FVCBankcorp, Inc. (FVCB)

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

The following presents management’s discussion and analysis of our consolidated financial condition at March 31, 2026 and December 31, 2025 and the results of our operations for the three months ended March 31, 2026 and 2025. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025. Results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results of operations for the balance of 2026, or for any other period. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q, as well as other periodic reports filed with the U.S. Securities and Exchange Commission (the "SEC"), and written or oral communications made from time to time by or on behalf of FVCBankcorp, Inc. and our subsidiary (the “Company”), may contain statements relating to future events or our future results that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements.

The following factors, among others, could cause the financial performance of the Company to differ materially from that expressed in such forward-looking statements:

•general business and economic conditions, including higher inflation and its impacts, nationally or in the markets that the Company serves could adversely affect, among other things, real estate valuations, unemployment levels, the ability of businesses to remain viable, consumer and business confidence, and consumer or business spending, which could lead to decreases in demand for loans, deposits, and other financial services that the Company provides and increases in loan delinquencies and defaults;

•the concentration of the Company's business in and around the Washington, D.C. metropolitan area and the effects of changes in the economic, political, and environmental conditions on this market, including shutdowns of the U.S. government and potential reductions in spending by the U.S. government and related reductions in the federal workforce;

•the impact of the interest rate environment on the Company's business, financial condition and results of operation, and its impact on the composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities;

•changes in the Company's liquidity requirements could be adversely affected by changes in its assets and liabilities;

•changes in the assumptions underlying the establishment of reserves for possible credit losses and the possibility that future credit losses may be higher than currently expected;

•the management of risks inherent in the Company's real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of loan collateral and the ability to sell collateral upon any foreclosure;

•changes in market conditions, specifically declines in the commercial and residential real estate market, volatility and disruption of the capital and credit markets, and soundness of other financial institutions that the Company does business with;

•the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve"), inflation, interest rate, market and monetary fluctuations;

•the Company's investment securities portfolio is subject to credit risk, market risk, and liquidity risk as well as changes in the estimates used to value the securities in the portfolio;

•declines in the Company's common stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to record a noncash impairment charge to earnings in future periods;

•the effect of any change in federal government enforcement of federal laws affecting the cannabis industry;

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•potential exposure to fraud, negligence, computer theft and cyber-crime, and the Company's ability to maintain the security of its data processing and information technology systems;

•the impact of changes in bank regulatory conditions, including laws, regulations and policies concerning capital requirements, deposit insurance premiums, taxes, securities, and the application thereof by regulatory bodies;

•the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board ("FASB") or other accounting standards setting bodies;

•competitive pressures among financial services companies, including the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

•the effect of acquisitions and partnerships the Company may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;

•the Company's involvement, from time to time, in legal proceedings and examination and remedial actions by regulators;

•geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, or actions taken by the United States or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; and

•the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues or emergencies, and other catastrophic events.

The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in our Annual Report on Form 10-K for the year ended December 31, 2025, including those discussed in the section entitled “Risk Factors”. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect our operations, financial condition, or results of operations.

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Overview

We are a bank holding company headquartered in Fairfax County, Virginia. Our sole subsidiary, FVCbank (the "Bank"), was formed in November 2007 as a community-oriented, locally-owned and managed commercial bank under the laws of the Commonwealth of Virginia. The Bank offers a wide range of traditional bank loan and deposit products and services to both our commercial and retail customers. Our commercial relationship officers focus on attracting small and medium sized businesses, commercial real estate developers and builders, including government contractors, non-profit organizations, and professionals. Our approach to our market features competitive customized financial services offered to customers and prospects in a personal relationship context by seasoned professionals.

Net interest income is our primary source of revenue. We define revenue as net interest income plus noninterest income. We manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely. In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit. In addition to net interest income, noninterest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, income from our minority membership interest in Atlantic Coast Mortgage ("ACM"), merchant services fee income, insurance commission income, income from bank-owned life insurance ("BOLI"), and gains and losses on sales of investment securities available-for-sale.

Critical Accounting Estimates

General

The accounting principles we apply under the accounting principles generally accepted in the United States of America ("GAAP") are complex and require management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions, and estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.

The accounting policies we view as critical are those relating to judgments, assumptions, and estimates regarding the determination of the allowance for credit losses on our loan portfolio.

Allowance for Credit Losses - Loans

We maintain the allowance for credit losses ("ACL") at a level that represents management’s best estimate of expected losses in our loan portfolio.

Accounting Standards Codification ("ASC") 326 requires that an estimate of expected credit losses be immediately recognized and reevaluated over the contractual life of the financial asset. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio. Loans, or portions thereof, are charged off against the ACL when th

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following presents management's discussion and analysis of our consolidated financial condition at December 31, 2025 and 2024 and the results of our operations for the years ended December 31, 2025 and 2024. This discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management's expectations.

Overview

We are a bank holding company headquartered in Fairfax County, Virginia. Our sole subsidiary, FVCbank, was formed in November 2007 as a community-oriented, locally-owned and managed commercial bank under the laws of the Commonwealth of Virginia. The Bank offers a wide range of traditional bank loan and deposit products and services to both our commercial and retail customers. Our commercial relationship officers focus on attracting small and medium sized businesses, commercial real estate developers and builders, including government contractors, non-profit organizations, and professionals. Our approach to our market features competitive customized financial services offered to customers and prospects in a personal relationship context by seasoned professionals.

Net interest income is our primary source of revenue. We define revenue as net interest income plus noninterest income. We manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely. In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit. In addition to net interest income, noninterest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, income from our minority membership interest in ACM, merchant services fee income, insurance commission income, income from bank owned life insurance ("BOLI"), and gains and losses on sales of investment securities available-for-sale.

Critical Accounting Estimates

General

The accounting principles we apply under GAAP are complex and require management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions, and estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.

The accounting policies we view as critical are those relating to judgments, assumptions, and estimates regarding the determination of the allowance for credit losses on our loan portfolio.

Allowance for Credit Losses - Loans

We maintain the allowance for credit losses ("ACL") at a level that represents management’s best estimate of expected losses in our loan portfolio.

Accounting Standards Codification ("ASC") 326 requires that an estimate of expected credit losses be immediately recognized and reevaluated over the contractual life of the financial asset. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio.

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Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Recoveries are recorded to the extent they do not exceed the aggregate of amounts previously charged-off.

Reserves on loans that do not share risk characteristics are evaluated on an individual basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. The remainder of the portfolio, representing all loans not evaluated individually, is segmented based on call report code and processed through a non-discounted cash flow valuation model. In particular, loan-level probability of default ("PD") and severity (also referred to as loss given default ("LGD")) is applied to derive a baseline expected loss as of the valuation date. These expected default and severity rates, which are regression-derived and based on peer historical loan-level performance data, are calibrated to incorporate our reasonable and supportable forecast of future losses as well as any necessary qualitative adjustments.

Typically, financial institutions use their historical loss experience and trends in losses for each loan segment which are then adjusted for portfolio trends and economic and environmental factors in determining the ACL. Since the Bank’s inception in 2007, we have experienced minimal loss history within our loan portfolio. Due to the fact that limited internal loss history exists to generate statistical significance, we determined it was most prudent to rely on peer data when deriving our best estimate of PD and LGD. As part of our estimation process, we will continue to assess the reasonableness of the data, assumptions, and model methodology utilized to derive our allowance for credit losses.

For each of the modeled loan segments, we generate cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates, and LGD rates. The modeling of expected prepayment speeds is based on internal loan-level historical data. For our cash flow model, we utilize national unemployment for reasonable and supportable forecasting of expected default. To further adjust the ACL for expected losses not already within the quantitative component of the calculation, we may consider qualitative factors as prescribed in ASC 326.

While our methodology in establishing the ACL attributes portions of a combined reserve to multiple elements, we believe that the combined allowance for credit losses (which is inclusive of the reserve for unfunded commitments) represents the most appropriate coverage metric for loss absorption purposes.

The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires us to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. Changes in conditions, including unforeseen events, changes in asset-specific risk characteristics, and other economic factors, both within and outside our control, may indicate the need for an increase or decrease in the ACL on loans. While we make every effort to utilize the best information available in making our assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways. Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others. Our methodology utilized in the estimation of the ACL, which is performed at least quarterly, is designed to be dynamic and responsive to changes in our loan portfolio credit quality, composition, and forecasted economic conditions. The review of the reasonableness and appropriateness of the ACL is reviewed by the ACL Committee for approval as of the valuation date. Additionally, information is provided to the Board of Directors on a quarterly basis along with our consolidated financial statements.

Credit losses are an inherent part of our business and, although we believe the methodologies for determining the ACL and the current level of the allowance are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.

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Financial Overview

For the years ended December 31, 2025 and 2024, we continued our focus on organic growth, capitalizing on new customer relationships we obtained through centers of influence and portfolio cultivation.

•Total assets increased to $2.29 billion at December 31, 2025 compared to $2.20 billion at December 31, 2024, an increase of $93.3 million.

•Total loans, net of deferred fees, increased $71.0 million, or 4%, from December 31, 2024 to December 31, 2025. Asset quality remains sound with nonperforming loans and loans past due 90 days or more as a percentage of total assets of 0.47% at December 31, 2025, compared to 0.58% at December 31, 2024.

•Total deposits increased $126.7 million or 7%, from December 31, 2024 to December 31, 2025. Noninterest-bearing deposits were $363.2 million at December 31, 2025, or 18% of total deposits. At December 31, 2025, core deposits, which exclude wholesale deposits, increased $91.6 million from December 31, 2024, or 6%.

•Net income was $22.1 million for the year ended December 31, 2025 compared to $15.1 million for 2024, an increase of $7.0 million, or 46%. During 2025, we unwound $80 million of our pay-fixed/receive floating interest rate swaps, resulting in a pre-tax gain of $91 thousand. During 2024, we surrendered $48.0 million in BOLI policies, which resulted in a nonrecurring increase of $2.4 million to our tax provisioning related to the loss of the tax favored status of prior appreciation. Commercial bank operating earnings (non-GAAP), which excludes these nonrecurring items, for the years ended December 31, 2025 and 2024 was $22.0 million and $17.4 million, respectively. For a reconciliation of this non-GAAP information which excludes the effect of these non-recurring items, please refer to the table below.

•Net interest income increased $8.2 million, or 15%, to $63.8 million for the year ended December 31, 2025 compared to $55.6 million for the year ended December 31, 2024. Interest income on loans increased $2.2 million and interest expense on deposits decreased $1.2 million for 2025 compared to 2024. Net interest margin for 2025 was 2.92% compared to 2.62% for 2024, an increase of 30 basis points, or 11%.

•The provision for credit losses totaled $1.6 million in 2025, compared to a provision for credit losses totaling $6 thousand in 2024. The increase in the provision for credit losses for 2025 was primarily a result of the increase in total loans as well as changes in the distribution of loans within the segments of our portfolio.

•Noninterest income for 2025 increased $1.1 million, or 44%, to $3.6 million for the year ended December 31, 2025, compared to $2.5 million for the year ended December 31, 2024. This increase was primarily driven by an increase in our minority investments of $871 thousand to $1.2 million for the year ended December 31, 2025.

•Noninterest expense was $37.6 million and $35.8 million for the years ended December 31, 2025 and 2024, respectively, an increase of $1.8 million, or 5%. This increase was primarily a result of an increase in salaries and benefits expense, which increased due to the filling of open positions and market adjustments to existing positions along with an increase in the incentive compensation expense for 2025.

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Reconciliation of Net Income (GAAP) to Commercial Bank Operating Earnings (Non-GAAP)

Years Ended December 31, 2025 and 2024

(Dollars in thousands, except per share data)

Below shows selected financial data for the periods ended December 31, 2025 and 2024.

Selected Financial Data

(Dollars and shares in thousands, except per share data)

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______________________

(1)Non-GAAP: Tangible book value is calculated as total stockholders' equity, less goodwill and other intangible assets, divided by common shares outstanding.

(2)Net interest margin is calculated as net interest income divided by total average earning assets.

(3)Efficiency ratio is calculated as total noninterest expense divided by the total of net interest income and noninterest income.

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Results of Operations— Years Ended December 31, 2025 and December 31, 2024

Overview

We recorded net income of $22.1 million, or $1.21 per diluted common share, for the year ended December 31, 2025, compared to net income of $15.1 million, or $0.82 per diluted common share for the year ended December 31, 2024. Included in net income for the year ended December 31, 2025 is a pre-tax gain of $91 thousand resulting from the unwind of $80 million of our pay-fixed/receive floating interest rate swaps. Net income for 2024 includes the surrender of certain BOLI policies with an aggregate cash surrender value of $48.0 million. Upon the surrender, we received a cash payout and were required to accrue additional income tax on the appreciation of those policies which had previously been treated as tax-exempt income. This resulted in additional statutory income tax expense of $1.6 million and tax penalties of $722 thousand. The tax penalties related to the surrender of the BOLI were recorded in income tax expense. The net proceeds of the BOLI surrender were reinvested in our loan portoflio. Commercial bank operating earnings (non-GAAP), which exclude gains and the taxes associated with the BOLI surrender, were $22.0 million and $17.4 million, for the years ended December 31, 2025 and 2024, respectively. Diluted commercial bank operating earnings per share (non-GAAP) for the years ended December 31, 2025 and 2024 were $1.21 and $0.95, respectively.

Net interest income increased $8.2 million, or 15%, to $63.8 million for the year ended December 31, 2025, compared to $55.6 million for the year ended December 31, 2024. For the year ended December 31, 2025, we recorded a provision for credit losses of $1.6 million compared to $6 thousand for the year ended December 31, 2024, primarily due to the increase in total loans receivable for the year ended December 31, 2025. Noninterest income totaled $3.6 million for the year ended December 31, 2025, an increase of $1.1 million, or 44%, compared to $2.5 million for 2024, which was primarily driven by income received from our minority investment in ACM totaling $1.2 million for the year ended December 31, 2025.

Noninterest expense was $37.6 million and $35.8 million for the years ended December 31, 2025 and 2024, respectively, an increase of $1.8 million, or 5%. The increase in noninterest expense was primarily a result of an increase in salaries and benefits expense, which increased $1.4 million due to the filling of open positions and market adjustments to existing positions along with an increase in the incentive compensation expense for 2025.

The return on average assets for the years ended December 31, 2025 and 2024 was 0.99% and 0.69%, respectively. The return on average equity for the years ended December 31, 2025 and 2024 was 8.99% and 6.64%, respectively.

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Net Interest Income/Margin

The following table presents average balance information, interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2025 and 2024.

Average Balances and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

Years Ended December 31, 2025 and 2024

(Dollars in thousands)

________________________

(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the periods presented. Net loan fees and late charges included in interest income on loans totaled $2.3 million and $1.9 million for the year ended December 31, 2025 and 2024, respectively.

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(2)The average balances for investment securities includes restricted stock.

The following table shows the effect of variations in the volume and mix of our assets and liabilities, as well as the changes in interest rates had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the years ended December 31, 2025 and 2024.

Rate and Volume Analysis

Years Ended December 31, 2025 and 2024

(Dollars in thousands)

_________________________

(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the years presented.

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Net interest income for the year ended December 31, 2025 was $63.8 million compared to $55.6 million for the year ended December 31, 2024, an increase of $8.2 million, or 15%. The increase in net interest income was primarily due to an increase in interest income, which increased $5.1 million, or 4%, to $118.4 million for the year ended December 31, 2025 as compared to $113.3 million for the same period of 2024. Additionally, a decrease in interest expense of $3.1 million, or 5%, for the year ended December 31, 2025 as compared to 2024, also contributed to the growth in net interest income.

Our net interest margin for the years ended December 31, 2025 and 2024 was 2.92% and 2.62%, respectively, an increase of 30 basis points, or 11%. The increase in our net interest margin was primarily a result of a decrease in the cost of our interest-bearing liabilities, which decreased 29 basis points for the year ended December 31, 2025 when compared to the same period of 2024, as we reduced the cost of our deposits simultaneously with federal funds rate decisions. In addition, the yield on our interest-earning assets increased 9 basis points to 5.43% for the year ended December 31, 2025, compared to 5.34% for the same period of 2024. Our cost of funds decreased 22 basis points to 2.78% for the year ended December 31, 2025, from 3.00% for the year ended December 31, 2024, which was primarily attributable to the repricing of our interest-bearing deposits to lower interest rates during 2025. Cost of deposits (which includes noninterest-bearing deposits) decreased 19 basis points to 2.73% for the year ended December 31, 2025, compared to 2.92% for the same period of 2024.

Average interest-earning assets increased $59.1 million, or 3%, to $2.18 billion at December 31, 2025 compared to $2.12 billion at December 31, 2024. This increase was primarily related to an increase in interest-bearing deposits held at other financial institutions, which consisted primarily of excess cash reserves maintained at the Federal Reserve. This increase in our average volume was the main driver to the increase in interest income, as average interest-bearing deposits held at other financial institutions increased $80.3 million for the year ended December 31, 2025 when compared to the same period of 2024. Interest income from deposits held at other financial institutions increased $3.1 million to $5.4 million for the year ended December 31, 2025 compared to $2.3 million for the year ended December 31, 2024. Average volume contributed $4.2 million in interest income, while the decrease in the average rate decreased interest income by $1.1 million. The yield on average interest-earning deposits decreased 85 basis points to 4.32% for the year ended December 31, 2025, primarily as a result of the Federal Reserve's Federal Open Market Committee ("FOMC") decision to decrease its targeted federal funds rate beginning September 2024.

Average loans receivable slightly decreased $7.1 million to $1.86 billion for the year ended December 31, 2025, compared to $1.87 billion for the year ended December 31, 2024. The yield on average loans increased 14 basis points to 5.85% for the year ended December 31, 2025. The increase in our average loan yields was primarily a result of originating new loans at higher interest rates and the increase in the volume of commercial and industrial loans. The average volume of loan originations contributed $2.6 million in interest income, while the decrease in the average rate reduced interest income by only $349 thousand. The average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin for 2025 and 2024.

Average investment securities decreased $14.2 million to $194.2 million for the year ended December 31, 2025, compared to $208.4 million for the year ended December 31, 2024. The decrease in average investment securities was primarily a result of principal repayments that occurred during 2025. The yield on average investment securities increased 2 basis points to 2.11% for the year ended December 31, 2025.

Total average interest-bearing liabilities increased $45.0 million to $1.60 billion at December 31, 2025 compared to $1.55 billion at December 31, 2024. Conversely, interest expense decreased $3.1 million to $54.6 million for the year ended December 31, 2025 compared to $57.7 million for the year ended December 31, 2024. The average rate on interest-bearing liabilities decreased 29 basis points to 3.42% for the year ended December 31, 2025 compared to 3.71% for the year ended December 31, 2024. The decrease in the average rate significantly reduced interest expense by $4.1 million during 2025, as average volume increased interest expense by $1.1 million.

Total average interest-bearing deposits increased $86.6 million to $1.54 billion at December 31, 2025 compared to $1.45 billion at December 31, 2024. Interest expense on deposits decreased $1.2 million to $52.0 million for the year ended December 31, 2025 compared to $53.2 million for the year ended December 31, 2024, primarily as a result of the decrease in interest rates in 2025, which decreased the cost of interest-bearing deposits 28 basis points to 3.38% for the year ended December 31, 2025, compared to 3.66% for the year ended December 31, 2024. Average noninterest-bearing deposits decreased $4.8 million, or 1%, to $363.8 million at December 31, 2025, compared to $368.6 million at

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December 31, 2024. Competition for deposits along with high interest rates resulted in customers' movement of excess funds from noninterest-bearing into interest-bearing deposit products. Average interest checking deposits increased $111.6 million to $683.1 million for the year ended December 31, 2025 compared to $571.4 million for the year ended December 31, 2024. Average savings and money market deposits increased $3.2 million to $347.5 million for the year ended December 31, 2025 compared to $344.3 million for the year ended December 31, 2024. Average time deposits decreased $6.7 million to $268.6 million for the year ended December 31, 2025 compared to $275.3 million for the year ended December 31, 2024. Average wholesale deposits decreased $21.6 million to $242.1 million for the year ended December 31, 2025 compared to $263.7 million for the year ended December 31, 2024.

Average other borrowed funds decreased $40.7 million to $39.2 million for the year ended December 31, 2025, compared to $79.9 million for the year ended December 31, 2024. Interest expense on other borrowed funds decreased $2.0 million for the year ended December 31, 2025 to $1.5 million compared to $3.5 million for the same period of 2024. The cost of other borrowed funds decreased 62 basis points to 3.75% for the year ended December 31, 2025 compared to 4.37% for the year ended December 31, 2024.

Provision Expense and Allowance for Credit Losses

Our policy is to maintain the ACL at a level that represents our best estimate of expected losses in the loan portfolio as of the valuation date. Both the amount of the provision and the level of the allowance for credit losses are impacted by many factors, including general and industry-specific economic conditions, actual and expected credit losses, historical trends and specific conditions of individual borrowers.

We recorded a provision for credit losses totaling $1.6 million and $6 thousand for the years ended December 31, 2025 and 2024, respectively. The allowance for credit losses was $18.9 million and $18.1 million at December 31, 2025 and 2024, respectively. Our allowance for credit losses on loans as a percent of total loans, net of deferred fees and costs, was 0.97% at each of December 31, 2025 and 2024.

We lend to well-established and relationship-driven borrowers which has contributed to our track record of low historical credit losses. We continue to maintain our disciplined credit guidelines during the current rate environment. We proactively monitor the impact of interest rates on our adjustable loans as the industry navigates through this economic cycle of increased inflation and higher interest rates. Nonperforming loans at December 31, 2025 totaled $10.9 million, or 0.48% of total assets, compared to $12.9 million, or 0.58%, of total assets at December 31, 2024. We had no other real estate owned at December 31, 2025 and 2024, respectively. We recorded net charge-offs of $871 thousand and $840 thousand for the years ended December 31, 2025 and December 31, 2024, respectively.

See “Asset Quality” below for additional information on the credit quality of the loan portfolio.

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Noninterest Income

The following table provides detail for noninterest income for the years ended December 31, 2025 and 2024.

Noninterest Income

Years Ended December 31, 2025 and 2024

(Dollars in thousands)

Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results. For the year ended December 31, 2025, we recorded noninterest income of $3.6 million compared to a income of $2.5 million for same period of 2024.

We recorded income from our minority membership interests totaling $1.2 million and $376 thousand for the years ended December 31, 2025 and 2024, respectively. This income is primarily attributable to our membership interest in ACM. The increase in earnings at ACM is a direct result of continued success in executing their strategic growth and geographic diversification initiatives, resulting in a 19% increase in loan originations for the year ended December 31, 2025 compared to the year ended December 31, 2024.

Fee income from loans was $220 thousand for the year ended December 31, 2025, compared to $185 thousand for the same period of 2024. Service charges on deposits were $1.2 million for the year ended December 31, 2025, compared to $1.1 million for the same period of 2024, an increase of $122 thousand, or 11%. Income from BOLI decreased to $289 thousand for the year ended December 31, 2025 compared to $397 thousand for same period of 2024, a direct result of the BOLI policies we surrendered during the first quarter of 2024.

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Noninterest Expense

The following table reflects the components of noninterest expense for the years ended December 31, 2025 and 2024.

Noninterest Expense

Years Ended December 31, 2025 and 2024

(Dollars in thousands)

Noninterest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Noninterest expense was $37.6 million and $35.8 million for the years ended December 31, 2025 and 2024, respectively, an increase of $1.8 million, or less than 5%.

Salaries and benefits expense increased $1.4 million to $20.1 million for the year ended December 31, 2025 compared to $18.8 million for the same period in 2024, which increase was due to the filling of open positions and market adjustments to existing positions along with an increase in the incentive compensation expense for 2025. Internet banking and software expense increased $461 thousand to $3.5 million for the year ended December 31, 2025, compared to $3.0 million for the same period of 2024, a result of the implementation of enhanced customer software solutions during 2025, which was offset by a decrease in data processing expenses totaling $483 thousand through negotiated contract renewals with certain service providers for the Bank completed in early 2025.

For the year ended December 31, 2025 and 2024, the provision for income taxes was $6.2 million and $7.2 million, respectively. The provision for income taxes for the year ended December 31, 2024 includes additional statutory income tax expense of $1.6 million and tax penalties of $722 thousand related to the above mentioned surrender of our BOLI policies. Our effective tax rate for December 31, 2025 was 21.9%. For the year ended December 31, 2024, excluding the additional income taxes and penalties associated with our BOLI surrender, our effective tax rate was 22.0%.

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Discussion and Analysis of Financial Condition

Overview

At December 31, 2025, total assets were $2.29 billion, an increase of $93.3 million, from $2.20 billion at December 31, 2024. Total loans, net of fees, increased $71.0 million, or 4%, to $1.94 billion at December 31, 2025 from $1.87 billion at December 31, 2024. Investment securities were $153.4 million at December 31, 2025, a decrease of $3.3 million, from $156.7 million at December 31, 2024. Total deposits increased $126.7 million, or 7%, to $2.00 billion at December 31, 2025, from $1.87 billion at December 31, 2024. From time to time, we may utilize funding sources such as federal funds purchased and FHLB advances as an additional funding source for the Bank. We had no federal funds purchased at December 31, 2025 and 2024. The Bank had no FHLB advances outstanding at December 31, 2025 compared to $50.0 million at December 31, 2024. Subordinated debt, net of unamortized issuance costs, totaled $18.8 million and $18.7 million at December 31, 2025 and 2024, respectively.

Loans Receivable, Net

Loans receivable, net of deferred fees, were $1.94 billion at December 31, 2025 and $1.87 billion at December 31, 2024, an increase of $71.0 million, or 4%.

Commercial real estate loans totaled $1.03 billion and $1.04 billion at December 31, 2025 and 2024, respectively, and were approximately 53% and 56% of the total loans receivable at such dates, respectively. Owner-occupied commercial real estate loans were $266.3 million at December 31, 2025 compared to $188.2 million at December 31, 2024. Nonowner-occupied commercial real estate loans were $766.3 million at December 31, 2025 compared to $850.1 million at December 31, 2024. Commercial construction loans totaled $153.0 million at December 31, 2025, compared to $162.4 million at December 31, 2024 and comprised of 8% and 9% of total loans receivable at such dates, respectively. Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 313% of our total risk-based capital at December 31, 2025. Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of our portfolio in a disciplined manner. We have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Additional information on the stratification of these portfolio segments can be found below under "Asset Quality".

Commercial and industrial loans increased $116.7 million to $453.4 million at December 31, 2025, an increase of 35%, from $336.7 million at December 31, 2024. The increase in commercial and industrial loans was a result of an

increase in loan originations during 2025 in addition to an increase in the our warehouse lending facility which totaled

$30.0 million at December 31, 2025 compared to $22.4 million at December 31, 2024. Consumer residential loans decreased $28.3 million to $297.0 million at December 31, 2025, from $325.3 million at December 31, 2024. The decrease in residential loans was primarily a result of principal repayments during 2025.

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The following table sets forth the repricing characteristics and sensitivity to interest rate changes to the outstanding principal balance of our loan portfolio at December 31, 2025.

Loan Maturities and Interest Rate Sensitivity

At December 31, 2025

(Dollars in thousands)

________________________

*Payments due by period are based on the repricing characteristics and not contractual maturities.

Asset Quality

Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were $10.7 million and $12.9 million at December 31, 2025 and 2024, respectively, a decrease of $2.2 million. The decrease in nonperforming loans at December 31, 2025 is primarily a result of the payoff of three loans totaling $520 thousand, one loan upgraded to pass totaling $382 thousand, and a decrease in loans past due 90 days or more and still accruing totaling $861 thousand. Loans that we have classified as nonperforming are a result of customer specific deterioration, mostly financial in nature, that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio. For each of our criticized assets, we individually evaluate each loan, generally through the performance of a collateral analysis to determine the amount of allowance required. As a result of the analysis completed, we had a reserve for individually assessed loans totaling $1.1 million and $468 thousand at December 31, 2025 and 2024, respectively. Our ratio of nonperforming loans to total assets was 0.47% and 0.58% at December 31, 2025 and 2024, respectively. We had no other real estate owned and there were no loan modifications for borrowers who were experiencing financial difficulty during the year ended December 31, 2025.

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans, and is performed on an ongoing basis as new information is obtained. At December 31, 2025, we had $47.7 million in loans identified as special mention, an increase of $44.4 million from December 31, 2024. Special mention rated loans have a potential weakness that deserves our close attention; however, the borrower continues to pay in accordance with their contractual terms, unless modified and disclosed. Loans rated as special mention are generally considered to be well-secured, and are not individually evaluated. The increase from December 31, 2024 was a result of five loans downgraded to special mention during 2025. Four of these loans are commercial real estate loans, with collateral in retail, mixed-use and multifamily, each located in Washington, D.C. Three of the four loans have executed listing agreements are currently either listed for sale or are in the process thereof. The Company expects that some of these properties will close prior to the end of the second quarter of 2026. These loans are well-secured with updated valuations as of December 31, 2025, and are not individually impaired. We believe there will be satisfactory resolution to each of these loans.

At December 31, 2025, we had $10.2 million in loans identified as substandard, a decrease of $1.0 million from December 31, 2024. Substandard rated loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, an individual analysis is completed. At

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December 31, 2025, reserves for individually assessed loans totaled $1.1 million and were allocated within the allowance for credit losses to supplement any shortfall of collateral.

At December 31, 2024, we downgraded a non-owner occupied commercial real estate loan to substandard and placed it on nonaccrual as a result of its past due status and recent poor payment history. During the assessment of our ACL for December 31, 2025, we received an updated valuation of the collateral associated with this loan, which caused its specific reserve to increase $646 thousand to $1.1 million from the prior year end.

We recorded net charge-offs of $871 thousand and $840 thousand for the years ended December 31, 2025 and 2024, respectively. Net charge-offs to average loans were 0.05% and 0.04% for the years ended December 31, 2025 and 2024, respectively. Net charge-offs for the year ended December 31, 2025 were primarily comprised of two unsecured small business loans. Each loan relationship had specific circumstances that are not indicative of any systemic issues within the Company’s loan portfolio.

The following tables provide additional information on our asset quality at the dates presented.

Nonperforming Loans and Assets

At December 31, 2025 and 2024

(Dollars in thousands)

We closely and proactively monitor the effects of recent market activity. As mentioned above, our commercial real estate loan portfolio totaled $1.03 billion, or 53% of total loans, at December 31, 2025 and $1.04 billion, or 56% of total loans, at December 31, 2024. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of the portfolio in a disciplined manner, and have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring, and administrative practices. Included in commercial real estate are loans secured by office properties totaling $149.2 million, or 8% of total loans, which are primarily located in the Virginia and Maryland suburbs of our market area, with only $1.0 million, or 0.05% of total loans, located in Washington, D.C. Loans secured by retail properties totaled $215.5 million, or 11% of total loans, at December 31, 2025, with $8.9 million, or less than 0.46% of total loans, located in Washington, D.C. Loans secured by multi-family commercial properties totaled $179.5 million, or 9% of total loans, at December 31, 2025, with $98.7 million, or 5% of total loans, located in Washington, D.C.

The following table provides further stratification of these and additional classes of commercial real estate and construction loans at December 31, 2025 (dollars in thousands).

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_________________________

(1).Loan-to-value is based on collateral valuation at origination date against current bank owned principal.

(2).Minimum debt service coverage policy is 1.30x for owner occupied and 1.25x for non-owner occupied at origination.

The loans shown in the above table exhibit strong credit quality, with one classified delinquency at December 31, 2025 totaling $10.2 million. During our assessment of the allowance for credit losses on loans, we addressed the credit risks associated with these portfolio segments and believe that as a result of our conservative underwriting discipline at loan origination and our ongoing loan monitoring procedures, we have appropriately reserved for possible credit concerns in the event of a downturn in economic activity.

Unexpected changes in economic growth could adversely affect our loan portfolio, including causing increases in delinquencies and default rates, which would adversely impact our charge-offs, allowance for credit losses, and provision for credit losses. Deterioration in real estate values, employment data and household incomes may also result in higher credit losses for us. Also, in the ordinary course of business, we may be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer. A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively impact our business, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities and industries, may not function as we have anticipated.

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See “Critical Accounting Policies” above for more information on our allowance for credit losses methodology.

The following tables present additional information pertaining to the activity in and allocation of the allowance for credit losses on loans by loan type and the percentage of the loan type to the total loan portfolio for the periods and at the dates presented. The allocation of the allowance for credit losses on loans to a category of loans is not necessarily indicative of future losses or charge-offs, and does not restrict the use of the allowance to any specific category of loans.

Allowance for Credit Losses on Loans

Years Ended December 31, 2025 and 2024

(Dollars in thousands)

Allocation of the Allowance for Credit Losses on Loans

At December 31, 2025 and 2024

(Dollars in thousands)

___________________

*Percentage of loan type to the total loan portfolio.

Investment Securities

Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale and investment securities held-to-maturity. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management, or regulatory capital management. Investment securities held-to-maturity at each of December 31, 2025 and 2024 totaled $265 thousand,

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and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was $153.2 million at December 31, 2025, a decrease of $3.3 million, or 2%, from $156.5 million at December 31, 2024, primarily due to principal repayments, calls and maturities of $16.3 million, offset by new purchases of $2.9 million, and an increase in the market value of the investment securities portfolio totaling $10.2 million at December 31, 2025.

At December 31, 2025 and 2024, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. The effective duration of the investment securities portfolio is 5.25 years, which is within the industry average. Investment securities that were pledged to secure public deposits totaled $19.4 million and $55.1 million at December 31, 2025 and 2024, respectively. There were no investment securities that were pledged to secure FRB borrowings at December 31, 2025 and December 31, 2024, respectively.

In accordance with ASC 326, we complete periodic assessments on at least a quarterly basis to determine if credit deterioration exists within our investment securities portfolio and if an allowance for credit losses would be required as of a valuation date. As a result of the assessment performed as of December 31, 2025, the investment securities with unrealized losses are a result of pricing changes due to recent rising interest rate conditions in the current market environment and not as a result of credit deterioration. Contractual cash flows for agency-backed portfolios are guaranteed and funded by the U.S. government. Municipal securities have third party protective elements and there are no negative indications that the contractual cash flows will not be received when due. We do not intend to sell nor do we believe we will be required to sell any of our investment securities portfolio prior to the recovery of the amortized cost as of the valuation date. As such, no allowance for credit losses was recognized for our investment securities portfolio as of December 31, 2025.

We hold restricted investments in equities of the FRB and FHLB. At December 31, 2025, we owned $3.6 million in FRB stock and $1.7 million in FHLB stock. At December 31, 2024, we owned $4.1 million in FRB stock and $4.0 million in FHLB stock.

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The following table presents the weighted average yields of our investment portfolio for each of the maturity ranges at December 31, 2025 and 2024.

Investment Securities by Stated Yields

At December 31, 2025 and 2024

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Deposits and Other Borrowed Funds

The following table sets forth the average balances of deposits and the percentage of each category to total average deposits for the years ended December 31, 2025 and 2024.

Average Deposit Balances

Years Ended December 31, 2025 and 2024

Total deposits increased $126.7 million, or 7%, to $2.00 billion at December 31, 2025 from $1.87 billion at December 31, 2024. Noninterest-bearing deposits were $363.2 million at December 31, 2025, or 18.2% of total deposits. Core deposits, which exclude wholesale deposits, increased $91.6 million, or 6%, to $1.71 billion at December 31, 2025, compared to $1.62 billion at December 31, 2024. Interest checking increased $117.2 million, or 19%, to $741.0 million at December 31, 2025 compared to $623.8 million at December 31, 2024. Savings and money market deposits decreased $52.0 million, or 14%, to $331.0 million at December 31, 2025 compared to $383.1 million at December 31, 2024. Time deposits increased $28.9 million, or 12%, to $277.0 million at December 31, 2025 from $248.2 million at December 31, 2024.

Wholesale deposits were $285.0 million at December 31, 2025 compared to $249.9 million at December 31, 2024, an increase of $35.1 million, or 14%. Wholesale deposits increased during 2025 as we paid off an FHLB advance totaling $50 million using excess liquidity and issued $35 million in wholesale deposits. Wholesale deposits are partially fixed with a weighted average rate of 3.58%, as we have previously executed $170 million in pay-fixed/receive-floating interest rate swaps to reduce funding costs. In addition, we are a member of the IntraFi Network (“IntraFi”), which gives us the ability to offer Certificates of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) products to our customers who seek to maximize FDIC insurance protection. When a customer places a large deposit with us for IntraFi, funds are placed into certificates of deposit or other deposit products with other banks in the CDARS and ICS networks in increments of less than $250 thousand so that principal and interest are eligible for FDIC insurance protection. These deposits are part of our core deposit base. At December 31, 2025 and 2024, we had $291.9 million and $269.6 million, respectively, in CDARS reciprocal and ICS reciprocal products.

As of December 31, 2025, the estimated amount of total uninsured deposits (excluding collateralized deposits) was $896.3 million, or 44.9%, of total deposits. The estimate of uninsured deposits generally represents the portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank's regulatory reporting requirements. When excluding collateralized deposits, our estimate of uninsured deposits decreases to $697.0 million, or 34.9% of total deposits at December 31, 2025.

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The following table reports maturities of the estimated amount of uninsured certificates of deposit at December 31, 2025.

Certificates of Deposit Greater than $250,000

At December 31, 2025

(Dollars in thousands)

We had no other borrowed funds at December 31, 2025. At December 31, 2024, we had other borrowed funds totaling $50.0 million, which were comprised only of FHLB advances. Subordinated debt, net of unamortized issuance costs, totaled $18.8 million and $18.7 million at December 31, 2025 and 2024, respectively. At December 31, 2025 and 2024, we did not have any federal funds purchased. Our FHLB advances at December 31, 2024 had pay-fixed/receive-floating interest rate swaps to reduce our funding costs, and as such, the weighted average rate of these FHLB advances are 3.60% at December 31, 2024.

Total wholesale funding (which includes wholesale deposits and FHLB advances) decreased $15.0 million, or 5%, to $285.0 million at December 31, 2025 from $300.0 million at December 31, 2024. A portion of these funds have pay-fixed/receive-floating interest rate swaps to reduce funding costs. We terminated cash flow hedges with notional amounts of $80 million and recorded a net gain of $91 thousand (which was recorded in noninterest-income) for the year ended December 31, 2025, reducing the notional amount of our interest rate swaps to $170 million at December 31, 2025.

Capital Resources

Capital adequacy is an important measure of financial stability and performance. Our objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence.

Regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profile of the financial institution. The minimum capital requirements for the Bank are: (i) CET1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total risk-based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Additionally, a capital conservation buffer requirement of 2.5% of risk-weighted assets is designed to absorb losses during periods of economic stress and is applicable to the Bank’s CET1 capital, Tier 1 capital and total capital ratios. Including the conservation buffer, we currently consider the Bank’s minimum capital ratios to be as follows: 7.00% for CET1; 8.50% for Tier 1 capital; and 10.50% for total capital. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the minimum plus the conservation buffer will face constraints on dividends, equity repurchases, and compensation.

We believe that the Bank met all capital adequacy requirements to which it was subject at December 31, 2025 and 2024.

Shareholders' equity at December 31, 2025 was $253.6 million, an increase of $18.2 million, compared to $235.4 million at December 31, 2024. Net income recorded for the year ended December 31, 2025 contributed $22.1 million to the increase in shareholders' equity. Accumulated other comprehensive loss decreased $3.7 million for the year ended December 31, 2025, primarily as a result of the increase in the market value of our investment securities portfolio. During 2025, we repurchased 572,310 shares of our common stock at a total cost of $6.7 million. All of these shares have been canceled and returned to the status of authorized but unissued.

Total shareholders' equity to total assets at December 31, 2025 and 2024 was 11.1% and 10.7%, respectively. Tangible book value per share (a non-GAAP financial measure which is defined in the table below) at December 31, 2025 and December 31, 2024 was $13.74 and $12.52, respectively.

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As noted above, regulatory capital levels for the Bank meets those established for "well capitalized" institutions. While we are currently considered "well capitalized," we may from time to time find it necessary to access the capital markets to meet our growth objectives or capitalize on specific business opportunities.

As the Company is a bank holding company with less than $3 billion in assets, and which does not (i) conduct significant off-balance sheet activities, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Exchange Act, it is not currently subject to risk-based capital requirements adopted by the Federal Reserve, pursuant to the small bank holding company policy statement. The Federal Reserve has not historically deemed a bank holding company ineligible for application of the small bank holding company policy statement solely because its common stock is registered under the Exchange Act. There can be no assurance that the Federal Reserve will continue this practice.

The following tables shows the minimum capital requirements and the Bank's capital position at December 31, 2025 and 2024.

Bank Capital Components

At December 31, 2025 and December 31, 2024

(Dollars in thousands)

________________________

(1).Includes capital conservation buffer.

Reconciliation of Book Value (GAAP) to Tangible Book Value (non-GAAP)

At December 31, 2025 and December 31, 2024

(Dollars in thousands, except per share data)

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Liquidity

Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers. We must be able to meet these needs by obtaining funding from depositors or other lenders or by converting non-cash items into cash. The objective of our liquidity management program is to ensure that we always have sufficient resources to meet the demands of our depositors and borrowers. Stable core deposits and a strong capital position provide the base for our liquidity position. We believe we have demonstrated our ability to attract deposits because of our convenient branch locations, personal service, technology and pricing. As of December 31, 2025 and 2024, estimated uninsured deposits (excluding collateralized deposits) for the Bank were 45% and 31% of total deposits, respectively.

In addition to deposits, we have access to the various wholesale funding markets. These markets include the brokered certificate of deposit market and the federal funds market. We are a member of the IntraFi Network, which allows banking customers to access FDIC insurance protection on deposits through the Bank which exceed FDIC insurance limits. As part of our membership with the IntraFi Network, we have one-way authority for both their CDARs and ICS products which provides the Bank the ability to access additional wholesale funding as needed. We also maintain secured lines of credit with the FRB and the FHLB for which we can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces our reliance on any one source for funding.

Liquid assets, which include cash and due from banks, federal funds sold and investment securities available for sale, totaled $280.8 million at December 31, 2025, or 12% of total assets, an increase from $247.4 million, or 11% of total assets, at December 31, 2024. At December 31, 2025 and 2024, investment securities available-for-sale that were pledged as collateral for municipal deposits totaled $19.4 million and $55.1 million, respectively.

Cash flow from amortizing assets or maturing assets also provides funding to meet the needs of depositors and borrowers.

Secondary Liquidity Available and In Use

At December 31, 2025

(Dollars in thousands)

________________________

(1) The Bank has pledged a portion of the commercial real estate and residential loan portfolio to the FHLB to obtain a letter of credit to secure public funds in addition to the collateral in use             for FHLB advances.

(2) The Bank has pledged a portion of the commercial and industrial loan portfolio to the FRB to secure the line of the credit.

We have established a formal liquidity contingency plan which establishes a liquidity management team and provides guidelines for liquidity management. For our liquidity management program, we first determine our current liquidity position and then forecast liquidity based on anticipated changes in the balance sheet. In this forecast, we expect to maintain a liquidity cushion. We also stress test our liquidity position under several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushion and for liquidity cushions for each stress scenario have been established. We believe that we have sufficient resources to meet our liquidity needs.

Liquidity is essential to our business. Our liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of cash, including deposits. This situation may arise due to circumstances that we may be unable to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or us. Our ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events. While we believe we have a healthy liquidity position and do not anticipate the loss of deposits of any of the significant deposit customers, any of the factors discussed above could materially impact our liquidity position in the future.

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Financial Instruments with Off-Balance-Sheet Risk and Other Contingencies

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.

The Bank’s maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. We evaluate each customer’s credit worthiness on a case-by-case basis and require collateral to support financial instruments when deemed necessary. The amount of collateral obtained upon extension of credit is based on our evaluation of the counterparty. Collateral held varies but may include deposits held by us, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates of up to one year or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These instruments represent obligations to extend credit or guarantee borrowings and are not recorded on the consolidated statements of financial condition. The rates and terms of these instruments are competitive with others in the market in which we do business.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may not be drawn upon to the total extent to which we have committed.

Standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We hold certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.

With the exception of these off-balance sheet arrangements, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, changes in financial condition, revenue, expenses, capital expenditures, or capital resources, that is material to our business.

At December 31, 2025 and 2024, unused commitments to fund loans and lines of credit totaled $225.1 million and $196.7 million, respectively. Commercial and standby letters of credit totaled $9.4 million at December 31, 2025 and $25.2 million at December 31, 2024. We record a reserve for unfunded commitments based on an estimate of future draws and applying our expected loss rates on those draws. At December 31, 2025 and 2024, our reserve for unfunded commitments totaled $471 thousand and $510 thousand, respectively.

We provide banking services to customers that are licensed to do business in the cannabis industry, primarily in Virginia, Maryland and the District of Columbia. These customers include multi-state operators, fully integrated state-wide operators, independent dispensary/cultivation licensees, as well as provisional cannabis licensees. We maintain stringent written policies and procedures related to the on-boarding of such businesses and to the monitoring and maintenance of such business accounts.

In accordance with federal regulatory guidance and industry best practices, our cannabis banking business is conducted through a comprehensive, defined, and multi-department process, which includes extensive compliance and onboarding due diligence with subsequent involvement by bank experts in cannabis in our operations, branch, treasury management, lending, and credit departments. We perform a multilayered due diligence review of a cannabis business before the business is on-boarded, including site visits and confirmation that the business is properly licensed by the state in which it is conducting business. Throughout the relationship, we continue to monitor the business, including additional site visits, to ensure that the cannabis business continues to meet strict requirements, including maintenance of required licenses. We perform periodic financial reviews of the business and monitor the business in accordance with the Bank Secrecy Act of 1970 and other state requirements.

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While we are providing banking services to customers that are engaged in growing, processing, and sales of both medical and adult use cannabis in a manner that complies with applicable state law, such customers engaged in those activities currently violate federal law. While we are not aware of any instance of a federally-insured financial institution being subject to such liability, the strict enforcement of federal laws regarding cannabis could result in our inability to continue to provide banking services to these customers and we could have legal action taken against us by the federal government. There is an uncertainty of the potential impact to our consolidated financial statements if the federal government should take action against us. As of December 31, 2025, we have not accrued an amount for the potential impact of any such actions.

The following is a summary of the level of business activities with our cannabis customers: Deposit and loan balances at December 31, 2025 were approximately $129.5 million, or 6% of total deposits, and $193.6 million, or 10% of total loans, respectively. Deposit and loan balances at December 31, 2024 were approximately $100.0 million, or 5% of total deposits, and $108.3 million, or 6% of total loans, respectively.