FIRST KEYSTONE CORP

Quarter ended June 30, 2026 compared to quarter ended June 30, 2025

First Keystone Corporation realized earnings for the three months ended June 30, 2026 of $3,777,000, an increase of $863,000 from the second quarter of 2025. The increase in net income for the three months ended June 30, 2026 was primarily due to increased interest on excess cash balances held at the Federal Reserve.

On a per share basis, for the three months ended June 30, 2026, net income was $0.60 compared to earnings of $0.47 per share for the same three month period of 2025. Quarterly regular cash dividends amounted to $0.28 per share for the three months ended June 30, 2026 and 2025.

NET INTEREST INCOME

The major source of operating income for the Company is net interest income, defined as interest and loan fee income less interest expense. In the three months ended June 30, 2026, interest income amounted to $19,976,000, an increase of $1,092,000 or 5.8% from the three months ended June 30, 2025, while interest expense amounted to $9,660,000 in the three months ended June 30, 2026, an increase of $281,000 or 3.0% from the three months ended June 30, 2025. As a result, net interest income increased $811,000 or 8.5% to $10,316,000 from $9,505,000 for the same period in 2025.

The Company’s net interest margin for the three months ended June 30, 2026 was 2.77% compared to 2.78% for the same period in 2025. The decrease in net interest margin was primarily a result of increased interest on deposits and subordinated debt.

PROVISION FOR CREDIT LOSSES

The provision for credit losses for the three months ended June 30, 2026, carried a recovery balance of $299,000, compared to a recovery balance of $237,000 for the three months ended June 30, 2025. The decrease in the provision for credit losses resulted from the Company’s analysis of the current loan portfolio, including historic losses, past-due trends, current economic conditions, loan portfolio growth, and other relevant factors. Charge-off and recovery activity in the allowance for credit losses resulted in net recoveries of $40,000 and net charge-offs of $69,000 for the three months ended June 30, 2026 and 2025, respectively. The net recoveries realized for the three months ended June 30, 2026 mainly resulted from a recovery of $31,000 on a residential mortgage and a recovery of $25,000 on a loan to a manufacturer of hemp-based biodegradable plastic food containers. See Allowance for Credit Losses on page 53 for further discussion.

NON-INTEREST INCOME

Total non-interest income was $2,145,000 for the three months ended June 30, 2026, as compared to $1,798,000 for the same period in 2025, an increase of $347,000, or 19.3%.

Net securities gains increased $269,000 to a net gain of $374,000 for the three months ended June 30, 2026 as compared to net gains of $105,000 for the three months ended June 30, 2025. The increase in net securities gains was the result of an increase in the mark-to-market adjustment on held equity securities during the quarter ended June 30, 2026 compared to the quarter ended June 30, 2025.

Trust department income increased $15,000 or 5.4% to $295,000 for the three months ended June 30, 2026 as compared to the same period in 2025. Service charges and fees income decreased $2,000 or 0.4% for the three months ended June 30, 2026 as compared to the same period in 2025. Cash surrender value of life insurance increased $19,000 or 12.3% to $174,000 for the three months ended June 30, 2026. Gains on sales of mortgage loans decreased $5,000 or 27.8% for the three months ended June 30, 2026. There were no gains from life insurance proceeds realized during the three months ended June 30, 2026, compared to gains from life insurance proceeds of $20,000 that were recognized during the three months ended June 30, 2025 in relation to a death benefit. Other non-interest income increased $48,000 or 57.1% to $132,000 for the three months ended June 30, 2026. The increase was mainly the result of a recovery of funds related to a prior defalcation loss.

NON-INTEREST EXPENSE

Total non-interest expense was $8,438,000 for the three months ended June 30, 2026, as compared to $8,261,000 for the three months ended June 30, 2025.

Salaries and employee benefits amounted to $4,228,000 or 50.1% of total non-interest expense for the three months ended June 30, 2026, as compared to $4,303,000 or 52.1% of total non-interest expense for the three months ended June 30, 2025. The decrease was mainly the result of lower health care costs during the quarter ended June 30, 2026 as compared to the same period of 2025.

Net occupancy, furniture and equipment, and computer expense amounted to $1,286,000 for the three months ended June 30, 2026, an increase of $97,000 or 8.2% which was mainly due to an increase in expense related to various new software systems that were implemented throughout 2025 and the first half of 2026. Expenses related to professional services increased $67,000 or 17.9% to $441,000 as of the quarter ended June 30, 2026 compared to the same quarter of 2025. The increase was due to normal annual increases in accounting audit expenses and legal fees related to the Company’s subordinated debt holdings during the second quarter of 2026. Pennsylvania shares tax expense amounted to $272,000 for the three months ended June 30, 2026, an increase of $5,000 or 1.9% as compared to the three months ended June 30, 2025.

Federal Deposit Insurance Corporation (“FDIC”) insurance expense amounted to $320,000 for the three months ended June 30, 2026, an increase of $16,000 or 5.3% as compared to the same period in 2025. FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.

ATM and debit card fees expense amounted to $347,000 for the three months ended June 30, 2026, an increase of $41,000 or 13.4% as compared to the three months ended June 30, 2025. The increase was mainly due to increased electronic funds transfer fees in the second quarter of 2026. Data processing expenses amounted to $422,000 for the three months ended June 30, 2026 as compared to $385,000 for the same period of 2025, an increase of $37,000 or 9.6% mainly due to increases in internet banking and core service fees.

Advertising expense amounted to $100,000 in the second quarter of 2026, a decrease of $38,000 or 27.5% as compared to the three months ended June 30, 2025 as the Company utilized less newspaper and digital advertising during the second quarter of 2026.

Other non-interest expense amounted to $1,022,000 for the three months ended June 30, 2026, an increase of $27,000 or 2.7% as compared to the three months ended June 30, 2025.

INCOME TAXES

Income tax expense amounted to $545,000 for the three months ended June 30, 2026, as compared to income tax expense of $365,000 for the three months ended June 30, 2025, an increase of $180,000. The effective total income tax rate was 12.6% for the three months ended June 30, 2026 as compared to 11.1% for the three months ended June 30, 2025. The increase in the effective tax rate was mainly due to higher overall operating income, with minimal change to tax-exempt income. The Company recognized $210,000 of tax credits from low-income housing partnerships during both the three months ended June 30, 2026 and 2025.

Six months ended June 30, 2026 compared to six months ended June 30, 2025

First Keystone Corporation realized earnings for the six months ended June 30, 2026 of $5,736,000, an increase of $1,769,000 from the same period in 2025. The increase in net income for the six months ended June 30, 2026 was primarily due to increased interest on excess cash balances held at the Federal Reserve and an increase in interest and fees on loans during the six months ended June 30, 2026, offset with an increase in interest on deposits during the same period.

On a per share basis, net income was $0.91 for the six months ended June 30, 2026 compared to $0.64 for the same period in 2025. Cash dividends amounted to $0.56 per share for the six months ended June 30, 2026 and 2025.

NET INTEREST INCOME

The major source of operating income for the Company is net interest income, defined as interest and loan fee income less interest expense. For the six months ended June 30, 2026, interest income amounted to $39,218,000, an increase of $2,124,000 or 5.7% from the six months ended June 30, 2025, while interest expense amounted to $19,771,000 in the six months ended June 30, 2026 an increase of $952,000 or 5.1% from the six months ended June 30, 2025. As a result, net interest income increased $1,172,000 or 6.4% to $19,447,000 from $18,275,000 for the same period in 2025. The increase was primarily due to growth in interest bearing deposits in other banks during the six months ended June 30, 2026, offset by increased interest on deposits and subordinated debt and decreases in the balance of taxable securities due to run-off of principal and interest without replacement.

The Company’s net interest margin for the six months ended June 30, 2026 was 2.63% compared to 2.68% for same period in 2025. The decrease in net interest margin was primarily a result of increases in interest on deposits and subordinated debt and a decrease in income related to taxable securities.

PROVISION FOR CREDIT LOSSES

The provision for credit losses for the six months ended June 30, 2026, carried a recovery balance of 689,000, compared to a provision balance of $514,000 for the six months ended June 30, 2025. The decrease in the provision for credit losses resulted from the Company’s analysis of the current loan portfolio, including historic losses, past-due trends, current economic conditions, loan portfolio growth, and other relevant factors. Charge-off and recovery activity in the allowance for credit losses resulted in net recoveries of $56,000 and net charge-offs of $424,000 for the six months ended June 30, 2026 and 2025, respectively. The increased balance of net charge offs for the six months ended June 30, 2025 was mainly the result of charge-offs completed on two loans during the first six months of 2025. Charge-offs of $162,000 were completed on a loan to a trucking transportation business and a charge off of $245,000 was completed on a loan to a manufacturer of hemp-based biodegradable plastic food containers. See Allowance for Credit Losses on page 53 for further discussion.

NON-INTEREST INCOME

Total non-interest income was $3,958,000 for the six months ended June 30, 2026, as compared to $3,557,000 for the same period in 2025, an increase of $401,000, or 11.3%.

Trust department income was $581,000 for the six months ended June 30, 2026 an increase of $40,000 or 7.4% as compared to the same period in 2025. Service charges and fee income decreased $7,000 or 0.6% for the six months ended June 30, 2026. Cash surrender value of life insurance increased $24,000 or 7.5% to $344,000 for the six months ended June 30, 2026, as compared to $320,000 for the six months ended June 30, 2025.

ATM fees and debit card income increased $24,000 or 2.1% to $1,143,000 for the six months ended June 30, 2026. Gains on sales of mortgage loans increased $21,000 or 55.3% due to more loans sold and at a higher average gain on individual loans sold in the first six months of 2026 as compared to the same period in 2025.

Net securities gains increased $529,000 to a net gain of $548,000 for the six months ended June 30, 2026 as compared to net gains of $19,000 for the six months ended June 30, 2025. The increase in net securities gains was the result of an increase in the mark-to-market adjustment on held equity securities during the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

Other non-interest income amounted to $184,000 for the six months ended June 30, 2026, an increase of $25,000 or 15.7% as compared to the same period of 2025. The increase was mainly the result of a recovery of funds related to a prior defalcation loss.

NON-INTEREST EXPENSE

Total non-interest expense was $17,611,000 for the six months ended June 30, 2026, as compared to $16,910,000 for the six months ended June 30, 2025. Non-interest expense increased $701,000 or 4.1%.

Salaries and employee benefits amounted to $9,195,000 or 52.2% of total non-interest expense for the six months ended June 30, 2026, as compared to $8,933,000 or 52.8% for the six months ended June 30, 2025. The increase was mainly the result of normal employee merit increases during the first half of 2026.

Net occupancy, furniture and equipment, and computer expense amounted to $2,697,000 for the six months ended June 30, 2026, an increase of $293,000 or 12.2%. The increase was mainly due to an increase in expense related to various new software systems that were implemented throughout 2025 and the first half of 2026. Expenses related to professional services increased $152,000 or 20.2% to $904,000 for the six months ended June 30, 2026. The increase was due to normal annual increases in accounting audit expenses and legal fees related to the Company’s subordinated debt holdings during the first half of 2026. Pennsylvania shares tax expense amounted to $543,000 for the six months ended June 30, 2026, an increase of $55,000 or 11.3% as compared to the six months ended June 30, 2025.

FDIC insurance expense increased $30,000 or 4.9% for the six months ended June 30, 2026. FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.

ATM and debit card fees expense amounted to $609,000 for the six months ended June 30, 2026, an increase of $56,000 or 10.1% as compared to the six months ended June 30, 2025. This increase was a result of higher electronic funds transfer expenses for the six months ended June 30, 2026, as compared to the same period in 2025. Data processing expenses amounted to $813,000 for the six months ended June 30, 2026, an increase of $71,000 or 9.6% as compared to the six months ended June 30, 2025. The increase was mainly the result of increased internet banking and core service fees.

Advertising expense decreased $61,000 or 25.1% during the six months ended June 30, 2026. This decrease was mainly the result of the Company utilizing less newspaper and digital advertising during the first half of 2026 as compared to the first half of 2025.

Other non-interest expense amounted to $2,025,000 for the six months ended June 30, 2026, a decrease of $157,000 or 7.2% as compared to the six months ended June 30, 2025. The decrease was mainly the result of $307,000 in expense related to a fraud write-off that was recognized during the first half of 2025.

INCOME TAXES

Income tax expense amounted to $747,000 for the six months ended June 30, 2026, as compared to income tax expense of $441,000 for the six months ended June 30, 2025, an increase of $306,000. The effective total income tax rate was 11.5% for the six months ended June 30, 2026 as compared to 10.0% for the six months ended June 30, 2025. The increase in the effective tax rate was mainly due to higher overall operating income with minimal change to tax-exempt income. The Company recognized $420,000 of tax credits from low-income housing partnerships during both the six months ended June 30, 2026 and 2025.

FINANCIAL CONDITION

SUMMARY

Total assets increased to $1,574,315,000 as of June 30, 2026, an increase of $43,338,000 from year-end 2025. Total assets as of December 31, 2025 amounted to $1,530,977,000.

Total cash and cash equivalents increased by $66,712,000 to $187,961,000 as of June 30, 2026 from $121,249,000 as of December 31, 2025. The increase was mainly the result of an increase of $66,463,000 in interest-bearing deposits in other banks due to an increase in excess cash balances held at the Federal Reserve resulting from increased deposits and cashflows from investment portfolio runoff that was not reinvested.

Total debt securities available-for-sale decreased $25,142,000 or 6.4% to $369,084,000 as of June 30, 2026 from $394,226,000 at December 31, 2025 mainly due to $28,933,000 in maturities, paydowns, and calls completed during the six months ended June 30, 2026, offset by $4,000,000 in securities purchased during the same period.

Total net loans increased $2,359,000 or 0.3% to $941,552,000 as of June 30, 2026 from $939,013,000 as of December 31, 2025. Real estate loans, the largest segment of the Company’s loan portfolio, decreased by $8,450,000 during the six months ended June 30, 2026, commercial and industrial loans, the second largest segment of the Company’s loan portfolio, increased by $1,101,000 during the six months ended June 30, 2026, and loans to state and political subdivisions, the third largest segment of the Company’s loan portfolio increased by $9,188,000 during the six months ended June 30, 2026. The allowance for credit losses also decreased by $633,000 during the six months ended June 30, 2026.

Total deposits increased $42,473,000 or 3.7% to $1,179,910,000 from $1,137,437,000 as of December 31, 2025, mainly due to an increase of $24,065,000 in the balance of non-interest bearing deposits due to an increase of $18,368,000 in the balance of non-interest checking accounts. Interest-bearing deposits also increased by $18,408,000 during the six months ended June 30, 2026 due to an increase of $20,402,000 in the balance of retail CDs and an increase of $27,943,000 in the balance of other interest-bearing deposit accounts, offset by a decrease of $29,938,000 in the balance of brokered CDs during the same period.

The Company continues to maintain and manage its asset growth. The Company’s strong equity capital position provides an opportunity to further leverage its asset growth. Total borrowings decreased during the six months ended June 30, 2026 by $1,241,000 to $241,604,000 from $242,845,000 as of December 31, 2025. The decrease in borrowings was the result of a decrease of $1,241,000 the balance of repurchase agreements.

Total stockholders’ equity amounted to $118,456,000 at June 30, 2026, an increase of $5,396,000 or 4.8% from December 31, 2025 mainly due to an improvement of $2,249,000 in accumulated other comprehensive loss and an increase of $2,217,000 in retained earnings.

SEGMENT REPORTING

Currently, management measures the performance and allocates the resources of the Company as a single segment.

EARNING ASSETS

Earning assets are defined as those assets that produce interest income. By maintaining a healthy asset utilization rate, i.e., the volume of earning assets as a percentage of total assets, the Company maximizes income. The earning asset ratio (average interest earning assets divided by average total assets) equaled 95.7% at June 30, 2026 and 95.0% at June 30, 2025. This indicates that the management of earning assets is a priority and non-earning assets, primarily cash and due from banks, fixed assets and other assets, are maintained at minimal levels. The primary earning assets are loans and securities.

The Company’s primary earning asset, the loans held for investment portfolio, increased to $948,848,000 as of June 30, 2026, up $1,563,000 or 0.2% since year-end 2025. The loan portfolio continues to be well diversified and asset quality has remained consistent. Total non-performing assets were $20,123,000 as of June 30, 2026, a increase of $3,204,000 or 18.94% from $16,919,000 reported in non-performing assets as of December 31, 2025. Total allowance for credit losses to total non-performing assets was 43.63% as of June 30, 2026 and 55.63% at December 31, 2025. See the Non-Performing Assets section on page 56 for more information.

In addition to loans, another primary earning asset is our overall securities portfolio, which decreased in size from December 31, 2025 to June 30, 2026 mainly due to normal runoff in the securities portfolio which was not reinvested. Debt securities available-for-sale amounted to $369,084,000 as of June 30, 2026, a decrease of $25,142,000 from year-end 2025. The decrease in debt securities available-for-sale is mainly due to $28,933,000 in maturities, paydowns, and calls completed during the six months ended June 30, 2026, offset by $4,000,000 in securities purchased during the same period.

Interest-bearing deposits in other banks increased $66,463,000 as of June 30, 2026, to $178,957,000 from $112,494,000 at year-end 2025 mainly due to an increase in excess cash balances held at the Federal Reserve as a result of increased deposit balances and excess cashflows from activity in the debt securities available-for-sale portfolio which were not reinvested during the six months ended June 30, 2026.

LOANS

Total loans increased to $948,423,000 as of June 30, 2026 as compared to $946,661,000 as of December 31, 2025. The table on page 21 provides data relating to the composition of the Company’s loan portfolio on the dates indicated. Total loans increased by $1,762,000 or 0.2%.

The Real Estate portfolio decreased $8,450,000 or 1.0% from $853,668,000 at December 31, 2025 to $845,218,000 at June 30, 2026. The decrease in the Real Estate portfolio for the six months ended June 30, 2026 was mainly the result of $76,134,000 in new loan originations and an increase in utilization of existing real estate lines of credit of $21,500,000, offset by loan payoffs of $62,477,000 along with regular principal payments (which have significantly increased for the Company’s Real Estate portfolio for the six months ended June 30, 2026 as compared to prior periods) and other typical fluctuations in the Real Estate portfolio. The Agricultural portfolio increased $257,000 or 26.1% from $984,000 at December 31, 2025 to $1,241,000 at June 30, 2026. The increase in the Agricultural portfolio for the six months ended June 30, 2026 was mainly the result of an increase of $119,000 in utilization of existing agricultural lines of credit, along with three loans carrying an aggregate balance of $254,000 which were reclassed from the Real Estate portfolio to the Agricultural portfolio during the first two quarters of 2026, offset by regular principal payments and other typical fluctuations in the Agricultural portfolio. The Commercial and Industrial portfolio increased $1,101,000 or 1.7% from $66,924,000 at December 31, 2025 to $68,025,000 at June 30, 2026. The increase was attributable to $5,463,000 in new loan originations and an increase of $1,377,000 in utilization of existing commercial and industrial lines of credit, offset by loan payoffs of $1,779,000 and regular principal payments and other typical amortization in the Commercial and Industrial portfolio. The Consumer portfolio decreased $334,000 or 6.7% from $4,953,000 at December 31, 2025 to $4,619,000 at June 30, 2026. The decrease is mainly attributable to loan payoffs of $785,000 and a decrease in utilization of consumer lines of credit of $95,000, along with regular principal payments and other typical amortization in the Consumer portfolio, offset by new loan originations of $1,268,000. The State and Political Subdivisions portfolio increased $9,188,000 or 45.6% from $20,132,000 at December 31, 2025 to $29,320,000 at June 30, 2026. The increase was attributable to $8,900,000 in new loan originations and an increase in utilization of existing state and political subdivision lines of credit of $485,000, offset by regular principal payments on state and political subdivisions loans completed during the six months ended June 30, 2026.

The Company continues to originate and sell certain long-term fixed rate residential mortgage loans, which conform to secondary market requirements, when the market pricing is favorable. The Company derives ongoing income from the servicing of mortgages sold in the secondary market. The Company continues its efforts to lend to creditworthy borrowers. Management believes that the loan portfolio is well diversified.

Overall, the portfolio risk profile as measured by loan grade is considered low risk, as $906,086,000 or 95.5% of gross loans are graded Pass; $16,666,000 or 1.8% are graded Special Mention; $25,671,000 or 2.7% are graded Substandard; and $0 are graded Doubtful. The rating is intended to represent the best assessment of risk available at a given point in time, based upon a review of the borrower’s financial statements, credit analysis, payment history with the Bank, credit history and lender knowledge of the borrower. See Note 4 — Loans and Allowance for Credit Losses for risk grading tables. Overall, non-pass grades increased $13,546,000 to $42,337,000 at June 30, 2026, as compared to $28,791,000 at December 31, 2025. Real Estate non-pass grades increased $3,727,000 to $32,185,000 as of June 30, 2026 as compared to $28,458,000 as of December 31, 2025. Commercial and Industrial non-pass grades increased $9,818,000 to $10,128,000 as of June 30, 2026 as compared to $310,000 as of December 31, 2025. The increase in Commercial and Industrial non-pass grades during the six months ended June 30, 2026 was mainly the result of the downgrade of one loan relationship to Special Mention status which carried an aggregate balance of $9,755,000, related to a plastic injection molding company. Consumer non-pass grades increased $1,000 to $24,000 as of June 30, 2026 as compared to $23,000 as of December 31, 2025. There were no Agricultural or State and Political Subdivision non-pass grades at June 30, 2026 or December 31, 2025.

The Company continues to internally underwrite each of its loans to comply with prescribed policies and approval levels established by its Board of Directors.

Total Loans

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses constitutes the amount available to absorb losses within the loan portfolio. As of June 30, 2026 the allowance for credit losses was $8,779,000 as compared to $9,412,000 as of December 31, 2025. The allowance for credit losses is established through a provision for credit losses charged to expenses. Loans are charged against the allowance for possible credit losses when management believes that the collectability of the principal is unlikely. The risk characteristics of the loan portfolio are managed through various control processes, including credit evaluations of individual borrowers, periodic reviews, and diversification by industry. Risk is further mitigated through the application of lending procedures such as the holding of adequate collateral and the establishment of contractual guarantees.

Management performs a quarterly analysis to determine the adequacy of the allowance for credit losses. The methodology in determining adequacy incorporates quantitative and qualitative allocations together with a risk/loss analysis on various segments of the portfolio according to an internal loan review process. This assessment results in an allocated allowance. Management maintains its loan review and loan classification standards consistent with those of its regulatory supervisory authority.

Management considers, based upon its methodology, that the allowance for credit losses is adequate to cover foreseeable future losses. However, there can be no assurance that the allowance for credit losses will be adequate to cover significant losses, if any, that might be incurred in the future. On a quarterly basis, management evaluates the qualitative factors utilized in the calculation of the Company’s allowance for credit losses and various adjustments are made to these factors as deemed necessary at the time of evaluation. The following table summarizes the qualitative factor adjustments made during the first and second quarters of 2026.

Total past due loans increased by $9,459,000 during the six months ended June 30, 2026 from $12,616,000 at December 31, 2025 to $22,075,000 at June 30, 2026. The increase in past due loans during the six months ended June 30, 2026 was mainly attributable to one non-accrual loan carrying a balance of $9,437,000 that was past due as of June 30, 2026. The loan was individually evaluated for impairment due to its non-accrual status and had a specific allocation of $707,000 recorded under the allowance for credit losses as of June 30, 2026. The loan was on non-accrual status as of December 31, 2025 but was paid current at that time. As of December 31, 2025, the loan was individually evaluated for impairment and carried a specific allocation of $973,000. The reduction of $266,000 in the specific allocation (and subsequently the allowance for credit losses overall) was due to payments made on the loan, bringing the loan balance closer to the appraised value of the underlying collateral.

Non-performing assets increased by $3,204,000 during the six months ended June 30, 2026 from $16,919,000 at December 31, 2025 to $20,123,000 at June 30, 2026. The increase in non-performing assets for the six month period was mainly the result of an increase of $2,599,000 in the balance of non-accrual loans which increased from $16,763,000 at December 31, 2025 to $19,362,000 at June 30, 2026 mainly due to the addition of a loan relationship containing five loans to a real estate investor carrying an aggregate balance of $2,044,000. None of the loans moved to non-accrual status during the six months ended June 30, 2026 were determined to require a specific allocation as a result of the individual evaluation analysis performed.

Despite increases in the balances of past due loans, non-performing assets, and non-accruals during the six months ended June 30, 2026, the overall balance of the allowance for credit losses decreased during the six month period mainly as a result of the following factors: (1) a decrease in the calculated historical loss rate for loans secured by multifamily residential properties which reduced the allowance for credit losses by $199,000, (2) a decrease in the calculated historical loss rate for loans secured by other non-farm, non-residential properties which reduced the allowance for credit losses by $174,000 and (3) a reduction of $266,000 in the specific allocation on an individually evaluated loan due to payments made on the loan, bringing the loan balance closer to the appraised value of the underlying collateral.

The Analysis of Allowance for Credit Losses table contains an analysis of the allowance for credit losses indicating charge-offs and recoveries for the six months ended June 30, 2026 and 2025. Net recoveries as a percentage of average loans was (0.01)% for the six months ended June 30, 2026, compared to net charge-offs of 0.04% for the six months ended June 30, 2025. Net recoveries amounted to $56,000 for the six months ended June 30, 2026 and net charge-offs amounted to $424,000 for the six months ended June 30, 2025. The increased balance of net charge offs for the six months ended June 30, 2025 was mainly the result of charge-offs completed on two loans during the first six months of 2025. Charge-offs of $162,000 were completed on a loan to a trucking transportation business and a charge off of $245,000 was completed on a loan to a manufacturer of hemp-based biodegradable plastic food containers.

For the six months ended June 30, 2026, the provision for credit losses carried a recovery balance of $689,000, compared to the six months ended June 30, 2025, when the provision for credit losses was $514,000. The provision, net of charge-offs and recoveries, resulted in the quarter end allowance for credit losses of $8,779,000, of which 93.46% was attributed to the Real Estate component, 0.03% attributed to the Agricultural component, 4.82% attributed to the Commercial and Industrial component, 0.88% attributed to the Consumer component, and 0.81% attributed to the State and Political Subdivisions component (refer to the activity in Note 4 – Loans and Allowance for Credit Losses on page 13).

Analysis of Allowance for Credit Losses

It is the policy of management and the Company’s Board of Directors to make a provision for both identified and unidentified losses inherent in its loan portfolio. A provision for credit losses is charged to operations based upon an evaluation of the potential losses in the loan portfolio. This evaluation takes into account such factors as portfolio concentrations, delinquency trends, trends of non-accrual and classified loans, economic conditions, and other relevant factors.

The loan review process, which is conducted quarterly, is an integral part of the Bank’s evaluation of the loan portfolio. A detailed quarterly analysis to determine the adequacy of the Company’s allowance for credit losses is reviewed by the Board of Directors.

With the Bank’s manageable level of net charge-offs and recoveries along with the additions to the reserve from the provision out of operations, the allowance for credit losses as a percentage of year-to-date average loans amounted to 0.93% and 0.81% at June 30, 2026 and 2025, respectively.

NON-PERFORMING ASSETS

The table on page 60 details the Company’s non-performing assets and individually evaluated loans as of the dates indicated. Generally, a loan is classified as non-accrual and the accrual of interest on such a loan is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against current period

income. Foreclosed assets held for resale represent property acquired through foreclosure, or considered to be an in-substance foreclosure.

Total non-performing assets amounted to $20,123,000 as of June 30, 2026, as compared to $16,919,000 as of December 31, 2025. The economic growth for the second quarter of 2026 has remained stagnant compared to year-end 2025. Consumer spending is slowing as inflation remains high and has increased due to the current war with Iran. At 3.5% as of June 2026, the inflation rate has increased from 3.3% as of March 2026 and 2.7% as of December 2025, all above the Federal Reserve Board’s desired rate of 2.0%. Inflation had been on the rise in 2025 due in large part to the imposition and threat of tariffs. Inflation soared during the first quarter 2026 due to the war with Iran creating much instability in the energy market, causing fuel prices to skyrocket. Fuel prices were on the rise again during the second quarter of 2026 following the breakdown of the cease fire agreement between the US and Iran. Additionally, mass layoffs from the federal government increased unemployment levels. Layoffs from large corporations from the public sector have also continued through the first six months of 2026. Many economists and influential thinkers still believe that the economy is moving forward despite certain forecasts and predictors. The concern of a recession is still being discussed in relation to various countries. This has the Federal Reserve looking very cautiously at their next move. This will depend heavily on which direction inflation and unemployment levels are trending. The new Federal Reserve Chairman will have a very difficult landscape to navigate. The war between Ukraine and Russia continues to deeply pierce the landscape of the world as well. The conflict with Israel and Palestine has quieted, as has the conflict with the US and Venezuela and the contemplated conflict with the US and Cuba. However, there is still much debate and concern regarding how these conflicts may fare in the coming months. The continuing dispute over whether to continue US support of Ukraine and Israel in ongoing war efforts has been a strain on the economy. Values of new and used homes and automobiles have remained high. Although, there would seem to be a dynamic shift in the automobile industry where inventories are increasing and sales are slowing which may lead to a reduced profit margin. Higher interest rates have added to the curtailed borrowing. Consumer savings is dwindling and credit balances are growing. Supply chains are back up and running efficiently in many areas. Labor continues to be costly and unpredictable. These forces have had a direct effect on the Company’s non-performing assets. The Company is closely monitoring all segments of its loan portfolio because of the current uncertain economic environment. Non-accrual loans totaled $19,362,000 as of June 30, 2026, as compared to $16,773,000 as of December 31, 2025. There were no foreclosed assets held for resale as of June 30, 2026 and December 31, 2025. There were three loans past-due 90 days or more and still accruing interest at June 30, 2026 which carried an aggregate balance of $761,000, compared to December 31, 2025 when there was one loan past-due 90 days or more and still accruing interest which carried a balance of $146,000. Of the loans past-due 90 days or more and still accruing interest as of June 30, 2026, two loans were secured by commercial real estate and one loan was secured by commercial business assets. All loans past-due 90 days or more and still accruing interest as of June 30, 2026 were well secured and in the process of collection.

Non-performing assets to total loans was 2.12% at June 30, 2026 and 1.79% at December 31, 2025. Non-performing assets to total assets was 1.28% at June 30, 2026, compared to 1.11% at December 31, 2025. The allowance for credit losses to total non-performing assets was 43.63% as of June 30, 2026 as compared to 55.63% as of December 31, 2025. Additional detail can be found on page 60 in the Non-Performing Assets and Individually Evaluated Loans table and page 30 in the Non-Performing Assets table. Asset quality is a priority and the Company retains a full-time loan review officer to closely track and monitor overall loan quality, along with a full-time loan workout department to manage collection and liquidation efforts and engages an annual external loan review.

Performing substandard loans, which have not been designated for individual evaluation to determine expected credit losses, have characteristics that cause management to have doubts regarding the ability of the borrower to perform under present loan repayment terms and which may result in reporting these loans as non-performing loans in the future. Performing substandard loans not designated for individual evaluation amounted to $6,309,000 at June 30, 2026 and $7,668,000 at December 31, 2025.

Individually evaluated loans were $19,641,000 at June 30, 2026 compared to $17,052,000 at December 31, 2025. The largest individually evaluated loan relationship at June 30, 2026 consisted of a non-performing loan to a borrower engaged in the hotel operations business. The loan is secured by commercial real estate and carried a balance of $9,437,000 and a specific allocation of $707,000 as of June 30, 2026. The second largest individually evaluated loan relationship at June 30, 2026 consisted of a non-performing loan granted to a real estate developer for the purpose of

renovating the property into luxury residential rentals. The loan is secured by commercial real estate and carried a balance of $2,382,000 as of June 30, 2026, net of $2,000,000 that had been charged off to date. The third largest individually evaluated loan relationship at June 30, 2026 consisted of five non-performing loans to a real estate investor which are all secured by commercial real estate. At June 30, 2026, the loans carried an aggregate balance of $2,044,000.

The Company determines the need for individual evaluation of loans based on its analysis of the cash flows or collateral estimated at fair value less cost to sell. For collateral dependent loans, the estimated appraisal or other qualitative adjustments and cost to sell percentages are determined based on the market area in which the real estate securing the loan is located, among other factors, and therefore, can differ from one loan to another. Of the $19,641,000 in individually evaluated loans at June 30, 2026, none were located outside of the Company’s primary market area.

During the six months ended June 30, 2026, there were six modifications granted on loans to borrowers experiencing financial difficulty which carried a combined post modification recorded investment of $4,083,000. The loan modifications granted during the six months ended June 30, 2026 consisted of one payment modification that allowed a full payment deferral for a period of six months, one payment modification that allowed a period of interest-only payments of six months, one payment modification that extended the interest-only draw period on the loan for an additional six months, one term modification that converted the loan from a time note to a term loan, one modification that extended the interest-only draw period on the loan for an additional six months and extended the maturity of the loan for an additional six months, and one modification that allowed a period of interest-only payments of four months and extended the maturity of the loan by an additional four months. During the six months ended June 30, 2025, there was one modification granted on a loan to a borrower experiencing financial difficulty which carried a post modification recorded investment of $107,000. The loan modification granted during the six months ended June 30, 2025 was a payment modification that allowed a period of interest-only payments of eleven months.

The outstanding recorded investment of loans to borrowers experiencing financial difficulty was $5,300,000 at June 30, 2026 and $12,661,000 at December 31, 2025. At June 30, 2026, there were unfunded commitments of $1,751,000 related to modified loans to borrowers experiencing financial difficulty, compared to December 31, 2025 when there were no unfunded commitments on modified loans to borrowers experiencing financial difficulty. At June 30, 2026, there were two modifications of loans to borrowers experiencing financial difficulty carrying a combined outstanding recorded investment of $409,000 that were not in compliance with the terms of their restructure, compared to December 31, 2025, when there were two modifications of loans to borrowers experiencing financial difficulty carrying a combined outstanding recorded investment of $439,000 that were not in compliance with the terms of their restructure.

As of June 30, 2026, there were unfunded commitments of $1,751,000 related to modified loans to borrowers experiencing financial difficulty, compared to December 31, 2025 when there were no unfunded commitments on modified loans to borrowers experiencing financial difficulty. At June 30, 2026, there were two modifications of loans to borrowers experiencing financial difficulty carrying a combined post modification balance of $411,000 that were not in compliance with the terms of their restructure, compared to December 31, 2025 when there were two modifications of loans to borrowers experiencing financial difficulty carrying a combined post modification balance of $436,000 that were not in compliance with the terms of their restructure.

Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding June 30, 2026, five loans experienced payment defaults during the six months ended June 30, 2026. One loan carrying a recorded investment of $299,000 experienced a payment default during the three months ended June 30, 2026 but was paid current prior to June 30, 2026, one loan carrying a recorded investment of $110,000 experienced a payment default during the six months ended June 30, 2026 and remained in past due status as of June 30, 2026, one loan carrying a recorded investment of $330,000 experienced a payment default during the six months ended June 30, 2026 but was paid current as of June 30, 2026, one loan carrying a recorded investment of $9,437,000 experienced a payment default during both the three and six months ended June 30, 2026 and remained in past due status as of June 30, 2026, and one loan that was subsequently paid off prior to June 30, 2026 had experienced a payment default during the six months ended June 30, 2026. Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding June 30, 2025, three loans experienced payment defaults during the six months ended June 30, 2025. One loan carrying a recorded investment of $120,000 experienced a

payment default during the six months ended June 30, 2025 and remained in past due status as of June 30, 2025. A loan carrying a recorded investment of $421,000 experienced a payment default during the three and six months ended June 30, 2025 and remained in past due status as of June 30, 2025. One loan carrying a recorded investment of $107,000 experienced a payment default during the three months ended June 30, 2025 and remained in past due status as of June 30, 2025.

The Company’s non-accrual loan valuation procedure for any loans greater than $250,000 requires an appraisal to be obtained and reviewed annually at year end, unless the Board of Directors waives such requirement for a specific loan, in favor of obtaining a Certificate of Inspection instead, defined as an internal evaluation completed by the Company. A quarterly collateral evaluation is performed which may include a site visit, property pictures and discussions with realtors and other similar business professionals to ascertain current values.

For non-accrual loans less than $250,000 upon classification and typically at year end, the Company completes a Certificate of Inspection, which includes the results of an onsite inspection, and may consider value indicators such as insured values, tax assessed values, recent sales comparisons and a review of the previous evaluations.

Improving loan quality is a priority. The Company actively works with borrowers to resolve credit problems and will continue its close monitoring efforts in 2026. Excluding the assets disclosed in the Non-Performing Assets and Individually Evaluated Loans table below and the Non-Performing Assets table in Note 4 – Loans and Allowance for Credit Losses, management is not aware of any information about borrowers’ possible credit problems which cause serious doubt as to their ability to comply with present loan repayment terms.

In addition, regulatory authorities, as an integral part of their examinations, periodically review the allowance for possible loan losses. They may require additions to allowances based upon their judgments about information available to them at the time of examination.

The economic climate remains unstable. The most recent conflict with Iran has heightened in intensity and has created much havoc with various countries’ economic outlooks. The war between Ukraine and Russia continues into its fifth year with little hope of a long-term resolution. Inflationary pressures remain elevated and have seen substantial increases in 2026 as compared to 2025. The increase is tied directly to energy costs, most specifically the increased oil prices worldwide caused by the war with Iran. Fiscal policies and Presidential referendums have only exacerbated the issue. This fuels much debate, speculation, and concern regarding the appropriate actions to be taken to overcome the effects of monetary policy adjustments, tariffs, federal government shutdown, and continuing large federal and corporate layoffs that have occurred. Intense political turmoil, commodity prices remaining high, gas prices fluctuating widely from week to week, small businesses closing, larger corporations cutting jobs, unprecedented weather conditions seen around the world, and the uncertainty of where the Federal Reserve may go from here in regard to rates have all exacerbated the difficulties in the national and state economy. Experts at all levels continue to ascertain the intermediate or long-term effects of such issues. The Company may experience difficulties collecting payments on time from its borrowers, and certain types of loans may need to be modified, which could cause a rise in the level of individually evaluated loans, non-performing assets, charge-offs, and delinquencies. Should such metrics increase, additions to the balance of the Company’s allowance for credit losses could be required. The extent of the impact of these stressors on the Company’s operational and financial performance will depend on certain developments including reactions to inflationary controls enacted, the labor force, the longevity of the wars, the ongoing political landscape, and the looming worldwide discord, and any after-effects of these factors. These factors may not immediately impact the Company’s operational and financial performance, as the effects of these factors may lag into the future. The Company is also susceptible to the impact of economic and fiscal policy factors that may evolve in the current economic environment.

A concentration of credit exists when the total amount of loans to borrowers, who are engaged in similar activities that are similarly impacted by economic or other conditions, exceed 10% of total loans. As of June 30, 2026 and December 31, 2025, management is of the opinion that there were no loan concentrations exceeding 10% of total loans.

Non-Performing Assets and Individually Evaluated Loans

Real estate mortgages comprise 89.1% of the loan portfolio as of June 30, 2026, as compared to 90.2% as of December 31, 2025. Real estate mortgages consist of both loans secured by residential and commercial real estate. The Real Estate loan portfolio is well diversified in terms of borrowers, collateral, interest rates, and maturities. Also, the residential component of the Real Estate loan portfolio is largely comprised of fixed rate mortgages. The real estate loans are concentrated primarily in the Company’s market area and are subject to risks associated with the local economy. The loans secured by commercial real estate typically reprice approximately every three to five years and are also concentrated in the Company’s market area. The Company’s loss exposure on its individually evaluated loans continues to be mitigated by collateral positions on these loans. The allocated allowance for credit losses associated with individually evaluated loans is generally computed based upon the related collateral value of the loans. The collateral values are determined by recent appraisals or Certificates of Inspection, but are generally discounted by management based on historical dispositions, changes in market conditions since the last valuation and management’s expertise and knowledge of the borrower and the borrower’s business.

DEPOSITS, OTHER BORROWED FUNDS AND SUBORDINATED DEBT

Consumer and commercial retail deposits are attracted primarily by the Company’s nineteen full service office locations and through its internet banking presence. The Company offers a broad selection of deposit products and continually evaluates its interest rates and fees on deposit products. The Company regularly reviews competing financial institutions’ interest rates, especially when establishing interest rates on certificates of deposit and municipal deposits.

Total deposits increased $42,473,000 to $1,179,910,000 as of June 30, 2026 as non-interest bearing deposits increased by $24,065,000 and interest bearing deposits increased by $18,408,000 from year-end 2025. The overall increase in non-interest bearing deposits was mainly due to an increase of $18,368,000 in the balance of non-interest checking accounts. The increase in interest-bearing deposits during the six months ended June 30, 2026 was due to an

increase of $20,402,000 in the balance of retail CDs and an increase of $27,943,000 in the balance of other interest-bearing deposit accounts, offset by a decrease of $29,938,000 in the balance of brokered CDs during the same period.

Total short-term and long-term borrowings decreased to $241,604,000 as of June 30, 2026, from $242,845,000 at year-end 2025, a decrease of $1,241,000 or 0.5%. The decrease in borrowings during the six months ended June 30, 2026 was attributable to a decrease of $1,241,000 in the balance of repurchase agreements.

On December 10, 2020, the Corporation issued $25,000,000 aggregate principal amount of Subordinated Notes due December 31, 2030 (the “2020 Notes”). The 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The 2020 Notes carry a variable interest rate which floats based on a benchmark rate (as defined).

CAPITAL STRENGTH

Normal increases in capital are generated by net income, less dividends paid out. During the six months ended June 30, 2026, net income for the period, net of continued payment of dividends, increased capital by $2,217,000. Accumulated other comprehensive loss derived from net unrealized gains on debt securities available-for-sale and interest rate derivatives also impacts capital. At December 31, 2025 accumulated other comprehensive loss was $19,453,000. Accumulated other comprehensive loss stood at $17,204,000 at June 30, 2026, an improvement of $2,249,000. Fluctuations in interest rates have regularly impacted the gain/loss position in the Bank’s securities portfolio, as well as its decision to sell securities at a gain or loss. The fluctuations from net unrealized gains on debt securities available-for-sale and derivatives do not affect regulatory capital, as the Bank elected to opt-out of the inclusion of this item with the filing of the March 31, 2015 Call Report.

The Company held 231,611 shares of common stock as treasury stock at June 30, 2026 and December 31, 2025, respectively. This had an effect of reducing our total stockholders’ equity by $5,709,000 as of June 30, 2026 and December 31, 2025.

Total stockholders’ equity was $118,456,000 as of June 30, 2026, and $113,060,000 as of December 31, 2025.

At June 30, 2026 the Bank met the definition of a “well-capitalized” institution under the regulatory framework for prompt corrective action and the minimum capital requirements under Basel III. The following table presents the Bank’s capital ratios as of June 30, 2026 and December 31, 2025:

Under the final capital rules that became effective on January 1, 2015, there was a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement was phased in over three years beginning in 2016. The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5% on a fully phased-in basis as of January 1, 2019. As of June 30, 2026, the Bank meets all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

The Corporation’s capital ratios are not materially different than those of the Bank.

LIQUIDITY

The Company’s objective is to maintain adequate liquidity to meet funding needs at a reasonable cost and provide contingency plans to meet unanticipated funding needs or a loss of funding sources, while minimizing interest rate risk. Adequate liquidity is needed to provide the funding requirements of depositors’ withdrawals, loan growth, and other operational needs.

Sources of liquidity are as follows:

At June 30, 2026, the Company had $518,920,000 in maximum borrowing capacity at FHLB (inclusive of the outstanding balances of FHLB long-term notes, FHLB short-term borrowings, and irrevocable standby letters of credit issued by FHLB); the maximum borrowing capacity at ACBB was $15,000,000 and the maximum borrowing capacity of the Federal Discount Window was $6,592,000.

The Company enters into “Repurchase Agreements” in which it agrees to sell securities subject to an obligation to repurchase the same or similar securities. Because the agreement both entitles and obligates the Company to repurchase the assets, the Company may transfer legal control of the securities while still retaining effective control. As a result, the repurchase agreements are accounted for as collateralized financing agreements (secured borrowings) and act as an additional source of liquidity. Securities sold under agreements to repurchase were $35,604,000 at June 30, 2026.

Asset liquidity is provided by securities maturing in one year or less, other short-term investments, federal funds sold, and cash and due from banks. The liquidity is augmented by repayment of loans and cash flows from mortgage-backed and asset-backed securities. Liability liquidity is accomplished primarily by maintaining a core deposit base, acquired by attracting new deposits and retaining maturing deposits. Also, short-term borrowings provide funds to meet liquidity needs.

Net cash flows provided by operating activities were $4,908,000 for the six months ended June 30, 2026 and $5,729,000 for the six months ended June 30, 2025. Net income amounted to $5,736,000 for the six months ended June 30, 2026, compared to $3,967,000 for the six months ended June 30, 2025. During the six months ended June 30, 2026, the provision for credit losses amounted to a credit/recovery balance of $689,000 compared to a provision balance of $514,000 for the six months ended June 30, 2025. The provision for credit losses on unfunded commitments used cash of $5,000 and $6,000 for the six months ended June 30, 2026 and 2025, respectively. During the six months ended June 30, 2026, net discount accretion on securities amounted to $113,000 compared to net premium amortization of $104,000 for the six months ended June 30, 2025. Deferred income taxes provided cash of $111,000 and $210,000 during the six months ended June 30, 2026 and 2025, respectively. Net gains on sales of mortgage loans amounted to $59,000 for the six months ended June 30, 2026 and $38,000 for the six months ended June 30, 2025. Originations of mortgage loans originated for sale exceeded proceeds (net of gains/losses) from sales of mortgage loans originated for sale by $290,000 for the six months ended June 30, 2026 and proceeds (net of gains/losses) from sales of mortgage loans originated for sale exceeded originations of mortgage loans originated for sale by $663,000 for the six months ended June 30, 2025. Net securities gains amounted to $548,000 for the six months ended June 30, 2026, compared to net securities gains of $19,000 for the six months ended June 30, 2025. Accrued interest receivable decreased by $333,000 for the six months ended June 30, 2026 and decreased by $39,000 for the six months ended June 30, 2025. Accrued interest payable decreased by $218,000 for the six months ended June 30, 2026 and increased by $167,000 for the six months ended June 30, 2025. Other assets increased by $188,000 for the six months ended June 30, 2026 and decreased by $516,000 during the six months ended June 30, 2025. Other liabilities increased $105,000 during the six months ended June 30, 2026,

compared to a decrease of $833,000 during the six months ended June 30, 2025. A gain from bank-owned life insurance proceeds of $255,000 was recognized during the six months ended June 30, 2025, compared to the six months ended June 30, 2026 when no gains were recognized in relation to bank-owned life insurance proceeds.

Investing activities provided cash of $23,183,000 and $13,029,000 for the six months ended June 30, 2026 and 2025, respectively. Net activity in the available-for-sale securities portfolio (including proceeds from sale, maturities, and redemptions, net against purchases) provided cash of $24,933,000 and $24,387,000 during the six months ended June 30, 2026 and 2025, respectively. Changes in restricted investment in bank stocks used cash of $35,000 for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 when changes in restricted investment in bank stocks provided cash of $40,000. Net increase in loans originated as held for investment used cash of $1,501,000 and $12,368,000 during the six months ended June 30, 2026 and 2025, respectively. Proceeds from bank-owned life insurance provided cash of $1,237,000 for the six months ended June 30, 2025, compared to the six months ended June 30, 2026 when there were no proceeds from bank-owned life insurance. Purchases of premises and equipment used cash of $214,000 and $267,000 during the six months ended June 30, 2026 and 2025, respectively.

Financing activities provided cash of $38,621,000 and $3,041,000 during the six months ended June 30, 2026 and 2025, respectively. Deposits increased by $42,473,000 and $11,398,000 during the six months ended June 30, 2026 and 2025, respectively. Short-term borrowings decreased by $1,241,000 and $4,875,000 during the six months ended June 30, 2026 and 2025, respectively. Dividends paid, net of reinvestment amounted to $2,611,000 for the six months ended June 30, 2026, compared to $3,482,000 for the six months ended June 30, 2025.

Managing liquidity remains an important segment of asset/liability management. The overall liquidity position of the Company is maintained by an active asset/liability management committee. The Company believes that its core deposit base is stable even in periods of changing interest rates. Liquidity and funds management are governed by policies and are measured on a monthly basis. These measurements indicate that liquidity generally remains stable and exceeds the Company’s minimum defined levels of adequacy. Other than the trends of continued competitive pressures and volatile interest rates, there are no known demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way. Given our financial strength, we expect to be able to maintain adequate liquidity as we manage through the current environment, utilizing current funding options and possibly utilizing new options.

MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. The Company’s market risk is composed primarily of interest rate risk. The Company’s interest rate risk results from timing differences in the repricing of assets, liabilities, off-balance sheet instruments, and changes in relationships between rate indices and the potential exercise of explicit or embedded options.

Increases in the level of interest rates also may adversely affect the fair value of the Company’s securities and other earning assets. Generally, the fair value of fixed-rate instruments fluctuates inversely with changes in interest rates. As a result, increases in interest rates could result in further decreases in the fair value of the Company’s interest-earning assets, which could adversely affect the Company’s results of operations if sold, or, in the case of interest-earning assets classified as available-for-sale, the Company’s stockholders’ equity, if retained. Under FASB ASC 320-10,Investments – Debt Securities, changes in the unrealized gains and losses, net of taxes, on debt securities classified as available-for-sale are reflected in the Company’s stockholders’ equity. The Company does not own any trading assets.

Asset/Liability Management

The principal objective of asset/liability management is to manage the sensitivity of the net interest margin to potential movements in interest rates and to enhance profitability through returns from managed levels of interest rate risk. The Company actively manages the interest rate sensitivity of its assets and liabilities. Several techniques are used for measuring interest rate sensitivity. Interest rate risk arises from the mismatches in the repricing of rates on assets and liabilities within a given time period, referred to as a rate sensitivity gap. If more assets than liabilities mature or reprice

within the time frame, the Company is asset sensitive. This position would contribute positively to net interest income in a rising rate environment. Conversely, if more liabilities mature or reprice, the Company is liability sensitive. This position would contribute positively to net interest income in a falling rate environment. The Company’s cumulative gap at one year indicates the Company is liability sensitive at June 30, 2026.

Earnings at Risk

The Bank’s Asset/Liability Committee (“ALCO”) is responsible for reviewing the interest rate sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. The guidelines established by ALCO are reviewed by the Company’s Board of Directors. The Company recognizes that more sophisticated tools exist for measuring the interest rate risk in the balance sheet beyond interest rate sensitivity gap. Although the Company continues to measure its interest rate sensitivity gap, the Company utilizes additional modeling for interest rate risk in the overall balance sheet. Earnings at risk and economic values at risk are analyzed.

Earnings simulation modeling addresses earnings at risk and net present value estimation addresses economic value at risk. While each of these interest rate risk measurements has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk to the Company.

Earnings Simulation Modeling

The Company’s net income is affected by changes in the level of interest rates. Net income is also subject to changes in the shape of the yield curve. For example, a flattening of the yield curve would result in a decline in earnings due to the compression of earning asset yields and increased liability rates, while a steepening would result in increased earnings as earning asset and interest-bearing liability yields widen.

Earnings simulation modeling is the primary mechanism used in assessing the impact of changes in interest rates on net interest income. The model reflects management’s assumptions related to asset yields and rates paid on liabilities, deposit sensitivity, size and composition of the balance sheet. The assumptions are based on what management believes at that time to be the most likely interest rate environment. Earnings at risk is the change in net interest income from a base case scenario under various scenarios of rate shock increases and decreases in the interest rate earnings simulation model.

The table below presents an analysis of the changes in net interest income and net present value of the balance sheet resulting from various increases or decreases in the level of interest rates, such as two percentage points (200 basis points) in the level of interest rates. The calculated estimates of change in net interest income and net present value of the balance sheet are compared to current limits approved by ALCO and the Board of Directors. The earnings simulation model projects net interest income would increase 3.84%, 7.28%, and 10.30% in the 100, 200 and 300 basis point increasing rate scenarios presented. In addition, the earnings simulation model projects net interest income would decrease 5.71%, 12.29%, and 19.58% in the 100, 200 and 300 basis point decreasing rate scenarios presented. All of the forecasts in the increasing and decreasing rate scenarios presented are within the Company’s policy guidelines.

The analysis and model used to quantify the sensitivity of net interest income becomes less reliable in a decreasing rate scenario given the current interest rate environment with federal funds trading in the 300-375 basis point range and many deposit accounts still lagging at markedly lower rates. Results of the decreasing basis point declining scenarios are affected by the fact that many of the Company’s interest-bearing liabilities are at rates below 1% and therefore likely may not decline 100 or more basis points. However, the Company’s interest-sensitive assets are able to decline by these amounts. For the six months ended June 30, 2026 the cost of interest-bearing liabilities averaged 3.29%, and the yield on interest-earning assets, on a fully taxable equivalent basis, averaged 5.29%.

Net Present Value Estimation

The net present value measures economic value at risk and is used for helping to determine levels of risk at a point in time present in the balance sheet that might not be taken into account in the earnings simulation model. The net present value of the balance sheet is defined as the discounted present value of asset cash flows minus the discounted

present value of liability cash flows. At June 30, 2026, net present value is projected to decrease 1.93%, 5.14%, and 9.10% in the 100, 200, and 300 basis point immediate increase scenarios, respectively. Additionally, the 100, 200 and 300 basis point immediate decreases in rates are estimated to affect net present value with decreases of 0.27%, 3.90%, and 12.84%. All scenarios presented are within the Company’s policy limits.

The computation of the effects of hypothetical interest rate changes are based on many assumptions. They should not be relied upon solely as being indicative of actual results, since the computations do not account for actions management could undertake in response to changes in interest rates.

Effect of Change in Interest Rates