Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands)

F & M Bank Corp. (the "Company"), incorporated in Virginia in 1983, is a one-bank holding company under the Bank Holding Company Act of 1956 that has elected to become a financial holding company. The Company owns 100% of the outstanding stock of its banking subsidiary and VST.

The Company, through its subsidiary Bank, operates under a charter issued by the Commonwealth of Virginia and provides financial products and services to consumers and businesses. As a state-chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the FRB. The Bank provides services to customers located primarily in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in Virginia. Services are provided at fourteen branch offices and a dealer finance division loan production office. The Company offers insurance, mortgage lending, and title insurance through the Bank and VST. The Company's primary trade area services customers in the counties of Rockingham, Shenandoah, Augusta and Frederick, and the cities of Harrisonburg, Staunton, Waynesboro, and Winchester.

Management's discussion and analysis is presented to assist the reader in understanding and evaluating the financial condition and results of operations of the Company. The analysis focuses on the consolidated financial statements, footnotes, and other financial data presented. The discussion highlights material changes from prior reporting periods and any identifiable trends which may affect the Company. Amounts have been rounded for presentation purposes. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Item 1, Part 1 of this Form 10-Q and in conjunction with the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 Form 10-K").

Forward-Looking Statements

Certain statements in this report may contain "forward-looking statements" as defined by federal securities laws, which are subject to significant risks and uncertainties. These include statements regarding future plans, strategies, results, or expectations that are not historical facts, and are generally identified by the use of words such as "believe," "expect," "intend," "anticipate," "will," "estimate," "project," "plan" or similar expressions or other statements concerning opinions or judgements of the Company and its management about future events. These statements are based on estimates and assumptions, and our ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Our actual results could differ materially from those contemplated by these forward-looking statements.

Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in local and national economies or market conditions; changes in interest rates; regulations and accounting principles; changes in policies or guidelines; loan demand and asset quality, including values of real estate and other collateral; deposit flow; the impact of competition from traditional or new sources; and other factors. Readers should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on such statements.

All forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the banking industry. The Company's financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company's consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Management has discussed the Company's critical accounting policies and estimates with the Audit Committee of the Board of Directors of the Company.

The Company's critical accounting policies used in the preparation of the Consolidated Financial Statements as of March 31, 2026 were unchanged from the policies disclosed in the 2025 Form 10-K within the section "Management's Discussion and Analysis of Financial Condition and Results of Operations." See Note 1 to the Consolidated Financial Statements in Part I, Item 1 for additional information.

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Results of Operations

Overview

Net income for the first quarter of 2026 was $3.2 million, or $0.91 per share, compared to $2.5 million, or $0.70 per share, for the first quarter of 2025-an increase of $769,000, or $0.21 per share. Return on average assets was 0.94% and return on average equity was 12.18% for the three months ended March 31, 2026, both improving from the prior-year period. The increase in net income was primarily the result of loan and investment securities growth, which contributed to a $1.2 million increase in interest income, along with a $756,000 decrease in interest expense. Net interest income increased to $11.4 million at March 31, 2026 from $9.4 million at March 31, 2025.

Net Interest Income and Net Interest Margin

Net interest income for first quarter 2026 was $11.4 million, an increase of $2.0 million over first quarter 2025. Interest income for first quarter 2026 increased $1.2 million due to loan and investment securities growth, while interest expense decreased $756,000 driven by a shift from higher-cost time deposits to lower-cost interest checking and money market accounts. Net interest margin for the quarter ended March 31, 2026 was 3.56%, up 41 basis points from the quarter ended March 31, 2025. The earning asset yield increased 1 basis point to 5.44% from 5.43%. Cost of interest-bearing liabilities decreased by 45 basis points to 2.49%. Interest expense on deposits decreased $830,000 due to a shift in the average balance of time deposits to lower-cost interest checking and money market accounts; however, interest expense on debt increased $74,000 due to higher interest rates on long-term debt and an increase of $2.9 million in average balances.

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The following table shows interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the three months ended March 31, 2026 and 2025 (dollars in thousands):

		Three Months ended March 31,
		2026												2025
		Balance4				Interest				Rate1				Balance4				Interest				Rate1
ASSETS
Loans held for investment2,3		$	886,662			$	14,243				6.51	%		$	831,168			$	13,465				6.57	%
Loans held for sale			1,775				25				5.71	%			1,425				24				6.83	%
Federal funds sold			62,929				564				3.63	%			60,159				652				4.40	%
Interest bearing deposits in banks and other investments			3,282				23				2.84	%			3,176				30				3.83	%
Investment securities4
Taxable			332,060				2,530				3.09	%			302,917				1,988				2.66	%
Tax exempt			16,424				108				2.67	%			16,145				105				2.64	%
Total investment securities			348,484				2,638				3.07	%			319,062				2,093				2.66	%
Total earning assets			1,303,132				17,493				5.44	%			1,214,990				16,264				5.43	%
Allowance for credit losses			(7,795	)											(8,004	)
Nonearning assets			92,966												99,270
Total assets		$	1,388,303											$	1,306,256
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand-interest bearing		$	151,966			$	572				1.53	%		$	137,616			$	580				1.71	%
Savings			607,699				3,579				2.39	%			517,628				3,380				2.65	%
Time deposits			217,709				1,720				3.20	%			279,585				2,740				3.97	%
Total interest-bearing deposits			977,374				5,871				2.44	%			934,829				6,700				2.91	%
Short-term debt			-				-				-				-				3				-
Long-term debt			9,919				193				7.89	%			6,980				117				6.80	%
Total interest-bearing liabilities			987,293				6,064				2.49	%			941,809				6,820				2.94	%
Noninterest bearing deposits			277,670												262,708
Other liabilities			15,950												13,654
Total liabilities			1,280,913												1,218,171
Shareholders' equity			107,390												88,085
Total liabilities and shareholders' equity		$	1,388,303											$	1,306,256
Net interest earnings						$	11,429											$	9,444
Net yield on interest earning assets (NIM)											3.56	%											3.15	%

_______________________________________

¹ Annualized.

² Interest income on loans includes loan fees.

³ Loans held for investment include nonaccrual loans.

⁴ Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

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Provision for Credit Losses

During first quarter 2026, the Bank recorded a provision for credit losses of $309,000, compared to a recovery of provision for credit losses of $104,000 in first quarter 2025. The current quarter increase in provision was the result of a $10.6 million increase in total loans held for investment during the first quarter of 2026, compared to a decline of $12.9 million in the first three months of 2025. The provision also included a provision of $20,000 in the reserve for unfunded commitments that resulted from an increase in outstanding loan commitments. At March 31, 2026, the ACL totaled $7.9 million or 0.88% of gross loans outstanding.

Non-interest income

Non-interest income totaled $2.9 million for first quarter 2026, an increase of $50,000, compared to first quarter 2025. The increase was primarily driven by higher title insurance income and increased service charges on deposit accounts, partially offset by lower mortgage banking income. Non-interest income to average assets decreased to 0.85% at March 31, 2026 compared to 0.88% at March 31, 2025.

Non-interest Expense

Non-interest expenses totaled $10.3 million for first quarter 2026, compared to $9.5 million for the first quarter 2025, an increase of $789,000. The increase was primarily attributable to increased compensation and legal and professional fees, partially offset by a reduction in FDIC insurance expense. Salaries increased $174,000, largely due to the increase in the number of full-time equivalent employees and an increase in bonus accruals. Employee benefits increased $401,000 due to increases in payroll expenses, group insurance, and retirement contributions. Legal and professional fees increased $274,000 due to interim accounting assistance and other consulting fees. Non-interest expense to average assets increased from 2.96% at March 31, 2025 to 3.01% at March 31, 2026.

Balance Sheet Review

Overview

On March 31, 2026, assets totaled $1.4 billion, an increase of $35.2 million since December 31, 2025. Cash and cash equivalents increased $17.0 million to $85.9 million, primarily due to an increase in Federal funds sold during the quarter. Total loans increased by $10.6 million to $896.9 million, including increases of $8.4 million in residential mortgage loans, $6.4 million in multifamily residential loans, $2.9 million in commercial and industrial loans, $2.9 million in loans secured by farmland, and $2.8 million in other construction and land development loans. These increases were partially offset by declines of $6.7 million in owner-occupied commercial real estate loans, $4.3 million in residential construction loans, and $7.2 million in automobile loans. Investment securities increased by $5.2 million due to purchases of $14.9 million, partially offset by $8.9 million in paydowns of U.S. agency mortgage-backed securities. Total deposits grew by $29.9 million to $1.3 billion, with noninterest bearing deposits increasing by $10.9 million and interest-bearing deposits increasing by $18.9 million. Long-term debt remained consistent at $9.9 million. Total shareholders' equity rose by $1.8 million to $106.6 million.

Securities Available for Sale ("AFS")

The Company's available-for-sale (AFS) securities portfolio is reported at fair value, based on market prices of comparable instruments. This portfolio mainly includes U.S. Treasury securities, U.S. agency and mortgage-backed securities issued by federal agencies, as well as municipal bonds and corporate debt securities. As of March 31, 2026, the total AFS securities were $350.5 million, up from $345.3 million on December 31, 2025.

This represents an increase of $5.2 million, or 1.5%. The average balance of the AFS securities portfolio during the first three months of 2026 was $348.5 million, compared to $319.1 million during the same period in 2025. The average AFS securities portfolio accounted for 26.7% and 26.3% of average earning assets for the three months ended March 31, 2026, and 2025, respectively. The increase in AFS securities is primarily due to purchases of $14.9 million, partially offset by $8.9 million in paydowns of U.S. agency mortgage-backed securities in the bond portfolio. Net unrealized losses related to the fair value of AFS securities were $21.8 million as of March 31, 2026, compared to $21.0 million as of December 31, 2025. This unrealized loss is attributed to rising market interest rates rather than credit quality. During the period, $8.9 million in mortgage-backed securities were paid down, all of which was reinvested in higher-yielding bonds. Scheduled maturities and paydowns are expected to total $54.4 million in the remaining nine months of 2026. The portfolio's weighted average life is 4.46 years, with a modified duration of 3.57 years.

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Loan Portfolio

The Company operates in a diverse local economy supported by various industries, including agribusiness, manufacturing, services, and several universities and colleges. The Bank is an active lender for residential mortgages and residential construction and typically provides commercial loans to small and mid-size businesses and farms within its primary service area. Additionally, the Bank offers automobile and recreational vehicle loans through its dealer finance division.

Loans Held for Investment totaled $896.9 million at March 31, 2026 and increased $10.6 million from $886.3 million at December 31, 2025. As a percentage of average earning assets, average loans were 63.9% for the three months ended March 31, 2026, compared with 68.4% for the three months ended March 31, 2025.

Loans Held for Sale totaled $3.7 million as of March 31, 2026, an increase of $502,000 from $3.2 million on December 31, 2025. This category consists of mortgage loans, which are affected by interest rate changes, seasonal trends, and refinancing activity. All mortgage loans held for sale have been pre-committed to investors, effectively minimizing interest rate risk.

The Company's loans held for investment portfolio is well-diversified, with first-lien, amortizing residential mortgage loans as the largest segment, representing 27.93% of total loans. Commercial real estate loans, including both owner-occupied and non-owner-occupied properties, comprise $206.4 million, or 23.00% of the portfolio. Loans secured by farmland totaled $117.9 million, or 13.14% of the portfolio. Automobile loans, originated through the Company's dealer finance division, total $69.9 million, accounting for 7.79% of the portfolio. Following is a breakdown of the loan portfolio composition as of March 31, 2026, and December 31, 2025 (dollars in thousands):

		March 31, 2026								December 31, 2025
Loan Segment		Balance				Percentage of Portfolio				Balance				Percentage of Portfolio
1-4 Family residential construction		$	26,802				2.99	%		$	31,118				3.51	%
Other construction, land development and land			42,005				4.68	%			39,187				4.42	%
Secured by farmland			117,937				13.14	%			115,000				12.97	%
Home equity - open end			53,550				5.97	%			51,393				5.80	%
Real estate			250,663				27.93	%			243,361				27.44	%
Home Equity - closed end			7,030				0.78	%			5,980				0.67	%
Multifamily			25,276				2.82	%			18,854				2.13	%
Owner-occupied commercial real estate			89,930				10.02	%			96,651				10.90	%
Other commercial real estate			116,446				12.97	%			114,434				12.90	%
Agricultural loans			21,530				2.40	%			20,127				2.27	%
Commercial and industrial			59,833				6.67	%			56,885				6.41	%
Credit Cards			3,364				0.37	%			3,387				0.38	%
Automobile loans			69,922				7.79	%			77,080				8.69	%
Other consumer loans			9,044				1.01	%			9,132				1.03	%
Municipal loans			4,137				0.46	%			4,219				0.48	%
Gross loans		$	897,469				100.00	%		$	886,808				100.00	%
Unamortized deferred net loan fees			(604	)							(555	)
Loans held for investment, net of deferred loan fees		$	896,865							$	886,253

Allowance for Credit Losses

Management has implemented a comprehensive analytical process to evaluate the adequacy of the allowance for credit losses. Refer to the discussion in Note 1 Summary of Significant Accounting Policies in Notes to the Consolidated Financial Statements for management's approach to estimating the ACL.

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The Company maintains the ACL at a level deemed adequate by management for expected credit losses. The Company's ACL is calculated quarterly with any adjustment recorded to the provision for credit losses in the consolidated Statement of Income. Management evaluates the adequacy of the ACL utilizing a defined methodology to determine if it properly addresses the current and expected risks in the loan portfolio, which considers the performance of borrowers and specific evaluation of individually evaluated loans, including historical loss experiences, trends in delinquencies, non-performing loans and other risk assets, and qualitative factors. Risk factors are continuously reviewed and adjusted, as needed, by management when conditions support a change. Management believes its approach properly addresses relevant accounting and bank regulatory guidance for loans both collectively and individually evaluated.

The current quarter provision for credit losses of $309,000 was a combination of $289,000 provision for the allowance for loan credit losses, plus $20,000 provision for the allowance for unfunded commitments. The current quarter provision of $289,000 was driven by net loan charge-offs of $198,000 and a $10.6 million increase in loan balances.

As of March 31, 2026, year-to-date net charge-offs totaled $198,000, up from $187,000 during the same period ended March 31, 2025. Gross loans increased by $10.6 million in the first quarter of 2026 and loans individually analyzed decreased $1.4 million. As of March 31, 2026, the ACL was $7.9 million, or 0.88% of loans held for investment, compared to $7.8 million, or 0.88% of loans held for investment, as of December 31, 2025. The allowance for credit losses as a percentage of loans remained stable during the quarter, reflecting loan growth in line with existing portfolio risk characteristics and strong recovery performance.

The reserve for unfunded commitments increased from $764,000 at December 31, 2025, to $786,000 at March 31, 2026 due to increases in loan commitments of $9.2 million in construction loans, $1.7 million in home equity loans, and $1.5 million in nonowner-occupied commercial real estate, partially offset by a decrease of $11.7 million in commercial and industrial loans.

Asset Quality

Management classifies nonperforming loans as nonaccrual loans and loans that are 90 days or more past due. Nonaccrual loans are those on which interest accruals have been suspended or permanently discontinued. The Company's nonaccrual loans decreased $1.2 million from December 31, 2025, primarily due to the payoff of three owner-occupied commercial real estate loans and one home equity loan related to one customer relationship ($325,000) and one owner-occupied commercial real estate loan ($1.0 million) becoming current during the quarter. For more details on nonperforming loans by segment, see Note 3 Loans in Notes to the Consolidated Financial Statements.

The following table summarizes the Company's non-performing assets as of March 31, 2026, and December 31, 2025 (in thousands):

		March 31, 2026				December 31, 2025
Nonaccrual loans		$	4,844			$	6,037
Loans past due 90 days and accruing interest			5				7
Total nonperforming loans			4,849				6,044
Other real estate owned			-				-
Total nonperforming assets		$	4,849			$	6,044
Allowance for credit losses		$	7,910			$	7,818
Total Loans		$	896,865			$	886,253
Ratios:
Allowance for credit losses to Total Loans			0.88	%			0.88	%
Allowance for credit losses to Total nonperforming assets			163.13	%			129.35	%
Allowance for credit losses to Nonaccrual loans			163.29	%			129.50	%
Nonaccrual Loans to Total Loans			0.54	%			0.68	%

Deposits and Other Borrowings

The Company's main source of funding consists of deposits received from individuals, governmental entities and businesses located within the Company's service area. Deposit accounts include demand deposits, savings, money market, and certificates of deposit. Total deposits were $1.28 billion and $1.25 billion at March 31, 2026 and December 31, 2025, respectively. Noninterest bearing deposits increased $10.9 million and interest bearing deposits increased $18.9 million.

The following table shows the balance of each category of deposits as of the dates indicated (dollars in thousands).

		March 31, 2026								December 31, 2025
		Balance				% of total deposits				Balance				% of total deposits
Noninterest-bearing demand		$	290,343				22.8	%		$	279,398				22.4	%
Interest checking			157,491				12.3	%			148,624				11.9	%
Savings accounts			627,300				49.2	%			591,777				47.5	%
Time deposits			199,930				15.7	%			225,413				18.1	%
Total deposits		$	1,275,064							$	1,245,212

Estimated uninsured deposits totaled approximately $177.7 million and $167.4 million at March 31, 2026, and December 31, 2025, respectively.

The following table shows the average balances of deposits and average interest rates paid as of March 31, 2026 and December 31, 2025 (dollars in thousands).

		March 31, 2026								December 31, 2025
		Average Balance				Rate				Average Balance				Rate
Noninterest-bearing demand		$	277,670				-			$	273,497				-
Interest-bearing:
Interest checking			151,966				1.53	%			137,352				1.65	%
Savings accounts			607,699				2.39	%			554,377				2.65	%
Time deposits			217,709				3.20	%			245,951				3.52	%
Total interest-bearing deposits			977,374				2.44	%			937,680				2.73	%
Total average deposits		$	1,255,044				1.90	%		$	1,211,177				2.12	%

The following table sets forth maturity ranges of time deposits, as of March 31, 2026, that meet or exceed the FDIC insurance limit (in thousands).

Maturity period:		March 31, 2026
3 months or less		$	11,489
Over 3 months through 6 months			3,588
Over 6 months through 12 months			21,071
Over 12 months			1,059
Total		$	37,207

Long-term borrowings

Long-term debt remained stable at $9.9 million from December 31, 2025 to March 31, 2026 and consisted of $10.0 million in aggregate principal amount of 7.55% fixed to floating rate subordinated notes due November 1, 2035. The Notes will initially bear interest at 7.55% per annum from and including November 1, 2025 to, but excluding, November 1, 2030, payable semi-annually in arrears on May 1 and November 1 or each year, commencing on May 1, 2026. From and including November 1, 2030 to but excluding November 1, 2035, or up to an early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate (SOFR) plus 424.5 basis points, payable quarterly in arrears. Beginning on November 1, 2030 through maturity, the Notes may be redeemed, at the Company's option, on any scheduled interest payment date. The Notes will mature on November 1, 2035.

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Shareholders' Equity

Total Shareholders' equity at March 31, 2026, was $106.6 million, compared to $104.8 million at December 31, 2025. Shareholders' equity increased $1.8 million due to net income of $3.2 million, offset by other comprehensive loss of $585,000 and dividends to shareholders of $925,000. Other comprehensive loss was the result of a decrease in the unrealized gains on securities available for sale.

Liquidity

Liquidity represents an institution's ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, loans held for sale, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, credit availability at the Federal Reserve Bank, the purchase of brokered certificates of deposit, corporate line of credit with a large correspondent bank, and debt and capital issuances. Management believes the Company's current overall liquidity is sufficient to satisfy its depositors' requirements and to meet its customers' credit needs.

The Company closely monitors changes in the industry and market conditions that may impact the Company's liquidity. Deposits have remained a steady source of liquidity. The Company may use other means of borrowings or other liquidity sources to fund any liquidity needs based on declines in deposit balances. The Company is also closely tracking the potential impacts on the Company's liquidity due to declines in fair value of the Company's securities portfolio due to rising market interest rates.

As of March 31, 2026, liquid assets totaled $121.5 million, or 8.6% of total assets, and liquid earning assets totaled $103.1 million, or 7.8% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. The Bank is scheduled to receive $54.4 million from bond paydowns and maturities by the end of 2026 which can be used to fund future loan growth and for other purposes.

At March 31, 2026 the Bank pledged investment securities with a collateral value totaling $113.1 million to the Federal Reserve System's Discount Window. The Discount Window provides access to funding to help depository institutions manage their liquidity risks. The Bank did not borrow from the Discount Window during the first three months of 2026. In addition to the Discount Window, the Bank has access to off-balance sheet liquidity through unsecured Federal funds lines totaling $90.0 million, and a secured line of credit with the FHLB with $201.4 million in available credit at March 31, 2026. The FHLB line of credit is secured by a blanket lien on qualifying loans in the residential, commercial, agricultural real estate, and home equity portfolios.

The Bank has a Funding and Liquidity Risk Management policy that limits the amount of short-term and long-term alternative funding to no more than 25% of total assets.

Uninsured deposits at March 31, 2026 were $177.7 million or 14% to total deposits. In the unlikely event that uninsured deposit balances leave the Bank over a short period of time, management could more than satisfy the demand with liquid assets and FHLB borrowing capacity.

Market Risk Management

Market risk is the sensitivity of a financial institution's earnings or the economic value of its capital to adverse changes in interest rates, exchange rates, and equity prices. The Company's primary component of market risk is interest rate volatility. Interest rate fluctuations impact the amount of interest income and expense the Bank pays or receives on the majority of its assets. Rapid changes in short-term interest rates may lead to volatility in net interest income resulting in additional interest rate risk to the extent that imbalances exist between the maturities or repricing of interest-bearing liabilities and interest earning assets.

The Company manages interest rate risk through an asset and liability committee ("ALCO") composed of members of its Board of Directors and executive management. The ALCO is responsible for monitoring and managing the Company's interest rate risk and establishing policies to monitor and limit exposure to this risk. The Company's Board of Directors reviews and approves the guidelines established by ALCO.

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Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides an additional analysis of the sensitivity of the earnings to changes in interest rates to static gap analysis. Assumptions used in the model rates are derived from historical trends, peer analysis, and management's outlook, and include loans and deposit growth rates and projected yields and rates. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different assets and liability accounts move differently when the prime rate changes and is reflected in different rate scenarios.

The following table represents interest rate sensitivity on the Company's net interest income using different rate scenarios:

		As of March 31, 2026		As of December 31, 2025
Change in Interest Rates (in Basis Points)		Percent Change in Earnings		Percent Change in Earnings
+ 400 basis points		-3.87%		-9.31%
+ 300 basis points		-2.80%		-6.75%
+ 200 basis points		-1.82%		-4.45%
+ 100 basis points		-0.86%		-2.18%
- 100 basis points		0.18%		1.78%
- 200 basis points		-0.18%		2.95%
- 300 basis points		-1.27%		3.21%
- 400 basis points		-0.62%		3.85%

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Market values are calculated based on discounted cash flow analysis. The net economic value is the market value of all assets minus the market value of all liabilities. The change in net economic value ("EVE") over different rate environments is an indication of the longer- term repricing risk in the balance sheet. The same assumptions are used in the market value simulation as in the earnings simulation.

The following table reflects the change in net economic value over different rate environments:

		As of March 31, 2026		As of December 31, 2025
Change in Interest Rates (in Basis Points)		Percentage Change in EVE		Percentage Change in EVE
+ 400 basis points		-16.20%		-22.76%
+ 300 basis points		-12.39%		-17.78%
+ 200 basis points		-8.35%		-12.52%
+ 100 basis points		-4.36%		-7.34%
- 100 basis points		2.09%		2.83%
- 200 basis points		0.45%		2.38%
- 300 basis points		-4.41%		-1.22%
- 400 basis points		-9.17%		-2.89%

Prudent balance sheet management requires processes that monitor and protect the Company against unanticipated or significant changes in the level of market interest rates. Net interest income stability should be maintained in changing rate environments by ensuring that interest rate risk is kept to an acceptable level. The ability to reprice our interest-sensitive assets and liabilities over various time intervals is of critical importance.

The Company uses a variety of traditional and on-balance-sheet tools to manage our interest rate risk. Gap analysis, which monitors the "gap" between interest-sensitive assets and liabilities, is one such tool. In addition, we use simulation modeling to forecast future balance sheet and income statement behavior. By studying the effects on net interest income of rising, stable, and falling interest rate scenarios, the Company can position itself to take advantage of anticipated interest rate movement, and protect itself from unanticipated rate movements, by understanding the dynamic nature of its balance sheet components.

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An asset-sensitive balance sheet structure implies that assets, such as loans and securities, will reprice faster than liabilities; consequently, net interest income should be positively affected in an increasing interest rate environment. Conversely, a liability-sensitive balance sheet structure implies that liabilities, such as deposits, will reprice faster than assets; consequently, net interest income should be positively affected in a decreasing interest rate environment. At March 31, 2026, the Company had $88.9 million more in liabilities repricing than assets subject to repricing in one year. This is a one-day position that is continually changing and is not necessarily indicative of our position at any other time.