Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the Company intends that these forward-looking statements be covered by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “estimates,” “intend,” “may,” “preliminary,” “planned,” “potential,” “should,” “will,” “would,” or the negative of those terms or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are inherently subject to many uncertainties in the Company’s operations and business environment.
Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 5, 2026, (“2025 10-K”), and the following:
• conditions in the financial markets and economic conditions generally;
• the impact of inflation on our business and our customers;
• geopolitical tensions, including current or anticipated impact of military conflicts;
• the impact of a prolonged U.S. government shutdown on our business and our customers;
• higher lending risks associated with our commercial and agricultural banking activities;
• future pandemics;
• cybersecurity risks;
• adverse impacts on the regional banking industry and the business environment in which we operate;
• interest rate risk;
• lending risk;
• changes in the fair value or ratings downgrades of our securities;
• the sufficiency of allowance for credit losses;
• competitive pressures from others in the financial services industry, including non-depository institutions;
• disintermediation risk (including the use of emerging financial technologies, such as cryptocurrencies);
• our ability to maintain our reputation;
• our ability to maintain or increase our market share;
• our ability to realize the benefits of net deferred tax assets;
• our ability to obtain needed liquidity;
• our ability to raise capital needed to fund growth or meet regulatory requirements;
• our ability to attract and retain key personnel;
• our ability to keep pace with technological change;
• prevalence of fraud and other financial crimes;
• the possibility that our internal controls and procedures could fail or be circumvented;
• our ability to successfully execute our acquisition growth strategy;
• risks posed by acquisitions and other expansion opportunities, including difficulties and delays in integrating acquired business operations or fully realizing the cost savings and other benefits;
• restrictions on our ability to pay dividends;
• volatility of our stock price (including possible removal from the Russell 3000® Index and related indexes);
• accounting standards for credit losses;
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• legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or Bank;
• public company reporting obligations;
• changes in federal or state tax laws; and
• changes in accounting principles, policies or guidelines and their impact on financial performance.
Stockholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this filing and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this report.
GENERAL
The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of March 31, 2026, and our consolidated results of operations for the three months ended March 31, 2026, compared to the same period in the prior fiscal year ended March 31, 2025. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2025 10-K. Unless otherwise stated, all monetary amounts 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.
PERFORMANCE SUMMARY
We reported net income of $3.8 million or $0.39 per diluted share for the three months ended March 31, 2026, compared to net income of $3.2 million or $0.32 per diluted share for the three months ended March 31, 2025, respectively.
The following is a summary of some of the significant factors that affected our operating results for the three months ended March 31, 2026, and March 31, 2025.
Compared to the first quarter of 2025, the first quarter of 2026 net interest income increased $1.4 million. The first quarter 2026 increase from the same period in 2025 was largely due to: (1) a 20 basis point increase in loan yields due to new loan originations and existing loans repricing at higher rates; and (2) a 28 basis point decrease in deposits costs; (3) a reduction in other borrowings, largely due to the redemption of subordinated debt on September 1, 2025, partially offset by a lower average balance of loans with growth in lower yielding interest-bearing cash.
The total provision for credit losses for the first quarter ended March 31, 2026, was $0.75 million compared to a negative provision for credit losses of $0.25 million for the quarter ended March 31, 2025. The first quarter of 2026 provision was largely due to: (1) a net increase of $0.4 million, with increases in reserves on impaired loans, partially offset by loss rates on collectively evaluated loans; (2) modest charge-offs of $0.2 million; (3) an increase in economic scenarios based on information provided by our third-party model provider of $0.1 million; and (4) the net impact of new loan growth, net of a decrease in the portfolio duration of $0.05 million. The first quarter ended March 31, 2025, negative provision for credit losses was primarily due to decreases in ACL related to: (1) on-balance sheet ACL of $0.1 million, and (2) reductions in off-balance sheet reserves to fund commitments of $0.3 million.
Non-interest income increased $0.5 million in the first quarter of 2026, compared to the first quarter of 2025, primarily due to higher gains on the sale of loans, due in part to the backlog of SBA loans unable to be sold during the fourth quarter of 2025, due to the government shutdown and then sold in the first quarter of 2026.
Non-interest expense increased $0.2 million in the first quarter of 2026 from $10.5 million in the first quarter of 2025. The increase was primarily due to an increase in compensation due to the full quarter impact of the 2025 annual employee pay raises and benefit expenses, partially offset by lower data processing costs.
Provision for income taxes increased to $0.88 million in the first quarter of 2026, from $0.78 million in the first quarter of 2025, primarily due to the impact of a 2025 tax credit investment.
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CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses, and their related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that our management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. In addition to the policies included in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included as an exhibit in our annual report on our 2025 10-K, our critical accounting estimates are as follows:
Allowance for Credit Losses
We have selected a loss estimation methodology, utilizing a third-party model. See also Notes 1 and 3 to the unaudited consolidated financial statements for further discussion of our adoption of ASU 2016-13.
Allowance for Credit Losses - Loans. We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing quarterly assessments of the estimated lifetime losses in our loan portfolio. In evaluating the level of the allowance for credit losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions, and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration. We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory requirements. 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. For these loans, the estimated loss is based on likelihood of default, payment history, and net realizable value of underlying collateral. Allowance for credit losses for collateral dependent loans are based on the fair value of the underlying collateral relative to the amortized cost of the loans. For loans that are not collateral dependent, the allowance for credit losses is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a collective allowance for loans not specifically identified in (1) above. The allowance for these loans is estimated by pooling loans with a similar risk profile and calculating a collective loss rate using the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. This collectively estimated loss is adjusted for qualitative factors.
Assessing the allowance for credit losses - loans is inherently subjective as it requires making material estimates, including the amount, and timing of future cash flows expected to be received on collateral dependent loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio.
STATEMENT OF OPERATIONS ANALYSIS
Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest-bearing assets and the dollar amount of interest paid on interest-bearing liabilities. The interest income and expense of financial institutions (including those of the Bank) are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors.
Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, and net interest margin for the three-month periods ended March 31, 2026, and March 31, 2025, respectively.
Net interest income was $13.0 million for the three months ended March 31, 2026, compared to $11.6 million for the three months ended March 31, 2025. Compared to the first quarter of 2025, the first quarter of 2026 net interest income increased $1.4 million. The first quarter 2026 increase from the same period in 2025 was largely due to: (1) a 20 basis point
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increase in loan yields due to new loan originations and existing loans repricing at higher rates; and (2) a 28 basis point decrease in deposit rates, largely due to lower short-term interest rates resulting from Federal Open Market Committee
(“ FOMC”) decreases in the overnight Fed Funds rate; and (3) a reduction in other borrowings largely due to the redemption of subordinated debt on September 1, 2025; partially offset by a 75 basis point decrease in interest-bearing cash yields due to FOMC decreases in the overnight Fed Funds rate.
The net interest margin for the three-month period ended March 31, 2026, increased to 3.18%, compared to 2.85%, for the three-month period ended March 31, 2025. The higher net interest margin was due to: (1) a decrease in liability costs of 30 basis points; (2) a net increase of 20 basis points in loan yields; partially offset by (3) lower yields on interest-bearing cash at the Federal Reserve; and (4) the combination of a decrease in average balances of higher yielding loans and an increase in the average balance of lower yielding cash.
Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following net interest income analysis table presents 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 on a tax equivalent basis. Shown below is the weighted average tax equivalent yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the three-month periods ended March 31, 2026, and March 31, 2025. Non-accruing loans have been included in the table as loans carrying a zero yield.
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NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS
(Dollar amounts in thousands)
Three months ended March 31, 2026, compared to the three months ended March 31, 2025:
Three months ended March 31, 2026
Three months ended March 31, 2025
Average
Balance Interest
Income/
Expense Average
Yield/
Rate Average
Balance Interest
Income/
Expense Average
Yield/
Rate
Average interest earning assets:
Cash and cash equivalents $ 105,651 $ 961 3.69 % $ 47,835 $ 524 4.44 %
Loans 1,328,448 18,769 5.73 % 1,363,352 18,602 5.53 %
Investment securities 214,412 1,630 3.08 % 228,514 1,808 3.21 %
Other investments 12,503 156 5.06 % 12,498 169 5.48 %
Total interest earning assets $ 1,661,014 $ 21,516 5.25 % $ 1,652,199 $ 21,103 5.18 %
Average interest-bearing liabilities:
Savings accounts $ 152,304 $ 309 0.82 % $ 167,001 $ 407 0.99 %
Demand deposits 376,998 1,768 1.90 % 382,355 2,033 2.16 %
Money market 393,958 2,508 2.58 % 365,528 2,535 2.81 %
CD’s 344,493 3,206 3.77 % 343,751 3,622 4.27 %
Total deposits $ 1,267,753 $ 7,791 2.49 % $ 1,258,635 $ 8,597 2.77 %
FHLB Advances and other borrowings 51,824 715 5.60 % 64,635 912 5.72 %
Total interest-bearing liabilities $ 1,319,577 $ 8,506 2.61 % $ 1,323,270 $ 9,509 2.91 %
Net interest income $ 13,010 $ 11,594
Interest rate spread 2.64 % 2.27 %
Net interest margin 3.18 % 2.85 %
Average interest earning assets to average interest-bearing liabilities 1.26 1.25
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Rate/Volume Analysis. The following tables present the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e., holding the initial rate constant); and (2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant). Rate changes have been discussed previously in the net interest income section above. Changes in asset volume include an increase in interest-bearing cash, resulting from the cash deployment of the 2025 loan shrinkage as the bank reduced non-strategic relationships, and the reinvestment of investment securities amortization of mortgage-backed certificates, U.S. government securities and student loan asset-backed securities into interest-bearing cash.
RATE / VOLUME ANALYSIS
(Dollar amounts in thousands)
Three months ended March 31, 2026, compared to the three months ended March 31, 2025.
Increase (decrease) due to
Volume Rate Net
Interest income:
Cash and cash equivalents $ 551 $ (114) $ 437
Loans (483) 650 167
Investment securities (109) (69) (178)
Other investments — (13) (13)
Total interest earning assets (41) 454 413
Interest expense:
Savings accounts (34) (64) (98)
Demand deposits (28) (237) (265)
Money market accounts 190 (217) (27)
CD’s 8 (424) (416)
Total deposits 136 (942) (806)
FHLB Advances and other borrowings (148) (49) (197)
Total interest bearing liabilities (12) (991) (1,003)
Net interest income $ (29) $ 1,445 $ 1,416
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The table below shows the principal balance and current contractual rate of fixed-rate loans, securities, and certificates of deposits as of March 31, 2026, that mature or reprice for the remaining three quarters of 2026 and the four quarters of 2027.
Portfolio Contractual Repricing:
(in millions, except yields)
Q2 2026 Q3 2026 Q4 2026 Q1 2027 Q2 2027 Q3 2027 Q4 2027
Maturing or Repricing Loans:
Contractual balance $ 46 $ 110 $ 97 $ 56 $ 65 $ 43 $ 68
Contractual interest rate 4.98 % 3.74 % 3.97 % 4.15 % 4.47 % 4.96 % 5.36 %
Maturing or Repricing Securities:
Contractual balance $ 7 $ 7 $ 3 $ 3 $ — $ 4 $ —
Contractual interest rate 3.57 % 3.44 % 3.27 % 3.31 % — % 5.93 % — %
Maturing Certificate Accounts:
Contractual balance $ 99 $ 137 $ 52 $ 45 $ 8 $ — $ —
Contractual interest rate 3.84 % 3.77 % 3.74 % 3.56 % 3.44 % 2.39 % 1.71 %
Provision for Credit Losses. We determine our provision for credit losses (“provision”) based on our desire to provide an adequate Allowance for Credit Losses (“ACL”) - Loans to reflect estimated lifetime losses in our loan portfolio and ACL - Unfunded Commitments to reflect estimated losses on our unfunded commitments to lend. We use a third-party model to collectively evaluate and estimate the ACL on loans and unfunded commitments on a pooled basis. The model pools loans and commitments with similar characteristics and calculates an estimated loss rate for the pool based on identified risk drivers. These risk drivers vary with loan type. Projections about future economic conditions and the effect they could have on future losses are inherent in the model. Loans with uniquely identified circumstances and risks are individually evaluated. Lifetime losses on these loans are estimated based on the loans’ individual characteristics.
The total provision for credit losses for the first quarter ended March 31, 2026, was $0.75 million compared to a negative provision for credit losses of $0.25 million for the quarter ended March 31, 2025. The first quarter of 2026 provision was largely due to: (1) a net increase of $0.4 million, with increases in reserves on impaired loans, partially offset by lower loss rates on collectively evaluated loans; (2) modest charge-offs of $0.2 million; (3) an increase in economic scenarios based on information provided by our third-party model provider of $0.1 million; and (4) the net impact of new loan growth, net of a decrease in the portfolio duration of $0.05 million. The total benefit, i.e., negative provision, for credit losses for the first quarter ended March 31, 2025, of $0.25 million was due to decreases in ACL related to a decrease in on-balance sheet ACL of $0.35 million; partially offset by an increase in off-balance sheet reserves to fund commitments of $0.1 million.
Continued stable 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. The impact of higher interest rates and the impact of an inverted yield forecast are factored into the third-party model used for economic conditions in computing the ACL.
Note that in discussing ACL allocations, the entire ACL balance is available for any loan that, in management’s judgment, should be charged off.
Management believes that the provision recorded for the current year’s three-month period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers, or our market areas, or otherwise, could all affect the adequacy of our ACL. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future.
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Non-interest Income . The following table reflects the various components of non-interest income for the three-month periods ended March 31, 2026 and 2025, respectively.
Three months ended March 31,
2026 2025 % Change
Non-interest Income:
Service charges on deposit accounts $ 460 $ 423 8.75 %
Interchange income 501 518 (3.28) %
Loan servicing income 661 559 18.25 %
Gain on sale of loans 1,021 720 41.81 %
Loan fees and service charges 138 120 15.00 %
Net (losses) gains on equity securities (59) 10 N/M
Other 377 243 55.14 %
Total non-interest income $ 3,099 $ 2,593 19.51 %
N/M means not meaningful
Loan servicing income increased largely due to servicing income received for semi-annual agricultural loan payments serviced for others.
Gain on sale of loans increased in the three-month period ended March 31, 2026, compared to the three-month period ended March 31, 2025. Higher gains on SBA loan sales account for approximately two-thirds of the increase, with the remainder of the increase due to higher gains on sale of residential loans.
The increase in other income for the three-month period ending March 31, 2026, compared to the same period in 2025, was primarily due to the termination of the remaining lease obligation on a previously closed branch.
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Non-interest Expense. The following table reflects the various components of non-interest expense for the three-month periods ended March 31, 2026 and 2025, respectively.
Three months ended March 31,
2026 2025 % Change
Non-interest Expense:
Compensation and related benefits $ 6,066 $ 5,597 8.38 %
Occupancy 1,278 1,287 (0.70) %
Data processing 1,417 1,719 (17.57) %
Amortization of intangible assets 113 179 (36.87) %
Mortgage servicing rights expense, net 161 140 15.00 %
Advertising, marketing and public relations 226 167 35.33 %
FDIC premium assessment 231 198 16.67 %
Professional services 605 508 19.09 %
Gains on repossessed assets, net — 4 N/M
Other 630 664 (5.12) %
Total non-interest expense $ 10,727 $ 10,463 2.52 %
Non-interest expense (annualized) / Average assets 2.44 % 2.41 % 1.24 %
N/M means not meaningful
Compensation expense for the three-month period ended March 31, 2026, increased from the same period in 2025, due to annual employee pay raises, effective late first quarter of 2025, higher incentive accruals due to higher pre-tax income, and higher benefit costs.
Data processing expense for the three-months ended March 31, 2026, decreased from the same 2025 period, largely due to contract renegotiations which lowered our costs.
Amortization of intangibles decreased for the three-month period ending March 31, 2026, from the same 2025 period, as an intangible was fully amortized in the third quarter of 2025.
Income Taxes. Provision for income taxes increased to $0.88 million in the first quarter of 2026, or an effective tax rate of 18.9%, from $0.78 million in the first quarter of 2025, or an effective tax rate of 19.6%, due to higher pre-tax income.
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BALANCE SHEET ANALYSIS
Cash and Cash Equivalents. Cash and cash equivalents increased $30.3 million to $149.2 million at March 31, 2026, compared to $118.9 million at December 31, 2025. This increase was primarily due to an increase in interest-bearing cash provided by deposit growth, partially offset by loan growth.
Investment Securities. We manage our securities portfolio to provide liquidity, manage interest rate risk, and enhance income. Our investment portfolio is comprised of securities available-for-sale and securities held-to-maturity. Securities available-for-sale decreased $3.2 million during the three months ended March 31, 2026, to $130.9 million from $134.1 million at December 31, 2025. There were principal repayments of $3.0 million, and a net decrease in the corporate debt portfolio due to redemptions of $1.3 million. These reductions were partially offset by purchases of $0.8 million of corporate debt and a decrease in the unrealized loss of $0.3 million.
Securities held-to-maturity decreased $1.2 million to $79.0 million during the three-month period ended March 31, 2026, from $80.2 million at December 31, 2025, due to principal repayments.
The amortized cost and market values of our available-for-sale securities by asset categories as of the dates indicated below were as follows:
Available-for-sale securities Amortized
Cost Fair
Value
March 31, 2026
U.S. government agency obligations $ 9,790 $ 9,771
Mortgage-backed securities 80,866 65,157
Corporate debt securities 41,790 40,492
Student loan asset-backed securities 15,621 15,456
Totals $ 148,067 $ 130,876
December 31, 2025
U.S. government agency obligations $ 10,811 $ 10,773
Mortgage-backed securities 82,264 66,684
Corporate debt securities 42,394 40,682
Student loan asset-backed securities 16,149 15,964
Totals $ 151,618 $ 134,103
The amortized cost and fair value of our held-to-maturity securities by asset categories as of the dates noted below were as follows:
Held-to-maturity securities Amortized
Cost Fair
Value
March 31, 2026
Obligations of states and political subdivisions $ 300 $ 290
Mortgage-backed securities 78,714 62,730
Totals $ 79,014 $ 63,020
December 31, 2025
Obligations of states and political subdivisions $ 400 $ 388
Mortgage-backed securities 79,810 63,729
Totals $ 80,210 $ 64,117
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The composition of our available-for-sale portfolios by credit rating as of the dates indicated below was as follows:
March 31, 2026 December 31, 2025
Available-for-sale securities Amortized
Cost Fair
Value Amortized
Cost Fair
Value
U.S. government agency $ 90,655 $ 74,928 $ 93,075 $ 77,458
AAA 2,797 2,781 4,613 4,595
AA 12,825 12,675 11,536 11,369
A 2,250 2,081 2,250 2,097
BBB 39,540 38,411 40,144 38,584
Total available-for-sale securities $ 148,067 $ 130,876 $ 151,618 $ 134,103
The composition of our held-to-maturity portfolio by credit rating as of the dates indicated was as follows:
March 31, 2026 December 31, 2025
Held-to-maturity securities Amortized
Cost Fair
Value Amortized
Cost Fair
Value
U.S. government agency $ 78,714 $ 62,730 $ 79,810 $ 63,729
A 300 290 400 388
Total $ 79,014 $ 63,020 $ 80,210 $ 64,117
At March 31, 2026, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $31.6 million as collateral to secure a line of credit with the Federal Reserve Bank. As of March 31, 2026, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of March 31, 2026, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.1 million and mortgage-backed securities with a carrying value of $1.5 million as collateral against specific municipal deposits. As of March 31, 2026, the Bank also has mortgage-backed securities with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.
At December 31, 2025, the Bank has 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. As of December 31, 2025, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2025, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.2 million and mortgage-backed securities with a carrying value of $1.8 million as collateral against specific municipal deposits. As of December 31, 2025, the Bank also has mortgage-backed securities with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.
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Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, increased by $0.02 billion, to $1.36 billion as of March 31, 2026, from $1.34 billion at December 31, 2025. The following table reflects the composition of our loan portfolio at March 31, 2026, and December 31, 2025:
March 31, 2026 December 31, 2025
Amount Percent Amount Percent
Real estate loans:
Commercial/Agricultural real estate
Commercial real estate $ 697,785 51.4 % $ 683,108 51.0 %
Agricultural real estate 69,706 5.1 % 69,136 5.2 %
Multi-family real estate 241,221 17.8 % 245,688 18.3 %
Construction and land development 83,213 6.1 % 75,767 5.6 %
Residential mortgage
Residential mortgage 117,586 8.7 % 122,025 9.1 %
Purchased HELOC loans 1,551 0.1 % 1,739 0.1 %
Total real estate loans 1,211,062 89.2 % 1,197,463 89.3 %
C&I/Agricultural operating and Consumer Installment Loans:
C&I/Agricultural operating
Commercial and industrial (“C&I”) 114,379 8.4 % 105,907 7.9 %
Agricultural operating 29,032 2.1 % 33,375 2.5 %
Consumer installment
Originated indirect paper 1,902 0.1 % 2,224 0.2 %
Other consumer 4,633 0.4 % 3,997 0.3 %
Total C&I/Agricultural operating and Consumer installment Loans 149,946 11.0 % 145,503 10.9 %
Gross loans $ 1,361,008 100.2 % $ 1,342,966 100.2 %
Unearned net deferred fees and costs and loans in process (2,638) (0.2) % (2,528) (0.2) %
Unamortized discount on acquired loans (118) — % (113) — %
Total loans (net of unearned income and deferred expense) 1,358,252 100.0 % 1,340,325 100.0 %
Allowance for credit losses (22,966) (22,401)
Total loans receivable, net $ 1,335,286 $ 1,317,924
Commercial real estate (”CRE”) lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis.
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The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at March 31, 2026:
Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE
Loan Balance Outstanding in Millions $ 449 $ 249 $ 241 $ 83
Number of Loans 708 380 124 88
Average Loan Size in Millions $ 0.6 $ 0.7 $ 2.0 $ 1.0
Approximate Weighted Average LTV 52 % 48 % 61 % 71 %
Weighted Average Seasoning in Months 49 48 49 19
Trailing 12 Month Net Charge-Offs 0.03 % 0.01 % 0.00 % 0.00 %
Criticized Loans in Millions $ 6.3 $ 18.8 $ 9.0 $ 2.2
Criticized Loans as a Percent of Total 1.4 % 7.6 % 3.7 % 2.6 %
The table below lists the above CRE portfolio by geographical location:
Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE
Wisconsin 48 % 80 % 63 % 62 %
Minnesota 22 % 14 % 26 % 4 %
Other 30 % 6 % 11 % 34 %
The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at March 31, 2026:
Campground Hotel Restaurant Office
Loan Balance Outstanding in Millions $ 151 $ 97 $ 65 $ 31
Number of Loans 70 22 83 70
Average Loan Size in Millions $ 2.2 $ 4.4 $ 0.8 $ 0.4
Approximate Weighted Average LTV 48 % 55 % 52 % 52 %
Weighted Average Seasoning in Months 44 47 47 43
Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 %
Criticized Loans in Millions $ 0.0 $ 3.2 $ 3.2 $ 0.2
Criticized Loans as a Percent of Total 0.0 % 3.3 % 4.9 % 0.5 %
The table below lists our CRE portfolio selected industry components by geographical location:
Campground Hotel Restaurant Office
Wisconsin 16 % 38 % 62 % 81 %
Minnesota 0 % 39 % 24 % 11 %
Other 84 % 23 % 14 % 8 %
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The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at December 31, 2025:
Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE
Loan Balance Outstanding in Millions $ 443 $ 240 $ 246 $ 76
Number of Loans 719 377 125 84
Average Loan Size in Millions $ 0.6 $ 0.6 $ 2.0 $ 0.9
Approximate Weighted Average LTV 51 % 49 % 61 % 72 %
Weighted Average Seasoning in Months 48 48 46 17
Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 %
Criticized Loans in Millions $ 6.3 $ 19.0 $ 9.0 $ 0.1
Criticized Loans as a Percent of Total 1.4 % 7.9 % 3.7 % 0.1 %
The table below lists the above CRE portfolio by geographical location:
Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE
Wisconsin 48 % 79 % 64 % 59 %
Minnesota 22 % 15 % 26 % 3 %
Other 30 % 6 % 10 % 38 %
The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at December 31, 2025:
Campground Hotel Restaurant Office
Loan Balance Outstanding in Millions $ 149 $ 95 $ 62 $ 32
Number of Loans 69 20 84 71
Average Loan Size in Millions $ 2.2 $ 4.7 $ 0.7 $ 0.5
Approximate Weighted Average LTV 48 % 56 % 48 % 47 %
Weighted Average Seasoning in Months 43 46 46 40
Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 %
Criticized Loans in Millions $ 0.0 $ 3.3 $ 3.3 $ 0.2
Criticized Loans as a Percent of Total 0.0 % 3.5 % 5.3 % 0.5 %
The table below lists our CRE portfolio selected industry components by geographical location:
Campground Hotel Restaurant Office
Wisconsin 16 % 36 % 60 % 83 %
Minnesota 0 % 40 % 26 % 9 %
Other 84 % 24 % 14 % 8 %
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Allowance for Credit Losses - Loans. The Allowance for Credit Losses - Loans (“ACL”) is a valuation allowance for expected future credit losses in the Company’s loan portfolio as of the balance sheet date. In determining the allowance, the Company estimates credit losses over the loan’s entire contractual term, adjusted for expected prepayments when appropriate. The allowance estimate considers qualitative and quantitative relevant information from internal and external sources relating to historical loss experience; known and inherent risks in our portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; reasonable and supportable forecasts for future conditions; and other relevant factors determined by management. To ensure that the ACL is maintained at an adequate level, a detailed analysis is performed on a quarterly basis, and an appropriate provision is made to adjust the allowance. 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 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. The ACL on loans collectively evaluated is measured using the loss rate model. The Company categorizes its loan portfolio into four segments based on similar risk characteristics. Loans within each segment are pooled based on individual loan characteristics. Aggregated risk drivers are then calculated at a pool level. Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type. A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. The loss rate is then combined with the loan’s balance and contractual maturity, adjusted for expected prepayments, to determine expected future losses. 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.
Qualitative adjustments are made to the allowance calculated on collectively evaluated loans to incorporate factors not included in the model. Qualitative factors include but are not limited to: lending policies and procedures, the experience and ability of lending and other staff, the volume and severity of problem credits, quality of the loan review system, and other external factors.
Loans that exhibit different risk characteristics from the pool are individually evaluated for credit losses. Loans can be identified for individual evaluation for a variety of reasons including delinquency, nonaccrual status, risk rating, and loan modification. 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; (b) the present value of the loan’s estimated future cash flows using the loan’s existing rate; or (c) at the fair value of any loan collateral, less estimated disposal costs, if the loan is collateral dependent. Collateral dependency is determined using the practical expedient when: (1) the borrower is experiencing financial difficulty; and (2) repayment is expected to be provided substantially through the sale or operation of the collateral.
In addition, various regulatory agencies periodically review the ACL. These agencies may require the Company to make additions to the ACL or may require that certain loan balances be charged off or downgraded into classified loan categories when the agencies’ evaluation differs from management’s evaluation based on their judgments of collectability from the information available to them at the time of examination.
The Allowance for Credit Losses - Unfunded Commitments is a liability for expected future credit losses on the Company’s commitments to lend. The Company estimates expected credit losses over the contractual period for which the Company is exposed to credit risk, via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Allowance for Credit Losses - Unfunded Commitments on off-balance sheet exposures is included in other liabilities on the consolidated balance sheet.
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Allowance for Credit Losses - Loans Roll Forward
(in thousands, except ratios)
March 31, 2026 and Three Months Ended December 31, 2025 and Three Months Ended
Allowance for Credit Losses (“ACL”)
ACL - Loans, at beginning of period $ 22,401 $ 22,182
Loans charged off:
Commercial/Agricultural real estate (17) —
C&I/Agricultural operating (183) —
Residential mortgage — —
Consumer installment (1) (4)
Total loans charged off (201) (4)
Recoveries of loans previously charged off:
Commercial/Agricultural real estate — —
C&I/Agricultural operating — 2
Residential mortgage 5 —
Consumer installment 3 18
Total recoveries of loans previously charged off: 8 20
Net loan recoveries/(charge-offs) (“NCOs”) (193) 16
Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations 758 203
ACL - Loans, at end of period $ 22,966 $ 22,401
Average outstanding loan balance $ 1,328,448 $ 1,329,456
Ratios:
NCOs (annualized) to average loans 0.06 % 0.00 %
Allowance for Credit Losses - Loans Activity by Segment
(in thousands, except ratios)
Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Total
Three months ended March 31, 2026
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period $ 17,654 $ 2,358 $ 2,230 $ 159 $ 22,401
Charge-offs (17) (183) — (1) (201)
Recoveries — — 5 3 8
Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations 614 451 (296) (11) 758
ACL - Loans, at end of period $ 18,251 $ 2,626 $ 1,939 $ 150 $ 22,966
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The following table presents the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the twelve months ended December 31, 2025:
Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Total
Twelve months ended December 31, 2025
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period $ 16,516 $ 1,330 $ 2,489 $ 214 $ 20,549
Charge-offs (51) (94) — (22) (167)
Recoveries 92 51 53 29 225
(Reversals)/additions 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
(in thousands, except ratios)
March 31,
2026 December 31,
2025
Loans, end of period $ 1,358,252 $ 1,340,325
ACL - Loans $ 22,966 $ 22,401
ACL - Loans to loans, end of period 1.69 % 1.67 %
In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.48 million at March 31, 2026, and $0.49 million at December 31, 2025, classified in other liabilities on the consolidated balance sheets.
Allowance for Credit Losses - Unfunded Commitments:
(in thousands)
March 31, 2026 and Three Months Ended December 31, 2025 and Twelve Months Ended
ACL - Unfunded commitments, beginning of period $ 490 $ 334
Additions (reversals) to ACL - Unfunded commitments via provision for credit losses charged to operations (8) 156
ACL - Unfunded commitments, end of period $ 482 $ 490
Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of nonaccrual and problem loans in order to minimize the Bank’s risk of loss. Nonperforming loans are defined as nonaccrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that such classification is warranted. The accrual of interest income is discontinued on our loans according to the following schedule:
• Commercial/agricultural real estate loans, past due 90 days or more;
• C&I/Agricultural operating loans, past due 90 days or more;
• Closed ended consumer installment loans, past due 120 days or more; and
• Residential mortgage loans and open-ended consumer installment loans, past due 180 days or more.
When interest accruals are discontinued, interest credited to income is reversed. If collection is in doubt, cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income.
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The following table identifies the various components of nonperforming assets and other balance sheet information as of the dates indicated below and changes in the ACL for the periods then ended:
March 31, 2026 and Three Months Then Ended (1) December 31, 2025 and Twelve Months Then Ended (1)
Nonperforming assets:
Nonaccrual loans
Commercial real estate $ 5,899 $ 4,652
Agricultural real estate 461 464
Multi-family real estate 8,970 8,970
Construction and land development — —
Commercial and industrial 1,517 1,282
Agricultural operating — —
Residential mortgage 339 485
Consumer installment 117 —
Total nonaccrual loans $ 17,303 $ 15,853
Accruing loans past due 90 days or more 39 1
Total nonperforming loans (“NPLs”) 17,342 15,854
Other real estate owned 850 850
Other collateral owned 7 7
Total nonperforming assets (“NPAs”) $ 18,199 $ 16,711
Average outstanding loan balance $ 1,328,488 $ 1,347,088
Loans, end of period $ 1,358,252 $ 1,340,325
Total assets, end of period $ 1,822,974 $ 1,781,755
ACL - Loans, at beginning of period $ 22,401 $ 20,549
Loans charged off:
Commercial/Agricultural real estate $ (17) $ (51)
C&I/Agricultural operating (183) (94)
Residential mortgage — —
Consumer installment (1) (22)
Total loans charged off (201) (167)
Recoveries of loans previously charged off:
Commercial/Agricultural real estate — 92
C&I/Agricultural operating — 51
Residential mortgage 5 53
Consumer installment 3 29
Total recoveries of loans previously charged off: 8 225
Net loan recoveries/(charge-offs) (“NCOs”) (193) 58
Additions (reversals) to ACL - loans via provision for credit losses charged to operations 758 1,794
ACL - Loans, at end of period $ 22,966 $ 22,401
Ratios:
ACL-Loans to NCOs (annualized) N/M N/M
NCOs (annualized) to average loans 0.06 % — %
ACL-Loans to total loans 1.69 % 1.67 %
ACL-Loans to nonaccrual loans 132.73 % 141.30 %
Nonaccrual loans to total loans 1.27 % 1.18 %
NPLs to total loans 1.28 % 1.18 %
NPAs to total assets 1.00 % 0.94 %
(1) Loan balances are stated at amortized cost.
N/M means not meaningful
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Nonaccrual Loans Roll Forward:
Quarter Ended
March 31,
2026 December 31,
2025 September 30,
2025 June 30,
2025 March 31,
2025
Balance, beginning of period $ 15,853 $ 15,614 $ 11,609 $ 13,091 $ 13,168
Additions 2,350 483 9,958 600 694
Charge offs (200) — (7) (72) (21)
Payments received (681) (244) (5,934) (1,992) (752)
Other, net (19) — (12) (18) 2
Balance, end of period $ 17,303 $ 15,853 $ 15,614 $ 11,609 $ 13,091
Nonperforming assets were $18.2 million at March 31, 2026, compared to $16.7 million at December 31, 2025. This net increase was largely due to the addition of the government guaranteed portion of loans totaling $1.4 million in the quarter ended March 31, 2026. The government guaranteed portion of loans was $2.4 million at March 31, 2026. In addition, the unguaranteed portion of loans originated with government guarantees increased $0.6 million in the quarter. The unguaranteed portion of loans originated with government guarantees was $1.5 million at March 31, 2026. For the nonaccrual unguaranteed loan portion of $1.5 million, there were specific reserves of approximately 50% of the loan balance at March 31, 2026.
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.
The tables below detail Loan Modifications Made to Borrowers Experiencing Financial Difficulty during the three months ended March 31, 2026:
Term Extension
Loan Class Amortized Cost Basis at March 31, 2026 % of Total Class of Financing Receivables
Commercial and industrial $ 750 0.66 %
Other-Than-Insignificant Payment Delay
Loan Class Amortized Cost Basis at March 31, 2026 % of Total Class of Financing Receivables
Agricultural real estate $ 189 0.27 %
Term Extension
Loan Class Financial Effect
Commercial and industrial A weighted average of 6 months was added to the term of the loans
Other-Than-Insignificant Payment Delay
Loan Class Financial Effect
Agricultural real estate Payments were deferred a weighted average of 6 months
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The table below shows a summary of criticized loans, split by special mention and substandard loans for the past five quarters. Changes in balances over $3 million include changes in special mention commercial loans in the second quarter of 2025, due to one new $9 million multi-family loan that is experiencing slower leasing activity than expected. In the third quarter of 2025, the $9 million special mention loan moved to substandard and nonaccrual, which was partially offset by the payoff of a $5.2 million substandard loan that was on nonaccrual.
(in thousands)
(Loan balance at unpaid principal balance) March 31,
2026 December 31,
2025 September 30,
2025 June 30,
2025 March 31,
2025
Special mention loan balances $ 25,894 $ 24,473 $ 12,920 $ 23,201 $ 14,990
Substandard loan balances 22,498 21,388 21,310 17,922 19,591
Criticized loans, end of period $ 48,392 $ 45,861 $ 34,230 $ 41,123 $ 34,581
Mortgage Servicing Rights. Mortgage servicing rights (“MSR”) assets are initially measured at fair value; assessed at least quarterly for impairment; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations. 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 these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.
The fair market value of the Company’s MSR asset was $4.8 million at March 31, 2026, compared to $5.1 million at March 31, 2025.
The unpaid balances of one-to-four family residential real estate loans serviced for others as of March 31, 2026, and December 31, 2025, were $473.0 million and $474.0 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at March 31, 2026, and December 31, 2025, was 1.02% and 0.98%, respectively.
Deposits. Total deposits increased $41.5 million during the three months ended March 31, 2026, to $1.57 billion. The increase was largely due to the growth in commercial and public deposits, most of which are seasonal. Deposits by type for five quarters are detailed below:
March 31,
2026 December 31,
2025 September 30,
2025 June 30,
2025 March 31,
2025
Consumer deposits $ 887,998 $ 889,109 $ 855,226 $ 856,467 $ 861,746
Commercial deposits 433,923 422,605 423,662 406,608 423,654
Public deposits 217,400 187,777 175,689 190,933 211,261
Wholesale deposits 26,301 24,608 25,977 24,408 26,993
Total deposits $ 1,565,622 $ 1,524,099 $ 1,480,554 $ 1,478,416 $ 1,523,654
At March 31, 2026, the deposit portfolio composition was 57% consumer, 28% commercial, 14% public, and 1% wholesale deposits compared to 57% consumer, 28% commercial, 14% public and 1% wholesale deposits at December 31, 2025. Deposit composition by type for five quarters are detailed below:
March 31,
2026 December 31,
2025 September 30, 2025 June 30, 2025 March 31,
2025
Non-interest bearing demand deposits $ 271,396 $ 264,394 $ 262,535 $ 260,248 $ 253,343
Interest bearing demand deposits 392,684 367,958 360,475 366,481 386,302
Savings accounts 152,487 151,525 157,317 159,340 167,614
Money market accounts 404,991 392,900 354,290 357,518 370,741
Certificate accounts 344,064 347,322 345,937 334,829 345,654
Total deposits $ 1,565,622 $ 1,524,099 $ 1,480,554 $ 1,478,416 $ 1,523,654
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Uninsured and uncollateralized deposits were $322.6 million, or 20% of total deposits, at March 31, 2026, and $323.5 million, or 21% of total deposits, at December 31, 2025. Uninsured deposits alone at March 31, 2026, were $499.6 million, or 32% of total deposits, and $478.4 million, or 31% of total deposits at December 31, 2025.
On-balance sheet liquidity, collateralized new borrowing capacity, and uncommitted federal funds borrowing availability was $799 million, or 248% of uninsured and uncollateralized deposits at March 31, 2026. At December 31, 2025, on-balance sheet liquidity, collateralized new borrowing capacity and uncommitted federal funds availability totaled $792 million, or 243% of uninsured and uncollateralized deposits.
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Federal Home Loan Bank (FHLB) advances and Other Borrowings. A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at March 31, 2026, and December 31, 2025, is as follows:
March 31, 2026 December 31, 2025
Stated Maturity Amount Range of Stated Rates Stated Maturity Amount Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3) 2026 $ 0 — % — % 2025 $ 0 0.00 % — %
Federal Home Loan Bank advances $ 0 $ 0
Senior Notes (4) 2039 $ 12,000 6.00 % 6.00 % 2039 $ 12,000 6.00 % 6.75 %
2040 $ 5,000 6.00 % 6.00 % 2040 $ 5,000 6.00 % 6.25 %
$ 17,000 $ 17,000
Subordinated Notes (5) 2030 $ 0 — % — % 2030 $ 0 — % — %
2032 35,000 4.75 % 4.75 % 2032 35,000 4.75 % 4.75 %
$ 35,000 $ 35,000
Unamortized debt issuance costs (156) (196)
Total other borrowings $ 51,844 $ 51,804
Totals $ 51,844 $ 51,804
(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 $1,039.3 million and $1,017.6 million at March 31, 2026 and December 31, 2025, respectively. At March 31, 2026, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $410.1 million compared to $433.7 million as of December 31, 2025.
(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $0 million and $5.0 million, during the three months ended March 31, 2026 and the twelve months ended December 31, 2025, respectively.
(3) There were no FHLB borrowings outstanding as of March 31, 2026 and December 31, 2025.
(4) Senior notes, entered into by the Company consist of the following:
(a) A term note, which was originally entered into in June of 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 $5.0 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 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 $15,000 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 SOFR plus 329 basis points. The note is callable by the Bank when, and anytime after, the floating rate is
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initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
FHLB advances were $0 as of March 31, 2026, and December 31, 2025. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. 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 as of March 31, 2026, is approximately $410.1 million.
At March 31, 2026, and December 31, 2025, the Bank had the ability to borrow $24.0 million and $24.9 million from the Federal Reserve Bank of Minneapolis. The borrowing capacity is based on mortgage-backed securities pledged with a carrying value of $31.6 million and $32.1 million as of March 31, 2026, and December 31, 2025, respectively. There were no related Federal Reserve borrowings outstanding as of March 31, 2026, or December 31, 2025.
The Bank maintains two unsecured federal funds purchased lines of credit with banking partners which total $70 million. These lines bear interest at the lender banks announced daily federal funds rate, mature daily, and are revocable at the discretion of the lending institution. There were no borrowings outstanding on these lines of credit as of March 31, 2026, or December 31, 2025.
See Note 7, “Federal Home Loan Bank Advances and Other Borrowings” for more information.
Stockholders’ Equity. Stockholders’ equity was $190.9 million at March 31, 2026, compared to $187.9 million at December 31, 2025. The increase in stockholders’ equity was attributable to: (1) net income of $3.8 million for the three-month period ended March 31, 2026; and (2) a decrease from December 31, 2025, in net unrealized losses from the AFS securities portfolio reflected in accumulated other comprehensive income of $0.2 million. This increase was partially offset by the quarterly cash dividend paid in February to common stockholders of $0.105 per share, or $1 million.
The Company did not repurchase any shares of common stock in the quarter ended March 31, 2026. As of March 31, 2026, approximately 113 thousand shares remain available for repurchase under the current authorization. The timing and amount of any share repurchases under the new authorization will be determined by management based on market conditions and other considerations. The new share repurchase authorization does not obligate the Company to repurchase any shares of its common stock.
Liquidity and Asset / Liability Management. Liquidity management refers to our ability to ensure cash is available in a timely manner to meet loan demand, depositors’ needs, and meet other financial obligations as they become due without undue cost, risk, or disruption to normal operating activities. We manage and monitor our short-term and long-term liquidity positions and needs through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk. A key metric we monitor is our liquidity ratio, calculated as cash and unpledged securities portfolio divided by total assets. At March 31, 2026, our on-balance sheet liquidity ratio increased by 1.4% to 16.2% from the December 31, 2025, level.
There are no material customers or industry deposit concentrations. At March 31, 2026, the deposit portfolio composition was 57% consumer, 28% commercial, 14% public, and 1% wholesale deposits compared to 57% consumer, 28% commercial, 13% public and 2% wholesale deposits at December 31, 2025.
Uninsured and uncollateralized deposits were $322.6 million, or 20% of total deposits, at March 31, 2026, and $323.5 million, or 21% of total deposits, at December 31, 2025. Uninsured deposits alone, i.e., excluding fully secured government deposits, at March 31, 2026, were $499.6 million, or 32% of total deposits, and $478.4 million, or 31% of total deposits at December 31, 2025.
On-balance sheet liquidity, collateralized new borrowing capacity, and uncommitted federal funds borrowing availability was $799 million, or 248% of uninsured and uncollateralized deposits at March 31, 2026. At December 31, 2025, on-balance sheet liquidity, collateralized new borrowing capacity and uncommitted federal funds availability totaled $792 million, or 243% of uninsured and uncollateralized deposits.
Our primary sources of funds are deposits, amortization, prepayments and maturities on the investment and loan portfolios and funds provided from operations. We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, and to fund loan commitments. While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Although $332.5 million of our $344.1 million (97%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s.
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On July 7, 2025, the Board of Directors approved the redemption of the entire $15 million balance of the 6% subordinated debentures due September 1, 2030, which were scheduled to reprice on September 1, 2025, to SOFR + 591 bps. The redemption occurred on September 1, 2025.
We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank, and our correspondent banks. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk. Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate, commercial and industrial loans, and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. Currently, we have approximately $410.1 million available to borrow under this arrangement, supported by loan collateral as of March 31, 2026. We also had borrowing capacity of $24.0 million at the Federal Reserve Bank. The Bank maintains $70 million of uncommitted federal funds purchased lines with correspondent banks as part of our contingency funding plan. While the Bank does not have formal brokered certificate lines of credit with counterparties at March 31, 2026, we believe that the Bank could access this market based on dialogue with selected brokers used in the past, which provides an additional potential source of liquidity, as further evidenced by access to this market during the past four quarters. See Note 7, “Federal Home Loan Bank and Other Borrowings” of “Notes to Consolidated Financial Statements” which are included in Part I, Item 1, “Financial Statements and Supplementary Data” of this Form 10-Q, for further detail.
In reviewing the adequacy of our liquidity, we review and evaluate historical financial information, including information regarding general economic conditions, current ratios, management goals, and the resources available to meet our anticipated liquidity needs. Management believes that our liquidity is adequate, and to management’s knowledge, there are no known events or uncertainties that will result or are likely to reasonably result in a material increase or decrease in our liquidity.
Off-Balance Sheet Liabilities . In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments, issued to meet customer financial needs. Such financial instruments are recorded in the financial statements when they become payable. 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 March 31, 2026, the Company had approximately $332.0 million in unused loan commitments, compared to approximately $198.8 million in unused commitments as of December 31, 2025. In addition, there are $3.0 million of commitments for contributions of capital to an SBIC and an investment company at March 31, 2026. These commitments totaled $3.2 million at December 31, 2025.
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Capital Resources. As of March 31, 2026, and December 31, 2025, the amounts and ratios for our capital levels are noted below for the Bank and the Company.
Below are the amounts and ratios for our capital levels as of the dates noted below for the Bank:
Actual For Capital Adequacy
Purposes To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2026 (Unaudited)
Total capital (to risk weighted assets) $ 217,204 14.4 % $ 120,623 > = 8.0 % $ 150,779 > = 10.0 %
Tier 1 capital (to risk weighted assets) 198,300 13.2 % 90,467 > = 6.0 % 120,623 > = 8.0 %
Common equity tier 1 capital (to risk weighted assets) 198,300 13.2 % 67,851 > = 4.5 % 98,006 > = 6.5 %
Tier 1 leverage ratio (to adjusted total assets) 198,300 11.3 % 70,063 > = 4.0 % 87,579 > = 5.0 %
As of December 31, 2025 (Audited)
Total capital (to risk weighted assets) $ 212,898 14.6 % $ 116,492 > = 8.0 % $ 145,615 > = 10.0 %
Tier 1 capital (to risk weighted assets) 194,639 13.4 % 87,369 > = 6.0 % 116,492 > = 8.0 %
Common equity tier 1 capital (to risk weighted assets) 194,639 13.4 % 65,527 > = 4.5 % 94,650 > = 6.5 %
Tier 1 leverage ratio (to adjusted total assets) 194,639 11.3 % 68,711 > = 4.0 % 85,888 > = 5.0 %
At March 31, 2026, and December 31, 2025, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.
Below are the amounts and ratios for our capital levels as of the dates noted below for the Company:
Actual For Capital Adequacy
Purposes
Amount Ratio Amount Ratio
As of March 31, 2026 (Unaudited)
Total capital (to risk weighted assets) $ 225,270 14.9 % $ 120,851 > = 8.0 %
Tier 1 capital (to risk weighted assets) 171,331 11.3 % 90,639 > = 6.0 %
Common equity tier 1 capital (to risk weighted assets) 171,331 11.3 % 67,979 > = 4.5 %
Tier 1 leverage ratio (to adjusted total assets) 171,331 9.8 % 70,176 > = 4.0 %
As of December 31, 2025 (Audited)
Total capital (to risk weighted assets) $ 222,910 15.3 % $ 116,686 > = 8.0 %
Tier 1 capital (to risk weighted assets) 169,621 11.6 % 87,514 > = 6.0 %
Common equity tier 1 capital (to risk weighted assets) 169,621 11.6 % 65,636 > = 4.5 %
Tier 1 leverage ratio (to adjusted total assets) 169,621 9.9 % 68,806 > = 4.0 %
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.