First Western Financial Inc (MYFW)

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

The following discussion and analysis is intended to assist readers in understanding our financial condition and results of operations for the three months ended March 31, 2026 and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Quarterly Report on Form 10-Q (this "Form 10-Q") and in our Annual Report on Form 10-K filed with the SEC on February 27, 2026. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to "we," "our," "us," "the Company," and "First Western" refer to First Western Financial, Inc. and its consolidated subsidiaries, including First Western Trust Bank, which we sometimes refer to as "the Bank" or "our Bank."

The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs, and expected performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. See "Cautionary Note Regarding Forward-Looking Statements." Also, see the risk factors and other cautionary statements described under the heading "Item 1A - Risk Factors" included in our Annual Report Form 10-K filed with the SEC on February 27, 2026 and in Part II–Item 1A of this Form 10-Q. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Company Overview

We are a financial holding company founded in 2002 and headquartered in Denver, Colorado. We provide a fully integrated suite of wealth management services to our clients including banking, trust, and investment management products and services. Our mission is to be the best private bank for the Western wealth management client. We target entrepreneurs, professionals, and high-net worth individuals, typically with $1.0 million-plus in liquid net worth, and their related philanthropic and business organizations, which we refer to as the "Western wealth management client". We believe that the Western wealth management client shares our entrepreneurial spirit and values our sophisticated, high-touch wealth management services that are tailored to meet their specific needs. We partner with our clients to solve their unique financial needs through our expert integrated services provided in a team approach.

We offer our services through a branded network of boutique private trust bank offices, which we believe are strategically located in affluent and high-growth markets in locations across Colorado, Arizona, Wyoming, Montana, and California. Our profit centers, which are comprised of private bankers, lenders, wealth planners, and portfolio managers, under the leadership of a president, are also supported centrally by teams providing management services such as operations, risk management, credit administration, marketing, technology support, human capital, and accounting/finance services, which we refer to as support centers.

From 2004, when we opened our first profit center, until March 31, 2026, we have expanded our footprint into fourteen full service profit centers, four loan production offices, and one trust office located across five states. As of and for the three months ended March 31, 2026, we had $3.24 billion in total assets, $28.3 million in Total income before non-interest expense, and provided fiduciary and advisory services on $7.24 billion of AUM.

Primary Factors Used to Evaluate the Results of Operations

As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the comparative levels and trends of the line items in our Condensed Consolidated Balance Sheets and Statements of Income as well as various financial ratios that are commonly used in our industry. The primary factors we use to evaluate our results of operations include net interest income, non-interest income, and non-interest expense.

Net Interest Income

Net interest income represents interest income less interest expense. We generate interest income on interest-earning assets, primarily loans and investment securities. We incur interest expense on interest-bearing liabilities, primarily interest-bearing deposits and borrowings. To evaluate Net interest income, we measure and monitor: (i) yields on loans, investment securities, and other interest-earning assets; (ii) the costs of deposits and other funding sources; (iii) the rates incurred on borrowings and other interest-bearing liabilities; and (iv) the regulatory risk weighting associated with the assets. Interest income is primarily impacted by loan growth and loan repayments, along with changes in interest rates on the loans. Interest expense is primarily impacted by changes in deposit balances, changes in interest rates on deposits, and the volume and type of interest-bearing liabilities. Net interest income is primarily impacted by changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities.

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Non-Interest Income

Non-interest income primarily consists of the following:

•Trust and investment management fees—fees and other sources of income charged to clients for managing their trust and investment assets, providing financial planning consulting services, 401(k) and retirement advisory consulting services, and other wealth management services. Trust and investment management fees are primarily impacted by rates charged and increases and decreases in AUM. AUM is primarily impacted by opening and closing of client advisory and trust accounts, contributions and withdrawals, and the fluctuations in market value.

•Net gain on mortgage loans—gain on originating and selling mortgages and origination fees, less commissions to loan originators, document review, and other costs specific to originating and selling the loan. The market adjustments for interest rate lock commitments (IRLC), mortgage derivatives, and gains and losses incurred on the mandatory trading of loans are also included in this line item. Net gain on mortgage loans is primarily impacted by the amount of loans sold, the type of loans sold, and market conditions.

•Net gain on loans accounted for under the fair value option—unrealized gains or losses on the fair value adjustments to held for investment loans on which the Bank has elected the fair value option of accounting. This also includes realized gains or losses on charge-offs and recoveries.

•Bank fees—income generated through bank-related service charges such as: electronic transfer fees, treasury management fees, bill pay fees, loan prepayment penalty fees, loan interest rate swap fees, and other banking fees. Bank fees are primarily impacted by the level of business activities and cash movement activities of our clients.

•Risk management and insurance fees—commissions earned on insurance policies we have placed for clients through our client risk management team who incorporate insurance services, primarily life insurance, to support our clients’ wealth planning needs. Our insurance revenues are primarily impacted by the type and volume of policies placed for our clients.

•Income on company-owned life insurance—income earned on the growth of the cash surrender value of life insurance policies we hold on certain key associates. The income on the increase in the cash surrender value is non-taxable income.

Non-Interest Expense

Non-interest expense is comprised primarily of the following:

•Salaries and employee benefits—all forms of compensation-related expenses including salary, incentive compensation, payroll-related taxes, stock-based compensation, benefit plans, health insurance, 401(k) plan match costs, and other benefit-related expenses. Salaries and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs.

•Occupancy and equipment—costs related to building and land maintenance, leasing our office space, depreciation charges for the buildings, building improvements, furniture, fixtures and equipment, amortization of leasehold improvements, utilities, and other occupancy-related expenses. Occupancy and equipment costs are primarily impacted by the number of locations we occupy.

•Professional services—costs related to legal, accounting, tax, consulting, personnel recruiting, insurance, and other outsourcing arrangements. Professional services costs are primarily impacted by corporate activities requiring specialized services. FDIC insurance expense is also included in this line and represents the assessments we pay to the FDIC for deposit insurance.

•Technology and information systems—costs related to software and information technology services to support office activities and internal networks. Technology and information system costs are primarily impacted by the number of locations we occupy, the number of associates we have, and the level of service we require from our third-party technology vendors.

•Data processing—costs related to processing fees paid to our third-party data processing system providers relating to our core private trust banking platform. Data processing costs are primarily impacted by the number of loan, deposit, and trust accounts we have and the level of transactions processed for our clients.

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•Marketing—costs related to promoting our business through advertising, promotions, charitable events, sponsorships, donations, and other marketing-related expenses. Marketing costs are primarily impacted by the levels of advertising programs and other marketing activities and events held throughout the year.

•Amortization of other intangible assets—primarily represents the amortization of intangible assets including client lists, core deposit intangibles, and other similar items recognized in connection with acquisitions.

•Other—includes costs related to operational expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, costs to maintain or prepare OREO for sale, changes in OREO valuations subsequent to the initial acquisition when updated fair values are lower than the cost basis, director compensation and travel, and other general corporate expenses that do not fit within one of the specific non-interest expense lines described above. Other operational expenses are generally impacted by our business activities and needs.

Operating Segments

The Company’s reportable segments consist of Wealth Management and Mortgage. We measure the overall profitability of operating segments based on Income before income tax. We believe this is a more useful measurement as our wealth management products and services are fully integrated with our private trust bank. We allocate costs to our segments, which consist primarily of compensation and overhead expense directly attributable to the products and services within the Wealth Management and Mortgage segments. We measure the profitability of each segment based on a post-allocation basis, as we believe it better approximates the operating cash flows generated by our reportable operating segments. A description of each segment is provided in Note 14 – Segment Reporting of the accompanying Notes to the Condensed Consolidated Financial Statements.

Primary Factors Used to Evaluate our Balance Sheet

The primary factors we use to evaluate our balance sheet include asset and liability levels, asset quality, capital, liquidity, and potential profit production from assets.

We manage our asset levels to ensure our lending initiatives are efficiently and profitably supported and to ensure we have the necessary liquidity and capital to meet the required regulatory

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See "Cautionary Statement Regarding Forward-Looking Statements." Also, see the risk factors and other cautionary statements described under the heading "Item 1A – Risk Factors" included in Item 1A of this Annual Report on Form 10-K. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Company Overview

We are a financial holding company founded in 2002 and headquartered in Denver, Colorado. We provide a fully integrated suite of wealth management services to our clients including banking, trust, and investment management products and services. Our mission is to be the best private bank for the Western wealth management client. We target entrepreneurs, professionals, and high-net worth individuals, typically with $1.0 million-plus in liquid net worth, and their related philanthropic and business organizations, which we refer to as the "Western wealth management client." We believe that the Western wealth management client shares our entrepreneurial spirit and values our sophisticated, high-touch wealth management services that are tailored to meet their specific needs. We partner with our clients to solve their unique financial needs through our expert integrated services provided in a team approach.

We offer our services through a branded network of boutique private trust bank offices, which we believe are strategically located in affluent and high-growth markets in locations across Colorado, Arizona, Wyoming, Montana, and California. Our profit centers, which are comprised of private bankers, lenders, wealth planners, and portfolio managers, under the leadership of a local chairman and/or president, are also supported centrally by teams providing management services such as operations, risk management, credit administration, marketing, technology support, human capital, and accounting/finance services, which we refer to as support centers.

From 2004, when we opened our first profit center, until December 31, 2025, we have expanded our footprint into fourteen full service profit centers, four loan production offices, and one trust office located across five states. As of and for the year ended December 31, 2025, we had $3.15 billion in total assets, $96.9 million in total revenues, and provided fiduciary and advisory services on $7.28 billion of assets under management (AUM).

Primary Factors Used to Evaluate the Results of Operations

As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the comparative levels and trends of the line items in our Consolidated Balance Sheets and Statements of Income as well as various financial ratios that are commonly used in our industry. The primary factors we use to evaluate our results of operations include net interest income, non-interest income, and non-interest expense.

Net Interest Income

Net interest income represents interest income less interest expense. We generate interest income on interest-earning assets, primarily loans and investment securities. We incur interest expense on interest-bearing liabilities, primarily interest-bearing deposits and borrowings. To evaluate Net interest income, we measure and monitor: (i) yields on loans, investment securities, and other interest-earning assets; (ii) the costs of deposits and other funding sources; (iii) the rates incurred on borrowings and other interest-bearing liabilities; and (iv) the regulatory risk weighting associated with the assets. Interest income is primarily impacted by loan growth and loan repayments, along with changes in interest rates on the loans. Interest expense is primarily impacted by changes in deposit balances, changes in interest rates on deposits, and the volume and type of interest-bearing liabilities. Net interest income is primarily impacted by changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities.

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Non-Interest Income

Non-interest income primarily consists of the following:

•Trust and investment management fees—fees and other sources of income charged to clients for managing their trust and investment assets, providing financial planning consulting services, 401(k) and retirement advisory consulting services, and other wealth management services. Trust and investment management fees are primarily impacted by rates charged and increases and decreases in AUM. AUM is primarily impacted by opening and closing of client advisory and trust accounts, contributions and withdrawals, and the fluctuation in market values.

•Net gain on mortgage loans—gain on originating and selling mortgages and origination fees, less commissions to loan originators, document review, and other costs specific to originating and selling the loan. The market adjustments for interest rate lock commitments (IRLC), mortgage derivatives, and gains and losses incurred on the mandatory trading of loans are also included in this line item. Net gain on mortgage loans is primarily impacted by the amount of loans sold, the type of loans sold, and market conditions.

•Net gain on loans accounted for under the fair value option—unrealized gains or losses on the fair value adjustments to held for investment loans on which the Bank has elected the fair value option of accounting. This also includes realized gains or losses on charge-offs and recoveries.

•Bank fees—income generated through bank-related service charges such as: electronic transfer fees, treasury management fees, bill pay fees, loan prepayment penalty fees, loan interest rate swap fees, and other banking fees. Banking fees are primarily impacted by the level of business activities and cash movement activities of our clients.

•Risk management and insurance fees—commissions earned on insurance policies we have placed for clients through our client risk management team who incorporate insurance services, primarily life insurance, to support our clients’ wealth planning needs. Our insurance revenues are primarily impacted by the type and volume of policies placed for our clients.

•Income on company-owned life insurance—income earned on the growth of the cash surrender value of life insurance policies we hold on certain key associates. The income on the increase in the cash surrender value is non-taxable income.

Non-Interest Expense

Non-interest expense is comprised primarily of the following:

•Salaries and employee benefits—all forms of compensation-related expenses including salary, incentive compensation, payroll-related taxes, stock-based compensation, benefit plans, health insurance, 401(k) plan match costs, and other benefit-related expenses. Salaries and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs.

•Occupancy and equipment—costs related to building and land maintenance, leasing our office space, depreciation charges for the buildings, building improvements, furniture, fixtures and equipment, amortization of leasehold improvements, utilities, and other occupancy-related expenses. Occupancy and equipment costs are primarily impacted by the number of locations we occupy.

•Professional services—costs related to legal, accounting, tax, consulting, personnel recruiting, insurance and other outsourcing arrangements. Professional services costs are primarily impacted by corporate activities requiring specialized services. FDIC insurance expense is also included in this line and represents the assessments that we pay to the FDIC for deposit insurance.

•Technology and information systems—costs related to software and information technology services to support office activities and internal networks. Technology and information system costs are primarily impacted by the number of locations we occupy, the number of associates we have, and the level of service we require from our third-party technology vendors.

•Data processing—costs related to processing fees paid to our third-party data processing system providers relating to our core private trust banking platform. Data processing costs are primarily impacted by the number of loan, deposit and trust accounts we have and the level of transactions processed for our clients.

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•Marketing—costs related to promoting our business through advertising, promotions, charitable events, sponsorships, donations, and other marketing-related expenses. Marketing costs are primarily impacted by the levels of advertising programs and other marketing activities and events held throughout the year.

•Amortization of other intangible assets—primarily represents the amortization of intangible assets including client lists, core deposit intangibles, and other similar items recognized in connection with acquisitions.

•Other—includes costs related to operational expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, costs to maintain or prepare other real estate owned (OREO) for sale, changes in OREO valuations subsequent to the initial acquisition when updated fair values are lower than the cost basis, director compensation and travel, and other general corporate expenses that do not fit within one of the specific non-interest expense lines described above. Other operational expenses are generally impacted by our business activities and needs.

Operating Segments

The Company’s reportable segments consist of Wealth Management and Mortgage. We measure the overall profitability of operating segments based on income before income tax. We believe this is a more useful measurement as our wealth management products and services are fully integrated with our private trust bank. We allocate costs to our segments, which consist primarily of compensation and overhead expense directly attributable to the products and services within the Wealth Management and Mortgage segments. We measure the profitability of each segment based on a post-allocation basis, as we believe it better approximates the operating cash flows generated by our reportable operating segments. A description of each segment is provided in Note 18 – Segment Reporting of the accompanying Notes to the Consolidated Financial Statements.

Primary Factors Used to Evaluate our Balance Sheet

The primary factors we use to evaluate our balance sheet include asset and liability levels, asset quality, capital, liquidity, and potential profit production from assets.

We manage our asset levels to ensure our lending initiatives are efficiently and profitably supported and to ensure we have the necessary liquidity and capital to meet the required regulatory capital ratios. Funding needs are evaluated and forecasted by communicating with clients, reviewing loan maturity and draw expectations, and projecting new loan opportunities.

We manage the diversification and quality of our assets based upon factors that include the level, distribution, severity, and trend of problem assets such as those determined to be classified, delinquent, non-accrual, non-performing or restructured; the adequacy of our allowance for credit losses; the diversification and quality of loan and investment portfolios; and the extent of counterparty risks, credit risk concentrations, and other factors.

We manage our liquidity based upon factors that include the level and quality of capital and our overall financial condition, the trend and volume of problem assets, our balance sheet risk exposure, the level of deposits as a percentage of total loans, the amount of non-deposit funding used to fund assets, the availability of unused funding sources and off-balance sheet obligations, the availability of assets to be readily converted into cash without undue loss, the amount of cash and liquid securities we hold, and other factors.

Financial institution regulators have established guidelines for minimum capital ratios for banks and bank holding companies. The Company has adopted the Basel III regulatory capital framework. As of December 31, 2025, the Bank’s capital ratios exceeded the current well capitalized regulatory requirements established under Basel III.

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Results of Operations

Overview

The year ended December 31, 2025 compared with the year ended December 31, 2024. We reported Net income available to common shareholders of $13.2 million for the year ended December 31, 2025, compared to $8.5 million of Net income available to common shareholders for the year ended December 31, 2024, a $4.7 million, or 55.3% increase. For the year ended December 31, 2025, our Income before income taxes was $17.1 million, a $5.5 million, or 47.5%, increase from the year ended December 31, 2024. The increase was primarily driven by an $11.0 million increase in Net interest income, partially offset by a $3.1 million increase in Provision for credit losses, a $1.3 million increase in Non-interest expense, and a $1.1 million decrease in non-interest income.

•The increase in Net interest income was primarily driven by a 27 basis point increase in net interest margin and an increase in average interest-earnings assets. The increase in net interest margin was primarily due to a 31 basis point decrease in total cost of funds.

•The increase in Provision for credit losses was primarily driven by loan growth, partially offset by favorable mix shifts within our portfolio.

•The increase in Non-interest expense was primarily driven by increases in Salaries and employee benefits due to salary increases and Data processing relating to upgrades to our digital banking platform, partially offset by a decrease in Professional services due to decreases in FDIC insurance fees and audit fees.

•The decrease in Non-interest income was primarily driven by decreases in Risk management and insurance fees due to a decrease in new insurance client agreements, Trust and investment management fees due to lower investment agency and managed trust fees, and Bank fees due to a large prepayment penalty fee collected in 2024, partially offset by an increase in Net gain on loans accounted for under the fair value option due to lower charge-offs and overall improved performance of the portfolio.

Net Interest Income

The year ended December 31, 2025 compared with the year ended December 31, 2024. For the year ended December 31, 2025, Net interest income, before Provision for credit losses, was $75.4 million, an increase of $11.0 million, or 17.2%, compared to the year ended December 31, 2024. The increase was primarily driven by a $142.9 million increase in average interest-earning assets and a 27 basis point increase in net interest margin. The increase in net interest margin was primarily driven by a 32 basis point decrease in deposit costs.

Total interest and dividend income increased $7.1 million, or 4.7%, during the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to a $142.9 million increase in average interest-earning assets, partially offset by a 3 basis point decrease in the average interest-earning assets yield. The increase in average interest-earning assets was driven by increases in average interest-bearing deposits in other financial institutions, debt securities, and loans, of $33.9 million, $31.4 million, and $74.6 million, respectively. The decrease in the average interest-earning assets yield was primarily driven by a 78 basis point decrease in interest-bearing deposits in other financial institution yield due to the lower interest rate environment.

Interest expense on Interest-bearing deposits decreased $3.1 million, or 3.7%, during the year ended December 31, 2025, primarily due to lower rates, partially offset by a $214.7 million increase in average interest-bearing deposits. Average interest-bearing deposit rates were 3.54% for the year ended December 31, 2025, compared to 4.07% for the year ended December 31, 2024. The decrease in the average Interest-bearing deposits rate was primarily attributable to reducing deposit rates commensurate with the short-term rate decreases. The increase in average interest-bearing deposits was primarily driven by growth in money market deposit accounts.

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The following table presents an analysis of Net interest income and net interest margin for the periods presented, using daily average balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid, and the average rate earned or paid on those assets or liabilities:

_____________________________

(1)Average balance represents daily averages.

(2)Non-accrual loans are included in the respective average loan balances. Income, if any, is not recognized until all principal has been repaid.

(3)Mortgage loans held for sale are included in the interest-earning assets above, with interest income recognized in the Interest and dividend income on loans, including fees line in the Consolidated Statements of Income. These balances are included in the margin calculations in these tables.

(4)Tax-equivalent yield adjustments are immaterial.

(5)Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

(6)Net interest income is the difference between income earned on interest-earning assets and expense paid on interest-bearing liabilities.

(7)Net interest margin is equal to net interest income divided by average interest-earning assets.

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The following table presents the dollar amount of changes in interest income and interest expense for the periods presented, for each component of interest-earning assets and interest-bearing liabilities, and distinguishes between changes attributable to volume and interest rates. Changes attributable to both rate and volume that cannot be separated have been allocated to volume:

Provision for Credit Losses

We have a dedicated problem loan resolution team comprised of associates from our credit, senior leadership, risk, and accounting teams that meets frequently to ensure that watch list and problem credits are identified early and actively managed. We work to identify potential losses in a timely manner and proactively manage the problem credits to minimize losses. For the years ended December 31, 2025 and 2024, we recorded $5.0 million and $1.9 million Provision for credit losses, respectively. The provision recorded for the year ended December 31, 2025 was primarily due to loan growth, charge-offs, and specific reserves related to individually analyzed loans, partially offset by favorable mix shifts within our portfolio.

The Company maintains a credit management program which includes internal and external loan review along with recurring portfolio monitoring activities to address the changing environment. Management believes the financial strength of the Bank’s clientele and the diversity of the portfolio continues to mitigate the credit risk within the portfolio.

Non-Interest Income

The year ended December 31, 2025 compared with the year ended December 31, 2024. For the year ended December 31, 2025 compared to the year ended December 31, 2024, Non-interest income decreased $1.1 million, or 4.0%, to $26.6 million. The decrease in non-interest income was primarily driven by decreases in Risk management and insurance fees, Trust and investment management fees, and Bank fees, partially offset by an increase in Net gain on loans accounted for under the fair value option.

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The following table presents the significant categories of our Non-interest income during the periods presented:

Trust and investment management fees—The decrease in Trust and investment management fees of $0.7 million, or 3.9%, was primarily attributable to lower investment agency and managed trust fees.

Net gain on mortgage loans—The decrease in Net gain on mortgage loans of $0.5 million, or 9.5%, was primarily attributable to lower margins due to a highly competitive mortgage market.

Net gain (loss) on loans held for sale—During the year ended December 31, 2025, the Net gain on loans held for sale of $0.2 million was due to a reversal of a write-down on a non-accrual loan recorded in the fourth quarter of 2024. This loan was previously classified as held for sale; however, during the first quarter of 2025, it was transferred to held for investment and charged off through the ACL.

Bank Fees— The decrease in Bank fees of $0.7 million, or 33.9%, was primarily driven by a large loan prepayment penalty fee collected in 2024.

Risk management and insurance fees—The decrease in Risk management and insurance fees of $1.1 million, or 66.9%, was primarily driven by a decrease in new insurance client agreements.

Net gain (loss) on loans accounted for under the fair value option—The increase in Net gain on loans accounted for under the fair value option of $1.0 million, or 100.6%, was primarily attributable to lower charge-offs and overall improved performance of the portfolio.

Net gain on other real estate owned—In 2025, we sold two OREO properties for a net gain of $0.5 million.

Non-Interest Expense

The year ended December 31, 2025 compared with the year ended December 31, 2024. The increase in Non-interest expense of 1.7% to $79.8 million was driven by increases in Salaries and employee benefits and Data processing, partially offset by a decrease in Professional services.

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The following presents the significant categories of our Non-interest expense for the periods presented:

Salaries and employee benefits—The increase in Salaries and employee benefits of $1.1 million, or 2.4%, was primarily driven by salary increases.

Professional services—The decrease in Professional services of $0.3 million, or 3.3%, was primarily driven by decreases in FDIC insurance fees and audit fees, partially offset by an increase in recruiting expenses.

Data processing—The increase in Data processing of $0.6 million, or 14.6%, was primarily driven by upgrades to our digital banking platform.

Income Tax

The Company recorded an income tax provision of $3.9 million and $3.1 million for the years ended December 31, 2025 and 2024, respectively, reflecting an effective tax rate of 22.8% and 26.8%, respectively.

Segment Reporting

We have two reportable operating segments: Wealth Management and Mortgage. Our Wealth Management segment consists of operations relating to the Company’s fully integrated wealth management products and services. Services provided include deposit, loan, insurance, and trust and investment management advisory products and services for which fee revenue is recognized. Parent company activity primarily consists of subordinated debt interest expense and is included within Wealth Management as management evaluates and makes business decisions for Wealth Management, including the parent company, collectively as one segment.

Our Mortgage segment consists of operations relating to the Company’s residential mortgage service offerings. Services provided by our mortgage segment include soliciting, originating, and selling mortgage loans into the secondary market. Mortgage products are financial in nature for which origination fees are recognized net of origination expenses, upon the funding of the mortgage loans. Mortgage loans held for sale are accounted for under the fair value option with changes in fair value reported through earnings at inception when loans are locked to the borrower and until the loan is sold to third parties, at which time additional gains or losses on the sale are recorded. Mortgage loans originated and held for investment purposes are recorded in the Wealth Management segment, as this segment provides ongoing services to our clients.

The following presents key metrics related to our segments during the periods presented:

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(1)Net interest income after provision for credit losses plus non-interest income.

The following presents selected financial metrics of each segment as of and for the periods presented:

Wealth Management

The Wealth Management segment reported Income before income taxes of $16.4 million for the year ended December 31, 2025, compared to $10.6 million for the same period in 2024. The majority of our assets and liabilities are on the Wealth Management segment balance sheet. The increase in Income before income taxes was primarily attributable to an increase in Net interest income, after provision for credit losses, partially offset by an increase in Non-interest expense. The increase in Net interest income, after provision for credit losses, was primarily driven by increases in net interest margin and average interest-earning assets, partially offset by an increase in Provision for credit losses. The increase in Non-interest expense was primarily driven by increases in Salaries and employee benefits and Data processing, partially offset by a decrease in Professional services.

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Mortgage

The Mortgage segment reported Income before income tax of $0.7 million for the year ended December 31, 2025, compared to $1.0 million for the same period in 2024. The decrease in Income before income taxes was primarily driven by a decrease in Net gain on mortgage loans. The decrease in Net gain on mortgage loans was primarily driven by lower margins due to a highly competitive mortgage market.

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Financial Condition

The following table presents our condensed Consolidated Balance Sheets as of the dates noted:

Cash and cash equivalents decreased by $37.7 million, or 15.8%, to $200.3 million as of December 31, 2025 compared to December 31, 2024. The decrease was a result of the increase in Loans and debt securities, partially offset by an increase in Deposits.

Available-for-sale debt securities were $45.6 million as of December 31, 2025, compared to $0.0 as of December 31, 2024. The increase was due to the purchase of residential mortgage-backed securities issued by U.S. government agencies and sponsored enterprises.

Held-to-maturity debt securities increased by $19.2 million, or 25.4%, to $95.0 million as of December 31, 2025 compared to December 31, 2024. The increase was primarily due to the purchase of residential and commercial mortgage-backed securities issued by U.S. government agencies and sponsored enterprises.

Loans, net of allowance increased by $221.7 million, or 9.2%, to $2.63 billion as of December 31, 2025 compared to December 31, 2024. The increase was primarily driven by growth in the Non-owner occupied commercial real estate, 1-4 family residential, Cash, securities, and Other, and Owner occupied commercial real estate portfolios, partially offset by a decrease in the Construction and development portfolio.

Mortgage loans held for sale increased by $14.7 million, or 57.8%, to $40.2 million as of December 31, 2025 compared to December 31, 2024. The increase was primarily due to the timing of loan originations and sales.

Other real estate owned, net decreased by $32.9 million, or 91.5%, as of December 31, 2025 compared to December 31, 2024. The decrease was due to the sale of two OREO properties and an OREO write-down.

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Other assets increased by $5.2 million, or 5.9%, to $93.1 million as of December 31, 2025 compared to December 31, 2024. The increase was primarily due to low-income housing tax credit and investment fund contributions and an increase in right-of-use lease assets due to the extension of three leases.

Deposits increased $232.4 million, or 9.2%, to $2.75 billion as of December 31, 2025 compared to December 31, 2024. The increase was primarily driven by increases in money market deposit accounts, partially offset by decreases in time deposit accounts and Noninterest-bearing deposit accounts. Noninterest-bearing deposit accounts decreased $30.6 million, or 8.2%, to $345.0 million as of December 31, 2025 compared to December 31, 2024. Money market deposit accounts increased $400.0 million, or 26.4%, to $1.91 billion as of December 31, 2025 compared to December 31, 2024. Time deposit accounts decreased $118.9 million, or 25.2%, to $352.5 million as of December 31, 2025 compared to December 31, 2024. Interest checking accounts decreased $17.1 million, or 12.3%, to $122.3 million compared to December 31, 2024.

Borrowings decreased $2.0 million, or 1.8%, to $107.6 million as of December 31, 2025 compared to December 31, 2024. The decrease was primarily driven by $8.0 million of subordinated notes that were redeemed in 2025, partially offset by an increase in FHLB borrowings to support the interest-earning asset growth.

Other liabilities decreased $7.7 million, or 17.9%, to $35.2 million as of December 31, 2025 compared to December 31, 2024. The decrease was primarily due to payments related to resolution of participated non-performing assets, partially offset by an increase in lease liabilities due to the extension of three leases.

Total shareholders’ equity increased $13.2 million, or 5.2%, to $265.6 million as of December 31, 2025. The increase was primarily due to Net income for the year.

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Assets Under Management

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(*)Trust and investment management fees divided by period-end balance.

AUM decreased $43 million, or 0.6%, to $7.28 billion for the year ended December 31, 2025. The decrease was primarily attributable to net withdrawals, partially offset by improved market conditions.

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Debt securities

Debt securities we intend to hold for an indefinite period of time, but not necessarily to maturity, are classified as available-for-sale and are recorded at fair value using current market information from a third-party pricing service, with unrealized gains and losses excluded from earnings and reported in OCI, net of tax. The carrying values of our debt securities classified as available-for-sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of OCI in shareholders’ equity. As of December 31, 2025 and 2024, investments in debt securities classified as available-for-sale totaled $45.6 million and $0.0, respectively.

Debt securities for which we have the intent and ability to hold to their maturity are classified as Held-to-maturity debt securities and are recorded at amortized cost. Debt securities HTM are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. As of December 31, 2025 and 2024, investments in debt securities classified as HTM totaled $95.0 million and $75.7 million, respectively.

The following provides information regarding contractual maturities and weighted average yield for our investment securities as of the dates presented. Contractual maturities may differ from expected maturities because issuers can have the right to call or prepay obligations without penalties. Our investments are taxable securities. The weighted average yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each security. Weighted average yields are not presented on a taxable equivalent basis.

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(*)Represents percentages that are insignificant

Allowance for Credit Losses for Debt Securities

Management measures expected credit losses on debt securities on a collective basis by major security type. The majority of our held-to-maturity investment portfolio consists of debt securities issued by U.S. government entities and agencies and we consider the risk of credit loss to be zero and, therefore, we do not record an ACL. The Company's non-government backed debt securities include private label MBS as well as corporate bonds. The ACL on HTM debt securities was $0.1 million as of December 31, 2025 and 2024. There was no ACL on AFS debt securities as of December 31, 2025 and December 31, 2024.

Loan Portfolio

Our primary source of interest income is derived through interest earned on loans to high net worth individuals and their related commercial interests. Our senior lending and credit team consists of seasoned, experienced personnel, and we believe that our officers are well versed in the types of lending in which we are engaged. Underwriting policies and decisions are managed centrally and the approval process is tiered based on loan size, making the process consistent, efficient, and effective. The management team and credit culture demands prudent, practical, and conservative approaches to all credit requests in compliance with the credit policy guidelines to ensure strong credit underwriting practices.

In addition to originating loans for our own portfolio, we conduct mortgage banking activities in which we originate and sell servicing-released, whole loans in the secondary market. Our mortgage banking loan sales activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed-upon criteria before loan funding, and are delivered to the investor shortly after funding. The level of future loan originations, loan sales and loan repayments depends on overall credit availability, the interest rate environment, the strength of the general economy, local real estate markets and the housing industry, and conditions in the secondary loan sale market. The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies. As of December 31, 2025 and 2024, we had Mortgage loans held for sale of $40.2 million and $25.5 million, respectively, in residential mortgage loans we originated.

As of December 31, 2025 and 2024, we had Loans held for sale of $0.0 million and $0.3 million, respectively. As of December 31, 2025, the Company has $3.2 million in loans accounted for under the fair value option with an unpaid principal balance of $3.2 million. As of December 31, 2024, the Company had $7.3 million in loans accounted for under the fair value option with an unpaid principal balance $7.5 million. See Note 16 – Fair Value in the Notes to the Consolidated Financial Statements.

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The following presents our loan portfolio by type of loan as of the dates noted:

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(1)Includes $3.2 million and $7.5 million of unpaid principal balance of Loans held for investment accounted for under the fair value option as of December 31, 2025 and 2024, respectively.

(2)Includes $39.5 million and $25.2 million of unpaid principal balance of Mortgage loans held for sale as of December 31, 2025 and 2024, respectively.

(3)Includes $0.0 and $0.6 million of principal balance of loans held for sale as of December 31, 2025 and 2024, respectively.

•Cash, securities, and other—consists of consumer and commercial purpose loans that are primarily secured by securities managed and under custody with us, cash on deposit with us or life insurance policies. In addition, loans in this portfolio are collateralized with other sources of collateral. This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment.

•Consumer and other—consists of unsecured consumer loans. This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment. Loans held for investment accounted for under the fair value option are primarily consumer and other loans and are presented separately within the above table.

•Construction and development—consists of loans to finance the construction of residential and non-residential properties. These loans are dependent on the strength of the industries of the related borrowers and the risks consistent with construction projects.

•1-4 family residential—consists of loans and home equity lines of credit secured by 1-4 family residential properties. These loans typically enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the owner. In addition, some borrowers secure a commercial purpose loan with owner occupied or non-owner occupied 1-4 family residential properties. Loans in this segment are dependent on the industries tied to these loans as well as the national and local economies, and local residential and commercial real estate markets.

•Commercial real estate, owner occupied and non-owner occupied—consists of commercial loans collateralized by real estate. These loans may be collateralized by owner occupied or non-owner occupied real estate, as well as multi-family residential real estate. These loans are dependent on the strength of the industries of the related borrowers and the success of their businesses.

•Commercial and Industrial—consists of commercial and industrial loans, including working capital lines of credit, permanent working capital term loans, business asset loans, acquisition, expansion and development loans, and other loan products, primarily in our target markets. This portfolio primarily consists of term loans and lines of credit which are dependent on the strength of the industries of the related borrowers and the success of their businesses.

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One of the larger categories of the Company’s loan portfolio is Commercial Real Estate (CRE). The following provides balances by asset type of the Company’s CRE portfolio:

The following table summarizes the Company’s CRE portfolio by geographic location as of the dates indicated:

The CRE portfolio is comprised of loans made to purchase and finance commercial real estate properties. On average, the balances are small and geographically disbursed across our footprint. Specifically, our CRE portfolio has an average loan balance of $3.10 million and $2.47 million with a weighted average loan-to-value ratio (LTV) of 54.3% and 52.9% as of December 31, 2025 and 2024, respectively.

Due to the recent trends in the banking industry, there has been increased risk associated with commercial real estate loans, including with respect to the higher vulnerability of these credits to pressure as interest rates remain elevated and market conditions in many large metropolitan areas continue to show signs of stress. The Company has limited exposure to the office building sector in central business districts as the office portfolio is generally diversified in suburban markets with strong occupancy levels. The Company maintains a practice of regular and ongoing loan reviews, stress tests, and sensitivity analyses to assess the level of risk in the loan portfolio. Loan reviews include monitoring past due rates, non-performing trends, concentrations, LTVs, among other qualitative factors. The Company believes its credit policies are robust and are updated as needed to meet the strategic and risk mitigation goals of the company.

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The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range, at amortized cost as of the dates noted, are summarized in the following:

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(1)Loans accounted for under the fair value option are disclosed at fair value rather than amortized cost

Non-Performing Assets

Non-performing assets include non-accrual loans and OREO. The accrual of interest on loans is discontinued at the time the loan becomes 90 or more days delinquent unless the loan is well secured and in the process of collection or renewal due to maturity. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged off if collection of interest or principal is considered doubtful.

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OREO represents assets acquired through, or in lieu of, foreclosure. The amounts reported as OREO are supported by recent appraisals, with the appraised values adjusted, where applicable, for expected transaction fees likely to be incurred upon sale of the property. We incur recurring expenses relating to OREO in the form of maintenance, taxes, insurance, and legal fees, among others, until the OREO property is disposed. During 2025, the Company sold two OREO properties resulting in a net gain on sale of $0.5 million. During the years ended December 31, 2025 and 2024, the Company recorded provisions for OREO of $1.3 million and $1.1 million, respectively. As of December 31, 2025 and 2024, OREO properties had carrying amounts of $3.0 million and $35.9 million, respectively.

The Company reversed $0.1 million and $0.7 million of interest income on non-accrual loans during the years ended December 31, 2025 and 2024, respectively. The amount of interest income that would have been recognized on loans accounted for on a non-accrual basis pursuant to contractual terms was $2.4 million and $6.8 million for the years ended December 31, 2025 and 2024, respectively.

We had amortized cost of $19.6 million and $48.7 million in non-performing assets as of December 31, 2025 and 2024, respectively. The decrease in non-performing assets was primarily driven by the sale of two OREO properties, a write-down of OREO, pay downs, and a charge-off, partially offset by additions to non-accrual loans.

The following presents the amortized cost basis of non-performing loans as of the dates indicated:

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(1)Held at the lower of cost or market as described in Note 16.

(2)Excludes mortgage loans held for sale of $40.2 million and $25.5 million as of December 31, 2025 and 2024, respectively. Excludes $3.2 million and $7.3 million of loans held for investment accounted for under fair value option as of December 31, 2025 and 2024, respectively.

Credit Quality Indicators

The following presents the amortized cost basis of loans by credit quality indicator (see Note 4 – Loans and Allowance for Credit Losses for credit quality indicator descriptions), by class of financing receivable, as of the dates noted:

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(1)Includes $3.2 million and $7.3 million of loans held for investment accounted for under the fair value option as of December 31, 2025 and 2024, respectively.

As of December 31, 2025 and 2024, non-accrual loans of $16.6 million and $12.8 million, respectively, were included in the substandard category in the table above.

Allowance for Credit Losses on Loans

The ACL for loans represents Management’s best estimate of CECL on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms, adjusted for expected prepayments when appropriate. Our quantitative discounted cash flow models use twelve-month economic forecasts including; HPI, GDP, and national unemployment. The ACL increased $3.1 million during the year ended December 31, 2025. The ACL on pooled loans was $18.0 million as of December 31, 2025 and 2024. The ACL on pooled loans remained stable as of the year ended December 31, 2025 compared to December 31, 2024 primarily due to favorable mix shifts within our portfolio, offset by loan growth. The ACL on individually analyzed loans was $3.4 million and $0.3 million as of December 31, 2025 and 2024, respectively. The $3.1 million provision on individually analyzed loans for the year ended December 31, 2025 was primarily due to the addition of individually analyzed loans with collateral shortfalls. The remaining $1.9 million of provision on loans for the year ended December 31, 2025 was related to net charge-offs.

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The following presents summary information regarding our ACL for the periods presented:

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(1)Average balances are average daily balances.

(2)Excludes average outstanding balances of mortgage loans held for sale of $25.0 million and $18.0 million for the years ended December 31, 2025 and 2024, respectively. Excludes average outstanding balances of loans held for investment under the fair value option of $5.3 million and $10.6 million for the years ended December 31, 2025 and 2024, respectively.

(3)Excludes Mortgage loans held for sale of $40.2 million and $25.5 million as of December 31, 2025 and 2024, respectively. Excludes $3.2 million and $7.3 million of loans held for investment accounted for under the fair value option as of December 31, 2025 and 2024, respectively.

The following presents the allocation of the ACL among loan categories and other summary information. The allocation for credit losses by category should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories.

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(1)Represents the percentage of loans to total loans in the respective category.

Allowance for credit losses - off-balance sheet credit exposure

In the normal course of business, there may be various outstanding commitments to obtain funding and to extend credit, such as letters of credit and unfunded loan commitments, which are not reflected in the accompanying Condensed

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Consolidated Financial Statements. The Company assessed the off balance sheet credit exposures as of December 31, 2025 and determined an ACL of $0.7 million was adequate to absorb the estimated credit losses. For additional information regarding the Company’s ACL on off-balance sheet credit exposures, see Note 10 – Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements.

Deferred Tax Assets, Net

Deferred tax assets, net of our valuation allowance, represent the differences in timing of when items are recognized for GAAP purposes and when they are recognized for tax purposes, as well as our net operating losses. Our deferred tax assets, net, are valued based on the amounts that are expected to be recovered in the future utilizing the tax rates in effect at the time recognized. Deferred tax assets, net as of December 31, 2025 were $4.0 million an increase of $0.9 million, or 30.0%, from December 31, 2024. The increase was primarily due to changes in temporary differences, most notably the increase in Allowance for credit losses as of and during the year ended December 31, 2025.

Deposits

Our deposit products include money market accounts, demand deposit accounts, time-deposit accounts (typically certificates of deposit), interest checking accounts, and saving accounts. Our accounts are federally insured by the FDIC up to the legal maximum amount.

Total deposits increased by $232.4 million, or 9.2%, to $2.75 billion as of December 31, 2025 from December 31, 2024. Total average deposits for the year ended December 31, 2025 were $2.59 billion, an increase of $151.9 million, or 6.2%, compared to $2.44 billion for the year ended December 31, 2024. The increase in average deposits for the year ended December 31, 2025, compared to the same period in 2024, was driven primarily by increases in money market deposit accounts, partially offset by decreases in time deposit accounts and Noninterest-bearing deposit accounts.

The following presents the average balances and average rates paid on deposits during the periods presented:

Average Noninterest-bearing deposits to average total deposits was 13.6% and 17.0% for the years ended December 31, 2025 and 2024, respectively.

Average cost of deposits was 3.06% and 3.38% during the years ended December 31, 2025 and 2024, respectively. The decrease in cost of deposits was primarily attributable to reducing deposit rates commensurate with the short-term rate decreases.

Money market deposit accounts as of December 31, 2025 were $1.91 billion, an increase of $400.0 million, or 26.4%, compared to $1.51 billion as of December 31, 2024. Interest checking accounts decreased $17.1 million, or 12.3%, to $122.3 million compared to December 31, 2024.

Time deposits as of December 31, 2025 were $352.5 million, a decrease of $118.9 million, or 25.2%, compared to December 31, 2024.

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The following table presents the amount of certificates of deposit by time remaining until maturity as of December 31, 2025:

Borrowings

We have short-term and long-term borrowing sources available to supplement deposits and meet our liquidity needs. As of December 31, 2025 and 2024, borrowings totaled $107.6 million and $109.6 million, respectively.

The decrease in borrowings as of December 31, 2025, compared to December 31, 2024, was primarily driven by $8.0 million of subordinated notes that were redeemed in 2025, partially offset by an increase in FHLB borrowings to support the interest-earning asset growth. Additionally, borrowings from the Paycheck Protection Program Loan Facility (PPPLF) from the Federal Reserve decreased from $2.0 million as of December 31, 2024 to $0.5 million as of December 31, 2025 due to the pay down of PPP loans. Borrowing from the PPPLF facility is expected to trend in the same direction as the PPP loan balances.

The following presents balances of each of the borrowing facilities as of the dates noted:

FHLB

The following presents additional information on our FHLB borrowings:

Our borrowing facilities include various financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is deemed "well capitalized" by federal banking agencies. As of December 31, 2025 and 2024, the Company was in compliance with the covenant requirements.

Liquidity and Capital Resources

Liquidity resources primarily include Interest-bearing and Noninterest-bearing deposits which contribute to our ability to raise funds to support asset growth, acquisitions, and meet deposit withdrawals and other payment obligations. Access to purchased funds include the ability to borrow from FHLB, other correspondent banks, and the use of brokered deposits.

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The following presents the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the periods presented:

Our primary source of funds is interest-bearing and noninterest-bearing deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future.

Capital Resources

We are subject to various regulatory capital adequacy requirements at a consolidated level and the Bank level. These requirements are administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and, additionally for banks, the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

Capital levels are viewed as important indicators of an institution’s financial soundness by banking regulators. Generally, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. As of December 31, 2025 and 2024, our holding company and Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as "well capitalized," for purposes of the prompt corrective action regulations. See Note 22 – Regulatory Capital Matters for capital amounts and ratios. As we continue to grow our operations and maintain capital requirements, our regulatory capital levels may decrease depending on our level of earnings. We continue to monitor growth and control our capital activities in order to remain in compliance with all applicable regulatory capital standards.

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Contractual Obligations and Off-Balance Sheet Arrangements

We enter into credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our clients. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. Commitments may expire without being utilized. Our exposure to credit loss is represented by the contractual amount of these commitments, although material losses are not anticipated. We follow the same credit policies in making commitments as we do for on-balance sheet instruments.

The following presents future contractual obligations to make future payments for the periods presented:

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(1)Reflects contractual maturity date of December 1, 2030, although the Company can call the note prior to contractual maturity.

(2)Reflects contractual maturity dates of September 1, 2031 and December 15, 2032, although the Company can call the notes prior to contractual maturity.

We may enter into contracts for services in the conduct of ordinary business operations, which may require payment for services to be provided in the future and may contain penalty clauses for early termination of the contracts. We do not believe these off-balance sheet arrangements have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. However, there can be no assurance that such arrangements will not have an effect on future operations.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and judgments that affect reported amounts of assets, liabilities, income, and expenses. We base estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Estimates are evaluated on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

We have identified our Allowance for credit losses (ACL), the evaluation of goodwill impairment, and the fair value of certain financial instruments as being critical because our policies require management to use significant judgment and use subjective and complex measurements about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

Our accounting policies and procedures, including those identified as being critical, are described in further detail in Note 1 – Organization and Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements.

ACL: Our ACL policies govern the processes and procedures used to estimate the potential for credit losses in our loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments).

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. We perform periodic and systematic detailed reviews of our loan portfolio to assess overall collectability. The level of the ACL on loans reflects our estimate of the losses expected in the loan portfolio over the assets’ contractual term. As of December 31, 2025, the ACL had an ending balance of $21.4 million compared to the prior year ending balance of $18.3 million.

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The ACL is an estimate that is subject to uncertainty due to the various assumptions and judgments used in the estimation process. The estimate is based on our quantitative discounted cash flow models using economic forecasts including; HPI, GDP, and national unemployment. Potential changes in any one economic variable may or may not affect the overall allowance because a variety of economic variables and inputs are considered in estimating the allowance, and changes in those variables and inputs may not occur at the same rate, may not be consistent across product types and may have offsetting impacts to other changing variables and inputs.

Changes in management’s assessment of the assumptions and key inputs used to determine the ACL could lead to changes in the ACL through increased or decreased provisions for credit losses. If actual losses and conditions differ materially from the assumptions used to determine the ACL, our actual credit losses could differ materially from our ACL estimate. A sensitivity analysis of our ACL was performed as of September 30, 2025 to estimate credit losses by increasing and decreasing model inputs such as economic forecasts including HPI, GDP, and national unemployment, the forecast period, the forecast reversion period, and prepayment rates, among others. Incorporating key model input changes in our calculation of the ACL resulted in both increases and decreases to the ACL. Management reviews the sensitivity analysis results to understand the impact that changes to model inputs and assumptions have on the model output. While management believes that it has established adequate allowances for lifetime credit losses on loans, actual results may prove different, and the differences could be material.

Additionally, our ACL model adjusts for qualitative factors in addition to historical information and our economic forecast. Management considered factors that are likely to cause estimated credit losses and differ from historical loss experience. The factors management reviews include acquired loan underwriting, residential mortgage debt-to-income, macroeconomic factors, concentration of our loan portfolio, negative probability of default, classified loan trends, non-core loans, loan to value ratios, and CRE exposure.

See Note 4 – Loans and the Allowance For Credit Losses for further details of the factors considered by us in estimating the necessary level of the ACL for loans.

Goodwill: Goodwill represents the excess of purchase price over the fair value of net identifiable tangible and intangible assets acquired in business combinations. We have acquired other identifiable intangible assets, primarily consisting of customer relationships, non-competition agreements, and recorded goodwill through its acquisition of financial services companies.

We are required to assess our goodwill for impairment on an annual basis, or more frequently if deemed necessary. We have selected October 31 as the date to perform our annual impairment test. The test is performed at the reporting unit level. Impairment exists when the carrying amount of the goodwill exceeds estimated fair values. The estimate is considered to have a low level of uncertainty unless a triggering event occurs. Events that may trigger goodwill impairment include deterioration in economic conditions, increased competitive environment, negative trends in overall financial performance, legal or regulatory proceedings, loss of key personnel, and change in strategy or sustained decreases in share value.

We performed a qualitative goodwill assessment as of October 31, 2025. The qualitative assessment was performed to determine whether it is more likely than not that the fair value of the Wealth Management reporting unit is less than its carrying value, including goodwill. In performing the assessment, the Company considered several factors, including macroeconomic conditions, actual operating results, forecasts, economic projections, and market data. Based on the results of the qualitative assessment, we believe that the fair value of our Wealth Management reporting unit continues to exceed the carrying value, including goodwill, as of the most recent assessment date.

Significant negative industry or economic trends, including declines in the market price of our stock, reduced estimates of future cash flows or business disruptions, could result in impairments to goodwill in the future, which would result in recording an impairment loss. Any resulting impairment loss could have a material impact on our financial condition and results of operation. Management will continue evaluating the economic conditions at future reporting periods for triggering events.

Goodwill totaled $30.4 million as of December 31, 2025 and 2024. As of December 31, 2025 and 2024, there has not been any impairment of goodwill identified or recorded. See Note 6 – Goodwill and Other Intangible Assets for further information on Goodwill.

Fair Value Measurements: Fair value measurement estimates are used for certain recorded and disclosed financial instruments on a recurring and non-recurring basis. Such estimates utilize a variety of assumptions, which are subject to uncertainty. Certain fair value measurements have a higher degree of sensitivity of the reported amount to the methods, assumptions, and estimates underlying the calculation.

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See Note 16 – Fair Value for further information on fair value measurements and the estimated changes during the reporting periods.

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