Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis of the financial condition and results of operations of the Company for the years ended December 31, 2025 and 2024 should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements included in Item 8 of this Form 10-K.

General

The allowance for loan credit losses represents an amount which, in management's judgement, is adequate to absorb the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions, and prepayment experience. The allowance for loan credit losses is measured and recorded upon the initial recognition of a financial asset. The allowance for loan credit losses is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for (or recovery of) credit losses, which is recorded in the Consolidated Statement of Income. The evaluation also considers the following risk characteristics of each loan portfolio class:

	●	1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.
	●	Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may not finish the construction project as planned because of financial pressure or other factors unrelated to the project.
	●	Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability.
	●	Consumer and other loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral, if any. Consumer loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. These loans are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Other loans included in this category include loans to states and political subdivisions.

Financial Instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit losses in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records all allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for (or recovery of) credit losses in the Consolidated Statement of Income. The allowances for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit losses model using the same methodology as the loan portfolio, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company's consolidated balance sheet.

Net income increased by $10.7 million to $17.7 million, or $1.96 per diluted share, for the year ended December 31, 2025, compared to $7.0 million, or $1.00 per diluted share, for the same period in 2024. Return on average assets was 0.87% and return on average equity was 10.10% for the year ended December 31, 2025, compared to 0.44% and 5.33%, respectively, for the year ended December 31, 2024.

The $10.7 million increase in net income resulted from a $20.8 million increase in net interest income, a $5.9 million decrease in merger expenses associated with the Touchstone acquisition, a $5.0 million decrease in provision for credit losses partially associated with the acquisition, and a $638 thousand increase in noninterest income. These favorable variances were partially offset by a $12.5 million, or 24%, increase in noninterest expense and a $3.2 million increase in income tax expense.

The following is selected financial data for the Company for the years ended December 31, 2025 and 2024. This information has been derived from audited financial information included in Item 8 of this Form 10-K (in thousands, except ratios and per share amounts).

As of and for the years ended December 31,
		2025				2024
Results of Operations
Interest and dividend income		$	99,497			$	76,319
Interest expense			26,251				23,867
Net interest income			73,246				52,452
Provision for credit losses			2,887				7,850
Net interest income after provision for credit losses			70,359				44,602
Noninterest income			17,018				16,380
Noninterest expense			65,433				52,934
Income before income taxes			21,944				8,048
Income tax expense			4,241				1,082
Net income		$	17,703			$	6,966
Key Performance Ratios
Return on average assets			0.87	%			0.44	%
Return on average equity			10.10	%			5.33	%
Net interest margin (1)			3.88	%			3.51	%
Efficiency ratio (1)			68.18	%			66.73	%
Dividend payout			32.27	%			60.54	%
Equity to assets			9.14	%			8.28	%
Per Common Share Data
Net income, basic		$	1.97			$	1.00
Net income, diluted			1.96				1.00
Cash dividends			0.635				0.605
Book value at period end			18.83				16.48
Financial Condition
Assets		$	2,037,978			$	2,010,281
Loans, net			1,435,026				1,450,195
Securities			326,034				277,329
Deposits			1,799,548				1,803,778
Shareholders' equity			186,196				166,531
Average shares outstanding, diluted			9,015				6,971
Capital Ratios (2)
Leverage			9.13	%			7.95	%
Risk-based capital ratios:
Common equity Tier 1 capital			12.59	%			11.19	%
Tier 1 capital			12.59	%			11.19	%
Total capital			13.64	%			12.34	%

(1)

This performance ratio is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational performance. Such information is not prepared in accordance with U.S. generally accepted accounting principles (GAAP) and should not be construed as such. In addition, these non-GAAP financial measures may be calculated differently and may not be comparable to similar measures provided by other companies. Management believes such financial information is meaningful to the reader in understanding operating performance but cautions that such information should not be viewed as a substitute for GAAP. See "Non-GAAP Financial Measures" included below.

(2)	All capital ratios reported are for the Bank.

For a more detailed discussion of the Company's annual performance, see "Net Interest Income," "Provision for Credit Losses," "Noninterest Income," "Noninterest Expense" and "Income Taxes" below.

Non-GAAP Financial Measures

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

		Efficiency Ratio
		2025				2024
Total noninterest expense (GAAP)		$	65,433			$	52,934
Subtract: other real estate (gain) loss and expense, net			7				(15	)
Subtract: amortization of intangibles			(1,767	)			(461	)
Subtract: loss on disposal of premises and equipment, net			16				(47	)
Subtract: merger expenses			(2,159	)			(8,107	)
Adjusted non-interest expense (non-GAAP)		$	61,530			$	44,304
Tax-equivalent net interest income (non-GAAP)		$	73,613			$	52,821
Total noninterest income (GAAP)			17,018				16,380
Gain on subordinated debt payoff			(80	)			-
Bargain purchase gain from acquisition			(304	)			(2,920	)
Securities losses (gains), net			-				115
Adjusted income for efficiency ratio (non-GAAP)		$	90,247			$	66,396
Efficiency ratio (non-GAAP)			68.18	%			66.73	%

This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for both 2025 and 2024 is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (in thousands).

		Reconciliation of Net Interest Income to Tax-Equivalent Net Interest Income
		2025				2024
GAAP measures:
Interest income - loans		$	85,174			$	63,483
Interest income - investments and other			14,323				12,836
Interest expense - deposits			(24,292	)			(20,964	)
Interest expense - federal funds purchased			-				(1	)
Interest expense - subordinated debt			(1,687	)			(603	)
Interest expense - junior subordinated debt			(266	)			(270	)
Interest expense - other borrowings			(6	)			(2,029	)
Total net interest income		$	73,246			$	52,452
Non-GAAP measures:
Tax benefit realized on non-taxable interest income - loans		$	52			$	43
Tax benefit realized on non-taxable interest income - municipal securities			315				326
Total tax benefit realized on non-taxable interest income		$	367			$	369
Total tax-equivalent net interest income		$	73,613			$	52,821

Net Interest Income

Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on interest-earning assets, predominantly loans and securities, exceeds interest expense on interest-bearing liabilities, including deposits, other borrowings, subordinated debt, and junior subordinated debt. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, are the components that impact the level of net interest income. The net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets. The provision for credit losses, noninterest income, noninterest expense and income tax expense are the other components that determine net income. Noninterest income primarily consists of income from service charges on deposit accounts, ATM and check card income, wealth management income, income from other customer services, and income from bank owned life insurance. Noninterest expense primarily consists of salaries and benefits, occupancy and equipment expenses, marketing expenses, legal and professional fees, data processing expenses, atm and check card expenses, FDIC assessments, bank franchise taxes, merger expenses and other operating expenses.

Net interest income increased $20.8 million, or 39.6%, to $73.2 million for 2025 compared to the prior year. Total interest income increased by $23.2 million and was partially offset by total interest expense, which increased by $2.4 million. The net interest margin increased by 37-basis points to 3.88% and average earnings assets increased by $393.5 million, or 26.1%, offset by a $279.9 million, or 27.1%, increase in average interest-bearing liabilities, in each case primarily related to the acquisition of Touchstone.

The increase in total interest income was primarily attributable to a $21.7 million, or 34%, increase in interest income and fees on loans. The increase in interest income on loans was attributable to a 12-basis point increase in the yield on loans and a 31.5% increase in average loan balances compared to the prior year due to the acquisition of Touchstone.

The increase in total interest expense was attributable to a $3.3 million increase in interest expense on deposits offset by a $2.0 million decrease in interest expense on other borrowings. Although there was a 31-basis point decrease in the cost of interest-bearing liabilities, interest expense increased due to a 31.9% increase in average interest-bearing deposits due to the acquisition of Touchstone.

The net interest margin was 3.88% for the year ended December 31, 2025, compared to the 3.51% for the prior year as the increase in the yield on earning assets exceeded the increase in cost of funds during 2025. Net accretion income related to acquisition accounting was $1.1 million, or a six-basis point incremental increase to the net interest margin.

The following table provides information on average interest-earning assets and interest-bearing liabilities for the years ended December 31, 2025 and 2024 as well as amounts and rates of tax equivalent interest earned and interest paid (dollars in thousands). The volume and rate analysis table analyzes the changes in net interest income for the periods broken down by their rate and volume components (in thousands).

Average Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis)
		Years Ending December 31,
		2025												2024
		Average Balance				Interest Income/Expense				Yield/Rate				Average Balance				Interest Income/Expense				Yield/Rate
Assets
Interest-bearing deposits in other banks		$	160,064			$	6,913				4.32	%		$	124,407			$	6,490				5.22	%
Securities:
Taxable			236,181				5,923				2.51	%			221,611				4,733				2.14	%
Tax-exempt (1)			51,613				1,502				2.91	%			53,289				1,547				2.90	%
Restricted			4,377				260				5.94	%			2,522				202				8.01	%
Total securities			292,171				7,685				2.63	%			277,422				6,482				2.34	%
Loans: (2)
Taxable			1,441,319				84,982				5.90	%			1,096,312				63,320				5.78	%
Tax-exempt (1)			3,978				244				6.13	%			2,561				206				8.04	%
Total loans			1,445,297				85,226				5.90	%			1,098,873				63,526				5.78	%
Federal funds sold			892				40				4.52	%			4,244				189				4.44	%
Total earning assets			1,898,424				99,864				5.26	%			1,504,946				76,687				5.10	%
Less: allowance for credit losses on loans			(15,437	)											(13,381	)
Total nonearning assets			143,540												105,585
Total assets		$	2,026,527											$	1,597,150
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Checking		$	377,944			$	4,880				1.29	%		$	278,558			$	4,870				1.75	%
Money market accounts			332,467				7,370				2.22	%			294,818				8,265				2.80	%
Savings accounts			210,510				756				0.36	%			160,795				292				0.18	%
Certificates of deposit:
Less than $250			292,203				8,831				3.02	%			192,456				5,856				3.01	%
Greater than $250			71,438				2,455				3.44	%			46,846				1,668				3.56	%
Brokered deposits			-				-				0.00	%			288				13				4.82	%
Total interest-bearing deposits			1,284,562				24,292				1.89	%			973,761				20,964				2.15	%
Federal funds purchased			1				-				0.00	%			2				-				5.24	%
Subordinated debt			20,308				1,687				8.31	%			8,889				603				6.78	%
Junior subordinated debt			9,279				266				2.86	%			9,279				270				2.91	%
Other borrowings			137				6				4.28	%			42,486				2,029				4.78	%
Total interest-bearing liabilities			1,314,287				26,251				2.00	%			1,034,417				23,866				2.31	%
Noninterest-bearing liabilities
Demand deposits			527,756												422,981
Other liabilities			9,220												9,037
Total liabilities			1,851,263												1,466,435
Shareholders' equity			175,264												130,715
Total liabilities and shareholders' equity		$	2,026,527											$	1,597,150
Net interest income						$	73,613											$	52,821
Interest rate spread											3.26	%											2.79	%
Cost of funds											1.43	%											1.64	%
Interest expense as a percent of average earning assets											1.38	%											1.59	%
Net interest margin											3.88	%											3.51	%

(1)	Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 21%. The tax-equivalent adjustment was $367 thousand for 2025, and $369 thousand for 2024.

(2)	Loans placed on a non-accrual status are reflected in the balances.

		Volume and Rate
		Years Ending December 31,
		2025
		Volume Effect				Rate Effect				Change in Income/Expense
Interest-bearing deposits in other banks		$	1,064			$	(641	)		$	423
Loans, taxable			20,361				1,300				21,661
Loans, tax-exempt			66				(28	)			38
Securities, taxable			329				861				1,190
Securities, tax-exempt			(51	)			6				(45	)
Securities, restricted			89				(31	)			58
Federal funds sold			(152	)			4				(148	)
Total earning assets		$	21,706			$	1,471			$	23,177
Checking		$	39			$	(29	)		$	10
Money market accounts			1,418				(2,313	)			(895	)
Savings accounts			110				354				464
Certificates of deposits:
Less than $250			2,993				(18	)			2,975
Greater than $250			843				(56	)			787
Brokered deposits			(13	)			-				(13	)
Subordinated debt			923				162				1,085
Junior subordinated debt			-				(4	)			(4	)
Other borrowings			(1,833	)			(191	)			(2,024	)
Total interest-bearing liabilities		$	4,480			$	(2,095	)		$	2,385
Change in net interest income		$	17,226			$	3,566			$	20,792

Provision for Credit Losses

Provision for credit losses totaled $2.9 million in 2025, compared to a provision for credit losses of $7.9 million for the prior year. The 2025 provision was comprised of a $2.8 million provision for credit losses on loans, a $141 thousand provision for credit losses on unfunded commitments, and a $12 thousand recovery of credit losses on held-to-maturity securities. Included in the provision for credit losses for the fourth quarter of 2024 was a $3.8 million initial provision expense on non-purchased credit deteriorated (PCD) loans acquired from Touchstone.

For the year ended December 31, 2025, the provision for credit losses on loans of $2.8 million and net charge offs of $4.4 million resulted in a $1.7 million decrease in the allowance for credit losses on loans. The $4.4 million of net charge-offs included $1.3 million of loans purchased through a third-party lending program and $650 thousand of related unamortized purchase premiums on the loans.

Outside of the initial provision expense recorded on non-PCD loans in 2024, the general reserve component of the ACLL decreased $395 thousand and the specific reserve component of the ACLL decreased $1.3 million in 2025. The decrease in the general reserve was attributable to a decrease in loans. Calculated loss rates were lower as were the inherent risks in the loan portfolio through adjustments to qualitative risk factors. The specific reserve decrease was driven by lower individually analyzed loans balances following charge-offs recorded in 2025.

For the year ended December 31, 2024, the provision for credit losses on loans of $7.8 million, the allowance for credit losses on acquired PCD loans of $386 thousand, and net charge offs of $3.8 million resulted in a $4.4 million increase in the allowance for credit losses on loans. The $3.8 million of net charge-offs included $2.3 million of loans purchased through a third-party lending program and $1.1 million of related unamortized purchase premiums on the loans.

Noninterest Income

Noninterest income totaled $17.0 million for the year, which was an increase of $638 thousand, or 3.9%, compared to $16.4 million for the prior year. The increase was primarily from increases in ATM and check card fees of $1.3 million, or 38.7%, and service charges on deposit accounts of $833 thousand, or 26.7%. Noninterest income categories with moderate increases over the prior year included brokered mortgage fees which increased $397 thousand, or 157.5%, income from bank owned life insurance which increased $389 thousand, or 51.5%, and fees for other customer services which increased $221 thousand, or 22.9%. These increases were offset by a decrease of $2.6 million from the bargain purchase gain recognized on the acquisition of Touchstone.

Noninterest Expense

Noninterest expense increased $12.5 million, or 23.6%, for the year ended December 31, 2025, compared to the prior year. The increase was primarily a result of salaries and employee benefits of $8.5 million and other operating expenses of $3.0 million. Categories with moderate increases over the prior year included occupancy expense which increased $1.5 million, or 56.8%, amortization expense which increased $1.3 million, or 283.3%, equipment expense which increased $1.2 million, or 37.5%, and data processing expense which increased $858 thousand, or 61.1%. The increase was primarily driven by the Touchstone merger resulting in increased operating expenses due to operating additional branches, duplicative expenses incurred prior to system integration, and amortization expense due to time deposit accretion on time deposits acquired from Touchstone. Other operating expense increased from higher recruiting expense, directors fees, debit card promotion expense, education and training, loan collection expense, item processing expense, core deposit intangible expense, and courier and armored services. These increases were offset by a decrease in merger expenses from prior year of $5.9 million, or 73.4%.

Financial Condition

General

Total assets increased $27.7 million during the year and totaled $2.0 billion at December 31, 2025.The increase was attributable to a $53.7 million increase in securities available for sale. This increase was offset by a $15.2 million decrease in loans, net of allowance for credit losses, $6.9 million decrease in securities held to maturity, and a $4.1 million decrease in cash and due from banks.

Total liabilities increased $8.0 million during the year and totaled $1.9 billion at December 31, 2025. The increase was attributable to other borrowings of $25.0 million from the Federal Home Loan Bank. Subordinated debt decreased by $12.9 million due to redemptions and total deposits decreased by $4.2 million.

Total shareholders' equity increased $19.7 million to $186.2 million at December 31, 2025, compared to $166.5 million at December 31, 2024. The increase was primarily attributable to a $12.0 million increase in retained earnings and $6.5 million decrease in accumulated other comprehensive loss.

Loans

The Bank is an active lender with a loan portfolio that includes commercial and residential real estate loans, commercial loans, consumer loans, construction and land development loans, and home equity loans. The Bank's lending activity is concentrated on individuals, and small and medium-sized businesses primarily in its market areas. As a provider of community-oriented financial services, the Bank does not typically attempt to further geographically diversify its loan portfolio by undertaking significant lending activity outside its market areas.

The loan portfolio includes loans that were acquired through business combinations. Loans acquired through business combinations included unamortized discounts, net of unamortized premiums totaling $13.2 million and $14.3 million, as of December 31, 2025 and 2024, respectively, which are amortized over the life of the loans.

Loans purchased from athird-party that originated and serviced loans to health care professionals totaled $14.1 million as of December 31, 2025, which included unamortized premiums totaling $4.1 million, compared to loans totaling $19.0 million as of December 31, 2024, which included unamortized premiums totaling $5.8 million.

Loans decreased $16.9 million to $1.4 billion at December 31, 2025, compared to $1.5 billion at December 31, 2024. Other real estate loans increased by $24.8 million, construction and land development loans increased by $3.9 million, commercial, and industrial loans decreased by $23.4 million, residential real estate loans decreased by $19.9 million, and consumer and other loans decreased by $2.3 million.

The following table sets forth the maturities of the loan portfolio at December 31, 2025 (in thousands):

		Maturity Schedule of Loans Held for Investment
		December 31, 2025
		Construction and Land Development				Secured by 1-4 Family Residential				Other Real Estate				Commercial and Industrial				Consumer and Other Loans				Total
Variable Rate:
Within 1 year		$	22,643			$	9,965			$	13,580			$	22,166			$	5			$	68,359
1 to 5 years			26,844				21,679				43,937				9,122				1,783				103,365
5 to 15 years			18,196				133,802				238,884				2,860				-				393,742
After 15 years			4,797				107,633				120,780				3,365				-				236,575
Fixed Rate:
Within 1 year			7,574				13,093				31,686				11,471				2,822				66,646
1 to 5 years			5,815				55,444				182,029				59,883				8,239				311,410
5 to 15 years			1,145				90,112				52,182				8,011				6,251				157,701
After 15 years			1,410				95,555				13,900				1,066				16				111,947
		$	88,424			$	527,283			$	696,978			$	117,944			$	19,116			$	1,449,745

Asset Quality

Management classifies non-performing assets as non-accrual loans and OREO. OREO represents real property taken by the Bank when its customers do not meet the contractual obligation of their loans, either through foreclosure or through a deed in lieu thereof from the borrower and properties originally acquired for branch operations or expansion but no longer intended to be used for that purpose. OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through brokerage channels. The Bank had $0 and $53 thousand in assets classified as OREO at December 31, 2025 and 2024, respectively.

Non-performing assets totaled $4.7 million and $7.0 million at December 31, 2025 and 2024, representing approximately 0.23% and 0.35% of total assets, respectively. Non-performing assets consisted of $4.7 million and $7.0 million of non-accrual loans at December 31, 2025 and 2024, respectively.

At December 31, 2025, 56.2% of non-performing assets were commercial and industrial loans, 42.9% were residential real estate loans, and 1.0% were construction loans. Non-performing assets could increase due to the deterioration of other loans identified by management as potential problem loans. Other potential problem loans are defined as performing loans that possess certain risks, including the borrower's ability to pay and the collateral value securing the loan, that management has identified that may result in the loans not being repaid in accordance with their terms. Other potential problem loans totaled $6.4 million and $9.1 million at December 31, 2025 and December 31, 2024, respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers' ability to meet their debt requirements.

There were no loans greater than 90 days past due and still accruing at December 31, 2025. There were $365 thousand in loans greater than 90 days past due and still accruing at December 31, 2024.

For further discussion regarding the ACLL, see "Provision for Credit Losses" above.

Recoveries of credit losses of $1.5 million and $29 thousand were recorded in the other real estate and construction and land development loans classes during the year ended December 31, 2025. The recoveries of credit losses resulted primarily from a decrease in the collectively evaluated reserve. These recoveries were offset by provision for credit losses totaling $4.3 million in the 1-4 family residential, consumer and other loans, and commercial and industrial loan classes. For more detailed information regarding the provision for credit losses on loans, see Note 5 to the Consolidated Financial Statements included in this Form 10-K.

Loans individually evaluated for impairment totaled $4.7 million and $7.0 million at December 31, 2025and 2024, respectively. The related allowance for credit losses required for these loans totaled $1.8 million and $3.1 million at December 31, 2025 and December 31, 2024, respectively.

Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover expected losses inherent within the loan portfolio.For each period presented, the provision for credit losses on loans charged to expense was based on factors that include net charge-offs, asset quality, economic conditions, and loan growth. Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company's control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management's estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company's market area, loan growth, or changes in the circumstances of particular borrowers. For further discussion regarding the ACLL, see "Critical Accounting Policies" above. The following table shows a detail of loans charged-off, recovered, and the changes in the ACLL (dollars in thousands).

		Allowance for credit losses
		Construction and Land Development				Secured by 1-4 Family Residential				Other Real Estate				Commercial and Industrial				Consumer and Other Loans				Total
For the year ended December 31, 2024:
Balance at beginning of year		$	312			$	3,159			$	4,698			$	3,706			$	99			$	11,974
Initial Allowance on PCD Touchstone loans		$	11			$	173			$	201			$	1			$	-			$	386
Charge-offs			(4	)			(38	)			-				(3,699	)			(293	)			(4,034	)
Recoveries			-				22				3				111				148				284
Initial Provision - Non-PCD Touchstone loans			118				1,310				1,370				143				888				3,829
Provision for (recovery of) credit losses on loans			148				(360	)			1,190				3,665				(682	)			3,961
Balance at end of year		$	585			$	4,266			$	7,462			$	3,927			$	160			$	16,400
Average loans		$	137,029			$	373,012			$	457,732			$	115,410			$	15,689			$	1,098,872
Ratio of net (recoveries) charge-offs to average loans			0.00	%			0.00	%			0.00	%			3.11	%			0.92	%			0.34	%
For the year ended December 31, 2025:
Balance at beginning of year		$	585			$	4,266			$	7,462			$	3,927			$	160			$	16,400
Charge-offs			(22	)			(59	)			(7	)			(4,221	)			(496	)			(4,805	)
Recoveries			5				31				15				168				147				366
Provision for (recovery of) credit losses on loans			(29	)			581				(1,518	)			3,314				410				2,758
Balance at end of year		$	539			$	4,819			$	5,952			$	3,188			$	221			$	14,719
Average loans		$	123,177			$	488,008			$	698,965			$	120,285			$	14,862			$	1,445,297
Ratio of net (recoveries) charge-offs to average loans			0.01	%			0.01	%			0.00	%			3.37	%			2.35	%			0.31	%

The following table shows the balance of the Bank's ACLL allocated to each major category of loans and the ratio of related outstanding loan balances to total loans (dollars in thousands).

Allocation of Allowance for Credit Losses
		At December 31,
		2025				2024
Allocation of Allowance for Credit Losses:
Real estate loans:
Construction and land development		$	539			$	585
Secured by 1-4 family			4,819				4,266
Other real estate loans			5,952				7,462
Commercial and industrial			3,188				3,927
Consumer and other loans			221				160
Total allowance for credit losses		$	14,719			$	16,400
Ratios of loans to total period-end loans:
Real estate loans:
Construction and land development			6.1	%			5.8	%
Secured by 1-4 family			36.4	%			37.3	%
Other real estate loans			48.1	%			45.8	%
Commercial and industrial			8.1	%			9.6	%
Consumer and other loans			1.3	%			1.5	%
			100.0	%			100.0	%

The following table provides information on the Bank's non-performing assets at the dates indicated (dollars in thousands).

		Non-performing Assets
		At December 31,
		2025				2024
Non-accrual loans		$	4,654			$	6,971
Other real estate owned			-				53
Total non-performing assets		$	4,654			$	7,024
Loans past due 90 days accruing interest			-				365
Total non-performing assets and past due loans		$	4,654			$	7,389
Non-performing assets to period end loans			0.32	%			0.50	%

The following table summarizes the Company's credit ratios on a consolidated basis as of December 31, 2025 and 2024.

		Consolidated Credit Ratios
		December 31, 2025
		2025				2024
Total Loans		$	1,449,745			$	1,466,595
Nonaccrual loans		$	4,654			$	6,971
Allowance for credit losses (ACL)		$	14,719			$	16,400
Nonaccrual loans to total loans			0.32	%			0.48	%
ACL to total loans			1.02	%			1.12	%
ACL to nonaccrual loans			316.27	%			235.26	%

The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals. The finance company operated a program that historically provided credit support to the Company through, among other things, the repurchase of their loans and unamortized loan premiums when loans did not pay according to the loan agreements. On December 31, 2025, loans purchased from the finance company totaled $14.1 million, which was comprised of $10.0 million of loan balances and unamortized premiums totaling $4.1 million. The Company determined that $2.1 million of the loans were non-accrual and thus were individually evaluated. Specific reserves on the individually evaluated loans were included in the Company's allowance for credit losses on loans. The remaining $12.0 million of loans were considered performing and were included in the calculation of the collectively evaluated reserve component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. On December 31, 2025 and 2024, there were a total of 130 and 155 loans, respectively, purchased from the finance company included in the Company's loan portfolio with a weighted average maturity of 6.0 and 7.0 years, respectively.

Securities

Securities totaled $326.0 million at December 31, 2025, an increase of $48.7 million, or 17.6%, from $277.3 million at the end of 2024. Investment securities are comprised of U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities. As of December 31, 2025, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $363 thousand and $62 thousand at December 31, 2025 and 2024, respectively. Gross unrealized losses in the available for sale portfolio totaled $14.8 million and $22.1 million at December 31, 2025 and 2024, respectively. Gross unrealized gains in the held to maturity portfolio totaled $98 thousand and $8 thousand at December 31, 2025 and 2024, respectively. Gross unrealized losses in the held to maturity portfolio totaled $6.8 million and $11.0 million at December 31, 2025 and 2024, respectively. The change in the unrealized gains and losses of investment securities from December 31, 2024 to December 31, 2025 was related to changes in market interest rates and was not related to credit concerns of the issuers.

The Company evaluated securities available for sale in an unrealized loss position for credit related impairment and determined that no allowance for credit losses was necessary at December 31, 2025 and 2024. At December 31, 2025, the allowance for credit losses on held to maturity securities was $83 thousand. There was a $95 thousand allowance for credit losses on held to maturity securities at December 31, 2024.

On September 1, 2022, the Bank transferred 24 securities designated as available for sale with a combined book value of $82.2 million, market value of $74.4 million, and unrealized loss of $7.8 million, to securities designated held to maturity. The unrealized loss is being amortized monthly over the life of the securities with an increase to the carrying value of securities and a decrease to the related accumulated other comprehensive loss, which is included in the shareholders' equity section of the Company's balance sheet. The amortization of the unrealized loss on the transferred securities totaled $957 thousand, or $756 thousand net of tax, for the year ended December 31, 2025. The amortization of the unrealized loss on the transferred securities totaled $1.0 million, or $791 thousand net of tax, for the year ended December 31, 2024. The securities selected for transfer had larger potential decreases in their fair market values in higher interest rate environments than most of the other securities in the available for sale portfolio and included U.S. Treasury, agency, municipal and commercial mortgage-backed securities. The securities were transferred to mitigate the potential unfavorable impact that higher market interest rates may have on the carrying value of the securities and on the related accumulated other comprehensive loss. Securities designated as held to maturity are carried on the balance sheet at amortized cost, while securities designated as available for sale are carried at fair market value.

The following table shows the maturities of debt and restricted securities at amortized cost and market value at December 31, 2025 and approximate weighted average yields of such securities (dollars in thousands). Yields on state and political subdivision securities are shown on a tax equivalent basis, assuming a 21% federal income tax rate. The Company attempts to maintain diversity in its portfolio and maintain credit quality and re-pricing terms that are consistent with its asset/liability management and investment practices and policies. For further information on securities, see Note 3 to the Consolidated Financial Statements included in this Form 10-K.

		Securities Portfolio Maturity Distribution/Yield Analysis
		At December 31, 2025
		Less than One Year				One to Five Years				Five to Ten Years				Greater than Ten Years and Equity Securities				Total
U.S. Treasury securities
Amortized cost		$	23,877			$	23,579			$	-			$	-			$	47,456
Market value		$	23,659			$	23,556			$	-			$	-			$	47,215
Weighted average yield			2.68	%			3.50	%			-	%			-	%			3.09	%
U.S. agency and mortgage-backed securities
Amortized cost		$	5,977			$	53,697			$	31,638			$	119,492			$	210,804
Market value		$	5,902			$	52,925			$	30,881			$	106,880			$	196,588
Weighted average yield			2.10	%			3.56	%			3.69	%			2.40	%			2.88	%
Obligations of state and political subdivisions
Amortized cost		$	2,316			$	16,068			$	25,062			$	29,274			$	72,720
Market value		$	2,309			$	15,361			$	22,910			$	25,741			$	66,321
Weighted average yield			3.47	%			2.49	%			2.65	%			2.55	%			2.60	%
Corporate debt securities
Amortized cost		$	-			$	-			$	3,973			$	-			$	3,973
Market value		$	-			$	-			$	3,698			$	-			$	3,698
Weighted average yield			-	%			-	%			4.85	%			-	%			4.85	%
Restricted securities
Amortized cost		$	-			$	-			$	-			$	5,624			$	5,624
Market value		$	-			$	-			$	-			$	5,624			$	5,624
Weighted average yield			-	%			-	%			-	%			4.62	%			4.62	%
Total portfolio
Amortized cost		$	32,170			$	93,344			$	60,673			$	154,390			$	340,577
Market value		$	31,871			$	91,842			$	57,489			$	138,244			$	319,446
Weighted average yield (1)			2.63	%			3.36	%			3.33	%			2.51	%			2.90	%

(1)	Yields on tax-exempt securities have been calculated on a tax-equivalent basis using the federal corporate income tax rate of 21%. The weighted average yield is calculated based on the relative amortized costs of the securities.

The above table was prepared using the contractual maturities for all securities with the exception of mortgage-backed securities (MBS) and collateralized mortgage obligations (CMO). Both MBS and CMO securities were recorded using the yield book prepayment model that incorporates four causes of prepayments including home sales, refinancing, defaults, and curtailments/full payoffs.

As of December 31, 2025, the Company did not own securities of any issuer for which the aggregate book value of the securities of such issuer exceeded twelve percent of shareholders' equity.

Deposits

At December 31, 2025, deposits totaled $1.8 billion, decreasing by $4.2 million, from $1.8 billion at December 31, 2024. At December 31, 2025, noninterest-bearing demand deposits, savings and interest-bearing demand deposits, and time deposits composed 28%, 52%, and 20% of total deposits, respectively, compared to 29%, 51%, and 20% at December 31, 2024.

The following tables include a summary of average deposits and average rates paid (dollars in thousands).

		Average Deposits and Rates Paid
		Year Ended December 31,
		2025							2024
		Amount			Rate				Amount			Rate
Noninterest-bearing deposits		$	527,756			-	%		$	422,981			-	%
Interest-bearing deposits:
Interest checking		$	377,944			1.29	%		$	278,558			1.75	%
Money market			332,467			2.22	%			294,818			2.80	%
Savings			210,510			0.36	%			160,795			0.18	%
Time deposits:
Less than $250			292,203			3.02	%			192,456			3.01	%
Greater than $250			71,438			3.44	%			46,846			3.56	%
Brokered deposits			-			-	%			288			4.82	%
Total interest-bearing deposits		$	1,284,562			1.89	%		$	973,761			2.15	%
Total deposits		$	1,812,318						$	1,396,742

As of December 31, 2025the estimated amount of total uninsured deposits was $538.2 million. Maturities of the estimated amount of uninsured time deposits at December 31, 2025are presented in the table below. The estimate of uninsured deposits generally represents the portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank's regulatory reporting requirements.

Maturities of Uninsured Time Deposits (in thousands)
		December 31, 2025
3 months or less		$	27,619
3-6 months			12,158
6-12 months			19,791
Over 12 months			9,107
		$	68,675

Liquidity

Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, and available lines of credit totaled $819.0 million on December 31, 2025, and $758.0 million on December 31, 2024. Available lines of credit from other institutions included in the total amount above was $556.2 million on December 31, 2025, and $562.5 million on December 31, 2024. The available lines of credit were comprised of secured and unsecured lines of credit and the Bank had $25.0 million and $0 on the lines as of December 31, 2025 and December 31, 2024, respectively.

The Bank maintains liquidity to fund loan growth and meet the potential demand from its deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $538.2 million on December 31, 2025, and $537.0 million on December 31, 2024. Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $448.8 million on December 31, 2025, and $319.1 million on December 31, 2024. Municipal deposits are partially secured with pledged investment securities.

Subordinated Debt

See Note 10 to the Consolidated Financial Statements included in this Form 10-K, for discussion of subordinated debt.

Junior Subordinated Debt

See Note 11 to the Consolidated Financial Statements included in this Form 10-K, for discussion of junior subordinated debt.

Off-Balance Sheet Arrangements

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

At December 31, 2025 and 2024, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands):

		2025				2024
Commitments to extend credit and unfunded commitments under lines of credit		$	299,104			$	271,419
Standby letters of credit			3,079				15,594

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 payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management's credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are collateralized as deemed necessary and may or may not be drawn upon to the total extent to which the Bank is committed.

Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments if deemed necessary.

At December 31, 2025, the Bank had $4.7 million in locked-rate commitments tooriginate mortgage loans. Risks arise from the possible inability of counterparties to meet the terms of their contracts. The Bank does not expect any counterparty to fail to meet its obligations.

On April 21, 2020, the Company entered into interest rate swap agreements related to its outstanding junior subordinated debt. The Company uses derivatives to manage exposure to interest rate risk through the use of interest rate swaps. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts.

The interest rate swaps qualified and are designated as cash flow hedges. The Company's cash flow hedges effectively modify the Company's exposure to interest rate risk by converting variable rates of interest on $9.0 million of the Company's junior subordinated debt to fixed rates of interest for periods that end between June 2034 and October 2036. The cash flow hedges' total notional amount is $9.0million. At December 31, 2025, the cash flow hedges had a fair value of $2.3 million, which is recorded in other assets. The net gain/loss on the cash flow hedges is recognized as a component of other comprehensive income and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. The Company's derivative financial instruments are described more fully in Note 25 to the Consolidated Financial Statements included in this Form 10-K.

Capital Resources

The adequacy of the Company's capital is reviewed by management on an ongoing basis with reference to the size, composition, and quality of the Company's asset and liability levels and consistent with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and absorb potential losses. The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board's Small Bank Holding Company Policy Statement issued in February 2015 and is not obligated to report consolidated regulatory capital.

Effective January 1, 2015, the Bank became subject to capital rules adopted by federal bank regulators implementing the Basel III regulatory capital reforms adopted by the Basel Committee on Banking Supervision (the Basel Committee), and certain changes required by the Dodd-Frank Act.

The minimum capital level requirements applicable to the Bank under the final rules are as follows: a new common equity Tier 1 capital ratio of 4.5%; a Tier 1 capital ratio of 6%; a total capital ratio of 8%; and a Tier 1 leverage ratio of 4% for all institutions. The final rules also established a "capital conservation buffer" above the new regulatory minimum capital requirements. The capital conservation buffer requires a buffer of 2.5% of risk-weighted assets. This results in the following minimum capital ratios: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. Management believes, as of December 31, 2025 and December 31, 2024, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.

The following table summarizes the Bank's regulatory capital and related ratios at December 31, 2025, and 2024 (dollars in thousands).

		Analysis of Capital
		At December 31,
		2025				2024
Common equity Tier 1 capital		$	186,193			$	164,454
Tier 1 capital			186,193				164,454
Tier 2 capital			15,429				16,995
Total risk-based capital			201,622				181,449
Risk-weighted assets			1,478,549				1,469,752
Capital ratios:
Common equity Tier 1 capital ratio			12.59	%			11.19	%
Tier 1 capital ratio			12.59	%			11.19	%
Total capital ratio			13.64	%			12.35	%
Leverage ratio (Tier 1 capital to average assets)			9.13	%			7.95	%
Capital conservation buffer ratio(1)			5.64	%			4.34	%

(1)	Calculated by subtracting the regulatory minimum capital ratio requirements from the Company's actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital. The lowest of the three measures represents the Bank's capital conservation buffer ratio.

The prompt corrective action framework is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as "well capitalized:" a common equity Tier 1 capital ratio of 6.5%; a Tier 1 capital ratio of 8%; a total capital ratio of 10%; and a Tier 1 leverage ratio of 5%. The Bank met the requirements to qualify as "well capitalized" as of December 31, 2025 and 2024.

On September 17, 2019 the FDIC finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the Economic Growth Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. The Company did not opt into the framework.

The Company did not repurchase any shares during the year ended December 31, 2025.

The Company issued $5.0 million of subordinated debt in June 2020. The subordinated debt issued consisted of a 5.50% fixed-to-floating rate subordinated note due 2030 issued to an institutional investor and was structured to qualify as Tier 2 capital under bank regulatory guidelines. The floating rate period for this subordinated note began July 1, 2025. The Company assumed two subordinated debt issuances from the acquisition of Touchstone. The subordinated debt assumed consisted of an $8.0 million 6.00% fixed-to-floating rate subordinated note due 2030. The floating rate period for this subordinated note began August 15, 2025. The subordinated debt assumed also consisted of a $10.0 million 4.00% fixed-to-floating rate subordinated note due 2032. During the fourth quarter of 2025, the Company redeemed $13 million in subordinated debt, at par, including redemptions of the 5.50% fixed-to-floating rate subordinated note due 2030 on October 1, 2025 ($5 million) and the 6.00% fixed-to-floating rate subordinated note due 2030 on November 15, 2025 ($8 million). There was no gain or loss recognized on these redemptions. These capital redemptions had minimal impact on the total risk-based capital ratio and should position the Company for improved profitability in future periods

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements included in this Form 10-K, for discussion of recent accounting pronouncements.