C & F Financial Corp: Form 10-Q for the period ended Mar 31, 2026

The following discussion supplements and provides information about the major components of the results of operations, financial condition, liquidity and capital resources of the Corporation. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements. In addition to current and historical information, the following discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future business, financial condition or results of operations. For a description of certain factors that may have a significant impact on our future business, financial condition or results of operations, see “Cautionary Statement About Forward-Looking Statements” at the end of this discussion and analysis.

OVERVIEW

Our primary financial goals are to maximize the Corporation’s earnings and to deploy capital in profitable growth initiatives that will enhance long-term shareholder value. We track three primary financial performance measures in order to assess the level of success in achieving these goals: (1) return on average assets (ROA), (2) return on average equity (ROE), and (3) growth in earnings. In addition to these financial performance measures, we track the performance of the Corporation’s three business segments: community banking, mortgage banking, and consumer finance. We balance these financial measures with acceptable levels of interest rate risk, while satisfying liquidity and capital requirements and monitoring asset quality. We also actively manage our capital through growth, dividends and share repurchases, while considering the need to maintain a strong capital position. The following table presents selected financial performance highlights for the periods indicated.

TABLE 1: Financial Performance Highlights

(Dollars in thousands, except for per share data)

1 Refer to “Use of Certain Non-GAAP Financial Measures,” below, for information about these non-GAAP financial measures, including a quantitative reconciliation to the most directly comparable financial measures calculated in accordance with GAAP.

Consolidated net income increased $1.4 million for the first quarter of 2026 compared to the same period in 2025 due primarily to higher net income at the community banking and mortgage banking segments, partially offset by a net loss at the consumer finance segment. A discussion of the performance of our business segments is included under the heading “Business Segments” in the “Results of Operations” section of this discussion and analysis.

Key factors affecting comparison for the first quarter of 2026 are as follows.

• Community banking segment loans grew $24.1 million, or 6.1 percent annualized, compared to December 31, 2025;
• Consumer finance segment loans decreased $3.6 million, or 3.1 percent annualized, compared to December 31, 2025;
• Deposits increased $53.7 million, or 9.2 percent annualized, compared to December 31, 2025;
• Consolidated annualized net interest margin was 4.27 percent for the first quarter of 2026 compared to 4.16 percent for the first quarter of 2025;
• The consumer finance segment experienced net charge-offs at an annualized rate of 2.98 percent of average total loans for the first quarter of 2026 compared to 2.64 percent for the first quarter of 2025; and
• Mortgage banking segment loan originations increased $65.9 million, or 57.9 percent, to $179.6 million for the first quarter of 2026 compared to the first quarter of 2025.

Subsequent to March 31, 2026, the Corporation completed the sale (Transaction) of its membership interest in Bearing Insurance Group, LLC to an unaffiliated third party, effective May 1, 2026. Following the completion of Transaction, the Corporation executed a strategic restructuring of a portion of its securities available for sale portfolio. For more information on these transactions, each of which will impact the Corporation’s financial results for the second quarter of 2026, see Part I, Item 1, “Financial Statements” under the heading “Note 14: Subsequent Events” in this Quarterly Report on Form 10-Q.

Capital Management and Dividends

Total equity was $266.1 million at March 31, 2026 compared to $262.3 million at December 31, 2025. Under regulatory capital standards, the Corporation’s tier 1 risk-based capital and total risk-based capital ratios at March 31, 2026 were 12.1 percent and 15.1 percent, respectively, compared to 12.2 percent and 15.2 percent, respectively, at December 31, 2025. At March 31, 2026, the book value per share of the Corporation’s common stock was $81.73 and tangible book value per share, which is a non-GAAP financial measure, was $73.70, compared to $80.64 and $72.60, respectively, at December 31, 2025.

Total consolidated equity increased $3.8 million at March 31, 2026 compared to December 31, 2025 due primarily to net income, partially offset by dividends paid on the Corporation’s common stock and higher net unrealized losses in the market value of securities available for sale, which are recognized as a component of other comprehensive income. The Corporation’s securities available for sale are fixed income debt securities and their net unrealized loss position is a result of increased market interest rates since they were purchased. The Corporation expects to recover its investments in debt securities through scheduled payments of principal and interest. Unrealized losses are not expected to affect the earnings or regulatory capital of the Corporation or C&F Bank. The accumulated other comprehensive loss related to the Corporation’s securities available for sale, net of deferred income taxes, increased to $11.7 million at March 31, 2026, compared to $10.2 million at December 31, 2025 due primarily to fluctuations in debt security market interest rates.

The Corporation’s Board of Directors declared a quarterly cash dividend of 48 cents per share during the first quarter of 2026, which was paid on April 1, 2026. This dividend represents a payout ratio of 23.1 percent of earnings per share for the first quarter of 2026. The Board of Directors of the Corporation continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital levels and requirements and expected future earnings. In making its decision on the payment of dividends on the Corporation’s common stock, the Corporation’s Board of Directors considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder returns, growth expectations and other factors.

The Corporation has a share repurchase program, effective January 1, 2026 through December 31, 2026, that was authorized by the Board of Directors to repurchase up to $5.0 million of the Corporation’s common stock (the 2026 Repurchase Program). During the first quarter of 2026, the Corporation repurchased 4,279 shares, or $309,000, of its common stock under the 2026 Repurchase Program.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires us to make estimates and assumptions. Those accounting policies with the greatest uncertainty and that require management’s most difficult, subjective or complex judgments affecting the application of these policies, and the greatest likelihood that materially different amounts would be reported under different conditions, or using different assumptions, are described below.

Allowance for Credit Losses: We establish the allowance for credit losses through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected.

Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. The measurement of the allowance for credit losses on commercial and consumer loans is based in part on the twelve-month forecast of the national unemployment rate, which we believe to be indicative of risk factors related to the collectability of commercial and consumer loans. Forecasts of the national unemployment rate are derived from the Federal Open Markets Committee of the Federal Reserve Board. For periods beyond those for which reasonable and supportable forecasts are available, projections are based on a reversion of the national unemployment rate from the last forecast to a historical average level over the following six months. In addition, management’s estimate of expected credit losses is based on the remaining life of loans held for investment, which is affected in part by changes in expected prepayment behavior and in the nature and volume of the loan portfolio. Management also assesses the risk of credit losses arising from external factors, such as changes in general market, economic and business conditions and the value of underlying collateral, to make qualitative adjustments in determining the recorded balance of the allowance for credit losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. These factors outside of the Corporation’s control are difficult to predict and can have significant impacts on the level of allowance that is required, which can be different than the level recorded based on the then-existing loan portfolio, unemployment rate forecast and other external factors that were used in the qualitative adjustments at that time.

In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. The level of the allowance is particularly sensitive to changes in the actual and forecasted national unemployment rate during the twelve-month forecast period and changes in current conditions or reasonably expected future conditions affecting the collectability of loans. Given the relationship between external variables used in the forecast and the qualitative adjustments made based on the assessment of available information relevant to assessing collectability that is not captured in the forecast, it is difficult to estimate the impact of a change in any one individual variable on the allowance for credit losses. The impact of a change in an assumption or input may be amplified by or partially offset by the impact of a change in another assumption or input.

For further information concerning accounting policies, refer to Item 8. “Financial Statements and Supplementary Data,” under the heading “Note 1: Summary of Significant Accounting Policies” in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025.

RESULTS OF OPERATIONS

NET INTEREST INCOME

The following table shows the average balance sheets, the amounts of interest earned on earning assets, with related yields, and interest expense on interest-bearing liabilities, with related rates, for the three months ended March 31, 2026 and 2025. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21 percent that was applicable for all periods presented. Average balances of securities available for sale are included at amortized cost. Loans include loans held for sale. Loans placed on a nonaccrual status are included in the balances and are included in the computation of yields, but had no material effect for all periods presented.

TABLE 2: Average Balances, Income and Expense, Yields and Rates

(Dollars in thousands)

Interest income and expense are affected by fluctuations in interest rates, by changes in the volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. The following table shows the direct causes of the period-to-period changes in the components of net interest income on a taxable-equivalent basis. The Corporation calculates the rate and volume variances using a formula prescribed by the SEC. Rate/volume variances, the third element in the calculation, are not shown separately in the table, but are allocated to the rate and volume variances in proportion to the absolute dollar amounts of each.

TABLE 3: Rate-Volume Recap

(Dollars in thousands)

Net interest income, on a taxable-equivalent basis, for the first quarter of 2026 increased to $28.0 million compared to $25.3 million for the same period in 2025 due primarily to higher average balances of interest-earning assets and higher net interest margin. Annualized net interest margin increased 11 basis points to 4.27 percent for the first quarter of 2026 compared to the same period of 2025 due primarily to higher average interest rates on securities and lower average interest rates on deposits, partially offset by higher average cost of borrowings. The Federal Reserve Bank (FRB) target federal funds interest rate was at an upper limit of 4.50 percent at December 31, 2024 until the FRB began decreasing it in September 2025, decreasing it to 3.75 percent by December 31, 2025, where it remained during the first quarter of 2026. The yield on interest-earning assets increased by 6 basis points for the first quarter of 2026 compared to the same period in 2025. The cost of interest-bearing liabilities decreased by 10 basis points for the first quarter of 2026 compared to the same period in 2025. Average earning assets increased $193.8 million for the first quarter of 2026 compared to the same period in 2025. Average interest-bearing liabilities increased $157.5 million for the first quarter of 2026 compared to the same period in 2025. Average noninterest-bearing demand deposits increased $13.5 million for the first quarter of 2026 compared to the same period in 2025.

Average loans, which includes both loans held for investment and loans held for sale, increased $152.0 million to $2.11 billion for the first quarter of 2026 compared to the same period in 2025. Average loans at the community banking segment increased $135.2 million, or 9.2 percent, for the first quarter of 2026 compared to the same period in 2025 due primarily to growth in the commercial real estate, land acquisition and development, and equity lines segments of the loan portfolio. Average loans at the consumer finance segment decreased $1.0 million, or less than one percent, for the first quarter of 2026 compared to the same period in 2025 due primarily to a decrease in marine and recreational vehicle loans as the third party administrator of that program significantly decreased sales of those loans to outside parties during 2025, which led to the consumer finance segment ending future purchases under the program during the third quarter of 2025. The marine and recreational vehicle (RV) portfolio is expected to run off over the next several years as scheduled borrower payments are made on the existing loans. Average loans at the mortgage banking segment, which consist of loans held for sale, increased $17.8 million, or 84.7 percent, for the first quarter of 2026 compared to the same period in 2025.

The community banking segment average loan yield increased 5 basis points to 5.57 percent for the first quarter of 2026 compared to the same period in 2025 due primarily to renewals of fixed rate loans originated during periods of lower interest rates. The consumer finance segment average loan yield increased 11 basis points to 10.67 percent for the first quarter of 2026 compared to the same period in 2025 due primarily to a mix shift in the loan portfolio with the termination of the marine and RV loans program and the portfolio composition in general shifting towards originations within the past three years, when interest rates were higher, as balances on loans originated prior to that in periods of lower interest rates decline. The mortgage banking segment average loan yield decreased 91 basis points to 5.65 percent for the first quarter of 2026 compared to the same period in 2025 due to fluctuations in mortgage interest rates.

Average securities available for sale increased $18.2 million to $476.6 million for the first quarter of 2026 compared to the same period in 2025 due primarily to purchases of corporate debt and mortgage-backed securities outpacing maturities, calls and paydowns. The average yield on the securities portfolio on a taxable-equivalent basis increased 50 basis points to 3.42 percent for the first quarter of 2026 compared to the same period in 2025 due primarily to purchases of securities during recent periods at higher average yields relative to the average yield of the portfolio as a whole.

Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the FRB, increased $23.6 million to $79.4 million for the first quarter of 2026 compared to the same period in 2025. The average yield on interest-bearing deposits in other banks decreased 33 basis points for the first quarter of 2026 due primarily to the decreases in the federal funds interest rate beginning in September 2025.

Average savings and money market and interest-bearing demand deposits combined increased $80.2 million to $901.7 million for the first quarter of 2026 compared to the same period in 2025. Average noninterest-bearing demand deposits increased $13.5 million to $558.9 million for the first quarter of 2026 compared to the same period in 2025. Average time deposits increased $86.9 million to $908.8 million for the first quarter of 2026 compared to the same period in 2025. The average cost of interest-bearing deposits decreased 19 basis points to 2.21 percent for the first quarter of 2026 compared to the same period in 2025 due primarily to decreases in interest rates paid on time deposits. A portion of the increases in average deposits was due to the wind-down of the repurchase agreement program with certain commercial deposit customers during the third quarter of 2025. The average balance of these repurchase agreements was $28.2 million at March 31, 2025.

Average borrowings decreased $9.5 million to $112.3 million for the first quarter of 2026 compared to the same period in 2025 due primarily the wind-down of the repurchase agreement program, partially offset by higher average balances of subordinated debt. The average cost of borrowings increased 169 basis points for the first quarter of 2026 compared to the same period in 2025 due primarily to higher rates paid on subordinated debt and a shift in the mix of borrowings. The Corporation issued new subordinated notes with an aggregate principal amount of $40.0 million in the second quarter of 2025, which initially bear interest at a fixed rate of 7.50%, and concurrently repurchased its previously issued subordinated notes with aggregate principal amount of $20.0 million, which were to transition from a fixed rate of 4.875% to a floating rate at the then current three-month SOFR plus 475.5 basis points during the third quarter of 2025.

The Corporation believes that the effects of declining market interest rates, if continued in 2026, could adversely affect its net interest margin in the short term as its assets typically reprice downward more quickly than its deposits and borrowings. The majority of the Corporation’s time deposits have repriced within the past year and while some further declines in the cost of deposits are anticipated as certain time deposits reprice following the Federal Reserve’s lowering of the target federal funds interest rate during the third and fourth quarters of 2025, significant further decreases are not expected unless there are additional decreases in market interest rates or shifts in the mix of deposits. The Corporation also believes any such adverse impacts could be somewhat mitigated by renewals of fixed rate loans originated during periods of lower interest rates and purchases of securities available for sale with higher interest rates. The interest rate environment has grown increasingly uncertain during the first quarter of 2026 and the ultimate effect of market factors, including monetary policy actions taken by the Federal Reserve, on the Corporation’s net interest margin will also depend on other factors, including the Corporation’s ability to grow loans at the community banking and consumer finance segments, to compete for deposits, and the extent of its reliance on borrowings. The Corporation gives no assurance as to the timing or extent of changes in market interest rates or the impact of those changes or any other factor on the Corporation's ability to compete for loans and deposits or on its net interest margin. If market interest rates were to rise, net interest margin could be positively affected in the short term as the Corporation generally expects its assets to reprice upward more quickly than its deposits and borrowings.

Noninterest Income

TABLE 4: Noninterest Income

(Dollars in thousands)

Total noninterest income increased $977,000, or 12.9 percent, for the first quarter of 2026 compared to the same period in 2025 due primarily to higher volume of mortgage loan production at the mortgage banking segment which resulted in higher gains on sales of loans and higher mortgage banking fee income, higher mortgage lender services income, and higher investment income from other equity interests, partially offset by fluctuations in unrealized gains and losses on investments held in the rabbi trust.

The Corporation uses a rabbi trust to fund liabilities under its nonqualified deferred compensation plan. Unrealized gains and losses on investments held in the Corporation’s rabbi trust are offset by changes in deferred compensation liabilities, recorded in salaries and employee benefits expense.

Noninterest Expense

TABLE 5: Noninterest Expense

(Dollars in thousands)

Total noninterest expenses increased $1.3 million, or 5.4 percent, in the first quarter of 2026 compared to the same period in 2025 due primarily to higher salaries and employee benefits due to the addition of a seasoned lending team with the expansion into Southwest Virginia in the third quarter of 2025, annual compensation adjustments, and higher commissions from increased volume of mortgage loan production, as well as higher data processing and loan processing and collection expenses, partially offset by fluctuations in deferred compensation liabilities.

Changes in deferred compensation liabilities are offset by unrealized gains and losses on investments held in the Corporation’s rabbi trust and are recorded in noninterest income.

Income Taxes

The Corporation’s consolidated effective income tax rate was 18.6 percent for the first quarter of 2026 compared to 17.3 percent for the same period in 2025 due primarily to a higher share of income at the mortgage banking segment, which is subject to state income taxes, and lower income tax windfall related to the amount deductible upon vesting of restricted stock awards.

Business Segments

The Corporation operates in a decentralized manner in three business segments: community banking, mortgage banking and consumer finance. An overview of the financial results for each of the Corporation’s business segments is presented below.

Community Banking: The community banking segment comprises C&F Bank, C&F Wealth Management, C&F Insurance and CVB Title. The following table presents the community banking segment operating results for the periods indicated.

TABLE 6: Community Banking Segment Operating Results

(Dollars in thousands)

1 Interest expense is allocated to the mortgage banking and consumer finance segments through borrowings from the community banking segment.

The community banking segment reported net income of $7.1 million for the first quarter of 2026 compared to $5.4 million for the same period in 2025 due primarily to:

• higher interest income resulting from higher average balances of loans and cash reserves and higher average interest rates on securities;

partially offset by:

• higher salaries and employee benefits due primarily to the addition of a seasoned lending team with the expansion into Southwest Virginia in the third quarter of 2025 and annual compensation adjustments.

Net interest income for the community banking segment increased by $2.9 million to $21.6 million for the first quarter of 2026 compared to the same period in 2025 due primarily to an increase in net interest margin and higher average balances of earning assets. Average interest-earning asset yields were higher for the first quarter of 2026 compared to the same period in 2025 due primarily to higher average interest rates on securities available for sale. The average cost of interest- bearing liabilities were lower for the first quarter of 2026 compared to the same period in 2025 due primarily to decreases in interest rates paid on time deposits. Interest income allocated to the community banking segment includes interest income on loans to the consumer finance and mortgage banking segments. These transactions are eliminated to reach consolidated totals.

The community banking segment recorded provision for credit losses of $300,000 for the first quarter of 2026 compared to provision for credit losses of $100,000 for the same period in 2025. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

Noninterest income increased for the first quarter of 2026 compared to the same period in 2025 due primarily to higher investment income from other equity interests and higher interchange income. Noninterest expenses increased for the first quarter of 2026 compared to the same period in 2025 due primarily to higher salaries and employee benefits and higher data processing expenses.

Mortgage Banking: The following table presents the mortgage banking operating results for the periods indicated.

TABLE 7: Mortgage Banking Segment Operating Results

(Dollars in thousands)

1 Interest expense is allocated to the mortgage banking segment through borrowings from the community banking segment.

The mortgage banking segment reported net income of $910,000 for the first quarter of 2026 compared to $431,000 for the same period in 2025 due primarily to:

• higher gains on sales of loans and higher mortgage banking fee income due to higher volume of mortgage loan originations; and
• higher mortgage lender services fee income;

partially offset by:

• higher variable expenses tied to mortgage loan origination volume such as commissions and bonuses, reported in salaries and employee benefits.

The following table presents mortgage loan originations and mortgage loans sold for the periods indicated.

TABLE 8: Mortgage Loan Originations

(Dollars in thousands)

1 Total mortgage loan originations does not include mortgage lender services.

2 Lock-adjusted originations includes the effect of changes in the volume of mortgage loan applications in process that have not closed, net of an estimated volume not expected to close.

Mortgage banking segment loan originations increased 57.9 percent for the first quarter of 2026 compared to the same period in 2025 as the mortgage interest rate environment has become more favorable, which led to an increase in both purchases and refinancings. Gains on sales of loans, while driven in part by mortgage loan originations, also includes the effects of changes in locked loan commitments, which reflect the volume of mortgage loan applications that are in process and have not closed. Lock-adjusted originations for the mortgage banking segment increased 56.7 percent for the first quarter of 2026 compared to the same period in 2025. Locked loan commitments were $90.9 million at March 31, 2026 compared to $44.6 million and $71.8 million at December 31, 2025 and March 31, 2025, respectively. Mortgage banking segment loan originations include originations of loans sold to the community banking segment, at prices similar to those paid by third-party investors. All interest expense at the mortgage banking segment is from variable rate borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

Through the Lender Solutions division of the mortgage banking segment, mortgage lender services fee income is derived from providing mortgage origination functions to third-party mortgage lenders for a fee. Mortgage lender services fee income increased to $820,000 for the first quarter of 2026 compared to $541,000 for the same period in 2025 due primarily to increased mortgage loan volume in the industry.

During the first quarter of 2026, the mortgage banking segment recorded net reversals of provision for indemnification losses of $35,000 compared to net reversals of provision for indemnification losses of $25,000 for the same period in 2025. The release of indemnification reserves in 2026 and 2025 was due primarily to lower volume of mortgage loan originations in recent years compared to years prior when the indemnification reserve was increased due to higher volume coming out of the pandemic, improvement in the mortgage banking segment’s assessment of borrower payment performance and other factors affecting expected losses on mortgage loans sold in the secondary market, such as time since origination. Management believes that the indemnification reserve is sufficient to absorb losses related to loans that have been sold in the secondary market.

Consumer Finance: The following table presents the consumer finance operating results for the periods indicated.

TABLE 9: Consumer Finance Segment Operating Results

(Dollars in thousands)

1 Interest expense is allocated to the consumer finance segment through borrowings from the community banking segment.

The consumer finance segment reported a net loss of $81,000 for the first quarter of 2026 compared to net income of $226,000 for the same period in 2025 due primarily to:

• higher provision for credit losses due primarily to higher net charge-offs; and
• higher professional fees and higher loan processing and collection expenses;

partially offset by:

• higher interest income resulting from higher loan yields due primarily to a shift in the mix of the loan portfolio with the termination of the lower-yielding marine and recreational vehicle loan program; and
• lower interest expense allocation on borrowings from the community banking segment as a result of lower average interest rates.

Average loans decreased $1.0 million, or less than one percent, for the first quarter of 2026 compared to the same period in 2025 due primarily to a decrease in marine and recreational vehicle loans as the third party administrator of that program significantly decreased sales of those loans to outside parties during 2025, which led to the consumer finance segment ending future purchases under the program during the third quarter of 2025. The marine and recreational vehicle portfolio is expected to run off over the next several years as scheduled borrower payments are made on the existing loans. All interest expense at the consumer finance segment is from fixed and variable rate borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

The consumer finance segment recorded $3.3 million in provision for credit losses for the first quarter of 2026 compared to $2.9 million for the same period in 2025. Net charge-offs increased due primarily to an increase in delinquent loans and repossessions. If loan performance deteriorates, resulting in further elevated delinquencies or net charge-offs, the provision for credit losses may increase in future periods.

ASSET QUALITY

Allowance and Provision for Credit Losses

The Corporation conducts an analysis of the collectability of the loan portfolio on a regular basis and uses this analysis to assess the sufficiency of the allowance for credit losses on loans and to determine the necessary provision for credit losses. The Corporation segments the loan portfolio into three loan portfolios based on common risk characteristics.

Commercial and consumer loans are assigned loan classification ratings based on their credit quality and risk of loss. These loan ratings are reviewed on a quarterly basis and updated as new information becomes available. The characteristics of these loan ratings are as follows:

• Pass rated loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.
• Special mention loans have a specific, identified weakness in the borrower’s operations and in the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history may be characterized by late payments. The Corporation’s risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.
• Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Corporation’s credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Corporation. There is a distinct possibility that the Corporation will sustain some loss if the deficiencies associated with the loan are not corrected in the near term.
• Substandard nonaccrual loans have the same characteristics as substandard loans; however, they have a nonaccrual classification because it is probable that the Corporation will not be able to collect all amounts due.
• Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but 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 possibility of loss is extremely high.
• Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.

The Corporation monitors the consumer finance loan portfolio by past due status and by credit rating at the time of origination, which the Corporation believes serves as a relevant indicator of aggregate credit quality and risk of loan defaults in the portfolio based upon the use of Fair Isaac Corporation (FICO) Scores over time for loan approval decisions and through experience analyzing loss patterns. The characteristics of these credit ratings and our thresholds are as follows:

• Very Good (>739) and Good (670-739) credit rated borrowers are near or above the average FICO Score of consumers. Borrowers generally have limited to no prior credit difficulties or have shown extensive creditworthiness over a recent period of time.
• Fairly Good (625-669) and Fair (580-624) credit rated borrowers are approaching or slightly below the average FICO Score of consumers but typically have a credit profile acceptable to most lenders. Borrowers may have experienced minor credit difficulties or have a relatively limited credit history.
• Marginal (<580) credit rated borrowers are well below the average FICO Score of consumers. Borrowers may have limited access to traditional financing due to having experienced prior credit difficulties or have a limited credit history. The risk of future charge-offs is higher.

The allowance for credit losses represents an amount that, in our judgment, reduces the recorded investment in loans to the net amount expected to be collected. The provision for credit losses increases the allowance, and loans charged off, net of recoveries, reduce the allowance.

The following tables present the Corporation’s credit loss experience for the periods indicated.

TABLE 10: Allowance for Credit Losses

(Dollars in thousands)

(Dollars in thousands)

1Consumer loans includes provision, charge-offs and recoveries related to demand deposit overdrafts.

2Average loans does not include loans held for sale at the mortgage banking segment.

For further information regarding the adequacy of our allowance for credit losses, refer to “Table 16: Nonperforming Assets” and the accompanying disclosure below.

The allocation of the allowance for credit losses and the ratio of corresponding outstanding loan balances to total loans are as follows as of the dates indicated.

TABLE 11: Allocation of Allowance for Credit Losses

(Dollars in thousands)

Loans are required to be measured at amortized cost and to be presented at the net amount expected to be collected. Credit losses on available for sale debt securities are accounted for as an allowance for credit losses, which is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value and the amount expected to be collected on the financial asset. The Corporation concluded that a credit loss did not exist in its securities portfolio at March 31, 2026, and no allowance for credit losses has been recognized. Off balance sheet credit exposures, including loan commitments, are not recorded on balance sheet, but expected credit losses arising from off balance sheet credit exposures are recorded as a reserve for unfunded commitments and reported in Other Liabilities. The following table presents the Corporation’s reserve for unfunded commitments for the periods indicated.

TABLE 12: Reserve for Unfunded Commitments

(Dollars in thousands)

The allowance for credit losses on loans and available for sale debt securities and the reserve for unfunded commitments are established through a provision for credit losses charged against earnings. The following table presents a breakdown of the provision for credit losses for the periods indicated.

TABLE 13: Provision for Credit Losses

(Dollars in thousands)

48

TABLE 14: Credit Quality Indicators

Loans by credit quality indicators as of March 31, 2026 were as follows:

(Dollars in thousands)

(Dollars in thousands)

1At March 31, 2026, the Corporation did not have any loans classified as Doubtful or Loss.

Loans by credit quality indicators as of December 31, 2025 were as follows:

(Dollars in thousands)

(Dollars in thousands)

1 At December 31, 2025, the Corporation did not have any loans classified as Doubtful or Loss.

Table 15 summarizes the Corporation’s credit ratios on a consolidated basis and Table 16 summarizes nonperforming assets by principal business segment as of March 31, 2026 and December 31, 2025. The mortgage banking segment did not have any nonperforming assets as March 31, 2026 or December 31, 2025.

TABLE 15: Consolidated Credit Ratios

(Dollars in thousands)

1Total loans does not include loans held for sale at the mortgage banking segment.

TABLE 16: Nonperforming Assets

Community Banking Segment

(Dollars in thousands)

Consumer Finance Segment

(Dollars in thousands)

The community banking segment’s nonaccrual loans were $1.1 million at both March 31, 2026 and December 31, 2025. The community banking segment recorded a provision for credit losses of $300,000 for the first quarter of 2026 compared to a provision for credit losses of $100,000 for the same period in 2025. At March 31, 2026, the allowance for credit losses increased to $17.6 million compared to $17.4 million at December 31, 2025. The allowance for credit losses as a percentage of total loans decreased to 1.09 percent at March 31, 2026 from 1.10 percent at December 31, 2025. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

Nonaccrual loans at the consumer finance segment were $913,000 at March 31, 2026 compared to $1.0 million at December 31, 2025. Nonaccrual consumer finance loans remain low relative to the allowance for credit losses and the total consumer finance loan portfolio because the consumer finance segment generally initiates repossession of loan collateral once a loan becomes more than 60 days delinquent. Repossessed vehicles of the consumer finance segment are classified as other assets and consist only of vehicles the Corporation has the legal right to sell. Prior to the reclassification from loans to repossessed vehicles, the difference between the carrying amount of each loan and the fair value of each vehicle

(i.e. the deficiency) is charged against the allowance for credit losses. At March 31, 2026, repossessed vehicles available for sale totaled $879,000 compared to $937,000 at December 31, 2025.

The consumer finance segment experienced net charge-offs at an annualized rate of 2.98 percent of average total loans for the first quarter of 2026 compared to 2.64 percent for the same period of 2025 due primarily to an increase in delinquent loans and repossessions. At March 31, 2026, total delinquent loans as a percentage of total loans was 3.35 percent compared to 4.38 percent at December 31, 2025 and 3.05 percent at March 31, 2025. The allowance for credit losses was $22.1 million, or 4.80 percent of total loans, at March 31, 2026 compared to $22.3 million, or 4.79 percent of total loans, at December 31, 2025.

The consumer finance segment at times offers payment deferrals to borrowers as a portfolio management technique to achieve higher ultimate cash collections on select loan accounts. A significant reliance on deferrals as a means of managing collections may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio. Average amounts of payment deferrals of automobile loans on a monthly basis, which are not included in delinquent loans, were 1.34 percent of average automobile loans outstanding during the first quarter of 2026 compared to 2.50 percent during the fourth quarter of 2025 and 1.75 percent during the first quarter of 2025.

The consumer finance segment is an indirect lender that provides automobile financing through lending programs that are designed to serve customers in both the “prime” and “non-prime” markets, including those who may have limited access to traditional automobile financing due to having experienced prior credit difficulties. The preferred automobile is a later model, low mileage used vehicle because the value of new vehicles typically depreciates rapidly. In addition to automobile financing, marine and RV loan contracts were also purchased on an indirect basis through a referral program administered by a third party. The marine and RV loan contracts were for “prime” loans averaging less than $50,000 made to individuals with higher credit scores. The third party administrator of that program significantly decreased sales of those loans to outside parties during 2025, which led to the consumer finance segment ending future purchases during the third quarter of 2025. The marine and RV portfolio is expected to run off over the next several years as scheduled borrower payments are made on the existing loans.

The consumer finance segment’s focus has included “non-prime” borrowers and, therefore, the anticipated rates of delinquencies, defaults, repossessions and losses on the consumer finance loans are higher than those experienced in the general automobile finance industry and could be more dramatically affected by changes in general economic conditions. Changes in economic conditions may also affect consumer demand for used automobiles and values of automobiles securing outstanding loans, due to changes in demand or changes in levels of inventory of used automobiles, which may directly affect the amount of a loss incurred by the consumer finance segment in the event of default. While we manage the higher risk inherent in loans made to “non-prime” borrowers through the underwriting criteria, portfolio management and collection methods employed by the consumer finance segment, we cannot guarantee that these criteria or methods will afford adequate protection against these risks. With the consumer finance segment’s scorecard model for purchasing loan contracts, the credit-worthiness of borrowers at origination has improved for automobile loans purchased, however, we cannot provide any assurances regarding the level of the consumer finance segment’s net charge-off ratio in future periods. However, we believe that the current allowance for credit losses is adequate to reflect the net amount expected to be collected on existing consumer finance segment loans that may become uncollectible. If factors influencing the consumer finance segment result in higher net charge-off ratios in future periods, the consumer finance segment may need to increase the level of its allowance for credit losses through additional provisions for credit losses, which could negatively affect future earnings of the consumer finance segment.

FINANCIAL CONDITION

At March 31, 2026, the Corporation had total assets of $2.8 billion, an increase of $45.3 million since December 31, 2025. The increase was attributable primarily to growth in loans held for investment, loans held for sale and available for sale securities, funded by growth in deposits. The significant components of the Corporation’s Consolidated Balance Sheets are discussed below.

Loan Portfolio

Tables 17, 18 and 19 present information pertaining to the composition of loans held for investment, the composition of commercial real estate and construction commercial real estate loans, and the maturity/repricing of certain loans held for investment, respectively.

TABLE 17: Summary of Loans Held for Investment

(Dollars in thousands)

During the first quarter of 2026, loans held for investment increased $20.5 million to $2.04 billion at March 31, 2026 due primarily to growth in commercial real estate and land acquisition and development loans, partially offset by a decrease in construction loans at the community banking segment.

TABLE 18: Commercial Real Estate and Construction Commercial Real Estate Loans

(Dollars in thousands)

(Dollars in thousands)

TABLE 19: Maturity/Repricing Schedule of Loans Held for Investment

(Dollars in thousands)

Securities

The investment portfolio plays a primary role in the management of the Corporation’s interest rate sensitivity. In addition, the portfolio serves as a source of liquidity and is used as needed to meet collateral requirements. The investment portfolio consists of securities available for sale, which may be sold in response to changes in market interest rates, changes in prepayment risk, increases in loan demand, general liquidity needs and other similar factors. These securities are carried at estimated fair value. At March 31, 2026 and December 31, 2025, all debt securities in the Corporation’s investment portfolio were classified as available for sale.

The following table sets forth the composition of the Corporation’s securities available for sale in dollar amounts at fair value and as a percentage of the Corporation’s total securities available for sale at the dates indicated.

TABLE 20: Securities Available for Sale

(Dollars in thousands)

During the first quarter of 2026, securities available for sale increased $12.5 million to $470.6 million at March 31, 2026 due primarily to an increase in mortgage-backed securities, partially offset by a decrease in U.S. government agencies and corporations securities. Net unrealized losses in the market value of securities available for sale increased to $14.8 million at March 31, 2026 compared to $12.9 million at December 31, 2025.

For more information about the Corporation’s securities available for sale, including information about securities in an unrealized loss position at March 31, 2026 and December 31, 2025, see Part I, Item 1, “Financial Statements” under the heading “Note 2: Securities” in this Quarterly Report on Form 10-Q.

The following table presents additional information pertaining to the composition of the securities portfolio at amortized cost, by the earlier of contractual maturity or expected maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties. The total effective duration of the investment portfolio was 3.7 years as of March 31, 2026.

TABLE 21: Maturity of Securities

(Dollars in thousands)

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

Deposits

The Corporation’s predominant source of funds is depository accounts, which are comprised of demand deposits, savings and money market accounts and time deposits. The Corporation’s deposits are principally provided by individuals and businesses located within the communities served.

During the first quarter of 2026, deposits increased $53.7 million to $2.40 billion at March 31, 2026 due primarily to increases in time deposits and noninterest-bearing demand deposits. The increase in deposits was due in part to higher average balances within deposit accounts and the opening of new deposit accounts. The Corporation had $143.5 million in municipal deposits at March 31, 2026 compared to $162.4 million at December 31, 2025.

The Corporation had $18.0 million and $25.0 million in brokered time deposits outstanding at March 31, 2026 and December 31, 2025, respectively. The Corporation may continue to use brokered deposits on a limited basis as a means of maintaining and diversifying liquidity and funding sources.

Borrowings

During the first quarter of 2026, borrowings decreased $10.0 million to $103.3 million at March 31, 2026 due primarily to the repayment of FHLB advances during the first quarter of 2026.

Liquidity

The objective of the Corporation’s liquidity management is to ensure the continuous availability of funds to satisfy the credit needs of our customers and the demands of our depositors, creditors and investors. Stable core deposits and a strong capital position are the components of a solid foundation for the Corporation’s liquidity position. Additional sources of liquidity available to the Corporation include cash flows from operations, loan payments and payoffs, deposit growth, maturities, calls and sales of securities, the issuance of brokered certificates of deposit and the capacity to borrow additional funds. Depending on the Corporation’s liquidity levels, conditions in the capital markets and other factors, the Corporation may from time to time consider the issuance of debt, equity or other securities, the proceeds of which could provide additional liquidity for our operations.

Liquid assets, which include cash and due from banks, interest-bearing deposits at other banks and nonpledged securities available for sale, totaled $428.9 million at March 31, 2026 compared to $406.4 million at December 31, 2025. The Corporation’s funding sources, including capacity, amount outstanding and amount available at March 31, 2026 are presented in Table 22. The Corporation’s capacity decreased $3.4 million from December 31, 2025 due primarily to fluctuations in loans pledged to the FRB and FHLB and the Corporation’s amount available increased $6.6 million from December 31, 2025 due primarily to the repayment of FHLB advances during the first quarter of 2026.

TABLE 22: Funding Sources

(Dollars in thousands)

(Dollars in thousands)

We have no reason to believe these arrangements will not be renewed at maturity. Additional loans and securities are available that can be pledged as collateral for future borrowings from the FHLB and FRB above the current lendable collateral value. Our ability to maintain sufficient liquidity may be affected by numerous factors, including economic conditions nationally and in our markets. Depending on our liquidity levels, our capital position, conditions in the capital markets, our business operations and initiatives, and other factors, we may from time to time consider the issuance of debt, equity or other securities or other possible capital market transactions, the proceeds of which could provide additional liquidity for our operations.

Uninsured deposits represent an estimate of amounts above the Federal Deposit Insurance Corporation (FDIC) insurance coverage limit of $250,000. As of March 31, 2026, the Corporation’s uninsured deposits were approximately $745.7 million, or 31.1 percent of total deposits. Excluding intercompany cash holdings and municipal deposits which are secured with pledged securities, amounts uninsured were approximately $578.4 million, or 24.1 percent of total deposits as of March 31, 2026, compared to $527.8 million, or 22.5 percent of total deposits as of December 31, 2025. The Corporation’s liquid assets and borrowing availability as of March 31, 2026 totaled $1.1 billion, exceeding uninsured deposits, excluding intercompany cash holdings and secured municipal deposits, by $531.9 million.

The Corporation’s internal policy limits brokered deposits to 20 percent of total deposits, representing approximately $577.4 million of additional net availability for additional brokered deposits as of March 31, 2026.

In the ordinary course of business, the Corporation has entered into contractual obligations and has made other commitments to make future payments. For further information concerning the Corporation’s expected timing of such payments refer to “Item 8. Financial Statements and Supplementary Data,” under the headings “Note 9: Leases,” “Note 11: Borrowings,” and “Note 18: Commitments and Contingent Liabilities” in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025.

As a result of the Corporation’s management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Corporation maintains overall liquidity sufficient to satisfy its operational requirements and contractual obligations.

Capital Resources

The assessment of capital adequacy depends on such factors as asset quality, liquidity, earnings performance, and changing competitive conditions and economic forces. We regularly review the adequacy of the Corporation’s and the Bank’s capital. We maintain a structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses. While we will continue to look for opportunities to invest capital in profitable growth, share repurchases are another tool that facilitates improving shareholder return, as measured by ROE and earnings per share.

The disclosure below presents the Corporation’s and the Bank’s actual capital amounts and ratios under currently applicable regulatory capital standards. Under the small bank holding company policy statement of the Federal Reserve Board, which applies to certain bank holding companies with consolidated total assets of less than $3 billion, the Corporation was not subject to regulatory capital requirements at March 31, 2026. The following tables reflect the Corporation’s consolidated capital as determined under regulations that apply to bank holding companies that are not small bank holding companies and minimum capital requirements that would apply to the Corporation if it were not a small bank holding company. Although the minimum regulatory capital requirements are not applicable to the Corporation, the Corporation calculates these ratios for its own planning and monitoring purposes. Total risk-weighted assets at March 31, 2026 for the Corporation were $2.31 billion and for the Bank were $2.28 billion. Total risk-weighted assets at December 31, 2025 for the Corporation were $2.26 billion and for the Bank were $2.23 billion. As of March 31, 2026, the Bank met all capital adequacy requirements to which it is subject.

TABLE 23: Regulatory Capital

(Dollars in thousands)

(Dollars in thousands)

The regulatory risk-based capital amounts presented above include: (1) common equity tier 1 capital (CET1) which consists principally of common stock (including surplus) and retained earnings with adjustments for goodwill and intangible assets; (2) Tier 1 capital which consists principally of CET1 plus the Corporation’s “grandfathered” trust preferred securities; and (3) Tier 2 capital which consists principally of Tier 1 capital plus a limited amount of the allowance for credit losses and $40.0 million of outstanding subordinated notes of the Corporation. The Total Capital ratio, Tier 1 Capital ratio and CET1 ratio are calculated as a percentage of risk-weighted assets. The Tier 1 Leverage ratio is calculated as a percentage of average tangible assets. In addition, the Corporation has made the one-time irrevocable election to continue treating accumulated other comprehensive income (AOCI) under regulatory standards that were in place prior to the Basel III Final Rule in order to eliminate volatility of regulatory capital that can result from fluctuations in AOCI and the inclusion of AOCI in regulatory capital, as would otherwise be required under the Basel III Capital Rule. As a result of this election, changes in AOCI, including unrealized losses on securities available for sale, do not affect regulatory capital amounts shown in the table above for the Corporation or the Bank. For additional information about the Basel III Final Rules, see “Item 1. Business” under the heading “Regulation and Supervision” and “Item 8. Financial Statements and Supplementary Data,” under the heading “Note 17: Regulatory Requirements and Restrictions” in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025.

In addition to the regulatory risk-based capital requirements, the Bank must maintain a capital conservation buffer of 2.5 percent of risk-weighted assets as required by the Basel III Final Rule. Including the capital conservation buffer, the minimum ratios are a common equity Tier 1 risk-based capital ratio of 7.0 percent, a Tier 1 risk-based capital ratio of 8.5 percent, and a total risk-based capital ratio of 10.5 percent. The Corporation and the Bank exceeded these ratios at March 31, 2026 and December 31, 2025.

The Corporation’s capital resources are impacted by its share repurchase programs. The Board of Directors authorized a program, effective January 1, 2026 through December 31, 2026, to repurchase up to $5.0 million of the Corporation’s common stock (the 2026 Repurchase Program). Repurchases under the 2026 Repurchase Program may be made through privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended, (Exchange Act) and shares repurchased will be returned to the status of authorized and unissued shares of common stock. The timing, number and purchase price of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of the shares, general market and economic conditions, applicable legal requirements and other conditions, and there is no assurance that the Corporation will purchase any shares under the 2026 Repurchase Program. During the three months ended March 31, 2026, the Corporation repurchased 4,279 shares, or $309,000, of its common stock under the 2026 Repurchase Program. As of March 31, 2026, there was $4.7 million remaining available for repurchases of the Corporation’s common stock under the 2026 Repurchase Program.

USE OF CERTAIN NON-GAAP FINANCIAL MEASURES

The accounting and reporting policies of the Corporation conform to GAAP in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Corporation’s performance. These include net tangible income attributable to the Corporation, ROTCE, tangible book value per share, and the following fully-taxable equivalent (FTE) measures: interest and fees on loans-FTE, interest and dividends on securities-FTE, total interest income-FTE and net interest income-FTE. Interest on tax-exempt loans and securities is presented on a taxable-equivalent basis (which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid) using the federal corporate income tax rate of 21 percent that was applicable for all periods presented.

Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods, other financial institutions, and between different sources of interest income. The non-GAAP measures used by management enhance comparability by excluding the effects of balances of intangible assets, including goodwill, that vary significantly between institutions, and tax benefits that are not consistent across different opportunities for investment. These non-GAAP financial measures should not be considered an alternative to, or more important than, GAAP-basis financial statements, and other bank holding companies may define or calculate these or similar measures differently. A reconciliation of the non-GAAP financial measures used by the Corporation to evaluate and measure the Corporation’s performance to the most directly comparable GAAP financial measures is presented below.

TABLE 24: Non-GAAP Table

(Dollars in thousands)

(Dollars in thousands)

1 Assuming a tax rate of 21%.

(Dollars in thousands except for per share amounts)

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This report contains statements concerning the Corporation’s expectations, plans, objectives or beliefs regarding future financial performance and other statements that are not historical facts, which may constitute “forward-looking statements” as defined by federal securities laws. Forward-looking statements generally can be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “may,” “might,” “will,” “intend,” “target,” “should,” “could,” or similar expressions, are not statements of historical fact, and are based on management’s beliefs, assumptions and expectations regarding future events or performance as of the date of this report, taking into account all information currently available. These statements may include, but are not limited to: statements regarding expected future operations and financial performance; expected trends in yields on loans; expected future recovery of investments in debt securities; future dividend payments and share repurchases; deposit trends; charge-offs and delinquencies; changes in cost of funds and net interest margin and items affecting net interest margin; strategic business initiatives, including our expansion into Southwest Virginia, and the anticipated effects thereof; changes in interest rates and the effects thereof on net interest income; expected impact of unrealized losses on earnings and regulatory capital of the Corporation or the Bank; expected renewal of unsecured federal funds agreements; expected impact of unrealized losses on earnings and regulatory capital of the Corporation or the Bank; mortgage loan originations; expectations regarding the Bank’s regulatory risk-based capital requirement levels; competition; our loan portfolio; our digital services; the adoption of artificial intelligence; deposit trends; improving operational efficiencies; retention of qualified loan officers and expectations regarding new mortgage loan originations; higher quality automobile loan contracts; expectations regarding the runoff of the marine and recreational vehicle portfolio; technology initiatives; our diversified business strategy; asset quality; credit quality; adequacy of allowances for credit losses and the level of future charge-offs; market interest rates and housing inventory and resulting effects on mortgage loan origination volume; sources of liquidity; adequacy of the reserve for indemnification losses related to loans sold in the secondary market; capital levels; the effect of future market and industry trends and conditions; the effects of future interest rate levels and fluctuations; cybersecurity risks; inflation; statements regarding the Transaction, including the Corporation’s expected gain to be recognized on the Transaction, and statements regarding the Corporation’s strategic restructuring of its securities available for sale portfolio following completion of the Transaction. These forward-looking statements are subject to significant risks and uncertainties due to factors that could have a material adverse effect on the operations and future prospects of the Corporation including, but not limited to, changes in:

• interest rates, such as volatility in short-term interest rates or yields on U.S. Treasury bonds, fluctuations in interest rates following actions by the Federal Reserve and increases or volatility in mortgage interest rates
• general business conditions, as well as conditions within the financial markets
• general economic conditions, including unemployment levels, inflation rates, supply chain disruptions, slowdowns in economic growth and government shutdowns
• general market conditions, including disruptions due to pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises, changes in trade policy and the implementation of tariffs, geopolitical tensions, war and other military conflicts (including the conflict in the Middle East and potential associated impacts on interest rates and energy prices) or other major events, or the prospect of these events
• average loan yields and securities yields and average costs of interest-bearing deposits and borrowings
• financial services industry conditions, including bank failures or rumors of such failures, the soundness of other financial institutions or concerns involving liquidity, along with actions taken by governmental agencies to address such conditions, and the effects on financial institutions, including us, on, among other things, the ability to attract or retain depositors and to borrow or raise capital
• labor market conditions, including attracting, hiring, training, motivating and retaining qualified employees
• the legislative and regulatory climate, regulatory initiatives with respect to financial institutions, products and services, the Consumer Financial Protection Bureau (the CFPB) and the regulatory and enforcement activities of the CFPB
• monetary and fiscal policies of the U.S. Government, including policies of the FDIC, U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System (the Federal Reserve Board), and the effect of these policies on interest rates and business in our markets
• demand for financial services in the Corporation’s market areas
• the value of securities held in the Corporation’s investment portfolios
• the quality or composition of the loan portfolios and the value of the collateral securing those loans
• the inventory level, demand and fluctuations in the pricing of used automobiles, including sales prices of repossessed vehicles
• the level of automobile loan delinquencies or defaults and our ability to repossess automobiles securing delinquent automobile finance installment contracts
• the level of net charge-offs on loans and the adequacy of our allowance for credit losses
• the level of indemnification losses related to mortgage loans sold
• demand for loan products
• deposit flows
• the possibility that the expected financial impacts of the Transaction or the Corporation’s strategic restructuring of its securities available for sale portfolio following completion of the Transaction may differ from current expectations, including as a result of post-closing price or other adjustments to consideration received with respect to the Transaction, as well as business, economic, tax and other factors affecting the Transaction and the strategic restructuring of the Corporation’s securities portfolio
• the strength of the Corporation’s counterparties
• the availability of lines of credit from the FHLB and other counterparties
• competition from both banks and non-banks, including competition in the automobile finance market
• services provided by, or the level of the Corporation’s reliance upon, third parties for key services
• the commercial and residential real estate markets, including changes in property values
• the demand for residential mortgages and conditions in the secondary residential mortgage loan markets
• the Corporation’s technology initiatives and other strategic initiatives
• the Corporation’s branch expansion, relocation and consolidation plans
• cyber threats, attacks or events, including emerging issues related to the development and use of artificial intelligence that could give rise to legal or regulatory action or increase cybersecurity threats
• C&F Bank’s product offerings
• accounting principles, policies and guidelines, and elections made by the Corporation thereunder

These risks and uncertainties, and the risks discussed in more detail in Item 1A. “Risk Factors,” of Part I of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025 and other reports filed with the SEC should be considered in evaluating the forward-looking statements contained herein.

Readers should not place undue reliance on any forward-looking statement. There can be no assurance that actual results will not differ materially from historical results or those expressed in or implied by such forward-looking statements, or that the beliefs, assumptions and expectations underlying such forward-looking statements will be proven to be accurate. Forward-looking statements are made as of the date of this report and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which the statement was made, except as otherwise required by law.

The Corporation’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will affect the amount of interest income and expense the Corporation receives or pays on a significant portion of its assets and liabilities and the market value of its interest-earning assets and interest-bearing liabilities, excluding those which have a very short term until maturity. The Corporation does not subject itself to foreign currency exchange rate risk or commodity price risk due to the current nature of its operations. The Corporation has established a comprehensive enterprise risk management program to monitor risks related to its operations, including market risk, and the Corporation’s Chief Risk Officer has primary responsibility for the enterprise risk management program.

The Corporation’s Asset/Liability Committee meets at least quarterly with the primary objective of maximizing current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent and appropriate. Thus the goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level. The objective of the Corporation’s liquidity management is to meet the Corporation’s liquidity requirements by ensuring the continuous availability of funds to satisfy the credit needs of our customers and the demands of our depositors, creditors and investors. Stable core deposits and a strong capital position are the components of a solid foundation for the Corporation’s liquidity position. Management continuously monitors cash flows, including deposit flows, loan fundings and draws, securities payments and borrowing maturities, and the impact of changes in interest rates on these cash flows. Additionally, management tracks uninsured deposits, unpledged securities and unpledged loans among other liquidity metrics.

The Corporation assumes interest rate risk in the normal course of operations. The fair values of most of the Corporation’s financial instruments will change when interest rates change and that change may be either favorable or unfavorable to the Corporation. Management attempts to match maturities and repricing dates of assets and liabilities to the extent believed necessary to balance minimizing interest rate risk and increasing net interest income in current market conditions. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates, maturities and repricing dates of assets and liabilities and attempts to manage interest rate risk by adjusting terms of new loans, deposits and borrowings, by investing in securities with terms that manage the Corporation’s overall interest rate risk, and in some cases by using derivative contracts to reduce the Corporation’s overall exposure to changes in interest rates. The Corporation does not enter into interest rate-sensitive instruments for trading purposes.

We use simulation analysis to assess earnings at risk and economic value of equity (EVE) analysis to assess economic value at risk. These methods allow management to regularly monitor both the direction and magnitude of the Corporation’s interest rate risk exposure. These modeling techniques involve assumptions and estimates that inherently cannot be measured with complete precision. Key assumptions in the analyses include maturity and repricing characteristics of both assets and liabilities, prepayments on amortizing assets, other embedded options, non-maturity deposit sensitivity and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of the Corporation’s interest rate risk position over time.

Simulation analysis evaluates the potential effect of upward and downward changes in market interest rates on future net interest income. The analysis involves changing the interest rates used in determining net interest income over the next twelve months. The resulting percentage change in net interest income in various rate scenarios is an indication of the Corporation’s shorter-term interest rate risk. The analysis utilizes a “static” balance sheet approach, which assumes changes in interest rates without any management response to change the composition of the balance sheet. The measurement date balance sheet composition is maintained over the simulation time period with maturing and repayment dollars being rolled back into like instruments for new terms at current market rates. Additional assumptions are applied to modify volumes and pricing under the various rate scenarios. These assumptions include loan prepayments, time deposit early withdrawals, the sensitivity of deposit repricing to changes in market rates, withdrawal behavior of non-maturing deposits, and other factors that management deems significant.

The simulation analysis results, based on a measurement date balance sheet as of March 31, 2026, for hypothetical changes in net interest income over the next twelve months are presented in the following table.

One-Year Net Interest Income Simulation (dollars in thousands)

These results indicate that the Corporation would expect net interest income to decrease over the next twelve months assuming an immediate downward shift in market interest rates of 100 BP to 300 BP and to increase if rates shifted upward to the same degree. As of March 31, 2026, the Corporation’s net interest income sensitivity to both an increase and decrease in market interest rates is similar to its position as of December 31, 2025 as the shifts in the mix of earning assets and in the mix of deposits and borrowings had minimal impact over the first three months of 2026.

The EVE analysis provides information on the risk inherent in the balance sheet that might not be taken into account in the simulation analysis due to the shorter time horizon used in that analysis. The EVE of the balance sheet is defined as the discounted present value of expected asset cash flows minus the discounted present value of the expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The resulting percentage change in net present value in various rate scenarios is an indication of the longer term repricing risk and options embedded in the balance sheet.

The EVE analysis results are presented in the following table.

Static EVE Change (dollars in thousands)

These results as of March 31, 2026 indicate that the EVE would decrease assuming an immediate downward or upward shift in market interest rates of 100 BP to 300 BP. As of March 31, 2026, the Corporation’s EVE is slightly less sensitive to a decrease in market interest rates and slightly more sensitive to an increase in market interest rates as compared to its position as of December 31, 2025 due primarily to changes in the duration of both assets and liabilities as a result of shifts in the mix of earning assets and in the mix of deposits and borrowings.

Certain shortcomings are inherent in the methodology used in the above interest rate risk analyses. Modeling changes in forecasted cash flows and EVE requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates, and certain assumed scenarios may be impractical to model under different economic circumstances. In a falling rate environment, the analyses assume that rate-sensitive assets are repriced downward, subject to floors on certain loans, while certain deposit rates are not allowed to decrease below zero.

The Corporation uses interest rate swaps to manage select exposures to interest rate risk. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts. The Corporation has interest rate swaps that qualify as cash flow hedges. The cash flow hedges effectively modify the Corporation’s exposure to interest rate risk associated with the Corporation’s trust preferred capital notes by converting variable rates of interest on the trust preferred capital notes to fixed rates of interest for periods ending between June 2026 and June 2029. Also, as part of the Corporation’s overall strategy for maximizing net interest income while managing interest rate risk, the Corporation enters into interest rate swaps in connection with originating loans to certain commercial borrowers as a means to offer a fixed-rate instrument to the borrower while effectively retaining a variable-rate exposure.

The mortgage banking segment enters into IRLCs with customers to originate loans for which the interest rates are determined prior to funding. The mortgage banking segment then mitigates interest rate risk on these IRLCs and loans held for sale by entering into forward sales contracts with investors at the time that interest rates are locked for loans to be delivered on a best efforts basis. IRLCs are derivative financial instruments.

We believe that our current interest rate exposure is manageable and within our current interest rate risk guidelines.

The Corporation’s management, including the Corporation’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, 2026 to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Corporation’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Corporation or its subsidiary to disclose material information required to be set forth in the Corporation’s periodic reports.

There were no changes in the Corporation’s internal control over financial reporting during the three months ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

There have been no material changes in the risk factors faced by the Corporation from those disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2025.