Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this Report and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 2025 Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Report, particularly in the section titled "Cautionary Note Regarding Forward-Looking Statements," as well as in the section titled "Risk Factors" in the 2025 Annual Report. We assume no obligation to update any of these forward-looking statements except to the extent required by law.

Presentation of Amounts

Unless otherwise indicated, dollar amounts in the tables in this Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" are presented in thousands, while dollar amounts in the narrative discussion are presented in millions and rounded to one decimal place, except where otherwise indicated. Percentage changes and other percentages are calculated using the underlying amounts in thousands, except for per share amounts, which are calculated using unrounded amounts. Accordingly, percentages recalculated using the rounded amounts in millions may differ from the percentages presented.

Overview

The Parent Company is a bank holding company headquartered in Harrogate, Tennessee that has elected under the BHC Act to become a financial holding company. The Parent Company was incorporated in Tennessee in 1975 and operates primarily through its wholly owned subsidiary, the Bank, a Tennessee-chartered banking corporation organized in 1976. We provide banking services from 34 offices in select markets in Kentucky, North Carolina, and Tennessee, and we also operate one loan production office in Lincolnton, North Carolina. The Bank is a full-service community banking institution that offers traditional consumer and commercial products and services to serve businesses and individuals in our markets.

Our management's discussion and analysis of financial condition and results of operations is intended to provide the reader with information that will assist in the understanding of our business, results of operations, financial condition and financial statements; changes in certain key items in our financial statements from period to period; and the primary factors that we use to evaluate our business.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. The application of these principles requires management to make estimates, assumptions and complex judgements that affect amounts presented in our consolidated financial statements. These estimates, assumptions and judgements are based on information available as of the date of the financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions, and judgements. Management has identified the ACL, as a critical accounting policy included in Note 1 of our consolidated financial statements as of and for the fiscal year ended December 31, 2025, and included in the 2025 Annual Report, to be an accounting area that requires the most complex and subjective judgements and, as such, could be most subject to revision as new and additional information becomes available or circumstances change, including changes in the economic climate and interest rate changes. Critical accounting policies we have identified, along with the disclosures presented in the notes to our consolidated financial statements and in this discussion and analysis, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. There have been no significant changes to the accounting policies, estimates, and assumptions, or the judgments affecting the application of these policies, estimates, and assumptions, from those disclosed in the 2025 Annual Report.

Emerging Growth Company

Pursuant to the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), as an emerging growth company, the Parent Company can elect to opt out of the extended transition period for adopting any new or revised accounting standards. The Parent Company has elected to take advantage of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public and private companies, the Parent Company may adopt the standard on the application date for private companies. The Parent Company has elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and the Parent Company may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to it under the JOBS Act, so long as it qualifies as an emerging growth company.

Three and Nine Months ended September 30, 2026 Highlights

Results of Operations

●

We had net income of $10.9 million for the three months ended September 30, 2026, compared to $9.5 million for the three months ended September 30, 2025, an increase of $1.4 million, or 14.8%. Net income for the nine months ended September 30, 2026, was $30.6 million, compared to $27.1 million for the nine months ended September 30, 2025, an increase of $3.5 million, or 13.2%.

●

We had net income before income taxes of $13.8 million for the three months ended September 30, 2026, compared to $12.3 million for the three months ended September 30, 2025, an increase of $1.5 million, or 12.5%. Net income before income taxes for the nine months ended September 30, 2026, was $38.6 million, compared to $35.1 million for the nine months ended September 30, 2025, an increase of $3.5 million, or 10.1%. In each case, the increase was primarily the result of an increase in net interest income after provision for credit losses.

●

Net interest income was $22.5 million for the three months ended September 30, 2026, compared to $20.2 million for the three months ended September 30, 2025, an increase of $2.3 million, or 11.2%. Net interest income was $64.5 million for the nine months ended September 30, 2026, compared to $59.6 million for the nine months ended September 30, 2025, an increase of $4.9 million, or 8.2%. In each case, the increase was primarily the result of a decrease in interest expense due to a reduction of long-term debt and brokered deposits .

●

Noninterest income was $2.7 million for the three months ended September 30, 2026, compared to $2.6 million for the three months ended September 30, 2025, an increase of $0.1 million, or 2.8%. Noninterest income was $7.9 million for the nine months ended September 30, 2026, compared to $7.3 million for the nine months ended September 30, 2025, an increase of $0.6 million, or 8.9%. In each case, the increase was primarily the result of an increase in customer service fees and automated teller machine ("ATM") transaction fees.

●

Noninterest expense was $11.0 million for the three months ended September 30, 2026, compared to $10.6 million for the three months ended September 30, 2025 an increase of $0.4 million, or 4.3%. The increase was primarily the result of an increase in salaries and employee benefits due to normal pay increases and an increase in occupancy expense due to increases in building maintenance costs. Noninterest expense was $33.0 million for the nine months ended September 30, 2026, compared to $31.9 million for the nine months ended September 30, 2025, an increase of $1.1 million, or 3.5%. The increase was primarily the result of a loss on retirement of debt.

Financial Condition

●

Total assets were $2.4 billion as of September 30, 2026, an increase of $150.9 million, or 6.6%, from December 31, 2025.

●

Net loans were $2.0 billion as of September 30, 2026, an increase of $108.9 million, or 5.9%, from December 31, 2025. This increase was substantially the result of organic loan growth in the Nashville-Davidson - Murfreesboro - Franklin, Tennessee metropolitan statistical area (the "Nashville MSA"), the Knoxville, Tennessee metropolitan statistical area (the "Knoxville MSA"), and the Charlotte-Concord-Gastonia, North Carolina-South Carolina metropolitan statistical area (the "Charlotte MSA").

●

Total deposits were $1.9 billion as of September 30, 2026, an increase of $71.7 million, or 3.9%, from December 31, 2025. This increase was primarily driven by a $61.6 million increase in demand deposits to $975.6 million at September 30, 2026, from $914.0 million at December 31, 2025. Noninterest bearing demand deposits increased $10.4 million or 2.6% to $408.2 million as of September 30, 2026, from $397.8 million as of December 31, 2025. Brokered deposits decreased $0.7 million or 1.5%, to $47.3 million as of September 30, 2026 from $48.0 million as of December 31, 2025.

●

Non-brokered deposits were $1.8 billion as of September 30, 2026, an increase of $72.4 million, or 4.1%, from December 31, 2025. This increase was primarily driven by normal customer activity and continued focus on increasing core deposits.

●

Asset quality remained stable with nonperforming assets to total assets of 0.31% as of September 30, 2026, compared to 0.28% as of December 31, 2025. The ACL to total loans was 0.96% as of September 30, 2026, compared to 0.97% as of December 31, 2025.

●

Book value per share increased $1.88, or 9.0%, to $22.71 at September 30, 2026, from $20.83 at December 31, 2025.

Primary Factors Used to Evaluate Our Business and Results of Operations

The most significant factors we use to evaluate our business and results of operations are net income, return on average assets ("ROAA") and return on average equity ("ROAE"). We also use net interest income, noninterest income, noninterest expense and efficiency ratio.

Net Income

Our net income depends substantially on net interest income, which is the difference between interest earned on interest-earning assets (usually interest-bearing cash, investment securities and loans) and the interest expense incurred in connection with interest-bearing liabilities (usually interest-bearing deposits and borrowings). Our net income also depends on noninterest income, which is income generated other than by our interest-earning assets. Other factors that influence our net income include our provisions for credit losses, income taxes, and noninterest expenses, which include our fixed and variable overhead costs and other miscellaneous operating expenses.

Return on Average Assets

We monitor ROAA to measure our operating performance and to determine how efficiently our assets are being used to generate net income. In determining ROAA for a given period, net income is divided by the average total assets for that period.

Return on Average Equity

We use ROAE to assess our effectiveness in utilizing shareholders' equity to generate net income. In determining ROAE for a given period, net income is divided by the average shareholders' equity for that period.

Net Interest Income

Net interest income is our principal source of net income and represents the difference between interest income and interest expense. We generate interest income from interest-earning assets that we own, including loans and investment securities. We incur interest expense from interest-bearing liabilities, including interest-bearing deposits and other borrowings, notably FHLB advances and outstanding loans to the Parent Company and Parent Company subordinated debt securities. To evaluate net interest income, we measure and monitor: (i) yields on our loans and other interest-earning assets; (ii) the cost of our deposits and other funding sources; (iii) our net interest spread; and (iv) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is a ratio of net interest income to average interest earning assets for the same period.

Changes in market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing liabilities and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income.

Noninterest Income

Noninterest income primarily consists of: (i) service charges on deposit accounts; (ii) net realized gains on the sale of premises and equipment; (iii) net realized gains on the sale of foreclosed assets; (iv) ATM and debit card fees; (v) benefits from changes in the cash surrender value of bank-owned life insurance ("BOLI"); and (vi) other miscellaneous fees and income.

Our income from service charges on deposit accounts, which includes nonsufficient funds fees, is impacted by several factors, including number of accounts, products utilized and account holder cash management behaviors. These are further impacted by deposit products utilized by customers, marketing of new products and other factors. Net realized gains on the sale of premises and equipment reflects non-recurring gains from sales of property and equipment no longer needed for operations. Net realized gains on the sale of foreclosed assets reflects net gains from the sale of real estate classified as other real estate owned ("OREO"). ATM and debit card fees includes ATM transaction fees charged to non-bank customers for the use of our ATMs and interchange income. Income on BOLI, which is non-taxable, reflects changes in the cash surrender value of our BOLI policies, which is the amount that the Bank may realize under these insurance policies. Our other miscellaneous fees and income can include items such as other service fees and other nonrecurring items. All of these can vary based on customer activity and other factors.

Noninterest Expense

Noninterest expense primarily consists of: (i) salaries and employee benefits; (ii) occupancy expenses; (iii) professional fees; (iv) data processing expenses; (v) Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums; (vi) depreciation and amortization; and (vii) other operating expenses.

Salaries and employee benefits include compensation, employee benefits and employer tax expenses for our personnel. Occupancy expenses include utility expenses, property taxes, lease expense, and property maintenance related items. Professional fees include expenses for legal, accounting, consulting, and third-party internal audit and review services. Data processing expenses include expenses paid to our primary third-party data processor and other ancillary service providers as well as telecommunication and data services expenses. Other operating expenses include marketing, telephone, supplies, travel and entertainment expenses, armored carrier services fees and director fees.

Efficiency Ratio

The efficiency ratio is defined as operating expenses divided by fee income plus tax equivalent net interest income. As a general rule, the lower a financial institution's efficiency ratio, the better the performance.

Primary Factors Used to Evaluate Our Financial Condition

The most significant factors we use to evaluate and manage our financial condition include asset quality, capital, liquidity, net income growth and profitability versus peer group banks.

Asset Quality

We monitor the quality of our assets based upon various factors, including level and severity of deterioration in borrower cash flows and asset quality. Problem assets are assessed and reported as delinquent, classified, nonperforming, nonaccrual or troubled debt restructurings. We also monitor credit concentrations. We manage the ACL to reflect loan volumes, identified credit and collateral conditions, economic conditions and other qualitative factors.

Capital

We monitor capital using regulatory capital ratios. Factors other than regulatory capital rules used include overall financial condition, including the trend and volume of problem assets, reserves, risks, level and quality of earnings, and anticipated growth, including acquisitions.

Liquidity

Deposits primarily consist of commercial and personal accounts maintained by businesses and individuals in our primary market areas. We also utilize brokered deposits (Multi-Bank Securities, Inc. and LPL Financial) and non-brokered deposits (National CD Rateline), certificates of deposits and reciprocal deposits through a third-party network that effectively allows depositors to receive insurance on amounts greater than the FDIC insurance limit, which is currently $250,000 per depositor, per FDIC-insured bank for each account ownership category. We manage liquidity based on factors that include liquid assets to loans, cash flow projections, short-term funding needs and sources, and the availability of unused funding sources. As of September 30, 2026, approximately $237.6 million was available for borrowing on committed lines with the FHLB and $64.5 million was available for purchases of federal funds from correspondents on an overnight uncommitted basis.

Net Income Growth

We monitor net income growth monthly, quarterly and annually. Net income growth is compared to prior month, prior year to date, and budget.

Profitability Versus Peer Group Banks

We monitor the Bank's profitability metrics compared to those of peer banks with comparable size and markets. Profitability metrics include ROAA, ROAE, net interest spread, and overhead efficiency ratio. Specific peer bank comparisons are provided to the board of directors of the Bank quarterly.

Results of Operations for the Three and Nine Months Ended September 30, 2026 and 2025

The following tables show the average outstanding balance of each principal category of our assets, liabilities and shareholders' equity, together with the average yields on our assets and average costs of our liabilities, for the periods indicated. Yields and costs are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the same period.

		Three Months Ended September 30, 2026												Three Months Ended September 30, 2025
		Average Balance				Interest				Yield/Rate				Average Balance				Interest				Yield/Rate
		(Dollars in thousands)
Assets:
Interest-earnings assets:
Gross loans, net of unearned income(1)		$	1,948,090			$	29,605				6.1	%		$	1,767,379			$	28,074				6.4	%
Investment securities			132,441				1,065				3.2	%			169,679				1,187				2.8	%
Other interest-earning assets			93,800				763				3.3	%			76,746				760				4.0	%
Total interest-earning assets		$	2,174,331			$	31,433				5.8	%		$	2,013,804			$	30,021				6.0	%
Allowance for credit losses			(18,892	)											(17,971	)
Noninterest-earning assets			202,006												175,035
Total Assets		$	2,357,445											$	2,170,869
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing demand deposits		$	567,717			$	2,853				2.0	%		$	509,726			$	2,806				2.2	%
NOW, savings and money market deposits			409,530				1,367				1.3	%			380,421				1,396				1.5	%
Time deposits			517,679				4,135				3.2	%			486,555				4,452				3.7	%
FHLB advances			58,424				431				3.0	%			61,827				455				2.9	%
Other borrowings			17,395				160				3.7	%			45,934				690				6.0	%
Total interest-bearing liabilities		$	1,570,745			$	8,946				2.3	%		$	1,484,463			$	9,799				2.6	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		$	446,743				-							$	413,376
Other liabilities			33,029				-								33,557
Total noninterest-bearing liabilities		$	479,772				-							$	446,933
Shareholders' equity		$	306,929				-							$	239,473
Total liabilities and shareholders' equity		$	2,357,446				-							$	2,170,869
Net Interest Income						$	22,487											$	20,222
Net Interest Spread(2)											3.50	%											3.32	%
Net Interest Margin(3)											4.14	%											4.02	%

(1)

Includes nonaccrual loans.

(2)

Net interest spread is the difference between interest rates earned on interest-earning assets and interest rates paid on interest-bearing liabilities.

(3)	Net interest margin is a ratio of net interest income to average interest-earning assets for the same period.

		Nine Months Ended September 30, 2026												Nine Months Ended September 30, 2025
		Average Balance				Interest				Yield/Rate				Average Balance				Interest				Yield/Rate
		(Dollars in thousands)
Assets:
Interest-earnings assets:
Gross loans, net of unearned income(1)		$	1,911,104			$	85,676				6.0	%		$	1,786,357			$	84,435				6.3	%
Investment securities			137,130				3,256				3.2	%			180,975				3,766				2.8	%
Other interest-earning assets			85,589				2,118				3.3	%			111,265				3,444				4.1	%
Total interest-earning assets		$	2,133,823			$	91,050				5.7	%		$	2,078,597			$	91,645				5.9	%
Allowance for credit losses			(18,557	)											(18,151	)
Noninterest-earning assets			203,171												175,750
Total Assets		$	2,318,437											$	2,236,196
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing demand deposits		$	561,410			$	8,163				1.9	%		$	538,268			$	9,083				2.2	%
NOW, savings and money market deposits			413,177				4,207				1.4	%			385,694				4,318				1.5	%
Time deposits			497,287				12,332				3.3	%			533,863				15,264				3.8	%
FHLB advances			59,739				1,350				3.0	%			62,965				1,334				2.8	%
Other borrowings			18,600				518				3.7	%			45,160				2,026				6.0	%
Total interest-bearing liabilities		$	1,550,213			$	26,570				2.3	%		$	1,565,950			$	32,025				2.7	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		$	440,762											$	405,749
Other liabilities			29,782												35,398
Total noninterest-bearing liabilities		$	470,544											$	441,147
Shareholders' equity		$	297,681											$	229,099
Total liabilities and shareholders' equity		$	2,318,438											$	2,236,196
Net Interest Income						$	64,480											$	59,620
Net Interest Spread(2)											3.39	%											3.14	%
Net Interest Margin(3)											4.03	%											3.82	%

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates.

The following tables set forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to: (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate), and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of these tables, changes attributable to both rate and volume that cannot be segregated have been proportionately allocated to both volume and rate.

		Three Months Ended September 30, 2026 over 2025
		Changes due to:								Total
		Volume				Rate				Variance
		(Dollars in thousands)
Interest-Earning Assets:
Loans		$	2,871			$	(1,340	)		$	1,531
Investment securities			(261	)			138				(122	)
Other interest earning assets			169				(166	)			3
Total increase (decrease) in interest income			2,779				(1,367	)			1,412
Interest-Bearing Liabilities:
NOW, savings, money market, and interest-bearing demand deposits			306				(288	)			18
Time deposits			72				(389	)			(317	)
FHLB advances			(11	)			(13	)			(24	)
Other borrowings			(419	)			(111	)			(530	)
Total increase (decrease) in interest expense			(53	)			(800	)			(853	)
Increase (decrease) in net interest income		$	2,832			$	(568	)		$	2,265

		Nine Months Ended September 30, 2026 over 2025
		Changes due to:								Total
		Volume				Rate				Variance
		(Dollars in thousands)
Interest-Earning Assets:
Loans		$	5,897			$	(4,656	)		$	1,241
Investment securities			(912	)			402				(510	)
Other interest earning assets			(795	)			(531	)			(1,326	)
Total increase (decrease) in interest income			4,189				(4,784	)			(595	)
Interest-Bearing Liabilities:
NOW, savings, money market, and interest-bearing demand deposits			698				(1,729	)			(1,031	)
Time deposits			(1,046	)			(1,886	)			(2,932	)
FHLB advances			(68	)			84				16
Other borrowings			(1,192	)			(316	)			(1,508	)
Total increase (decrease) in interest expense			(1,607	)			(3,848	)			(5,455	)
Increase (decrease) in net interest income		$	5,797			$	(937	)		$	4,860

Net interest income for the three months ended September 30, 2026 was $22.5 million compared to $20.2 million for the three months ended September 30, 2025, an increase of $2.3 million, or 11.2%. Total interest and dividend income increased $1.4 million, or 4.7%, while total interest expense decreased $0.9 million, or 8.7%. For the three months ended September 30, 2026, net interest margin and net interest spread were 4.14% and 3.50%, respectively, compared to 4.02% and 3.32%, respectively, for the same period in 2025.

Net interest income for the nine months ended September 30, 2026 was $64.5 million compared to $59.6 million for the nine months ended September 30, 2025, an increase of $4.9 million, or 8.2%. Total interest and dividend income decreased $0.6 million, or 0.7%, while total interest expense decreased $5.5 million, or 17.0%. For the nine months ended September 30, 2026, net interest margin and net interest spread were 4.03% and 3.39%, respectively, compared to 3.82% and 3.14%, respectively, for the same period in 2025.

The decrease in interest and dividend income for the nine months ended September 30, 2026 was primarily attributable to a $124.7 million, or 7.0%, increase in average gross loans outstanding as of September 30, 2026, compared to September 30, 2025, offset by a 0. 3% decrease in the yield on gross total loans. The increase in interest income for the nine months ended September 30, 2026 was primarily attributable to a $180.7 million, or 10.2%, increase in average gross loans outstanding as of September 30, 2026, compared to September 30, 2025, offset by a 0.3% decrease in the yield on gross total loans. For both periods, the increase in average gross loans outstanding was primarily due to organic loan growth in the Nashville MSA, the Knoxville MSA and the Charlotte MSA.

Provision for Credit Losses

Credit risk is inherent in the business of making loans. We establish an ACL through charges to earnings, which are shown in the statements of income as the provision for credit losses. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. The provision for credit losses is determined by conducting a quarterly evaluation of the adequacy of our ACL and charging the shortfall or excess, if any, to the current quarter's expense. This has the effect of creating variability in the amount and frequency of charges to our earnings. The provision for credit losses and level of allowance for each period are dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, management's assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market areas.

Provision for credit losses was $0.3 million for the three months ended September 30, 2026 and $0.9 million for the nine months ended September 30, 2026, compared with no provision for the corresponding three-and-nine-month periods in 2025. There were no significant net charge-offs in the nine months ended September 30, 2026.

The ACL as a percentage of total loans was 0.96% at September 30, 2026, compared to 0.97% at December 31, 2025.

Noninterest Income

While interest income remains the largest single component of our total revenues, noninterest income is an important contributing component. Our most significant sources of noninterest income include customer service fees, which include overdraft program fees, and bank card services and interchange fees.

Noninterest income for the three months ended September 30, 2026, was $2.7 million compared to $2.6 million for the three months ended September 30, 2025, an increase of $0.1 million, or 2.8%. Noninterest income for the nine months ended September 30, 2026, was $7.9 million compared to $7.3 million for the nine months ended September 30, 2025, an increase of $0.6 million, or 8.9%. The following table sets forth the major components of our noninterest income for the three and nine months ended September 30, 2026 and 2025:

		Three Months Ended September 30,
		2026				2025				Increase (Decrease)
		(Dollars in thousands)
Noninterest income:
Customer service fees		$	778			$	735			$	43
Net gains (losses) on sales of premises and equipment			-				20				(20	)
Net gains (losses) on sales of foreclosed assets			-				110				(110	)
ATM and debit card fees			985				846				139
Increase in BOLI			336				306				30
Other income and fees(1)			601				609				(8	)
Total noninterest income		$	2,700			$	2,626			$	74

(1)

Other income and fees includes income and fees associated with miscellaneous services.

		Nine Months Ended September 30,
		2026				2025				Increase (Decrease)
		(Dollars in thousands)
Noninterest income:
Customer service fees		$	2,334			$	2,065			$	269
Net gains (losses) on sales of premises and equipment			30				25				5
Net gains (losses) on sales of foreclosed assets			107				113				(6	)
ATM and debit card fees			2,816				2,536				280
Increase in BOLI			1,088				950				138
Other income and fees(1)			1,566				1,604				(38	)
Total noninterest income		$	7,941			$	7,293			$	648

(1)

Other income and fees includes income and fees associated with miscellaneous services.

Customer service fees were $778 thousand for the three months ended September 30, 2026, compared with $735 thousand for the three months ended September 30, 2025, an increase of $43 thousand, or 5.8%. For the nine months ended September 30, 2026, customer service fees were $2.3 million, compared with $2.1 million for the nine months ended September 30, 2025, an increase of $0.2 million, or 13.0%.

ATM fees were $985 thousand for the three months ended September 30, 2026, compared with $846 thousand for the three months ended September 30, 2025, an increase of $139 thousand, or 16.5%. For the nine months ended September 30, 2026, ATM fees were $2.8 million, compared with $2.5 million for the nine months ended September 30, 2025, an increase of $0.3 million, or 11.1%.

Income from BOLI was $336 thousand for the three months ended September 30, 2026, compared with $306 thousand for the three months ended September 30, 2025, an increase of $30 thousand, or 9.7%. For the nine months ended September 30, 2026, income from BOLI was $1.1 million, compared with $1.0 million for the nine months ended September 30, 2025, an increase of $0.1 million, or 14.5%.

Other noninterest income was $601 thousand for the three months ended September 30, 2026, compared with $609 thousand for the three months ended September 30, 2025, a decrease of $8 thousand, or 1.3%. Other noninterest income for the nine months ended September 30, 2026 and 2025 totaled $1.6 million in each period.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2026 was $11.0 million compared to $10.6 million for the three months ended September 30, 2025, an increase of $0.4 million, or 4.3%, which was primarily a result of increases in salaries and occupancy expenses. Noninterest expense for the nine months ended September 30, 2026 was $33.0 million compared to $31.9 million for the nine months ended September 30, 2025, an increase of $1.1 million, or 3.5%, which was primarily a result of a loss on the retirement of debt. The following table sets forth the major components of our noninterest expense for the three and nine months ended September 30, 2026 and 2025:

		Three Months Ended September 30,
		2026				2025				Increase (Decrease)
		(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits		$	5,988			$	5,729			$	259
Occupancy expenses			871				738				133
Data processing			1,136				1,103				33
Deposit insurance premiums			259				267				(8	)
Professional fees			217				136				81
Depreciation and amortization			964				955				9
Other expenses(1)			1,566				1,624				(58	)
Total noninterest expense		$	11,001			$	10,552			$	449

(1)

Other expenses include items such as telephone expenses, marketing and advertising expenses, debit card expenses, courier fees, directors' fees, and insurance.

		Nine Months Ended September 30,
		2026				2025				Increase (Decrease)
		(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits		$	17,387			$	17,012			$	375
Occupancy expenses			2,542				2,529				13
Data processing			3,336				3,461				(125	)
Deposit insurance premiums			703				738				(35	)
Professional fees			823				617				206
Depreciation and amortization			2,867				2,706				161
Other expenses(1)			5,302				4,795				507
Total noninterest expense		$	32,960			$	31,858			$	1,102

(1)

Other expenses include items such as telephone expenses, marketing and advertising expenses, debit card expenses, courier fees, directors' fees, loss on retirement of debt, and insurance.

Salaries and employee benefits were $6.0 million for the three months ended September 30, 2026, compared with $5.7 million for the three months ended September 30, 2025, an increase of $0.3 million, or 4.5%. For the nine months ended September 30, 2026, salaries and employee benefits were $17.4 million, compared with $17.0 million for the nine months ended September 30, 2025, an increase of $0.4 million, or 2.2%.

Occupancy expense was $871 thousand for the three months ended September 30, 2026, compared with $738 thousand for the three months ended September 30, 2025, an increase of $133 thousand, or 18.0%. This increase was primarily due to increases in building maintenance. For the nine months ended September 30, 2026 and 2025, occupancy expense was $2.5 million in each period, with the 2026 period reflecting a modest increase of $13 thousand, or 0.5%, over the same period in 2025.

Data processing expense totaled $1.1 million for each of the three months ended September 30, 2026 and 2025, an increase of $32 thousand, or 2.9%. For the nine months ended September 30, 2026, data processing expense was $3.3 million, compared with $3.5 million for the nine months ended September 30, 2025, a decrease of $0.2 million, or 3.6%.

Deposit insurance premiums were $259 thousand for the three months ended September 30, 2026, compared with $267 thousand for the three months ended September 30, 2025, a decrease of $8 thousand, or 3.0%. For the nine months ended September 30, 2026, deposit insurance premiums were $703 thousand, compared with $738 thousand for the nine months ended September 30, 2025, a decrease of $35 thousand, or 4.7%.

Professional fees were $217 thousand for the three months ended September 30, 2026, compared with $136 thousand for the three months ended September 30, 2025, an increase of $81 thousand, or 59.8%. For the nine months ended September 30, 2026, professional fees were $823 thousand, compared with $617 thousand for the nine months ended September 30, 2025, an increase of $206 thousand, or 33.4%. Both of these increases were primarily a result of higher professional fees associated with our additional reporting obligations as a public company.

Depreciation and amortization expense was $964 thousand for the three months ended September 30, 2026, compared with $955 thousand for the three months ended September 30, 2025, an increase of $10 thousand, or 1.0%. For the nine months ended September 30, 2026, depreciation and amortization expense was $2.9 million, compared with $2.7 million for the nine months ended September 30, 2025, an increase of $0.2 million, or 6.0%. These increases were primarily attributable to normal capital improvements for our current branches.

The Company recognized no loss on retirement of debt for the three months ended September 30, 2026. For the nine months ended September 30, 2026, the Company recognized a loss on retirement of debt of $603 thousand, compared with no such loss in the corresponding 2025 period.

Other noninterest expense was relatively unchanged at $1.6 million for the three months ended September 30, 2026 and 2025, reflecting a slight decrease of $58 thousand, or 3.5%, in the 2026 period compared with the same period in 2025. For the nine months ended September 30, 2026, other noninterest expense (excluding loss on retirement of debt) was $4.7 million, compared with $4.8 million for the nine months ended September 30, 2025, a decrease of $0.1 million, or 2.0%.

Financial Condition

Total assets were $2.4 billion as of September 30, 2026, an increase of $150.9 million, or 6.6%, from December 31, 2025. This increase was primarily the result of an increase of $109.8 million in gross loans less deferred fees and discounts.

Loan Portfolio

Loans represent the largest portion of our earning assets, greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition.

We have three loan portfolio segments: (i) real estate (which is divided into four classes), (ii) commercial, and (iii) consumer and other. Prior period segment presentation has been reclassified to combine the "Consumer" and "Other" loan segments into "Consumer and Other" to conform to current period presentation and historical MD&A disclosures. This reclassification has no impact on total loans or net financial results for any period presented. A segment is generally determined based on the initial measurement attribute, risk characteristics of the loan, and method for monitoring and assessing credit risk. Classes within the real estate portfolio segment include (i) CRE, (ii) C&D, (iii) residential, and (iv) other.

Our loan clients primarily consist of small to medium-sized business, the owners and operators of these businesses, and other professionals, entrepreneurs and high net worth individuals. We believe owner-occupied and investment CRE loans, residential construction loans and commercial business loans provide us with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals.

The following describes risk characteristics relevant to each of the loan portfolio segments:

Real estate - We offer various types of real estate loan products, which are divided into the classes described below. All loans within this portfolio segment are particularly sensitive to the valuation of real estate.

●

C&D loans include extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.

●

Residential loans include one-to-four-family first mortgage loans, which are repaid by various means such as a borrower's income, the sale of the property, or rental income derived from the property. These also include second lien or open-end residential real estate loans, such as home equity lines, which are typically repaid by the same means as one-to-four-family first mortgages.

●

CRE loans include both owner-occupied CRE loans and other CRE loans, such as commercial loans secured by income producing properties. Owner-occupied CRE loans made to operating businesses are long-term financings of land and buildings and are repaid by cash flows generated from business operations. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties.

●

Other real estate loans include loans collateralized by farmland.

Commercial - This loan portfolio segment includes loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, leases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the borrower's business operations.

Consumer and Other - This loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures; tax-exempt commercial loans; undisbursed loans of all types; and unpaid overdrafts on deposit accounts. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

The following table presents our balances and associated percentages of the composition of loans by loan portfolio segment, excluding loans held for sale, on the dates indicated:

		Loan Portfolio Segments
		As of September 30, 2026								As of December 31, 2025
		Amount				% of Total				Amount				% of Total
		(Dollars in thousands)
Real Estate Loans:
Commercial		$	1,182,947				59	%		$	1,113,440				59	%
Construction and land development			197,644				10	%			176,688				9	%
Residential			386,584				20	%			377,943				20	%
Other			18,108				1	%			14,824				1	%
Commercial			184,715				9	%			174,248				9	%
Consumer and other			19,326				1	%			22,867				1	%
Total loans		$	1,989,324				100	%		$	1,880,010				100	%
Deferred loan fees and discounts			5,998								6,477
Allowance for credit losses			19,029								18,096
Loans, net		$	1,964,297							$	1,855,437

Net loans were $2.0 billion as of September 30, 2026, an increase of $108.9 million, or 5.9%, from December 31, 2025. The increase in net loans outstanding was primarily due to organic loan growth in the Nashville MSA, the Knoxville MSA and the Charlotte MSA.

The following tables show the contractual maturities of the Company's loans, excluding loan discounts, as of September 30, 2026 and December 31, 2025, respectively:

		As of September 30, 2026
		Due in One Year or Less								Due after One Year Through Five Years								Due after Five Years
		Fixed Rate				Adjustable Rate				Fixed Rate				Adjustable Rate				Fixed Rate				Adjustable Rate				Total
		(Dollars in thousands)
Real Estate:
Construction and land development		$	7,549			$	50,267			$	31,975			$	68,032			$	5,589			$	34,232			$	197,644
Residential			18,515				8,620				16,104				37,957				49,741				255,647				386,584
Commercial real estate			184,979				39,305				346,042				332,036				30,186				250,399				1,182,947
Other			199				120				6,671				10,193				172				753				18,108
Commercial			33,981				46,567				18,405				59,738				1,024				25,001				184,715
Consumer and other			10,180				745				6,568				237				1,347				249				19,326
Total Loans		$	255,402			$	145,624			$	425,765			$	508,194			$	88,059			$	566,281			$	1,989,325

		As of December 31, 2025
		Due in One Year or Less								Due after One Year Through Five Years								Due after Five Years
		Fixed Rate				Adjustable Rate				Fixed Rate				Adjustable Rate				Fixed Rate				Adjustable Rate				Total
		(Dollars in thousands)
Real Estate:
Construction and land development		$	16,036			$	35,403			$	29,331			$	67,293			$	10,202			$	18,424			$	176,689
Residential			9,080				8,382				22,664				36,553				51,800				249,462				377,941
Commercial real estate			156,594				22,646				345,028				303,721				23,782				261,669				1,113,440
Other			90				369				3,213				9,902				244				1,007				14,824
Commercial			23,696				29,453				29,031				60,418				1,154				30,496				174,248
Consumer and other			10,784				3,260				6,600				317				1,534				372				22,867
Total Loans		$	216,280			$	99,513			$	435,867			$	478,204			$	88,716			$	561,430			$	1,880,010

As of September 30, 2026, approximately 61% of total loans were adjustable-rate loans and approximately 39% were fixed-rate loans. Of the fixed-rate loans, approximately 26% of total loans were due after one year through five years. The majority of our commercial loans are structured with five-year balloon payments.

We are primarily involved in real estate, commercial, and consumer lending activities with customers throughout our markets in Kentucky, North Carolina, and Tennessee. About 89.7% and 89.5% of our total loans were secured by real property as of September 30, 2026 and December 31, 2025, respectively. We believe that these loans are not concentrated in any one single property type and that they are geographically dispersed throughout our markets. Our debtors' ability to repay their loans is substantially dependent upon the economic conditions of the markets in which we operate, which consist primarily of the Nashville MSA, the Knoxville MSA, Chattanooga, and Kingsport in Tennessee and the Charlotte MSA in North Carolina.

CRE loans were 59.4% of total loans as of September 30, 2026, and represented 59.2% of total loans as of December 31, 2025. C&D loans were 10.0% of total loans as of September 30, 2026, and represented 9.4% of total loans as of December 31, 2025.

We have established concentration limits in our loan portfolio for CRE loans by loan type, including collateral and industry, among others. All loan types are within established limits other than our hotels/motels category, which has occasionally exceeded our limit of 50% of total risk-based capital. For further information on the risks associated with the concentration of our loan portfolio in certain industries, please see the risk factor titled "We have a concentration of credit exposure to borrowers in certain industries, and we also target small to medium-sized businesses and make other loans that may carry increased levels of credit risk" in the section titled "Risk Factors" in the 2025 Annual Report. Despite this category being outside of our established limits, we believe lending risk in this category is mitigated by a significant portion of the financed properties being owner-occupied hotels/motels, meaning that the properties are run by their owners. All but one of the hotel/motel projects currently in our loan portfolio are "flag" hotels. Further, our exposure to the hotels/motels category is geographically dispersed throughout the states of Florida, Kentucky, North Carolina, South Carolina, and Tennessee. We have restricted lending on lodging projects to existing clients only for the foreseeable future. Our lending concentration in the hotels/motels sector is actively managed by our senior management team, including our President and Chief Executive Officer and Chief Credit Officer.

We require all business purpose loans to be underwritten by a centralized underwriting department located in Harrogate, Tennessee. Industry-tested underwriting guidelines are used to assess a borrower's historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow us to react to a borrower's deteriorating financial condition, should that occur.

Construction and Land Development. Loans for residential construction are for single-family properties and to developers or investors. These loans are underwritten based on estimates of costs and the completed value of the project. Funds are advanced based on estimated percentage of completion for the project. Performance of these loans is affected by economic conditions as well as the ability to control the costs of the projects. This category also includes commercial construction projects.

C&D loans increased $21.0 million, or 11.9%, to $197.6 million as of September 30, 2026, from $176.7 million as of December 31, 2025. The majority of this increase was due to loan growth as well as an increase in funded balances as the projects funded near completion. Residential C&D loans were $43.1 million compared to $154.5 million in commercial C&D loans as of September 30, 2026.

We offer one-to-four family mortgage loans on both owner-occupied primary residences and investor-owned residences, which made up approximately 20.0% and 20.1% of our loan portfolio as of September 30, 2026, and December 31, 2025, respectively. Our residential loans also include home equity lines of credit, which totaled $33.6 million, or approximately 1.69% of our portfolio, as of September 30, 2026, and $31.8 million, or approximately 1.69% of our portfolio, as of December 31, 2025. By offering a full line of residential loan products, the owners of the small to medium-sized businesses that we lend to are able to use us, instead of a competitor, for financing a personal residence.

Our CRE loan portfolio includes loans for commercial property that is owned by real estate investors, construction loans to build owner-occupied properties, and loans to developers of CRE investment properties and residential developments. CRE loans are subject to underwriting standards and processes similar to our commercial loans. These loans are underwritten primarily based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on the successful operation of the properties securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are diversified by type and geographic location. We believe this diversity helps reduce our exposure to adverse economic events that may affect any single market or industry.

Commercial. Commercial loans are underwritten after evaluating and understanding the borrower's ability to operate profitably. Underwriting standards have been designed to determine whether the borrower possesses sound business ethics and practices, to evaluate current and projected cash flows to determine the ability of the borrower to repay its obligations, and to ensure appropriate collateral is obtained to secure the loan. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as real estate, accounts receivable, or inventory, and typically include personal guarantees. Owner-occupied real estate is included in commercial loans, as the repayment of these loans is generally dependent on the operations of the commercial borrower's business rather than on income-producing properties or the sale of the properties.

Commercial loans increased $10.5 million, or 6.0%, to $184.7 million as of September 30, 2026, from $174.2 million as of December 31, 2025.

Consumer and Other. We utilize our central underwriting department for all consumer loans over $200,000 in total credit exposure regardless of collateral type. Loans below this threshold are underwritten by the responsible loan officer in accordance with our consumer loan policy. The loan policy addresses types of consumer loans that may be originated and the requisite collateral, if any, which must be perfected. We believe relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers helps minimize risk.

Consumer and other loans (non-real estate loans) decreased $3.5 million, or 15.5%, to $19.3 million as of September 30, 2026, from $22.9 million as of December 31, 2025.

Loan Participations

In the normal course of business, we periodically sell participating interests in loans to other banks and investors. All participations are sold on a proportionate basis with all cash flows divided proportionately among the participants and no party has the right to pledge or exchange the entire financial asset without the consent of all the participants. Other than standard 90-day prepayment provisions and standard representations and warranties, participating interests are sold without recourse. We also purchase loan participations from time to time.

As of September 30, 2026, and December 31, 2025, loan participations sold to third parties (which are not included in the accompanying consolidated balance sheets) totaled $37.5 million and $116.0 million, respectively. We sell participations to manage our credit exposures to borrowers. As of September 30, 2026, and December 31, 2025, loan participations purchased totaled $0. The variance in loan participations sold comes from sales of participations in the ordinary course of business.

Allowance for Credit Losses (ACL)

The ACL is funded as losses are estimated through a provision for credit losses charged to expense. Credit losses are charged against the allowance when management believes the collectability of a loan balance is confirmed. Confirmed losses are charged off immediately. Subsequent recoveries, if any, are credited to the allowance.

The ACL is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The ACL is evaluated on a regular basis by management and is based upon management's periodic review of the collectability of loans in light of historical experience, the nature and volume of the loan portfolio, the overall portfolio quality, specific problem loans, current economic conditions that may affect borrowers' ability to pay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.

The Company estimates the ACL on loans based on the underlying loans' amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACL.

Expected credit losses are reflected in the ACL through a charge to provision for credit losses. The Company measures expected credit losses on loans on a collective (pool) basis when the loans share similar risk characteristics. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

The Company's methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions over a period that has been determined to be reasonable and supportable, to the identified pools of loans with similar risk characteristics for which the historical loss experience was observed.

The Company's primary methodology for estimating expected credit losses for all loan types is the WARM method. The WARM current expected credit losses methodology uses average annual loss rate along with a simple but reasonable forecast based on a "regression" analysis of loan history dating back 18 years. The dependent variable is an entity's loss rate, based on changes in the Prime Lending Rate over the same period. The Company utilizes the Prime Lending Rate as the independent variable due to it being the tool most commonly utilized by the Federal Reserve to either accelerate and/or slow down the economy. Additionally, the ACL calculation includes qualitative adjustments to account for risk factors that may not be incorporated in the quantitatively derived allowance estimate. Qualitative adjustments may increase or decrease the allowance estimate.

Qualitative factors considered include: changes in lending policies and procedures, including underwriting standards, and collection, charge-off and recovery practices; national, regional and local economic and business conditions and developments that affect the collectability of the loan portfolio, including the condition of various market segments; nature and volume of the loan portfolio and terms of loans; experience, depth and ability of lending management; volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans; quality of the loan review system; underlying collateral values; concentrations of credit and changes in the level of such concentrations; and the effect of other external factors such as competition and legal and regulatory requirements.

Our ACL was $19.0 million at September 30, 2026 compared to $18.1 million at December 31, 2025, an increase of $0.9 million, or 5.2%. A provision of $348 thousand was recorded for the three months ended September 30, 2026 compared to $0 for the three months ended September 30, 2025. For the nine months ended September 30, 2026, a provision of $869 thousand, including a $5 thousand negative provision for unfunded commitments, was recorded compared to $0 for the nine months ended September 30, 2025.

The following table provides an analysis of the ACL at the dates indicated.

		As of September 30, 2026				As of December 31, 2025
		(Dollars in thousands)
Average loans outstanding		$	1,911,104			$	1,791,550
Total loans outstanding at end of period		$	1,983,326			$	1,873,533
Allowance for credit losses at beginning of period		$	18,096			$	18,205
Charge-offs:
Commercial real estate			-				(301	)
Construction and land development			-				-
Residential real estate			-				(121	)
Commercial			(30	)			(362	)
Consumer and other			(55	)			(251	)
Total charge-offs			(85	)			(1,035	)
Recoveries:
Commercial real estate			114				151
Construction and land development			-				201
Residential real estate			1				64
Commercial			3				11
Consumer and other			26				83
Total recoveries			144				510
Net (charge-offs) recoveries		$	59			$	(525	)
Provision for credit losses		$	874			$	416
Balance at end of period		$	19,029			$	18,096
Ratio of allowance to end of period loans			0.96	%			.97	%
Ratio of net (charge-offs) recoveries to average loans			0.00	%			(0.01	)%

Net recoveries for the nine months ended September 30, 2026 totaled $59 thousand. Net charge-offs for the year ended December 31, 2025, totaled $525 thousand.

Nonperforming Loans

Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan's principal balance is deemed collectible. Loans are restored to accrual status when the loans become well-secured and management believes full collectability of principal and interest is probable.

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral-dependent loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. The Company may, in the alternative, measure the expected credit loss as the amount by which the amortized cost basis of the loan exceeds the estimated fair value of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the loan exceeds the fair value of the underlying collateral less estimated costs to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated selling costs. Any write-down to fair value at the time of transfer to OREO is charged to the ACL. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. Costs of improvements are capitalized, whereas costs related to holding OREO and subsequent write-downs to the value thereof are expensed. Any gains and losses realized at the time of disposal are reflected in income.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed assets held for sale (OREO) until sold and is initially recorded at fair value less costs to sell when acquired, establishing a new carrying value. OREO totaled approximately $0.9 million at September 30, 2026, and $0.3 million at December 31, 2025.

Nonperforming loans include nonaccrual loans and loans past due 90 days or more. Nonperforming assets consist of nonperforming loans plus OREO and collateral taken in foreclosure or similar proceedings.

Nonaccrual loans were $6.7 million at September 30, 2026, compared to $6.2 million at December 31, 2025. We had no loans 90 days past due and still accruing at September 30, 2026, or December 31, 2025.

Total nonperforming assets increased approximately $1.1 million from December 31, 2025 to September 30, 2026. The increase was primarily the result of an increase in foreclosed assets held for sale for 1-4 family foreclosures and a slight increase in nonaccruals, primarily residential real estate loans.

The following tables present the contractual aging of the recorded investment and loan discount in current and past due loans by class of loans as of September 30, 2026, and December 31, 2025:

		Contractual Aging of Recorded Investments
As of September 30, 2026		Current				30 - 89 Days Past Due				90+ Days Past Due				Nonaccrual				Total
		(Dollars in thousands)
Real estate mortgages:
Commercial real estate		$	1,182,624			$	-			$	-			$	323			$	1,182,947
Construction and land development			197,212				401				-				31				197,644
Residential real estate			375,843				4,707				-				6,034				386,584
Other			18,108				-				-				-				18,108
Commercial			183,956				539				-				220				184,715
Consumer and other			19,181				68				-				77				19,326
Total loans		$	1,976,924			$	5,715			$	-			$	6,686			$	1,989,325

		Contractual Aging of Recorded Investments
As of December 31, 2025		Current				30 - 89 Days Past Due				90+ Days Past Due				Nonaccrual				Total
		(Dollars in thousands)
Real estate mortgages:
Commercial real estate		$	1,113,181			$	259			$	-			$	-			$	1,113,440
Construction and land development			176,057				35				-				596				176,688
Residential real estate			366,957				5,546				-				5,439				377,942
Other			14,824				-				-				-				14,824
Commercial			173,794				323				-				131				174,248
Consumer and other			22,675				114				-				79				22,868
Total loans		$	1,867,488			$	6,277			$	-			$	6,245			$	1,880,010

Nonperforming Assets

The following table sets forth the allocation of our nonperforming assets among different asset categories as of the dates indicated. Nonperforming assets consist of nonperforming loans plus OREO and repossessed property. Nonperforming loans include nonaccrual loans and loans past due 90 days or more.

		As of September 30, 2026				As of December 31, 2025
		(Dollars in Thousands)
Nonaccrual loans		$	6,686			$	6,245
Loans past due 90 days or more and still accruing			-				-
Total nonperforming loans			6,686				6,245
OREO			888				253
Repossessed property			-				-
Total nonperforming assets		$	7,574			$	6,498
Modified loans - nonaccrual(1)		$	-			$	-
Modified loans - accruing		$	-			$	-
Allowance for credit losses		$	19,029			$	18,096
Total loans, net of discounts and deferred fees, outstanding at end of period		$	1,983,326			$	1,873,533
Nonperforming loans to total loans			0.34	%			0.33	%
Nonperforming assets to total loans and OREO			0.38	%			0.35	%
Allowance for credit losses to nonperforming loans			285	%			290	%
Allowance for credit losses to total loans, net of discounts and deferred fees			.96	%			.97	%
Nonaccrual loans by category:
Real estate:
Commercial real estate		$	324			$	-
Construction and land development			31				596
Residential and other			6,034				5,439
Commercial			220				131
Consumer and other			77				79
Total		$	6,686			$	6,245

(1)

Troubled debt restructured loans are excluded from nonperforming loans unless they otherwise meet the definition of nonaccrual loans or are more than 90 days past due.

Modifications to Borrowers Experiencing Financial Difficulty

On occasion, the Bank modifies loans to borrowers in financial distress by providing principal forgiveness, term extensions, interest rate reductions, or payment delays. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL. In some cases, the Bank provides multiple types of concessions on one loan.

On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2023-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2023-02"). ASU 2023-02 eliminates the troubled debt restructuring (TDR) measurement and recognition guidance and requires that entities evaluate whether a modification represents a new loan or a continuation of an existing loan consistent with the accounting for other loan modifications. Additional disclosures relating to modifications to borrowers experiencing financial difficulty are required under ASU 2023-02. The Company adopted this ASU on a prospective basis.

These loans are excluded from our nonperforming loans unless they otherwise meet the definition of nonaccrual loans or are past due 90 days or more after the restructuring. The balance of these loans as of September 30, 2026 and December 31, 2025, was immaterial.

Credit Quality

Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, and other applicable criteria, are reviewed by our Chief Credit Officer.

In addition to the past due and nonaccrual criteria, we also evaluate loans according to an internal risk grading system. Loans are segregated between pass, special mention, substandard, doubtful, and loss categories, which conform to regulatory definitions. A description of the general characteristics of the risk categories and definitions of those segregations follows.

Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors.

Special Mention - Loans in this category are currently protected but are potentially weak, including, for example, as a result of adverse trends in the borrower's operations, credit quality or financial strength. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Bank's credit position at some future date.

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and they are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss - Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset even though partial recovery may be effected in the future.

The following tables summarize the risk categories of our loan portfolio based upon the most recent analysis performed as of September 30, 2026, and December 31, 2025, respectively:

		Outstanding Loan Balance by Internal Risk Grades
As of September 30, 2026		Pass				Special Mention				Substandard				Doubtful				Total
		(Dollars in thousands)
Real estate:
Commercial real estate		$	1,166,346			$	15,963			$	638			$	-			$	1,182,947
Construction and land development			197,201				412				31				-				197,644
Residential			379,876				624				6,084				-				386,584
Other			18,108				-				-				-				18,108
Commercial			183,830				666				220				-				184,715
Consumer and other			19,218				30				77				-				19,326
Total loans		$	1,964,579			$	17,695			$	7,050			$	-			$	1,989,324

		Outstanding Loan Balance by Internal Risk Grades
As of December 31, 2025		Pass				Special Mention				Substandard				Doubtful				Total
		(Dollars in thousands)
Real estate:
Commercial real estate		$	1,104,532			$	8,814			$	94			$	-			$	1,113,440
Construction and land development			176,014				78				596				-				176,688
Residential			371,583				833				5,527				-				377,943
Other			14,824				-				-				-				14,824
Commercial			173,324				793				131				-				174,248
Consumer and other			22,767				21				79				-				22,867
Total loans		$	1,863,044			$	10,539			$	6,427			$	-			$	1,880,010

Securities Portfolio

Our securities portfolio serves the following purposes: (i) it provides liquidity to supplement cash flows from the loan and deposit activities of customers; (ii) it can be used as an interest rate risk management tool because it provides a large base of assets and we can change the maturity and interest rate characteristics more easily than those of the loan portfolio to better match changes in the deposit base and other Company funding sources; (iii) it is an alternative interest-earning asset when loan demand is weak or when deposits grow more rapidly than loans; and (iv) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender.

Our securities portfolio consists of securities classified as available-for-sale or held-to-maturity. In determining such classification, securities that the Company has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and are carried at amortized cost. Securities not classified as held-to-maturity are classified as "available-for-sale" and recorded at fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss) net of tax. Our securities portfolio consists of U.S. government and federal agency securities, U.S. government sponsored enterprise securities, mortgage-backed securities, and state and political subdivisions obligations. We determine the appropriate classification at the time of purchase. The following tables summarize the fair value of our securities portfolio as of the dates presented.

		September 30, 2026												December 31, 2025
		Amortized Cost				Fair Value				Unrealized Gain/(Loss)				Amortized Cost				Fair Value				Unrealized Gain/(Loss)
Available-for-Sale
U.S. government and federal agencies		$	15,005			$	14,996			$	(9	)		$	14,830			$	14,830			$	-
U.S. government-sponsored enterprises (GSEs)			-				-				-				5				5				-
State and political subdivisions			12,698				11,885				(813	)			15,780				15,514				(266	)
Mortgage-backed securities			11,045				10,190				(855	)			13,295				12,787				(508	)
Total Available-for-Sale		$	38,748			$	37,072			$	(1,677	)		$	43,910			$	43,136			$	(774	)

		September 30, 2026												December 31, 2025
		Amortized Cost				Fair Value				Unrealized Gain/(Loss)				Amortized Cost				Fair Value				Unrealized Gain/(Loss)
Held-to-Maturity
U.S. government and federal agencies		$	50,364			$	49,904			$	(460	)		$	42,681			$	41,879			$	(803	)
U.S. government-sponsored enterprises (GSEs)			5,779				5,502				(277	)			13,599				13,309				(291	)
State and political subdivisions			3,898				3,575				(324	)			3,913				3,744				(168	)
Mortgage-backed securities			36,834				33,380				(3,454	)			37,534				35,524				(2,010	)
Total Held-to-Maturity		$	96,875			$	92,361			$	(4,515	)		$	97,728			$	94,456			$	(3,272	)

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At September 30, 2026, we evaluated the securities that had an unrealized loss for other-than-temporary impairment and determined all declines in value to be temporary. We anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities, and it is not probable that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity.

The following tables set forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of September 30, 2026 and December 31, 2025. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

		As of September 30, 2026
		Due in One Year or Less								Due after One Year through Five Years								Due after Five Years through Ten Years								Due after Ten Years
		Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield
		(Dollars in thousands)
Available-for-Sale
U.S. government and federal agencies			15,005				3.64	%			-				-				-				-				-				-
U.S. government sponsored enterprises (GSEs)			-				-				-				-				-				-				-				-
State and political subdivisions			2,014				3.30	%			6,169				3.55	%			2,562				4.23	%			1,952				4.86	%
Mortgage-backed securities			61				2.91	%			1,788				2.93	%			3,293				2.52	%			5,903				3.35	%
Total Available-for-Sale		$	17,081				3.60	%		$	7,957				3.41	%		$	5,855				3.27	%		$	7,855				3.72	%

		As of December 31, 2025
		Due in One Year or Less								Due after One Year through Five Years								Due after Five Years through Ten Years								Due after Ten Years
		Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield
		(Dollars in thousands)
Available-for-Sale
U.S. government and federal agencies		$	14,830				3.54	%			-				-				-				-				-				-
U.S. government sponsored enterprises (GSEs)			5				8.11	%			-				-				-				-				-				-
State and political subdivisions			3,351				0.68	%			6,142				2.88	%			4,338				3.97	%			1,949				4.86	%
Mortgage-backed securities			31				3.33	%			2,452				3.23	%			3,481				2.34	%			7,331				3.54	%
Total Available-for-Sale		$	18,217				3.38	%		$	8,594				2.98	%		$	7,819				3.24	%		$	9,280				3.8	%

		As of September 30, 2026
		Due in One Year or less								Due after One Year through Five Years								Due after Five Years through Ten Years								Due after Ten Years
		Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield
		(Dollars in thousands)
Held-to-Maturity
U.S. government and federal agencies		$	42,995				2.11	%		$	7,369				3.32	%		$	-				-	%		$	-				-	%
U.S. government-sponsored enterprises (GSEs)			880				3.03	%			4,899				1.33	%			-				-	%			-				-	%
State and political subdivisions			-				-	%			2,521				1.58	%			-				-	%			1,377				5.04	%
Mortgage-backed securities			-				-	%			-				-	%			5,265				1.20	%			31,569				4.23	%
Total Held-to-Maturity		$	43,876				2.12	%		$	14,789				2.36	%		$	5,265				1.20	%		$	32,946				4.27	%

		As of December 31, 2025
		Due in One Year or less								Due after One Year through Five Years								Due after Five Years through Ten Years								Due after Ten Years
		Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield				Amortized Cost				Weighted Average Yield
		(Dollars in thousands)
Held-to-Maturity
U.S. government and federal agencies		$	30,234				2.19	%		$	12,448				0.93	%		$	-				-	%		$	-				-	%
U.S. government-sponsored enterprises (GSEs)			7,883				3.24	%			5,716				1.59	%			-				-	%			-				-	%
State and political subdivisions			-				-	%			2,434				1.47	%			98				4.37	%			1,381				5.04	%
Mortgage-backed securities			-				-	%			-				-	%			-				-	%			37,534				3.65	%
Total Held-to-Maturity		$	38,117				2.35	%		$	20,598				1.18	%		$	98				4.37	%		$	38,915				3.70	%

Allowance for Credit Losses (ACL) - Available-For-Sale Securities: The Company evaluates available-for-sale securities in an unrealized loss position to determine if credit losses exist. The Company first evaluates whether it intends to sell, or it is more likely than not that it will be required to sell, a security before recovering its amortized cost basis. If either condition exists, the security's amortized cost basis is written down to fair value through income. If either aforesaid condition does not exist, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If credit loss exists, the Company recognizes an ACL, limited to the amount by which the amortized cost basis exceeds the fair value. Any impairment not recognized through an ACL is recognized in other comprehensive income (loss), net of tax.

Changes in the ACL are recorded as provision for credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Allowance for Credit Losses (ACL) - Held-to-Maturity Securities: Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type and any other risk characteristics used to segment the portfolio. Accrued interest receivable on held-to-maturity debt securities totaled $479,213 and $291,460 as of September 30, 2026, and December 31, 2025, respectively.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase are treated as collateralized financial transactions. These agreements are recorded at the amount at which the securities were acquired or sold plus accrued interest. It is the Company's policy to take possession of securities purchased under resale agreements. The market value of these securities is monitored, and additional securities are obtained when deemed appropriate to ensure such transactions are adequately collateralized. The Company also monitors its exposure with respect to securities sold under repurchase agreements, and a request for the return of excess securities held by the counterparty is made when deemed appropriate.

The Company sold no held-to-maturity securities prior to maturity during the nine months ended September 30, 2026 or the fiscal year ended December 31, 2025.

Bank-Owned Life Insurance

We maintain investments in BOLI policies to help control employee benefit costs, as a protection against loss of certain employees and as a tax planning strategy. We are the sole owner and beneficiary of these BOLI policies. At September 30, 2026, the carrying value of our BOLI policies was $46.9 million compared to $46.6 million as of December 31, 2025.

Deposits

Deposits represent our primary and most vital source of funds. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts and certificates of deposit. The Bank also acquires brokered deposits, QwickRate internet certificates of deposit, and reciprocal deposits through the Promontory network. The reciprocal deposits include both the Certificate of Deposit Account Registry Service (CDARS) and Insured Cash Sweep programs. We are a member of the Promontory network, which effectively allows depositors to receive FDIC insurance on amounts greater than the FDIC insurance limit, which is currently $250,000 per depositor, per issued bank for each account ownership category. The Promontory network allows institutions to break large deposits into smaller amounts and place them in a network of other Promontory institutions to ensure full FDIC insurance is gained on the entire deposit. Generally, internet and reciprocal deposits are not brokered deposits for regulatory purposes.

Our strong asset growth requires us to place a greater emphasis on both interest and noninterest-bearing deposits. Deposit accounts are added by loan production cross-selling, customer referrals, marketing advertisements, mobile and online banking and our involvement within our communities.

Total deposits were $1.9 billion at September 30, 2026 and $1.8 billion at December 31, 2025. As of September 30, 2026, 21.6% of total deposits was comprised of noninterest-bearing demand deposits, 51.7% of total deposits was comprised of interest-bearing non-maturity accounts and 26.7% of total deposits was comprised of time deposits. As of December 31, 2025, 21.9% of total deposits was comprised of noninterest-bearing demand deposits, 51.2% of total deposits was comprised of interest-bearing non-maturity accounts and 26.8% of total deposits was comprised of time deposits.

The following table summarizes our deposit balances as of September 30, 2026, and December 31, 2025:

		As of September 30, 2026								As of December 31,
		2026								2025
		Balance				% of Total				Balance				% of Total
										(Dollars in thousands)
Noninterest-bearing demand deposits		$	408,242				21.6	%		$	397,835				21.9	%
Interest-bearing deposits:
Interest-bearing demand deposits			567,306				30.1	%			516,151				28.4	%
NOW, savings and money market			407,028				21.6	%			414,716				22.8	%
Time deposits			504,819				26.7	%			487,032				26.8	%
Total interest-bearing deposits			1,479,153				78.4	%			1,417,899				78.1	%
Total deposits		$	1,887,395				100.0	%		$	1,815,734				100	%

The following tables set forth the maturity of time deposits as of September 30, 2026, and December 31, 2025:

		As of September 30, 2026 Maturity Within:
		Three Months				Three Months Through 12 Months				Over 12 Months Through 3 Years				Over 3 Years				Total
		(Dollars in thousands)
Time deposits ($250,000 or less)		$	155,908			$	181,523			$	51,828			$	5,775			$	395,034
Time deposits (greater than $250,000)			36,776				66,973				6,036				-				109,785
Total time deposits		$	192,684			$	248,496			$	57,864			$	5,775			$	504,819

		As of December 31, 2025 Maturity Within:
		Three Months				Three Months Through 12 Months				Over 12 Months Through 3 Years				Over 3 Years				Total
		(Dollars in thousands)
Time deposits ($250,000 or less)		$	161,783			$	176,711			$	33,093			$	5,363			$	376,950
Time deposits (greater than $250,000)			40,542				57,046				12,495				-				110,082
Total time deposits		$	202,325			$	233,757			$	45,588			$	5,363			$	487,032

Time deposits issued in amounts of greater than $250,000 represent the type of deposit most likely to affect our future earnings because of interest rate sensitivity. The effective cost of these funds is generally higher than the cost of other time deposits because the funds are usually obtained at premium rates of interest.

Borrowed Funds

In addition to deposits, we utilize advances from the FHLB and other borrowings as a supplementary funding source to finance our operations.

FHLB Advances. The FHLB allows us to borrow, on both a short and long-term basis, collateralized by a blanket floating lien on first mortgage loans and CRE loans as well as FHLB stock. At September 30, 2026, and December 31, 2025, we had borrowing capacity from the FHLB of $237.6 million and $276.0 million, respectively. We had $100.0 million of cash management advance FHLB borrowings as of September 30, 2026 and $75 million as of December 31, 2025. We had long-term FHLB borrowings of $57.0 million and $60.6 million as of September 30, 2026, and December 31, 2025, respectively. All of our outstanding FHLB advances have fixed rates of interest.

The following table sets forth our FHLB borrowings as of September 30, 2026, and December 31, 2025:

		As of September 30, 2026				As of December 31, 2025
		(Dollars in thousands)
Long-term FHLB borrowings outstanding at end of period		$	57,048			$	60,553
Weighted average interest rate at end of period			2.88	%			2.88	%
Maximum month-end balance		$	61,189			$	66,202
Average balance outstanding during the period		$	59,634			$	62,419
Weighted average interest rate during the period			3.02	%			2.92	%

Lines of Credit. The Bank has uncollateralized, uncommitted federal funds lines of credit with multiple banks as a source of funding for liquidity management. The total amount of these lines of credit was $102.5 million as of September 30, 2026, of which $64.5 million was available. The total amount of the lines of credit was $102.5 million as of December 31, 2025, of which $92.5 million was available.

Federal Reserve Discount Window. The Bank has a line of credit with the Federal Reserve Discount Window collateralized with CRE loans. There were no amounts outstanding under this line of credit as of September 30, 2026, or December 31, 2025.

Community Trust Bank Loan Agreement. In April 2015, the Parent Company executed a Loan Agreement with Community Trust Bank, Inc. ("CTB"), Pikeville, Kentucky (the "Community Trust Loan Agreement"), which was later amended and restated on January 27, 2020, providing for a loan by CTB to the Parent Company. The loan was collateralized by all of the issued and outstanding shares of stock of the Bank. The Community Trust Loan Agreement included various financial and nonfinancial covenants. On October 7, 2025, the Parent Company repaid this loan in full.

Trust Preferred Securities. With the acquisition of Citizens Bancorp, Inc. and its bank subsidiary, Citizens Bank, in 2018, we also acquired the Trust. In September 2004, the Trust issued the Trust Preferred Securities with an aggregate liquidation amount of $6,000,000 ($1,000 per trust preferred security) to a third-party investor. Citizens Bancorp then issued variable rate junior subordinated debentures aggregating $6,186,000 to the Trust. The subordinated debentures were the sole assets of the Trust. The subordinated debentures and the Trust Preferred Securities paid interest and dividends, on a quarterly basis, at a variable interest rate equal to three-month SOFR plus 2.40% adjusted quarterly, which was 6.41% on December 31, 2025. The subordinated debentures and the Trust Preferred Securities were redeemable prior to maturity, in whole or in part. On January 7, 2026, the Company redeemed the subordinated debentures and the Trust Preferred Securities in full.

Liquidity and Capital Resources

Liquidity

Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all of our short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Interest rate sensitivity involves the relationships between rate-sensitive assets and liabilities and is an indication of the probable effects of interest rate fluctuations on our net interest income. Interest rate-sensitive assets and liabilities are those with yields or rates that are subject to change within a future time period due to maturity or changes in market rates. A model is used to project future net interest income under a set of possible interest rate movements. The Bank's Asset/Liability Committee reviews this information to determine if the projected future net interest income levels would be acceptable. We attempt to stay within acceptable net interest income levels.

Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and the fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits and additional borrowings from correspondent banks, FHLB advances, and the Federal Reserve Discount Window.

Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment securities portfolios and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

The Parent Company and the Bank are separate corporate entities. The Parent Company's liquidity depends primarily upon dividends received from the Bank and capital and debt instruments issued by the Parent Company. Statutory and regulatory limitations apply to the Bank's payment of dividends to the Parent Company. See the sections titled "Risk Factors - Legal, Regulatory and Compliance Risks - Our Ability to pay dividends is subject to restriction by various laws and regulations and other factors" and "Supervision and Regulation - Payment of Dividends and Repurchases of Capital Instruments" in the 2025 Annual Report. The Parent Company relies on its liquidity to pay interest and principal on Parent Company indebtedness, Parent Company operating expenses, and dividends to Parent Company shareholders.

		As of September 30, 2026				As of December 31, 2025
Current On-Balance Sheet (in thousands)
Cash and cash equivalents		$	182,579			$	144,319
Unpledged available-for-sale and held-to-maturity securities			15,089				22,873
Total on-balance sheet		$	197,668			$	167,192

		As of September 30, 2026				As of December 31, 2025
Available Sources of Liquidity (in thousands)
Federal Reserve & FHLB remaining borrowing capacity		$	237,610			$	275,961
Correspondent banks borrowing capacity			64,500				92,500
Brokered CDs capacity			240,118				230,357
Total available sources		$	542,228			$	598,818

Capital Requirements

We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet applicable regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under regulatory capital adequacy guidelines and the regulatory framework for "prompt corrective action" (described below), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Because the Company has total consolidated assets of less than $3 billion and otherwise qualifies for the application of the Federal Reserve's Small Bank Holding Company Policy Statement, the Company currently is not subject to federal capital adequacy guidelines on a consolidated basis. Rather, the regulatory capital requirements are applied to and assessed at the Bank. See the section titled "Supervision and Regulation" in the 2025 Annual Report.

The tables below summarize the capital requirements applicable to the Bank in order for the Bank to satisfy the minimum capital requirements of the capital adequacy guidelines and to be considered "well-capitalized" from a regulatory perspective under the prompt corrective action framework, as well as the Company's and the Bank's capital ratios as of September 30, 2026, and December 31, 2025. The Federal Deposit Insurance Act ("FDIA") requires, among other things, that the federal banking regulators take prompt corrective action with respect to FDIC-insured depository institutions that do not meet certain minimum capital requirements. Under the FDIA, insured depository institutions are divided into five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under applicable FDIA regulations, an institution is considered to be well capitalized if it has a common equity Tier 1 capital ratio ("CET1 capital") of at least 6.5%, a leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at least 8%, and a total risk-based capital ratio of at least 10%, and it is not subject to a directive, order or written agreement to meet and maintain specific capital levels.

The Bank exceeded all the minimum regulatory capital requirements under the federal capital adequacy guidelines (Basel III), and the Bank met all the minimum capital requirements to be considered "well-capitalized" under the prompt corrective action framework, as of the dates reflected in the tables below.

		Actual								Required Minimum Under Capital Adequacy Guidelines								Minimum to be Considered "Well Capitalized" Under PCA
		Amount				Ratio				Amount				Ratio				Amount				Ratio
		(Dollars in thousands)
As of September 30, 2026:
Tier 1 capital (to average assets) (leverage)
Company		$	301,736				13.5	%			N/A				N/A				N/A				N/A
Bank		$	271,765				11.8	%		$	92,098				4.0	%		$	115,123				5.0	%
CET1 capital (to risk-weighted assets)
Company		$	301,736				14.7	%			N/A				N/A				N/A				N/A
Bank		$	271,765				13.3	%		$	91,919				4.5	%		$	132,771				6.5	%
Tier 1 capital (to risk-weighted assets)
Company		$	301,736				14.7	%			N/A				N/A				N/A				N/A
Bank		$	271,765				13.3	%		$	122,558				6.0	%		$	163,411				8.0	%
Total capital (to risk-weighted assets)
Company		$	320,765				15.6	%			N/A				N/A				N/A				N/A
Bank		$	290,907				14.2	%		$	163,411				8.0	%		$	204,264				10.0	%

		Actual								Required Minimum Under Capital Adequacy Guidelines								Minimum to be Considered "Well Capitalized" Under PCA
		Amount				Ratio				Amount				Ratio				Amount				Ratio
		(Dollars in thousands)
As of December 31, 2025:
Tier 1 capital (to average assets) (leverage)
Company		$	229,716				10.7	%			N/A				N/A				N/A				N/A
Bank		$	237,827				10.8	%		$	88,218				4.0	%		$	110,272				5.0	%
CET1 capital (to risk-weighted assets)
Company		$	224,174				12.1	%			N/A				N/A				N/A				N/A
Bank		$	237,827				12.5	%		$	85,349				4.5	%		$	123,282				6.5	%
Tier 1 capital (to risk-weighted assets)
Company		$	229,716				12.5	%			N/A				N/A				N/A				N/A
Bank		$	237,827				12.5	%		$	113,799				6.0	%		$	151,732				8.0	%
Total capital (to risk-weighted assets)
Company		$	247,705				13.4	%			N/A				N/A				N/A				N/A
Bank		$	255,727				13.5	%		$	151,732				8.0	%		$	189,665				10.0	%

Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations at September 30, 2026, and December 31, 2025:

		Payments Due at September 30, 2026
		Within One Year				One to Five Years				After Five Years				Total
		(Dollars in thousands)
Time deposits		$	441,180			$	63,176			$	463			$	504,819
Short-term borrowings			142,422				-				-				142,422
Long-term borrowings			13,199				19,667				36,037				68,903
Subordinated debt securities			-				-				-				-
Total contractual obligations		$	596,801			$	82,843			$	36,501			$	716,144

		Payments Due at December 31, 2025
		Within One Year				One to Five Years				After Five Years				Total
		(Dollars in thousands)
Time deposits		$	436,082			$	50,950			$	-			$	487,032
Short-term borrowings			88,251				-				-				88,251
Long-term borrowings			12,607				707				59,696				73,010
Subordinated debt securities			-				-				5,577				5,577
Total contractual obligations		$	536,940			$	51,657			$	65,273			$	653,870

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.

Off-Balance Sheet Arrangements We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheets. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit to our customers is represented by the contractual or notional amount of those instruments. Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by us until the instrument is exercised. The contractual or notional amounts of these instruments reflect the extent of involvement we have in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. The amount and nature of collateral obtained, if deemed necessary by us upon extension of credit, is based on management's credit evaluation of the potential borrower.

Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private short-term borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We hold collateral supporting such commitments for which collateral is deemed necessary.

The following table summarizes commitments we had made as of the dates presented.

		As of September 30,				As of December 31,
		2026				2025
		(Dollars in thousands)
Commitments to grant loans and unfunded commitments under lines of credit		$	280,736			$	274,407
Standby letters of credit			29,299				24,503
Total		$	310,035			$	298,910