FIRST NATIONAL CORP /VA/

Previous wording

Because of these and other uncertainties, actual results may be materially different from the results indicated by these forward-looking statements. In addition, past results of operations do not necessarily indicate future results. The following discussion and analysis of the financial condition at June 30, 2025 and statements of income of the Company for the three andsix months ended June 30, 2025 and 2024 should be read in conjunction with the consolidated financial statements and related notes included in Part I, Item 1, of this Form 10-Q and in Part II, Item 8, of the Form 10-K for the period ending December 31, 2024. The statements of income for the three andsix months ended June 30, 2025 may not be indicative of the results to be achieved for the year.

Current wording

Because of these and other uncertainties, actual results may be materially different from the results indicated by these forward-looking statements. In addition, past results of operations do not necessarily indicate future results. The following discussion and analysis of the financial condition at September 30, 2025 and statements of income of the Company for the three andnine months ended September 30, 2025 and 2024 should be read in conjunction with the consolidated financial statements and related notes included in Part I, Item 1, of this Form 10-Q and in Part II, Item 8, of the Form 10-K for the period ending December 31, 2024. The statements of income for the three andnine months ended September 30, 2025 may not be indicative of the results to be achieved for the year.

Previous wording

The Bank offers loan, deposit, and wealth management products and services. Loan products and services include consumer loans, residential mortgages, home equity loans, and commercial loans. Deposit products and services include checking accounts, treasury management solutions, savings accounts, money market accounts, certificates of deposit, and individual retirement accounts. Wealth management services include estate planning, investment management of assets, trustee under an agreement, trustee under a will, individual retirement accounts, and estate settlement. Customers include small and medium-sized businesses, individuals, estates, local governmental entities, and non-profit organizations. The Bank’s office locations are well-positioned in attractive markets along the Interstate 81, Interstate 66, and Interstate 64 corridors in the Shenandoah Valley, the Roanoke Valley, south-central regions of Virginia, the Richmond MSA, and northern North Carolina. Within this market area, there are diverse types of industry including medical and professional services, manufacturing, retail, warehousing, government, hospitality, and higher education. The Bank’s products and services are delivered through 33 bank branch offices, three loan production offices, and two customer service centers in retirement communities. For the location and general character of each of these offices, see Item 2 of the Company's Form 10-K for the year ended December 31, 2024. Many of the Bank’s services are also delivered through the Bank’s mobile banking platform, its website, www.fbvirginia.com, and a network of ATMs located throughout its market area.

Current wording

The Bank offers loan, deposit, and wealth management products and services. Loan products and services include consumer loans, residential mortgages, home equity loans, and commercial loans. Deposit products and services include checking accounts, treasury management solutions, savings accounts, money market accounts, certificates of deposit, and individual retirement accounts. Wealth management services include estate planning, investment management of assets, trustee under an agreement, trustee under a will, individual retirement accounts, and estate settlement. Customers include small and medium-sized businesses, individuals, estates, local governmental entities, and non-profit organizations. The Bank’s office locations are well-positioned in attractive markets along the Interstate 81, Interstate 66, and Interstate 64 corridors in the Shenandoah Valley, the Roanoke Valley, south-central regions of Virginia, the Richmond MSA, and northern North Carolina. Within this market area, there are diverse types of industry including medical and professional services, manufacturing, retail, warehousing, government, hospitality, and higher education. The Bank’s products and services are delivered through 33 bank branch offices, three loan production offices, and one customer service center in a retirement community. For the location and general character of each of these offices, see Item 2 of the Company's Form 10-K for the year ended December 31, 2024. Many of the Bank’s services are also delivered through the Bank’s mobile banking platforms and a network of ATMs located throughout its market area.

Previous wording

Primary expense categories are salaries and employee benefits, which comprised 50% of noninterest expenses for thesix months ended June 30, 2025, followed by other operating expense, which comprised 10% of noninte rest expenses. The provision for credit losses is also typically a primary expense of the Bank. The provision is determined by factors that include net charge-offs, asset quality, economic conditions, and loan growth. Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company’s control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses.

Current wording

Primary expense categories are salaries and employee benefits, which comprised 54% of noninterest expenses for thenine months ended September 30, 2025, followed by other operating expense, which comprised 12% of noninte rest expenses. The provision for credit losses is also typically a primary expense of the Bank. The provision is determined by factors that include net charge-offs, asset quality, economic conditions, and loan growth. Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company’s control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses.

Previous wording

On October 1, 2024, the Company completed the acquisition of Touchstone. Immediately following the Merger, Touchstone Bank, the wholly owned subsidiary of Touchstone, was merged with and into First Bank. Following the Merger, the former branches of Touchstone Bank assumed in the Merger continued to operate in Virginia as Touchstone Bank, a division of First Bank, and, in North Carolina, as Touchstone Bank, a division of First Bank, Strasburg, Virginia, until the system integration was completed in February 2025. Following the system integration, the former branches of Touchstone Bank now operate in Virginia as First Bank and in North Carolina as First Bank of the Commonwealth. The combined company delivers banking services through thirty-three branch offices in Virginia and North Carolina and three loan production offices, in addition to a wide array of online banking services. The Company incurred merger costs totaling $2.0 million and $7.2 million for the six months ending June 30, 2025, and year ended December 31, 2024, respectively.

Current wording

On October 1, 2024, the Company completed the acquisition of Touchstone. Immediately following the Merger, Touchstone Bank, the wholly owned subsidiary of Touchstone, was merged with and into First Bank. Following the Merger, the former branches of Touchstone Bank assumed in the Merger continued to operate in Virginia as Touchstone Bank, a division of First Bank, and, in North Carolina, as Touchstone Bank, a division of First Bank, Strasburg, Virginia, until the system integration was completed in February 2025. Following the system integration, the former branches of Touchstone Bank now operate in Virginia as First Bank and in North Carolina as First Bank of the Commonwealth. The combined company delivers banking services through thirty-three branch offices in Virginia and North Carolina and three loan production offices, in addition to a wide array of online banking services. The Company incurred merger costs totaling $2.0 million and $7.2 million for the nine months ended September 30, 2025, and year ended December 31, 2024, respectively.

Previous wording

Net interest income increased by $7.1 million as total interest income increased by $8.1 million and was partially offset by a $1.1 million increase in total interest expense. Primarily as a result of the Touchstone merger, net interest income was positively impacted by a $523.1 million, or 38.2%, increase in average earning assets which was offset by a $371.1 million, or 40.0%, increase in interest bearing liabilities. Net interest income was also positively impacted by a 55-basis point increase in the net interest margin to 3.95%.

Current wording

Net interest income increased by $6.5 million as total interest income increased by $7.6 million and was partially offset by a $1.1 million increase in total interest expense. Net interest income was positively impacted by a $522.8 million, or 38.0%, increase in average earning assets which was offset by a $382.0 million, or 41.1%, increase in interest bearing liabilities. Net interest income was also positively impacted by a 41-basis point increase in the net interest margin to 3.84%.

Previous wording

Provision for credit losses increased by $511 thousand. For thesecond quarter of 2025, provision for credit losses totaled $911 thousand and was comprised of a $900 thousand provision for credit losses on loans, a $1 thousand provision for credit losses on unfunded commitments, and a $10 thousand provision for credit losses on securities held-to-maturity. For the same period of 2024, the provision for credit losses totaled $400 thousand.

Current wording

Our provision for credit losses decreased by $1.5 million for thethird quarter of 2025. The provision for credit losses totaled $193 thousand and was comprised of a $200 thousand provision for credit losses on loans, an $8 thousand provision for credit losses on unfunded commitments, and a $14 thousand recovery of credit losses on securities held-to-maturity. For the same period of 2024, the provision for credit losses totaled $1.7 million.

Previous wording

Noninterest expenses increased by $4.5 million and were primarily attributable to a $2.2 million increase in salaries and employee benefits, a $1.1 million in other operating expense, a $436 thousand increase in amortization expense, a $396 thousand increase in occupancy expense, a $366 thousand increase in equipment expense, and a $341 thousand increase in data processing expense. The increases are primarily driven by the Touchstone merger resulting in increased operating expenses due to operating additional branches, increased data processing expenses with increased customer transactions as well as some duplicative expenses from operating two systems, and amortization expense due to core deposit intangible accretion on deposits acquired from Touchstone.

Current wording

Noninterest expenses increased by $5.3 million and were primarily attributable to a $2.6 million increase in salaries and employee benefits, a $1.6 million in other operating expense, a $438 thousand increase in amortization expense, a $440 thousand increase in occupancy expense, a $330 thousand increase in equipment expense, and a $205 thousand increase in data processing expense. The increases are primarily driven by the Touchstone merger resulting in increased operating expenses due to operating additional offices, increased data processing expenses with increased customer transactions, and amortization expense due to core deposit intangible accretion on deposits acquired from Touchstone.

Previous wording

Comparing the Six-Month Periods Ending June 30, 2025 and June 30, 2024

Current wording

Comparing the Nine-Month Periods Ending September 30, 2025 and September 30, 2024

Previous wording

The $998 thousand increase in net income resulted primarily from a $13.3 million increase in net interest income after provision, offset by $13.0 million increase in noninterest expenses. Noninterest expense increased due to merger expenses of $2.0 million and additional operating expenses resulting from operating and staffing additional branches and duplicative expenses for data processing that were incurred until the system integration in February.

Current wording

The $4.3 million increase in net income resulted primarily from a $20.2 million increase in net interest income after provision, offset by $18.3 million increase in noninterest expenses. Noninterest expense increased due to merger expenses of $2.0 million and additional operating expenses resulting from operating and staffing additional branches and duplicative expenses for data processing that were incurred until the system integration in February.

Previous wording

Net interest income increased by $13.7 million as total interest income increased by $15.8 million and was partially offset by a $2.1 million increase in total interest expense. Primarily as a result of the Touchstone merger, net interest income was positively impacted by a $528.1 million, or 38.8%, increase in average earning assets which was offset by a $377.0 million, or 40.5%, increase in average interest bearing liabilities. Net interest income was also positively impacted by a 55-basis point increase in the net interest margin to 3.86%.

Current wording

Net interest income increased by $20.2 million as total interest income increased by $23.4 million and was partially offset by a $3.2 million increase in total interest expense. Primarily as a result of the Touchstone merger, net interest income was positively impacted by a $526.3 million, or 38.5%, increase in average earning assets which was offset by a $379.1 million, or 40.8%, increase in average interest bearing liabilities. Net interest income was also positively impacted by a 49-basis point increase in the net interest margin to 3.85%.

Previous wording

Provision for credit losses increased by $343 thousandfor thesix months ended June 30, 2025. For thesix months ended June 30, 2025, provision for credit losses totaled $1.7 million and was comprised of a $1.6 provision for credit losses on loans, a $105 thousand provision for credit losses on unfunded commitments, and a $3 thousand provision for credit losses on securities held-to-maturity. For the same period of 2024, the provision for credit losses totaled $1.4 million.

Current wording

Provision for credit losses decreased by $1.2 million for thenine months ended September 30, 2025. For thenine months ended September 30, 2025, provision for credit losses totaled $1.9 million and was comprised of a $1.8 million provision for credit losses on loans, a $113 thousand provision for credit losses on unfunded commitments, and a $12 thousand recovery of credit losses on securities held-to-maturity. For the same period of 2024, the provision for credit losses totaled $3.1 million.

Previous wording

Noninterest income increased by $767 thousandin thesix months ended June 30, 2025 from increases in services charges, ATM and check card fees, and brokered mortgage fees, offset by a decrease in other operating income related to a loan recovery of a previously acquired loan recognized in 2024.

Current wording

Noninterest income increased by $2.1 million in thenine months ended September 30, 2025 from increases in services charges, ATM and check card fees, and brokered mortgage fees, income from BOLI, and bargain purchase gain, offset by a decrease in other operating income related to a loan recovery of a previously acquired loan recognized in 2024.

Previous wording

Noninterest expenses increased by $13.0 million and were primarily attributable to a $5.0 million increase in salaries and employee benefits, a $1.6 million increase in merger expense, a $1.8 million increase in other operating expense, a $930 thousand increase in occupancy expense, a $857 thousand increase in data processing expense, a $874 thousand increase in amortization expense, and a $800 thousand increase in equipment expense. The increase is primarily driven by the Touchstone merger resulting in increased operating expenses due to operating additional branches, duplicative expenses incurred prior to system integration, and amortization expense due to core deposit intangible accretion on deposits acquired from Touchstone.

Current wording

Noninterest expenses increased by $18.3 million and were primarily attributable to a $7.6 million increase in salaries and employee benefits, a $1.2 million increase in merger expense, a $3.7 million increase in other operating expense, a $1.4 million increase in occupancy expense, a $1.1 million increase in data processing expense, a $1.3 million increase in amortization expense, and a $1.1 million increase in equipment expense. The increase is primarily driven by the Touchstone merger resulting in increased operating expenses due to operating additional branches, duplicative expenses incurred prior to system integration, and amortization expense due to core deposit intangible accretion on deposits acquired from Touchstone.

Previous wording

This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for both 2025 and 2024 is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (in thousands).

Current wording

This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income and then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for both 2025 and 2024 is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (in thousands).

Previous wording

The $2.6 million increase in net income resulted primarily from a $6.5 million increase in net interest income after provision, partially offset by a $4.5 million increase in noninterest expenses. Noninterest expense increased due to additional operating expenses from operating and staffing additional branches and infrastructure acquired in the Touchstone merger.

Current wording

The $4.3 million increase in net income resulted primarily from a $20.2 million increase in net interest income after provision, offset by a $18.3 million increase in noninterest expenses. Noninterest expense increased due to merger expenses of $2.0 million and additional operating expenses resulting from operating and staffing additional branches and duplicative expenses for data processing that were incurred until system integration in February.

Previous wording

Net interest income increased$7.1 million, or 61.4%, to $18.5 million for thesecond quarter of 2025 compared to the same period in the prior year. Total interest income increased by $8.1 million, which was partially offset by interest expense, which increased by $1.1 million. Net interest income was positively impacted by a 55-basis point increase in the net interest margin and a $523.1 million, or 38.2%, increase in average earning assets which was offset by a $371.1 million, or 40.0%, increase in average interest bearing liabilities.

Current wording

Net interest income increased $6.5 million, or 55.7%, to $18.3 million for thethird quarter of 2025 compared to the same period in the prior year. Total interest income increased by $7.6 million, which was partially offset by interest expense, which increased by $1.1 million. Net interest income was positively impacted by a 41-basis point increase in the net interest margin and a $522.8 million, or 38.0%, increase in average earning assets which was offset by a $382.0 million, or 41.1%, increase in average interest bearing liabilities.

Previous wording

The increase in total interest income was attributable to a $7.6 million, or 54.1%, increase in interest income and fees on loans. The increase in interest income on loans was attributable to a 25-basis point increase in yield and a 47.2% increase in average balances compared to the same period in the prior year due to the merger with Touchstone.

Current wording

The increase in total interest income was attributable to a $7.0 million, or 48.0%, increase in interest income and fees on loans. The increase in interest income on loans was attributable to a 9-basis point increase in yield and a 45.4% increase in average balances compared to the same period in the prior year due to the merger with Touchstone.

Previous wording

The increase in total interest expense was attributable to a $1.3 million increase in interest expense on deposits and a $399 thousand increase on interest on subordinated debt, offset by a $603 thousand decrease in interest expense on other borrowings. Net interest margin was positively impacted by a 32-basis point decrease in the cost of interest-bearing deposits. The higher interest expense resulted from a 46.8% increase in average interest-bearing deposit balances. The increase in deposits and subordinated debt was due to assumed liabilities from the Touchstone merger. The lower interest expense on other borrowings resulted from the payoff of $50.0 million of borrowings at the end of 2024.

Current wording

The increase in total interest expense was attributable to a $1.3 million increase in interest expense on deposits and a $409 thousand increase on interest on subordinated debt, offset by a $600 thousand decrease in interest expense on other borrowings. The net interest margin was positively impacted by a 34-basis point decrease in the cost of interest-bearing deposits. The higher interest expense resulted from a 48.1% increase in average interest-bearing deposit balances. The increase in deposits and subordinated debt was due to assumed liabilities from the Touchstone merger. The lower interest expense on other borrowings resulted from the payoff of $50.0 million of borrowings at the end of 2024.

Previous wording

The net interest margin was 3.95% for thesecond quarter of 2025 compared to 3.40% for the same period in the prior year. When compared to thesecond quarter of 2025, the net interest margin increased by 55-basis points as the yield on earning assets continued to increase at a similar pace as in prior quarters, while the cost of funds decreased when compared to prior quarterly periods consistent with the federal funds rate cuts in late 2024. The yield on earning assets was also positively impacted by net accretion income related to acquisition accounting of $930 thousand, or a 20-basis point incremental increase to the net interest margin.

Current wording

The net interest margin was 3.84% for thethird quarter of 2025 compared to 3.43% for the same period in the prior year. When compared to thethird quarter of 2024, the net interest margin increased by 41-basis points as the yield on earning assets continued to increase at a similar pace as in prior quarters, while the cost of funds decreased when compared to prior quarterly periods consistent with the federal funds rate cuts in late 2024. The yield on earning assets was not materially impacted by net accretion income related to acquisition accounting of $43 thousand in the third quarter with no incremental increase or decrease to the net interest margin.

Previous wording

Net interest income increased$13.7 million, or 61.1%, to $36.0 millionfor thesix months ended June 30, 2025, compared to the same period in the prior year. Total interest income increased by $15.8 million, which was partially offset by interest expense, which increased by $2.1 million. Net interest income was positively impacted by a 55-basis point increase in the net interest margin and a $528.1 million, or 38.8%, increase in average earning assets which was offset by a $377.0 million, or 40.5%, million increase in average interest bearing liabilities.

Current wording

Net interest income increased $20.2 million, or 59.3%, to $54.3 million for thenine months ended September 30, 2025, compared to the same period in the prior year. Total interest income increased by $23.4 million, which was partially offset by interest expense, which increased by $3.2 million. Net interest income was positively impacted by a 50-basis point increase in the net interest margin and a $526.3 million, or 38.5%, increase in average earning assets which was offset by a $379.1 million, or 40.8%, million increase in average interest bearing liabilities.

Previous wording

The increase in total interest income was attributable to a $14.7 million, or 53.6%, increase in interest income and fees on loans. The increase in interest income on loans was attributable to a 21-basis point increase in yield and a 48.8% increase in average balances compared to the same period in the prior year due to the merger with Touchstone.

Current wording

The increase in total interest income was attributable to a $21.7 million, or 51.7%, increase in interest income and fees on loans. The increase in interest income on loans was attributable to a 16-basis point increase in yield and a 47.6% increase in average balances compared to the same period in the prior year due to the merger with Touchstone.

Previous wording

The increase in total interest expense was attributable to a $2.1 million increase in interest expense on deposits and a $797 thousand increase on interest on subordinated debt, offset by a $1.2 million decrease in interest expense on other borrowings. Although net interest margin was positively impacted by a 32-basis point decrease in the cost of interest-bearing deposits, the higher interest expense resulted from a 47.2% increase in average interest-bearing deposit balances. The increase in deposits and subordinated debt was due to assumed liabilities from the Touchstone merger. The lower interest expense on other borrowings resulted from the payoff of $50.0 million of borrowings at the end of 2024.

Current wording

The increase in total interest expense was attributable to a $3.8 million increase in interest expense on deposits and a $1.2 million increase on interest on subordinated debt, offset by a $1.8 million decrease in interest expense on other borrowings. Although net interest margin was positively impacted by a 32-basis point decrease in the cost of interest-bearing deposits, the higher interest expense resulted from a 47.5% increase in average interest-bearing deposit balances. The increase in deposits and subordinated debt was due to assumed liabilities from the Touchstone merger. The lower interest expense on other borrowings resulted from the payoff of $50.0 million of borrowings at the end of 2024.

Previous wording

The net interest margin was 3.86%for thesix months ended June 30, 2025, compared to 3.31% for the same period in the prior year. When compared tothesix months ended June 30, 2024, the net interest margin increased by 55-basis points as the yield on earning assets continued to increase at a similar pace as in prior quarters, while the cost of funds decreased when compared to prior quarterly periods consistent with the federal funds rate cuts in late 2024. The yield on earning assets was also positively impacted by net accretion income related to acquisition accounting of $736 thousand, or a 8-basis point incremental increase to the net interest margin.

Current wording

The net interest margin was 3.85% for thenine months ended September 30, 2025, compared to 3.36% for the same period in the prior year. When compared to thenine months ended September 30, 2024, the net interest margin increased by 49-basis points as the yield on earning assets continued to increase at a similar pace as in prior quarters, while the cost of funds decreased when compared to prior quarterly periods consistent with the federal funds rate cuts in late 2024. The yield on earning assets was also positively impacted by net accretion income related to acquisition accounting of $914 thousand, or a 6-basis point incremental increase to the net interest margin.

Previous wording

The provision for credit losses totaled $911 thousand for the three-month period ended June 30, 2025, compared to $400 thousand for the same period of the prior year. The provision was comprised of a $900 thousand provision for credit losses on loans, a $10 thousand provision for credit losses on held-to-maturity securities and a $1 thousand provision for credit losses on unfunded commitments. As compared to the same period prior year, the increase in provision for credit losses reflects the impact of higher pool loan balances acquired in the Touchstone merger as well as an increase in the allowance to total loans from 1.02% at March 31, 2025 to 1.05% at June 30, 2025. In the second quarter of 2024 the allowance to total loans decreased from 1.30% at March 31, 2024 to 1.27% at June 30, 2024.

Current wording

The provision for credit losses totaled $193 thousand for the three-month period ended September 30, 2025, compared to $1.7 million for the same period of the prior year. The provision was comprised of a $200 thousand provision for credit losses on loans, a $15 thousand recovery of credit losses on held-to-maturity securities and an $8 thousand provision for credit losses on unfunded commitments. As compared to the same period of the prior year, the decrease in provision for credit losses is driven by a decrease in the specific reserves on loans during the third quarter of 2025. The decrease in provision resulted in a lower allowance to total loans of 1.01% at September 30, 2025 compared to 1.05% at June 30, 2025.

Previous wording

The provision for credit losses totaled $1.7 million for thesix-month period ended June 30, 2025, compared to $1.4 million for the same period of the prior year. The provision was comprised of a $1.6 million provision for credit losses on loans, which was partially offset by a $3 thousand provision for credit losses on held-to-maturity securities and a $105 thousand provision for credit losses on unfunded commitments. As compared to the same period prior year, the increase in provision for credit losses reflects the impact of higher pool loan balances acquired in the Touchstone merger as well as an increase in provision for credit losses due to an increase in the level of net-charge offs. Net charge-offs for the first six months of 2025 totaled $2.8 million compared to $844 thousand for the first six months of 2024. The increase in the level of net-charge offs has resulted in a decline in the ratio of allowance to total loans from 1.27% at June 30, 2024 to 1.05% at June 30, 2025. The loss model has been updated in 2025 to reflect the most recent bank and peer group loss rates, economic forecasts, prepayment speeds and curtailment rates for each loan category. With these updates to the model, we saw an increase in the allowance for secured by 1-4 family residential loans and decrease in other real estate. Commercial and industrial loans also saw an increase in provision, largely driven by loss rates and charge offs in the current year.

Current wording

The provision for credit losses totaled $1.9 million for thenine-month period ended September 30, 2025, compared to $3.1 million for the same period of the prior year. The provision was comprised of a $1.8 million provision for credit losses on loans, which was partially offset by a $12 thousand recovery of credit losses on held-to-maturity securities and a $113 thousand provision for credit losses on unfunded commitments. As compared to the same period the prior year, the decrease in the provision for credit losses is driven by increases in the specific reserves on loans during the third quarter of 2024. Net charge-offs for the first nine months of 2025 totaled $3.8 million compared to $2.4 million for the first nine months of 2024. The increase in the level of net-charge offs has resulted in a decline in the ratio of allowance to total loans from 1.28% at September 30, 2024 to 1.01% at September 30, 2025. The loss model has been updated in 2025 to reflect the most recent bank and peer group loss rates, economic forecasts, prepayment speeds and curtailment rates for each loan category.

Previous wording

Noninterest income increased $1.2 million, or 44.8%, to $3.9 million for thesecond quarter of 2025, compared to the same period of 2024. The increase resulted from increases in service charges of $408 thousand, ATM and check card fees of $319 thousand, brokered mortgage fees of $151 thousand, and other operating income of $123 thousand.

Current wording

Noninterest income increased $1.3 million, or 40.5%, to $4.5 million for thethird quarter of 2025, compared to the same period of 2024. The increase resulted from increases in service charges of $310 thousand, ATM and check card fees of $402 thousand, brokered mortgage fees of $74 thousand, income from BOLI of $93 thousand, and $304 thousand in bargain purchase gain. The bargain purchase gain resulted from a higher-than-expected tax refund related to the final Touchstone tax filing.

Previous wording

Noninterest income increased $767 thousand, or 11.4%, to $7.5 million for thesix months ended June 30, 2025, compared to the same period of 2024. The increase resulted from increases in service charges of $767 thousand, ATM and check card fees of $545 thousand, brokered mortgage fees of $223 thousand, and income from bank owned life insurance of $177 thousand. The increases in noninterest income were offset by a decrease in other operating income of $1.1 million from a recovery recognized in 2024 on a loan that was acquired through a business combination in 2021.

Current wording

Noninterest income increased $2.1 million, or 20.8%, to $12.0 million for thenine months ended September 30, 2025, compared to the same period of 2024. The increase resulted from increases in service charges of $1.1 million, ATM and check card fees of $947 thousand, brokered mortgage fees of $297 thousand, income from BOLI of $270 thousand, and $304 thousand in bargain purchase gain. The increases in noninterest income were offset by a decrease in other operating income of $1.1 million from a recovery recognized in 2024 on a loan that was acquired through a business combination in 2021. The bargain purchase gain resulted from a higher-than-expected tax refund related to the final Touchstone tax filing.

Previous wording

Noninterest expenses increased $4.5 million, or 42.5%, to $15.2 million for the three-month period ended June 30, 2025, compared to the same period one year ago. The increase was primarily attributable to $2.2 million, or 37.6%, increase in salaries and employee benefits, a $1.2 million, or 223.0%, increase in other operating expense, $396 thousand, or 72.3%, increase in occupancy expense, a $341 thousand, or 209.2%, increase in data processing expense, and a $436 thousand increase in amortization expense. The increases in salary and benefits, other operating expenses, occupancy expense, and data processing expense were primarily driven by the Touchstone merger resulting in increased operating expenses due to an increase in the number of employees, operating additional branches, increased data processing expenses with increased customer transactions and some duplicative expenses from operating two systems. Amortization expense increased due to core deposit intangible accretion on deposits acquired from Touchstone. These increases were offset by decreases of $530 thousand, or 47.2%, in legal and professional fees and $395 thousand, or 80.7%, in merger expenses compared to the same period in the prior year. Legal and merger fees were higher in the prior year for this period to facilitate the Touchstone acquisition.

Current wording

Noninterest expenses increased $5.3 million, or 50.9%, to $15.8 million for the three-month period ended September 30, 2025, compared to the same period one year ago. The increase was primarily attributable to $2.6 million, or 43.2%, increase in salaries and employee benefits, a $1.5 million, or 168.9%, increase in other operating expense, $440 thousand, or 75.2%, increase in occupancy expense, a $205 thousand, or 70.7%, increase in data processing expense, and a $438 thousand increase in amortization expense. The increases in salary and benefits, other operating expenses, occupancy expense, and data processing expense were primarily driven by the Touchstone merger resulting in increased operating expenses due to an increase in the number of employees, operating additional branches, and increased data processing expenses with increased customer transactions. Amortization expense increased due to core deposit intangible accretion on deposits acquired from Touchstone. These increases were offset by a decrease of $219 thousand, or 100.0%, in merger expenses compared to the same period in the prior year.

Previous wording

Noninterest expenses increased $13.0 million, or 63.2%, to $33.5 million for the six-month period ended June 30, 2025, compared to the same period one year ago. The increase was primarily attributable to a $5.0 million, or 42.8%, increase in salaries and employee benefits, a $2.2 million, or 143.8%, increase in other operating expense, a $1.6 million increase in merger expenses, a $930 thousand, or 85.9%, increase in occupancy expense, a $874 thousand increase in amortization expense, a $857 thousand, or 209.5%, increase in data processing expense, and a $800 thousand, or 62.4%, increase in equipment expense. The increase in salaries and benefits reflects additional expenses due to an increase in the number of employees, increase in incentives, stock compensation expense, and salary and benefit increases from the prior year. The increase in merger expenses was primarily driven by expenses incurred in the first quarter of 2025 to facilitate system integration through conversion expenses and contract terminations. Other operating expenses, occupancy expense, data processing expense, and equipment expense primarily increased due to operating additional branches, increased data processing expenses with increased customer transactions, and duplicative expenses incurred prior to system integration. Amortization expense increased due to core deposit intangible accretion on deposits acquired from Touchstone.

Current wording

Noninterest expenses increased $18.3 million, or 59.0%, to $49.3 million for thenine-month period ended September 30, 2025, compared to the same period one year ago. The increase was primarily attributable to a $7.6 million, or 42.9%, increase in salaries and employee benefits, a $3.7 million, or 152.7%, increase in other operating expense, a $1.2 million, or 157.2%, increase in merger expenses, a $1.4 million, or 82.1%, increase in occupancy expense, a $1.3 million increase in amortization expense, a $1.1 million, or 151.9%, increase in data processing expense, and a $1.1 million, or 56.3%, increase in equipment expense. The increase in salaries and benefits reflects additional expenses due to an increase in the number of employees, increase in incentives, stock compensation expense, and salary and benefit increases from the prior year. The increase in merger expenses was primarily driven by expenses incurred in the first quarter of 2025 to facilitate system integration through conversion expenses and contract terminations. Other operating expenses, occupancy expense, data processing expense, and equipment expense primarily increased due to operating additional branches, increased data processing expenses with increased customer transactions, and duplicative expenses incurred prior to system integration. Amortization expense increased due to core deposit intangible accretion on deposits acquired from Touchstone.

Previous wording

Income tax expense increased $605 thousand to $1.3 million for thesecond quarter of 2025, compared to the same period one year ago. The effective tax rate for thesecond quarter of 2025 was 20.3% compared to 21.8% for the same period in 2024. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the three months ended June 30, 2025 and 2024. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and nondeductible merger expenses. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Current wording

Income tax expense increased $725 thousand to $1.3 million for thethird quarter of 2025, compared to the same period one year ago. The effective tax rate for thethird quarter of 2025 was 18.6% compared to 19.5% for the same period in 2024. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the three months ended September 30, 2025 and 2024. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and nondeductible merger expenses. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

Income tax expense increased$101 thousand to $1.6 million for thefirst six months of 2025, compared to the same period one year ago. The effective tax rate for thefirst six months 2025 was 19.2% compared to 20.8% for the same period in 2024. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the six months ended June 30, 2025, and 2024. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and nondeductible merger expenses. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Current wording

Income tax expense increased$826 thousand to $2.9 million for thefirst nine months of 2025, compared to the same period one year ago. The effective tax rate for thefirst nine months 2025 was 18.9% compared to 20.4% for the same period in 2024. The Company’s income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the nine months ended September 30, 2025, and 2024. The difference was a result of net permanent tax deductions, primarily comprised of tax-exempt interest income, income from bank owned life insurance, and nondeductible merger expenses. A more detailed discussion of the Company’s tax calculation is contained in Note 12 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

Assets totaled $2.041 billion at June 30, 2025, which was an increase of $31.2 million or 3.1% (annualized) from December 31, 2024. The asset composition changed during the firstsix months of the year as interest-bearing deposits in banks increased by $21.9 million and loans, net of the allowance for credit losses, decreased by $22.4 million, while total securities increased by $22.3 million.

Current wording

Assets totaled $2.03 billion at September 30, 2025, which was an increase of $20.5 million or 1.4% (annualized) from December 31, 2024. The asset composition changed during the first nine months of the year as interest-bearing deposits in banks increased by $27.6 million and loans, net of the allowance for credit losses, decreased by $31.4 million, while total securities increased by $27.5 million.

Previous wording

Total liabilities increased by $24.2 million during thesix-month period ended June 30, 2025, primarily from a $25.0 million increase in other borrowings from December 31, 2024. Deposit balances and the composition of deposits as of June 30, 2025 did not change significantly as noninterest-bearing deposits, savings and interest-bearing deposits, and time deposits increased$21.1 million, decreased $23.1 million, and increased $1.4 million, respectively from December 31, 2024.

Current wording

Total liabilities increased by $5.8 million during thenine-month period ended September 30, 2025, primarily from changes in customer deposits. Deposit balances and the composition of deposits as of September 30, 2025 did not change significantly as noninterest-bearing deposits, savings and interest-bearing deposits, and time deposits decreased$8.7 million, increased $7.5 million, and increased $7.0 million, respectively from December 31, 2024.

Previous wording

Total shareholders’ equity increased by $7.0 million during the firstsix months of 2025, primarily from a $3.9 million increase in retained earnings and a $2.6 million reduction in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was attributable to unrealized holding gains in the available-for-sale securities portfolio. The Bank's capital ratios continued to exceed the minimum capital requirements for regulatory purposes.

Current wording

Total shareholders’ equity increased by $14.7 million during the first nine months of 2025, primarily from an $8.0 million increase in retained earnings and a $5.5 million reduction in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was attributable to unrealized holding gains in the available-for-sale securities portfolio. The Bank's capital ratios continued to exceed the minimum capital requirements for regulatory purposes.

Previous wording

Loans totaled $1.428 billion at June 30, 2025, which was a $22.4 million or 3.1% (annualized) decrease from December 31, 2024, and a $450.8 million, or 46.1%, increase over June 30, 2024.The change in loans over the periods did not have a significant impact on the composition of the loan portfolio. The loan portfolio was primarily comprised of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, and commercial and industrial loans, which totaled 38%, 47%, and 8% of the loan portfolio, respectively, at June 30, 2025, and 37%, 46%, and 10%of the loan portfolio, respectively, at December 31, 2024.

Current wording

Loans totaled $1.419 billion at September 30, 2025, which was a $31.4 million or 8.7% (annualized) decrease from December 31, 2024, and a $436.7 million, or 44.5%, increase over September 30, 2024.The change in loans over the periods did not have a significant impact on the composition of the loan portfolio. The loan portfolio was primarily comprised of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, and commercial and industrial loans, which totaled 37%, 48%, and 8% of the loan portfolio, respectively, at September 30, 2025, and 37%, 46%, and 10%of the loan portfolio, respectively, at December 31, 2024.

Previous wording

The loan portfolio includes loans that were acquired through business combinations and loans that were purchased through a third-party loan originator. Loans acquired through business combinations included unaccreted discounts, net of unamortized premiums totaling $13.5 million and $14.3 million, as of June 30, 2025 and December 31, 2024, respectively. Loans purchased from a third-party that originated and serviced loans to health care professionals totaled $17.0 million as of June 30, 2025, which included unamortized premiums totaling $5.2 million, compared to loans totaling $19.0 million as of December 31, 2024, which included unamortized premiums totaling $5.8 million.

Current wording

The loan portfolio includes loans that were acquired through business combinations and loans that were purchased through a third-party loan originator. Loans acquired through business combinations included unaccreted discounts, net of unamortized premiums totaling $13.5 million and $14.3 million, as of September 30, 2025 and December 31, 2024, respectively. Loans purchased from a third-party that originated and serviced loans to health care professionals totaled $15.1 million as of September 30, 2025, which included unamortized premiums totaling $4.5 million, compared to loans totaling $19.0 million as of December 31, 2024, which included unamortized premiums totaling $5.8 million.

Previous wording

Management classifies non-performing assets as non-accrual loans and OREO. Non-performing assets totaled $6.8 million and $7.0 million at June 30, 2025 and December 31, 2024, representing approximately 0.33% and 0.35% of total assets, respectively. Nonaccrual loans totaled $6.8 million and $7.1 million at June 30, 2025 and December 31, 2024, respectively. There was no OREO at June 30, 2025 and $53 thousand at December 31, 2024. The Bank did not have any consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings were in process as of June 30, 2025. Loans past due 90 days or more and accruing interest totaled$0 and $0 at June 30, 2025 and December 31, 2024, respectively.

Current wording

Management classifies non-performing assets as non-accrual loans and OREO. Non-performing assets totaled $6.1 million and $7.0 million at September 30, 2025 and December 31, 2024, representing approximately 0.30% and 0.35% of total assets, respectively. Nonaccrual loans totaled $5.7 million and $7.0 million at September 30, 2025 and December 31, 2024, respectively. There was no OREO at September 30, 2025 and $53 thousand at December 31, 2024. The Bank did not have any consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings were in process as of September 30, 2025. Loans past due 90 days or more and accruing interest totaled$388 thousand and $365 thousand at September 30, 2025 and December 31, 2024, respectively.

Previous wording

On June 30, 2025 commercial and industrial loans and residential real estate loans comprised 53% and 33% of non-performing assets, respectively. Non-performing assets could increase due to other loans identified by management as potential problem loans. Other potential problem loans are defined as performing loans that possess certain risks, including the borrower’s ability to pay and the collateral value securing the loan, that management has identified that may result in the loans not being repaid in accordance with their terms. Other potential problem loans totaled $6.6 million and $9.1 million at June 30, 2025 and December 31, 2024, respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers’ ability to meet their debt requirements.

Current wording

On September 30, 2025 commercial and industrial loans and residential real estate loans comprised 46% and 36% of non-performing assets, respectively. Non-performing assets could increase due to other loans identified by management as potential problem loans. Other potential problem loans are defined as performing loans that possess certain risks, including the borrower’s ability to pay and the collateral value securing the loan, that management has identified that may result in the loans not being repaid in accordance with their terms. Other potential problem loans totaled $10.0 million and $9.1 million at September 30, 2025 and December 31, 2024, respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers’ ability to meet their debt requirements.

Previous wording

The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals. The finance company operated a program that historically provided credit support to the Company through, among other things, the repurchase of their loans and unamortized loan premiums when loans did not pay according to the loan agreements. The finance company no longer offers this credit support. On June 30, 2025, loans purchased from the finance company totaled $17.0 million, which was comprised of $11.8 million of loan balances and unamortized premiums totaling $5.2 million. As of June 30, 2025, $2.6 million of these loans were non-accrual including premiums totaling $931 thousand and thus were individually evaluated. Specific reserves on these individually evaluated loans totaled $1.8 million and were included in the Company’s allowance for credit losses on loans. The remaining $14.4 million of loans with premiums totaling $4.3 million were considered performing and were included in the calculation of the general reserve component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. On June 30, 2025, there was a total of 146 loans purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 6.0 years.

Current wording

The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals. The finance company operated a program that historically provided credit support to the Company through, among other things, the repurchase of their loans and unamortized loan premiums when loans did not pay according to the loan agreements. The finance company no longer offers this credit support. On September 30, 2025, loans purchased from the finance company totaled $15.1 million, which was comprised of $10.6 million of loan balances and unamortized premiums totaling $4.5 million. As of September 30, 2025, $1.7 million of these loans were non-accrual including premiums totaling $590 thousand and thus were individually evaluated. Specific reserves on these individually evaluated loans totaled $1.2 million and were included in the Company’s allowance for credit losses on loans. The remaining $13.4 million of loans with premiums totaling $3.9 million were considered performing and were included in the calculation of the general reserve component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. On September 30, 2025, there was a total of 134 loans purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 6.0 years.

Previous wording

On June 30, 2025 securities totaled$299.6 million, an increase of $22.3 million, or 8%, from $277.3 millionat December 31, 2024. Investment securities are comprised of U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities. As of June 30, 2025, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $163 thousand and $62 thousand at June 30, 2025 and December 31, 2024, respectively. Gross unrealized losses in the available for sale portfolio totaled $19.1 million and $22.1 million at June 30, 2025 and December 31, 2024, respectively. Gross unrealized gains in the held to maturity portfolio totaled $2 thousand and $8 thousand at June 30, 2025 and December 31, 2024, respectively. Gross unrealized losses in the held to maturity portfolio totaled $8.8 million and $11.0 million at June 30, 2025 and December 31, 2024, respectively. The change in the unrealized gains and losses of investment securities from December 31, 2024 to June 30, 2025 was related to changes in market interest rates and was not related to credit concerns of the issuers.

Current wording

On September 30, 2025 securities totaled$305.5 million, an increase of $28.2 million, or 10.2%, from $277.3 millionat December 31, 2024. Investment securities are comprised of U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities. As of September 30, 2025, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $360 thousand and $62 thousand at September 30, 2025 and December 31, 2024, respectively. Gross unrealized losses in the available for sale portfolio totaled $15.8 million and $22.1 million at September 30, 2025 and December 31, 2024, respectively. Gross unrealized gains in the held to maturity portfolio totaled $29 thousand and $8 thousand at September 30, 2025 and December 31, 2024, respectively. Gross unrealized losses in the held to maturity portfolio totaled $7.3 million and $11.0 million at September 30, 2025 and December 31, 2024, respectively. The change in the unrealized gains and losses of investment securities from December 31, 2024 to September 30, 2025 was related to changes in market interest rates and was not related to credit concerns of the issuers.