What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-10 compared with 2025-03-20 · 157 added, 153 removed, 557 unchanged (36% of the section changed)

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Our primary sources of revenue are interest income earned from our loan and investment securities portfolios and fees earned from financial services provided to customers.

For the years ended December 31, 2024 and 2023, net income was $20.6 million and $15.1 million, respectively, on a GAAP (generally accepted accounting principles) basis.

Net income for the year ended December 31, 2024 was inclusive of $0.4 million, net of tax, in increased expenses related to branch closures that occurred on February 29, 2024 and adjusted net income was $21.0 million on a non-GAAP basis.

Net income for the year ended December 31, 2023 was

inclusive of a $3.3 million loss, net of tax, on the sale of securities and $0.5 million, net of tax, in increased expenses related to announced branch closures and adjusted net income was $18.8 million on a non-GAAP basis.

The provision for credit losses was $2.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31, 2023.

For the years ended December 31, 2025 and 2024, net income was $24.5 million and $20.6 million, respectively, on a generally accepted accounting principles (“GAAP”) basis.

Net income for the year ended December 31, 2025 was inclusive of a $1.3 million write-down, net of tax, on other real estate owned (“OREO”) property, a $0.2 million loss, net of tax, on disposal of fixed assets, and a $0.1 million gain, net of tax, on sale of available-for-sale (“AFS”) investment securities and adjusted net income was $25.8 million on a non-GAAP basis.

Net income for the year ended December 31, 2024 was inclusive of a $0.4 million increase in expenses, net of tax, related to announced branch closures and adjusted net income was $21.0 million on a non-GAAP basis.

The provision for credit losses on loans was $2.3 million for the year ended December 31, 2025 and $2.9 million for the year ended December 31, 2024.

Net charge-offs of $1.0 million were recorded for the year ended December 31, 2025, compared to $2.2 million for 2024.

The ratio of the ACL to loans outstanding was 1.28% at December 31, 2025 compared to 1.23% at December 31, 2024.

Other operating income, including net gains/(losses) on sales of mortgage loans and sales of investment securities, increased by approximately $5.4 million when compared to 2023.

This increase was primarily related to a $4.2 million loss recognized through the sale of available-for-sale (“AFS”) investment securities as part of a strategic balance sheet restructuring in the fourth quarter of 2023.

Wealth management income, which includes trust department revenue and brokerage commissions, increased by $1.1 million due to improving market conditions, increased annuity sales and growth in new and existing customer relationships.

Service charge and debit card income was stable when comparing 2024 to 2023.

Other operating expenses decreased by $0.6 million when compared to the year ended December 31, 2023.

The decrease was primarily attributable to a $1.0 million decrease in occupancy and equipment expenses related primarily to the branch closures announced in 2023, a $0.2 million decrease in marketing expenses, and a $0.2 million decrease in professional services expenses.

Other miscellaneous expenses decreased by $0.4 million driven by a $0.5 million decrease in check fraud expenses.

These decreases were partially offset by $0.5 million in increased salaries and employee benefits related to increased incentives, 401(k) expenses, wellness expenses, and reduced offsets related to loan origination, which were partially offset by reductions in life and health insurance costs.

Net OREO costs increased by $0.4 million due to gains on the sale of OREO recognized in 2023, and data processing expenses increased by $0.4 million.

Outstanding loans of $1.5 billion at December 31, 2024 reflected growth of $74.1 million in 2024.

Since December 31, 2023, commercial real estate loans increased by $32.7 million, acquisition and development loans increased by $18.2 million, commercial and industrial loans increased by $12.9 million, residential mortgage loans increased by $18.9 million, and consumer loans decreased by $8.6 million.

Net interest income, on a non-GAAP, fully-taxable equivalent (“FTE”) basis, increased by $8.1 million in 2025 when compared to 2024.

Interest income increased by $10.4 million.

Average loan balances increased by $87.2 million and the overall yield increased by 53 basis points in correlation with the elevated rate environment as new loans were booked at higher rates and adjustable-rate loans repriced to higher rates.

Interest expense on deposits increased by $6.6 million while the average deposit balances increased by $19.4 million, driven by increases in average balances of $6.7 million in interest-bearing demand deposits, $5.3 million in retail time deposits, and $80.1 million in money market balances, partially offset by decreases in savings balances of $39.1 million and brokered time deposits of $33.5 million.

Interest expense on short-term borrowings increased by $1.3 million due to the Bank’s utilization of the BTFP program in 2024.

The increased interest expense resulted in an overall increase of 56 basis points on the cost of interest-bearing liabilities.

The net interest margin was 3.38% and 3.26% for the years ended December 31, 2024 and 2023, respectively.

Interest income increased by $8.8 million, which was partially offset by a $0.7 million increase in interest expense.

The net interest margin was 3.67% and 3.38% for the years ending December 31, 2025 and 2024, respectively.

Management continues to place a strong focus on margin management as we move into 2026.

Higher cash levels at December 31, 2025 should allow us to repay outstanding debt and brokered deposits at their maturities.

Other operating income, including net gains on sales of mortgage loans, sales of investment securities and disposal of fixed assets, increased by approximately $0.7 million when compared to 2024.

This increase was attributable to a $0.7 million increase in wealth management income, driven by improving market conditions, increased annuity sales, and growth in new and existing customer relationships.

Net gains, service charge income and debit card income were stable when comparing the year ended December 31, 2025 to the same period of 2024.

Other operating expenses increased by $3.8 million when compared to the year ended December 31, 2024.

Salaries and employee benefits increased by $1.3 million related to normal merit increases effective April 1, 2025, increased salary expense as a result of increased staffing levels as we enhanced our sales team in Morgantown, WV, increases in incentives, and 401(k) expenses, offset by reduced life and health insurance costs related to reduced claims in 2025.

Net OREO expenses increased by $2.0 million related to the fair value write-down of one OREO property.

The write-down was attributable to a legacy participation loan, originated in 2013, that was taken into OREO several years ago.

The property is serviced by another lender and, following the cancellation of a previous contract, the Company made the decision, alongside other participants, to entertain a new letter of intent and to mark the property based on the new fair value.

Data processing expenses increased by $0.5 million due primarily to increased software agreements, and professional services expenses increased by $0.5 million driven by increased audit fees.

These increases were partially offset by a $0.5 million decrease in occupancy and equipment expenses related to accelerated depreciation expense related to branch closures that were recognized in the first quarter of 2024.

Outstanding gross loans of $1.5 billion at December 31, 2025 reflected growth of $40.9 million in 2025.

Since December 31, 2024, commercial real estate loans increased by $44.4 million, acquisition and development loans decreased by $5.0 million as construction projects were completed and rolled into permanent financing, commercial and industrial loans decreased by $10.5 million, residential mortgage loans increased by $18.1 million, and consumer loans decreased by $6.1 million as production continued to be outpaced by amortization.

Commercial growth was offset during 2025 by unusually high payoffs as a result of clients utilizing cash to repay or consolidate debt.

Total deposits at December 31, 2025 increased by $160.3 million when compared to December 31, 2024.

Interest-bearing demand deposits increased by $35.9 million in 2024, which included the shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts due to management’s strategy to release pledging of investment securities for municipalities to provide additional liquidity.

Money market accounts increased by $61.5 million due primarily to the expansion of current and new relationships throughout the year and a shift from certificates of deposit.

Traditional savings accounts decreased by $20.3 million and time deposits decreased by $52.4 million.

The decrease in time deposits was due to a decrease of $22.4 million in retail CDs related to maturities of a nine-month special CD promotion in 2023 and the maturity and repayment of $30.0 million in brokered CDs during the year.

The Bank has worked closely with customers as these retail CDs mature to transition them to other deposit and wealth management products offered by the Bank.

In January 2025, $50.0 million in brokered time deposits with an average interest rate of 4.24% were obtained to fund the repayment of $50.0 million in overnight borrowings that were outstanding on December 31, 2024.

Savings and money market accounts increased by $70.2 million due primarily to the expansion of current and new relationships throughout 2025.

Non-interest-bearing checking deposits increased by $26.3 million due primarily to seasonal fluctuations of deposit balances of two commercial customers in the healthcare sector, and interest-bearing checking deposits increased by $6.0 million as we experienced seasonal fluctuations in municipal and commercial account balances.

Retail time deposits increased by $7.8 million since December 31, 2024.

We repaid a $25.0 million brokered time deposit at its maturity in January 2026.

Estimates and Critical Accounting Policies

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Liquidity Sources

As of December 31, 2024, the Corporation had approximately $140.0 million in unsecured lines of credit with its correspondent banks, $36.6 million available through a secured line of credit with the Federal Reserve Discount Window, and approximately $213.6 million of secured borrowings with the FHLB.

Additionally, the Corporation has access to the brokered money market and certificates of deposit markets.

As of December 31, 2025, we had approximately $140.0 million in unsecured lines of credit with our correspondent banks, $83.9 million available through a secured line of credit with the Federal Reserve Discount Window, and approximately $261.6 million of secured borrowings with the FHLB.

Additionally, we have access to the brokered money market and certificates of deposit markets.

The Bank’s capital ratios are strong, and the Bank is considered to be well-capitalized by applicable regulatory measures.

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The net interest margin, on an FTE basis, increased to 3.67% for the year ended December 31, 2025 from 3.38% for the year ended December 31, 2024.

Comparing the year ended December 31, 2024 with the year ended December 31, 2023, interest income increased by $10.4 million driven by an increase of $12.2 million in interest and fees on loans.

The increase in interest on loans was primarily due to an increase of $87.2 million in average loan balance in 2024 when compared to 2023.

The rate earned on the loan portfolio increased by 53 basis points when comparing the year ended December 31, 2024 to the year ended December 31, 2023.

Investment income decreased by $1.3 million due to a $61.2 million reduction in average balances, which was partially offset by the 4-basis point increase in yield during 2024.

Other interest income decreased by $0.4 million during 2024 primarily due to a $10.0 million decrease in average balances held at the Federal Reserve in 2024 when compared to 2023.

The increase in interest expense for 2024 was driven by an increase in interest expense on deposits of $6.6 million due to an increase in average balances of $19.4 million and an increase in rate of 56 basis points.

Interest expense on short- term borrowings increased by $1.3 million due to a $10.5 million increase in average balances and a 222-basis point increase in rate due to utilization of the BTFP in 2024.

Comparing the year ended December 31, 2025 with the year ended December 31, 2024, interest income increased by $8.8 million driven by an increase of $8.6 million on interest and fees on loans, as average loan balances increased by $68.8 million and the overall yield increased by 31 basis points in correlation with upward repricing of adjustable-rate loans.

Interest income on the investment portfolio increased by $0.5 million as a result of reinvesting the cashflow back into the portfolio in an effort to increase the overall yield in the current rate environment.

Interest expense increased by $0.7 million as a result of a $1.7 million increase in interest on deposits, as the average deposit balances increased by $90.0 million, driven by a $70.9 million increase in retail money market average balances and $30.9 million increase in average brokered time deposits, partially offset by decreases in average savings balances of $14.8 million.

The overall rate paid on deposits decreased by 3 basis points.

Interest expense on short-term borrowings decreased by $1.4 million due to the Bank’s utilization of the BTFP program in 2024 and subsequent repayment of the balances due under that program late in the third quarter of 2024.

Long-term borrowing costs increased by $0.4 million as a result of an increase of $21.6 million in FHLB average balances due to borrowings obtained in the third quarter of 2024 and subsequent repayment of a $25.0 million advance at its maturity in September 2025, partially offset by a decrease in rate paid of 60 basis points.

As shown below, the composition of total interest income between 2025 and 2024 remained relatively stable.

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Time deposits - Brokered

Total deposits

Short-term borrowings

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Non-GAAP interest income on an FTE basis for the years ended December 31, 2025 and 2024 were $218 and $229, respectively.

(2) Average balances are presented on a daily average basis.

(3) The average balances of non-accrual loans for the years ended December 31, 2025 and 2024, which were reported in the average loan balances for these years, were $3,640 and $8,471, respectively.

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The following table sets forth an analysis of volume and rate changes in interest income and interest expense of our average interest-earning assets and average interest-bearing liabilities for 2025 and 2024.

This table distinguishes between the changes related to average outstanding balances (changes in volume created by holding the interest rate

constant) and the changes related to average interest rates (changes in interest income or expense attributed to average rates created by holding the outstanding balance constant).

This table distinguishes between the changes related to average outstanding balances (changes in volume created by holding the interest rate constant) and the changes related to average interest rates (changes in interest income or expense attributed to average rates created by holding the outstanding balance constant).

Interest Variance Analysis (1)

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Provision for Credit Losses

The provision for credit losses was $2.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31, 2023.

The provision for credit losses for loans was $2.3 million for the year ended December 31, 2025 and $2.9 million for the year ended December 31, 2024.

Net charge-offs of $1.0 million were recorded for the year ended December 31, 2025 compared to net charge-offs of $2.2 million for 2024.

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The ACL reflects a level commensurate with the risk inherent in our loan portfolio.

Effective January 1, 2023, we adopted CECL, which replaced the incurred loss impairment model with an expected loss model.

Our CECL methodology introduced a modified discounted cash flow methodology based on expected cash flow changes in the future.

Other Operating Income

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The increase was primarily a result of an increase of $0.7 million in wealth management income due to increased market values of assets under management, increased annuity sales and growth in new and existing customer relationships.

Net gains of $0.4 million were reported for the year ended December 31, 2024 compared to net losses of $3.9 million for the same period in 2023.

The Corporation recognized a $4.2 million loss in the sale of AFS investment securities as part of the balance sheet restructuring in the fourth quarter of 2023.

Gains on sales of residential mortgages were $0.4 million for the years ending December 31, 2024 and 2023.

The following table shows the components of net gains for the year ended December 31, 2024 and net losses for the year ended December 31, 2023.

Net gains of $0.4 million were reported for the years ended December 31, 2025 and 2024, as a $0.1 million increase in gains from the sales of residential mortgages and a $0.1 million increase in net gains on sales of investment securities was offset by a $0.2 million loss on the disposal of fixed assets.

The following table shows the components of net gains for the years ended December 31, 2025 and 2024.

(in thousands)

Net gains/(losses):

Available-for-sale securities:

Realized gains from sales and calls

Realized losses from sales and calls

Gains on sale of loans held for sale

Loss on disposal of fixed assets

Net gains/(losses)

Losses on disposal of fixed assets

Other Operating Expense

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Contract labor

Total OREO expenses/(income), net

Total OREO expenses, net

Investor relations

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Total other operating expense

Other operating expenses decreased by $0.6 million for the year ended December 31, 2024 when compared to 2023.

The decrease was primarily attributable to a $1.0 million decrease in occupancy and equipment expenses related to the branch closures announced in 2023, a $0.2 million decrease in marketing expenses, and a $0.2 million decrease in professional services expenses.

Other miscellaneous expenses decreased by $0.4 million driven by a $0.5 million decrease in check fraud expenses.

These decreases were partially offset by $0.5 million in increased salaries and employee benefits related to increased incentives, 401(k) expenses, wellness expenses, and reduced offsets related to loan origination costs, which were partially offset by reductions in life and health insurance costs.

Net OREO costs increased $0.4 million due to gains on the sale of OREO recognized in 2023, and $0.4 million in increased data processing expenses.

For the year ended December 31, 2025, non-interest expense increased by $3.8 million when compared to the year ended December 31, 2024.

Net OREO expenses increased by $2.0 million due to the previously mentioned fair value write-down and expenses recorded in the fourth quarter of 2025.

Data processing expenses increased by $0.5 million due primarily to increased software agreements, and professional services expenses increased by $0.5 million driven by increased audit fees.

Applicable Income Taxes

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See the discussion under “Income Taxes” in Note 12 to the Consolidated Financial Statements presented elsewhere in this annual report for a detailed analysis of our deferred tax assets and liabilities.

Our effective income tax rates as a percentage of income for the years ended December 31, 2024 and December 31, 2023 were 24.5% and 22.7%, respectively.

Our effective income tax rate as a percentage of income for the years ended December 31, 2025 and December 31, 2024 was 24.6% and 24.5%, respectively.

The increase in the tax rate for the 2025 period was primarily related to changes in allocations of state income tax expense.

At December 31, 2024, the Corporation had Maryland Net Operating Losses (“NOLs”) of $36.3.

million for which a deferred tax asset of $2.4 million has been recorded.

At December 31, 2025, the Corporation had Maryland Net Operating Losses (“NOLs”) of $34.9 million for which a deferred tax asset of $2.3 million has been recorded.

There was also a Maryland state interest expense carryforward of $4.4 million, for which a deferred tax asset of $0.3 million has been recorded.

There has been and continues to be a full valuation allowance on these NOLs and interest expense deferred tax assets, based on management’s belief that it is more likely than not that these NOLs will not be realized prior to the expiration of their carry-forward periods because the Corporation will not generate sufficient taxable income in the future to fully utilize the NOLs.

The valuation allowance was $2.6 million and $2.8 million at December 31, 2024 and 2023, respectively.

The valuation allowance was $2.6 million at both December 31, 2025 and 2024.

We have concluded that no valuation allowance is deemed necessary for our remaining federal and state deferred tax assets at December 31, 2025, as it is more likely than not that they will be realized based on the expected reversal of deferred tax liabilities, the generation of future income sufficient to realize the deferred tax assets as they reverse, and the ability to implement tax planning strategies to prevent the expiration of any carry-forward periods.

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While management uses these non-GAAP measures in its analysis of the Corporation’s performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP.

The following non-GAAP financial measures exclude losses on the sale of AFS securities in 2023 and accelerated depreciation and lease termination expenses related to the branch closures that occurred on February 29, 2024.

The following non-GAAP financial measures exclude net gains on the sale of investment securities, losses on disposal of fixed assets and a write-down of OREO in 2025 and accelerated depreciation and lease termination expenses related to the branch closures in 2024.

For the year ended

Per Share Data

Basic net income per common share - as reported

Basic net income per common share - non-GAAP

Diluted net income per common share - as reported

Diluted net income per common share - non-GAAP

Basic net income per share - as reported

Basic net income per share - non-GAAP

Diluted net income per share - as reported

Diluted net income per share - non-GAAP

Significant Ratios:

Return on Average Assets - as reported

Loss on sale of AFS securities, net of income tax effect

Accelerated depreciation and lease termination expenses, net of income tax effect

Loss on write-down of OREO property

Loss on disposal of fixed assets

Net gains on sale of investment securities

Accelerated depreciation and lease termination expenses

Income tax effect of adjustments

Adjusted Return on Average Assets (non-GAAP)

Return on Average Equity - as reported

Loss on sale of AFS securities, net of income tax effect

Accelerated depreciation and lease termination expenses, net of income tax effect

Loss on write-down of OREO property

Loss on disposal of fixed assets

Net gains on sale of investment securities

Accelerated depreciation and lease termination expenses

Income tax effect of adjustments

Adjusted Return on Average Equity (non-GAAP)

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Net income - as reported

Loss on sale of securities

Loss on write-down of OREO property

Loss on disposal of fixed assets

Net gains on sale of investment securities

Accelerated depreciation and lease termination expenses

Income tax effect of adjustment

Income tax effect of adjustments

Adjusted net income (non-GAAP)

Basic and diluted earnings per share - as reported

Loss on sale of securities

Diluted earnings per share - as reported

Loss on write-down of OREO property

Loss on disposal of fixed assets

Net gains on sale of investment securities

Accelerated depreciation and lease termination expenses

Income tax effect of adjustment

Adjusted basic and diluted earnings per share (non-GAAP)

Income tax effect of adjustments

Diluted earnings per share (non-GAAP)

CONSOLIDATED BALANCE SHEET REVIEW

Total assets at December 31, 2025 were $2.1 billion, representing a $114.4 million increase since December 31, 2024.

During 2024, cash and interest-bearing deposits in other banks increased by $28.6 million.

The investment portfolio decreased by $41.5 million primarily due to the maturities of $37.5 million of U.S.

Treasury bonds during the year, normal principal amortization and maturities of our mortgage-backed securities and municipal portfolios.

Cash proceeds from investments were shifted to gross loans, which increased by $74.1 million.

OREO decreased by $1.4 million due to sales of properties.

Pension assets increased by $6.6 million driven by increased market values.

Deferred tax assets decreased by $1.1 million as we experienced increased fair market values on AFS securities and pension assets when compared to December 31, 2023.

During the year, the investment portfolio increased by $9.5 million as bonds were purchased to lock in yield in anticipation of potential declines in long-term rates.

Gross loans increased by $40.9 million as new production during the year was mitigated by amortization and unusually high payoffs in the commercial portfolio.

These payoffs were a result of sales of businesses of approximately $10.5 million and approximately $33.5 million related to refinancings and balance sheet restructurings.

Other assets, including deferred taxes, premises and equipment, bank owned life insurance, pension assets, accrued trust income receivable, and accrued interest receivable, increased by $13.6 million.

Total liabilities at December 31, 2025 were $1.9 billion, representing a $90.1 million increase since December 31, 2024.

Total deposits increased by $23.9 million when compared to December 31, 2023 related to increases in interest-bearing demand deposits of $35.9 million and money markets of $61.5 million, partially offset by the decrease of savings deposits by $20.3 million, retail time deposits of $22.4 million, and the repayment of $30.0 million in brokered certificates of deposits.

Short-term borrowings increased by $20.0 million since December 31, 2023, which were comprised of $50.0 million in overnight borrowings from the Federal Reserve offset by a shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts as a result of management’s strategy to release pledging of investment securities for municipalities in order to allow those securities to be available for liquidity.

The overnight borrowings were replaced with brokered certificates of deposit in January 2025.

Long-term borrowings increased by $10.0 million in 2024.

Maturities of FHLB advances of $40.0 million in March and $40.0 million in September were fully repaid.

During the third quarter and after the Federal Reserve’s announcement that rates would be reduced by 50 basis points, management made the strategic decision to lock in borrowing costs by placing $90.0 million in FHLB advances with maturities of 12- and 18-months at a weighted average rate of 3.89%.

Of this amount, $41.1 million was utilized to prepay the principal and accrued interest of the BTFP borrowings at a rate of 4.87% that was scheduled to mature in January of 2025 and approximately $30.0 million was utilized to repay overnight borrowings related to the repayment of the $40.0 million FHLB advance that matured in September at a rate of 4.53%.

The remainder was used to fund loan growth in the fourth quarter of 2024.

As indicated below, the total interest-earning asset mix remained relatively constant at December 31, 2024 as compared to December 31, 2023.

Total deposits increased by $160.3 million when compared to December 31, 2024.

Brokered time deposits increased by $50.0 million as new brokered time deposits were obtained in January 2025 to fund the repayment of the $50.0 million in overnight borrowings outstanding at December 31, 2024.

In addition, savings and money market accounts increased by $70.2 million, retail time deposits increased by $7.8 million, and non-interest-bearing deposits increased by $26.3 million.

Interest-bearing demand deposits, primarily our IntraFi Cash Service product, increased by $6.0 million due primarily to seasonal fluctuations in municipal deposit accounts.

Short-term borrowings decreased by $47.7 million due to the purchase of the brokered time deposit mentioned above, which was partially offset by increases in the overnight investment sweep product.

Long-term borrowings decreased by $25.0 million due to the repayment of a matured $25.0 million FHLB borrowing in September 2025.

As indicated below, the total interest-earning asset mix remained relatively constant at December 31, 2025 when compared to December 31, 2024.

The mix for each year is illustrated below.

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Residential mortgage

Outstanding loans of $1.5 billion at December 31, 2024 reflected growth of $74.1 million in 2024.

Since December 31, 2023, commercial real estate loans increased by $32.7 million, acquisition and development loans increased by $18.2 million, commercial and industrial loans increased by $12.9 million, residential mortgage loans increased $18.9 million, and consumer loans decreased by $8.6 million.

New commercial loan production for the year ended December 31, 2024 was approximately $189.5 million.

The pipeline of commercial loans as of December 31, 2024 was approximately $11.5 million.

Commercial amortization and payoffs were approximately $114.1 million through December 31, 2024 due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.

Outstanding gross loans of $1.5 billion at December 31, 2025 reflected growth of $40.9 million in 2025.

Commercial growth was offset during 2025 by unusually high payoffs as a result of clients utilizing cash to repay or consolidate debt.

New commercial loan production for the year ended December 31, 2025 was approximately $247.0 million, which compares to $189.5 million for the year ended December 31, 2024.

The commercial pipeline continued to be strong at December 31, 2025 at $61.0 million, and unfunded, commercial construction loans totaled approximately $46.5 million.

Commercial amortization and payoffs were approximately $170.5 million for the year ended December 31, 2025.

New residential mortgage loan production for year ended December 31, 2025 was approximately $76.7 million, with most of this production comprised of in-house loans.

The pipeline of in-house, portfolio loans as of December 31, 2024 was $5.3 million.

The residential mortgage production level declined in the fourth quarter of 2024 due to the increasing interest rates and seasonality of this line of business.

The pipeline of in-house, portfolio loans at December 31, 2025 was $4.5 million.

Unfunded commitments related to residential construction loans totaled $14.5 million at December 31, 2025.

The following table presents loans in our commercial real estate portfolio by industry type at December 31, 2025.

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Manufacturing

Mining, Quarrying, and Oil & Gas Extraction

Other services (except public services)

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Total non-performing assets

Modified Loans:

Total modified loans

Individually evaluated loans without a valuation allowance

Total individually evaluated loans

Non-accrual loans to total loans (as %)

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Allowance for credit losses to non-performing assets (as %)

Modified Loans:

Total modified loans

Individually evaluated loans without a valuation allowance

Individually evaluated loans with a valuation allowance

Total individually evaluated loans

Accruing loans past due 30 days or more was 0.32% at both December 31, 2025 and 2024.

Non-accrual loans totaled $4.2 million at December 31, 2025 compared to $4.9 million at December 31, 2024.

The decrease in non-accrual balances at December 31, 2025 was due to principal paydowns and the charge-off of $0.6 million related to a non-accrual commercial and industrial relationship that was recorded during the second half of 2025.

Individually evaluated loans totaled $19.6 million at December 31, 2025 and $4.4 million at December 31, 2024.

This increase primarily relates to one credit relationship in our commercial and industrial portfolio that is in the automotive dealership industry.

While the credit was not past-due or non-accrual, it was not meeting the contractual terms of the loan agreement;

therefore, management felt it was prudent to designate the credit as individually evaluated at December 31, 2025.

A $0.4 million specific reserve within the ACL was calculated against the credit using discounted cash flows at December 31, 2025.

The following table sets forth the percent applicable by portfolio for non-accrual loans for the past two years:

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Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $0.1 million or greater;

otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan.

For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 17, Fair Value of Financial Instruments.

A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $100,000 or greater;

otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows.

For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Individually evaluated loans” section in Note 17, Fair Value of Financial Instruments.

From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty.

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Loan modifications to borrowers may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things.

The below table shows details of loans modified to borrowers experiencing financial difficulty at December 31, 2024:

December 31, 2024

The below table presents the amortized cost basis of loans that were both experiencing financial difficulty and modified during the years ended December 31, 2025 and 2024, by class and by type of modification.

The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:

(in thousands)

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December 31, 2025

Commercial and industrial

December 31, 2024

Owner-occupied commercial real estate

Commercial and industrial

All loans presented in the table above were performing in accordance with their modified terms at December 31, 2024

All loans presented in the table above were performing in accordance with their modified terms at December 31, 2025 and 2024.

Allowance for Credit Losses

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In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology of CECL.

Refer to Note 5, Loans and Related Allowance for Credit

Losses, for further discussion of these portfolio segments.

The adoption of ASU 2016-13 resulted in a Day 1 adjustment of $2.9 million to our ACL, including an increase of $2.0 million to the ACL for loans and $0.9 million to the ACL for unfunded commitments.

The Corporation recorded a net decrease to retained earnings of $2.2 million as of January 1, 2023 for the cumulative effect of adopting ASU 2016-13.

Refer to Note 5, Loans and Related Allowance for Credit Losses, for further discussion of these portfolio segments.

The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience.

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These peaks and troughs are used to stress the base case model to develop a range of potential outcomes.

Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio.

Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions

and known risks in the portfolio.

Management enhances its calculation with the use of Moody’s economic forecast data to provide additional support to substantiate its ACL.

The ACL was $19.5 million at December 31, 2025 compared to $18.2 million at December 31, 2024.

The provision for credit losses was $2.9 million for the year ended December 31, 2024 compared to $1.7 million for the year ended December 31, 2023.

The provision expense recorded in 2024 was primarily related to the movement of approximately $12.1 million of commercial and industrial loans to non-accrual in the first quarter of 2024 and loan growth offset in future quarters related to reduction in non-accruals, strong asset quality and improvements in qualitative factors.

Net charge-offs of $2.2 million were recorded for the year ended December 31, 2024 and $0.9 million for the year ended December 31, 2023.

The provision for credit losses on loans was $2.3 million for the year ended December 31, 2025 compared to $2.9 million for the year ended December 31, 2024.

The provision expense recorded in 2025 was primarily related to charge-offs recorded in our commercial and industrial portfolio and growth in our loan portfolio.

Net charge-offs of $1.0 million and $2.2 million were recorded for the years ended December 31, 2025 and 2024, respectively.

The ratio of the ACL to loans outstanding was 1.28% at December 31, 2025 and 1.23% at December 31, 2024.

The ratio of net charge-offs to average loans for the year ended December 31, 2024 was an annualized 0.16% compared to 0.07% for the year ended December 31, 2023.

The increase in net charge-offs was related to our commercial and industrial portfolio charge-offs of equipment loan balances on one non-accrual relationship during 2024.

The consumer portfolio charge offs also increased during 2024 related to $0.4 million in charge-offs of overdrawn demand deposit balances during the first quarter and $0.1 million in charge offs of student loan accounts.

Our special assets team continues to effectively collect on charged-off loans, resulting in ongoing overall low charge-off ratios.

Accruing loans past due 30 days or more was 0.32% at December 31, 2024 compared to 0.24% at December 31, 2023.

Non-accrual loans totaled $4.9 million at December 31, 2024 compared to $4.0 million at December 31, 2023.

The increase in non-accrual balances at December 31, 2024 related to two commercial and industrial loan relationships totaling $12.1 million that were moved to non-accrual during the first quarter of 2024.

Subsequent to being moved to non-accrual, one of the borrowers liquidated collateral and reduced the balances by $5.5 million.

Additionally, a total of $2.8 million in collateral was moved to repossessed assets in the fourth quarter of 2024.

We recognized $1.3 million in net charge-offs

and $3.0 million in principal reductions on the other commercial credit during 2024 related to the liquidation of collateral at depressed prices.

The Bank continues to liquidate collateral on both loan relationships.

The ratio of net charge offs to average loans was 0.07% for the year ended December 31, 2025 and 0.16% for the year ended December 31, 2024.

The commercial and industrial portfolio had net charge offs of 0.33% and 0.50% for the years ended December 31, 2025 and 2024, respectively, due primarily to charge offs on one non-accrual commercial relationship.

The acquisition and development portfolio had net recoveries of 0.33% and 0.06% for the years ended December 31, 2025 and 2024, respectively.

This shift in the acquisition and development portfolio was due primarily to recoveries recognized in 2025 related to one relationship previously charged off in 2016 as additional collateral was brought into OREO in the third quarter of 2025.

The decrease in net charge offs in consumer loans in 2025 was primarily driven by approximately $0.3 million in charge offs of demand deposit balances during the first quarter of 2024.

Details of the ratios, by loan type, are shown below.

Our special assets team continues to actively collect on charged-off loans, resulting in overall low net charge-off ratios.

Management believes that the ACL at December 31, 2025 is adequate to provide for losses over the life of the loan portfolio.

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Balance, January 1

Impact of CECL Adoption

Commercial real estate

Acquisition and development

Commercial and industrial

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(in thousands)

Amount of Allowance Allocated

Percent of Loans in Each Category to Total Loans

Ratio of Allowance Allocated to Loans in Each Category

December 31, 2025

Commercial real estate

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Residential mortgage

December 31, 2024

Commercial real estate

Acquisition and development

Commercial and industrial

Residential mortgage

Investment Securities

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Total held to maturity

The total fair value of AFS securities was $94.5 million and the book value of HTM securities totaled $175.6 million at December 31, 2024, representing a decrease of $2.7 million and $38.8 million, respectively, since December 31, 2023.

In 2024, $37.5 million in U.S.

Treasury bonds matured and the proceeds were used to repay the $40.0 million FHLB advance that matured in March.

Additionally, there were $15.0 million in maturities, calls, and principal paydowns in the portfolio.

The total fair value of AFS securities was $107.1 million and the book value of HTM securities totaled $171.5 million at December 31, 2025, representing an increase of $12.7 million and a decrease of $4.1 million, respectively, since December 31, 2024.

New investment purchases in the amount of $24.6 million were made during 2025 to enhance the overall yield of the portfolio.

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The remaining $16.0 million of the AFS securities represents the collateralized debt obligation (“CDO”) portfolio, which was valued using significant unobservable inputs, or Level 3 pricing.

The $4.0 million in net unrealized losses associated with the CDO portfolio relates to nine pooled trust preferred securities.

million in net unrealized losses associated with the CDO portfolio relates to nine pooled trust preferred securities.

There have been no changes to the ratings or payment status of the CDO portfolio in 2025.

The following table sets forth the contractual or estimated maturities of the components of our investment securities portfolio as of December 31, 2025 and the weighted average yields on a tax-equivalent basis.

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Total deposits at December 31, 2025 increased by $160.3 million when compared to December 31, 2024.

Money market accounts increased by $61.5 million due primarily to the expansion of current and new relationships throughout the year and a shift from certificates of deposit.

Traditional savings accounts decreased by $20.3 million and time deposits decreased by $52.4 million.

The Bank has worked closely with customers as these retail CDs mature to transition them to other deposit and wealth management products offered by the Bank.

Savings and money market accounts increased by $70.2 million due primarily to the expansion of current and new relationships throughout 2025.

Retail time deposits increased by $7.8 million since December 31, 2024.

We repaid a $25.0 million brokered time deposit at its maturity in January 2026.

The following table summarizes the percentage of deposits that are insured by deposit insurance or otherwise fully collateralized by securities compared to uninsured deposits as of December 31, 2025 and December 31, 2024.

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Approximate weighted average rate during the year

Short-term borrowings increased by $20.0 million when compared to December 31, 2023 due to an increase of $50.0 million in overnight borrowings from the Federal Reserve, offset by a shift of approximately $22.0 million in overnight investment sweep balances into FDIC insured accounts due to management’s strategy to release pledging of investment securities for municipalities to provide additional liquidity.

The overnight borrowings were replaced with brokered certificates of deposit in January 2025.

Long-term borrowings increased by $10.0 million when compared to December 31, 2023.

Maturities of FHLB advances of $40.0 million in March and $40.0 million in September were fully repaid.

Of this amount, $41.1 million was utilized to prepay the principal and accrued interest of the BTFP borrowing at a rate of 4.87% that was scheduled to mature in January of 2025 and approximately $30.0 million was utilized to repay overnight borrowings related to the repayment of the September $40.0 million maturity at a rate of 4.53%.

The remainder was used to fund loan growth in the fourth quarter of 2024.

Short-term borrowings decreased by $47.7 million as a result of the purchase of $50.0 million brokered time deposits to repay the overnight borrowings, which was partially offset by increases in the overnight investment sweep product.

Long-term borrowings decreased by $25.0 million due to the repayment of a matured $25.0 million FHLB borrowing in September 2025.

Management will continue to closely monitor interest rates within the context of its overall asset-liability management process.

See the discussion under the heading “Interest Rate Sensitivity” in this Item 7 for further information on this topic.

At December 31, 2024, we had additional borrowing capacity with the FHLB totaling $213.6 million, an additional $140.0 million of unused lines of credit with correspondent financial institutions, and $36.6 million of an unused secured line of credit with the Federal Reserve Discount Window.

See Note 9 to the Consolidated Financial Statements

presented elsewhere in this annual report for further details about our borrowings and additional borrowing capacity, which is incorporated herein by reference.

See “Liquidity Sources” above for discussion on additional borrowing capacity available to us at December 31, 2025.

See Note 9 to the Consolidated Financial Statements presented elsewhere in this annual report for further details about our borrowings and additional borrowing capacity, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

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To the extent that deposits are not adequate to fund our capital requirements, we can rely on the funding sources identified below under the heading “Liquidity Management”.

At December 31, 2024, the Bank had $140.0 million available through unsecured lines of credit with correspondent banks, $36.6 million net available through a secured line of credit with the Federal Reserve Discount Window and approximately $213.6 million net available through the FHLB.

Management is not aware of any demands, commitments, events or uncertainties that are likely to materially affect our ability to meet our future capital requirements.

In addition to operational requirements, the Bank and the Corporation are subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators.

In addition to operational requirements, the Bank is subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators.

These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit.

Detailed information about these capital regulations and their requirements is set forth in the “Supervision and Regulation” section of Item 1 of Part I of this annual report under the heading “Capital Requirements”.

At December 31, 2024, the Corporation’s total risk-based capital ratio was 15.92% and the Bank’s total risk-based capital ratio was 14.59%, both of which were well above the regulatory minimum of 8%.

The total risk-based capital ratios of the Corporation and the Bank at December 31, 2023 were 15.64% and 14.05%, respectively.

At December 31, 2025, the Bank’s total risk-based capital ratio was 15.19%, which was well above the regulatory minimum of 8%.

The total risk-based capital ratios of the Bank at December 31, 2024 was 14.59%.

At December 31, 2025, the most recent notification from the regulators categorizes the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

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These guidelines are based on management’s outlook regarding future interest rate movements, the state of the regional and national economy, and other financial and business risk factors.

Management uses computer simulations to measure the effect on net interest income of various interest rate scenarios.

Management uses computer simulations to measure the effect on net interest income of various

interest rate scenarios.

Key assumptions used in the computer simulations include cash flows and maturities of interest rate sensitive assets and liabilities, changes in asset volumes and pricing, and management’s capital plans.

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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-K

Item 7. Management’s Discussion and Analysis