Citizens Community Bancorp Inc. 10-Q

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”), Item 1A in Part II of this report, 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); 60 • accounting standards for credit losses; • legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or Bank; • public company reporting obligations; • costs and risks associated with responding to actions of activist stockholders; • 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 June 30, 2026, and our consolidated results of operations for the three and six months ended June 30, 2026, compared to the same period in the prior fiscal year ended June 30, 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 $1.1 million and $4.9 million, or $0.11 and $0.50 per diluted share for the three and six months ended June 30, 2026, compared to net income of $3.3 million and $6.5 million, or $0.33 and $0.65 per diluted share for the three and six months ended June 30, 2025, respectively. The following is a summary of some of the significant factors that affected our operating results for the three and six months ended June 30, 2026, and June 30, 2025. Compared to the second quarter of 2025, the second quarter of 2026 net interest income increased $0.2 million. The second quarter of 2026 increase from the same period in 2025 was largely due to: (1) a $0.7 million decrease in interest expense due to lower deposit costs; (2) the impact of the September 2025 subordinated debt redemption; and (3) the impact of higher portfolio yields which was partially offset by: (1) a $0.5 million decrease in interest income due to $1.1 million of loan payoff income recognized in the second quarter of 2025; (2) the impact of higher nonaccrual loan balances; and (3) the repurchase of delinquent government loans in the second quarter of 2026. The total provision for credit losses for the second quarter ended June 30, 2026, was $4.325 million compared to a provision for credit losses of $1.350 million for the quarter ended June 30, 2025. The second quarter of 2026 provision was largely due to: (1) a net increase of $3.1 million in specific reserves on nonaccrual loans to $6.3 million and (2) charge-offs of $1.4 million. The second quarter of 2025 provision was largely due to: (1) the impact of three 30-89 days delinquent commercial relationships resulting in a $0.7 million provision; (2) the impact of modestly worsening macro-economic assumptions used by our third party provider of $0.3 million; (3) provision on new loans with longer contractual life outpacing previously established provisions on prepaying and maturing loans of $0.15 million; and (4) an increase in off-balance sheet commitments for new construction loan originations of $0.2 million. Non-interest income decreased $0.2 million in the second quarter of 2026, compared to the second quarter of 2025, primarily due to lower gains on the sale of loans of $0.3 million. Non-interest expense decreased $0.2 million in the second quarter of 2026 from $10.8 million in the second quarter of 2025. The decrease was primarily due to lower compensation costs and lower data processing costs. Provision for income taxes decreased to $0.14 million in the second quarter of 2026, from $0.78 million in the second quarter of 2025, primarily due to lower pre-tax income and a lower effective tax rate. For the six months ended June 30, 2026, net interest income increased $1.6 million from the same period in 2025. The impact of higher loan portfolio yields and lower deposit interest expense in the first quarter of 2026 compared to the first quarter of 2025 were the primary reasons for the change along with the second quarter of 2026 changes discussed above. 61 The total provision for credit losses for the six months ended June 30, 2026, was $5.075 million compared to a provision for credit losses of $1.100 million for the six months ended June 30, 2025. The $3.0 million was attributable to the factors discussed above. 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. Non-interest income increased $0.3 million for the six-month period ended June 30, 2026, compared to the same period in 2025, primarily due to an increase in other income in the first quarter of 2026 due to the reversal of a $0.1 million lease liability and $0.1 million higher loan servicing income. Non-interest expense increased slightly by $63 thousand in the six-month period ended June 30, 2026, compared to the same period in 2025, primarily due to higher second quarter other expense primarily due to higher nonperforming asset, higher compensation expense and higher professional services, partially offset by lower data processing expenses. Provision for income taxes decreased by 0.5 million in the six months ended June 30, 2026, compared to the same period in 2025, due to a decrease in pre-tax income and a lower effective tax rate. 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. 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 62 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 and six-month periods ended June 30, 2026, and June 30, 2025, respectively. Net interest income was $13.5 million for the three months ended June 30, 2026, compared to $13.3 million for the three months ended June 30, 2025. The second quarter 2026 increase from the same period in 2025 was largely due to: (1) $0.7 million decrease in interest expense largely due to the impact of the Federal Open Market Committee (“FOMC’) overnight Fed Funds interest rates decreasing 75 basis points in the third and fourth quarters of 2025 and lower expense due to the redemption of $15 million of 6% subordinated debt in the third quarter of 2025; and (2) higher loan portfolio interest rates, partially offset by: (1) a reduction in loan interest income of $1.1 million as the second quarter of 2025 and various income recognized, largely due to loan payoffs; (2) lower interest income in the second quarter of 2026 due to the impact of an increase in nonaccrual loans and the repurchase of delinquent government loans; and (3) the impact of lower interest rates on cash and cash equivalents resulting from a 75 basis points reduction in overnight interest rates in the third and fourth quarter of 2025 by the FOMC. The net interest margin for the three-month period ended June 30, 2026, decreased to 3.22%, compared to 3.27%, for the three-month period ended June 30, 2025. The lower net interest margin was due to a 28 basis point reduction in loan yields due to loan interest income discussed above partially offset by lower liability costs of 27 basis points. Net interest income was $26.5 million for the six-month period ended June 30, 2026, compared to $24.9 million for the six months ended June 30, 2025. The impact of higher loan portfolio yields and lower deposit interest expense in the first quarter of 2026 compared to the first quarter of 2025 were the primary reasons for the change along with the second quarter of 2026 changes discussed above. The net interest margin for the six-month period ended June 30, 2026, increased to 3.20%, compared to 3.06%, for the six-month period ended June 30, 2025. The higher net interest margin was primarily due to a decrease in liability costs of 29 basis points, mainly due to: (1) lower short-term Fed Funds interest rates discussed above; (2) a decrease in the cost of FHLB advances; and (3) the September 2025 redemption of 6% $15 million subordinated debt; which was partially offset by: (1) lower short-term interest rates effecting both cash and cash equivalent and equity security yields; (2) lower comparable loan yields due to one-time June 2025 loan income recognition, largely due to loan payoffs; and (3) the second quarter 2026 negative impact of an increase in nonaccrual loans and the repurchase of government guaranteed loans, which was partially offset by higher loan portfolio yields. 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 and six-month periods ended June 30, 2026, and June 30, 2025. Non-accruing loans have been included in the table as loans carrying a zero yield. 63 NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS (Dollar amounts in thousands) Three months ended June 30, 2026, compared to the three months ended June 30, 2025: Three months ended June 30, 2026 Three months ended June 30, 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 $ 98,575 $ 908 3.69 % $ 44,377 $ 493 4.46 % Loans 1,363,849 19,322 5.68 % 1,353,332 20,105 5.96 % Investment securities 209,228 1,650 3.16 % 223,318 1,735 3.12 % Other investments 12,491 154 4.95 % 12,400 169 5.47 % Total interest earning assets $ 1,684,143 $ 22,034 5.25 % $ 1,633,427 $ 22,502 5.53 % Average interest-bearing liabilities: Savings accounts $ 148,055 $ 276 0.75 % $ 160,849 $ 335 0.84 % Demand deposits 389,098 1,862 1.92 % 372,723 1,986 2.14 % Money market 401,145 2,534 2.53 % 361,420 2,510 2.79 % CD’s 342,800 3,147 3.68 % 342,959 3,456 4.04 % Total deposits $ 1,281,098 $ 7,819 2.45 % $ 1,237,951 $ 8,287 2.69 % FHLB Advances and other borrowings 51,920 711 5.49 % 61,781 904 5.87 % Total interest-bearing liabilities $ 1,333,018 $ 8,530 2.57 % $ 1,299,732 $ 9,191 2.84 % Net interest income $ 13,504 $ 13,311 Interest rate spread 2.68 % 2.69 % Net interest margin 3.22 % 3.27 % Average interest earning assets to average interest-bearing liabilities 1.26 1.26 64 NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS (Dollar amounts in thousands) Six months ended June 30, 2026, compared to the six months ended June 30, 2025: Six months ended June 30, 2026 Six months ended June 30, 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 $ 102,093 $ 1,870 3.69 % $ 46,097 $ 1,017 4.45 % Loans receivable 1,346,246 38,091 5.71 % 1,358,314 38,707 5.75 % Investment securities 211,806 3,279 3.12 % 225,902 3,544 3.16 % Other investments 12,497 310 5.00 % 12,448 337 5.46 % Total interest earning assets $ 1,672,642 $ 43,550 5.25 % $ 1,642,761 $ 43,605 5.35 % Average interest bearing liabilities: Savings accounts $ 150,168 $ 585 0.79 % $ 163,908 $ 742 0.91 % Demand deposits 383,082 3,630 1.91 % 377,512 4,018 2.15 % Money market accounts 397,571 5,042 2.56 % 363,463 5,046 2.80 % CD’s 343,642 6,353 3.73 % 343,353 7,078 4.16 % Total deposits $ 1,274,463 $ 15,610 2.47 % $ 1,248,236 $ 16,884 2.73 % FHLB advances and other borrowings 51,872 1,426 5.54 % 63,200 1,816 5.79 % Total interest bearing liabilities $ 1,326,335 $ 17,036 2.59 % $ 1,311,436 $ 18,700 2.88 % Net interest income $ 26,514 $ 24,905 Interest rate spread 2.66 % 2.47 % Net interest margin 3.20 % 3.06 % Average interest earning assets to average interest bearing liabilities 1.26 1.25 65 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 and the increase in deposits being invested in interest-bearing cash at the Federal Reserve. RATE / VOLUME ANALYSIS (Dollar amounts in thousands) Three months ended June 30, 2026, compared to the three months ended June 30, 2025: Increase (decrease) due to Volume Rate Net Interest income: Cash and cash equivalents $ 524 $ (109) $ 415 Loans 155 (938) (783) Investment securities (111) 26 (85) Other investments 1 (16) (15) Total interest earning assets 569 (1,037) (468) Interest expense: Savings accounts (25) (34) (59) Demand deposits 85 (209) (124) Money market accounts 263 (239) 24 CD’s (2) (307) (309) Total deposits 321 (789) (468) FHLB Advances and other borrowings (137) (56) (193) Total interest bearing liabilities 184 (845) (661) Net interest income $ 385 $ (192) $ 193 66 RATE / VOLUME ANALYSIS (Dollar amounts in thousands) Six months ended June 30, 2026, compared to the six months ended June 30, 2025: Increase (decrease) due to Volume Rate Net Interest income: Cash and cash equivalents $ 1,075 $ (222) $ 853 Loans receivable (343) (273) (616) Investment securities (219) (46) (265) Other investments 1 (28) (27) Total interest earning assets 514 (569) (55) Interest expense: Savings accounts (59) (98) (157) Demand deposits 59 (447) (388) Money market accounts 453 (457) (4) CD’s 6 (731) (725) Total deposits 459 (1,733) (1,274) FHLB advances and other borrowings (285) (105) (390) Total interest bearing liabilities 174 (1,838) (1,664) Net interest income $ 340 $ 1,269 $ 1,609 The table below shows the principal balance and current contractual rate of fixed-rate loans, securities, and certificates of deposits as of June 30, 2026, that mature or reprice for the remaining two quarters of 2026 and the four quarters of 2027. Portfolio Contractual Fixed Rate Repricing by Future Quarters: (in millions, except yields) Q3 2026 Q4 2026 Q1 2027 Q2 2027 Q3 2027 Q4 2027 Maturing or Repricing Loans: Contractual balance $ 93 $ 96 $ 53 $ 67 $ 43 $ 68 Contractual interest rate 3.82 % 3.92 % 4.13 % 4.60 % 4.99 % 5.33 % Maturing or Repricing Securities: Contractual balance $ 7 $ 3 $ 3 $ — $ 4 $ — Contractual interest rate 3.44 % 3.35 % 3.31 % — % 5.93 % — % Maturing Certificate Accounts: Contractual balance $ 134 $ 98 $ 66 $ 27 $ 12 $ — Contractual interest rate 3.77 % 3.70 % 3.64 % 3.54 % 3.57 % — % 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 second quarter ended June 30, 2026, was $4.325 million compared to a provision for credit losses of $1.350 million for the quarter ended June 30, 2025. The second quarter of 2026 provision was largely due to: (1) a net increase of $3.1 million, in specific reserves on nonaccrual loans to $6.3 million and (2) charge-offs of 67 $1.4 million. The second quarter of 2025 provision expense was largely due to: (1) the impact of three 30-89 day delinquent commercial relationships resulting in a $0.7 million provision; (2) the impact of modestly worsening macro-economic assumptions used by our third party provider of $0.3 million; (3) provisions on new loans with longer contractual life outpacing previously established provisions on prepaying and maturing loans of $0.15 million; and (4) an increase in off-balance sheet commitments from new construction loan originations of $0.2 million. The total provision for credit losses for the six months ended June 30, 2026, was $5.075 million compared to a provision for credit losses of $1.100 million for the six months ended June 30, 2025. The second quarter of 2026 changes compared to the second quarter of 2025 are discussed above. 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. 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 and six-month periods is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our nonperforming loans. We continually monitor nonperforming 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. Non-interest Income . The following table reflects the various components of non-interest income for the three and six-month periods ended June 30, 2026 and 2025, respectively. Three months ended June 30, Six months ended June 30, 2026 2025 % Change 2026 2025 % Change Non-interest Income: Service charges on deposit accounts $ 460 $ 432 6.48 % $ 920 $ 855 7.60 % Interchange income 556 564 (1.42) % 1,057 1,082 (2.31) % Loan servicing income 593 565 4.96 % 1,254 1,124 11.57 % Gain on sale of loans 442 699 (36.77) % 1,463 1,419 3.10 % Loan fees and service charges 129 237 (45.57) % 267 357 (25.21) % Net gains on equity securities 160 99 N/M 101 109 N/M Other 267 240 11.25 % 644 483 33.33 % Total non-interest income $ 2,607 $ 2,836 (8.07) % $ 5,706 $ 5,429 5.10 % N/M means not meaningful Loan servicing income increased for the six months ended June 30, 2026, compared to the six months ended June 30, 2025, largely due to higher originated servicing income recorded due to higher residential gains on sale. Gain on sale of loans decreased in the three-month period ended June 30, 2026, compared to the three-month period ended June 30, 2025. Lower gains on SBA loan sales contributed to most of the decrease, partially offset by higher residential gains on sale. Loan fees and service charges decreased for the three-month and six-month period ended June 30, 2026, compared to the same periods in 2025 due to lower customer activity in the second quarter of 2026. 68 Other income increased for the six-month period ending June 30, 2026, compared to the same period in 2025, primarily due to the termination of the remaining lease obligation in the first quarter of 2026 on a previously closed branch. To a lesser extent, income for Bank owned life insurance increased. Non-interest Expense. The following table reflects the various components of non-interest expense for the three and six-month periods ended June 30, 2026 and 2025, respectively. Three months ended June 30, Six months ended June 30, 2026 2025 % Change 2026 2025 % Change Non-interest Expense: Compensation and related benefits $ 5,712 $ 6,008 (4.93) % $ 11,778 $ 11,605 1.49 % Occupancy 1,240 1,196 3.68 % 2,518 2,483 1.41 % Data processing 1,302 1,753 (25.73) % 2,719 3,472 (21.69) % Amortization of intangible assets 113 179 (36.87) % 226 358 (36.87) % Mortgage servicing rights expense, net 173 148 16.89 % 334 288 15.97 % Advertising, marketing and public relations 207 194 6.70 % 433 361 19.94 % FDIC premium assessment 200 191 4.71 % 431 389 10.80 % Professional services 514 432 18.98 % 1,119 940 19.04 % Gains on repossessed assets, net (12) — N/M (12) 4 N/M Other 1,100 649 69.49 % 1,730 1,313 31.76 % Total non-interest expense $ 10,549 $ 10,750 (1.87) % $ 21,276 $ 21,213 0.30 % Non-interest expense (annualized) / Average assets 2.35 % 2.47 % (4.86) % 2.40 % 2.44 % (1.64) % N/M means not meaningful Compensation expense for the three-month period ended June 30, 2026, decreased from the same period in 2025, due to lower incentive accruals partially offset by the annual merit raises included in the last payroll period of the first quarter. Data processing expense for the three and six-months ended June 30, 2026, decreased from the same 2025 periods, largely due to contract renegotiations which lowered our costs. Amortization of intangibles decreased for the three-month and six-month periods ending June 30, 2026, from the same 2025 periods, as an intangible was fully amortized in the third quarter of 2025. Other expense for the three and six-months ended June 30, 2026, increased from the same 2025 periods, primarily due to costs associated with higher nonperforming assets in the second quarter of 2026. Income Taxes. Provision for income taxes decreased to $0.14 million in the second quarter of 2026, from $0.78 million in the second quarter of 2025. For the six months ended June 30, 2026, income tax expense decreased $0.5 million to $1.0 million, compared to the same period in 2025. The effective tax rate was 10.9% for the quarter ended June 30, 2026, compared to 18.9% for the quarter ended March 31, 2026, and 19.2% for the quarter ended June 30, 2025. The decrease in the effective tax rate in the second quarter of 2026 from the first quarter of 2026 was due to (1) the reduction in the effective tax rate for the full year, based on lower pre-tax income, with the six-month impact recognized in the second quarter resulting in a lower effective tax rate of 4.6% and (2) a reduction in the effective tax rate of 3.4% due to the increased benefit of securities maturities. 69 BALANCE SHEET ANALYSIS Cash and Cash Equivalents. Cash and cash equivalents increased $2.9 million to $121.8 million at June 30, 2026, compared to $118.9 million at December 31, 2025. This increase was primarily due to 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 $5.7 million during the six months ended June 30, 2026, to $128.4 million from $134.1 million at December 31, 2025. There were principal repayments of $7.6 million and redemptions of $3.1 million in the corporate debt portfolio. These reductions were partially offset by purchases of $4.3 million of corporate debt and a decrease in the unrealized loss of $0.7 million. Securities held-to-maturity decreased $2.8 million to $77.4 million during the six-month period ended June 30, 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 June 30, 2026 U.S. government agency obligations $ 7,257 $ 7,229 Mortgage-backed securities 79,531 63,988 Corporate debt securities 43,618 42,504 Student loan asset-backed securities 14,876 14,714 Totals $ 145,282 $ 128,435 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 June 30, 2026 Obligations of states and political subdivisions $ 300 $ 291 Mortgage-backed securities 77,115 61,190 Totals $ 77,415 $ 61,481 December 31, 2025 Obligations of states and political subdivisions $ 400 $ 388 Mortgage-backed securities 79,810 63,729 Totals $ 80,210 $ 64,117 70 The composition of our available-for-sale portfolios by credit rating as of the dates indicated below was as follows: June 30, 2026 December 31, 2025 Available-for-sale securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 88,288 $ 72,743 $ 93,075 $ 77,458 AAA 1,370 1,362 4,613 4,595 AA 12,949 12,826 11,536 11,369 A 3,457 3,313 2,250 2,097 BBB 39,218 38,191 40,144 38,584 Total available-for-sale securities $ 145,282 $ 128,435 $ 151,618 $ 134,103 The composition of our held-to-maturity portfolio by credit rating as of the dates indicated was as follows: June 30, 2026 December 31, 2025 Held-to-maturity securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 77,115 $ 61,190 $ 79,810 $ 63,729 A 300 291 400 388 Total $ 77,415 $ 61,481 $ 80,210 $ 64,117 At June 30, 2026, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $31.1 million as collateral to secure a line of credit with the Federal Reserve Bank. As of June 30, 2026, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of June 30, 2026, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.04 million and mortgage-backed securities with a carrying value of $1.7 million as collateral against specific municipal deposits. As of June 30, 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. 71 Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, increased by $0.04 billion, to $1.38 billion as of June 30, 2026, from $1.34 billion at December 31, 2025. The following table reflects the composition of our loan portfolio at June 30, 2026, and December 31, 2025: June 30, 2026 December 31, 2025 Amount Percent Amount Percent Real estate loans: Commercial/Agricultural real estate Commercial real estate $ 731,028 52.8 % $ 683,108 51.0 % Agricultural real estate 71,382 5.2 % 69,136 5.2 % Multi-family real estate 253,244 18.3 % 245,688 18.3 % Construction and land development 56,090 4.1 % 75,767 5.6 % Residential mortgage Residential mortgage 117,083 8.5 % 122,025 9.1 % Purchased HELOC loans 1,405 0.1 % 1,739 0.1 % Total real estate loans 1,230,232 89.0 % 1,197,463 89.3 % C&I/Agricultural operating and Consumer Installment Loans: C&I/Agricultural operating Commercial and industrial (“C&I”) 117,215 8.5 % 105,907 7.9 % Agricultural operating 29,427 2.1 % 33,375 2.5 % Consumer installment Originated indirect paper 1,559 0.1 % 2,224 0.2 % Other consumer 7,267 0.5 % 3,997 0.3 % Total C&I/Agricultural operating and Consumer installment Loans 155,468 11.2 % 145,503 10.9 % Gross loans $ 1,385,700 100.2 % $ 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 (87) — % (113) — % Total loans (net of unearned income and deferred expense) 1,382,975 100.0 % 1,340,325 100.0 % Allowance for credit losses (25,899) (22,401) Total loans receivable, net $ 1,357,076 $ 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. 72 The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at June 30, 2026: Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE Loan Balance Outstanding in Millions $ 475 $ 256 $ 253 $ 56 Number of Loans 718 384 129 75 Average Loan Size in Millions $ 0.7 $ 0.7 $ 2.0 $ 0.8 Approximate Weighted Average LTV 54 % 49 % 61 % 64 % Weighted Average Seasoning in Months 48 46 49 16 Trailing 12 Month Net Charge-Offs (0.01) % 0.24 % 0.00 % 0.00 % Criticized Loans in Millions $ 14.5 $ 15.8 $ 11.1 $ 0.0 Criticized Loans as a Percent of Total 3.0 % 6.2 % 4.4 % 0.0 % 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 % 82 % 65 % 74 % Minnesota 19 % 13 % 25 % 2 % Other 33 % 5 % 10 % 24 % The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at June 30, 2026: Campground Hotel Restaurant Office Loan Balance Outstanding in Millions $ 152 $ 100 $ 62 $ 36 Number of Loans 70 24 83 70 Average Loan Size in Millions $ 2.2 $ 4.1 $ 0.7 $ 0.5 Approximate Weighted Average LTV 48 % 55 % 52 % 55 % Weighted Average Seasoning in Months 45 49 48 38 Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 % Criticized Loans in Millions $ 5.7 $ 3.0 $ 3.2 $ 0.3 Criticized Loans as a Percent of Total 3.7 % 3.1 % 5.1 % 0.7 % The table below lists our CRE portfolio selected industry components by geographical location: Campground Hotel Restaurant Office Wisconsin 15 % 37 % 63 % 83 % Minnesota 0 % 37 % 23 % 11 % Other 85 % 26 % 14 % 6 % 73 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 % 74 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. 75 Allowance for Credit Losses - Loans (in thousands, except ratios) June 30, 2026 and Three Months Ended 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 $ 22,966 $ 22,401 $ 22,182 Loans charged off: Commercial/Agricultural real estate (574) (17) — C&I/Agricultural operating (849) (183) — Residential mortgage — — — Consumer installment — (1) (4) Total loans charged off (1,423) (201) (4) Recoveries of loans previously charged off: Commercial/Agricultural real estate — — — C&I/Agricultural operating 2 — 2 Residential mortgage — 5 — Consumer installment 4 3 18 Total recoveries of loans previously charged off: 6 8 20 Net loan (charge-offs)/recoveries (“NCOs”) (1,417) (193) 16 Additions to ACL - Loans via provision for credit losses charged to operations 4,350 758 203 ACL - Loans, at end of period $ 25,899 $ 22,966 $ 22,401 Average outstanding loan balance $ 1,363,849 $ 1,328,448 $ 1,329,456 Ratios: NCOs (annualized) to average loans 0.42 % 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 June 30, 2026 Allowance for Credit Losses - Loans: ACL - Loans, at beginning of period $ 18,251 $ 2,626 $ 1,939 $ 150 $ 22,966 Charge-offs (574) (849) — — (1,423) Recoveries — 2 — 4 6 Additions to ACL - Loans via provision for credit losses charged to operations 3,744 493 108 5 4,350 ACL - Loans, at end of period $ 21,421 $ 2,272 $ 2,047 $ 159 $ 25,899 Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Total Six months ended June 30, 2026 Allowance for Credit Losses - Loans: ACL - Loans, at beginning of period $ 17,654 $ 2,358 $ 2,230 $ 159 $ 22,401 Charge-offs (591) (1,032) — (1) (1,624) Recoveries — 2 5 7 14 Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations 4,358 944 (188) (6) 5,108 ACL - Loans, at end of period $ 21,421 $ 2,272 $ 2,047 $ 159 $ 25,899 76 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 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 Percentage (in thousands, except ratios) June 30, 2026 December 31, 2025 Loans, end of period $ 1,382,975 $ 1,340,325 ACL - Loans $ 25,899 $ 22,401 ACL - Loans to loans, end of period 1.87 % 1.67 % In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.457 million at June 30, 2026, and $0.490 million at December 31, 2025, classified in other liabilities on the consolidated balance sheets. Allowance for Credit Losses - Unfunded Commitments: (in thousands) June 30, 2026 and Three Months Ended June 30, 2025 and Three Months Ended June 30, 2026 and Six Months Ended June 30, 2025 and Six Months Ended ACL - Unfunded commitments, beginning of period $ 482 $ 435 $ 490 $ 334 (Reversals)/additions to ACL - Unfunded commitments via provision for credit losses charged to operations (25) 192 (33) 293 ACL - Unfunded commitments, end of period $ 457 $ 627 $ 457 $ 627 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 nonaccrual loans are used to reduce principal rather than being recorded as interest income. 77 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: June 30, 2026 and Six Months Then Ended (1) December 31, 2025 and Twelve Months Then Ended (1) Nonperforming assets: Nonaccrual loans Commercial real estate $ 18,676 $ 4,652 Agricultural real estate 2,254 464 Multi-family real estate 8,970 8,970 Construction and land development — — Commercial and industrial 1,221 1,282 Agricultural operating — — Residential mortgage 440 485 Consumer installment — — Total nonaccrual loans $ 31,561 $ 15,853 Accruing loans past due 90 days or more 18 1 Total nonperforming loans (“NPLs”) 31,579 15,854 Other real estate owned 850 850 Other collateral owned — 7 Total nonperforming assets (“NPAs”) $ 32,429 $ 16,711 Average outstanding loan balance $ 1,346,246 $ 1,347,088 Loans, end of period $ 1,382,975 $ 1,340,325 Total assets, end of period $ 1,814,309 $ 1,781,755 ACL - Loans, at beginning of period $ 22,401 $ 20,549 Loans charged off: Commercial/Agricultural real estate $ (591) $ (51) C&I/Agricultural operating (1,032) (94) Residential mortgage — — Consumer installment (1) (22) Total loans charged off (1,624) (167) Recoveries of loans previously charged off: Commercial/Agricultural real estate — 92 C&I/Agricultural operating 2 51 Residential mortgage 5 53 Consumer installment 7 29 Total recoveries of loans previously charged off: 14 225 Net loan (charge-offs)/recoveries (“NCOs”) (1,610) 58 Additions to ACL - loans via provision for credit losses charged to operations 5,108 1,794 ACL - Loans, at end of period $ 25,899 $ 22,401 Ratios: ACL-Loans to NCOs (annualized) N/M N/M NCOs (annualized) to average loans 0.24 % — % ACL-Loans to total loans 1.87 % 1.67 % ACL-Loans to nonaccrual loans 82.06 % 141.30 % Nonaccrual loans to total loans 2.28 % 1.18 % NPLs to total loans 2.28 % 1.18 % NPAs to total assets 1.79 % 0.94 % (1) Loan balances are stated at amortized cost. N/M means not meaningful 78 Nonaccrual Loans Roll Forward: Quarter Ended June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025 June 30, 2025 Balance, beginning of period $ 17,303 $ 15,853 $ 15,614 $ 11,609 $ 13,091 Additions 18,332 2,350 483 9,958 600 Charge offs (1,423) (200) — (7) (72) Payments received (2,629) (681) (244) (5,934) (1,992) Other, net (22) (19) — (12) (18) Balance, end of period $ 31,561 $ 17,303 $ 15,853 $ 15,614 $ 11,609 Nonperforming assets were $32.4 million at June 30, 2026, compared to $16.7 million at December 31, 2025. The increase was largely due to the addition of a $4.2 million owner-occupied commercial real estate loan secured by real estate and equipment, with a specific reserve established equal to the owner-occupied real estate loan exposure, a local loan relationship totaling $5.7 million secured by two campgrounds, a multi-use multi-family/retail loan of $2.7 million that had performed for 10 years and a net increase in repurchased government guaranteed loans totaling $2.8 million. The non-guaranteed portion of the loans originated with partial government guarantees increased $0.7 million for the six months ended June 30, 2026, to $1.2 million. There are specific reserves of approximately 25% on the non-guaranteed government loans. 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. There were no loan modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2026. ​ ​ 79 The table below shows a summary of criticized loans, split by special mention and substandard loans for the past five quarters. Special mention loans decreased $4.6 million to $19.9 million at June 30, 2026, from $24.5 million at December 31, 2025, primarily due to a $5.4 million owner-occupied commercial real estate loan secured by real estate and equipment which moved to substandard. Substandard loans increased $13.8 million to $35.2 million at June 30, 2026, from $21.4 million at December 31, 2025, primarily due to: (1) a $4.2 million owner-occupied commercial real estate loan secured by real estate and equipment, with a specific reserve established equal to the owner-occupied real estate loan exposure with the loan balance reduced by $1.2 million due to a charge-off moving from special mention; (2) a local loan relationship totaling $5.7 million secured by two campgrounds; (3) a multi-use multi-family/retail loan of $2.7 million that had performed for 10 years; and (4) a net increase in repurchased government guaranteed loans totaling $2.8 million. Special mention loans increased $1.3 million to $24.5 million at December 31, 2025, from June 30, 2025, largely due to increases in the fourth quarter of 2025, due to the addition of two loan relationships: (1) a $5.7 million relationship on 3 businesses, largely secured by real estate; (2) a $5.3 million owner-occupied commercial real estate and equipment loan, partially offset by; and (3) a $9 million special mention loan that moved to substandard in the third quarter of 2025. Substandard loans increased $3.5 million primarily due to an increase in nonaccrual loan balances due to changes in the third quarter of one new $9 million multi-family loan that is experiencing slower leasing activity than expected moving from special mention, 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) June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025 June 30, 2025 Special mention loan balances $ 19,863 $ 25,894 $ 24,473 $ 12,920 $ 23,201 Substandard loan balances 35,216 22,498 21,388 21,310 17,922 Criticized loans, end of period $ 55,079 $ 48,392 $ 45,861 $ 34,230 $ 41,123 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 $5.1 million at June 30, 2026, and $4.7 million at December 31, 2025. The unpaid balances of one-to-four family residential real estate loans serviced for others as of June 30, 2026, and December 31, 2025, were $471.8 million and $474.0 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at June 30, 2026, and December 31, 2025, was 1.08% and 0.98%, respectively. Deposits. Total deposits increased $30.3 million during the six months ended June 30, 2026, to $1.55 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: June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025 June 30, 2025 Consumer deposits $ 884,335 $ 887,998 $ 889,109 $ 855,226 $ 856,467 Commercial deposits 442,443 433,923 422,605 423,662 406,608 Public deposits 201,599 217,400 187,777 175,689 190,933 Wholesale deposits 26,040 26,301 24,608 25,977 24,408 Total deposits $ 1,554,417 $ 1,565,622 $ 1,524,099 $ 1,480,554 $ 1,478,416 At June 30, 2026, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits compared to 58% consumer, 28% commercial, 12% public and 2% wholesale deposits at December 31, 2025. Deposit composition by type for five quarters are detailed below: 80 June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025 June 30, 2025 Non-interest bearing demand deposits $ 274,822 $ 271,396 $ 264,394 $ 262,535 $ 260,248 Interest bearing demand deposits 384,101 392,684 367,958 360,475 366,481 Savings accounts 145,390 152,487 151,525 157,317 159,340 Money market accounts 408,305 404,991 392,900 354,290 357,518 Certificate accounts 341,799 344,064 347,322 345,937 334,829 Total deposits $ 1,554,417 $ 1,565,622 $ 1,524,099 $ 1,480,554 $ 1,478,416 Uninsured and uncollateralized deposits were $312.5 million, or 20% of total deposits, at June 30, 2026, and $323.5 million, or 21% of total deposits, at December 31, 2025. Uninsured deposits alone at June 30, 2026, were $479.4 million, or 31% 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 $781 million, or 246% of uninsured and uncollateralized deposits at June 30, 2026. At December 31, 2025, on-balance sheet liquidity, collateralized new borrowing capacity and uncommitted federal funds availability totaled $792 million, or 245% of uninsured and uncollateralized deposits. 81 Federal Home Loan Bank (FHLB) advances and Other Borrowings. A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at June 30, 2026, and December 31, 2025, is as follows: June 30, 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 (115) (196) Total other borrowings $ 51,885 $ 51,804 Totals $ 51,885 $ 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 $1,054.2 million and $1,017.6 million at June 30, 2026 and December 31, 2025, respectively. At June 30, 2026, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $427.5 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 six months ended June 30, 2026 and the twelve months ended December 31, 2025, respectively. (3) There were no FHLB borrowings outstanding as of June 30, 2026 and December 31, 2025. (4) Senior notes, entered into by the Company consist of the following: (a) A $12 million term note, which was originally entered into in June 2019 and subsequently refinanced in March 2022, modified in February 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 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 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 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 SOFR plus 329 basis points. The note is callable by the Company 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. 82 There were no FHLB advances as of June 30, 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 June 30, 2026, is approximately $427.5 million. At June 30, 2026, and December 31, 2025, the Bank had the ability to borrow $23.7 million and $24.5 million from the Federal Reserve Bank of Minneapolis. The borrowing capacity is based on mortgage-backed securities pledged with a carrying value of $31.1 million and $32.1 million as of June 30, 2026, and December 31, 2025, respectively. There were no related Federal Reserve borrowings outstanding as of June 30, 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 June 30, 2026, or December 31, 2025. See Note 7, “Federal Home Loan Bank Advances and Other Borrowings” for more information. Stockholders’ Equity. Stockholders’ equity was $191.3 million at June 30, 2026, compared to $187.9 million at December 31, 2025. The increase in stockholders’ equity was attributable to: (1) net income of $4.9 million for the six-month period ended June 30, 2026; (2) a decrease from December 31, 2025, in net unrealized losses from the AFS securities portfolio reflected in accumulated other comprehensive income of $0.4 million; and (3) net stock activity of $0.1 million related to stock exercises, common stock surrendered, common stock repurchased and stock based compensation expense. This increase was partially offset by the quarterly cash dividends paid in February 2026 and May 2026 to common stockholders of $0.105 per share each quarter, or $2.0 million. The Company repurchased approximately 881 shares of common stock in the quarter ended June 30, 2026. As of July 23, 2026, this share repurchase authorization expired with no shares repurchased from July 1, 2026 through July 23, 2026. 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 June 30, 2026, our on-balance sheet liquidity ratio decreased by 0.5% to 14.3% from the December 31, 2025, level. There are no material customers or industry deposit concentrations. At June 30, 2026, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits compared to 58% consumer, 28% commercial, 12% public and 2% wholesale deposits at December 31, 2025. Uninsured and uncollateralized deposits were $312.5 million, or 20% of total deposits, at June 30, 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 June 30, 2026, were $479.4 million, or 31% 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 $781 million, or 246% of uninsured and uncollateralized deposits at June 30, 2026. At December 31, 2025, on-balance sheet liquidity, collateralized new borrowing capacity and uncommitted federal funds availability totaled $792 million, or 245% 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 $325.4 million of our $341.8 million (95.2%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s. 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. 83 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 $427.5 million available to borrow under this arrangement, supported by loan collateral as of June 30, 2026. We also had borrowing capacity of $23.7 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 June 30, 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 Arrangements . 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 June 30, 2026, the Company had approximately $228.0 million in unused loan commitments, compared to approximately $198.8 million in unused commitments as of December 31, 2025. In addition, there are $2.8 million of commitments for contributions of capital to an SBIC and an investment company at June 30, 2026. These commitments totaled $3.2 million at December 31, 2025. 84 Capital Resources. As of June 30, 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 June 30, 2026 (Unaudited) Total capital (to risk weighted assets) $ 217,120 14.2 % $ 122,375 > = 8.0 % $ 152,969 > = 10.0 % Tier 1 capital (to risk weighted assets) 197,910 12.9 % 91,781 > = 6.0 % 122,375 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 197,910 12.9 % 68,836 > = 4.5 % 99,430 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 197,910 11.2 % 70,602 > = 4.0 % 88,252 > = 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 June 30, 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 June 30, 2026 (Unaudited) Total capital (to risk weighted assets) $ 225,950 14.7 % $ 122,605 > = 8.0 % Tier 1 capital (to risk weighted assets) 171,704 11.2 % 91,954 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 171,704 11.2 % 68,965 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 171,704 9.7 % 70,715 > = 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 % 85