Bank7 Corp. 10-Q

ITEM 2. 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 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. All references to “the Bank” refer to Bank7, our wholly owned subsidiary. General We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma. Through our wholly-owned subsidiary, Bank7, we operate twelve full-service branches in Oklahoma, the Dallas/Fort Worth, Texas metropolitan area and Kansas. We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed loan and deposit products to meet their financing needs. We intend to grow organically by selectively 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 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 $1.59 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. 34 Table of Contents 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 loan. 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 below. 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 $ 5,751 $ 5,692 Add back non-cash expenses: Depletion 9,134 9,134 Amortization & accretion 81 81 Net cash flow from operations (Non-GAAP) $ 14,966 $ 14,907 Remaining accruals to be settled 68 Add: Sales proceeds from final disposition (April 2026) 5,164 Total cash generated by asset (Non-GAAP) $ 20,139 Less: Initial cash outlay for acquisition (Q4 2023) (16,481 ) Net cash returned (Non-GAAP) $ 3,658 Initial cash outlay for acquisition (Q4 2023) $ (16,487 ) Cash inflows: Net cash receipts from operator statements 14,907 Sales proceeds from minor asset sales (2024) 17 Sales proceeds from final disposition (April 2026) 5,164 Total cash inflows $ 20,088 Cash outflows: Transaction costs and other adjustments 57 Total Cash outflows $ 57 Net cash returned (Non-GAAP) $ 3,658 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. GAAP. 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 above. 35 Table of Contents Results of Operations Net Interest Income and Net Interest Margin 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; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities, and the resultant average rates; (iii) net interest income; and (iv) the net interest margin. Net Interest Margin For the Three Months Ended March 31, 2026 2025 Average Balance Interest Income/ Expense Average Yield/ Rate Average Balance Interest Income/ Expense Average Yield/ Rate (Dollars in thousands) Interest-earning assets: Short-term investments $ 210,047 $ 1,861 3.60 % $ 238,048 $ 2,768 4.72 % Debt securities, taxable 43,564 250 2.33 48,637 283 2.36 Debt securities, tax exempt (1) 11,052 59 2.17 12,514 63 2.04 Loans held for sale 1,983 - - 580 - - Total loans (2) 1,596,201 31,613 8.03 1,398,350 27,324 7.92 Total interest-earning assets 1,862,847 $ 33,783 7.35 1,698,129 $ 30,438 7.27 Noninterest-earning assets 41,295 39,957 Total assets $ 1,904,142 $ 1,738,086 Funding sources: Interest-bearing liabilities: Deposits: Transaction accounts $ 1,058,572 $ 7,223 2.77 % $ 956,891 $ 7,118 3.02 % Time deposits 264,608 2,368 3.63 236,325 2,482 4.26 Total interest-bearing deposits 1,323,180 9,591 2.94 1,193,216 9,600 3.62 Total interest-bearing liabilities 1,323,180 9,591 2.94 1,193,216 9,600 3.62 Noninterest-bearing liabilities: Noninterest-bearing deposits 315,426 316,544 Other noninterest-bearing liabilities 9,515 9,983 Total noninterest-bearing liabilities 324,941 326,527 Shareholders’ equity 256,021 218,343 Total liabilities and shareholders’ equity $ 1,904,142 $ 1,738,086 Net interest income $ 24,192 $ 20,838 Net interest spread 4.41 % 4.01 % Net interest margin 5.27 % 4.98 % (1) Taxable-equivalent yield of 2.85% as of March 31, 2026 , applying a 24.1% effective tax rate. (2) 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; and - Net interest margin was 5.27% compared to 4.98%. 36 Table of Contents Increases and decreases in interest income and interest expense result from changes in average balances, or volume, of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Analysis of Changes in Interest Income and Expenses For the Three Months Ended March 31, 2026 vs 2025 Change due to: Volume (1) Rate (1) Interest Variance (Dollars in thousands) Increase (decrease) in interest income: Short-term investments $ (326 ) $ (581 ) $ (907 ) Debt securities (37 ) - (37 ) Total loans 3,866 423 4,289 Total increase (decrease) in interest income 3,503 (158 ) 3,345 Increase (decrease) in interest expense: Deposits: Transaction accounts 756 (651 ) 105 Time deposits 297 (411 ) (114 ) Total interest-bearing deposits 1,053 (1,062 ) (9 ) Total increase (decrease) in interest expense 1,053 (1,062 ) (9 ) Increase (decrease) in net interest income $ 2,450 $ 904 $ 3,354 (1) 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. 37 Table of Contents 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. 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 March 31, 2026 After One Year But After Five Years But Within One Year Within Five Years Within Ten Years After Ten Years Total Amount Yield * Amount Yield * Amount Yield * Amount Yield * Amount Yield * Available-for-sale (Dollars in thousands) U.S. federal agencies $ 7 2.62 % $ - 0.00 % $ - 0.00 % $ - 0.00 % $ 7 2.62 % Mortgage-backed securities 2,224 1.45 5,683 1.37 903 1.42 15,940 1.72 24,750 1.61 State and political subdivisions 3,049 1.52 9,465 1.61 4,136 1.69 - - 16,650 1.62 U.S. treasuries 987 0.97 4,598 1.10 - - - - 5,585 1.08 Corporate debt securities - - - - 5,148 3.36 - - 5,148 3.36 Total $ 6,267 1.41 % $ 19,746 1.42 % $ 10,187 2.50 % $ 15,940 1.72 % $ 52,140 1.73 % Percentage of total 12.02 % 37.87 % 19.54 % 30.57 % 100.00 % *Yield is on a taxable-equivalent basis using 21% tax rate Provision for Credit Losses For the three months ended March 31, 2026 compared to the three months ended March 31, 2025, there was no provision for credit losses. Income Taxes 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 liabilities. 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. 38 Table of Contents Noninterest Income The following tables set forth the major components of our noninterest income for the periods indicated: For the Three Months Ended March 31, 2026 2025 $ Increase % Increase (Decrease) (Decrease) (Dollars in thousands) Noninterest income: Mortgage lending income $ 375 $ 93 $ 282 303.23 % Service charges on deposit accounts 249 218 31 14.22 % Other income and fees 1,342 1,446 (104 ) -7.19 % Total noninterest income $ 1,966 $ 1,757 $ 209 11.90 % 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 The following tables set forth the major components of our noninterest expense for the periods indicated: For the Three Months Ended March 31, 2026 2025 $ Increase % Increase (Decrease) (Decrease) (Dollars in thousands) Noninterest expense: Salaries and employee benefits $ 6,331 $ 5,280 $ 1,051 19.91 % Furniture and equipment 342 250 92 36.80 % Occupancy 686 592 94 15.88 % Data and item processing 543 510 33 6.47 % Accounting, marketing, and legal fees 585 105 480 457.14 % Regulatory assessments 259 83 176 212.05 % Advertising and public relations 172 194 (22 ) -11.34 % Travel, lodging and entertainment 71 56 15 26.79 % Other expense 1,348 1,812 (464 ) -25.61 % Total noninterest expense $ 10,337 $ 8,882 $ 1,455 16.38 % 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 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. 39 Table of Contents Financial Condition The following discussion of our financial condition compares March 31, 2026 and December 31, 2025. Total Assets 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 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, 2026 2025 Amount % of Total Amount % of Total (Dollars in thousands) Construction & development $ 229,894 14.4 % $ 224,566 14.0 % 1-4 family real estate 135,393 8.5 % 126,122 7.8 % Commercial real estate - other 594,921 37.3 % 587,597 36.5 % Total commercial real estate 960,208 60.2 % 938,285 58.3 % Commercial & industrial 535,978 33.6 % 567,280 35.2 % Agricultural 87,714 5.4 % 90,908 5.7 % Consumer 12,645 0.8 % 12,894 0.8 % Gross loans 1,596,545 100.0 % 1,609,367 100.0 % Less: unearned income, net (2,717 ) (2,936 ) Total Loans, net of unearned income 1,593,828 1,606,431 Less: Allowance for credit losses (19,452 ) (19,407 ) Net loans $ 1,574,376 $ 1,587,024 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 limits. 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. 40 Table of Contents The following tables show the contractual maturities of our gross loans as of the periods below: As of March 31, 2026 Due after One Year Due after Five Years Due in One Year or Less Through Five Years Through Fifteen Years Due after Fifteen Years Fixed Adjustable Fixed Adjustable Fixed Adjustable Fixed Adjustable Total Rate Rate Rate Rate Rate Rate Rate Rate (Dollars in thousands) Construction & development $ 10,186 $ 126,201 $ 1,549 $ 90,531 $ - $ 386 $ 1,041 $ - $ 229,894 1-4 family real estate 9,289 24,735 29,161 63,797 748 5,750 1,913 - 135,393 Commercial real estate - other 30,539 54,352 53,025 405,237 136 45,894 5,738 - 594,921 Total commercial real estate 50,014 205,288 83,735 559,565 884 52,030 8,692 - 960,208 Commercial & industrial 41,170 285,890 13,926 162,792 80 31,552 568 - 535,978 Agricultural 29,873 14,872 4,800 35,218 - 1,582 1,369 - 87,714 Consumer 2,108 3 4,450 298 868 3,697 1,221 - 12,645 Gross loans $ 123,165 $ 506,053 $ 106,911 $ 757,873 $ 1,832 $ 88,861 $ 11,850 $ - $ 1,596,545 As of December 31, 2025 Due after One Year Due after Five Years Due in One Year or Less Through Five Years Through Fifteen Years Due after Fifteen Years Fixed Adjustable Fixed Adjustable Fixed Adjustable Fixed Adjustable Total Rate Rate Rate Rate Rate Rate Rate Rate (Dollars in thousands) Construction & development $ 638 $ 116,658 $ 10,497 $ 95,444 $ - $ 399 $ 930 $ - $ 224,566 1-4 family real estate 7,281 21,031 32,503 56,599 775 5,533 2,400 - 126,122 Commercial real estate - other 22,817 41,301 66,266 412,436 139 38,515 6,123 - 587,597 Total commercial real estate 30,736 178,990 109,266 564,479 914 44,447 9,453 - 938,285 Commercial & industrial 47,266 293,406 14,097 173,586 107 38,246 572 - 567,280 Agricultural 31,633 10,926 6,560 37,162 - 3,253 1,374 - 90,908 Consumer 1,747 2 4,866 258 806 3,714 1,501 - 12,894 Gross loans $ 111,382 $ 483,324 $ 134,789 $ 775,485 $ 1,827 $ 89,660 $ 12,900 $ - $ 1,609,367 Allowance for Credit Losses 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 balance sheet date. 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. 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. 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 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. 41 Table of Contents The following table provides an analysis of the activity in our allowance for the periods indicated: For the Three Months Ended March 31, 2026 2025 (Dollars in thousands) Balance at beginning of the period $ 19,407 $ 17,918 Provision for credit losses for loans - - Charge-offs: Construction & development - - 1-4 family real estate - - Commercial real estate - other - (197 ) Commercial & industrial - - Agricultural - - Consumer - (3 ) Total charge-offs - (200 ) Recoveries: Construction & development - - 1-4 family real estate - - Commercial real estate - other 43 - Commercial & industrial 2 442 Agricultural - 2 Consumer - - Total recoveries 45 444 Net recoveries (charge-offs) 45 244 Balance at end of the period $ 19,452 $ 18,162 Net recoveries (charge-offs) to average loans 0.01 % 0.07 % 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 March 31, As of December 31, 2026 2025 Amount Percent Amount Percent (Dollars in thousands) Construction & development $ 1,165 6.0 % $ 1,222 6.3 % 1-4 family real estate 1,084 5.6 % 964 5.0 % Commercial real estate - other 6,701 34.4 % 6,855 35.3 % Commercial & industrial 9,649 49.6 % 9,369 48.2 % Agricultural 490 2.5 % 612 3.2 % Consumer 363 1.9 % 385 2.0 % Total $ 19,452 100.0 % $ 19,407 100.0 % 42 Table of Contents 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. 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. Loans are evaluated for expected credit losses over their contractual term, reflecting management’s current estimate. Loans placed on nonaccrual status and loan 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. 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. 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: As of March 31, 2026 As of December 31, 2025 (Dollars in thousands) Nonaccrual loans (1) $ 9,258 $ 6,460 Accruing loans 90 or more days past due 17 - Total nonperforming assets (2) $ 9,275 $ 6,460 Ratio of nonperforming loans to total loans 0.58 % 0.40 % Ratio of nonaccrual loans to total loans 0.58 % 0.40 % Ratio of allowance for credit losses to total loans 1.22 % 1.21 % Ratio of allowance for credit losses to nonaccrual loans 210.11 % 300.42 % Ratio of nonperforming assets to total assets 0.48 % 0.33 % (1) 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. (2) 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. 43 Table of Contents The following tables present an aging analysis of loans as of the dates indicated: As of March 31, 2026 Loans 30-59 days past due Loans 60-89 days past due Loans 90+ days past due Loans 90+ days past due and accruing Total past due loans Current Gross loans (Dollars in thousands) Construction & development $ - $ 8,031 $ - $ - $ 8,031 $ 221,863 $ 229,894 1-4 family real estate 410 - 17 17 427 134,966 135,393 Commercial real estate - other - - - - - 594,921 594,921 Commercial & industrial - - 54 - 54 535,924 535,978 Agricultural - - - - - 87,714 87,714 Consumer - - - - - 12,645 12,645 Total $ 410 $ 8,031 $ 71 $ 17 $ 8,512 $ 1,588,033 $ 1,596,545 As of December 31, 2025 Loans 30-59 days past due Loans 60-89 days past due Loans 90+ days past due Loans 90+ days past due and accruing Total Past Due Loans Current Gross loans (Dollars in thousands) Construction & development $ 79 $ - $ - $ - $ 79 $ 224,487 $ 224,566 1-4 family real estate 47 - - - 47 126,075 126,122 Commercial real estate - other - 1,423 - - 1,423 586,174 587,597 Commercial & industrial 1,702 80 3,429 - 5,211 562,069 567,280 Agricultural - - - - - 90,908 90,908 Consumer 30 - - - 30 12,864 12,894 Total $ 1,858 $ 1,503 $ 3,429 $ - $ 6,790 $ 1,602,577 $ 1,609,367 44 Table of Contents In addition to the past due and nonaccrual criteria, we also evaluate loans according to our internal risk grading system. Loans are segregated between pass, watch, special mention, and substandard categories. The definitions of those categories are as follows: Pass : These loans generally conform to Bank policies, are characterized by policy-conforming advance rates on collateral, and have well-defined repayment sources. In addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history. Watch : These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial conditions, or deficiencies in loan documentation, or other risk issues determined by the lending officer, Commercial Loan Committee or Credit Quality Committee warrant a heightened sense and frequency of monitoring. Special mention : These loans have observable weaknesses or evidence of imprudent handling or structural issues. The weaknesses require close attention, and the remediation of those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade. Substandard : These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well-secured. The loans have defined weaknesses relative to cash flow, collateral, financial condition or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated. Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows: As of March 31, 2026 Pass Watch Special mention Substandard Total (Dollars in thousands) Construction & development $ 220,548 $ - $ 1,315 $ 8,031 $ 229,894 1-4 family real estate 135,376 - - 17 135,393 Commercial real estate - other 568,480 17,943 8,436 62 594,921 Commercial & industrial 491,768 37,500 5,545 1,165 535,978 Agricultural 83,800 - 3,914 - 87,714 Consumer 12,645 - - - 12,645 Total $ 1,512,617 $ 55,443 $ 19,210 $ 9,275 $ 1,596,545 As of December 31, 2025 Pass Watch Special mention Substandard Total (Dollars in thousands) Construction & development $ 222,688 $ - $ 1,323 $ 555 $ 224,566 1-4 family real estate 126,122 - - - 126,122 Commercial real estate - other 561,134 18,077 6,893 1,493 587,597 Commercial & industrial 505,252 37,285 18,908 5,835 567,280 Agricultural 87,129 - 3,779 - 90,908 Consumer 12,894 - - - 12,894 Total $ 1,515,219 $ 55,362 $ 30,903 $ 7,883 $ 1,609,367 45 Table of Contents Deposits 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. 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 $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, 2026 2025 Amount Percentage of Total Amount Percentage of Total (Dollars in thousands) Noninterest-bearing demand $ 336,801 20.2 % $ 341,416 20.1 % Interest-bearing transaction deposits 970,797 58.1 % 1,023,325 60.2 % Savings deposits 93,328 5.6 % 92,604 5.4 % Time deposits (less than $250,000) 176,096 10.5 % 147,263 8.7 % Time deposits ($250,000 or more) 94,359 5.6 % 96,225 5.7 % Total interest-bearing deposits 1,334,580 79.8 % 1,359,417 79.9 % Total deposits $ 1,671,381 100.0 % $ 1,700,833 100.0 % The following tables set forth the maturity of time deposits as of the dates indicated below: As of March 31, 2026 Maturity Within: Three Months Three to Six Months Six to 12 Months After 12 Months Total (Dollars in thousands) Time deposits (less than $250,000) $ 65,574 $ 48,242 $ 57,693 $ 4,587 $ 176,096 Time deposits ($250,000 or more) 20,511 24,316 48,338 1,194 94,359 Total time deposits $ 86,085 $ 72,558 $ 106,031 $ 5,781 $ 270,455 As of December 31, 2025 Maturity Within: Three Months Three to Six Months Six to 12 Months After 12 Months Total (Dollars in thousands) Time deposits (less than $250,000) $ 56,951 $ 45,791 $ 37,766 $ 6,755 $ 147,263 Time deposits ($250,000 or more) 37,413 21,015 20,278 17,519 96,225 Total time deposits $ 94,364 $ 66,806 $ 58,044 $ 24,274 $ 243,488 46 Table of Contents Liquidity 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. 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 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. Other available sources of liquidity include wholesale deposits and borrowings from correspondent banks and FHLB advances. Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan portfolios, and increases in customer deposits. Other alternative 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 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 The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional 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. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Qualitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and 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 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. 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. 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 March 31, 2026, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules. 47 Table of Contents Actual With Capital Conservation Buffer Minimum to be “Well- Capitalized” Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of March 31, 2026 Total capital (to risk-weighted assets) Company $ 270,494 15.96 % $ 177,993 10.50 % N/A N/A Bank 270,454 15.96 % 177,887 10.50 % $ 169,416 10.00 % Tier 1 capital (to risk-weighted assets) Company 250,578 14.78 % 144,090 8.50 % N/A N/A Bank 250,538 14.79 % 144,004 8.50 % 135,533 8.00 % CET 1 capital (to risk-weighted assets) Company 250,578 14.78 % 118,662 7.00 % N/A N/A Bank 250,538 14.79 % 118,592 7.00 % 110,121 6.50 % Tier 1 capital (to average assets) Company 250,578 13.24 % N/A N/A N/A N/A Bank 250,538 13.24 % N/A N/A 94,611 5.00 % Actual With Capital Conservation Buffer Minimum to be “Well- Capitalized” Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of December 31, 2025 Total capital (to risk-weighted assets) Company $ 261,451 15.24 % $ 180,076 10.50 % N/A N/A Bank 261,411 15.25 % 179,970 10.50 % $ 171,400 10.00 % Tier 1 capital (to risk-weighted assets) Company 241,580 14.09 % 145,776 8.50 % N/A N/A Bank 241,540 14.09 % 145,690 8.50 % 137,120 8.00 % CET 1 capital (to risk-weighted assets) Company 241,580 14.09 % 120,051 7.00 % N/A N/A Bank 241,540 14.09 % 119,980 7.00 % 111,410 6.50 % Tier 1 capital (to average assets) Company 241,580 12.82 % N/A N/A N/A N/A Bank 241,540 12.82 % N/A N/A 94,213 5.00 % 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 $8.8 million as of March 31, 2026 to $259.8 million, co mpared to $251.0 million as of December 31, 2025. 48 Table of Contents Contractual Obligations 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 Within One Year One to Three Years Three to Five Years After Five Years Total (Dollars in thousands) Deposits without a stated maturity $ 1,400,926 $ - $ - $ - $ 1,400,926 Time deposits 264,673 5,392 384 6 270,455 Operating lease commitments 592 988 368 353 2,301 Total contractual obligations $ 1,666,191 $ 6,380 $ 752 $ 359 $ 1,673,682 Payments Due as of December 31, 2025 Within One Year One to Three Years Three to Five Years After Five Years Total (Dollars in thousands) Deposits without a stated maturity $ 1,457,345 $ - $ - $ - $ 1,457,345 Time deposits 219,214 23,893 381 - 243,488 Operating lease commitments 621 798 368 359 2,146 Total contractual obligations $ 1,677,180 $ 24,691 $ 749 $ 359 $ 1,702,979 We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs. Off-Balance Sheet Arrangements We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contractual or notional amounts of 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. 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. 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. March 31, 2026 December 31, 2025 (Dollars in thousands) Commitments to extend credit $ 339,863 $ 324,748 Standby letters of credit 16,817 19,540 Total $ 356,680 $ 344,288 49 Table of Contents Critical Accounting Policies and Estimates Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. 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. 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. Additional 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 The allowance is based on management’s estimate of probable losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and changes in the composition of the loan portfolio. 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 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 portfolio. 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. 50 Table of Contents