FIRST NATIONAL CORP /VA/

Previous wording

First National Corporation (the Company) makes forward-looking statements in this Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding profitability, liquidity, adequacy of capital, allowance for credit losses, interest rate sensitivity, market risk, and growth strategy, as well as certain financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements. These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:

Current wording

First National Corporation (the Company) makes forward-looking statements in this Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding profitability, liquidity, adequacy of capital, allowance for credit losses, interest rate sensitivity, market risk, and strategy, including with respect to pending branch sales and other branch optimization initiatives, as well as certain financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements. These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:

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 March 31, 2026 and statements of income of the Company for thethree months ended March 31, 2026 and 2025 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, 2025. The statements of income for thethree months ended March 31, 2026 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 conditionon June 30, 2026 and statements of income of the Company for the three andsix months ended June 30, 2026 and 2025 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 ended December 31, 2025. The statements of income for the three andsix months ended June 30, 2026 may not be indicative of the results to be achieved for the year.

Previous wording

First Bank Financial Services, Inc. owns an interest in an entity that provides title insurance services. Shen-Valley Land Holdings, LLC was formed to hold other real estate owned and future office sites. McKenney Group, LLC owns an interest in an entity that provides insurance services. The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities and are not included in the Company’s consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities.

Current wording

First Bank Financial Services, Inc. owns an interest in an entity that provides title insurance services. Shen-Valley Land Holdings, LLC was formed to hold other real estate owned and future office sites. McKenney Group, LLC owns an interest in an entity that provides insurance services. The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities and are not included in the Company’s consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities. The Company is not the primary beneficiary of the Trusts and, accordingly, the Trusts are not consolidated.

Previous wording

The primary source of revenue is from net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense and typically represents between 75% and 85% of the Company’s total revenue. Interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets. The Bank’s interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid. In addition to net interest income, noninterest income is the other source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits, fee income from wealth management services, and ATM and check card fees.

Current wording

The primary source of revenue is from net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense and typically represents between 75% and 85% of the Company’s total revenue. Interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets. The Company’s interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid. In addition to net interest income, noninterest income is the other source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits, fee income from wealth management services, and ATM and check card fees.

Previous wording

Primary expense categories are salaries and employee benefits, which comprised 56% of noninterest expenses for thethree months ended March 31, 2026, 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 55% of noninterest expenses for thesix months ended June 30, 2026, followed by other operating expense, which comprised 11% of noninte rest expenses. The provision for credit losses is also typically a primary expense of the Company. 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

Comparing the Three-Month Periods Ending March 31, 2026 and March 31, 2025

Current wording

Comparing the Three-Month Periods Ended June 30, 2026 and June 30, 2025

Previous wording

Net interest income increased by $1.2 million as total interest expense decreased by $918 thousand and total interest income increased by $307 thousand. Net interest income was positively impacted by a $17.0 million, or 0.9%, increase in average earning assets with a 2-basis point increase in yield and an $8.9 million, or 0.7%, increase in interest bearing liabilities with a 30-basis point decrease in yield. Net interest income was positively impacted by a 22-basis point increase in the net interest margin to 3.99%.

Current wording

Net interest income increased by $1.4 million as total interest expense decreased by $965 thousand and total interest income increased by $468 thousand. Net interest income was positively impacted by a $48.3 million, or 2.5%, increase in average earning assets with a 4-basis point decrease in yield and a $38.1 million, or 2.9%, increase in interest bearing liabilities with a 34-basis point decrease in rate. Net interest income was positively impacted with a 20-basis point increase in the net interest margin to 4.15%. There were positive impacts to the loan portfolio yield in both quarters due to merger related accretion income and excluding those impacts loan yields were higher in the second quarter of 2026 compared to the same period in 2025.

Previous wording

Our provision for credit losses decreased by $382 thousand for thefirst quarter of 2026. The provision for credit losses totaled $450 thousand and was comprised of a $521 thousand provision for credit losses on loans, a $56 thousand reduction in provision for credit losses on unfunded commitments, and a $15 thousand reduction in the credit losses on securities held-to-maturity. For the same period of 2025, the provision for credit losses totaled $832 thousand.

Current wording

Our provision for credit losses decreased by $485 thousand for thesecond quarter of 2026. The provision for credit losses totaled $426 thousand and was comprised of a $350 thousand provision for credit losses on loans, a $79 thousand provision for credit losses on unfunded commitments, and a $3 thousand reduction in credit losses on securities held-to-maturity. For the same period of 2025, the provision for credit losses totaled $911 thousand.

Previous wording

The increase in net income resulted primarily from a $1.2 million increase in net interest income after provision and a decrease in noninterest expenses of $2.4 million primarily related to the Touchstone acquisition.

Current wording

The increase in net income resulted primarily from a $2.7 million increase in net interest income, a $3.5 million increase in net interest income after provision for credit losses, an increase of $342 thousand in noninterest income, and a decrease in noninterest expenses of $1.1 million primarily related to the Touchstone acquisition.

Previous wording

Noninterest income increased by $213 thousand in thefirst quarter of 2026 primarily from increases in other operating income and ATM and check card fees, offset by a decrease in services charges on deposit accounts. The other operating income increase was driven by income from limited partnership investments in SBIC.

Current wording

Noninterest income increased by $342 thousand in thesix months ended June 30, 2026 primarily from increases in other operating income and fees for other customer services, offset by a decrease in services charges on deposit accounts and gain on subordinated debt in 2025. The other operating income increase was driven by income from limited partnership investments in SBIC and recognition of a previously deferred gain on investment receivable.

Previous wording

Noninterest expenses decreased by $2.4 million and were primarily attributable to a $1.9 million decrease in merger expenses, a $368 thousand decrease in data processing expense, and a $298 thousand decrease in internet banking expense. The decreases are primarily driven by fewer merger related expenses following the operational merger of Touchstone in the first quarter of prior year. The decreases in noninterest expenses were partially offset by a $293 thousand increase in salaries and employee benefits.

Current wording

Noninterest expenses decreased by $1.1 million and were primarily attributable to a $2.0 million decrease in merger expenses, a $547 thousand decrease in other operating expense, and a $437 thousand decrease in data processing expense. The decreases are primarily driven by fewer merger related expenses following the operational merger of Touchstone in the first quarter of prior year. During the first quarter of 2025 the company was operating duplicative technology platforms due to the Touchstone acquisition in late 2024. The decreases in noninterest expenses were partially offset by a $1.3 million increase in salaries and employee benefits.

Previous wording

This report refers to the efficiency ratio, which is computed by dividing noninterest expense, excluding amortization of intangibles, net gains (loss) on disposal of premises and equipment, other real estate owned (income) expense, net, and merger related expenses, by the sum of net interest income on a tax-equivalent basis and noninterest income. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with GAAP and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for or more important than GAAP. The methodology for determining this measurement may differ among companies. The Company, in referring to its net income, is referring to income under GAAP. The components of the efficiency ratio calculation are summarized in the following table (dollars in thousands).

Current wording

This report refers to the efficiency ratio, which is computed by dividing noninterest expense, excluding amortization of intangibles, net (loss) on disposal of premises and equipment, other real estate owned (income), net, and merger related expenses, by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding net (gain) on subordinated debt payoff, (gain) on disposal of premises and equipment, and (gain) on securities. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with GAAP and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for or more important than GAAP. The methodology for determining this measurement may differ among companies. The Company, in referring to its net income, is referring to income under GAAP. The components of the efficiency ratio calculation are summarized in the following table (dollars in thousands).

Previous wording

Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. The Company provides additional information on its critical accounting policies and estimates under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in its 2025 Form 10-K and in Note 1 “Significant Accounting Policies and Estimates” in Part I, Item 1 of this Quarterly Report.

Current wording

Critical accounting policies are most important to the portrayal of the Company’s financial condition or results of operations and require management’s most difficult, subjective, and complex judgments about matters that are inherently uncertain. If conditions occur that differ from our assumptions, depending upon the severity of such differences, the Company’s financial condition or results of operations may be materially impacted. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. The Company provides additional information on its critical accounting policies and estimates under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” and in Note 1 in its 2025 Form 10-K. There have been no changes since that time.

Previous wording

Net interest income increased $1.2 million, or 7.0%, to $18.7 million for thefirst quarter of 2026 compared to the same period in the prior year. Total interest expense decreased by $918 thousand, and interest income increased by $307 thousand. Net interest income was positively impacted by a 22-basis point increase in the net interest margin and a $17.0 million, or 0.9%, increase in average earning assets which was offset by an $8.9 million, or 0.7%, increase in average interest-bearing liabilities.

Current wording

Net interest income increased $1.4 million, or 7.7%, to $20.0 million for thesecond quarter of 2026 compared to the same period in the prior year. Total interest expense decreased by $965 thousand, and interest income increased by $468 thousand. Net interest income was positively impacted by a 20-basis point increase in the net interest margin and a $48.3 million, or 2.5%, increase in average earning assets which was offset by a $38.1 million, or 2.9%, increase in average interest-bearing liabilities.

Previous wording

The increase in total interest income was attributable to a $378 thousand, or 1.8%, increase in interest income and fees on loans and a $472 thousand, or 35.9%, increase in taxable interest on securities, offset by a $501 thousand, or 30.0%, decrease in interest on deposits in banks. The increase in interest income on loans was impacted by net accretion income related to acquisition accounting of $211 thousand in the first quarter of 2026 compared to net amortization expense of $36 thousand in the first quarter of 2025. Interest income on securities increased consistent with purchases since prior year.

Current wording

The increase in total interest income was attributable to a $551 thousand, or 2.6%, increase in interest income and fees on loans and a $530 thousand, or 40.4%, increase in taxable interest on securities, offset by a $603 thousand, or 31.9%, decrease in interest on deposits in banks. The increase in interest income on loans was impacted by net accretion income related to acquisition accounting of $245 thousand in thesecond quarter of 2026 compared to net accretion income of $907 thousand in thesecond quarter of 2025. Interest income on securities increased consistently with purchases made since the prior year.

Previous wording

The decrease in total interest expense was attributable to a $624 thousand, or 10.3%, decrease in interest expense on deposits and a $299 thousand, or 64.0%, decrease on interest expense on subordinated debt. The net interest margin was positively impacted by a 23-basis point decrease in the cost of interest-bearing deposits. The decrease in subordinated debt and related interest expense was due to redemptions of subordinated debt during the fourth quarter of prior year.

Current wording

The decrease in total interest expense was attributable to a $670 thousand, or 11.0%, decrease in interest expense on deposits and a $298 thousand, or 63.7%, decrease on interest expense on subordinated debt. The net interest margin was positively impacted by a 28-basis point decrease in the cost of interest-bearing deposits. The decrease in subordinated debt and related interest expense was due to redemptions of subordinated debt during the fourth quarter of the prior year.

Previous wording

The net interest margin was 3.99% for thefirst quarter of 2026 compared to 3.77% for the same period in the prior year. When compared to thefirst quarter of 2025, the net interest margin increased by 22-basis points with the cost of funds decrease consistent with the federal funds rate cuts in late 2025. The yield on earning assets was impacted by net accretion income related to acquisition accounting of $211 thousand in the first quarter for a 4-basis point increase to the net interest margin.

Current wording

The net interest margin was 4.07% for thesix months ended June 30, 2026 compared to 3.86% for the same period in the prior year. When compared to thesix months ended June 30, 2025, the net interest margin increased by 21-basis points with the cost of funds decrease related to the federal funds rate cuts in late 2025. The yield on earning assets was impacted by net accretion income related to acquisition accounting of $456 thousand during the six months for a 5-basis point increase to the net interest margin.

Previous wording

The provision for credit losses totaled $450 thousand for the three-month period ended March 31, 2026, compared to $832 thousand for the same period of the prior year. The provision was comprised of a $521 thousand provision for credit losses on loans, a $15 thousand reduction in provision of credit losses on held-to-maturity securities, and a $56 thousand reduction in provision of 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 quarter. The decrease in provision resulted in a lower allowance to total loans of 1.00% at March 31, 2026 compared to 1.02% at March 31, 2025.

Current wording

The provision for credit losses totaled $426 thousand for the three-month period ended June 30, 2026, compared to $911 thousand for the same period of the prior year. The provision was comprised of a $350 thousand provision for credit losses on loans, a $79 thousand provision of credit losses on held-to-maturity securities, and a $3 thousand reduction in provision of 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. The decrease in provision resulted in a slightly lower allowance to total loans of 1.00% on June 30, 2026 compared to 1.05% on June 30, 2025.

Previous wording

Noninterest income increased $213 thousand, or 5.9%, to $3.8 million for thefirst quarter of 2026, compared to the same period of 2025. The increase resulted from increases in other operating income of $191 thousand and ATM and check card fees of $51 thousand, offset by a decrease in services charges of $89 thousand. The other operating income increase was driven by income from limited partnership investments in SBIC.

Current wording

Noninterest income increased $129 thousand, or 3.3%, to $4.0 million for thesecond quarter of 2026, compared to the same period of 2025. The increase resulted from increases in other operating income of $149 thousand, fees for other customer services of $65 thousand, and gain on disposal of premises and equipment of $56 thousand; offset by decreases in service charges of $107 thousand and a gain on redemption of subordinated debt of $80 thousand in 2025. The other operating income increase was driven by income from limited partnership investments in SBIC and gain on insurance.

Previous wording

Noninterest expenses decreased $2.4 million, or 12.8%, to $16.0 million for the three-month period ended March 31, 2026, compared to the same period one year ago. The decrease was primarily attributable to a $1.9 million, or 100%, decrease in merger expenses, a $368 thousand, or 48.3%, decrease in data processing expense, and a $298 thousand, or 84.9%, decrease in internet banking expense, and $187 thousand, or 45.2%, decrease in FDIC expense. The decreases in merger expenses, data processing expense, and interest banking expenses were driven by the Touchstone merger and operating two core systems until operational merger in the first quarter of 2025. The decrease in FDIC expense was due to changes to financial ratios in the assessment calculation driven by the dividend distributed to the Company during the second quarter of 2025. The decreases in noninterest expenses were partially offset by a $293 thousand increase in salaries and employee benefits.

Current wording

Noninterest expenses decreased $1.1 million, or 3.3%, to $32.4 million for thesix-month period ended June 30, 2026, compared to the same period one year ago. The decrease was primarily attributable to a $2.0 million decrease in merger expenses, a $437 thousand, or 34.5%, decrease in data processing expense, a $547 thousand, or 13.3%, decrease in other operating expense, and $278 thousand, or 38.1%, decrease in FDIC expense. The decreases in merger expenses, data processing expense, and other operating expenses were driven by the Touchstone merger and operating two core systems until our operational merger late in the first quarter of 2025. The decrease in FDIC expense was due to changes to financial ratios in the assessment calculation driven byimproved capital levels and regulatory ratings. The decreases in noninterest expenses were partially offset by a $1.3 million increase in salaries, insurance, commissions, and employee benefits in 2026.

Previous wording

Income tax expense increased $884 thousand to $1.2 million for thefirst quarter of 2026, compared to the same period one year ago. The effective tax rate for thefirst quarter of 2026 was 19.5% compared to 15.7% for the same period in 2025. 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 March 31, 2026 and 2025. 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, 2025.

Current wording

Income tax expense increased $109 thousand to $1.4 million for thesecond quarter of 2026, compared to the same period one year ago. The effective tax rate for thesecond quarter of 2026 was 19.5% compared to 20.3% for the same period in 2025. 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, 2026 and 2025. 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, 2025.

Previous wording

Assets totaled $2.076 billion at March 31, 2026, which was an increase of $37.8 million or 7.4% (annualized) from December 31, 2025. The asset composition did not significantly change during the first three months of the year as interest-bearing deposits in banks increased by $25.1 million and loans, net of the allowance for credit losses, increased by $14.7 million, while total securities decreased by $1.5 million.

Current wording

Assets totaled $2.076 billion on June 30, 2026, which was an increase of $37.7 million or 3.7% (annualized) from December 31, 2025. The asset composition did not significantly change during the firstsix months of the year as interest-bearing deposits in banks increased by $2.8 million and loans, net of the allowance for credit losses, increased by $37.4 million, while total securities decreased by $3.2 million.

Previous wording

Total liabilities increased by $35.5 million during thethree-month period ended March 31, 2026, primarily from changes in customer deposits. Deposit balances and the composition of deposits as of March 31, 2026 changed as noninterest-bearing deposits increased$14.4 million, savings and interest-bearing deposits increased $26.8 million, and time deposits decreased $3.5 million from December 31, 2025.

Current wording

Total liabilities increased by $30.3 million during thesix-month period ended June 30, 2026, primarily from changes in customer deposits. Deposit balances and the composition of deposits as of June 30, 2026 changed as noninterest-bearing deposits increased$10.7 million, savings and interest-bearing deposits increased $27.1 million, and time deposits decreased $6.2 million from December 31, 2025.

Previous wording

Total shareholders’ equity increased by $2.4 million during the first three months of 2026, primarily from a $3.4 million increase in retained earnings and a $1.2 million reduction in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was attributable to unrealized holding losses 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 $7.4 million during the firstsix months of 2026, primarily from a $7.6 million increase in retained earnings and a $637 thousand reduction in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was attributable to unrealized holding losses 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 $1.450 billion at March 31, 2026, which was a $14.7 million or 4.1% (annualized) increase from December 31, 2025, and a $14.5 million, or 4.0% (annualized), increase over March 31, 2025.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 36%, 49%, and 8% of the loan portfolio, respectively, at March 31, 2026, and 36%, 48%, and 8% of the loan portfolio, respectively, at December 31, 2025.

Current wording

Loans totaled $1.487 billion on June 30, 2026, which was a $37.7 million or 5.2% (annualized) increase from December 31, 2025, and a $44.3 million, or 3.1%, increase over June 30, 2025. 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 35%, 48%, and 8% of the loan portfolio, respectively, on June 30, 2026, and 36%, 48%, and 8% of the loan portfolio, respectively, on December 31, 2025.

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 $12.9 million and $13.2 million, as of March 31, 2026 and December 31, 2025, respectively. Loans purchased from a third-party that originated and serviced loans to health care professionals totaled $12.7 million as of March 31, 2026, which included unamortized premiums totaling $3.7 million, compared to loans totaling $14.1 million as of December 31, 2025, which included unamortized premiums totaling $4.1 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 $12.5 million and $13.2 million, as of June 30, 2026 and December 31, 2025, respectively. Loans purchased from a third-party that originated and serviced loans to health care professionals were $8.5 million as of June 30, 2026, plus unamortized premiums totaling $3.4 million, compared to loans of $10.0 million as of December 31, 2025, plus unamortized premiums totaling $4.1 million.

Previous wording

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances less the allowance for credit losses, any deferred fees or costs on originated loans, and any premiums or discounts on acquired and purchased loans. Interest income is accrued and credited to income based on the unpaid principal balance. Loan origination fees, net of certain origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Interest income includes amortization of premiums and accretion of discounts on purchased loans, recognized over the life of the loans.

Current wording

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balance less the allowance for credit losses, any deferred fees or costs on originated loans, and any premiums or discounts on acquired and purchased loans. Interest income is accrued and credited to income based on the unpaid principal balance. Loan origination fees, net of certain origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Interest income includes amortization of premiums and accretion of discounts on purchased loans, recognized over the life of the loans.

Previous wording

Management classifies non-performing assets as non-accrual loans and OREO. Non-performing assets totaled $4.4 million and $4.7 million at March 31, 2026 and December 31, 2025, representing approximately 0.21% and 0.23% of total assets, respectively. Nonaccrual loans totaled $4.4 million and $4.7 million at March 31, 2026 and December 31, 2025, respectively. There was no OREO at March 31, 2026 and December 31, 2025. The Bank did not have any consumer mortgage loans secured by real estate properties for which formal foreclosure proceedings were in process as of March 31, 2026. There were no loans past due 90 days or more and accruing interest at March 31, 2026 and December 31, 2025.

Current wording

Management classifies non-performing assets as non-accrual loans and OREO. Non-performing assets totaled $4.7 million on June 30, 2026, and December 31, 2025, representing approximately 0.23% of total assets at each date. Nonaccrual loans totaled $4.7 million on June 30, 2026, and December 31, 2025. There was no OREO on June 30, 2026, and December 31, 2025. 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, 2026. There were no loans past due 90 days or more and accruing interest on June 30, 2026, and December 31, 2025.

Previous wording

On March 31, 2026 commercial and industrial loans and residential real estate loans comprised 52% and 47% 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 $2.8 million and $6.4 million at March 31, 2026 and December 31, 2025, 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 June 30, 2026 commercial and industrial loans and residential real estate loans comprised 50% and 49% 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 $2.8 million and $6.4 million on June 30, 2026 and December 31, 2025, respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customer's 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 March 31, 2026, loans purchased from the finance company totaled $12.7 million, which was comprised of $9.0 million of loan balances and unamortized premiums totaling $3.7 million. As of March 31, 2026, $1.8 million of these loans were non-accrual including premiums totaling $638 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 $10.9 million of loans with premiums totaling $3.0 million were considered performing and were included in the calculation of the collectively evaluated component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. On March 31, 2026, there was a total of 123 loans purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 5.1 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 June 30, 2026, loans purchased from the finance company totaled $11.9 million, which was comprised of $8.5 million of loan balances and unamortized premiums totaling $3.4 million. As of June 30, 2026, $1.8 million of these loans were non-accrual including premiums totaling $653 thousand and thus were individually evaluated. Specific reserves on these individually evaluated loans totaled $1.3 million and were included in the Company’s allowance for credit losses on loans. The remaining $10.1 million of loans with premiums totaling $2.7 million were considered performing and were included in the calculation of the collectively evaluated component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. As of June 30, 2026, there was a total of 117 loans purchased from the finance company included in the Company’s loan portfolio with a weighted average maturity of 5.0 years.

Previous wording

Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover expected losses inherent within the loan portfolio. For each period presented, the provision for credit losses charged to expense was based on management’s judgment after taking into consideration all factors connected with the collectability of the existing portfolio. Management considers economic conditions, historical losses, past due percentages, internally generated loan quality reports, prepayment speeds, curtailment rates for each loan category and other relevant factors when evaluating the loan portfolio. The allowance for credit losses on loans totaled $14.7 million, or 1.00% of total loans on March 31, 2026, compared to $14.7 million, or 1.02% of total loans on December 31, 2025. The decrease in allowance for credit losses to total loans from the prior period is primarily driven by lower individually analyzed loans balances following charge-offs recorded during the quarter. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers. For further discussion regarding the allowance for credit losses, see “Critical Accounting Policies” above.

Current wording

Management believes, based upon its review and analysis, that the Company has sufficient reserves to cover expected losses inherent within the loan portfolio. For each period presented, the provision for credit losses charged to expense was based on management’s judgment after taking into consideration all factors connected with the collectability of the existing portfolio. Management considers economic conditions, historical losses, past due percentages, internally generated loan quality reports, prepayment speeds, curtailment rates for each loan category and other relevant factors when evaluating the loan portfolio. The allowance for credit losses on loans totaled $14.9 million, or 1.00% of total loans on June 30, 2026, compared to $14.7 million, or 1.02% of total loans on December 31, 2025. The decrease in allowance for credit losses to total loans from the prior period is primarily driven by a decrease in reserve percentage on individually analyzed loans. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management’s estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company’s market area, loan growth, or changes in the circumstances of particular borrowers.

Previous wording

On March 31, 2026 securities totaled$324.6 million, a decrease of $1.4 million, or 1.8% (annualized), from $326.0 millionat December 31, 2025. 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 March 31, 2026, 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 $120 thousand and $363 thousand at March 31, 2026 and December 31, 2025, respectively. Gross unrealized losses in the available for sale portfolio totaled $16.3 million and $14.8 million at March 31, 2026 and December 31, 2025, respectively. Gross unrealized gains in the held to maturity portfolio totaled $10 thousand and $98 thousand at March 31, 2026 and December 31, 2025, respectively. Gross unrealized losses in the held to maturity portfolio totaled $7.2 million and $6.8 million at March 31, 2026 and December 31, 2025, respectively. The change in the unrealized gains and losses of investment securities from December 31, 2025 to March 31, 2026 was related to changes in market interest rates and was not related to credit concerns of the issuers.

Current wording

On June 30, 2026 securities totaled$322.8 million, a decrease of $3.2 million, or 2.0% (annualized), from $326.0 millionon December 31, 2025. 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, 2026, 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 $78 thousand and $363 thousand on June 30, 2026 and December 31, 2025, respectively. Gross unrealized losses in the available for sale portfolio totaled $15.8 million and $14.8 million on June 30, 2026, and December 31, 2025, respectively. Gross unrealized gains in the held to maturity portfolio totaled $71 thousand and $98 thousand on June 30, 2026, and December 31, 2025, respectively. Gross unrealized losses in the held to maturity portfolio totaled $7.2 million and $6.8 million on June 30, 2026, and December 31, 2025, respectively. The change in the unrealized gains and losses of investment securities from December 31, 2025, to June 30, 2026, was related to changes in market interest rates and was not related to credit concerns of the issuers.

Previous wording

Deposits totaled $1.837 billion on March 31, 2026, which was a $37.7 million, or 8.4% (annualized), increase from December 31, 2025, and a $12.3 million, or 2.7% (annualized), increase from March 31, 2025. Noninterest-bearing deposits, savings and interest-bearing deposits, and time deposits, totaled 28%, 52%, and 20%, of total deposits, respe ctively on March 31, 2026, compared to 28%, 52%, and 20%, on December 31, 2025, and 30%, 50%, and 20%, on March 31, 2025. The composition of the deposit portfolio remained largely consistent with the prior period.

Current wording

Deposits totaled $1.831 billion on June 30, 2026, which was a $31.6 million, or 3.5% (annualized), increase from December 31, 2025, and a $28.0 million, or 1.6%, increase from June 30, 2025. Noninterest-bearing deposits, savings and interest-bearing deposits, and time deposits, totaled 28%, 52%, and 20%, of total deposits, respe ctively on June 30, 2026, compared to 28%, 52%, and 20%, on December 31, 2025, and 30%, 50%, and 20%, on June 30, 2025. The composition of the deposit portfolio remained largely consistent with the prior period.

Previous wording

The Company has one issuance of subordinated debt at March 31, 2026 that consists of $9.5 million outstanding of 4.00% fixed-to-floating rate subordinated notes due 2032. The original issuance of $10 million was assumed during the acquisition of Touchstone, and the Company repurchased $500 thousand of the notes during the second quarter of 2025 when the noteholder bank was acquired.

Current wording

The Company has one issuance of subordinated debt on June 30, 2026 that consists of $9.5 million outstanding of 4.00% fixed-to-floating rate subordinated notes due 2032. The original issuance of $10 million was assumed during the acquisition of Touchstone, and the Company repurchased $500 thousand of the notes during the second quarter of 2025 when the noteholder bank was acquired.

Previous wording

Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, and available lines of credit totaled $764.2 million on March 31, 2026, $819.0 million on December 31, 2025, and $800.2 million on March 31, 2025.

Current wording

Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, and available lines of credit totaled $747.8 million on June 30, 2026, $819.0 million on December 31, 2025, and $800.2 million on June 30, 2025.

Previous wording

The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $558.9 million on March 31, 2026, $538.2 million on December 31, 2025, and $549.3 million on March 31, 2025. Excluding municipal deposits that have collateral pledged, the estimated amount of uninsured customer deposits totaled $461.3 million on March 31, 2026, $448.8 million on December 31, 2025, and $458.7 million on March 31, 2025.

Current wording

The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits were $573.8 million on June 30, 2026, $538.2 million on December 31, 2025, and $545.7 million on June 30, 2025. Excluding municipal deposits that have collateral pledged, the estimated amount of uninsured customer deposits were $466.9 million on June 30, 2026, $448.8 million on December 31, 2025, and $451.9 million on June 30, 2025.

Previous wording

The following table shows the Bank’s regulatory capital ratios at March 31, 2026:

Current wording

The following table shows the Bank’s regulatory capital ratios on June 30, 2026:

Previous wording

The following table shows the Company's regulatory capital ratios at March 31, 2026:

Current wording

The following table shows the Company's regulatory capital ratios on June 30, 2026:

Previous wording

The Company, through the Bank, is a party to credit related financial instruments with risk not reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does for on-balance sheet instruments.

Current wording

The Company, through the Bank, is a party to credit related financial instruments with risk not reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk more than the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does for on-balance sheet instruments.

Previous wording

Commitments to extend credit, which amounted to $295.9 million at March 31, 2026, and $289.9 million at March 31, 2025, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit evaluation of the customer.

Current wording

Commitments to extend credit, which amounted to $297.8 million on June 30, 2026, and $282.7 million on June 30, 2025, are agreements to lend to a customer if there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit evaluation of the customer.