UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2026

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-42889

Commercial Bancgroup, Inc.

(Exact Name of Registrant as Specified in its Charter)

Tennessee		62-1039469
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6710 Cumberland Gap Parkway Harrogate, Tennessee		37752
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (423) 869-5151

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		CBK		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 13, 2026, the registrant had 13,701,269 shares of common stock, $0.01 par value per share, outstanding.

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements.
	Consolidated Balance Sheets as of March 31, 2026 (unaudited) and December 31, 2025.	1
	Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2026 and 2025.	2
	Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2026 and 2025.	3
	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2026 and 2025.	4
	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2026 and 2025.	5
	Notes to Unaudited Consolidated Financial Statements.	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	69
Item 4.	Controls and Procedures.	69

PART II. OTHER INFORMATION		70

Item 1.	Legal Proceedings.	70
Item 1A.	Risk Factors.	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	70
Item 3.	Defaults Upon Senior Securities.	70
Item 4.	Mine Safety Disclosures.	70
Item 5.	Other Information.	70
Item 6.	Exhibits.	71
Signatures		72

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include statements relating to the strategies, future operations, future financial position or performance, future revenue, projected costs, prospects, plans, objectives of management and expected market growth of Commercial Bancgroup, Inc., a Tennessee corporation (“Parent Company”), and its consolidated subsidiaries (collectively, the “Company,” “we,” “our,” “us,” or similar terms). These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “aim,” “would,” “annualized” and “outlook,” or the negative version of these words or other similar words or phrases of a future or forward-looking nature.

These forward-looking statements are not statements of historical facts and are based on assumptions and estimates that we believe to be reasonable in light of the information available to us at this time. However, these forward-looking statements are subject to significant risks and uncertainties, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date such statements are made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following:

●

business and economic conditions nationally, regionally and in our target markets, particularly in Kentucky, North Carolina and Tennessee and the particular geographic areas in which we operate;

●

the level of, or changes in the level of, interest rates and inflation, including the effects thereof on our earnings and financial condition and the market value of our investment and loan portfolios;

●

the concentration of our loan portfolio in real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate;

●

the concentration of our business within our geographic areas of operation in Kentucky, North Carolina and Tennessee and neighboring markets;

●

credit and lending risks associated with our commercial real estate (“CRE”), commercial, and construction and land development (“C&D”) loan portfolios;

●

risks associated with our focus on lending to small and mid-sized businesses;

●

our ability to maintain important deposit customer relationships, maintain our reputation or otherwise avoid liquidity risks;

●

changes in demand for our products and services;

●

the failure of assumptions and estimates underlying the establishment of allowances for possible credit losses and other asset impairments, losses, valuations of assets and liabilities and other estimates;

●

the sufficiency of our capital, including sources of such capital and the extent to which capital may be used or required;

●

our inability to maintain a “satisfactory” rating under the Community Reinvestment Act;

●

risks that our cost of funding could increase in the event we are unable to continue to attract stable, low-cost deposits and reduce our cost of deposits;

●

our inability to raise necessary capital to fund our growth strategy and operations or to meet increased required minimum regulatory capital levels;

●

our ability to execute and prudently manage our growth and execute our business strategy, including expansionary activities;

●

the composition of and changes in our management team and our ability to attract, incentivize and retain key personnel;

●

the effects of competition from a wide variety of local, regional, national and other providers of financial, investment, trust and other wealth management services and insurance services, including the disruption effects of financial technology and other competitors who are not subject to the same regulations as the Company;

●

the deterioration of our asset quality or the value of collateral securing loans;

●

changes in our accounting standards;

●

the effectiveness of our risk management framework, including internal controls;

●

severe weather, natural disasters, pandemics, epidemics, acts of war, terrorism, or other external events, such as the transition risk associated with climate change, and other matters beyond our control;

●

changes in technology or products that may be more difficult or costly, or less effective, than anticipated;

●

the risks of acquisitions and other expansionary activities, including without limitation our ability to identify and consummate transactions with potential future acquisition candidates, the time and costs associated with pursuing such transactions, our ability to successfully integrate operations as part of such transactions and our ability, and possible failures, to achieve expected gains, revenue growth, expense savings and/or other synergies from such transactions;

●

our ability to maintain our historical rate of growth;

●

failure to keep pace with technological change or difficulties when implementing new technologies;

●

systems failures or interruptions involving our risk management framework, our information technology and telecommunications systems or third-party service providers;

●

our ability to identify and address unauthorized data access, cyber-crime and other threats to data security and customer privacy;

●

our compliance with governmental and regulatory requirements, including the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and other laws relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with mortgage origination, sale and servicing operations;

●

compliance with the Bank Secrecy Act of 1970, Office of Foreign Assets Control rules and anti-money laundering laws and regulations;

iii

●

governmental monetary and fiscal policies;

●

changes in laws, rules, or regulations, or interpretations thereof, or policies relating to financial institutions or accounting, tax, trade, monetary or fiscal matters;

●

the ability of our Parent Company to receive dividends from its wholly owned subsidiary bank, Commercial Bank (the “Bank”), and our ability to satisfy our obligations as they become due;

●

the institution and outcome of litigation and other legal proceedings against us or to which we become subject;

●

the limited experience of our management team in managing and operating a public company;

●

the incremental costs of operating as a public company;

●

our ability to meet our obligations as a public company, including our obligations under Section 404 of the Sarbanes-Oxley Act of 2002; and

●

other risks and factors described under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Parent Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 24, 2026 (the “2025 Annual Report”) and in subsequent filings of the Parent Company with the SEC.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions or estimates prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements.

Any forward-looking statement speaks only as of the date it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Report. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in or implied by any forward-looking statements.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Commercial Bancgroup, Inc.

Consolidated Balance Sheets

	(Unaudited)			(Audited)
	March 31,			December 31,
	2026			2025
Assets
Cash and due from banks	$	21,877,990		$	26,393,695
Federal funds sold		16,784,265			25,328,744
Interest-bearing deposits in banks		129,732,339			92,596,490
Cash and cash equivalents		168,394,594			144,318,929

Available-for-sale securities, at fair value		42,175,462			43,136,672
Held-to-maturity securities, at amortized cost		96,386,942			97,728,121
Loans, net of allowance for credit losses of $18,328,757 and $18,096,173 on March 31, 2026 and December 31, 2025, respectively		1,873,845,370			1,855,437,066
Premises and equipment, net		49,444,739			49,765,202
Restricted stock, at cost		10,239,300			11,375,500
Foreclosed assets held for sale, net		575,497			253,000
Interest receivable		7,637,827			7,451,045
Bank owned life insurance		46,469,498			46,647,762
Core deposits and other intangibles		3,881,041			4,256,382
Goodwill		8,510,852			8,510,852
Deferred tax asset		1,055,908			1,002,784
Other		20,171,847			21,571,666
Total assets	$	2,328,788,877		$	2,291,454,981

Liabilities and Shareholders’ Equity
Liabilities
Deposits
Demand	$	973,677,694		$	913,985,722
Savings, NOW and money market		415,131,859			414,715,894
Time		503,407,575			487,032,489
Total deposits		1,892,217,128			1,815,734,105

Short-term borrowings		45,067,842			88,251,290
Long-term debt		73,180,526			78,587,361
Interest payable		2,644,295			2,961,874
Other liabilities		22,161,343			20,576,519
Total liabilities		2,035,271,134			2,006,111,149

Shareholders’ equity
Common stock $0.01 par value per share; 50,000,000 shares authorized; 13,697,987 shares issued and outstanding at both March 31, 2026 and December 31, 2025		136,980			136,980
Additional paid-in capital		38,536,072			38,376,658
Retained earnings		255,669,735			247,505,096
Accumulated other comprehensive loss		(825,044	)		(674,902	)
Total shareholders’ equity		293,517,743			285,343,832
Total liabilities and shareholders’ equity	$	2,328,788,877		$	2,291,454,981

See Notes to Unaudited Consolidated Financial Statements

Commercial Bancgroup, Inc.

Consolidated Statements of Income (Unaudited)

	Three Months Ended
	March 31,
	2026		2025
Interest and Dividend Income
Loans, including fees	$	27,675,321	$	27,929,956
Debt securities-taxable		838,045		974,955
Debt securities-tax-exempt		114,057		109,965
Dividends on restricted stock		146,690		159,984
Interest-bearing deposits in banks		689,086		1,590,650
Total interest and dividend income		29,463,199		30,765,510

Interest expense
Deposits		8,315,470		10,293,469
Short-term borrowings		47,157		30,995
Long-term debt		622,874		1,101,272
Total interest expense		8,985,501		11,425,736
Net interest income		20,477,698		19,339,774

Provision for credit losses		121,970		-
Net interest income after provision for credit losses		20,355,728		19,339,774

Noninterest Income
Customer service fees		781,484		654,823
Net losses on sales of premises and equipment		-		(27,981	)
Net gains on sales of foreclosed assets		106,553		3,550
ATM fees		854,461		798,745
Increase in bank owned life insurance		311,643		308,012
Other		537,163		705,522
Total noninterest income		2,591,304		2,442,671

Noninterest Expense
Salaries and employee benefits		5,716,129		5,625,631
Occupancy		842,896		874,848
Data processing		1,101,058		1,207,044
Deposit insurance premiums		242,019		225,494
Professional fees		208,947		195,100
Depreciation and amortization		933,159		948,368
Loss on retirement of debt		603,303		-
Other		1,439,074		1,504,302
Total noninterest expense		11,086,585		10,580,787

Income before income taxes		11,860,447		11,201,658
Provision for income taxes		2,326,009		2,510,052
Net Income	$	9,534,438	$	8,691,606

Earnings per share:
Basic	$	.70	$	.72
Diluted	$	.70	$	.72

See Notes to Unaudited Consolidated Financial Statements

Commercial Bancgroup, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

	Three Months Ended
	March 31,
	2026			2025
Net income	$	9,534,438		$	8,691,606
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale arising during the period		(248,265	)		220,288
Tax benefit (expense)		64,884			(57,567	)
Reclassification adjustment for accretion of unrealized holding gains included in accumulated other comprehensive income from the transfer of securities from available-for-sale to held-to-maturity		45,000			71,481
Tax expense		(11,761	)		(18,680	)

Other comprehensive income (loss), net of tax		(150,142	)		215,522
Comprehensive income	$	9,384,296		$	8,907,128

See Notes to Unaudited Consolidated Financial Statements

Commercial Bancgroup, Inc.

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

										Other
				Additional						Comprehensive
	Common			Paid-In			Retained			Income
	Stock			Capital			Earnings			(Loss)			TOTAL

Balance - January 1, 2025	$	121,131		$	9,388,181		$	212,310,977		$	(1,564,506	)	$	220,255,783
Net income		-			-			8,691,606			-			8,691,606
Other comprehensive income		-			-			-			215,522			215,522
Dividends paid to shareholders ($0.17 per share)		-			-			(2,002,079	)		-			(2,002,079	)
Issuance of common stock – stock grant (179,688 shares)		1,797			(1,797	)		-			-			-
Repurchase of stock (53,188 shares)		(532	)		(980,268	)		-			-			(980,800	)
Balance – March 31, 2025	$	122,396		$	8,406,116		$	219,000,504		$	(1,348,984	)	$	226,180,032

Balance – January 1, 2026	$	136,980		$	38,376,658		$	247,505,096		$	(674,902	)	$	285,343,832
Net income		-			-			9,534,438			-			9,534,438
Other comprehensive loss		-			-			-			(150,142	)		(150,142	)
Dividends paid to shareholders ($0.10 per share)		-			-			(1,369,799	)		-			(1,369,799	)
Stock compensation		-			159,414			-			-			159,414
Repurchase of stock		-			-			-			-			-
Balance – March 31, 2026	$	136,980		$	38,536,072		$	255,669,735		$	(825,044	)	$	293,517,743

See Notes to Unaudited Consolidated Financial Statements

Commercial Bancgroup, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended
	March 31,
	2026			2025
Operating Activities
Net income	$	9,534,438		$	8,691,606
Items not requiring (providing) cash
Depreciation		557,818			550,401
Amortization of core deposit intangible		375,341			397,967
Amortization and (accretion), net		(62,166	)		(166,869	)
Provision for credit losses		121,970			-
Stock compensation expense		159,414			-
Loss on retirement of debt		603,303			-
Net gains on sales of foreclosed assets		(106,553	)		(3,550	)
Net gains on sales of premises and equipment		-			27,981
Changes in
Interest receivable		(186,782	)		39,155
Other assets		1,399,818			6,625,016
Other liabilities		1,584,824			(4,724,509	)
bank owned life insurance		(311,643	)		(308,012	)
Interest payable		(317,579	)		931,944
Net cash provided by operating activities		13,352,203			12,061,130

Investing Activities
Purchases of available-for-sale securities		-			(16,925,022	)
Proceeds from, maturities and calls of available-for-sale securities		875,596			16,419,633
Proceeds from, maturities and calls of held-to-maturity securities		1,285,694			38,703,517
Purchases of held-to-maturity securities		-			(50,434,183	)
Net change in loans		(19,105,771	)		11,722,507
Purchase of premises and equipment, net		(237,355	)		(332,759	)
Proceeds from sales of premises and equipment		-			4,900
Proceeds from sales of foreclosed assets		359,553			270,278
Proceeds from bank owned life insurance		489,907			-
Redemption of restricted stock, at cost		1,136,200			251,650
Net cash used in investing activities	$	(15,196,176	)	$	(319,479	)

(Continued)

See Notes to Unaudited Consolidated Financial Statements

Commercial Bancgroup, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended
	March 31,
	2026			2025
Financing Activities
Net (decrease) increase in deposits	$	76,483,023		$	(36,390,144	)
Proceeds from (repayments of) short-term borrowings		(43,183,448	)		2,508,539
Repayments of long-term borrowings		(6,010,138	)		(2,582,650	)
Repurchase of stock		-			(980,800	)
Payment of dividends		(1,369,799	)		(2,002,079	)
Purchase of minority interest		-			-
Net cash (used in) provided by financing activities		25,919,638			(39,447,134	)

(Decrease) increase in cash and cash equivalents		24,075,665			(27,705,483	)

Cash and cash equivalents, beginning of period		144,318,929			178,197,916
Cash and cash equivalents, end of period	$	168,394,594		$	150,492,433

Supplemental Cash Flows Information
Interest paid	$	9,303,080		$	10,493,792
Income taxes paid	$	-		$	-

Supplemental Disclosures of Noncash Items
Unrealized (loss) gain on AFS securities	$	(248,265	)	$	220,288
Transfer of loans to OREO	$	575,497		$	-

See Notes to Unaudited Consolidated Financial Statements

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Nature of operations:

Commercial Bancgroup, Inc. is a bank holding company incorporated in the State of Tennessee whose principal activity is the ownership and management of its wholly owned subsidiary, Commercial Bank. The Bank is primarily engaged in providing a full range of banking and financial products and services to individual and corporate customers in Claiborne, Union, Knox, Sullivan, Washington, Williamson, Cocke and Hamblen Counties in Tennessee, Knox, Bell, Harlan, Laurel and Whitley Counties in Kentucky and Gastonia and Cleveland Counties in North Carolina.

Basis of presentation:

The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States (“GAAP”) for interim financial information and to generally accepted practices within the banking industry. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026. For further information, refer to the consolidated financial statements and footnotes thereto in the 2025 Annual Report.

Change in presentation due to stock reclassification and stock split:

In connection with the initial public offering of its common stock, on September 18, 2025, the Company filed with the Tennessee Secretary of State an Amended and Restated Charter providing for (i) the automatic reclassification and conversion of each then outstanding share of the Company’s Class B common stock, $10.00 par value per share into 1.15 shares of common stock, and the automatic reclassification and conversion of each then outstanding share of the Company’s Class C common stock $10.00 par value per share into 1.05 shares of common stock and (ii) effective immediately following this reclassification and conversion, a 250-for-1 forward stock split whereby each holder of common stock received 249 additional shares of common stock for each share owned as of immediately following this reclassification and conversion. All share and per share amounts set forth in the consolidated financial statements of the Company have been retroactively restated to reflect the reclassification and conversion and stock split as if they had occurred as of the earliest period presented.

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.01 par value per share. As of March 31, 2026, no preferred shares have been issued or are outstanding. The Board of Directors of the Company (the “Board of Directors”) has the authority to issue preferred stock in one or more series and to determine the rights, preferences, privileges, and restrictions of each series, including dividend rights, conversion rights, voting rights, terms of redemption, and liquidation preferences.

Principles of consolidation:

The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies, Continued

Use of estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses (“ACL”), valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, valuation of deferred tax assets and fair values of financial instruments.

Loans:

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at amortized cost (net of the ACL). Amortized cost is the principal balance outstanding adjusted for unearned income, charge-offs, the ACL, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Interest receivable reported in interest receivable on the consolidated balance sheets totaled to $6,681,923 and $6,895,763 as of March 31, 2026, and December 31, 2025, respectively and is excluded from the estimate of credit losses. Interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on mortgage and commercial loans is discontinued and placed on nonaccrual status at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Mortgage loans are charged off at 180 days past due, and commercial loans are charged off to the extent principal or interest is deemed uncollectible. Consumer and credit card loans continue to accrue interest until they are charged off (no later than 120 days past due) unless the loan is in the process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Purchased Credit Deteriorated (“PCD”) loans:

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An ACL is determined using the same methodology as other loans held for investment. The initial ACL determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and ACL becomes its initial amortized cost basis. The difference between initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACL are recorded through credit loss expense.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies, Continued

Allowance for credit losses (ACL) – loans:

Under the current expected credit loss model, the ACL on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

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 ACL.

Expected credit losses are reflected in the ACL through a charge to provision for credit losses. The Company measures expected credit losses of 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.

Weighted Average Remaining Maturity (“WARM”) Method:

The Company’s primary methodology for estimating expected credit losses for all loan types is the WARM method. The WARM CECL (Current Expected Credit Losses) methodology uses average annual loss rate along with a simple but reasonable forecast based on a “regression” analysis of the loan history dating back 18 years. The dependent variable will be the entity’s loss rate, based on changes in the Prime Lending Rate over that same period. The Company will utilize the Prime Lending Rate as the independent variable due to that being the tool most commonly utilized by the Board of Governors of the Federal Reserve System (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, underwriting standards, and collection and charge-off and recovery practices; national, regional and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; nature and volume of the 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 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.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies, Continued

Allowance for credit losses (ACL) – loans, continued:

ACL on Off-Balance Sheet Credit Exposures:

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated life.

Collateral-Dependent Loans:

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 cost basis of the loan exceeds the fair value of the underlying collateral less estimated cost 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.

Charge-Offs and Recoveries:

Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. If the loan is collateral-dependent, the loss is more easily identified and is charged-off when it is identified, usually based upon receipt of an appraisal. However, when a loan has guarantor support, and the guarantor demonstrates willingness and capacity to support the debt, the Company may carry the estimated loss as a reserve against the loan while collection efforts with the guarantor are pursued. If, after collection efforts with the guarantor are complete, the deficiency is still considered uncollectible, the loss is charged off and any further collections are treated as recoveries.

Loan commitments and financial instruments:

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 loss 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 an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s statements of income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees, and is included in other liabilities on the Company’s balance sheets.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies, Continued

Allowance for credit losses (ACL) – securities:

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 of these conditions exists, the security’s amortized cost basis is written down to fair value through income. If either of the aforesaid conditions 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, 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 collectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

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. Interest receivable on held-to-maturity debt securities totaled $528,655 and $291,460 as of March 31, 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.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 2. Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:

	March 31, 2026
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			Value
Available-for-sale securities:
U.S. Government and federal agency	$	14,959,400	$	-	$	(10,700	)	$	14,948,700
U.S. Government-sponsored enterprises (GSEs)		3,630		-		-			-
Mortgage-backed:						(11	)		3,619
GSE residential		12,532,151		9,482		(612,689	)		11,928,944
State and political subdivisions		15,703,257		393		(409,451	)		15,294,199
	$	43,198,438	$	9,875	$	(1,032,851	)	$	42,175,462

	December 31, 2025
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
Available-for-sale securities:
U.S. Government and federal agency	$	14,830,375	$	-	$	-		$	14,830,375
U.S. Government-sponsored enterprises (GSEs)		5,395		-		-			5,395
Mortgage-backed:
GSE residential		13,295,371		44,013		(552,361	)		12,787,023
State and political subdivisions		15,780,242		13,988		(280,351	)		15,513,879
	$	43,911,383	$	58,001	$	(832,712	)	$	43,136,672

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 2. Securities, Continued

	March 31, 2026
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			Value
Held-to-maturity securities:
U.S. Government and federal agency	$	42,598,382	$	-	$	(704,582	)	$	41,893,800
U.S. Government-sponsored enterprises (GSEs)		13,363,836		-		-			-
Mortgage-backed:						(302,633	)		13,361,203
GSE residential		36,216,636		29,320		(2,306,773	)		33,939,183
State and political subdivisions		3,908,088		2,728		(214,975	)		3,695,841
	$	96,386,942	$	32,048	$	(3,528,963	)	$	92,890,027

	December 31, 2025
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
Held-to-maturity securities:
U.S. Government and federal agency	$	42,681,410	$	2,286	$	(805,096	)	$	41,878,600
U.S. Government-sponsored enterprises (GSEs)		13,599,444		-		(290,909	)		13,308,535
Mortgage-backed:
GSE residential		37,534,375		175,285		(2,185,363	)		35,524,297
State and political subdivisions		3,912,892		12,509		(180,955	)		3,744,446
	$	97,728,121	$	190,080	$	(3,462,323	)	$	94,455,878

The Company uses a systematic methodology to determine its ACL for debt securities held-to-maturity considering the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the portfolio. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the held-to-maturity portfolio. The Company monitors the held-to-maturity portfolio on a quarterly basis to determine whether a valuation account would need to be recorded. Based on management’s review, the Company’s held-to-maturity securities have no expected credit losses and no related ACL has been established as of each of March 31, 2026 and December 31, 2025.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 2. Securities, Continued

U.S. Government sponsored enterprises include entities such as the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal Home Loan Banks (“FHLB”).

The amortized cost and fair value of available-for-sale securities and held-to-maturity securities on March 31, 2026, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following summary.

	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	18,242,532	$	18,228,641	$	48,044,075	$	47,438,249
One to five years		6,406,367		6,295,105		10,648,267		10,094,593
Five to ten years		4,070,995		3,881,813		98,521		98,853
After ten years		1,946,393		1,841,259		1,379,443		1,319,149
Mortgage-backed securities		12,532,151		11,928,944		36,216,636		33,939,183
Totals	$	43,198,438	$	42,175,462	$	96,386,942	$	92,890,027

The market value of securities pledged as collateral, to secure public deposits and for other purposes, was $117,700,963 and $137,592,549 on March 31, 2026 and December 31, 2025, respectively.

The book value of securities sold under agreements to repurchase amounted to $5,067,842 and $3,251,290 on March 31, 2026 and December 31, 2025, respectively.

There were no sales of available-for-sale securities during the three months ended March 31, 2026 and 2025.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 2. Securities, Continued

The following tables show the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2026 and December 31, 2025.

	March 31, 2026
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		loss
Available-for-sale Securities
U.S. Government and federal agency	$	14,948,700	$	(10,700	)	$	-	$	-		$	14,948,700	$	(10,700	)
U.S. Government-sponsored enterprises (GSEs)		3,619		(11	)		-		-			3,619		(11	)
Mortgage-backed:
GSE residential		3,650,515		(39,446	)		7,267,675		(573,243	)		10,918,190		(612,689	)
State and political subdivisions		4,378,222		(121,781	)		9,860,581		(287,670	)		14,238,806		(409,451	)
Total	$	22,981,056	$	(171,938	)	$	17,128,259	$	(860,913	)	$	40,109,315	$	(1,032,851	)

	December 31, 2025
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Available-for-sale Securities
U.S. Government and federal agency	$	-	$	-		$	-	$	-		$	-	$	-
U.S. Government sponsored enterprises (GSEs)		-		-			-		-			-		-
Mortgage-backed:
GSE residential		1,495,320		(7,133	)		7,504,304		(545,228	)		8,999,624		(552,361	)
State and political subdivisions		1,475,852		(9,631	)		12,056,009		(270,720	)		13,531,861		(280,351	)
Total	$	2,971,172	$	(16,764	)	$	19,560,313	$	(815,948	)	$	22,531,485	$	(832,712	)

As of March 31, 2026, the Company had 140 securities in an unrealized loss position. No ACL has been recognized on any securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon an analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to available-for-sale securities and in consideration of historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, as of March 31, 2026, the Company did not intend to sell any of the securities classified in the tables above, and believed that it is more likely than not that it will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity dates or repricing dates or if market yields for such investments decline.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL)

Portfolio segmentation:

On March 31, 2026 and December 31, 2025, the Company’s loans consisted of the following:

	March 31,		December 31,
	2026		2025
Real estate secured:
Commercial	$	1,114,516,312	$	1,113,439,836
Construction and land development		195,188,469		176,688,073
Residential		383,345,641		377,942,535
Other		14,511,162		14,823,962
Total real estate secured		1,707,561,584		1,682,894,406

Commercial		171,029,048		174,248,316
Consumer		12,260,293		15,416,544
Other		7,237,222		7,450,885
Total loans		1,898,088,147		1,880,010,151
Less
Net deferred loan fees, premiums and discounts		5,914,020		6,476,912
Allowance for credit losses		18,328,757		18,096,173
Net loans	$	1,873,845,370	$	1,855,437,066

For purposes of disclosure, the loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its ACL. There are four loan portfolio segments, including real estate secured, commercial, consumer and other loans. A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and an entity’s method for monitoring and assessing credit risk. Classes within the real estate secured portfolio segment include commercial, construction and land development, residential, and other. Each of commercial, consumer and other loans is its own class.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Portfolio segmentation, continued:

Risk characteristics relevant to each portfolio segment and class are as follows:

Commercial real estate: Commercial real estate loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner-occupied loans. Non-owner-occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50% or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or an affiliate of the party, who owns the property.

Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land development portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner-occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Portfolio segmentation, continued:

Residential real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on 15 to 30 year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes home equity loans which are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their homes. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum loan-to-value (“LTV”), minimum credit scores, and a maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment.

Commercial: The commercial loan portfolio segment includes commercial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio segment is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short- or medium-term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria, including limits on maximum LTV on secured consumer loans, minimum credit scores, and maximum debt to income. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on various indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle, or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. 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.

Other: The other loan portfolio segment primarily consists of tax-exempt commercial loans, undisbursed loans of all types, and unpaid overdrafts on deposit accounts.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

ACL on loans:

The ACL represents an allowance for expected losses over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio.

The following tables detail activity in the ACL by portfolio segment for the three month periods ended March 31, 2026 and 2025. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three months ended as of March 31, 2026

(Dollars are in thousands)	Beginning balance		Charge offs			Recoveries		Provision			Ending balance
Real estate secured:
Commercial	$	11,038	$	-		$	114	$	(113	)	$	11,039
Construction and land development		1,969		-			-		204			2,173
Residential		3,536		-			-		60			3,596
Other		95		-			-		(2	)		193
Total real estate secured		16,638		-			114		149			16,901
Commercial		1,137		-			1		122			1,260
Consumer		272		(15	)		11		(148	)		120
Other		49		-			-		(1	)		48
Total	$	18,096	$	(15	)	$	126	$	122		$	18,329

Three months ended as of March 31, 2025

(Dollars are in thousands)	Beginning balance			Charge offs			Recoveries		Provision		Ending balance
Real estate secured:
Commercial	$	10,380		$	-		$	10	$	-	$	10,390
Construction and land development		2,240			-			202		-		2,442
Residential		3,471			-			16		-		3,487
Other		1			-			-		-		1
Total real estate secured		16,092			-			228		-		16,320
Commercial		1,776			(314	)		-		-		1,462
Consumer		338			(17	)		6		-		327
Other		(1	)		-			1		-		-
Total	$	18,205		$	(331	)	$	235	$	-	$	18,109

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Credit quality indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes certain loans individually to classify the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $250,000 and non-homogeneous loans, such as commercial real estate loans. This analysis is performed on an annual basis.

The Company uses the following definitions for risk ratings:

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 the presence of adverse trends in the borrower’s operations, credit quality or financial strength. Those 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 considering the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’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. They are characterized by the distinct possibility that the Company 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 the 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 affected in the future.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Credit quality indicators, continued:

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of March 31, 2026:

															Revolving
													Revolving		to term
	2026		2025		2024		2023		2022		Prior		loans		loans		Total
Real estate secured:
Commercial
Pass	$	23,979,755	$	106,421,596	$	111,153,136	$	163,472,569	$	276,984,177	$	408,416,369	$	15,101,968	$	-	$	1,105,529,570
Special mention		-		-		-		8,024,613		-		872,398		-		-		8,897,011
Substandard		-		89,731		-		-		-		-		-		-		89,731
Doubtful		-		-		-		-		-		-		-		-		-
Total Commercial	$	23,979,755	$	106,511,327	$	111,153,136	$	281,669,895	$	276,984,177	$	409,288,767	$	15,101,968	$	-	$	1,114,516,312
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Construction and land development
Pass	$	17,734,502	$	62,749,405	$	40,720,549	$	11,490,591	$	15,423,382	$	13,288,758	$	33,575,135	$	-	$	194,982,322
Special mention		-		171,318		-		-		-		-		-		-		171,318
Substandard		-		-		-		-		-		34,829		-		-		34,829
Doubtful		-		-		-		-		-		-		-		-		-
Total construction and land development	$	17,734,502	$	62,920,723	$	40,720,549	$	11,490,591	$	15,423,382	$	13,323,587	$	33,575,135	$	-	$	195,188,469
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential
Pass	$	9,641,048	$	33,506,564	$	34,597,389	$	33,638,333	$	57,080,995	$	169,138,104	$	39,575,634	$	-	$	377,178,067
Special mention		-		-		-		-		-		545,282		-		-		545,282
Substandard		-		-		570,267		620,623		372,368		4,059,034		-		-		5,622,292
Doubtful		-		-		-		-		-		-		-		-		-
Total residential	$	9,641,048	$	33,506,564	$	36,085,660	$	34,258,956	$	57,453,363	$	173,742,420	$	39,575,634	$	-	$	383,345,641
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Other
Pass	$	-	$	218,736	$	209,251	$	1,908,945	$	1,105,827	$	10,781,805	$	286,598	$	-	$	14,511,162
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total other	$	-	$	218,736	$	209,251	$	1,908,945	$	1,105,827	$	10,781,805	$	286,598	$	-	$	14,511,162
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total real estate loans	$	51,355,305	$	203,157,350	$	187,250,592	$	219,155,674	$	350,966,749	$	607,136,579	$	88,539,335	$	-	$	1,707,561,584
Total real estate loans –current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Non-real estate secured Commercial
Pass	$	5,584,929	$	32,729,039	$	13,272,850	$	36,508,275	$	26,050,846	$	20,716,462	$	35,230,553	$	-	$	170,092,954
Special mention		-		-		-		478,842		-		222,067		-		-		700,909
Substandard		-		-		63,685		87,409		6,252		77,839		-		-		235,185
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial	$	5,584,929	$	32,729,039	$	13,336,535	$	37,074,526	$	26,057,098	$	21,016,368	$	35,230,553	$	-	$	171,029,048
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer
Pass	$	2,040,917	$	5,527,535	$	2,527,568	$	766,460	$	236,596	$	631,723	$	430,760	$	-	$	12,161,559
Special mention		25,758		15,597		-		-		-		2,910		-		-		44,265
Substandard		-		-		7,537		566		10,196		36,170		-		-		54,469
Doubtful		-		-		-		-		-		-		-		-		-
Total consumer	$	2,066,675	$	5,543,132	$	2,535,105	$	767,026	$	246,792	$	670,803	$	430,760	$	-	$	12,260,293
Current period gross charge-offs	$	532	$	11,099	$	2,133	$	-	$	-	$	1,044	$	-	$	-	$	14,808

Other
Pass	$	-	$	126,393	$	5,042,788	$	1,109,816	$	9,879	$	115,827	$	832,519	$	-	$	7,237,222
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total others	$	-	$	126,393	$	5,042,788	$	1,109,816	$	9,879	$	115,827	$	832,519	$	-	$	7,237,222
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total loans	$	59,006,909	$	241,555,914	$	208,165,020	$	258,107,042	$	377,280,518	$	628,939,577	$	125,033,167	$	-	$	1,898,088,147
Total current period gross charge-offs	$	532	$	11,099	$	2,133	$	-	$	-	$	1,044	$	-	$	-	$	14,808

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Credit quality indicators, continued:

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2025:

															Revolving
													Revolving		to term
	2025		2024		2023		2022		2021		Prior		loans		loans		Total
Real estate secured:
Commercial
Pass	$	102,885,714	$	111,666,784	$	162,830,567	$	281,669,895	$	190,324,863	$	241,290,993	$	13,862,876	$	-	$	1,104,531,692
Special mention		-		-		7,930,006		-		219,733		664,268		-		-		8,814,007
Substandard		94,137		-		-		-		-		-		-		-		94,137
Doubtful		-		-		-		-		-		-		-		-		-
Total Commercial	$	102,979,851	$	111,666,784	$	170,760,573	$	281,669,895	$	190,544,596	$	241,955,261	$	13,862,876	$	-	$	1,113,439,836
Current period gross charge-offs	$	-	$	-	$	-	$	17,534	$	-	$	283,786	$	-	$	-	$	301,320

Construction and land development
Pass	$	53,196,910	$	43,520,877	$	12,473,607	$	15,620,448	$	8,620,865	$	8,627,110	$	33,953,780	$	-	$	176,013,567
Special mention		78,318		-		-		-		-		-		-		-		78,318
Substandard		-		-		560,322		-		-		35,836		-		-		596,158
Doubtful		-		-		-		-		-		-		-		-		-
Total construction and land development	$	53,275,228	$	43,520,877	$	13,033,929	$	15,620,448	$	8,620,865	$	8,662,946	$	33,953,780	$	-	$	176,688,073
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential
Pass	$	32,828,788	$	34,638,627	$	35,463,653	$	58,094,457	$	41,323,508	$	130,758,970	$	38,474,995	$	-	$	371,582,998
Special mention		-		-		-		-		-		689,694		143,093		-		832,787
Substandard		-		535,978		622,007		494,536		99,402		3,774,827		-		-		5,526,750
Doubtful		-		-		-		-		-		-		-		-		-
Total residential	$	32,828,788	$	35,174,605	$	36,085,660	$	58,588,993	$	41,422,910	$	135,223,491	$	38,618,088	$	-	$	377,942,535
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	120,509	$	-	$	-	$	120,509

Other
Pass	$	220,500	$	212,339	$	1,944,007	$	1,143,176	$	-	$	10,845,718	$	458,222	$	-	$	14,823,962
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total other	$	220,500	$	212,339	$	1,944,007	$	1,143,176	$	-	$	10,845,718	$	458,222	$	-	$	14,823,962
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total real estate loans	$	189,304,367	$	190,574,605	$	221,824,169	$	265,057,401	$	240,588,371	$	396,687,416	$	86,892,966	$	-	$	1,682,894,406
Total real estate loans –current period gross charge-offs	$	-	$	-	$	-	$	17,534	$	-	$	404,295	$	-	$	-	$	421,829

Non-real estate secured Commercial
Pass	$	33,125,842	$	14,281,843	$	37,968,734	$	26,640,349	$	4,973,672	$	16,544,998	$	39,788,460	$	-	$	173,323,928
Special mention		-		-		480,232		-		77,839		234,821		-		-		792,892
Substandard		-		-		88,924		-		-		42,572		-		-		131,496
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial	$	33,125,842	$	14,281,843	$	38,537,890	$	26,640,349	$	5,051,511	$	16,822,391	$	39,788,460	$	-	$	174,248,316
Current period gross charge-offs	$	-	$	-	$	7,141	$	347,229	$	8,000	$	-	$	-	$	-	$	362,370

Consumer
Pass	$	9,808,038	$	3,107,808	$	990,245	$	299,800	$	368,676	$	322,733	$	419,757	$	-	$	15,317,057
Special mention		16,814		-		-		-		-		3,917		-		-		20,731
Substandard		5,724		22,156		-		18,030		-		31,802		1,044		-		78,756
Doubtful		-		-		-		-		-		-		-		-		-
Total consumer	$	9,830,576	$	3,129,964	$	990,245	$	317,830	$	368,676	$	358,452	$	420,801	$	-	$	15,416,544
Current period gross charge-offs	$	1,063	$	33,033	$	11,021	$	12,467	$	-	$	8,208	$	185,083	$	-	$	250,875

Other
Pass	$	161,113	$	5,054,100	$	1,172,892	$	-	$	-	$	125,092	$	937,688	$	-	$	7,450,885
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total others	$	5,036,024	$	1,292,956	$	1,172,892	$	-	$	-	$	125,092	$	937,688	$	-	$	7,450,885
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total loans	$	232,421,928	$	213,040,512	$	262,525,196	$	383,980,691	$	246,008,558	$	413,993,351	$	128,039,915	$	-	$	1,880,010,151
Total current period gross charge-offs	$	1,063	$	33,033	$	18,162	$	377,230	$	8,000	$	412,503	$	185,083	$	-	$	1,035,074

There were no loans classified in the Loss category as of March 31, 2026 or December 31, 2025. There were no revolving loans converted to term loans as of March 31, 2026 or December 31, 2025.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Nonaccrual and past due loans:

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged to interest income. Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest, or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment. Past due loans are accruing loans whose principal or interest is past due 30 days or more.

The following table is a summary of the Company’s nonaccrual loans by major categories as of the dates indicated:

	March 31, 2026
	Nonaccrual		Nonaccrual		Total
	loans with		loans with		nonaccrual
	no allowance		an allowance		loans
Real estate secured:
Commercial	$	-	$	-	$	-
Construction and land development		34,829		-		34,829
Residential		5,244,175		292,589		5,536,764
Other		-		-		-
Total real estate secured loans		5,279,004		292,589		5,571,593
Commercial		235,185		-		235,185
Consumer		54,469		-		54,469
Other		-		-		-
Total loans	$	5,568,658	$	292,589	$	5,861,247

	December 31, 2025
	Nonaccrual		Nonaccrual		Total
	loans with		loans with		nonaccrual
	no allowance		an allowance		loans
Real estate secured:
Commercial	$	-	$	-	$	-
Construction and land development		596,158		-		596,158
Residential		5,150,312		288,509		5,438,821
Other		-		-		-
Total real estate secured loans		5,746,740		288,509		6,034,979
Commercial		131,497		-		131,497
Consumer		78,756		-		78,756
Other		-		-		-
Total loans	$	5,956,723	$	288,509	$	6,245,232

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Nonaccrual and past due loans, continued:

There was no interest income recognized on nonaccrual loans for the three months ended March 31, 2026 or 2025.

Aging analysis:

The following table presents an aging analysis of past due loans by category as of the period indicated:

As of March 31, 2026	Loans 30-59 days past due		Loans 60-89 days past due		Accruing loans 90 or more days past due		Nonaccrual loans		Total noncurrent loans		Current loans		Total loans
Real estate secured: Commercial	$	98,259	$	-	$	-	$	-	$	98,259	$	1,114,418,053	$	1,114,516,312
Construction and land development		652,857		-		-		34,829		687,686		194,500,783		195,188,469
Residential		4,242,337		780,952		-		5,536,761		10,560,053		372,785,588		383,345,641
Other		-		-		-		-		-		14,511,162		14,511,162
Total real estate secured		4,993,453		780,952		-		5,571,593		11,345,998		1,696,215,586		1,707,561,584
Commercial		216,742		-		-		235,185		451,927		170,577,121		171,029,048
Consumer		175,762		19,615		-		54,469		249,846		12,010,447		12,260,293
Other		-		-		-		-		-		7,237,222		7,237,222
Total loans	$	5,385,957	$	800,567	$	-	$	5,861,247	$	12,047,771	$	1,886,040,376	$	1,898,088,147

As of December 31, 2025	Loans 30-59 days past due		Loans 60-89 days past due		Accruing loans 90 or more days past due		Nonaccrual loans		Total noncurrent loans		Current loans		Total loans
Real estate secured: Commercial	$	259,065	$	-	$	-	$	-	$	259,065	$	1,113,180,771	$	1,113,439,836
Construction and land development		35,176		-		-		596,158		631,334		176,056,739		176,688,073
Residential		4,199,811		1,346,718		-		5,438,821		10,985,350		366,957,185		377,942,535
Other		-		-		-		-		-		14,823,962		14,823,962
Total real estate secured		4,494,052		1,346,718		-		6,034,979		11,875,749		1,671,018,657		1,682,894,406
Commercial		136,485		186,241		-		131,497		454,223		173,794,093		174,248,316
Consumer		65,466		48,083		-		78,756		192,305		15,224,239		15,416,544
Other		-		-		-		-		-		7,450,885		7,450,885
Total loans	$	4,696,003	$	1,581,042	$	-	$	6,245,232	$	12,522,277	$	1,867,487,874	$	1,880,010,151

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Collateral-dependent loans:

Collateral-dependent loans are loans where repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty. If the Company determines that foreclosure is probable, these loans are written down to the lower of cost or collateral value less estimated costs to sell. When repayment is expected to be from the operation of the collateral, the ACL is calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. The Company may, in the alternative, measure the ACL as the amount by which the amortized cost basis of the financial asset exceeded the estimated fair value of the collateral. The following table provides a summary of collateral-dependent loans by collateral type as of March 31, 2026 and December 31, 2025.

	March 31,		December 31,
	2026		2025
Collateral type
Single Family Residence	$	1,960,265	$	1,958,890
Land		-		560,322
Total	$	1,960,265	$	2,519,212

The carrying amount of purchased credit deteriorated loans on March 31, 2026 and December 31, 2025 are as follows:

	March 31,		December 31,
	2026		2025
Real estate secured:
Commercial	$	2,946,946	$	3,017,002
Construction and land development		2,286,851		2,306,911
Residential		1,437,332		1,662,178
Other		-		-
Total real estate secured		6,671,129		6,986,091
Commercial		1,619,916		1,730,050
Consumer		2,910		3,917
Other		-		-
Total loans	$	8,293,955	$	8,720,058

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3. Loans and Allowance for Credit Losses (ACL), Continued

Modifications to borrowers experiencing financial difficulty:

The Company periodically provides modifications to borrowers experiencing financial difficulty. These modifications include either payment deferrals, term extensions, interest rate reductions, principal forgiveness or combinations of modification types. The determination of whether the borrower is experiencing financial difficulty is made on the date of the modification. When principal forgiveness is provided, the amount of principal forgiveness is charged off against the ACL with a corresponding reduction in the amortized cost basis of the loan. A modified loan is tracked for at least 12 months following the modifications granted.

On March 31, 2026 and December 31, 2025, loans modified to borrowers experiencing financial difficulty were immaterial. The Company had no unfunded commitments to borrowers experiencing financial difficulty for which the Company had modified their loans on March 31, 2026 or December 31, 2025.

Unfunded commitments:

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, and both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be cancelled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over their estimated life, which are the same loss rates that are used in computing the ACL on loans. The ACL for unfunded loan commitments of $117,535 at both March 31, 2026 and December 31, 2025, is separately classified on the consolidated balance sheet within other liabilities.

Note 4. Premises and Equipment

	March 31,			December 31,
	2026			2025
Land and land improvements	$	17,199,368		$	17,199,368
Buildings and improvements		48,360,817			48,312,176
Furniture, fixtures and equipment		13,414,348			13,285,338
Construction in progress		417,546			416,217
		79,392,079			79,213,099
Less: Accumulated depreciation		(29,947,340	)		(29,447,897	)
Total	$	49,444,739		$	49,765,202

Depreciation expense, included in depreciation and amortization on the consolidated statements of income, for the three months ended March 31, 2026, and 2025 amounted to $ 557,818 and $ 550,401, respectively.

Construction in progress includes capital expenditures for branch renovations and construction of a new branch. Branch renovations are substantially complete and estimated costs to complete are insignificant. Estimated costs to complete the new branch cannot be reasonably estimated as construction has not been started as information necessary for construction bids has not been completed.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5. Other Intangible Assets

Goodwill:

FASB ASC No. 2021-03, “Goodwill and Other (Topic 350),” regarding testing goodwill for impairment, provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company performs its annual goodwill impairment test as of December 31 of each year. As of the latest impairment analysis at December 31, 2025, management determined there was no goodwill impairment. The carrying amount of goodwill on March 31, 2026 and December 31, 2025 was approximately $8.51 million, respectively.

Core Deposit Intangibles (CDI):

The carrying basis and accumulated amortization of CDIs on March 31, 2026 and December 31, 2025 were:

	March 31,			December 31,
	2026			2025
Gross balance	$	13,061,936		$	13,061,936
Accumulated amortization		(9,180,895	)		(8,805,554	)
Carrying amount	$	3,881,041		$	4,256,382

The change in CDIs during the three months ended March 31, 2026 and the year ended December 31, 2025 is as follows:

	March 31,			December 31,
	2026			2025
Beginning of quarter/year	$	4,256,382		$	5,824,968
Amortization		(375,341	)		(1,568,586	)
End of quarter/year	$	3,881,041		$	4,256,382

As of March 31, 2026, the estimated amortization expense of CDIs for future periods is as follows:

Remainder of 2026	$	1,146,873
2027		1,183,335
2028		1,114,976
2029		435,857
Total	$	3,881,041

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6. Short-Term Borrowings

Short-term borrowings included the following on March 31, 2026 and December 31, 2025:

	March 31,		December 31,
	2026		2025
Securities sold under repurchase agreements	$	5,067,842	$	3,251,290
FHLB cash management advance		40,000,000		75,000,000
Federal funds purchased		-		10,000,000
Total short-term borrowings	$	45,067,842	$	88,251,290

As of December 31, 2025, the Company had federal funds purchased totaling $10,000,000. These borrowings had a weighted average interest rate of 4.05% and a maturity of 14 days.

As of March 31, 2026 and December 31, 2025, the Company had short-term FHLB cash management advances totaling $40,000,000 and $75,000,000, respectively. These borrowings had interest rates of 3.82% and 3.89%, respectively, and ninety-day maturities. The March 2026 balance matures on June 29, 2026.

Securities sold under agreements to repurchase consist of obligations of the Company to other parties. The obligations are typically secured by investment securities with fair values exceeding the total balance of the agreement and such collateral is held by the Company. The weighted average rate on these arrangements as of March 31, 2026 and December 31, 2025 was 2.42% and 2.57%, respectively. The maximum amount of outstanding agreements at any month end during the three months ended March 31, 2026 and the fiscal year ended December 31, 2025 totaled $5,067,842 and $6,632,284, respectively, and the monthly average of such agreements totaled $3,420,928 and $4,846,327 for March 31, 2026 and December 31, 2025, respectively, with an average rate paid of 1.94% and 2.0% for the three months ended March 31, 2026 and for the fiscal year ended December 31, 2025, respectively.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7. Long-Term Debt

FHLB advances and notes payable consisted of the following components as of the dates indicated:

	March 31,		December 31,
	2026		2025

FHLB advances, principal and interest payments at fixed interest rates from 0.69% to 5.03%	$	60,920,572	$	60,552,956

Trust Preferred Securities, interest payments due quarterly at SOFR plus 2.4%		-		5,576,896

PBD Promissory Note, payments due quarterly at 3.75%, maturing September 2026		12,259,951		12,457,509

Total	$	73,180,526	$	78,587,361

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7. Long-Term Debt, Continued

The FHLB advances were secured by mortgage loans totaling $683,483,000 on March 31, 2026. The advances, requiring monthly principal and interest payments at fixed interest rates from 0.69% to 5.03%, are subject to restrictions or penalties in the event of prepayment. These advances mature at various dates between 2026 and 2041.

With the acquisition of Citizens Bancorp, Inc. (“Citizens Bancorp”) and its bank subsidiary, Citizens Bank, on January 2, 2018, the Company assumed Citizens Bank Capital Trust I (the “Trust”). The Trust was formed during 2004 as a statutory trust under the laws of the State of Delaware and until its cancellation on January 21, 2026, was wholly owned by the Company. In September 2004, the Trust issued variable rate preferred securities (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 debentures aggregating $6,186,000 to the Trust (the “Subordinated Debentures”). The Subordinated Debentures were the sole assets of the Trust. The Subordinated Debentures and the Trust Preferred Securities paid interest and dividends, respectively, on a quarterly basis, at a variable interest rate equal to the three-month Secured Overnight Financing Rate (“SOFR”) plus 2.40% adjusted quarterly which was 6.41% on December 31, 2025. The Subordinated Debentures and Trust Preferred Securities were redeemable prior to maturity, in whole or in part, beginning October 7, 2009, at a redemption price of $1,000 per preferred security.

The face amount of the Subordinated Debentures was $6,186,000 on December 31, 2025. Unamortized discount was $661,313 on December 31, 2025. The Company redeemed the Subordinated Debentures, and the Trust redeemed the Trust Preferred Securities in January 2026 with a resulting loss on early retirement of $603,303 recognized during the quarter ended March 31, 2026.

Aggregate annual maturities of long-term debt on March 31, 2026, are:

	Debt
Remainder of 2026	$	17,610,044
2027		4,850,162
2028		4,931,219
2029		5,006,729
2030		5,130,354
Thereafter		35,652,018
	$	73,180,526

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 8. Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, banks must meet specific capital guidelines that involve quantitative measures of a bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the applicable regulations) to risk-weighted assets (as defined in the applicable regulations ) and of Tier I capital to average assets (as defined in the applicable regulations ). Management believes that as of March 31, 2026 and December 31, 2025, the Bank met all capital adequacy requirements to which it is subject. In addition to these requirements, the Bank is subject to an institution specific capital conservation buffer, which must exceed 2.50%, to avoid limitations on distributions and discretionary bonus payments.

As of March 31, 2026, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage capital ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s capitalization classification.

The Bank’s actual capital amounts and ratios as of March 31, 2026 and December 31, 2025 are presented in the tables below (dollars in thousands).

											Minimum
											to be well
						Minimum					capitalized under
						for capital					prompt corrective
	Actual					adequacy purposes					action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2026:
Total capital (to risk-weighted assets)	$	267,555		14.0	%	$	152,725		8.0	%	$	190,906		10.0	%

Tier I capital (to risk-weighted assets)	$	249,108		13.0	%	$	114,544		6.0	%	$	152,725		8.0	%

Common equity Tier 1 capital (to risk-weighted assets)	$	249,108		13.0	%	$	85,908		4.5	%	$	124,089		6.5	%

Tier 1 capital (to average assets)	$	249,108		11.1	%	$	89,458		4.0	%	$	111,823		5.0	%

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 8. Regulatory Matters, Continued

											Minimum
											to be well
						Minimum					capitalized under
						for capital					prompt corrective
	Actual					adequacy purposes					action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2025:
Total capital (to risk-weighted assets)	$	255,727		13.5	%	$	151,732		8.0	%	$	189,665		10.0	%

Tier I capital (to risk-weighted assets)	$	237,827		12.5	%	$	113,799		6.0	%	$	151,732		8.0	%

Common equity Tier 1 capital (to risk-weighted assets)	$	237,827		12.5	%	$	85,349		4.5	%	$	123,282		6.5	%

Tier 1 capital (to average assets)	$	237,827		10.8	%	$	88,218		4.0	%	$	110,272		5.0	%

Note 9. Stock-Based Compensation

Restricted Stock Units:

The Company grants restricted stock units (“RSUs”) to certain employees, officers, and members of the Board of Directors under the Commercial Bancgroup, Inc. 2025 Omnibus Incentive Plan .. The equity incentive plan allows for the issuance up to 850,000 (subject to automatic annual increases in accordance with the terms of the plan) shares of our common stock pursuant to the plan. Each RSU represents the right to receive one share of the Company’s common stock upon vesting. RSUs do not carry voting rights or dividend rights until the underlying shares are issued.

RSUs are subject solely to time based vesting conditions and generally vest over a service period of one to three years, with vesting occurring in equal annual installments, provided the grantee remains in continuous service with the Company through the applicable vesting date.

The grant date fair value of RSUs is measured based on the closing market price of the Company’s common stock on the grant date. Compensation cost related to RSUs is recognized on a straight line basis over the requisite service period and is recorded in the consolidated statements of operations within salaries and employee benefits. The Company accounts for forfeitures as they occur.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 9. Stock-Based Compensation, Continued

The following table summarizes RSU activity for the quarter ended March 31, 2026:

				Weighted Average
	Number of			Grant Date
	RSUs			Fair Value
Outstanding at beginning of period		45,783		$	24.02
Granted		17,131			24.56
Vested		-			-
Forfeited or cancelled		(528	)		24.56
End of quarter		62,386		$	24.17

As of March 31, 2026, unrecognized compensation cost related to unvested RSUs was $1,236,145, which is expected to be recognized over a weighted average remaining vesting period of 2.44 years.

Upon vesting of RSUs, the Company may withhold shares to satisfy statutory tax withholding requirements. Shares withheld for tax purposes are accounted for as equity transactions and are recorded as a reduction to additional paid in capital. Cash paid for employee tax withholding obligations is classified as a financing activity in the consolidated statements of cash flows.

RSUs do not accrue dividend equivalents prior to vesting. Dividends declared on shares issued upon vesting of RSUs are recognized in the period in which such dividends are paid.

Stock based compensation expense related to RSUs was $159,414, and $0 for the three months ended March 31, 2026, and 2025, respectively. Recognized tax benefit was not material for the quarter ended March 31, 2026.

Note 10.

Disclosures About Fair Value of Assets and Liabilities

ASC 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1:

Quoted prices in active markets for identical assets or liabilities.

Level 2:

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3:

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10. Disclosures About Fair Value of Assets and Liabilities, Continued

Available-for-sale securities:

Where quoted market prices are available in an active market, securities are classified within Level l of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include all of the Company’s available-for-sale securities, consisting of U.S. Treasury, government agency, municipal and mortgage-backed securities. Inputs used to estimate the fair value of Level 2 securities when pricing models are used include the security’s call date, maturity date, and interest rate and current market interest rates. In certain cases where Level 1 and Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Interest rate swap agreements:

The fair value of interest rate swap agreements is estimated using inputs including the remaining term of the agreement and current market interest rates, that are observable or that can be corroborated by observable marked data and, therefore, are classified within Level 2 of the valuation hierarchy.

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell on March 31, 2026 and December 31, 2025:

	March 31, 2026
			Quoted prices		Significant
			in active		other		Significant
			markets for		observable		unobservable
	Fair		identical assets		inputs		inputs
	value		(Level 1)		(Level 2)		(Level 3)
Assets
U.S. Government and federal agency	$	14,948,700	$	-	$	14,948,700	$	-
U.S. Government sponsored enterprises (GSEs)
Mortgage-backed:		3,619		-		3,619		-
GSE residential		11,928,944		-		11,928,944		-
State and political subdivisions		15,294,199		-		15,294,199		-
Interest rate swaps		14,508,980		-		14,508,980		-
Liabilities
Interest rate swaps		14,508,980		-		14,508,980		-

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10. Disclosures About Fair Value of Assets and Liabilities, Continued

	December 31, 2025
			Quoted prices		Significant
			in active		other		Significant
			markets for		observable		unobservable
	Fair		identical assets		inputs		inputs
	value		(Level 1)		(Level 2)		(Level 3)
Assets
U.S. Government and federal agency	$	14,830,375	$	-	$	14,830,375	$	-
U.S. Government-sponsored enterprises (GSEs)		5,395		-		5,395		-
Mortgage-backed:
GSE residential		12,787,023		-		12,787,023		-
State and political subdivisions		15,513,879		-		15,513,879		-
Interest rate swaps		14,130,763		-		14,130,763		-
Liabilities
Interest rate swaps		14,130,763		-		14,130,763		-

The Company had no assets or liabilities whose fair values are measured using Level 3 inputs on a recurring basis as of March 31, 2026 and December 31, 2025.

Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Collateral-dependent and individually evaluated:

The fair value of collateral-dependent loans was primarily measured based on the value of the collateral securing these loans and classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets, including equipment, inventory, and/or accounts receivable. The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. These loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10. Disclosures About Fair Value of Assets and Liabilities, Continued

Foreclosed assets held for sale:

The fair value of foreclosed assets held for sale is estimated using the fair value method of measuring the amount of impairment. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. The fair value method is classified within Level 3 of the fair value hierarchy.

The following tables present the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fell on March 31, 2026 and December 31, 2025:

	March 31, 2026
	Fair Value Measurements Using
	Fair value		(Level 1)		(Level 2)		(Level 3)

Foreclosed assets held for sale	$	-	$	-	$	-	$	-
Collateral-dependent loans	$	230,000	$	-	$	-	$	230,000

	December 31, 2025
	Fair Value Measurements Using
	Fair value		(Level 1)		(Level 2)		(Level 3)

Foreclosed assets held for sale	$	-	$	-	$	-	$	-
Collateral-dependent loans	$	230,000	$	-	$	-	$	230,000

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10. Disclosures About Fair Value of Assets and Liabilities, Continued

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value on March 31, 2026 and December 31, 2025:

March 31, 2026

Fair

Valuation

Significant

Weighted

value

techniques⁽¹⁾

unobservable inputs

average

Foreclosed assets held for sale

Appraisal

Estimated costs to sell

Collateral-dependent loans

230,000

Appraisal

Estimated costs to sell

December 31, 2025

Fair

Valuation

Significant

Weighted

value

techniques⁽¹⁾

unobservable inputs

average

Foreclosed assets held for sale

Appraisal

Estimated costs to sell

Collateral-dependent loans

230,000

Appraisal

Estimated costs to sell

(1)

The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral-dependent.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10. Disclosures About Fair Value of Assets and Liabilities, Continued

Fair values of financial instruments:

The carrying amounts and estimated fair values of financial instruments not carried at fair value, on March 31, 2026 and December 31, 2025, are as follows:

	March 31, 2026
	Carrying		Fair value measurements
	amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	168,394,594	$	168,394,594	$	-	$	-	$	168,394,594
Held-to-maturity securities
U.S. Government and federal agency		42,598,382		-		41,893,800		-		41,893,800
U.S. Government-sponsored enterprises (GSEs)		13,663,836		-		13,361,203		-		13,361,203
Mortgage-backed: GSE residential		36,216,636		-		33,939,183		-		33,939,183
State and political subdivisions		3,908,088		-		3,695,841		-		3,695,841
		96,386,942		-		92,890,027		-		92,890,027

Loans receivable		1,873,845,370		-		-		1,851,592,022		1,851,592,022
Interest rate swaps		14,508,980		-		14,508,980		-		14,508,980

Financial Liabilities
Time Deposits		503,407,575		-		500,781,000		-		500,781,000
Long-Term borrowings		73,180,526		-		70,819,112		-		70,819,112
Short-Term borrowings		45,067,842		45,067,842		-		-		45,067,842
Interest rate swaps		14,508,980		-		14,508,980		-		14,508,980

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10. Disclosures About Fair Value of Assets and Liabilities, Continued

Fair values of financial instruments, continued:

	December 31, 2025
	Carrying		Fair value measurements
	amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	144,318,929	$	144,318,929	$	-	$	-	$	144,318,929
Held-to-maturity securities
U.S. Government and federal agency		42,681,410		-		41,878,600		-		41,878,600
U.S. Government-sponsored enterprises (GSEs)		13,599,444		-		13,308,535		-		13,308,535
Mortgage-backed: GSE residential		37,534,375		-		35,524,297		-		35,524,297
State and political subdivisions		3,912,892		-		3,744,446		-		3,744,446
		97,728,121		-		94,455,878		-		94,455,878

Loans Receivable		1,855,434,066		-		-		1,820,894,000		1,820,894,000
Interest rate swaps		14,130,763		-		14,130,763		-		14,130,763

Financial Liabilities
Time Deposits		487,032,489		-		485,172,000		-		485,172,000
Long-Term borrowings		78,587,361		-		77,385,800		-		77,385,800
Short-Term borrowings		88,251,290		88,251,290		-		-		88,251,290
Interest rate swaps		14,130,763		-		14,130,763		-		14,130,763

Note 11. Significant Estimates and Concentrations

The Company originates primarily real estate, commercial, and consumer loans to customers primarily in its markets in Kentucky, North Carolina and Tennessee. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in the local area.

At both March 31, 2026 and December 31, 2025, approximately 90% of the Company’s loan portfolio was concentrated in loans secured by real estate, a substantial portion of which is located in the Company’s primary market areas. Accordingly, the ultimate collectability of the loan portfolio and recovery of the carrying amount of foreclosed assets is susceptible to changes in real estate conditions in the Company’s primary market area. The other concentrations of credit by type of loan are set forth in Note 3.

Current economic conditions:

Management is confident that current underwriting standards have achieved sufficient loan-to-value and operating margins to meet potential changes in the economic environments in the markets we serve.

The accompanying financial statements have been prepared using values and information currently available to the Company.

Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the ACL and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 12. Commitments and Contingencies

Standby letters of credit:

Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under nonfinancial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Should the Company be obligated to perform under the standby letters of credit, the Company may seek recourse from the customer for reimbursement of amounts paid.

The Company had total outstanding standby letters of credit amounting to approximately $25,102,000 and $24,502,000 on March 31, 2026 and December 31, 2025, respectively, with terms ranging from 30 days to five years. On both March 31, 2026 and December 31, 2025, the Company’s deferred revenue under standby letter of credit agreements was $0.

Lines of credit:

Lines of credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Lines of credit generally have fixed expiration dates. Because a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

On March 31, 2026, the Company had granted unused lines of credit to borrowers aggregating approximately $267,775,000 for commercial lines and open-end consumer lines. On December 31, 2025, unused lines of credit to borrowers aggregated approximately $274,407,000 for commercial lines and open-end consumer lines.

Contingencies:

From time to time, the Company is party to litigation and other legal matters incidental to the conduct of its business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues liabilities for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of March 31, 2026, the Company was not involved in any such matters which, individually or in the aggregate, management believes would have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.

Commercial Bancgroup, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 13. Derivatives Not Designated as Hedges

The Company enters into interest rate swaps with certain loan customers. The Company then enters into corresponding offsetting derivatives with third parties, which results in offsetting revenues and expenses within interest income. While these derivatives represent economic hedges, they do not qualify as hedges for accounting purposes.

The Company presents derivative positions gross on its consolidated balance sheets. The derivatives recorded on the consolidated balance sheets as of March 31, 2026 and December 31, 2025, were as follows:

	March 31, 2026				December 31, 2025
	Notional		Fair		Notional		Fair
	amount		value		amount		value
Included in other assets:
Interest rate swaps related to customer loans	$	264,862,989	$	14,508,980	$	268,822,286	$	14,130,763

Included in other liabilities:
Interest rate swaps related to customer loans	$	264,862,989	$	14,508,980	$	268,822,286	$	14,130,763

Note 14. Earnings Per Share

The factors used in the earnings per share computation follow:

	Three Months Ended
	March 31,
	2026		2025
Basic
Net income	$	9,534,438	$	8,691,606
Weighted average common shares outstanding		13,697,987		12,137,038
Basic earnings per share	$	0.70	$	0.72

Diluted
Net income	$	9,534,438	$	8,691,606
Weighted average common shares outstanding for basic EPS		13,697,987		12,137,038
Add: Dilutive effects of assumed vesting of stock grants		14,175		-
Average dilutive common shares		13,712,162		12,389,694
Diluted earnings per common share	$	0.70	$	0.72

Dilutive common shares represent restricted stock units that have been awarded but have not vested with the underlying shares of common stock issued to the recipient. (See Note 9 regarding discussion of stock compensation.)

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” for the fiscal year ended December 31, 2025 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 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.

Overview

The Company is a bank holding company headquartered in Harrogate, Tennessee that has elected under the BHC Act to become a financial holding company. We were incorporated in Tennessee in 1975, and we operate primarily through our 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 as 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. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this analysis and discussion, 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, we can elect to opt out of the extended transition period for adopting any new or revised accounting standards. We have 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 or private companies, we may adopt the standard on the application date for private companies. We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company.

Three Months ended March 31, 2026 Highlights

Results of Operations

●

We had net income of $9.5 million for the three months ended March 31, 2026, an increase of $0.8 million, or 9.7%, as compared to the three months ended March 31, 2025. The increase was primarily the result of an increase in net interest income after provision for credit losses offset by a loss on retirement of debt.

●

We had net income before income taxes of $11.9 million for the three months ended March 31, 2026, an increase of $.7 million, or 5.9%, as compared to the three months ended March 31, 2025. The increase was primarily the result of an increase in net interest income after provision for credit losses.

●

Net interest income was $20.5 million for the three months ended March 31, 2026, an increase of $1.1 million, or 5.9%, as compared to the three months ended March 31, 2025. The increase was primarily attributable to increased loan volume and a reduction in long-term debt interest expense.

●

Noninterest income was $2.6 million for the three months ended March 31, 2026, an increase of $0.14 million, or 6.1%, as compared to the three months ended March 31, 2025. The increase was primarily the result of increases in customer service charges due to normal fluctuations in our letters of credit fees.

●

Noninterest expense was $11.1 million for the three months ended March 31, 2026, an increase of $0.5 million, or 4.8%, as compared to the three months ended March 31, 2025. The increase was primarily the result of a loss on retirement of debt.

Financial Condition

●

Total assets were $2.3 billion as of March 31, 2026, an increase of $37.3 million, or 1.6%, from December 31, 2025.

●

Net loans were $1.9 billion as of March 31, 2026, an increase of $18.4 million, or 1.0%, from December 31, 2025.

●

Total deposits were $1.9 billion as of March 31, 2026, an increase of $76.5 million, or 4.2%, from December 31, 2025. This increase was primarily driven by a $16.4 million increase in time deposits to $503.4 million at March 31, 2026, from $487.0 million at December 31, 2025. Noninterest bearing demand deposits increased $3.8 million or 1.0% to $401.6 million as of March 31, 2026, from $397.8 million as of December 31, 2025. Brokered deposits decreased $6.4 million or 13.3%, to $41.5 million as of March 31, 2026 from $48.0 million as of December 31, 2025.

●

Non-brokered deposits were $1.8 billion as of March 31, 2026, an increase of $82.9 million, or 4.7%, from December 31, 2025. This increase was primarily driven by normal customer business cycles and the Bank’s focus on deposit growth.

●

Asset quality stayed the same with nonperforming assets to total assets of 0.28% as of March 31, 2026, and December 31, 2025. The ACL to total loans remained flat at .97% as of these same dates.

●

Book value per share increased $0.60, or 2.9%, to $21.43 at March 31, 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, outstanding holding company loan agreement with Community Trust Bank, Inc. (the “CTB Loan”) and the Subordinated Debentures. 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) automated teller machine (“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 March 31, 2026, approximately $305.0 million was available for borrowing on committed lines with the FHLB and $77.5 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 Months Ended March 31, 2026 and 2025

The following table shows 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 March 31, 2026								Three Months Ended March 31, 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⁾	$	1,883,103		$	27,675		5.9	%	$	1,794,477		$	27,930		6.2	%
Investment securities		140,223			1,099		3.1	%		186,604			1,245		2.3	%
Other interest-earning assets		85,953			689		3.2	%		150,891			1,591		4.6	%
Total interest-earning assets	$	2,109,279		$	29,463		5.6	%	$	2,131,972		$	30,766		5.8	%
Allowance for credit losses		(18,283	)		—					(18,109	)
Noninterest-earning assets		205,119			—					176,014
Total Assets:	$	2,296,115							$	2,289,582

Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	575,981		$	2,809		2.0	%	$	581,411		$	3,326		2.3	%
NOW, savings and money market deposits		412,533			1,425		1.4	%		383,685			1,435		1.5	%
Time deposits		479,804			4,081		3.4	%		564,710			5,533		3.9	%
FHLB advances		60,522			467		3.1	%		64,361			442		2.7	%
Other borrowings		20,355			203		4.0	%		43,951			690		6.3	%
Total interest-bearing liabilities	$	1,549,195		$	8,985		2.3	%	$	1,638,118		$	11,426		2.8	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits	$	430,842			—				$	395,414
Other liabilities		27,593			—					36,110
Total noninterest-bearing liabilities	$	458,435			—				$	431,524
Shareholders’ equity	$	288,485			—				$	219,940
Total liabilities and shareholders’ equity	$	2,296,115			—				$	2,289,582
Net Interest Income				$	20,478							$	19,340
Net Interest Spread⁽²⁾							3.3	%							3.0	%
Net Interest Margin⁽³⁾							3.9	%							3.7	%

(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.

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 table sets 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 this table, changes attributable to both rate and volume that cannot be segregated have been proportionately allocated to both volume and rate.

	Three Months Ended March 31, 2026 over 2025
	Changes due to:						Total
	Volume			Rate			Variance
	(Dollars in thousands)
Interest-Earning Assets:
Loans	$	1,379		$	(1,634	)	$	(255	)
Investment securities		(309	)		163			(146	)
Other interest earning assets		(685	)		(217	)		(902	)
Total increase (decrease) in interest income		385			(1,688	)		(1,303	)

Interest-Bearing Liabilities:
NOW, savings, MMDA deposits, interest-bearing demand		77			(604	)		(527	)
Time deposits		(832	)		(620	)		(1,452	)
Short-term borrowings		(31	)		0			(31	)
FHLB advances		(26	)		51			25
Other borrowings		(322	)		(134	)		(456	)
Total increase (decrease) in interest expense		(1,134	)		(1,307	)		(2,441	)
Increase (decrease) in net interest income	$	1,519		$	(381	)	$	1,138

Net interest income for the three months ended March 31, 2026 was $20.5 million compared to $19.3 million for the three months ended March 31, 2025, an increase of $1.1 million, or 5.9%. The increase in net interest income was comprised of an approximately $1.3 million, or 4.2%, decrease in interest income and dividend income, and an approximately $2.4 million, or 21.4%, decrease in interest expense. The $2.4 million decrease in interest expense for the three-month period ended March 31, 2026, was primarily related to a 0.5% decrease in the rates paid on interest-bearing liabilities and a decrease of $88.9 million, or 5.4%, in average interest-bearing liabilities as of March 31, 2026, compared to March 31, 2025. The decrease in average interest-bearing liabilities from March 31, 2025 to March 31, 2026 was due to decreases in our time deposit balances. For the three months ended March 31, 2026, net interest margin and net interest spread were 3.9% and 3.3%, respectively, compared to 3.7% and 3.0%, respectively, for the same period in 2025, which reflects the decrease in interest income discussed above relative to the slight decrease in interest expense.

The increase in interest income was attributable to a $88.6 million, or 4.9%, increase in average gross loans outstanding as of March 31, 2026, compared to March 31, 2025, offset by a 0.3% decrease in the yield on gross total loans. The increase in average gross loans outstanding was primarily due to organic loan growth in the Nashville-Davidson — Murfreesboro — Franklin, Tennessee MSA (the “Nashville MSA”), the Knoxville, Tennessee MSA (the “Knoxville MSA”) and the Charlotte-Concord-Gastonia, North Carolina-South Carolina MSA (the “Charlotte MSA”). In addition to the decrease in interest income on loans, the decrease in interest income was attributable to a $64.9 million, or 43.0%, decrease in average other interest-earning assets as of March 31, 2026, as compared to March 31, 2025, and a 1.4% decrease in the yield on other interest-earning assets compared to the same period in 2025.

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.

The provision for credit losses for the three months ended March 31, 2026, was $122 thousand compared to $0 for the three months ended March 31, 2025. The provision recorded for the three months ended March 31, 2026, was based on an increase in the number of loans outstanding. There were no significant net charge-offs in the three months ended March 31, 2026.

The ACL as a percentage of total loans was 0.97% at both March 31, 2026, and 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 March 31, 2026, was $2.6 million compared to $2.4 million for the three months ended March 31, 2025, an increase of $0.1 million, or 6.1%. The following table sets forth the major components of our noninterest income for the three months ended March 31, 2026 and 2025:

	Three Months Ended March 31,
	2026		2025			Increase (Decrease)
	(Dollars in thousands)

Noninterest income:
Customer service fees	$	781	$	655		$	126
Net gains (losses) on sales of premises and equipment		--		(28	)		28
Net gains (losses) on sales of foreclosed assets		107		3			104
ATM and debit card fees		854		799			55
Increase in BOLI		312		308			4
Other income and fees⁽¹⁾		537		706			(169	)
Total noninterest income	$	2,591	$	2,443		$	148

(1)

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

Customer service fees include fees for overdraft privilege charges, insufficient funds charges, account analysis service fees on commercial accounts, and monthly account service fees. These fees increased $126 thousand, or 19.2%, to $781 thousand for the three months ended March 31, 2026, from $655 thousand for the three months ended March 31, 2025. This increase was primarily the result of normal fluctuations in our operations.

ATM and debit card fees increased $55 thousand, or 6.9%, to $854 thousand for the three months ended March 31, 2026, from $799 thousand for the three months ended March 31, 2025. The increase was primarily the result of changes in transactional volume that generates interchange fees.

The income on BOLI increased $4 thousand, or 1.3%, to $312 thousand for the three months ended March 31, 2026, from $308 thousand for the three months ended March 31, 2025. The increase was primarily the result of a gain on a policy due to a death benefit and an increase in earnings rates.

Other income and fees decreased $169 thousand, or 23.9%, to $537 thousand for the three months ended March 31, 2026 from $706 thousand for the three months ended March 31, 2025. This decrease was primarily due to normal fluctuations in our operations.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2026 was $11.1 million compared to $10.6 million for the three months ended March 31, 2025, an increase of $506 thousand, or 4.8%, which was primarily a result of a loss on the early extinguishment of debt. The following table sets forth the major components of our noninterest expense for the three months ended March 31, 2026 and 2025:

	Three Months Ended March 31,
	2026		2025		Increase (Decrease)
	(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	5,716	$	5,626	$	90
Occupancy expenses		843		875		(32	)
Data processing		1,101		1,207		(106	)
Deposit insurance premiums		242		226		16
Professional Fees		209		195		14
Depreciation and amortization		933		948		(15	)
Other expenses⁽¹⁾		2,043		1,504		539
Total noninterest expense	$	11,087	$	10,581	$	506

(1)

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

Salaries and employee benefits primarily include: (i) amounts paid to employees for base pay, incentive compensation, and bonuses; (ii) health and other related insurance paid by the Bank on behalf of our employees; and (iii) the annual cost for any increases in the liability for non-qualified plans maintained for certain key employees. Salaries and employee benefits for the three months ended March 31, 2026 were $5.7 million, an increase of $0.1 million, or 1.6%, compared to $5.6 million for the three months ended March 31, 2025. This slight increase was primarily due to pay increases net of turnover.

Occupancy expenses consist of depreciation on property, premises, equipment and software, rent expense for leased facilities, maintenance agreements on equipment, property taxes, and other expenses related to maintaining owned or leased assets. Occupancy expenses for the three months ended March 31, 2026 were $0.84 million compared to $0.87 million for the three months ended March 31, 2025, a decrease of $0.03 million, or 3.7%. The decrease was primarily attributable to normal fluctuations

Data processing expenses, which primarily consist of expenses for data processing services for core processing, decreased $0.1 million, or 8.8%, to $1.1 million for the three months ended March 31, 2026 from $1.2 million for the three months ended March 31, 2025.

Professional fees expenses, which include legal fees, audit and accounting fees, and consulting fees, increased $0.1 million, or 7.2%, to $0.2 million for the three months ended March 31, 2026 compared to $0.1 million for the three months ended March 31, 2025. This increase was primarily the result of the higher professional fees associated with becoming a public company in the fourth quarter of 2025.

Depreciation and amortization for the three months ended March 31, 2026 was $0.93 million compared to $0.95 million for the three months ended March 31, 2025, a decrease of approximately $0.015 million, or 1.6%. The decrease was primarily attributable to the sale of a closed bank office and a decrease in core deposit intangibles from previous acquisitions.

Other expenses increased $0.5 million, or 35.8%, to $2.0 million for the three months ended March 31, 2026, compared to $1.5 million for the three months ended March 31, 2025. This increase was primarily attributable to a write-off of a discount of $0.6 million due to the redemption of the Subordinated Debentures and Trust Preferred Securities.

Financial Condition

Total assets were $2.3 billion as of March 31, 2026, an increase of $37.3 million, or 1.6%, from December 31, 2025. This increase was primarily the result of an increase in net loans of $18.4 million and an increase in interest-bearing deposits in banks of $37.1 million.

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 four loan portfolio segments: (i) real estate (which is divided into four classes), (ii) commercial, (iii) consumer and (iv) other. 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 — This loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. 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.

Other — This loan portfolio segment primarily consists of tax-exempt commercial loans, undisbursed loans of all types, and unpaid overdrafts on deposit accounts.

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 March 31, 2026					As of December 31, 2025
	Amount		% of Total			Amount		% of Total
	(Dollars in thousands)
Real Estate Loans:
Commercial	$	1,114,516		59	%	$	1,113,440		59	%
Construction and land development		195,189		10	%		176,688		9	%
Residential		383,346		20	%		377,943		20	%
Other		14,511		1	%		14,824		1	%
Commercial		171,029		9	%		174,248		9	%
Consumer		12,260		1	%		15,417		1	%
Other		7,237		0	%		7,450		0	%
Total loans	$	1,898,088		100	%	$	1,880,010		100	%
Deferred loan fees and discounts		5,914					6,477
Allowance for credit losses		18,329					18,096
Loans, net	$	1,873,845				$	1,855,437

Net loans were $1.9 billion as of March 31, 2026, an increase of $18.4 million, or 1.0%, 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 table shows the contractual maturities of the Company’s loans, excluding loan discounts, as of March 31, 2026, and December 31, 2025, respectively:

	As of March 31, 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	$	12,693	$	31,690	$	29,360	$	90,240	$	6,590	$	24,615	$	195,188
Residential		12,426		8,538		21,056		37,669		51,483		252,174		383,346
Commercial real estate		198,264		25,095		292,394		309,213		32,467		257,083		1,114,516
Other		70		19		3,140		10,057		234		992		14,512
Commercial		23,364		25,473		28,146		62,761		1,219		30,066		171,029
Consumer and other		10,386		472		6,577		366		1,435		262		19,497
Total Loans	$	257,203	$	91,287	$	380,674	$	510,306	$	93,428	$	565,192	$	1,898,088

	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		14,825
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

The majority of our loans are priced with a fixed rate and a one-to-five-year maturity. This type of loan has historically been about 43.0% of total loans over the past two years because the majority of our commercial loans are priced with five-year balloons.

We are primarily involved in real estate, commercial, and consumer lending activities with customers throughout our markets in Kentucky, North Carolina, and Tennessee. About 90.0% and 89.5% of our total loans were secured by real property as of March 31, 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, Knoxville MSA, Chattanooga, and Kingsport in Tennessee and the Charlotte MSA in North Carolina.

CRE loans were 58.7% of total loans as of March 31, 2026, and represented 59.2% of total loans as of December 31, 2025. C&D loans were 10.3% of total loans as of March 31, 2026, and represented 9.4% of total loans as of December 31, 2025. The ratio of our CRE loans to total risk-based bank capital was 417% as of March 31, 2026 and 435% as of December 31, 2025. C&D loans represented 73.0% of total risk-based bank capital as of March 31, 2026 as compared to 69.1% 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 $18.5 million, or 10.5%, to $195.2 million as of March 31, 2026, from $176.7 million as of December 31, 2025. The majority of this increase was due to new loan volume. Residential C&D loans were relatively flat compared to commercial C&D loans.

Residential. We offer one-to-four family mortgage loans on both owner-occupied primary residences and investor-owned residences, which made up approximately 89.0% of our residential loan portfolio as of March 31, 2026. Our residential loans also include home equity lines of credit, which totaled $37.0 million, or approximately 9.8% of our residential portfolio, as of March 31, 2026. 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.

Commercial Real Estate. 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. CRE loans remained constant at $1.1 billion as of March 31, 2026 and December 31, 2025, respectively. This decrease was primarily driven by customer payoffs. As of March 31, 2026, our CRE portfolio was comprised of $357.4 million in non-owner occupied CRE loans and $432.5 million in owner-occupied properties and $212.1 million in multi-family properties.

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 decreased $3.2 million, or 1.85%, to $171.0 million as of March 31, 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 $3.3 million, or 14.7%, to $19.5 million as of March 31, 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.

On March 31, 2026, and December 31, 2025, loan participations sold to third parties (which are not included in the accompanying consolidated balance sheets) totaled $116.5 million and $116.0 million, respectively. We sell participations to manage our credit exposures to borrowers. On March 31, 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.

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 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 $18.3 million at March 31, 2026 compared to $18.1 million at December 31, 2025, an increase of $0.2 million, or 1.3%. A provision of $122 thousand was recorded for the three months ended March 31, 2026 compared to $0 for the three months ended March 31, 2025. Additional provisions were recorded based on national, regional and economic conditions and changes in the volume and nature of our loan portfolio.

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

	As of March 31, 2026			As of December 31, 2025
	(Dollars in thousands)
Average loans outstanding	$	1,883,103		$	1,791,550
Total loans outstanding at end of period	$	1,892,174		$	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		—			(362	)
Consumer and other		(15	)		(251	)
Total charge-offs		(15	)		(1,035	)

Recoveries:
Commercial real estate		114			151
Construction and land development		—			201
Residential real estate		—			64
Commercial		1			11
Consumer and other		11			83
Total recoveries		126			510
Net (charge-offs) recoveries	$	111		$	(525	)
Provision for credit losses	$	122		$	416
Balance at end of period	$	18,329		$	18,096
Ratio of allowance to end of period loans		.97	%		.97	%
Ratio of net (charge-offs) recoveries to average loans		0.01	%		(0.01	)%

Net charge-offs for the three months ended March 31, 2026 totaled $0.1 million. Net charge-offs for the year ended December 31, 2025 totaled ($0.3) million.

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 $0.6 million at March 31, 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 $5.9 million at March 31, 2026. We had no loans 90 days past due and still accruing at March 31, 2026.

Total nonperforming loans decreased approximately $0.04 million from December 31, 2025 to March 31, 2026. The decrease was primarily the result of normal fluctuations.

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 March 31, 2026, and December 31, 2025:

	Contractual Aging of Recorded Investments
As of March 31, 2026	Current		30 – 89 Days Past Due		90+ Days Past Due		Nonaccrual		Total
	(Dollars in thousands)
Real estate mortgages:
Commercial real estate	$	1,114,418	$	98	$	—	$	—	$	1,114,516
Construction and land development		194,501		653		—		35		195,189
Residential real estate		372,785		5,023		—		5,537		383,345
Other		14,511		—		—		—		14,511
Commercial		170,577		217		—		235		171,029
Consumer and other		19,248		195		—		54		19,497
Total loans	$	1,886,040	$	6,186	$	—	$	5,861	$	1,898,087

	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 March 31, 2026			As of December 31, 2025
	(Dollars in Thousands)
Nonaccrual loans	$	5,861		$	6,245
Loans past due 90 days or more and still accruing		—			-
Total nonperforming loans		5,861			6,245
OREO		575			253
Repossessed property		—			—
Total nonperforming assets	$	6,436		$	6,498
Modified loans – nonaccrual⁽¹⁾	$	—		$	—
Modified loans – accruing	$	—		$	—
Allowance for credit losses	$	18,329		$	18,096
Total loans, net of discounts and deferred fees, outstanding at end of period	$	1,892,174		$	1,873,533
Nonperforming loans to total loans		0.31	%		0.33	%
Nonperforming assets to total loans and OREO		0.34	%		0.33	%
Allowance for credit losses to nonperforming loans		313	%		290	%
Allowance for credit losses to total loans, net of discounts and deferred fees		.97	%		.97	%
Nonaccrual loans by category:
Real estate:
Commercial real estate		$		$	--
Construction and land development		35			596
Residential and other		5,537			5,439
Commercial		235			131
Consumer and other		54			79
Total	$	5,861		$	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 March 31, 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 March 31, 2026, and December 31, 2025, respectively:

	Outstanding Loan Balance by Internal Risk Grades
As of March 31, 2026	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real estate:
Commercial real estate	$	1,105,529	$	8,897	$	90	$	—	$	1,114,516
Construction and land development		194,983		171		35		—		195,189
Residential		377,179		545		5,622		—		383,346
Other		14,511		—		—		—		14,511
Commercial		170,093		701		235		—		171,029
Consumer and other		19,399		44		54		—		19,497
Total loans	$	1,881,694	$	10,358	$	6,036	$	—	$	1,898,088

	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		22,768		21		79		—		22,868
Total loans	$	1,863,045	$	10,539	$	6,427	$	—	$	1,880,011

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.

	March 31, 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 agency	$	14,959	$	14,949	$	(10	)	$	14,830	$	14,830	$		__
U.S. government-sponsored enterprises (GSEs)		4		4		—			5		5		—
Mortgage-backed securities		12,532		11,928		(604	)		13,295		12,787		(508	)
State and political subdivisions		15,703		15,294		(409	)		15,780		15,514		(266	)
Total Available-for-Sale	$	43,198	$	42,175	$	(1,023	)	$	43,910	$	43,136	$	(774	)

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At March 31, 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 March 31, 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 March 31, 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. treasury securities		14,959		3.54	%		—		—			—		—			—		—
U.S. government and federal agencies		4		7.67	%		—		—			—		—			—		—
State and political subdivisions		3,280		2.66	%		6,406		2.88	%		4,071		3.97	%		1,946		4.86	%
Mortgage-backed securities		58		3.52	%		2,130		3.14	%		3,583		2.47	%		6,761		3.49	%
Total Available-for-Sale	$	18,301		3.38	%	$	8,536		2.95	%	$	7,654		3.29	%	$	8,707		3.80	%

	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 March 31, 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	$	40,117		1.86	%	$	2,481		1.17	%	$	-		-	%	$	-		-	%
U.S. government-sponsored enterprises (GSEs)		7,927		3.24	%		5,737		1.59	%		-		-	%		-		-	%
State and political subdivisions		-		-	%		2,430		1.47	%		99		4.37	%		1,379		5.04	%
Mortgage-backed securities		-		-	%		-		-	%		-		-	%		36,217		3.61	%
Total Held-to-Maturity	$	48,044		2.09	%	$	10,648		1.46	%	$	98		4.37	%	$	37,596		3.66	%

	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 uncollectability 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 $528,655 and $291,460 as of March 31, 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 three months ended March 31, 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 March 31, 2026, BOLI policies totaled $46.5 million compared to $46.6 million at December 31, 2025. The decrease represents increases in the cash surrender values of the policies net of a slight reduction in the policies’ total value due to an insured’s death.

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 March 31, 2026 and $ 1.8 billion at December 31, 2025. As of March 31, 2026, 21.2% of total deposits was comprised of noninterest-bearing demand deposits, 52.1% of total deposits was comprised of interest-bearing non-maturity accounts and 26.6% 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 March 31, 2026, and December 31, 2025:

	As of March 31,					As of December 31,
	2026					2025
	Balance		% of Total			Balance		% of Total
						(Dollars in thousands)
Noninterest-bearing demand deposits	$	401,624		21.2	%	$	397,835		21.9	%
Interest-bearing deposits:
Interest-bearing demand deposits		572,053		30.2	%		516,151		28.4	%
NOW, savings and money market		415,132		21.9	%		414,716		22.8	%
Time deposits		503,408		26.6	%		487,032		26.8	%
Total interest-bearing deposits		1,490,024		78.7	%		1,417,899		78.1	%
Total deposits	$	1,892,217		100	%	$	1,815,734		100	%

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

	As of March 31, 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)	$	111,689	$	217,587	$	49,532	$	7,632	$	386,440
Time deposits (greater than $250,000)		38,200		67,149		11,618		—		116,967
Total time deposits	$	149,889	$	284,736	$	61,150	$	7,632	$	503,407

	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 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 March 31, 2026, and December 31, 2025, we had borrowing capacity from the FHLB of $309.1 million and $276.0 million, respectively. The increase in capacity is due to adding new collateral. We had $40 million of cash management advance FHLB borrowings as of March 31, 2026 and $75 million as of December 31, 2025. We had long-term FHLB borrowings of $60.9 million and $60.6 million as of March 31, 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 March 31, 2026, and December 31, 2025:

	As of March 31, 2026			As of December 31, 2025
	(Dollars in thousands)
Long-term FHLB borrowings outstanding at end of period	$	60,921		$	60,553
Weighted average interest rate at end of period		2.99	%		2.88	%
Maximum month-end balance	$	60,921		$	66,202
Average balance outstanding during the period	$	60,206		$	62,419
Weighted average interest rate during the period		3.10	%		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 the lines of credit was $102.5 million as of March 31, 2026, of which $102.5 million was available. The total amount of the lines of credit was $102.5 million as of December 31, 2025, all of which 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 March 31, 2026, or December 31, 2025.

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

Trust Preferred Securities. With the acquisition of Citizens Bancorp 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 the 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, respectively. 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 Company and the Bank are separate corporate entities. The Company’s liquidity depends primarily upon dividends received from the Bank and capital and debt instruments issued by the Company. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the 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 Company relies on its liquidity to pay interest and principal on Company indebtedness, company operating expenses, and dividends to Company shareholders.

As of March 31, 2026
Current On-Balance Sheet (in thousands)
Cash and cash equivalents	$	168,395
Unpledged available-for-sale and held-to-maturity securities		20,861
Total on-balance sheet	$	189,256

As of March 31, 2026
Available Sources of Liquidity (in thousands)
Federal Reserve & FHLB remaining borrowing capacity	$	309,065
Correspondent banks borrowing capacity		102,500
Brokered CDs capacity		258,755
Total available sources	$	670,320

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 March 31, 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 March 31, 2026:
Tier 1 capital (to average assets) (leverage)
Company	$	239,495		12.3	%		N/A		N/A			N/A		N/A
Bank	$	249,108		11.1	%	$	89,458		4.0	%	$	111,823		5.0	%
CET1 capital (to risk-weighted assets)
Company	$	239,495		14.7	%		N/A		N/A			N/A		N/A
Bank	$	249,108		13.0	%	$	85,908		4.5	%	$	124,089		6.5	%
Tier 1 capital (to risk-weighted assets)
Company	$	239,495		13.7	%		N/A		N/A			N/A		N/A
Bank	$	249,108		13.0	%	$	114,644		6.0	%	$	152,725		8.0	%
Total capital (to risk-weighted assets)
Company	$	257,886		15.7	%		N/A		N/A			N/A		N/A
Bank	$	267,555		14.0	%	$	152,725		8.0	%	$	190,906		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	<

Commercial Bancgroup, Inc. 10-Q