John Marshall Bancorp, Inc. (JMSB)

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

The following discussion and analysis of the consolidated financial condition and results of operations of the Company and its subsidiary should be read in conjunction with the consolidated financial statements and related notes presented in Item 1, Financial Statements, of this Form 10-Q. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate results of operations or trends in operations for any future periods.

Use of Non-GAAP Financial Measures

This discussion and analysis contains financial information determined by methods other than in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Management believes that the supplemental non-GAAP information provides a better comparison of period-to-period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. The non-GAAP measure used in this report is tax-equivalent net interest income.

These disclosures should not be viewed as a substitute for or more important than financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Where the non-GAAP financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure, can be found within this discussion and analysis.

Cautionary Note on Forward-Looking Statements

In addition to historical information, this Form 10-Q of John Marshall Bancorp, Inc. (the “Company”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “should,” “may,” “view,” “opportunity,” “potential,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. These forward-looking statements are based on our beliefs and assumptions and on the information available to us at the time that these disclosures were prepared, and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by such forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are reasonable, we can give no assurance such expectations will prove to have been correct. Should any known or unknown risks and uncertainties develop into actual events, those developments could have material adverse effects on our business, financial condition and results of operations. Factors that could have an adverse effect on the operations of the Company and its wholly-owned subsidiary, John Marshall Bank (the “Bank”), include, but are not limited to, the following:

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These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary note.

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Overview

We are a bank holding company headquartered in Reston, Virginia primarily serving the Washington, D.C. metropolitan area. The material business operations of our organization are performed through the Bank. As a result, the discussion and analysis within this section primarily relate to activities conducted at the Bank.

As with most community banks, the Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. To account for credit risk inherent in all loans, the Bank maintains an allowance for loan credit losses to absorb lifetime losses on existing loans. The Bank establishes and maintains this allowance by recording a provision for credit losses against earnings. In addition to net interest income, the Bank also generates income through service charges on deposits, insurance commission income, merchant services fee income, swap fee income and gain on sale of the guaranteed portion of U.S. Small Business Administration (“SBA”) 7(a) loans. In order to maintain its operations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section.

As of March 31, 2026, the Company had total consolidated assets of $2.35 billion, total loans net of unearned income of $1.97 billion, total deposits of $1.99 billion and total shareholders’ equity of $268.1 million.

Critical Accounting Policies and Estimates

The Company’s accounting and reporting policies conform to GAAP, as well as general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.

Our most significant accounting policies are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results

[Excerpt truncated for page length; source filing is linked above.]

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

The following discussion and analysis of the consolidated financial condition and results of operations of the Company and its subsidiary should be read in conjunction with the consolidated financial statements and related notes presented in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not be indicative of results of operations or trends in operations for any future periods.

Use of Non-GAAP Financial Measures

This discussion and analysis contains financial information determined by methods other than in accordance with GAAP. Management believes that the supplemental non-GAAP information provides a better comparison of period-to-period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. Non-GAAP measures used in this report consist of tax-equivalent net interest income and net interest margin.

These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Where the non-GAAP financial measure is used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure, a statement of the company’s reasons for utilizing the non-GAAP financial measure, can be found within this discussion and analysis.

Overview

John Marshall Bancorp, Inc. is a bank holding company headquartered in Reston, Virginia primarily serving the Washington, D.C. metropolitan area. The material business operations of the Company are performed through its only subsidiary, John Marshall Bank. As a result, the discussion and analysis within this section primarily relate to activities conducted at the Bank.

As with most community banks, the Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. To account for credit risk inherent in all loans, the Bank maintains an allowance for loan credit losses to absorb lifetime losses on existing loans. The Bank establishes and maintains this allowance by recording a provision for loan credit losses against earnings. In addition to net interest income, the Bank also generates income through service charges on deposits, insurance commission income, merchant services fee income, swap fee income and gain on sale of the guaranteed portion of U.S. Small Business Administration (“SBA”) 7(a) loans.

Net income for the year ended December 31, 2025 was $21.2 million ($1.49 per diluted common share) compared to $17.1 million ($1.20 per diluted common share) for the year ended December 31, 2024, representing a 24.0% and 24.2% increase in net income and earnings per diluted common share, respectively. The increase during 2025 was driven by a $9.5 million increase in net interest income, which was partially offset by a $2.1 million increase in provision for credit losses and a $1.8 million increase in non-interest expense. The increase in net interest income was driven primarily by the decrease in

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rates of interest-bearing deposits coupled with increases in average balances and yields of the loan portfolio. The net interest margin for the twelve months ended December 31, 2025 was 2.68% as compared to 2.28% for the same period in the prior year. An improvement in net interest margin during the current year was attributable to management’s proactive approach in repricing deposits concurrently with each of the three federal funds rate cuts totaling 75 basis points since September 2025 through December 2025. Higher provision for credit losses during the twelve months ended December 31, 2025 was primarily a result of the growth in the loan portfolio and the related changes in the portfolio mix, coupled with the impact of the charge-off of the unguaranteed portion of one commercial business SBA 7(a) loan during the fourth quarter of 2025 and management’s assessment of the qualitative adjustments reflecting changing local economic conditions monitored throughout the year. An increase in non-interest expense during the current year as compared to the prior year was primarily attributable to an increase in salaries and employee benefits, which was mainly associated with the higher headcount within the Company and an increase in incentive compensation tied to the Company’s operating performance. The investments made to expand the headcount during the current year are expected to contribute to the future growth of the Company and subsequent increases in revenues. The increase in incentive compensation reflected the 24% year-over-year increase in net income and the fact that the Company’s operating performance for 2025 exceeded the budget and strategic plan.

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The results for 2025 reflect the following:

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At December 31, 2025, the allowance for credit losses was $19.8 million or 1.00% of outstanding loans compared to $18.7 million or 1.00% of outstanding loans at the end of 2024. The increase in the allowance during the year compared to the previous year was primarily driven by the growth of the loan portfolio along with management’s adjustments of qualitative factors related to economy and loan portfolio concentrations. As of December 31, 2025, the Company had no non-accrual loans and no other real estate owned assets.

FHLB advances remained unchanged at $56.0 million as of December 31, 2025 compared to December 31, 2024.  The three FHLB advances have a weighted average fixed interest rate of 3.99%.  In addition to outstanding FHLB advances, total borrowings as of December 31, 2025 included subordinated debt totaling $24.9 million.  The Company’s balance sheet remains highly liquid.  The Company’s liquidity position, defined as the sum of cash, unencumbered securities and available secured borrowing capacity, totaled $827.0 million as of December 31, 2025 compared to $727.3 million as of December 31, 2024, respectively. In addition to available secured borrowing capacity, the Bank had available federal funds lines of $110.0 million at December 31, 2025.  At December 31, 2025, total cash and cash equivalents were $130.0 million, an increase of $7.5 million or 6.1% compared to December 31, 2024.

Shareholders’ equity increased $19.0 million or 7.7% to $265.6 million at December 31, 2025 compared to $246.6 million at December 31, 2024. Book value per share was $18.69 as of December 31, 2025 compared to $17.28 as of December 31, 2024, an increase of 8.2%. The ratio of common equity to assets increased to 12.2% at December 31, 2025, compared to 11.9% at December 31, 2024. At December 31, 2025, the Company had a total risk-based capital ratio of 16.3%, a common equity tier 1 risk-based capital ratio of 15.2%, a tier 1 risk-based capital ratio of 15.2%, and a tier 1 leverage ratio of 12.5%, all above the “well-capitalized” regulatory requirement levels.

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Selected Financial Data

The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of December 31, 2025 and 2024 and the selected income statement data for the years ended December 31, 2025 and 2024 have been derived from our audited consolidated financial statements included elsewhere in this Form 10-K and should be read in conjunction with the other information contained in this Form 10-K, including the information contained within this “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 – Financial Statements and Supplementary Data.”

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Critical Accounting Policies and Estimates

The Company’s accounting and reporting policies conform to GAAP, as well as general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.

The following is a discussion of a critical accounting policy and significant estimate that require us to make complex and subjective judgments. Additional information about this policy can be found in Note 1 of our consolidated financial statements included in Item 8 of this Form 10-K.

Allowance for Loan Credit Losses

The allowance for loan credit losses represents an amount which, in management's judgment, is adequate to absorb the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions, and prepayment experience. The allowance for loan credit losses is measured and recorded upon the initial recognition of a financial asset. The allowance for loan credit losses is reduced by charge-offs, net of recoveries of previous charge-offs, and is increased or decreased by a provision for (or recovery of) credit losses, which is recorded in the Consolidated Statements of Income.

The Company utilizes a discounted cash flow model to estimate its current expected credit losses. For the purposes of calculating its quantitative reserves, the Company has segmented its loan portfolio based on loans which share similar risk characteristics. Within the quantitative portion of the calculation, the Company utilizes at least one or a combination of economic variables, such as unemployment rates, home price indices, and/or gross domestic product, to adjust its loss rates over a reasonable and supportable forecast period of one year. A straight-line reversion technique is used for the following four quarters, at which time the Company reverts to historical averages. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider qualitative factors, including but not limited to: variability in the economic forecast, changes in volume and severity of adversely classified loans, changes in concentrations of loan portfolio, changes in the nature and volume of the loan segments, factors related to credit administration, and other idiosyncratic risks not embedded in the data used in the model.

Loans that do not share similar risk characteristics are evaluated on an individual basis. The Company designates individually evaluated loans on nonaccrual status as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk and loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under the current expected credit loss model (“CECL,”) for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

Accounting Pronouncements Adopted During the Current Year

For further information regarding accounting pronouncements adopted during the current year, refer to Note 1— Nature of Business and Summary of Significant Accounting Policy in the Notes to the Consolidated Financial Statements.

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Pending Accounting Pronouncements

Refer to Note 1— Nature of Business and Summary of Significant Accounting Policy in the Notes to the Consolidated Financial Statements for more details regarding pending accounting pronouncements.

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

Net Interest Income and Net Interest Margin

Net interest income is the excess of interest earned on loans and investments over the interest paid on deposits and borrowings, and is the Company’s primary revenue source. Net interest income is affected by overall balance sheet growth, changes in interest rates and changes in the mix of investments, loans, deposits and borrowings. The Company’s interest-earning assets include loans, investment securities and interest-bearing deposits in other banks, while our interest-bearing liabilities include interest-bearing deposits and borrowings. Net interest margin represents the difference between interest received and interest paid as a percentage of average total interest-earning assets. Management seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through management’s asset and liability management policies. Interest rate risk is managed by monitoring the pricing, maturity, and repricing options of all classes of interest-earning assets and interest-bearing liabilities. Management expects net interest income and net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of the Company’s interest-earning assets and interest-bearing liabilities.

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The following table presents the average balance for each principal balance sheet category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the years ended December 31, 2025 and 2024.

Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

(1) Income and yields for all periods presented are reported on a tax-equivalent basis using the federal statutory tax rate of 21%.

(2) The Company did not have any loans on non-accrual as of December 31, 2025 or December 31, 2024.

(3) Tax-equivalent net interest margin adjusts for differences in tax treatment of interest income sources. The entire tax-equivalent adjustment is attributable to interest income on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the tax-equivalent components.

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Net interest margin as presented above is calculated by dividing tax-equivalent net interest income by total average earning assets. Net interest income, on a tax equivalent basis, is a financial measure that the Company believes provides a more accurate picture of the interest margin for comparative purposes. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The following table, “Tax-Equivalent Net Interest Income,” reconciles net interest income to tax-equivalent net interest income, which is a non-GAAP measure.

Tax-Equivalent Net Interest Income

Net interest income increased $9.5 million or 18.6% on a fully tax-equivalent basis for the year ended December 31, 2025.  The net interest margin for the year ended December 31, 2025 was 2.68% as compared to 2.28% for the same period in the prior year.  These increases in net interest income and net interest margin were driven primarily by the decrease in rates of interest-bearing deposits coupled with increases in average balances and yields of the loan portfolio.

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The cost of interest-bearing liabilities was 3.37% for the year ended December 31, 2025 compared to 3.78% for the year ended December 31, 2024. The decrease in the cost of interest-bearing liabilities was primarily due to a 40 basis points decrease in the cost of interest-bearing deposits as a result of the repricing of the Company’s time deposits coupled with a decrease in rates offered on money market, interest-bearing demand deposits and savings deposit accounts since the fourth quarter of 2024.

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The yield on interest-earning assets was 5.01% for the twelve months ended December 31, 2025 compared to 4.91% for the same period in 2024. The increase in yield on interest-earning assets was primarily due to a 13 basis point increase in loan yield and an eight basis point increase in securities yield, as a result of higher prevailing interest rates as assets repriced subsequent to the fourth quarter of 2024.  Average loans increased $73.1 million between the twelve months ended December 31, 2025 and 2024, which was primarily attributable to origination volume in the construction & development and residential mortgage loan portfolios subsequent to December 31, 2024.  These positive contributing factors to the year-over-year increase in the net interest margin were partially offset by lower yields and average balances of interest-bearing deposits in other banks.

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The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column

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represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to volume.

Rate/Volume Analysis

(2)The Company did not have any loans on non-accrual as of December 31, 2025 or December 31, 2024.

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Interest Income

Interest income increased by $3.1 million or 2.8% to $113.4 million on a fully tax-equivalent basis for the year ended December 31, 2025 compared to $110.3 million for the year ended December 31, 2024, driven by an increase in volume and rates on interest-earning assets. The increase in rates and volume on interest-earning assets was primarily attributable to the Company’s loan portfolio, which was partially offset by the decrease in rate and volume of interest-bearing deposits in other banks.

Fully tax-equivalent interest income on loans increased by approximately $6.3 million or 6.6% primarily as a result of higher volume and rates. Average loans increased approximately $73.1 million, primarily attributable to growth in the construction & development and residential loan portfolios, while loan yields increased 13 basis points between the years ended December 31, 2025 and December 31, 2024.

Interest income on interest-bearing deposits with other banks decreased by approximately $2.8 million or 32.2% primarily as a result of lower rates and volume. Average balances declined approximately $26.5 million, mainly due to fundings of

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the new loan originations, while yields decreased 101 basis points as a result of three fed funds rate cuts totaling 75 basis points since December 31, 2024.

Fully tax-equivalent interest income on investment securities decreased by approximately $0.4 million.  This decrease was primarily the result of volume decreasing from the amortization and maturities of securities.  Average investment securities decreased approximately $29.1 million between the years ended December 31, 2025 and December 31, 2024.

Interest Expense

Interest expense decreased by $6.4 million to $52.7 million for the year ended December 31, 2025 compared to $59.1 million for the year ended December 31, 2024, primarily due to a decrease in rates on interest-bearing deposits coupled with lower average balance of borrowings. The decrease in rates on interest-bearing deposits was mainly due to repricing of the Company’s time deposits as a result of three fed funds rate cuts since December 31, 2024.  The decline in average balance of borrowings was driven by the full pay-off of Federal Reserve’s Bank Term Funding Program advance during the third quarter of 2024, which was replaced by lower cost FHLB advances.

Provision Expense

The Company recorded a $1.7 million provision for credit losses for the year ended December 31, 2025 compared to a $0.4 million recovery of provision for the year ended December 31, 2024.  The provision for credit losses during the year ended December 31, 2025 was primarily a result of growth of the loan portfolio and the related changes in the portfolio mix, coupled with the impact of the charge-off of the unguaranteed portion of one commercial business SBA 7(a) loan during the fourth quarter of 2025 and management’s assessment of the qualitative adjustments reflecting changing local economic conditions monitored throughout the year.

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Non-interest Income

The Company’s recurring sources of non-interest income consist primarily of interchange income, service charges on deposit accounts, gain on sale of government guaranteed loans, and insurance commissions. Generally speaking, loan fees are included in interest income on the loan portfolio and not reported as non-interest income.

The following table summarizes non-interest income for the years ended December 31, 2025 and December 31, 2024.

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Non-interest income decreased $197 thousand or 8.7% during the year ended December 31, 2025 compared to the same period of 2024.  The decrease was primarily driven by a $198 thousand decrease in the recorded gain on sale of the government guaranteed portion of the SBA 7(a) loans due to lower sale activity along with the $88 thousand decrease in insurance commissions. These decreases were partially offset by a $166 thousand increase to the mark-to-market adjustments on the Company’s NQDC plan and a $37 thousand increase in swap fee income.

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Non-interest Expense

Generally, non-interest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing banking services. The largest component of non-interest expense is salaries and employee benefits. Non-interest expense also includes operational expenses, such as occupancy and equipment expenses, data processing expenses, professional fees, advertising expenses and other general and administrative expenses, including FDIC assessments, and Virginia state franchise taxes.

The following table summarizes non-interest expense for the years ended December 31, 2025 and December 31, 2024.

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Non-interest expense increased $1.8 million or 5.5% during the year ended December 31, 2025 compared to the same period in 2024 primarily resulting from increases in salaries and employee benefits, data processing service fees, professional fees, and other operating expenses. The $1.5 million or 7.7% increase in salaries and employee benefits was mainly associated with the higher headcount within the Company and an increase in incentive compensation tied to the Company’s operating performance. The investments made to expand the headcount during the current year are expected to contribute to the future growth of the Company and subsequent increases in revenues. Increase in incentive compensation reflected the 24% year-over-year increase in net income and the fact that the Company’s operating performance for 2025 exceeded the budget and strategic plan.  The $168 thousand or 7.7% increase in data processing service fees was primarily due to contractual increases and volume-based activity.  Professional fees increased $145 thousand or 14.5% for the period, driven primarily by higher consulting fees.  These increases were partially offset by a decrease in the Company’s occupancy expense, which declined by $216 thousand or 12.3%, due to a decrease in office rent as a result of the renegotiation of more favorable terms on certain leases.

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Income Taxes

Income tax expense increased $1.4 million or 29.3% to $6.2 million for the year ended December 31, 2025 compared to $4.8 million for the year ended December 31, 2024.  Our effective tax rate for the year ended December 31, 2025 was 22.5% compared to 21.7% for the year ended December 31, 2024.  The increase in the effective tax rate between the comparative periods was primarily driven by higher permanent differences, the most significant component of which was the increased disallowance of compensation under Internal Revenue Code Section 162(m).

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Discussion and Analysis of Financial Condition – Years Ended December 31, 2025 and December 31, 2024

Assets, Liabilities, and Shareholders’ Equity

The Company’s total assets increased $97.6 million or 4.4% to $2.33 billion at December 31, 2025 compared to $2.23 billion at December 31, 2024. The increase in total assets is primarily attributable to the growth of the loan portfolio, which increased $103.2 million or 5.5% since December 31, 2024.

The Company’s total liabilities increased $78.6 million or 4.0% to $2.07 billion at December 31, 2025 compared to $1.99 billion at December 31, 2024, which was driven by the $49.9 million and $40.2 million increases in time deposits and interest-bearing demand deposits, respectively.

Shareholders’ equity increased $19.0 million or 7.7% to $265.6 million at December 31, 2025 compared to $246.6 million at December 31, 2024. Book value per share was $18.69 as of December 31, 2025 compared to $17.28 as of December 31, 2024, an increase of 8.2%. The year-over-year change in book value per share was primarily due to the Company’s earnings over the previous twelve months and a decrease in accumulated other comprehensive loss, resulting from an increase in the market value of our available-for-sale investment portfolio. This increase was partially offset by the cash dividend paid and the increased share count from shareholder option exercises and restricted share award issuances. The share issuances were partially offset by the Company’s share repurchases during the period.

Investment Securities

The Company maintains a primarily fixed income investment securities portfolio that had a total carrying value of $212.3 million at December 31, 2025 and $222.3 million at December 31, 2024. The investment portfolio is used as a source of liquidity, interest income, and credit risk diversification, as well as to manage rate sensitivity and provide collateral for secured public funds and secured credit lines. Investment securities are classified as available-for-sale or held-to-maturity based on management’s investment strategy and management’s assessment of the intent and ability to hold the securities until maturity. Investment securities that we may sell prior to maturity in response to changes in management’s investment strategy, liquidity needs, interest rate risk profile or for other reasons are classified as available-for-sale. The Company also had restricted stock and equity securities within its investment securities portfolio with total carrying values of $7.6 million and $2.8 million, respectively, at both December 31, 2025 and December 31, 2024.

The Company purchased $32.3 million of investment securities during the year ended December 31, 2025, which were comprised of $30.3 million of mortgage-backed securities, $1.0 million of collateralized mortgage obligation securities and $1.0 million of U.S. agency securities.  The Company did not sell any investment securities during the year ended December 31, 2025. The Company had $47.0 million in maturities and principal repayments on securities during the year ended December 31, 2025.  Maturities consisted of $14.8 million in U.S. treasuries, $5.0 million in U.S. agency securities, and $0.3 million in municipal-taxable securities. Principal repayments consisted of $19.3 million of mortgage-backed securities and $7.6 million of collateralized mortgage obligation securities.

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The following table summarizes the amortized cost and fair value of the Company’s fixed income investment portfolio as of December 31, 2025 and December 31, 2024, respectively.

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In the prevailing rate environments as of both December 31, 2025 and December 31, 2024, the Company’s investment portfolio had an estimated weighted average remaining life of approximately 3.9 years and 4.2 years, respectively.  The Company’s available-for-sale investment portfolio had an estimated weighted average remaining life of approximately 3.1 years in the prevailing rate environments at both December 31, 2025 and December 31, 2024. The held-to-maturity investment portfolio had an estimated weighted average remaining life of approximately 5.2 years and 6.0 years as of December 31, 2025 and December 31, 2024, respectively.

The following table summarizes the maturity composition of our investment securities as of December 31, 2025, including the weighted average yield of each maturity range. Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.

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Loan Portfolio

Gross loans net of unearned income increased $103.2 million or 5.5% to $1.98 billion as of December 31, 2025 compared to $1.87 billion as of December 31, 2024. The increase in loans from December 31, 2025, was primarily attributable to

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growth in construction & development loans and residential mortgage loans, partially offset by a decline in commercial owner-occupied real estate loans. All other portfolios remained relatively unchanged during 2025. The Company continues to maintain its disciplined underwriting standards while prudently pursuing loan growth opportunities that provide acceptable risk-adjusted returns.

The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of December 31, 2025 and December 31, 2024.

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The following table summarizes the contractual maturities of the loans as of December 31, 2025 by loan type. Maturities are based on the final contractual payment date, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. The table also summarizes the fixed and floating rate composition of loans held for investment for contractual maturities greater than one year.

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Asset Quality

The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions.

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The Company’s asset quality remained strong during the year ended December 31, 2025. The Company had no non accrual loans and OREO as of December 31, 2025 and December 31, 2024. During the twelve months ended December 31, 2025, the Company charged-off one commercial business SBA 7(a) loan in the total amount of $361 thousand.  The charged-off amount represented the unguaranteed portion of the loan.  The Company has submitted a reimbursement claim to the SBA for the guaranteed portion of the loan in the amount of $1.1 million and expects to be paid in full by the end of the first quarter of 2026. The guaranteed portion of the loan was 90 days past due and still accruing interest as of December 31, 2025. The Company had one loan that was 90 days past due and still accruing interest as of December 31, 2024. The loan paid off, in full, on January 7, 2025.

The Company did not have any nonaccrual loans as of December 31, 2025 or December 31, 2024 nor were there any loans placed on nonaccrual during those periods. A loan is placed on nonaccrual status when (i) the Company is advised by the borrower that scheduled principal or interest payments cannot be met, (ii) when management’s best judgment indicates that payment in full of principal and interest can no longer be expected, or (iii) when any such loan or obligation becomes delinquent for 90 days, unless it is both well-secured and in the process of collection. As a result, the Company did not have any interest income that would have been recognized on nonaccrual loans for the years ended December 31, 2025 or December 31, 2024.

The Company did not make any loan modifications to borrowers experiencing financial difficulty during the twelve months ended December 31, 2025.

The following table summarizes the Company’s asset quality as of December 31, 2025 and December 31, 2024.

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Allowance for Loan Credit Losses

Refer to the discussion in the “Critical Accounting Policies and Estimates” section above for management’s approach to estimating the allowance for loan credit losses.

The Company recorded net charge-offs of $359 thousand during the year ended December 31, 2025 compared to net recoveries of $2 thousand during the year ended December 31, 2024. At December 31, 2025, the allowance for loan credit losses was $19.8 million, or 1.00% of outstanding loans, net of unearned income, compared to $18.7 million, or 1.00% of outstanding loans, net of unearned income, at December 31, 2024. The increase in the allowance for loan credit losses during the current year is predominantly attributable to the growth of the loan portfolio along with the impact of management’s assessment of qualitative factors, mainly related to the evaluation of the existing local economic conditions, as well as considerations of the concentrations of the Company’s loan segments.  These factors contributing to an increase in allowance for credit losses were partially offset by the previously mentioned charge-off of the commercial business SBA 7(a) loan.

The following table summarizes the Company’s loan credit loss experience by loan portfolio for the years ended December 31, 2025 and December 31, 2024.

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NM – Not meaningful

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The following table summarizes the allowance for loan credit losses by portfolio with a comparison of the percentage composition in relation to total allowance for loan credit losses and total loans as of December 31, 2025 and December 31, 2024.

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Management believes that the allowance for loan credit losses is adequate to absorb lifetime credit losses inherent in the portfolio as of December 31, 2025. There can be no assurance, however, that adjustments to the provision for (recovery of) credit losses will not be required in the future. Changes in the economic assumptions underlying management’s estimates and judgments; adverse developments in the economy, on a national basis or in the Company’s market area; or changes in the circumstances of particular borrowers are criteria that could change and make adjustments to the provision for (recovery of) credit losses necessary.

Deposits

Total deposits increased $79.9 million or 4.2% to $1.97 billion as of December 31, 2025 compared to $1.89 billion as of December 31, 2024.

Non-interest bearing demand deposits decreased $0.6 million or 0.1% to $432.7 million as of December 31, 2025 compared to $433.3 million at December 31, 2024. Non-interest bearing demand deposits represented 21.9% and 22.9% of total deposits at December 31, 2025 and December 31, 2024, respectively.

Interest-bearing deposits, which include NOW accounts, savings accounts, money market accounts, and time deposits, increased $80.4 million or 5.5% to $1.54 billion as of December 31, 2025 compared to $1.46 billion as of December 31, 2024. Interest-bearing deposits represented 78.1% and 77.1% of total deposits at December 31, 2025 and December 31, 2024, respectively.

The Company focuses on funding asset growth with deposit accounts, with an emphasis on core deposit growth, as its primary source of deposits. Core deposits consist of checking accounts, NOW accounts, money market accounts, savings accounts, time deposits, reciprocal IntraFi Demand® deposits, IntraFi Money Market® deposits and IntraFi CD® deposits. Core deposits totaled $1.67 billion or 84.7% of total deposits and $1.62 billion or 85.4% of total deposits at December 31, 2025 and December 31, 2024, respectively.

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The following table sets forth the average balances of deposits and the average interest rates paid for the years ended December 31, 2025 and 2024.

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The following table sets forth the maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2025.

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The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) was estimated at $853.4 million at December 31, 2025 and $816.7 million at December 31, 2024. Included in these amounts were $161.8 million and $157.4 million of public fund deposits that are collateralized by securities as of December 31, 2025 and December 31, 2024, respectively. Deposits that were not insured or not collateralized by securities represented 35.1% of total deposits at both December 31, 2025 and December 31, 2024.

Capital Resources

The Company is a bank holding company with less than $3 billion in assets and does not (i) have significant off balance sheet exposure, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Exchange Act. As a result, the Company qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement and is currently not subject to consolidated regulatory requirements.

The Bank is subject to capital adequacy standards adopted by the Federal Reserve, including the capital rules that implemented the Basel III regulatory capital reforms developed by the Basel Committee on Banking Supervision.

Note 16 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K, contains additional discussion and analysis regarding the Company and Bank’s regulatory capital requirements.

Shareholders’ equity increased $19.0 million or 7.7% to $265.6 million at December 31, 2025 compared to $246.6 million at December 31, 2024. Book value per share was $18.69 as of December 31, 2025 compared to $17.28 as of December 31, 2024, an increase of 8.2%. The year-over-year change in book value per share was primarily due to the Company’s earnings over the previous twelve months and a decrease in accumulated other comprehensive loss, resulting from an increase in the market value of our available-for-sale investment portfolio. This increase was partially offset by the cash dividend paid and increased share count from shareholder option exercises and restricted share award issuances. The share issuances were partially offset by the Company’s share repurchases during the period.

In August of 2025, the Company’s Board of Directors authorized the extension of the Company’s stock repurchase program that was originally adopted in August of 2021. Under the stock repurchase program, the Company may repurchase

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up to 700,000 shares of its common stock, par value of $0.01 per share, or approximately 5% of its outstanding shares of common stock. The stock repurchase program will expire on August 31, 2026, or earlier if all the authorized shares have been repurchased.  During the twelve months ended December 31, 2025, the Company repurchased 135,640 shares of its outstanding common stock at a weighted average price of $17.80. The aggregate repurchase activity was accretive to the Company’s book value per share.

Liquidity

Liquidity reflects a financial institution’s ability to fund assets and meet current and future financial obligations. Liquidity is essential in all banks to meet customer withdrawals, compensate for balance sheet fluctuations, and provide funds for growth. Monitoring and managing both liquidity measurements is critical in developing prudent and effective balance sheet management. Management conducts liquidity stress testing on a quarterly basis to prepare for unexpected adverse scenarios and contemporaneously develops mitigating strategies to reduce losses in the event of an economic downturn.

The Company’s principal source of liquidity and funding is its deposit base. The level of deposits necessary to support the Company’s lending and investment activities is determined through monitoring loan demand.

In addition to the liquidity provided by balance sheet cash flows, the Company supplements its liquidity with additional sources such as secured borrowing credit lines with the FHLB and the Federal Reserve Bank. Specifically, the Company has pledged a portion of its loan portfolio to the FHLB and the Federal Reserve Bank. Based on collateral pledged as of December 31, 2025, the total FHLB available borrowing capacity was $454.8 million. Additional borrowing capacity with the Federal Reserve Bank was approximately $139.5 million as of December 31, 2025. In addition to available secured borrowing capacity, the Bank had available federal funds lines of $110.0 million at December 31, 2025.

FHLB advances remained unchanged at $56.0 million as of December 31, 2025 compared to December 31, 2024.  The three FHLB advances have a weighted average fixed interest rate of 3.99%.  In addition to outstanding FHLB advances, total borrowings as of December 31, 2025 included subordinated debt totaling $24.9 million.

Total liquidity, defined as cash and cash equivalents, unencumbered securities at fair value, and available secured borrowing capacity, was $827.0 million at December 31, 2025 compared to $727.3 million at December 31, 2024. The Company’s liquidity position represented 119.6% of uninsured, non-collateralized deposits at December 31, 2025.

Liquidity is a core pillar of the Company’s operations. Conditions may arise in the future that could negatively impact the Company’s future liquidity position resulting in funding mismatches. These include market constraints on the ability to convert assets into cash or accessing sources of funds (i.e., market liquidity) and contingent liquidity events. Changes in economic conditions or exposure to credit, market, operational, legal, and reputation risks also can affect a bank’s liquidity. Management maintains that the Company has a strong liquidity position, but any of the factors referenced above could materially impact that in the future.

The Company has various contractual obligations that affect its cash flows and liquidity. For information regarding material contractual obligations, please see Note 7, Note 8 and Note 11 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K.

Off-Balance Sheet Arrangements

The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit and financial guarantees which would impact the Company’s liquidity and capital resources to the extent customers accept and or use these commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors. For further information, see Note 11 to the Consolidated Financial Statements, included in Item 8 of this Form 10-K, for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements.

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