ENB Financial Corp: Form 10-Q for the period ended Mar 31, 2026

The following discussion and analysis represents management’s view of the financial condition and results of operations of the Corporation. This discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this quarterly report, and in conjunction with the 2025 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

Forward-Looking Statements

The U.S. Private Securities Litigation Reform Act of 1995 provides safe harbor in regard to the inclusion of forward-looking statements in this document and documents incorporated by reference. Forward-looking statements pertain to possible or assumed future results that are made using current information. These forward-looking statements are generally identified when terms such as “believe,” “estimate,” “anticipate,” “expect,” “project,” “forecast,” and other similar wordings are used. The readers of this report should take into consideration that these forward-looking statements represent management’s expectations as to future forecasts of financial performance, or the likelihood that certain events will or will not occur. Due to the very nature of estimates or predictions, these forward-looking statements should not be construed to be indicative of actual future results. Additionally, management may change estimates of future performance, or the likelihood of future events, as additional information is obtained. This document may also address targets, guidelines, or strategic goals that management is striving to reach but may not be indicative of actual results.

Readers should note that many factors affect this forward-looking information, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference into this document. These factors include, but are not limited to, the following:

• General local and national economic conditions, including inflation and concerns about liquidity
• Monetary and interest rate policies of the Federal Reserve Board
• Changes in deposit flows, loan demand, or real estate and investment securities values
• Effects of weak market conditions, specifically the effect on loan customers to repay loans
• Possible impacts of the capital and liquidity requirements of Basel III standards and other regulatory pronouncements
• Effects of short- and long-term federal budget and tax negotiations and their effects on economic and business conditions
• Effects of the failure of the Federal government to reach agreement to raise the debt ceiling and the negative effects on economic or business conditions as a result
• Political changes and their impact on new laws and regulations
• Effects of war, acts of terrorism, military actions, and international and domestic instabilities
• Competitive forces and how it may impact our community banking strategies
• Changes in accounting principles, policies, or guidelines as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standards setters
• Ineffective business strategy due to current or future market and competitive conditions
• Diversion of management’s attention from ongoing business operations and opportunities
• Management’s ability to manage credit risk, liquidity risk, interest rate risk, and fair value risk
• Operation, legal, and reputation risk
• The risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful
• The impact of new laws and regulations concerning taxes, banking, securities and insurance and their application with which the Corporation and its subsidiaries must comply
• Potential impacts from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses
• Effects of economic conditions particularly with regard to the effects of any pandemic, epidemic, or health-related crisis and government and business responses thereto, specifically the effect on loan customers to repay loans
• Effects of Acquisition and integration of acquired businesses

Readers should be aware that if any of the above factors change significantly, the statements regarding future performance could also change materially. The safe harbor provision provides that the Corporation is not required to publicly update or revise forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should review any changes in risk factors in documents filed by the Corporation periodically with the Securities and Exchange Commission, including Item 1A of Part II of this Quarterly Report on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K.

Results of Operations

Overview

The Corporation recorded net income of $4,024,000 for the three-month period ended March 31, 2026, a $292,000, or 6.8%, decrease from the three months ended March 31, 2025. Basic and diluted earnings per share for the first quarter of 2026 were $0.71 compared to $0.76 for the same period in 2025.

On February 1, 2026, the Corporation completed its Acquisition of Cecil Bancorp, Inc. (“Cecil”), which impacted the Corporation’s results of operations for the three months ended March 31, 2026 in comparison to the prior year, as it included two months of their activities, as well as merger and conversion related charges of $1,866,000, net of taxes. The fair value of net assets acquired totaled $24,617,000, including net loans of $147,400,000 and deposits of $186,384,000. Net income, adjusted for merger and conversion-related charges, was $5,890,000, and basic and diluted earnings per share, as adjusted, totaled $1.03. See supplemental discussion of non-GAAP financial measures.

The Corporation’s net interest income (NII) increased by $2,152,000, or 12.8%, for the three months ended March 31, 2026, compared to the same period in 2025. Interest income on loans increased by $3,089,000, or 16.0%, which was favorably impacted by the addition of Cecil’s loans. Interest income on securities decreased by $884,000, or 15.4%, for the three months ended March 31, 2026, compared to the same period in 2025, due to both lower rates earned on securities as well as lower average balances. Interest expense on deposits declined, despite the addition of Cecil’s deposits, due to lower market interest rates and management’s strategy to lower the cost of funds, including pricing decisions and calling certain brokered deposits. Interest expense on borrowings increased principally due to higher levels of subordinated debt, with newly issued subordinated debt to support the Cecil acquisition at a higher rate than previous issuances.

The Corporation recorded a provision release for credit losses of $22,000 in the first quarter of 2026, compared to a provision expense of $486,000 in the first quarter of 2025. The provision release recorded in 2026 was primarily related to favorable charge-off history, declines in the legacy Ephrata National Bank and Cecil loan portfolios, offset by increased economic uncertainty considerations. The allowance for credit losses (ACL) as a percentage of total loans was 1.15% as of March 31, 2026, 1.11% as of December 31, 2025, and 1.15% as of March 31, 2025. The allowance for credit losses on the loans acquired in the Cecil Acquisition contributed to the increase in the ACL to loans coverage ratio.

Other income increased by $1,053,000, or 31.7%, for the three months ended March 31, 2026, compared to the same period in the prior year. This was due to a variety of increases in a few of the categories including an increase in trust and investment services income, increased service fees, and no losses recorded on the sale of debt securities.

Total operating expenses increased by $3,965,000, or 27.7%, for the three months ended March 31, 2026, compared to the same period in 2025. The largest increase in operating costs was due to merger and conversion-related costs from the Cecil Acquisition, totaling $2,157,000, and increased salary and benefit costs from additional staff including those for our four new branches, annual merit increases, and higher health insurance costs. Several other categories of expenses increased from the prior year including occupancy and equipment, computer software and data processing costs, and costs related to professional services, with the Cecil Acquisition contributing to the increases.

The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized.

Management’s Discussion and Analysis

The lower performance ratios for return on average assets and return on average equity were impacted by the $1,866,000 in merger and conversion-related charges, net of tax.

The results of the Corporation’s operations are best explained by addressing, in further detail, the five major sections of the income statement, which are as follows:

• Net interest income
• Provision for credit losses
• Other income
• Operating expenses
• Provision for income taxes

The following discussion analyzes each of these five components.

Net Interest Income (NII)

NII represents the largest portion of the Corporation’s operating income. In the first three months of 2026, NII generated 81.2% of the Corporation’s revenue stream, which consists of NII and non-interest income. This compared to 83.5% for the first three months of 2025. The increase in other non-interest income is the primary reason for the changes, as growth was noted in all other income categories. The overall performance of the Corporation is highly dependent on the changes in NII since it comprises such a significant portion of operating income, however, the Corporation continues to grow other operating income for diversification.

The following table shows a summary analysis of NII on a fully taxable equivalent (FTE) basis. For analytical purposes and throughout this discussion, yields, rates, and measurements such as NII, net interest spread, and net yield on interest earning assets are presented on an FTE basis, assuming a 21% tax rate. The FTE NII shown in both tables below will exceed the NII reported on the consolidated statements of income, which is not shown on an FTE basis. The amount of FTE adjustment totaled $145,000 for the three months ended March 31, 2026, compared to $107,000 for the same period in 2025 (in thousands):

NII is the difference between interest income earned on assets and interest expense incurred on liabilities. Accordingly, two factors affect NII:

• The rates earned on interest earning assets and paid on interest bearing liabilities
• The average balance of interest earning assets and interest bearing liabilities

During the first quarter of 2026, interest income on interest earning assets increased $2,282,000, as both average balances and rates earned, in total, increased. The Acquisition of Cecil and a shift in asset mix to a greater percentage of loans to total interest earning assets contributed to the increase in interest income. Despite average interest-bearing liabilities increasing 6.2% in the first quarter of 2026, compared to the same period in 2025, interest expense on these liabilities increased only $92,000, or 1.0%. Discipline around managing the cost of funds, resulted in the average rate paid on interest bearing liabilities for the first quarter of 2026 of 2.38%, a decline from 2.51% in the first quarter of 2025.

The Corporation’s net interest margin increased to 3.35% for the quarter ended March 31, 2026, compared to 3.13% for the same quarter in 2025 due to management's strategy to lower the cost of funds, including pricing decisions and to call certain brokered deposits. The Corporation’s NII on a fully taxable equivalent basis increased by $2,190,000, or 13.0%, for the three months ended March 31, 2026, compared to the same period in 2025.

The following table provides an analysis of year-to-date changes in NII on an FTE basis by distinguishing what changes were a result of average balance increases or decreases and what changes were a result of interest rate increases or decreases (dollars in thousands):

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The following table shows a more detailed analysis of NII on a FTE basis with major elements of the Corporation’s balance sheet, which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities (dollars in thousands):

(a) Includes balances of nonaccrual loans and net deferred loan fees and the recognition of any related interest income.

(b) Net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by dividing NII (FTE) by total interest earning assets. Yields and interest income on tax-exempt assets have been computed on a tax-equivalent basis assuming a 21% tax rate, adjusted for interest expense disallowance.

(d) Securities recorded at amortized cost. Unrealized holding gains and losses are included in non-interest earning assets.

The Corporation’s average balances on securities decreased by $45,356,000, or 6.9%, for the three months ended March 31, 2026, compared to the same period in 2025. Interest income on securities decreased by $876,000, or 14.8%, for the three months ended March 31, 2026, compared to the same period in the prior year. The majority of the securities acquired from Cecil were sold shortly after Acquisition date and provided little in average balances. The decrease in the portfolio was primarily the result of maturing securities and regular scheduled monthly principal payments being used to fund loan growth. The tax equivalent yield on investments decreased by 31 basis points for the quarter-to-date period when comparing both years.

Total average loans totaled $1,602,604,000 for the quarter ended March 31, 2026, a $166,286,000 increase in average loan balances over the same period in 2025. In addition to the $147,400,000 in loans acquired in the Cecil Acquisition on February 1, 2026, the strong loan production experienced in 2025 benefited the first quarter of 2026. Interest income on loans increased $3,101,000, or 16.0%, for the first quarter of 2026 compared to 2025, primarily as a result of the higher average balances, but also yields increased 22 basis points as loans repriced at a higher rate, and the Cecil loans were marked to fair value, which enhanced the overall yield of the loan portfolio.

The average balance of interest-bearing deposit accounts increased by $72,903,000 or 5.9%, for the three months ended March 31, 2026, compared to the same period in the prior year. Growth was experienced in all deposit types, partially due to $186,384,000 in deposits acquired in the Cecil Acquisition on February 1, 2026. Higher yielding brokered deposits decreased by $28,889,000 during the first quarter of 2026 compared to 2025, as certain brokered deposits were called as part of the discipline in managing cost of funds. As a result of lower market rates during the period and managing our cost of deposits, the rate paid on deposits declined 28 basis points from the three months ended March 31, 2026 to the same period in 2025. The decrease in rates paid allowed the Corporation to lower its total interest expense on deposits by $503,000 in the first quarter of 2026 compared to 2025.

The Corporation’s average balance on borrowed funds increased by $15,497,000, or 8.6%, for the three months ended March 31, 2026, compared to the same period in 2025. In December 2025, the Corporation issued $42,500,000 in subordinated debt that was used to partially fund the Acquisition of Cecil, as well as allow for the repayment in February 2026 of the Corporation’s first subordinated debt issuance in 2020, which had converted to a floating rate of interest. The interest rate associated with the 2025 subordinated debt was higher than that amount paid off, resulting in a higher cost for subordinated debt in the current period. Scheduled repayments of long-term debt in 2025 and the first quarter of 2026 were replaced with either deposit growth or short-term borrowings and resulted in the average balance dropping $18,421,000 in the first quarter of 2026 compared to the first quarter of 2025. Total interest expense on borrowings totaled $2,482,000, a $596,000 increase over the first quarter of 2025, primarily the result of the additional balances in subordinated debt with higher rates paid.

For the three months ended March 31, 2026, the net interest spread increased by 27 basis points to 2.55%, compared to 2.28% for the three months ended March 31, 2025. The effect of noninterest-bearing funds decreased to 80 basis points for the three months ended March 31, 2026, from 85 basis points for the three months ended March 31, 2025. The effect of noninterest-bearing funds refers to the benefit gained from deposits on which the Corporation does not pay interest and is a component of net interest margin. The Corporation’s NIM for the first quarter of 2026 was 3.35%, compared to 3.13% for the first quarter of 2025.

The Asset Liability Committee (ALCO) carefully monitors the NIM because it indicates trends in NII, the Corporation’s largest source of revenue. For more information on the plans and strategies in place to protect the NIM and moderate the impact of changes in rates, refer to Item 7A: Quantitative and Qualitative Disclosures about Market Risk.

Provision for Credit Losses

The provision for credit losses includes a provision for losses on loans, available-for-sale debt securities, and unfunded loan commitments. The provision provides for losses inherent in the financial assets as determined by a quarterly analysis and calculation of various factors related to the financial assets. The amount of the provision reflects the adjustment management determines necessary to ensure the Allowance for Credit Losses (ACL) is adequate to cover any losses inherent in the financial assets. The Corporation recorded a provision release of $22,000 for the first quarter of 2026, consisting of a provision for credit losses related to loans of $108,000, a provision release of $130,000 for unfunded commitments, and $0 related to available-for-sale securities. For the first quarter of 2025, the provision for credit losses was $486,000, consisting of $426,000 provision related to loans, $60,000 for unfunded commitments, and $0 related to available-for-sale securities. The lower provision levels in 2026 was primarily related to favorable charge-off history, declines in the legacy Ephrata National Bank and Cecil loan portfolios, offset by increased economic uncertainty considerations.

As of March 31, 2026 and 2025, the allowance as a percentage of total loans was 1.15%. More details are provided under Allowance for Credit Losses in the Financial Condition section that follows.

Other Income

Other income for the first quarter of 2026 was $4,379,000, an increase of $1,053,000, or 31.7%, compared to the $3,326,000 earned during the first quarter of 2025. The following table details the categories that comprise other income (dollars in thousands):

Trust and investment services income increased for the quarter as a result of increased estate fees, additional wealth management accounts, and favorable market conditions. Service fees and commissions increased by $250,000, or 14.1% due to both organic growth, and new customers that resulted from the Cecil Acquisition. The Corporation recorded a gain on security transactions of $32,000 in the first quarter of 2026, compared to net losses of $333,000 in the same quarter of the prior year. Losses on security transactions in 2025 were due to strategic sales of debt securities to fund higher yielding loan growth. Mortgage gains increased by $73,000, or 16.6%, in the first quarter of 2026 compared to the first quarter of 2025, due to higher premiums earned on loans sold with servicing released and continued sales of permanent financing for construction loans originated in the prior year. Earnings on bank owned life insurance increased $133,000, or 49.1%, for the three months ended March 31, 2026, compared to the same period in the prior year as death benefits were received related to two former directors.

Operating Expenses

Operating expenses for the first quarter of 2026 were $18,284,000, an increase of $3,965,000, or 27.7%, compared to $14,319,000 for the first quarter of 2025. The following table provides details of the Corporation’s operating expenses for the three-month period ended March 31, 2026, compared to the same period in 2025 (dollars in thousands):

The Acquisition of Cecil led to increased operating expenses as four additional branches in Cecil County, Maryland, were added to the Corporation’s retail network and incremental costs of maintaining two operating systems were required following the Acquisition. The Acquisition also resulted in merger and conversion related expenses of $2,157,000 for the three months ended March 31, 2026, as we incurred professional services to complete the merger and employee severance payments were processed. The Corporation anticipates converting the former Cecil operating system to a unified platform in June 2026.

Salaries and employee benefits are the largest category of operating expenses. For the first quarter of 2026, salaries and benefits increased $1,257,000, or 15.2%, compared to the same period in 2025. In addition to increased expense associated with staffing four branches due to the Acquisition, merit increases and higher medical insurance costs contributed to the increase. Occupancy and equipment costs were higher by a combined total of $342,000, or 26.4%, related to costs associated with three new leased properties, and the purchase of new equipment to convert Cecil to a unified platform. Computer software and data processing expenses increased by $270,000, or 14.8%, for the three months ended March 31, 2026, as a result of maintaining two operating systems as well as enhancements to further automate processes. Shares tax expense is based on the Bank’s level of shareholders’ equity, and has increased $88,000, or 24.4% due to the growth in shareholders’ equity. Professional services costs increased by $113,000, or 13.4%, related to higher accounting and legal fees as well as increased costs for other outside services. Other operating expenses decreased by $326,000, or 24.1%, for the three months ended March 31, 2026, compared to the same period in the prior year due primarily to deposit and fraud-related charges decreasing.

Income Taxes

Federal and state income tax expense was $1,022,000 for the first quarter of 2026 compared to $982,000 for the same period in 2025. The effective tax rate for the Corporation was 20.3% for the three months ended March 31, 2026, and 18.5% for the three months ended March 31, 2025. Generally, the Corporation’s effective tax rate is less than the 21% federal statutory rate due to tax-exempt income, including interest earned on tax-exempt investment securities and loans, and income from life insurance policies, partially offset by disallowed interest expense, state income taxes, and non-deductible acquisition related expenses. The increase in the statutory rate is higher due to a state tax expense with the Acquisition of Cecil, and non-deductible Acquisition-related expenses.

Financial Condition

Balance Sheet Overview and Liquidity

The Corporation maintains liquid assets at adequate levels in order to meet the needs of our balance sheet. Our primary source of liquidity is core deposits and our available-for-sale investment portfolio, both of which provide more than enough liquidity to fund loans to customers and any other funding needs.

A portion of our liquidity consists of cash and cash equivalents and borrowings. At March 31, 2026, cash and equivalents amounted to $89,520,000, compared to $60,573,000 at December 31, 2025, and $78,728,000 at March 31, 2025. Our primary sources of cash are principal repayments on loans, proceeds from the sales, calls, and maturities of investment securities, principal repayments of mortgage-backed securities and asset-backed securities, and increases in deposit accounts. As of March 31, 2026, we had outstanding borrowings from the FHLB of $120,038,000 and subordinated debt of $61,474,000.

At March 31, 2026, the Corporation had $629,599,000 in outstanding loan commitments, which included $77,578,000 in firm loan commitments, $523,497,000 in unused lines of credit, and open letters of credit of $28,524,000. Certificates of deposit due within one year totaled $421,654,000, or 85.9% of certificates of deposit. The Corporation believes, based on past experience, that a significant portion of certificates of deposit will remain at the Corporation upon maturity and ample liquidity exists outside of these funds. We have the ability to attract and retain deposits by adjusting the interest rates offered.

As reported in the Consolidated Statements of Cash Flows, our cash flows are classified for financial reporting purposes as operating, investing, or financing cash flows. Net cash provided by operating activities was $3,610,000 for the quarter ended March 31, 2026 and $4,128,000 for the quarter ended March 31, 2025. Net cash provided by investing activities was $47,371,000 and $7,944,000 for the quarter ended March 31, 2026 and 2025, respectively, reflecting the liquidation of the Cecil securities in 2026 combined with net loan payoffs. Cash used for financing activities amounted to $22,034,000 and $2,253,000 for quarter ended March 31, 2026 and 2025. Financing activities in 2026 were influenced by the repayment of subordinated debt.

Investment Securities

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair market value. As of March 31, 2026, the Corporation had $573,634,000 of debt and equity securities, compared to $588,949,000 at December 31, 2025, and $605,259,000 at March 31, 2025.

In the third quarter of 2024, the Corporation adopted an investment strategy to add $200 million of investments, both agency and non-agency collateralized mortgage obligations consistent with investment policy credit quality parameters, in order to protect interest income in a rising rate environment. The goal of this strategy was to reduce the interest rate risk that management believes was necessary to address the Corporation’s long-term fixed rate assets. The Corporation paired the investments with off-balance sheet pay-fixed interest rate swaps to mitigate the identified rates-up risk. The leverage strategy was funded primarily by callable brokered certificates of deposit and a small portion of short-term FHLB borrowings. The funding was chosen to allow for maximum flexibility to protect against rates-down risk. With this strategy, the Corporation has the ability to call the brokered CDs and replace them at lower market rates or unwind the swaps and offset with gains on the investments.

Outside of the strategy discussed above, the largest movements within the securities portfolio were shaped by market factors, such as:

• slope of the U.S. Treasury curve and projected forward rates
• interest spread versus U.S. Treasury rates on the various securities
• pricing of the instruments, including supply and demand for the product
• structure of the instruments, including duration and average life
• portfolio weightings versus policy guidelines
• prepayment speeds on mortgage-backed securities and collateralized mortgage obligations
• credit risk of each instrument, risk-based capital considerations of individual securities as well as overall balance sheet factors
• Federal income tax considerations with regard to obligations of tax-free states and political subdivisions.

Cecil had securities with a fair value of $19,030,000 as of February 1, 2026, the date of Acquisition. The Corporation evaluated these securities in connection with its overall balance sheet strategy of all net assets acquired and elected to sell $17,843,000 of these securities shortly after closing of the transaction. No additional debt securities were purchased during the three months ended March 31, 2026.

The Corporation’s U.S. Treasury sector and U.S. government agency sectors stayed relatively flat since December 31, 2025. U.S. Treasuries represent a safe credit at a market appropriate yield which added some diversity to the portfolio. These bonds pay monthly principal and interest, and the Corporation has invested into this sector in conjunction with the strategy discussed above. The Corporation began investing in non-agency MBS and CMO instruments in 2022 as a way to achieve a higher yield with bonds that are well protected from a credit standpoint. As of March 31, 2026, this sector stood at $135.3 million, a decrease of $8.2 million since December 31, 2025 due to monthly paydowns. There were no concentrations of issuers greater than 10% of the securities portfolio.

The Corporation’s asset-backed securities (ABS) decreased since December 31, 2025, by $1.6 million, or 3.1%. ABS are floating rate student loan pools which are instruments that perform well in a rates-up environment and offset the interest rate risk of the longer fixed-rate municipal bonds. These securities provide a variable rate return above the overnight Federal funds rate in a safe investment with a risk rating very similar to that of U.S. Agency bonds. The asset-backed securities generally provide monthly principal and interest payments to complement the Corporation’s ongoing cash flows. Management views the ABS sector as a safe, higher yielding option than cash, with the qualities of cash in a rates-up environment.

Obligations of states and political subdivisions, or municipal bonds, consist of both tax-free and taxable securities. They carry the longest duration on average of any instrument in the securities portfolio. These instruments also experience significant fair market value gains and losses when interest rates fluctuate, and currently the yield on the portfolio has resulted in unrealized losses. The balance of municipal bonds decreased slightly in the first three months of 2026. Municipal bonds represented 29.7% of the debt securities portfolio as of March 31, 2026, compared to 29.2% as of December 31, 2025. The largest geographical concentrations as of March 31, 2026 were obligations of states and political subdivisions located in the states of Pennsylvania and California.

As of March 31, 2026, the Corporation’s corporate bonds increased slightly by $556,000, or 1.20%, from balances at December 31, 2025. Corporate bonds add diversity to the portfolio and provide strong yields for short maturities; however, by their very nature, corporate bonds carry a higher level of credit risk should the entity experience financial difficulties.

The following table presents investment securities at March 31, 2026 by expected maturity, including scheduled repayments, and the weighted average yield for each maturity presented. Actual maturities may differ from expected maturities because of differences in assumptions on prepayment or call options embedded in the securities. The yields presented are calculated using tax-equivalent interest and the amortized cost (dollars in thousands).

Management’s Discussion and Analysis

Loans

Net loans outstanding increased by 14.2%, to $1,628,874,000 at March 31, 2026 from $1,426,925,000 at March 31, 2025. Net loans increased by 8.7%, from $1,498,859,000 at December 31, 2025. The following table shows the composition of the loan portfolio as of March 31, 2026, December 31, 2025, and March 31, 2025 (in thousands):

(a) Residential real estate loans do not include mortgage loans serviced for others which totaled $382,580 as of March 31, 2026, $376,287 as of December 31, 2025, and $354,440 at March 31, 2025.

The growth in the loan portfolio since December 31, 2025 was primarily the result of loans acquired from Cecil of $147,400,000, primarily in the business and consumer loan segments. The March 31, 2026 loan portfolio increased $203,903,000 from March 31, 2025. In addition to the loans acquired from Cecil, strong sales and marketing efforts led to increased balances across most categories of loans. The Corporation’s strategic plan specifically focused on managed loan growth while maintaining quality of credit standards. The residential real estate segment has declined as management has chosen reduce the number of mortgage loans it portfolios due to their long maturity dates and elevated interest rate risk.

In the first three months of 2026, mortgage production decreased 10.5% compared to the first three months of 2025. Purchase money origination constituted 88.7% of the Corporation’s mortgage originations for the three months ended March 31, 2026. The held-for-investment production is 44.8% of total originations with construction-only and construction-permanent loans making up 66.2% of the total held-for-investment production. As of March 31, 2026, adjustable-rate mortgage balances were $313.9 million, representing 68.2% of the 1-4 family residential loan portfolio of the Corporation.

Non-Performing Assets

The following table presents the Corporation’s non-performing assets at March 31, 2026, December 31, 2025, and March 31, 2025 (in thousands):

The total balance of non-performing assets increased by $3,649,000, or 34.0%, over balances at March 31, 2025, and increased $5,040,000, or 54.0%, from balances at December 31, 2025. The increases over the March 31, 2025 and December 31, 2025 balance was an increase in customers experiencing financial difficulties, including the addition of $412,000 of nonaccrual loans and $533,000 of foreclosed assets acquired in the Cecil Acquisition. These loans are generally well secured, or have reserves established on them to mitigate future losses. One loan totaling $2,505,000 that moved into nonaccrual status during the first quarter of 2026 was paid off, in full, in April 2026.

Allowance for Credit Losses

The allowance for credit losses (ACL) is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on total loans. Management reviews the adequacy of the ACL on a quarterly basis. The ACL represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The ACL is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Corporation measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. Additionally, the ACL calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending policies and procedures, loan portfolio trends, lending management experience, asset quality, loan review, underlying collateral, and credit concentrations. Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. Based on the quarterly calculation, management will adjust the ACL through the provision for credit losses, as necessary.

Strong credit and collateral policies have been instrumental in producing a favorable history of credit losses for the Corporation. The Net Charge-Off table below shows the net charge-offs for each segment of the Corporation’s loan portfolio for the three months ended March 31, 2026 and 2025 (in thousands):

The Corporation has historically experienced very low net charge-off percentages due to disciplined credit practices. For the three months ended March 31, 2026, net charge-offs totaled $11,000 consisting of $43,000 in charge-offs and $32,000 of recoveries. For the three months ended March 31, 2025, net charge-offs totaled $11,000, consisting of $30,000 in charge-offs and $19,000 in recoveries.

Management regularly reviews the overall risk profile of the loan portfolio and the impact that current economic trends have on the Corporation’s loans. The financial industry typically evaluates the quality of loans on a scale with “unclassified” representing healthy loans, “special mention” being the first indication of credit concern, and several successive classified ratings indicating further credit declines of “substandard,” “doubtful,” and, ultimately, “loss.”

The Corporation’s level of classified loans was $41.5 million on March 31, 2026, compared to $28.9 million on March 31, 2025. Total classified loans have increased from the prior year due to the downgrading of a number of unrelated agriculture and business relationships. In addition, the Cecil Acquisition contributed $1,506,000 of classified loans. Having more loans in a classified status may result in a larger allowance as higher amounts of projected historical losses and qualitative factors are attached to these loans.

Deposits

The Corporation’s total ending deposits at March 31, 2026 increased by $192,987,000, or 10.3%, from December 31, 2025 and by $172,861,000, or 9.1%, from March 31, 2025. Customer deposits are the Corporation’s primary source of funding for loans and securities. The growth in each category of deposits was primarily the result of the $186,384,000 of deposits that were acquired in the Acquisition of Cecil. Brokered CDs decreased $28,889,000, from $96,955,000 at March 31, 2025, to $68,066,000 as of March 31, 2026. The Corporation used excess funds to call certain brokered deposits, to assist in managing the Corporation’s cost of funds.

As of March 31, 2026 and 2025, the total uninsured deposits of the Corporation were approximately $236,682,000 and $224,995,000, respectively or 11.5% and 11.9%, of total deposits. Total uninsured deposits is calculated based on regulatory reporting requirements and reflects the portion of any deposit of a customer at an insured depository institution that exceeds the applicable FDIC insurance coverage for that depositor at that institution and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regime.

The Deposits by major classification table, shown below, provides the balances of each category for March 31, 2026, December 31, 2025, and March 31, 2025 (in thousands):

The growth and mix of deposits is often driven by several factors including:

• Acquisition of other banks
• Convenience and service provided
• Current rates paid on deposits relative to competitor rates
• Level of and perceived direction of interest rates
• Financial condition and perceived safety of the institution
• Possible risks associated with other investment opportunities
• Level of fees on deposit products

Borrowings

Total borrowings were $181,512,000, $209,251,000, and $179,078,000 as of March 31, 2026, December 31, 2025, and March 31, 2025, respectively. Short-term borrowings with the Federal Home Loan Bank (FHLB) were $60,000,000 million as of March 31, 2026, December 31, 2025, and March 31, 2025. Long-term borrowings with the Federal Home Loan Bank (FHLB) decreased to $60,038,000 at March 31,2026 from $67,838,000 at December 31, 2025. These borrowings are used as a secondary source of funding and to assist with managing interest rate risk. As of March 31, 2026, all the borrowings of FHLB were fixed-rate loans. The Corporation continues to be well under the FHLB maximum borrowing capacity which is $782.3 million as of March 31, 2026.

In addition to the long-term advances funded through the FHLB, the Corporation has completed three separate subordinated debt offerings in 2020, 2022 and 2025. Total subordinated debt outstanding at March 31, 2026 and December 31, 2025 was $61,474,000 and $81,413,000. The purpose of the subordinated debt offerings was to fund Bank growth, as the proceeds raised are considered Tier 2 capital for the Corporation, and portions of the cash proceeds were contributed as Tier 1 capital to the Bank. Each of the notes has a fixed rate of interest for the first five years and then converts to a floating rate of interest for the last five years. After the fixed rate period, the Corporation can redeem the notes at par. In December 2025, the Corporation issued new subordinated debt with proceeds, net of costs, totaling $41,500,000. The proceeds from the notes were to partially fund the Acquisition of Cecil, and to redeem the entire 2020 issuance, which had converted to a floating rate of interest. The 2020 issuance was redeemed in the first quarter of 2026.

Stockholders’ Equity

Federal regulatory authorities require banks to meet minimum capital levels. The Corporation, as well as the Bank, as the solely owned subsidiary of the Corporation, maintains capital ratios well above those minimum levels. The risk-weighted capital ratios are calculated by dividing capital by total risk-weighted assets. Regulatory guidelines determine the risk-weighted assets by assigning assets to specific risk-weighted categories. The calculation of tier I capital to risk-weighted average assets does not include an add-back to capital for the amount of the allowance for credit losses, thereby making this ratio lower than the total capital to risk-weighted assets ratio.

The consolidated asset limit on small bank holding companies is $3 billion and a company with assets under that limit is not subject to the consolidated capital rules but may disclose capital amounts and ratios. The Corporation has elected to disclose those amounts and ratios.

The following tables reflect the capital ratios for the Corporation and Bank compared to the regulatory capital requirements.

REGULATORY CAPITAL RATIOS:

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As of March 31, 2026, the Bank’s Tier 1 Leverage Ratio stood at 9.5% while the Corporation’s Tier 1 Leverage Ratio was 7.2%. On February 1, 2026, the Corporation completed its Acquisition of Cecil Bancorp, Inc. in an all-cash transaction. The additional average assets and risk-weighted assets that Cecil contributed to combined assets was the primary reason the Corporation and Bank’s capital ratios are lower as no additional capital was issued in connection with the transaction. Additionally, intangible assets including goodwill and core deposit intangible, combined with net operating loss carryforwards are not eligible to be included in regulatory capital.

Off-Balance Sheet Arrangements

In the normal course of business, the Corporation typically has off-balance sheet arrangements related to loan funding commitments. These arrangements may impact the Corporation’s financial condition and liquidity if they were to be exercised within a short period of time. As discussed in the following liquidity section, the Corporation has in place sufficient liquidity alternatives to meet these obligations. The following table presents information on the commitments by the Corporation as of March 31, 2026 (dollars in thousands):

Supplemental Reporting of Non-GAAP measures

Management believes providing certain “non-GAAP” financial information will assist readers in their understanding of the effect on recent financial results from non-recurring charges and the impact of intangible assets on our book value per share that resulted from our recent Acquisition of Cecil.

Tangible book value per common share and impact of the merger and conversion-related expenses on net income and associated ratios, as used by the Corporation in this supplemental reporting presentation, are determined by methods other than those in accordance with generally accepted accounting principles (“GAAP”). While the Corporation’s management believes this information is a useful supplement to the GAAP-based measures reported, readers are cautioned that this non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results and financial condition as reported under GAAP, nor are such measures necessarily comparable to non-GAAP performance measures that may be presented by other companies.

The following table presents the computation of each non-GAAP based measure shown together with its most directly comparable GAAP-based measure (amounts in thousands, except per share data):

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Management’s Discussion and Analysis

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As a financial institution, the Corporation is subject to four primary market risks: Credit risk, liquidity risk, interest rate risk, and fair value risk. The Board of Directors has established an Asset Liability Management Committee (ALCO) to measure, monitor, and manage these four primary market risks. The Asset Liability Policy has instituted guidelines for all of these primary risks, as well as other financial performance measurements with target ranges. The Asset Liability goals and guidelines are consistent with the Corporation’s Strategic Plan goals.

For discussion on credit risk, refer to the sections on non-performing assets, allowance for credit losses, Note 13, and Note P to the Consolidated Financial Statements.

Liquidity

Liquidity refers to having an adequate supply of cash available to meet business needs. Financial institutions must ensure that there is adequate liquidity to meet a variety of funding needs, at an advantageous cost. Funding new loans and covering deposit withdrawals are the primary liquidity needs of the Corporation. The Corporation uses a variety of funding sources to meet liquidity needs, such as: Deposits, loan repayments, paydowns, maturities, and sales of investment securities, borrowings, and current earnings.

Management utilizes a number of important liquidity measurements that management believes have advantages over, and give better clarity to, the Corporation’s present and projected liquidity. These measurements are evaluated quarterly through the ALCO process. There are a number of key ratios measured that involve liquidity, non-core funding sources, and contingency funding with each ratio assigned a risk level of low, moderate, or high.

As of March 31, 2026, the Corporation was in the low-risk range for all of the above measurements except for one ratio that fell in the moderate-risk range: investment securities as a percentage of total assets. The investment securities as a percentage of total assets has decreased from year end 2025. While this measurement falls in management’s moderate risk level, it is related to a specific leverage strategy and was measured and documented risk that was accepted as part of a derivative strategy that enhanced net interest income.

The Corporation’s liquidity measurements are tracked and reported quarterly by management to both observe trends and ensure the measurements stay within desired ranges. Management is confident that a sufficient amount of internal and external liquidity exists to provide for unanticipated liquidity needs.

Interest Rate Risk and Fair Value Risk

Identifying the interest rate risk of the Corporation’s interest earning assets and interest-bearing liabilities is essential to managing net interest margin and net interest income. In addition to the impact on earnings, management is also concerned about how much the value of the Corporation’s assets might fall or rise given an increasing or decreasing interest rate environment. Interest rate sensitivity analysis (IRSA) measures the impact of a change in interest rates on the net interest income and net interest margin of the Corporation, while net portfolio value (NPV) analysis measures the change in the Corporation’s capital fair value, given interest rate fluctuations. Therefore, the two primary approaches to measuring the impact of interest rate changes on the Corporation’s earnings and fair value are referred to as:

• Changes in net interest income
• Changes in net portfolio value

The Corporation’s asset liability model is able to perform dynamic forecasting based on a wide range of assumptions provided. The model is flexible and can be used for many types of financial projections. The Corporation uses financial modeling to forecast balance sheet growth and earnings. The results obtained through the use of forecasting models are based on a variety of factors. Both earnings and balance sheet forecasts make use of maturity and repricing schedules to determine the changes to the Corporation’s balance sheet over the course of time.

Additionally, there are many assumptions that factor into the results. These assumptions include, but are not limited to:

• Projected interest rates
• Timing of interest rate changes
• Slope of the U.S. Treasury curve
• Spreads available on securities over the U.S. Treasury curve
• Prepayment speeds on loans held and mortgage-backed securities
• Anticipated calls on securities with call options
• Deposit and loan balance fluctuations
• Competitive pressures affecting loan and deposit rates
• Economic conditions
• Consumer reaction to interest rate changes

For the interest rate sensitivity analysis and net portfolio value analysis shown below, results are based on a static balance sheet reflecting no projected growth from balances as of March 31, 2026, and December 31, 2025. While it is unlikely that the balance sheet will not grow at all, management considers a static analysis of this sort to be the most conservative and most accurate means to evaluate fair value and future interest rate risk. The static balance sheet approach is used to reduce the number of variables in calculating the model’s accuracy in predicting future net interest income. It is appropriate to pull out various balance sheet growth scenarios, which could be utilized to compensate for a declining margin. By testing the model using a base model assuming no growth, this variable is eliminated and management can focus on predicted net interest income based on the current existing balance sheet.

As a result of the many assumptions, this information should not be relied upon to predict future results. Additionally, both of the analyses shown below do not consider any action that management could take to minimize or offset the negative effect of changes in interest rates. These tools are used to assist management in identifying possible areas of risk in order to address them before a greater risk is posed.

Changes in Net Interest Income

The changes in net interest income reflect how much the Corporation’s net interest income would be expected to increase or decrease given a change in market interest rates. The changes in net interest income shown are measured over a one-year time horizon and assume an immediate rate change on the rate sensitive assets and liabilities. This is considered the more important measure of interest rate sensitivity due to the immediate effect that rate changes may have on the overall performance of the Corporation. The following table takes into consideration when financial instruments would most likely reprice and the duration of the pricing change. It is important to emphasize that the information shown in the table is an estimate based on hypothetical changes in market interest rates.

This table shows the effect of an immediate interest rate shock over a one-year period on the Corporation's net interest income.

Base rate is the Prime rate.

As of March 31, 2026, the above analysis shows a neutral or negative impact to the Corporation’s net interest income in all rate scenarios. The Fed has cut rates in 2024 and 2025 as inflation slowed. The Corporation is now experiencing a reduction in the cost of funds on the liability side in pricing its deposits. Net interest income would decrease if rates were lower with the repricing of variable rate loans and securities moving immediately as Prime moves. The Corporation is asset sensitive in the short-term and in the long-term. The analysis above focuses on immediate rate movements, referred to as rate shocks, and measured over the course of one year.

In all of the down rates scenarios, modeled levels of net interest income improved compared to the results as of December 31, 2025. When rates do go up, most assets with the ability to reprice off a key benchmark rate will generally reprice by the full amount of the Federal Reserve’s rate movement. In the current environment, deposit rate changes have been slow and steady as the Fed has decreased rates slowly. Asset yields, however, decline at a faster pace which has resulted in the pressure on net interest income shown above. The analysis above assumes no growth of the Corporation’s balance sheet and no change in the mix of earning assets.

The assumptions and analysis of interest rate risk are based on historical experience during varied economic cycles. Management believes these assumptions to be appropriate; however, actual results could vary significantly. Management uses this analysis to identify trends in interest rate sensitivity and determine if action is necessary to mitigate asset liability risk.

Changes in Net Portfolio Value (NPV)

The change in NPV gives a long-term view of the exposure to changes in interest rates. The NPV is calculated by discounting the future cash flows to the present value based on current market rates. The NPV is the mathematical equivalent of the present value of assets minus the present value of liabilities.

The table below indicates the changes in the Corporation’s NPV as of March 31, 2026 and December 31, 2025. As part of the Asset Liability Policy, the Board of Directors has established risk measurement guidelines to protect the Corporation against decreases in the NPV and net interest income in the event of the interest rate changes described below.

As of March 31, 2026, the Corporation was within guidelines for all up-rate scenarios but was outside of guidelines for the down-300 and down-400 basis point rate scenarios. The positive impact of higher rates on both loans and securities was up from December 31, 2025. On the liability side of the Corporation’s balance sheet, the value of non-interest bearing deposit accounts only becomes more and more valuable as interest rates rise, which is reflected in NPV as a decrease in liabilities. These deposits have always been highly favorable in a rising rate environment as these balances are more valuable to the Corporation. However, with higher rates on interest bearing checking, NOW, and money market accounts, the benefit of these deposits in a rising rate environment has declined. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts increases, causing a lower net present value. This improves the modeling of the Corporation’s fair value risk as the liability amounts decrease, causing the net present value or fair value of the Corporation’s balance sheet to increase.

In 2025, deposit growth was relatively flat; however, deposit pricing was lowered throughout the year to maximize profit margins. This reduction in deposit costs resulted in an improvement in the net portfolio value in all the down rate scenarios. The much higher complement of long modeling deposits caused the changes in net portfolio value to be more exaggerated in both the up and down-rate scenarios as of March 31, 2026 and December 31, 2025.

CHANGES IN NET PORTFOLIO VALUE

This table shows the effect of an immediate interest rate shock on the net portfolio value of the Corporation's assets and liabilities. Base rate is the Prime rate.

The results as of March 31, 2026, indicate that the Corporation’s net portfolio value would experience valuation gains in all up-rate scenarios with a gain of 8.2% in the rates-up 400 basis point scenario, and gains of 8.3%, 7.3% and 4.8%, in the rates-up 300, rates-up 200 and 100 basis point scenarios, respectively. A valuation gain indicates that the value of the Corporation’s assets is declining at a slower pace than the decrease in the value of the Corporation’s liabilities. Even though the Corporation has some longer-term assets such as residential mortgages and municipal securities which show declines in value as interest rates increase further, the large balances of core deposits more than offsets this fair value exposure of the longer-term assets.

The changes in net portfolio value do show exposure in the down-rate scenarios with the 300 and 400 rate scenarios that are outside of policy guidelines. A valuation loss indicates that the value of the Corporation’s assets is declining at a faster pace than the decrease in the value of the Corporation’s liabilities. Even outside of the interest rate environment, the Corporation’s exposure to valuation changes could change going forward if the mix of the Corporation’s deposits change, which would impact the average life of those deposits. The Board of Directors monitors this policy exception on a quarterly basis, and measures the risk against expected market conditions at the time, including the likelihood of rates decreasing 300 or 400 basis points in a short period of time.

(a) Evaluation of Disclosure Controls and Procedures.

Management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer (Principal Executive Officer) and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2026, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer (Principal Executive Officer) along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure controls and procedures as of March 31, 2026, are effective to ensure that information required to be disclosed in the reports that the company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

(b) Changes in Internal Controls.

There have been no changes in the Corporation’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATION

March 31, 2026

The Corporation continually monitors the risks related to the Corporation’s business, other events, the Corporation’s Common Stock, and the Corporation’s industry. There have been no material changes in risk factors applicable to the Corporation from those disclosed in "Risk Factors" in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025.