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Item 2. Management’s Discussion and Analysis

2026-05-11 compared with 2025-11-07 · 220 added, 327 removed, 327 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included

elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2025.

Unless the context indicates otherwise, references in this management’s discussion and analysis to “we,” “our,” and “us,” refer

to Bank7 Corp.

and its consolidated subsidiaries.

Unless the context indicates otherwise, references in this management’s discussion and analysis to “we,” “our,” and “us,” refer to Bank7 Corp.

consolidated subsidiaries.

All references to “the Bank” refer to Bank7, our wholly owned subsidiary.

We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma.

Through our wholly-owned subsidiary, Bank7, we operate twelve locations in Oklahoma, the Dallas/Fort Worth, Texas

Through our wholly-owned subsidiary, Bank7, we operate twelve full-service branches in Oklahoma, the Dallas/Fort Worth, Texas

metropolitan area and Kansas.

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We intend to grow organically by selectively

opening additional branches in our target markets and pursuing strategic acquisitions.

opening additional branches in our target markets and we will also pursue strategic acquisitions.

As a bank holding company, we generate most of our revenue from interest income on loans and from short-term investments.

The primary source of

funding for our loans and short-term investments are deposits held by our subsidiary, Bank7.

We measure our performance by our return on average equity, earnings per share, capital ratios, efficiency ratio (calculated by dividing noninterest

expense by the sum of net interest income on a tax equivalent basis) and noninterest income.

The primary source of funding for our loans and

short-term investments are deposits held by our subsidiary, Bank7.

We measure our performance by our return on average assets, return on average equity, earnings per share, capital ratios, and efficiency ratio, which is calculated by dividing

noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.

Q1 2026 Overview

We reported total loans of $1.53 billion as of September 30, 2025, an increase of $96.7 million, or 6.7%, from September 30, 2024.

Total deposits were $1.64 billion

as of September 30, 2025, an increase of $112.6 million, or 7.4%, as compared to September 30, 2024.

Pre-tax net income was $14.2 million, a decrease of $1.3 million, or 8.5%, for the three months ended September 30, 2025 as compared to pre-tax net income of $15.5

million for the same period in 2024.

Pre-tax net income was $42.6 million, a decrease of $3.0 million, or 6.6%, for the nine months ended September 30, 2025 as compared to pre-tax net income of $45.6 million

for the same period in 2024.

Return on average assets and return on average equity was 2.33% and 18.11%, respectively for the three months ended September 30, 2025, as compared to 2.73% and 23.67%, respectively, for the same period in

Return on average assets and return on average equity was 2.41% and 18.96%, respectively for the nine months ended September 30, 2025, as compared to 2.68% and 24.79%, respectively, for the same period in 2024.

Our efficiency ratio for

the three months ended September 30, 2025 was 41.12% as compared to 37.87% for the same period in 2024.

Our efficiency ratio for the nine months ended September 30, 2025 was 39.94% as compared to 37.58% for the same period in 2024.

The provision for credit losses for the three months ended September 30, 2025 increased $0.7 million, or 100.0%, as compared to the same period in 2024.

The provision for credit losses for the nine months

ended September 30, 2025 increased $0.7 million, or 100.0%, as compared to the same period in 2024.

The provision expense for the three and nine months ended September 30, 2025 was related to loan growth in the third quarter of 2025.

We reported total loans of $1.59 billion as of March 31, 2026, an increase of $170.1 million, or 11.9%, from March 31, 2025.

Total deposits were $1.67 billion as of March

31, 2026, an increase of $120.1 million, or 7.7%, from March 31, 2025 .

Income before taxes was $15.8 million, an increase of $2.1 million, or 15.4%, for the three months ended March 31, 2026 as compared

to income before taxes of $13.7 million for the same period in 2025 .

Pre-tax return on average assets and return on average equity was 3.37% and 25.06%, respectively for the three months ended March 31, 2026 , as compar ed to 3.20% and 25.47%, respectively , for the same period in 2025 .

Our efficiency ratio for the three months ended March 31, 2026 was 39.64% as compared to 39.45% for the same period in 2025.

Sale of Oil and Gas Assets

Regarding the subsequent event item mentioned in Note 1 herein, management has successfully completed its objective to maximize the loan loss recovery related to an oil and gas

To refresh memories, in the fourth quarter of 2023 management expended $16.5 million to acquire certain oil and gas assets.

On a cash basis, prior to the second quarter 2026 the Company had received cash proceeds from oil and gas

sales of $14.9 million, and when that is combined with the second quarter sale proceeds of $5.2 million, the total cash recovery of $20.1 million exceeds the $16.5 million cash outlay by $3.7 million.

Over the holding period from

fourth quarter of 2023 through first quarter of 2026, these assets generated cumulative pre-tax net income of approximately $5.8 million, which we believe is the most directly comparable GAAP measure to the non-GAAP cash summary presented

GAAP to Non-GAAP Reconciliation for Oil and Gas Assets (dollars in thousands) :

Acquisition Date through

March 31, 2026

April 30, 2026

GAAP Income before taxes

Add back non-cash expenses:

Amortization & accretion

Net cash flow from operations (Non-GAAP)

Remaining accruals to be settled

Sales proceeds from final disposition (April 2026)

Total cash generated by asset (Non-GAAP)

Initial cash outlay for acquisition (Q4 2023)

Net cash returned (Non-GAAP)

Initial cash outlay for acquisition (Q4 2023)

Cash inflows:

Net cash receipts from operator statements

Sales proceeds from minor asset sales (2024)

Sales proceeds from final disposition (April 2026)

Total cash inflows

Cash outflows:

Transaction costs and other adjustments

Total Cash outflows

Net cash returned (Non-GAAP)

Net Cash Returned is a non-GAAP financial measure used by management to analyze the cash cycle of this specific investment.

This measure has significant limitations and is not a substitute

for results prepared in accordance with U.S.

It should not be considered in isolation or as an alternative to net income.

This measure is reconciled from income before taxes by adding back only the non-cash expenses shown in the table

Results of Operations

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The following table presents, for the periods indicated, information about:

(i) weighted average balances, the total dollar

amount of interest income from interest-earning assets, and the resultant average yields;

(i) weighted average balances, the total dollar amount of interest income from interest-earning assets, and the resultant average

(ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities, and the resultant average rates;

(iii) net interest

(iii) net interest income;

and (iv) the net interest margin.

Net Interest Margin

For the Three Months Ended September 30,

(Dollars in thousands)

Interest-earning assets:

Short-term investments

Debt securities, taxable

Debt securities, tax exempt (1)

Loans held for sale

Total loans (2)

Total interest-earning assets

Noninterest-earning assets

Funding sources:

Interest-bearing liabilities:

Transaction accounts

Time deposits

Total interest-bearing deposits

Total interest-bearing liabilities

Noninterest-bearing liabilities:

Noninterest-bearing deposits

Other noninterest-bearing liabilities

Total noninterest-bearing liabilities

Shareholders' equity

Total liabilities and shareholders' equity

Net interest income

Net interest spread

Net interest margin

Taxable-equivalent yield of 2.60% as of September 30, 2025, applying a 23.6% effective tax rate.

Average loan balances include monthly average nonaccrual loans of $5.4 million and $7.4 million as of September 30, 2025 and September 30, 2024,

respectively, are included in loans.

For the third quarter of 2025 compared to the third quarter of 2024:

Interest income on total loans totaled $30.9 million, an increase of $123,000 or 0.4%;

Yields on our interest-earning assets totaled 7.43%, a decrease of 49 basis points which was primarily attributable to lower loan yields of 50 basis points, and a decrease in yield on short-term investments of 51 basis points;

Net interest margin was 5.07% compared to 5.02%.

Net Interest Margin

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(Dollars in thousands)

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Net interest margin

Taxable-equivalent yield of 2.68% as of September 30, 2025, applying a 24.2% effective tax rate.

Average loan balances include monthly average nonaccrual loans of $5.9 million and $13.9 million as of September 30, 2025 and September 30, 2024,

respectively, are included in loans.

For the first nine months of 2025 compared to the same period in 2024:

Interest income on total loans totaled $87.2 million, a decrease of $2.6 million or 2.9%, due to decreased loan yields as discussed below;

Yields on our interest-earning assets totaled 7.32%, a decrease of 53 basis points which was primarily attributable to lower loan yields of 64

basis points, and a decrease in yield on taxable debt securities of 58 basis points;

Taxable-equivalent yield of 2.85% as of March 31, 2026 , applying a 24.1% effective tax rate.

Average loan balances include monthly average nonaccrual loans of $10.0 million and $6.7 million for the three months ended March 31, 2026 and March 31, 2025, respectively.

For the first quarter of 2026 compared to the first quarter of 2025:

Total interest income on loans increased $4.3 million, or 15.7%, to $31.6 million, due to increased loan yields as discussed below;

Yields on our interest-earning assets totaled 7.35%, an increase of 8 basis points which was primarily attributable to higher loan yields of 11 basis points, and a decrease in yield on short-term investments of 112 basis points;

Net interest margin was 5.27% compared to 4.98%.

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For the Three Months Ended

September 30, 2025 vs 2024

Change due to:

(Dollars in thousands)

Increase (decrease) in interest income:

Short-term investments

Debt securities

Total increase (decrease) in interest income

Increase (decrease) in interest expense:

Transaction accounts

Time deposits

Total interest-bearing deposits

Total increase (decrease) in interest expense

Increase (Decrease) in net interest income

Analysis of Changes in Interest Income and Expenses

For the Nine Months Ended

September 30, 2025 vs 2024

March 31, 2026 vs 2025

Change due to:

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Variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances in each category.

Our investment portfolio consists entirely of securities classified as available-for-sale.

As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or

loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

We evaluate our available-for-sale securities portfolio on a quarterly basis for potential credit-related losses.

We assess potential credit losses by comparing the fair value of a debt security to its

amortized cost basis.

If the fair value of a debt security is greater than the amortized cost basis, no allowance for credit losses is recognized.

If the fair value is less than the amortized cost basis, we review the factors to determine if

the impairment is credit-related or noncredit-related.

For debt securities we intend to sell or are more likely than not required to sell, before the recovery of their amortized cost basis, the difference between fair value and amortized

cost is impaired and is recognized through earnings.

For debt securities we do not intend to sell or are more likely than not required to sell, prior to expected recovery of amortized cost basis, the credit portion of the impairment is

recognized through earnings, with a corresponding entry to an allowance for credit losses, and the noncredit portion is recognized through accumulated other comprehensive income.

The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at

September 30, 2025.

The following table presents securities at their expected maturities, which may differ from contractual maturities.

The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability

management strategy, and for pledging requirements for public funds:

As of September 30, 2025

Weighted Average Yield of Debt Securities

The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at March 31, 2026.

following table presents securities at their expected maturities, which may differ from contractual maturities.

The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy, and

for pledging requirements for public funds:

As of March 31, 2026

After One Year But

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Provision for Credit Losses

Credit risk is inherent in the business of making loans.

We establish an Allowance for credit losses (“Allowance”) through charges to earnings, which are shown in the statements of

comprehensive income as the provision for credit losses.

The provision for credit losses and level of Allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan

portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, and the valuation of problems and the general economic conditions in our market areas.

For the three months ended September 30, 2025 compared to the three months ended September 30, 2024:

The provision for credit losses increased from $0 to $0.7 million;

The allowance as a percentage of total loans increased by 2 basis points to 1.26%.

For the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024:

The provision for credit losses increased from $0 to $0.7 million;

The allowance as a percentage of total loans increased by 2 basis points to 1.26%.

For the three months ended March 31, 2026 compared to the three months ended March 31, 2025, there was no provision for credit losses.

We file a consolidated income tax return and recognize deferred taxes based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and

The process of determining the accruals for income taxes involves the exercise of considerable judgment regarding tax rates, laws, and the implementation of tax planning strategies.

For the three months ended March 31, 2026, and 2025, all of our income before income taxes was generated from domestic operations.

We do not currently have exposure to foreign tax jurisdictions;

as such, our jurisdictional tax mix remains concentrated within the United States and specific state jurisdictions, primarily Oklahoma.

Our provision for income taxes was $3.8 million for the three months ended March 31, 2026, compared to $3.4 million for 2025.

This resulted in an effective tax rate of 24.11% in 2026, compared

to 24.63% in 2025.

The effective tax rate differs from the U.S.

federal statutory rate of 21% primarily due to the effect of state income taxes (net of federal benefit) and nondeductible expenses.

The year-over-year rate change was primarily

driven by the impact of Oklahoma state taxes and certain nondeductible reconciling items.

Cash taxes paid was $0 for the three months ended March 31, 2026, and March 31, 2025, reflecting our domestic jurisdictional profile and the timing of

estimated tax payments.

Noninterest Income

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For the Three Months Ended

September 30,

(Dollars in thousands)

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Mortgage lending income

Loss on sales of available-for-sale debt securities

Service charges on deposit accounts

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Total noninterest income

Noninterest income for the three months ended September 30, 2025 was $2.2 m illion compared to $3.7 million for the same

period in 2024, a decrease of $1.5 million, or 39.9%.

The decrease was primarily attributable to a decrease in

income related to operations of oil and gas assets, see Note 2 of the financial statements.

For the Nine Months Ended

September 30,

(Dollars in thousands)

Noninterest income:

Mortgage lending income

Loss on sales of available-for-sale debt securities

Service charges on deposit accounts

Other income and fees

Total noninterest income

Noninterest income for the nine months ended September 30, 2025 was $6.7 million compared to $8.9 million for the same

period in 2024, a decrease of $2.2 million, or 24.7%.

The decrease was primarily attributable to a decrease in

income related to operations of oil and gas assets, see Note 2 of the financial statements.

Noninterest income for the three months ended March 31, 2026 was $2.0 million compared to $1.8 million for the same period in 2025, an increase of $0.2 million, or 11.9%.

Noninterest Expense

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For the Three Months Ended

September 30,

(Dollars in thousands)

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Total noninterest expense

Noninterest expense for the three months ended September 30, 2025 was $10.4 million compared to $9.4 million for the same period in 2024, an increase of $1.0 million, or 10.1%.

For the Nine Months Ended

September 30,

(Dollars in thousands)

Noninterest expense:

Noninterest expense for the three months ended March 31, 2026 was $10.3 million compared to $8.9 million for the same period in 2025, an increase of $1.5 million, or 16.4%.

Salaries and employee benefits

Furniture and equipment

Data and item processing

Accounting, marketing, and legal fees

Regulatory assessments

Advertising and public relations

Travel, lodging and entertainment

Other expense

Total noninterest expense

Noninterest expense for the nine months ended September 30, 2025 was $29.0 million compared to $27.7 million for the same

period in 2024, an increase of $ 1.3 million, or 4.7%.

expense was $6.3 million for the three months ended March 31, 2026 compared to $5.3 million for the same period in 2025, an increase of $1.1 million, or 19.9%.

The increase was primarily attributable to overall increases in compensation due

to the performance of the Company and to increases necessary to effectively compete for executive and non-executive talent.

Financial Condition

The following discussion of our financial condition compares September 30, 2025 and December 31, 2024.

Total assets increased $151.6 million , or 8.7%, to $1.89 billion as of September 30, 2025, compared to $1.74 billion as of December 31, 2024.

The following discussion of our financial condition compares March 31, 2026 and December 31, 2025.

Total assets decreased $18.6 million, or 1.0%, to $1.95 billion as of March 31, 2026, compared to $1.96 billion as of December 31, 2025.

Loan Portfolio

The following table presents the balance and associated percentage of each major category in our loan portfolio as of September 30, 2025 and December 31, 2024:

As of September 30,

Our loans represent the largest portion of our earning assets.

The quality and diversification of the loan portfolio is an important consideration when reviewing

our financial condition.

As of March 31, 2026, and December 31, 2025, our gross loans were $1.60 billion and $1.61 billion, respectively.

The following table presents the balance and associated percentage of each major category in our loan portfolio as of March 31, 2026 and December 31, 2025:

As of March 31,

As of December 31,

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Allowance for credit losses

Our loans represent the largest portion of our earning assets.

The quality and diversification of the loan portfolio is an important consideration when reviewing our

financial condition.

As of September 30, 2025, and December 31, 2024, our gross loans were $1.54 billion and $1.40 billion, respectively.

We have established internal concentration limits in the loan portfolio for Commercial Real Estate (CRE) loans, hospitality loans, energy loans, and construction loans, among others.

All loan types are within

our established limits.

We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service capabilities, and we further stress test the customer’s debt service capability under higher interest rate

scenarios as well as other underlying macro-economic factors.

Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.

We have established internal concentration limits in the loan portfolio for CRE loans, hospitality loans, energy loans, and construction loans, among others.

All loan types are within our established

We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios.

Financial and performance covenants are

used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.

Discussion of credit risk as it relates to commercial lending, which is primarily comprised of hospitality and energy

loans, is discussed under Item 1A.

Risk Factors on our most recent Annual Report on Form 10-K.

The following tables show the contractual maturities of our gross loans as of the periods below:

As of September 30, 2025

As of March 31, 2026

Due after One Year

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Allowance for Credit Losses

The allowance is based on management’s estimate of potential losses inherent in the loan portfolio.

The allowance is based on management’s estimate of probable losses in the loan portfolio.

In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each

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While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.

In addition, various regulatory agencies, as an integral

part of their examination process, periodically review the Company’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of

internal credit reviews.

In addition, various regulatory agencies, as an

integral part of their examination process, periodically review the Company’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the

results of internal credit reviews.

To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type.

Historical loss experience factors by segment, adjusted for changes in trends and conditions, are used

to determine an indicated allowance for each portfolio segment.

Historical loss experience factors by segment, adjusted for changes in trends and conditions, are

used to determine an indicated allowance for each portfolio segment.

These factors are evaluated and updated based on the composition of the specific loan segment.

Other considerations include volumes and trends of delinquencies, nonaccrual loans,

levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending

The allowance was $19.4 million at September 30, 2025, compared to $17.9 million at December 31, 2024.

Other considerations include volumes and trends of delinquencies,

nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and

abilities of our lending personnel.

In addition to the segment evaluations, impaired substandard loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific

allowance amount may be necessary.

Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from

the risk factor amounts established for its loan segment.

The allowance was $19.5 million at March 31, 2026, compared to $19.4 million at December 31, 2025.

The following table provides an analysis of the activity in our allowance for the periods indicated:

For the Nine Months Ended

September 30,

For the Three Months Ended

(Dollars in thousands)

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Net recoveries (charge-offs) to average loans

While the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance by loan category, and the percentage of allowance in each

category, for the periods indicated:

As of September 30,

in each category, for the periods indicated:

As of March 31,

As of December 31,

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Commercial & industrial

Nonperforming Assets

Nonaccrual Loans and Nonperforming Assets

Loans are considered delinquent when principal or interest payments are past due 30 days or more.

Delinquent loans may remain on accrual status between 30 days and 90 days past due.

Loans on which the accrual

of interest has been discontinued are designated as nonaccrual loans.

Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a

reasonable doubt as to collectability of the obligation.

Loans on which the

accrual of interest has been discontinued are designated as nonaccrual loans.

Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management,

there is a reasonable doubt as to collectability of the obligation.

When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income.

Income on a nonaccrual loan is

subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible.

Loans are restored to accrual status when loans become well-secured and management believes full collectability of

principal and interest is probable.

Income on a nonaccrual

loan is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible.

Loans are restored to accrual status when loans become well-secured and management believes full

collectability of principal and interest is probable.

Loans are evaluated for expected credit losses over their contractual term, reflecting management’s current estimate.

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modifications granted to borrowers experiencing financial difficulty are considered to have elevated credit risk and are carefully considered within our current expected credit loss methodology.

Income from loans placed on nonaccrual status

continues to be recognized to the extent cash is received and when the collectability of the loan’s principal balance is reasonably assured.

Depending on a particular loan’s risk characteristics, we estimate expected credit losses using

methods such as present value of expected future cash flows discounted at the loan’s effective interest rate, observable market prices for similar assets if available, or the fair value of collateral less estimated costs to sell for

collateral-dependent loans.

Depending on a particular loan’s risk

characteristics, we estimate expected credit losses using methods such as present value of expected future cash flows discounted at the loan’s effective interest rate, observable market prices for similar assets if available, or the

fair value of collateral less estimated costs to sell for collateral-dependent loans.

A loan is considered collateral-dependent when the expected source of repayment is primarily the liquidation of the collateral.

Fair value, where utilized, is determined by independent appraisals, typically on an

annual basis.

Between appraisal periods, the estimated fair value may be adjusted based on specific events, such as identified deterioration of collateral quality through our credit risk monitoring, or discussions with the borrower indicating

the appraised value may no longer reflect current market conditions.

The estimated credit losses are recognized as an allowance for credit losses, which is a valuation account.

Changes in the allowance for credit losses, whether increases or

decreases, are recorded in current period earnings as provision for credit losses.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned, or OREO, until sold, and is initially recorded at fair value less costs to sell when

acquired, establishing a new cost basis.

Fair value, where

utilized, is determined by independent appraisals, typically on an annual basis.

Between appraisal periods, the estimated fair value may be adjusted based on specific events, such as identified deterioration of collateral quality

through our credit risk monitoring, or discussions with the borrower indicating the appraised value may no longer reflect current market conditions.

The estimated credit losses are recognized as an allowance for credit losses, which is

a valuation account.

Changes in the allowance for credit losses, whether increases or decreases, are recorded in current period earnings as provision for credit losses.

sell when acquired, establishing a new cost basis.

Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest.

Nonperforming assets consist of nonperforming loans plus OREO.

Loans accounted for on a nonaccrual basis were $9.3 million as of March 31, 2026, and $6.5 million as of December 31, 2025.

OREO was $462,000, and $461,000 as of March 31, 2026, and December 31, 2025, respectively.

The following table presents information regarding nonperforming assets as of the dates indicated:

September 30,

(Dollars in thousands)

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Ratio of nonperforming assets to total assets

There are no loans modified to borrowers experiencing financial difficulty included in nonaccrual loans as of September 30, 2025 and December 31, 2024, respectively.

Includes nonaccrual financial difficulty modifications of $1.1 and $ 0 million as of March 31, 2026 and December 31, 2025, respectively.

See note 5 of the financial statements.

Excludes OREO of $462,000, and $461,000 as of March 31, 2026 and December 31, 2025, respectively, as the balances are not considered material for separate disclosure.

The following tables present an aging analysis of loans as of the dates indicated:

As of September 30, 2025

As of March 31, 2026

Total past due

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These loans generally conform to Bank policies, are characterized by policy-conforming advance rates on collateral, and have well-defined repayment sources.

addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.

In addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.

These loans are still considered “Pass” credits;

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Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows:

As of September 30, 2025

As of March 31, 2026

(Dollars in thousands)

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We gather deposits primarily through our twelve branch locations and online through our website.

We offer a variety of deposit products including demand deposit accounts and interest-bearing products, such

as savings accounts and certificates of deposit.

We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with

community networks.

Some of our interest-bearing deposits are obtained through brokered transactions.

We participate in the CDARS and ICS programs, where customer funds are placed into multiple deposit accounts, each in an amount under

the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States.

Total deposits as of September 30, 2025 and December 31, 2024 were $1.64 billion and $1.52 billion , respectively.

As of September 30, 2025, and December 31, 2024, brokered deposits were $387.6 million and $336.7 million , respectively.

We offer a variety of deposit products including demand deposit accounts and interest-bearing products,

such as savings accounts and certificates of deposit.

We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various

involvement with community networks.

To manage liquidity and provide expanded FDIC insurance for customer funds, we participate in reciprocal deposit programs, including the Certificate of Deposit Account Registry Service (“CDARS”) and

the Insured Cash Sweep (“ICS”) service.

These programs place customer funds into multiple accounts, each under the standard FDIC insurance maximum of $250,000, at a network of banks across the United States.

We also participate in the

One-Way Buy ICS service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements.

Of our interest-bearing deposits, some were obtained through brokered transactions.

As of March 31, 2026 and December 31, 2025, brokered deposits were $135.1 million, and $205.6 million, respectively.

Reciprocal deposits totaled $644.4 million and $576.5 million as of March 31, 2026 and December 31, 2025, respectively.

Uninsured deposits are defined as the portion of deposit accounts in U.S.

offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as

deposits and are not subject to any federal or state deposit insurance regimes.

Total uninsured deposits were $401.8 million and $354.2 million at

September 30, 2025 and December 31, 2024, respectively, as calculated per regulatory guidance.

These amounts were approximately 24.6% and 23.4% of deposits at September 30, 2025 and December 31,

2024, respectively.

The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.

As of September 30,

offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any federal or state deposit insurance regimes.

Total uninsured deposits were $405.8 million and $391.7 million as of

March 31, 2026 and December 31, 2025, respectively, as calculated per regulatory guidance.

These amounts were approximately 24.3% and 23.

2 % of deposits at March

31, 2026 and December 31, 2025, respectively.

Total deposits as of March 31, 2026 and December 31, 2025 were $1.67 billion and $1.70 billion , respectively.

The following table sets forth deposit balances by

certain categories as of the dates indicated and the percentage of each deposit category to total deposits.

As of March 31,

As of December 31,

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The following tables set forth the maturity of time deposits as of the dates indicated below:

As of September 30, 2025 Maturity Within:

As of March 31, 2026 Maturity Within:

(Dollars in thousands)

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Total time deposits

Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost.

We continuously monitor our

liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements.

We manage our liquidity position to meet the daily cash flow needs of customers, while

maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by the management of liquid assets and access to alternative sources of funds.

Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost.

continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements.

We manage our liquidity position to meet the daily cash flow needs

of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by management of liquid assets and access to alternative sources of funds.

Our liquid assets include cash, interest-bearing deposits in correspondent banks and fed funds sold.

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sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

As of September 30, 2025, we had no unsecured fed funds lines with correspondent depository institutions, with no corresponding amounts advanced.

In addition, based on the values of loans pledged as collateral, we had borrowing

availability with the FHLB of $217.6 million as of September 30, 2025 and $190.9 million as of December 31, 2024, and we had access to approximately $298.4 million in liquidity with the Federal Reserve Bank as of September 30, 2025 and $336.1 million as of December 31, 2024.

As of March 31, 2026, we had no unsecured fed funds lines with correspondent depository institutions, with no amounts advanced.

In addition, based on the values of loans pledged as collateral, we had borrowing availability with the FHLB of $218.1 million as of March 31, 2026 and $ 213.8 million as of December 31, 2025, and we had access to approximately $301.1

million in liquidity with the Federal Reserve Bank as of March 31, 2026 and $288.6 million as of December 31, 2025.

Capital Requirements

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discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.

Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), 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 policies.

Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below),

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 policies.

The capital amounts and classifications are

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ratios of CET1 capital, Tier 1 capital, total capital to risk-weighted assets, and Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”

As of September 30, 2025, the Bank was in compliance with all applicable regulatory requirements and categorized as “well-capitalized” under the prompt corrective action frame work.

There have been no conditions or events since September 30, 2025 that management believes would change this classification.

The table below presents our applicable capital requirements, as well as our capital ratios as of September 30,

2025 and December 31, 2024.

The Company exceeded all regulatory capital requirements and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.

Basel III Capital Rules

As of March 31, 2026, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action frame work.

There have been no conditions or events since March 31, 2026

that management believes would change this classification.

The table below presents our applicable capital requirements, as well as our capital ratios as of March 31, 2026 and December 31, 2025.

Company exceeded all regulatory capital requirements and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.

Under the Basel III Capital Rules, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a

banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements.

As of September 30, 2025, the Company and the Bank met all capital adequacy requirements under the

As of March 31, 2026, the Company and the Bank met all capital adequacy requirements under the

Basel III Capital Rules.

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(Dollars in thousands)

As of September 30, 2025

As of March 31, 2026

Total capital (to risk-weighted assets)

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Tier 1 capital (to average assets)

With Capital Conservation Buffer

Conservation Buffer

Minimum to be “Well-

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Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments.

Total shareholders’ equity increased $28.5 million as of September 30, 2025 to $241.7 million, compared to $213.2 million as of December 31, 2024.

Total shareholders’ equity increased $8.8 million as of March 31, 2026 to $259.8 million, co mpared to $251.0 million as of December 31, 2025.

Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations as of September 30, 2025, and December 31, 2024:

Payments Due as of September 30, 2025

One to Three Years

Three to Five Years

The following tables contain supplemental information regarding our total contractual obligations as of March 31, 2026, and December 31, 2025:

Payments Due as of March 31, 2026

Three to Five

(Dollars in thousands)

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Payments Due as of December 31, 2025

One to Three Years

Three to Five Years

Three to Five

(Dollars in thousands)

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those instruments reflect the extent of involvement we have in particular classes of financial instruments.

To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the balance sheet.

To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the balance

Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract.

Standby letters of credit are conditional commitments issued by the Bank

to guarantee the performance of the customer to a third party.

Standby letters of credit are conditional commitments issued by the

Bank to guarantee the performance of the customer to a third party.

They are intended to be disbursed, subject to certain conditions, upon request of the borrower.

The following table summarizes commitments as of the dates presented.

September 30,

(Dollars in thousands)

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These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes.

These estimates, assumptions and judgments are

based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement.

In particular,

management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

These estimates, assumptions and judgments

are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement.

particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments.

information about these policies can be found in Note 1 of the Company’s consolidated financial statements included in the Annual Report on the Form 10-K.

Allowance for Credit Losses

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In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine

risk potential in loans is utilized together with the results of internal credit reviews.

To determine the adequacy of the allowance, the loan portfolio is broken into pools based on loan type and risk characteristics.

Historical loss experience factors by pool, adjusted for changes in trends

and conditions, are used to determine an indicated allowance for each portfolio pool.

These factors are evaluated and updated based on the composition of the specific loan pool.

Other considerations include volumes and trends of

delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the

experience and abilities of our lending personnel.

In addition to the pool evaluations, classified loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific

allowance amount may be necessary.

the risk factor amounts established for its loan pool.

Goodwill and Intangibles

Intangible assets totaled $784,000 and goodwill, net of accumulated amortization, totaled $11.2 million as of September 30, 2025, compared to intangible assets of $878,000 and goodwill

of $8.5 million as of December 31, 2024.

Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities

assumed as of the acquisition date.

Goodwill is tested annually for impairment or more frequently if other impairment indicators are present.

If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment

is indicated and goodwill is written down to its implied fair value.

Subsequent increases in goodwill value are not recognized in the accompanying consolidated financial statements.

Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on an estimated useful life of 10 years.

Such assets are periodically

evaluated as to the recoverability of their carrying values.

We file a consolidated income tax return.

Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying amounts and tax

basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized.

The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future.

Changes in these accruals are reported as

tax expense, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences.

Changes periodically occur in the estimates due to changes in tax rates, tax laws and

regulations and implementation of new tax planning strategies.

The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors.

Management performs an analysis of our tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years.

The Company’s effective tax rate was 23.6% for the third quarter of 2025, which was consistent with the rate of 24.2%

for the same period in 2024.

Our effective tax rate differs from the U.S.

federal statutory rate of 21% primarily due to the effect of state income taxes, tax-exempt income earned on certain loans and investments, and nondeductible

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market

participants at the measurement date.

The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters.

financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value.

When observable market prices and parameters are not available,

management judgment is necessary to estimate fair value.

In addition, changes in market conditions may reduce the availability of quoted prices or the observable date.

Debt securities that are being held for indefinite periods of time and

are not intended to sell, are classified as available for sale and are stated at estimated fair value.

Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders’ equity and comprehensive

income, net of income tax.

The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly.

The Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be

required to sell, the securities before recovery of the amortized cost basis.

If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense.

If either of the above

criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors.

In making this assessment, the Company considers, among other things, the period of time the security has been

in an unrealized loss position, and performance of any underlying collateral and adverse conditions specifically related to the security.

The estimates of fair values of debt securities and other financial instruments are based on a variety of factors.

In some cases, fair values represent quoted market prices for identical or comparable

In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk.

Accordingly, the fair values

may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to

determine risk potential in loans is utilized together with the results of internal credit reviews.

To estimate the allowance for credit losses, the loan portfolio is segmented based on shared risk characteristics, primarily by loan type.

Historical credit loss experience for each segment, adjusted for

relevant current conditions and reasonable and supportable forecasts, is a significant input in determining the expected credit losses for each portfolio segment under the current expected credit loss methodology.

These historical loss

factors and adjustments are regularly evaluated and updated based on the evolving composition of each loan segment.

Other considerations in our current expected credit loss estimation process include current volumes and trends of

delinquencies, nonaccrual loans, levels of bankruptcies, trends in criticized and classified loans, expected losses on real estate secured loans, impact of new credit products and policies, current and forecasted economic conditions,

concentrations of credit risk, and the experience and abilities of our lending personnel in the current environment.

In addition to these segment-level estimations, loans with larger balances or unique risk profiles may be further

analyzed based on specific facts and circumstances to refine the overall expected credit loss estimate.

This individual analysis helps ensure the allowance for credit losses appropriately reflects the expected losses inherent in the

Adjustments to the segment-level or portfolio-level expected credit loss estimates may be necessary when specific loan characteristics warrant a different loss expectation than indicated by the segment risk factors.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis