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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	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

For the transition period from to

Commission File Number: 1-38874

(Exact name of registrant as specified in its charter)

Virginia	54-1232965
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

112 West King Street, Strasburg, Virginia	22657
(Address of principal executive offices)	(Zip Code)

(540) 465-9121

(Registrant’s telephone number, including area code)

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 $1.25 per share	FXNC	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 (Section 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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 7, 2026, 9,040,967 shares of common stock, par value $1.25 per share, of the registrant were outstanding.

Table of Contents

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2026 (unaudited) and December 31, 2025	3

	Consolidated Statements of Income for the three months ended March 31, 2026 and 2025 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2026 and 2025 (unaudited)	6

	Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025 (unaudited)	7

	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2026 and 2025 (unaudited)	9

	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST NATIONAL CORPORATION

Consolidated Balance Sheets

(in thousands, except share and per share data)

	(unaudited)
	March 31,			December 31,
	2026			2025*
Assets
Cash and due from banks	$	22,624		$	20,836
Interest-bearing deposits in banks		165,185			140,074
Cash and cash equivalents	$	187,809		$	160,910
Securities available for sale, at fair value		217,655			217,538
Securities held to maturity, at amortized cost (net of allowance for credit losses, 2026, $68; 2025, $83)		101,261			102,872
Restricted securities, at cost		5,642			5,624
Loans, net of allowance for credit losses, 2026, $14,698; 2025, $14,719		1,449,708			1,435,026
Premises and equipment, net		34,327			34,561
Accrued interest receivable		6,656			6,467
Bank owned life insurance		38,837			38,577
Goodwill		3,030			3,030
Core deposit intangibles, net		12,785			13,219
Other assets		18,113			20,154
Total assets	$	2,075,823		$	2,037,978

Liabilities and Shareholders’ Equity

Liabilities
Deposits:
Noninterest-bearing demand deposits	$	524,323		$	509,874
Savings and interest-bearing demand deposits		953,399			926,579
Time deposits		359,570			363,095
Total deposits	$	1,837,292		$	1,799,548
Other borrowings		25,000			25,000
Subordinated debt, net of issuance cost		8,385			8,312
Junior subordinated debt		9,279			9,279
Accrued interest payable and other liabilities		7,305			9,643
Total liabilities	$	1,887,261		$	1,851,782

Commitments and contingencies

Shareholders’ Equity
Preferred stock, par value $1.25 per share; authorized 1,000,000 shares; none issued and outstanding	$	—		$	—
Common stock, par value $1.25 per share; authorized 16,000,000 shares; issued and outstanding, 2026, 9,040,967 shares; 2025, 9,025,395 shares		11,301			11,282
Surplus		78,400			78,216
Retained earnings		112,288			108,937
Accumulated other comprehensive loss, net		(13,427	)		(12,239	)
Total shareholders’ equity	$	188,562		$	186,196
Total liabilities and shareholders’ equity	$	2,075,823		$	2,037,978

*Derived from audited consolidated financial statements.

See Notes to Consolidated Financial Statements

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FIRST NATIONAL CORPORATION

Consolidated Statements of Income (Unaudited)

(in thousands, except per share data)

	Three Months Ended
	March 31,		March 31,
	2026		2025
Interest and Dividend Income
Interest and fees on loans	$	21,017	$	20,639
Interest on deposits in banks		1,170		1,671
Interest on federal funds sold		—		39
Interest and dividends on securities:
Taxable interest		1,786		1,314
Tax-exempt interest		292		300
Dividends		64		59
Total interest and dividend income	$	24,329	$	24,022
Interest Expense
Interest on deposits	$	5,414	$	6,038
Interest on subordinated debt		168		467
Interest on junior subordinated debt		66		66
Interest on other borrowings		5		—
Total interest expense	$	5,653	$	6,571
Net interest income	$	18,676	$	17,451
Provision for credit losses		450		832
Net interest income after provision for credit losses	$	18,226	$	16,619
Noninterest Income
Service charges on deposit accounts	$	924	$	1,013
ATM and check card fees		1,047		996
Wealth management fees		911		898
Fees for other customer services		287		258
Brokered mortgage fees		115		110
Income from bank owned life insurance		259		246
Other operating income		281		90
Total noninterest income	$	3,824	$	3,611
Noninterest Expense
Salaries and employee benefits	$	8,982	$	8,689
Occupancy		972		1,069
Equipment		1,093		1,024
Marketing		341		220
Supplies		146		217
Legal and professional fees		688		522
ATM and check card expense		571		438
FDIC assessment		227		414
Bank franchise tax		380		317
Data processing expense		394		762
Internet banking expense		53		351
Core deposit intangible amortization expense		434		442
Net (gains) losses on disposal of premises and equipment		—		(1	)
Merger expense		—		1,940
Miscellaneous losses		137		316
Other operating expense		1,564		1,615
Total noninterest expense	$	15,982	$	18,335

See Notes to Consolidated Financial Statements

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FIRST NATIONAL CORPORATION

Consolidated Statements of Income (Unaudited)

(Continued)

(in thousands, except per share data)

	Three Months Ended
	March 31,		March 31,
	2026		2025
Income before income taxes	$	6,068	$	1,895
Income tax expense		1,181		297
Net income	$	4,887	$	1,598
Earnings per common share
Basic	$	0.54	$	0.18
Diluted	$	0.54	$	0.18

See Notes to Consolidated Financial Statements

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FIRST NATIONAL CORPORATION

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)

	Three Months Ended
	March 31,			March 31,
	2026			2025
Net income	$	4,887		$	1,598
Other comprehensive (loss) income, net of tax,
Unrealized holding (losses) gains on available for sale securities, net of tax of ($366) and $428 for the three months ended March 31, 2026 and 2025, respectively		(1,372	)		1,612
Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity, net of tax of $49 and $50 for the three months ended March 31, 2026 and 2025, respectively		187			188
Change in fair value of cash flow hedges, net of tax of ($1) and ($45) for the three months ended March 31, 2026 and 2025, respectively		(3	)		(171	)
Total other comprehensive (loss) income		(1,188	)		1,629
Total comprehensive income	$	3,699		$	3,227

See Notes to Consolidated Financial Statements

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FIRST NATIONAL CORPORATION

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Three Months Ended
	March 31,			March 31,
	2026			2025
Cash Flows from Operating Activities
Net income	$	4,887		$	1,598
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		722			665
Amortization of core deposit intangibles		434			442
Amortization of debt issuance costs		—			285
Amortization of subordinated debt fair value mark		73			—
Origination of mortgage loans held for sale		(1,547	)		(681	)
Proceeds from sale of mortgage loans held for sale		1,547			409
Provision for credit losses on loans		521			735
(Recovery of) credit losses on securities held to maturity		(15	)		(7	)
(Recovery of) provision for credit losses on unfunded commitments		(56	)		104
Net (gain) on sale of other real estate owned		—			(7	)
Increase in cash value of bank owned life insurance		(260	)		(263	)
Accretion of discounts and amortization of premiums on securities, net		181			234
Accretion of premium on time deposits		(10	)		(443	)
Accretion of certain acquisition-related loan (discounts) premiums, net		(295	)		195
Stock-based compensation		338			265
Excess tax benefits on stock-based compensation		24			1
(Gain) on disposal of premises and equipment, net		—			(1	)
Deferred income tax (benefit)		(314	)		—
Changes in assets and liabilities:
(Increase) in interest receivable		(189	)		(106	)
Decrease in other assets		2,645			768
(Decrease) in accrued interest payable and other liabilities		(2,282	)		(666	)
Net cash provided by operating activities	$	6,404		$	3,527
Cash Flows from Investing Activities
Proceeds from maturities, calls, and principal payments of securities available for sale	$	13,112		$	4,698
Proceeds from maturities, calls, and principal payments of securities held to maturity		1,844			1,673
Purchases of securities available for sale		(15,130	)		—
Purchases of restricted securities		(18	)		(695	)
Purchase of premises and equipment		(488	)		(483	)
Proceeds from sale of premises and equipment		—			34
Proceeds from sale of other real estate owned		—			60
Net (increase) decrease in loans		(14,908	)		14,050
Net cash (used in) provided by investing activities	$	(15,588	)	$	19,337

See Notes to Consolidated Financial Statements

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FIRST NATIONAL CORPORATION

Consolidated Statements of Cash Flows (Unaudited)

(Continued)

(in thousands)

	Three Months Ended
	March 31,			March 31,
	2026			2025
Cash Flows from Financing Activities
Net increase in demand deposits and savings accounts	$	41,269		$	18,705
Net (decrease) increase in time deposits		(3,515	)		2,936
Cash dividends paid on common stock, net of reinvestment		(1,486	)		(1,347	)
Repurchase of common stock, stock incentive plan		(185	)		—
Net cash provided by financing activities	$	36,083		$	20,294
Increase in cash and cash equivalents	$	26,899		$	43,158
Cash and Cash Equivalents
Beginning	$	160,910		$	162,874
Ending	$	187,809		$	206,032
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	5,879		$	7,340
Supplemental Disclosures of Noncash Investing and Financing Activities
Unrealized (losses) gains on securities available for sale	$	(1,738	)	$	2,040
Amortization of unrealized losses on securities transferred from available for sale to held to maturity	$	236		$	238
Change in fair value of cash flow hedges	$	(4	)	$	(216	)
Issuance of common stock, dividend reinvestment plan	$	50		$	46

See Notes to Consolidated Financial Statements

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FIRST NATIONAL CORPORATION

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(in thousands, except share and per share data)

	Common Stock		Surplus			Retained Earnings			Accumulated Other Comprehensive (Loss)			Total
Balance, December 31, 2024	$	11,218	$	77,058		$	96,947		$	(18,692	)	$	166,531
Net income		—		—			1,598			—			1,598
Other comprehensive income		—		—			—			1,629			1,629
Cash dividends on common stock ($0.155 per share)		—		—			(1,393	)		—			(1,393	)
Stock-based compensation		—		265			—			—			265
Issuance of 2,130 shares common stock, dividend reinvestment plan		2		44			—			—			46
Issuance of 10,464 shares common stock, stock incentive plan		13		(13	)		—			—			—
Balance, March 31, 2025	$	11,233	$	77,354		$	97,152		$	(17,063	)	$	168,676

	Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive (Loss)			Total
Balance, December 31, 2025	$	11,282		$	78,216		$	108,937		$	(12,239	)	$	186,196
Net income		—			—			4,887			—			4,887
Other comprehensive (loss)		—			—			—			(1,188	)		(1,188	)
Cash dividends on common stock ($0.17 per share)		—			—			(1,536	)		—			(1,536	)
Stock-based compensation		—			338			—			—			338
Issuance of 1,916 shares common stock, dividend reinvestment plan		2			48			—			—			50
Issuance of 20,312 shares common stock, stock incentive plan		25			(25	)		—			—			—
Repurchase of 6,661 shares common stock, stock incentive plan		(8	)		(177	)		—			—			(185	)
Balance, March 31, 2026	$	11,301		$	78,400		$	112,288		$	(13,427	)	$	188,562

See Notes to Consolidated Financial Statements

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FIRST NATIONAL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

Note 1. General

Basis of Presentation

The accompanying unaudited consolidated financial statements of First National Corporation (the Company) and its subsidiary, First Bank (the Bank), have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for annual year-end financial statements. All significant intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications of a normal and recurring nature considered necessary to present fairly the financial positions at March 31, 2026 and December 31, 2025, the statements of income and comprehensive income for the three months ended March 31, 2026 and 2025, the cash flows for the three months ended March 31, 2026 and 2025, and the changes in shareholders’ equity for the three months ended March 31, 2026 and 2025. The statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2025. Operating results for the three months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026. Certain items in the prior period financial statements have been reclassified to conform to the current presentation. These reclassifications had no effect on prior year net income or shareholders' equity.

Significant Accounting Policies and Estimates

Application of the principles of GAAP and practices within the banking industry requires management to make estimates, assumptions, and judgements that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgements are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions and judgements. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgements and as such may have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant changes in the near term include estimates related to the determination of the allowance for credit losses on loans.

The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the audited financial statements and notes for the year ended December 31, 2025 and are contained in the Company’s 2025 Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2025 .

Recent Accounting Pronouncements

In November 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326): Purchased Loans.” The amendments in this ASU expand the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. This ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts this ASU in an interim reporting period, it should apply it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. The Company does not expect the adoption of ASU 2025-08 to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards setting bodies are not currently expected to have a material effect on the Company's financial position, results of operations or cash flows.

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Notes to Consolidated Financial Statements (Unaudited)

Note 2. Securities

The Company invests in U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, and corporate debt securities. Amortized costs, gross unrealized gains and losses, allowance for credit losses, and fair values of debt securities at March 31, 2026 and December 31, 2025 were as follows (in thousands):

	March 31, 2026
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value		Allowance for Credit Losses
Securities available for sale:
U.S. Treasury securities	$	37,613	$	—	$	(478	)	$	37,135	$	—
U.S. agency and mortgage-backed securities		131,120		103		(8,805	)		122,418		—
Obligations of states and political subdivisions		63,146		16		(7,015	)		56,147		—
Corporate debt securities		1,974		—		(19	)		1,955
Total securities available for sale	$	233,853	$	119	$	(16,317	)	$	217,655	$	—
Securities held to maturity:
U.S. Treasury securities	$	9,955	$	—	$	(11	)	$	9,944	$	—
U.S. agency and mortgage-backed securities		77,943		—		(6,062	)		71,881		—
Obligations of states and political subdivisions		10,431		10		(871	)		9,570		—
Corporate debt securities		3,000		—		(257	)		2,743		(68	)
Total securities held to maturity	$	101,329	$	10	$	(7,201	)	$	94,138	$	(68	)
Total securities	$	335,182	$	129	$	(23,518	)	$	311,793	$	(68	)

	December 31, 2025
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value		Allowance for Credit Losses
Securities available for sale:
U.S. Treasury securities	$	37,566	$	120	$	(348	)	$	37,338	$	—
U.S. agency and mortgage-backed securities		131,172		212		(8,587	)		122,797		—
Obligations of states and political subdivisions		62,287		31		(5,872	)		56,446		—
Corporate debt securities		973		—		(16	)		957		—
Total securities available for sale	$	231,998	$	363	$	(14,823	)	$	217,538	$	—
Securities held to maturity:
U.S. Treasury securities	$	9,890	$	—	$	(13	)	$	9,877	$	—
U.S. agency and mortgage-backed securities		79,632		1		(5,842	)		73,791		—
Obligations of states and political subdivisions		10,433		97		(655	)		9,875		—
Corporate debt securities		3,000		—		(259	)		2,741		(83	)
Total securities held to maturity	$	102,955	$	98	$	(6,769	)	$	96,284	$	(83	)
Total securities	$	334,953	$	461	$	(21,592	)	$	313,822	$	(83	)

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Notes to Consolidated Financial Statements (Unaudited)

Information pertaining to available for sale securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position is as follows (in thousands):

	March 31, 2026
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)
Securities available for sale:
U.S. Treasury securities	$	24,950	$	(170	)	$	12,185	$	(308	)	$	37,135	$	(478	)
U.S. agency and mortgage-backed securities		42,253		(363	)		59,916		(8,442	)		102,169		(8,805	)
Obligations of states and political subdivisions		6,573		(69	)		45,739		(6,946	)		52,312		(7,015	)
Corporate debt securities		1,474		(19	)		—		—			1,474		(19	)
Total securities available for sale	$	75,250	$	(621	)	$	117,840	$	(15,696	)	$	193,090	$	(16,317	)

	December 31, 2025
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)			Fair Value		Unrealized (Loss)
Securities available for sale:
U.S. Treasury securities	$	10,057	$	(13	)	$	12,156	$	(335	)	$	22,213	$	(348	)
U.S. agency and mortgage-backed securities		24,346		(144	)		61,732		(8,443	)		86,078		(8,587	)
Obligations of states and political subdivisions		2,764		(8	)		47,552		(5,864	)		50,316		(5,872	)
Corporate debt securities		457		(16	)		—		—			457		(16	)
Total securities available for sale	$	37,624	$	(181	)	$	121,440	$	(14,642	)	$	159,064	$	(14,823	)

The tables above provide information about available for sale securities that have been in an unrealized loss position for less than twelve consecutive months and securities that have been in an unrealized loss position for twelve consecutive months or more. Management evaluates securities to determine whether the impairment is due to credit-related factors or noncredit-related factors at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. Presently, the Company does not intend to sell any of these securities, does not expect to be required to sell these securities, and expects to recover the entire amortized cost of all the securities.

Accrued interest receivable on securities available for sale and securities held to maturity totaled $1.1 million and $458 thousand, respectively, at March 31, 2026. Accrued interest on debt securities is included in accrued interest receivable on the Company's consolidated balance sheets.

At March 31, 2026, there were 13 out of 13 available for sale U.S. Treasury securities, 106 out of 129 U.S. agency and mortgage-backed available for sale securities, 87 out of 96 obligations of states and political subdivisions available for sale, and 3 out of 3 corporate debt available for sale securities in an unrealized loss position. One hundred percent of the Company’s investment portfolio was considered investment grade at March 31, 2026. The weighted-average re-pricing term of the portfolio was 4.5 years at March 31, 2026. One hundred percent of the Company’s investment portfolio was considered investment grade at December 31, 2025. The weighted-average re-pricing term of the portfolio was 4.6 years at December 31, 2025. The unrealized losses at March 31, 2026 in the U.S. Treasury securities portfolio, U.S. agency and mortgage-backed securities portfolio, obligations of states and political subdivisions portfolio, and corporate debt portfolio were related to current interest rates above those that existed when these securities were purchased. Additionally, spreads on securities change from period to period, also impacting pricing. At March 31, 2026 the Company did not have credit concerns on any of the securities represented by these issuers.

The amortized cost and fair value of securities at March 31, 2026 by contractual maturity are shown below (in thousands). Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	13,420	$	13,237	$	15,135	$	15,075
Due after one year through five years		83,346		81,529		16,118		15,425
Due after five years through ten years		46,550		44,021		16,473		15,308
Due after ten years		90,537		78,868		53,603		48,330
	$	233,853	$	217,655	$	101,329	$	94,138

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Notes to Consolidated Financial Statements (Unaudited)

Federal Home Loan Bank, Federal Reserve Bank, and Community Bankers’ Bank stock are generally viewed as long-term investments and as restricted securities, which are carried at cost, because there is a minimal market for the stock. Therefore, when evaluating restricted securities for impairment, their value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

The composition of restricted securities at March 31, 2026 and December 31, 2025 was as follows (in thousands):

	March 31, 2026		December 31, 2025
Federal Home Loan Bank stock	$	2,627	$	2,609
Federal Reserve Bank stock		2,752		2,752
Community Bankers’ Bank stock		263		263
	$	5,642	$	5,624

The Company also holds limited partnership investments in Small Business Investment Companies (SBICs), which are included in other assets in the Consolidated Balance Sheets. The limited partnership investments are measured as equity investments (without readily determinable fair values) at their cost, less any impairment or other observable transaction prices. The amounts included in other assets for the limited partnership investments were $2.4 million at March 31, 2026 and December 31, 2025.

Credit Quality Indicators & Allowance for Credit Losses - HTM

The Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings from Moody's, S&P, and Egan-Jones. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held to maturity at March 31, 2026 and December 31, 2025, aggregated by credit quality indicators.

	U.S. Treasury securities		U.S. agency and mortgage-backed securities		Obligations of states and political subdivisions		Corporate debt securities		Total Held to Maturity Securities
March 31, 2026
Aaa	$	9,955	$	23,480	$	2,258	$	—	$	35,693
Aa1 / Aa2 / Aa3		—		—		8,173		—		8,173
A1 / A2 / A3		—		—		—		—		—
Baa1 / Baa2 / Baa3		—		—		—		3,000		3,000
Not rated - Agency ⁽¹⁾		—		54,463		—		—		54,463
Total	$	9,955	$	77,943	$	10,431	$	3,000	$	101,329
December 31, 2025
Aaa	$	9,890	$	23,418	$	2,263	$	—	$	35,571
Aa1 / Aa2 / Aa3		—		—		8,170		—		8,170
Baa1 / Baa2 / Baa3		—		—		—		3,000		3,000
Not rated - Agency ⁽¹⁾		—		56,214		—		—		56,214
Total	$	9,890	$	79,632	$	10,433	$	3,000	$	102,955

⁽¹⁾Generally considered not to have credit risk given the implied governmental guarantees associated with these agencies.

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Notes to Consolidated Financial Statements (Unaudited)

The following tables summarize the change in the allowance for credit losses on held to maturity securities for the three months ended March 31, 2026 and 2025 and the year ended December 31, 2025.

	U.S. Treasury securities		U.S. agency and mortgage-backed securities		Obligations of states and political subdivisions		Corporate debt securities			Total Held to Maturity Securities
Balance, December 31, 2025	$	—	$	—	$	—	$	83		$	83
Provision for credit losses		—		—		—		(15	)		(15	)
Charge-offs of securities		—		—		—		—			—
Recoveries		—		—		—		—			—
Balance, March 31, 2026	$	—	$	—	$	—	$	68		$	68

	U.S. Treasury securities		U.S. agency and mortgage-backed securities		Obligations of states and political subdivisions		Corporate debt securities			Total Held to Maturity Securities
Balance, December 31, 2024	$	—	$	—	$	—	$	95		$	95
Provision for credit losses		—		—		—		(7	)		(7	)
Charge-offs of securities		—		—		—		—			—
Recoveries		—		—		—		—			—
Balance, March 31, 2025	$	—	$	—	$	—	$	88		$	88

	U.S. Treasury securities		U.S. agency and mortgage-backed securities		Obligations of states and political subdivisions		Corporate debt securities			Total Held to Maturity Securities
Balance, December 31, 2024	$	—	$	—	$	—	$	95		$	95
Provision for credit losses		—		—		—		(12	)		(12	)
Charge-offs of securities		—		—		—		—			—
Recoveries		—		—		—		—			—
Balance, December 31, 2025	$	—	$	—	$	—	$	83		$	83

At March 31, 2026 and December 31, 2025, the Company had no securities held-to-maturity that were past due 30 days or more as to principal and interest payments. The Company had no securities held-to-maturity classified as nonaccrual as of March 31, 2026 and December 31, 2025.

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

Note 3. Loans

Loans at March 31, 2026 and December 31, 2025 are summarized as follows (in thousands):

	March 31, 2026			December 31, 2025
Real estate loans:
Construction and land development	$	97,487		$	88,424
Secured by 1-4 family residential		520,821			527,283
Other real estate loans		712,567			696,978
Commercial and industrial loans		115,202			117,944
Consumer and other loans		18,329			19,116
Total loans	$	1,464,406		$	1,449,745
Allowance for credit losses		(14,698	)		(14,719	)
Loans, net	$	1,449,708		$	1,435,026

Net deferred loan fees included in the above loan categories were $1.9 million at March 31, 2026 and $1.7 million at December 31, 2025. Net unamortized discounts on loans acquired through business combinations included in the above loan categories totaled $12.9 million at March 31, 2026 and $13.2 million at December 31, 2025. Unamortized premiums on loans purchased from a third-party loan originator are included in the commercial and industrial loan categories and totaled $3.7 million as of March 31, 2026 and $4.1 million as of December 31, 2025. Consumer and other loans included $546 thousand and $543 thousand of demand deposit overdrafts at March 31, 2026 and December 31, 2025, respectively.

Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The principal balance of purchased loans is included in the allowance for credit losses calculation. The remaining net discount on purchased loans at March 31, 2026 was $12.9 million. The outstanding principal balance and the carrying amount at March 31, 2026 and December 31, 2025 of loans acquired in business combinations were as follows:

	March 31, 2026		December 31, 2025
	Acquired Loans-		Acquired Loans-
	Non-Purchased		Non-Purchased
(Dollars in thousands)	Credit Deteriorated		Credit Deteriorated
Outstanding principal balance	$	453,731	$	480,625

Carrying amount
Real estate loans:
Construction and land development	$	7,215	$	7,461
Secured by 1-4 family residential		193,516		207,352
Other real estate loans		215,312		223,986
Commercial and industrial loans		22,943		25,428
Consumer and other loans		2,770		3,223
Total acquired loans	$	441,756	$	467,450

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Notes to Consolidated Financial Statements (Unaudited)

Risk characteristics of each loan portfolio class that are considered by the Company include:

•

1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.

•

Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project.

•

Other real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project.

•

Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability. Commercial and industrial loans also include purchased loans which could have been originated outside of the Company's market area.

•

Consumer and other loans carry risks associated with the continued creditworthiness of the borrower and the value of the collateral, if any. Consumer loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Consumer and other loans also include purchased consumer loans which could have been originated outside of the Company's market area. Other loans included in this category include loans to states and political subdivisions.

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Notes to Consolidated Financial Statements (Unaudited)

The following tables provide a summary of loan classes and an aging of past due loans as of March 31, 2026 and December 31, 2025 (in thousands):

	March 31, 2026
	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans		90 Days or More Past Due and Accruing
Real estate loans:
Construction and land development	$	20	$	26	$	18	$	64	$	97,423	$	97,487	$	44	$	—
Secured by 1-4 family residential		3,163		765		1,104		5,032		515,789		520,821		2,111		—
Other real estate loans		241		180		—		421		712,146		712,567		—		—
Commercial and industrial		411		498		1,517		2,426		112,776		115,202		2,290		—
Consumer and other loans		46		29		—		75		18,254		18,329		—		—
Total	$	3,881	$	1,498	$	2,639	$	8,018	$	1,456,388	$	1,464,406	$	4,445	$	—

	December 31, 2025
	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans		90 Days or More Past Due and Accruing
Real estate loans:
Construction and land development	$	30	$	—	$	45	$	75	$	88,349	$	88,424	$	45	$	—
Secured by 1-4 family residential		2,034		857		939		3,830		523,453		527,283		1,994		—
Other real estate loans		—		—		—		—		696,978		696,978		—		—
Commercial and industrial		646		520		1,324		2,490		115,454		117,944		2,615		—
Consumer and other loans		12		23		—		35		19,081		19,116		—		—
Total	$	2,722	$	1,400	$	2,308	$	6,430	$	1,443,315	$	1,449,745	$	4,654	$	—

Credit Quality Indicators

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans. The Company utilizes a risk grading matrix to assign a rating to each of its loans. The loan ratings are summarized into the following categories: pass, special mention, substandard, doubtful, and loss. Pass rated loans include all risk rated credits other than those included in special mention, substandard, or doubtful. Loans classified as loss are charged-off. Loan officers assign risk grades to loans at origination and as renewals arise. The Bank’s Credit Administration department reviews risk grades for accuracy on a quarterly basis and as credit issues arise. In addition, a certain amount of loans are reviewed each year through the Company’s internal and external loan review process. A description of the general characteristics of the loan grading categories is as follows:

Pass – Loans classified as pass exhibit acceptable operating trends, balance sheet trends, and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower as agreed.

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. 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 those classified as substandard, with 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. The Company considers all doubtful loans to be impaired and places the loan on non-accrual status.

Loss – Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of March 31, 2026 and December 31, 2025 (in thousands).

	March 31, 2026
	Term Loans by Year of Origination
	2026		2025		2024		2023		2022		Prior		Revolving		Total
Construction and land development
Pass	$	5,841	$	7,250	$	668	$	3,470	$	1,793	$	7,383	$	71,038	$	97,443
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		44		—		44
Doubtful		—		—		—		—		—		—		—		—
Total construction and land development	$	5,841	$	7,250	$	668	$	3,470	$	1,793	$	7,427	$	71,038	$	97,487

Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Secured by 1-4 family residential
Pass	$	11,672	$	29,662	$	27,479	$	60,134	$	97,233	$	219,135	$	73,618	$	518,933
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		126		321		1,441		—		1,888
Doubtful		—		—		—		—		—		—		—		—
Total secured by 1-4 family residential	$	11,672	$	29,662	$	27,479	$	60,260	$	97,554	$	220,576	$	73,618	$	520,821

Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	29	$	—	$	29

Other real estate loans
Pass	$	30,898	$	73,277	$	57,919	$	93,657	$	126,570	$	294,728	$	33,201	$	710,250
Special Mention		—		—		311		—		—		2,006		—		2,317
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total other real estate loans	$	30,898	$	73,277	$	58,230	$	93,657	$	126,570	$	296,734	$	33,201	$	712,567

Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial
Pass	$	5,341	$	10,351	$	14,950	$	13,488	$	13,381	$	21,300	$	33,709	$	112,520
Special Mention		—		—		392		—		—		—		—		392
Substandard		—		—		—		472		1,013		276		—		1,761
Doubtful		—		—		—		—		—		529		—		529
Total commercial and industrial	$	5,341	$	10,351	$	15,342	$	13,960	$	14,394	$	22,105	$	33,709	$	115,202

Current period gross write-offs	$	—	$	—	$	—	$	262	$	192	$	126	$	—	$	580

Consumer and other loans
Pass	$	1,483	$	3,925	$	1,770	$	2,173	$	4,049	$	2,444	$	2,484	$	18,328
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		1		—		1
Doubtful		—		—		—		—		—		—		—		—
Total consumer and other loans	$	1,483	$	3,925	$	1,770	$	2,173	$	4,049	$	2,445	$	2,484	$	18,329

Current period gross write-offs	$	87	$	—	$	—	$	13	$	—	$	—	$	—	$	100

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Notes to Consolidated Financial Statements (Unaudited)

	December 31, 2025
	Term Loans by Year of Origination
	2025		2024		2023		2022		2021		Prior		Revolving		Total
Construction and land development
Pass	$	7,661	$	674	$	3,505	$	1,999	$	3,578	$	4,079	$	66,883	$	88,379
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		45		—		45
Doubtful		—		—		—		—		—		—		—		—
Total construction and land development	$	7,661	$	674	$	3,505	$	1,999	$	3,578	$	4,124	$	66,883	$	88,424

Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	22	$	—	$	22

Secured by 1-4 family residential
Pass	$	37,248	$	29,544	$	61,183	$	100,324	$	91,044	$	135,178	$	70,577	$	525,098
Special Mention		—		119		—		—		—		—		—		119
Substandard		—		—		29		210		343		1,484		—		2,066
Doubtful		—		—		—		—		—		—		—		—
Total secured by 1-4 family residential	$	37,248	$	29,663	$	61,212	$	100,534	$	91,387	$	136,662	$	70,577	$	527,283

Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	59	$	—	$	59

Other real estate loans
Pass	$	67,088	$	59,352	$	95,653	$	130,268	$	105,813	$	201,768	$	32,327	$	692,269
Special Mention		—		313		—		—		—		4,146		—		4,459
Substandard		—		—		—		—		—		250		—		250
Doubtful		—		—		—		—		—		—		—		—
Total other real estate loans	$	67,088	$	59,665	$	95,653	$	130,268	$	105,813	$	206,164	$	32,327	$	696,978

Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	7	$	—	$	7

Commercial and industrial
Pass	$	11,592	$	16,531	$	13,637	$	14,373	$	13,054	$	11,088	$	33,469	$	113,744
Special Mention		—		400		—		1,072		—		—		—		1,472
Substandard		—		—		751		1,062		386		—		—		2,199
Doubtful		—		—		—		—		—		529		—		529
Total commercial and industrial	$	11,592	$	16,931	$	14,388	$	16,507	$	13,440	$	11,617	$	33,469	$	117,944

Current period gross write-offs	$	—	$	671	$	701	$	1,930	$	481	$	438	$	—	$	4,221

Consumer and other loans
Pass	$	4,974	$	2,155	$	2,405	$	4,252	$	91	$	2,671	$	2,568	$	19,116
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total consumer and other loans	$	4,974	$	2,155	$	2,405	$	4,252	$	91	$	2,671	$	2,568	$	19,116

Current period gross write-offs	$	469	$	10	$	12	$	—	$	—	$	5	$	—	$	496

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Notes to Consolidated Financial Statements (Unaudited)

Note 4. Allowance for Credit Losses

The following tables present, as of and during the periods ended March 31, 2026, December 31, 2025 and March 31, 2025, the activity in the Allowance for Credit Losses on Loans (ACLL) by portfolio, and information about individually evaluated and collectively evaluated loans (in thousands):

	March 31, 2026
	Construction and Land Development		Secured by 1-4 Family Residential			Other Real Estate		Commercial and Industrial			Consumer and Other Loans			Total
Allowance for credit losses:
Beginning Balance, December 31, 2025	$	539	$	4,819		$	5,952	$	3,188		$	221		$	14,719
Charge-offs		—		(29	)		—		(580	)		(100	)		(709	)
Recoveries		1		7			2		100			57			167
Provision for (recovery of) credit losses on loans		27		(399	)		589		304			—			521
Ending Balance, March 31, 2026	$	567	$	4,398		$	6,544	$	3,012		$	177		$	14,698
Ending Balance:
Individually evaluated		—		—			—		1,570			—			1,570
Collectively evaluated		567		4,398			6,544		1,442			177			13,128
Loans:
Ending Balance	$	97,487	$	520,821		$	712,567	$	115,202		$	18,329		$	1,464,406
Individually evaluated		44		2,111			—		2,290			—			4,445
Collectively evaluated		97,443		518,710			712,567		112,912			18,329			1,459,961

	December 31, 2025
	Construction and Land Development			Secured by 1-4 Family Residential			Other Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
Allowance for credit losses:
Beginning Balance, December 31, 2024	$	585		$	4,266		$	7,462		$	3,927		$	160		$	16,400
Charge-offs		(22	)		(59	)		(7	)		(4,221	)		(496	)		(4,805	)
Recoveries		5			31			15			168			147			366
Provision for (recovery of) credit losses on loans		(29	)		581			(1,518	)		3,314			410			2,758
Ending Balance, December 31, 2025	$	539		$	4,819		$	5,952		$	3,188		$	221		$	14,719
Ending Balance:
Individually evaluated		—			—			—			1,793			—			1,793
Collectively evaluated		539			4,819			5,952			1,395			221			12,926
Loans:
Ending Balance	$	88,424		$	527,283		$	696,978		$	117,944		$	19,116		$	1,449,745
Individually evaluated		45			1,994			—			2,615			—			4,654
Collectively evaluated		88,379			525,289			696,978			115,329			19,116			1,445,091

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

	March 31, 2025
	Construction and Land Development			Secured by 1-4 Family Residential			Other Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
Allowance for credit losses:
Beginning Balance, December 31, 2024	$	585		$	4,266		$	7,462		$	3,927		$	160		$	16,400
Charge-offs		(22	)		(3	)		—			(2,343	)		(122	)		(2,490	)
Recoveries		—			3			1			33			53			90
Provision for (recovery of) credit losses on loans		(7	)		972			(1,755	)		1,388			137			735
Ending Balance, March 31, 2025	$	556		$	5,238		$	5,708		$	3,005		$	228		$	14,735
Ending Balance:
Individually evaluated		—			—			—			1,609			—			1,609
Collectively evaluated		556			5,238			5,708			1,396			228			13,126
Loans:
Ending Balance	$	81,596		$	549,502		$	665,682		$	132,396		$	20,774		$	1,449,950
Individually evaluated		75			2,071			—			2,662			—			4,808
Collectively evaluated		81,521			547,431			665,682			129,734			20,774			1,445,142

Nonaccrual loans

The following is a summary of the Company's nonaccrual loans by major categories for the periods indicated (in thousands):


	March 31, 2026						December 31, 2025
	Nonaccrual Loans with No Allowance		Nonaccrual loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans with No Allowance		Nonaccrual loans with an Allowance		Total Nonaccrual Loans
Real estate loans:
Construction and land development	$	44	$	—	$	44	$	45	$	—	$	45
Secured by 1-4 family residential		2,111		—		2,111		1,994		—		1,994
Other real estate loans		—		—		—		—		—		—
Commercial and industrial		—		2,290		2,290		1,031		1,584		2,615
Consumer and other loans		—		—		—		—		—		—
Total	$	2,155	$	2,290	$	4,445	$	3,070	$	1,584	$	4,654

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Notes to Consolidated Financial Statements (Unaudited)

Collateral-Dependent Loans

The Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The Company reevaluates the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

•

Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

	•	Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.
	•	Home equity lines of credit are generally secured by second mortgages on residential real estate property.
	•	Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

The following table presents the amortized cost of collateral-dependent loans (in thousands):

	March 31, 2026						December 31, 2025
(Dollars in thousands)	Real Estate Secured		Non-Real Estate Secured		Total Collateral-Dependent Loans		Real Estate Secured		Non-Real Estate Secured		Total Collateral-Dependent Loans
Real estate loans:
Construction and land development	$	18	$	—	$	18	$	18	$	—	$	18
Secured by 1-4 family residential		241		—		241		632		—		632
Total	$	259	$	—	$	259	$	650	$	—	$	650

At March 31, 2026 and December 31, 2025 there was no allowance for credit losses on collateral-dependent loans.

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Notes to Consolidated Financial Statements (Unaudited)

Modifications Made to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For combination real estate loans, multiple types of modifications may be made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, and interest rate reduction.

The following table shows the amortized cost basis as of March 31, 2026 of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loan and type of concession granted and describes the financial effect of the modifications made:

	Term Extension
(Dollars in thousands)	Amortized Cost Basis		% of Total Loan Type			Financial Effect
Commercial and industrial	$	27		0.02	%	Term and amortization increased from 4 years to 6 years
Total	$	27		0.02	%

During the three months ended March 31, 2025, there were no loans modified due to borrowers experiencing financial difficulty.

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. For the three months ended March 31, 2026 and 2025, there were no payment defaults of modified loans that were modified during the previous twelve months. At March 31, 2026 and December 31, 2025 there was no allowance for credit losses on modified loans.

Unfunded Commitments

The Company maintains a separate reserve for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheet. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the income statement. 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 its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described in Note 1 of Form 10-K, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

For the three months ended March 31, 2026 and 2025, the Company recorded a reduction in provision for credit losses of $56 thousand and provision for credit losses of $104 thousand, respectively. The allowance for credit losses on off-balance sheet exposures was $571 thousand and $590 thousand at March 31, 2026 and 2025, respectively.

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Notes to Consolidated Financial Statements (Unaudited)

Note 5. Earnings per Common Share

Basic earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

The following table presents the computation of basic and diluted earnings per share for the three months ended March 31, 2026 and 2025 (dollars in thousands, except per share data):

	Three Months Ended
	March 31, 2026		March 31, 2025
(Numerator):
Net income	$	4,887	$	1,598
(Denominator):
Weighted average shares outstanding – basic		9,031,591		8,979,527
Potentially dilutive common shares – restricted stock units		15,825		26,396
Weighted average shares outstanding – diluted		9,047,416		9,005,923
Income per common share
Basic	$	0.54	$	0.18
Diluted	$	0.54	$	0.18

Restricted stock units for 297 shares of common stock were not considered in computing diluted earnings per share for the three months ended March 31, 2026, because they were antidilutive. There were no antidilutive shares of common stock for the three months ended March 31, 2025.

Note 6. Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurement and Disclosures” topic of FASB ASC, the fair value of a financial instrument is 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. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 -

Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 -

Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on 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 asset or liability.

Level 3 -

Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires a significant management judgment or estimation.

An instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a recurring basis in the financial statements:

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

Derivative asset/liability - cash flow hedges

Cash flow hedges are recorded at fair value on a recurring basis. The fair value of the Company's cash flow hedges is determined by a third-party vendor using the discounted cash flow method (Level 2).

The following tables present the balances of assets measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025 (in thousands).

			Fair Value Measurements at March 31, 2026
Description	Balance as of March 31, 2026		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available for sale
U.S. Treasury securities	$	37,135	$	—	$	37,135	$	—
U.S. agency and mortgage-backed securities		122,418		—

FIRST NATIONAL CORP /VA/ 10-Q