# EDGAR Filing Document

**Accession Number:** 0000719402
**File Stem:** 0001437749-26-009748
**Filing Date:** 2026-3
**Character Count:** 438097
**Document Hash:** 3db9b978bf22974833e10e8c8f5fc097
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001437749-26-009748.hdr.sgml**: 20260325

**ACCESSION NUMBER**: 0001437749-26-009748

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 149

**CONFORMED PERIOD OF REPORT**: 20251231

**FILED AS OF DATE**: 20260325

**DATE AS OF CHANGE**: 20260325

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** FIRST NATIONAL CORP /VA/
- **CENTRAL INDEX KEY:** 0000719402
- **STANDARD INDUSTRIAL CLASSIFICATION:** STATE COMMERCIAL BANKS [6022]
- **ORGANIZATION NAME:** 02 Finance
- **EIN:** 541232965
- **STATE OF INCORPORATION:** VA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-38874
- **FILM NUMBER:** 26791101

**BUSINESS ADDRESS:**
- **STREET 1:** 112 WEST KING STREET
- **CITY:** STRASBURG
- **STATE:** VA
- **ZIP:** 22657
- **BUSINESS PHONE:** 5404659121

**MAIL ADDRESS:**
- **STREET 1:** 112 WEST KING STREET
- **CITY:** STRASBURG
- **STATE:** VA
- **ZIP:** 22657

?xml version='1.0' encoding='ASCII'? fxnc20251231_10k.htm

[**Table of Contents**](#toc)

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K**

☒ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**For the fiscal year ended December 31, 2025**

**or**

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from** <u>**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**</u> **to** <u>**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**</u>

**Commission file number 1-38874**

_______________________________________________________

![logo.jpg](logo.jpg)

**(Exact name of registrant as specified in its charter)**

_______________________________________________________

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| | |
|:---|:---|
| **Virginia** | **54-1232965** |
| **(State or other jurisdiction of**<br> **incorporation or organization)** | **(I.R.S. Employer**<br> **Identification No.)** |
| **112 West King Street, Strasburg, Virginia** | **22657** |
| **(Address of principal executive offices)** | **(Zip Code)** |

---

**Registrant's telephone number, including area code: (540) 465-9121**

**Securities registered pursuant to Section 12(b) of the Act:**

---

| | | |
|:---|:---|:---|
| **<u>Title of each class</u>** | **<u>Trading symbol(s)</u>** | **<u>Name of each exchange on which registered</u>** |
| **Common stock, par value $1.25 per share** | **FXNC** | **The Nasdaq Stock Market LLC** |

---

**Securities registered pursuant to Section 12(g) of the Act: None**

_______________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.&nbsp;&nbsp;&nbsp;&nbsp;Yes ☐&nbsp;&nbsp;&nbsp;&nbsp;No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.&nbsp;&nbsp;&nbsp;&nbsp;Yes ☐&nbsp;&nbsp;&nbsp;&nbsp;No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.&nbsp;&nbsp;&nbsp;&nbsp;Yes ☒&nbsp;&nbsp;&nbsp;&nbsp;No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).&nbsp;&nbsp;&nbsp;&nbsp;Yes ☒&nbsp;&nbsp;&nbsp;&nbsp;No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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| | | | |
|:---|:---|:---|:---|
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
|  |  | Emerging growth company | ☐ |

---

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).&nbsp;&nbsp;&nbsp;&nbsp;Yes ☐&nbsp;&nbsp;&nbsp;&nbsp;No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing sales price on June 30, 2025 was $150,573,153.

The number of outstanding shares of common stock as of March 16, 2026 was 9,040,967.

**DOCUMENTS INCORPORATED BY REFERENCE**

Proxy Statement for the 2026 Annual Meeting of Shareholders – Part III

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[**Table of Contents**](#toc)

**TABLE OF CONTENTS**

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| | | |
|:---|:---|:---|
|  |  | <u>Page</u> |
| [**Part I**](#parti) | [**Part I**](#parti) | [**Part I**](#parti) |
| Item 1. | [Business](#item1) | [4](#item1) |
| Item 1A. | [Risk Factors](#item1a) | [12](#item1a) |
| Item 1B. | [Unresolved Staff Comments](#item1b) | [22](#item1b) |
| Item 1C. | [Cybersecurity](#Item_1C) | [23](#item2) |
| Item 2. | [Properties](#item2) | [23](#item2) |
| Item 3. | [Legal Proceedings](#item_6) | [24](#item_6) |
| Item 4. | [Mine Safety Disclosures](#item_7) | [24](#item_7) |
| [**Part II**](#item_8) | [**Part II**](#item_8) | [**Part II**](#item_8) |
| Item 5. | [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#item_9) | [24](#item_9) |
| Item 6. | [Reserved](#item6) | [25](#item6) |
| Item 7. | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#item_11) | [25](#item_11) |
| Item 7A. | [Quantitative and Qualitative Disclosures About Market Risk](#item_12) | [41](#item_12) |
| Item 8. | [Financial Statements and Supplementary Data](#item_13) | [41](#item_13) |
| Item 9. | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](#item_14) | [94](#item_14) |
| Item 9A. | [Controls and Procedures](#item_15) | [94](#item_15) |
| Item 9B. | [Other Information](#item_16) | [94](#item_16) |
| Item 9C. | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#item9c) | [94](#item9c) |
| [**Part III**](#item_17) | [**Part III**](#item_17) | [**Part III**](#item_17) |
| Item 10. | [Directors, Executive Officers and Corporate Governance](#item_18) | [95](#item_18) |
| Item 11. | [Executive Compensation](#item_19) | [95](#item_19) |
| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#item_20) | [95](#item_20) |
| Item 13. | [Certain Relationships and Related Transactions, and Director Independence](#item_21) | [95](#item_21) |
| Item 14. | [Principal Accountant Fees and Services](#item_22) | [95](#item_22) |
| [**Part IV**](#item_23) | [**Part IV**](#item_23) | [**Part IV**](#item_23) |
| Item 15. | [Exhibits, Financial Statement Schedules](#item_24) | [96](#item_24) |
| Item 16. | [Form 10-K Summary](#item_25) | [97](#item_25) |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2

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[**Table of Contents**](#toc)

**Part I**

**Cautionary Statement Regarding Forward-Looking Statements**

First National Corporation (the Company) makes forward-looking statements in this Form 10-K that are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding profitability, liquidity, adequacy of capital, allowance for credit losses, interest rate sensitivity, market risk, and growth strategy. The words "believes," "expects," "may," "will," "should," "projects," "contemplates," "anticipates," "forecasts," "intends," or other similar words or terms are intended to identify forward-looking statements. These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:

• general business conditions, as well as conditions within the financial markets;

• general economic conditions, including unemployment levels, inflation and slowdowns in economic growth;

• the Company's branch and market expansions, technology initiatives and other strategic initiatives;

• the impact of competition from banks and non-banks, including financial technology companies (Fintech);

• advances and changes in technology, including artificial intelligence, and the Company's ability to develop timely and competitive products and services and effectively manage related risks;

• the composition of the loan and deposit portfolio, including the types of accounts and customers, may change, which could impact the amount of net interest income and noninterest income in future periods, including revenue from service charges on deposits;

• limited availability of financing or inability to raise capital;

• reliance on third parties for key services;

• the Company's credit standards and its on-going credit assessment processes might not protect it from significant credit losses;

• the quality of the loan portfolio and the value of the collateral securing those loans;

• prepayments of loans and securities could materially impact earnings through a reduction in interest income and fees on loans and interest income on securities;

• the level of net charge-offs on loans and the adequacy of the allowance for credit losses on loans;

• the concentration in loans secured by real estate may adversely affect earnings due to changes in the real estate markets;

• demand for loan products;

• deposit flows;

• the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company's, or industry's, reputation become damaged;

• the value of securities held in the Company's investment portfolio;

• legislative or regulatory changes or actions, including the effects of changes in tax laws;

• changes in accounting principles, policies and guidelines and elections made by the Company thereunder;

• cyber threats, attacks or events;

• monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve Board, and the effect of those policies on interest rates and business in the Company's markets;

• changes in interest rates could have a negative impact on the value of the Company's securities portfolio and its net interest income and an unfavorable impact on the Company's customers' ability to repay loans;

• U.S. and global trade policies and tensions, including change in, or the imposition of, tariffs and/or other barriers or restrictions on trade and/or any retaliatory counter measures, and the economic impacts, volatility and uncertainty resulting therefrom, and geopolitical instability;

• geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;

• the emergence of digital assets and payment stablecoins, and evolving legislative or regulatory frameworks, which could alter deposit flows, competition, and credit intermediation and, in turn, adversely affect the Company's funding, liquidity, or overall financial performance;

• political developments, including government shutdowns and other significant disruptions and changes in the funding, size, scope, and effectiveness of the federal government, its agencies and services; and

• other factors identified in Item 1A, "Risk Factors", below.

Because of these and other uncertainties, actual future results may be materially different from the results indicated by these forward-looking statements. In addition, past results of operations do not necessarily indicate future results.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3

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[**Table of Contents**](#toc)

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| | |
|:---|:---|
| **Item 1.** | **Business** |

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**General**

First National Corporation (the Company) is a bank holding company incorporated under Virginia law on September 7, 1983. The Company owns all of the stock of its primary operating subsidiary, First Bank (the Bank), which is a commercial bank chartered under Virginia law. The Company's subsidiaries are:

• The Bank owns:

• First Bank Financial Services, Inc.

• Shen-Valley Land Holdings, LLC

• McKenney Group, LLC

• First National (VA) Statutory Trust II (Trust II)

• First National (VA) Statutory Trust III (Trust III and, together with Trust II, the Trusts)

First Bank Financial Services, Inc. owns an interest in an entity that provides title insurance services. Shen-Valley Land Holdings, LLC was formed to hold other real estate owned and future office sites. McKenney Group, LLC owns an interest in a now inactive entity that previously provided insurance services. The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities and are not included in the Company's consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities.

The Bank first opened for business on July 1, 1907, under the name The Peoples National Bank of Strasburg. On January 10, 1928, the Bank changed its name to The First National Bank of Strasburg. On April 12, 1994, the Bank received approval from the Federal Reserve Bank of Richmond and the Virginia State Corporation Commission's Bureau of Financial Institutions to convert to a state chartered bank with membership in the Federal Reserve System. On June 1, 1994, the Bank consummated such conversion and changed its name to First Bank.

In March of 2025 two previously held subsidiaries of the Company, Bank of Fincastle Services, Inc. and ESF, LLC, were closed with no material impact to the financials related to the closures.

**Revenue Sources and Expense Factors**

The primary source of revenue is from net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense and currently represents the largest component of the Company's total revenue. Interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets. The Bank's interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid. In addition to net interest income, noninterest income is the other source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits, fee income from wealth management services, and ATM and check card fees.

Primary expense categories are salaries and employee benefits, which comprised 51% of noninterest expenses during 2025, followed by other operating expenses, which comprised 12% of noninterest expenses. The provision for credit losses is also a primary expense of the Bank. The provision is determined by factors that include net charge-offs, asset quality, loan growth, 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. Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company's control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses.

**Products and Services**

The Bank offers loan, deposit, and wealth management products and services. Loan products and services include consumer loans, residential mortgages, home equity loans, and commercial loans. Deposit products and services include checking accounts, treasury management solutions, savings accounts, money market accounts, certificates of deposit, and individual retirement accounts. Wealth management services include estate planning, investment management of assets, trustee under an agreement, trustee under a will, individual retirement accounts, and estate settlement. Customers include small and medium-sized businesses, individuals, estates, local governmental entities, and non-profit organizations. The Bank's office locations are well-positioned in attractive markets along the Interstate 81, Interstate 66, and Interstate 64 corridors in the Shenandoah Valley, the Roanoke Valley, and the south-central region of Virginia, including the Richmond MSA and northern North Carolina. Within this market area, there are diverse types of industry including medical and professional services, manufacturing, retail, warehousing, government, hospitality, and higher education. The Bank's products and services are delivered through 33 bank branch offices, one loan production office, and a customer service center in a retirement community. For the location and general character of each of these offices, see Item 2 of this Form 10-K. Many of the Bank's services are also delivered through the Bank's mobile banking platform, its website, www.fbvirginia.com, and a network of ATMs located throughout its market area.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4

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**Competition**

The financial services industry remains highly competitive and is constantly evolving. The Company experiences strong competition in all aspects of its business. In its market areas, the Company competes with large national and regional financial institutions, credit unions, other community banks, as well as consumer finance companies, mortgage companies, marketplace lenders and other financial technology firms, mutual funds and life insurance companies. Competition for deposits and loans is affected by various factors including interest rates offered, the number and location of branches and types of products offered, and the reputation of the institution. Credit unions have been allowed to increasingly expand their membership definitions and, because they enjoy a favorable tax status, may be able to offer more attractive loan and deposit pricing.

In addition, the financial services industry continues to undergo rapid technological change with introductions of new technologies and services, including new ways that customers can make payments or manage their accounts, including through use of stablecoins and other forms of cryptocurrency, tokens, and other digital assets or alternative payment systems.

The Company's primary operating subsidiary, First Bank, believes its competitive advantages include long-term customer relationships, a commitment to excellent customer service, dedicated and loyal employees, and the support of and involvement in the communities that the Company serves. The Company focuses on providing products and services to individuals, small to medium-sized businesses, non-profit organizations, and local governmental entities within its communities.

No material part of the business of the Company is dependent upon a single or a few customers, and the loss of any single customer would not have a materially adverse effect upon the business of the Company.

**Employees**

At December 31, 2025, the Bank employed a total of 308 full-time equivalent employees. The Company considers relations with its employees to be excellent.

**SUPERVISION AND REGULATION**

Bank holding companies and banks are extensively and increasingly regulated under both federal and state laws. The following description briefly addresses certain historic and current provisions of federal and state laws and regulations, proposed regulations, and the potential impacts on the Company and the Bank. To the extent statutory or regulatory provisions or proposals are described in this report, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions or proposals.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5

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**The Company**

*General*. As a bank holding company registered under the Bank Holding Company Act of 1956 (the BHCA), the Company is subject to supervision, regulation, and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve). The Company is also registered under the bank holding company laws of Virginia and is subject to supervision, regulation, and examination by the Virginia State Corporation Commission (the SCC).

*Permitted Activities*. A bank holding company is limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.

*Banking Acquisitions; Changes in Control*. The BHCA requires, among other things, the prior approval of the Federal Reserve in any case where a bank holding company proposes to (i) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding company. In determining whether to approve a proposed bank acquisition, the Federal Reserve will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution's performance under the Community Reinvestment Act of 1977 (the CRA).

Subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with the applicable regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company's acquiring "control" of a bank or bank holding company. A conclusive presumption of control exists if an individual or company acquires the power, directly or indirectly, to direct the management or policies of an insured depository institution or to vote 25% or more of any class of voting securities of any insured depository institution. A rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of voting securities of an insured depository institution and either the institution has registered securities under Section 12 of the Securities Exchange Act of 1934 (the Exchange Act) or no other person will own a greater percentage of that class of voting securities immediately after the acquisition. The Company's common stock is registered under Section 12 of the Exchange Act.

*Source of Strength*. Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) codified this policy as a statutory requirement. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

*Safety and Soundness*. There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the Federal Deposit Insurance Corporation (FDIC) insurance fund in the event of a depository institution default. For example, under the Federal Deposit Insurance Company Improvement Act of 1991 (FDICIA), to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become "undercapitalized" with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution's total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.

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Under the Federal Deposit Insurance Act (the FDIA), the federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines.

FDICIA, implemented through FDIC regulations (12 CFR Part 363), imposes annual audit and reporting requirements on insured depository institutions with total assets above certain thresholds to promote early identification of financial management issues. These requirements focus on audited financial statements, management's responsibilities, and Internal Control over Financial Reporting (ICFR) assessments. On November 25, 2025, the FDIC officially adopted amendments to 12 CFR Part 363, effective January 1, 2026, to update certain regulatory thresholds that govern audit and reporting requirements. The Company will continue to provide management's attestation of effectiveness of FDICIA controls at the increased asset threshold of greater than $1 billion. Independent external auditor attestation on ICFR increased from $1 billion to $5 billion or more in assets.

*Capital Requirements.* Pursuant to the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements. Certain capital requirements applicable to the Bank are described below under "The Bank-Capital Requirements". Subject to its capital requirements and certain other restrictions, the Company is able to borrow money to make a capital contribution to the Bank, and such loans may be repaid from dividends paid by the Bank to the Company.

*Limits on Dividends and Other Payments*. The Company is a legal entity, separate and distinct from its subsidiaries. A significant portion of the revenues of the Company result from dividends paid to it by the Bank. There are various legal limitations applicable to the payment of dividends by the Bank to the Company and to the payment of dividends by the Company to its shareholders. The Bank is subject to various statutory restrictions on its ability to pay dividends to the Company. Under the current supervisory practices of the Bank's regulatory agencies, prior approval from those agencies is required if cash dividends declared in any given year exceed net income for that year, plus retained net profits of the two preceding years. The payment of dividends by the Bank or the Company may be limited by other factors, such as requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit the Bank or the Company from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending on the financial condition of the Bank, or the Company, could be deemed to constitute such an unsafe or unsound practice. In addition, under the current supervisory practices of the Federal Reserve, the Company should inform and consult with its regulators reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the Company's capital structure.

The Company's subordinated debt is senior in right of payment compared to its common stock and all current and future junior subordinated debt obligations. Following the occurrence of any event of default on its subordinated debt, the Company may not make any payments on its junior subordinated debt; declare or pay any dividends on its common stock; redeem or otherwise acquire any of its common stock; or make any other distributions with respect to its common stock or set aside any monies or properties for such purposes. The Company is current in its interest payments on subordinated debt.

The Company's ability to pay dividends on common stock is also limited by contractual restrictions under its junior subordinated debt. Interest must be paid on the junior subordinated debt before dividends may be paid to common shareholders. The Company is current in its interest payments on junior subordinated debt; however, it has the right to defer distributions on its junior subordinated debt, during which time no dividends may be paid on its common stock. If the Company does not have sufficient earnings in the future and begins to defer distributions on the junior subordinated debt, it will be unable to pay dividends on its common stock until it becomes current on those distributions.

**The Bank**

*General*. The Bank is supervised and regularly examined by the Federal Reserve Bank of Richmond and the Virginia State Corporation Commissions's Bureau of Financial Institutions. The various laws and regulations administered by the regulatory agencies affect corporate practices, such as the payment of dividends, incurrence of debt, and acquisition of financial institutions and other companies; they also affect business practices, such as the payment of interest on deposits, the charging of interest on loans, types of business conducted, and location of offices. Certain of these law and regulations are referenced above under "The Company."

*Capital Requirements.* The Federal Reserve and the other federal banking agencies have issued risk-based and leverage capital guidelines applicable to U.S. banking organizations. In addition, those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth.

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The minimum capital level requirements applicable to the Bank under the rules are as follows: a common equity Tier 1 capital ratio of 4.5%; a Tier 1 capital ratio of 6%; a total capital ratio of 8%; and a Tier 1 leverage ratio of 4% for all institutions. The final rules also established a "capital conservation buffer" above the new regulatory minimum capital requirements of 2.5% of risk-weighted assets. This resulted in the following minimum capital ratios beginning in 2019: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. Under the rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. Management believes, as of December 31, 2025 and December 31, 2024, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.

The following table shows the Bank's regulatory capital ratios at December 31, 2025:

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| | |
|:---|:---|
|  | First Bank |
| Total capital to risk-weighted assets | 13.64% |
| Tier 1 capital to risk-weighted assets | 12.59% |
| Common equity Tier 1 capital to risk-weighted assets | 12.59% |
| Tier 1 capital to average assets | 9.13% |
| Capital conservation buffer ratio(1) | 5.64% |

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(1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Bank's actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital. The lowest of the three measures represents the Bank's capital conservation buffer ratio.

The rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as "well capitalized:" a common equity Tier 1 capital ratio of 6.5%; a Tier 1 capital ratio of 8%; a total capital ratio of 10%; and a Tier 1 leverage ratio of 5%. The Bank met the requirements to qualify as "well capitalized" as of December 31, 2025 and December 31, 2024.

On September 17, 2019 the FDIC finalized a rule that introduced an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act (the Economic Growth Act). The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.

In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio greater than 9%, have less than $10 billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the "well-capitalized" ratio requirements under the prompt corrective action regulations and will not be required to report or calculate risk-based capital. Although the Bank has not opted into the CBLR framework, it may opt into the CBLR framework in a future quarterly period.

On November 25, 2025 the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency proposed to lower the CBLR requirement from 9% to 8% and extend the length of time that a community banking organization can remain in the CBLR framework while not meeting all of the qualifying criteria from two quarters to four quarters. As the Bank has not opted into the CBLR framework, it does not expect any changes due to the proposal.

*Deposit Insurance.* Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (the DIF) of the FDIC and are subject to deposit insurance assessments to maintain the DIF. The deposit insurance assessment base is based on average total assets minus average tangible equity, pursuant to a rule issued by the FDIC as required by the Dodd-Frank Act.

The FDIA, as amended by the Federal Deposit Insurance Reform Act and the Dodd-Frank Act, requires the FDIC to set a ratio of deposit insurance reserves to estimated insured deposits of at least 1.35%. On October 18, 2022, the FDIC adopted a final rule that increased base deposit insurance assessment rate schedules uniformly by 2 basis points beginning in the first quarterly assessment period of 2023. The increase was instituted to account for extraordinary growth in insured deposits during the first and second quarters of 2020, which caused a substantial decrease in the "reserve ratio" of the DIF to total industry deposits. The FDIC has indicated that the new assessment rate schedules will remain in effect until the DIF reserve ratio meets or exceeds 2 percent.

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FDIC deposit insurance assessments for insured institutions with less than $10 billion in assets that have been FDIC insured for at least five years (established small banks) are calculated based on risk-based assessments using examination rulings and financial modeling to better capture the risk that an established small bank poses to the DIF and to ensure that institutions that take on greater risks have higher assessments.

*Transactions with Affiliates*. Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of the Bank to engage in transactions with related parties or "affiliates" or to make loans to insiders is limited. Loan transactions with an affiliate generally must be collateralized and certain transactions between the Bank and its affiliates, including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to the Bank, as those prevailing for comparable nonaffiliated transactions. In addition, the Bank generally may not purchase securities issued or underwritten by affiliates.

Loans to executive officers, directors or to any person who directly or indirectly, or acting through or in concert with one or more persons, owns, controls or has the power to vote more than 10% of any class of voting securities of a bank (a "10% Shareholder"), are subject to Sections 22(g) and 22(h) of the Federal Reserve Act and their corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act relating to the prohibition on personal loans to executives (which exempts financial institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act). Among other things, these loans must be made on terms substantially the same as those prevailing on transactions made to unaffiliated individuals and certain extensions of credit to those persons must first be approved in advance by a disinterested majority of the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of those individuals where the aggregate amount exceeds an amount equal to 15% of an institution's unimpaired capital and surplus plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed the Bank's unimpaired capital and unimpaired surplus. Section 22(g) of the Federal Reserve Act identifies limited circumstances in which the Bank is permitted to extend credit to executive officers.

*Prompt Corrective Action*. Immediately upon becoming "undercapitalized," a depository institution becomes subject to the provisions of Section 38 of the FDIA, which: (i) restrict payment of capital distributions and management fees; (ii) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require submission of a capital restoration plan; (iv) restrict the growth of the institution's assets; and (v) require prior approval of certain expansion proposals. The appropriate federal banking agency for an undercapitalized institution also may take any number of discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost to the DIF, subject in certain cases to specified procedures. These discretionary supervisory actions include: (i) requiring the institution to raise additional capital; (ii) restricting transactions with affiliates; (iii) requiring divestiture of the institution or the sale of the institution to a willing purchaser; and (iv) any other supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank met the definition of "well capitalized" as of December 31, 2025.

*Community Reinvestment Act*. The Bank is subject to the requirements of the CRA. The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities, including low and moderate income neighborhoods. If the Bank receives a rating from the Federal Reserve of less than "satisfactory" under the CRA, restrictions on operating activities could be imposed. The Federal Reserve assigned the Bank the rating of "satisfactory" at the most recent CRA examination.

*Privacy Legislation*. Several regulations issued by federal banking agencies also provide new protections against the transfer and use of customer information by financial institutions. A financial institution must provide to its customers information regarding its policies and procedures with respect to the handling of customers' personal information. Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer's personal financial information to unaffiliated parties without prior notice and approval from the customer.

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*Anti-Money Laundering Laws and Regulations*. The Bank is subject to several federal laws that are designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities (AML laws). This category of laws includes the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986, the USA PATRIOT Act of 2001, and the Anti-Money Laundering Act of 2020. The Anti-Money Laundering Act of 2020, the most sweeping anti-money laundering legislation in 20 years, requires various federal agencies to promulgate regulations implementing a number of its provisions.

The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, the Company has implemented appropriate internal practices, procedures, and controls.

*Cybersecurity*. The federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution's board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial products and services. The federal banking agencies expect financial institutions to establish lines of defense and ensure that their risk management processes also address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption and maintenance of the institution's operations after a cyber-attack. If the Bank fails to meet the expectations set forth in this regulatory guidance, it could be subject to various regulatory actions and any remediation efforts may require significant resources of the Bank. In addition, all federal and state bank regulatory agencies continue to increase focus on cybersecurity programs and risks as part of regular supervisory exams.

In November 2021, the federal banking agencies approved a final rule that requires banking organizations to notify their primary regulator within 36 hours of becoming aware of a "computer-security incident" that rises to the level of a "notification incident", among other things, the rule also requires bank service providers to notify their banking organization customers as soon as possible after becoming aware of similar incidents.

*Digital Assets.* In July 2025, President Trump signed into law the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the "GENIUS Act"), which establishes a regulatory framework for "payment stablecoins" and their issuers. The GENIUS Act permits payment stablecoins to be issued in the United States only by "permitted payment stablecoin issuers", including the subsidiary of an insured depository institution such as the Bank. The GENIUS Act requires federal and state regulators to issue regulations on numerous topics to interpret and implement the act. The effect of the GENIUS Act on the Company and the Bank will depend on the final form of any regulations and cannot be predicted at this time. Digital assets activities are an area of significant focus for Congress, the current Presidential administration, and federal banking regulators. Any changes in law or in the Company's or the Bank's supervisory frameworks relating to digital assets cannot be predicted but may have a significant effect on the Company's business.

*Consumer Laws and Regulations*. The Bank is also subject to certain consumer laws and regulations issued thereunder that are designed to protect consumers in transactions with banks. These laws include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Housing Act and the Dodd-Frank Act, among others. The laws and related regulations mandate certain disclosure requirements and regulate the manner in which financial institutions transact business with customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.

*Incentive Compensation*. In June 2010, the federal banking agencies issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging excessive risk-taking. The *Interagency Guidance on Sound Incentive Compensation Policies*, which covers all employees that have the ability to materially affect the risk profile of a financial institution, either individually or as part of a group, is based upon the key principles that a financial institution's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by good corporate governance, including active and effective oversight by the financial institution's board of directors.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company, that are not "large, complex banking organizations." These reviews will be tailored to each financial institution based on the scope and complexity of the institution's activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the institution's supervisory ratings, which can affect the institution's ability to make acquisitions and take other actions. Enforcement actions may be taken against a financial institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the institution's safety and soundness and the financial institution is not taking prompt and effective measures to correct the deficiencies. At December 31, 2025, the Company had not been made aware of any instances of non-compliance with the guidance.

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**Effect of Governmental Monetary Policies**

The Company's operations are affected not only by general economic conditions but also by the policies of various regulatory authorities. In particular, the Federal Reserve regulates money and credit conditions and interest rates to influence general economic conditions. These policies have a significant impact on overall growth and distribution of loans, investments and deposits; they affect interest rates charged on loans or paid for time and savings deposits. Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks, including the Company, in the past and are expected to do so in the future.

**Future Legislation and Regulation**

Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of any proposed legislation could impact the regulatory structure under which the Company and the Bank operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue business opportunities in an efficient manner. A change in statutes, regulations or regulatory policies applicable to the Company or the Bank are difficult to predict, and could have a material, adverse effect on the business, financial condition and results of operations of the Company and the Bank.

**Filings with the SEC**

The Company's internet address is <u>www.fbvirginia.com</u>. The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, as filed with or furnished to the Securities and Exchange Commission (the SEC), are available free of charge at <u>www.fbvirginia.com</u> as soon as reasonably practicable after being filed with or furnished to the SEC. A copy of any of the Company's filings will be sent, without charge, to any shareholder upon written request to: Brad E. Schwartz, Chief Financial Officer, at 112 West King Street, Strasburg, Virginia 22657. The information on the Company's website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.

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**Item 1A.&nbsp;&nbsp;&nbsp;&nbsp;Risk Factors**

An investment in the Company's securities involves risks. In addition to the other information set forth in this report, investors in the Company's securities should carefully consider the factors discussed below. These factors could materially and adversely affect the Company's business, financial condition, liquidity, results of operations and capital position, and could cause the Company's actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company's securities could decline.

***<u>Risks Related to our Lending Activities and Economic Conditions</u>***

**Our business is subject to various lending and other economic risks that could adversely affect our results of operations and financial condition.** 

Deterioration in economic conditions could adversely affect our business. Our business is directly affected by general economic and market conditions; broad trends in industry and finance; legislative and regulatory changes; changes in governmental monetary and fiscal policies; changes in interest rates; and inflation, all of which are beyond our control. A deterioration in economic conditions, in particular a prolonged economic slowdown within our geographic region or a broader disruption in the economy, could result in the following consequences, any of which could hurt our business materially: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decline in demand for our products and services; a deterioration in the value of collateral for loans made by our various business segments; and changes in the fair value of financial instruments held by the Company or its subsidiaries.

**Adverse changes in economic conditions in our market areas or adverse conditions in an industry on which a local market in which we do business is dependent could adversely affect our results of operations and financial condition.**

We provide banking and other financial services throughout the Company's market areas, which include the Shenandoah Valley, Roanoke Valley, Richmond, south-central regions of Virginia, and northern North Carolina. Our loan and deposit activities are directly affected by, and our financial success depends on, economic conditions within these markets, as well as conditions in the industries on which those markets are economically dependent. A deterioration in local economic conditions or in the condition of an industry on which a local market depends could adversely affect such factors as unemployment rates, business formations and expansions and housing market conditions. Adverse developments in any of these factors could result in, among other things, a decline in loan demand, a reduction in the number of credit-worthy borrowers seeking loans, an increase in delinquencies, defaults and foreclosures, an increase in classified and nonaccrual loans, a decrease in the value of loan collateral, and a decline in the financial condition of borrowers and guarantors, any of which could adversely affect our financial condition or business.

**The Company**'**s allowance for credit losses on loans may prove to be insufficient to absorb losses in its loan and securities portfolios.**

Like all financial institutions, the Company maintains an allowance for credit losses (ACL) to provide for loans and securities that may not repay in their entirety. The Company believes that it maintains an ACL at a level adequate to absorb expected losses inherent in the loan and securities portfolios as of the corresponding balance sheet date and in compliance with applicable accounting and regulatory guidance. However, the ACL may not be sufficient to cover actual losses and future provisions for credit losses could materially and adversely affect the Company's operating results. Accounting measurements related to impairment and the allowance for credit losses require significant estimates that are subject to uncertainty and changes relating to new information and changing circumstances. The significant uncertainties surrounding the ability of the Company's borrowers to execute their business models successfully through changing economic environments, competitive challenges, and other factors complicate the Company's estimates of the risk of loss and amount of loss on any loan or security. Because of the degree of uncertainty and susceptibility of these factors to change, the actual losses may vary from current estimates.

The Company's banking regulators, as an integral part of their examination process, periodically review the ACL and may require the Company to increase its allowance for credit losses by recognizing additional provisions for credit losses charged to expense, or to decrease the allowance for credit losses on loans by recognizing loan charge-offs, net of recoveries. Any such required additional provisions for credit losses or charge-offs could have a material adverse effect on the Company's financial condition and results of operations.

**The Company**'**s concentration in loans secured by real estate may adversely affect earnings due to changes in the real estate markets.**

The Company offers a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer, and other loans. Many of the Company's loans are secured by real estate (both residential and commercial) in the Company's market areas. A major change in the real estate markets, resulting in deterioration in the value of this collateral, or in the local or national economy, could adversely affect borrowers' ability to pay these loans, which in turn could negatively affect the Company. Risks of loan defaults and foreclosures are unavoidable in the banking industry; the Company tries to limit its exposure to these risks by monitoring extensions of credit carefully. The Company cannot fully eliminate credit risk; thus, credit losses will occur in the future. Additionally, changes in the real estate market also affect the value of foreclosed assets, and therefore, additional losses may occur when management determines it is appropriate to sell the assets.

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**The Company has a significant exposure in commercial real estate, and loans with this type of collateral are viewed as having more risk of default.**

The Company's commercial real estate portfolio consists primarily of owner-operated properties and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the owner's business or the property to service the debt. Cash flows may be affected significantly by general economic conditions, and a downturn in the local economy or in occupancy rates in the local economy where the property is located could increase the likelihood of default. Because the Company's loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in the percentage of non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for credit losses and an increase in charge-offs, all of which could have a material adverse effect on the Company's financial condition.

The Company's banking regulators generally give commercial real estate lending greater scrutiny and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies, and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital levels as a result of commercial real estate lending growth and exposures, which could have a material adverse effect on the Company's results of operations.

**The Company**'**s loan portfolio contains construction and development loans, and a decline in real estate values and economic conditions would adversely affect the value of the collateral securing the loans and have an adverse effect on the Company**'**s financial condition.**

Although most of the Company's construction and development loans are secured by real estate, the Company believes that, in the case of the majority of these loans, the real estate collateral by itself may not be a sufficient source for repayment of the loan if real estate values decline. If the Company is required to liquidate the collateral securing a construction and development loan to satisfy the debt, its earnings and capital may be adversely affected. A period of reduced real estate values may continue for some time, resulting in potential adverse effects on the Company's earnings and capital.

**The Company**'**s credit standards and its on-going credit assessment processes might not protect it from significant credit losses.**

The Company assumes credit risk by virtue of making loans and extending loan commitments and letters of credit. The Company manages credit risk through a program of underwriting standards, the review of certain credit decisions and a continuous quality assessment process of credit already extended. The Company's exposure to credit risk is managed through the use of consistent underwriting standards that emphasize local lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. The Company's credit administration function employs risk management techniques to help ensure that problem loans are promptly identified. While these procedures are designed to provide the Company with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.

Although the Company emphasizes local lending practices, the Company has purchased certain loans through third-party lending programs. These portfolios include commercial loans and carry risks associated with the borrower, changes in the economic environment, and the vendor themselves. The Company manages these risks through policies that require minimum credit scores and other underwriting requirements, robust analysis of actual performance versus expected performance, as well as ensuring compliance with the Company's vendor management program. While these policies are designed to manage the risks associated with these loans, there can be no assurance that such measures will be effective in avoiding undue credit losses.

**Prepayments of loans and securities could materially impact earnings through a reduction in interest income and fees on loans and interest income on securities.**

The Company assumes earnings risk from the potential prepayment of loans and securities purchased at premiums. The Company's loan portfolio includes commercial and industrial loans purchased at premiums through third-party lending programs as well as loans acquired through business combinations, which resulted in purchase premiums. Additionally, the Company purchases securities at premiums from time-to-time for its investment portfolio. Premiums on performing loans are amortized over the life of the loans and premiums on securities are amortized to the earlier of their call dates or maturity dates. Prepayments of the loans and securities would accelerate amortization expense of unamortized premiums and could result in a material decrease in earnings during future periods from a reduction of interest income and fees on loans or interest income on securities.

**The Company**'**s focus on lending to small to mid-sized community-based businesses may increase its credit risk.**

Most of the Company's commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market areas in which the Company operates negatively impact this important customer sector, the Company's results of operations and financial condition may be adversely affected. Moreover, a portion of these loans have been made by the Company in recent years and the borrowers may not have experienced a complete business or economic cycle. Any deterioration of the borrowers' businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on the Company's financial condition and results of operations.

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**The Company relies upon independent appraisals to determine the value of the real estate which secures a significant portion of its loans, and the values indicated by such appraisals may not be realizable if the Company is forced to foreclose upon such loans.**

A significant portion of the Company's loan portfolio consists of loans secured by real estate. The Company relies upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment that adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of the Company's loans may be more or less valuable than anticipated at the time the loans were made. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, the Company may not be able to recover the outstanding balance of the loan.

**The Company depends on the accuracy and completeness of information about clients and counterparties, and its financial condition could be adversely affected if it relies on misleading information.**

In deciding whether to extend credit or to enter into other transactions with clients and counterparties, the Company may rely on information furnished to it by or on behalf of clients and counterparties, including financial statements and other financial information, which the Company does not independently verify. The Company also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, the Company may assume that a customer's audited financial statements conform to U.S. generally accepted accounting principles (GAAP) and present fairly, in all material respects, the financial condition, results of operations, and cash flows of the customer. The Company's financial condition and results of operations could be negatively impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading.

**Nonperforming assets take significant time to resolve and adversely affect the Company**'**s results of operations and financial condition.**

Nonperforming assets adversely affect the Company in various ways. The Company does not record interest income on nonaccrual loans, which adversely affects its income and increases loan administration costs. When the Company receives collateral through foreclosures and similar proceedings, it is required to mark the related loan to the then fair market value of the collateral less estimated selling costs, which may result in a loss. An increase in the level of nonperforming assets also increases the Company's risk profile, which may reduce the amount of liquidity available to the Company and require a higher level of capital in light of such risks. The Company utilizes various techniques such as workouts, restructurings, and loan sales to manage problem assets. Increases in or negative adjustments in the value of these problem assets, the underlying collateral, or in the borrowers' performance or financial condition, could adversely affect the Company's business, results of operations, and financial condition. In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including origination of new loans. There can be no assurance that the Company will avoid increases in nonperforming assets in the future.

**We are subject to environmental liability risk associated with our lending activities.**

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property's value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. Remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

**Weakness in the secondary residential mortgage loan markets or demand for mortgage loans may adversely affect income.** 

Our mortgage department contributes to our noninterest income. We generate income from brokered mortgage loans and gains on sales of mortgage loans primarily from loans that we source and/or originate. Interest rates, housing inventory, housing demand, cash buyers, new mortgage lending regulations and other market conditions have a direct effect on loan originations across the industry. During 2024, revenues from mortgage banking decreased significantly from historical levels, primarily due to lower mortgage volumes as market interest rates increased and the demand for mortgages declined. While brokered mortgage fees increased in 2025, loan production levels may suffer if there is a sustained slowdown in the housing markets in which the Company conducts business or tightening credit conditions. Any sustained period of decreased activity caused by an economic downturn, fewer refinancing transactions, higher interest rates, housing price pressure, or loan underwriting restrictions would adversely affect the Company's mortgage originations and, consequently, noninterest income from its mortgage operations. In addition, our results of operations are affected by the amount of noninterest expenses (including for personnel and systems infrastructure) associated with mortgage banking activities. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in mortgage loan origination activity.

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**The Company**'**s wealth management revenue is directly impacted by the market value of assets under management, which could adversely impact Company profitability.**

A significant portion of revenue from wealth management services is based on the market value of assets under management, which may decrease due to a variety of factors including an economic slowdown. Any sustained period of lower market values of assets under management would adversely affect the Company's wealth management revenue and, as a result, would also adversely affect the Company's results of operations.

***<u>Risks Related to our Industry</u>***

**We are subject to interest rate risk and fluctuations in interest rates may negatively affect our results of operations and financial condition.**

Our profitability depends in substantial part on our net interest margin, which is the difference between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits and borrowings divided by total interest-earning assets. Changes in interest rates will affect our net interest margin in diverse ways, including the pricing of loans and deposits, the levels of prepayments, and asset quality. We are unable to predict actual fluctuations of market interest rates because many factors influencing interest rates, including changes in economic conditions and monetary policies, which are beyond our control. We believe that our current interest rate exposure is manageable and does not indicate any significant exposure to interest rate changes. Although the Company does not believe it has significant exposure to changes in interest rates, it could experience pressure on the net interest margin due to intense competition for loans and deposits from both local and national financial institutions. In addition, the Company could experience net interest margin compression if it is unable to maintain its current level of loans outstanding by continuing to originate new loans or if it experiences a decrease in deposit balances, which would require the Company to seek funding from other sources at higher rates of interest.

In addition, changes in interest rates may negatively affect both the returns on and market value of our investment securities. Interest rate changes can reduce unrealized gains or increase unrealized losses in our portfolio and thereby negatively impact our accumulated other comprehensive income and equity levels. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position. Additionally, actual investment income and cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated at the time of investment or subsequently as a result of changes in interest rates and market conditions. These occurrences could have a material adverse effect on our net interest income or our results of operations.

**We rely substantially on deposits obtained from customers in our target markets to provide liquidity and support growth.**

We require sufficient liquidity to fund asset growth, meet customer loan requests, customer deposit maturities and withdrawals, make payments on our debt obligations as they come due and other cash commitments. Our business strategy is based primarily on access to funding from local customer deposits. Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, changes in the liquidity needs of our depositors and general economic conditions that affect savings levels and the amount of liquidity in the economy, including government stimulus efforts in response to economic crises. If market interest rates rise or our competitors raise the rates they pay on deposits, our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Either of these factors could reduce our net interest margin and net interest income and could have a material adverse effect on our business, financial condition, results of operations and cash flows from operations.

Further, if local customer deposits are not sufficient to fund our normal operations and growth, we may rely on secondary sources of liquidity, such as brokered deposits, borrowings from the Federal Home Loan Bank of Atlanta (FHLB), federal funds lines of credit from correspondent banks, and borrowings from the Federal Reserve Discount Window; however, there can be no assurance that these arrangements will be available to us when needed on favorable terms, or at all, or that they will be sufficient to meet future liquidity needs. For example, our ability to access borrowings from the FHLB will be dependent upon whether and the extent to which we can provide collateral to secure FHLB borrowings, and our use of brokered deposits may be limited or discouraged by our banking regulators. We also may need to raise funds through the issuance of debt or equity securities, or the sale of investment securities or loans, as additional sources of liquidity. If we are unable to access funding sufficient to support our business operations and growth strategies or are unable to access such funding on attractive terms, we may not be able to implement our business strategies or satisfy our obligations.

**Consumers may increasingly decide not to use banks to complete their financial transactions, which could have a material adverse impact on our financial condition and operations.**

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, general-purpose reloadable prepaid cards, or in other types of assets, including crypto currencies, Stablecoins, or other digital assets. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks. Large technology companies offering embedded financial services, digital wallets, and payment platforms have also increased competitive pressures and may accelerate customer migration away from traditional banking products. The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the loss of deposits as a lower cost source of funds could have a material adverse effect on our financial condition and results of operations.

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**Competition in our primary market area may limit asset growth and profitability.**

We encounter strong competition from other financial institutions in our primary market area. In addition, established financial institutions not already operating in our primary market area may open branches at future dates. In the conduct of certain aspects of our business, we also compete with credit unions, mortgage banking companies, consumer finance companies, insurance companies, real estate companies, Fintech, and other institutions, some of which are not subject to the same degree of regulation or restrictions as are imposed upon us. Many of these competitors have substantially greater resources and lending limits than we have and offer services that we do not provide. In addition, many of these competitors have numerous branch offices located throughout their extended market areas that may provide them with a competitive advantage. Finally, these institutions may have differing pricing and underwriting standards, which may adversely affect our company through the loss of business or causing a misalignment in our risk-return relationship. No assurance can be given that such competition will not have an adverse impact on the financial condition and results of operations.

**The carrying value of intangible assets, such as goodwill and core deposit intangibles, may be adversely affected.**

When the Company completes an acquisition, intangibles, such as goodwill and core deposit intangibles, are recorded on the date of acquisition as an asset. Current accounting guidance requires an evaluation for impairment, and the Company performs such impairment analysis at least annually. A significant adverse change in expected future cash flows, sustained adverse change in the Company's common stock, or a decline in core deposit balances could require the asset to become impaired. If impaired, the Company would incur a charge to earnings that could have a significant impact on the results of operations.

**There are risks resulting from the use of models in our business.**

We rely on quantitative models to measure risks and to estimate certain financial values. Models may be used in such processes as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting or estimating losses, assessing capital adequacy and calculating economic and regulatory capital levels, as well as to estimate the value of financial instruments and balance sheet items. Poorly designed or implemented models present the risk that our business decisions based on information incorporating model output would be adversely affected due to the inadequacy of that information. Also, information we provide to the public or to our regulators based on poorly designed or implemented models could be inaccurate or misleading.

***<u>Risks Related to Operations and Technology</u>***

**The Company**'**s risk-management framework may not be effective in mitigating risk and loss.**

The Company maintains an enterprise risk management program that is designed to identify, quantify, monitor, report, and control the risks that it faces. These risks include interest rate, credit, liquidity, operations, reputation, compliance, and litigation. While the Company assesses and improves this program on an ongoing basis, there can be no assurance that its approach and framework for risk management and related controls will effectively mitigate all risk and limit losses in its business. If conditions or circumstances arise that expose flaws or gaps in the Company's risk-management program, or if its controls break down, the Company's results of operations and financial condition may be adversely affected.

**Security breaches and other disruptions could compromise our information and expose us to liability or result in the loss of money, which could damage our reputation and our business.**

We rely on the secure processing, storage, and transmission of confidential and other information in our and our vendors' computer systems and networks. While we have policies and procedures designed to prevent or limit the effect of a possible security breach, our computer systems, software, and networks, including those of our vendors, may be vulnerable to unauthorized access, computer viruses, or other malicious code, and other events that could have a security impact. To date, the Company has not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, but the Company's systems and those of its customers and third-party service providers are under constant threat and it is possible that the Company could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by the Company and its customers. The continued evolution and increased usage of artificial intelligence technologies may further increase these risks. If one or more such events occur, this potentially could jeopardize our customers' confidential and other information processed and stored in, and transmitted through, our computer systems and networks or those of our vendors, or otherwise cause interruptions or malfunctions in our or our customers' operations or result in the loss of money. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

Security breaches in our internet banking activities could further expose us to possible liability, financial loss, and damage to our reputation. Any compromise of our security also could deter customers from using our internet banking services that involve the transmission of confidential information. We have implemented security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures, which could result in damage to our reputation and our business.

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**The Company relies on other companies to provide key components of its business infrastructure.**

Third parties provide key components of the Company's business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections, and network access. While the Company has selected these third-party vendors carefully, it does not control their actions. Any problem caused by these third parties, including poor performance of services, failure to provide services, disruptions in communication services provided by a vendor and failure to handle current or higher volumes, could adversely affect the Company's ability to deliver products and services to its customers and otherwise conduct its business, and may harm its reputation. Financial or operational difficulties of a third-party vendor could also hurt the Company's operations if those difficulties affect the vendor's ability to serve the Company. Replacing these third-party vendors could also create significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to the Company's business operations.

**Our business is technology dependent, and an inability to successfully implement technological improvements may adversely affect our ability to be competitive and our results of operations and financial condition.**

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products, systems and services, which may require substantial initial investment to be implemented, including the cost of modifying or adapting existing products, systems and services. The Company invests in new technology to enhance customer service, and to increase efficiency and reduce operating costs. Our future success will depend in part upon our ability to create synergies in our operations through the use of technology and to facilitate the ability of customers to engage in financial transactions in a manner that enhances the customer experience. We cannot give any assurance that technological improvements will increase operational efficiency or that we will be able to effectively implement new technology-driven products, systems and services or be successful in marketing new products and services to our customers. A failure to maintain or enhance a competitive position with respect to technology, whether because of a failure to anticipate customer expectations, substantially fewer resources to invest in technological improvements than larger competitors, or because our technological developments fail to perform as desired or are not implemented in a timely manner, could result in higher operating costs, decreased customer satisfaction, and lower market share. An inability to effectively implement new technology and realize operational efficiencies could result in the loss of initial investments in such projects and higher operating costs. Either of these outcomes could have a material adverse impact on our financial condition and results of operations.

Further, the Company may utilize new technology, such as AI, in connection with its business and operations. AI may be developed internally, or may be provided by third- or fourth-party service providers. Any such new technology could have a significant impact on the effectiveness of the Company's system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business, products or services and/or technologies could have a material adverse effect on the Company's business, financial condition and results of operations. AI may introduce the Company to novel or intensified legal, regulatory, ethical, operational, reputational or other risks. AI usage is subject to a range of existing laws and regulations. AI is also expected to be governed by new laws and regulations, or new applications of existing laws and regulations. AI is under ongoing scrutiny by various governmental and regulatory bodies, with federal, state and international authorities either implementing or considering legal frameworks that could impact the Company's ability to leverage AI effectively. The Company may find it challenging to predict and adapt to these rapidly evolving legal requirements. AI models employed by the Company or its service providers might be flawed due to improper design, implementation, or training or outputs based on data or algorithms that are incomplete, inadequate, misleading, biased or of poor quality. These flaws may not be easily identifiable. Additionally, there is no certainty that the Company's use of AI will successfully enhance its business operations or achieve its intended outcomes, and its competitors may adopt AI more swiftly or effectively than the Company does.

**Loss of any of our key personnel could disrupt our operations and result in reduced revenues or increased expenses.**

We are a relationship-driven organization. A key aspect of our business strategy is for our banking officers to have primary contact with our customers. Our growth and development to date have been, in large part, a result of these personalized relationships with our customer base.

Our officers have considerable experience in the banking industry and related financial services and are extremely valuable and would be difficult to replace. The loss of the services of these officers could have a material adverse effect upon future prospects. Although we believe the Company has excellent employee relations and provides competitive compensation to its officers, we cannot offer any assurance that they and other key employees will remain employed by us. The unexpected loss of services of one or more of these key employees could have a material adverse effect on operations and possibly result in reduced revenues or increased expenses.

**The success of our business strategies depends on our ability to identify and recruit individuals with experience and relationships in our primary markets.**

The successful implementation of our business strategy will require us to continue to attract, hire, motivate and retain skilled personnel to develop new customer relationships as well as new financial products and services. The market for qualified personnel is competitive, which has contributed to salary and employee benefit costs that have risen and are expected to continue to rise, which may have an adverse effect on the Company's net income. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out our strategy is often lengthy, and we may not be able to effectively integrate these individuals into our operations. Our inability to identify, recruit and retain talented personnel to manage our operations effectively and in a timely manner could limit our growth, which could materially adversely affect our business.

**Difficulties in combining the operations of new or acquired bank branches, loan production offices or entities with the Company**'**s own operations may prevent the Company from achieving the expected benefits from acquisitions.**

The Company may not be able to achieve fully the strategic objectives and operating efficiencies expected in opening a new branch or loan production office (LPO) or through an acquisition. Inherent uncertainties exist in integrating the operations of a new or acquired entity or acquired branches or LPO's. In addition, the markets and industries in which the Company and its potential new office locations or acquisition targets operate may be highly competitive. The Company may lose customers or the customers of acquired entities as a result of an acquisition; the Company may lose key personnel, either from the acquired entity or from itself; and the Company may not be able to control the incremental increase in noninterest expense arising from a new office location or acquisition in a manner that improves its overall operating efficiencies. These factors could contribute to the Company's not achieving the expected benefits from its new branch or LPO locations or acquisitions within desired time frames, or at all. Future business acquisitions could be material to the Company, and it may issue additional shares of common stock to support those acquisitions, which would dilute current shareholders' ownership interests. Acquisitions could also require the Company to use substantial cash or other liquid assets or to incur debt; the Company could therefore become more susceptible to economic downturns and competitive pressures.

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**The inability of the Company to successfully manage its growth or implement its growth strategy may adversely affect the Company**'**s results of operations and financial conditions.**

The Company may not be able to successfully implement its growth strategy if it is unable to expand market share in existing locations, identify attractive markets, locations, or opportunities to expand in the future. In addition, the ability to manage growth successfully depends on whether the Company can maintain adequate capital levels, maintain cost controls, effectively manage asset quality, and successfully integrate any expanded business divisions or acquired businesses into the organization.

As the Company continues to implement its growth strategy by opening new branches or acquiring branches or banks, it expects to incur increased personnel, occupancy, and other operating expenses. In the case of new branches, the Company must absorb those higher expenses while it begins to generate new deposits. In the case of acquired branches, the Company must absorb higher expenses while it begins deploying the newly assumed deposit liabilities. With either new branches opened, or branches acquired, there would be a time lag involved in deploying new deposits into attractively priced loans and other higher yielding earning assets. Thus, the Company's plans to expand could depress earnings in the short run, even if it efficiently executes a branching strategy leading to long-term financial benefits.

**Failure to maintain effective systems of internal and disclosure controls could have a material adverse effect on the Company**'**s results of operation and financial condition.**

Effective internal and disclosure controls are necessary for the Company to provide reliable financial reports and effectively prevent fraud, and to operate successfully as a public company. If the Company cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of the Company's ongoing monitoring of internal controls, it may discover material weaknesses or significant deficiencies in its internal controls that require remediation. A "material weakness" is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis.

The Company continually works on improving its internal controls. However, the Company cannot be certain that these measures will ensure that it implements and maintains adequate controls over its financial processes and reporting. Any failure to maintain effective controls or to timely implement any necessary improvement of the Company's internal and disclosure controls could, among other things, result in losses from fraud or error, harm the Company's reputation, or cause investors to lose confidence in the Company's reported financial information, all of which could have a material adverse effect on the Company's results of operation and financial condition.

**The Company or any of its subsidiaries is a defendant from time to time in a variety of litigation and other actions.**

The Company or any of its subsidiaries may be involved from time to time in a variety of litigation arising out of its business, and the Company operates in a legal and regulatory environment that exposes it to potential significant litigation risk. The Company's insurance may not cover all claims that may be asserted against it in legal or administrative actions or costs that it may incur defending such actions, and any claims asserted against it, regardless of merit or eventual outcome, may harm the Company's reputation. Should the ultimate judgments or settlements and/or costs incurred in any litigation exceed any applicable insurance coverage, they could have a material adverse effect on the Company's financial condition and results of operation for any period.

**The Company is subject to claims and litigation pertaining to fiduciary responsibility.**

From time to time, customers make claims and take legal action pertaining to the performance of the Company's fiduciary responsibilities. Whether customer claims and legal action related to the performance of the Company's fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to the Company, they may result in significant financial liability and/or adversely affect the market perception of the Company and its products and services, as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on the Company's business, which, in turn, could have a material adverse effect on the Company's financial condition and results of operations.

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**The soundness of other financial institutions could adversely affect the Company.**

The Company's ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by the Company or by other institutions. Many of these transactions expose the Company to credit risk in the event of default of its counterparty or client. There is no assurance that any such losses would not materially and adversely affect the Company's results of operations.

In addition, financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry. In March 2023, Silicon Valley Bank and Signature Bank experienced large deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into FDIC receiverships. In the aftermath, there was substantial market disruption and concern that diminished depositor confidence could spread across the banking industry, leading to deposit outflows that could destabilize other institutions. While public confidence in the banking system has stabilized, deposit outflows caused by reputational concerns or events affecting the banking industry generally could adversely affect the Company's liquidity, financial condition, and results of operations.

**The operational functions of business counterparties over which the Company may have limited, or no control may experience disruptions that could adversely impact the Company.**

Every year, retailers and service providers are the target of data systems incursions which result in the thefts of credit and debit card information, online account information, and other financial data of their customers and users. These incursions affect cards issued and deposit accounts maintained by many banks, including the Company. Although our systems are not breached in such incursions, these events can cause the Company to reissue a significant number of cards and take other costly steps to avoid significant theft loss to the Company and its customers. In some cases, the Company may be required to reimburse customers for the losses they incur. Other possible points of intrusion or disruption not within the Company's control include internet service providers, electronic mail portal providers, social media portals, distant-server ("cloud") service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.

**Severe weather, pandemics, natural disasters, acts of war or terrorism, and other external events could significantly impact our business.**

Severe weather, pandemics, natural disasters, and other environmental risks, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business. In addition, such events could affect the stability of our deposit base, cause economic or market uncertainty, negatively impact consumer confidence, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses. The occurrence of any such event in the future could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

***<u>Risks Related to the Regulation of the Company</u>***

**Compliance with laws, regulations and supervisory guidance, both new and existing, may adversely affect our business, financial condition and results of operations.**

We are subject to numerous laws, regulations and supervision from both federal and state agencies. Failure to comply with these laws and regulations could result in financial, structural and operational penalties, including receivership. In addition, establishing systems and processes to achieve compliance with these laws and regulations may increase our costs and/or limit our ability to pursue certain business opportunities.

Laws and regulations, and any interpretations and applications with respect thereto, generally are intended to benefit consumers, borrowers and depositors, but not stockholders. The legislative and regulatory environment is beyond our control, may change rapidly and unpredictably and may negatively influence our revenues, costs, earnings, and capital levels. Our success depends on our ability to maintain compliance with both existing and new laws and regulations.

We expect that financial institutions will remain heavily regulated in the near future and that additional laws or regulations may be adopted further regulating specific banking practices. Future legislation, regulation and government policy could affect the banking industry as a whole, including the Company's business and results of operations, in ways that are difficult to predict. In addition, the Company's results of operations could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies.

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**Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.**

The policies of the Federal Reserve affect us significantly. The Federal Reserve regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower's products and services. This could adversely affect the borrower's earnings and ability to repay a loan, which could have a material adverse effect on our financial condition and results of operations.

**The Company is subject to stringent capital and liquidity requirements as a result of the Basel III regulatory capital reforms and the Dodd-Frank Act, which could adversely affect our results of operations and future growth.**

The Company is subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital which each must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines. Under the Dodd-Frank Act, the federal banking agencies have established stricter capital requirements and leverage limits for banking organizations, such as the Bank, that are based on the Basel III regulatory capital reforms. These stricter capital requirements were fully implemented on January 1, 2019. While the Economic Growth Act and recent federal banking regulations established a simplified leverage capital framework for smaller banks, these more stringent capital requirements could, among other things, result in lower returns on equity, require the raising of additional capital and adversely affect future growth opportunities. In addition, if the Company fails to meet these minimum capital guidelines and/or other regulatory requirements, the Company's financial condition could be materially and adversely affected.

**Legislative or regulatory changes or actions, or significant litigation, could adversely affect the Company or the businesses in which the Company is engaged.**

The Company is subject to extensive state and federal regulation, supervision, and legislation that govern almost all aspects of its operations. Laws and regulations change from time to time and are primarily intended for the protection of consumers, depositors, and the FDIC's DIF. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively affect the Company or its ability to increase the value of its business. Such changes could include higher capital requirements, and increased insurance premiums, increased compliance costs, reductions of noninterest income, and limitations on services that can be provided. Actions by regulatory agencies or significant litigation against the Company could cause it to devote significant time and resources to defend itself and may lead to liability or penalties that materially affect the Company and its shareholders. Future changes in the laws or regulations or their interpretations or enforcement could be materially adverse to the Company and its shareholders.

The Company expects the Trump administration will implement a regulatory agenda that could reduce and streamline certain prudential and regulatory requirements applicable to banking organizations at a federal level. At this time, however, it is unclear what the impacts to the rulemaking, supervision, examination, and enforcement priorities of the federal banking agencies will be, what laws, regulations, and policies may change, and whether future changes or uncertainty surrounding future changes will adversely affect the Company's operating environment, and therefore its business, financial condition, and results of operations.

See the section of this report entitled "Supervision and Regulation" for additional information on the statutory and regulatory issues that affect the Company's business.

**Changes in accounting standards could impact reported earnings and capital.**

The authorities that promulgate accounting standards, including the Financial Accounting Standards Board (the FASB), the SEC, and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of the Company's consolidated financial statements. These changes are difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in the restatement of financial statements for prior periods. Such changes could also impact the capital levels of the Company and the Bank or require the Company to incur additional personnel or technology costs. For more information regarding recent accounting pronouncements and their effects on the Company, see "Recent Accounting Pronouncements" in Note 1 of the consolidated financial included in Item 8 of this Form 10-K.

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**Changes in tax rates applicable to the Company may cause impairment of deferred tax assets.**

The Company determines deferred income taxes using the balance sheet method. Under this method, each asset and liability are examined to determine the difference between its book basis and its tax basis. The difference between the book basis and the tax basis of each asset and liability is multiplied by the Company's marginal tax rate to determine the net deferred tax asset or liability. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.

The marginal tax rate applicable to the Company, as with all entities subject to federal income tax, is based on the Company's taxable income. If the Company's taxable income declines such that the Company's marginal tax rate declines, the change in deferred income tax assets and liabilities would result in an expense during the period that a lower marginal tax rate occurs. If changes in tax rates and laws are enacted, the Company will recognize the changes in the period in which they occur. Changes in tax rates and laws could impair the Company's deferred tax assets and result in an expense associated with the change in deferred tax assets and liabilities.

**Evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (ESG) practices may impose additional costs on the Company or expose it to new or additional risks.**

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to corporate social responsibility, environmental concerns, governance and related practices. Failure to act responsibly or in line with regulatory and stakeholder expectations in a number of areas, such as climate risk, human capital and hiring practices, human rights, support for local communities, and corporate governance and transparency, could negatively impact the Company's reputation, ability to do business with certain partners, and stock price. The rules, regulations and expectations of regulators, customers, investors, associates, and other stakeholders with respect to these matters continue to evolve, which could result in increases to the Company's overall operational costs and increased management time and attention. Further, as these rules, regulations and expectations continue to evolve, the Company's stakeholders may have differing views on related matters. Scrutiny, or the perception that the Company's efforts are too ambitious or misdirected, could expose the Company to the risk of investigations, litigation and other proceedings or reputational harm. If the Company is unable to meet its social- or environmentally-related goals or evolving and divergent stakeholder expectations and industry standards, it could negatively impact the value of the Company's brand, the cost of its operations and/or relationships with customers, investors or employees, any of which could adversely affect its business and results.

**Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company**'**s business.**

The current and anticipated effects of climate change continue to raise concerns for the state of the global environment. As a result, the Company and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. While the Trump administration has shifted federal policy to reduce the emphasis on climate change initiatives and environmental regulations, state and local regulations or guidance relating to climate change, as well as changes in consumers' and businesses' behaviors and business preferences, could affect our business operations. Among other things, the Company and its customers could face cost increases, compliance-related risks, asset value reductions and operating process changes.

The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict how specifically climate change may impact the Company's financial condition and results of operations; however, the physical effects of climate change may also directly impact the Company. Specifically, unpredictable and more frequent weather disasters may adversely impact the value of real property securing the loans in the Bank's loan portfolio. Additionally, if insurance obtained by borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to borrowers, the collateral securing loans may be negatively impacted by climate change, which could impact the Company's financial condition and results of operations. Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on customers and impact the communities in which the Company operates. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on the Company's financial condition and results of operations.

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***<u>Risks Related to The Company</u>***'***<u>s Securities</u>***

**The Company relies on dividends from its subsidiaries for substantially all of its revenue.**

The Company is a bank holding company that conducts substantially all of its operations through the Bank. As a result, the Company relies on dividends from the Bank for substantially all of its revenues. There are various regulatory restrictions on the ability of the Bank to pay dividends or make other payments to the Company. Also, the Company's right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to the prior claims of the subsidiary's creditors. In the event the Bank is unable to pay dividends to the Company, the Company may not be able to service debt, pay obligations, or pay a cash dividend to the holders of its common stock and the Company's business, financial condition, and results of operations may be materially adversely affected. Further, although the Company has historically paid a cash dividend to the holders of its common stock, holders of the common stock are not entitled to receive dividends, and regulatory or economic factors may cause the Company's Board of Directors to consider, among other things, the reduction of dividends paid on the Company's common stock even if the Bank continues to pay dividends to the Company.

**Future issuances of the Company**'**s common stock could adversely affect the market price of the common stock and could be dilutive.**

The Company is not restricted from issuing additional authorized shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of common stock. Issuances of a substantial number of shares of common stock, or the expectation that such issuances might occur, including in connection with acquisitions by the Company, could materially adversely affect the market price of the shares of common stock and could be dilutive to shareholders. Because the Company's decision to issue common stock in the future will depend on market conditions and other factors, it cannot predict or estimate the amount, timing, or nature of possible future issuances of its common stock. Accordingly, the Company's shareholders bear the risk that future issuances will reduce the market price of the common stock and dilute their stock holdings in the Company.

**Current economic conditions or other factors may cause volatility in the Company**'**s common stock value.**

The value of publicly traded stocks in the financial services sector can be volatile. The value of the Company's common stock can also be affected by a variety of factors such as expected results of operations, actual results of operations, actions taken by shareholders, news or expectations based on the performance of others in the financial services industry and expected impacts of a changing regulatory environment. These factors not only impact the value of the Company's common stock but could also affect the liquidity of the stock given the Company's size, geographical footprint, and industry.

**Future sales of our common stock by shareholders or the perception that those sales could occur may cause our common stock price to decline.**

Although our common stock is listed for trading on NASDAQ Capital Market stock exchange, the trading volume in our common stock may be lower than that of other larger financial institutions. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the potential for lower relative trading volume in our common stock, significant sales of the common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of these sales or perceptions.

**The Company**'**s subordinated debt and junior subordinated debt are superior to its common stock, which may limit its ability to pay dividends on common stock in the future.**

The Company's ability to pay dividends on common stock is also limited by contractual restrictions under its subordinated debt and junior subordinated debt. Interest must be paid on the subordinated debt and junior subordinated debt before dividends may be paid to common shareholders. The Company is current in its interest payments on subordinated debt and junior subordinated debt; however, it has the right to defer distributions on its junior subordinated debt, during which time no dividends may be paid on its common stock. If the Company does not have sufficient earnings in the future and begins to defer distributions on the junior subordinated debt, it will be unable to pay dividends on its common stock until it becomes current on those distributions.

**The Company**'**s governing documents and Virginia law contain anti-takeover provisions that could negatively affect its shareholders.**

The Company's Articles of Incorporation and the Virginia Stock Corporation Act contain certain provisions designed to enhance the ability of the Board of Directors to deal with attempts to acquire control of the Company. These provisions and the ability to set the voting rights, preferences, and other terms of any series of outstanding preferred stock and preferred stock that may be issued, may be deemed to have an anti-takeover effect and may discourage takeovers (which certain shareholders may deem to be in their best interest). To the extent that such takeover attempts are discouraged, temporary fluctuations in the market price of the Company's common stock resulting from actual or rumored takeover attempts may be inhibited. These provisions also could discourage or make more difficult a merger, tender offer, or proxy contest, even though such transactions may be favorable to the interests of shareholders and could potentially adversely affect the market price of the Company's common stock.

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| | |
|:---|:---|
| **Item 1B.** | **Unresolved Staff Comments** |

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Not applicable.

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|:---|:---|
| **Item 1C.** | **Cybersecurity** |

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*Risk Management and Strategy*

The Company's risk management program is designed to identify, assess, and mitigate risks across various aspects of our Company, including financial, operational, regulatory, reputational, and legal. Cybersecurity is a critical component of this program, given the increasing reliance on technology and potential of cyber threats. The Chief Risk Officer is primarily responsible for this cybersecurity component and is a key member of the risk management organization, reporting directly to the Chief Executive Officer and, as discussed below, periodically to the Audit Committee of the Board of Directors.

The objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse our systems or information. The structure of our information security program is designed around the National Institute of Standards and Technology (NIST) Cybersecurity Framework, regulatory guidance, and other industry standards. In addition, we leverage certain industry and government associations, third-party benchmarking, audits, and threat intelligence feeds to facilitate and promote program effectiveness. The Chief Risk Officer, along with key members of the information security team, regularly collaborates with peer banks, industry groups, and policymakers to discuss cybersecurity trends and issues and identify best practices. The information security program is periodically reviewed by such personnel with the goal of addressing changing threats and conditions.

The Company employs an in-depth, layered, defensive strategy that embraces a "trust by design" philosophy when designing new products, services, and technology. We leverage people, processes, and technology as part of our efforts to manage and maintain cybersecurity controls. We also employ a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on suspected advanced persistent threats. We have established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations and tabletop exercises, and recovery and resilience tests. We engage in regular assessments of our infrastructure, software systems, and network architecture, using internal cybersecurity experts and third-party specialists. We also maintain a *third*-party risk management program designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers and our supply chain. We also actively monitor our email gateways for malicious phishing email campaigns and monitor remote connections as a significant portion of our workforce has the option to work remotely. We leverage internal and external auditors and independent external partners to periodically review our processes, systems, and controls, including with respect to our information security program, to assess their design and operating effectiveness and make recommendations to strengthen our risk management program.

We maintain an Incident Response Plan that provides a documented framework for responding to actual or potential cybersecurity incidents, including timely notification of and escalation to the appropriate Board-approved management committees, as discussed further below, and to the Audit Committee of our Board of Directors. The Incident Response Plan is coordinated through the Information Security Officer and key members of management are embedded into the Incident Response Plan by its design. The Incident Response Plan facilitates coordination across multiple parts of our organization and is evaluated at least annually.

Notwithstanding these defensive measures and processes, the threat posed by cyber-attacks is severe. Internal systems, processes, and controls are designed to mitigate loss from cyber-attacks and, while we have experienced cybersecurity incidents in the past, to date, risks from cybersecurity threats have not materially affected our company. For further discussion of risks from cybersecurity threats, see the section captioned "Risks Related to Operations and Technology" in Item 1A. Risk Factors.

*Governance*

The Chief Risk Officer is accountable for managing our enterprise information security department and delivering our information security program. The responsibilities of this department include cybersecurity risk assessment, defense operations, incident response, vulnerability assessment, threat intelligence, identity access governance, third-party risk management, and business resilience. The foregoing responsibilities are covered on a day-to-day basis by a first line of defense function, and our second line of defense function, including the Information Security Officer, provides guidance, oversight, monitoring and challenge of the first line's activities. The second line of defense function is separated from the first line of defense function through organizational structure and ultimately reports directly to the Chief Risk Officer. The department, as a whole, consists of information security professionals with varying degrees of education and experience. Individuals within the department are generally subject to professional education and certification requirements. In particular, our Chief Risk Officer has substantial relevant expertise and formal training in the areas of information security and cybersecurity risk management.

The Audit Committee of our Board of Directors is responsible for overseeing our information security and technology governance programs, including management's actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks. Our Chief Risk Officer reports to the Audit Committee of our Board of Directors regarding the information security program and the technology program, key enterprise cybersecurity initiatives, and other matters relating to cybersecurity processes. The Audit Committee of our Board of Directors reviews and approves our information security and technology policies annually. Additionally, the Audit Committee of our Board of Directors reviews our cyber security risk profile on a quarterly basis. The Audit Committee of our Board of Directors provides a report of their activities to the full Board of Directors at board meetings.

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| | |
|:---|:---|
| **Item 2.** | **Properties** |

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The Company, through its primary operating subsidiary, First Bank, owns or leases buildings that are used in the normal course of business. The Company's headquarters is located at 112 West King Street, Strasburg, Virginia. The Bank owns or leases various other offices in the counties and cities in which it operates. At December 31, 2025, the Bank operated 33 branches throughout the Shenandoah Valley, south-central regions of Virginia, the Richmond and Roanoke market areas, and northern North Carolina. The Bank also operates a loan production office and a customer service center in a retirement community. The Company's operations center is in Strasburg, Virginia. All of the Company's properties are in good operating condition and are adequate for the Company's present and future needs. See Note 1, "Nature of Banking Activities and Significant Accounting Policies," Note 7, "Premises and Equipment," and Note 18, "Lease Commitments," in the "Notes to Consolidated Financial Statements" contained in Item 8 of this Form 10-K for information with respect to the amounts at which Bank premises and equipment are carried and commitments under long-term leases.

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|:---|:---|
| **Item 3.** | **Legal Proceedings** |

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There are no material pending legal proceedings to which the Company is a party or to which the property of the Company is subject.

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| | |
|:---|:---|
| **Item 4.** | **Mine Safety Disclosures** |

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None.

**Part II**

**Item 5.** **Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities**<br>

**Market Information and Holders**

Shares of the common stock of the Company are traded on the Nasdaq Capital Market stock exchange under the symbol "FXNC." As of March 16, 2025 the Company had 1,374 shareholders of record and approximately 2,225 beneficial owners of shares of common stock.

**Dividend Policy**

A discussion of certain limitations on the ability of the Bank to pay dividends to the Company and the ability of the Company to pay dividends on its common stock, is set forth in Part I., Item 1—Business, of this Form 10-K under the headings "Supervision and Regulation - Limits on Dividends and Other Payments" and Item 1A—Risk Factors, "The Company's subordinated debt and junior subordinated debt are superior to its common stock, which may limit the Company's ability to pay dividends on common stock in the future."

The Company's future dividend policy is subject to the discretion of its Board of Directors and will depend upon a number of factors, including future earnings, financial condition, liquidity and capital requirements of both the Company and the Bank, applicable governmental regulations and policies and other factors deemed relevant by the Board of Directors.

**Issuer Purchases of Equity Securities**

There was no authorized repurchase plan, and the Company did not make any repurchases of common stock during 2025.

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|:---|:---|
| **Item 6.** | **[Reserved]** |

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|:---|:---|
| **Item 7.** | **Management's Discussion and Analysis of Financial Condition and Results of Operation** |

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The following discussion and analysis of the financial condition and results of operations of the Company for the years ended December 31, 2025 and 2024 should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements included in Item 8 of this Form 10-K.

**Critical Accounting Policies**

General

The Company's consolidated financial statements and related notes are prepared in accordance with GAAP. The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset, or relieving a liability. The Bank uses historical losses as one factor in determining the inherent loss that may be present in the loan portfolio. Actual losses could differ significantly from the historical factors used. In addition, GAAP itself may change from one previously acceptable method to another. Although the economics of transactions would be the same, the timing of events that would impact transactions could change.

Presented below is a discussion of those accounting policies that management believes are the most important (Critical Accounting Policies) to the portrayal and understanding of the Company's financial condition and results of operations. The Critical Accounting Policies require management's most difficult, subjective, and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.

Allowance for Credit Losses on Loans

The allowance for credit losses on loans (ACLL) is established as losses are estimated to have occurred through a provision for credit losses charged to earnings. Loan losses are charged against the allowance when management determines that the loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance. For further information about the Company's loans and the ACLL, see Notes 1, 4, and 5 to the Consolidated Financial Statements included in this Form 10-K.

The ACLL is evaluated on a quarterly basis by management and is based on 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 loss drivers, which may include unemployment rates, home price indices, and/or gross domestic product (GDP), 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 eight 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 adversity classified loans, changes in concentrations of credit, 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. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The Company performs regular credit reviews of the loan portfolio to review credit quality and adherence to underwriting standards. The credit reviews consist of reviews by its internal credit administration department and reviews performed by an independent third party. Upon origination, each loan is assigned a risk rating ranging from one to nine, with loans closer to one having less risk. This risk rating scale is the Company's primary credit quality indicator. The Company has various committees that review and ensure that the allowance for credit losses methodology is in accordance with GAAP and loss factors used appropriately reflect the risk characteristics of the loan portfolio.

The allowance for loan credit losses represents an amount which, in management's judgement, 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 losses, and is increased or decreased by a provision for (or recovery of) credit losses, which is recorded in the Consolidated Statement of Income. The evaluation also considers the following risk characteristics of each loan portfolio class:

● 1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.

● Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may not finish the construction project as planned because of financial pressure or other factors unrelated to the project.

● Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability.

● Consumer and other loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral, if any. Consumer loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. These loans are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Other loans included in this category include loans to states and political subdivisions.

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The ACLL consists of loans individually evaluated and loans collectively evaluated. Loans that do not share 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 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. For further information regarding the ACLL, see Notes 1 and 5 to the Consolidated Financial Statements included in this Form 10-K.

The Company estimates expected credit losses on held-to-maturity securities on an individual basis based on a Probability of Default/Loss Given Default (PD/LGD) methodology primarily using security-level credit ratings. The primary indicators of credit quality for the Company's held-to-maturity portfolio are security type and credit ratings, which are influenced by a number of factors including obligor cash flow, geography, seniority, among other factors. The Company's held-to-maturity securities with credit risk are municipal bonds and corporate debt securities. All other held-to-maturity securities are covered by the explicit or implied guarantee of the United States government or one if its agencies.

Management evaluates all available-for-sale securities in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specific to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any deficiency is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit loss are recorded as a provision for (or recovery of) credit losses in the Consolidated Statements of Income. Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met.

Financial Instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit losses in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records all allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for (or recovery of) credit losses in the Consolidated Statement of Income. The allowances for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit losses model using the same methodology as the loan portfolio, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company's consolidated balance sheet.

The loan portfolio includes commercial and industrial loans that were originated by a third-party and were acquired at premiums. Premiums on performing loans are amortized into interest income and fees on loans over the life of the loans using the effective interest method. Premiums on non-performing loans are not amortized into interest income and fees on loans after loans are placed on non-accrual status and are included in the calculation of specific reserve component of the allowance for credit losses on loans for individually analyzed loans.

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**Results of Operations**

**<u>Executive Overview</u>**

The Company's 2025 financial highlights:

● The Company acquired Touchstone Bankshares, Inc. on October 1, 2024, and completed the operational merger in the first quarter of 2025.

● Net income available to common shareholders was $17.7 million and diluted earnings per share was $1.96 compared to net income of $7.0 million and diluted earnings per share of $1.00 in 2024.

● Earnings produced a return on average equity of 10.10% for 2025 compared to 5.33% for 2024.

● Period end loans, net, decreased $15.2 million in 2025 as compared to 2024.

● Period end deposits decreased $4.2 million in 2025 as compared to 2024.

● The 2025 provision for credit losses on loans totaled $2.9 million, compared to $7.9 million in 2024.

● Nonperforming assets as a percentage of total loans were 0.32% on December 31, 2025, compared to 0.50% in 2024.

● The net interest margin increased to 3.88% for 2025, compared to 3.51% in 2024.

Net Income

Net income increased by $10.7 million to $17.7 million, or $1.96 per diluted share, for the year ended December 31, 2025, compared to $7.0 million, or $1.00 per diluted share, for the same period in 2024. Return on average assets was 0.87% and return on average equity was 10.10% for the year ended December 31, 2025, compared to 0.44% and 5.33%, respectively, for the year ended December 31, 2024.

The $10.7 million increase in net income resulted from a $20.8 million increase in net interest income, a $5.9 million decrease in merger expenses associated with the Touchstone acquisition, a $5.0 million decrease in provision for credit losses partially associated with the acquisition, and a $638 thousand increase in noninterest income. These favorable variances were partially offset by a $12.5 million, or 24%, increase in noninterest expense and a $3.2 million increase in income tax expense.

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The following is selected financial data for the Company for the years ended December 31, 2025 and 2024. This information has been derived from audited financial information included in Item 8 of this Form 10-K (in thousands, except ratios and per share amounts).

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| | | |
|:---|:---|:---|
| As of and for the years ended December 31, | As of and for the years ended December 31, | As of and for the years ended December 31, |
|  | 2025 | 2024 |
| **Results of Operations** |  |  |
| &nbsp;&nbsp;&nbsp; Interest and dividend income | $99497 | $76319 |
| &nbsp;&nbsp;&nbsp; Interest expense | 26251 | 23867 |
| &nbsp;&nbsp;&nbsp; Net interest income | 73246 | 52452 |
| &nbsp;&nbsp;&nbsp; Provision for credit losses | 2887 | 7850 |
| &nbsp;&nbsp;&nbsp; Net interest income after provision for credit losses | 70359 | 44602 |
| &nbsp;&nbsp;&nbsp; Noninterest income | 17018 | 16380 |
| &nbsp;&nbsp;&nbsp; Noninterest expense | 65433 | 52934 |
| &nbsp;&nbsp;&nbsp; Income before income taxes | 21944 | 8048 |
| &nbsp;&nbsp;&nbsp; Income tax expense | 4241 | 1082 |
| &nbsp;&nbsp;&nbsp; Net income | $17703 | $6966 |
| **Key Performance Ratios** |  |  |
| &nbsp;&nbsp;&nbsp; Return on average assets | 0.87% | 0.44% |
| &nbsp;&nbsp;&nbsp; Return on average equity | 10.10% | 5.33% |
| &nbsp;&nbsp;&nbsp; Net interest margin (1) | 3.88% | 3.51% |
| &nbsp;&nbsp;&nbsp; Efficiency ratio (1) | 68.18% | 66.73% |
| &nbsp;&nbsp;&nbsp; Dividend payout | 32.27% | 60.54% |
| &nbsp;&nbsp;&nbsp; Equity to assets | 9.14% | 8.28% |
| **Per Common Share Data** |  |  |
| &nbsp;&nbsp;&nbsp; Net income, basic | $1.97 | $1.00 |
| &nbsp;&nbsp;&nbsp; Net income, diluted | 1.96 | 1.00 |
| &nbsp;&nbsp;&nbsp; Cash dividends | 0.635 | 0.605 |
| &nbsp;&nbsp;&nbsp; Book value at period end | 18.83 | 16.48 |
| **Financial Condition** |  |  |
| &nbsp;&nbsp;&nbsp; Assets | $2037978 | $2010281 |
| &nbsp;&nbsp;&nbsp; Loans, net | 1435026 | 1450195 |
| &nbsp;&nbsp;&nbsp; Securities | 326034 | 277329 |
| &nbsp;&nbsp;&nbsp; Deposits | 1799548 | 1803778 |
| &nbsp;&nbsp;&nbsp; Shareholders' equity | 186196 | 166531 |
| &nbsp;&nbsp;&nbsp; Average shares outstanding, diluted | 9015 | 6971 |
| **Capital Ratios (2)** |  |  |
| &nbsp;&nbsp;&nbsp; Leverage | 9.13% | 7.95% |
| &nbsp;&nbsp;&nbsp; Risk-based capital ratios: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Common equity Tier 1 capital | 12.59% | 11.19% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tier 1 capital | 12.59% | 11.19% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total capital | 13.64% | 12.34% |

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(1) This performance ratio is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational performance. Such information is not prepared in accordance with U.S. generally accepted accounting principles (GAAP) and should not be construed as such. In addition, these non-GAAP financial measures may be calculated differently and may not be comparable to similar measures provided by other companies. Management believes such financial information is meaningful to the reader in understanding operating performance but cautions that such information should not be viewed as a substitute for GAAP. See "Non-GAAP Financial Measures" included below.

(2) All capital ratios reported are for the Bank.

For a more detailed discussion of the Company's annual performance, see "Net Interest Income," "Provision for Credit Losses," "Noninterest Income," "Noninterest Expense" and "Income Taxes" below.

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**Non-GAAP Financial Measures**

This report refers to the efficiency ratio, which is computed by dividing noninterest expense, excluding OREO expense, amortization of intangibles, and merger expenses, by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding (gains)/losses on disposal of premises and equipment, and securities gains. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with GAAP and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. The Company, in referring to its net income, is referring to income under GAAP. The components of the efficiency ratio calculation are summarized in the following table (dollars in thousands).

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| | | |
|:---|:---|:---|
|  | **Efficiency Ratio** | **Efficiency Ratio** |
|  | **2025** | **2024** |
| Total noninterest expense (GAAP) | $65433 | $52934 |
| Subtract: other real estate (gain) loss and expense, net | 7 | (15) |
| Subtract: amortization of intangibles | (1767) | (461) |
| Subtract: loss on disposal of premises and equipment, net | 16 | (47) |
| Subtract: merger expenses | (2159) | (8107) |
| Adjusted non-interest expense (non-GAAP) | $61530 | $44304 |
| Tax-equivalent net interest income (non-GAAP) | $73613 | $52821 |
| Total noninterest income (GAAP) | 17018 | 16380 |
| Gain on subordinated debt payoff | (80) |  |
| Bargain purchase gain from acquisition | (304) | (2920) |
| Securities losses (gains), net |  | 115 |
| Adjusted income for efficiency ratio (non-GAAP) | $90247 | $66396 |
| Efficiency ratio (non-GAAP) | 68.18% | 66.73% |

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This report also refers to net interest margin, which is calculated by dividing tax equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for both 2025 and 2024 is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (in thousands).

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| | | |
|:---|:---|:---|
|  | **Reconciliation of Net Interest Income to Tax-Equivalent Net Interest Income** | **Reconciliation of Net Interest Income to Tax-Equivalent Net Interest Income** |
|  | **2025** | **2024** |
| GAAP measures: |  |  |
| Interest income – loans | $85174 | $63483 |
| Interest income – investments and other | 14323 | 12836 |
| Interest expense – deposits | (24292) | (20964) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Interest expense – federal funds purchased |  | (1) |
| Interest expense – subordinated debt | (1687) | (603) |
| Interest expense – junior subordinated debt | (266) | (270) |
| Interest expense – other borrowings | (6) | (2029) |
| Total net interest income | $73246 | $52452 |
| Non-GAAP measures: |  |  |
| Tax benefit realized on non-taxable interest income - loans | $52 | $43 |
| Tax benefit realized on non-taxable interest income - municipal securities | 315 | 326 |
| Total tax benefit realized on non-taxable interest income | $367 | $369 |
| Total tax-equivalent net interest income | $73613 | $52821 |

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Net Interest Income

Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on interest-earning assets, predominantly loans and securities, exceeds interest expense on interest-bearing liabilities, including deposits, other borrowings, subordinated debt, and junior subordinated debt. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, are the components that impact the level of net interest income. The net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets. The provision for credit losses, noninterest income, noninterest expense and income tax expense are the other components that determine net income. Noninterest income primarily consists of income from service charges on deposit accounts, ATM and check card income, wealth management income, income from other customer services, and income from bank owned life insurance. Noninterest expense primarily consists of salaries and benefits, occupancy and equipment expenses, marketing expenses, legal and professional fees, data processing expenses, atm and check card expenses, FDIC assessments, bank franchise taxes, merger expenses and other operating expenses.

Net interest income increased $20.8 million, or 39.6%, to $73.2 million for 2025 compared to the prior year. Total interest income increased by $23.2 million and was partially offset by total interest expense, which increased by $2.4 million. The net interest margin increased by 37-basis points to 3.88% and average earnings assets increased by $393.5 million, or 26.1%, offset by a $279.9 million, or 27.1%, increase in average interest-bearing liabilities, in each case primarily related to the acquisition of Touchstone.

The increase in total interest income was primarily attributable to a $21.7 million, or 34%, increase in interest income and fees on loans. The increase in interest income on loans was attributable to a 12-basis point increase in the yield on loans and a 31.5% increase in average loan balances compared to the prior year due to the acquisition of Touchstone.

The increase in total interest expense was attributable to a $3.3 million increase in interest expense on deposits offset by a $2.0 million decrease in interest expense on other borrowings. Although there was a 31-basis point decrease in the cost of interest-bearing liabilities, interest expense increased due to a 31.9% increase in average interest-bearing deposits due to the acquisition of Touchstone.

The net interest margin was 3.88% for the year ended December 31, 2025, compared to the 3.51% for the prior year as the increase in the yield on earning assets exceeded the increase in cost of funds during 2025. Net accretion income related to acquisition accounting was $1.1 million, or a six-basis point incremental increase to the net interest margin.

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The following table provides information on average interest-earning assets and interest-bearing liabilities for the years ended December 31, 2025 and 2024 as well as amounts and rates of tax equivalent interest earned and interest paid (dollars in thousands). The volume and rate analysis table analyzes the changes in net interest income for the periods broken down by their rate and volume components (in thousands).

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Average Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis)** | **Average Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis)** | **Average Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis)** | **Average Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis)** | **Average Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis)** | **Average Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis)** | **Average Balances, Income and Expense, Yields and Rates (Taxable Equivalent Basis)** |
|  | Years Ending December 31, | Years Ending December 31, | Years Ending December 31, | Years Ending December 31, | Years Ending December 31, | Years Ending December 31, |
|  | 2025 | 2025 | 2025 | 2024 | 2024 | 2024 |
|  | Average Balance | Interest Income/Expense | Yield/Rate | Average Balance | Interest Income/Expense | Yield/Rate |
| Assets |  |  |  |  |  |  |
| Interest-bearing deposits in other banks | $160064 | $6913 | 4.32% | $124407 | $6490 | 5.22% |
| Securities: |  |  |  |  |  |  |
| Taxable | 236181 | 5923 | 2.51% | 221611 | 4733 | 2.14% |
| Tax-exempt (1) | 51613 | 1502 | 2.91% | 53289 | 1547 | 2.90% |
| Restricted | 4377 | 260 | 5.94% | 2522 | 202 | 8.01% |
| Total securities | 292171 | 7685 | 2.63% | 277422 | 6482 | 2.34% |
| Loans: (2) |  |  |  |  |  |  |
| Taxable | 1441319 | 84982 | 5.90% | 1096312 | 63320 | 5.78% |
| Tax-exempt (1) | 3978 | 244 | 6.13% | 2561 | 206 | 8.04% |
| Total loans | 1445297 | 85226 | 5.90% | 1098873 | 63526 | 5.78% |
| Federal funds sold | 892 | 40 | 4.52% | 4244 | 189 | 4.44% |
| Total earning assets | 1898424 | 99864 | 5.26% | 1504946 | 76687 | 5.10% |
| Less: allowance for credit losses on loans | (15437) |  |  | (13381) |  |  |
| Total nonearning assets | 143540 |  |  | 105585 |  |  |
| Total assets | $2026527 |  |  | $1597150 |  |  |
| Liabilities and Shareholders' Equity |  |  |  |  |  |  |
| Interest-bearing deposits: |  |  |  |  |  |  |
| Checking | $377944 | $4880 | 1.29% | $278558 | $4870 | 1.75% |
| Money market accounts | 332467 | 7370 | 2.22% | 294818 | 8265 | 2.80% |
| Savings accounts | 210510 | 756 | 0.36% | 160795 | 292 | 0.18% |
| Certificates of deposit: |  |  |  |  |  |  |
| Less than $250 | 292203 | 8831 | 3.02% | 192456 | 5856 | 3.01% |
| Greater than $250 | 71438 | 2455 | 3.44% | 46846 | 1668 | 3.56% |
| Brokered deposits |  |  | 0.00% | 288 | 13 | 4.82% |
| Total interest-bearing deposits | 1284562 | 24292 | 1.89% | 973761 | 20964 | 2.15% |
| Federal funds purchased | 1 |  | 0.00% | 2 |  | 5.24% |
| Subordinated debt | 20308 | 1687 | 8.31% | 8889 | 603 | 6.78% |
| Junior subordinated debt | 9279 | 266 | 2.86% | 9279 | 270 | 2.91% |
| Other borrowings | 137 | 6 | 4.28% | 42486 | 2029 | 4.78% |
| Total interest-bearing liabilities | 1314287 | 26251 | 2.00% | 1034417 | 23866 | 2.31% |
| Noninterest-bearing liabilities |  |  |  |  |  |  |
| Demand deposits | 527756 |  |  | 422981 |  |  |
| Other liabilities | 9220 |  |  | 9037 |  |  |
| Total liabilities | 1851263 |  |  | 1466435 |  |  |
| Shareholders' equity | 175264 |  |  | 130715 |  |  |
| Total liabilities and shareholders' equity | $2026527 |  |  | $1597150 |  |  |
| Net interest income |  | $73613 |  |  | $52821 |  |
| Interest rate spread |  |  | 3.26% |  |  | 2.79% |
| Cost of funds |  |  | 1.43% |  |  | 1.64% |
| Interest expense as a percent of average earning assets |  |  | 1.38% |  |  | 1.59% |
| Net interest margin |  |  | 3.88% |  |  | 3.51% |

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(1) Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 21%. The tax-equivalent adjustment was $367 thousand for 2025, and $369 thousand for 2024.

(2) Loans placed on a non-accrual status are reflected in the balances.

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| | | | |
|:---|:---|:---|:---|
|  | **Volume and Rate** | **Volume and Rate** | **Volume and Rate** |
|  | Years Ending December 31, | Years Ending December 31, | Years Ending December 31, |
|  | 2025 | 2025 | 2025 |
|  | Volume Effect | Rate Effect | Change in Income/Expense |
| Interest-bearing deposits in other banks | $1064 | $(641) | $423 |
| Loans, taxable | 20361 | 1300 | 21661 |
| Loans, tax-exempt | 66 | (28) | 38 |
| Securities, taxable | 329 | 861 | 1190 |
| Securities, tax-exempt | (51) | 6 | (45) |
| Securities, restricted | 89 | (31) | 58 |
| Federal funds sold | (152) | 4 | (148) |
| Total earning assets | $21706 | $1471 | $23177 |
| Checking | $39 | $(29) | $10 |
| Money market accounts | 1418 | (2313) | (895) |
| Savings accounts | 110 | 354 | 464 |
| Certificates of deposits: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Less than $250 | 2993 | (18) | 2975 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Greater than $250 | 843 | (56) | 787 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Brokered deposits | (13) |  | (13) |
| Subordinated debt | 923 | 162 | 1085 |
| Junior subordinated debt |  | (4) | (4) |
| Other borrowings | (1833) | (191) | (2024) |
| Total interest-bearing liabilities | $4480 | $(2095) | $2385 |
| Change in net interest income | $17226 | $3566 | $20792 |

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Provision for Credit Losses

Provision for credit losses totaled $2.9 million in 2025, compared to a provision for credit losses of $7.9 million for the prior year. The 2025 provision was comprised of a $2.8 million provision for credit losses on loans, a $141 thousand provision for credit losses on unfunded commitments, and a $12 thousand recovery of credit losses on held-to-maturity securities. Included in the provision for credit losses for the fourth quarter of 2024 was a $3.8 million initial provision expense on non-purchased credit deteriorated (PCD) loans acquired from Touchstone.

For the year ended December 31, 2025, the provision for credit losses on loans of $2.8 million and net charge offs of $4.4 million resulted in a $1.7 million decrease in the allowance for credit losses on loans. The $4.4 million of net charge-offs included $1.3 million of loans purchased through a third-party lending program and $650 thousand of related unamortized purchase premiums on the loans.

Outside of the initial provision expense recorded on non-PCD loans in 2024, the general reserve component of the ACLL decreased $395 thousand and the specific reserve component of the ACLL decreased $1.3 million in 2025. The decrease in the general reserve was attributable to a decrease in loans. Calculated loss rates were lower as were the inherent risks in the loan portfolio through adjustments to qualitative risk factors. The specific reserve decrease was driven by lower individually analyzed loans balances following charge-offs recorded in 2025.

For the year ended December 31, 2024, the provision for credit losses on loans of $7.8 million, the allowance for credit losses on acquired PCD loans of $386 thousand, and net charge offs of $3.8 million resulted in a $4.4 million increase in the allowance for credit losses on loans. The $3.8 million of net charge-offs included $2.3 million of loans purchased through a third-party lending program and $1.1 million of related unamortized purchase premiums on the loans.

Noninterest Income

Noninterest income totaled $17.0 million for the year, which was an increase of $638 thousand, or 3.9%, compared to $16.4 million for the prior year. The increase was primarily from increases in ATM and check card fees of $1.3 million, or 38.7%, and service charges on deposit accounts of $833 thousand, or 26.7%. Noninterest income categories with moderate increases over the prior year included brokered mortgage fees which increased $397 thousand, or 157.5%, income from bank owned life insurance which increased $389 thousand, or 51.5%, and fees for other customer services which increased $221 thousand, or 22.9%. These increases were offset by a decrease of $2.6 million from the bargain purchase gain recognized on the acquisition of Touchstone.

Noninterest Expense

Noninterest expense increased $12.5 million, or 23.6%, for the year ended December 31, 2025, compared to the prior year. The increase was primarily a result of salaries and employee benefits of $8.5 million and other operating expenses of $3.0 million. Categories with moderate increases over the prior year included occupancy expense which increased $1.5 million, or 56.8%, amortization expense which increased $1.3 million, or 283.3%, equipment expense which increased $1.2 million, or 37.5%, and data processing expense which increased $858 thousand, or 61.1%. The increase was primarily driven by the Touchstone merger resulting in increased operating expenses due to operating additional branches, duplicative expenses incurred prior to system integration, and amortization expense due to time deposit accretion on time deposits acquired from Touchstone. Other operating expense increased from higher recruiting expense, directors fees, debit card promotion expense, education and training, loan collection expense, item processing expense, core deposit intangible expense, and courier and armored services. These increases were offset by a decrease in merger expenses from prior year of $5.9 million, or 73.4%.

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Income Taxes

Income tax expense increased $3.2 million during the year ended December 31, 2025 compared to the prior year. The Company's income tax expense differed from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended December 31, 2025 and 2024 . The difference was a result of an increase in net permanent tax deductions, primarily comprised of tax-exempt bargain purchase gain, interest income and income from bank owned life insurance. A more detailed discussion of the Company's tax calculation is contained in Note 12 to the Consolidated Financial Statements included in this Form 10-K.

**Financial Condition**

General

Total assets increased $27.7 million during the year and totaled $2.0 billion at December 31, 2025. The increase was attributable to a $53.7 million increase in securities available for sale. This increase was offset by a $15.2 million decrease in loans, net of allowance for credit losses, $6.9 million decrease in securities held to maturity, and a $4.1 million decrease in cash and due from banks.

Total liabilities increased $8.0 million during the year and totaled $1.9 billion at December 31, 2025. The increase was attributable to other borrowings of $25.0 million from the Federal Home Loan Bank. Subordinated debt decreased by $12.9 million due to redemptions and total deposits decreased by $4.2 million.

Total shareholders' equity increased $19.7 million to $186.2 million at December 31, 2025, compared to $166.5 million at December 31, 2024. The increase was primarily attributable to a $12.0 million increase in retained earnings and $6.5 million decrease in accumulated other comprehensive loss.

Loans

The Bank is an active lender with a loan portfolio that includes commercial and residential real estate loans, commercial loans, consumer loans, construction and land development loans, and home equity loans. The Bank's lending activity is concentrated on individuals, and small and medium-sized businesses primarily in its market areas. As a provider of community-oriented financial services, the Bank does not typically attempt to further geographically diversify its loan portfolio by undertaking significant lending activity outside its market areas.

The loan portfolio includes loans that were acquired through business combinations. Loans acquired through business combinations included unamortized discounts, net of unamortized premiums totaling $13.2 million and $14.3 million, as of December 31, 2025 and 2024, respectively, which are amortized over the life of the loans.

Loans purchased from a third-party that originated and serviced loans to health care professionals totaled $14.1 million as of December 31, 2025, which included unamortized premiums totaling $4.1 million, compared to loans totaling $19.0 million as of December 31, 2024, which included unamortized premiums totaling $5.8 million.

Loans decreased $16.9 million to $1.4 billion at December 31, 2025, compared to $1.5 billion at December 31, 2024. Other real estate loans increased by $24.8 million, construction and land development loans increased by $3.9 million, commercial, and industrial loans decreased by $23.4 million, residential real estate loans decreased by $19.9 million, and consumer and other loans decreased by $2.3 million.

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The following table sets forth the maturities of the loan portfolio at December 31, 2025 (in thousands):

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Maturity Schedule of Loans Held for Investment** | **Maturity Schedule of Loans Held for Investment** | **Maturity Schedule of Loans Held for Investment** | **Maturity Schedule of Loans Held for Investment** | **Maturity Schedule of Loans Held for Investment** | **Maturity Schedule of Loans Held for Investment** |
|  | December 31, 2025 | December 31, 2025 | December 31, 2025 | December 31, 2025 | December 31, 2025 | December 31, 2025 |
|  | Construction and Land Development | Secured by 1-4 Family Residential | Other Real Estate | Commercial and Industrial | Consumer and Other Loans | Total |
| Variable Rate: |  |  |  |  |  |  |
| Within 1 year | $22643 | $9965 | $13580 | $22166 | $5 | $68359 |
| 1 to 5 years | 26844 | 21679 | 43937 | 9122 | 1783 | 103365 |
| 5 to 15 years | 18196 | 133802 | 238884 | 2860 |  | 393742 |
| After 15 years | 4797 | 107633 | 120780 | 3365 |  | 236575 |
| Fixed Rate: |  |  |  |  |  |  |
| Within 1 year | 7574 | 13093 | 31686 | 11471 | 2822 | 66646 |
| 1 to 5 years | 5815 | 55444 | 182029 | 59883 | 8239 | 311410 |
| 5 to 15 years | 1145 | 90112 | 52182 | 8011 | 6251 | 157701 |
| After 15 years | 1410 | 95555 | 13900 | 1066 | 16 | 111947 |
|  | $88424 | $527283 | $696978 | $117944 | $19116 | $1449745 |

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Asset Quality

Management classifies non-performing assets as non-accrual loans and OREO. OREO represents real property taken by the Bank when its customers do not meet the contractual obligation of their loans, either through foreclosure or through a deed in lieu thereof from the borrower and properties originally acquired for branch operations or expansion but no longer intended to be used for that purpose. OREO is recorded at the lower of cost or fair value, less estimated selling costs, and is marketed by the Bank through brokerage channels. The Bank had $0 and $53 thousand in assets classified as OREO at December 31, 2025 and 2024, respectively.

Non-performing assets totaled $4.7 million and $7.0 million at December 31, 2025 and 2024, representing approximately 0.23% and 0.35% of total assets, respectively. Non-performing assets consisted of $4.7 million and $7.0 million of non-accrual loans at December 31, 2025 and 2024, respectively.

At December 31, 2025, 56.2% of non-performing assets were commercial and industrial loans, 42.9% were residential real estate loans, and 1.0% were construction loans. Non-performing assets could increase due to the deterioration of other loans identified by management as potential problem loans. Other potential problem loans are defined as performing loans that possess certain risks, including the borrower's ability to pay and the collateral value securing the loan, that management has identified that may result in the loans not being repaid in accordance with their terms. Other potential problem loans totaled $6.4 million and $9.1 million at December 31, 2025 and December 31, 2024, respectively. The amount of other potential problem loans in future periods may be dependent on economic conditions and other factors influencing a customers' ability to meet their debt requirements.

There were no loans greater than 90 days past due and still accruing at December 31, 2025. There were $365 thousand in loans greater than 90 days past due and still accruing at December 31, 2024.

The ACLL represents management's analysis of the existing loan portfolio and related credit risks. The provision for credit losses is based upon management's current estimate of the amount required to maintain an adequate ACLL reflective of the risks in the loan portfolio. The allowance for credit losses on loans totaled $14.7 million at December 31, 2025 and $16.4 million at December 31, 2024 , representing 1.02% and 1.12% of total loans, respectively. The Company determined that the historical loss analysis and the qualitative adjustment factors that established the collectively evaluated reserve component of the ACLL were appropriate at December 31, 2025 . The collectively evaluated reserve decreased $395 thousand and the individually evaluated reserve component of the ACLL decreased $1.3 million.

For further discussion regarding the ACLL, see "Provision for Credit Losses" above.

Recoveries of credit losses of $1.5 million and $29 thousand were recorded in the other real estate and construction and land development loans classes during the year ended December 31, 2025. The recoveries of credit losses resulted primarily from a decrease in the collectively evaluated reserve. These recoveries were offset by provision for credit losses totaling $4.3 million in the 1-4 family residential, consumer and other loans, and commercial and industrial loan classes. For more detailed information regarding the provision for credit losses on loans, see Note 5 to the Consolidated Financial Statements included in this Form 10-K.

Loans individually evaluated for impairment totaled $4.7 million and $7.0 million at December 31, 2025 and 2024, respectively. The related allowance for credit losses required for these loans totaled $1.8 million and $3.1 million at December 31, 2025 and December 31, 2024, respectively.

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Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover expected losses inherent within the loan portfolio. For each period presented, the provision for credit losses on loans charged to expense was based on factors that include net charge-offs, asset quality, economic conditions, and loan growth. Changing economic conditions caused by inflation, recession, unemployment, or other factors beyond the Company's control have a direct correlation with asset quality, net charge-offs, and ultimately the required provision for credit losses. There can be no assurance, however, that an additional provision for credit losses will not be required in the future, including as a result of changes in the qualitative factors underlying management's estimates and judgments, changes in accounting standards, adverse developments in the economy, on a national basis or in the Company's market area, loan growth, or changes in the circumstances of particular borrowers. For further discussion regarding the ACLL, see "Critical Accounting Policies" above. The following table shows a detail of loans charged-off, recovered, and the changes in the ACLL (dollars in thousands).

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Allowance for credit losses** | **Allowance for credit losses** | **Allowance for credit losses** | **Allowance for credit losses** | **Allowance for credit losses** | **Allowance for credit losses** |
|  | Construction and Land Development | Secured by 1-4 Family Residential | Other Real Estate | Commercial and Industrial | Consumer and Other Loans | Total |
| **For the year ended December 31, 2024:** |  |  |  |  |  |  |
| Balance at beginning of year | $312 | $3159 | $4698 | $3706 | $99 | $11974 |
| Initial Allowance on PCD Touchstone loans | $11 | $173 | $201 | $1 | $— | $386 |
| Charge-offs | (4) | (38) |  | (3699) | (293) | (4034) |
| Recoveries |  | 22 | 3 | 111 | 148 | 284 |
| Initial Provision - Non-PCD Touchstone loans | 118 | 1310 | 1370 | 143 | 888 | 3829 |
| Provision for (recovery of) credit losses on loans | 148 | (360) | 1190 | 3665 | (682) | 3961 |
| Balance at end of year | $585 | $4266 | $7462 | $3927 | $160 | $16400 |
| Average loans | $137029 | $373012 | $457732 | $115410 | $15689 | $1098872 |
| Ratio of net (recoveries) charge-offs to average loans | 0.00% | 0.00% | 0.00% | 3.11% | 0.92% | 0.34% |
| **For the year ended December 31, 2025:** |  |  |  |  |  |  |
| Balance at beginning of year | $585 | $4266 | $7462 | $3927 | $160 | $16400 |
| Charge-offs | (22) | (59) | (7) | (4221) | (496) | (4805) |
| Recoveries | 5 | 31 | 15 | 168 | 147 | 366 |
| Provision for (recovery of) credit losses on loans | (29) | 581 | (1518) | 3314 | 410 | 2758 |
| Balance at end of year | $539 | $4819 | $5952 | $3188 | $221 | $14719 |
| Average loans | $123177 | $488008 | $698965 | $120285 | $14862 | $1445297 |
| Ratio of net (recoveries) charge-offs to average loans | 0.01% | 0.01% | 0.00% | 3.37% | 2.35% | 0.31% |

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The following table shows the balance of the Bank's ACLL allocated to each major category of loans and the ratio of related outstanding loan balances to total loans (dollars in thousands).&nbsp;&nbsp;&nbsp;&nbsp;

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| | | |
|:---|:---|:---|
| **Allocation of Allowance for Credit Losses** | **Allocation of Allowance for Credit Losses** | **Allocation of Allowance for Credit Losses** |
|  | At December 31, | At December 31, |
|  | 2025 | 2024 |
| Allocation of Allowance for Credit Losses: |  |  |
| Real estate loans: |  |  |
| Construction and land development | $539 | $585 |
| Secured by 1-4 family | 4819 | 4266 |
| Other real estate loans | 5952 | 7462 |
| Commercial and industrial | 3188 | 3927 |
| Consumer and other loans | 221 | 160 |
| Total allowance for credit losses | $14719 | $16400 |
| Ratios of loans to total period-end loans: |  |  |
| Real estate loans: |  |  |
| Construction and land development | 6.1% | 5.8% |
| Secured by 1-4 family | 36.4% | 37.3% |
| Other real estate loans | 48.1% | 45.8% |
| Commercial and industrial | 8.1% | 9.6% |
| Consumer and other loans | 1.3% | 1.5% |
|  | 100.0% | 100.0% |

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The following table provides information on the Bank's non-performing assets at the dates indicated (dollars in thousands).

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| | | |
|:---|:---|:---|
|  | **Non-performing Assets** | **Non-performing Assets** |
|  | At December 31, | At December 31, |
|  | 2025 | 2024 |
| Non-accrual loans | $4654 | $6971 |
| Other real estate owned |  | 53 |
| Total non-performing assets | $4654 | $7024 |
| Loans past due 90 days accruing interest |  | 365 |
| Total non-performing assets and past due loans | $4654 | $7389 |
| Non-performing assets to period end loans | 0.32% | 0.50% |

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The following table summarizes the Company's credit ratios on a consolidated basis as of December 31, 2025 and 2024.

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| | | |
|:---|:---|:---|
|  | **Consolidated Credit Ratios** | **Consolidated Credit Ratios** |
|  | December 31, 2025 | December 31, 2025 |
|  | 2025 | 2024 |
| Total Loans | $1449745 | $1466595 |
| Nonaccrual loans | $4654 | $6971 |
| Allowance for credit losses (ACL) | $14719 | $16400 |
| Nonaccrual loans to total loans | 0.32% | 0.48% |
| ACL to total loans | 1.02% | 1.12% |
| ACL to nonaccrual loans | 316.27% | 235.26% |

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The Company purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals. The finance company operated a program that historically provided credit support to the Company through, among other things, the repurchase of their loans and unamortized loan premiums when loans did not pay according to the loan agreements. On December 31, 2025, loans purchased from the finance company totaled $14.1 million, which was comprised of $10.0 million of loan balances and unamortized premiums totaling $4.1 million. The Company determined that $2.1 million of the loans were non-accrual and thus were individually evaluated. Specific reserves on the individually evaluated loans were included in the Company's allowance for credit losses on loans. The remaining $12.0 million of loans were considered performing and were included in the calculation of the collectively evaluated reserve component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method. On December 31, 2025 and 2024, there were a total of 130 and 155 loans, respectively, purchased from the finance company included in the Company's loan portfolio with a weighted average maturity of 6.0 and 7.0 years, respectively.

Securities

Securities totaled $326.0 million at December 31, 2025, an increase of $48.7 million, or 17.6%, from $277.3 million at the end of 2024. Investment securities are comprised of U.S. agency and mortgage-backed securities, obligations of state and political subdivisions, corporate debt securities, and restricted securities. As of December 31, 2025, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios. Gross unrealized gains in the available for sale portfolio totaled $363 thousand and $62 thousand at December 31, 2025 and 2024, respectively. Gross unrealized losses in the available for sale portfolio totaled $14.8 million and $22.1 million at December 31, 2025 and 2024, respectively. Gross unrealized gains in the held to maturity portfolio totaled $98 thousand and $8 thousand at December 31, 2025 and 2024, respectively. Gross unrealized losses in the held to maturity portfolio totaled $6.8 million and $11.0 million at December 31, 2025 and 2024, respectively. The change in the unrealized gains and losses of investment securities from December 31, 2024 to December 31, 2025 was related to changes in market interest rates and was not related to credit concerns of the issuers.

The Company evaluated securities available for sale in an unrealized loss position for credit related impairment and determined that no allowance for credit losses was necessary at December 31, 2025 and 2024. At December 31, 2025, the allowance for credit losses on held to maturity securities was $83 thousand. There was a $95 thousand allowance for credit losses on held to maturity securities at December 31, 2024.

On September 1, 2022, the Bank transferred 24 securities designated as available for sale with a combined book value of $82.2 million, market value of $74.4 million, and unrealized loss of $7.8 million, to securities designated held to maturity. The unrealized loss is being amortized monthly over the life of the securities with an increase to the carrying value of securities and a decrease to the related accumulated other comprehensive loss, which is included in the shareholders' equity section of the Company's balance sheet. The amortization of the unrealized loss on the transferred securities totaled $957 thousand, or $756 thousand net of tax, for the year ended December 31, 2025. The amortization of the unrealized loss on the transferred securities totaled $1.0 million, or $791 thousand net of tax, for the year ended December 31, 2024. The securities selected for transfer had larger potential decreases in their fair market values in higher interest rate environments than most of the other securities in the available for sale portfolio and included U.S. Treasury, agency, municipal and commercial mortgage-backed securities. The securities were transferred to mitigate the potential unfavorable impact that higher market interest rates may have on the carrying value of the securities and on the related accumulated other comprehensive loss. Securities designated as held to maturity are carried on the balance sheet at amortized cost, while securities designated as available for sale are carried at fair market value.

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The following table shows the maturities of debt and restricted securities at amortized cost and market value at December 31, 2025 and approximate weighted average yields of such securities (dollars in thousands). Yields on state and political subdivision securities are shown on a tax equivalent basis, assuming a 21% federal income tax rate. The Company attempts to maintain diversity in its portfolio and maintain credit quality and re-pricing terms that are consistent with its asset/liability management and investment practices and policies. For further information on securities, see Note 3 to the Consolidated Financial Statements included in this Form 10-K.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Securities Portfolio Maturity Distribution/Yield Analysis** | **Securities Portfolio Maturity Distribution/Yield Analysis** | **Securities Portfolio Maturity Distribution/Yield Analysis** | **Securities Portfolio Maturity Distribution/Yield Analysis** | **Securities Portfolio Maturity Distribution/Yield Analysis** |
|  | At December 31, 2025 | At December 31, 2025 | At December 31, 2025 | At December 31, 2025 | At December 31, 2025 |
|  | Less than One Year | One to Five Years | Five to Ten Years | Greater than Ten Years and Equity Securities | Total |
| U.S. Treasury securities |  |  |  |  |  |
| Amortized cost | $23877 | $23579 | $— | $— | $47456 |
| Market value | $23659 | $23556 | $— | $— | $47215 |
| Weighted average yield | 2.68% | 3.50% | —% | —% | 3.09% |
| U.S. agency and mortgage-backed securities |  |  |  |  |  |
| Amortized cost | $5977 | $53697 | $31638 | $119492 | $210804 |
| Market value | $5902 | $52925 | $30881 | $106880 | $196588 |
| Weighted average yield | 2.10% | 3.56% | 3.69% | 2.40% | 2.88% |
| Obligations of state and political subdivisions |  |  |  |  |  |
| Amortized cost | $2316 | $16068 | $25062 | $29274 | $72720 |
| Market value | $2309 | $15361 | $22910 | $25741 | $66321 |
| Weighted average yield | 3.47% | 2.49% | 2.65% | 2.55% | 2.60% |
| Corporate debt securities |  |  |  |  |  |
| Amortized cost | $— | $— | $3973 | $— | $3973 |
| Market value | $— | $— | $3698 | $— | $3698 |
| Weighted average yield | —% | —% | 4.85% | —% | 4.85% |
| Restricted securities |  |  |  |  |  |
| Amortized cost | $— | $— | $— | $5624 | $5624 |
| Market value | $— | $— | $— | $5624 | $5624 |
| Weighted average yield | —% | —% | —% | 4.62% | 4.62% |
| Total portfolio |  |  |  |  |  |
| Amortized cost | $32170 | $93344 | $60673 | $154390 | $340577 |
| Market value | $31871 | $91842 | $57489 | $138244 | $319446 |
| Weighted average yield (1) | 2.63% | 3.36% | 3.33% | 2.51% | 2.90% |

---

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

The above table was prepared using the contractual maturities for all securities with the exception of mortgage-backed securities (MBS) and collateralized mortgage obligations (CMO). Both MBS and CMO securities were recorded using the yield book prepayment model that incorporates four causes of prepayments including home sales, refinancing, defaults, and curtailments/full payoffs.

As of December 31, 2025, the Company did not own securities of any issuer for which the aggregate book value of the securities of such issuer exceeded twelve percent of shareholders' equity.

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Deposits

At December 31, 2025, deposits totaled $1.8 billion, decreasing by $4.2 million, from $1.8 billion at December 31, 2024. At December 31, 2025, noninterest-bearing demand deposits, savings and interest-bearing demand deposits, and time deposits composed 28%, 52%, and 20% of total deposits, respectively, compared to 29%, 51%, and 20% at December 31, 2024.

The following tables include a summary of average deposits and average rates paid (dollars in thousands).

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Average Deposits and Rates Paid** | **Average Deposits and Rates Paid** | **Average Deposits and Rates Paid** | **Average Deposits and Rates Paid** |
|  | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, |
|  | 2025 | 2025 | 2024 | 2024 |
|  | Amount | Rate | Amount | Rate |
| Noninterest-bearing deposits | $527756 | —% | $422981 | —% |
| Interest-bearing deposits: |  |  |  |  |
| Interest checking | $377944 | 1.29% | $278558 | 1.75% |
| Money market | 332467 | 2.22% | 294818 | 2.80% |
| Savings | 210510 | 0.36% | 160795 | 0.18% |
| Time deposits: |  |  |  |  |
| Less than $250 | 292203 | 3.02% | 192456 | 3.01% |
| Greater than $250 | 71438 | 3.44% | 46846 | 3.56% |
| Brokered deposits |  | —% | 288 | 4.82% |
| Total interest-bearing deposits | $1284562 | 1.89% | $973761 | 2.15% |
| Total deposits | $1812318 |  | $1396742 |  |

---

As of December 31, 2025 the estimated amount of total uninsured deposits was $538.2 million. Maturities of the estimated amount of uninsured time deposits at December 31, 2025 are presented in the table below. 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.

---

| | |
|:---|:---|
| **Maturities of Uninsured Time Deposits (in thousands)** | **Maturities of Uninsured Time Deposits (in thousands)** |
|  | December 31, 2025 |
| 3 months or less | $27619 |
| 3-6 months | 12158 |
| 6-12 months | 19791 |
| Over 12 months | 9107 |
|  | $68675 |

---

Liquidity

Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, and available lines of credit totaled $819.0 million on December 31, 2025, and $758.0 million on December 31, 2024. Available lines of credit from other institutions included in the total amount above was $556.2 million on December 31, 2025, and $562.5 million on December 31, 2024. The available lines of credit were comprised of secured and unsecured lines of credit and the Bank had $25.0 million and $0 on the lines as of December 31, 2025 and December 31, 2024, respectively.

The Bank maintains liquidity to fund loan growth and meet the potential demand from its deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $538.2 million on December 31, 2025, and $537.0 million on December 31, 2024. Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $448.8 million on December 31, 2025, and $319.1 million on December 31, 2024. Municipal deposits are partially secured with pledged investment securities.

Subordinated Debt

See Note 10 to the Consolidated Financial Statements included in this Form 10-K, for discussion of subordinated debt.

Junior Subordinated Debt

See Note 11 to the Consolidated Financial Statements included in this Form 10-K, for discussion of junior subordinated debt.

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Off-Balance Sheet Arrangements

The Company, through the Bank, is a party to credit related financial instruments with risk not reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At December 31, 2025 and 2024, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands):

---

| | | |
|:---|:---|:---|
|  | 2025 | 2024 |
| Commitments to extend credit and unfunded commitments under lines of credit | $299104 | $271419 |
| Standby letters of credit | 3079 | 15594 |

---

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 or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management's credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are collateralized as deemed necessary and may or may not be drawn upon to the total extent to which the Bank is committed.

Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments if deemed necessary.

At December 31, 2025, the Bank had $4.7 million in locked-rate commitments to originate mortgage loans. Risks arise from the possible inability of counterparties to meet the terms of their contracts. The Bank does not expect any counterparty to fail to meet its obligations.

On April 21, 2020, the Company entered into interest rate swap agreements related to its outstanding junior subordinated debt. The Company uses derivatives to manage exposure to interest rate risk through the use of interest rate swaps. Interest rate swaps involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts.

The interest rate swaps qualified and are designated as cash flow hedges. The Company's cash flow hedges effectively modify the Company's exposure to interest rate risk by converting variable rates of interest on $9.0 million of the Company's junior subordinated debt to fixed rates of interest for periods that end between June 2034 and October 2036. The cash flow hedges' total notional amount is $9.0 million. At December 31, 2025, the cash flow hedges had a fair value of $2.3 million, which is recorded in other assets. The net gain/loss on the cash flow hedges is recognized as a component of other comprehensive income and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. The Company's derivative financial instruments are described more fully in Note 25 to the Consolidated Financial Statements included in this Form 10-K.

Capital Resources

The adequacy of the Company's capital is reviewed by management on an ongoing basis with reference to the size, composition, and quality of the Company's asset and liability levels and consistent with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and absorb potential losses. The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board's Small Bank Holding Company Policy Statement issued in February 2015 and is not obligated to report consolidated regulatory capital.

Effective January 1, 2015, the Bank became subject to capital rules adopted by federal bank regulators implementing the Basel III regulatory capital reforms adopted by the Basel Committee on Banking Supervision (the Basel Committee), and certain changes required by the Dodd-Frank Act.

The minimum capital level requirements applicable to the Bank under the final rules are as follows: a new common equity Tier 1 capital ratio of 4.5%; a Tier 1 capital ratio of 6%; a total capital ratio of 8%; and a Tier 1 leverage ratio of 4% for all institutions. The final rules also established a "capital conservation buffer" above the new regulatory minimum capital requirements. The capital conservation buffer requires a buffer of 2.5% of risk-weighted assets. This results in the following minimum capital ratios: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. Management believes, as of December 31, 2025 and December 31, 2024, that the Bank met all capital adequacy requirements to which it is subject, including the capital conservation buffer.

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The following table summarizes the Bank's regulatory capital and related ratios at December 31, 2025, and 2024 (dollars in thousands).

---

| | | |
|:---|:---|:---|
|  | **Analysis of Capital** | **Analysis of Capital** |
|  | At December 31, | At December 31, |
|  | 2025 | 2024 |
| Common equity Tier 1 capital | $186193 | $164454 |
| Tier 1 capital | 186193 | 164454 |
| Tier 2 capital | 15429 | 16995 |
| Total risk-based capital | 201622 | 181449 |
| Risk-weighted assets | 1478549 | 1469752 |
| Capital ratios: |  |  |
| &nbsp;&nbsp;&nbsp; Common equity Tier 1 capital ratio | 12.59% | 11.19% |
| &nbsp;&nbsp;&nbsp; Tier 1 capital ratio | 12.59% | 11.19% |
| &nbsp;&nbsp;&nbsp; Total capital ratio | 13.64% | 12.35% |
| &nbsp;&nbsp;&nbsp; Leverage ratio (Tier 1 capital to average assets) | 9.13% | 7.95% |
| &nbsp;&nbsp;&nbsp; Capital conservation buffer ratio(1) | 5.64% | 4.34% |

---

(1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Company's actual ratio for Common equity Tier 1, Tier 1, and Total risk based capital. The lowest of the three measures represents the Bank's capital conservation buffer ratio.

The prompt corrective action framework is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as "well capitalized:" a common equity Tier 1 capital ratio of 6.5%; a Tier 1 capital ratio of 8%; a total capital ratio of 10%; and a Tier 1 leverage ratio of 5%. The Bank met the requirements to qualify as "well capitalized" as of December 31, 2025 and 2024.

On September 17, 2019 the FDIC finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the Economic Growth Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. The Company did not opt into the framework.

The Company did not repurchase any shares during the year ended December 31, 2025.

The Company issued $5.0 million of subordinated debt in June 2020. The subordinated debt issued consisted of a 5.50% fixed-to-floating rate subordinated note due 2030 issued to an institutional investor and was structured to qualify as Tier 2 capital under bank regulatory guidelines. The floating rate period for this subordinated note began July 1, 2025. The Company assumed two subordinated debt issuances from the acquisition of Touchstone. The subordinated debt assumed consisted of an $8.0 million 6.00% fixed-to-floating rate subordinated note due 2030. The floating rate period for this subordinated note began August 15, 2025. The subordinated debt assumed also consisted of a $10.0 million 4.00% fixed-to-floating rate subordinated note due 2032. During the fourth quarter of 2025, the Company redeemed $13 million in subordinated debt, at par, including redemptions of the 5.50% fixed-to-floating rate subordinated note due 2030 on October 1, 2025 ($5 million) and the 6.00% fixed-to-floating rate subordinated note due 2030 on November 15, 2025 ($8 million). There was no gain or loss recognized on these redemptions. These capital redemptions had minimal impact on the total risk-based capital ratio and should position the Company for improved profitability in future periods

**Recent Accounting Pronouncements**

See Note 1 to the Consolidated Financial Statements included in this Form 10-K, for discussion of recent accounting pronouncements.

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| | |
|:---|:---|
| **Item 7A.** | **Quantitative and Qualitative Disclosures About Market Risk** |

---

Not required.

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| | |
|:---|:---|
| **Item 8.** | **Financial Statements and Supplementary Data** |

---

The Consolidated Financial Statements and related footnotes of the Company are presented below followed by the financial statements of the Parent.

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| | |
|:---|:---|
| To the Shareholders | March 25, 2026 |
| First National Corporation |  |
| Strasburg, Virginia |  |

---

**MANAGEMENT**'**S REPORT REGARDING THE EFFECTIVENESS OF INTERNAL CONTROLS**

**OVER FINANCIAL REPORTING**

The management of First National Corporation (the Company) is responsible for the preparation, integrity and fair presentation of the financial statements included in the annual report as of December 31, 2025. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management's judgments and estimates concerning the effects of events and transactions that are accounted for or disclosed.

Management is also responsible for establishing and maintaining an effective internal control structure over financial reporting. The Company's internal control over financial reporting includes those policies and procedures that pertain to the Company's ability to record, process, summarize and report reliable financial data. The internal control system contains monitoring mechanisms, and appropriate actions are taken to correct identified deficiencies. Management believes that internal controls over financial reporting, which are subject to scrutiny by management and the Company's internal auditor, support the integrity and reliability of the financial statements. Management recognizes that there are inherent limitations in the effectiveness of any internal control system, including the possibility of human error and the circumvention or overriding of internal controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. In addition, because of changes in conditions and circumstances, the effectiveness of internal control over financial reporting may vary over time.

In order to ensure that the Company's internal control structure over financial reporting is effective, management assessed these controls as they conformed to accounting principles generally accepted in the United States of America and related call report instructions as of December 31, 2025. This assessment was based on criteria for effective internal control over financial reporting as described in "Internal Control - Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that the Company maintained effective internal controls over financial reporting as of December 31, 2025. Management's assessment did not determine any material weakness within the Company's internal control structure. The Company's annual report does not include an attestation report of the Company's registered public accounting firm, Yount, Hyde & Barbour. P.C. (YHB), regarding internal control over financial reporting. Management's report was not subject to attestation by YHB pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in its annual report.

The December 31, 2025 end of year consolidated financial statements have been audited by the independent registered public accounting firm of YHB. Personnel from YHB were given unrestricted access to all financial records and related data, including minutes of all meetings of the Board of Directors and Committees thereof.

Management believes that all representations made to the independent auditors were valid and appropriate. The resulting report from YHB accompanies the consolidated financial statements.

The Board of Directors of the Company, acting through its Audit Committee (the Committee), is responsible for the oversight of the Company's accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of the independent auditors and approves decisions regarding the appointment or removal of members of the internal audit function. The Committee meets periodically with management, the independent auditors, and the internal auditor to ensure that they are carrying out their responsibilities. The Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting, and auditing procedures of the Company in addition to reviewing the Company's financial reports. The independent auditors and the internal auditor have full and unlimited access to the Audit Committee, with or without the presence of the management of the Company, to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should be brought to the attention of the Audit Committee.

---

| | |
|:---|:---|
| /s/ Scott C. Harvard | /s/ Brad E. Schwartz |
| Scott C. Harvard | Brad E. Schwartz |
| President | Executive Vice President |
| Chief Executive Officer | Chief Financial Officer |

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**Report of Independent Registered Public Accounting Firm**

To the Shareholders and Board of Directors of First National Corporation

**Opinion on the Financial Statements**

We have audited the accompanying consolidated balance sheets of First National Corporation and its subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

**Basis for Opinion**

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical Audit Matter**

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

**Allowance for Credit Losses (ACL)** – **Collectively Evaluated Loans**

**Description of the Matter**

As further described in Notes 1 and 5 to the financial statements, the allowance for credit losses ("ACL") is a valuation allowance that represents management's best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company's ACL related to collectively evaluated loans represented $12.9 million of the total recorded ACL of $14.7 million as of December 31, 2025. The collectively evaluated ACL consists of quantitative and qualitative components.

For collectively evaluated loans, the quantitative component consists of loss estimates derived from a discounted cash flow model, using internal observations of historical loan losses. These loss rates are further adjusted over a reasonable and supportable forecast period based on the identified loss drivers. These estimates consider large amounts of data in tabulating default, loss given default, and prepayment speeds and require complex calculations as well as management judgment in the selection of the appropriate inputs. In addition to the quantitative component, the collectively evaluated ACL also includes a qualitative component which aggregates management's assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. Factors considered by management in developing its qualitative estimates include: variability in the economic forecast, changes in the volume and severity of classified loans, changes in concentrations of credit, changes in the nature and volume of the loan segments, factors related to credit administration, and other risks not embedded in the data utilized in the model.

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Management exercised significant judgment when estimating the ACL on collectively evaluated loans. We identified the estimation of the collectively evaluated ACL as a critical audit matter as auditing the collectively evaluated ACL involved especially complex and subjective auditor judgment in evaluating management's assessment of the inherently subjective estimates.

The primary audit procedures we performed to address this critical audit matter included:

● Obtaining an understanding of the Company's process for determining its ACL, including the underlying methodology and significant inputs to the calculation.&nbsp;&nbsp;&nbsp;&nbsp; 

● Substantively testing management's process for measuring the collectively evaluated ACL, including:

---

| | |
|:---|:---|
| ■ | Evaluating the conceptual soundness, assumptions, and key data inputs of the Company's discounted cash flow methodology, including the identification of loan pools, loss driver assumptions, the probability of default and loss given default rate inputs, and the prepayment/curtailment rate inputs for each pool. |

---

---

| | |
|:---|:---|
| ■ | Evaluating the relevance and reliability of the underlying external data utilized to prepare the calculation. |

---

---

| | |
|:---|:---|
| ■ | Testing the completeness and accuracy of data utilized to prepare the calculation. |

---

---

| | |
|:---|:---|
| ■ | Evaluating the reasonableness of the significant judgements and assumptions utilized within the calculation. |

---

---

| | |
|:---|:---|
| ■ | Testing the mathematical accuracy of the ACL for collectively evaluated loans including both the discounted cashflow and qualitative factor components of the calculations. |
| ■ | Developing an independent expectation for relevant qualitative factors, which included consideration of certain alternative assumptions as well as metrics for comparison to the Company's qualitative allowance for credit losses to determine whether this information supported or contradicted the Company's conclusions. |
| ■ | Performed an analysis of the overall allowance for credit loss ratio compared to a relevant peer group. |

---

/s/ Yount, Hyde & Barbour, P.C.

We have served as the Company's auditor since 1988.

Winchester, Virginia

March 25, 2026

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**FIRST NATIONAL CORPORATION**

**Consolidated Balance Sheets**

December 31, 2025 and 2024

*(in thousands, except share and per share data)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Assets** |  |  |
| Cash and due from banks | $20836 | $24916 |
| Interest-bearing deposits in banks | 140074 | 137958 |
| &nbsp;&nbsp;&nbsp; Cash and cash equivalents | $160910 | $162874 |
| Securities available for sale, at fair value | 217538 | 163847 |
| Securities held to maturity, at amortized cost (net of allowance for credit losses, 2025, $83, 2024, $95) | 102872 | 109741 |
| Restricted securities, at cost | 5624 | 3741 |
| Loans held for sale |  | 409 |
| Loans, net of allowance for credit losses, 2025, $14,719, 2024, $16,400 | 1435026 | 1450195 |
| Other real estate owned, net of valuation allowance, 2025, $0, 2024, $0 |  | 53 |
| Premises and equipment, net | 34561 | 34824 |
| Accrued interest receivable | 6467 | 6020 |
| Bank owned life insurance | 38577 | 37873 |
| Core deposit intangibles, net | 13219 | 14986 |
| Goodwill | 3030 | 3030 |
| Other assets | 20154 | 22688 |
| Total assets | $2037978 | $2010281 |
| **Liabilities & Shareholders' Equity** |  |  |
| **Liabilities** |  |  |
| Deposits: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Noninterest-bearing demand deposits | $509874 | $520153 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Savings and interest-bearing demand deposits | 926579 | 923726 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Time deposits | 363095 | 359899 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total deposits | $1799548 | $1803778 |
| Other borrowings | 25000 |  |
| Subordinated debt | 8312 | 21176 |
| Junior subordinated debt | 9279 | 9279 |
| Accrued interest payable and other liabilities | 9643 | 9517 |
| Total liabilities | $1851782 | $1843750 |
| Commitments and contingencies |  |  |
| **Shareholders' Equity** |  |  |
| Preferred stock, par value $1.25 per share; authorized 1,000,000 shares; none issued and outstanding | $— | $— |
| &nbsp;&nbsp;&nbsp; Common stock, par value $1.25 per share; authorized 16,000,000 shares; issued and outstanding, 2025, 9,025,395 shares, 2024, 8,974,102 shares | 11282 | 11218 |
| Surplus | 78216 | 77058 |
| Retained earnings | 108937 | 96947 |
| Accumulated other comprehensive (loss), net | (12239) | (18692) |
| Total shareholders' equity | $186196 | $166531 |
| Total liabilities and shareholders' equity | $2037978 | $2010281 |

---

*See Notes to Consolidated Financial Statements*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 45

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**FIRST NATIONAL CORPORATION**

**Consolidated Statements of Income**

Years Ended December 31, 2025 and 2024

*(in thousands, except per share data)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Interest and Dividend Income** |  |  |
| Interest and fees on loans | $85174 | $63483 |
| Interest on deposits in banks | 6913 | 6490 |
| Interest on federal funds sold | 41 | 189 |
| Interest and dividends on securities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Taxable interest | 5923 | 4733 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tax-exempt interest | 1186 | 1222 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dividends | 260 | 202 |
| Total interest and dividend income | $99497 | $76319 |
| **Interest Expense** |  |  |
| Interest on deposits | $24292 | $20964 |
| Interest on federal funds purchased |  | 1 |
| Interest on subordinated debt | 1687 | 603 |
| Interest on junior subordinated debt | 266 | 270 |
| Interest on other borrowings | 6 | 2029 |
| Total interest expense | $26251 | $23867 |
| Net interest income | $73246 | $52452 |
| Provision for credit losses | 2887 | 7850 |
| Net interest income after provision for credit losses | $70359 | $44602 |
| **Noninterest Income** |  |  |
| Service charges on deposit accounts | $3955 | $3122 |
| ATM and check card fees | 4584 | 3305 |
| Wealth management fees | 3611 | 3617 |
| Fees for other customer services | 1187 | 966 |
| Brokered mortgage fees | 649 | 252 |
| Income from bank owned life insurance | 1144 | 755 |
| Net (losses) on securities available for sale |  | (155) |
| Net gains on sale of loans held for sale | 8 |  |
| Net gain on subordinated debt payoff | 80 |  |
| Gain on sale of other investment |  | 40 |
| Bargain purchase gain | 304 | 2920 |
| Other operating income | 1496 | 1558 |
| Total noninterest income | $17018 | $16380 |

---

*See Notes to Consolidated Financial Statements*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 46

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**FIRST NATIONAL CORPORATION**

**Consolidated Statements of Income**

(Continued)

Years Ended December 31, 2025 and 2024

*(in thousands, except per share data)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Noninterest Expense** |  |  |
| Salaries and employee benefits | $33663 | $25134 |
| Occupancy | 4034 | 2573 |
| Equipment | 4305 | 3131 |
| Marketing | 1180 | 1037 |
| Supplies | 780 | 489 |
| Legal and professional fees | 2442 | 1993 |
| ATM and check card expenses | 2115 | 1508 |
| FDIC assessment | 1292 | 860 |
| Bank franchise tax | 1364 | 1047 |
| Data processing expense | 2262 | 1404 |
| Amortization expense | 1767 | 461 |
| Other real estate (gain) loss and expense, net | (7) | 15 |
| Net losses on disposal of premises and equipment |  | 48 |
| Merger expense | 2159 | 8107 |
| Other operating expense | 8077 | 5127 |
| Total noninterest expense | $65433 | $52934 |
| Income before income taxes | $21944 | $8048 |
| Income tax expense | 4241 | 1082 |
| **Net income** | $17703 | $6966 |
| **Earnings per common share** |  |  |
| Basic | $1.97 | $1.00 |
| Diluted | $1.96 | $1.00 |

---

*See Notes to Consolidated Financial Statements*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 47

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**FIRST NATIONAL CORPORATION**

**Consolidated Statements of Comprehensive Income**

Years Ended December 31, 2025 and 2024

*(in thousands)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Net income | $17703 | $6966 |
| Other comprehensive income, net of tax: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Unrealized holding gains (losses) on available for sale securities, net of tax $1,598 and ($275), respectively | 6012 | (1039) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity, net of tax of $201 and $270, respectively | 756 | 1015 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Reclassification adjustment for losses included in net income, net of tax $0 and ($33), respectively |  | (122) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Change in fair value of cash flow hedges, net of tax ($83) and $42, respectively | (315) | 160 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other comprehensive income | 6453 | 14 |
| Total comprehensive income | $24156 | $6980 |

---

*See Notes to Consolidated Financial Statements*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 48

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**FIRST NATIONAL CORPORATION**

**Consolidated Statements of Cash Flows**

Years Ended December 31, 2025 and 2024

*(in thousands)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Cash Flows from Operating Activities** |  |  |
| Net income | $17703 | $6966 |
| Adjustments to reconcile net income to net cash provided (used in) by operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation and amortization of premises and equipment | 2755 | 1940 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Amortization of core deposit intangibles | 1767 | 460 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Amortization of subordinated debt fair value mark | 636 | 2 |
| Gain on redemption of subordinated debt | (80) |  |
| Origination of mortgage loans held for sale | (6508) |  |
| Proceeds from sale of mortgage loans held for sale | 6917 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Provision for credit losses on loans | 2758 | 7789 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Provision for credit losses on unfunded commitments | 141 | 73 |
| Recovery of credit losses on HTM securities | (12) | (12) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Losses on securities available for sale |  | 155 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net gains on sale of other real estate owned | (7) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase in cash value of bank owned life insurance | (1144) | (755) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accretion of discounts and amortization of premiums on securities, net | 819 | 843 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accretion of premium on time deposits | (664) | (623) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accretion of certain acquisition-related loan (discounts), net | (1100) | (780) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock-based compensation | 1183 | 635 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Excess tax benefits on stock-based compensation | 26 | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Gains) losses on disposal of premises and equipment | (13) | 48 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Bargain purchase gain | (304) | (2920) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred income tax expense (benefit) | 386 | (437) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Increase) decrease in interest receivable | (410) | 467 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Increase) decrease in other assets | (582) | 2513 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase (decrease) in accrued interest payable and other liabilities | 842 | (38569) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net cash provided by (used in) operating activities | $25109 | $(22204) |
| **Cash Flows from Investing Activities** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from maturities, calls, principal payments, and sales of securities available for sale | $30529 | $74753 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from maturities, calls, and principal payments of securities held to maturity | 7757 | 39734 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchases of securities available for sale | (77348) | (25978) |
| Redemption of subordinated debt |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net (purchase) redemption of restricted securities | (1883) | 1824 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchase of premises and equipment, net | (4180) | (3300) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from sale of premises and equipment | 1701 | 18 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from sale of other real estate owned | 60 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from cash value of bank owned life insurance | 440 | 401 |
| Net cash acquired in acquisition of Touchstone Bank |  | 70243 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net decrease (increase) in loans | 13511 | (20869) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net cash (used in) provided by investing activities | $(29413) | $136826 |

---

*See Notes to Consolidated Financial Statements*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 49

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**FIRST NATIONAL CORPORATION**

**Consolidated Statements of Cash Flows**

(Continued)

Years Ended December 31, 2025 and 2024

*(in thousands)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Cash Flows from Financing Activities** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Decrease) in demand deposits and savings accounts | $(7426) | $(7838) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net increase in time deposits | 3860 | 23073 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase (decrease) in other borrowings | 25000 | (50000) |
| Redemption of subordinated debt | (13420) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cash dividends paid on common stock, net of reinvestment | (5520) | (4038) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Repurchase of common stock, stock incentive plan | (154) | (106) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net cash provided by (used in) financing activities | $2340 | $(38909) |
| (Decrease) increase in cash and cash equivalents | $(1964) | $75713 |
| **Cash and Cash Equivalents** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Beginning | 162874 | 87161 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ending | $160910 | $162874 |
| **Supplemental Disclosures of Cash Flow Information** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cash payments for: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Interest | $27374 | $23202 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Income taxes | $3400 | $2080 |
| **Supplemental Disclosures of Noncash Transactions** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Unrealized gain (losses) on securities available for sale | $7610 | $(1469) |
| Amortization of unrealized losses on securities transferred from available for sale to held to maturity | $957 | $1285 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Change in fair value of cash flow hedges | $(398) | $202 |
| Lease liabilities arising from obtaining right-of-use assets during the period | $— | $2083 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Transfer from loans to other real estate owned | $— | $53 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Issuance of common stock, dividend reinvestment plan | $193 | $179 |
| **Supplemental Disclosures of Noncash Transactions Related to Acquisitions** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Assets acquired | $— | $594073 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Liabilities assumed | $— | $614607 |

---

*See Notes to Consolidated Financial Statements*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 50

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**FIRST NATIONAL CORPORATION**

**Consolidated Statements of Changes in Shareholders' Equity**

Years Ended December 31, 2025 and 2024

*(in thousands, except share and per share data)*

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | *Common Stock* | *Surplus* | *Retained Earnings* | *Accumulated Other Comprehensive (Loss)* | *Total* |
| **Balance, December 31, 2023** | $7829 | $32950 | $94198 | $(18706) | $116271 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net income |  |  | 6966 |  | 6966 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other comprehensive income |  |  |  | 14 | 14 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cash dividends on common stock ($0.605 per share) |  |  | (4217) |  | (4217) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Shares issued to shareholders of Touchstone Bankshares, Inc., net of costs (2,673,640 shares) | 3342 | 43447 |  |  | 46789 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock-based compensation |  | 635 |  |  | 635 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Issuance of 9,307 shares common stock, dividend reinvestment plan | 12 | 167 |  |  | 179 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Issuance of 33,037 shares common stock, stock incentive plan | 41 | (41) |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Repurchase of 5,356 shares common stock, stock incentive plan | (6) | (100) |  |  | (106) |
| **Balance, December 31, 2024** | $11218 | $77058 | $96947 | $(18692) | $166531 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | *Common Stock* | *Surplus* | *Retained Earnings* | *Accumulated Other Comprehensive (Loss)* | *Total* |
| **Balance, December 31, 2024** | $11218 | $77058 | $96947 | $(18692) | $166531 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net income |  |  | 17703 |  | 17703 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other comprehensive income |  |  |  | 6453 | 6453 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cash dividends on common stock ($0.635 per share) |  |  | (5713) |  | (5713) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock-based compensation |  | 1183 |  |  | 1183 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Issuance of 8,675 shares common stock, dividend reinvestment plan | 11 | 182 |  |  | 193 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Issuance of 48,717 shares common stock, stock incentive plan | 61 | (61) |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Repurchase of 6,101 shares common stock, stock incentive plan | (8) | (146) |  |  | (154) |
| **Balance, December 31, 2025** | $11282 | $78216 | $108937 | $(12239) | $186196 |

---

*See Notes to Consolidated Financial Statements*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 51

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**FIRST NATIONAL CORPORATION**

**Notes to Consolidated Financial Statements**

**Note *1.* Nature of Banking Activities and Significant Accounting Policies**

First National Corporation (the Company) is the bank holding company of First Bank (the Bank). The Company also owns First National (VA) Statutory Trust II (Trust II), and First National (VA) Statutory Trust III (Trust III and, together with Trust II, the Trusts). The Trusts were formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities and are *not* included in the Company's consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the Trusts qualify as variable interest entities. The Bank owns First Bank Financial Services, Inc., which invests in entities that provide title insurance and investment services. The Bank owns Shen-Valley Land Holdings, LLC which was formed to hold other real estate owned and future office sites. The Bank offers loan, deposit, and wealth management products and services in the Shenandoah Valley, south-central regions of Virginia, the Roanoke Valley, the Richmond MSA, and in northern North Carolina. Loan products and services include consumer loans, residential mortgages, home equity loans, and commercial loans. Deposit products and services include checking accounts, treasury management solutions, savings accounts, money market accounts, certificates of deposit, and individual retirement accounts. Wealth management services include estate planning, investment management of assets, trustee under an agreement, trustee under a will, individual retirement accounts, and estate settlement. The Bank offers other services, including internet banking, mobile banking, remote deposit capture, and other traditional banking services.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to accepted practices within the banking industry.

**Principles of Consolidation**

The consolidated financial statements of First National Corporation include the accounts of all *four* companies. All material intercompany balances and transactions have been eliminated in consolidation, except for balances and transactions related to the Trusts. The subordinated debt of these Trusts is reflected as a liability of the Company.

**Use of Estimates**

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the allowance for credit losses.

**Significant Group Concentrations of Credit Risk**

Most of the Company's activities are with customers located within the Shenandoah Valley, south-central regions of Virginia, the Roanoke Valley, the Richmond MSA, and in northern North Carolina. The types of lending that the Company engages in are included in Note *4.* The Company has a concentration of credit risk in commercial real estate but does *not* have a significant concentration to any *one* customer or industry.

**Acquisition Accounting**

The Company accounts for mergers and acquisitions that qualify as a business combination under ASC *805, Business Combinations*, which requires the use of the acquisition method of accounting. Under the acquisition method, we record all identifiable assets acquired, including intangible assets and the liabilities assumed at their fair values as of the acquisition date. If the purchase price exceeds that of the net assets acquired, an unidentified intangible asset (goodwill) is recorded. If the purchase price is determined to be less than that of the net assets acquired at fair value, a bargain purchase gain is recorded in results of operations. Determining fair values of net assets acquired often involves estimates based on *third*-party valuations, such as appraisals or internal valuations based on discounted cash flow analysis or other valuation techniques. These methodologies are inherently subjective and involve significant assumptions, adjustments, and judgement around the selection of assumptions including, among others, discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The determination of the useful lives over which an intangible asset will be amortized is also subjective. While the selected fair values represent our best estimate of fair value as of the acquisition date, these estimates are inherently uncertain. In addition, the acquisition method of accounting allows for a measurement period to adjust acquisition accounting for up to *one* year after the acquisition date, for new information that existed at the acquisition date but *may not* have been known or available at that time. For further information, refer to Note *2* "Acquisitions" in Part I, Item *8* of this Annual Report.

Acquired loans are recorded at their fair value at acquisition date without carryover of the acquiree's previously established ACLL, as credit discounts are included in the determination of fair value. The fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and then applying a market-based discount rate to those cash flows. During evaluation upon acquisition, acquired loans are also classified as either PCD or Non-PCD. Acquired loans are subject to the Company's ACLL policy upon acquisition.

For Non-PCD loans, the difference between the fair value and unpaid principal balance of the loan at acquisition date (premium or discount) is amortized or accreted into interest income over the life of the loans in accordance with ASC *310*-*20, Receivables* – *Nonrefundable Fees and Other Costs*. If the acquired performing loan has revolving privileges, it is accounted for using the straight-line method; otherwise, the effective interest method is used.

PCD loans are loans that have experienced more-than-insignificant credit deterioration since origination. PCD loans are recorded at the purchase price plus the initial allowance for credit losses. An ACLL is determined using the same methodology as other loans held for investment (LHFI). The sum of the loan's purchase price and ACLL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan under ASC *310*-*20, Receivables* – *Nonrefundable Fees and Other Costs*. If the loan has revolving privileges, the discount/premium is amortized/accreted using the straight-line method; otherwise, the effective interest method is used. Subsequent changes to the ACLL are recorded through provision expense.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *52*

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**Goodwill and Other Intangible Assets**

Goodwill arises from business combinations and is determined as the excess fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are *not* amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The Company has selected *June 30* as the date to perform the annual impairment test. Intangible assets with finite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the balance sheet.

Other intangible assets consist of core deposit intangible assets arising from whole bank and branch acquisitions and are amortized on an accelerated method over their estimated useful lives, which range from 6 to 10 years.

**Bargain Purchase Gain**

A bargain purchase arises when the fair value of the net assets acquired in a business combination exceeds the consideration transferred, resulting in a gain being recorded by the acquirer. The Company recognized the gain as income on the date of acquisition and during the subsequent measurement period in noninterest income.

**Cash and Cash Equivalents**

For purposes of the consolidated statements of cash flows, the Company has defined cash equivalents as those amounts included in the balance sheet captions "Cash and due from banks" and "Interest-bearing deposits in banks."

**Securities**

Investments in debt securities with readily determinable fair values are classified as either held to maturity (HTM), available for sale (AFS), or trading based on management's intent. Currently, all of the Company's debt securities are classified as either AFS or HTM. Equity investments in the FHLB, the Federal Reserve Bank of Richmond, and Community Bankers Bank are separately classified as restricted securities and are carried at cost. AFS securities are carried at estimated fair value with the corresponding unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss), and HTM securities are carried at amortized cost. When an individual AFS security is sold, the Company releases the income tax effects associated with the AFS security from accumulated other comprehensive income (loss). Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains or losses on the sale of securities are recorded on the trade date using the amortized cost of the specific security sold.

Transfers of debt securities into the held to maturity classification from the available for sale classification are made at fair value on the date of transfer. The unrealized holding gain or loss on the date of the transfer is reported in accumulated other comprehensive loss and in the carrying value of the held to maturity securities. Such amounts are amortized over the remaining contractual lives of the securities. The net impact to income from the amortization and accretion of the unrealized loss at date of transfer is zero. Equity securities with readily determinable fair values are carried at fair value, with changes in fair value reported in net income. Any equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. Restricted equity securities are carried at cost and are periodically evaluated for impairment based on the ultimate recovery of par value. The entirety of any impairment on equity securities is recognized in earnings.

The Company evaluates the fair value and credit quality of its AFS securities on at least a quarterly basis. In the event the fair value of a security falls below its amortized cost basis, the security is evaluated to determine whether the decline in value was caused by changes in market interest rates or security credit quality. The primary indicators of credit quality for the Company's AFS portfolio are security type and credit rating, which are influenced by a number of security-specific factors that *may* include obligor cash flow, geography, seniority, structure, credit enhancement, and other factors.

If unrealized losses are related to credit quality, the Company estimates the credit related loss by evaluating the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security and a credit loss exists, an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

The Company evaluates the credit risk of its HTM securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the probability of default/loss given default methodology. The primary indicators of credit quality for the Company's HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company's HTM securities with credit risk are obligations of states and political subdivisions.

**Loans Held for Sale**

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. The Company, through its banking subsidiary, requires a firm purchase commitment from a permanent investor before loans held for sale can be closed, thus limiting interest rate risk. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

The Bank enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from *30* to *60* days. The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Bank commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Bank is *not* exposed to losses nor will it realize significant gains related to its rate lock commitments due to changes in interest rates. The correlation between the rate lock commitments and the best efforts contracts is very high due to their similarity.

The market value of rate lock commitments and best efforts contracts is *not* readily ascertainable with precision because rate lock commitments and best efforts contracts are *not* actively traded in stand-alone markets. The Bank determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock commitments will close. Because of the high correlation between rate lock commitments and best efforts contracts, *no* gain or loss occurs on the rate lock commitments.

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**Loans**

The Company, through its banking subsidiary, grants mortgage, commercial, and consumer loans to customers. The Bank segments its loan portfolio into real estate loans, commercial and industrial loans, and consumer and other loans. Real estate loans are further divided into the following classes: Construction and Land Development; *1*-*4* Family Residential; and Other Real Estate Loans. Descriptions of the Company's loan classes are as follows:

**Real Estate Loans – Construction and Land Development**: The Company originates construction loans for the acquisition and development of land and construction of commercial buildings, condominiums, townhomes, and *one*-to-*four* family residences.

**Real Estate Loans – *1*-*4* Family**: This class of loans includes loans secured by *one*-to-*four* family homes. In addition to traditional residential mortgage loans secured by a *first* or junior lien on the property, the Bank offers home equity lines of credit.

**Real Estate Loans – Other**: This loan class consists primarily of loans secured by various types of commercial real estate typically in the Bank's market area, including multi-family residential buildings, office and retail buildings, industrial and warehouse buildings, hotels, and religious facilities.

**Commercial and Industrial Loans:** Commercial loans *may* be unsecured or secured with non-real estate commercial property. The Company's banking subsidiary makes commercial loans to businesses located within its market area and also to businesses outside of its market area through loan participations with other financial institutions and through the purchase of commercial loans through *third* party lending programs. Loans originated under the SBA's PPP are also included in this loan class.

**Consumer and Other Loans**: Consumer loans include all loans made to individuals for consumer or personal purposes. They include new and used automobile loans, unsecured loans, and lines of credit. The Company's banking subsidiary makes consumer loans to individuals located within its market area and also to individuals outside of its market through the purchase of loans from another financial institution.

A substantial portion of the loan portfolio is represented by residential and commercial loans secured by real estate throughout the Bank's market area. The ability of the Bank's debtors to honor their contracts *may* be impacted by the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances less the ACLL and any deferred fees or costs on originated loans. Interest income is accrued and credited to income based on the unpaid principal balance. Loan origination fees, net of certain origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Interest income includes amortization of purchase premiums and discounts, recognized evenly over the life of the loans.

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

All interest accrued but *not* collected for loans that are placed on non-accrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. When a loan is returned to accrual status, interest income is recognized based on the new effective yield to maturity of the loan.

Any unsecured loan that is deemed uncollectible is charged-off in full. Any secured loan that is considered by management to be uncollectible is partially charged-off and carried at the fair value of the collateral less estimated selling costs. This charge-off policy applies to all loan segments.

**Loans Acquired through Third Party Lending Programs**

The loan portfolio includes commercial and industrial loans that were originated by a *third*-party and were acquired at premiums. Premiums on performing loans are amortized into interest income and fees on loans over the life of the loans using the effective interest method. Premiums on non-performing loans are *not* amortized into interest income and fees on loans after loans are placed on non-accrual status and are included in the calculation of specific reserve component of the allowance for credit losses on loans for individually analyzed loans.

**Allowance for Credit Losses - Held-to-Maturity Securities**

The Company estimates expected credit losses on held-to-maturity securities on an individual basis based on a Probability of Default/Loss Given Default ("PD/LGD") methodology primarily using security-level credit ratings. The primary indicators of credit quality for the Company's held-to-maturity portfolio are security type and credit ratings, which are influenced by a number of factors including obligor cash flow, geography, seniority, among other factors. The Company's held-to-maturity securities with credit risk are municipal bonds and corporate debt securities. All other held-to-maturity securities are covered by the explicit or implied guarantee of the United States government or *one* if its agencies.

Changes in the allowance for credit loss are recorded as provision for (or recovery of) credit losses in the Consolidated Statements of Income. During the year ended *December 31, 2025* , the Company recorded a recovery of credit losses on held-to-maturity securities of $12 thousand. The allowance for credit losses on held-to-maturity securities was $83 thousand and $95 thousand at *December 31, 2025* and *2024* , respectively.

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**Allowance for Credit Losses – Available-for-Sale Securities**

Management evaluates all available-for-sale securities in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than *not* that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is *not* met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company *may* consider various factors including the extent to which fair value is less than amortized cost, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specific to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any deficiency is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has *not* been recorded through an allowance for credit loss is recognized in other comprehensive income (loss).

Changes in the allowance for credit loss are recorded as a provision for (or recovery of) credit losses in the Consolidated Statements of Income. Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. There was *no* allowance for credit loss related to the available-for-sale portfolio at *December 31, 2025* and *2024*.

Accrued interest receivable on available-for-sale securities totaled $1.2 million and $836 thousand at *December 31, 2025* and *2024*, respectively and was excluded from the estimate of credit losses.

**Allowance for Credit Losses - Loans**

The allowance for loan credit losses represents an amount which, in management's judgement, 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 losses, and is increased or decreased by a provision for (or recovery of) credit losses, which is recorded in the Consolidated Statement of Income.

The Company is utilizing 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 loss drivers, which *may* include unemployment rates, home price indices, and/or gross domestic product ("GDP"), 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 *eight* 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 credit, 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 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 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.

**Allowance for Credit Losses – Unfunded Commitments**

Financial Instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit losses in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records all allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for (or recovery of) credit losses in the Consolidated Statement of Income. The allowances for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit losses model using the same methodology as the loan portfolio, taking into consideration the likelihood that funding will occur as well as any *third*-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company's consolidated balance sheet.

**Accrued Interest Receivable**

The Company has elected to exclude the accrued interest from the amortized cost basis in its determination of the allowance for credit losses for both loans and held-to-maturity securities, as well as elected the policy to write-off accrued interest receivable directly through the reversal of interest income. Accrued interest receivable totaled $4.9 million and $4.8 million on loans and $396 thousand and $423 thousand on held-to-maturity securities at *December 31, 2025* and *2024*., respectively, and is included in "Accrued Interest Receivable" on the Company's Consolidated Balance Sheets.

**Premises and Equipment**

Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Premises and equipment are depreciated over their estimated useful lives ranging from three years to forty years; leasehold improvements are amortized over the lives of the respective leases or the estimated useful life of the leasehold improvement, whichever is less. Software is amortized over its estimated useful life ranging from three to seven years. Depreciation and amortization are recorded on the straight-line method.

Costs of maintenance and repairs are charged to expense as incurred. Costs of replacing structural parts of major units are considered individually and are expensed or capitalized as the facts dictate. Gains and losses on routine dispositions are reflected in current operations.

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**Leases**

Lease liabilities represent the Company's obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company's incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company's right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and, if applicable, prepaid rent, initial direct costs, and any incentives received from the lessor.

Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Payments for leases with terms longer than *twelve* months are included in the determination of the lease liability. Payments *may* be fixed for the term of the lease or variable. If the lease agreement provides a known escalator, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is *not* included in the cash flows used to determine the lease liability. Three of the Company's leases provide known escalators that are included in the determination of the lease liability. The remaining leases do *not* have variable payments during the term of the lease.

**Other Real Estate Owned**

Other real estate owned (OREO) consists of properties obtained through a foreclosure proceeding or through an in-substance foreclosure in satisfaction of loans and properties originally acquired for branch operations or expansion but *no* longer intended to be used for that purpose. OREO is initially recorded at fair value less estimated costs to sell to establish a new cost basis. OREO is subsequently reported at the lower of cost or fair value less costs to sell, determined on the basis of current appraisals, comparable sales, and other estimates of fair value obtained principally from independent sources, adjusted for estimated selling costs. Management also considers other factors or recent developments, such as changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management's plans for disposition, which could result in adjustments to the collateral value estimates indicated in the appraisals. Significant judgments and complex estimates are required in estimating the fair value of other real estate owned, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. In response to market conditions and other economic factors, management *may* utilize liquidation sales as part of its distressed asset disposition strategy. As a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from sales transactions could differ significantly from appraisals, comparable sales, and other estimates used to determine the fair value of other real estate owned. Management reviews the value of other real estate owned each quarter, if any, and adjusts the values as appropriate. Revenue and expenses from operations and changes in the valuation allowance are included in other real estate owned expense.

**Bank-Owned Life Insurance**

The Company owns insurance on the lives of a certain group of key employees. The policies were purchased to help offset the increase in the costs of various fringe benefit plans, including healthcare. The cash surrender value of these policies is included as an asset on the consolidated balance sheets, and any increase in cash surrender value is recorded as income from bank owned life insurance on the consolidated statements of income. In the event of the death of an insured individual under these policies, the Company receives a death benefit which is also recorded as income from bank owned life insurance. The Company is exposed to credit risk to the extent an insurance company is unable to fulfill its financial obligations under a policy.

**Derivative Financial Instruments**

The Company recognizes derivative financial instruments at fair value as either an other asset or other liability in its Consolidated Balance Sheets. The Company's derivative financial instruments are comprised of interest rate swaps that qualify and are designated as cash flow hedges on the Company's junior subordinated debt. Gains or losses on the Company's cash flow hedges are reported as a component of other comprehensive income, net of deferred income taxes, and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. The Company's derivative financial instruments are described more fully in Note *25.*

**Stock Based Compensation**

Compensation cost is recognized for restricted stock units and other stock awards issued to employees and directors based on the fair value of the awards at the date of grant. The market price of the Company's common stock at the date of grant is used to estimate the fair value of restricted stock units and other stock awards.

**Retirement Plans**

Employee *401*(k) and profit sharing plan expense is the amount of matching contributions and Bank discretionary matches.

**Transfers of Financial Assets**

Transfers of financial assets, including loan participations, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (*1*) the assets have been isolated from the Company, (*2*) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (*3*) the Company does *not* maintain effective control over the transferred assets through an agreement to repurchase them before maturity.

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**Income Taxes**

Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than *not* that some portion or all of the deferred tax assets will *not* be realized.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than *not* that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are *not* offset or aggregated with other positions. Tax positions that meet the more-likely-than-*not* recognition threshold are measured as the largest amount of tax benefit that is more than *50* percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. There was no liability for unrecognized tax benefits recorded as of *December 31, 2025* and *2024* . Interest and penalties associated with unrecognized tax benefits, if any, are classified as additional income taxes in the consolidated statements of income.

**Segments** 

Operating segments as defined by ASC *280,* Segment Reporting, are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company operates through two reportable operating segments: banking and wealth management. The accounting policies of operating segments are the same as those described elsewhere in this footnote. See Note *26* for further discussion of the Company's operating segments.

**Wealth Management Department**

Securities and other property held by the wealth management department in a fiduciary or agency capacity are *not* assets of the Company and are *not* included in the accompanying consolidated financial statements.

**Earnings Per Common Share**

Basic earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that *may* be issued by the Company relate to restricted stock units and are determined using the treasury method. See Note *15* for further information regarding earnings per common share.

**Advertising Costs**

The Company follows the policy of charging the production costs of advertising to expense as incurred. Total advertising expense, a component of marketing expense, incurred for *2025* and *2024* were $689 thousand and $639 thousand, respectively.

**Adoption of New Accounting Pronouncements**

In *December 2023,* the Financial Accounting Standards Board (FASB) issued ASU *2023*-*09,* "Income Taxes (Topic *740*): Improvements to Income Tax Disclosures." The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than *five* percent of the amount computed by multiplying pretax income by the entity's applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than *five* percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. ASU *2023*-*09* was effective for the Bank/Company for the annual period beginning *January 1, 2025.* 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ASU *2023*- *09* did *not* have a material impact on the Company's financial condition or results of operations but did result in additional disclosures. For further information, refer to Note *12* "Income Taxes" in this Form *10*-K.

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**Recent Accounting Pronouncements**

In *November 2025,* FASB issued ASU *2025*-*08,* "Financial Instruments—Credit Losses (Topic *326*): Purchased Loans." The amendments in this ASU expand the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. This ASU is effective for annual reporting periods beginning after *December 15, 2026,* and for interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have *not* yet been issued or made available for issuance. If an entity adopts this ASU in an interim reporting period, it should apply it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. The Company does *not* expect the adoption of ASU *2025*-*08* to have a material impact on its consolidated financial statements.

In *November 2024,* FASB issued ASU *2024*-*03,* "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic *220*-*40*): Disaggregation of Income Statement Expenses." ASU *2024*-*03* requires public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are *not* separately disaggregated quantitatively. The FASB subsequently issued ASU *2025*-*01,* "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic *220*-*40*): Clarifying the Effective Date", which amends the effective date of ASU *2024*-*03* to clarify that all public business entities are required to adopt the guidance in ASU *2024*-*03* in annual reporting periods beginning after *December 15, 2026,* and interim periods within annual reporting periods beginning after *December 15, 2027.* Early adoption of ASU *2024*-*03* is permitted. The Company does *not* expect the adoption of ASU *2024*-*03* to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards setting bodies are *not* currently expected to have a material effect on the Company's financial position, results of operations or cash flows.

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**Note *2.* Acquisitions**

On *October 1, 2024,* the Company completed its previously announced merger with Touchstone, the holding company for Touchstone Bank headquartered in Prince George, Virginia. Under the terms of the merger agreement, at the effective time of the merger, each outstanding share of Touchstone common stock was converted into 0.55 shares of the Company's common stock, resulting in 2.7 million additional shares issued, or aggregate consideration of $46.8 million, based on the closing price per share of the Company's common stock as quoted on the NASDAQ Capital Market on *September 30, 2024,* which was the last trading day prior to the consummation of the acquisition. With the acquisition of Touchstone, the Company acquired 12 branches, deepening its presence in central Virginia and expanding its franchise into contiguous markets in southern Virginia and northern North Carolina. As a result of the Touchstone merger, the Company recognized an adjusted bargain purchase gain of $3.2 million.

Following the Merger, the former branches of Touchstone Bank assumed in the Merger continued to operate in Virginia as Touchstone Bank, a division of First Bank, and, in North Carolina, as Touchstone Bank, a division of First Bank, Strasburg, Virginia, until the system integration was completed in *February 2025.* Following the system integration, the former branches of Touchstone Bank now operate in Virginia as First Bank and in North Carolina as First Bank of the Commonwealth. The combined company delivers banking services through thirty-three branch offices in Virginia and North Carolina and one loan production office, in addition to a wide array of online and mobile banking services

As a result of the Touchstone acquisition, the Company recognized a preliminary bargain purchase gain of $2.9 million. While the Company believes that the information available on *October 1, 2024,* provided a reasonable basis for estimating fair value, the Company obtained additional information and evidence during the measurement period that resulted in changes to the estimated fair value amounts and associated bargain purchase gain recorded. Subsequent adjustments are reflected in subsequent filings and are summarized below.

As of *December 31, 2025,* the Company has recognized a bargain purchase gain, as adjusted, of $3.2 million. This includes a $304 thousand increase in the bargain purchase gain recognized in the *third* quarter of *2025,* due to a higher than anticipated tax refund from the final Touchstone tax return. The adjustment is included in noninterest income in the Company's Consolidated Statements of Income for the year ended *December 31, 2025.* The following table provides an assessment of the consideration transferred and the fair value of the assets acquired and liabilities assumed as of the date of the acquisition adjusted for changes identified during the measurement period.

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| | | | |
|:---|:---|:---|:---|
| *(in thousands)* | ***As Initially Reported*** | ***Measurement Period Adjustments*** | ***As Adjusted*** |
| Purchase price consideration: |  |  |  |
| Fair value of shares of the Company's common stock | $46789 | $*—* | $46789 |
| Cash paid for fractional shares | 10 | *—* | 10 |
| Total Purchase Price | $46799 | $*—* | $46799 |
| Fair value of assets acquired: |  |  |  |
| Cash and cash equivalents | $70253 | $*—* | $70253 |
| Securities AFS | 62166 | *—* | 62166 |
| Loans | 479341 | *—* | 479341 |
| Premises and equipment | 11388 | *—* | 11388 |
| CDI | 15329 | *—* | 15329 |
| Bank owned life insurance | 12617 | *—* | 12617 |
| Other assets | 13232 | 304 | 13536 |
| Total assets | $664326 | $304 | $664630 |
| Fair value of liabilities assumed: |  |  |  |
| Deposits | $555439 | $*—* | $555439 |
| Short-term borrowings | 39305 | *—* | 39305 |
| Subordinated debt | 16176 | *—* | 16176 |
| Other liabilities | 3687 | *—* | 3687 |
| Total liabilities | $614607 | $*—* | $614607 |
| Fair value of net assets acquired | $49719 | $304 | $50023 |
| Bargain purchase gain | $2920 | $304 | $3224 |

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The Company assessed the fair value based on the following methods for the significant assets acquired and liabilities assumed:

*Cash and cash equivalents*: The fair value was determined to approximate the carrying amount based on the short-term nature of these assets.

*Securities AFS*: The fair value of the investment portfolio was based on quoted market prices and dealer quotes and pricing obtained from independent pricing services

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*Loans*: Fair values for loans were estimated using a discounted cash flow analysis that considered factors including loan type, interest rate type, prepayment speeds, duration, and current discount rates. The discount rates used for loans were based on current market rates for new originations of comparable loans and factored in adjustments for any expected liquidity events. Expected cash flows were derived using inputs that considered estimated credit losses and prepayments.

*Premises and equipment*: The fair value of bank premises and equipment held for use was valued by obtaining recent market data for similar property types with adjustments for characteristics of individual properties.

*Core Deposit Intangibles*: Core Deposit Intangibles (CDI) represents the future economic benefit of acquired customer deposits. The fair value of the CDI asset was estimated based on a discounted cash flow methodology that incorporated expected customer attrition rates, cost of deposit base, net maintenance cost associated with customer deposits, and the cost for alternative funding sources. The discount rates used were based on market rates.

*Bank Owned Life Insurance (BOLI):* The fair value of BOLI is carried at its current cash surrender value, which is the most reasonable estimate of fair value.

*Deposits*: The fair value of interest bearing and non-interest bearing deposits is the amount payable on demand at the acquisition date. The fair value of time deposits was estimated using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for certificates of deposits that mature in the same period.

*Short-term borrowings*: Acquired other borrowings consisted of FHLB short term borrowings. The fair value of the short-term borrowings was based on the immediate repayment of the advances on Day *2.*

*Subordinated Debt*: The fair values of the Company's subordinated debt holdings were estimated using discounted cash flow analyses, based on the current incremental borrowing rates for similar types of borrowing arrangements.

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Merger-related costs associated with the acquisition of Touchstone were $2.2 million and $8.1 million for the years ended *December 31, 2025,* and *2024,* respectively. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred, and are recorded in "Merger expenses" on the Company's Consolidated Statements of Income.

*<u>Fair Value Premiums and Discounts</u>*

The net effect of the amortization and accretion of premiums and discounts associated with the Company's acquisition accounting adjustments, which includes previous acquisitions in addition to Touchstone, had the following impact on the Consolidated Statements of Income during the years ended *December 31, 2025* and *2024* (dollars in thousands):

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| | | |
|:---|:---|:---|
|  | ***For the years ended*** | ***For the years ended*** |
|  | ***December 31,*** | ***December 31,*** |
|  | *2025* | *2024* |
| Loans (1) | $1100 | $711 |
| Core deposit intangible (2) | (1767) | (1718) |
| Subordinated Debt (3) | (636) | (307) |
| Time deposits (4) | 651 | (49) |
| Net impact to income before taxes | $(652) | $(1363) |

---

(*1*)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loan acquisition-related fair value adjustments accretion is included in "Interest and fees on loans" in the "Interest and dividend income" section of the Company's Consolidated Statements of Income.

(*2*)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Core deposit intangible premium amortization is included in "Amortization expense" in the "Noninterest expense" section of the Company's Consolidated Statements of Income.

(*3*)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Subordinated debt acquisition-related fair value adjustments (accretion) amortization is included in "Interest on subordinated debt" in the "Interest Expense" section of the Company's Consolidated Statements of Income.

(*4*)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Time deposit acquisition-related fair value adjustments (accretion) amortization is included in "Interest on deposits" in the "Interest expense" section of the Company's Consolidated Statements of Income.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *61*

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**Note *3.* Securities**

The Company invests in U.S. Treasury securities, U.S. agency and mortgage-backed securities, obligations of states and political subdivisions, and corporate debt securities. Amortized costs and fair values of securities at *December 31, 2025* and *2024* were as follows (in thousands):

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | ***2025*** | ***2025*** | ***2025*** | ***2025*** | ***2025*** |
|  | ***Amortized Cost*** | ***Gross Unrealized Gains*** | ***Gross Unrealized (Losses)*** | ***Fair Value*** | ***Allowance for Credit Losses*** |
| Securities available for sale: |  |  |  |  |  |
| U.S. Treasury securities | $37566 | $120 | $(348) | $37338 | $— |
| U.S. agency and mortgage-backed securities | 131172 | 212 | (8587) | 122797 |  |
| Obligations of states and political subdivisions | 62287 | 31 | (5872) | 56446 |  |
| Corporate debt securities | 973 |  | (16) | 957 |  |
| Total securities available for sale | $231998 | $363 | $(14823) | $217538 | $— |
| Securities held to maturity: |  |  |  |  |  |
| U.S. Treasury securities | $9890 | $— | $(13) | $9877 | $— |
| U.S. agency and mortgage-backed securities | 79632 | 1 | (5842) | 73791 |  |
| Obligations of states and political subdivisions | 10433 | 97 | (655) | 9875 |  |
| Corporate debt securities | 3000 |  | (259) | 2741 | (83) |
| Total securities held to maturity | $102955 | $98 | $(6769) | $96284 | $(83) |
| Total securities | $334953 | $461 | $(21592) | $313822 | $(83) |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | ***2024*** | ***2024*** | ***2024*** | ***2024*** | ***2024*** |
|  | ***Amortized Cost*** | ***Gross Unrealized Gains*** | ***Gross Unrealized (Losses)*** | ***Fair Value*** | ***Allowance for Credit Losses*** |
| Securities available for sale: |  |  |  |  |  |
| U.S. Treasury securities | $12483 | $— | $(795) | $11688 | $— |
| U.S. agency and mortgage-backed securities | 110480 | 57 | (12498) | 98039 |  |
| Obligations of states and political subdivisions | 62954 | 5 | (8839) | 54120 |  |
| Total securities available for sale | $185917 | $62 | $(22132) | $163847 | $— |
| Securities held to maturity: |  |  |  |  |  |
| U.S. Treasury securities | $9632 | $— | $(125) | $9507 | $— |
| U.S. agency and mortgage-backed securities | 86555 |  | (9282) | 77273 |  |
| Obligations of states and political subdivisions | 10649 | 8 | (1112) | 9545 |  |
| Corporate debt securities | 3000 |  | (450) | 2550 | (95) |
| Total securities held to maturity | $109836 | $8 | $(10969) | $98875 | $(95) |
| Total securities | $295753 | $70 | $(33101) | $262722 | $(95) |

---

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position is as follows (in thousands):

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | *2025* | *2025* | *2025* | *2025* | *2025* | *2025* |
|  | *Less than 12 months* | *Less than 12 months* | *12 months or more* | *12 months or more* | *Total* | *Total* |
|  | *Fair Value* | *Unrealized (Loss)* | *Fair Value* | *Unrealized (Loss)* | *Fair Value* | *Unrealized (Loss)* |
| Securities available for sale: |  |  |  |  |  |  |
| U.S. Treasury securities | $10057 | $(13) | $12156 | $(335) | $22213 | $(348) |
| U.S. agency and mortgage-backed securities | 24346 | (144) | 61732 | (8443) | 86078 | (8587) |
| Obligations of states and political subdivisions | 2764 | (8) | 47552 | (5864) | 50316 | (5872) |
| Corporate debt securities | 457 | (16) |  |  | 457 | (16) |
| Total securities available for sale | $37624 | $(181) | $121440 | $(14642) | $159064 | $(14823) |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *62*

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | *2024* | *2024* | *2024* | *2024* | *2024* | *2024* |
|  | *Less than 12 months* | *Less than 12 months* | *12 months or more* | *12 months or more* | *Total* | *Total* |
|  | *Fair Value* | *Unrealized (Loss)* | *Fair Value* | *Unrealized (Loss)* | *Fair Value* | *Unrealized (Loss)* |
| Securities available for sale: |  |  |  |  |  |  |
| U.S. Treasury securities | $— | $— | $11688 | $(795) | $11688 | $(795) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; U.S. agency and mortgage-backed securities | 23445 | (237) | 67800 | (12261) | 91245 | (12498) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Obligations of states and political subdivisions | 4839 | (135) | 47776 | (8704) | 52615 | (8839) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total securities available for sale | $28284 | $(372) | $127264 | $(21760) | $155548 | $(22132) |

---

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at *December 31, 2025* and *2024* and concluded *no* impairment existed based on several factors which included: (*1*) the majority of these securities are of high credit quality, (*2*) unrealized losses are primarily the result of market volatility and increases in market interest rates, (*3*) the contractual terms of the investments do *not* permit the issuer(s) to settle the securities at a price less than the cost basis of each investment, (*4*) issuers continue to make timely principal and interest payments, and (*5*) the Company does *not* intend to sell any of the investments and the accounting standard of "more likely than *not"* has *not* been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.

Additionally, the majority of the Company's mortgage-backed securities are issued by FNMA, FHLMC, and GNMA and do *not* have credit risk given the implicit and explicit government guarantees associated with these agencies. In addition, the non-agency mortgage-backed and asset-backed securities generally received a *20%* simplified supervisory formula approach rating. The Company's AFS investment portfolio is generally highly-rated or agency backed. At *December 31, 2025* or *2024*, all AFS securities were current with no securities past due or on non- accrual and no ACL was held against the Company's AFS securities portfolio.

At *December 31, 2025*, there were 6 out of 13 U.S. Treasury securities, 100 out of 126 U.S. agency and mortgage-backed securities, 80 out of 94 obligations of states and political subdivisions, and 2 out of 2 corporate securities in an unrealized loss position. One hundred percent of the Company's investment portfolio is considered investment grade. The weighted-average re-pricing term of the portfolio was 4.6 years at *December 31, 2025*. At *December 31, 2024*, there were 3 out of 3 U.S. Treasury securities, 97 out of 116 U.S. agency and mortgage-backed securities, and 95 out of 98 obligations of states and political subdivisions in an unrealized loss position. One hundred percent of the Company's investment portfolio was considered investment grade at *December 31, 2024*. The weighted- average re-pricing term of the portfolio was 5.7 years at *December 31, 2024*. The unrealized losses at *December 31, 2025* in the U.S. Treasury securities portfolio, U.S. agency and mortgage-backed securities portfolio, obligations of states and political subdivisions portfolio, and corporate debt securities portfolio were related to current interest rates above those that existed when these securities were purchased and *not* credit concerns of the issuers. Additionally, spreads on securities change from period to period, also impacting pricing.

The amortized cost and fair value of securities at *December 31, 2025* by contractual maturity are shown below (in thousands). Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers *may* have the right to prepay obligations with or without call or prepayment penalties.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***Available for Sale*** | ***Available for Sale*** | ***Held to Maturity*** | ***Held to Maturity*** |
| (in thousands) | *Amortized Cost* | *Fair Value* | *Amortized Cost* | *Fair Value* |
| Due within one year | $17112 | $16889 | $15058 | $14982 |
| Due after one year through five years | 77206 | 76307 | 16124 | 15521 |
| Due after five years through ten years | 43853 | 41677 | 16730 | 15722 |
| Due after ten years | 93827 | 82665 | 55043 | 50059 |
|  | $231998 | $217538 | $102955 | $96284 |

---

Proceeds from maturities, calls, principal payments, and sales of securities available for sale during *2025* and *2024* were $30.5 million and $74.8 million, respectively. Gross losses of $0 and $155 thousand were realized on calls and sales during *2025* and *2024* , respectively.

Proceeds from maturities, calls, and principal payments of securities held to maturity during *2025* and *2024* were $7.8 million and $39.7 million, respectively. There were *no* sales of securities from the held to maturity portfolio for the years ended *December 31, 2025* or *2024* . The Company did *not* realize any gross gains or gross losses on held to maturity securities during *2025* or *2024* .

Securities having a fair value of $173.9 million and $175.0 million at *December 31, 2025* and *2024* were pledged to secure public deposits and for other purposes required by law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *63*

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Federal Home Loan Bank, Federal Reserve Bank, and Community Bankers' Bank stock are generally viewed as long-term investments and as restricted securities, which are carried at cost, because there is a minimal market for the stock. Therefore, when evaluating restricted securities for impairment, their value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does *not* consider these investments to be impaired at *December 31, 2025*, and no impairment has been recognized.

The composition of restricted securities at *December 31, 2025* and *2024* was as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Federal Home Loan Bank stock | $2609 | $1467 |
| Federal Reserve Bank stock | 2752 | 2010 |
| Community Bankers' Bank stock | 263 | 264 |
|  | $5624 | $3741 |

---

The Company also holds limited partnership investments in Small Business Investment Companies (SBICs), which are included in other assets in the Consolidated Balance Sheets. The limited partnership investments are measured as equity investments without readily determinable fair values at their cost, less any impairment, or other observable transaction prices. The amount included in other assets for the limited partnership investments was $2.4 million at *December 31, 2025* and *2024*.

**Credit Quality Indicators & Allowance for Credit Losses - HTM**

The Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings from Moody's, S&P, and Egan-Jones. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held to maturity at *December 31, 2025*, and *2024* aggregated by credit quality indicators.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| (in thousands) | *U.S. Treasury securities* | *U.S. agency and mortgage-backed securities* | *Obligations of states and political subdivisions* | *Corporate debt securities* | *Total Held to Maturity Securities* |
| **<u>December 31, 2025</u>** |  |  |  |  |  |
| Aaa | $9890 | $23418 | $2263 | $— | $35571 |
| Aa1 / Aa2 / Aa3 |  |  | 8170 |  | 8170 |
| Baa1 / Baa2 / Baa3 |  |  |  | 3000 | 3000 |
| Not rated - Agency (1) |  | 56214 |  |  | 56214 |
| Not rated - Non Agency |  |  |  |  |  |
| Total | $9890 | $79632 | $10433 | $3000 | $102955 |
| **<u>December 31, 2024</u>** |  |  |  |  |  |
| Aaa | $9632 | $23173 | $2487 | $— | $35292 |
| Aa1 / Aa2 / Aa3 |  |  | 8162 |  | 8162 |
| Baa1 / Baa2 / Baa3 |  |  |  | 3000 | 3000 |
| Not rated - Agency (1) |  | 63382 |  |  | 63382 |
| Not rated - Non Agency |  |  |  |  |  |
| Total | $9632 | $86555 | $10649 | $3000 | $109836 |

---

(*1*) *Generally considered *not* to have credit risk given the implied governmental guarantees associated with these agencies.*

At *December 31, 2025* and *2024*, the allowance for credit losses on held to maturity securities was $83 thousand and $95 thousand, respectively. The following table summarizes the change in the allowance for credit losses on held to maturity securities for the year ended *December 31, 2025*.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| (in thousands) |  | *U.S. agency and mortgage-backed securities* |  | *Corporate debt securities* | *Total Held to Maturity Securities* |
| **Balance, December 31, 2024** | $– $|  | $– $| 95 | 95 |
| Provision for credit losses | – |  | – | (12) | (12) |
| Charge-offs of securities | – |  | – |  |  |
| Recoveries | – |  | – |  |  |
| **Balance, December 31, 2025** | $– $|  | $– $| 83 | $83 |

---

At *December 31, 2025*, the Company had *no* securities held-to-maturity that were past due *30* days or more as to principal and interest payments. The Company had *no* securities held-to-maturity classified as nonaccrual as of *December 31, 2025*.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *64*

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**Note *4.* Loans**

Loans at *December 31, 2025* and *2024* are summarized as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | *2025* | *2024* |
| Real estate loans: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Construction and land development | $88424 | $84480 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Secured by 1-4 family residential | 527283 | 547167 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other real estate | 696978 | 672162 |
| Commercial and industrial loans | 117944 | 141333 |
| Consumer and other loans | 19116 | 21453 |
| Total loans, net of deferred origination costs/fees | $1449745 | $1466595 |
| Allowance for credit losses | (14719) | (16400) |
| Loans, net | $1435026 | $1450195 |

---

Net deferred loan fees included in the above loan categories were $1.7 million and $1.3 million at *December 31, 2025* and *2024*, respectively. Net unamortized discounts on loans acquired through business combinations included in the above loan categories totaled $13.2 million at *December 31, 2025* and $14.3 million at *December 31, 2024*. Unamortized premiums on loans purchased from a *third*-party loan originator are included in the commercial and industrial loan categories and totaled $4.1 million as of *December 31, 2025* and $5.8 million as of *December 31, 2024*. Consumer and other loans included $543 thousand and $450 thousand of demand deposit overdrafts at *December 31, 2025* and *2024*, respectively.

The following tables provide a summary of loan classes and an aging of past due loans as of *December 31, 2025* and *2024* (in thousands):

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* |
|  | *30-59 Days Past Due* | *60-89 Days Past Due* | *>90 Days Past Due* | *Total Past Due* | *Current* | *Total Loans* | *Non-Accrual Loans* | *90 Days or More Past Due and Accruing* |
| Real estate loans: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Construction and land development | $30 | $— | $45 | $75 | $88349 | $88424 | $45 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1-4 family residential | 2034 | 857 | 939 | 3830 | 523453 | 527283 | 1994 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other real estate |  |  |  |  | 696978 | 696978 |  |  |
| Commercial and industrial | 646 | 520 | 1324 | 2490 | 115454 | 117944 | 2615 |  |
| Consumer and other loans | 12 | 23 |  | 35 | 19081 | 19116 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | $2722 | $1400 | $2308 | $6430 | $1443315 | $1449745 | $4654 | $— |

---

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* |
|  | *30-59 Days Past Due* | *60-89 Days Past Due* | *>90 Days Past Due* | *Total Past Due* | *Current* | *Total Loans* | *Non-Accrual Loans* | *90 Days or More Past Due and Accruing* |
| Real estate loans: |  |  |  |  |  |  |  |  |
| Construction and land development | $56 | $26 | $23 | $105 | $84375 | $84480 | $50 | $23 |
| 1-4 family residential | 2192 | 210 | 54 | 2456 | 544711 | $547167 | 2148 | 54 |
| Other real estate | 12 | 41 |  | 53 | 672109 | $672162 |  |  |
| Commercial and industrial | 145 | 373 | 288 | 806 | 140527 | $141333 | 4773 | 288 |
| Consumer and other loans | 31 |  |  | 31 | 21422 | $21453 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | $2436 | $650 | $365 | $3451 | $1463144 | $1466595 | $6971 | $365 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *65*

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Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The outstanding principal balance and the carrying amount at *December 31, 2025* and *2024* of loans acquired in business combinations were as follows:

---

| | | |
|:---|:---|:---|
|  | *Acquired Loans - Purchased Performing* | *Acquired Loans - Purchased Performing* |
| *(Dollars in thousands)* | *2025* | *2024* |
| Outstanding principal balance | $480625 | $603046 |
| Carrying amount |  |  |
| Real estate loans: |  |  |
| Construction and land development | $7461 | $15810 |
| Secured by 1-4 family residential | 207352 | 234004 |
| Other real estate loans | 223986 | 291805 |
| Commercial and industrial loans | 25428 | 40885 |
| Consumer and other loans | 3223 | 6268 |
| Total acquired loans | $467450 | $588772 |

---

The following table presents additional information related to the acquired Touchstone loan portfolio at the acquisition date, including the initial ACL at acquisition on the PCD loans (in thousands):

---

| | |
|:---|:---|
| PCD Loans: | *2024* |
| Book value of acquired loans at acquisition | $13050 |
| Initial ACL at acquisition | 386 |
| Non-credit discount at acquisition | 1413 |
| Purchase Price | $14849 |
| Non-PCD Loans: |  |
| Fair Value | $467891 |
| Gross contractual amounts receivable | $479591 |
| Estimate of contractual cash flows not expected to be collected | $8138 |

---

**Credit Quality Indicators**

As part of the ongoing monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans. The Company utilizes a risk grading matrix to assign a rating to each of its loans. The loan ratings are summarized into the following categories: pass, special mention, substandard, doubtful, and loss. Pass rated loans include all risk rated credits other than those included in special mention, substandard, or doubtful. Loans classified as loss are charged-off. The Bank assigns risk grades to loans at origination and as renewals arise. The Bank's Credit Administration department reviews risk grades for accuracy on a quarterly basis and as credit issues arise. In addition, a certain amount of loans are reviewed each year through the Company's internal and external loan review process. A description of the general characteristics of the loan grading categories is as follows:

**Pass –** Loans classified as pass exhibit acceptable operating trends, balance sheet trends, and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower as agreed.

**Special Mention –** Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses *may* result in deterioration of the repayment prospects for the loan or the Bank's credit position at some future date.

**Substandard –** Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are *not* corrected.

**Doubtful –** Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The Company considers all doubtful loans to be impaired and places the loan on non-accrual status.

**Loss –** Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is *not* warranted.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *66*

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The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of *December 31, 2025* (in thousands).

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* |
|  | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* |
|  | *2025* | *2024* | *2023* | *2022* | *2021* | *Prior* | *Revolving* | *Total* |
| Construction and land development |  |  |  |  |  |  |  |  |
| Pass | $7661 | $674 | $3505 | $1999 | $3578 | $4079 | $66883 | $88379 |
| Special Mention |  |  |  |  |  |  |  |  |
| Substandard |  |  |  |  |  | 45 |  | 45 |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Construction and land development | $7661 | $674 | $3505 | $1999 | $3578 | $4124 | $66883 | $88424 |
| Current period gross write-offs | $— | $— | $— | $— | $— | $22 | $— | $22 |
| Secured by 1-4 family residential |  |  |  |  |  |  |  |  |
| Pass | $37248 | $29544 | $61183 | $100324 | $91044 | $135178 | $70577 | $525098 |
| Special Mention |  | 119 |  |  |  |  |  | 119 |
| Substandard |  |  | 29 | 210 | 343 | 1484 |  | 2066 |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Secured by 1-4 family residential | $37248 | $29663 | $61212 | $100534 | $91387 | $136662 | $70577 | $527283 |
| Current period gross write-offs | $— | $— | $— | $— | $— | $59 | $— | $59 |
| Other real estate loans |  |  |  |  |  |  |  |  |
| Pass | $67088 | $59352 | $95653 | $130268 | $105813 | $201768 | $32327 | $692269 |
| Special Mention |  | 313 |  |  |  | 4146 |  | 4459 |
| Substandard |  |  |  |  |  | 250 |  | 250 |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Other real estate loans | $67088 | $59665 | $95653 | $130268 | $105813 | $206164 | $32327 | $696978 |
| Current period gross write-offs | $— | $— | $— | $— | $— | $7 | $— | $7 |
| Commercial and industrial |  |  |  |  |  |  |  |  |
| Pass | $11592 | $16531 | $13637 | $14373 | $13054 | $11088 | $33469 | $113744 |
| Special Mention |  | 400 |  | 1072 |  |  |  | 1472 |
| Substandard |  |  | 751 | 1062 | 386 |  |  | 2199 |
| Doubtful |  |  |  |  |  | 529 |  | 529 |
| Total Commercial and industrial | $11592 | $16931 | $14388 | $16507 | $13440 | $11617 | $33469 | $117944 |
| Current period gross write-offs | $— | $671 | $701 | $1930 | $481 | $438 | $— | $4221 |
| Consumer and other loans |  |  |  |  |  |  |  |  |
| Pass | $4974 | $2155 | $2405 | $4252 | $91 | $2671 | $2568 | $19116 |
| Special Mention |  |  |  |  |  |  |  |  |
| Substandard |  |  |  |  |  |  |  |  |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Consumer and other loans | $4974 | $2155 | $2405 | $4252 | $91 | $2671 | $2568 | $19116 |
| Current period gross write-offs | $469 | $10 | $12 | $— | $— | $5 | $— | $496 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *67*

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The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of *December 31, 2024* (in thousands).

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* |
|  | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* | *Term Loans by Year of Origination* |
|  | *2024* | *2023* | *2022* | *2021* | *2020* | *Prior* | *Revolving* | *Total* |
| Construction and land development |  |  |  |  |  |  |  |  |
| Pass | $4419 | $5401 | $2421 | $5811 | $4424 | $5419 | $56509 | $84404 |
| Special Mention | 26 |  |  |  |  |  |  | 26 |
| Substandard |  |  |  | 18 |  | 32 |  | 50 |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Construction and land development | $4445 | $5401 | $2421 | $5829 | $4424 | $5451 | $56509 | $84480 |
| Current period gross write-offs | $— | $— | $— | $— | $— | $4 | $— | $4 |
| Secured by 1-4 family residential |  |  |  |  |  |  |  |  |
| Pass | $32609 | $69884 | $113535 | $99470 | $49250 | $115032 | $64740 | $544520 |
| Special Mention | 120 |  |  |  |  | 83 |  | 203 |
| Substandard |  | 32 | 252 | 317 |  | 1843 |  | 2444 |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Secured by 1-4 family residential | $32729 | $69916 | $113787 | $99787 | $49250 | $116958 | $64740 | $547167 |
| Current period gross write-offs | $20 | $— | $— | $— | $— | $18 | $— | $38 |
| Other real estate loans |  |  |  |  |  |  |  |  |
| Pass | $64958 | $83725 | $142077 | $120012 | $48238 | $192869 | $15531 | $667410 |
| Special Mention | 318 |  |  |  |  | 4072 |  | 4390 |
| Substandard |  |  |  |  |  | 362 |  | 362 |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Other real estate loans | $65276 | $83725 | $142077 | $120012 | $48238 | $197303 | $15531 | $672162 |
| Current period gross write-offs | $— | $— | $— | $— | $— | $— | $— | $— |
| Commercial and industrial |  |  |  |  |  |  |  |  |
| Pass | $24270 | $24835 | $21819 | $23086 | $3583 | $12815 | $22627 | $133035 |
| Special Mention | 430 |  | 1211 |  |  | 513 |  | 2154 |
| Substandard | 615 | 737 | 3699 | 647 |  | 446 |  | 6144 |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Commercial and industrial | $25315 | $25572 | $26729 | $23733 | $3583 | $13774 | $22627 | $141333 |
| Current period gross write-offs | $110 | $1275 | $772 | $1519 | $20 | $3 | $— | $3699 |
| Consumer and other loans |  |  |  |  |  |  |  |  |
| Pass | $5129 | $1697 | $1437 | $130 | $1306 | $2566 | $8917 | $21182 |
| Special Mention |  | 270 |  |  |  |  |  | 270 |
| Substandard |  |  |  |  |  | 1 |  | 1 |
| Doubtful |  |  |  |  |  |  |  |  |
| Total Consumer and other loans | $5129 | $1967 | $1437 | $130 | $1306 | $2567 | $8917 | $21453 |
| Current period gross write-offs | $249 | $29 | $9 | $3 | $1 | $2 | $— | $293 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *68*

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**Note *5.* Allowance for Credit Losses**

The following tables present, as of *December 31, 2025* and *2024*, the total Allowance for Credit Losses on Loans (ACLL) by portfolio, and information about individually evaluated and collectively evaluated loans (in thousands).

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* |
|  | *Construction and Land Development* | *Secured by 1-4 Family Residential* | *Other Real Estate* | *Commercial and Industrial* | *Consumer and Other Loans* | *Total* |
| **Allowance for credit losses:** |  |  |  |  |  |  |
| Beginning Balance, December 31, 2024 | $585 | $4266 | $7462 | $3927 | $160 | $16400 |
| Charge-offs | (22) | (59) | (7) | (4221) | (496) | (4805) |
| Recoveries | 5 | 31 | 15 | 168 | 147 | 366 |
| Provision for (recovery of) credit losses | (29) | 581 | (1518) | 3314 | 410 | 2758 |
| Ending Balance, December 31, 2025 | $539 | $4819 | $5952 | $3188 | $221 | $14719 |
| Ending Balance: |  |  |  |  |  |  |
| Individually evaluated |  |  |  | 1793 |  | 1793 |
| Collectively evaluated | 539 | 4819 | 5952 | 1395 | 221 | 12926 |
| **Loans:** |  |  |  |  |  |  |
| Ending Balance | $88424 | $527283 | $696978 | $117944 | $19116 | $1449745 |
| Individually evaluated | 45 | 1994 |  | 2615 |  | 4654 |
| Collectively evaluated | 88379 | 525289 | 696978 | 115329 | 19116 | 1445091 |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* |
|  | *Construction and Land Development* | *Secured by 1-4 Family Residential* | *Other Real Estate* | *Commercial and Industrial* | *Consumer and Other Loans* | *Total* |
| **Allowance for loan losses:** |  |  |  |  |  |  |
| Beginning Balance, December 31, 2023 | $312 | $3159 | $4698 | $3706 | $99 | $11974 |
| Initial Allowance on PCD Touchstone loans | 11 | 173 | 201 | 1 |  | 386 |
| Charge-offs | (4) | (38) |  | (3699) | (293) | (4034) |
| Recoveries |  | 22 | 3 | 111 | 148 | 284 |
| Initial Provision on Non-PCD Touchstone loans | 118 | 1310 | 1370 | 143 | 888 | 3829 |
| Provision for (recovery of) credit losses | 148 | (360) | 1190 | 3665 | (682) | 3961 |
| Ending Balance, December 31, 2024 | $585 | $4266 | $7462 | $3927 | $160 | $16400 |
| Ending Balance: |  |  |  |  |  |  |
| Individually evaluated |  |  |  | 3079 |  | 3079 |
| Collectively evaluated | 585 | 4266 | 7462 | 848 | 160 | 13321 |
| **Loans:** |  |  |  |  |  |  |
| Ending Balance | $84480 | $547167 | $672162 | $141333 | $21453 | $1466595 |
| Individually evaluated | 50 | 2148 |  | 4773 |  | 6971 |
| Collectively evaluated | 84430 | 545019 | 672162 | 136560 | 21453 | 1459624 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Nonaccrual loans**

The following is a summary of the Company's nonaccrual loans by major categories for the periods indicated (in thousands):

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* |
|  | *Nonaccrual Loans with No Allowance* | *Nonaccrual loans with an Allowance* | *Total Nonaccrual Loans* | *Nonaccrual Loans with No Allowance* | *Nonaccrual loans with an Allowance* | *Total Nonaccrual Loans* |
| Real estate loans: |  |  |  |  |  |  |
| Construction and land development | $45 | $— | $45 | $50 | $— | $50 |
| Secured by 1-4 family residential | 1994 |  | 1994 | 2148 |  | 2148 |
| Commercial and industrial | 1031 | 1584 | 2615 | 237 | 4536 | 4773 |
| Total | $3070 | $1584 | $4654 | $2435 | $4536 | $6971 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *70*

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**Collateral-Dependent Loans**

The Company *may* determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The Company reevaluates the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

• Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate. 

• Residential real estate loans are typically secured by *first* mortgages, and in some cases could be secured by a *second* mortgage. 

• Home equity lines of credit are generally secured by *second* mortgages on residential real estate property.

• Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have *no* underlying collateral.

The following table presents the amortized cost of collateral-dependent loans (in thousands):

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | *December 31, 2025* | *December 31, 2025* | *December 31, 2025* | *December 31, 2024* | *December 31, 2024* | *December 31, 2024* |
| *(Dollars in thousands)* | *Real Estate Secured* | *Non-Real Estate Secured* | *Total Collateral-Dependent Loans* | *Real Estate Secured* | *Non-Real Estate Secured* | *Total Collateral-Dependent Loans* |
| Real estate loans: |  |  |  |  |  |  |
| Construction and land development | $18 | $— | $18 | $— | $— | $— |
| Secured by 1-4 family residential | 632 |  | 632 | 703 |  | 703 |
| Total | $650 | $— | $650 | $703 | $— | $703 |

---

At *December 31, 2025*, and *2024 no* allowance for credit losses was required on collateral-dependent loans.

**Modifications Made to Borrowers Experiencing Financial Difficulty**

Effective *January 1, 2023,* the Company refers to loan modifications where the borrower is experiencing financial difficulty and the modification is in the form of principal forgiveness, interest rate reductions, term extensions, other-than-insignificant payment delays, or a combination of the above modifications, as modified loans. The Company accounts for modified loans consistently with its accounting policy for accounting for loan modifications. The ACL on modified loans is measured using the same method as all other loans held for investment.

The Company evaluates all loan modifications according to the accounting guidance for loan refinancing and restructuring to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. If the modification meets the criteria to be accounted for as a new loan, any deferred fees and costs remaining prior to the modification are recognized in income and any new deferred fees and costs are recorded on the loan as part of the modification. If the modification does not meet the criteria to be accounted for as a new loan, any new deferred fees and costs resulting from the modification are added to the existing amortized cost basis of the loan.

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally *not* recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, *one* type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, *may* be granted. For the real estate loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least *two* of the following: a term extension, principal forgiveness, and interest rate reduction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *71*

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During the year ended *December 31, 2025*, the following loan was modified to borrowers experiencing financial difficulty:

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| | | | |
|:---|:---|:---|:---|
|  | *Interest Rate Reduction* | *Interest Rate Reduction* | *Interest Rate Reduction* |
| *(Dollars in thousands)* | *Amortized Cost Basis* | *% of Total Loan Type* | *Financial Effect* |
| Real estate loans: |  |  |  |
| Construction and land development | $— | 0.00% |  |
| Secured by 1-4 family residential |  | 0.00% |  |
| Other real estate loans |  | 0.00% |  |
| Commercial and industrial | 40 | 0.03% | *Weighted average interest rate reduced from 19.99% to 13.99%* |
| Total | $40 | 0.03% |  |

---

During the year ended *December 31, 2024*, the following loans were modified to borrowers experiencing financial difficulty:

---

| | | | |
|:---|:---|:---|:---|
|  | *Term Extension* | *Term Extension* | *Term Extension* |
| *(Dollars in thousands)* | *Amortized Cost Basis* | *% of Total Loan Type* | *Financial Effect* |
| Real estate loans: |  |  |  |
| Construction and land development | $— | 0.00% |  |
| Secured by 1-4 family residential |  | 0.00% |  |
| Other real estate loans |  | 0.00% |  |
| Commercial and industrial | 1829 | 1.29% | *Term extension and payment deferral for 6 months* |
| Total | $1829 | 1.29% |  |

---

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| | | | |
|:---|:---|:---|:---|
|  | *Principal Forgiveness* | *Principal Forgiveness* | *Principal Forgiveness* |
| *(Dollars in thousands)* | *Amortized Cost Basis* | *% of Total Loan Type* | *Financial Effect* |
| Real estate loans: |  |  |  |
| Construction and land development | $— | 0.00% |  |
| Secured by 1-4 family residential |  | 0.00% |  |
| Other real estate loans |  | 0.00% |  |
| Commercial and industrial | 959 | 0.68% | *Payment deferral for 24 months* |
| Total | $959 | 0.68% |  |

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| | | | |
|:---|:---|:---|:---|
|  | Interest Rate Reduction | Interest Rate Reduction | Interest Rate Reduction |
| *(Dollars in thousands)* | Amortized Cost Basis | % of Total Loan Type | Financial Effect |
| Real estate loans: |  |  |  |
| Construction and land development | $— | 0.00% |  |
| Secured by 1-4 family residential | 462 | 0.08% | *Interest rate reduced from 7.5% to 4.0%* |
| Other real estate loans |  | 0.00% |  |
| Commercial and industrial | 217 | 0.15% | Weighted average interest rate reduced from<br> 18.17% to 14.62% |
| Total | $679 | 0.23% |  |

---

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. For the year ended *December 31, 2025*, there were no payment defaults of modified loans that were modified during the previous *twelve* months.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *72*

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**Unfunded Commitments**

The Company maintains a separate reserve for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheet. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described in Note *1,* as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. *No* credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that *may* be drawn prior to the cancellation of the arrangement.

For the year ended *December 31, 2025*, the Company recorded a provision for credit losses for unfunded commitments of $141 thousand. For the year ended *December 31, 2024,* the Company recorded a provision for credit losses for unfunded commitments of $73 thousand which includes a $100 thousand initial provision recorded on the acquisition of Touchstone. At *December 31, 2025* and *2024* the liability for credit losses on off-balance-sheet exposures included in other liabilities was $627 and $486 thousand, respectively.

**Note *6.* Other Real Estate Owned**

Changes in the balance for OREO during the years ended *December 31, 2025* and *2024* are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Balance at the beginning of year, net | $53 | $— |
| Transfers from loans to other real estate owned |  | 53 |
| Transfers from property and equipment to other real estate owned |  |  |
| Sales proceeds | (60) |  |
| Gain on disposition | 7 |  |
| Balance at the end of year, gross | $— | $53 |
| Less: valuation allowance |  |  |
| Balance at the end of year, net | $— | $53 |

---

There were no residential real estate properties included in the ending OREO balances at *December 31, 2025* and *2024*. The Bank did not have any consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of *December 31, 2025* and *2024*.

Net expenses applicable to OREO, other than the valuation allowance and gain on disposition, were $0 and $10 thousand for the years ended *December 31, 2025* and *2024*, respectively.

**Note *7.* Premises and Equipment**

Premises and equipment are summarized as follows at *December 31, 2025* and *2024* (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Land | $7925 | $8489 |
| Buildings and leasehold improvements | 28517 | 28941 |
| Furniture and equipment | 14404 | 12353 |
| Construction in process | 1882 | 541 |
|  | $52728 | $50324 |
| Less accumulated depreciation | 18167 | 15500 |
| Premises and equipment, net | $34561 | $34824 |

---

Depreciation expense included in operating expenses for *2025* and *2024* was $2.8 million and $1.9 million, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *73*

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**Note *8.* Deposits**

The aggregate amount of time deposits, in denominations of *$250* thousand or more, was $75.2 million and $57.5 million at *December 31, 2025* and *2024*, respectively.

The Bank obtains certain deposits through the efforts of *third*-party brokers. At *December 31, 2025* and *2024*, brokered deposits totaled $0 and $288 thousand, respectively, and were included in time deposits on the Company's consolidated financial statements.

At *December 31, 2025*, the scheduled maturities of time deposits were as follows (in thousands):

---

| | |
|:---|:---|
| 2026 | $290025 |
| 2027 | 54709 |
| 2028 | 9320 |
| 2029 | 3236 |
| 2030 | 5805 |
| Thereafter |  |
|  | $363095 |

---

**Note *9.* Other Borrowings**

The Company had an unsecured line of credit totaling $5.0 million with a non-affiliated bank at *December 31, 2025*. There were no borrowings outstanding on the line of credit at *December 31, 2025*. The interest rate on the line of credit floats at Wall Street Journal Prime Rate plus 0.25%, with a floor of 3.50%, and matures on *March 25, 2026.*

The Bank had unused lines of credit totaling $518.7 million and $562.5 million available with non-affiliated banks at *December 31, 2025* and *2024*, respectively. These available sources of credit included $325.7 million available from Federal Home Loan Bank of Atlanta (FHLB), $116.9 million available from the Federal Reserve Bank, and unsecured lines of credit with correspondent banks totaling $76.0 million. The Bank can borrow up to 17% of its total assets through the blanket floating lien agreement with the FHLB. The Bank had collateral pledged on the borrowing line at *December 31, 2025* and *2024* including real estate loans totaling $567.2 million and $698.5 million, respectively, and FHLB stock with a book value of $2.6 million and $1.5 million, respectively.

Other borrowings totaled $25.0 million and $0 at *December 31, 2025* and *2024*, respectively. On *December 31, 2025,* borrowings totaled $25.0 million with a fixed interest rate of 3.88% and a maturity date of *June 30, 2026.* 

**Note *10.* Subordinated Debt**

On *June 29, 2020,* the Company issued an interest only subordinated term note due *2030* in the aggregate principal amount of $5.0 million. The note initially bore interest at a fixed rate of 5.50% per annum. Beginning *July 1, 2025,* the interest rate reset quarterly to an interest rate per annum equal to the current *three*-month Secured Overnight Financing Rate (SOFR), plus 510 basis points. On *October 1, 2025,* the Company redeemed the $5 million in subordinated debt, at par. There was no gain or loss recognized on the redemption. This capital redemption had minimal impact on the total risk-based capital ratio.

On *October 1, 2024,* the Company assumed *two* subordinated debt issuances from the acquisition of Touchstone. The $10.0 million note initially bears interest at a fixed rate of 4.00% per annum. Beginning *January 30, 2027,* the interest rate shall reset quarterly to an interest rate per annum equal to the current *three*-month SOFR, plus 596 basis points. There was $475 thousand in accretion expense recognized related to the note at *December 31, 2025*. The note has a maturity date of *January 30, 2032.* Subject to regulatory approval, the Company *may* prepay the note, in part or in full, beginning on *January 30, 2027* through maturity, at the Company's option, on any scheduled interest payment date. The $8.0 million note initially bore interest at a fixed rate of 6.00% per annum. Beginning *August 15, 2025,* the interest rate reset quarterly to an interest rate per annum equal to the current *three*-month SOFR, plus 596 basis points. There was $161 thousand in accretion expen**se** recognized related to the note at *December 31, 2025*. On *November 15, 2025,* the Company redeemed the $8 million in subordinated debt, at par. There was no gain or loss recognized on the redemption. This capital redemption had minimal impact on the total risk-based capital ratio.

**Note *11.* Junior Subordinated Debt**

On *June 8, 2004,* First National (VA) Statutory Trust II (Trust II), a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable capital securities, commonly known as trust preferred securities. On *June 17, 2004,* $5.0 million of trust preferred securities were issued through a pooled underwriting. The securities have a SOFR-indexed floating rate of interest. The interest rate at *December 31, 2025* and *2024* was 6.57% and 7.21%, respectively. The securities have a mandatory redemption date of *June 17, 2034,* and were subject to varying call provisions that began *September 17, 2009.* The principal asset of Trust II is $5.2 million of the Company's junior subordinated debt with maturities and interest rates comparable to the trust preferred securities. The Trust's obligations under the trust preferred securities are fully and unconditionally guaranteed by the Company. The Company is current on its interest payments on the junior subordinated debt.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *74*

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On *July 24, 2006,* First National (VA) Statutory Trust III (Trust III), a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable capital securities. On *July 31, 2006,* $4.0 million of trust preferred securities were issued through a pooled underwriting. The securities have a SOFR-indexed floating rate of interest. The interest rate at *December 31, 2025* and *2024* was 5.85% and 6.45%, respectively. The securities have a mandatory redemption date of *October 1, 2036,* and were subject to varying call provisions that began *October 1, 2011.* The principal asset of Trust III is $4.1 million of the Company's junior subordinated debt with maturities and interest rates comparable to the trust preferred securities. The Trust's obligations under the trust preferred securities are fully and unconditionally guaranteed by the Company. The Company is current on its interest payments on the junior subordinated debt.

**Note *12.* Income Taxes**

The Company is subject to U.S. federal and Virginia income tax as well as bank franchise tax in the state of Virginia. With few exceptions, the Company is *no* longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to *2022.*

Net deferred tax assets consisted of the following components at *December 31, 2025* and *2024* (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Deferred Tax Assets** |  |  |
| Allowance for credit losses | $3253 | $3641 |
| Acquisition accounting adjustments, net | 2509 | 450 |
| Post-retirement benefits | 347 | 333 |
| Unvested stock-based compensation | 95 | 94 |
| Reserve for letter of credit losses | 12 | 18 |
| Limited partnership investments | 2 | 2 |
| Lease liability | 388 | 425 |
| Unrealized loss on securities available for sale | 3735 | 5534 |
| NOL carryover - acquired from Fincastle | 1095 | 1207 |
| Loan origination fees, net | 359 | 2937 |
|  | $11795 | $14641 |
| **Deferred Tax Liabilities** |  |  |
| Depreciation | $1192 | $1043 |
| Right of use asset | 378 | 421 |
| Investment in partnerships | 9 | 70 |
| Core deposit intangible | 2613 | 2937 |
| Cash flow hedges | 466 | 565 |
|  | $4658 | $5036 |
| Net deferred tax assets | $7137 | $9605 |

---

The income tax expense for the years ended *December 31, 2025* and *2024* consisted of the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Current income tax expense |  |  |
| &nbsp;&nbsp;&nbsp; Federal | $3836 | $1519 |
| &nbsp;&nbsp;&nbsp; State | 19 |  |
| Total current income tax expense | 3855 | 1519 |
| Deferred income tax expense (benefit) |  |  |
| &nbsp;&nbsp;&nbsp; Federal | 439 | (437) |
| &nbsp;&nbsp;&nbsp; State | (53) |  |
| Total deferred income tax expense (benefit) | 386 | (437) |
| Provision for income taxes |  |  |
| &nbsp;&nbsp;&nbsp; Federal | 4275 | 1082 |
| &nbsp;&nbsp;&nbsp; State | (34) |  |
| Total provision for income tax expense | $4241 | $1082 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *75*

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The income tax expense differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended *December 31, 2025* and *2024*, due to the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Computed tax expense at statutory federal rate | $4608 | $1690 |
| State tax expense | 26 |  |
| Increase in income taxes resulting from: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Merger expenses | 36 | 240 |
| Other | 47 | 25 |
| Decrease in income taxes resulting from: |  |  |
| Tax-exempt interest and dividend income | (172) | (102) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Bargain purchase gain | (64) | (613) |
| Income from bank owned life insurance | (240) | (159) |
|  | $4241 | $1082 |

---

The income tax expense by jurisdiction for the years ended *December 31, 2025* and *2024* consisted of the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Federal | $4275 | $1082 |
| State | (34) | 0 |
| **Total** | $4241 | $1082 |

---

The income tax expense by state for the years ended *December 31, 2025* and *2024* consisted of the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| State |  |  |
| North Carolina | (34) |  |
| **Total** | $(34) | $— |

---

The effective tax rate consisted of the following components at *December 31, 2025* and *2024* (in thousands):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***December 31, 2025*** | ***December 31, 2025*** | ***December 31, 2024*** | ***December 31, 2024*** |
|  | ***Amount*** | ***Percent*** | ***Amount*** | ***Percent*** |
| U.S. federal statutory tax rate | $4608 | 21.0% | $1690 | 21.0% |
| State and local income taxes, net of federal income tax effect | 26 | 0.1% |  | 0.0% |
| Nontaxable or nondeductible items |  |  |  |  |
| Tax-exempt interest and dividend income | (172) | -0.8% | (102) | -1.3% |
| Income from bank owned life insurance | (240) | -1.1% | (159) | -2.0% |
| Other, net | 19 | 0.1% | (347) | -4.3% |
| Effective tax rate | $4241 | 19.3% | $1082 | 13.4% |

---

**Note *13.* Funds Restrictions and Reserve Balance**

Transfers of funds from the banking subsidiary to the parent company in the form of loans, advances, and cash dividends are restricted by federal and state regulatory authorities. At *December 31, 2025*, the aggregate amount of unrestricted funds which could be transferred from the banking subsidiary to the parent company, without prior regulatory approval, totaled $10.1 million. The amount of unrestricted funds is generally determined by subtracting the total dividend payments of the Bank from the Bank's net income for that year, combined with the Bank's retained net income for the preceding *two* years.

The Bank is typically required to maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. The Federal Reserve adopted a rule in *March 2020* eliminating the reserve requirement. There were no required balances at *December 31, 2025* or *December 31, 2024*.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *76*

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**Note *14.* Benefit Plans**

*401*(k) Plan*

The Company maintains a *401*(k) plan (the Plan) for all eligible employees. Participating employees *may* elect to contribute up to the maximum percentage allowed by the Internal Revenue Service, as defined in the Plan. The Company makes matching contributions, on a dollar-for dollar basis, for the *first* one percent of an employee's compensation contributed to the Plan and fifty cents for each dollar of the employee's contribution between two percent and six percent. The Company also makes an additional contribution based on years of service to participants who have completed at least one thousand hours of service during the year and who are employed on the last day of the Plan Year. All employees who are age nineteen or older are eligible. Employee contributions vest immediately. Employer matching contributions vest after two Plan service years with the Company. The Company has the discretion to make a profit sharing contribution to the Plan each year based on overall performance, profitability, and other economic factors. For the years ended *December 31, 2025* and *2024* , expense attributable to the Plan amounted to $1.8 million and $1.4 million, respectively.

*Supplemental Executive Retirement Plans*

On *March 15, 2019,* the Company entered into supplemental executive retirement plans and participation agreements with three of its employees. The retirement benefits are fixed and provide for retirement benefits payable in 180 monthly installments. The contribution expense totaled $43 thousand for the year ended *December 31, 2025* . During *2024, one* covered employee terminated employment with the Company, resulting in a forfeiture of unvested funds of $203 thousand. This resulted in a net contribution benefit of $128 thousand for the year ended *December 31, 2024* . The plan is solely funded by the Company. The accrued supplemental executive retirement plan liability was $928 thousand and $889 thousand at *December 31, 2025* and *2024* , respectively.

**Note *15.* Earnings per Common Share**

Basic earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

The following table presents the computation of basic and diluted earnings per share for the years ended *December 31, 2025* and *2024* (dollars in thousands, except per share data):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| (Numerator): |  |  |
| Net income | $17703 | $6966 |
| (Denominator): |  |  |
| Weighted average shares outstanding – basic | 8994410 | 6955592 |
| Potentially dilutive common shares – restricted stock units | 21070 | 15497 |
| Weighted average shares outstanding – diluted | 9015480 | 6971089 |
| Income per common share |  |  |
| Basic | $1.97 | $1.00 |
| Diluted | $1.96 | $1.00 |

---

**Note *16.* Commitments and Unfunded Credits**

The Company, through its banking subsidiary, is a party to credit related financial instruments with risk *not* reflected in the consolidated financial statements in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At *December 31, 2025* and *2024*, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Commitments to extend credit and unfunded commitments under lines of credit | $299104 | $271419 |
| Stand-by letters of credit | 3079 | 15594 |

---

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 or other termination clauses and *may* require payment of a fee. The commitments for lines of credit *may* expire without being drawn upon. Therefore, the total commitment amounts do *not* necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management's credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are collateralized as deemed necessary and *may* or *may not* be drawn upon to the total extent to which the Bank is committed.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a *third* party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Typically letters of credit issued have expiration dates within *one* year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments if deemed necessary.

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At *December 31, 2025* , the Bank had $4.7 million in locked-rate commitments to originate mortgage loans. There were *no* loans held for sale at *December 31, 2025* . Risks arise from the possible inability of counterparties to meet the terms of their contracts. The Bank does *not* expect any counterparty to fail to meet its obligations.

The Bank has cash accounts in other commercial banks. The amount on deposit at these banks at *December 31, 2025* exceeded the insurance limits of the Federal Deposit Insurance Corporation by $3.8 million.

**Note *17.* Transactions with Related Parties**

During the year, executive officers and directors (and their affiliates) were customers of and had transactions with the Company in the normal course of business. In management's opinion, these transactions were made on substantially the same terms as those prevailing for other customers.

At *December 31, 2025* and *2024*, these loans totaled $3.8 million and $4.1 million, respectively. During *2025*, total principal additions were $58 thousand and total principal payments were $361 thousand.

Deposits from related parties held by the Bank at *December 31, 2025* and *2024* amounted to $15.0 million and $24.1 million, respectively.

**Note *18.* Lease Commitments**

Lease liabilities represent the Company's obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company's incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company's right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and, if applicable, prepaid rent, initial direct costs, and any incentives received from the lessor.

Lease payments

Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Payments for leases with terms longer than *twelve* months are included in the determination of the lease liability. Payments *may* be fixed for the term of the lease or variable. If the lease agreement provides a known escalator, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is *not* included in the cash flows used to determine the lease liability. Three of the Company's leases provide known escalators that are included in the determination of the lease liability. The remaining leases do *not* have variable payments during the term of the lease.

Options to extend, residual value guarantees, and restrictions and covenants

Of the Company's eleven leases, ten leases offer the option to extend the lease. The calculation of the lease liability includes the additional time and lease payments for options which the Company is reasonably certain it will exercise. *None* of the Company's leases provide for residual value guarantees and *none* provide restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following table presents the operating lease right-of-use asset and operating lease liability as of *December 31, 2025* and *2024* (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | ***Classification in the Consolidated Balance Sheets*** | ***2025*** | ***2024*** |
| Operating lease right-of-use asset | *Other assets* | $1793 | $2003 |
| Operating lease liability | *Accrued interest payable and other liabilities* | 1840 | 2021 |

---

The following table presents the weighted average remaining operating lease term and the weighted average discount rate for operating leases as of *December 31, 2025* and *2024*:

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| Weighted average remaining lease term, in years | 4.9 | 5.2 |
| Weighted average discount rate | 4.25% | 3.75% |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *78*

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The following table presents the components of operating lease expense and supplemental cash flow information for the years ended *December 31, 2025* and *2024* (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Lease Expense** |  |  |
| Operating lease expense | $746 | $385 |
| Short-term lease expense | 83 | 35 |
| Total lease expense (1) | $829 | $420 |
| Cash paid for amounts included in lease liability | $740 | $357 |
| Right of use assets obtained in exchange for operating lease liabilities commencing during the period | $593 | $2074 |

---

(*1*) Included in occupancy expense in the Company's consolidated statements of income.

The following table presents a maturity schedule of undiscounted cash flows that contribute to the operating lease liability as of *December 31, 2025* (in thousands):

---

| | |
|:---|:---|
| Twelve months ending December 31, 2026 | $675 |
| Twelve months ending December 31, 2027 | 357 |
| Twelve months ending December 31, 2028 | 253 |
| Twelve months ending December 31, 2029 | 244 |
| Twelve months ending December 31, 2030 | 217 |
| Thereafter | 326 |
| Total undiscounted cash flows | $2072 |
| Less: discount | (232) |
| Operating lease liability | $1840 |

---

The contracts in which the Company is lessee are with parties external to the Company and *not* related parties.

**Note *19.* Dividend Reinvestment Plan**

The Company has in effect a Dividend Reinvestment Plan (DRIP) which provides an automatic conversion of dividends into common stock for enrolled shareholders. The Company *may* issue common shares to the DRIP or purchase on the open market. Common shares are purchased at a price which is based on the average closing prices of the shares as quoted on the Nasdaq Capital Market stock exchange for the 10 business days immediately preceding the dividend payment date.

The Company issued 8,675 and 9,307 common shares to the DRIP during the years ended *December 31, 2025* and *2024*, respectively.

**Note *20.* Fair Value Measurements**

**Determination of Fair Value**

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the "Fair Value Measurement and Disclosures" FASB Topic *820,* the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are *no* quoted market prices for the Company's various financial instruments. In cases where quoted market prices are *not* available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates *may not* be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, *not* a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques *may* be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *79*

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**Fair Value Hierarchy**

In accordance with this guidance, the Company groups its assets and liabilities generally measured at fair value in *three* levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

---

| | |
|:---|:---|
| Level *1* – | Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level *1* assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. |

---

---

| | |
|:---|:---|
| Level *2* – | Valuation is based on inputs other than quoted prices included within Level *1* that are observable for the asset or liability, either directly or indirectly. The valuation *may* be based on quoted prices for similar assets or liabilities; quoted prices in markets that are *not* active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |

---

---

| | |
|:---|:---|
| Level *3* – | Valuation is based on unobservable inputs that are supported by little or *no* market activity and that are significant to the fair value of the assets or liabilities. Level *3* assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires a significant management judgment or estimation. |

---

An instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a recurring basis in the financial statements:

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level *1*). If quoted market prices are *not* available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and *may* determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level *2*).

Derivative asset/liability - cash flow hedges

Cash flow hedges are recorded at fair value on a recurring basis. The fair value of the Company's cash flow hedges is determined by a *third* party vendor using the discounted cash flow method (Level *2*).

The following tables present the balances of assets measured at fair value on a recurring basis as of *December 31, 2025* and *2024* (in thousands).

---

| | | | | |
|:---|:---|:---|:---|:---|
|  |  | *Fair Value Measurements at December 31, 2025* | *Fair Value Measurements at December 31, 2025* | *Fair Value Measurements at December 31, 2025* |
| <u>Description</u> | *Balance as of December 31, 2025* | *Quoted Prices in Active Markets for Identical Assets (Level 1)* | *Significant Other Observable Inputs (Level 2)* | *Significant Unobservable Inputs (Level 3)* |
| Assets: |  |  |  |  |
| Securities available for sale |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; U.S. Treasury securities | $37338 | $— | $37338 | $— |
| U.S. agency and mortgage-backed securities | 122797 |  | 122797 |  |
| Obligations of states and political subdivisions | 56446 |  | 56446 |  |
| Corporate debt securities | 957 |  | 957 |  |
| Total securities available for sale | $217538 | $— | $217538 | $— |
| Derivatives - cash flow hedges | 2292 |  | 2292 |  |
| Total assets | $219830 | $— | $219830 | $— |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *80*

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---

| | | | | |
|:---|:---|:---|:---|:---|
|  |  | *Fair Value Measurements at December 31, 2024* | *Fair Value Measurements at December 31, 2024* | *Fair Value Measurements at December 31, 2024* |
| <u>Description</u> | *Balance as of December 31, 2024* | *Quoted Prices in Active Markets for Identical Assets (Level 1)* | *Significant Other Observable Inputs (Level 2)* | *Significant Unobservable Inputs (Level 3)* |
| Assets: |  |  |  |  |
| Securities available for sale |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; U.S. Treasury securities | $11688 | $— | $11688 | $— |
| U.S. agency and mortgage-backed securities | 98039 |  | 98039 |  |
| Obligations of states and political subdivisions | 54120 |  | 54120 |  |
| Total securities available for sale | $163847 | $— | $163847 | $— |
| Derivatives - cash flow hedges | 2690 |  | 2690 |  |
| Total assets | $166537 | $— | $166537 | $— |

---

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:

Collateral Dependent Loans with an ACLL

In accordance with ASC **326,* the Company *may* determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. As of *December 31, 2025,* there were no collateral dependent loans with an allowance for credit losses.

Loans held for sale

Loans held for sale are carried at the lower of cost or market value. These loans currently consist of *one*-to-*four* family residential loans originated for sale in the secondary market. Fair value is based on the price the secondary markets are currently offering for similar loans using observable market data which is *not* materially different than cost due to the short duration between origination and sale (Level *2*). The Company records any fair value adjustments on a nonrecurring basis. *No* nonrecurring fair value adjustments were recorded on loans held for sale during the years ended *December 31, 2025* and *2024*.

Other real estate owned

The fair value of foreclosed property is measured at fair value on a nonrecurring basis (upon initial recognition or subsequent impairment) and is classified within Level *3* of the valuation hierarchy. When transferred from the loan portfolio, OREO is adjusted to fair value less estimated selling costs and is subsequently carried at the lower of carrying value or fair value less estimated selling costs. The fair value is generally determined using an external appraisal process and is discounted based on internal criteria when deemed necessary.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *81*

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The following tables summarize the Company's assets that were measured at fair value on a nonrecurring basis as of *December 31, 2024* (dollars in thousands).

---

| | | | | |
|:---|:---|:---|:---|:---|
|  |  | *Fair Value Measurements at December 31, 2024* | *Fair Value Measurements at December 31, 2024* | *Fair Value Measurements at December 31, 2024* |
| <u>Description</u> | *Balance as of December 31, 2024* | *Quoted Prices in Active Markets for Identical Assets (Level 1)* | *Significant Other Observable Inputs(Level 2)* | *Significant Unobservable Inputs (Level 3)* |
| Collateral dependent loans | $703 | $— | $— | $703 |
| Other real estate owned | $53 | $— | $— | $53 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | *Quantitative information about Level 3 Fair Value Measurements for December 31, 2024* | *Quantitative information about Level 3 Fair Value Measurements for December 31, 2024* | *Quantitative information about Level 3 Fair Value Measurements for December 31, 2024* | *Quantitative information about Level 3 Fair Value Measurements for December 31, 2024* |
|  | *Fair Value* | *Valuation Technique* | *Unobservable Input* | *Range (Weighted Average) (1)* |
| Collateral dependent loans | $703 | *Property appraisals* | *Selling cost* | 10.00% |
| Other real estate owned | $53 | *Property appraisals* | *Selling cost* | 10.00% |

---

(*1*) Unobservable inputs were weighted by the relative fair value of the instruments.

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Accounting guidance requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are *not* measured and reported at fair value on a recurring basis or non-recurring basis. The carrying values and estimated fair values of the Company's financial instruments at *December 31, 2025* and *2024* are as follows (in thousands):

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | *Fair Value Measurements at December 31, 2025 Using* | *Fair Value Measurements at December 31, 2025 Using* | *Fair Value Measurements at December 31, 2025 Using* | *Fair Value Measurements at December 31, 2025 Using* |
|  | *Carrying Amount* | *Quoted Prices in Active Markets for Identical Assets Level 1* | *Significant Other Observable Inputs Level 2* | *Significant Unobservable Inputs Level 3* | *Fair Value* |
| **Financial Assets** |  |  |  |  |  |
| Cash and short-term investments | $160910 | $160910 | $— | $— | $160910 |
| Securities available for sale | 217538 |  | 217538 |  | 217538 |
| Securities held to maturity, net | 102872 |  | 102872 |  | 102872 |
| Restricted securities | 5624 |  | 5624 |  | 5624 |
| Loans, net | 1435026 |  |  | 1420784 | 1420784 |
| Bank owned life insurance | 38577 |  | 38577 |  | 38577 |
| Accrued interest receivable | 6467 |  | 6467 |  | 6467 |
| Derivatives - cash flow hedges | 2292 |  | 2292 |  | 2292 |
| **Financial Liabilities** |  |  |  |  |  |
| Deposits | $1799548 | $— | $1436453 | $360656 | $1797109 |
| Other borrowings | 25000 |  |  | 24960 | 24960 |
| Subordinated debt | 8312 |  |  | 6774 | 6774 |
| Junior subordinated debt | 9279 |  |  | 8240 | 8240 |
| Accrued interest payable | 1562 |  | 1562 |  | 1562 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | *Fair Value Measurements at December 31, 2024 Using* | *Fair Value Measurements at December 31, 2024 Using* | *Fair Value Measurements at December 31, 2024 Using* | *Fair Value Measurements at December 31, 2024 Using* |
|  | *Carrying Amount* | *Quoted Prices in Active Markets for Identical Assets Level 1* | *Significant Other Observable Inputs Level 2* | *Significant Unobservable Inputs Level 3* | *Fair Value* |
| **Financial Assets** |  |  |  |  |  |
| Cash and short-term investments | $162874 | $162874 | $— | $— | $162874 |
| Securities available for sale | 163847 |  | 163847 |  | 163847 |
| Securities held to maturity | 109741 |  | 109741 |  | 109741 |
| Restricted securities | 3741 |  | 3741 |  | 3741 |
| Loans, net | 1450195 |  |  | 1408574 | 1408574 |
| Bank owned life insurance | 37873 |  | 37873 |  | 37873 |
| Accrued interest receivable | 6020 |  | 6020 |  | 6020 |
| Derivatives - cash flow hedges | 2690 |  | 2690 |  | 2690 |
| **Financial Liabilities** |  |  |  |  |  |
| Deposits | $1803778 | $— | $1445033 | $356824 | $1801857 |
| Subordinated debt | 21176 |  |  | 23596 | 23596 |
| Junior subordinated debt | 9279 |  |  | 12310 | 12310 |
| Accrued interest payable | 964 |  | 964 |  | 964 |

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The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company's financial instruments will change when interest rate levels change and that change *may* be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company's overall interest rate risk.

**Note *21.* Regulatory Matters**

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. Prompt corrective action provisions are *not* applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total (as defined in the regulations), Tier *1* (as defined), and common equity Tier *1* capital (as defined) to risk-weighted assets (as defined), and of Tier *1* capital to average assets. Management believes, as of *December 31, 2025* and *December 31, 2024*, that the Bank met all capital adequacy requirements to which it is subject.

As of *December 31, 2025*, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum risk-based capital and leverage ratios as set forth in the following table. There are *no* conditions or events since that notification that management believes have changed the Bank's category.

A comparison of the capital of the Bank at *December 31, 2025* and *December 31, 2024* with the minimum regulatory guidelines were as follows (dollars in thousands):

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | *Actual* | *Actual* | *Minimum Capital Requirement* | *Minimum Capital Requirement* | *Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions* | *Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions* |
|  | *Amount* | *Ratio* | *Amount* | *Ratio* | *Amount* | *Ratio* |
| **December 31, 2025:** |  |  |  |  |  |  |
| Total Capital (to Risk-Weighted Assets) | $201622 | 13.64% | $118284 | 8.00% | $147855 | 10.00% |
| Tier 1 Capital (to Risk-Weighted Assets) | $186193 | 12.59% | $88713 | 6.00% | $118284 | 8.00% |
| Common Equity Tier 1 Capital (to Risk-Weighted Assets) | $186193 | 12.59% | $66535 | 4.50% | $96106 | 6.50% |
| Tier 1 Capital (to Average Assets) | $186193 | 9.13% | $81583 | 4.00% | $101978 | 5.00% |
| **December 31, 2024:** |  |  |  |  |  |  |
| Total Capital (to Risk-Weighted Assets) | $181449 | 12.34% | $117580 | 8.00% | $146975 | 10.00% |
| Tier 1 Capital (to Risk-Weighted Assets) | $164454 | 11.19% | $88185 | 6.00% | $117580 | 8.00% |
| Common Equity Tier 1 Capital (to Risk-Weighted Assets) | $164454 | 11.19% | $66139 | 4.50% | $95534 | 6.50% |
| Tier 1 Capital (to Average Assets) | $164454 | 7.95% | $82719 | 4.00% | $103398 | 5.00% |

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In addition to the regulatory minimum risk-based capital amounts presented above, the Bank must maintain a capital conservation buffer as required by the Basel III final rules. Accordingly, the Bank was required to maintain a capital conservation buffer of 2.50% at *December 31, 2025* and *December 31, 2024*, respectively. Under the final rules, an institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. As of *December 31, 2025* and *December 31, 2024*, the capital conservation buffer of the Bank was 5.64% and 4.34%, respectively.

**Note *22.* Accumulated Other Comprehensive Income (Loss)**

Changes in each component of accumulated other comprehensive income (loss) were as follows (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | ***Net Unrealized Gains (Losses) on Securities*** | ***Change in Fair Value of Cash Flow Hedges*** | ***Accumulated Other Comprehensive Income (Loss)*** |
| **Balance at December 31, 2023** | $(20671) | $1965 | $(18706) |
| Unrealized holding losses (net of tax, ($275)) | (1039) |  | (1039) |
| Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity (net of tax of $270) | 1015 |  | 1015 |
| Reclassification adjustment (net of tax, ($33)) | (122) |  | (122) |
| Change in fair value (net of tax, $42) |  | 160 | 160 |
| Change during period | (146) | 160 | 14 |
| **Balance at December 31, 2024** | $(20817) | $2125 | $(18692) |
| Unrealized holding losses (net of tax, $1,598) | 6012 |  | 6012 |
| Amortization of unrealized holding losses on available-for-sale securities transferred to held to maturity (net of tax of ($201)) | 756 |  | 756 |
| Change in fair value (net of tax, ($83)) |  | (315) | (315) |
| Change during period | 6768 | (315) | 6453 |
| **Balance at December 31, 2025** | $(14049) | $1810 | $(12239) |

---

The following table presents information related to reclassifications from accumulated other comprehensive income (loss) for the years ended *December 31, 2025* and *2024* (in thousands):

---

| | | | |
|:---|:---|:---|:---|
| Details About Accumulated Other Comprehensive Income (Loss) | *Amount Reclassified from Accumulated Other Comprehensive Income (Loss)* | *Amount Reclassified from Accumulated Other Comprehensive Income (Loss)* | *Affected Line Item in the Consolidated Statements of Income* |
|  | ***For the year ended December 31,*** | ***For the year ended December 31,*** |  |
|  | ***2025*** | ***2024*** |  |
| Securities available for sale: |  |  |  |
| Net securities losses reclassified into earnings | $— | $(155) | *Net (losses) on securities available for sale* |
| Related income tax benefit |  | (33) | *Income tax benefit* |
| Total reclassifications | $— | $(122) | *Net of tax* |

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**Note *23.* Stock Compensation Plans**

On *May 10, 2023,* the Company's shareholders approved the First National Corporation *2023* Stock Incentive Plan, which replaced the *2014* Stock Incentive Plan and makes available up to 325,000 shares of common stock for the granting of stock options, restricted stock awards, restricted stock units, stock appreciation rights, and other stock-based awards. Beginning on *May 11, 2023,* new equity awards granted by the Company are from the *2023* Stock Incentive Plan and *not* from the *2014* Stock Incentive Plan. Awards are made at the discretion of the Board of Directors and compensation cost equal to the fair value of the award is recognized over the vesting period.

Stock Awards

Whenever the Company deems it appropriate to grant a stock award, the recipient receives a specified number of unrestricted shares of employer stock. Stock awards *may* be made by the Company at its discretion without cash consideration and *may* be granted as settlement of a performance-based compensation award.

During *2025*, the Company granted and issued 18,000 shares of common stock to members of the Board of Directors for their dedicated service and support. Also during *2025*, the Company issued 30,717 shares of common stock to employees. Compensation expense related to stock awards totaled $404 thousand and $252 thousand for the years ended *December 31, 2025* and *2024*, respectively.

Restricted Stock Units

Restricted stock units are an award of units that correspond in number and value to a specified number of shares of employer stock which the recipient receives according to a vesting plan and distribution schedule after achieving required performance milestones or upon remaining with the employer for a particular length of time. Each restricted stock unit that vests entitles the recipient to receive *one* share of common stock on a specified issuance date.

On *February 12, 2025*, 13,455 restricted stock units were granted to employees with 3,851 units vesting immediately, 4,484 units vesting after *one* year, 4,482 units vesting after *two* years, and 638 units vesting after *three* years. On *March 3, 2025*, 5,000 restricted stock units were granted to an employee and will vest on *February 15, 2027.* On *August 13, 2025*, 6,446 restricted stock units were granted to employees with 6,000 units vesting on *December 31, 2027* and 446 units vesting on *August 13, 2028.* On *October 1, 2025*, 2,300 restricted stock units were granted to an employee with 1,150 vesting immediately and 1,150 vesting on *December 31, 2025.* The recipients do *not* have any stockholder rights, including voting, dividend, or liquidation rights, with respect to the shares underlying awarded restricted stock units until vesting has occurred and the recipients become the record holder of those shares. The unvested restricted stock units will vest on the established schedule if the employees remain employed by the Company on future vesting dates.

A summary of the activity for the Company's restricted stock units for the period indicated is presented in the following table:

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2025*** |
|  | *Shares* | *Weighted Average Grant Date Fair Value* |
| Unvested, January 1, 2025 | 85512 | $21.57 |
| Granted | 27201 | 24.79 |
| Vested | (35314) | 21.99 |
| Forfeited | (5000) | 22.85 |
| Unvested, December 31, 2025 | 72399 | $22.45 |

---

At *December 31, 2025*, based on restricted stock unit awards outstanding at that time, the total unrecognized pre-tax compensation expense related to unvested restricted stock unit awards was $1.2 million. This expense is expected to be recognized through *2028.* Compensation expense related to restricted stock unit awards recognized for the years ended *December 31, 2025* and *2024* totaled $779 thousand and $383 thousand, respectively.

**Note *24.* Revenue Recognition**

Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of ASC topic *606.* Gains and losses on investment securities, derivatives, financial guarantees, and sales of financial instruments are similarly excluded from the scope. The guidance is applicable to noninterest revenue streams such as service charges on deposit accounts, ATM and check card fees, wealth management fees, and fees for other customer services. Certain other in-scope revenue, such as gains on OREO are recorded in non-interest expense. Noninterest revenue streams within the scope of Topic *606* are discussed below.

Service charges on deposit accounts

Service charges on deposit accounts consist of monthly service fees, overdraft and nonsufficient funds fees, and other deposit account related fees. The Company's performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers' accounts. Overdraft and nonsufficient funds fees and other deposit account related fees are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time.

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ATM and check card fees

ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. ATM fees are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Check card fees are primarily comprised of interchange fee income. Interchange fees are earned whenever the Company's debit cards are processed through card payment networks, such as Visa. The Company's performance obligation for interchange fee income is largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. In compliance with Topic *606,* debit card fee income is presented net of associated expense.

Wealth management fees

Wealth management fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company's performance obligation is generally satisfied over time and the resulting fees are primarily recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month-end through a direct charge to customers' accounts. Estate management fees are based upon the size of the estate. Revenue for estate management fees are recorded periodically, according to a fee schedule, and are based on the services that have been provided.

Brokered mortgage fees

Brokered mortgage fees are comprised of loan fee income earned from generating loans in the secondary market. Brokered mortgage fee income is recognized at loan closing.

Bargain purchase gain

A bargain purchase arises when the fair value of the net assets acquired in a business combination exceeds the consideration transferred, resulting in a gain being recorded by the acquirer. The Company recognized the gain as income on the date of acquisition.

See Note *2* for discussion of the bargain purchase gain recorded in connection with the Touchstone acquisition.

Fees for other customer services

Fees for other customer services include check ordering charges, merchant services income, safe deposit box rental fees, and other service charges. Check ordering charges are transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Merchant services income mainly represent fees charged to merchants to process their debit and credit card transactions. The Company's performance obligation for merchant services income is largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

Gains and losses are recorded when control of the property transfers to the buyer, which generally occurs at the time of transfer of the deed. If the Company finances the sale of a foreclosed property to the buyer, we assess whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed property is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. For the years ended *December 31, 2025* and *2024* net gains/(losses) on sales of foreclosed properties was $7 and $0, respectively.

The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic *606,* for the years ended *December 31, 2025* and *2024* (in thousands):

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Noninterest Income** |  |  |
| Service charges on deposit accounts | $3955 | $3122 |
| ATM and check card fees | 4584 | 3305 |
| Wealth management fees | 3611 | 3617 |
| Brokered mortgage fees | 649 | 252 |
| Bargain purchase gain | 304 | 2920 |
| Fees for other customer services | 1187 | 966 |
| Noninterest income (in-scope of Topic 606) | $14290 | $14182 |
| Noninterest income (out-of-scope of Topic 606) | 2728 | 2198 |
| Total noninterest income | $17018 | $16380 |

---

**Note *25.* Derivative Financial Instruments**

On *April 21, 2020,* the Company entered into two interest rate swap agreements related to its outstanding junior subordinated debt. One swap agreement was related to the Company's junior subordinated debt with a redemption date of *June 17, 2034,* which became effective on *March 17, 2020.* The notional amount of the interest rate swap was $5.0 million and terminates on *June 17, 2034.* Under the terms of the agreement, the Company pays interest quarterly at a fixed rate of 0.79% and receives interest quarterly at a variable rate of *three*-month term secured overnight financing rate (SOFR). The variable rate resets on each interest payment date. The other swap agreement was related to the Company's junior subordinated debt with a redemption date of *October 1, 2036,* which became effective on *April 1, 2020.* The notional amount of the interest rate swap was $4.0 million and terminates on *October 1, 2036.* Under the terms of the agreement, the Company pays interest quarterly at a fixed rate of 0.82% and receives interest quarterly at a variable rate of *three*-month term SOFR. The variable rate resets on each interest payment date.

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The Company entered into interest rate swaps to reduce interest rate risk and to manage interest expense. By entering into these agreements, the Company converted variable rate debt into fixed rate debt. Alternatively, the Company *may* enter into interest rate swap agreements to convert fixed rate debt into variable rate debt. Interest differentials paid or received under interest rate swap agreements are reflected as adjustments to interest expense. The Company designated the interest rate swaps as hedging instruments in qualifying cash flow hedges, as discussed in Note *1* to the Consolidated Financial Statements. Changes in fair value of these designated hedging instruments is reported as a component of other comprehensive income. Interest rate swaps designated as cash flow hedges are expected to be highly effective in offsetting the effect of changes in interest rates on the amount of variable rate interest payments, and the Company assesses the effectiveness of each hedging relationship quarterly. If the Company determines that a cash flow hedge is *no* longer highly effective, future changes in the fair value of the hedging instrument would be reported as earnings. As of *December 31, 2025*, the Company has designated cash flow hedges to manage its exposure to variability in cash flows on certain variable rate borrowings for periods that end between *June 2034* and *October 2036.* The notional amounts of the interest rate swaps were *not* exchanged and do *not* represent exposure to credit loss. In the event of default by a counterparty, the risk in these transactions is the cost of replacing the agreements at current market rates.

All interest rate swaps were entered into with counterparties that met the Company's credit standards and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in these derivative contracts is *not* significant.

Unrealized gains or losses recorded in other comprehensive income related to cash flow hedges are reclassified into earnings in the same period(s) during which the hedged interest payments affect earnings. When a designated hedging instrument is terminated and the hedged interest payments remain probable of occurring, any remaining unrecognized gain or loss in other comprehensive income is reclassified into earnings in the period(s) during which the forecasted interest payments affect earnings. Amounts reclassified into earnings and interest receivable or payable under designated interest rate swaps are reported in interest expense. The Company does *not* expect any unrealized losses related to cash flow hedges to be reclassified into earnings in the next *twelve* months.

The following table summarizes key elements of the Company's derivative instruments at *December 31, 2025* and *2024* (in thousands):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***2025*** | ***2025*** | ***2025*** | ***2025*** |
|  | *Notional Amount* | *Assets* | *Liabilities* | Collateral Pledged<sup>(1)</sup> |
| **Cash Flow Hedges** |  |  |  |  |
| Interest rate swap contracts | $9000 | $2292 | $— | $— |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | ***2024*** | ***2024*** | ***2024*** | ***2024*** |
|  | *Notional Amount* | *Assets* | *Liabilities* | Collateral Pledged<sup>(1)</sup> |
| **Cash Flow Hedges** |  |  |  |  |
| Interest rate swap contracts | $9000 | $2690 | $— | $— |

---

(*1*) Collateral pledged *may* be comprised of cash or securities.

**Note *26.* Segment Reporting**

The Company has two reportable segments. Each reportable segment is a strategic business unit that offers different products and services. They are managed separately, because each segment appeals to different markets and, accordingly, require different technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report.

The reportable segments are:

● *Community Banking -* The Community Banking segment involves making loans and generating deposits from individuals, businesses, and charitable organizations. Loan fee income, service charges from deposit accounts, and other non-interest-related fees, such as fees for debit cards and ATM usage and fees for brokered mortgage services, generates income for the Banking segment.

● *Wealth Management Services* – Wealth Management Services offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenue for this segment is generated from administration, service and custody fees, as well as, management fees which are derived from assets under management. Investment management services currently are offered through in-house and *third*-party managers. 

The Company's chief operating decision maker (CODM) is the President and Chief Operating Officer of the Bank. The CODM uses income, operating expenses and net income to evaluate income generated from the operating segments. Net income is used to monitor budget versus actual results and profitability. Financials of the operating segments are reviewed monthly to assess the performance of the segments.

Segment information for the years ended *December 31, 2025* and *2024* is shown in the following tables. Note that asset information is *not* reported below, as the assets of the Company are reported at the Bank level. Assets under management by Wealth Management Services were $478 million and $471 million at *December 31, 2025* and *2024*, respectively.

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| | | | |
|:---|:---|:---|:---|
|  | ***2025*** | ***2025*** | ***2025*** |
|  | ***Community Banking*** | ***Wealth Management*** | ***Total*** |
| Interest Income | $99195 | $302 | $99497 |
| Interest Expense | 26251 |  | 26251 |
| Net interest income | $72944 | $302 | $73246 |
| Provision for credit losses | 2887 |  | 2887 |
| Net interest income after provision for credit losses | $70057 | $302 | $70359 |
| Noninterest Income: |  |  |  |
| Service charges on deposit accounts | $3955 | $— | $3955 |
| ATM and check card fees | 4584 |  | 4584 |
| Wealth management fees |  | 3611 | 3611 |
| Other operating income | 4868 |  | 4868 |
| Total noninterest income | $13407 | $3611 | $17018 |
| Noninterest Expense |  |  |  |
| Salaries and employee benefits | $32829 | $834 | $33663 |
| Occupancy | 4005 | 29 | 4034 |
| Equipment | 4301 | 4 | 4305 |
| Legal and professional fees | 2427 | 15 | 2442 |
| Data processing expense | 2113 | 149 | 2262 |
| Investment management |  | 1325 | 1325 |
| Other operating expense | 17369 | 33 | 17402 |
| Total noninterest expense | $63044 | $2389 | $65433 |
| Income before income taxes | $20420 | $1524 | $21944 |
| Income tax expense | 3946 | 295 | 4241 |
| **Net income** | $16474 | $1229 | $17703 |

---

---

| | | | |
|:---|:---|:---|:---|
|  | ***2024*** | ***2024*** | ***2024*** |
|  | ***Community Banking*** | ***Wealth Management*** | ***Total*** |
| Interest Income | $76037 | $282 | $76319 |
| Interest Expense | 23867 |  | 23867 |
| Net interest income | $52170 | $282 | $52452 |
| Provision for credit losses | 7850 |  | 7850 |
| Net interest income after provision for credit losses | $44320 | $282 | $44602 |
| Noninterest Income: |  |  |  |
| Service charges on deposit accounts | $3122 | $— | $3122 |
| ATM and check card fees | 3305 |  | 3305 |
| Wealth management fees |  | 3617 | 3617 |
| Other operating income | 6336 |  | 6336 |
| Total noninterest income | $12763 | $3617 | $16380 |
| Noninterest Expense |  |  |  |
| Salaries and employee benefits | $24292 | $842 | $25134 |
| Occupancy | 2544 | 29 | 2573 |
| Equipment | 3127 | 4 | 3131 |
| Legal and professional fees | 1974 | 19 | 1993 |
| Data processing expense | 1256 | 148 | 1404 |
| Investment management |  | 1307 | 1307 |
| Other operating expense | 17362 | 30 | 17392 |
| Total noninterest expense | $50555 | $2379 | $52934 |
| Income before income taxes | $6528 | $1520 | $8048 |
| Income tax expense | 878 | 204 | 1082 |
| **Net income** | $5650 | $1316 | $6966 |

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**Note *27.* Parent Company Only Financial Statements**

**FIRST NATIONAL CORPORATION**

(Parent Company Only)

**Balance Sheets**

 *December 31, 2025* and *2024*

*(in thousands)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Assets** |  |  |
| Cash | $13754 | $29130 |
| Investment in subsidiaries, at cost, plus undistributed net income | 188394 | 161653 |
| Other assets | 2639 | 7586 |
| Total assets | $204787 | $198369 |
| Liabilities and Shareholders' Equity |  |  |
| Subordinated debt | $8312 | $21175 |
| Junior subordinated debt | 9279 | 9279 |
| Other liabilities | 1000 | 1385 |
| Total liabilities | $18591 | $31839 |
| Preferred stock | $— | $— |
| Common stock | 11282 | 11218 |
| Surplus | 78216 | 77058 |
| Retained earnings | 108937 | 96947 |
| Accumulated other comprehensive (loss), net | (12239) | (18693) |
| Total shareholders' equity | $186196 | $166530 |
| Total liabilities and shareholders' equity | $204787 | $198369 |

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**FIRST NATIONAL CORPORATION**

(Parent Company Only)

**Statements of Income**

Years Ended *December 31, 2025* and *2024*

*(in thousands)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Income** |  |  |
| Dividends from subsidiary | $— | $18000 |
| Other operating income | 80 | 40 |
| Total income | $80 | $18040 |
| **Expense** |  |  |
| Interest expense | $1954 | $873 |
| Supplies | 8 | 83 |
| Legal and professional fees | 454 | 340 |
| Data processing | 61 | 107 |
| Management fee-subsidiary | 365 | 368 |
| Other expense | 110 | 122 |
| Total expense | $2952 | $1893 |
| (Loss) income before allocated tax benefits and undistributed income of subsidiary | $(2872) | $16147 |
| Allocated income tax benefit | 603 | 389 |
| (Loss) income before equity in undistributed income of subsidiary | $(2269) | $16536 |
| Equity in undistributed income (loss) of subsidiary | 19972 | (9570) |
| Net income | $17703 | $6966 |

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**FIRST NATIONAL CORPORATION**

(Parent Company Only)

**Statements of Cash Flows**

Years Ended *December 31, 2025* and *2024*

*(in thousands)*

---

| | | |
|:---|:---|:---|
|  | ***2025*** | ***2024*** |
| **Cash Flows from Operating Activities** |  |  |
| Net income | $17703 | $6966 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
| Equity in undistributed (income) loss of subsidiary | (19972) | 9570 |
| Stock-based compensation | 1184 | 635 |
| Amortization of debt issuance costs | 637 | 2 |
| Gain on redemption of subordinated debt | (80) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gain on sale of investment |  | (40) |
| Decrease (increase) in other assets | 4400 | (85) |
| (Decrease) increase in other liabilities | (153) | 296 |
| Net cash provided by operating activities | $3719 | $17344 |
| **Cash Flows from Investing Activities** |  |  |
| Net cash paid in acquisition of Touchstone Bank | $— | $(10) |
| Proceeds from sale of investment |  | 368 |
| Net cash provided by investing activities | $— | $358 |
| **Cash Flows from Financing Activities** |  |  |
| Cash dividends paid on common stock, net of reinvestment | $(5520) | $(4038) |
| Redemption of subordinated debt | (13420) |  |
| Repurchase of common stock | (155) | (106) |
| Net cash (used in) financing activities | $(19095) | $(4144) |
| (Decrease) increase in cash and cash equivalents | $(15376) | $13558 |
| **Cash and Cash Equivalents** |  |  |
| Beginning | 29130 | 15572 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ending | $13754 | $29130 |

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**Note *28.* Subsequent Events**

On *February 11, 2026,* the Board of Directors of First Bank approved a purchase and assumption agreement to sell *two* banking offices in Roanoke Rapids and Louisburg, North Carolina, including most of the deposit and loan accounts associated with those offices, to a Virginia-based financial institution. The Bank also announced the future closing and consolidation of *three* Virginia banking offices into nearby banking office locations. This will reduce the number of banking offices from 33 to 28, and is subject to customary closing conditions, customer notification requirements, and regulatory approval.

These transactions are expected to be closed in the *second* half of *2026.* These actions were taken as a component of the Bank's strategic plan to optimize the bank's office footprint. The goals of the branch optimization plan are to streamline operations, improve efficiency and allocate resources to other growing markets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *93*

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| | |
|:---|:---|
| **Item 9.** | **Changes in and Disagreements with Accountants on Accounting and Financial Disclosure** |

---

None.

---

| | |
|:---|:---|
| **Item 9A.** | **Controls and Procedures** |

---

**Disclosure Controls and Procedures**

The Company's management, including the Company's Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of December 31, 2025 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company's disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company or its subsidiaries to disclose material information required to be set forth in the Company's periodic reports.

**Management's Report Regarding the Effectiveness of Internal Controls**

See Item 8 above.

**Changes in Internal Controls**

There were no changes in the Company's internal control over financial reporting during the Company's fourth quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

---

| | |
|:---|:---|
| **Item *9B.*** | **Other Information** |

---

**Trading Arrangements**

During the *three* months ended *December 31, 2025*, none of our directors or officers (as defined in Rule *16a*-*1*(f) of the Exchange Act) informed us of the adoption or termination of any Rule *10b5*-*1* trading arrangement or non-Rule *10b5*-*1* trading arrangement (as such terms are defined in Item *408* of Regulation S-K).

---

| | |
|:---|:---|
| **Item 9C.** | **Disclosure Regarding Foreign Jurisdictions that Prevent Inspections** |

---

None.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 94

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**PART III**

---

| | |
|:---|:---|
| **Item *10.*** | **Directors, Executive Officers and Corporate Governance** |

---

Information required by this Item is set forth under the headings "Election of Directors – Nominees," "Executive Officers Who Are *Not* Directors," "Delinquent Section *16*(a) Reports," "Code of Conduct and Ethics," "Committees" and "Director Selection Process" in the Company's Proxy Statement for the *2026* Annual Meeting of Shareholders (the Proxy Statement), which information is incorporated herein by reference.

The Company has adopted an insider trading policy that governs the purchase, sale, and/or other transactions of the Company's securities by its directors, officers and employees and the Company itself. A copy of the Company's insider trading policy is filed as Exhibit *19.1* to this Annual Report on Form 10-K.

---

| | |
|:---|:---|
| **Item *11.*** | **Executive Compensation** |

---

Information required by this Item is set forth under the headings "Executive Compensation" and "Director Compensation" in the Proxy Statement, which information is incorporated herein by reference.

---

| | |
|:---|:---|
| **Item 12.** | **Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters** |

---

Information required by this Item is set forth under the heading "Stock Ownership of Directors and Executive Officers" and "Stock Ownership of Certain Beneficial Owners" in the Proxy Statement, which information is incorporated herein by reference.

---

| | |
|:---|:---|
| **Item 13.** | **Certain Relationships and Related Transactions, and Director Independence** |

---

Information required by this Item is set forth under the headings "Certain Relationships and Related Party Transactions" and "Director Independence" in the Proxy Statement, which information is incorporated herein by reference.

---

| | |
|:---|:---|
| **Item 14.** | **Principal Accountant Fees and Services** |

---

Information required by this Item is set forth under the headings "Auditor Fees and Services" and "Policy for Approval of Audit and Permitted Non-Audit Service" in the Proxy Statement, which information is incorporated herein by reference.

The Independent Registered Public Accounting Firm for the financial statements as of December 31, 2025 and for the two years then ended was Yount, Hyde & Barbour, P.C., (U.S. PCAOB Auditor Firm I.D.: 613), located in Winchester, Virginia.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 95

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**PART IV**

---

| | |
|:---|:---|
| **Item 15.** | **Exhibits, Financial Statement Schedules** |

---

---

| | | | |
|:---|:---|:---|:---|
| (a) | (1) | The response to this portion of Item 15 is included in Item 8 above. | The response to this portion of Item 15 is included in Item 8 above. |
|  | (2) | The response to this portion of Item 15 is included in Item 8 above. | The response to this portion of Item 15 is included in Item 8 above. |
|  | (3) | The following documents are attached hereto or incorporated herein by reference to Exhibits: | The following documents are attached hereto or incorporated herein by reference to Exhibits: |
|  |  | 2.1 | [Agreement and Plan of Merger, dated as of March 25, 2024, by and between First National Corporation and Touchstone Bankshares, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed March 26, 2024).](http://www.sec.gov/Archives/edgar/data/719402/000143774924009432/ex_643915.htm) |
|  |  | 3.1 | [Amended and Restated Articles of Incorporation, as amended and restated on March 3, 2009 (incorporated herein by reference to Exhibit 3.1 to the Company's Form 10-K for the year ended December 31, 2008).](http://www.sec.gov/Archives/edgar/data/719402/000119312509067766/dex31.htm) |
|  |  | 3.2 | [Articles of Amendment to Article of Incorporation of First National Corporation (incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024).](http://www.sec.gov/Archives/edgar/data/719402/000143774924035225/ex_747076.htm) |
|  |  | 3.3 | [Bylaws of First National Corporation (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on October 1, 2024.)](http://www.sec.gov/Archives/edgar/data/719402/000143774924030313/ex_718776.htm) |
|  |  | 4.1 | Specimen of Common Stock Certificate (incorporated herein by reference to Exhibit 1 to the Company's Form 10 filed with SEC on May 2, 1994) (paper filing). |
|  |  | 4.2 | [Description of Securities](http://www.sec.gov/Archives/edgar/data/719402/000143774925010228/ex_792738.htm)[(incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 10-K filed March 31, 2025).](http://www.sec.gov/Archives/edgar/data/719402/000143774925010228/ex_792738.htm) |
|  |  | 4.3 | [Form of 5.50% Fixed to Floating Rate Subordinated Note due 2030 (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed July 6, 2020).](http://www.sec.gov/Archives/edgar/data/719402/000143774920014640/ex_192574.htm) |
|  |  | 4.4 | [Form of 6.00% Fixed to Floating Rate Subordinated Note due August 15, 2030](http://www.sec.gov/Archives/edgar/data/719402/000143774925010228/ex_794285.htm)[(incorporated herein by reference to Exhibit 4.4 to the Company's Current Report on Form 10-K filed March 31, 2025).](http://www.sec.gov/Archives/edgar/data/719402/000143774925010228/ex_794285.htm) |
|  |  | 4.5 | [Form of 4.00% Fixed to Floating Rate Subordinated Note due January 30, 2032(incorporated herein by reference to Exhibit 4.5 to the Company's Current Report on Form 10-K filed March 31, 2025).](http://www.sec.gov/Archives/edgar/data/719402/000143774925010228/ex_794286.htm) |
|  |  | 10.1 | [Amended and Restated Employment Agreement, dated as of June 1, 2007, between the Company and Dennis A. Dysart (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 30, 2007).](http://www.sec.gov/Archives/edgar/data/719402/000119312507247321/dex101.htm) |
|  |  | 10.4 | [Amendment to Employment Agreement between the Company and Dennis A. Dysart (incorporated by reference to Exhibit 10.6 to the Company's Form 10-K for the year ended December 31, 2008).](http://www.sec.gov/Archives/edgar/data/719402/000119312509067766/dex106.htm) |
|  |  | 10.8 | [Employment Agreement between the Company and Scott C. Harvard (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 22, 2014).](http://www.sec.gov/Archives/edgar/data/719402/000100210514000062/exhibit10-1.htm) |
|  |  | 10.9 | [Executive Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on March 19, 2013).](http://www.sec.gov/Archives/edgar/data/719402/000100210513000031/ex10.htm) |
|  |  | 10.10 | [2014 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8, filed February 11, 2015).](http://www.sec.gov/Archives/edgar/data/719402/000119312515043882/d868229dex991.htm) |
|  |  | 10.11 | [Form of Restricted Stock Unit (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 2015).](http://www.sec.gov/Archives/edgar/data/719402/000119312515189323/d906781dex101.htm) |
|  |  | 10.13 | [Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 21, 2019).](http://www.sec.gov/Archives/edgar/data/719402/000071940219000009/exhibit101.htm) |
|  |  | 10.14 | [Supplemental Executive Retirement Plan, dated March 15, 2019, for the benefit of Scott C. Harvard (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed on March 21, 2019).](http://www.sec.gov/Archives/edgar/data/719402/000071940219000009/exhibit102.htm) |
|  |  | 10.15 | [Supplemental Executive Retirement Plan, dated March 15, 2019, for the benefit of Dennis A. Dysart (incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed on March 21, 2019).](http://www.sec.gov/Archives/edgar/data/719402/000071940219000009/exhibit103.htm) |
|  |  | 10.17 | [First National Corporation 2023 Stock Incentive Plan (incorporated by reference to Appendix A of First National Corporation's proxy statement for the 2023 annual meeting of Shareholders, filed March 31, 2023).](http://www.sec.gov/Archives/edgar/data/719402/000143774923008703/fxnc20230330_def14a.htm) |
|  |  | 10.18 | [Form of First National Corporation Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023).](http://www.sec.gov/Archives/edgar/data/719402/000143774923031533/ex_591819.htm) |
|  |  | 10.19 | [Form of First National Corporation Director Stock Award Agreement (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023).](http://www.sec.gov/Archives/edgar/data/719402/000143774923031533/ex_591820.htm) |
|  |  | 10.20 | [Em](http://www.sec.gov/Archives/edgar/data/719402/000143774925006862/ex_787534.htm)[ployment Agreement between the Company and Brad E. Schwartz (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 10, 2025).](http://www.sec.gov/Archives/edgar/data/719402/000143774925006862/ex_787534.htm) |
|  |  | 14.1 | [Code of Conduct and Ethics (incorporated herein by reference to Exhibit 14.1 to the Company's Current Report on Form 8-K, filed on April 11, 2008).](http://www.sec.gov/Archives/edgar/data/719402/000100210508000143/ex14.htm) |
|  |  | 19.1 | [Insider Trading Policy](http://www.sec.gov/Archives/edgar/data/719402/000143774925010228/ex_793076.htm)[(incorporated herein by reference to Exhibit 19.1 to the Company's Current Report on Form 10-K filed March 31, 2025).](http://www.sec.gov/Archives/edgar/data/719402/000143774925010228/ex_793076.htm) |
|  |  | 21.1 | [Subsidiaries of the Company.](ex_880413.htm) |
|  |  | 23.1 | [Consent of Yount, Hyde & Barbour, P.C.](ex_880414.htm) |
|  |  | 31.1 | [Certification of Chief Executive Officer, Section 302 Certification.](ex_880415.htm) |
|  |  | 31.2 | [Certification of Chief Financial Officer, Section 302 Certification.](ex_880416.htm) |
|  |  | 32.1 | [Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.](ex_880417.htm) |
|  |  | 32.2 | [Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.](ex_880418.htm) |
|  |  | 97.1 | [Clawback Policy (incorporated herein by reference to Exhibit 97.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2023).](http://www.sec.gov/Archives/edgar/data/719402/000143774924010057/ex_643607.htm) |
|  |  | 101 | The following materials from First National Corporation's Annual Report on Form 10-K for the year ended December 31, 2025 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Changes in Shareholders' Equity, and (vi) Notes to Consolidated Financial Statements. |
|  |  | 104 | The cover page from First National Corporation's Annual Report on Form 10-K for the year ended December 31, 2025, formatted in Inline XBRL (included with Exhibit 101). |
|  | (b) | Exhibits | Exhibits |
|  |  | See Item 15(a)(3) above. | See Item 15(a)(3) above. |
|  | (c) | Financial Statement Schedules | Financial Statement Schedules |
|  |  | See Item 15(a)(2) above. | See Item 15(a)(2) above. |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 96

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---

| | |
|:---|:---|
| **Item 16.** | **Form 10-K Summary** |

---

None.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 97

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | |
|:---|:---|
| **FIRST NATIONAL CORPORATION** | **FIRST NATIONAL CORPORATION** |
| By: | /s/ Scott C. Harvard |
| President and Chief Executive Officer | President and Chief Executive Officer |
| (on behalf of the registrant and as principal executive officer) | (on behalf of the registrant and as principal executive officer) |
| Date: | March 25, 2026 |

---

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| /s/ Scott C. Harvard | Date: | March 25, 2026 |
| President & Chief Executive Officer Director |  |  |
| (principal executive officer) |  |  |
| /s/ Brad E. Schwartz | Date: | March 25, 2026 |
| Executive Vice President & Chief Financial Officer |  |  |
| (principal financial officer and principal accounting officer) |  |  |
| /s/ Elizabeth H. Cottrell | Date: | March 25, 2026 |
| Chairman of the Board of Directors |  |  |
| /s/ Gerald F. Smith, Jr. | Date: | March 25, 2026 |
| Vice Chairman of the Board of Directors |  |  |
| /s/ Jason C. Aikens | Date: | March 25, 2026 |
| Director |  |  |
| /s/ Emily Marlow Beck | Date: | March 25, 2026 |
| Director |  |  |
| /s/ Boyce Brannock | Date: | March 25, 2026 |
| Director |  |  |
| /s/ W. Michael Funk | Date: | March 25, 2026 |
| Director |  |  |
| /s/ James R. Wilkins, III | Date: | March 25, 2026 |
| Director |  |  |
| /s/ Kirtesh Patel | Date: | March 25, 2026 |
| Director |  |  |
| /s/ George E. Holt, III | Date: | March 25, 2026 |
| Director |  |  |
| /s/ Toni T. Lee-Andrews | Date: | March 25, 2026 |
| Director |  |  |
| /s/ Norman D. Wagstaff, Jr. | Date: | March 25, 2026 |
| Director |  |  |
| /s/ William S. Wilkinson | Date: | March 25, 2026 |
| Director |  |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 98

## Exhibit 21.1

**Exhibit 21.1**

<u>**Subsidiaries of First National Corporation**</u>

---

| | |
|:---|:---|
| <u>Name of Subsidiary</u> | <u>State of Organization</u> |
| First Bank, Inc. | Virginia |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- First Bank Financial Services, Inc. | Virginia |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- Shen-Valley Land Holdings, LLC | Virginia |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- McKenney Group, LLC | Virginia |
| First National (VA) Statutory Trust II | Delaware |
| First National (VA) Statutory Trust III | Delaware |

---

## Exhibit 23.1

**Exhibit 23.1**

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-272868 and 333-202002), Form S-3D (No. 333-34148) and Form S-3 (No. 333-261751) of First National Corporation of our report dated March 25, 2026, relating to the consolidated financial statements of First National Corporation, appearing in the Annual Report on Form 10-K of First National Corporation for the year ended December 31, 2025.

/s/ Yount, Hyde & Barbour, P.C.

Winchester, Virginia

March 25, 2026

## Exhibit 31.1

**Exhibit 31.1**

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

SECTION 302 CERTIFICATION

I, Scott C. Harvard, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this annual report on Form 10-K of First National Corporation for the year ended December 31, 2025 ;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
|  | /s/ Scott C. Harvard |
| Date: March 25, 2026 | President and Chief Executive Officer |

---

## Exhibit 31.2

**Exhibit 31.2**

CERTIFICATION OF CHIEF FINANCIAL OFFICER

SECTION 302 CERTIFICATION

I, Brad E. Schwartz, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this annual report on Form 10-K of First National Corporation for the year ended December 31, 2025 ;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
|  | /s/ Brad E. Schwartz |
| Date: March 25, 2026 | Executive Vice President and Chief Financial Officer |

---

## Exhibit 32.1

**Exhibit 32.1**

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10-K of First National Corporation for the year ended December 31, 2025, I, Scott C. Harvard, President and Chief Executive Officer of First National Corporation, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) such Form 10-K for the year ended December 31, 2025 , fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) the information contained in such Form 10-K for the year ended December 31, 2025 , fairly presents, in all material respects, the financial condition and results of operations of First National Corporation.

---

| | |
|:---|:---|
|  | /s/ Scott C. Harvard |
| Date: March 25, 2026 | President and Chief Executive Officer |

---

## Exhibit 32.2

**Exhibit 32.2**

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10-K of First National Corporation for the year ended December 31, 2025, I, Brad E. Schwartz, Executive Vice President and Chief Financial Officer of First National Corporation, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) such Form 10-K for the year ended December 31, 2025 , fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) the information contained in such Form 10-K for the year ended December 31, 2025 , fairly presents, in all material respects, the financial condition and results of operations of First National Corporation.

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|  | /s/ Brad E. Schwartz |
| Date: March 25, 2026 | Executive Vice President and Chief Financial Officer |

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