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Item 7. Management’s Discussion and Analysis

2026-03-05 compared with 2025-03-13 · 135 added, 147 removed, 696 unchanged (29% of the section changed)

5 unchanged sentences

The following is a summary of some of the significant factors that affected our operating results for the twelve months ended December 31, 2025, compared to the same 2024 period.

In 2024, net interest income decreased $1.9 million, primarily due to the ongoing impact of higher short-term interest rates on the Bank’s liability-sensitive balance sheet, i.e., higher deposit costs, with growth in higher-cost money market accounts and certificates, along with increased borrowing costs, partially offset by higher asset yields.

The Company recorded a $3.175 million negative provision for credit losses largely due to the impact of improving forecasted future economic conditions, as forecasted by Moody’s, who the Company utilizes for economic forecasts and the impact of balance sheet optimization, which resulted in loan portfolio shrinkage.

The $0.475 million of negative provision for credit losses in 2023 was largely due to net recoveries of $0.451 million.

Non-interest income for the twelve months ended December 31, 2024, compared to the same period in 2023 decreased approximately $150 thousand.

This decrease was largely due to losses on equity securities, largely offset by higher gain on sale of loans, due to an approximate equal increase in SBA gains and mortgage gains and an increase in loan fees and service charges primarily due to higher fees collected on loan payoffs.

Non-interest expense increased approximately 5% or $2.2 million primarily due to a $1.6 million increase in compensation due to higher incentive compensation and merit increases.

In 2025, net interest income increased $4.7 million, due to:

(1) the ongoing impact of lower short-term interest rates on the Bank’s liability-sensitive balance sheet which lowered liability costs;

(2) higher asset yields;

partially offset by (3) the impact of lower interest income due to a smaller sized balance sheet.

The Company recorded a $1.950 million provision for credit losses largely due to the impact of changes in credit quality, largely due to an increase in reserves on individually evaluated loans.

The $3.175 million of negative provision for credit losses in 2024 was largely due to the impact of improving forecasted future economic conditions, as forecasted by Moody’s, who the Company utilizes for economic forecasts and the impact of balance sheet optimization, which resulted in loan portfolio shrinkage.

Non-interest income for the twelve months ended December 31, 2025, compared to the same period in 2024 increased approximately $1.0 million.

This increase was largely due to:

(1) higher gains on equity securities;

(2) higher gain on sale of loans, due to an increase in SBA gains and mortgage gains, with SBA being about two thirds of the increase;

partially offset by (3) lower fee income on deposit activity, due to lower activity;

and (4) a decrease in loan fees and service charges primarily due to lower fees collected on loan payoffs.

Non-interest expense increased approximately 1.5% or $0.6 million primarily due to a $1.1 million increase in compensation due to higher incentive compensation and merit increases, partially offset by a decrease in other expense due to lower SBA recourse expense.

When comparing year-over-year results, changes in net interest income, provision for credit losses, non-interest income and non-interest expense are primarily due to the items discussed above.

See the remainder of this section for a more thorough discussion.

Unless otherwise stated, all monetary amounts in the tables set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

Unless otherwise stated, all monetary amounts in the tables (but not the narrative) set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

We reported net income of $14.42 million for the twelve months ended December 31, 2025, compared to net income of $13.75 million for the twelve months ended December 31, 2024.

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The return on average equity was 7.89% for the twelve months ended December 31, 2025, and 7.84% for the comparable period in 2024.

The Company utilized a balance sheet optimization strategy in 2024, which resulted in the runoff of non-strategic loan relationship with the proceeds used to reduced more expensive borrowings and wholesale deposits.

The Company utilized a balance sheet optimization strategy in 2025, which resulted in the runoff of non-strategic loan relationships with the proceeds used to reduce all borrowings at the Bank and reductions in wholesale deposits.

CRITICAL ACCOUNTING ESTIMATES

6 unchanged sentences

Allowance for Credit Losses

We adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments” through a cumulative-effect adjustment on January 1, 2023.

We have selected a loss estimation methodology, utilizing a third-party model.

We utilize a loss estimation methodology and third-party model to determine our allowance for credit losses, under the guidance of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments”.

See also Notes 1 and 3 to the audited consolidated financial statements for further discussion of our adoption of ASU 2016-13.

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However, based on periodic examinations by regulators, the amount of the allowance for credit losses recorded during a particular period may be adjusted.

Our determination of the allowance for credit losses - loans is based on (1) an individual allowance for specifically identified and evaluated loans that management has determined have unique risk characteristics.

Our determination of the allowance for credit losses - loans is based on:

(1) an individual allowance for specifically identified and evaluated loans that management has determined have unique risk characteristics.

For these loans, the estimated loss is based on likelihood of default, payment history, and net realizable value of underlying collateral.

18 unchanged sentences

Net interest income was $51.2 million for 2025 compared to $46.5 million for 2024.

The decrease, overall, is largely due to the impact of higher short-term interest rates which, with the Company’s liability sensitive balance sheet (See Market Risk Section of the MD&A), resulted in higher deposit costs due to customer retention strategies and increased borrowing costs on FHLB advances These decreases to net interest income were partially offset by increases in loan yields due to contractual repricing and coupons on new loans.

The increase was largely due to the impact of lower short-term interest rates which, with the Company’s liability sensitive balance sheet (See Market Risk Section of the MD&A), resulted in lower deposit costs, a decrease in other borrowing expense due to lower balances and modestly higher net yield on assets.

These increases to net interest income were partially offset by $61 million lower asset balances, including an $84 million decrease in average loan balances, partially offset by higher balances in lower yielding cash and cash equivalents.

The net interest margin for 2025 was 3.12% compared to 2.73% for 2024.

The decrease in the net interest margin was due to higher deposit and borrowing costs.

The decrease was partially offset by increases in loan yields.

The increase in the net interest margin was largely due to lower liability costs of 0.36%.

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

The following table shows interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest bearing liabilities, expressed in dollars and rates.

Also presented is the weighted average yield on interest earning assets on a tax-equivalent basis, rates paid on interest bearing liabilities and the resultant spread at December 31, 2024 and December 31, 2023.

Also presented is the weighted average yield on interest earning assets, rates paid on interest bearing liabilities and the resultant spread at December 31, 2025 and December 31, 2024.

Non-accruing loans average balances are included in the table with the loans carrying a zero yield.

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Loans receivable 1,347,088 77,500 5.75 % 1,430,631 79,738 5.57 %

Interest bearing deposits — — — % 63 1 1.59 %

Investment securities 222,528 7,020 3.15 % 238,851 7,977 3.34 %

19 unchanged sentences

Rate variances were discussed previously above.

Volume variances for the twelve months ended December 31, 2024 compared to the same period in 2023 are:

( 1) lower investment securities average balances in 2024, as principal repayments on the lower yielding investment security portfolio were not being reinvested, (2) higher average balances in money market and CD’s in 2024 compared to 2023, which resulted in being able to reduce higher cost FHLB advances and borrowing in 2024 compared to 2023.

Volume variances for the twelve months ended December 31, 2025, compared to the same period in 2024 were:

(1) lower average total loan balances in 2025, due to the full year impact of 2024 loan shrinkage and additional 2025 loan shrinkage;

partially offset by (2) higher average balances of interest-bearing cash, (3) lower average balances in certificates due to lower brokered deposit balances, and (4) lower borrowing balances due to reductions in FHLB advances and subordinated debt.

Twelve months ended December 31, 2025 v.

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Lifetime losses on these loans are estimated based on the loans’ individual characteristics.

Total benefit, i.e., negative provision, for credit losses for the twelve months ended December 31, 2024, was $3.175 million, compared to negative provision of $0.475 million for the twelve months ended December 31, 2023.

The Company’s $3.175 million negative provision for credit losses in 2024 was largely due to the impact of improving forecasted future economic conditions by Moody’s, who the Company utilizes for economic forecasts and the impact of balance sheet optimization, which resulted in loan portfolio shrinkage.

The $0.475 million of negative provision for credit losses in 2023 was largely due to net recoveries of $0.451 million

Continued improving economic conditions in our markets, as evidenced by unemployment rates below the national average in our two largest population centers, have resulted in good overall economic trends for businesses.

Total provision for credit losses for the twelve months ended December 31, 2025, was $1.950 million, compared to negative provision of $3.175 million for the twelve months ended December 31, 2024.

The Company’s $1.950 million provision for credit losses in 2025 was largely due to the impact of changes in credit quality, largely due to an increase in reserves on individually evaluated loans.

The $3.175 million negative provision for credit losses in 2024 was largely due to the impact of improving forecasted future economic conditions by Moody’s, who the Company utilizes for economic forecasts and the impact of balance sheet optimization, which resulted in loan portfolio shrinkage.

Continued improving economic conditions in our markets, as evidenced by unemployment rates below the national average in our two largest population centers, have resulted in positive overall economic trends for businesses.

Note that in discussing ACL allocations, the entire ACL balance is available for any loan that, in management’s judgment, should be charged off.

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Loan fees and service charges 676 996 (32.13)%

Net realized gains on debt securities — 12 (100.00)%

Net (losses) gains on equity securities (856) 447 (291.50)%

Net gains (losses) on equity securities 234 (856) 127.34%

Bank Owned Life Insurance (BOLI) death benefit — 184 N/M

2 unchanged sentences

N/M means not meaningful

The increase in gain on sale of loans for the twelve months ended December 31, 2024, compared to the same period in 2023 is due to an approximately equal increase in SBA loans sold and higher mortgage gains.

The increase in loan fees and services charges for the twelve months ended December 31, 2024, compared to the same period in 2023 is primarily due to higher fees collected due to loan payoffs.

The decrease in net gains on equity securities for the twelve months ended December 31, 2024, compared to the same period in 2023 is primarily due to the change in valuations of equity securities.

The increase in Bank Owned Life Insurance death benefit or the twelve months ended December 31, 2024, compared to the same period in 2023 BOLI is due to the passing of an employee in 2024.

The increase in gain on sale of loans for the twelve months ended December 31, 2025, compared to the same period in 2024 was split between an increase in SBA loans sold and higher mortgage gains, with about two-thirds of the increase due to higher SBA loans sold.

The decrease in loan fees and service charges for the twelve months ended December 31, 2025, compared to the same period in 2024, was primarily due to lower fees collected due to loan payoffs.

The increase in net gains on equity securities for the twelve months ended December 31, 2025, compared to the same period in 2024, was primarily due to the income recognized on the change in valuations of equity securities.

The decrease in Bank Owned Life Insurance death benefit for the twelve months ended December 31, 2025, compared to the same period in 2024 BOLI, was due to the passing of an employee in 2024.

Non-Interest Expense.

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Professional services 1,777 1,763 0.79%

(Losses) gains on repossessed assets, net 294 62 374.19%

Losses on repossessed assets, net 33 294 (88.78)%

Other 2,617 2,979 (12.15)%

2 unchanged sentences

Compensation expense increased for the twelve months ended December 31, 2025, compared to the same period in 2024 largely due to higher incentive compensation and merit increases.

Data processing expense increased for the twelve months ended December 31, 2024, compared to the same period in 2023 largely due to several 2024 projects which will increase efficiencies of operations in future years.

Mortgage servicing rights expense, net decreased for the twelve months ended December 31, 2024, compared to the same period in 2023 due to lower amortization resulting from lower forecasted prepayments and the impact of a lower balance of loans serviced for others.

Professional fees increased for the twelve months ended December 31, 2024, compared to the same period in 2023 largely due to higher audit and consulting fees.

The decrease in other expenses for the twelve months ended December 31, 2024, compared to the same period in 2023 is primarily due to lower loan origination costs due to lower loan volumes in 2024.

Amortization of intangible assets decreased as the core deposit intangible from the 2019 acquisition became fully amortized in 2025.

Mortgage servicing rights expense, net increased for the twelve months ended December 31, 2025, compared to the same period in 2024 due to higher amortization primarily resulting from higher forecasted prepayments.

Losses on sale of repossessed assets decreased for the twelve months ended December 31, 2025, compared to the same period in 2024 largely due to the 2024 write-down of one large real estate owned property.

The decrease in other expenses for the twelve months ended December 31, 2025, compared to the same period in 2024 was primarily due to lower SBA recourse expense.

Income Taxes.

Income tax provision was $3.0 million in 2025 compared to $3.7 million for 2024.

The 2024 effective tax rate was 21.2% compared to 31.0% 2023.

The Wisconsin state budget, signed by Governor Evers on July 5, 2023, provides financial institutions with a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023.

This change reduced the Company’s 2023 Wisconsin state income tax rate and thus, its overall effective tax rate.

However, this benefit was offset by a one-time tax expense of $1.8 million reflecting the impact of the lower 2023 Wisconsin state tax rate on the future realization of existing net deferred tax assets, with the charge creating a Wisconsin state tax valuation allowance.

In addition, the impact of the New Market Tax Credit investment depletion, now being included in income tax expense, increased the income tax rate, while lower pre-tax income reduced current period income tax expense.

In addition, lower pre-tax income reduced tax expense by approximately $0.4 million.

Income tax expense recorded in the accompanying Consolidated Statements of Operations involves interpretation and application of certain accounting pronouncements and federal and state tax codes and is, therefore, considered a critical accounting policy.

The 2025 effective tax rate was 17.3% compared to 21.2% for 2024.

The reduction in tax rate was larger due to an increase in tax credits, partially due to a 2025 purchased tax credit investment.

Income tax expense recorded in the accompanying Consolidated Statements of Operations involves interpretation and application of certain accounting pronouncements and federal and state tax codes.

We undergo examinations by various taxing authorities.

Such taxing authorities may require that changes in the amount of tax expense or the amount of the valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations.

As noted above, a Wisconsin income tax valuation allowance was created due to the Wisconsin budget law change, resulting in reduction of the realization of Wisconsin deferred tax assets.

BALANCE SHEET ANALYSIS

Total assets decreased by $102.9 million to $1.75 billion at December 31, 2024, from $1.85 billion at December 31, 2023.

Total assets increased by $33.2 million to $1.78 billion at December 31, 2025, from $1.75 billion at December 31, 2024.

Cash and Cash Equivalents.

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Securities AFS (recorded at fair value), which represent the majority of our investment portfolio, decreased to $134.1 million at December 31, 2025, compared with $142.9 million at December 31, 2024.

This decrease is due to principal repayments and maturities, partially offset by the increase in CRA mortgage-backed securities of $2.8 million and lower unrealized losses of $1.1 million.

This decrease was due to principal repayments and maturities on amortizing securities of $15 million, and calls of corporate debt securities of $9 million, partially offset by purchases of $10 million and lower unrealized losses of $5.2 million.

Securities held to maturity decreased to $80.2 million at December 31, 2025, compared to $85.5 million at December 31, 2024.

The decrease was largely due to principal repayments.

The unrealized loss on the held to maturity portfolio increased by $1.9 million during the year to $19.8 million at December 31, 2024.

The unrecognized loss on the held to maturity portfolio decreased by $3.8 million during the year to $16.1 million at December 31, 2025.

The amortized cost and market values of our investment securities by asset categories as of the dates indicated below were as follows:

Available-for-sale securities Amortized

Cost Estimated

December 31, 2025

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Corporate debt securities 42,394 40,682

Asset-backed securities 19,058 18,996

Student loan asset-backed securities 16,149 15,964

Total available-for-sale securities $ 151,618 $ 134,103

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Corporate debt securities 44,931 41,716

Asset-backed securities 24,840 24,513

Student loan asset-backed securities 19,058 18,996

Total available-for-sale securities $ 165,604 $ 142,851

Held-to-maturity securities Amortized

Cost Estimated

December 31, 2025

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Less than 12 Months 12 Months or More Total

Available-for-sale securities Fair

Value Unrealized

Available-for-sale securities Estimated

Fair Value Unrealized

Losses Estimated

Fair Value Unrealized

Losses Estimated

Fair Value Unrealized

December 31, 2025

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Corporate debt securities 2,075 48 25,134 1,816 27,209 1,864

Asset-backed securities 939 1 12,210 104 13,149 105

Student loan asset-backed securities 4,308 13 10,783 182 15,091 195

Total available-for-sale securities $ 7,658 $ 65 $ 108,598 $ 17,627 $ 116,256 $ 17,692

3 unchanged sentences

Corporate debt securities — — 36,806 3,326 36,806 3,326

Asset-backed securities 3,348 22 20,008 317 23,356 339

Student loan asset-backed securities 939 1 12,210 104 13,149 105

Total available-for-sale securities $ 9,143 $ 138 $ 118,004 $ 22,797 $ 127,147 $ 22,935

4 unchanged sentences

Available-for-sale securities Amortized

Value Amortized

Cost Estimated

Fair Value Amortized

Cost Estimated

government agency $ 93,075 $ 77,458 $ 94,327 $ 74,910

3 unchanged sentences

BBB 40,144 38,584 38,981 36,096

Non-rated — — — —

Total available-for-sale securities $ 151,618 $ 134,103 $ 165,604 $ 142,851

1 unchanged sentence

Held-to-maturity securities Amortized

Value Amortized

Cost Estimated

Fair Value Amortized

Cost Estimated

government agency $ 79,810 $ 63,729 $ 85,004 $ 65,144

A 400 388 500 478

Total $ 85,504 $ 65,622 $ 91,229 $ 73,262

Total held-to-maturity securities $ 80,210 $ 64,117 $ 85,504 $ 65,622

At December 31, 2025, the Bank pledged certain of its mortgage-backed securities with a carrying value of $32.1 million as collateral to secure a line of credit with the Federal Reserve Bank.

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Government Agency securities with a carrying value of $0.3 million and mortgage-backed securities with a carrying value of $1.8 million as collateral against specific municipal deposits.

As of December 31, 2023, the Bank also has mortgage-backed securities with a carrying value of $0.2 million and U.S.

Government Agencies with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

As of December 31, 2024, the Bank also has mortgage-backed securities with a carrying value of $0.5 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Total loans outstanding, net of deferred loan fees and costs, decreased to $1.34 billion at December 31, 2025, from $1.37 billion at December 31, 2024.

The Company’s planned balance sheet optimization resulted in the runoff of largely non-strategic loans.

In 2025 and 2024, the Company’s planned balance sheet optimization resulted in a reduction in loan balances which focused on the runoff of non-strategic loan relationships.

The following table reflects the composition, or mix, of our loan portfolio at December 31, 2025 and December 31, 2024:

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C&I/Agricultural operating 42,731 3.2 % 38,758 2.8 %

Consumer installment — — % 1 — %

Total adjustable-rate non-real estate loans 42,731 3.2 % 38,758 2.8 %

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Approximate Weighted Average LTV 51 % 49 % 61 % 72 %

Weighted Average Seasoning in Months 44 41 41 NA

Weighted Average Seasoning in Months 48 48 46 17

Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 %

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The entire ACL balance is available for any loan that, in management’s judgment, should be charged off.

The determination of the ACL requires significant judgement to estimate credit losses.

The determination of the ACL requires significant judgment to estimate credit losses.

The ACL is measured collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that the loan does not share similar risk characteristics with other loans.

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Peer selection was a review of institutions with comparable asset size, geography, and portfolio concentrations.

Management judgement is required at each point in the measurement process.

Management judgment is required at each point in the measurement process.

Future and supportable economic forecasts are based on national economic conditions and their reversion to the mean is implicit in the model and generally occurs over a period of two years.

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Accruing loans that exhibit different risk characteristics from their pool may also be within scope.

On these loans, an allowance may be established so that the loan is reported, net, at the lower of (a) its amortized cost;

On these loans, an allowance may be established so that the loan is reported, net, at the lower of:

(a) its amortized cost;

(b) the present value of the loan’s estimated future cash flows using the loan’s existing rate;

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The Allowance for Credit Losses - Unfunded Commitments on off-balance sheet exposures is included in other liabilities on the consolidated balance sheet.

On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments using the modified retrospective method.

This adoption resulted in a $4.7 million increase in the ACL on loans (“ACL - Loans”) and established a $1.5 million ACL on unfunded commitments (“ACL - Unfunded Commitments”).

The increase in transition ACL is primarily due to the interaction of change from an incurred loss model to a lifetime loss model and the duration of our portfolio.

Since transition, the ACL- Loans modestly increased $0.3 million to $23.0 million at December 31, 2023, representing 1.57% of loans receivable.

The allowance for loan losses, prior to the ASU 2016-13 transition, was $17.9 million at December 31, 2022, representing 1.27% of loans receivable.

Allowance for Credit Losses - Loans Roll Forward

Allowance for Credit Losses - Loans

(in thousands, except ratios)

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ACL - Loans, at beginning of period $ 20,549 $ 22,908

Cumulative effect of ASU 2016-13 adoption — 4,706

Loans charged off:

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Net loan recoveries/(charge-offs) (“NCOs”) 58 (100)

(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations (2,259) (188)

Additions (reversals) to ACL - Loans via provision for credit losses charged to operations 1,794 (2,259)

ACL - Loans, at end of period $ 22,401 $ 20,549

9 unchanged sentences

Recoveries 92 51 53 29 225

(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations (2,285) 332 (258) (48) (2,259)

Additions (reversals) to ACL - Loans via provision for credit losses charged to operations 1,097 1,071 (312) (62) 1,794

ACL - Loans, at end of period $ 17,654 $ 2,358 $ 2,230 $ 159 $ 22,401

Allowance for Credit Losses - Loans to Percentage

Allowance for Credit Losses - Loans Percentage

(in thousands, except ratios)

2 unchanged sentences

ACL - Loans $ 22,401 $ 20,549

ACL - Loans to loans, end of period 1.50 % 1.57 %

ACL - Loans as a percentage of loans, end of period 1.67 % 1.50 %

Allowance for Credit Losses - Unfunded Commitments:

3 unchanged sentences

ACL - Unfunded Commitments - beginning of period $ 334 $ 1,250

Cumulative effect of ASU 2016-13 adoption — 1,537

Reversals to ACL - Unfunded Commitments via provision for credit losses charged to operations (916) (287)

Additions (reversals) to ACL - Unfunded Commitments via provision for credit losses charged to operations 156 (916)

ACL - Unfunded Commitments - end of period $ 490 $ 334

13 unchanged sentences

Agricultural real estate 464 6,222

Multi-family real estate 8,970 —

Construction and land development — 103

13 unchanged sentences

ACL - Loans, at beginning of period $ 20,549 $ 22,908

Cumulative effect of ASU 2016-13 adoption — 4,706

Loans charged off:

11 unchanged sentences

Net loan recoveries/(charge-offs) (“NCOs”) 58 (100)

(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations (2,259) (188)

Additions (reversals) to ACL - Loans via provision for credit losses charged to operations 1,794 (2,259)

ACL - Loans, at end of period $ 22,401 $ 20,549

14 unchanged sentences

Transfers to OREO — — — — (201)

Return to accrual status — — — — —

Payments received (244) (5,934) (1,992) (752) (2,515)

1 unchanged sentence

Balance, end of period $ 15,853 $ 15,614 $ 11,609 $ 13,091 $ 13,168

Nonaccrual loans remained flat at approximately $13.2 million at both December 31, 2024, and December 31, 2023, with one large loan payoff in the second quarter and other payments received offsetting the addition of a $7.3 million relationship secured by collateral in the forestry services industry.

Approximately $1.4 million of the payments received in the fourth quarter are related to this relationship.

Nonaccrual loans increased by $2.7 million to $15.9 million at December 31, 2025, from $13.2 million at December 31, 2024, with a third quarter 2025 multi-family loan addition, partially offset by the payoff of a relationship secured by collateral in the forestry services industry.

Refer to the “Allowance for Credit Losses - Loans” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections above for more information related to nonperforming loans.

3 unchanged sentences

December 31, 2025 % of Total Class of Financing Receivables

Commercial real estate $ 225 0.03 %

Commercial and industrial $ 48 0.05 %

Residential mortgage $ 20 0.02 %

Other-Than-Insignificant Payment Delay

2 unchanged sentences

Commercial real estate $ 4,264 0.63 %

Commercial and industrial $ 822 0.71 %

Agricultural real estate $ 192 0.28 %

Residential mortgage $ 120 0.10 %

Term Extension and Principal Forgiveness

Loan Class Amortized Cost Basis at

December 31, 2024 % of Total Class of Financing Receivables

Other consumer $ 2 0.04 %

The table below shows a summary of criticized loans, split by special mention and substandard balances, as of the past five quarter-ends.

Criticized loans decreased by $10.6 million in the twelve months ended December 31, 2024.

Special mention loans decreased $9.9 million during 2024, primarily due to the $8.6 million reduction in a forestry services loan which paid down in the first two quarters and then movement of the remaining $7.4 million loan to substandard in the third quarter 2024.

Substandard loans decreased $0.7 million from December 31, 2023, primarily due to the payoff of a $4.4 million nonaccrual loan in the fist quarter and other reductions, partially offset by the addition of the $5.8 million forestry services loan in 2024, which is also a nonaccrual loan.

This forestry services loan was special mention at December 31, 2023, and moved to substandard in the quarter-end September 30, 2024.

Criticized loans increased by $18.5 million in the twelve months ended December 31, 2025.

Special mention loans increased $16.0 million during 2025, largely due to additions of a $6.0 million owner occupied CRE loan relationship and a $5 million owner occupied CRE loan relationship.

Substandard loans increased $2.5 million from December 31, 2024, primarily due to the addition of a $9 million multi-family loan partially offset by the payoff of a $5 million forestry services loan relationship.

(in thousands)

13 unchanged sentences

The valuation of MSRs and related amortization thereon are based on numerous factors, assumptions, and judgments, such as those for:

changes in the mix of loans, interest rates, prepayment speeds, and default rates.

changes in the mix of

loans, interest rates, prepayment speeds, and default rates.

Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs.

3 unchanged sentences

At December 31, 2025, and December 31, 2024, the Company did not have an MSR impairment, or related valuation allowance.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at December 31, 2024, and December 31, 2023, were 1.09% and 1.13%, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at December 31, 2025, and December 31, 2024, was 0.98% and 1.09%, respectively.

Intangible Assets.

We have intangible assets of $1.0 million at December 31, 2024, compared to $1.7 million at December 31, 2023.

The intangible assets at December 31, 2024, were comprised of core deposit intangible assets arising from 2017 and 2019 acquisitions.

Amortization of these intangibles was $0.7 million in 2024.

Amortization expense is scheduled to be $0.6 million in 2025 and $0.4 million in 2026.

Foreclosed and repossessed assets.

Included in foreclosed and repossessed assets at December 31, 2024, is a branch location that is being held for sale.

This property is being held for $0.7 million at December 31, 2024, which represents the estimated fair market value less the anticipated costs to sell.

In 2024, a loss of $0.3 million was recognized and a former branch location was sold.

In 2023, a loss of $0.4 million was recognized on the reclassification of the $0.7 million from property and equipment to foreclosed assets, which was recorded in other expense.

At December 31, 2024, deposits decreased modestly by $30.9 million compared to December 31, 2023, balances.

Some of the loan shrinkage proceeds were utilized to decrease wholesale deposits by $73.1 million in 2024.

Some of this shrinkage was funded by the net growth in retail, commercial and public deposits, totaling $42 million during 2024.

Deposit Composition

We had intangible assets of $0.4 million at December 31, 2025, compared to $1.0 million at December 31, 2024.

The intangible assets at December 31, 2025, consisted of core deposit intangible assets arising from a 2017 acquisition.

Intangible assets associated with a 2019 acquisition became fully amortized during 2025.

Amortization of these intangibles was $0.6 million in 2025, and $0.7 million in 2024.

Amortization expense is scheduled to be $0.4 million in 2026.

At December 31, 2025, deposits increased by $36.0 million compared to December 31, 2024, balances.

The growth in money market accounts was largely due to growth in retail accounts, and to a lesser extent, commercial accounts.

Deposit Composition by Type

(in thousands)

9 unchanged sentences

Total deposits $ 1,524,099 $ 1,480,554 $ 1,478,416 $ 1,523,654 $ 1,488,148

Consumer, commercial and government deposits have been stable since January 31, 2023, and following the two large coastal bank failures in early March 2023.

Consumer, commercial and government deposits have been stable over the periods reported.

There are no material customer or industry deposit concentrations.

11 unchanged sentences

At December 31, 2025, the deposit portfolio composition was 58% consumer, 28% commercial, 12% public, and 2% wholesale deposits.

At December 31, 2023, our deposit portfolio composition was 54% consumer, 28% commercial, 12% public and 6% wholesale deposits.

At December 31, 2024, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits.

Uninsured and uncollateralized deposits were $323.5 million, or 21% of total deposits at December 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024.

5 unchanged sentences

Federal Home Loan Bank advances (1), (2), (3) 2025 $ 0 — % — % 2025 $ 5,000 1.45 % 1.45 %

2025 5,000 1.45 % 1.45 % 2025 5,000 1.45 % 1.45 %

2028 10,000 3.82 % 3.82 %

Federal Home Loan Bank advances $ 0 $ 5,000

1 unchanged sentence

Senior notes (4) 2039 $ 12,000 6.00 % 6.75 % 2039 $ 12,000 6.75 % 7.75 %

2040 5,000 6.00 % 6.25 % 0

$ 17,000 $ 12,000

Subordinated notes (5) 2030 $ 0 — % — % 2030 $ 15,000 6.00 % 6.00 %

4 unchanged sentences

Totals $ 51,804 $ 66,606

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had pledged balances of $1,075,001 and $1,106,267 at December 31, 2024 and 2023, respectively.

At December 31, 2024, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $424,658 compared to $370,569 as of December 31, 2023.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $81,000 and $217,530, during the twelve months ended December 31, 2024 and December 31, 2023, respectively.

(3) The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2024 and December 31, 2023 were 1.45% and 4.16%, respectively.

(4) In June 2024, the FHLB called the $10,000, 3.82% advance maturing in 2028.

(5) Senior notes, entered into by the Company in June 2019 consist of the following:

(a) A term note, which was subsequently refinanced in March 2022, modified in February of 2023, and refinanced in May 2024, requiring quarterly interest-only payments through January 2029, and quarterly principal and interest payments thereafter.

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had pledged balances of $1.018 billion and $1.075 billion at December 31, 2025 and 2024, respectively.

At December 31, 2025, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $434 million compared to $425 million as of December 31, 2024.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $5.0 million and $81.0 million, during the twelve months ended December 31, 2025 and December 31, 2024, respectively.

(3) There were no FHLB borrowings outstanding as of December 31, 2025.

The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2024 was 1.45%.

(4) Senior notes, entered into by the Company consist of the following:

(a) A term note, which was originally entered into in June 2019 and subsequently refinanced in March 2022, modified in February of 2023, and refinanced in May 2024, requiring quarterly interest-only payments through January 2029, and quarterly principal and interest payments thereafter.

Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.

(b) A $5,000 line of credit, maturing August 1, 2025, that remains undrawn upon.

(b) A $5.0 million term note entered into in October 2025, requiring quarterly interest-only payments through October 2028, and quarterly principal and interest payments thereafter.

Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 4.00%.

(5) Subordinated notes resulted from the following:

(a) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years.

In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points.

The note is callable by the Bank when, and anytime after, the floating rate is initially set.

Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

(a) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bore a fixed interest rate of 6.00% for five years.

On July 7, 2025, the Board of Directors approved the redemption of the entire $15.0 million balance of the 6% subordinated debentures due September 1, 2030, which were scheduled to reprice on September 1, 2025, to the Secured Overnight Financing Rate (“SOFR”) plus 591 basis points.

The redemption occurred on September 1, 2025.

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years.

In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points.

The note is callable by the Bank when, and anytime after, the floating rate is initially set.

In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term SOFR plus 329 basis points.

The note is callable by the Bank when, and any time after, the floating rate is initially set.

Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

1 unchanged sentence

We utilize advances and other borrowings, as necessary, to supplement core deposits to meet our funding and liquidity needs, and we evaluate all options for funding securities.

FHLB advances decreased $74.5 million to $5.0 million as of December 31, 2024, compared to $79.5 million as of December 31, 2023, as proceeds from the investment security and loan portfolio shrinkage were used to reduce borrowings.

In January 2024, $44.0 million of FHLB advances matured and an additional $20.5 million of FHLB advances matured in 2024, after January.

FHLB advances decreased from $5.0 million at December 31, 2024 to $0 as of December 31, 2025, as proceeds from investment security and loan portfolio shrinkage were used to reduce borrowings.

In 2024, $64.5 million of FHLB advances matured.

A $10 million FHLB advance, which the FHLB could call one-time, was called in June 2024.

1 unchanged sentence

This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances.

The Bank’s current unused borrowing capacity, supported by loan collateral, was approximately $424.7 million at December 31, 2024.

The Company refinanced its senior debt in May 2024 and reduced the balances by $6.1 million.

The Bank’s current unused borrowing capacity, supported by loan collateral, was approximately $433.7 million at December 31, 2025, and $424.7 million at December 31, 2024.

The Company refinanced its senior debt in May 2024 and reduced the balance by $6.1 million.

The Bank maintains two unsecured federal funds purchased lines of credit with its banking partners which total $70.0 million.

6 unchanged sentences

Total stockholders’ equity was $187.9 million at December 31, 2025, compared to $179.1 million at December 31, 2024.

The increase in stockholders’ equity included the Company’s net income of $13.8 million, a decrease in the unrealized loss on available-for-sale securities of $0.9 million, net of tax, due to lower interest rates and restricted stock amortization of $0.6 million.

The increase in stockholders’ equity included the Company’s net income of $14.4 million and a decrease in the unrealized loss on available-for-sale securities of $3.9 million, net of tax, due to lower interest rates.

These increases were partially offset by:

1) the repurchase of approximately 476 thousand shares of its common stock, which reduced equity by $6.1 million and 2) the payment of the annual cash dividend, paid in February to common stockholders of $0.32 per share which was a 10% increase from the prior year dividend amount of $0.29 per share, or $3.3 million.

(1) the repurchase of approximately 385 thousand shares of the Company’s common stock, which reduced equity by $6.1 million and (2) the payment of the annual cash dividend, paid in February to common stockholders of $0.36 per share which was a 12.5% increase from the prior year dividend amount of $0.32 per share, or $3.3 million.

In 2021, the Board of Directors adopted a 5% share repurchase program, which ended in 2024 as the 5% authorization was completed by the 202 thousand shares repurchased in 2024.

In July 2024, the Board of Directors adopted a 5% share repurchase program.

As of December 31, 2024, an additional 238 thousand shares remain available for repurchase under this program.

2024 share repurchases included all remaining shares under a 2021 approved share repurchase program.

The remaining, roughly 50% of 2024 share repurchases, were under the repurchase program that was approved in 2024.

Approximately 274 thousand shares were repurchased under this program, before the authorization expired in June of 2025.

In July 2025, the Board of Directors adopted a 5% share repurchase program.

Approximately 385 thousand shares were repurchased under this program and as of December 31, 2025, 113 thousand shares remain available for repurchase under this program.

Liquidity and Asset / Liability Management.

6 unchanged sentences

There are no material customers or industry deposit concentrations.

At December 31, 2025, the deposit portfolio composition was largely unchanged from the prior quarter at 58% consumer, 28% commercial, 12% public, and 2% wholesale deposits.

At December 31, 2024, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits.

At December 31, 2023, our deposit portfolio composition was 54% consumer, 28% commercial, 12% public and 6% wholesale deposits.

Uninsured and uncollateralized deposits were $323.5 million, or 21% of total deposits at December 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024.

6 unchanged sentences

Although $330.2 million of our $347.3 million (95%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s.

In 2024, retail non-maturity interest-bearing accounts were approximately flat with a growth in certificate accounts.

In 2024, retail non-maturity interest-bearing accounts were approximately flat with growth in certificate accounts.

Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits.

6 unchanged sentences

The Bank maintains $70 million of uncommitted federal funds purchased lines with correspondent banks as part of our contingency funding plan.

In addition, the Company has a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.

While the Bank does not have approved brokered certificate lines of credit with counter parties at December 31, 2025, we believe that the Bank could access this market, which provides an additional potential source of liquidity.

6 unchanged sentences

These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit.

As of December 31, 2024, the Company has approximately $137.0 in unused loan commitments, compared to approximately $210.4 million in unused loan commitments as of December 31, 2023.

In addition, there are $2.9 million of commitments for contributions of capital to an SBIC and an investment company at December 31, 2024.

As of December 31, 2025, the Company had approximately $198.8 in unused loan commitments, compared to approximately $137.0 million in unused loan commitments as of December 31, 2024.

In addition, there were $3.2 million of commitments for contributions of capital to an SBIC and an investment company at December 31, 2025.

These commitments totaled $2.9 million of commitments at December 31, 2024.

37 unchanged sentences

March 31, 2025 June 30, 2025 September 30, 2025 December 31, 2025

Interest dividend income $ 22,679 $ 22,463 $ 22,512 $ 21,961

Interest and dividend income $ 21,103 $ 22,502 $ 22,254 $ 21,771

Interest expense 9,509 9,191 9,040 8,706

Net interest income before provision for credit losses 11,594 13,311 13,214 13,065

Provision for credit losses (800) (1,525) (400) (450)

(Provision reversal) provision for credit losses (250) 1,350 650 200

Net interest income after provision for credit losses 11,844 11,961 12,564 12,865

9 unchanged sentences

March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024

Interest dividend income $ 19,673 $ 20,777 $ 21,772 $ 22,026

Interest and dividend income $ 22,679 $ 22,463 $ 22,512 $ 21,961

Interest expense 10,774 10,887 11,227 10,253

Net interest income before provision for loan losses 12,795 11,686 12,121 11,747

Provision for loan losses 50 450 (325) (650)

Net interest income after provision for loan losses 12,745 11,236 12,446 12,397

Net interest income before provision for credit losses 11,905 11,576 11,285 11,708

Provision reversal for credit losses (800) (1,525) (400) (450)

Net interest income after provision for credit losses 12,705 13,101 11,685 12,158

Non-interest income 3,264 1,913 2,921 2,009

2 unchanged sentences

Provision for income taxes 1,104 1,040 899 656

Net income $ 3,662 $ 3,206 $ 2,498 $ 3,693

Net income attributable to common stockholders $ 4,088 $ 3,675 $ 3,286 $ 2,702

Basic earnings per share $ 0.39 $ 0.35 $ 0.32 $ 0.27

2 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis