UWHARRIE CAPITAL CORP

Previous wording

A discussion and analysis of the Company’s operating results and financial condition are presented in the following narrative and financial tables. The comments are intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 31 through 70 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.

Current wording

A discussion and analysis of the Company’s operating results and financial condition are presented in the following narrative and financial tables. This discussion is intended to supplement and should be reviewed in conjunction with the consolidated financial statements and notes thereto appearing on pages 31 through 69 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 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.

Previous wording

The Company’s total assets increased $56.2 million from $1.07 billion at December 31, 2023 to $1.13 billion at December 31, 2024. Cash and cash equivalents decreased $11.2 million during the same period as the Company utilized the cash and cash equivalents to fund growth of 12.6% in the loans held for its investment portfolio.

Current wording

The Company’s total assets increased $67.5 million from $1.13 billion at December 31, 2024 to $1.20 billion at December 31, 2025. Cash and cash equivalents increased $21.1 million during the same period as a result of growth in customer deposits.

Previous wording

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

Current wording

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

Previous wording

During 2024, the unrealized gain on equity securities increased by $32,000, resulting in a fair value of $334,000 at December 31, 2024, compared to a fair value of $302,000 at December 31, 2023.

Current wording

During 2025, the unrealized gain on equity securities decreased by $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.

Previous wording

Loans held for sale decreased $134,000 from December 31, 2023 to $4.6 million at December 31, 2024. Loans held for investment increased $74.3 million, or 12.6%, from $592.1 million at December 31, 2023 to $666.4 million at December 31, 2024. The Company experienced net growth in all loan sectors with the exception of loans categorized as “Consumer”.

Current wording

Loans held for sale increased $4.5 million from December 31, 2024 to $9.0 million at December 31, 2025. Loans held for investment increased $23.2 million, or 3.5%, from $666.4 million at December 31, 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 “Real Estate 1-4 Family Construction,” “Consumer,” and “Commercial - Other”.

Previous wording

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

Current wording

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

Previous wording

Customer deposits, our primary funding source, experienced a $48.5 million increase during the year, increasing from $981.7 million to $1.03 billion at December 31, 2024, a 4.9% increase. Organic deposit growth, combined with promotional time deposit offerings, contributed to the increase in total deposits. During 2024, demand noninterest-bearing checking accounts increased $2.4 million, and time deposits increased $76.6 million as customers took advantage of higher rates offered on promotional time deposit products. Interest checking and money market accounts decreased $22.2 million and savings deposits decreased $8.2 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.

Current wording

Customer deposits, our primary funding source, experienced a $50.5 million increase during the year, increasing from $1.03 billion to $1.08 billion at December 31, 2025, a 4.9% increase. The overall increase in deposits is attributable to organic deposit growth. During 2025, demand noninterest-bearing checking accounts decreased $2.8 million and interest checking and money market accounts increased $26.3 million. Savings deposits increased $12.1 million and time deposits increased $14.9 million during the twelve-month period ended December 31, 2025.

Previous wording

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, 2024 and 2023, there were no outstanding Federal Home Loan Bank advances. Short-term borrowings consisted of $1.4 million in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.2 million, net of unamortized debt issuance costs of $231,000, at December 31, 2024.

Current wording

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, 2025 and 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 $25,000 in master notes, and long-term borrowings consisted solely of junior subordinated debt securities totaling $29.0 million, net of unamortized debt issuance costs of $154,000, at December 31, 2025.

Previous wording

Other changes in the Company’s liabilities are related to a decrease of $348,000 in other liabilities from December 31, 2023 to December 31, 2024 resulting primarily from a reduction in the reserve for federal income tax payable.

Current wording

Other changes in the Company’s liabilities are related to an increase of $558,000 in other liabilities from December 31, 2024 to December 31, 2025 resulting primarily from an increase in SERP balances, which increased $855,000 for the year. This increase was largely offset by a decrease of $428,000 in lease liability as leases approach expiration.

Previous wording

At December 31, 2024, total shareholders’ equity was $57.7 million, an increase of $8.2 million from December 31, 2023. Net income for the year ended December 31, 2024 was $9.9 million. Improvement in the unrealized loss position on our available for sale securities portfolio contributed $373,000 to the increase in shareholders' equity during the same period. During the twelve-month period ended December 31, 2024, the Company repurchased 184,478 shares of common stock at a total cost of $1.5 million, and the Company paid $566,000 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, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.

Current wording

At December 31, 2025, total shareholders’ equity was $75.6 million, an increase of $17.9 million from December 31, 2024. Net income for the year ended December 31, 2025 was $11.4 million. Improvement in the unrealized loss position on our available for sale securities portfolio contributed $8.2 million to the increase in shareholders’ equity during the same period. During the twelve-month period ended December 31, 2025, the Company repurchased 110,939 shares of common stock at a total cost of $1.1 million, and the Company paid $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, 2025, the Company and its subsidiary bank exceeded all applicable regulatory capital requirements.

Previous wording

Uwharrie Capital Corp reported net income of $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 million. Net income available to common shareholders was $9.3 million, or $1.30 per common share, for the year ended December 31, 2024, compared to net income available to common shareholders of $8.0 million, or $1.09 per common share, for the same period in 2023. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.

Current wording

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, an increase of $1.4 million. Net income available to common shareholders was $10.8 million, or $1.49 per common share, for the year ended December 31, 2025, compared to net income available to common shareholders of $9.3 million, or $1.26 per common share, for the year ended December 31, 2024. Net income available to common shareholders is net income less any dividends paid on the aforementioned noncontrolling interest.

Previous wording

Net interest income increased $3.2 million to a total of $35.9 million for the twelve months ended December 31, 2024 from the $32.7 million reported for the comparative period in 2023. The average yield on our interest-earning assets increased 50 basis points to 5.15%, while the average rate paid for interest-bearing liabilities increased 62 basis points to 2.43%. These changes resulted in a net decrease of 11 basis points in our interest rate spread, from 2.84% in 2023 to 2.73% in 2024. Our net interest margin for 2024 was 3.40%, compared to 3.34% in 2023. 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.

Current wording

Net interest income increased $2.9 million to a total of $38.9 million for the twelve months ended December 31, 2025 from the $35.9 million reported for the comparative period in 2024. The average yield on our interest-earning assets increased 4 basis points to 5.19%, while the average rate paid for interest-bearing liabilities decreased 10 basis points to 2.33%. These changes resulted in a net increase of 13 basis points in our interest rate spread, from 2.73% in 2024 to 2.86% in 2025. Our net interest margin for 2025 was 3.50%, compared to 3.40% in 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.

Previous wording

The net provision for credit losses was $528,000 for the twelve months ended December 31, 2024, compared to a net provision of $1.5 million for the same period in 2023. There were net loan charge-offs of $270,000 for the twelve months ended December 31, 2024, as compared to net loan charge-offs of $631,000 during the same period of 2023. Refer to the Asset Quality section below for further information.

Current wording

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

Previous wording

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%, from $9.5 million in 2023, to $9.7 million in 2024, an increase of $268,000. This improvement is primarily related to positive market value adjustments on supplemental executive retirement plans totaling $428,000 and an increase of $360,000 in other service fees and commissions. These increases were offset by a decrease in income from mortgage banking of $378,000.

Current wording

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 15.6%, from $9.7 million in 2024, to $11.3 million in 2025, an increase of $1.5 million. This improvement is primarily related to an 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 $293,000 and an increase of $325,000 in other service fees and commissions also contributed to the overall increase.

Previous wording

Noninterest expense for the year ended December 31, 2024 was $32.4 million compared to $29.9 million for 2023, an increase of $2.5 million. Salaries and employee benefits, the largest component of noninterest expense, increased $1.5 million from $19.3 million for the period ending December 31, 2023 to $20.8 million for 2024 due to salary increases and more commissions paid on increased mortgage production during the 2024 period. Additionally, positive market value adjustments on supplemental executive retirement plans contributed $428,000 to the increase in noninterest expense. Financial Table 5 reflects the additional breakdown of other noninterest expense.

Current wording

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

Previous wording

The Company had 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%. The year-over-year increase in the effective tax rate is due, in part, to a $63,000 charge to income tax expense 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.

Current wording

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 with an effective tax rate of 22.35%. The year-over-year decrease in the effective tax rate is due, in part, to a $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.

Previous wording

The Company individually reviews loans with total relationship exposure greater than or equal to $100,000 that are determined to be collateral dependent. These collateral dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made 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 based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. 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.

Current wording

Previously, the Company individually reviewed loans that do not share the same risk characteristics as other loans and were determined to be collateral dependent. Beginning 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 are evaluated based on the fair value of the underlying collateral, as repayment is expected to be derived through the operation or sale of the collateral. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are measured using the fair value of collateral at the reporting date, 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.

Previous wording

The allowance, expressed as a percentage of gross loans held for investment, decreased seven basis points from 0.94% at December 31, 2023 to 0.87% at December 31, 2024. The ratio of nonaccrual loans to total loans decreased from 0.19% at December 31, 2023 to 0.03% at December 31, 2024, and was related to the $909,000 decrease in nonaccrual loans. Six loans totaling $847,000 were converted to nonaccrual during 2024. These additions were offset by paydowns of $23,000, six loans totaling $1.4 million that were paid off, three loans that were charged off for $309,000, and one loan of $16,000 that was removed from nonaccrual status.

Current wording

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, increased six basis points from 0.87% at December 31, 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 increased from 0.03% at December 31, 2024 to 0.05% at December 31, 2025, and was related to the $185,000 increase in nonaccrual loans. Four loans totaling $360,000 were converted to nonaccrual during 2025. These additions were offset by paydowns of $46,000, two loans that were charged off for $88,000, and one loan totaling $40,000 that was moved to other real estate owned and the underlying collateral was subsequently sold.

Previous wording

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, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules.

Current wording

Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is exempt from Basel III. As of December 31, 2025, the Company and its subsidiary bank continue to exceed minimum capital standards and remain well-capitalized under applicable capital adequacy rules.

Previous wording

During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $1,000 per security with a required minimum investment of $50,000. The offering raised $10.0 million, of which $9.6 million was outstanding at December 31, 2024. These securities have a final maturity date of September 30, 2029 and became redeemable by the Company on September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. All proceeds of this private placement qualify as and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. At December 31, 2024, $7.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.

Current wording

During the third quarter of 2019, the Company conducted a private placement offering of fixed rate junior subordinated debt securities at $1,000 per security with a required minimum investment of $50,000. The offering raised $10.0 million, of which $9.5 million was outstanding at December 31, 2025. These securities have a final maturity date of September 30, 2029 and became redeemable by the Company on September 30, 2024. The junior subordinated debt pays interest quarterly at an annual fixed rate of 5.25%. All proceeds of this private placement qualify as and are included in the calculation of Tier 2 capital. Once the remaining term to maturity drops under five years, the Company must impose a twenty percent annual reduction per year of the amount of the proceeds from the sale of these securities that are eligible to be counted as Tier 2 capital. At December 31, 2025, $5.7 million of the subordinated debt issued in 2019 qualifies as Tier 2 capital.

Previous wording

The Board of Directors of Uwharrie Capital Corp declared a 2.0% stock dividend in 2024 and 2023 and a 2.5% stock dividend in 2022. 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.

Current wording

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. 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.

Previous wording

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 flow 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% and 36.5% of total deposits at December 31, 2024 and 2023, respectively.

Current wording

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 flows 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 40.5% and 38.8% of total deposits at December 31, 2025 and 2024, respectively.

Previous wording

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 December 31, 2024, these sources are 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 Federal Home Loan Bank, with available credit of $169.3 million; and access to borrowings from the Federal Reserve Bank discount window, with available credit of $28.3 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 December 31, 2024, $3.0 million remains available for use on the line of credit.

Current wording

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 December 31, 2025, these sources are 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 Federal Home Loan Bank, with available credit of $162.2 million; and access to borrowings from the Federal Reserve Bank discount window, with available credit of $33.8 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 December 31, 2025, $3.0 million remains available for use on the line of credit.

Previous wording

At December 31, 2024, short-term borrowings totaled $1.4 million. Long-term debt at that date consisted solely of $29.2 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 and $1.0 billion, respectively, at December 31, 2024. Note 7 (Leases) and Note 8 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.

Current wording

At December 31, 2025, short-term borrowings totaled $25,000. Long-term debt at that date consisted solely of $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 $768,000 and $1.1 billion, respectively, at December 31, 2025. Note 7 (Leases) and Note 8 (Deposits) to the Notes to Consolidated Financial Statements provide additional information, including maturities, regarding these obligations.

Previous wording

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 are determined to be collateral dependent 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.

Current wording

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 that do not share the same risk 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.

Previous wording

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, indicates a negative impact of (0.43%) on Margin in a rates-down scenario and a negative impact of (3.40%) on Margin in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is liability-sensitive and may experience some negative impact to earnings should interest rates increase. The Bank has the potential to benefit from a declining interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the potential benefit.

Current wording

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 indicates a negative impact of 9.19% on Margin in a rates-down scenario and a positive impact of 0.92% in a rates-up scenario. Based on the most recent twelve-month forecast, the subsidiary bank is more asset-sensitive and may experience some negative impact to earnings should interest rates decrease. The Bank has the potential to benefit from an increasing interest rate environment, but current market deposit pricing and embedded options in the balance sheet may limit the potential benefit.

Previous wording

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.

Current wording

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 funding source needs, asset growth projections, and necessary operating liquidity.