C & F FINANCIAL CORP (CFFI)

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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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.

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OVERVIEW

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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.

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TABLE 1: Financial Performance Highlights

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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.

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

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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.

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Capital Management and Dividends

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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.

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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.

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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.

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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.

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CRITICAL ACCOUNTING ESTIMATES

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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.

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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.

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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

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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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 Regarding Forward-Looking Statements” prior to Part I, Item 1. “Business.”

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OVERVIEW

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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:

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TABLE 1: Financial Performance Highlights

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Consolidated net income and earnings per share were $27.0 million and $8.29, respectively, for the year ended December 31, 2025, compared to $19.9 million and $6.01, respectively, for the year ended December 31, 2024.  The increase in consolidated net income for 2025 compared to 2024 was due primarily to higher net income at the community banking and mortgage banking segments, partially offset by a decrease in net income at the consumer finance segment.

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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.

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Key factors affecting comparisons for the years ended December 31, 2025 and 2024 are as follows.

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Discussion of consolidated net income and earnings per share for the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Overview” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 27, 2025, and is incorporated herein by reference.

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Capital Management and Dividends

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Total equity was $262.3 million at December 31, 2025, compared to $227.0 million at December 31, 2024.   Under regulatory capital standards, the Corporation’s tier 1 risk-based capital and total risk-based capital ratios at December 31, 2025 were 12.2 percent and 15.2 percent, respectively, compared to 11.9 percent and 14.1 percent, respectively, at December 31, 2024.

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Total consolidated equity increased $35.4 million at December 31, 2025 compared to December 31, 2024, due primarily to net income and lower unrealized losses in the market value of securities available for sale, which are recognized as a component of other comprehensive income, partially offset by dividends paid on the Corporation’s common stock. The Corporation’s securities available for sale are fixed income debt securities and their 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, decreased to $10.2 million at December 31, 2025, compared to $23.7 million at December 31, 2024 due primarily to fluctuations in debt security market interest rates and a decrease in the balance of securities available for sale in an unrealized loss position as a result of maturities, calls and paydowns.

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The Corporation’s Board of Directors continued its historical practice of paying dividends in 2025. For the year ended December 31, 2025, the Corporation declared dividends totaling $1.84 per share, compared to $1.76 per share for the year ended December 31, 2024. 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.

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In December 2023, the Board of Directors authorized a program, effective January 1, 2024 through December 31, 2024, to repurchase up to $10.0 million of the Corporation’s common stock (the 2024 Repurchase Program). During the year ended December 31, 2024, the Corporation repurchased 160,694 shares, or $7.9 million, of its common stock under the 2024 Repurchase Program.

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In December 2024, the Board of Directors authorized a program, effective January 1, 2025 through December 31, 2025, to repurchase up to $5.0 million of the Corporation’s common stock (the 2025 Repurchase Program). During the year ended December 31, 2025, the Corporation did not make any repurchases of its common stock under the 2025 Repurchase Program.

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In December 2025, the Board of Directors authorized a new 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, and shares repurchased will be returned to the status of authorized and unissued shares of common stock.

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At December 31, 2025, the book value per share of the Corporation’s common stock was $80.64, and tangible book value per share, a non-GAAP measure, was $72.60, compared to $70.00 and $61.86 respectively, at December 31, 2024.  Refer to “Use of Certain Non-GAAP Financial Measures,” below, for information about non-GAAP financial measures, including a reconciliation to the most directly comparable financial measures calculated in accordance with GAAP.

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2026 Outlook

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The current economic environment is challenging across all levels, market conditions are shifting quickly, and competition is intensifying; however, we believe our strong capital position, history of profitability, and diverse income stream sources position us well for the challenging times ahead. We remain focused on maintaining our strong balance sheet, managing margins, maintaining strong liquidity and capital positions, and pursuing disciplined growth by focusing on the following:

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We believe the Corporation’s diversified business model, including community banking, mortgage banking, and consumer finance, provides a strong foundation in times of volatility. Additional factors that could influence our financial performance in 2026 in our business segments include:

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CRITICAL ACCOUNTING ESTIMATES

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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.

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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.

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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.

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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.

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Goodwill: The Corporation’s goodwill was recognized in connection with past business combinations and is reported at the community banking segment and the consumer finance segment. The Corporation reviews the carrying value of goodwill at least annually or more frequently if certain impairment indicators exist. In testing goodwill for impairment, the Corporation may first consider qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further testing is required and the goodwill of the reporting unit is not impaired. If the Corporation elects to bypass the qualitative assessment or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the fair value of the reporting unit is compared with its carrying value to determine whether an impairment exists.

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These qualitative factors include, but are not limited to, general market, economic and business conditions; overall financial performance; reporting unit-specific performance, events or changes; and market value of the Corporation’s common stock. Several of these factors are outside of the Corporation’s control and are difficult to predict, which could have a significant impact on the qualitative assessment of the likelihood that the fair value of a reporting unit is less than its carrying amount. In the last evaluation of goodwill at the community banking segment and the consumer finance segment, which was the annual evaluation in the fourth quarter of 2025, the Corporation concluded that no impairment existed based on an assessment of qualitative factors.

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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.”

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RESULTS OF OPERATIONS

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NET INTEREST INCOME

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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 each of the years ended December 31, 2025, 2024 and 2023. 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. Accretion and amortization of fair value purchase adjustments related to business combinations are included in the computation of yields on loans and investments and on the cost of borrowings, but had no material effect.

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

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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 year-to-year 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.

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TABLE 3: Rate-Volume Recap

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Net interest income, on a taxable-equivalent basis, for 2025 increased to $107.4 million, compared to $97.9 million for 2024, due primarily to higher average balances of earning assets and an increase in net interest margin. Average earning assets grew $171.5 million, or 7.2 percent, to $2.55 billion for 2025 compared to $2.38 billion for 2024, and net interest margin increased 9 basis points to 4.21 percent in 2025 compared to 4.12 percent in 2024. Net interest margin increased due primarily to higher average interest rates on securities available for sale, a shift in the mix of interest-earning assets towards higher-earning assets and lower average interest rates on deposits, partially offset by higher average cost of borrowings. The Federal Reserve Bank decreased the target federal funds interest rate from an upper limit of 5.50 percent at December 31, 2023 to 4.50 percent at December 31, 2024 and to 3.75 percent by December 31, 2025. The yield on interest-earning assets and cost of interest-bearing liabilities increased by 7 basis points and decreased by 5 basis points, respectively, for 2025, compared to 2024.

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Average loans, which includes both loans held for investment and loans held for sale, increased $132.0 million to $2.02 billion for 2025, compared to $1.89 billion for 2024. Average loans held for investment at the community banking segment increased $138.4 million, or 10.0 percent, to $1.52 billion for 2025, compared to $1.38 billion for 2024, due primarily to growth in commercial real estate, land acquisition and development and equity lines segments of the loan portfolio. Average loans held for investment at the consumer finance segment decreased $12.3 million, or 2.6 percent, to $464.4 million for 2025, compared to $476.8 million for 2024, due primarily to a decrease in marine and recreational vehicle (RV) 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 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 primarily of loans held for sale, increased $6.0 million, or 19.5 percent, to $36.7 million for 2025, compared to $30.7 million for 2024, due primarily to higher mortgage loan production volume in 2025 compared to 2024.

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Average loan yield increased at each of the community banking, consumer finance and mortgage banking segments, however, decreased 2 basis points overall to 6.73 percent for 2025, compared to 6.75 percent for 2024, due primarily to a shift in the mix of loans from the higher-yielding consumer finance segment to the community banking segment. The community banking segment average loan yield increased 7 basis points to 5.56 percent for 2025, compared to 5.49 percent for 2024, due primarily to a shift in the mix of the loan portfolio towards higher-yielding loans and renewals of fixed rate loans originated during periods of lower interest rates. The consumer finance segment average loan yield increased 17 basis points to 10.59 percent for 2025, compared to 10.42 percent for 2024, due primarily to a shift in the mix of the loan

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portfolio with the termination of the lower-yielding marine and RV loan program and the portfolio composition in general shifting towards originations within the past three years, when interest rates were higher, as loans originated prior to that during periods of lower interest rates pay off or mature. The mortgage banking segment average loan yield increased 19 basis points to 6.36 percent for 2025, compared to 6.17 percent for 2024, due primarily to fluctuations in market interest rates.

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Average securities available for sale increased $7.6 million to $463.2 million for 2025, compared to $455.6 million for 2024, due primarily to purchases of mortgage-backed securities outpacing maturities, calls and paydowns throughout the portfolio. The average yield on the securities portfolio on a taxable-equivalent basis increased 46 basis points to 3.11 percent for 2025, compared to 2.65 percent for 2024, due primarily to purchases of securities during recent periods at higher average yields relative to the average yield of the portfolio as a whole and lower prepayment activity on mortgage-backed securities, which resulted in lower premium amortization.

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Average interest-bearing deposits in other banks, consisting primarily of excess cash reserves maintained at the Federal Reserve Bank, increased $31.8 million to $69.1 million for 2025, compared to $37.2 million for 2024. The average yield on interest-bearing deposits in other banks decreased 7 basis points to 3.62 percent for 2025, compared to 3.69 percent for 2024 due to the decrease in the federal funds interest rate beginning in September 2025.

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Average savings and money market and interest-bearing demand deposits combined increased $46.3 million to $850.7 million for 2025, compared to $804.4 million for 2024, and average noninterest-bearing demand deposits increased $20.9 million to $557.7 million for 2025, compared to $536.8 million for 2024. Average time deposits increased $85.0 million to $852.8 million for 2025, compared to $767.7 million for 2024. The average cost of interest-bearing deposits decreased 10 basis points to 2.32 percent for 2025, compared to 2.42 percent for 2024, due primarily to decreases in interest rates paid on time deposits, partially offset by an increase in the rates paid on savings and money market deposit accounts.  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.

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Average borrowings increased $1.4 million to $120.9 million for 2025, compared to $119.5 million for 2024, due primarily to higher balances of subordinated debt, partially offset by decreases in short-term borrowings. The average cost of borrowings increased 84 basis points to 4.82 percent for 2025 compared to 3.98 percent for 2024, due primarily to higher rates paid on subordinated debt.

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The Corporation believes that the effects of declining market interest rates, if continued into 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; however, the Corporation anticipates further declines in the cost of deposits due to the most recent decreases in market interest rates in September, October and December 2025. 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 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 segment and consumer finance segment, 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.

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Discussion of net interest income for the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Net Interest Income” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 27, 2025, and is incorporated herein by reference.

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NONINTEREST INCOME

TABLE 4: Noninterest Income

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Total noninterest income increased $4.1 million, or 13.4 percent, for the year ended December 31, 2025, compared to the year ended December 31, 2024 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 gains on investments held in the rabbi trust, partially offset by lower investment income from other equity interests and lower other income.

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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.

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Discussion of noninterest income for the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Noninterest Income” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 27, 2025, and is incorporated herein by reference.

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NONINTEREST EXPENSE

TABLE 5: Noninterest Expense

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Total noninterest expense increased $6.3 million, or 7.0 percent, for the year ended December 31, 2025, compared to the year ended December 31, 2024 due primarily to higher salaries and employee benefits due to higher commissions from increased volume of mortgage loan production, increased employee incentive accruals associated with improved financial performance and the addition of a seasoned lending team with the expansion into Southwest Virginia, fluctuations in deferred compensation liabilities, higher marketing and advertising expenses related to the Corporation’s strategic marketing initiative and higher data processing expenses related to investments in operational technology, partially offset by lower telecommunications expense and lower other real estate owned losses.

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

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Discussion of noninterest expense for the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Noninterest Expense” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 27, 2025, and is incorporated herein by reference.

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INCOME TAXES

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Income tax expense on 2025 earnings was $6.1 million, resulting in an effective tax rate of 18.4 percent, compared with $4.2 million, or 17.5 percent, in 2024. The Corporation’s consolidated effective tax rate for the year ended December 31, 2025 was higher compared to the year ended December 31, 2024 due primarily to lower tax benefits of tax-exempt income as a percentage of pre-tax income and higher state income taxes.

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Discussion of income taxes for the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Income Taxes” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 27, 2025 and is incorporated herein by reference.

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BUSINESS SEGMENTS

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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.

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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.

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TABLE 6: Community Banking Segment Operating Results

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Net income for the community banking segment was $27.2 million for the year ended December 31, 2025, compared to $20.3 million for the year ended December 31, 2024 due primarily to:

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partially offset by:

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Net interest income for the community banking segment increased $10.1 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 due primarily to an increase in net interest margin and higher average balances of earning assets. 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.

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Community banking segment loans, excluding loans to the consumer finance and mortgage banking segments, increased $136.7 million, or 9.4 percent, to $1.6 billion at December 31, 2025, compared to $1.5 billion at December 31, 2024, due primarily to growth in the commercial real estate, land acquisition and development and equity lines segments of the loan portfolio. Deposits increased $174.9 million, or 8.1 percent, to $2.3 billion at December 31, 2025, compared to $2.2 billion at December 31, 2024.

​

The community banking segment recorded a net reversal of provision for credit losses of $50,000 for the year ended December 31, 2025, compared to a provision for credit losses of $1.7 million for the year ended December 31, 2024.  The allowance for credit losses as a percentage of total loans decreased to 1.10 percent at December 31, 2025 from 1.20 percent at December 31, 2024. This decrease is due primarily to the resolution of a nonperforming commercial real estate loan that had carried a specific reserve and growth in loans with shorter expected lives, which resulted in lower estimated losses over the life of the loan, partially offset by growth in the loan portfolio. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

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Discussion of the community banking segment for the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Business Segments” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 27, 2025, and is incorporated herein by reference.

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

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TABLE 7: Mortgage Banking Segment Operating Results

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​

The mortgage banking segment reported net income of $2.3 million for the year ended December 31, 2025, compared to $1.1 million for the year ended December 31, 2024, due primarily to:

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partially offset by:

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

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TABLE 8: Mortgage Loan Originations

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​

Despite the sustained elevated level of mortgage interest rates, higher home prices and low levels of inventory, mortgage banking segment loan originations increased 28.9 percent for the year ended December 31, 2025, compared to the year ended December 31, 2024.  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 by 27.0 percent for the year ended December 31, 2025 compared to the year ended December 31, 2024. Locked loan commitments increased by $5.3 million in the year ended December 31, 2025 and increased by $13.1 million in the year ended December 31, 2024.  Locked loan commitments were $44.6 million at December 31, 2025, compared to $39.3 million at December 31, 2024 and $26.2 million at December 31, 2023. Mortgage loan segment originations include originations of loans sold to the community banking segment, at prices similar to those paid by third-party investors. All interest expense allocated to the mortgage banking segment is from interest expense on borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

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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 for the year ended December 31, 2025 compared to the year ended December 31, 2024, due primarily to increased mortgage loan volume in the industry, an increase in fees and types of services provided, and an increase in the number of third-party mortgage lenders serviced.

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The mortgage banking segment recorded a net reversal of provision for indemnification losses of $190,000 for the year ended December 31, 2025 compared to a net reversal of provision for indemnification losses of $460,000 for the year ended December 31, 2024. The release of indemnification reserves in 2025 and 2024 was due primarily to lower volume of mortgage loan originations in recent years, 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. The net releases in 2025 decreased compared to 2024 due primarily to the increased mortgage loan originations in 2025 compared to 2024. Management believes that the indemnification reserve is sufficient to absorb losses related to loans that have been sold in the secondary market.

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Discussion of the mortgage banking segment for the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Business Segments” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 27, 2025, and is incorporated herein by reference.

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

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TABLE 9: Consumer Finance Segment Operating Results

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​

The consumer finance segment reported net income of $1.2 million for the year ended December 31, 2025, compared to $1.4 million for the year ended December 31, 2024, due primarily to:

​

partially offset by:

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All interest expense allocated to the consumer finance segment is from interest expense on borrowings from the community banking segment. These transactions are eliminated to reach consolidated totals.

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The consumer finance segment recorded provision for credit losses of $11.6 million for each of the years ended December 31, 2025 and 2024. The allowance for credit losses as a percentage of total loans was 4.79 percent at December 31, 2025 compared to 4.86 percent at December 31, 2024. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected. If loan performance deteriorates resulting in further elevated delinquencies or net charge-offs, the provision for credit losses may increase in future periods.

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Discussion of the consumer finance segment for the year ended December 31, 2023 has been omitted as such discussion was provided in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of

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Operations,” under the heading “Business Segments” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 27, 2025, and is incorporated herein by reference.

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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. The allowance for credit losses 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. Loans that share common risk characteristics are evaluated collectively using a discounted cash flow approach for all loans except for overdraft balances, which are evaluated using a loss rate approach.  The discounted cash flow approach used by the Corporation utilizes loan-level cash flow projections and pool-level assumptions.

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For commercial (except for loans to states and political subdivisions) and consumer loans, cash flow projections and estimated expected losses are based in part on forecasts of the national unemployment rate that are reasonable and supportable and external observations of historical loan losses. 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. Cash flow projections and estimated expected losses for loans to states and political subdivisions are based on external loss observations for state and municipal debt obligations. For consumer finance loans, cash flow projections and estimated expected losses reflect historical average loss experience based on internal observations for automobile loans and based on external loss observations for marine and RV loans.

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Management’s estimate of the allowance for credit losses on loans that are collectively evaluated also includes a qualitative assessment of available information relevant to assessing collectability that is not captured in the loss estimation process. Factors considered by management include changes and expected changes in general market, economic and business conditions; the nature and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances and the value of underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.  The evaluation also considers the following risk characteristics that are inherent in the loan portfolio:

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Allowance for Credit Losses Methodology – Commercial and Consumer. The review process generally begins with management assigning loan ratings to individual loans and identifying problem loans to be reviewed on an individual basis. This review of individual loans is limited to those loans that have specific risk characteristics not shared by other loans or that may result in significant losses to the Corporation, while all other loans, which may include delinquent loans and loans classified as special mention or substandard, are evaluated collectively in pools that share common risk characteristics. The allowance for loans that are individually evaluated may be estimated based on their expected cash flows, or, in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated costs to sell. For these collateral dependent loans, we obtain an updated appraisal if we do not have a current one on file.  Appraisals are performed by independent third party appraisers with relevant industry experience.  We may make adjustments to the appraised value based on recent sales of similar properties or general market conditions when appropriate.

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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:

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​

​

​

​

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Allowance for Credit Losses Methodology – Consumer Finance. Cash flow projections and estimated expected losses reflect historical average loss experience based on internal observations for auto loans and based on external loss observations for marine and RV loans. Automobile loans are evaluated in pools of loans that share the same internal credit rating based on borrowers’ credit scores at origination. The Corporation utilizes credit scores based on the methods developed and defined by the Fair Isaac Corporation (FICO) as a key indicator of the risk of loss to manage the portfolio

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and estimate the allowance for credit losses. A FICO Score is a three-digit number based on the information in an applicant’s credit reports. It helps lenders determine how likely an applicant is to repay a loan. This, in turn, affects the loan amount that may be approved, repayment terms, and interest rate. The Corporation obtains FICO Scores in the credit reports provided by the car dealers that accept the consumer auto loan application, which may have been generated by any of the three major credit reporting bureaus, and also independently obtains a credit report on the borrower directly from Experian or Transunion. The Corporation utilizes an industry-specific FICO Score which is optimized for automobile credit products. Consumer finance loans are assigned a credit rating based on borrowers’ credit scores at the time of origination and are categorized within ranges of credit ratings used internally that parallel FICO Score rating bands. 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 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:

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​

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In accordance with its policies and guidelines and consistent with industry practices, the consumer finance segment, at times, offers payment deferrals, whereby the borrower is allowed to move up to two payments within a twelve-month rolling period to the end of the loan. A fee will be collected for extensions only in states that permit it. An account for which all delinquent payments are deferred is classified as current at the time the deferment is granted and therefore is not included as a delinquent account. Thereafter, such an account is aged based on the timely payment of future installments in the same manner as any other account. We evaluate the results of this deferment strategy based upon the amount of cash installments that are collected on accounts after they have been deferred versus the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, we believe that payment deferrals granted according to our policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections. Payment deferrals may affect the ultimate timing of when an account is charged off. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the allowance for credit losses and related provision for credit losses.

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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.

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TABLE 10: Allowance for Credit Losses

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​

​

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

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For further information regarding the adequacy of our allowance for credit losses, refer to “Nonperforming Assets” and the accompanying disclosure below within this Item 7.

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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.

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TABLE 11: Allocation of Allowance for Credit Losses

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​

​

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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 December 31, 2025, 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.

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TABLE 12: Reserve for Unfunded Commitments

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​

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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:

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TABLE 13: Provision for Credit Losses

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TABLE 14: Credit Quality Indicators

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

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Loans by credit quality indicators as of December 31, 2024 were as follows:

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Nonperforming Assets

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A loan’s past due status is based on the contractual due date of the most delinquent payment due.  Loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Any accrued interest receivable on loans placed on nonaccrual status is reversed by an adjustment to interest income. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on nonaccrual status, payments are first applied to principal outstanding.  A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed. These policies are applied consistently across our loan portfolio.

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Assets acquired through, or in lieu of, foreclosure are held for sale and are initially recorded at fair value less estimated costs to sell at the date of foreclosure. Initial fair value is based upon appraisals the Corporation obtains from independent licensed appraisers. Subsequent to foreclosure, management periodically performs valuations of the foreclosed assets based on updated appraisals, general market conditions, recent sales of similar properties, length of time the properties have been held, and our ability and intent with regard to continued ownership of the properties. We may incur additional write-downs of foreclosed assets to fair value less estimated costs to sell if valuations indicate a further deterioration in market conditions. Revenue and expenses from operations and changes in the property valuations are included in net expenses from foreclosed assets and improvements are capitalized.

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At the consumer finance segment, the repossession process is generally initiated after a loan becomes more than 60 days delinquent. Borrowers have an opportunity to redeem their repossessed vehicles by paying all outstanding balances, including finance charges and fees. Vehicles that are not redeemed within the prescribed waiting period before the Corporation has the legal right to sell the repossessed vehicle then become available-for-sale at the end of that period and are reclassified from loans to other assets and are recorded initially at fair value less estimated costs to sell. The difference between the carrying amount of each loan and the fair value of the vehicle (i.e. the deficiency) is charged against the allowance for credit losses.  Accounts still in process of collection or for which the Corporation does not have the legal right to sell continue to be classified as loans until such legal authority is obtained. After the vehicles have been sold in third-party auctions, we credit the proceeds from the sale of the vehicles, and any other recoveries, to the carrying value of the repossessed vehicles. The Corporation pursues collection of deficiencies, as allowed by state law, when it deems such action to be appropriate.

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Table 15 summarizes the Corporation’s credit ratios on a consolidated basis and Table 16 summarizes nonperforming assets by principal business segment as of December 31, 2025 and 2024.  The mortgage banking segment did not have any nonperforming assets as December 31, 2025 or 2024.

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TABLE 15: Consolidated Credit Ratios

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TABLE 16: Nonperforming Assets

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Community Banking Segment

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Consumer Finance Segment

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The following table presents the changes in the OREO balance for the years ended December 31, 2025 and 2024.

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TABLE 17: OREO Changes

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The community banking segment’s nonaccrual loans were $1.1 million at December 31, 2025 compared to $333,000 at December 31, 2024. The increase in nonaccrual loans compared to December 31, 2024 is due primarily to the downgrade of one residential mortgage relationship in the first quarter of 2025. If interest on loans on nonaccrual at December 31, 2025 had been recognized throughout the year, the community banking segment would have recorded additional gross interest income in 2025 of $76,000. OREO activity for the year ended December 31, 2024 related to properties previously used by the Bank as branches, which were consolidated into nearby branches. The community banking segment recorded $50,000 in net reversals in provision for credit losses for the year ended December 31, 2025, compared to $1.7 million for the year ended December 31, 2024. At both December 31, 2025 and 2024, the allowance for credit losses was $17.4 million. At December 31, 2025, the allowance for credit losses decreased to 1.10 percent of total

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loans, compared to 1.20 percent at December 31, 2024, due primarily to the resolution of a nonperforming commercial real estate loan that had carried a specific reserve and growth in loans with shorter expected lives, which resulted in lower estimated losses over the life of the loan, partially offset by growth in the loan portfolio. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

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Nonaccrual loans at the consumer finance segment increased to $1.0 million at December 31, 2025 from $614,000 at December 31, 2024. 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 December 31, 2025, repossessed vehicles at fair value less estimated costs to sell included in other assets totaled $937,000, compared to $779,000 at December 31, 2024. If interest on loans on nonaccrual at December 31, 2025 had been recognized throughout the year, the consumer finance segment would have recorded additional gross interest income in 2025 of $8,000.

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The consumer finance segment experienced net charge-offs at a rate of 2.59 percent of average total loans for the year ended December 31, 2025, compared to 2.62 percent for the year ended December 31, 2024. At December 31, 2025, total delinquent loans as a percentage of total loans was 4.38 percent, compared to 3.90 percent at December 31, 2024. The allowance for credit losses was $22.3 million at December 31, 2025, compared to $22.7 million at December 31, 2024. The allowance for credit losses as a percentage of total loans decreased to 4.79 percent at December 31, 2025, compared to 4.86 percent at December 31, 2024 due primarily to changes in qualitative model adjustments primarily related to the relative stabilization of collateral values during 2025. Management believes that the level of the allowance for credit losses is adequate to reflect the net amount expected to be collected.

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As previously described, the consumer finance segment, at times, offers payment deferrals as a portfolio management technique to achieve higher ultimate cash collections on select loan accounts. Payment deferrals may affect the ultimate timing of when an account is charged off. 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.  The average amounts deferred of automobile loans on a monthly basis, which are not included in delinquent loans, during 2025 were 1.97 percent of average automobile loans outstanding, compared to 1.80 percent during 2024 and 1.87 percent during 2023.

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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.

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As the consumer finance segment’s customers include non-prime borrowers, the anticipated rates of delinquencies, defaults, repossessions and losses on the consumer finance loans 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 the consumer finance segment manages the higher risk inherent in loans made to “non-prime” borrowers through its underwriting criteria, portfolio management and collection methods, no guarantees can be made 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

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purchased and the level of credit losses experienced has decreased relative to long-term historical averages. No assurances can be made that the consumer finance segment’s net charge-off ratio will not increase 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.

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FINANCIAL CONDITION

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SUMMARY

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A financial institution’s primary sources of revenue are generated by its earning assets and sales of financial assets, while its major expenses are produced by the funding of those assets with interest-bearing liabilities, provisions for credit losses and compensation to employees.  Effective management of these sources and uses of funds is essential in attaining a financial institution’s maximum profitability while maintaining an acceptable level of risk.

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At December 31, 2025, the Corporation had total assets of $2.77 billion compared to $2.56 billion at December 31, 2024. The increase was attributable primarily to increases in loans held for investment, available for sale securities and loans held for sale and was funded by growth in deposits. The significant components of the Corporation’s Consolidated Balance Sheets are discussed below.

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LOAN PORTFOLIO

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General

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Through the community banking segment, we engage in a wide range of lending activities, primarily in the community banking segment’s market area, which include the origination of commercial real estate loans, commercial business loans, commercial and consumer real estate construction loans, land acquisition and development loans, builder lines, residential mortgage loans, equity lines, and other consumer loans. We engage in automobile lending through the consumer finance segment, which also has a marine and RV portfolio that is expected to run off over the next several years as scheduled borrower payments are made on the existing loans, and in residential mortgage lending through the mortgage banking segment with the majority of the loans originated through the mortgage banking segment sold to third-party investors. At December 31, 2025, the Corporation’s loans held for investment in all categories, net of the allowance for credit losses, totaled $2.01 billion and loans held for sale had a fair value of $40.9 million.

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Credit Policy

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The Corporation’s credit policy establishes minimum requirements and provides for appropriate limitations on overall concentration of credit within the Corporation. The policy provides guidance in general credit policies, underwriting policies and risk management, credit approval, and administrative and problem asset management policies. The overall goal of the Corporation’s credit policy is to ensure that loan growth is accompanied by acceptable asset quality with uniform and consistently applied approval, administration, and documentation practices and standards.

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Residential Mortgage – Held for Sale

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The mortgage banking segment’s guidelines for underwriting conventional conforming loans comply with the underwriting criteria established by Fannie Mae, Freddie Mac and/or the applicable third party investor. The guidelines for non-conforming conventional loans are based on the requirements of private investors and information provided by third-party investors. The guidelines used by the mortgage banking segment to originate FHA-insured, USDA-guaranteed and VA-guaranteed loans comply with the criteria established by HUD, the USDA, the VA and/or the applicable third party investor. The conventional loans that the mortgage banking segment originates that have loan-to-value ratios greater than 80 percent at origination are generally insured by private mortgage insurance.

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Commercial Real Estate

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The community banking segment’s commercial real estate loans are primarily secured by the value of real property. The proceeds of commercial real estate loans are generally used by the borrower to finance or refinance the cost of acquiring and/or improving a commercial property. The properties that typically secure these loans are office and warehouse facilities, hotels, apartment complexes, retail facilities, restaurants, residential investment properties and other commercial properties. Commercial real estate loans may be made to borrowers who will occupy or use the financed property in connection with their normal business operations or to borrowers who will use the subject property to generate rental income. Loans secured by non-owner-occupied properties are made when the borrower is in strong financial condition and oftentimes the borrower has substantially pre-leased the property to high-caliber tenants.

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Our commercial real estate loans are usually amortized over a period of time ranging from 15 years to 30 years and usually have a term to maturity ranging from 5 years to 15 years, with fixed rates of interest typically for periods of up to ten years. The maximum loan-to-value ratio for a commercial real estate loan is 80 percent; however, this maximum can be waived for particularly strong borrowers on an exception basis. Most commercial real estate loans are further secured by one or more personal guarantees.  We believe these loan terms provide some protection from changes in the borrower’s business and income as well as changes in general economic conditions. In the case of fixed-rate commercial real estate loans, shorter maturities also provide an opportunity to adjust the interest rate on this type of interest-earning asset in accordance with our asset and liability management strategies. Certain commercial customers qualify for participation in an interest rate swap program.  This program provides flexible pricing structures for our larger borrowers who wish to pay a fixed rate of interest, while preserving a floating rate for the Bank, which protects the Corporation from exposure to rising interest rates.

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Loans secured by commercial real estate are generally larger and involve a greater degree of risk than residential mortgage loans. Because payments on loans secured by commercial real estate are usually dependent on successful operation or management of the properties securing such loans, repayment of such loans is subject to changes in both general and local economic conditions and the borrower’s business and income. As a result, events beyond our control, such as a downturn in the local economy, could adversely affect the performance of the commercial real estate loan portfolio. We seek to minimize these risks by lending to established customers and generally restricting our commercial real estate loans to our primary market area. Emphasis is placed on the income producing characteristics and quality of the collateral.

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Commercial Business

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The community banking segment’s commercial business loan products include revolving lines of credit to provide working capital, term loans to finance the purchase of vehicles and equipment, letters of credit to guarantee payment and performance, and other commercial loans. In general, these credit facilities carry the unconditional guaranty of the owners and/or stockholders.

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Revolving and operating lines of credit are typically secured by all current assets of the borrower, provide for the acceleration of repayment upon any event of default, are monitored to ensure compliance with loan covenants, and are typically re-underwritten or renewed annually. Interest rates generally will float at a spread tied to the prime lending rate. Term loans are generally advanced for the purchase of, and are secured by, vehicles and equipment and are normally fully amortized over a term of two to seven years, on either a fixed or floating rate basis.

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Construction Lending – Commercial Real Estate and Consumer Real Estate

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The community banking segment has a real estate construction lending program, which includes loans primarily for the construction of one-to-four family residences and, to a lesser extent, multi-family dwellings. The community banking segment also makes construction loans for office and warehouse facilities and other nonresidential projects, generally limited to borrowers that present other business opportunities for the community banking segment.

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The amounts, interest rates and terms for construction loans vary, depending upon market conditions, the size and complexity of the project, and the financial strength of the borrower and any guarantors of the loan. The term for a typical construction loan ranges from 12 months to 15 months for the construction of an individual residence and from 15 months to a maximum of 3 years for larger residential or commercial projects. We do not typically amortize construction loans, and the borrower pays interest monthly on the outstanding principal balance of the loan. The community banking segment offers fixed and variable interest rates on construction loans. For residential builder loans, we limit the number of models and/or speculative units allowed depending on market conditions, the builder’s financial strength and track record and other factors. Generally, the maximum loan-to-value ratio for one-to-four family residential construction loans is 80 percent of the property’s fair market value, or 90 percent of the property’s fair market value if the property will be the borrower’s primary residence. The fair market value of a project is determined on the basis of an appraisal of the project conducted by an appraiser approved by the Bank. For larger projects where unit absorption or leasing is a concern, we may also obtain a feasibility study or other acceptable information from the borrower or other sources about the likely disposition of the property following the completion of construction.

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Construction loans for nonresidential projects and multi-unit residential projects are generally larger and involve a greater degree of risk than residential mortgage loans. We attempt to minimize such risks (1) by making construction loans in accordance with our underwriting standards and to established customers in our primary market area and (2) by monitoring the quality, progress and cost of construction. Generally, our maximum loan-to-value ratio for non-residential projects and multi-unit residential projects is 80 percent; however, this maximum can be waived for particularly strong borrowers on an exception basis.

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The community banking segment makes loans to individuals for the purpose of acquiring an unimproved building site for the construction of a residence that generally will be occupied by the borrower. These loans are made only to individual borrowers and typically have a maximum term of either three or five years with a balloon payment of the entire balance of the loan being due in full at the end of the initial term. The interest rate for these loans is fixed at a rate that is slightly higher than prevailing rates for one-to-four family residential mortgage loans. We do not believe these loans bear as much risk as land acquisition and development loans because such loans are not made for the construction of residences for immediate resale, are not made to developers and builders, and are not concentrated in any one subdivision or community.

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Land Acquisition and Development

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The community banking segment makes land acquisition and development loans to builders and developers for the purpose of acquiring unimproved land to be developed for residential building sites, residential housing subdivisions, multi-family dwellings and a variety of commercial uses. Our policy is to make land acquisition loans to borrowers for the purpose of acquiring developed lots for single-family, townhouse or condominium construction. We will make both land acquisition and development loans to residential builders, experienced developers and others in strong financial condition to provide additional construction and mortgage lending opportunities for the Corporation.

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We underwrite and process land acquisition and development loans in much the same manner as commercial construction loans and commercial real estate loans. For land acquisition and development loans, we use lower loan-to-value ratios, which are a maximum of 65 percent for raw land, 75 percent for land development and improved lots and 80 percent of the discounted appraised value of the property as determined in accordance with the appraisal policies for developed lots for single-family or townhouse construction. We can waive the maximum loan-to-value ratio for particularly strong borrowers on an exception basis. The term of land acquisition and development loans typically range from a maximum of two years for loans relating to the acquisition of unimproved land to, generally, a maximum of three years for other types of projects. All land acquisition and development loans generally are further secured by one or more personal guarantees. Because these loans are usually larger in amount and involve more risk than consumer lot loans, we carefully evaluate the borrower’s assumptions and projections about market conditions and absorption rates in the community in which the property is located and the borrower’s ability to carry the loan if the borrower’s assumptions prove inaccurate.

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Builder Lines

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The community banking segment offers builder lines of credit to residential home builders to support their land and lot inventory needs. A construction loan facility for a builder will typically have an expiration of 24 months or less. Each loan that is made under the master loan facility will have a stated maturity that allows time for the residential unit to be constructed and sold to a homebuyer under prevailing market conditions. Specific terms vary based on the purpose of the loan (e.g., lot inventory, spec or non pre-sold units, pre-sold units) and previous sales activity to new homebuyers in the particular development. Repayment relies upon the successful performance of the underlying residential real estate project. This type of lending carries a higher level of risk related to residential real estate market conditions, a functioning first and secondary market in which to sell residential properties, and the borrower’s ability to manage inventory and run projects. We manage this risk by lending to experienced builders and by using specific underwriting policies and procedures for these types of loans.

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Residential Mortgage – Held for Investment

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The community banking segment originates residential mortgage loans secured by first and second liens on properties located in its primary market areas in Virginia. Various types of residential first mortgage loans in addition to traditional long-term, fixed-rate loans are offered. The majority of such loans include 10, 15 and 30 year amortizing mortgage loans with fixed rates of interest. Second mortgage loans are offered with fixed and adjustable rates. Second mortgage loans are granted for a fixed period of time, usually between 5 and 15 years.  Additionally, the community banking segment purchases residential mortgage loans from the mortgage banking segment under terms and conditions similar to third-party investors.

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Equity Lines

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The community banking segment offers its customers home equity lines of credit that enable customers to borrow funds secured by the equity in their homes. Currently, home equity lines of credit are offered with adjustable rates of interest that are generally priced at a spread to the prime lending rate. Home equity lines of credit are made on an open-end, revolving basis. Home equity lines of credit generally do not present as much risk as other types of consumer loans. These lines of credit must satisfy our underwriting criteria, including loan-to-value and credit score guidelines.

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Other Consumer

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The community banking segment offers a variety of consumer loans, including automobile, personal secured and unsecured, and loans secured by savings accounts or certificates of deposit. The shorter terms and generally higher interest rates on consumer loans help the community banking segment maintain a profitable spread between its average loan yield and its cost of funds. Consumer loans secured by collateral other than a personal residence generally involve more credit risk than residential mortgage loans because of the type and nature of the collateral or, in certain cases, the absence of collateral. However, we believe the higher yields generally earned on such loans compensate for the increased credit risk associated with such loans.  These loans must satisfy our underwriting criteria, including loan-to-value, debt ratio and credit score guidelines. This loan category also includes demand deposit overdrafts.

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Indirect Automobiles

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The consumer finance segment has an extensive automobile dealer network through which it purchases installment contracts throughout its markets. Credit approval is centralized, which along with the application processing system, ensures that contract purchase decisions comply with the consumer finance segment’s underwriting policies and procedures.

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Finance contract application packages completed by prospective borrowers are submitted by the automobile dealers electronically through multiple third-party online automotive sales and finance platforms to the consumer finance segment’s automated origination and application system, which processes the credit bureau report, generates all relevant loan calculations and displays the requested contract structure. Consumer finance segment personnel with credit authority

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review the transaction and determine whether to approve or deny the purchase of the contract. The purchase decision is based primarily on the applicant’s credit history with emphasis on prior auto loan history, current employment status, income, collateral type and mileage, and the loan-to-value ratio.

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The consumer finance segment’s underwriting and collateral guidelines form the basis for the purchase decision. Exceptions to credit policies and authorities must be approved by a designated credit officer. The consumer finance segment’s automobile customers are both prime and non-prime and as such, some customers may have experienced prior credit difficulties. Because the consumer finance segment serves some customers who are unable to meet the credit standards imposed by traditional automobile financing sources, we expect the consumer finance segment to sustain a higher level of credit losses in the automobile portfolio than traditional financing sources. However, in those cases, the consumer finance segment purchases these contracts with interest rates higher than those charged by traditional financing sources. These higher rates should more than offset the increase in the provision for credit losses for this segment of the Corporation’s loan portfolio.

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Indirect Marine and Recreational Vehicles

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In addition to purchasing automobile contracts through a dealer network, the consumer finance segment purchased marine and RV contracts, also on an indirect basis, through a third-party provider until they 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. While the approval process was generally the same as the indirect automobile approval process described above, borrowers on marine and RV contracts purchased by the consumer finance segment have typically not had prior credit issues and these contracts are considered prime.  The rates charged on these loans were significantly less than the automobile portfolio with a much lower expected level of credit losses.

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Tables 18, 19 and 20 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.

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TABLE 18: Summary of Loans Held for Investment

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The increase in total loans from December 31, 2024 to December 31, 2025 was due primarily to growth in commercial real estate, land acquisition and development and equity lines segments of the loan portfolio at the community banking segment.

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TABLE 19: Commercial Real Estate and Construction Commercial Real Estate Loans

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