WILSON BANK HOLDING CO

Previous wording

The purpose of this discussion is to provide insight into the financial condition and results of operations of Wilson Bank Holding Company (the "Company", "our" or "we") and its bank subsidiary, Wilson Bank & Trust (the "Bank"). Encompass Home Lending LLC ("Encompass"), a company offering mortgage banking services, was 51% owned by the Bank. Effective June 1, 2025 the Bank sold its 51% membership interest to Encompass Home Lending Investors, LLC, the other member of Encompass. The results of Encompass through the date of sale are consolidated in the Company's financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with the Company's consolidated financial statements appearing elsewhere in this report. Reference should also be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the "SEC") on February 28, 2025 (the "2024 Form 10-K") for a more complete discussion of factors that impact the Company's liquidity, capital and results of operations.

Current wording

The purpose of this discussion is to provide insight into the financial condition and results of operations of Wilson Bank Holding Company (the "Company", "our" or "we") and its bank subsidiary, Wilson Bank & Trust (the "Bank"). Encompass Home Lending LLC ("Encompass"), a company offering mortgage banking services, was 51% owned by the Bank until June 1, 2025 when the Bank sold its 51% membership interest to Encompass Home Lending Investors, LLC, the other member of Encompass. The results of Encompass through the date of sale are consolidated in the Company's financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with the Company's consolidated financial statements appearing elsewhere in this report. Reference should also be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (the "SEC") on February 27, 2026 (the "2025 Form 10-K") for a more complete discussion of factors that impact the Company's liquidity, capital and results of operations.

Previous wording

This Form 10-Q contains certain forward-looking statements within the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") regarding, among other things, the anticipated financial and operating results of the Company. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

Current wording

This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") regarding, among other things, the anticipated financial and operating results of the Company. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

Previous wording

The Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. The words “expect,” “intend,” “should,” “may,” “could,” “believe,” “suspect,” “anticipate,” “seek,” “plan,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those described in the 2024 Form 10-K, and also include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in credit losses and provisions for these losses, (ii) deterioration in the real estate market conditions in the Company’s market areas including demand for residential real estate loans as a result of elevated rates on residential real estate mortgage loans, (iii) the impact of U.S. and global economic conditions, trade policies and tensions, including changes in, or the imposition of, tariffs and/or trade barriers and the economic impacts, volatility and uncertainty resulting therefrom, and geopolitical instability, (iv) the impact of increased competition with other financial institutions, including pricing pressures on loans and deposits, and the resulting impact on the Company's results, including as a result of compression to net interest margin, (v) adverse conditions in local or national economies, including the economy in the Company’s market areas, including as a result of the impact of escalating geopolitical tensions, political uncertainty, inflationary pressures and the elevated rate environment, supply chain disruptions and labor shortages on our customers and on their businesses, (vi) risks associated with a prolonged shutdown of the United States federal government, including adverse effects on the national or local economies and adverse effects from a shutdown of the U.S. Small Business Administration's loan program, (vii) the sale of investment securities in a loss position before their value recovers, including as a result of asset liability management strategies or in response to liquidity needs, (viii) fluctuations or differences in interest rates on earning assets and interest bearing liabilities from those that the Company is modeling or anticipating, including as a result of the Bank's inability to maintain deposit rates or defer increases to those rates in an elevated rate environment or lower rates in a falling rate environment, (ix) the ability to grow and retain low-cost core deposits, (x) the impact of changes in interest rates on the value of the Company's mortgage servicing rights, (xi) significant downturns in the business of one or more large customers, (xii) the inability of the Company to comply with regulatory capital requirements, including those resulting from ch…

Excerpt shortened here; the source contains the full paragraph.

Current wording

The Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. The words “expect,” “intend,” “should,” “may,” “could,” “believe,” “suspect,” “anticipate,” “seek,” “plan,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those described in the 2025 Form 10-K, and also include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in credit losses and provisions for these losses, (ii) deterioration in the real estate market conditions in the Company’s market areas including demand for residential real estate loans as a result of elevated rates on residential real estate mortgage loans, (iii) the impact of U.S. and global economic conditions, trade policies and tensions, including changes in, or the imposition of, tariffs and/or trade barriers and the economic impacts, volatility and uncertainty resulting therefrom and from geopolitical instability, including as a result of the conflict in Iran (iv) the impact of increased competition with other financial institutions, including pricing pressures on loans and deposits, and the resulting impact on the Company's results, including as a result of compression to net interest margin, (v) adverse conditions in local or national economies, including the economy in the Company’s market areas, including as a result of the impact of escalating geopolitical tensions, including the conflict in Iran, political uncertainty, inflationary pressures and the elevated rate environment, supply chain disruptions and labor shortages on our customers and on their businesses, (vi) risks associated with a prolonged shutdown of the United States federal government, including adverse effects on the national or local economies and adverse effects from a shutdown of the U.S. Small Business Administration's loan program, (vii) the sale of investment securities in a loss position before their value recovers, including as a result of asset liability management strategies or in response to liquidity needs, (viii) fluctuations or differences in interest rates on earning assets and interest bearing liabilities from those that the Company is modeling or anticipating, including as a result of the Bank's inability to maintain deposit rates or defer increases to those rates in an elevated rate environment or lower rates in a falling rate environment, (ix) the ability to grow and retain low-cost core deposits, (x) the impact of changes in interest rates on the value of the Company's mortgage servicing rights, (xi) significant downturns in the business of one or more large customers, (xii) the inability of the Company…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Net earnings of the Company for the three months ended September 30, 2025 were $17,871,000 an increase of $5,185,000, or 40.87%, from net earnings of $12,686,000 for the three months ended September 30, 2024. Net earnings of the Company increased$11,787,000, or 28.34%, to$53,378,000 for thenine months ended September 30, 2025, from$41,591,000 in thef irst nine months of 2024. The increase in net earnings for the three months ended September 30, 2025 was primarily due to an increase in net interest income and a decrease in provision for credit losses, partially offset by a decrease in non-interest income and an increase in non-interest expense. The increase in net earnings for the nine months ended September 30, 2025 was primarily due to increases in net interest income and non-interest income, partially offset by increases in provision for credit losses and non-interest expense.

Current wording

Net earnings of the Company for the three months ended March 31, 2026 were $22,261,000, an increase of $5,869,000, or 35.80%, from net earnings of $16,392,000 for the three months ended March 31, 2025. The increase in net earnings for the three months ended March 31, 2026 was primarily due to an increase in net interest income, and non-interest income, partially offset by an increase in non-interest expense and provision for credit losses.

Previous wording

The increase in net interest income for the three months ended September 30, 2025 when compared to the comparable period in 2024 was primarily due to an increase in average interest earning asset balances, and a decrease in the cost of funds, partially offset by an increase in average interest bearing deposit balances and a decrease in the average yield earned on earning assets.

Current wording

The increase in net interest income for the three months ended March 31, 2026 when compared to the comparable period in 2025 was primarily due to an increase in average interest earning asset balances and a decrease in the cost of funds, partially offset by an increase in average interest bearing deposit balances.

Previous wording

The changes in non-interest income and non-interest expenses are discussed in more detail below in the sections of this report titled, "Non-Interest Income" and "Non-Interest Expense". The changes in provision for credit losses are discussed in more detail below in the section of this report titled "Provision For Credit Losses".

Current wording

The changes in non-interest income and non-interest expense are discussed in more detail below in the sections of this report titled, "Non-Interest Income" and "Non-Interest Expense". The changes in provision for credit losses are discussed in more detail below in the section of this report titled "Provision For Credit Losses".

Previous wording

Return on average assets ("ROA") and return on average shareholders' equity ("ROE") are common benchmarks for bank profitability and in the case of the Company are calculated by taking our annualized net earnings for the relevant period and dividing that amount by our average assets and average equity for the relevant periods, respectively. ROA and ROE measure a company’s return on investment in a format that is easily comparable to other financial institutions. ROA is particularly important to the Company as it serves as the basis for certain employee bonuses. The ROA for the three and nine months ended September 30, 2025 was 1.23% and 1.28%, respectively, while the ROA for the three and nine months ended September 30, 2024 was 0.99% and 1.12%, respectively. The ROE for the three and nine months ended September 30, 2025 was 13.06% and 13.70%, respectively, while the ROE for the three and nine months ended September 30, 2024 was 10.66% and 12.42%, respectively. The increases in ROA and ROE for the three and nine month periods ended September 30, 2025, were primarily driven by higher net interest income due to growth in earning assets, partially offset by higher non-interest expenses. For the three month period ended September 30, 2025, further contributing to the improvement when compared to the comparable 2024 period was a lower provision for credit losses, while for the nine month period ended September 30, 2025, there was an increase in provision for credit losses.

Current wording

Return on average assets ("ROA") and return on average shareholders' equity ("ROE") are common benchmarks for bank profitability and in the case of the Company are calculated by taking our annualized net earnings for the relevant period and dividing that amount by our average assets and average equity for the relevant periods, respectively. ROA and ROE measure a company’s return on investment in a format that is easily comparable to other financial institutions. ROA is a particularly important performance metric to the Company as it serves as the basis for certain employee bonuses. The ROA for the three months ended March 31, 2026 was 1.53%, while the ROA for the three months ended March 31, 2025 was 1.23%. The ROE for the three months ended March 31, 2026 was 15.18%, while the ROE for the three months ended March 31, 2025 was 13.35%. The increases in ROA and ROE for the first quarter of 2026 were primarily driven by higher net interest income.

Previous wording

The average balances, interest, and average rates of our assets and liabilities for thethree and nine months ended September 30, 2025 and 2024 are presented in the following table (dollars in thousands):

Current wording

The average balances, interest, and average rates of our assets and liabilities for thethree months ended March 31, 2026 and 2025 are presented in the following table (dollars in thousands):

Previous wording

Loan fees of $4,512,000 are included in interest income for the period ended September 30, 2025. Loan fees of $4,444,000 are included in interest income for the period ended September 30, 2024.

Current wording

Loan fees of $3,618,000 are included in interest income for the period ended March 31, 2026. Loan fees of $3,574,000 are included in interest income for the period ended March 31, 2025.

Previous wording

The components of our loan yield, a key driver to our net interest margin for thethree and nine months ended September 30, 2025 and 2024, were as follows:

Current wording

The components of our loan yield, a key driver to our net interest margin for thethree months ended March 31, 2026 and 2025, were as follows:

Previous wording

Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings. Net interest income, excluding tax equivalent adjustments relating to tax exempt securities and loans, for the three and nine months ended September 30, 2025 totaled$49,487,000 and $143,004,000, respectively. Net interest income, excluding tax equivalent adjustments relating to tax exempt securities and loans, for the three and nine months ended September 30, 2024 totaled $41,015,000 and $115,036,000, respectively.

Current wording

Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings. Net interest income, excluding tax equivalent adjustments relating to tax exempt securities and loans, for the three months ended March 31, 2026 totaled$53,828,000 compared to $44,579,000 for the three months ended March 31, 2025.

Previous wording

The increase in net interest income for the three months ended September 30, 2025 compared to the comparable period in 2024 was primarily due to an increase in the volume of average interest-earning assets, an increase in the yield earned on securities, and higher account balances with depository institutions, partially offset by an increase in interest expense resulting from an increase in the volume of average interest-bearing deposits. The increase in net interest income for the nine months ended September 30, 2025 compared to the first nine months of 2024 was primarily due to an increase in the volume of average interest-earning assets, increases in the yield earned on loans and securities, and a decrease in our cost of funds, partially offset by an increase in interest expense resulting from an increase in the volume of average interest-bearing deposits.

Current wording

The increase in net interest income for the three months ended March 31, 2026 compared to the comparable period in 2025 was primarily due to an increase in the volume of average interest-earning assets, an increase in the yield earned on loans and securities, and a decrease in interest expense resulting from the decrease in the cost of funds, partially offset by an increase in the volume of average interest-bearing deposits.

Previous wording

The ratio of average interest-earning assets to total average assets for thethree and nine months ended September 30, 2025 was 96.2%, compared to 96.0% and 95.8% for the three and nine months ended September 30, 2024, respectively.

Current wording

The ratio of average interest-earning assets to total average assets for thethree months ended March 31, 2026 was 96.4%, compared to 96.2% for the three months ended March 31, 2025.

Previous wording

Interest expense increased in the three and nine months ended September 30, 2025 when compared to the comparable periods in 2024 due to an increase in the volume of average interest-bearing deposits offset in part by a reduction in the average interest rate we are paying on most of our deposit accounts. We have generally been able to lower the rates we pay on deposits as the Federal Reserve has lowered short-term interest rates; however, if competitive pressures increase, if the Federal Reserve does not cut the federal funds rate any further or loan growth outpaces deposit growth, we may have to once again raise the rates we pay on deposits which would negatively impact our net interest margin. During the three and nine month periods ended September 30, 2025, we have offered promotions on certain of our savings products to incentivize increases in those balances. Even if rates remain at current levels or the Federal Reserve continues to cut rates, we expect interest expense to continue to increase due to an increase in overall deposit balances.

Current wording

Interest expense decreased in the three months ended March 31, 2026 when compared to the comparable period in 2025 due to a decrease in the average rate paid on interest-bearing deposits, partially offset by the increase in volume of average interest-bearing deposits. We have generally been able to lower the rates we pay on deposits as the Federal Reserve has lowered short-term interest rates; however, if competitive pressures increase, if the Federal Reserve does not cut the federal funds rate any further or loan growth outpaces deposit growth, we may have to raise the rates we pay on deposits which would negatively impact our net interest margin. Even if rates remain at current levels or the Federal Reserve continues to cut rates, we expect interest expense to increase due to an increase in overall deposit balances.

Previous wording

The direction and speed with which short-term interest rates move has an impact on our net interest income. The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate decreased by 150 basis points between September 18, 2024 and October 30, 2025, as the Federal Reserve cut the target rate for the federal funds rate by 150 basis points during that time, including one 25 basis point cut on September 18, 2025 and one 25 basis point cut on October 30, 2025. The Company believes that short-term interest rates could decrease further into 2026, as there is a possibility that the Federal Reserve makes an additional cut to the federal funds rate in December 2025. In such a rate environment, expansion of the Company's net interest margin will be dependent upon, in part, whether the Company can lower deposit rates quicker than the rates it earns on loans and other interest-earning assets reprice. However, if short-term interest rates decline further the Company's net interest margin and earnings could be negatively impacted if the yields on loans and other interest-earning assets decrease faster than the Company is able to lower deposit rates, including as a result of loan growth outpacing our ability to add lower cost core deposits or competitive pressures in our markets limiting our ability to reduce the rates we pay on deposits, particularly given that our loan portfolio primarily consists of variable rate loans.

Current wording

The direction and speed with which short-term interest rates move has an impact on our net interest income. The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate decreased by 175 basis points between September 18, 2024 and December 31, 2025, as the Federal Reserve cut the target rate for the federal funds rate by 175 basis points during that time. In the first quarter of 2026, the target rate for the Federal funds rate was unchanged. The Company believes that short-term interest rates could decrease further throughout 2026 though elevated levels of inflation and the affect on the economic environment from the conflict in Iran could cause the Federal Reserve to keep short-term rates at current levels. In such a downward rate environment, should it materialize, expansion of the Company's net interest margin will be dependent upon, in part, whether the Company can lower deposit rates quicker than the rates it earns on loans and other interest-earning assets reprice downward. However, if short-term interest rates decline further the Company's net interest margin and earnings could be negatively impacted if the yields on loans and other interest-earning assets decrease faster than the Company is able to lower deposit rates, including as a result of loan growth outpacing our ability to add lower cost core deposits or competitive pressures in our markets limiting our ability to reduce the rates we pay on deposits, particularly given that our loan portfolio primarily consists of variable rate loans.

Previous wording

The provision for credit losses-loans of $1,373,000 for the three months ended September 30, 2025 was primarily driven by credit deterioration, the national and local economic outlook, and loan growth. There was a provision of $3,563,000 for the three months ended September 30, 2024 primarily due to loan growth and a single commercial real estate credit deterioration.

Current wording

The provision for credit losses-loans of $2,541,000 for the three months ended March 31, 2026 was primarily driven by deterioration in collateral values on some individually measured loans, the national economic outlook, and loan growth. There was a provision of $2,233,000 for the three months ended March 31, 2025 primarily due to loan growth and a single commercial real estate credit deterioration.

Previous wording

There was a provision for credit losses-off balance sheet exposures of $27,000 for the three months ended September 30, 2025 related to increased loan commitments. A net benefit to the provision for credit losses-off balance sheet exposures of $243,000 for the nine months ended September 30, 2025, was primarily due to an updated expected line utilization and an increase in our unconditionally cancellable commitments. There was a benefit of $563,000 for the credit losses-off balance sheet exposures for the three and nine months ended September 30, 2024.

Current wording

There was a provision for credit losses-off balance sheet exposures of $144,000 for the three months ended March 31, 2026 related to increased loan commitments. There was a benefit of $393,000 for the credit losses-off balance sheet exposures for the three months ended March 31, 2025.

Previous wording

The following detail provides a breakdown of the provision for credit loss-loans expense and net (charge-offs) recoveries as of and for the nine months ended September 30, 2025 and 2024:

Current wording

The following detail provides a breakdown of the provision for credit loss-loans expense and net (charge-offs) recoveries as of and for the three months ended March 31, 2026 and 2025:

Previous wording

There was no provision for credit losses on available-for-sale securities for the three and nine months ended September 30, 2025 and 2024, respectively.

Current wording

There was no provision for credit losses on available-for-sale securities for the three months ended March 31, 2026 and 2025, respectively.

Previous wording

Our non-interest income is composed of several components, some of which vary significantly between quarterly and annual periods. The following is a summary of our non-interest income for the three and nine months ended September 30, 2025 and 2024 (in thousands):

Current wording

Our non-interest income is composed of several components, some of which vary significantly between quarterly and annual periods. The following is a summary of our non-interest income for the three months ended March 31, 2026 and 2025 (in thousands):

Previous wording

The decrease in non-interest income for the three months ended September 30, 2025 when compared to the comparable period in 2024 is primarily attributable to an increase in loss on sale of securities, a decrease in the gain on sale of loans, and a decrease in debit and credit card interchange income, partially offset by an increase in brokerage income and an increase service charges on deposit accounts. The increase in non-interest income for the nine months ended September 30, 2025 when compared to the comparable period in 2024 is primarily attributable to increases in brokerage income, service charges on deposit accounts, and income on BOLI and annuity contracts, partially offset by decreases in debit and credit card interchange income, gain on sale of loans, and an increase in the loss on sale of securities.

Current wording

The increase in non-interest income for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025 is primarily attributable to the premium earned on the sale of the Company's credit card portfolio, an increase in service charges on deposit accounts and an increase in brokerage income, partially offset by a decrease in debit and credit card interchange income.

Previous wording

The increase in service charges on deposit accounts for the three and nine months ended September 30, 2025 was primarily due to increases in insufficient funds charges and treasury service charges.

Current wording

The increase in service charges on deposit accounts for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025 was primarily due to an increase in overdraft fees.

Previous wording

The increase in brokerage income for the three and nine months ended September 30, 2025 was primarily due to multiple client acquisitions and estate planning cases resulting in an increase of overall production and market share, the successful addition of new advisor relationships, and the positive performance of financial markets in a variety of diversified areas.

Current wording

The increase in brokerage income for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025 was due to continued client acquisitions resulting in an increase of overall production and market share.

Previous wording

Non-interest expense consists primarily of employee costs, occupancy expenses, furniture and equipment expenses, advertising and public relations expenses, data processing expenses, director’s fees, audit, legal and consulting fees, FDIC insurance and other operating expenses. The following is a summary of our non-interest expense for the three and nine months ended September 30, 2025 and 2024 (in thousands):

Current wording

Non-interest expense consists primarily of employee costs, occupancy expenses, furniture and equipment expenses, advertising and public relations expenses, data processing expenses, directors' fees, audit, legal and consulting fees, FDIC insurance and other operating expenses. The following is a summary of our non-interest expense for the three months ended March 31, 2026 and 2025 (in thousands):

Previous wording

The increase in non-interest expense for the three and nine months ended September 30, 2025 when compared to the comparable periods in 2024 is primarily attributable to increases in salaries and employee benefits, other operating expenses, data processing expense, FDIC insurance, and advertising and public relations expense.

Current wording

The increase in non-interest expense for the three months ended March 31, 2026 when compared to the comparable period in 2025 is primarily attributable to increases in salaries and employee benefits, occupancy expense, data processing expense, and other operating expense, partially offset by a reduction in FDIC insurance.

Previous wording

The increase in data processing expense in the three and nine months ended September 30, 2025 was primarily due to implementation of additional information security solutions, replacement of technology equipment, and an increase in the overall number of customers. The Company anticipates that data processing expenses will continue to increase as the Company's operations grow, the demand for digital products and services from customers increases, and the cyber threat environment grows.

Current wording

The increase in data processing expense in the three months ended March 31, 2026 when compared to the three months ended March 31, 2025 was primarily due to implementation of additional information security solutions, replacement of technology equipment, additional software licensing needs, and an increase in the overall number of customers. The Company anticipates that data processing expenses will continue to increase as the Company's operations and employee base grows, the demand for digital products and services from employees and customers increases, and the cyber threat environment grows.

Previous wording

The efficiency ratio is a common and comparable KPI used in the banking industry. The Company uses this metric to monitor how effective management is at using our internal resources. It is calculated by dividing our non-interest expense by our net interest income plus non-interest income. The efficiency ratio for the nine months ended September 30, 2025 and 2024 was 54.50% and 58.68%, respectively. The efficiency ratio for the three months ended September 30, 2025 and 2024 was 55.71% and 59.12%, respectively. The improvement in the efficiency ratio for the three and nine months ended September 30, 2025 compared to the comparable periods in 2024 was primarily due to the increase in net interest income outpacing the increase in non-interest expense.

Current wording

The efficiency ratio is a common and comparable KPI used in the banking industry. The Company uses this metric to monitor how effective management is at using our internal resources. It is calculated by dividing our non-interest expense by our net interest income plus non-interest income. The efficiency ratio for the three months ended March 31, 2026 and 2025 was 50.08% and 55.54%, respectively. The improvement in the efficiency ratio for the three months ended March 31, 2026 compared to the comparable period in 2025 was primarily due to the increase in net interest income outpacing the increase in non-interest expense.

Previous wording

The Company's income tax expense for the three months ended September 2025 was $5,285,000, an increase of $1,620,000 from $3,665,000 for the three months ended September 2024. The Company’s income tax expense was $16,259,000 for the nine months ended September 30, 2025, an increase of $4,217,000 from $12,042,000 for the comparable period in 2024. The percentage of income tax expense to net income before taxes was 22.82% and 22.38% for the three months ended September 30, 2025 and 2024, respectively. The percentage of income tax expense to net income before taxes was 23.34% and 22.41% for the nine months ended September 30, 2025 and 2024, respectively. Our effective tax rate represents our blended federal and state rate of 26.14% affected by the impact of anticipated favorable permanent differences between our book and taxable income such as share-based compensation, bank-owned life insurance, income earned on tax-exempt securities and loans, and certain federal and state tax credits, offset in part by the limitation on deductibility of meals and entertainment expense and non-deductible executive compensation.

Current wording

The Company's income tax expense for the three months ended March 31, 2026 was $6,725,000, an increase of $1,544,000 from $5,181,000 for the three months ended March 31, 2025. The percentage of income tax expense to net income before taxes was 23.20% and 24.01% for the three months ended March 31, 2026 and 2025, respectively. Our effective tax rate represents our blended federal and state rate of 26.14% affected by the impact of anticipated favorable permanent differences between our book and taxable income such as share-based compensation, bank-owned life insurance, income earned on tax-exempt securities and loans, and certain state tax credits, offset in part by the limitation on deductibility of meals and entertainment expense and non-deductible executive compensation.

Previous wording

The Company’s total assets increased $478,259,000, or 8.92%, to $5,836,918,000 at September 30, 2025 from $5,358,659,000 at December 31, 2024. Loans, net of allowance for credit losses, totaled $4,313,946,000 at September 30, 2025, a 6.72% increase compared to $4,042,392,000 at December 31, 2024. In 2025, management is targeting owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of focus. Total liabilities increased by 8.29% to $5,283,192,000 at September 30, 2025 compared to $4,878,956,000 at December 31, 2024.

Current wording

The Company’s total assets increased $112,324,000, or 1.91%, to $5,991,280,000 at March 31, 2026 from $5,878,956,000 at December 31, 2025. Loans, net of allowance for credit losses, totaled $4,336,852,000 at March 31, 2026, a 0.95% increase compared to $4,296,095,000 at December 31, 2025. In 2026, management is targeting owner-occupied commercial real estate, residential real estate lending and small business lending as areas of focus. Total liabilities increased by 1.88% to $5,396,686,000 at March 31, 2026 compared to $5,297,271,000 at December 31, 2025.

Previous wording

Overall, the Bank's loan demand and related new loan production remained steady throughout the Bank's markets in the first nine months of 2025, yielding a year-to-date total loan growth net of deferred loan fees of 6.77%. Total loan growth net of deferred loan fees for the first nine months of 2025 was $277,069,000. Contributing to the Company's loan growth in the first nine months of 2025 were the continued population growth and corporate relocations in the Bank's primary market areas and increased marketing efforts. The increase in residential 1-4 family real estate loans is attributable to the Bank successfully growing its residential portfolio through enhanced marketing efforts in the Bank's market areas, and the increase the Company is seeing in the investor sector of 1-4 family. The increase in commercial and multi-family real estate and 1-4 family equity lines of credit is primarily attributable to continued economic growth and expansion in the Bank's primary market areas. The Company anticipates that loan growth will be steady into 2026.

Current wording

Total loan growth net of deferred loan fees for the first quarter of 2026 was $42,970,000, which was up 0.99% from December 31, 2025. Contributing to the Company's loan growth in the first three months of 2026 were the continued population growth and corporate relocations in the Bank's primary market areas and increased marketing efforts. The increase in residential 1-4 family real estate loans is attributable to the Bank successfully growing its residential portfolio through enhanced marketing efforts in the Bank's market areas, and the increase the Company is seeing in the investor sector of 1-4 family. The increase in commercial and multi-family real estate loans is primarily attributable to continued economic growth and expansion in the Bank's primary market areas.

Previous wording

Our allowance for credit losses for loans at September 30, 2025 reflects an amount deemed appropriate to adequately cover all expected future losses as of the date the allowance is determined based on our allowance for credit losses for loans assessment methodology. The allowance for credit losses for loans (net of charge-offs and recoveries) increased to $55,012,000 at September 30, 2025 from $49,497,000 at December 31, 2024, primarily due to a worsening economic outlook, slight credit deterioration, and loan growth. The allowance for credit losses for loans was 1.26% of total loans outstanding at September 30, 2025 compared to 1.21% at December 31, 2024. The internally classified loans as a percentage of the allowance for credit losses for loans were 127.1% and 97.0% respectively, at September 30, 2025 and December 31, 2024. The increase was primarily a result of deteriorating credits in the residential 1-4 family real estate and commercial real estate segments.

Current wording

Our allowance for credit losses for loans at March 31, 2026 reflects an amount deemed appropriate to adequately cover all expected future losses as of the date the allowance is determined based on our allowance for credit losses for loans assessment methodology. The allowance for credit losses for loans (net of charge-offs and recoveries) increased to $57,247,000 at March 31, 2026 from $55,034,000 at December 31, 2025, primarily due to a worsening economic outlook, deterioration in collateral values on some individually measured loans, and loan growth. The allowance for credit losses for loans was 1.30% of total loans outstanding at March 31, 2026 compared to 1.26% at December 31, 2025. The internally classified loans as a percentage of the allowance for credit losses for loans were 99.5% and 116.1% respectively, at March 31, 2026 and December 31, 2025. The decrease was primarily a result of improving credits in the commercial real estate segments.

Previous wording

The allowance for credit losses for loans is an amount that management believes will be adequate to absorb expected losses on existing loans that may become uncollectible as of the measurement date. The allowance for credit losses for loans as a percentage of total loans outstanding at September 30, 2025, net of deferred fees, increased from the year ended December 31, 2024. The increase was primarily driven by a deteriorating national economic factor outlook utilized within our allowance models, minor credit deterioration, and weaker local economic conditions.

Current wording

The allowance for credit losses for loans is an amount that management believes will be adequate to absorb expected losses on existing loans that may become uncollectible as of the measurement date. The allowance for credit losses for loans as a percentage of total loans outstanding at March 31, 2026, net of deferred fees, increased from the year ended December 31, 2025. The increase was primarily driven by a deteriorating national economic factor outlook utilized within our allowance models, deterioration in collateral values on some individually measured loans, and loan growth.

Previous wording

In estimating expected credit losses as of September 30, 2025, we utilized then available forecasts of macroeconomic variables over our reasonable and supportable horizon based on the review of a variety of forecasts of the U.S. economy provided by Moody's Analytics. Key economic variables as forecasted and utilized in our models include: (i) U.S. Gross Domestic Product ("GDP") with annual growth rates in the range of 1.3% to 1.8%; (ii) a U.S. unemployment rate in the range of approximately 4.4% to 4.8%; (iii) a

Current wording

In estimating expected credit losses as of March 31, 2026, we utilized then available forecasts of macroeconomic variables over our reasonable and supportable horizon based on the review of a variety of forecasts of the U.S. economy provided by Moody's Analytics. Key economic variables as forecasted and utilized in our models include: (i) U.S. Gross Domestic Product ("GDP") with annual growth rates in the range of 1.2% to 2.8%; (ii) U.S. unemployment rates in the range of approximately 4.6% to 5.0%; (iii) Home Price Index annual growth rates in the range of approximately 1.1% to 1.8%; (iv) CRE Price Index annual growth rates in the range of approximately -2.3% to 0.5%; and (v) Gross Private Investment annual growth rates in the range of approximately 1.4% and 4.2%.

Previous wording

Our charge-off policy for collateral dependent loans is similar to our charge-off policy for all loans in that loans are charged-off in the month when a determination is made that the loan is uncollectible. Net charge-offs for the three months ended September 30, 2025 were $215,000 compared to net charge-offs of $182,000 for the three months ended September 30, 2024, an increase of $33,000. Net charge-offs increased by $229,000 to $598,000 for the nine months ended September 30, 2025, compared to net charge-offs of $369,000 for the nine months ended September 30, 2024. The ratio of net charge-offs to average total outstanding loans was 0.01% for the nine months ended September 30, 2025 and nine months ended September 30, 2024. Overall, the Bank experienced minimal charge-offs during the three and nine months ended September 30, 2025 and it is expected that charge-offs will continue to be modest for the remainder of 2025; however, a deterioration in economic conditions may negatively impact charge-offs in the future.

Current wording

Our charge-off policy for collateral dependent loans is similar to our charge-off policy for all loans in that loans are charged-off in the month when a determination is made that the loan is uncollectible. Net charge-offs increased by $78,000 to $328,000 for the three months ended March 31, 2026, compared to net charge-offs of $250,000 for the three months ended March 31, 2025. The ratio of net charge-offs to average total outstanding loans was 0.01% for the three months ended March 31, 2026 and three months ended March 31, 2025. Overall, the Bank experienced minimal charge-offs during the three months ended March 31, 2026 and it is expected that charge-offs will continue to be modest for the remainder of 2026; however, a deterioration in economic conditions may negatively impact charge-offs in the future.

Previous wording

We also maintain an allowance for credit losses on off-balance sheet exposures, which decreased $243,000 from $2,555,000 at December 31, 2024 to $2,312,000 at September 30, 2025 as a result of an updated expected line utilization and an increase in our unconditionally cancellable commitments.

Current wording

We also maintain an allowance for credit losses on off-balance sheet exposures, which increased $144,000 from $2,340,000 at December 31, 2025 to $2,484,000 at March 31, 2026 as a result of increased commitments.

Previous wording

Securities increased $64,556,000, or 7.80%, to $892,449,000 at September 30, 2025 from $827,893,000 at December 31, 2024. The increase is primarily due to the purchase of new securities, including in connection with the securities portfolio restructuring we completed in the third quarter of 2025 as discussed above, and the decrease in the unrealized loss position of our securities portfolio that was partially a result of the decreases in the federal funds rate in 2025, partially offset by the sale of securities and the run-off of our declining balance securities. The average yield, excluding tax equivalent adjustment, of the securities portfolio at September 30, 2025 was 2.90% with a weighted average life of 6.93 years, as compared to an average yield of 2.47% and a weighted average life of 7.00 years at December 31, 2024. The weighted average lives on mortgage-backed securities reflect the repayment rate used for book value calculations.

Current wording

Securities increased $75,319,000, or 7.79%, to $1,041,823,000 at March 31, 2026 from $966,504,000 at December 31, 2025. The increase is primarily due to the purchase of new securities, partially offset by the run-off of our declining balance securities. The average yield, excluding tax equivalent adjustment, of the securities portfolio at March 31, 2026 was 3.13% with a weighted average life of 6.89 years, as compared to an average yield of 3.02% and a weighted average life of 7.05 years at December 31, 2025. The weighted average lives on mortgage-backed securities reflect the repayment rate used for book value calculations.

Previous wording

Premises and equipment increased $1,101,000, or 1.79%, from December 31, 2024 to September 30, 2025. The primary reason for the increase was due to the purchase of the Cookeville branch and the purchase of computer equipment and software, partially offset by current year depreciation of $3,056,000.

Current wording

Premises and equipment increased $283,000, or 0.45%, from December 31, 2025 to March 31, 2026. The primary reason for the increase was due to ATM software updates and replacement of certain ATMs and remodeling of certain branches, partially offset by current year depreciation of $981,000.

Previous wording

Deposits increased by $391,228,000, or 8.10%, in the first nine months of 2025, primarily due to growth in market share and concerted marketing efforts to drive deposit growth which resulted in the opening of new deposit accounts. Additionally, the Bank opened new branches in December of 2024 and March of 2025, and purchased a branch in April of 2025, effectively expanding the customer base. The Company had no brokered deposits at September 30, 2025 or December 31, 2024.

Current wording

Deposits increased by $93,288,000, or 1.78%, in the first quarter of 2026, primarily due to growth in market share and concerted marketing efforts to drive deposit growth which resulted in the opening of new deposit accounts. The Company had no brokered deposits at March 31, 2026 or December 31, 2025.

Previous wording

At September 30, 2025 and December 31, 2024, we estimate that we had approximately $1.6 billion and $1.4 billion in uninsured deposits, which are the portion of deposit amounts that exceed the FDIC insurance limit. Approximately 30% of our total deposits exceeded the FDIC deposit insurance limits at September 30, 2025. However, we offer large depositors access to the Certificate of Deposit Account Registry Service (“CDARS”) and the Insured Cash Sweep (“ICS Product”), which allows us to divide customers' deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those excess deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in CDARS and the ICS Products increased to $288,423,000, or 5.52% of total deposits, at September 30, 2025, compared to $200,650,000, or 4.15% of total deposits, at December 31, 2024.

Current wording

At March 31, 2026 and December 31, 2025, we estimate that we had approximately $1.4 billion and $1.5 billion in uninsured deposits, which are the portion of deposit amounts that exceed the FDIC insurance limit. Approximately 27% of our total deposits exceeded the FDIC deposit insurance limits at March 31, 2026. However, we offer large depositors access to the Certificate of Deposit Account Registry Service (“CDARS”) and the Insured Cash Sweep (“ICS Product”), which allows us to divide customers' deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those excess deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in CDARS and the ICS Products increased to $279,408,000, or 5.23% of total deposits, at March 31, 2026, compared to $262,733,000, or 5.01% of total deposits, at December 31, 2025.

Previous wording

The increase in total liabilities since December 31, 2024 was composed of a $391,228,000, or 8.10%, increase in total deposits and a $13,008,000, or 26.59%, increase in accrued interest and other liabilities. The increase in accrued interest and other liabilities since December 31, 2024 was primarily attributable to an increase in employee bonus payable, an increase in escrow payable, and an increase in finance lease payable due to the opening of the Chattanooga full service branch.

Current wording

The increase in total liabilities since December 31, 2025 was composed of a $93,288,000, or 1.78%, increase in total deposits and a $6,127,000, or 11.56%, increase in accrued interest and other liabilities. The increase in accrued interest and other liabilities since December 31, 2025 was primarily attributable to an increase reserve for income taxes and employee bonus payable, partially offset by a decrease in interest payable on deposits.