MainStreet Bancshares, Inc.

Previous wording

The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. The Company’s critical accounting policies relate to (1) the allowance for credit losses, (2) fair value of financial instruments, and (3) derivative financial instruments. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

Current wording

The Company’s critical accounting policy relates to the allowance for credit losses. This critical accounting policy requires the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

Previous wording

Allowance for Credit Losses: On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. See Note 1. Organization, Basis of Presentation, and Impact of Recently Issued Accounting Pronouncements for a more detailed description of methodology and impact of adoption.

Current wording

Allowance for Credit Losses: On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. Changes in conditions, including unforeseen events, changes in asset-specific risk characteristics, and other economic factors, both within and outside the Company’s control, may indicate the need for an increase or decrease in the ACL on loans. While management makes every effort to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways. Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others. See Note 1. Organization, Basis of Presentation, and Impact of Recently Issued Accounting Pronouncements for a more detailed description of methodology and impact of adoption.

Previous wording

Net loss for the year ended December 31, 2024, was $10.0 million, a decrease of $36.6 million, or 137.5% compared to net income of $26.6 million earned during the year ended December 31, 2023. The decrease in net income was due to increases in interest expense of $24.4 million and an increase of non-interest expenses of $27.4 million compared to the same period in the prior year.

Current wording

Net income for the year ended December 31, 2025, was$15.6 million, an increase of $25.6 million, compared to a net loss of$10.0 million for the year ended December 31, 2024. The increase in net income was due to a decrease in interest expense of$10.0 million and a decrease of non-interest expenses of$18.4 million compared to the same period in the prior year.

Previous wording

Net interest income before provision for credit losses totaled $62.6 million for the year ended December 31, 2024, compared to $76.7 million for the year ended December 31, 2023. The decrease in net interest income was driven by an increase in deposit interest expense discussed below, for the year ended December 31, 2024.

Current wording

Net interest income before provision for credit losses totaled $69.5 million for the year ended December 31, 2025, compared to $62.6 million for the year ended December 31, 2024. The increase in net interest income was driven by a decrease in deposit interest expense discussed below, for the year ended December 31, 2025.

Previous wording

The net interest margin was 3.13% for the year ended December 31, 2024, compared to 4.15% for the year ended December 31, 2023, on a fully tax equivalent basis. The decrease in net interest margin primarily resulted from an increase of interest expense on our interest bearing liabilities that outpaced the increase in interest income. The primary drivers of increased interest expense came from demand, money market, and time deposits. The federal funds target rate remaining high in 2024 impacted our maturing wholesale deposits that had to reprice in a higher interest rate environment, which increased margin pressure on our loan portfolio and other interest earning assets. Management made efforts to replace these deposits with callable wholesale deposits, allowing more optionality for future rate movements.

Current wording

The net interest margin was 3.46% for the year ended December 31, 2025, compared to 3.13% for the year ended December 31, 2024, on a fully tax equivalent basis. The increase in net interest margin primarily resulted from a decrease of interest expense on our interest-bearing liabilities. The primary drivers of decreased interest expense came from cost management on demand, money market, and time deposits during 2025. Additionally, the federal funds target rate decreasing by 75 basis points in 2025 impacted our maturing wholesale deposits that repriced in a lower interest rate environment.

Previous wording

The yield for the year ended December 31, 2024 for the loan portfolio was 7.02% compared to 7.02% for the year ended December 31, 2023. The unchanging yield primarily reflects the maturity of lower yielding loans and higher yields on new and variable rate loans based on higher interest rates during the year. The Federal Reserve maintained its targeted benchmark interest rate at the range of 525 - 550 basis points through September 2024. The ranged was lowered to 425 - 450 by December 2024. Maintaining higher rates in 2024 with a slight rate decrease in the last quarter of 2024 impacted yields obtained on new loans throughout the year.

Current wording

The yield for the year ended December 31, 2025 for the loan portfolio was 6.82% compared to 7.02% for the year ended December 31, 2024. The decreasing yield primarily reflects the repricing of variable rate loans at lower rates in 2025 compared to higher rates in prior years. The Federal Reserve's targeted benchmark interest rate range was 525 - 550 basis points through September 2024. The range was lowered to 425 - 450 by December 2024 and lowered again starting in September 2025 to a range of 350 - 375 by December 2025.

Previous wording

For the year ended December 31, 2024, the yield on the taxable investment securities portfolio was 3.08% compared to 3.20% for the year ended December 31, 2023. For the year ended December 31, 2024, the yield on the tax-exempt investment securities portfolio was 3.80% compared to 3.57% for the year ended December 31, 2023. The increase in yield on the tax-exempt investment securities was primarily due to rates on variable securities remaining high with the current rate environment and lower yields on investment securities maturing during the period.

Current wording

For the year ended December 31, 2025, the yield on the taxable investment securities portfolio was 3.26% compared to 3.08% for the year ended December 31, 2024. For the year ended December 31, 2025, the yield on the tax-exempt investment securities portfolio was 3.85% compared to 3.80% for the year ended December 31, 2024. The increase in yield on the tax-exempt investment securities was primarily due to lower yields on investment securities maturing during the period.

Previous wording

The rate paid on interest bearing deposits increased to 4.70% during the year ended December 31, 2024, from 3.57% during the year ended December 31, 2023. This increase was a result of higher rates paid on all outstanding deposits in conjunction with the higher rate environment throughout the year.

Current wording

The rate paid on interest-bearing deposits decreased to 3.92% during the year ended December 31, 2025, from 4.70% during the year ended December 31, 2024. This decrease was a result of lower rates paid on all outstanding deposits in conjunction with the decreasing rate environment throughout the year.

Previous wording

The rate paid on FHLB borrowings and federal funds purchased for the year ended December 31, 2024 was 5.61% and 5.78%, respectively, compared to the prior year of 4.90% for FHLB borrowings and 5.36% for federal funds purchased. This increase was a result of higher rates paid on all outstanding borrowings in conjunction with the higher rate environment throughout the year.

Current wording

The rate paid on FHLB borrowings and federal funds purchased for the year ended December 31, 2025 was 0.00% and 4.71%, respectively, compared to the prior year of 5.61% for FHLB borrowings and 5.78% for federal funds purchased. This decrease was a result of lower rates paid on all outstanding borrowings in conjunction with the decreasing rate environment throughout the year.

Previous wording

We establish a provision for credit losses, which is charged to operations, in order to maintain the allowance for credit losses at a level we consider necessary to absorb expected credit losses that are both probable and reasonably estimated at the balance sheet date. In determining the level of the allowance for credit and off-balance sheet losses, we consider past and current loss experience, evaluations of real estate collateral, current and future economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available or economic conditions change.

Current wording

We establish a provision for credit losses, which is charged to operations, in order to maintain the allowance for credit losses at a level we consider necessary to absorb expected credit losses that are reasonably estimated at the balance sheet date. In determining the level of the allowance for credit and off-balance sheet losses, we consider past and current loss experience, evaluations of real estate collateral, current and future economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available or economic conditions change.

Previous wording

The provision for credit losses on loans increased to a credit loss provision of $7.5 million for the year ended December 31, 2024, compared to the prior year which ended at credit loss provision of $1.9 million. The provision for credit losses on off-balance sheet exposure was a net recovery of $722,000 compared to the prior year which ended with a net recovery of $301,000. The increase in provision for credit losses on loans was primarily driven by loan growth and charge offs taken in 2024 as well as increasing qualitative factors within our model assumptions for increased levels of past dues, higher levels of nonperforming loans as of December 31, 2024 compared to December 31, 2023, and potential weaknesses in underlying collateral for certain asset classes. The recovery of credit losses for off-balance sheet exposure was driven by fluctuations in our revolving credit line utilization rates as of December 31, 2024. Loan originations decreased $73.6 million, which totaled $447.6 million for the year ended December 31, 2023 compared to loan originations of $374.0 million for the year ended December 31, 2024. Non-performing loans were $1.0 million at December 31, 2023 and $21.7 million at December 31, 2024.

Current wording

The provision for credit losses on loans decreased to a recovery of credit loss of $0.1 million for the year ended December 31, 2025, compared to the prior year which ended at a credit loss provision of $7.5 million. The provision for credit losses on off-balance sheet exposure was a net provision of $48,000 compared to the prior year which ended with a net recovery of $0.7 million. The decrease in provision for credit losses on loans was primarily driven by less charge offs taken in 2025 compared to 2024. The recovery of credit losses for off-balance sheet exposure was driven by fluctuations in our revolving credit line utilization rates as of December 31, 2025. Loan originations decreased $21.6 million, which totaled $374.0 million for the year ended December 31, 2024 compared to loan originations of $352.5 million for the year ended December 31, 2025. Non-performing loans were $21.7 million at December 31, 2024 and $31.5 million at December 31, 2025.

Previous wording

During the year ended December 31, 2024, classified loans increased $36.2 million for a balance of $57.4 million. During the year ended December 31, 2024, criticized loans increased $66.3 million to $85.3 million. During the year ended December 31, 2024, watch list loans increased $63.9 million to $122.6 million. Management does not believe any significant loss exposure currently exists in these loans. During the year ended December 31, 2024, there was $4.6 million in charge-offs recorded and recoveries of $28,000 were received. During the year ended December 31, 2023, there was $468,000 in charge-offs recorded and recoveries received of $22,000.

Current wording

During the year ended December 31, 2025, classified loans increased $26.8 million for a balance of $84.2 million. During the year ended December 31, 2025, criticized loans increased $25.2 million to $110.5 million. During the year ended December 31, 2025, watch list loans increased $46.1 million to $168.7 million. Management does not believe any significant loss exposure currently exists in these loans. All classified loans are considered individually evaluated and have strong collateral positions, with satisfactory loan-to-value (LTVs) ratios. Criticized loans continue to perform, are well collateralized, and show improving trends. During the year ended December 31, 2025, there was $0.9 million in charge-offs recorded and recoveries of $0.8 million were received. During the year ended December 31, 2024, there was $4.6 million in charge-offs recorded and recoveries received of $28,000.

Previous wording

Discussion of provision for loan losses for the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Provision for Loan Losses” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 23, 2023, and is incorporated herein by reference.

Current wording

Discussion ofprovision for credit lossesfor the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading "Provision for Credit Losses” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 20, 2024, and is incorporated herein by reference.

Previous wording

Our primary sources of non-interest income are service charges on deposit accounts, such as interchange fees and statement fees, income earned on bank owned life insurance, fees earned from executing interest rate swaps on commercial loans, and gains realized on the sale of the guaranteed portion of Small Business Administration (“SBA”) loans.

Current wording

Our primary sources of non-interest income are service charges on deposit accounts, such as interchange fees and statement fees, and income earned on bank owned life insurance. The following table presents, for the periods indicated, the major categories of non-interest income:

Previous wording

Non-interest income decreased$0.1 million, or 2.6%, to $3.3 million for the year ended December 31, 2024 from $3.3 million for the year ended December 31, 2023. The decrease in non-interest income was primarily due to a decrease in deposit account service charges and other fee income for the year ended December 31, 2024. The Company did not recognize any fees on interest rate swaps for commercial loans for the year ended December 31, 2024 or December 31, 2023. The Company also recognized $251,000 in planned operating losses in other fee income related to two New Market Tax Credit investments during the year ended December 31, 2023. Bank owned life insurance income increased $120,000 for the year ended December 31, 2024, compared to the year ended December 31, 2023, due to the high rate environment throughout 2024. The deposit service fees decreased $153,000 for the year ended December 31, 2024, as compared to the same period in 2023, due to a decrease in customer activity.

Current wording

Non-interest income increased$0.8 million, or 23.8%, to $4.0 million for the year ended December 31, 2025 from $3.3 million for the year ended December 31, 2024. The increase in non-interest income was primarily due to a $0.3 million gain on retirement of subordinated debt and an increase in deposit account service charges and other fee income of $0.2 million for the year ended December 31, 2025. Bank owned life insurance income increased $0.1 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, due to the elevated rate environment throughout 2025.

Previous wording

Non-interest expense increased $27.4 million or 60.0% to $73.0 million for the year ended December 31, 2024 from $45.6 million for the year ended December 31, 2023 primarily as a result of the impairment of the computer software intangible of $19.7 million, increases in salary and employee benefits of $2.2 million, outside services of$1.6 million, and furniture and equipment expenses of $849,000. Management performed an impairment analysis on the computer software intangible asset during the three months ended December 31, 2024 and determined that the intangible had become fully impaired, which led to a charge of $19.7 million to the income statement. Salaries and employee benefits expense increased by $2.2 million to $30.5 million for the year ended December 31, 2024 from $28.3 million for the year ended December 31, 2023 primarily as a result of increasing our personnel team members by 18 employees. Outside services increased$1.6 million, or 77.4%, to$3.6 million for the year ended December 31, 2024 from $2.0 million for the year ended December 31, 2023. Furniture and equipment expenses incre ased$849,000, or 30%, to$3.6 million for the year ended December 31, 2024 from $2.8 million for the year ended December 31, 2023. Many of the non-interest expense categories remain consistent for the year ended December 31, 2024 compared to the year ended December 31, 2023 as management continues to exercise judicious expense controls.

Current wording

Non-interest expense decreased $18.4 million or 25.2% to $54.6 million for the year ended December 31, 2025 from $73.0 million for the year ended December 31, 2024 primarily as a result of the impairment of the computer software intangible of $19.7 million recognized during the year ended December 31, 2024. Salaries and employee benefits expense increased by $1.1 million to $31.6 million for the year ended December 31, 2025 from $30.5 million for the year ended December 31, 2024. FDIC insurance expense increased $0.8 million to $2.1 million for the year ended December 31, 2025, from $1.3 million for the year ended December 31, 2024 due to significant deposit growth earlier in the year, as those deposits were temporary, we expect this expense to return to previous levels. Other operating expenses decreased $0.7 million from $5.8 million for the year ended December 31, 2024 to $5.2 million for the year ended December 31, 2025 due to expense management. Furniture and equipment expenses incre ased$0.2 million to$3.8 million for the year ended December 31, 2025 from $3.6 million for the year ended December 31, 2024. Many of the non-interest expense categories remain consistent for the year ended December 31, 2025 compared to the year ended December 31, 2024 as management continues to exercise judicious expense controls.

Previous wording

Income tax expense decreased $10.2 million or 162.9%, to a tax benefit of $3.9 million for the year ended December 31, 2024 from a tax expense of $6.2 million for the year ended December 31, 2023. The decrease in federal income tax expense for the year ended December 31, 2024 compared to the same period a year earlier was driven by a net loss recorded for the year ended December 31, 2024 due to the decline in net interest income given the impact of the highly competitive deposit interest rate environment and the impairment of the computer software intangible asset. For the year ended December 31, 2024, the Bank had an effective tax benefit rate of 28.2%, compared to effective federal tax rate of 19.0% for the year ended December 31, 2023.

Current wording

Income tax expense increased $7.4 million or 188.6%, to a tax expense of $3.5 million for the year ended December 31, 2025 from a tax benefit of $3.9 million for the year ended December 31, 2024. The increase in income tax expense for the year ended December 31, 2025 compared to the same period a year earlier was driven by the return to net income for the year ended December 31, 2025 from a net loss recorded for the year ended December 31, 2024. For the year ended December 31, 2025, the Bank had an effective tax rate of 18.2%, compared to effective benefit rate of 28.2% for the year ended December 31, 2024.

Previous wording

The total investment securities portfolio, including both investment securities available-for-sale and investment securities held-to-maturity, was $71.8 million at December 31, 2024, a decrease of $5.4 million compared with December 31, 2023. At December 31, 2024, the investment securities portfolio includes $55.7 million of investment securities available-for-sale and $16.1 million of investment securities held-to-maturity compared to $59.9 million of investment securities available-for-sale and $17.3 million of investment securities held-to-maturity at December 31, 2023.

Current wording

The total investment securities portfolio, including both investment securities available-for-sale and investment securities held-to-maturity, was $71.8 million at December 31, 2025, a decrease of $0.1 million compared with December 31, 2024. At December 31, 2025, the investment securities portfolio includes $58.0 million of investment securities available-for-sale and $13.8 million of investment securities held-to-maturity compared to $55.7 million of investment securities available-for-sale and $16.1 million of investment securities held-to-maturity at December 31, 2024.

Previous wording

Our primary source of income is derived from interest earned on loans. Our loan portfolio consists of loans secured by real estate as well as commercial business loans and consumer loans, substantially all of which are secured by corresponding deposits at the Bank. Our loan customers primarily consist of small- to medium-sized businesses, professionals, real estate investors, small residential builders and individuals. Our owner occupied and investment commercial real estate loans, residential construction loans and commercial business loans provide us with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals. Our lending activities are principally directed to our market area consisting of the Washington, D.C. and Northern Virginia metropolitan areas.

Current wording

Our primary source of income is derived from interest earned on loans. Our loan portfolio consists of loans secured by real estate as well as commercial business loans and consumer loans. Our loan customers primarily consist of small- to medium-sized businesses, professionals, real estate investors, small residential builders and individuals. Our owner occupied and investment commercial real estate loans, residential construction loans and commercial business loans provide us with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals. Our lending activities are principally directed to our market area consisting of the Washington, D.C. and Northern Virginia metropolitan areas.

Previous wording

Loans, net of unearned income, totaled $1.8 billion at December 31, 2024, an increase of $107.9 million from December 31, 2023. The increase in total loans was primarily driven by growth in the overall loan portfolio, with increases in commercial real estate for owner occupied and non-owner occupied segments as well as in commercial and industrial credits. Owner occupied loans had a balance of $357.7 million at December 31, 2024 compared to $282.1 million at December 31, 2023, for a net increase of $75.7 million. Non-owner occupied loans had a balance of $560.1 million at December 31, 2024 compared to $461.8 million at December 31, 2023, for a net increase of $98.3 million. Commercial and industrial loans had a balance of $82.8 million at December 31, 2024 compared to $75.4 million at December 31, 2023, for a net increase of $7.4 million.

Current wording

Loans, net of unearned income, totaled $1.9 billion at December 31, 2025, an increase of $30.3 million from December 31, 2024. The increase in total loans was primarily driven by growth in the overall loan portfolio, with increases in commercial real estate for owner occupied and non-owner occupied segments as well as in commercial and industrial credits. Owner occupied loans had a balance of $448.5 million at December 31, 2025 compared to $372.4 million at December 31, 2024, for a net increase of $76.1 million. Non-owner occupied loans had a balance of $566.4 million at December 31, 2025 compared to $525.8 million at December 31, 2024, for a net increase of $40.6 million. Commercial and industrial loans had a balance of $107.0 million at December 31, 2025 compared to $102.4 million at December 31, 2024, for a net increase of $4.6 million.

Previous wording

The Company holds a concentration in commercial real estate loans. The Board has set a risk tolerance level of 150% and 375% of consolidated risk-based capital forconstruction, land development and other land loans and commercial real estate loans. As of December 31, 2024, construction, land development and other land loans represented 131.9% of consolidated risk-based capital. Total commercial real estate loans as defined by the Agency guidance represented 393.8% of consolidated risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio by 72%. The Company has temporarily exceeded the target level for the commercial real estate segment and is working quickly to bring this segment back within the Board tolerance level.

Current wording

The Company holds a concentration in commercial real estate loans. The Board has set a risk tolerance level of 150% and 375% of consolidated risk-based capital forconstruction, land development and other land loans and commercial real estate loans. As of December 31, 2025, construction, land development and other land loans represented 97.6% of consolidated risk-based capital. Total commercial real estate loans as defined by the Agency guidance represented 354.6% of consolidated risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio by 45%.

Previous wording

We stress test earning assets on a quarterly basis and measure the results against the Bank's risk-based capital. For commercial loans, residential real estate loans, owner-occupied commercial real estate loans and consumer installment loans, we multiply the total outstanding amount for each loan category by our highest quarter historical loss for that category as a surrogate in order to calculate a stressed loss.

Current wording

We stress test earning assets using a worst-case methodology on a quarterly basis and measure the results against the Bank's risk-based capital. For commercial loans, residential real estate loans, owner-occupied commercial real estate loans and consumer installment loans, we multiply the total outstanding amount for each loan category by our highest quarter historical loss for that category as a surrogate in order to calculate a stressed loss.

Previous wording

The Company employs an external loan review firm to conduct ongoing reviews of the loan portfolio. During the year ended December 31, 2024, the independent external loan review firm reviewed approximately 70% of the entire portfolio by outstanding dollar balance. The external review did not identify any material underwriting or ongoing portfolio management concerns.

Current wording

The Company employs an external loan review firm to conduct ongoing reviews of the loan portfolio. During the year ended December 31, 2025, the independent external loan review firm reviewed approximately 78% of the entire portfolio by outstanding dollar balance. The external review did not identify any material underwriting or ongoing portfolio management concerns.

Previous wording

The Company’s asset quality remained strong during the year ended December 31, 2024. Nonperforming assets, which includes nonaccrual loans, accruing loans 90 days past due, and other real estate owned totaled $21.7 million at December 31, 2024, and $1.0 million at December 31, 2023.

Current wording

The Company’s asset quality remained resilient during the year ended December 31, 2025. Non-performing assets, which includes non-accrual loans, accruing loans 90 days past due, and other real estate owned totaled $33.2 million at December 31, 2025, and $21.7 million at December 31, 2024.

Previous wording

A loan’s past due status is based on the contractual due date of the most delinquent payment due. All loans which are 30 or more days past due at the end of the month are reported to the Board of Directors. Commercial loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Consumer loans are generally placed on nonaccrual status when the collection of principal or interest is 120 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on nonaccrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed.

Current wording

A loan’s past due status is based on the contractual due date of the most delinquent payment due. All loans which are 30 or more days past due at the end of the month are reported to the Board of Directors. Commercial loans are generally placed on non-accrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Consumer loans are generally placed on non-accrual status when the collection of principal or interest is 120 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on non-accrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed.

Previous wording

Interest income that would have been recorded for the years ended December 31, 2024 and 2023 had non-accruing loans been current according to their original terms was $1.9 million and $133,092, respectively.

Current wording

Interest income that would have been recorded for the years ended December 31, 2025 and 2024 had non-accruing loans been current according to their original terms was $1.4 million and $1.9 million, respectively.

Previous wording

The Company further describes loans that were modified during the year ended December 31, 2024 in Note 5 of Notes to Consolidated Financial Statements.

Current wording

The Company further describes loans that were modified during the year ended December 31, 2025 and 2024 in Note 5 of Notes to Consolidated Financial Statements.

Previous wording

At December 31, 2024, our allowance for credit losses on loans represented 1.06% of total loans and we had $21.7 million in non-performing loans. The allowance for credit losses on loans increased to $19.5 million at December 31, 2024 from $16.5 million at December 31, 2023 as a direct result of loan growth and charge offs taken in 2024 as well as increasing qualitative factors within our model assumptions for increased levels of past dues and potential weaknesses in underlying collateral for certain asset classes. There were $4.5 million in net loan charge-offs and $446,000 in net loan charge-offs during the years ended December 31, 2024 and December 31, 2023, respectively.

Current wording

At December 31, 2025, our allowance for credit losses on loans represented 1.04% of total loans and we had $31.5 million in non-performing loans. The allowance for credit losses on loans decreased to $19.3 million at December 31, 2025 from $19.5 million at December 31, 2024 due to the increase in collateral dependent loans during the year ended December 31, 2025, all of which are fully collateralized and do not require specific reserves. There were $24,000 and $4.5 million in net loan charge-offs during the years ended December 31, 2025 and December 31, 2024, respectively.

Previous wording

Total deposits increased by $221.7 million from December 31, 2023 to December 31, 2024. Wholesale deposits, which are included in the table below, totaled $468.1 million and $433.0 million at December 31, 2024, and December 31, 2023, respectively. The following table presents the Company’s average deposits segregated by major category for the years ended December 31, 2024 and December 31, 2023:

Current wording

Total deposits decreased by $8.6 million from December 31, 2024 to December 31, 2025. Wholesale deposits, which are included in the table below, totaled $498.5 million and $468.1 million at December 31, 2025, and December 31, 2024, respectively. The following table presents the Company’s average deposits segregated by major category for the years ended December 31, 2025 and December 31, 2024:

Previous wording

The pronounced shift from non-interest bearing demand deposits into money market demand and time deposits was driven by market conditions emanating from the large-bank failures in the first half of 2023. In order for us to maintain the customer relationships, we needed to shift the deposits into accounts where we could provide excess FDIC insurance coverage. We also gained in money market demand and time deposits as customers brought additional funds into the Company.

Current wording

The shift from non-interest-bearing demand deposits into money market demand and time deposits was driven by market conditions emanating from the large-bank failures in the first half of 2023. In order for us to maintain the customer relationships, we needed to shift the deposits into accounts where we could provide excess FDIC insurance coverage. We also gained in money market demand and time deposits as customers brought additional funds into the Company.

Previous wording

The Company uses wholesale deposits as a funding source in addition to customer deposits. Wholesale deposits provide a diversified and stable source of funding during times of market volatility. As of December 31, 2024, the Company had $468.1 million of total wholesale deposit funding sources, an increase of $35.1 million compared to December 31, 2023, which totaled $433.0 million.

Current wording

The Company uses wholesale deposits as a funding source in addition to customer deposits. Wholesale deposits provide a diversified and stable source of funding that generally has stated maturities. As of December 31, 2025, the Company had $498.5 million of total wholesale deposit funding sources, an increase of $30.4 million compared to December 31, 2024, which totaled $468.1 million.

Previous wording

Given the interest rate environment and strategic initiatives, the Company replaced maturing lower yielding wholesale CDs with higher market rate CDs. Many replacement CDs include call options at our discretion if economic conditions change. The Company also utilized additional wholesale demand deposits to provide liquidity and more effectively balance our interest rate sensitivity. During the year ended December 31, 2024, total wholesale deposit funding accounted for approximately 28% of our interest expense.

Current wording

Given the interest rate environment and strategic initiatives, the Company replaced maturing higher yielding wholesale CDs with lower market rate CDs. The Company also utilized additional wholesale demand deposits to provide liquidity and more effectively balance our interest rate sensitivity. During the year ended December 31, 2025, total wholesale deposit funding accounted for approximately 35% of our interest expense.

Previous wording

Each quarter the Bank files a bank call report with the FDIC, which has a specific way it defines wholesale brokered deposits. As of December 31, 2024, the Company had $442.9 million of wholesale deposits outstanding, as defined by FDIC, an increase of $44.41 million from December 31, 2023. In addition, pursuant to rule 12 CFR 337.6(e), well-capitalized and well-rated institutions are not required to treat reciprocal deposits as wholesale deposits up to the lesser of 20 percent of their total liabilities or $5 billion. Reciprocal core deposits exceeding this threshold must be reported additionally as wholesale deposits for call report purposes only. As of December 31, 2024, the Company additionally reported $259.9 million in reciprocal deposits considered wholesale for call report purposes only, bringing regulatory defined wholesale deposits to $702.8 million as of December 31, 2024. As of December 31, 2024, all of the Company's reciprocal deposits were core deposits from customers who placed their deposits in the reciprocal network for additional FDIC insurance coverage.

Current wording

Each quarter the Bank files a bank call report with the FDIC, which has a specific way it defines wholesale brokered deposits. As of December 31, 2025, the Company had $480.0 million of wholesale deposits outstanding, as defined by FDIC, an increase of $37.1 million from December 31, 2024. In addition, pursuant to rule 12 CFR 337.6(e), well-capitalized and well-rated institutions are not required to treat reciprocal deposits as wholesale deposits up to the lesser of 20 percent of their total liabilities or $5 billion. Reciprocal core deposits exceeding this threshold must be reported additionally as wholesale deposits for call report purposes only. As of December 31, 2025, the Company additionally reported $145.2 million in reciprocal deposits considered wholesale for call report purposes only, bringing regulatory defined wholesale deposits to $625.2 million as of December 31, 2025. As of December 31, 2025, all of the Company's reciprocal deposits were core deposits from customers who placed their deposits in the reciprocal network for additional FDIC insurance coverage.

Previous wording

At December 31, 2024, the Company had $779.6 million in total deposits in excess of the FDIC insurance limit of $250,000.

Current wording

At December 31, 2025, the Company had$911.8 million in total deposits in excess of the FDIC insurance limit of $250,000.

Previous wording

Certificates of deposit in amounts in excess of the FDIC insurance limit of $250,000 totaled approximately $457.4 million. The following table sets forth the maturity of these certificates as of December 31, 2024.

Current wording

Certificates of deposit in amounts in excess of the FDIC insurance limit of $250,000 totaled approximately $416.8 million. The following table sets forth the maturity of these certificates as of December 31, 2025.

Previous wording

We may obtain advances from the Federal Home Loan Bank of Richmond upon the security of the common stock we own in that bank and certain of our residential and commercial mortgage loans, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending.

Current wording

We may obtain advances from the Federal Home Loan Bank of Atlanta upon the security of the common stock we own in that bank and certain of our residential and commercial mortgage loans, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending.

Previous wording

At December 31, 2024 and 2023, we were permitted to borrow up to an aggregate total of$544.8 million and$504.8 million, respectively, from the Federal Home Loan Bank of Richmond. There were Federal Home Loan Bank borrowings outstandingof$0 at December 31, 2024, and December 31, 2023, respectively. Additionally, as of December 31, 2024 and 2023 we had credit availability of$144.0 million and $114.0 million with correspondent banks for short-term liquidity needs, if necessary. Borrowings were$0 million and$15.0 outstanding at December 31, 2024 and 2023, respectively, under this facility.

Current wording

At December 31, 2025 and 2024, we were permitted to borrow up to an aggregate total of$587.8 million and$544.8 million, respectively, from the Federal Home Loan Bank of Atlanta. There were Federal Home Loan Bank borrowings outstanding of$0 at December 31, 2025, and December 31, 2024, respectively. Additionally, as of December 31, 2025 and 2024 we had credit availability of$144.0 million and$144.0 million with correspondent banks for short-term liquidity needs, if necessary. Borrowings were$0 outstanding at December 31, 2025 and 2024, respectively, under this facility.

Previous wording

The liability portion of the balance sheet provides liquidity through various customers’ interest-bearing and noninterest-bearing deposit accounts and through FHLB and other borrowings. Wholesale deposits, federal funds purchased, and other short-term borrowings are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.

Current wording

The liability portion of the balance sheet provides liquidity through various customers’ interest-bearing and non-interest-bearing deposit accounts and through FHLB and other borrowings. Wholesale deposits, federal funds purchased, and other short-term borrowings are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.

Previous wording

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold and interest-earning deposits in other banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2024, cash and cash equivalents totaled $207.7 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $55.7 million at December 31, 2024.

Current wording

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold and interest-earning deposits in other banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2025, cash and cash equivalents totaled $162.8 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $58.0 million at December 31, 2025.

Previous wording

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $14.7 million, $31.6 million, and $33.5 million for the twelve months ended December 31, 2024, December 31, 2023, and December 31, 2022, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $122.3 million, $130.7 million, and $228.7 million for the twelve months ended December 31, 2024, December 31, 2023, and December 31, 2022, respectively. There were no sales of available-for-sale debt securities in 2024, 2023, or 2022. Net cash provided by financing activities was $200.7 million, $83.0 million, and $232.6 million, for the twelve months ended December 31, 2024, 2023, and 2022, respectively, which consisted primarily of increases in interest bearing deposits and federal funds purchased for the twelve months ended December 31, 2024. There were repayments of $15.0 million in federal funds purchased for year ended 2024 and repayments of $100.0 million in FHLB advances for the year ended 2023.

Current wording

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $14.8 million, $14.7 million, and $31.6 million for the twelve months ended December 31, 2025, December 31, 2024, and December 31, 2023, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $38.4 million, $122.3 million, and $130.7 million for the twelve months ended December 31, 2025, December 31, 2024, and December 31, 2023, respectively. There were no sales of available-for-sale debt securities in 2025, 2024, or 2023. Net cash used in financing activities was $21.4 million for the twelve months ended December 31, 2025 and net cash provided by financing activities was $200.7 million and $83.0 million, for the twelve months ended December 31, 2024 and 2023, respectively, which consisted primarily of decreases in interest-bearing deposits and repurchase of common stock for the twelve months ended December 31, 2025.