Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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

The following discussion and analysis is intended as a review of significant factors affecting the Company's consolidated financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the related notes and the Company's Annual Report on Form 10-K, which contains audited consolidated financial statements of the Company as of and for the year ended December 31, 2025, previously filed with the SEC on March 13, 2026. Results for the three and six months ended June 30, 2026 are not necessarily indicative of results for the year ending December 31, 2026 or any future period.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "should," "could," or "may" and similar expressions or the negative thereof. Important factors that could cause actual results to differ materially from those in the forward-looking statements included herein include, but are not limited to:

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general economic conditions, either nationally or in our market area, that are different than expected;

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competition among depository and other financial institutions, particularly intensified competition for deposits;

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inflation and an interest rate environment that may reduce our margins or reduce the fair value of certain of our financial instruments;

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changes in the securities markets;

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changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory structure and in regulatory fees and capital requirements;

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the impact of significant changes in accounting procedures or requirements on our financial condition or results of operations;

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our ability to enter new markets successfully and capitalize on growth opportunities;

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our ability to successfully integrate acquired and newly organized entities;

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changes in consumer spending, borrowing and savings habits;

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changes in accounting policies and practices;

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changes in our organization, compensation and benefit plans;

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our ability to attract and retain key employees;

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changes in our financial condition or results of operations that reduce capital;

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changes in the financial condition or future prospects of issuers of securities that we own;

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the concentration of our business in the Northern Virginia and greater Washington, DC metropolitan area and the effect of changes in the economic, political and environmental conditions on those markets;

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adequacy of or increases in the allowance for credit losses;

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cyber threats, attacks or other data security events;

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fraud or misconduct by internal or external parties;

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reliance on third parties for key services;

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changes in our asset quality, including changes in loan delinquencies, problem assets and foreclosures;

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future performance of our loan portfolio with respect to recently originated loans;

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additional risks related to new lines of business, products, product enhancements or services;

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results of examination of us by our regulators, including the possibility that our regulators may require us to change our allowance for credit losses or to adjust assets or take other supervisory action;

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the effectiveness of our internal controls over financial reporting and our ability to remediate any future material change in our internal controls over financial reporting;

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liquidity, interest rate and operational risks associated with our business;

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implications of our status as a smaller reporting company;

	●	a work disruption, forced quarantine, or other interruption or the unavailability of key employees;
	●	volatility in the financial institution industry and actions by regulatory authorities in response thereto;
	●	litigation or governmental actions;
	●	change in a material asset;
	●	federal layoffs and shut downs, and potential government contract terminations or non-renewals;
	●	possible income tax and accounting effects of recently enacted legislation; and
	●	"Risk Factors" and other information included in our Annual Report on Form 10-K for the year ended December 31, 2025 and this Quarterly Report on Form 10-Q.

Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-Q to reflect future events or developments.

Overview

As used herein, the "Company," "we," "our," and "us" refer to MainStreet Bancshares, Inc. and its subsidiaries, and the "Bank" refers to MainStreet Bank.

MainStreet Bancshares, Inc.

MainStreet Bancshares, Inc. is a financial holding company that owns 100% of MainStreet Bank and MainStreet Community Capital, LLC.

The Company and its subsidiaries are incorporated in and chartered by the Commonwealth of Virginia. The Company's executive offices are located at 10089 Fairfax Boulevard, Fairfax, Virginia. Our telephone number is (703) 481-4567, and our internet address is www.mstreetbank.com. The information contained on our website shall not be considered part of this Quarterly Report on Form 10-Q, and the reference to our website does not constitute incorporation by reference of the information contained on the website.

MainStreet Bank

MainStreet Bank is a community commercial bank incorporated in and chartered by the Commonwealth of Virginia. The Bank is a member of the Federal Reserve Bank of Richmond, and its deposits are insured by the FDIC. The Bank opened for business on May 26, 2004, and is headquartered in Fairfax, Virginia. We currently operate seven Bank branches; located in Herndon, Fairfax, McLean, Clarendon, Leesburg, and Middleburg in Virginia, and one in Washington D.C. The Bank has one subsidiary, a limited liability company, that it uses to hold real estate acquired through foreclosure.

We emphasize providing responsive and personalized services to our clients. Due to the consolidation of financial institutions in our primary market area, we believe there is a significant opportunity for a local bank to provide a full range of financial services. By offering highly professional, personalized banking products and service delivery methods and employing advanced banking technologies, we seek to distinguish ourselves from larger, regional banks operating in our market area and believe we are able to compete effectively with other community banks.

We believe we have a solid franchise that meets the financial needs of our clients and communities by providing an array of personalized products and services delivered by seasoned banking professionals with decisions made at the local level. We believe a significant customer base in our market prefers to do business with a local institution that has a local management team, a local Board of Directors and local founders and that this customer base may not be satisfied with the responsiveness of larger regional banks. By providing quality services, coupled with the opportunities provided by the economies in our market area, we have generated and expect to continue to generate organic growth.

We service Northern Virginia as well as the greater Washington, D.C. metropolitan area. Our goal is to deliver a customized and targeted mix of products and services that meets or exceeds customer expectations. To accomplish this goal, we have deployed a premium operating system that gives customers access to up-to-date banking technology. These systems and our highly skilled staff have allowed us to compete with larger financial institutions. The combination of sophisticated technology and personal service sets us apart from our competition. We strive to be the leading community bank in our market.

The Company's business is focused on core banking where we offer a full range of banking services to individuals, small to medium-sized businesses, and professionals through both traditional and electronic delivery.

We were the first community bank in the Washington, D.C. metropolitan area to offer a full online business banking solution, including remote check scanners on a business customer's desktop. We offer mobile banking apps for iPhones, iPads and Android devices that provide for remote deposit of checks. In addition, we were the first bank headquartered in the Commonwealth of Virginia to offer CDARS, the Certificate of Deposit Account Registry Service. We offer our customers a suite of reciprocal deposit options through placement services that offer additional FDIC insurance on deposits. We believe that enhanced electronic delivery systems and technology increase profitability through greater productivity and cost control and allow us to offer new and better products and services.

Our products and services include: business and consumer checking, premium interest-bearing checking, business account analysis, savings, certificates of deposit and other depository services, as well as a broad array of commercial, real estate and consumer loans. Internet account access is available for all personal and business accounts, internet bill payment services are available on most accounts, and a robust online cash management system is available for business customers.

MainStreet Community Capital, LLC

In September 2021, the Company created a community development entity ("CDE") subsidiary, MainStreet Community Capital, LLC, a Virginia limited liability company, to apply for New Market Tax Credit ("NMTC") allocations from the U.S. Department of Treasury's Community Development Financial Institutions Fund. To promote development in economically distressed areas, the NMTC program was established under the Community Renewal Tax Relief Act of 2000 to provide tax incentives for capital investment in disadvantaged market areas that have not experienced economic expansion. The program establishes a tax credit for investment in a CDE and ongoing compliance with the program is accomplished through a governing board and an advisory board which maintains accountability to residents and businesses in the aforementioned disadvantaged areas. This CDE will be an intermediary vehicle for the provision of loans and investments in Low-Income Communities ("LICs"). In January 2022, the Community Development Financial Institutions Fund ("CDFI") of the United States Department of the Treasury certified MainStreet Community Capital, LLC as a registered CDE. The One Big Beautiful Bill signed into law on July 4, 2025, permanently extended the new market tax credit program.

Critical Accounting Policies

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the current period or in future periods.

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of June 30, 2026, have remained unchanged since our Annual Report on Form 10-K for the year ended December 31, 2025 was filed.

Comparison of Statements of Income for the Three Months Ended June 30, 2026 and 2025

General

Total interest income decreased $2.2 million for the three months ended June 30, 2026 from the same period in 2025. The decrease was primarily the result of a decrease in interest and fees on loans of $1.7 million, which was impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. Total interest expense decreased $1.6 million for the three months ended June 30, 2026 from the same period in 2025 due to decreases in deposit interest expense described below. Net interest income decreased $0.6 million for the three months ended June 30, 2026 from the same period in 2025. The provision for credit losses was $0.6 million for the three months ended June 30, 2026 compared to a recovery of credit losses of $0.5 million for the three months ended June 30, 2025. Non-interest income decreased $0.2 million for the three months ended June 30, 2026 from the same period in 2025. The decrease in non-interest income was primarily due to the gain on retirement of subordinated debt of $68,000 and gain on equity securities of $103,000 that took place during the three months ended June 30, 2025 but not in the three months ended June 30, 2026. Non-interest expense decreased by $2.2 million for the three months ended June 30, 2026 compared to the same period in 2025, primarily due to decreases in salaries and employee benefits, outside services, furniture and equipment, advertising and marketing, and FDIC insurance expenses. Net income increased $0.1 million to $4.7 million for the three months ended June 30, 2026 from $4.6 million for the three months ended June 30, 2025.

Interest Income

Total interest income decreased $2.2 million or 6.4%, to $32.2 million for the three months ended June 30, 2026 from $34.4 million for the three months ended June 30, 2025, on a tax equivalent basis. The decrease was primarily the result of a decrease in interest and fees on loans of $1.7 million, which was impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. Total average interest-earning assets increased $64.3 million, to $2.08 billion for the three months ended June 30, 2026 from $2.02 billion for the same period in 2025 primarily because of an increase of $100.2 million in the average balance of loans offset by a decrease of $32.8 million in the average balance of federal funds sold and interest bearing deposits at other financial institutions and a $3.0 million decrease in the average balance of investment securities. The average yield on our interest-earning assets decreased 64 basis points to 6.20% for the three months ended June 30, 2026 as compared to 6.84% for the three months ended June 30, 2025, which was impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. For the three months ended June 30, 2026, the Company reversed $108,000 in accrued interest income in relation to loans placed on non-accrual, as compared to $128,000 for the three months ended June 30, 2025. During the three months ended June 30, 2026, $34,000 of accrued interest reversed in 2025 was recovered, for a net adjustment of $74,000 to interest income.

Interest and fees on loans decreased $1.7 million, to $30.7 million for the three months ended June 30, 2026 from $32.4 million for the same period in 2025. There was a 73 basis point decrease in the average loans yields, which was 6.42% for the three months ended June 30, 2026 compared to 7.15% for the three months ended June 30, 2025. Both of these decreases were primarily impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. The average balance of loans increased $100.2 million for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025. The weighted average interest rate of loans originated during the three months ended June 30, 2026 was 7.00%.

Interest income on federal funds sold and interest-earning deposits decreased by $0.5 million to $0.6 million for the three months ended June 30, 2026, from $1.1 million for the three months ended June 30, 2025. The average balance of interest-earning deposits and federal funds sold decreased $32.8 million to $75.5 million for the three months ended June 30, 2026 from $108.3 million for the same period in 2025. The average yield on federal funds sold and interest-earning deposits decreased to 3.40% for the three months ended June 30, 2026 from 4.24% for the same period in 2025.

Interest on investment securities was $0.8 million for the three months ended June 30, 2026 and $0.8 million for the three months ended June 30, 2025 on a fully tax-equivalent basis. Interest on investments in U.S. Government Agencies and U.S. Municipals was $0.4 million for the three months ended June 30, 2026 and $0.4 million for the three months ended June 30, 2025. Interest on mortgage-backed securities was $0.1 million and $0.1 million for the three months ended June 30, 2026 and June 30, 2025. Subordinated debt interest income was $0.2 million for the three months ended June 30, 2026, and $0.1 million for the three months ended June 30, 2025. The average yield on taxable securities increased 18 basis points, to 3.45% and the average yield on tax-exempt securities increased 23 basis points, to 4.06% on a tax equivalent basis for the three months ended June 30, 2026, compared to the same period in 2025. Due to the increase in average yield, interest on investment securities increased despite the average balance of investment securities decreasing by $3.0 million, to $85.3 million for the three months ended June 30, 2026, from $88.3 million for the three months ended June 30, 2025.

Interest Expense

Total interest expense decreased $1.6 million to $13.9 million for the three months ended June 30, 2026 from $15.5 million for the three months ended June 30, 2025, primarily due to a $1.8 million decrease in interest expense on interest bearing deposits and offset by a $0.1 million increase in total interest expense paid on borrowings.

Interest expense on deposits decreased $1.8 million to $12.9 million for the three months ended June 30, 2026 from $14.7 million for the three months ended June 30, 2025 primarily as a result of a decrease in yields on cost of funds. The average balance of interest-bearing deposits increased by $40.0 million to $1.54 billion during the three months ended June 30, 2026 as compared to $1.50 billion for the three months ended June 30, 2025. The increase in the average balance of interest-bearing deposits was primarily a result of a $59.5 million increase in the average balance of money market deposit accounts and a $22.0 million increase in the average balance of savings and NOW deposits, offset by a $43.0 million decrease in the average balance of time deposits, during the three months ended June 30, 2026 as compared to the three months ended June 30, 2025. The average cost of interest-bearing deposits was 3.38% for the three months ended June 30, 2026, compared to 3.94% for the three months ended June 30, 2025. The average rate paid on money market deposits decreased 60 basis points to 3.34% for the three months ended June 30, 2026 from 3.94% for the three months ended June 30, 2025. The average rate paid on interest-bearing demand deposits decreased 55 basis points to 3.03% for the three months ended June 30, 2026 from 3.58% for the three months ended June 30, 2025. The average rate paid on savings and NOW deposits decreased 12 basis points to 1.20% for the three months ended June 30, 2026 from 1.32% for the three months ended June 30, 2025. The average cost of time deposits decreased by 52 basis points to 3.87% for the three months ended June 30, 2026 as compared to 4.39% for the three months ended June 30, 2025. The average balance of non-interest bearing demand deposits and other liabilities increased $24.3 million to $378.9 million for the three months ended June 30, 2026, compared to $354.6 million for the three months ended June 30, 2025.

Net Interest Income

Net interest income decreased approximately $0.6 million, or 2.9%, to $18.3 million for the three months ended June 30, 2026 from $18.9 million for the three months ended June 30, 2025, on a tax equivalent basis. Our net interest-earning assets increased $16.9 million to $465.8 million for the three months ended June 30, 2026 from $449.0 million for the three months ended June 30, 2025. The interest rate spread decreased by 11 basis points to 2.76% for the three months ended June 30, 2026 from 2.87% for the three months ended June 30, 2025, on a tax equivalent basis. The net interest margin decreased by 22 basis points from 3.75% for the three months ended June 30, 2025 to 3.53% for the three months ended June 30, 2026 on a tax equivalent basis. These decreases were primarily impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the three months ended June 30, 2025. The interest rate spread and net interest margin are more comparable for the three months ended June 30, 2026 and the three months ended June 30, 2025 if the interest recovery is excluded. Refer to "Use of Certain Non-GAAP Financial Measures," below, for a reconciliation of adjusted net interest margin.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.

		For the Three Months Ended June 30,
		2026												2025
		Average Balance				Interest Income/ Expense(6)				Yield/ Cost(5)(6)				Average Balance				Interest Income/ Expense(6)				Yield/ Cost(5)(6)
		(Dollars in thousands)
Interest-earning assets:
Loans(1)		$	1,919,481			$	30,738				6.42	%		$	1,819,307			$	32,443				7.15	%
Investment securities:
Taxable			49,222				423				3.45	%			52,911				431				3.27	%
Tax-exempt			36,123				366				4.06	%			35,434				338				3.83	%
Interest-bearing deposits at other financial institutions			1,154				10				3.48	%			756				10				5.31	%
Federal funds sold			74,355				630				3.40	%			107,583				1,135				4.23	%
Total interest-earning assets		$	2,080,335			$	32,167				6.20	%		$	2,015,991			$	34,357				6.84	%
Non-interest-earning assets			126,881												116,675
Total assets		$	2,207,216											$	2,132,666
Interest-bearing liabilities:
Interest-bearing demand deposits		$	114,088			$	862				3.03	%		$	112,579			$	1,004				3.58	%
Savings and NOW deposits			141,176				421				1.20	%			119,163				391				1.32	%
Money market deposits			538,719				4,487				3.34	%			479,267				4,707				3.94	%
Time deposits			741,846				7,158				3.87	%			784,824				8,595				4.39	%
Total interest-bearing deposits		$	1,535,829			$	12,928				3.38	%		$	1,495,833			$	14,697				3.94	%
Federal funds purchased			8,573				84				3.93	%			1				-				0.00	%
Subordinated debt, net			70,084				846				4.84	%			71,199				799				4.50	%
Total interest-bearing liabilities		$	1,614,486			$	13,858				3.44	%		$	1,567,033			$	15,496				3.97	%
Non-interest-bearing liabilities:
Demand deposits and other liabilities			378,871												354,552
Total liabilities		$	1,993,357											$	1,921,585
Stockholders' equity			213,859												211,081
Total liabilities and stockholders' equity		$	2,207,216											$	2,132,666
Net interest income						$	18,309											$	18,861
Interest rate spread(2)											2.76	%											2.87	%
Net interest-earning assets(3)		$	465,849											$	448,958
Net interest margin(4)											3.53	%											3.75	%
Average interest-earning assets to average interest-bearing liabilities			128.9	%											128.7	%

(1)	Includes loans classified as non-accrual.

(2)	Interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(3)	Net interest earning assets represent total average interest-earning assets less average interest-bearing liabilities.

(4)	Net interest margin represents net interest income divided by total average interest-earning assets.
(5)	Annualized.

(6)	Income and yields for all periods presented are reported on a fully tax-equivalent basis using the federal statutory tax rate of 21%. Refer to "Use of Certain Non-GAAP Financial Measures."

Rate/ Volume Analysis

The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior average volume). The volume column shows the effects attributable to changes in volume (changes in average volume multiplied by prior rate). Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately. The Total Increase (Decrease) column represents the sum of the prior columns.

		For the Three Months Ended
		June 30, 2026 and 2025
		Increase (Decrease) Due to								Total Increase
		Volume				Rate				(Decrease)
		(Dollars in thousands)
Interest-earning assets:
Loans		$	8,708			$	(10,413	)		$	(1,705	)
Investment securities			(128	)			148				20
Interest-bearing deposits at other financial institutions			17				(17	)			-
Federal funds sold			(309	)			(196	)			(505	)
Total interest-earning assets			8,288				(10,478	)			(2,190	)
Interest-bearing liabilities:
Interest-bearing demand deposits			88				(230	)			(142	)
Savings and NOW deposits			212				(182	)			30
Money market deposits			4,871				(5,091	)			(220	)
Time deposits			(454	)			(983	)			(1,437	)
Total interest-bearing deposits			4,717				(6,486	)			(1,769	)
Federal funds purchased			84				-				84
Subordinated debt, net			(75	)			122				47
Total interest-bearing liabilities			4,726				(6,364	)			(1,638	)
Change in net interest income		$	3,562			$	(4,114	)		$	(552	)

Provision for Credit Losses

Management believes that the allowance for credit losses recorded for the period ended June 30, 2026 reflects a balance sufficient to provide for each allowance segment, using objective data and information available to us at this time in evaluating our standard analysis of local/national economic data, changes in underwriting quality, portfolio concentrations, experience of lending team, credit quality and supportable forecasts. We will continuously review the credit portfolio to determine the depth and breadth of potential credit losses. As we obtain additional information and to more accurately assess the full nature and extent of any elevated risk to the credit portfolio that may arise, additional provision expenses may be required.

The provision for credit losses, which is an operating expense, is maintained to ensure that the allowance for credit losses is maintained at levels we consider necessary and appropriate to absorb expected credit losses as of the balance sheet date. In determining the level of the allowance for credit losses on loans and off-balance sheet credit exposure, we consider past and current loss experience, evaluations of real estate collateral, current and future economic conditions, volume and type of lending, adverse situations that may affect a borrower's ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available over time or economic conditions change. This evaluation is inherently subjective, as it requires estimates and assumptions that are susceptible to significant revision as circumstances change or as more information becomes available. The allowance for credit losses is assessed monthly and provisions are made for credit losses as required in order to maintain the overall allowance.

The provision for credit losses on loans was $0.2 million for the three months ended June 30, 2026 given loan growth during the period, compared to a recovery of credit losses on loans of $0.5 million for the three months ended June 30, 2025. Loan originations, which totaled approximately $50.9 million for the three months ended June 30, 2025 increased $57.6 million to $108.5 million for the three months ended June 30, 2026. During the three months ended June 30, 2026, there were no charge-offs incurred and recoveries of $14,000 were received. During the three months ended June 30, 2025, there were $0.6 million in charge-offs incurred and recoveries of $0.7 million were received.

The provision for credit losses on off-balance sheet credit exposure was $0.3 million for the three months ended June 30, 2026 compared to a recovery of credit losses of $15,000 for the three months ended June 30, 2025. The provision for credit losses on off-balance sheet credit exposure for the three months ended June 30, 2026 was primarily related to increases in unfunded commitment levels and fluctuations in utilization rates.

Non-Interest Income

Non-interest income decreased $0.2 million, or 16.1%, to $0.9 million for the three months ended June 30, 2026 from $1.1 million for the three months ended June 30, 2025. The decrease in non-interest income was primarily due to the gain on retirement of subordinated debt of $68,000 and gain on equity securities of $103,000 that took place during the three months ended June 30, 2025 but not in the three months ended June 30, 2026. The Company continues to focus on increasing non-interest income as it continues to add services that strategically benefit our customers.

Non-Interest Expense

Non-interest expense decreased $2.2 million, or 15.1%, to $12.5 million for the three months ended June 30, 2026, from $14.7 million for the three months ended June 30, 2025 primarily because of continued expense management efforts across the Company. Salaries and employee benefits decreased $0.8 million to $7.5 million for the three months ended June 30, 2026, from $8.3 million for the three months ended June 30, 2025 due to a decrease in full time employees compared to last year. Outside services, which includes professional fees for attorneys, accountants, consultants, and cloud services, decreased $0.8 million to $0.4 million for the three months ended June 30, 2026, from $1.3 million for the three months ended June 30, 2025. Furniture and equipment expenses decreased approximately $0.4 million to $0.8 million for the three months ended June 30, 2026, from $1.1 million for the three months ended June 30, 2025. FDIC insurance expense decreased $0.4 million to $0.5 million for the three months ended June 30, 2026, from $0.9 million for the three months ended June 30, 2025, due to the stabilized level of deposits compared to the temporary surge experienced at the end of 2025. Advertising and marketing expense decreased $0.1 million to $0.4 million for the three months ended June 30, 2026, from $0.5 million for the three months ended June 30, 2025. Other operating expenses increased $0.4 million to $1.6 million for the three months ended June 30, 2026, from $1.2 million primarily due to workout expenses as we work through a small number of problem credits.

Income Tax Expense

Income tax expense increased $0.3 million or 27.5%, to $1.4 million for the three months ended June 30, 2026 from $1.1 million for the three months ended June 30, 2025. The increase in federal income tax expense for the three months ended June 30, 2026 compared to the same period a year ago was driven by increased estimated tax rates and the increase in income before income taxes of $0.4 million, to income before income tax of $6.0 million for the three months ended June 30, 2026 compared to income before income tax expense of $5.7 million for the same period in the prior year. The Company accrues taxes based on an estimated tax rate basis using inputs and assumptions about pre-tax income. As the inputs and assumptions change, the estimated tax accruals will change throughout the year. The Company also invests in projects that have tax credit benefits in order to help reduce its overall tax liability, timing of these tax credits are layered into our overall assessment. At June 30, 2026, these tax credits exceed the total tax liability and therefore, are not fully utilized, which causes the effective income tax expense rate to increase. For the three months ended June 30, 2026, the Company had an effective income tax expense rate of 22.52%, compared to 18.82% for the three months ended June 30, 2025. The Company has included assessments in income tax expense for potential state tax liabilities which totaled $0.2 million for the three months ended June 30, 2026 and $0.1 million for the three months ended June 30, 2025.

Comparison of Statements of Income for the Six Months Ended June 30, 2026 and 2025

General

Total interest income decreased $3.9 million for the six months ended June 30, 2026 from the same period in 2025. The decrease was primarily the result of a decrease in interest and fees on loans of $3.3 million, which was primarily due to interest rate changes and was also impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the six months ended June 30, 2025. Total interest expense decreased $4.4 million for the six months ended June 30, 2026 from the same period in 2025 due to decreases in deposit interest expense described below. Net interest income increased $0.4 million for the six months ended June 30, 2026 from the same period in 2025. The provision for credit losses was $0.5 million for the six months ended June 30, 2026 compared to a recovery of credit losses of $0.5 million for the six months ended June 30, 2025. Non-interest income decreased $0.7 million for the six months ended June 30, 2026 from the same period in 2025. The decrease in non-interest income was primarily due to a $0.7 million loss on sale of other real estate owned. Non-interest expense decreased by $3.9 million for the six months ended June 30, 2026 compared to the same period in 2025, primarily due to decreases in salaries and employee benefits, outside services, furniture and equipment, advertising and marketing, and FDIC insurance expenses. Net income increased $1.7 million to $8.8 million for the six months ended June 30, 2026 from $7.0 million for the six months ended June 30, 2025.

Interest Income

Total interest income decreased $3.9 million or 5.8%, to $63.5 million for the six months ended June 30, 2026 from $67.4 million for the six months ended June 30, 2025, on a tax equivalent basis. The decrease was primarily the result of a decrease in interest and fees on loans of $3.3 million, which was primarily due to interest rate changes and was impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the six months ended June 30, 2025. Total average interest-earning assets increased $33.4 million, to $2.07 billion for the six months ended June 30, 2026 from $2.03 billion for the same period in 2025 primarily because of an increase of $57.4 million in the average balance of loans offset by a decrease of $21.2 million in the average balance of federal funds sold and interest bearing deposits at other financial institutions and a $2.7 million decrease in the average balance of investment securities. The average yield on our interest-earning assets decreased 50 basis points to 6.19% for the six months ended June 30, 2026 as compared to 6.69% for the six months ended June 30, 2025, which was primarily due to interest rate changes and was also impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the six months ended June 30, 2025.

Interest and fees on loans decreased $3.3 million, to $60.3 million for the six months ended June 30, 2026 from $63.6 million for the same period in 2025. There was a 57 basis point decrease in the average loans yields, which was 6.42% for the six months ended June 30, 2026 compared to 6.99% for the six months ended June 30, 2025. These decreases were primarily due to interest rate changes and were impacted by the collection of $1.3 million of accrued interest on a fully repaid non-accrual loan during the six months ended June 30, 2025. The average balance of loans increased $57.4 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. The weighted average interest rate of loans originated during the six months ended June 30, 2026 was 6.98%.

Interest income on federal funds sold and interest-earning deposits decreased by $0.7 million to $1.6 million for the six months ended June 30, 2026, from $2.3 million for the six months ended June 30, 2025. The average balance of interest-earning deposits and federal funds sold decreased $21.2 million to $88.8 million for the six months ended June 30, 2026 from $110.0 million for the same period in 2025. The average yield on federal funds sold and interest-earning deposits decreased to 3.71% for the six months ended June 30, 2026 from 4.24% for the same period in 2025.

Interest on investment securities was $1.6 million for the six months ended June 30, 2026 and $1.5 million for the six months ended June 30, 2025 on a fully tax-equivalent basis. Interest on investments in U.S. Government Agencies and U.S. Municipals was $0.7 million for the six months ended June 30, 2026 and $0.7 million for the six months ended June 30, 2025. Interest on mortgage-backed securities was $0.2 million and $0.2 million for the six months ended June 30, 2026 and June 30, 2025. Subordinated debt interest income was $0.3 million for the six months ended June 30, 2026, and $0.3 million for the six months ended June 30, 2025. The average yield on taxable securities increased 20 basis points, to 3.43% and the average yield on tax-exempt securities increased 24 basis points, to 4.07% on a tax equivalent basis for the six months ended June 30, 2026, compared to the same period in 2025. Due to the increase in average yield, interest on investment securities increased despite the average balance of investment securities decreasing by $2.7 million, to $85.6 million for the six months ended June 30, 2026, from $88.4 million for the six months ended June 30, 2025.

Interest Expense

Total interest expense decreased $4.4 million to $27.6 million for the six months ended June 30, 2026 from $31.9 million for the six months ended June 30, 2025, primarily due to a $4.5 million decrease in interest expense on interest bearing deposits and a $58,000 increase in total interest expense paid on borrowings.

Interest expense on deposits decreased $4.5 million to $25.8 million for the six months ended June 30, 2026 from $30.3 million for the six months ended June 30, 2025 primarily as a result of a decrease in yields on cost of funds. The average balance of interest-bearing deposits increased by $22.6 million to $1.53 billion during the six months ended June 30, 2026 as compared to $1.51 billion for the six months ended June 30, 2025. The increase in the average balance of interest-bearing deposits was primarily a result of a $44.4 million increase in the average balance of savings and NOW deposits, a $4.8 million increase in interest-bearing demand deposits, and a $7.1 million increase in the average balance of money market deposit accounts, offset by a $33.8 million decrease in the average balance of time deposits, during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. The average cost of interest-bearing deposits was 3.41% for the six months ended June 30, 2026, compared to 4.06% for the six months ended June 30, 2025. The average rate paid on money market deposits was 3.32% for the six months ended June 30, 2026 compared to 3.96% for the six months ended June 30, 2025. The average rate paid on interest-bearing demand deposits was 3.02% for the six months ended June 30, 2026 compared to 3.69% for the six months ended June 30, 2025. The average rate paid on savings and NOW deposits was 1.18% for the six months ended June 30, 2026 compared to 1.32% for the six months ended June 30, 2025. The average cost of time deposits was 3.94% for the six months ended June 30, 2026 compared to 4.49% for the six months ended June 30, 2025. The average balance of non-interest bearing demand deposits and other liabilities increased $20.1 million to $374.2 million for the six months ended June 30, 2026, compared to $354.1 million for the six months ended June 30, 2025.

Net Interest Income

Net interest income increased approximately $0.4 million, or 1.2%, to $35.9 million for the six months ended June 30, 2026 from $35.4 million for the six months ended June 30, 2025, on a tax equivalent basis. Our net interest-earning assets increased $10.1 million to $462.6 million for the six months ended June 30, 2026 from $452.4 million for the six months ended June 30, 2025. The interest rate spread increased by 11 basis points to 2.72% for the six months ended June 30, 2026 from 2.61% for the six months ended June 30, 2025, on a tax equivalent basis. The net interest margin decreased by 2 basis points from 3.52% for the six months ended June 30, 2025 to 3.50% for the six months ended June 30, 2026 on a tax equivalent basis. Refer to "Use of Certain Non-GAAP Financial Measures," below, for a reconciliation of adjusted net interest margin.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.

		For the Six Months Ended June 30,
		2026												2025
		Average Balance				Interest Income/ Expense (6)				Yield/ Cost(5)(6)				Average Balance				Interest Income/ Expense(6)				Yield/ Cost(5)(6)
		(Dollars in thousands)
Interest-earning assets:
Loans(1)		$	1,891,701			$	60,256				6.42	%		$	1,834,314			$	63,554				6.99	%
Investment securities:
Taxable			49,481				841				3.43	%			53,050				851				3.23	%
Tax-exempt			36,143				729				4.07	%			35,317				671				3.83	%
Interest-bearing deposits at other financial institutions			1,129				20				3.57	%			1,393				32				4.63	%
Federal funds sold			87,649				1,615				3.72	%			108,612				2,282				4.24	%
Total interest-earning assets		$	2,066,103			$	63,461				6.19	%		$	2,032,686			$	67,390				6.69	%
Non-interest-earning assets			127,494												111,326
Total assets		$	2,193,597											$	2,144,012
Interest-bearing liabilities:
Interest-bearing demand deposits		$	116,842			$	1,752				3.02	%		$	111,999			$	2,052				3.69	%
Savings and NOW deposits			138,072				810				1.18	%			93,649				612				1.32	%
Money market deposits			515,424				8,478				3.32	%			508,319				9,983				3.96	%
Time deposits			757,582				14,808				3.94	%			791,399				17,626				4.49	%
Total interest-bearing deposits		$	1,527,920			$	25,848				3.41	%		$	1,505,366			$	30,273				4.06	%
Federal funds purchased			5,582				109				3.94	%			2,790				65				4.70	%
Subordinated debt			70,040				1,625				4.68	%			72,116				1,611				4.50	%
Total interest-bearing liabilities		$	1,603,542			$	27,582				3.47	%		$	1,580,272			$	31,949				4.08	%
Non-interest-bearing liabilities:
Demand deposits and other liabilities			374,230												354,133
Total liabilities		$	1,977,772											$	1,934,405
Stockholders' Equity			215,825												209,607
Total liabilities and stockholders' equity		$	2,193,597											$	2,144,012
Net interest income						$	35,879											$	35,441
Interest rate spread(2)											2.72	%											2.61	%
Net interest-earning assets(3)		$	462,561											$	452,414
Net interest margin(4)											3.50	%											3.52	%
Average interest-earning assets to average interest-bearing liabilities			128.85	%											128.63	%

(1)	Includes loans classified as non-accrual.

(2)	Interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(3)	Net interest earning assets represent total average interest-earning assets less average interest-bearing liabilities.

(4)	Net interest margin represents net interest income divided by total average interest-earning assets.
(5)	Annualized.

(6)	Income and yields for all periods presented are reported on a fully tax-equivalent basis using the federal statutory tax rate of 21%. Refer to "Use of Certain Non-GAAP Financial Measures."

Rate/ Volume Analysis

The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior average volume). The volume column shows the effects attributable to changes in volume (changes in average volume multiplied by prior rate). Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately. The Total Increase (Decrease) column represents the sum of the prior columns.

		For the Six Months Ended
		June 30, 2026 and 2025
		Increase (Decrease) Due to								Total Increase
		Volume				Rate				(Decrease)
		(In thousands)
Interest-earning assets:
Loans		$	4,884			$	(8,182	)		$	(3,298	)
Investment securities			(113	)			161				48
Interest-bearing deposits at other financial institutions			(5	)			(7	)			(12	)
Federal funds sold			(408	)			(259	)			(667	)
Total interest-earning assets			4,358				(8,287	)			(3,929	)
Interest-bearing liabilities:
Interest-bearing demand deposits			231				(531	)			(300	)
Savings and NOW deposits			376				(178	)			198
Money market deposit accounts			398				(1,903	)			(1,505	)
Time deposits			(728	)			(2,090	)			(2,818	)
Total interest-bearing deposits			277				(4,702	)			(4,425	)
Federal funds purchased			74				(30	)			44
Subordinated debt			(103	)			117				14
Total interest-bearing liabilities			248				(4,615	)			(4,367	)
Change in net interest income		$	4,110			$	(3,672	)		$	438

Provision for Credit Losses

Management believes that the allowance for credit losses recorded for the period ended June 30, 2026 reflects a balance sufficient to provide for each allowance segment, using objective data and information available to us at this time in evaluating our standard analysis of local/national economic data, changes in underwriting quality, portfolio concentrations, experience of lending team, credit quality and supportable forecasts. We will continuously review the credit portfolio to determine the depth and breadth of potential credit losses. As we obtain additional information and to more accurately assess the full nature and extent of any elevated risk to the credit portfolio that may arise, additional provision expenses may be required.

The provision for credit losses, which is an operating expense, is maintained to ensure that the allowance for credit losses is maintained at levels we consider necessary and appropriate to absorb expected credit losses as of the balance sheet date. In determining the level of the allowance for credit losses on loans and off-balance sheet credit exposure, we consider past and current loss experience, evaluations of real estate collateral, current and future economic conditions, volume and type of lending, adverse situations that may affect a borrower's ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available over time or economic conditions change. This evaluation is inherently subjective, as it requires estimates and assumptions that are susceptible to significant revision as circumstances change or as more information becomes available. The allowance for credit losses is assessed monthly and provisions are made for credit losses as required in order to maintain the overall allowance.

The provision for credit losses on loans was $0.2 million for the six months ended June 30, 2026 given loan growth during the period, compared to a recovery of credit losses on loans of $0.5 million for the six months ended June 30, 2025. Loan originations, which totaled approximately $96.8 million for the six months ended June 30, 2025 increased $62.4 million to $159.2 million for the six months ended June 30, 2026. During the six months ended June 30, 2026, there were $0.3 million charge-offs incurred and recoveries of $37,000 were received. During the six months ended June 30, 2025, there were $0.6 million charge-offs incurred and recoveries of $0.8 million were received.

The provision for credit losses on off-balance sheet credit exposure was $0.2 million for the six months ended June 30, 2026 compared to a recovery of credit losses of $15,000 for the six months ended June 30, 2025. The provision for credit losses on off-balance sheet credit exposure for the six months ended June 30, 2026 was primarily related to increases in unfunded commitment levels and fluctuations in utilization rates.

Non-Interest Income

Non-interest income decreased $0.7 million, or 35.1%, to $1.3 million for the six months ended June 30, 2026 from $2.0 million for the six months ended June 30, 2025. The decrease in non-interest income was primarily due to a $0.7 million loss on the sale of other real estate owned during the six months ended June 30, 2026. Additionally, the gain on retirement of subordinated debt of $128,000 and gain on equity securities of $103,000 that took place during the six months ended June 30, 2025 were not recurring in the six months ended June 30, 2026. These decreases are offset by an increase of $0.1 million in other non-interest income due to a prepayment fee recognized during the six months ended June 30, 2026. The Company continues to focus on increasing non-interest income as it continues to add services that strategically benefit our customers.

Non-Interest Expense

Non-interest expense decreased $3.9 million, or 13.3%, to $25.2 million for the six months ended June 30, 2026, from $29.1 million for the six months ended June 30, 2025 primarily because of continued expense management efforts across the Company. Salaries and employee benefits decreased $1.6 million to $15.1 million for the six months ended June 30, 2026, from $16.7 million for the six months ended June 30, 2025 due to a decrease in full time employees compared to last year. Outside services, which includes professional fees for attorneys, accountants, consultants, and cloud services, decreased $1.6 million to $0.9 million for the six months ended June 30, 2026, from $2.5 million for the six months ended June 30, 2025. Furniture and equipment expenses decreased approximately $0.6 million to $1.5 million for the six months ended June 30, 2026, from $2.2 million for the six months ended June 30, 2025. FDIC insurance expense decreased $0.3 million to $0.9 million for the six months ended June 30, 2026, from $1.2 million for the six months ended June 30, 2025, due to the stabilized level of deposits compared to the temporary surge experienced at the end of 2025. Advertising and marketing decreased approximately $0.3 million to $0.7 million for the six months ended June 30, 2026, from $1.0 million for the six months ended June 30, 2025. These decreases were offset by an increase in other real estate owned expenses of $0.2 million for the six months ended June 30, 2026, compared to none for the six months ended June 30, 2025. Other operating expenses increased $0.4 million to $3.0 million for the six months ended June 30, 2026, from $2.6 million primarily due to workout expenses as we work through a small number of problem credits.

Income Tax Expense

Income tax expense increased $0.9 million or 49.8%, to $2.6 million for the six months ended June 30, 2026 from $1.7 million for the six months ended June 30, 2025. The increase in federal income tax expense for the six months ended June 30, 2026 compared to the same period a year ago was driven by increased estimated tax rates and the increase in income before income taxes of $2.6 million, to $11.4 million for the six months ended June 30, 2026 compared to $8.8 million for the same period in the prior year. The Company accrues taxes based on an estimated tax rate basis using inputs and assumptions about pre-tax income. As the inputs and assumptions change, the estimated tax accruals will change throughout the year. The Company also invests in projects that have tax credit benefits in order to help reduce its overall tax liability, timing of these tax credits are layered into our overall assessment. At June 30, 2026, these tax credits exceed the total tax liability and therefore, are not fully utilized, which causes the effective income tax expense rate to increase. For the six months ended June 30, 2026, the Company had an effective income tax expense rate of 22.97%, compared to 19.87% for the six months ended June 30, 2025. The Company has included assessments in income tax expense for potential state tax liabilities which totaled $0.3 million for the six months ended June 30, 2026 and $0.2 million for the six months ended June 30, 2025.

Comparison of Statements of Financial Condition at June 30, 2026 and December 31, 2025

Total Assets

Total assets increased $30.4 million, or 1.4%, to $2.24 billion at June 30, 2026 from $2.21 billion at December 31, 2025. The increase was primarily the result of an increase in net loans of $86.5 million as of June 30, 2026, offset by a decrease in cash and cash equivalents of $53.5 million, a decrease of $1.3 million in other assets, a decrease of $0.9 million in investment securities discussed below, and a decrease in other real estate owned of $0.8 million.

Investment Securities

Investment securities decreased $0.9 million, or 1.2%, from $71.8 million at December 31, 2025 to $70.9 million at June 30, 2026. The decrease was primarily due to calls, maturities, and scheduled paydowns on available-for-sale securities. At June 30, 2026 and December 31, 2025, our held-to-maturity portion of the securities portfolio, at amortized cost, was $13.8 million. At June 30, 2026, the available-for-sale portion of the securities portfolio, at fair value, was $57.1 million compared to $58.0 million at December 31, 2025.

Net Loans

Net loans increased $86.5 million, or 4.7%, to $1.93 billion at June 30, 2026 from $1.84 billion at December 31, 2025. Residential real estate loans increased $23.8 million to $465.4 million at June 30, 2026 from $441.6 million at December 31, 2025. Commercial real estate loans increased by $56.1 million from $1.01 billion at December 31, 2025 to $1.07 billion at June 30, 2026. Commercial and industrial loans decreased by $5.6 million from $107.0 million at December 31, 2025 to $101.4 million at June 30, 2026. Construction and land development loans increased $12.2 million to $312.9 million at June 30, 2026 from $300.7 million at December 31, 2025. Consumer loans increased by $131,000 from $1.1 million at December 31, 2025 to $1.3 million at June 30, 2026.

A significant portion of the loan portfolio consists of commercial, construction, and commercial real estate loans, primarily made in the Washington, D.C. metropolitan area and secured by real estate or other collateral in that market. Although these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the Washington, D.C. metropolitan real estate market could have an adverse impact on this portfolio of loans and the Company's income and financial position. While our basic market area is the Washington, D.C. metropolitan area, the Bank has made loans outside that market area where the applicant is an existing customer, and the nature and quality of such loans was consistent with the Company's lending policies.

The federal banking Agencies issued guidance in 2006 which addresses institutions with increased concentrations of commercial real estate (CRE) loans. The guidance does not establish specific CRE lending limits; rather, it promotes sound risk management practices and appropriate levels of capital that will enable institutions to continue to pursue CRE lending in a safe and sound manner. In developing this guidance, the Agencies recognized that different types of CRE lending present different levels of risk, and that consideration should be given to the lower risk profiles and historically superior performance of certain types of CRE, such as well-structured multifamily housing finance, when compared to others, such as speculative office space construction. Institutions are encouraged to segment their CRE portfolios to acknowledge these distinctions for risk management purposes. The guidance focuses on those CRE loans for which the cash flow from the real estate is the primary source of repayment rather than loans to a borrower for which real estate collateral is taken as a secondary source of repayment or through an abundance of caution. Thus, for the purposes of the guidance, CRE loans include those loans with risk profiles sensitive to the condition of the general CRE market (for example, market demand, changes in capitalization rates, vacancy rates, or rents). CRE loans are land development and construction loans (including 1- to 4-family residential and commercial construction loans) and other land loans. CRE loans also include loans secured by multifamily property, and nonfarm nonresidential property where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Excluded from the scope of this Guidance are loans secured by nonfarm nonresidential properties where the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.

As part of their ongoing supervisory monitoring processes, the Agencies use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its CRE concentration risk:

1.

Total reported loans for construction, land development, and other land represent 100 percent or more of the institution's total risk-based capital; or

2.

Total commercial real estate loans as defined in this guidance represent 300 percent or more of the institution's total risk-based capital, and the outstanding balance of the institution's commercial real estate loan portfolio has increased by 50 percent or more during the prior 36 months.

The Agencies use the criteria as a preliminary step to identify institutions that may have CRE concentration risk. Because regulatory reports capture a broad range of CRE loans with varying risk characteristics, the supervisory monitoring criteria do not constitute limits on an institution's lending activity but rather serve as high-level indicators to identify institutions potentially exposed to CRE concentration risk.

The Company holds a concentration in commercial real estate loans. As of June 30, 2026, construction, land development and other land loans represented 103.5% of consolidated risk-based capital. Total commercial real estate loans as defined by the Agency guidance represented 379.3% of consolidated risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio by 47%. At June 30, 2026, CRE loans as defined by the Agency guidance represented 59% of total loans, an increase of $54.5 million from December 31, 2025.

The management team has extensive experience in underwriting commercial real estate loans and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. The Board of Directors has established internal maximum limits on CRE to better manage and control the exposure to property classes during periods of changing economic conditions. The Board of Directors also has minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.

Our risk management process begins with a robust underwriting program. The underwriting and risk rating of all loans is completed by an underwriting team that is independent of the originating lender(s). The underwriting analysis of commercial real estate loans includes pre-origination stress testing utilizing the portfolio stress testing methods to fully understand the potential exposure before we originate the credit. Once originated, management actively monitors concentration, and each loan receives ongoing quarterly stress tests to evaluate the risk profile over the life of the credit.

We stress test earning assets on a quarterly basis and measure the results against the Bank's risk-based capital. For commercial loans, residential real estate loans, owner-occupied commercial real estate loans and consumer installment loans, we multiply the total outstanding amount for each loan category by our highest quarter historical loss for that category as a surrogate in order to calculate a stressed loss.

For our non-owner occupied commercial real estate loans, we use three separate methodologies in our stress test. If a property fails more than one of the three tests, we extend the test with the highest exposure value and add an additional 10% for selling costs.

•

An immediate and sustained 3.0% increase in interest rates,

•

An immediate and sustained 5.0% increase in vacancy rates, and

•

An immediate and sustained 2.0% change in the capitalization rate, or "cap rate."

We stress test the construction lending portfolio by applying exponential discounting (using a "k factor" of 2) to each project based upon its percentage of completion. The project is stressed using the as-is and as-complete appraised values and assumes 10% selling costs.

For all other loans, we utilize the Bank's historic loss rates or if not available, the average loss rates of FFIEC Uniform Bank Performance Report Group 4 banks, for bank owned life insurance we utilize default rates from S&P Global ratings, and for securities we obtain an independent fair market value and if it is less than the book value, we subtract the fair market value from the book value to determine the stress loss. The following table shows the Company's earning assets and the results of the stress test performed for the periods indicated.

		June 30, 2026
		Outstanding Balance				Stress Test Results (1)				Stressed Loss Percent
		(Dollars in thousands)
Earning Asset Component
Construction & Land Development		$	312,885			$	(5,409	)			(1.73	)%
Non-Owner Occupied CRE (2)			834,137				(35,677	)			(4.28	)%
All Other Loans			804,955				(24,649	)			(3.06	)%
AFS Securities, at amortized cost			64,281				(5,519	)			(8.59	)%
HTM Securities			13,785				(72	)			(0.52	)%
Bank Owned Life Insurance			41,396				(9	)			(0.02	)%
Total		$	2,071,439			$	(71,335	)			(3.44	)%

(1) Net tax effective loss at the statutory rate of 21%

(2) Non-Owner Occupied CRE includes call codes 1E2 and 1D

		December 31, 2025
		Outstanding Balance				Stress Test Results (1)				Stressed Loss Percent
		(Dollars in thousands)
Earning Asset Component
Construction & Land Development		$	300,666			$	(5,294	)			(1.76	)%
Non-Owner Occupied CRE (2)			791,813				(29,160	)			(3.68	)%
All Other Loans			772,836				(22,702	)			(2.94	)%
AFS Securities, at amortized cost			65,445				(5,768	)			(8.81	)%
HTM Securities			13,798				(35	)			(0.25	)%
Bank Owned Life Insurance			40,752				(19	)			(0.05	)%
Total		$	1,985,310			$	(62,978	)			(3.17	)%

(1) Net tax effective loss at the statutory rate of 21%

(2) Non-Owner Occupied CRE includes call codes 1E2 and 1D

The total estimated stress test loss is deducted from capital and we recalculate the capital ratios. As shown in the tables below, as of June 30, 2026 and December 31, 2025, the post-stress capital ratios well exceed our Board target ratios as well as Agency minimums (with buffer). For Non-Owner Occupied CRE & Multifamily the stress test is bifurcated with a low-end loss estimate and high-end estimate. The Low Estimate produces loss amounts for loans that are flagged for default (per the model) and floors the loss amount at zero. The High Estimate executes similar to the low estimate but floors the Loss-Given-Default rate at 10%, per Basel Committee on Banking Supervision rules. It also has a collective loss held on all loans regardless of if the loan is flagged for default.

June 30, 2026 Bank Capital Adequacy Ratios Pre- and Post-Stress (Tax-Effected)
		Well Capitalized with Buffer				Bank Minimum Target				June 30, 2026				Post Stress, Low Estimate				Post Stress, High Estimate
Leverage Ratio			5.00	%			9.50	%			12.78	%			10.36	%			9.80	%
Total Risk-Based Capital			10.00	%			11.50	%			15.14	%			12.46	%			11.84	%
Tier 1 Risk-Based Capital			8.00	%			9.50	%			14.14	%			11.47	%			10.85	%
Common Equity Tier 1 Risk-Based Capital			6.50	%			8.00	%			14.14	%			11.19	%			10.57	%

December 31, 2025 Bank Capital Adequacy Ratios Pre- and Post-Stress (Tax-Effected)
		Well Capitalized with Buffer				Bank Minimum Target				December 31, 2025				Post Stress, Low Estimate				Post Stress, High Estimate
Leverage Ratio			5.00	%			9.50	%			13.28	%			11.11	%			10.63	%
Total Risk-Based Capital			10.00	%			11.50	%			16.08	%			13.62	%			13.08	%
Tier 1 Risk-Based Capital			8.00	%			9.50	%			15.05	%			12.59	%			12.05	%
Common Equity Tier 1 Risk-Based Capital			6.50	%			8.00	%			15.05	%			12.29	%			11.75	%

The following two tables break down the June 30, 2026 and December 31, 2025 non-owner occupied CRE portfolio balances by showing the current balance in each sub-category and location. The tables also display very favorable weighted average interest rates and weighted average loan-to-values for both periods. The weighted average occupancy percentages are also broadly favorable for both periods.

June 30, 2026
(Dollars in thousands)
Non-Owner Occupied CRE (2)		Location																				Weighted Average Rate				Weighted Average Loan-to-Value (1)				Weighted Average Occupancy %
		DC				MD				VA				Other				Total
Multifamily		$	231,461			$	1,233			$	9,199			$	-			$	241,893				5.85	%			72	%			62	%
Office
Mixed use			583				2,590				2,637				-				5,810				6.47	%			47	%			92	%
Medical			-				21,886				18,924				322				41,132				5.84	%			53	%			79	%
Office			-				1,875				2,916				-				4,791				6.38	%			49	%			82	%
Office to Residential Conversion			-				-				32,136				-				32,136				9.50	%			39	%			-- (4	)
Hospitality			60,059				77,301				82,964				-				220,324				5.78	%			62	%			-- (3	)
Retail/Commercial			75,261				44,004				80,622				16,041				215,928				6.30	%			62	%			72	%
Industrial			36,457				27,198				3,757				4,711				72,123				6.42	%			53	%			90	%
Total Non-Owner Occupied CRE (5)			403,821				176,087				233,155				21,074				834,137				6.13	%			63	%			70	%
Construction and Land Development
Multifamily			91,996				-				-				-				91,996				6.99	%			63	%			N/A
1-4 family			61,836				2,922				74,984				-				139,742				7.41	%			64	%			N/A
Retail/Commercial			13,721				-				-				-				13,721				6.76	%			46	%			N/A
Industrial			-				-				5,634				-				5,634				6.88	%			71	%			N/A
Mixed use			901				-				-				-				901				13.00	%			54	%			N/A
Other			903				18,495				31,906				9,587				60,891				7.14	%			50	%			N/A
Total Construction and Land Development			169,357				21,417				112,524				9,587				312,885				7.21	%			61	%			N/A
Total Construction, Land Development, and Non-Owner Occupied CRE		$	573,178			$	197,504			$	345,679			$	30,661			$	1,147,022				6.47	%			62	%			N/A

(1) Loan-to-value is based on maximum potential outstanding at time of origination

(2) Non-Owner Occupied CRE includes call codes 1E2 and 1D

(3) Hospitality relies upon individual STR data

(4) The underlying properties for office to residential conversion loans generally are not occupied during the conversion period

(5) The total weighted average occupancy percentage excludes Office to Residential Conversion and Hospitality loans.

December 31, 2025
(Dollars in thousands)
Non-Owner Occupied CRE (2)		Location																				Weighted Average Rate				Weighted Average Loan-to-Value (1)				Weighted Average Occupancy %
		DC				MD				VA				Other				Total
Multifamily		$	217,556			$	2,996			$	4,868			$	-			$	225,420				5.89	%			70	%			67	%
Office:
Mixed use			590				2,620				2,715				-				5,925				6.47	%			48	%			91	%
Medical			-				22,150				19,277				359				41,786				5.84	%			62	%			81	%
Office			-				1,887				3,008				-				4,895				6.61	%			49	%			91	%
Office to Residential Conversion			-				-				32,136				-				32,136				9.50	%			39	%			-- (4	)
Hospitality			60,059				74,143				83,893				-				218,095				5.66	%			62	%			-- (3	)
Retail/Commercial			63,584				39,160				77,507				24,021				204,272				6.21	%			60	%			76	%
Industrial			36,805				15,257				2,425				4,797				59,284				6.27	%			56	%			90	%
Total Non-Owner Occupied CRE (5)			378,594				158,213				225,829				29,177				791,813				6.12	%			62	%			71	%
Construction and Land Development
Multifamily			79,008				-				-				-				79,008				6.86	%			62	%			N/A
1-4 family			65,320				2,733				65,942				-				133,995				7.68	%			68	%			N/A
Retail/Commercial			19,944				-				-				-				19,944				6.75	%			55	%			N/A
Industrial			-				-				4,632				-				4,632				6.88	%			66	%			N/A
Mixed use			4,962				-				-				-				4,962				8.40	%			29	%			N/A
Other			565				18,527				28,903				10,130				58,125				7.78	%			52	%			N/A
Total Construction and Land Development			169,799				21,260				99,477				10,130				300,666				7.46	%			62	%			N/A
Total Construction, Land Development, and Non-Owner Occupied CRE		$	548,393			$	179,473			$	325,306			$	39,307			$	1,092,479				6.52	%			62	%			N/A

(1) Loan-to-value is based on maximum potential outstanding at time of origination

(2) Non-Owner Occupied CRE includes call codes 1E2 and 1D

(3) Hospitality relies upon individual STR data

(4) The underlying properties for office to residential conversion loans generally are not occupied during the conversion period

(5) The total weighted average occupancy percentage excludes Office to Residential Conversion and Hospitality loans.

The Company also underwrites and originates owner-occupied commercial real estate loans. These loans are typically term loans made to support properties that rely upon the operations of the business occupying the property for repayment. The Agencies specifically excluded owner-occupied commercial real estate from their concentration guidance, as the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.

The following two tables depict a well-diversified portfolio of owner-occupied commercial real estate as of June 30, 2026 and December 31, 2025. The properties are distributed nicely among the Company's footprint. This loan segment continues to perform very well and is supported by strong loan-to-values (LTVs). The following table sets forth our owner-occupied CRE portfolio by the business industry groups that occupy the properties for the periods indicated.

June 30, 2026
(Dollars in thousands)
Owner Occupied CRE		Location																				Weighted Average Rate				Weighted Average Loan-to-Value (1)
		DC				MD				VA				Other				Total
Accommodation and food services		$	22,638			$	2,788			$	11,473			$	5,295			$	42,194				5.75	%			62	%
Administrative and support			-				4,500				4,745				-				9,245				6.41	%			64	%
Arts and recreation			-				-				36,075				-				36,075				5.82	%			57	%
Construction services			27,555				9,734				15,225				4,768				57,282				6.03	%			71	%
Education services			25,720				887				4,830				-				31,437				6.10	%			48	%
Health care			4,516				16,940				13,920				4,114				39,490				6.68	%			56	%
Information			-				-				4,364				-				4,364				4.43	%			43	%
Manufacturing			-				-				4,516				-				4,516				4.16	%			46	%
Other services			12,012				17,176				77,033				907				107,128				6.49	%			62	%
Professional, scientific, tech services			2,780				-				5,065				-				7,845				5.33	%			58	%
Real estate and rental leasing			5,925				21,713				9,112				-				36,750				6.40	%			65	%
Retail trade			3,108				37,894				33,478				237				74,717				6.53	%			65	%
Transportation and warehousing			2,796				-				17,100				-				19,896				7.37	%			75	%
Wholesale trade			-				132				868				6,825				7,825				6.01	%			67	%
Total Owner Occupied CRE		$	107,050			$	111,764			$	237,804			$	22,146			$	478,764				6.28	%			62	%

(1) Loan-to-value is based on maximum potential outstanding at time of origination.

December 31, 2025
(Dollars in thousands)
Owner Occupied CRE		Location																				Weighted Average Rate				Weighted Average Loan-to-Value (1)
		DC				MD				VA				Other				Total
Accommodation and food services		$	22,593			$	2,834			$	11,167			$	5,362			$	41,956				5.65	%			73	%
Administrative and support			-				4,500				2,105				-				6,605				6.25	%			59	%
Arts and recreation			-				-				36,572				-				36,572				5.91	%			57	%
Construction services			27,876				10,018				15,691				-				53,585				5.98	%			75	%
Education services			26,336				894				4,875				-				32,105				6.10	%			49	%
Health care			4,577				17,050				14,819				4,131				40,577				6.80	%			57	%
Information			-				-				4,430				-				4,430				4.43	%			43	%
Manufacturing			-				-				4,665				-				4,665				4.20	%			46	%
Other services			9,593				17,808				75,492				915				103,808				6.31	%			61	%
Professional, scientific, tech services			2,816				-				5,200				-				8,016				5.13	%			59	%
Real estate and rental leasing			4,221				25,295				4,788				-				34,304				6.25	%			61	%
Retail trade			3,155				35,695				34,899				239				73,988				6.54	%			66	%
Wholesale trade			-				151				883				6,894				7,928				6.07	%			68	%
Total Owner Occupied CRE		$	101,167			$	114,245			$	215,586			$	17,541			$	448,539				6.18	%			63	%

(1) Loan-to-value is based on maximum potential outstanding at time of origination.

Allowance for Credit Losses - Loans

The allowance for credit losses on loans represents an amount that, in our judgment, will be adequate to absorb current and expected losses in the loan portfolio. The provision for credit losses on loans increases the allowance, and loans charged off, net of recoveries, reduce the allowance. The table below summarizes the allowance activity for the periods indicated:

		For the Six Months Ended June 30,				For the Year Ended December 31,
		2026				2025
		(Dollars in thousands)
Balance at beginning of year		$	19,308			$	19,450
Charge-offs:
Residential Real Estate			(282	)			(200	)
Construction & Land Development			-				(35	)
Commercial & Industrial			-				(623	)
Total charge-offs			(282	)			(858	)
Recoveries:
Residential Real Estate			32				7
Commercial Real Estate			-				740
Commercial & Industrial			5				86
Consumer			-				1
Total recoveries			37				834
Net charge-offs			(245	)			(24	)
Provision for credit losses - loans			243				(118	)
Balance at end of period		$	19,306			$	19,308
Ratios:
Net charge-offs to average loans outstanding (1)			0.03	%			0.00	%
Allowance for credit losses on loans to non-performing loans			31.50	%			61.33	%
Allowance for credit losses on loans to gross loans at end of period			0.99	%			1.04	%

(1) Annualized.

The allowance for credit losses on loans to gross loans at June 30, 2026 decreased from December 31, 2025. This is primarily due to overall loan growth and growth in segments that have lower inherent risk.

Non-performing Assets

The following table presents information regarding non-performing assets at the dates indicated:

		June 30,				December 31,
		2026				2025
		(Dollars in thousands)
Non-accrual loans:
Residential Real Estate:
Single Family		$	7,907			$	5,316
Multifamily			7,072				-
Construction & Land Development			26,291				25,467
Commercial Real Estate:
Owner Occupied			4,735				-
Non-Owner Occupied			14,923				314
Commercial & Industrial			345				385
Consumer - Secured			16				-
Total non-accrual loans			61,289				31,482
Other real estate owned			900				1,697
Total non-performing assets		$	62,189			$	33,179
Ratios:
Total non-performing loans to gross loans receivable			3.14	%			1.69	%
Total non-performing loans to total assets			2.73	%			1.42	%
Total non-performing assets to total assets			2.77	%			1.50	%

Past due loans excluding non-performing loans, were $15.5 million as of June 30, 2026 compared to $33.3 million as of December 31, 2025. As of June 30, 2026, criticized loans increased $5.1 million and classified loans increased $31.5 million when compared to December 31, 2025, to a balance of $115.6 million and $115.7 million, respectively. The majority of classified loans is made up of seven relationships that experienced increases in operating costs, vacancies, and liquidity tightening as a result of the prolonged impacts of the federal government shut down, Washington D.C. government policies, and sustained elevated interest rates. Non-performing loans were $61.3 million at June 30, 2026, an increase of $29.8 million compared to $31.5 million at December 31, 2025. Approximately 40% of this balance is attributable to two relationships and the remaining 60% is confined to eleven relationships that experienced liquidity constraints. Additionally, as interest rates rose significantly starting March 2022 and largely sustained despite recent rate cuts, management believes in taking a proactive approach to risk management in the loan portfolio, particularly as credits are due to reprice in a new rate environment. The Company routinely charges off potential exposure as identified and analyzed, and executes the best course of action expected to minimize any further loss exposure. All classified loans and non-performing loans are considered individually evaluated and have strong collateral positions, with good loan-to-value (LTVs) ratios. While non-performing loans increased during the quarter, the levels remain manageable and management is diligently working towards positive resolutions.

Deposits

Deposits increased $35.1 million, or 1.8% to $1.93 billion at June 30, 2026 from $1.90 billion at December 31, 2025. Our core deposits decreased $8.8 million, or 0.6%, to $1.39 billion at June 30, 2026 from $1.40 billion at December 31, 2025. Non-interest bearing demand deposits decreased $14.8 million, or 3.9%, to $363.9 million at June 30, 2026 from $378.7 million at December 31, 2025. Interest-bearing demand deposits decreased $5.3 million, or 4.4%, to $114.1 million at June 30, 2026 from $119.4 million at December 31, 2025. Time deposits decreased $10.9 million, or 1.4%, to $768.9 million at June 30, 2026 from $779.8 million at December 31, 2025. Money market deposits increased $43.4 million, or 8.7%, to $542.7 million at June 30, 2026 from $499.3 million at December 31, 2025. Savings and NOW deposits increased $22.9 million or 18.8% from $121.9 million at December 31, 2025 to $144.8 million at June 30, 2026.

The following table presents the Company's deposits segregated by major category as of June 30, 2026 and December 31, 2025:

		June 30, 2026								December 31, 2025
(Dollars in thousands)
Deposit type:			Balance				Percent %				Balance				Percent %
Interest-bearing demand deposits		$	114,087				5.9	%		$	119,407				6.3	%
Savings and NOW deposits			144,783				7.5	%			121,905				6.4	%
Money market deposits			542,687				28.1	%			499,334				26.3	%
Time deposits			768,865				39.7	%			779,844				41.1	%
Interest-bearing deposits			1,570,422				81.2	%			1,520,490				80.1	%
Non-interest bearing demand deposits			363,883				18.8	%			378,694				19.9	%
Total deposits		$	1,934,305				100.0	%		$	1,899,184				100.0	%

The Company uses wholesale deposits as a funding source in addition to customer deposits. Wholesale deposits provide a diversified and stable source of funding during times of market volatility. As of June 30, 2026, the Company had $542.5 million of total wholesale deposit balances, an increase of $44.0 million compared to December 31, 2025, which totaled $498.5 million.

The Company utilizes additional wholesale demand deposits to provide liquidity and more effectively balance our interest rate sensitivity. During the six months ended June 30, 2026 and 2025, total wholesale deposit funding accounted for approximately 36.3% of our interest expense.

The following table presents the Company's total wholesale deposit composition, concentrations, current rate and remaining duration, if applicable as of June 30, 2026.

		June 30, 2026																December 31, 2025
(Dollars in thousands)
Wholesale Money Market Deposits Accounts (MMDA)			Balance				Percent %				Weighted Average Rate				Weighted Remaining Maturity (in months)				Balance				Percent %				Weighted Average Rate				Weighted Remaining Maturity (in months)
Wholesale MMDAs		$	200,643				37.0	%			3.90	%			N/A			$	170,575				34.2	%			3.80	%			N/A
Wholesale Time Deposits
Listing Service CDs (1)			7,869				1.4	%			4.80	%			2				18,534				3.7	%			4.81	%			5
Wholesale CDs:
Term			304,982				56.2	%			3.89	%			8				283,397				56.9	%			4.16	%			7
Term with Call Option			28,977				5.4	%			3.83	%			27				26,000				5.2	%			3.83	%			33
Total Wholesale CDs			333,959																309,397
Total Wholesale Deposits		$	542,471				100.0	%										$	498,506				100	%

(1) Listing service CDs are excluded from being classified as wholesale deposits, per FDIC call report instructions

Regulatory Defined Wholesale Deposits

Each quarter the Bank files a bank call report with the FDIC, which has a specific way it defines wholesale brokered deposits. As of June 30, 2026, the Company had $534.6 million of wholesale deposits outstanding, as defined by FDIC, an increase of $54.6 million from $480.0 million at December 31, 2025. In addition, up until July 11, 2026, pursuant to rule 12 CFR 337.6(e), well-capitalized and well-rated institutions were not required to treat reciprocal deposits as wholesale deposits up to the lesser of 20 percent of their total liabilities or $5 billion. Reciprocal core deposits exceeding this threshold were reported additionally as wholesale deposits for call report purposes only. As of June 30, 2026, the Company additionally reported $112.1 million in reciprocal deposits considered wholesale for call report purposes only, bringing regulatory defined wholesale deposits to $646.7 million as of June 30, 2026. As of December 31, 2025, the Company additionally reported $145.2 million in reciprocal deposits considered wholesale for call report purposes only, bringing regulatory defined wholesale deposits to $625.2 million as of December 31, 2025. As of June 30, 2026 and December 31, 2025, all of the Company's reciprocal deposits were core deposits from customers who placed their deposits in the reciprocal network for additional FDIC insurance coverage. On July 11, 2026, the 21st Century ROAD to Housing Act (H.R. 6644) became law. This act changed the threshold from 20 percent of total liabilities to 50 percent of the first $1 billion of total liabilities, 40 percent of the next $1 billion to $10 billion of total liabilities, and 30 percent of total liabilities in excess of $10 billion.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Deposits are the primary source of funds for lending and investing activities. The Company uses wholesale deposits in addition to customer deposits, as funding sources. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities also provide a stable source of funds. FHLB secured advances, other secured borrowings, federal funds purchased, and other short-term unsecured borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. Additional liquidity can be obtained through the Federal Reserve Bank discount window. The Company's funding activities are monitored and governed through the Company's asset/liability management process. MainStreet Bank had no federal funds purchased outstanding and had an additional secured borrowing capacity of $666.0 million as of June 30, 2026. Additionally, at June 30, 2026, we had the ability to borrow up to $144.0 million from other financial institutions.

The Board of Directors, management, and the Asset Liability Committee (ALCO) are responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of June 30, 2026.

We monitor and adjust our investments in liquid assets based upon our assessment of expected loan demand; expected deposit flows; yields available on interest-earning deposits and securities; and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short-and intermediate-term securities.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold, interest-earning deposits in other banks, and other cash due from banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At June 30, 2026, cash and cash equivalents totaled $109.3 million. Finally, securities classified as available-for-sale, which provide additional sources of liquidity, totaled $57.1 million at June 30, 2026.

Our cash flows are provided by and used in three primary activities: operating activities, investing activities, and financing activities. Net cash provided by operating activities was $11.5 million and $2.6 million for the six months ended June 30, 2026 and June 30, 2025, respectively. There were no sales of securities in the six months ended June 30, 2026 or for six months ended June 30, 2025. Net cash used in investing activities was $85.8 million and net cash provided by investing activities was $37.1 million for the six months ended June 30, 2026 and June 30, 2025, respectively. Net cash provided by financing activities was $20.7 million and used in financing activities was $114.2 million for the six months ended June 30, 2026 and 2025, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of June 30, 2026, totaled $669.3 million of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits, Federal Home Loan Bank advances and commitments from other financial institutions. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on experience that a significant portion of such deposits will remain with us. We can attract and retain deposits by adjusting the interest rates offered.

Regulatory Capital

Under the Basel III Capital Rules and the related framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors.

Under the Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is 2.50%. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total capital, Common Equity Tier 1 capital, and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). As of June 30, 2026, the Bank met all capital adequacy requirements to which it is subject.

The Bank's actual capital amounts and ratios are presented in the table:

		Actual								Capital Adequacy Purposes								To Be Well Capitalized Under the Prompt Corrective Action Provision
(Dollars in thousands)		Amount				Ratio				Amount				Ratio				Amount				Ratio
As of June 30, 2026
Total capital (to risk-weighted assets)		$	302,376				15.14	%		$	159,791				≥ 8.0%			$	199,739				≥ 10.0%
Common equity tier 1 capital (to risk-weighted assets)		$	282,524				14.14	%		$	89,882				≥ 4.5%			$	129,830				≥ 6.5%
Tier 1 capital (to risk-weighted assets)		$	282,524				14.14	%		$	119,843				≥ 6.0%			$	159,791				≥ 8.0%
Tier 1 capital (to average assets)		$	282,524				12.78	%		$	88,407				≥ 4.0%			$	110,509				≥ 5.0%
As of December 31, 2025
Total capital (to risk-weighted assets)		$	306,631				16.08	%		$	152,541				≥ 8.0%			$	190,677				≥ 10.0%
Common equity tier 1 capital (to risk-weighted assets)		$	286,987				15.05	%		$	85,805				≥ 4.5%			$	123,940				≥ 6.5%
Tier 1 capital (to risk-weighted assets)		$	286,987				15.05	%		$	114,406				≥ 6.0%			$	152,541				≥ 8.0%
Tier 1 capital (to average assets)		$	286,987				13.28	%		$	86,467				≥ 4.0%			$	108,083				≥ 5.0%

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At June 30, 2026, we had outstanding loan commitments of $256.2 million and $271,000 in outstanding stand-by letters of credit. We anticipate that we will have sufficient funds available to meet our current lending commitments.

Use of Certain Non-GAAP Financial Measures

The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company's performance. These measures include adjusted net interest income and net interest margin.

Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods and other financial institutions. The non-GAAP measures used by management enhance comparability by excluding the effects of items that do not reflect ongoing operating performance, including nonrecurring gains or charges. These non-GAAP financial measures should not be considered an alternative to, or more important than, U.S. GAAP-basis financial measures, and other bank holding companies may define or calculate these or similar measures differently. A reconciliation of the non-GAAP financial measures used by the Company to evaluate and measure the Company's performance to the most directly comparable U.S. GAAP financial measures is presented below.

		For the three months ended June 30,								For the six months ended June 30,
(Dollars in thousands)		2026				2025				2026				2025
Net interest margin, fully-taxable equivalent (FTE)
Net interest income (GAAP)		$	18,232			$	18,790			$	35,726			$	35,300
FTE adjustment on tax-exempt securities			77				71				153				141
Net interest income (FTE) (non-GAAP)		$	18,309			$	18,861			$	35,879			$	35,441
Average interest-earning assets			2,080,335				2,015,991				2,066,103				2,032,686
Net interest margin (GAAP)			3.52	%			3.74	%			3.49	%			3.50	%
Net interest margin (FTE) (non-GAAP)			3.53	%			3.75	%			3.50	%			3.52	%
		For the three months ended June 30,								For the six months ended June 30,
		2026				2025				2026				2025
Yield on earning assets (FTE)
Total interest income (GAAP)		$	32,090			$	34,286			$	63,308			$	67,249
FTE adjustment on tax-exempt securities			77				71				153				141
Total interest income (FTE) (non-GAAP)		$	32,167			$	34,357			$	63,461			$	67,390
Average interest-earning assets			2,080,335				2,015,991				2,066,103				2,032,686
Yield on earning assets (GAAP)			6.19	%			6.82	%			6.18	%			6.67	%
Yield on earning assets (FTE) (non-GAAP)			6.20	%			6.84	%			6.19	%			6.69	%
		For the three months ended June 30,								For the six months ended June 30,
		2026				2025				2026				2025
Net interest spread (FTE)
Yield on earning assets (GAAP)			6.19	%			6.82	%			6.18	%			6.67	%
Yield on earning assets (FTE) (non-GAAP)			6.20	%			6.84	%			6.19	%			6.69	%
Yield on interest-bearing liabilities (GAAP)			3.44	%			3.97	%			3.47	%			4.08	%
Net interest spread (GAAP)			2.75	%			2.85	%			2.71	%			2.59	%
Net interest spread (FTE) (non-GAAP)			2.76	%			2.87	%			2.72	%			2.61	%