What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-05-01 compared with 2025-10-31 · 249 added, 286 removed, 420 unchanged (56% of the section changed)

13 unchanged sentences

● risks associated with fluctuations in interest rates, including the impact on other comprehensive income, the ability for customers to repay on floating or adjustable rates loans, and the impact on costs and demand of deposits and funding, the impact on interest income on earning assets, the impact on valuations of collateral on loans, and the impact on fair value of longer-term assets;

● risks associated with inflation (including efforts by the FOMC of the FRB to control the same);

● risks associated with inflation (including efforts by the Federal Open Market Committee of the Federal Reserve Bank (“FRB”) to control the same);

● the risk of unfavorable economic conditions in the Company’s market areas, or the impact on the Company’s market areas of national or international economic conditions or changes to economic policies, including tariffs and trade agreements;

● risks associated with a U.S.

Government shutdown, including delays in regulatory reviews, approvals, or rulemaking from federal agencies, reduced access to government economic data and reports which could affect our ability to assess risk and make informed investment or risk management decisions, heightened volatility or reduced liquidity in financial markets, credit and counterparty risk exposure in connection with clients or counterparties that rely on government funding or contracts, and diminished investor and consumer confidence which could reduce demand for financial products;

● liquidity risks, including the ability to effectively manage the potential loss of deposits, the ability to maintain funding lines of credit, and the loss of value of unencumbered investment securities;

8 unchanged sentences

● the outcome of any existing or future legal action for which the Company or Bank is a defendant;

● risks associated with a U.S.

● the effects of severe weather events, pandemics, other public health crises, acts of war or terrorism, and other external events;

13 unchanged sentences

RESULTS OF OPERATIONS SUMMARY

Third Quarter 2025 Compared to Third Quarter 2024

Third quarter 2025 net income was $9.7 million, and $0.72 per diluted share as compared to $10.6 million, and $0.74 per diluted share in the third quarter of 2024.

The Company’s annualized return on average equity was 10.81% and annualized return on average assets was 1.04% for the quarter ended September 30, 2025, compared to 11.95% and 1.14%,

respectively, for the same quarter in 2024.

The primary drivers behind the variance in third quarter net income are as follows:

● Net income for the third quarter of 2025 decreased $0.9 million, or 9%, to $9.7 million.

Net interest income improved $1.2 million, or 4%, and noninterest income increased $0.3 million.

These favorable changes were offset by an increase in the provision for credit losses of $2.3 million, and an increase in noninterest expense of $0.8 million, or 4%.

● The $1.2 million increase in net interest income was due to a 12 basis point increase in net interest margin driven by a 27 basis point decrease in the cost of funds.

● The provision for credit losses was $3.7 million for the quarter, an increase of $2.3 million, primarily due to an increase in individual reserves during the third quarter of 2025, due to a single agricultural production property.

● Noninterest expense was $0.8 million higher in the third quarter over the same quarter last year due to an increase in salaries and benefits, and occupancy costs.

● Included in the line-item changes from the third quarter of 2024 was the increase of $0.3 million in income from corporate owned life insurance income invested to offset the $0.3 million increase in deferred compensation costs.

First Nine Months of 2025 Compared to First Nine Months of 2024

● Net income decreased $0.8 million, or 3%.

The decrease was primarily driven by an increase of $4.6 million in provision for credit losses.

This decline was partially offset by an increase of $3.1 million in net interest income, due mostly to a 25 basis point decrease in the cost of interest-bearing liabilities.

A favorable decrease in the cost of interest-bearing deposits of 29 basis points and decreases in the average balances of those deposits had the biggest impact on the increase in net interest income.

While the Company experienced lower yields and balances on investments, this was mostly offset by increases in yields and balances on loans.

Noninterest income decreased by $0.8 million and noninterest expense decreased by $0.2 million.

● The provision for credit losses was $7.0 million, an increase of $4.6 million, primarily for the reasons stated above.

● Noninterest income decreased by $0.8 million, or 3%, driven by the net $0.6 million gain from the balance sheet restructuring at the beginning of 2024, with no similar transaction in 2025, and a $0.6 million decrease in service charges and fees on deposit accounts.

Partially offsetting these unfavorable variances was a $0.8 million gain on life insurance during the first nine months of 2025.

● Noninterest expense decreased $0.2 million, due mostly to decreases in professional services and lower sundry losses, partially offset by increases in salaries and benefits and occupancy costs.

● Included in the line-item changes from the same period in 2024 was the decrease of $0.5 million in income from corporate owned life insurance income invested to offset the $0.5 million decrease in deferred compensation costs.

First Quarter 2026 Compared to First Quarter 2025

First quarter 2026 net income was $12.5 million, and $0.96 per diluted share as compared to $9.1 million and $0.65 per diluted share in the first quarter of 2025.

The Company’s annualized return on average equity was 13.88% and annualized

return on average assets was 1.39% for the quarter March 31, 2026, compared to 10.44% and 1.02%, respectively, for the same quarter in 2025.

The primary drivers behind the variance in first quarter net income are as follows:

● Net income for the first quarter of 2026 increased $3.4 million, or 38%, to $12.5 million.

There were favorable changes in every major income statement category, including a decrease in provision for credit losses of $2.0 million, or 99%, an increase in net interest income of $0.5 million, or 2%, an increase in noninterest income of $1.3 million, or 20%, and a $0.6 million, or 3%, reduction in noninterest expense.

● The $0.5 million increase in net interest income was due to a $0.8 million decrease in interest expense partially offset by a $0.3 million decrease in interest income.

● The decrease of $2.0 million in the provision for credit losses was primarily due to an increased specific reserve in the first quarter of 2025 on an individually evaluated loan related to a single loan relationship of a wine grape grower.

● The $1.3 million increase in noninterest income was primarily due to higher service charge income, an increase in cash surrender value of life insurance due to purchases of additional life insurance in the second quarter of 2025, and other increases related to higher FHLB dividend income and an increase in the fair value of bank stocks.

● The $0.6 million decline in noninterest expense in the first quarter over the same quarter last year was primarily due to decreases in salaries and benefits, professional services, and deferred directors’ fees.

FINANCIAL CONDITION SUMMARY

September 30, 2025 Relative to December 31, 2024

The Company’s assets totaled $3.7 billion at September 30, 2025, an increase of $95.1 million, or 3.0% from December 31, 2024.

The following provides a summary of key balance sheet changes during the first nine months of 2025:

● Investment securities decreased $70.0 million, or 7.0%, to $891.4 million primarily due to collateralized loan obligations (CLOs), continuing to aggressively payoff due to tightening spreads and the ability of the issuers to reissue with a lower spread.

Purchases of mortgage-backed securities and corporate bonds have partially offset

the run-off of CLOs.

Corporate bonds have preferential yields over other types of securities, and fixed rate mortgage-backed securities fit the Company’s asset neutrality position.

● Gross loans increased $160.4 million, due mostly to a $126.3 million increase in mortgage warehouse line utilization, as well as $46.9 million of growth in commercial real estate loans, a $7.9 million increase in other construction loans, and a $7.6 million increase in other commercial loans.

This favorable growth was partially offset by an $18.2 million decline in residential real estate loans, a $9.7 million decrease in farmland, and a $0.4 million reduction in consumer loans.

● Deposits totaled $2.9 billion at September 30, 2025, representing a year-to-date increase of $41.1 million, or 1%.

The growth in deposits came mostly from a $65.7 million increase in noninterest-bearing deposits and a $60.6 million increase in interest-bearing demand deposits.

The increases were partially offset by decreases in customer time deposits and brokered deposits of $57.3 million and $40.0 million, respectively.

● Overnight borrowings increased $55.0 million and customer repurchase agreements increased $16.9 million.

● Total capital of $360.1 million at September 30, 2025, reflects an increase of $2.8 million, relative to year-end 2024.

The increase in equity during the first nine months of 2025 was due to the addition of $29.4 million in net income, a $6.1 million favorable swing in accumulated other comprehensive income/loss due principally to changes in investment securities’ fair value, partially offset by $24.3 million in share repurchases and $10.3 million in dividends paid.

The remaining difference is related to the impact of equity compensation.

March 31, 2026, Relative to December 31, 2025

The Company’s assets totaled $3.8 billion at March 31, 2026, a decrease of $74.8 million, or 2.0% from December 31, 2025.

The following provides a summary of key balance sheet changes during the first three months of 2026:

● Investment securities decreased $13.2 million, or 1.0%, to $903.0 million primarily due to early calls of U.S.

government agencies.

● Gross loans decreased $80.1 million, due mostly to a $39.9 million seasonal decrease in mortgage warehouse line utilization coupled with declines in overall line utilization and new credit extended.

● Deposits totaled $2.9 billion at March 31, 2026, representing a year-to-date increase of $49.3 million, or 2%.

The increase in deposits came from a $56.8 million increase in core customer deposits, partially offset by a $7.7 million decline in customer time deposits.

● Overnight borrowings decreased $93.0 million, FHLB term advances decreased $25.0 million, and customer repurchase agreements decreased $3.0 million.

● Total capital of $363.7 million at March 31, 2026, reflects a decrease of $1.1 million compared to December 31, 2025.

The decrease in equity during the first quarter of 2026 was due to $9.5 million in share repurchases, a $3.4 million dividend paid to shareholders, and $1.8 million unfavorable swing in other comprehensive income/loss due principally to negative changes in investment securities’ fair value.

These changes were partially offset by $12.5 million in net income recorded during the quarter.

The remaining difference was related to activity from stock options and restricted stock during the year.

EARNINGS PERFORMANCE

1 unchanged sentence

The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money.

The second is noninterest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such as BOLI, equity investments, and investment gains.

The second is noninterest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such as BOLI, equity

investments, and investment gains.

The majority of the Company’s noninterest expense is comprised of operating costs that facilitate offering a full range of banking services to its customers.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income was $32.0 million for the third quarter of 2025, a $1.2 million increase, or 4% over the third quarter of 2024, and increased $3.1 million, or 3%, to $92.7 million for the first nine months of 2025 relative to the same period in 2024.

For the third quarter of 2025, there was a 35 basis point decrease in the cost of our interest-bearing liabilities combined with a $17.9 million decrease in the average balance of interest-bearing liabilities.

Although the balance of average interest-earning assets was $7.2 million higher, the yield was 13 basis points lower as compared to the same period in 2024, which partially offset the favorable variances on the liability side.

Net interest income for the comparative year-to-date periods increased $3.1 million, or 3%, due primarily to a decrease of 25 basis points in the cost of funds of average interest-bearing liabilities combined with an increase in the average balance of interest-earning assets of $43.5 million.

There was a $193.8 million, or 9%, increase in average loan balances yielding 19 basis points higher for the same period, while average investment balances decreased $150.3 million, yielding 78 basis points lower for the same period.

The decline in average investment balances was mostly due to calls of collateralized loan obligations in 2025.

Average interest-bearing liabilities decreased $4.9 million, mostly in higher cost customer time deposits and brokered deposits, offset by an increase in interest-bearing demand deposits and borrowed funds.

The cost of interest-bearing liabilities was 25 basis points lower for the comparative periods.

The favorable net impact of the mix and rate change was a 7 basis point increase in our net interest margin for the nine months ending September 30, 2025, as compared to the same period in 2024.

Interest expense was $12.0 million for the third quarter of 2025, a decrease of $2.0 million, relative to the third quarter of 2024.

For the first nine months of 2025, compared to the same period in 2024, interest expense decreased $4.2 million to

$35.4 million.

The decrease in interest expense for the first nine months of 2025, as compared to the same period in 2024, was attributable to a decrease in higher cost customer time deposits and brokered deposits, along with a net overall interest rate decrease in customer deposit account balances.

These decreases were partially offset by increases in other borrowed funds.

For the first nine months of 2025, compared to the same period in 2024, the average balance of higher cost customer time deposits and brokered deposits decreased $78.6 million, while low to no cost transaction account balances increased $93.6 million and borrowed funds increased $16.3 million.

The Company had $1.8 billion in adjustable and variable rate loans and $268.0 million in floating rate bonds, as compared to $245.0 million in floating rate CDs and $36.0 million in floating rate trust preferred securities at September 30, 2025.

Net interest income was $30.6 million for the first quarter of 2026, a $0.5 million increase, or 2% over the first quarter of 2025.

Interest expense decreased $0.8 million compared to the first quarter of 2025, primarily due to a reduction in the cost of interest‑bearing liabilities and a modest decline in average interest‑bearing liability balances.

The cost of interest‑bearing liabilities decreased approximately 21 basis points, while average interest‑bearing liabilities increased by $74.4 million.

Although average interest‑earning assets increased $42.7 million during the period, the yield on those assets declined by approximately 9 basis points compared to the first quarter of 2025, partially offsetting the favorable impact from lower funding costs.

The Company had $1.8 billion in adjustable and variable rate loans and $232.6 million in floating rate bonds, as compared to $227.0 million in floating rate CDs and $36.1 million in floating rate trust preferred securities at March 31, 2026.

The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years.

2 unchanged sentences

Based on current rates of the $797.4 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $197.6 million, or 25%, have a pricing index rate higher than the current index, while $49.0 million, or 6%, have a pricing index rate lower than the current index.

The remaining balance of $516.7 million are priced at the current index rate or are expected to mature.

Net interest margin was 3.78% for the third quarter of 2025, as compared to 3.66% for the third quarter of 2024, and 3.73% for the nine months ended September 30, 2025, compared to 3.66% for the same period last year.

The main reason for the improvement of net interest margin for both the quarter and year-to-date comparisons was a significant decrease in cost of interest-bearing liabilities.

For the quarterly comparison there was a 35 basis point favorable decline in cost of interest-bearing liabilities complemented by a decrease of $17.9 million in the average balance of the same accounts.

While the yield of interest-earning assets decreased 13 basis points during the same comparative period, the average balance of interest-earning assets increased $7.2 million.

The remaining balance of $550.8 million in loans are priced at the current index rate or are expected to mature.

Net interest margin was 3.75% for the first quarter of 2026, as compared to 3.74% for the first quarter of 2025.

Compared to the first quarter of 2025, the net interest margin increased one basis point, reflecting the benefit of lower funding costs, partially offset by modest pressure on asset yields.

The cost of average total deposits declined to 1.17%, from 1.33% in the first quarter of 2025, while the cost of interest-bearing liabilities declined to 1.94%, from 2.15%, reflecting improved funding mix and lower average balances of higher-cost deposits and borrowings.

Overall, the Company continues to benefit from continued lower cost funding, which was partially offset by lower yields on investment securities, as assets repriced in a lower rate environment, resulting in a stable net interest margin compared to the prior year.

The level of net interest income recognized in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities.

5 unchanged sentences

For the three months ended

September 30, 2025

September 30, 2024

March 31, 2026

March 31, 2025

Rate/Yield (2)

33 unchanged sentences

Loan fees have been included in the calculation of interest income.

Net loan costs and loan acquisition FMV amortization were $(0.3) million and $(0.4) million for the quarters ended September 30, 2025 and 2024, respectively.

Net loan costs and loan acquisition FMV amortization were $(0.3) million and $(0.3) million for the quarters ended March 31, 2026 and 2025, respectively.

(4) Nonaccrual loans have been included in total loans for purposes of computing total earning assets.

(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.

Average Balances and Rates

(Dollars in Thousands, Unaudited)

For the nine months ended

September 30, 2025

September 30, 2024

Rate/Yield (2)

Interest-earning due from banks

Total investments

Mortgage warehouse lines

Total interest-earning assets (4)

Other earning assets

Non-earning assets

Liabilities and shareholders' equity

Interest-bearing deposits:

Demand deposits

Savings accounts

Time Deposits

Brokered deposits

Total interest-bearing deposits

Borrowed funds:

Federal funds purchased

Repurchase agreements

Short term borrowings

Long term FHLB advances

Long-term debt

Subordinated debentures

Total borrowed funds

Total interest-bearing liabilities

Demand deposits - noninterest-bearing

Other liabilities

Shareholders' equity

Total liabilities and shareholders' equity

Interest income/interest-earning assets

Interest expense/interest-earning assets

Net interest income and margin (5)

(1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs.

(2) Yields and net interest margin have been computed on a tax equivalent basis utilizing a 21% effective federal tax rate.

(3) Loans are gross of the allowance for possible loan losses.

Loan fees have been included in the calculation of interest income.

Net loan costs and loan acquisition FMV amortization were $(0.9) million and $(1.1) million for the nine months ended September 30, 2025, and 2024, respectively.

(4) Non-accrual loans have been included in total loans for purposes of computing total earning assets.

(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.

The Volume and Rate Variances table below sets forth the dollar difference for the comparative periods in interest earned or paid for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to fluctuations in average balances (volume) or differences in average interest rates.

3 unchanged sentences

(dollars in thousands, unaudited)

Three months ended September 30,

Nine months ended September 30,

2025 over 2024

Three months ended March 31,

2026 over 2025

Increase (decrease) due to

Federal funds sold/due from time

20 unchanged sentences

(1) Subtotals are a sum of the categories above and are not recalculated on the portfolio totals.

The volume variance calculated for the third quarter of 2025 relative to the third quarter of 2024 was a favorable $1.1 million;

this is primarily from the net impact of a favorable loan volume variance of $2.8 million offset by an unfavorable volume reduction in investment securities of $2.2 million.

This was augmented by a favorable net volume reduction in interest-bearing liabilities.

There was an unfavorable rate variance on investment securities, which was mostly to the variable rate investments, in the form of CLOs, substantially offsetting the favorable rate variances in loans and interest-bearing liabilities.

The net interest income variance calculated for the first nine months of 2025 relative to the first nine months of 2024 reflects a favorable volume variance of $4.2 million, an unfavorable rate variance of $1.0 million, and an unfavorable mix variance of $0.1 million.

There were increases in loan balances for a favorable volume variance of $10.4 million which more than offset a $6.3 million volume decrease in investments, due to calls and pay-offs of CLOs.

There was a $1.1 million decrease in interest-bearing deposits, partially offset by a $0.9 million increase in borrowed funds.

There was an unfavorable rate variance on interest earning assets of $5.3 million for the first nine months of 2025 partially offset by a favorable $4.2 million rate decrease in interest earning liabilities.

Average interest earning cash balances for the quarterly and year-to-date comparisons have decreased and have a positive impact on the net interest margin since cash balances have been earning approximately 4.34% and have been deployed into mortgage warehouse line advances yielding 7.08%.

Average interest-earning cash and due from banks was $31.7 million, a decrease of $56.8 million for the third quarter of 2025 as compared to the same period last year.

Overall average investment securities decreased by $101.5 million for the third quarter of 2025, as compared to the same period in 2024, as paydowns and maturities exceeded purchases, with the excess used to partially offset brokered deposit maturities.

The overall investment portfolio had a tax-equivalent yield of 4.73% at September 30, 2025, with an average life of 6.01 years and average effective duration of 2.42 years for available-for-sale securities.

Approximately $230.1 million of investment securities reprice every 90 days and $80.2 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter.

The volume variance was favorable at $0.2 million, primarily driven by higher average loan balances, most notably within the mortgage warehouse portfolio, which contributed a favorable volume variance of $1.8 million.

This was partially offset by lower average balances in investment securities, which resulted in an unfavorable volume variance of $0.6 million, as excess liquidity was redeployed and certain securities, including collateralized loan obligations, experienced pay‑downs.

The rate variance was a favorable $0.2 million, as favorable rate impacts on loans and interest‑bearing liabilities more than offset unfavorable rate variances on investment securities.

Loan yields contributed positively to the rate variance, while interest‑bearing liabilities benefited from lower overall funding costs.

These favorable impacts were partially offset by lower yields on variable‑rate investment securities.

The mix variance was a favorable $0.1 million, reflecting changes in the composition of interest‑earning assets and interest‑bearing liabilities, including growth in higher‑yielding loan categories and changes in funding mix.

Overall, the combined impact of these factors resulted in a $0.5 million increase in net interest income for the first quarter of 2026 compared to the prior‑year quarter.

Variances in interest expense were the result of changes discussed under the “Net Interest Income and Net Interest Margin” heading.

3 unchanged sentences

Specifically identifiable and quantifiable loan losses are immediately charged off against the allowance, with subsequent recoveries reflected as an increase to the allowance.

The Company recorded a provision for credit losses of $3.7 million in the third quarter of 2025, as compared to $1.2 million in the third quarter of 2024.

The year-to-date provision for credit losses on loans was $6.9 million in 2025, as compared to $2.3 million for the same period in 2024.

The $2.5 million increase in the provision for credit losses on loans in the third quarter of 2025, as compared to the third quarter of 2024, and the $4.6 million year-to-date increase in the provision for credit losses on loans, compared to the same period in 2024, was primarily due to the addition of $3.5 million in individual reserves mostly related to a single agricultural production loan, in the third quarter of 2025.

At September 30, 2025, such agricultural production loan had a remaining book balance of $3.5 million with an associated individual reserve of $3.5 million fully offsetting such loan.

See “Allowance for Credit Losses – Loans” for additional information on this credit.

The Company recorded a provision for credit losses on loans of $0.1 million for the first quarter of 2026, compared to a credit loss benefit of $0.8 million in the fourth quarter of 2025 and a provision of $2.0 million in the first quarter of 2025.

The $0.8 million release in allowance for credit losses during the fourth quarter of 2025 was due mostly to the $1.5 million release of specific reserve on loans individually evaluated, partially offset by higher reserve on loans collectively evaluated.

The provision recorded during the first quarter of 2026 is due to the increase in specific reserve and changes to certain assumptions used, partially offset by lower loan balances and net loan charge-offs.

The allowance for credit losses on loans is at a level that, in Management’s judgment, is adequate to absorb probable credit losses on loans related to individually identified loans as well as probable credit losses in the remaining loan portfolio.

3 unchanged sentences

(dollars in thousands, unaudited)

Three months ended September 30,

For the nine months ended September 30,

Three months ended March 31,

Noninterest income:

Service charges and fees on deposit accounts

Net gain (loss) on sale of securities available-for-sale

(Loss) gain on sale of fixed assets

Interchange income on debit cards

Business analysis fees

Overdraft fee income

Other service charges and fees

Net gain on sale of securities available-for-sale

Gain (loss) on sale of fixed assets

Increase in cash surrender value of life insurance

4 unchanged sentences

Salaries and employee benefits

Salaries and benefits

Salary and incentives

Employee benefits

Deferred compensation

Occupancy and equipment costs

Occupancy costs

Advertising and marketing costs

8 unchanged sentences

Director's costs

Deferred directors' fees

Deferred directors' fees cost/(benefit)

Other professional services

5 unchanged sentences

Noninterest Income:

Total noninterest income increased $0.3 million, or 3%, for the quarter ended September 30, 2025, as compared to the same quarter in 2024, and decreased $0.8 million, or 3%, for the year-to-date period ended September 30, 2025, as compared to the same period in 2024.

The year-to-date decline was impacted by a decrease in service charge income on deposit accounts, unfavorable fluctuations in income on Bank Owned Life Insurance (BOLI) with underlying investments mapped directly to the Company’s deferred compensation plan and a net gain on the balance sheet restructure in early 2024 with no similar transaction in 2025.

Offsetting these unfavorable variances was an increase in other income which was related to life insurance proceeds received in 2025 with no like proceeds in 2024.

The Company maintains a non-qualified deferred compensation plan for officers and directors, which allows the participant to defer a portion of their earnings tax-free.

Participants are allowed to choose different hypothetical investment alternatives to determine their individualized return on their deferred compensation.

The Company has chosen to offset the cost of this liability with a BOLI Policy, which is funded based on deferral elections from the participants.

Although the BOLI is not directly tied to the deferred compensation plan, the BOLI is invested in similar fund types as those selected by the participants.

There is some inefficiency in net earnings of the BOLI asset as compared to the deferred compensation liability created by the cost of insurance, differences in balances, and differences in individual fund performance.

During the third quarter, and first nine months of 2025, earnings from the BOLI were $0.6 million, and $1.1 million, respectively, while additional expense from the related deferred compensation liability was $0.5 million, and $1.2 million, respectively.

The majority of this expense is reported as professional fees under directors’ fees as it is related to deferral of past directors’ fees.

Specifically, $0.4 million for the quarterly comparison, and $0.9 million for the year-to-date comparison, respectively, was reflected as directors’ fees as part of the overall professional fees expense line item.

The tax benefit of having tax-free earnings with tax-deductible expense was $0.3 million during the third quarter of 2025, and $0.7 million for the first nine months of 2025.

Service charges and fees on customer deposit accounts declined by $0.1 million, or 2%, to $6.1 million in the third quarter of 2025 as compared to the third quarter of 2024, and declined by $0.6 million, or 3% for the year-to-date comparison.

Lower analysis fees, returned check charges, and interchange on debit cards were the primary drivers of the unfavorable variance in both the quarterly and year-to-date variances.

In the “other” category of noninterest income there was no change in the third quarter of 2025 as compared to the third quarter of 2024, and a $1.0 million increase for the first nine months of 2025 as compared to the same period in 2024.

Life insurance proceeds received in 2025 accounted for most of the favorable variance for the year-to-date comparison.

Noninterest income increased $1.3 million, or 20%, to $8.0 million in the first quarter of 2026 compared to the same period in 2025.

The $1.3 million increase in noninterest income in the first quarter of 2026 as compared to the same quarter in 2025 was due to higher service charge and fee income, an increase in cash surrender value of life insurance due to purchases of additional life insurance in the second quarter of 2025, and other increases related to higher FHLB dividend income, an increase in the fair value of bank stocks, and a gain on sale of fixed assets.

Service charges and fees on customer deposit accounts increased by $0.1 million, or 2%, to $5.7 million in the first quarter of 2026 as compared to the same quarter in 2025.

Higher overdraft income and a decrease in costs related to our VISA debit card program were the primary drivers of the favorable variance.

The Company maintains a non-qualified deferred compensation plan for officers and directors, under which participants may defer a portion of their earnings and select from various hypothetical investment alternatives to determine their individual returns.

The Company economically offsets this liability with separate account life insurance policies that are invested in similar underlying fund types within the life insurance policy.

Because the deferred compensation liability and the separate account life insurance asset are not contractually linked, differences in balances, fund performance, and insurance costs can result in temporary timing mismatches between changes in separate account life insurance income and the related deferred compensation expense.

During the first quarter of 2026, declines in market values of investments inside the life insurance policy to offset employee and director deferred compensation plan elections resulted in a $0.4 million net loss related to separate account life insurance, while the related deferred compensation liability experienced a $0.6 million benefit as the funds that the plan participants elected declined in value.

These offsetting movements reflect market-driven changes in the underlying investment alternatives and do not represent credit- or performance-related deterioration.

The majority of the deferred compensation expense is reported within professional fees, under deferred directors’ fees, as it primarily relates to the deferral of directors’ compensation.

Specifically, $0.6 million of deferred compensation benefit was recorded as deferred directors’ fees during the first quarter of 2026.

The related tax shortfall associated with the loss associated with separate account life insurance and taxable deferred compensation expense/(benefit) totaled $0.3 million for the quarter.

Noninterest Expense:

Total noninterest expense increased by $0.8 million, or 4%, in the third quarter of 2025, relative to the third quarter of 2024, and decreased by $0.2 million for the first nine months of 2025, as compared to the same period in 2024.

Salaries and Benefits were $0.5 million, or 4%, higher in the third quarter of 2025 as compared to the third quarter of 2024, and $0.8 million higher for the first nine months of 2025, as compared to the same period in 2024.

The Company implemented a strategic reorganization at the end of the third quarter of 2025 which resulted in a reduction in force, accompanied by $0.2 million in severance payments.

The remaining increase for both the quarter and year-over-year periods was mostly due to a change in composition in the workforce.

There were 476 full-time equivalent employees at September 30, 2025, as compared to 485 at December 31, 2024.

Occupancy expenses increased by $0.2 million for the third quarter, and the first nine months of 2025 as compared to the same periods in 2024.

The increases in both comparisons were primarily due to increased property taxes related to the updated assessed values of the properties involved in the sale/leaseback transaction in early 2024.

Other noninterest expense was relatively unchanged for the third quarter 2024, as compared to the third quarter in 2024, and decreased $1.2 million, or 5%, for the first nine months of 2025, as compared to the same period in 2024.

For the year-over-year comparison the decrease was primarily driven by decreases in directors’ deferred compensation expense and

legal and accounting services of $0.5 million and $0.3 million, respectively.

The remaining decrease was related to lower data processing costs and reduced debit card losses.

Total noninterest expense decreased $0.6 million, or 3%, to $21.8 million in the first quarter of 2026, compared to the first quarter of 2025.

The primary driver of lower noninterest expense was lower deferred compensation expense, reflecting market-driven changes in the related deferred compensation liability.

Excluding the change in deferred compensation, total noninterest expense declined $1.0 million in the first quarter of 2026 as compared to the fourth quarter of 2025.

The decrease in deferred compensation expense was mostly offset by lower separate account life insurance income, as declines in market values during the quarter resulted in a loss related to separate account life insurance policies, consistent with the discussion above.

These offsetting movements reflect normal market-related volatility between the separate account life insurance asset and the deferred compensation liability.

Salaries and benefits were relatively stable compared to both the linked quarter and the same period last year, with modest period-to-period changes primarily related to normal compensation timing and benefit costs.

Occupancy expense declined modestly compared to the linked quarter and remained relatively consistent year over year, reflecting disciplined expense management.

Other noninterest expense declined compared to both the linked quarter and the prior year, driven primarily by lower deferred directors’ compensation expense/(benefit) and continued cost control across operating expense categories.

PROVISION FOR INCOME TAXES

3 unchanged sentences

Tax credits consist primarily of those generated by investments in low-income housing tax credit funds.

The Company's provision for income taxes was 23.6% of pre-tax income in the third quarter of 2025, relative to 26.4% in the third quarter of 2024, and 24.9% of pre-tax income for the first nine months of 2025 relative to 26.8% for the same period in 2024.

The Company's provision for income taxes was 25.2% of pre-tax income in the first quarter of 2026, relative to 25.8% in the first quarter of 2025.

The decrease in effective tax rate for both the quarterly and year-to-date comparisons was due to the tax credits and tax-exempt income representing a larger percentage of total taxable income.

11 unchanged sentences

and 5) they can provide partially tax exempt income.

The investment portfolio is reflected on the balance sheet as investment securities and totaled $891.4 million, or 24% of total assets at September 30, 2025, and $961.5 million, or 27% of total assets at December 31, 2024.

The decrease was due to maturities and paydowns, partially used to offset brokered deposit maturities.

The investment portfolio is reflected on the balance sheet as investment securities and totaled $903.0 million, or 24% of total assets at March 31, 2026, and $916.1 million, or 24% of total assets at December 31, 2025.

The modest decrease was due to regularly scheduled maturities and paydowns.

The Company carries “available-for-sale” investments at their fair market values and “held-to-maturity” investments at amortized cost, net of allowance for credit losses.

The Company currently has the intent and ability to hold investment securities to maturity, but the securities are all marketable.

The expected effective duration was 2.4 years for available-for-sale investments and 5.9 years for held-to-maturity investments at September 30, 2025, as compared to 1.5 years for available-for-sale investments and 6.0 years for held-to-maturity investments at December 31, 2024.

The expected effective duration was 2.8 years for available-for-sale investments and 5.7 years for held-to-maturity investments at March 31, 2026, as compared to 2.8 years for available-for-sale investments and 5.6 years for held-to-maturity investments at December 31, 2025.

The following table sets forth the carrying amount for available-for-sale securities, at fair value, and held-to-maturity securities, at amortized cost, net of the allowance for credit losses of the Company’s investment portfolio by investment type as of the dates noted:

1 unchanged sentence

(dollars in thousands, unaudited)

September 30, 2025

March 31, 2026

December 31, 2025

14 unchanged sentences

Total securities

Investment securities pledged as collateral for borrowings and/or potential borrowings from the FHLB and the FRB, customer repurchase agreements, and other purposes as required or permitted by law totaled $403.7 million at September 30, 2025, and $403.4 million at December 31, 2024, leaving $487.7 million in unpledged debt securities at September 30, 2025, and $558.1 million at December 31, 2024.

Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if needed, totaled $230.6 million at September 30, 2025, and $242.2 million at December 31, 2024.

Investment securities pledged as collateral for borrowings and/or potential borrowings from the FHLB and the FRB, customer repurchase agreements, and other purposes as required or permitted by law totaled $363.5 million at March 31, 2026, and $367.5 million at December 31, 2025, leaving $539.5 million in unpledged debt securities at March 31, 2026, and $548.6 million at December 31, 2025.

Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if needed, totaled $191.1 million at March 31, 2026, and $192.3 million at December 31, 2025.

At March 31, 2026, the Company’s investment portfolio included 229 municipal bonds issued by 199 different government municipalities and agencies located within 28 different states, with an aggregate fair value of $221.9 million.

The largest exposure to any single municipality or agency was a combined $5.1 million (fair value) in general obligation bonds issued by the City of New York (NY).

In addition, the Company owned 94 subordinated debentures issued by bank-holding companies totaling $86.8 million (fair value).

At December 31, 2025, the Company’s investment portfolio included 227 municipal bonds issued by 199 different government municipalities and agencies located within 28 states, with an aggregate fair value of $221.0 million.

The largest exposure to any single municipality or agency was a combined $5.2 million (fair value) in general obligation bonds issued by the City of New York (NY).

In addition, the Company owned 109 subordinated debentures issued by bank-holding companies totaling $86.5 million (fair value).

The Company’s investments in bonds issued by corporations, states, municipalities, and political subdivisions are evaluated in accordance with Financial Institution Letter 48-2012, issued by the FDIC, “Revised Standards of Creditworthiness for Investment Securities,” and other regulatory guidance.

Credit ratings are considered in Management’s analysis only as a guide to the historical default rate associated with similarly rated bonds.

There have been no significant differences in internal analyses compared with the ratings assigned by the third-party credit rating agencies.

The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for the Company’s largest geographic concentrations:

March 31, 2026

December 31, 2025

General obligation bonds

State of issuance

Other (22 & 22 states, respectively)

Total general obligation bonds

Revenue bonds

State of issuance

Other (13 & 13 states, respectively)

Total revenue bonds

Total obligations of states and political subdivisions

ALLOWANCE FOR CREDIT LOSSES – AFS INVESTMENT SECURITIES

1 unchanged sentence

It is maintained at a level that is considered adequate to measure expected losses across the classes of major investment security types related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value.

The Company maintains it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both September 30, 2025 and December 31, 2024, that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold.

The following bullets outline additional support for Management’s conclusion that no amount of the unrealized loss of the securities in an unrealized loss position as of September 30, 2025, and December 31, 2024, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.

The Company maintains it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both March 31, 2026, and December 31, 2025, that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold.

The following bullets outline additional support for Management’s conclusion that no amount of the unrealized loss of the securities in an unrealized loss position as of March 31, 2026, and December 31, 2025, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.

government agencies are supported by the full faith and creditworthiness of the U.S.

federal government and Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either September 30, 2025, or December 31, 2024.

federal government and Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either March 31, 2026, or December 31, 2025.

● Mortgage-backed securities issued by government-sponsored enterprises (“GSEs”) carry an implicit guarantee by the U.S.

1 unchanged sentence

federal government up to a limit, with an implied ability to draw funds beyond the limit.

Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either September 30, 2025, or December 31, 2024.

Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either March 31, 2026, or December 31, 2025.

● Management routinely monitors third party credit grades of the municipal issuers in the Company’s state and political subdivisions portfolio.

On a quarterly basis Management receives financial information from a third-party service in order to monitor the underlying issuer’s financial stability.

In addition, Management performs annual reviews of the underlying municipal issuers financial statements in order to evaluate stability and

repayment capacity and has noted no concerns with any of the bonds in the Company’s state and local portfolio.

As of both September 30, 2025 and December 31, 2024 Management concluded that no allowance for credit losses was warranted on any of the Company’s municipal securities and the unrealized loss position of each of the securities reflected fluctuations in market conditions, primarily interest rates, since the time of purchase.

In addition, Management performs annual reviews of the underlying municipal issuers financial statements in order to evaluate stability and repayment capacity and has noted no concerns with any of the bonds in the Company’s state and local portfolio.

As of both March 31, 2026 and December 31, 2025, Management concluded that no allowance for credit losses was warranted on any of the Company’s municipal securities and the unrealized loss position of each of the securities reflected fluctuations in market conditions, primarily interest rates, since the time of purchase.

● The Company has invested in corporate debt issuances of other financial institutions.

Various financial metrics, including credit quality, reserve adequacy, profitability and capital, of each of the issuing financial institutions are reviewed by Management quarterly.

Following review of the financial metrics available for each of the underlying institutions as of September 30, 2025, and December 31, 2024, Management concluded the unrealized loss position of these securities were related exclusively to the fluctuation in market conditions, primarily interest rates, from the date of purchase, and were not reflective of any credit concerns with the issuing financial institution.

Following review of the financial metrics available for each of the

underlying institutions as of March 31, 2026, and December 31, 2025, Management concluded the unrealized loss position of these securities were related exclusively to the fluctuation in market conditions, primarily interest rates, from the date of purchase, and were not reflective of any credit concerns with the issuing financial institution.

These bonds were subject to a credit review by the credit administration department prior to their purchase and are subject to ongoing quarterly reviews.

2 unchanged sentences

Management monitors the credit rating, in addition to various performance metrics available through a third-party informational service, of these investments on a quarterly basis.

Following review of financial metrics as of both September 30, 2025, and December 31, 2024, Management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rate spreads due to changes in supply or demand, from the date of purchase, and were not reflective of any credit concerns with the tranches comprising the Company’s investments.

Following review of financial metrics as of both March 31, 2026, and December 31, 2025, Management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rate spreads due to changes in supply or demand, from the date of purchase, and were not reflective of any credit concerns with the tranches comprising the Company’s investments.

LOAN PORTFOLIO

4 unchanged sentences

(dollars in thousands, unaudited)

September 30, 2025

March 31, 2026

December 31, 2025

6 unchanged sentences

Consumer loans

Gross loans held at amortized cost totaled $2.5 billion, an increase of $160.4 million, or 7%, during the first nine months of 2025.

Organic loan growth contributed to increases of $46.8 million in commercial real estate loans, $7.9 million in construction loan balances, and $7.6 million in other commercial loans.

Mortgage warehouse line utilization increased $126.3 million, or 39%.

Consumer loans had a modest decline, while residential real estate loans decreased $18.2 million, and farmland loans decreased $9.7 million.

As indicated in the loan rollforward table below, new credit extended for the third quarter of 2025, remained flat on a linked-quarter basis, decreased $13.2 million over the same period in 2024, and increased $26.1 million for the year-to-date comparisons.

The Company had $121.5 million in loan paydowns and maturities;

however, mortgage warehouse utilization of $126.3 million had a positive impact in the first nine months of 2025.

Gross loan balances decreased $80.1 million, or 3%, during the first quarter of 2026, reflecting lower mortgage warehouse line utilization, portfolio runoff, changes in commercial line utilization, and lower volumes of new credit extended.

Mortgage warehouse balances declined $39.9 million, driven by seasonal activity and late-quarter paydowns.

Excluding mortgage warehouse activity, loan balances declined modestly across several portfolios, including decreases of $9.1 million in commercial real estate loans, $19.9 million in other commercial loans, $9.7 million in residential real estate loans, $2.1 million in farmland loans, and $0.2 million in consumer loans.

Other construction loans increased $0.8 million during the quarter.

As indicated in the loan rollforward below, new credit extended for the first quarter of 2026 decreased $19.0 million over the linked quarter comparison and $58.6 million over the same period in 2025.

For the first three months ended 2026, we had $25.3 million in loan paydowns and maturities, along with a $22.6 million decrease in line of credit utilization, and a $39.9 million decrease in mortgage warehouse utilization.

The reduction in new credit extended is primarily due to a strategic shift in our target customer base with a change to increase granularity within the portfolio by focusing more on

serving our local communities, as well as expanded commercial real estate lending.

It is taking time to refresh the pipeline, but our pipeline had returned to prior quarter levels by the end of March 2026.

LOAN ROLLFORWARD

1 unchanged sentence

For the three months ended:

For the nine months ended:

Gross loans beginning balance

5 unchanged sentences

(1) Change does not include new balances on lines of credit extended during the respective periods as such balances are included as part of “New credit extended” line above.

At September 30, 2025, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 242.7% as compared to 236.3% at December 31, 2024.

The overall level of construction and land development lending was 2.9% of regulatory capital plus allowance for credit losses at September 30, 2025.

At September 30, 2025, non-owner occupied commercial real estate includes $306.8 million of retail;

At March 31, 2026, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 238.7% as compared to 242.1% at December 31, 2025.

The overall level of construction and land development lending was 3.3% of regulatory capital plus allowance for credit losses at March 31, 2026.

At March 31, 2026, non-owner occupied commercial real estate included $305.1 million of retail;

$136.6 million of warehouse/industrial;

2 unchanged sentences

Approximately $25.5 million, or 17% of the office real estate matures or reprices in less than two years.

Unused commitments, excluding mortgage warehouse and overdraft lines, were $263.1 million at September 30, 2025, compared to $256.9 million at December 31, 2024.

Total line utilization, excluding mortgage warehouse and overdraft lines, was 57.9% at September 30, 2025, and 57.0% at December 31, 2024.

Mortgage warehouse utilization increased to 59.4% at September 30, 2025, as compared to 51.2% at December 31, 2024.

The mortgage warehouse lines are structured as repurchase agreement lines.

The repurchase agreement structure provides stronger credit protection to the Company, as well as more favorable regulatory capital treatment, as these repurchase lines are not considered off-balance sheet commitments for regulatory capital purposes as they are unconditionally cancellable.

NONPERFORMING ASSETS

2 unchanged sentences

(dollars in thousands, unaudited)

September 30, 2025

March 31, 2026

December 31, 2025

September 30, 2024

March 31, 2025

Nonperforming loans:

10 unchanged sentences

Nonperforming assets as a % of total gross loans and foreclosed assets

Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, improved with a favorable decline of $3.8 million to $15.8 million for the first nine months of 2025.

The Company's ratio of nonperforming loans to gross loans decreased to 0.56% at September 30, 2025, from 0.84% at December 31, 2024.

This favorable year-to-date decline resulted from a decrease in non-accrual loan balances, due mostly to the partial charge-off of one agricultural production loan in the second quarter of 2025.

All the Company's nonperforming assets are individually evaluated for credit loss quarterly and Management believes the established allowance for credit loss on such loans is appropriate.

Foreclosed assets had a carrying value of $1.8 million at September 30, 2025 comprised of one property classified as Other Real Estate Owned (OREO).

There were no foreclosed assets at December 31, 2024.

All foreclosed assets are periodically evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying value.

Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, declined $4.4 million to $10.4 million at March 31, 2026, compared to $14.8 million at December 31, 2025.

This improvement was driven by a reduction in nonaccrual loan balances, reflecting resolutions and paydowns within the Company’s criticized loan portfolio.

The Company’s ratio of nonperforming loans to gross loans decreased to approximately 0.42% at March 31, 2026, compared

to approximately 0.52% at December 31, 2025, reflecting both the reduction in nonperforming loan balances and a modest decline in total loan balances during the quarter.

The Company had no foreclosed assets at March 31, 2026, compared to $1.6 million at December 31, 2025, as the remaining foreclosed property was resolved during the quarter.

All nonperforming assets are individually evaluated for credit losses on a quarterly basis, and Management believes the allowance for credit losses allocated to these loans is appropriate.

An action plan is in place for each non-accruing loan, and they are all being actively managed.

Collection efforts are continuously pursued for all nonperforming loans, but the Company cannot provide assurance that they will be resolved in a timely manner or that nonperforming balances will not increase.

The Company had $0.2 million in loans past due 30-89 days and still accruing at September 30, 2025.

This was a decrease of $1.2 million over the balance at December 31, 2024.

The Company had $0.9 million in loans past due 30-89 days and still accruing at March 31, 2026.

This was a decrease of $5.9 million compared to the balance at December 31, 2025.

All of these past due loans are under Management supervision, and every effort is being taken to assist the borrowers and manage credit risk in this regard.

4 unchanged sentences

recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge-off.

The Company's allowance for credit losses on loans and leases was $25.2 million at September 30, 2025, as compared to $24.8 million at December 31, 2024.

The increase resulted from a $3.5 million increase in specific individual reserves on impaired loans on a single agricultural production loan in the third quarter of 2025, offset by a $5.3 million partial charge-off on the same loan in the second quarter of 2025, which had a $3.0 million specific individual reserve at December 31, 2024.

Such agricultural production loan was in the wine grape industry and had a remaining book balance of $3.5 million at September 30, 2025, with a full individual reserve of $3.5 million offsetting the remaining balance.

In addition to this loan, the Bank had $19.2 million in outstanding agricultural production loans in the winery and grape industry at September 30, 2025, of which $1.7 million were grapes.

None of the remaining $19.2 million in wine and grape production loans were classified as special mention or substandard.

The allowance as a percentage of gross loans was 1.01% and 1.07%, at September 30, 2025 and December 31, 2024, respectively.

Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses for the life of the loans outstanding as of September 30, 2025, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance for loans.

The total allowance for credit losses on loans of $25.2 million at September 30, 2025, included $0.5 million of allowance related to $452.7 million of mortgage warehouse lines.

A separate allowance of $0.8 million for potential credit losses inherent in unused commitments is included in other liabilities at September 30, 2025, an increase of $0.1 million, from December 31, 2024.

The Company's allowance for credit losses on loans and leases was $21.3 million at March 31, 2026, as compared to $21.5 million at December 31, 2025.

The decrease resulted from net charge‑offs during the quarter of $0.3 million, partially offset by a provision for credit losses of $0.1 million, reflecting Management’s assessment of credit quality, portfolio composition, and current economic conditions.

The following tables highlight the coverage ratios by loan category at March 31, 2026, and December 31, 2025 (dollars in thousands, unaudited):

As of March 31, 2026

Total Allowance

Percent of Portfolio

Coverage Ratio (1)

Commercial real estate

Other construction/land

Total real estate (2)

Other Commercial

Consumer loans (including overdrafts)

Subtotal (2) (3)

Residential real estate

Mortgage warehouse lines

As of December 31, 2025

Total Allowance

Percent of Portfolio

Coverage Ratio (1)

Commercial real estate

Other construction/land

Total real estate (2)

Other Commercial

Consumer loans (including overdrafts)

Subtotal (2) (3)

Residential real estate

Mortgage warehouse lines

(1) Coverage ratio equals allowance for credit losses on loans divided by total loans on the amortized cost basis.

(2) Does not include residential real estate.

(3) Does not include mortgage warehouse lines.

The allowance as a percentage of gross loans was 0.86% and 0.84%, at March 31, 2026, and December 31, 2025, respectively.

Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses for the life of the loans outstanding as of March 31, 2026, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance for loans.

The total allowance for credit losses on loans of $21.3 million at March 31, 2026, included $0.6 million of allowance related to $478.5 million of mortgage warehouse lines.

A separate allowance of $0.7 million for potential credit losses inherent in unused commitments is included in other liabilities at March 31, 2026, a decrease of $0.1 million, from December 31, 2025.

Allowance for Credit Losses on Loans

3 unchanged sentences

For the year ended

September 30,

Average gross loans outstanding during period (1)

7 unchanged sentences

Consumer loans

Residential real estate

Commercial real estate

Total real estate

11 unchanged sentences

It is unlikely that all unused commitments will ultimately be drawn down.

Unused commitments to extend credit, which included standby letters of credit, totaled $641.8 million at September 30, 2025, and $641.5 million at December 31, 2024, representing approximately 26% of gross loans outstanding at September 30, 2025, and 28% at December 31, 2024.

Included in unused commitments are mortgage warehouse lines, which are mostly in the form of repurchase lines and are unconditionally cancellable.

Unused commitments on mortgage warehouse lines were $308.8 million at September 30, 2025, and $311.6 million at December 31, 2024, while mortgage warehouse utilization was 59% and 51%, respectively.

The increase in mortgage warehouse utilization during the first nine months of 2025 was due to new customers added in the mortgage warehouse product that ramped up their utilization.

Unused commitments, exclusive of mortgage warehouse lines and overdraft lines of credit, increased to 58% at September 30, 2025 from 57% at December 31, 2024.

Total mortgage warehouse commitments increased by $25.0 million and $123.5 million for the three-and-nine-month periods ending September 30, 2025, respectively.

The Company also had undrawn letters of credit issued to customers totaling $4.3 million at September 30, 2025, and $5.0 million at December 31, 2024.

A summary of the Company’s unfunded commitments and utilization is presented below (dollars in thousands, unaudited):

March 31, 2026

December 31, 2025

March 31, 2025

Utilization %

Residential real estate

Commercial real estate

Other construction/land

Total real estate

Other commercial

Mortgage warehouse lines

Overdrafts - Commercial and Consumer

Unused commitment as a percent of gross loans

Unused mortgage warehouse commitments as percent of gross loans

(1) Excludes mortgage warehouse lines and overdraft lines.

Included in unused commitments are mortgage warehouse lines, which are mostly in the form of repurchase lines.

The Company also had undrawn letters of credit issued to customers totaling $5.8 million at March 31, 2026, and $5.7 million at December 31, 2025.

The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used.

However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should the Company be required to fund a significant portion of unused commitments.

In addition to unused commitments to provide credit, the Company is utilizing a $125 million letter of credit issued by the FHLB on the Company’s behalf as security for certain local agency deposits which totaled $85.3 million at September 30, 2025.

That letter of credit is backed by loans pledged to the FHLB by the Company.

4 unchanged sentences

Should a large “short” overnight position persist for any length of time, the Company typically raises money through focused retail deposit gathering efforts or by adding brokered time deposits.

If a “long” position is prevalent, the Company could let brokered deposits or other wholesale borrowings roll off as they mature, or invest excess liquidity into investments or loans, subject to the Company’s risk tolerances.

The Company’s balance of non-earning cash and due from banks was $81.8 million at September 30, 2025, relative to $79.6 million at December 31, 2024.

The Company’s balance of non-earning cash and due from banks was $105.7 million at March 31, 2026, relative to $71.4 million at December 31, 2025.

Foreclosed assets are discussed above in the section titled “Nonperforming Assets.”

Net premises and equipment decreased by $0.4 million during the first nine months of 2025, to $15.1 million.

This decline was mostly a result of depreciation in the first nine months of 2025.

Goodwill was $27.4 million at September 30, 2025, unchanged during the first nine months of 2025.

Net premises and equipment decreased by $0.5 million during the first three months of 2026, to $14.4 million.

This decline was mostly a result of the sale of a bank owned real estate property and depreciation in the first three months of 2026.

Goodwill was $27.4 million at March 31, 2026, unchanged during the first three months of 2026.

Goodwill is tested for impairment annually, unless events and circumstances exist which indicate that an impairment test should be performed.

The annual goodwill impairment test was last performed on October 1, 2025, and it was determined that no impairment existed.

Management continues to evaluate whether or not a triggering event occurs, or circumstances change

that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2025.

Bank-owned life insurance, with a balance of $68.7 million at September 30, 2025, increased $15.6 million during the first nine months of 2025, primarily due to the purchase of additional life insurance policies.

Management continues to evaluate whether or not a triggering event occurs, or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2026.

Bank-owned life insurance, with a balance of $68.7 million at March 31, 2026, decreased $0.6 million during the first three months of 2026.

Additional details are discussed above in the “Noninterest Income and Noninterest Expense” section.

9 unchanged sentences

(dollars in thousands, unaudited)

September 30, 2025

March 31, 2026

December 31, 2025

1 unchanged sentence

Interest bearing demand deposits

Customer time deposits

Brokered deposits

Total deposits

Deposit balances reflect growth of $41.1 million, or 1%, during the first nine months of 2025.

Core non-maturity deposits increased by $138.4 million, or 7%, while customer time deposits decreased by $57.3 million, or 11%.

Wholesale brokered deposits decreased by $40.0 million, or 15%.

Overall noninterest-bearing deposits as a percentage of total deposits at September 30, 2025, increased to 36.6%, as compared to 34.8% at December 31, 2024.

Total deposits increased $49.4 million, or 2%, to $2.93 billion at March 31, 2026, compared to $2.88 billion at December 31, 2025.

The increase was driven primarily by growth in noninterest‑bearing demand deposits, which increased $33.1 million, or 3%, during the quarter.

Noninterest‑bearing demand deposits represented 35.2% of total deposits at March 31, 2026, compared to 34.6% at December 31, 2025, reflecting a modest improvement in the Company’s funding mix.

Interest‑bearing demand deposits increased $20.2 million, while balances in NOW, savings, and money market accounts were relatively stable during the quarter.

Customer time deposits declined $7.7 million, reflecting continued runoff of higher‑cost certificates, while brokered deposits remained essentially flat, increasing $0.3 million as compared to December 31, 2025.

Overall uninsured deposits are estimated to be $710.0 million, or 24% of total deposit balances, excluding public agency deposits that are subject to collateralization through a letter of credit issued by the FHLB.

2 unchanged sentences

The Bank maintains a diversified deposit base with no significant customer concentrations and does not bank any cryptocurrency companies.

At September 30, 2025, the

Company had approximately 117,000 accounts, and the 25 largest deposit balance customers had balances of approximately 11% of overall deposits .

At March 31, 2026, the Company had approximately 116,000 accounts, and the 25 largest deposit balance customers had balances of approximately 10% of overall deposits .

During the first quarter of 2026, except for seasonal fluctuations in the normal course of business, there have been no material changes in the composition of our 25 largest deposit balance customers.

OTHER INTEREST-BEARING LIABILITIES

Customer repurchase agreements were $125.7 million at September 30, 2025, as compared to $108.9 million at December 31, 2024.

Customer repurchase agreements were $127.8 million at March 31, 2026, as compared to $130.9 million at December 31, 2025.

Customer repurchase agreements allow customers to sweep excess deposit balances over the FDIC insurance limit each day into a separate repurchase agreement account.

6 unchanged sentences

The secured component depends on the level of pledged collateral.

At September 30, 2025 the Company had $55.0 million in overnight borrowings, and $80.0 million of term FHLB borrowings, as compared to $80.0 million of term FHLB borrowings on December 31, 2024.

Long-term debt at September 30, 2025, consisted of $49.5 million of subordinated debt.

At March 31, 2026, the Company had $130.0 million in overnight borrowings and $55.0 million of term FHLB borrowings, as compared to $222.7 million in overnight borrowings and $80.0 million of term FHLB borrowings at December 31, 2025.

Long-term debt at March 31, 2026, consisted of $49.5 million of subordinated debt.

This remained relatively unchanged from December 31, 2025.

Subordinated debentures related to $36.0 million of trust preferred securities at September 30, 2025, was $0.1 million higher than at December 31, 2024.

Subordinated debentures related to $36.1 million of trust preferred securities at March 31, 2026, were $0.1 million higher than at December 31, 2025.

The small increase resulted from the amortization of the discount on junior subordinated debentures that were part of the Company’s acquisition of Coast Bancorp in 2016.

2 unchanged sentences

Other liabilities are principally comprised of operating lease right-of-use liabilities, accrued interest payable, other accrued but unpaid expenses, and certain clearing amounts.

The Company’s balance of other liabilities was $69.6 million at September 30, 2025, as compared to $90.5 million at December 31, 2024, a decrease of $20.9 million or 23%.

The decrease was primarily driven by investment security purchases in process that settled, ICS transactions in process that settled, funds advanced on low-income housing tax credit investments, and a decrease in accrued interest on time deposits.

The Company’s balance of other liabilities was $65.9 million at March 31, 2026, as compared to $68.2 million at December 31, 2025, a decrease of $2.3 million or 3%.

LIQUIDITY AND MARKET RISK MANAGEMENT

The Company continues to have substantial liquidity through unencumbered assets and available borrowings.

In addition, the Company’s loan-to-deposit ratio was 85% at September 30, 2025, and 81% at December 31, 2024, compared to an internal policy guideline of less than 90%.

In addition, the Company’s loan-to-deposit ratio was 84% at March 31, 2026, and 89% at December 31, 2025, compared to an internal policy guideline of less than 90%.

Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner.

1 unchanged sentence

Liquidity ratios are also calculated and reviewed on a regular basis.

While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored, the Company is committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise.

While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored;

the Company is committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise.

The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments.

To meet these short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances via FHLB lines of credit, or solicit brokered deposits if customer deposits are not immediately obtainable from local sources.

At September 30, 2025, and December 31, 2024, the Company had the following sources of primary and secondary liquidity (dollars in thousands):

At March 31, 2026, and December 31, 2025, the Company had the following sources of primary and secondary liquidity (dollars in thousands):

Primary and secondary liquidity sources

6 unchanged sentences

Funds available through fed discount window

Available funding sources, detailed above, of $2.2 billion represented 75% of total deposits and 293% of estimated uninsured and/or uncollateralized deposits as of September 30, 2025.

Available funding sources, detailed above, of $2.1 billion represented 73% of total deposits and 302% of estimated uninsured and/or uncollateralized deposits as of March 31, 2026.

Unpledged investment securities include $136.7 million of CLOs.

2 unchanged sentences

The Company has a higher level of actual balance sheet liquidity than might otherwise be the case since the Company utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements.

That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $125 million at September 30, 2025, and December 31, 2024.

That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $125 million at March 31, 2026, and December 31, 2025.

Other sources of liquidity include the brokered deposit market, deposit listing services, Intrafi, and the ability to offer local time-deposit campaigns.

Management is of the opinion that available investments and other potentially liquid assets, along with standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.

The Company’s primary liquidity ratio was 18% at September 30, 2025, as compared to an internal policy guideline of “greater than 15%” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at September 30, 2025, are also periodically reviewed by Management and the Board.

The Company’s primary liquidity ratio was 20% at March 31, 2026, as compared to an internal policy guideline of “greater than 15%” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at March 31, 2026, are also periodically reviewed by Management and the Board.

The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that the liquidity position will continue at current strong levels.

1 unchanged sentence

Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations.

As of September 30, 2025, the holding company maintained a cash balance of $8.4 million.

As of March 31, 2026, the holding company maintained a cash balance of $7.1 million.

Management anticipates that the holding company has sufficient liquidity to meet its funding requirements for the foreseeable future.

4 unchanged sentences

The Company’s market risk exposure is primarily that of interest rate risk and has established policies and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates.

The principal objective of interest rate risk management

is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.

The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.

To identify areas of potential exposure to interest rate changes, the Company utilizes a third-party that uses commercially-available modeling software to perform monthly earnings simulations using a dynamic balance sheet and calculate the Company’s market value of portfolio equity under varying interest rate scenarios.

10 unchanged sentences

The Company had the following estimated net interest income sensitivity profiles over one year, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration (dollars in thousands, unaudited):

September 30, 2025

September 30, 2024

March 31, 2026

March 31, 2025

Immediate change in Interest Rates (basis points)

3 unchanged sentences

$ Change in Net Interest Income

The above table is for parallel interest rate shocks for all rate curves and represents an extreme scenario.

Management utilizes this as a starting point for determining its overall interest rate risk strategy.

Based on the interest rate shocks, for the period ending September 30, 2025, Management believes that the Company is asset sensitive and is slightly less asset sensitive than the same period a year ago.

The incremental changes in net interest income are similar between the up 100, 200, 300, and 400 basis point scenarios.

If there were an immediate and sustained upward adjustment of 100 basis points in interest rates, all else being equal, net interest income over the next 12 months is projected to increase by $1.8 million, or 1.3%, relative to a stable interest rate scenario, with the favorable variance increasing as interest rates rise higher.

If there was an immediate downward adjustment of 100 basis points in interest rates for all rate curves, net interest income would drop $6.7 million, or a negative variance of 4.8% over 12 months.

The change in net interest income in the down 200 basis point scenario is a decrease of $13.8 million or 10.0%.

As a significant portion of the Company’s deposits remain in noninterest-bearing accounts or low-cost deposit accounts, in a downrate scenario, these rates would not change or only change slightly.

However, floating rate earning assets (loans and deposits) would reprice downward more than the decline in floating rate liabilities.

All interest rate shock scenarios are within internal policy guidelines.

The table above presents the estimated impact of immediate, parallel shifts in interest rates across all yield curves and represents an extreme scenario.

Management utilizes this analysis as a starting point in assessing the Company’s overall interest rate risk profile.

Based on these modeled interest rate shocks, as of March 31, 2026, Management believes the Company remains asset sensitive, though to a lesser degree than as of March 31, 2025.

In rising rate scenarios, the projected changes in net interest income are relatively modest and consistent across the up 100, 200, 300, and 400 basis point scenarios, reflecting a more balanced repricing profile.

In an immediate 100 basis point increase in interest rates, net interest income is projected to increase $0.4 million, or 0.3%, compared to a stable rate environment.

In higher upward shock scenarios, projected changes in net interest income remain limited, ranging from an increase of $0.3 million in the +300 basis point scenario to a $0.4 million decrease in the +400 basis point scenario.

In contrast, declining rate scenarios have a more pronounced adverse impact on net interest income.

An immediate 100 basis point decrease in interest rates is projected to result in a $4.0 million decline, or 3.0%, in net interest income, with greater sensitivity in more severe down‑rate scenarios.

A 200 basis point decrease results in a projected decline of $8.6 million, or 6.3%, while a 300 basis point decrease results in a projected decline of $13.0 million, or 9.6%.

The Company’s greater sensitivity to declining interest rates reflects the impact of repricing on variable‑rate earning assets, which would adjust downward more rapidly than interest‑bearing liabilities, particularly given the presence of noninterest‑bearing and low‑cost deposit funding.

All modeled interest rate shock scenarios remain within the Company’s internal policy guidelines.

Management also models other interest rate scenarios that do not assume a simultaneous and parallel shock of all points on the yield curve including short-term and long-term rates.

7 unchanged sentences

CAPITAL RESOURCES

The Company had total shareholders’ equity of $360.1 million at September 30, 2025, comprised of $104.0 million in common stock, $5.1 million in additional paid-in capital, $276.2 million in retained earnings, and accumulated other comprehensive loss of $25.2 million.

The Company had total shareholders’ equity of $363.7 million at March 31, 2026, comprised of $103.0 million in common stock, $4.2 million in additional paid-in capital, $281.4 million in retained earnings, and accumulated other comprehensive loss of $24.9 million.

At the end of 2025, total shareholders’ equity was $364.9 million.

The $2.8 million, or 1%, increase in equity during the first nine months of 2025 was due to the addition of $29.4 million in net income, a $6.1 million favorable change in accumulated other comprehensive loss, due principally to changes in investment securities’ fair value, partially offset by $24.3 million in share repurchases, and $10.3 million in dividends paid.

The remaining difference is related to the impact of equity compensation.

At September 30, 2025, the Company had a 2024 Share Repurchase Plan authorizing 1,000,000 shares of common stock, with an expiration date of October 31, 2025.

At September 30, 2025, there were no shares of common stock remaining available for repurchase under the 2024 Share Repurchase plan.

The $1.1 million, or 0.3%, decrease in equity during the three months of 2026 was due to $9.5 million in share repurchases, a $3.4 million dividend paid to shareholders, and $1.8 million unfavorable swing in other comprehensive income/loss due principally to changes in investment securities’ fair value.

These changes were partially offset by $12.5 million in net income recorded during the quarter.

The remaining difference was related to stock option and restricted stock activity during the year.

At March 31, 2026, the Company had a 2025 Share Repurchase Plan authorizing 1,000,000 shares of common stock, with an expiration date of October 31, 2026.

At March 31, 2026, there were 514,329 shares of common stock remaining available for repurchase under the 2025 Share Repurchase plan.

The Company uses a variety of measures to evaluate its capital adequacy, including the leverage ratio which is calculated separately for the Company and the Bank.

3 unchanged sentences

Regulatory Capital Ratios

September 30,

Community Bank

7 unchanged sentences

The Company may revert back to the regulatory framework for Prompt Corrective Action if the subsidiary bank’s leverage ratio falls below the minimum under the community bank leverage ratio framework.

(2) The Company has elected to phase in the impact of implementing CECL on regulatory capital over a three-year period, which ended December 31, 2024.

The federal banking agencies provide a simplified measure of capital adequacy for qualifying community banking organizations by allowing such banking organizations to opt into the community bank leverage ratio framework.

The Company’s subsidiary has opted into the community bank leverage ratio framework.

This means that if the Company’s

subsidiary maintains a leverage ratio greater than 9%, it will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject.

This means that if the Company’s subsidiary maintains a leverage ratio greater than 9%, it will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject.

A qualifying community banking organization with a leverage ratio of greater than 9% may opt into the community bank leverage ratio framework if has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of 5% or less of total consolidated assets.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis