Commercial Bancgroup, Inc.

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this Report and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2024 included in the Registration Statement. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Report, particularly in the section entitled “Cautionary Note Regarding Forward-Looking Statements” as well as the section entitled “Risk Factors” in the Registration Statement. We assume no obligation to update any of these forward-looking statements except to the extent required by law.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this Report and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2025 included in the2025 Annual Report*. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Report, particularly in the section titled “Cautionary Note Regarding Forward-Looking Statements” as well as the section titled “Risk Factors” in the 2025 Annual Report. We assume no obligation to update any of these forward-looking statements except to the extent required by law.*

Previous wording

Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. The application of these principles requires management to make estimates, assumptions and complex judgements that affect amounts presented in our consolidated financial statements. These estimates, assumptions and judgements are based on information available as of the date of the financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions, and judgements. Management has identified ACL as a critical accounting policy as included in Note 1 of our consolidated financial statements as of and for the fiscal year ended December 31, 2024 included in the Registration Statement to be an accounting area that requires the most complex and subjective judgements and, as such, could be most subject to revision as new and additional information becomes available or circumstances change, including changes in the economic climate and interest rate changes. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this analysis and discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. There have been no significant changes to the accounting policies, estimates, and assumptions, or the judgments affecting the application of these policies, estimates, and assumptions, from those disclosed in the Registration Statement.

Current wording

Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. The application of these principles requires management to make estimates, assumptions and complex judgements that affect amounts presented in our consolidated financial statements. These estimates, assumptions and judgements are based on information available as of the date of the financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions, and judgements. Management has identified the ACL as a critical accounting policy as included in Note 1 of our consolidated financial statements as of and for the fiscal year ended December 31, 2025, and included in the 2025 Annual Report to be an accounting area that requires the most complex and subjective judgements and, as such, could be most subject to revision as new and additional information becomes available or circumstances change, including changes in the economic climate and interest rate changes. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this analysis and discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. There have been no significant changes to the accounting policies, estimates, and assumptions, or the judgments affecting the application of these policies, estimates, and assumptions, from those disclosed in the 2025 Annual Report.

Previous wording

Primary Factors Used to Evaluate Our Business

Current wording

Primary Factors Used to Evaluate Our Business and Results of Operations

Previous wording

Net interest income is our principal source of net income and represents the difference between interest income and interest expense. We generate interest income from interest-earning assets that we own, including loans and investment securities. We incur interest expense from interest-bearing liabilities, including interest-bearing deposits and other borrowings, notably FHLB advances, the CTB Loan and the Subordinated Debentures. To evaluate net interest income, we measure and monitor: (i) yields on our loans and other interest-earning assets; (ii) the cost of our deposits and other funding sources; (iii) our net interest spread; and (iv) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is a ratio of net interest income to average interest earning assets for the same period.

Current wording

Net interest income is our principal source of net income and represents the difference between interest income and interest expense. We generate interest income from interest-earning assets that we own, including loans and investment securities. We incur interest expense from interest-bearing liabilities, including interest-bearing deposits and other borrowings, notably FHLB advances, outstanding holding company loan agreement with Community Trust Bank, Inc. (the “CTB Loan”) and the Subordinated Debentures. To evaluate net interest income, we measure and monitor: (i) yields on our loans and other interest-earning assets; (ii) the cost of our deposits and other funding sources; (iii) our net interest spread; and (iv) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is a ratio of net interest income to average interest earning assets for the same period.

Previous wording

Noninterest expense primarily consists of: (i) salaries and employee benefits; (ii) occupancy expenses; (iii) professional fees; (iv) data processing expenses; (v) Federal Deposit Insurance Corporation (the “FDIC”) deposit insurance premiums; (vi) depreciation and amortization; and (vii) other operating expenses.

Current wording

Noninterest expense primarily consists of: (i) salaries and employee benefits; (ii) occupancy expenses; (iii) professional fees; (iv) data processing expenses; (v) Federal Deposit Insurance Corporation ( “FDIC”) deposit insurance premiums; (vi) depreciation and amortization; and (vii) other operating expenses.

Previous wording

Salaries and employee benefits include compensation, employee benefits and employer tax expenses for our personnel. Occupancy expenses include utility expenses, property taxes, lease expense, and property maintenance related items. Professional fees include expenses for legal, accounting, consulting, and third-party internal audit and review services. Data processing expenses include expenses paid to our primary third-party data processor and other ancillary providers as well as telecommunication and data services expenses. Other operating expenses include marketing, telephone, supplies, travel and entertainment expenses, armored carrier services fees and director fees.

Current wording

Salaries and employee benefits include compensation, employee benefits and employer tax expenses for our personnel. Occupancy expenses include utility expenses, property taxes, lease expense, and property maintenance related items. Professional fees include expenses for legal, accounting, consulting, and third-party internal audit and review services. Data processing expenses include expenses paid to our primary third-party data processor and other ancillary service providers as well as telecommunication and data services expenses. Other operating expenses include marketing, telephone, supplies, travel and entertainment expenses, armored carrier services fees and director fees.

Previous wording

Results of Operations for the Three and Nine Months Ended September 30, 2025 and 2024

Current wording

Results of Operations for the Three Months Ended March 31, 2026 and 2025

Previous wording

Net interest income for the three months ended September 30, 2025 was $20.2 million compared to $19.1 million for the three months ended September 30, 2024, an increase of $1.2 million, or 6.1%. The increase in net interest income was comprised of an approximately $0.6 million, or 2.0%, decrease in interest income and dividend income, and an approximately $1.8 million, or 15.3%, decrease in interest expense. The $1.8 million decrease in interest expense for the three month period ended September 30, 2025, was primarily related to a 0.4% decrease in the rates paid on interest-bearing liabilities and a decrease of $79.1 million, or 5.1%, in average interest-bearing liabilities as of September 30, 2025, compared to September 30, 2024. The decrease in average interest-bearing liabilities from September 30, 2024 to September 30, 2025 was due to decreases in our time deposit balances. For the three months ended September 30, 2025, net interest margin and net interest spread were 4.0% and 3.3%, respectively, compared to 3.7% and 3.0%, respectively, for the same period in 2024, which reflects the decrease in interest income discussed above relative to the slight decrease in interest expense.

Current wording

Net interest income for the three months ended March 31, 2026 was $20.5 million compared to $19.3 million for the three months ended March 31, 2025, an increase of $1.1 million, or 5.9%. The increase in net interest income was comprised of an approximately $1.3 million, or 4.2%, decrease in interest income and dividend income, and an approximately $2.4 million, or 21.4%, decrease in interest expense. The $2.4 million decrease in interest expense for the three-month period ended March 31, 2026, was primarily related to a 0.5% decrease in the rates paid on interest-bearing liabilities and a decrease of $88.9 million, or 5.4%, in average interest-bearing liabilities as of March 31, 2026, compared to March 31, 2025. The decrease in average interest-bearing liabilities from March 31, 2025 to March 31, 2026 was due to decreases in our time deposit balances. For the three months ended March 31, 2026, net interest margin and net interest spread were 3.9% and 3.3%, respectively, compared to 3.7% and 3.0%, respectively, for the same period in 2025, which reflects the decrease in interest income discussed above relative to the slight decrease in interest expense.

Previous wording

The decrease in interest income was attributable to a $63.7 million, or 3.7%, increase in average gross loans outstanding as of September 30, 2025, compared to September 30, 2024, and a 0.3% decrease in the yield on gross total loans. The increase in average gross loans outstanding was primarily due to organic loan growth in the Nashville-Davidson — Murfreesboro — Franklin, Tennessee MSA (the “Nashville MSA”), the Knoxville, Tennessee MSA (the “Knoxville MSA”) and the Charlotte-Concord-Gastonia, North Carolina-South Carolina MSA (the “Charlotte MSA”). In addition to the decrease in interest income on loans, the decrease in interest income was attributable to a $9.1 million, or 7.6%, decrease in average other interest-earning assets as of September 30, 2025, as compared to September 30, 2024, and a 0.6% decrease in the yield on other interest-earning assets compared to the same period in 2024.

Current wording

The increase in interest income was attributable to a $88.6 million, or 4.9%, increase in average gross loans outstanding as of March 31, 2026, compared to March 31, 2025, offset by a 0.3% decrease in the yield on gross total loans. The increase in average gross loans outstanding was primarily due to organic loan growth in the Nashville-Davidson — Murfreesboro — Franklin, Tennessee MSA (the “Nashville MSA”), the Knoxville, Tennessee MSA (the “Knoxville MSA”) and the Charlotte-Concord-Gastonia, North Carolina-South Carolina MSA (the “Charlotte MSA”). In addition to the decrease in interest income on loans, the decrease in interest income was attributable to a $64.9 million, or 43.0%, decrease in average other interest-earning assets as of March 31, 2026, as compared to March 31, 2025, and a 1.4% decrease in the yield on other interest-earning assets compared to the same period in 2025.

Previous wording

The provision for credit losses for the three months ended September 30, 2025, was $0 compared to $0.3 million for the three months ended September 30, 2024. The provision recorded for the three months ended September 30, 2024, was based on an increase in the number of loans outstanding. There were no significant net charge-offs in the three months ended September 30, 2025.

Current wording

The provision for credit losses for the three months ended March 31, 2026, was $122 thousand compared to $0 for the three months ended March 31, 2025. The provision recorded for the three months ended March 31, 2026, was based on an increase in the number of loans outstanding. There were no significant net charge-offs in the three months ended March 31, 2026.

Previous wording

The ACL as a percentage of total loans was 1.01% at September 30, 2025, and 1.00% at December 31, 2024.

Current wording

The ACL as a percentage of total loans was 0.97% at both March 31, 2026, and December 31, 2025.

Previous wording

While interest income remains the largest single component of total revenues, noninterest income is an important contributing component. Our most significant sources of noninterest income include customer service fees, which include overdraft program fees, and bank card services and interchange fees.

Current wording

While interest income remains the largest single component of our total revenues, noninterest income is an important contributing component. Our most significant sources of noninterest income include customer service fees, which include overdraft program fees, and bank card services and interchange fees.

Previous wording

Noninterest income for the three months ended September 30, 2025, was $2.6 million compared to $2.8 million for the three months ended September 30, 2024, a decrease of $0.2 million, or 7.1%. The following table sets forth the major components of our noninterest income for the three months ended September 30, 2025 and 2024:

Current wording

Noninterest income for the three months ended March 31, 2026, was $2.6 million compared to $2.4 million for the three months ended March 31, 2025, an increase of $0.1 million, or 6.1%. The following table sets forth the major components of our noninterest income for the three months ended March 31, 2026 and 2025:

Previous wording

Customer service fees includes fees for overdraft privilege charges, insufficient funds charges, account analysis service fees on commercial accounts, and monthly account service fees. These fees increased $81 thousand, or 12.4%, to $735 thousand for the three months ended September 30, 2025, from $654 thousand for the three months ended September 30, 2024. This increase was primarily the result of normal fluctuations in our operations. Customer service fees decreased $0.1 million, or 4.3%, to $2.1 million for the nine months ended September 30, 2025, from $2.2 million for the nine months ended September 30, 2024. This decrease was primarily the result of normal fluctuations in our operations.

Current wording

Customer service fees include fees for overdraft privilege charges, insufficient funds charges, account analysis service fees on commercial accounts, and monthly account service fees. These fees increased $126 thousand, or 19.2%, to $781 thousand for the three months ended March 31, 2026, from $655 thousand for the three months ended March 31, 2025. This increase was primarily the result of normal fluctuations in our operations.

Previous wording

ATM and debit card fees decreased $0.04 million, or 4.3%, to $0.85 million for the three months ended September 30, 2025, from $0.88 million for the three months ended September 30, 2024. The decrease was primarily the result of changes in transactional volume that generates interchange fees. These fees increased $0.1 million, or 4.3%, to $2.5 million for the nine months ended September 30, 2025, from $2.4 million for the nine months ended September 30, 2024. The increase was primarily the result of changes in transactional volume that generates interchange fees.

Current wording

ATM and debit card fees increased $55 thousand, or 6.9%, to $854 thousand for the three months ended March 31, 2026, from $799 thousand for the three months ended March 31, 2025. The increase was primarily the result of changes in transactional volume that generates interchange fees.

Previous wording

The income on BOLI decreased $7 thousand, or 2.4%, to $306 thousand for the three months ended September 30, 2025, from $313 thousand for the three months ended September 30, 2024. The decrease was primarily the result of a gain on a policy due to a death benefit and an increase in earnings rates. The income on BOLI increased $0.1 million, or 8.4%, to $0.95 million for the nine months ended September 30, 2025, from $0.88 million for the nine months ended September 30, 2024. The increase was primarily the result of a gain on a policy due to a death benefit and an increase in earnings rates.

Current wording

The income on BOLI increased $4 thousand, or 1.3%, to $312 thousand for the three months ended March 31, 2026, from $308 thousand for the three months ended March 31, 2025. The increase was primarily the result of a gain on a policy due to a death benefit and an increase in earnings rates.

Previous wording

Other income and fees increased $0.07 million, or 13.4%, to $0.6 million for the three months ended September 30, 2025 from $0.5 million for the three months ended September 30, 2024. This increase was primarily due to normal fluctuations in our operations. Other income and fees decreased $0.2 million, or 13.2%, to $1.6 million for the nine months ended September 30, 2025 from $1.8 million for the nine months ended September 30, 2024. This decrease was primarily due to normal fluctuations in our operations.

Current wording

Other income and fees decreased $169 thousand, or 23.9%, to $537 thousand for the three months ended March 31, 2026 from $706 thousand for the three months ended March 31, 2025. This decrease was primarily due to normal fluctuations in our operations.

Previous wording

Noninterest expense for the three months ended September 30, 2025 was $10.6 million compared to $10.5 million for the three months ended September 30, 2024, an increase of $0.03 million, or 0.3%, which was primarily a result of efficiencies realized from the acquisition of AB&T. The following table sets forth the major components of our noninterest expense for the three months ended September 30, 2025 and 2024:

Current wording

Noninterest expense for the three months ended March 31, 2026 was $11.1 million compared to $10.6 million for the three months ended March 31, 2025, an increase of $506 thousand, or 4.8%, which was primarily a result of a loss on the early extinguishment of debt. The following table sets forth the major components of our noninterest expense for the three months ended March 31, 2026 and 2025:

Previous wording

Salaries and employee benefits primarily include: (i) amounts paid to employees for base pay, incentive compensation, and bonuses; (ii) health and other related insurance paid by the Bank on behalf of our employees; and (iii) the annual cost for any increases in the liability for non-qualified plans maintained for certain key employees. Salaries and employee benefits for the three months ended September 30, 2025 were $5.7 million, an increase of $0.1 million, or 2.2%, compared to $5.6 million for the three months ended September 30, 2024. This slight increase was primarily due to pay increases net of turnover. For the nine months ended September 30, 2025, salaries and employee benefits were $17.0 million, an increase of $0.2 million, or 0.9%, compared to $16.9 million for the nine months ended September 30, 2024. This slight increase was primarily due to pay increases net of turnover.

Current wording

Salaries and employee benefits primarily include: (i) amounts paid to employees for base pay, incentive compensation, and bonuses; (ii) health and other related insurance paid by the Bank on behalf of our employees; and (iii) the annual cost for any increases in the liability for non-qualified plans maintained for certain key employees. Salaries and employee benefits for the three months ended March 31, 2026 were $5.7 million, an increase of $0.1 million, or 1.6%, compared to $5.6 million for the three months ended March 31, 2025. This slight increase was primarily due to pay increases net of turnover.

Previous wording

Occupancy expenses consist of depreciation on property, premises, equipment and software, rent expense for leased facilities, maintenance agreements on equipment, property taxes, and other expenses related to maintaining owned or leased assets. Occupancy expenses for the three months ended September 30, 2025 were $0.7 million compared to $0.9 million for the three months ended September 30, 2024, a decrease of $0.2 million, or 21.2%. The decrease was primarily attributable to normal fluctuations. Occupancy expenses for the nine months ended September 30, 2025 were $2.5 million compared to $2.7 million for the nine months ended September 30, 2024, a decrease of $0.12 million, or 4.6%. The decrease was primarily attributable to normal fluctuations.

Current wording

Occupancy expenses consist of depreciation on property, premises, equipment and software, rent expense for leased facilities, maintenance agreements on equipment, property taxes, and other expenses related to maintaining owned or leased assets. Occupancy expenses for the three months ended March 31, 2026 were $0.84 million compared to $0.87 million for the three months ended March 31, 2025, a decrease of $0.03 million, or 3.7%. The decrease was primarily attributable to normal fluctuations

Previous wording

Data processing expenses, which primarily consist of expenses for data processing services for core processing, increased $36 thousand, or 3.4%, to $1,104 thousand for the three months ended September 30, 2025 from $1,067 thousand for the three months ended September 30, 2024. For the nine months ended September 30, 2025, data processing expenses increased $0.07 million, or 2.0%, to $3.5 million from $3.4 million for same period in 2024.

Current wording

Data processing expenses, which primarily consist of expenses for data processing services for core processing, decreased $0.1 million, or 8.8%, to $1.1 million for the three months ended March 31, 2026 from $1.2 million for the three months ended March 31, 2025.

Previous wording

Professional fees expenses, which include legal fees, audit and accounting fees, and consulting fees, decreased $0.2 million, or 58.7%, to $0.1 million for the three months ended September 30, 2025 compared to $0.3 million for the three months ended September 30, 2024. This decrease was primarily the result of the higher audit costs associated with the acquisition of AB&T in 2024. Professional fees expenses decreased $0.4 million, or 13.2%, to $0.6 million for the nine months ended September 30, 2025 compared to $1.0 million for the nine months ended September 30, 2024. This decrease was primarily the result of the higher appraisal fees and legal and audit costs associated with the acquisition of AB&T in 2024.

Current wording

Professional fees expenses, which include legal fees, audit and accounting fees, and consulting fees, increased $0.1 million, or 7.2%, to $0.2 million for the three months ended March 31, 2026 compared to $0.1 million for the three months ended March 31, 2025. This increase was primarily the result of the higher professional fees associated with becoming a public company in the fourth quarter of 2025.

Previous wording

Depreciation and amortization for the three months ended September 30, 2025 was $1.0 million compared to $1.1 million for the three months ended September 30, 2024, a decrease of approximately $0.1 million, or 10.1%. The decrease was primarily attributable to the sale of a closed bank office and the decrease in core deposit intangibles from previous acquisitions. Depreciation and amortization for the nine months ended September 30, 2025 was $2.7 million compared to $3.1 million for the nine months ended September 30, 2024, a decrease of approximately $0.4 million, or 13.2%. The decrease was primarily attributable to the sale of a closed bank office and the decrease in core deposit intangibles from previous acquisitions.

Current wording

Depreciation and amortization for the three months ended March 31, 2026 was $0.93 million compared to $0.95 million for the three months ended March 31, 2025, a decrease of approximately $0.015 million, or 1.6%. The decrease was primarily attributable to the sale of a closed bank office and a decrease in core deposit intangibles from previous acquisitions.

Previous wording

The following tables show the contractual maturities of our total loan principal balances, excluding loan discounts, The following table shows the contractual maturities of the Company’s loans as of September 30, 2025, and December 31, 2024, respectively:

Current wording

The following table shows the contractual maturities of the Company’s loans, excluding loan discounts, as of March 31, 2026, and December 31, 2025, respectively:

Previous wording

We are primarily involved in real estate, commercial, and consumer lending activities with customers throughout our markets in Kentucky, North Carolina, and Tennessee. About 89.9% and 87.7% of our total loans were secured by real property as of September 30, 2025 and December 31, 2024, respectively. We believe that these loans are not concentrated in any one single property type and that they are geographically dispersed throughout our markets. Our debtors’ ability to repay their loans is substantially dependent upon the economic conditions of the markets in which we operate, which consist primarily of the Nashville MSA, Knoxville MSA, Chattanooga, and Kingsport in Tennessee and the Charlotte MSA in North Carolina.

Current wording

We are primarily involved in real estate, commercial, and consumer lending activities with customers throughout our markets in Kentucky, North Carolina, and Tennessee. About 90.0% and 89.5% of our total loans were secured by real property as of March 31, 2026 and December 31, 2025, respectively. We believe that these loans are not concentrated in any one single property type and that they are geographically dispersed throughout our markets. Our debtors’ ability to repay their loans is substantially dependent upon the economic conditions of the markets in which we operate, which consist primarily of the Nashville MSA, Knoxville MSA, Chattanooga, and Kingsport in Tennessee and the Charlotte MSA in North Carolina.

Previous wording

CRE loans were 56.5% of total loans as of September 30, 2025, and represented 55.4% of total loans as of December 31, 2024. C&D loans were 11.4% of total loans as of September 30, 2025, and represented 11.0% of total loans as of December 31, 2024. The ratio of our CRE loans to total risk-based bank capital was 363% as of September 30, 2025 and 304% as of December 31, 2024. C&D loans represented 73.0% of total risk-based bank capital as of September 30, 2025 as compared to 78.7% as of December 31, 2024.

Current wording

CRE loans were 58.7% of total loans as of March 31, 2026, and represented 59.2% of total loans as of December 31, 2025. C&D loans were 10.3% of total loans as of March 31, 2026, and represented 9.4% of total loans as of December 31, 2025. The ratio of our CRE loans to total risk-based bank capital was 417% as of March 31, 2026 and 435% as of December 31, 2025. C&D loans represented 73.0% of total risk-based bank capital as of March 31, 2026 as compared to 69.1% as of December 31, 2025.

Previous wording

We have established concentration limits in our loan portfolio for CRE loans by loan type, including collateral and industry, among others. All loan types are within established limits other than our hotels/motels category, which has occasionally exceeded our limit of 50% of total risk-based capital. For further information on the risks associated with the concentration of our loan portfolio in certain industries, please see the risk factor titled “We have a concentration of credit exposure to borrowers in certain industries, and we also target small to medium-sized businesses and make other loans that may carry increased levels of credit risk” in the section titled “Risk Factors” in the Registration Statement. Despite this category being outside of our established limits, we believe lending risk in this category is mitigated by a significant portion of the financed properties being owner-occupied hotels/motels, meaning that the properties are run by their owners. All but one of the hotel/motel projects currently in our loan portfolio are “flag” hotels. Further, our exposure to the hotels/motels category is geographically dispersed throughout the states of Florida, Kentucky, North Carolina, South Carolina and Tennessee. We have restricted lending on lodging projects to existing clients only for the foreseeable future. Our lending concentration in the hotels/motels sector is actively managed by our senior management team, including our President and Chief Executive Officer and Chief Credit Officer.

Current wording

We have established concentration limits in our loan portfolio for CRE loans by loan type, including collateral and industry, among others. All loan types are within established limits other than our hotels/motels category, which has occasionally exceeded our limit of 50% of total risk-based capital. For further information on the risks associated with the concentration of our loan portfolio in certain industries, please see the risk factor titled “We have a concentration of credit exposure to borrowers in certain industries, and we also target small to medium-sized businesses and make other loans that may carry increased levels of credit risk” in the section titled “Risk Factors” in the 2025 Annual Report. Despite this category being outside of our established limits, we believe lending risk in this category is mitigated by a significant portion of the financed properties being owner-occupied hotels/motels, meaning that the properties are run by their owners. All but one of the hotel/motel projects currently in our loan portfolio are “flag” hotels. Further, our exposure to the hotels/motels category is geographically dispersed throughout the states of Florida, Kentucky, North Carolina, South Carolina and Tennessee. We have restricted lending on lodging projects to existing clients only for the foreseeable future. Our lending concentration in the hotels/motels sector is actively managed by our senior management team, including our President and Chief Executive Officer and Chief Credit Officer.

Previous wording

C&D loans increased $1.6 million, or 0.8%, to $201.4 million as of September 30, 2025, from $199.8 million as of December 31, 2024. The majority of this increase was due to new loan volume. Residential C&D loans were relatively flat.

Current wording

C&D loans increased $18.5 million, or 10.5%, to $195.2 million as of March 31, 2026, from $176.7 million as of December 31, 2025. The majority of this increase was due to new loan volume. Residential C&D loans were relatively flat compared to commercial C&D loans.

Previous wording

*Commercial Real Estate.*Our CRE loan portfolio includes loans for commercial property that is owned by real estate investors, construction loans to build owner-occupied properties, and loans to developers of CRE investment properties and residential developments. CRE loans are subject to underwriting standards and processes similar to our commercial loans. These loans are underwritten primarily based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on the successful operation of the properties securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are diversified by type and geographic location. We believe this diversity helps reduce our exposure to adverse economic events that may affect any single market or industry. CRE loans were $1.0 billion as of September 30, 2025, a decrease of $4.0 million, or 0.4%, compared to December 31, 2024. This decrease was primarily driven by customer payoffs. As of September 30, 2025, our CRE portfolio was comprised of $357.4 million in non-owner occupied CRE loans and $432.5 million in owner-occupied properties and $212.1 million in multi-family properties.

Current wording

*Commercial Real Estate.*Our CRE loan portfolio includes loans for commercial property that is owned by real estate investors, construction loans to build owner-occupied properties, and loans to developers of CRE investment properties and residential developments. CRE loans are subject to underwriting standards and processes similar to our commercial loans. These loans are underwritten primarily based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on the successful operation of the properties securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are diversified by type and geographic location. We believe this diversity helps reduce our exposure to adverse economic events that may affect any single market or industry. CRE loans remained constant at $1.1 billion as of March 31, 2026 and December 31, 2025, respectively. This decrease was primarily driven by customer payoffs. As of March 31, 2026, our CRE portfolio was comprised of $357.4 million in non-owner occupied CRE loans and $432.5 million in owner-occupied properties and $212.1 million in multi-family properties.

Previous wording

Consumer and other loans (non-real estate loans) increased $1.7 million, or 7.7%, to $23.7 million as of September 30, 2025, from $22.0 million as of December 31, 2024.

Current wording

Consumer and other loans (non-real estate loans) decreased $3.3 million, or 14.7%, to $19.5 million as of March 31, 2026, from $22.9 million as of December 31, 2025.

Previous wording

On September 30, 2025, and December 31, 2024, loan participations sold to third parties (which are not included in the accompanying consolidated balance sheets) totaled $38.7 million and $46.3 million, respectively. We sell participations to manage our credit exposures to borrowers. On September 30, 2025, and December 31, 2024, loan participations purchased totaled $7.6 million and $7.7 million, respectively. The variances come from purchases and sales of participations in the ordinary course of business.

Current wording

On March 31, 2026, and December 31, 2025, loan participations sold to third parties (which are not included in the accompanying consolidated balance sheets) totaled $116.5 million and $116.0 million, respectively. We sell participations to manage our credit exposures to borrowers. On March 31, 2026, and December 31, 2025, loan participations purchased totaled $0. The variance in loan participations sold comes from sales of participations in the ordinary course of business.

Previous wording

The allowance for credit losses is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The ACL is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of loans in light of historical experience, the nature and volume of the loan portfolio, the overall portfolio quality, specific problem loans, current economic conditions that may affect borrowers’ ability to pay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.

Current wording

The ACL is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The ACL is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of loans in light of historical experience, the nature and volume of the loan portfolio, the overall portfolio quality, specific problem loans, current economic conditions that may affect borrowers’ ability to pay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.

Previous wording

The Company’s primary methodology for estimating expected credit losses for all loan types is the WARM method. The WARM current expected credit losses methodology uses average annual loss rate along with a simple but reasonable forecast based on a “regression” analysis of loan history dating back 18 years. The dependent variable is an entity’s loss rate, based on changes in the NY Prime Lending Rate over the same period. The Company utilizes the NY Prime Lending Rate as the independent variable due to it being the tool most commonly utilized by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) to either accelerate and/or slow down the economy. Additionally, the ACL calculation includes qualitative adjustments to account for risk factors that may not be incorporated in the quantitatively derived allowance estimate. Qualitative adjustments may increase or decrease the allowance estimate.

Current wording

The Company’s primary methodology for estimating expected credit losses for all loan types is the WARM method. The WARM current expected credit losses methodology uses average annual loss rate along with a simple but reasonable forecast based on a “regression” analysis of loan history dating back 18 years. The dependent variable is an entity’s loss rate, based on changes in the Prime Lending Rate over the same period. The Company utilizes the Prime Lending Rate as the independent variable due to it being the tool most commonly utilized by the Federal Reserve to either accelerate and/or slow down the economy. Additionally, the ACL calculation includes qualitative adjustments to account for risk factors that may not be incorporated in the quantitatively derived allowance estimate. Qualitative adjustments may increase or decrease the allowance estimate.

Previous wording

Net charge-offs for the nine months ended September 30, 2025 totaled $0.3 million. Net charge-offs for the year ended December 31, 2024 totaled $0.3 million.

Current wording

Net charge-offs for the three months ended March 31, 2026 totaled $0.1 million. Net charge-offs for the year ended December 31, 2025 totaled ($0.3) million.

Previous wording

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed assets held for sale (OREO) until sold and is initially recorded at fair value less costs to sell when acquired, establishing a new carrying value. OREO totaled approximately $0.5 million at September 30, 2025, and $0.8 million at December 31, 2024.

Current wording

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed assets held for sale (OREO) until sold and is initially recorded at fair value less costs to sell when acquired, establishing a new carrying value. OREO totaled approximately $0.6 million at March 31, 2026, and $0.3 million at December 31, 2025.

Previous wording

Nonaccrual loans were $5.4 million at September 30, 2025. We had no loans 90 days past due and still accruing at September 30, 2025.

Current wording

Nonaccrual loans were $5.9 million at March 31, 2026. We had no loans 90 days past due and still accruing at March 31, 2026.

Previous wording

Total nonperforming loans increased approximately $0.3 million from December 31, 2024 to September 30, 2025. The increase was primarily the result of normal fluctuations.

Current wording

Total nonperforming loans decreased approximately $0.04 million from December 31, 2025 to March 31, 2026. The decrease was primarily the result of normal fluctuations.

Previous wording

***Allowance for Credit Losses — Available-For-Sale Securities:***The Company evaluates available-for-sale securities in an unrealized loss position to determine if credit losses exist. The Company first evaluates whether it intends to sell, or it is more likely than not that it will be required to sell, a security before recovering its amortized cost basis. If either condition exists, the security’s amortized cost basis is written down to fair value through income. If either aforesaid condition does not exist, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If credit loss exists, the Company recognizes an ACL, limited to the amount by which the amortized cost basis exceeds the fair value. Any impairment not recognized through an ACL is recognized in other comprehensive income (loss), net of tax.

Current wording

***Allowance for Credit Losses (ACL) — Available-For-Sale Securities:***The Company evaluates available-for-sale securities in an unrealized loss position to determine if credit losses exist. The Company first evaluates whether it intends to sell, or it is more likely than not that it will be required to sell, a security before recovering its amortized cost basis. If either condition exists, the security’s amortized cost basis is written down to fair value through income. If either aforesaid condition does not exist, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If credit loss exists, the Company recognizes an ACL, limited to the amount by which the amortized cost basis exceeds the fair value. Any impairment not recognized through an ACL is recognized in other comprehensive income (loss), net of tax.

Previous wording

***Allowance for Credit Losses — Held-to-Maturity Securities:***Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type and any other risk characteristics used to segment the portfolio. Accrued interest receivable on held-to-maturity debt securities totaled $326,202 and $230,223 as of September 30, 2025, and December 31, 2024, respectively.

Current wording

***Allowance for Credit Losses (ACL) — Held-to-Maturity Securities:***Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type and any other risk characteristics used to segment the portfolio. Accrued interest receivable on held-to-maturity debt securities totaled $528,655 and $291,460 as of March 31, 2026, and December 31, 2025, respectively.

Previous wording

The Company sold no held-to-maturity securities prior to maturity during the nine months ended September 30, 2025 or the fiscal year ended December 31, 2024.

Current wording

The Company sold no held-to-maturity securities prior to maturity during the three months ended March 31, 2026 or the fiscal year ended December 31, 2025.