddeclined $7.6by $8.5 million during the three-monthsix-month period ended MarchJune 31,30, 2026. Savings deposits increased $9.1by $10.3 million and time deposits increaseddecreased $4.4by $9.3 million during the threesame months ended March 31, 2026.period.

Total short-term borrowings increased by $141,000$203,000 for the three-monthsix-month period ended MarchJune 31,30, 2026. At MarchJune 31,30, 2026, the Company had $29.1$30.1 million in long-term debt outstanding, $29.1 million of which consists solely of its junior subordinated debt securities, net of unamortized debt issuance costs. During the third quarter of 2019, the Company issued $10.0 million in subordinated debt securities with a final maturity date of September 30, 2029 that became redeemable by the Company on September 30, 2024. This junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. During the third quarter of 2021, the Company issued $12.0 million and $8.0 million of 10-year and 15-year fixed-to-floating rate subordinated debt securities, respectively. The 10-year subordinated notes mature on September 3, 2031, though they are redeemable at the Company’s option on or after September 3, 2026, and initially pay interest quarterly at an annual rate of 3.5%. From and including September 3, 2026 to but excluding September 3, 2031, or up to any early redemption date, the interest rate on the 10-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month secured overnight financing rate (“SOFR”), plus 283 basis points payable quarterly in arrears. The 15-year subordinated notes mature on September 3, 2036, though they are redeemable at the Company’s option on or after September 3, 2031, and initially pay interest quarterly at an annual rate of 4.0%. From and including September 3, 2031 to but excluding September 3, 2036, or up to any early redemption date, the interest rate on the 15-year subordinated notes will reset quarterly to an annual rate equal to the then-current three-month SOFR plus 292 basis points payable quarterly in arrears. The subordinated debt has been structured to qualify as and is included in the calculation of the Company’s Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. Of the subordinated debt that remains outstanding at MarchJune 31,30, 2026, $25.4$25.3 million qualifies as Tier 2 capital. The Company also hasmaintains a $3.0 million line of creditcredit, of which $3.0$1.0 million was available to useoutstanding at MarchJune 31,30, 2026.

Other changes in the Company’s liabilities are related to an increase of $1.0 million$760,000 in other liabilities from December 31, 2025 to MarchJune 31,30, 2026 resulting primarily from accrual of reserves for payables due throughout 2026.

At MarchJune 31,30, 2026, total shareholders’ equity was $76.7$81.1 million, an increase of $1.1$5.5 million from December 31, 2025. Net income for the three-monthsix-month period ended MarchJune 31,30, 2026 was $3.2$7.1 million, which positively contributed to shareholders’ equity. During the threesix months ended MarchJune 31,30, 2026, the Company repurchased 25,61268,263 shares of common stock at a total cost of $274,000,$765,000, and the Company paid $139,000$280,000 in dividends attributable to noncontrolling interest. See Note 3 ("“Noncontrolling Interest"”) to the Company’s Notes to Consolidated Financial Statements for additional discussion of the noncontrolling interest.

Results of Operations for the Three Months Ended MarchJune 31,30, 2026 and 2025.

Uwharrie Capital Corp reported net income of $3.2$3.9 million for the three months ended MarchJune 31,30, 2026, compared to $2.6$2.8 million for the three months ended MarchJune 31,30, 2025. Net income available to common shareholders was $3.1$3.8 million, or $0.43$0.53 per common share, for the three months ended MarchJune 31,30, 2026, compared to $2.4$2.7 million, or $0.33$0.37 per common share, for the three months ended MarchJune 31,30, 2025. Net income available to common shareholders is net income less dividends on the aforementioned noncontrolling interest.

Net interest income for the three months ended MarchJune 31,30, 2026 was $9.8$10.2 million, a $660,000$455,000 increase from the $9.1$9.7 million reported for the comparative period in 2025. During the firstsecond three monthsquarter of 2026, the average yield on our interest-earning assets decreased by 510 basis points to 5.07%5.12% from the same period in 2025, and the average rate we paid for our interest-bearing liabilities decreased 9 basis points to 2.27%.2.22%. These changes resulted in an interest rate spread of 2.81%2.90% as of MarchJune 31,30, 2026, compared to 2.77%2.91% as of MarchJune 31,30, 2025. The Company’s net interest margin was 3.42%3.52% and 3.39%3.56% for the comparable periods in 2026 and 2025, respectively.

The following table presents average balance sheet and a net interest income analysis for the three months ended MarchJune 31,30, 2026 and 2025, respectively:

The Company recorded a $62,000$424,000 recovery of credit losses for the three months ended MarchJune 31,30, 2026, compared to a provision of $281,000$254,000 for the same period in 2025. There were net loan recoveriescharge-offs of $61,000$8,000 for the three months ended MarchJune 31,30, 2026, as compared to net loan charge-offs of $47,000$76,000 during the same period of 2025. Refer to the Asset Quality section below for further information.

Noninterest expense for the three months ended MarchJune 31,30, 2026 increased by $767,000$683,000 compared to the same period in 2025. Salaries and benefits, the largest component of noninterest expense, increased by $462,000$262,000 due to wagehigher wages and benefit increases and increased commissions related to higher mortgage productioncosts during the firstthree quartermonths ended June 30, 2026. Marketing and donations expense increased by $307,000 during the same period, primarily due to the timing of 2026.several large donations.

Total other noninterest expense increased by $169,000$23,000 for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The table below reflects the composition of other noninterest expense for the referenced periods.

The Company had income tax expense of $875,000$1.1 million for the three months ended MarchJune 31,30, 2026 at an effective tax rate of 21.4%21.6% compared to income tax expense of $723,000$757,000 with an effective tax rate of 22.1%21.1% in the comparable 2025 period. The decreaseincrease in the effective tax rate isreflects relatednormal toperiod-to-period an increase in tax exempt income during the first quarter of 2026.fluctuations. Income taxes computed at the statutory rate are primarily affected by the state income tax expense offset by the eligible amount of interest earned on state and municipal securities, tax-free municipal loans and income earned on bank-owned life insurance.

At MarchJune 31,30, 2026, the level of our individually evaluated loans was $5.2$4.0 million, and the allowance for credit losses related to individually evaluated loans was $308,000.$552,000. The allowance, expressed as a percentage of gross loans held for investment, was 0.86 % and 0.93% at June 30, 2026 and December 31, 20252025, and March 31, 2026.respectively. The ratio of nonaccrual loans to total loans increased from 0.05% at December 31, 2025 to 0.06%0.11% at MarchJune 31,30, 2026, and was related to the $38,000$393,000 increase in nonaccrual loans. OneSeven loanloans totaling $50,000$468,000 waswere converted to nonaccrual during the first threesix months of 2026, offset by a $50,000 charge-off and paydowns of $12,000.$25,000.

The Company did not hold any other real estate owned at MarchJune 31,30, 2026 and December 31, 2025.

As of MarchJune 31,30, 2026, management believed the level of the allowance for credit losses on loans was appropriate in light of the risk inherent in the loan portfolio. While management believes that it uses the best information available to establish the allowance for credit losses on loans, future adjustments may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance in conformity with GAAP, there can be no assurance that banking regulators, in reviewing the Company’s loan portfolio, will not require an adjustment to the allowance for credit losses on loans. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance is adequate or that increases will not be necessary, should the quality of any loans deteriorate because of the factors discussed herein. Any material increase in the allowance for credit losses on loans may adversely affect the Company’s financial condition, results of operations and the value of its securities.

The following table shows the comparison of nonperforming assets at MarchJune 31,30, 2026 and December 31, 2025:

The Company’s primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flows generated by investments. Growth in deposits is typically the primary source of funds for loan growth. Estimated uninsured deposits, including deposits collateralized by pledged assets, represented 41.9%40.6% and 40.5% of total deposits at MarchJune 31,30, 2026 and December 31, 2025, respectively. The Company and its subsidiary bank have multiple funding sources, in addition to deposits, that can be used to increase liquidity and provide additional financial flexibility. At MarchJune 31,30, 2026, these sources were the subsidiary bank’s established federal funds lines with correspondent banks aggregating $38.0 million, with available credit of $38.0 million; an established borrowing relationship with the FHLB, with available credit of $183.6$177.5 million; and access to borrowings from the FRB discount window, with available credit of $28.6$35.2 million. The Company also has a $3.0 million line of credit with TIB The Independent BankersBank, N.A. The line is held by the holding company and is secured with 100% of the outstanding common shares of the Company’s subsidiary bank. As of MarchJune 31,30, 2026, $3.0$2.0 million remained available for use on the line of credit.

The Company continues to maintain capital ratios that support its asset growth. The federal bank regulatory agencies have implemented regulatory capital rules known as “Basel III.” The Basel III rules require a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%, a minimum ratio of total capital to risk-weighted assets of 8.00%, and a minimum Tier 1 leverage ratio of 4.00%. There is also a capital conservation buffer that requires banks to hold common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5% to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees. The Company’s accumulated other comprehensive income or loss, resulting from unrealized gains and losses, net of income tax, on investment securities available for sale, is excluded from regulatory capital. As of MarchJune 31,30, 2026, the Company’s subsidiary bank continued to exceed minimum capital standards and remained well-capitalized under the applicable rules.

The Company’s subsidiary bank has a net total of $10.7 million in outstanding Fixed Rate Noncumulative Perpetual Preferred Stock. The preferred stock qualifies as Tier 1 capital at the Bank and pays dividends at an annual rate of 5.30%. The net total of $10.7 million is presented as noncontrolling interest at the Company level and qualifies as Tier 1 capital at the Company. At MarchJune 31,30, 2026, the Company had $29.1 million, net of unamortized debt issuance costs of $135,000,$115,000, in subordinated debt outstanding, of which $25.4$25.3 million qualifies as Tier 2 capital at the Company level. The Company has made all interest and dividend payments in a timely manner.

Derivative financial instruments include futures contracts, forward contracts, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through MarchJune 31,30, 2026, with the exception of mortgage banking derivatives. See Note 12 ("“Mortgage Banking Derivatives"”) to the Company’s Notes to Consolidated Financial Statements for additional discussion of mortgage banking derivatives.