What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-10 compared with 2026-05-11 · 330 added, 224 removed, 323 unchanged (63% of the section changed)

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.

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.

consolidated subsidiaries.

and its 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 full-service branches in Oklahoma, the Dallas/Fort Worth, Texas

metropolitan area and Kansas.

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.

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.

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.

Q2 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.

We reported total loans of $1.60 billion as of June 30 , 2026, an increase of $100.0 million, or 6.7%, from June 30, 2025.

Total deposits were $1.64 billion as of June 30, 2026, an increase of $43.7

million, or 2.7%, from June 30, 2025 .

Income before taxes was $11.0 million, a decrease of $3.7 million, or 25.1%, for the three months ended June 30, 2026 as compared to income before taxes of $14.7

million for the same period in 2025 .

Income before taxes was $26.8 million, a decrease of $1.6 million, or 5.6%, for the six months ended

June 30, 2026 as compared to income before taxes of $28.4 million for the same period in 2025 .

Pre-tax return on average assets and return on average equity was 2.37% and 16.76%, respectively for the three months ended June 30, 2026 , as compar ed to 3.27% and

25.99%, respectively , for the same period in 2025 .

Pre-tax return on average assets and return on average equity was 2.87% and 20.83%, respectively for the six months ended June 30, 2026 , as compar ed to 3.24% and 25.74%, respectively , for the same period in 2025 .

Our efficiency ratio for the three

months ended June 30, 2026 was 52.05% as compared to 39.95% for the same period in 2025.

Our efficiency ratio for the six months ended June 30, 2026 was 45.18% as compared to 39.44% for the same period in 2025.

The increases in the efficiency ratios for the 2026 periods were primarily driven by the disposition

of the Company’s oil and gas assets in the second quarter, which resulted in a $2.1 million pre-tax loss recorded in noninterest expense and a corresponding reduction in oil and gas related noninterest income.

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

During the second quarter of 2026, management 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.

Over the holding period, the Company received cash proceeds from oil and gas sales of $15.0 million, and when that is combined with the final second quarter sale proceeds of $5.2

million, the total cash recovery of $20.2 million exceeds the initial $16.5 million cash outlay by $3.7 million.

Over the holding period from the fourth quarter of 2023 through the disposition in the second quarter of 2026, these assets

generated cumulative pre-tax net income of approximately $3.7 million (which includes the $2.1 million non-cash loss on sale recognized in the second quarter), 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

June 30, 2026

Income before taxes

Loss on sale of oil and gas assets

GAAP Income before taxes

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Amortization & accretion

Loss on sale of oil and gas assets

Net cash flow from operations (Non-GAAP)

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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.

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

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

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

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

(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;

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Net Interest Margin

For the Three Months Ended March 31,

For the Three Months Ended June 30,

(Dollars in thousands)

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Net interest margin

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;

Taxable-equivalent yield of 2.85% as of June 30, 2026 , applying a 24.2% effective tax rate.

Average loan balances include monthly average nonaccrual loans of $4.7 million and $5.7 million for the three months ended June 30, 2026 and June 30, 2025, respectively.

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

Total interest income on loans increased $0 million, or 0.1%, to $29.0 million, due to an increase in the average loan balance of $139.6 million;

Interest income on short-term investments decreased by $0.8 million, driven by a $63.4 million decline in average balances combined with lower yields;

Yields on our total interest-earning assets decreased by 46 basis points to 6.79%, which was driven predominantly by a 70 basis point decline in loan yields, and to a lesser extent, a 44 basis point decrease in yields on short-term

Net interest margin was 4.81% compared to 4.96%.

Net Interest Margin

For the Six Months Ended June 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 2.87% as of June 30, 2026 , applying a 24.2% effective tax rate.

Average loan balances include monthly average nonaccrual loans of $7.4 million and $6.2 million for the six months ended June 30, 2026 and June 30, 2025, respectively.

For the six months ended June 30, 2026 compared to the six months ended June 30, 2025:

Total interest income on loans increased $4.3 million, or 7.6%, to $60.6 million, due to an increase in the average loan balance of $168.5 million;

Interest income on short-term investments decreased by $1.7 million, driven by a $45.8 million decline in average balances combined with lower yields;

Yields on our total interest-earning assets decreased by 19 basis points to 7.07%, which was driven predominantly by a 30 basis point decline in loan yields, and to a lesser extent, a 77 basis point decrease in yields on short-term

Net interest margin was 5.04% compared to 4.97%.

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

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For the Three Months Ended

March 31, 2026 vs 2025

June 30, 2026 vs 2025

Change due to:

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Increase (decrease) in net interest income

Analysis of Changes in Interest Income and Expenses

For the Six Months Ended

June 30, 2026 vs 2025

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

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.

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

After Five Years But

The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at June 30, 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 June 30, 2026

Within One Year

After One Year But

Within Five Years

After Five Years But

Within Ten Years

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(Dollars in thousands)

federal agencies

Mortgage-backed securities

4 unchanged sentences

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.

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.

There was no provision for credit losses for three and six months ended June 30, 2026 and June 30, 2025.

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.

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 and six months ended June 30, 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.

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

Our provision for income taxes was $2.7 million for the three months ended June 30, 2026, compared to $3.6 million for same period in 2025.

This resulted in an effective tax rate of 24.23% in 2026, compared to 24.49%

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 for the three months ended June 30, 2026 and 2025 totaled $6.1 million and $7.2 million, respectively, reflecting our domestic jurisdictional

profile and the timing of estimated tax payments.

Our provision for income taxes was $6.5 million for the six months ended June 30, 2026, compared to $7.0 million for the same period in 2025.

This resulted in an effective tax rate of 24.16% in 2026, compared to

24.56% 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.

Cash taxes paid for the six months ended June 30, 2026 and 2025 totaled $6.1 million and $7.2 million, respectively, reflecting our domestic

jurisdictional profile and the timing of estimated tax payments.

Noninterest Income

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Total noninterest income

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 income for the three months ended June 30, 2026 was $1.0 million compared to $2.7 million for the same period in 2025, a decrease of $1.7 million, or 62.9%.

The decrease was primarily driven by a $1.6 million decline in ‘Other

income and fees’, which was attributable to the absence of oil and gas related revenues during the second quarter of 2026 following the disposition of the Company’s oil and gas assets.

For comparison, the Company recognized $1.6 million of oil

and gas related revenues during the same period in 2025.

For the Six Months Ended

(Dollars in thousands)

Noninterest income:

Mortgage lending income

Service charges on deposit accounts

Other income and fees

Total noninterest income

Noninterest income for the six months ended June 30, 2026 was $3.0 million compared to $4.5 million for the same period in 2025, a decrease of $1.5 million, or 33.4%.

The decrease was primarily driven by a $1.7 million decline in ‘Other

income and fees’, which was largely attributable to a reduction in oil and gas related revenues following the disposition of the Company’s oil and gas assets early in the second quarter of 2026.

The Company recognized $0.9 million of oil and

gas related revenues during the six months ended June 30, 2026, compared to $2.7 million for the same period in 2025.

Noninterest Expense

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Total 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%.

Noninterest expense for the three months ended June 30, 2026 was $11.9 million compared to $9.7 million for the same period in 2025, an increase of $2.2 million, or 22.2%.

Salaries and employee benefits expense was $6.2 million for the three

months ended June 30, 2026 compared to $5.7 million for the same period in 2025, an increase of $0.5 million, or 8.3%.

The increase in salaries and employee benefits was primarily attributable to overall increases in compensation tied to

Company performance and efforts to effectively compete for executive and non-executive talent.

Additionally, ‘Other expense’ increased by $1.4 million, which was primarily driven by a $2.1 million pre-tax loss recognized on the disposition of

the Company’s oil and gas assets during the second quarter of 2026.

For the Six Months Ended

(Dollars in thousands)

Noninterest expense:

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.

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 six months ended June 30, 2026 was $22.2 million compared to $18.6 million for the same period in 2025, an increase of $3.6 million, or 19.4%.

Salaries and employee benefits expense was $12.5 million for the six

months ended June 30, 2026 compared to $11.0 million for the same period in 2025, an increase of $1.5 million, or 13.9%.

The increase in salaries and employee benefits was primarily attributable to overall increases in compensation tied to

Company performance and efforts to effectively compete for executive and non-executive talent.

Additionally, ‘Other expense’ increased by $0.9 million, which was primarily driven by a $2.1 million pre-tax loss recognized on the disposition of

the Company’s oil and gas assets during the second quarter of 2026.

Financial Condition

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.

The following discussion of our financial condition compares June 30, 2026 and December 31, 2025.

Total assets decreased $49.3 million, or 2.5%, to $1.91 billion as of June 30, 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,

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

As of June 30, 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 June 30, 2026 and December 31, 2025:

As of June 30,

As of December 31,

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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.

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.

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

As of June 30, 2026

Due in One Year or Less

Due after One Year

Through Five Years

Due after Five Years

Through Fifteen Years

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As of December 31, 2025

Due after One Year

Due after Five Years

Due in One Year or Less

Due after One Year

Through Five Years

Due after Five Years

Through Fifteen Years

8 unchanged sentences

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.

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.

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.

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 June 30, 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 Three Months Ended

For the Six Months Ended

(Dollars in thousands)

14 unchanged sentences

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 March 31,

As of June 30,

As of December 31,

7 unchanged sentences

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.

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.

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.

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.

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.

accounted for on a nonaccrual basis were $6.3 million as of June 30, 2026, and $6.5 million as of December 31, 2025.

OREO was $464,000, and $461,000 as of June 30, 2026, and December 31, 2025, respectively.

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

December 31, 2025

(Dollars in thousands)

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Ratio of nonperforming assets to total assets

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

(1) Includes nonaccrual financial difficulty modifications of $1.1 and $ 0 million as of June 30, 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.

(2) Excludes OREO of $464,000, and $461,000 as of June 30, 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 March 31, 2026

As of June 30, 2026

Total past due

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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

The definitions of those categories are as follows:

Loans are segregated between pass, watch, special mention, and substandard categories.

definitions of those categories are as follows:

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.

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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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.

The weaknesses require close attention, and the remediation of

those weaknesses is necessary.

No risk of probable loss exists.

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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.

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

As of June 30, 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.

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.

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.

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.

As of June 30, 2026 and December 31, 2025, brokered deposits were $135.2 million, and $205.6 million, respectively.

deposits totaled $570.8 million and $576.5 million as of June 30, 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.

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 $389.0 million and $391.7 million as of June 30, 2026 and December

31, 2025, respectively, as calculated per regulatory guidance.

These amounts were approximately 23.8% 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,

2 % of deposits at June 30, 2026 and December 31, 2025,

respectively.

Total deposits as of June 30, 2026 and December 31, 2025 were $1.64 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 June 30,

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 March 31, 2026 Maturity Within:

As of June 30, 2026 Maturity Within:

(Dollars in thousands)

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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.

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.

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.

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 June 30, 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 $225.6 million as of June 30, 2026 and $ 213.8 million as of December 31, 2025, and we had access to approximately $305.2 million in

liquidity with the Federal Reserve Bank as of June 30, 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.

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.

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 June 30, 2026, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action frame work.

There have been no conditions or events since June 30, 2026 that management

believes would change this classification.

The table below presents our applicable capital requirements, as well as our capital ratios as of June 30, 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 June 30, 2026, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.

Conservation Buffer

3 unchanged sentences

(Dollars in thousands)

As of March 31, 2026

As of June 30, 2026

Total capital (to risk-weighted assets)

13 unchanged sentences

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.

Total shareholders’ equity increased $15.3 million as of June 30, 2026 to $266.3 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 March 31, 2026, and December 31, 2025:

Payments Due as of March 31, 2026

The following tables contain supplemental information regarding our total contractual obligations as of June 30, 2026, and December 31, 2025:

Payments Due as of June 30, 2026

Three to Five

12 unchanged sentences

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 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.

1 unchanged sentence

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.

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

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.

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.

5 unchanged sentences

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.

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.

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.

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.

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.

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

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.

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

balance sheet date.

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

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.

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.

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