What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-10 compared with 2026-05-12 · 155 added, 74 removed, 184 unchanged (55% of the section changed)

60 unchanged sentences

Assets and liabilities that are measured at fair value using quoted prices in active markets (Level 1) do not require significant judgment while the valuation of assets and liabilities when quoted market prices are not available (Levels 2 and 3) may require significant judgment to assess whether observable or unobservable inputs for those assets and liabilities provide reasonable determination of fair value.

Comparison of Financial Condition at March 31, 2026 and December 31, 2025

Comparison of Financial Condition at June 30, 2026 and December 31, 2025

Total Assets.

Total assets were $535.7 million at March 31, 2026, an increase of $1.3 million, or 0.2%, compared to $534.4 million at December 31, 2025.

This increase is primarily due to a $12.0 million increase in loans receivable, net, offset by a $10.5 million decrease in cash and cash equivalents.

Total assets were $532.1 million at June 30, 2026, a decrease of $2.3 million, or 0.4%, compared to $534.4 million at December 31, 2025.

This decrease is primarily due to a $14.7 million decrease in cash and cash equivalents, a $4.9 million decrease in investment securities available-for-sale, offset by a $17.0 million increase in loans receivable, net.

Cash and Cash Equivalents.

Cash and cash equivalents decreased by $10.6 million, or 31.3%, to $23.3 million at March 31, 2026 from $33.9 million at December 31, 2025.

This decrease is primarily due to the purchase of investments available for sale and the origination of loans, primarily construction and commercial loans.

Cash and cash equivalents decreased by $14.7 million, or 43.4%, to $19.2 million at June 30, 2026 from $33.9 million at December 31, 2025.

This decrease is primarily due to the origination of loans, primarily construction and commercial loans.

Investment Securities Available-for-Sale.

Investment securities available-for-sale decreased $263,000, or 0.3%, to $98.8 million at March 31, 2026 from $99.1 million at December 31, 2025.

Securities purchased totaled $3.9 million during the three months ended March 31, 2026, and calls, maturities, and repayments totaled $3.9 million.

Adding to the decrease was a fair market value adjustment of $214,000.

Investment securities available-for-sale decreased $4.9 million, or 4.9%, to $94.2 million at June 30, 2026 from $99.1 million at December 31, 2025.

Securities purchased totaled $3.9 million during the six months ended June 30, 2026, and calls, maturities, and repayments totaled $8.4 million.

Adding to the decrease was a fair market value downward adjustment of $391,000.

Loans Receivable, Net.

Loans receivable, net, increased by $12.0 million, or 3.2%, to $388.4 million at March 31, 2026 from $376.4 million at December 31, 2025.

During the three months ended March 31, 2026, loan originations were $22.9 million and loan repayments totaled $10.9 million.

During the three months ended March 31, 2026, commercial loans increased by $5.8 million, primarily from the origination of commercial real estate loans, and commercial and industrial loans, 1-4 single family mortgages decreased by $2.6 million, home equity loans decreased by $82,000, consumer loans increased by $2.9 million, and construction and land loans increased by $5.9 million.

Deposits increased by $2.1 million, or 0.5%, to $395.2 million at March 31, 2026, from $393.2 million at December 31, 2025.

Certificates of deposit decreased $2.4 million, or 1.0%, to $237.4 million at March 31, 2026, from $239.7 million at December 31, 2025.

NOW accounts increased $2.0 million, or 3.5%, to $58.3 million at March 31,

2026, from $56.3 million at December 31, 2025.

MMDA accounts decreased $335,000, or 1.6%, to $20.4 million at March 31, 2026, from $20.7 million at December 31, 2025.

Savings Accounts increased $2.8 million, or 3.7%, to $79.2 million at March 31, 2026, from $76.4 million at December 31, 2025.

Loans receivable, net, increased by $17.0 million, or 4.5%, to $393.4 million at June 30, 2026 from $376.4 million at December 31, 2025.

During the six months ended June 30, 2026, loan originations were $37.2 million and loan repayments totaled $20.2 million.

During the six months ended June 30, 2026, commercial loans increased by $8.2 million, primarily from the origination of commercial real estate loans, and commercial and industrial loans, home equity loans increased by $403,000, consumer loans increased by $2.8 million, construction and land loans increased by $10.1 million, and 1-4 single family mortgages decreased by $4.4 million.

Deposits decreased by $1.6 million, or 0.4%, to $391.6 million at June 30, 2026, from $393.2 million at December 31, 2025.

Certificates of deposit decreased $1.7 million, or 0.7%, to $238.1 million at June 30, 2026, from

$239.7 million at December 31, 2025.

Demand deposit accounts increased $1.6 million, or 2.9%, to $57.9 million at June 30, 2026, from $56.3 million at December 31, 2025.

MMDA accounts decreased $1.1 million, or 5.1%, to $19.7 million at June 30, 2026, from $20.7 million at December 31, 2025.

Savings accounts decreased $463,000, or 0.6%, to $76.0 million at June 30, 2026, from $76.4 million at December 31, 2025.

Total Stockholders’ Equity.

Total stockholders’ equity decreased by $445,000, or 0.3%, to $129.3 million at March 31, 2026, from $129.8 million at December 31, 2025.

The decrease resulted primarily from the accumulated other comprehensive loss (as a result of market value adjustment of investment securities available-for-sale due to the rise in market interest rates during the period) increasing $160,000 and additional paid-in-capital decreasing $431,000 due to the repurchase of 59,691 shares of common stock.

Total stockholders’ equity decreased by $753,000, or 0.6%, to $129.0 million at June 30, 2026, from $129.8 million at December 31, 2025.

The decrease resulted primarily from the accumulated other comprehensive loss (as a result of a downward market value adjustment of investment securities available-for-sale due to the rise in market interest rates during the period) increasing $293,000 and additional paid-in-capital decreasing $765,000 due to the repurchase of 53,690 shares of common stock.

Average Balances and Yields .

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Net deferred loan fees/costs are immaterial.

For the Three Months Ended March 31,

For the Three Months Ended June 30,

Yield/Rate (4)

(Dollars in thousands)

8 unchanged sentences

Savings accounts

Demand deposit accounts

Money market accounts

17 unchanged sentences

(4) Average yield/rate is an annualized amount.

Comparison of Operating Results for the Three Months Ended March 31, 2026 and 2025

Net income for the three months ended March 31, 2026, was $387,000, an increase of $309,000, or 396.2%, compared to $78,000 for the three months ended March 31, 2025.

The increase in net income was primarily from a $443,000 increase in interest and dividend income, a $169,000 decrease in interest expense, offset by a $33,000 decrease in non-interest income, a $188,000 increase in non-interest expense and a $82,000 increase in income tax expense.

Comparison of Operating Results for the Three Months Ended June 30, 2026 and 2025

Net income for the three months ended June 30, 2026, was $384,000, a decrease of $2.7 million, or 87.7%, compared to $3.1 million for the three months ended June 30, 2025.

The decrease in net income was primarily from a $3.5 million decrease in non-interest income mainly due to a gain on insurance proceeds (in relation to the payout of bank owned life insurance) paid out in 2025, a $192,000 increase in provision for income taxes, partially offset by a $316,000 increase in interest and dividend income, a decrease in interest expense of $252,000, and a $362,000 decrease in non-interest expense.

Interest and Dividend Income.

Interest and dividend income increased by $443,000, or 8.5%, to $5.7 million for the three months ended March 31, 2026, compared to $5.2 million for the three months ended March 31, 2025.

The increase is attributed to a $417,000, or 10.4%, increase in interest on loans, and a $139,000, or 15.4%, increase in interest on investment securities available-for-sale, offset by a $113,000, or 38.6%, decrease in interest on other interest-earning assets.

During the three months ended March 31, 2026, average loans receivable, net, increased by $13.2 million, or 3.6%, from the three months ended March 31, 2025.

The average yield on loans increased to 4.69% for the three months ended March 31, 2026, from 4.40% for the three months ended March 31, 2025, mainly due to the higher yielding loans that were originated during the period.

The average balance of investment securities available-for-sale increased $3.6 million, or 3.8%, to $98.2 million for the three months ended March 31, 2026, from $94.6 million for the three months ended March 31, 2025.

The average yield on available-for-sale investment securities increased to 4.29% for the three months ended March 31, 2026, from 3.86% for the three months ended March 31, 2025.

The increase in the average yield on available-for-sale investment securities was primarily due to reinvesting in higher yielding securities.

Interest income on cash and cash equivalents, comprised primarily of overnight deposits, decreased by $112,000, or 39.2%, for the three months ended March 31, 2026, primarily due to an decrease in the average yield to 3.11% for the three months ended March 31, 2026, from 4.03% for the three months ended March 31, 2025.

The decrease in average yield was due to the decline in market interest rates as well as the decrease in the average balance in cash and cash equivalents.

The average balance of cash and cash equivalents decreased by $6.2 million to $22.7 million from the three months ended March 31, 2026, from $28.8 million for the three months ended March 31, 2025.

The decrease in the average balance was mainly due to using cash to fund loan originations.

Interest and dividend income increased by $316,000, or 5.8%, to $5.8 million for the three months ended June 30, 2026, compared to $5.5 million for the three months ended June 30, 2025.

The increase is attributed to a $414,000, or 9.9%, increase in interest on loans, a $8,000, or 0.8%, increase in interest on investment securities available-for-sale offset by a $106,000, or 41.3%, decrease in interest on other interest-earning assets.

During the three months ended June 30, 2026, average loans receivable, net, increased by $10.9 million, or 2.9%, from the three months ended June 30, 2025.

The average yield on loans increased to 4.81% for the three months ended June 30, 2026, from 4.50% for the three months ended June 30, 2025, mainly due to the higher yielding loans that were originated during the period.

The average balance of investment securities available-for-sale decreased $2.5 million, or 2.5%, to $96.4 million for the three months ended June 30, 2026, from $98.9 million for the three months ended June 30, 2025.

The average yield on available-for-sale investment securities increased to 4.32% for the three months ended June 30, 2026, from 4.18% for the three months ended June 30, 2025.

The increase in the average yield on available-for-sale investment securities was primarily due to reinvesting in higher yielding bonds.

Interest income on cash and cash equivalents, comprised primarily of overnight deposits, decreased by $98,000, or 40.2%, for the three months ended June 30, 2026, primarily due to an decrease in the average yield to 3.20% for the three months ended June 30, 2026, from 4.09% for the three months ended June 30, 2025.

The decrease in average yield was due to the decline in market interest rates.

The average balance of cash and cash equivalents decreased by $5.7 million to $18.5 million for the three months ended June 30, 2026, from $24.2 million for the three months ended June 30, 2025.

Interest Expense .

Total interest expense decreased $169,000 or 7.4%, to $2.1 million for the three months ended March 31, 2026, from $2.3 million for the three months ended March 31, 2025.

The average balance of interest-bearing deposits increased by $2.1 million, or 0.5%, to $391.8 million for the three months ended March 31, 2026, from $389.7 million for the three months ended March 31, 2025.

Total interest expense decreased $252,000 or 10.8%, to $2.1 million for the three months ended June 30, 2026, from $2.3 million for the three months ended June 30, 2025.

The average balance of interest-bearing deposits decreased by $2.9 million, or 0.7%, to $394.1 million for the three months ended June 30, 2026, from $397.0 million for the three months ended June 30, 2025.

Net Interest Income .

Net interest income increased $612,000, or 20.8%, to $3.5 million for the three months ended March 31, 2026, compared to $2.9 million for the three months ended March 31, 2025.

The increase reflects the increase in the interest rate spread to 2.36% for the three months ended March 31, 2026, from 1.91% for the three months ended March 31, 2025, while average net interest-earning assets increased $8.6 million period-to-period.

The net interest margin increased to 2.85% for the three months ended March 31, 2026, from 2.41% for the three months ended March 31, 2025.

The average yield on interest-earning assets increased from 4.27% for the three months ended March 31, 2025, to 4.37% for the three months ended March 31, 2026.

The average rate paid on interest-bearing liabilities decreased from 2.36% for the three months ended March 31, 2025, to 2.18% for the three months ended March 31, 2026.

The average rate on certificates of deposits decreased from 3.79% for the three months ended March 31, 2025, to 3.49% for the three months ended March 31, 2026.

Net interest income increased $568,000, or 18.0%, to $3.7 million for the three months ended June 30, 2026, compared to $3.1 million for the three months ended June 30, 2025.

The increase reflects the increase in the interest rate spread to 2.51% for the three months ended June 30, 2026, from 2.04% for the three months ended June 30, 2025, while average net interest-earning assets increased $5.7 million period-to-period.

The net interest margin increased to 2.98% for the three months ended June 30, 2026, from 2.54% for the three months ended June 30, 2025.

The average yield on interest-earning assets increased from 4.42% for the three months ended June 30, 2025, to 4.65% for the three months ended June 30, 2026.

The average rate paid on interest-bearing liabilities decreased from 2.38% for the three months ended June 30, 2025, to 2.14% for the three months ended June 30, 2026.

The average rate on certificates of deposits decreased from 3.80% for the three months ended June 30, 2025, to 3.45% for the three months ended June 30, 2026.

The decrease in the average rate paid on certificates of deposit primarily resulted from a decrease in market interest rates.

The average balance of certificates of deposit increased from $238.2 million as of March 31, 2025, to $238.6 million as March 31, 2026, over the same period the average balance of savings accounts increased from $77.0 million to $77.3 million, the average balance of NOW accounts increased from $52.8 million to $55.0 million, and the average balance of money market accounts decreased from $21.7 million to $20.8 million.

The average balance of certificates of deposit decreased from $243.6 million as of June 30, 2025, to $239.1 million as of June 30, 2026, while over the same period the average balance of savings accounts decreased from $77.8 million to $77.0 million, and the average balance of money market accounts decreased from $21.1 million to $20.0 million.

Provision for Credit Losses .

The provision for credit losses on loans was $-0- for the three months ended March 31, 2026 and 2025.

The allowance for credit losses on loans represented 0.43% of total loans at March 31, 2026 and 0.44% of total loans at March 31, 2025.

Total non-performing loans were $63,000 at March 31, 2026, compared to $758,000 at March 31, 2025.

There were $63,000 in loans over 90 days delinquent at March 31, 2026, compared to $145,000 at March 31, 2025.

Classified loans totaled $1.2 million at March 31, 2026, compared to $758,000 at March 31, 2025.

As a percentage of nonperforming loans, the allowance for credit losses on loans was 2,696.8% at March 31, 2026, and 224.1% at March 31, 2025.

The provision for credit losses on loans was $-0- for the three months ended June 30, 2026 and 2025.

The allowance for credit losses on loans represented 0.43% of total loans at June 30, 2026 and 0.45% of total loans at June 30, 2025.

Total non-performing loans were $343,000 at June 30, 2026, compared to $1.3 million at June 30, 2025.

We had $343,000 of loans over 90 days delinquent at June 30, 2026, compared to $1.3 million at June 30, 2025.

Classified loans

totaled $1.1 million at June 30, 2026, compared to $915,000 at June 30, 2025.

As a percentage of nonperforming loans, the allowance for credit losses on loans was 495.3% at June 30, 2026, and 130.7% at June 30, 2025.

Noninterest Income .

Noninterest income totaled $229,000 for the three months ended March 31, 2026, a decrease of $33,000, or 12.6%, from $262,000 for the three months ended March 31, 2025.

The majority of the decrease was due to a $20,000 decrease in income on bank owned life insurance for the three months ended March 31, 2026 as well as no gain on real estate recorded for the three months ended March 31, 2026 compared to $13,000 for the three months ended March 31, 2025.

Noninterest income totaled $239,000 for the three months ended June 30, 2026, a decrease of $3.5 million, or 93.6%, from $3.7 million for the three months ended June 30, 2025.

The majority of the decrease was due to a gain on bank owned life insurance proceeds for the three months ended June 30, 2025.

Noninterest Expense .

Noninterest expense increased $188,000, or 6.10%, to $3.3 million for the three months ended March 31, 2026, compared to $3.1 million for the three months ended March 31, 2025.

The increase was primarily due to an increase of $90,000, or 4.9%, in salaries and employee benefits, an increase of $24,000, or 5.0%, in occupancy and equipment expense, an increase of $43,000, or 71.7%, in professional and legal expense, an increase of $25,000, or 7.9%, in data processing expense, an increase of $19,000, or 100%, in advertising expense, partially offset by a $7,000, or 9.6%, decrease in directors fees, a $6,000, or 7.1%, decrease in audit and examination fees, and a $5,000, or 2.6%, decrease in other expenses.

Provision for Income Taxes .

The provision for income taxes increased by $82,000, or 390.5%, to $103,000 for the three months ended March 31, 2026, compared to $21,000 for the three months ended March 31, 2025.

Pretax income increased by $391,000, or 394.9%, to $490,000 for the three months ended March 31, 2026, compared to $99,000 for the three months ended March 31, 2025.

Noninterest expense decreased $362,000, or 9.5%, to $3.5 million for the three months ended June 30, 2026, compared to $3.8 million for the three months ended June 30, 2025.

The decrease was primarily due to a decrease in salaries and employee benefits of $471,000 or 18.6%, partially offset by an increase in occupancy and equipment expense of $19,000, or 4.0%, an increase in professional and legal fees of $6,000, or 7.9%, an increase in data processing expense of $36,000, or 11.3%, an increase advertising of $22,000, or 88.0%, and an increase in other expenses of $30,000, or 15.6%.

The decrease in salaries and employee benefits is mainly from a death benefit paid out in 2025 to the intended beneficiaries of the late President and Chief Executive Officer from the proceeds of the bank owned life insurance.

Provision (Benefit) for Income Taxes.

The provision (benefit) for income taxes increased by $192,000, or 211.0%, to $101,000 for the three months ended June 30, 2026, compared to ($91,000) for the three months ended June 30, 2025.

While pretax income decreased by $2.6 million, or 84.0%, for the three months ended June 30, 2026, $3.5 million of the pretax income for the three months ended June 30, 2025, was from the non-taxable proceeds of the bank owned life insurance.

The effective tax rate was 21% for both periods.

For the Six Months Ended June 30,

Yield/Rate (4)

(Dollars in thousands)

Interest-earning assets:

Cash and cash equivalents

Investment securities available-for-sale

Loans receivable, net

Restricted stock

Total interest-earning assets

Noninterest-earning assets

Interest-bearing liabilities:

Savings accounts

Demand deposit accounts

Money market accounts

Certificates of deposit

Total interest-bearing deposits

Federal Home Loan Bank advances

Total interest-bearing liabilities

Noninterest-bearing demand deposits

Other noninterest-bearing liabilities

Total liabilities

Total stockholders' equity

Total liabilities and stockholders' equity

Net interest income

Net interest rate spread (1)

Net interest-earning assets (2)

Net interest margin (3)

Average interest-earning assets to interest-bearing liabilities

(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3) Net interest margin represents net interest income divided by average total interest-earning assets.

(4) Average yield/rate is an annualized amount.

Comparison of Operating Results for the Six Months Ended June 30, 2026 and 2025

Net income for the six months ended June 30, 2026, was $771,000 a decrease of $2.4 million or 75.9%, compared to $3.2 million for the six months ended June 30, 2025.

The decrease in net income was primarily from a $3.5 million decrease in non-interest income mainly due to a gain on insurance proceeds (in relation to the payout of bank owned life insurance) paid out in 2025, a $275,000 increase in provision for income taxes, partially offset by a $762,000 increase in interest and dividend income, a decrease in interest expense of $421,000, and a $170,000 decrease in non-interest expense.

The decrease in net income was primarily from an increase in interest income of $762,000, an increase in non-interest income of $3.5 million mainly due to a gain on bank owned life insurance proceeds paid out in 2025, a decrease in interest expense of 421,000, a decrease in non-interest expense of $170,000, partially offset by an increase of $275,000 in income tax expense.

Interest and Dividend Income.

Interest and dividend income increased by $762,000, or 7.1%, to $11.5 million for the six months ended June 30, 2026, compared to $10.7 million for the six months ended June 30, 2025.

The increase is attributed to a $832,000, or 10.1%, increase in interest on loans, a $148,000, or 7.7%, increase in interest on investment securities available-for-sale, offset by a $218,000, or 39.6% decrease in interest on other interest-earning assets.

During the six months ended June 30, 2026, average loans receivable, net, increased by $12.1 million, or 3.2%, from the six months ended June 30, 2025.

The average yield on loans increased to 4.72% for the six months ended June 30, 2026, from 4.42% for the six months ended June 30, 2025, mainly due to higher yielding loans originated during the period.

The average balance of investment securities available-for-sale increased $814,000, or 0.8%, to $97.3 million for the six months ended June 30, 2026, from $96.5 million for the six months ended June 30, 2025.

The average yield on available-for-sale investment securities increased to 4.28% for the six months ended June 30, 2026, from 4.01% for the six months ended June 30, 2025.

The increase in the average yield on available-for-sale investment securities was primarily due to reinvesting in higher yielding bonds.

Interest income on cash and cash equivalents, comprised primarily of overnight deposits, decreased by $216,000, or 40.2%, for the six months ended June 30, 2026, primarily due to an decrease in the average balance of cash and cash equivalents by $5.9 million to $20.5 million for the six months ended June 30, 2026, from $26.5 million for the six months ended June 30, 2025.

The average yield decreased to 3.15% for the six months ended June 30, 2026, from 4.09% for the six months ended June 30, 2025.

The decrease in average yield was due to the decrease in market interest rates.

Interest Expense .

Total interest expense decreased $421,000 or 9.1%, to $4.2 million for the six months ended June 30, 2026, from $4.6 million for the six months ended June 30, 2025.

The average cost of deposits decreased from 2.36% for the six months ended June 30 2025, to 2.15% for the six months ended June 30, 2026.

The average balance of interest-bearing deposits decreased by $450,000, or 0.1%, to $392.9 million for the six months ended June 30, 2026, from $393.4 million for the six months ended June 30, 2025.

Net Interest Income .

Net interest income increased $1.2 million, or 19.4%, to $7.3 million for the six months ended June 30, 2026, compared to $6.1 million for the six months ended June 30, 2025.

The increase reflects the increase in the interest rate spread to 2.42% for the six months ended June 30, 2026, from 1.96% for the six months ended June 30, 2025, while average net interest-earning assets increased $7.4 million period-to-period.

The net interest margin increased to 2.90% for the six months ended June 30, 2026, from 2.46% for the six months ended June 30, 2025.

The average yield on interest-earning assets increased from 4.32% for the six months ended June 30, 2025, to 4.57% for the six months ended June 30, 2026.

The average rate paid on interest-bearing liabilities decreased from 2.36% for the six months ended June 30, 2025, to 2.15% for the six months ended June 30, 2026, primarily due to a decrease in the average balance of certificates of deposit from $240.9 million for the six months ended June 30, 2025, to $238.9 million for the six months ended June 30, 2026.

Over the same period, the average balance of savings accounts decreased from $77.4 million to $77.1 million, and the average balance of money market accounts decreased from $21.4 million to $20.4 million.

Provision for Credit Losses .

The provision for credit losses on loans was $-0- for the six months ended June 30, 2026 and 2025.

The allowance for credit losses on loans represented 0.43% of total loans at June 30, 2026 and 0.45% of total loans at June 30, 2025.

Total non-performing loans were $343,000 at June 30, 2026, compared to $1.3 million at June 30, 2025.

We had $343,000 of loans over 90 days delinquent at June 30, 2026, compared to $1.3 million at June 30, 2025.

Classified loans totaled $1.1 million at June 30, 2026, compared to $915,000 at June 30, 2025.

As a percentage of nonperforming loans, the allowance for credit losses on loans was 495.3% at June 30, 2026, and 130.7% at June 30, 2025.

Noninterest Income .

Noninterest income totaled $470,000 for the six months ended June 30, 2026, a decrease of $3.5 million, or 88.2%, from $4.0 million for the six months ended June 30, 2025.

A $3.5 million gain on bank owned life insurance proceeds was recorded during the six months ended June 30, 2025, while no such gain was recorded during the six months ended June 30, 2026 resulting in the majority of the decrease.

Noninterest Expense .

Noninterest expense decreased $170,000, or 2.5%, to $6.8 million for the six months ended June 30, 2026, compared to $6.9 million for the six months ended June 30, 2025.

The decrease was primarily due to a decrease in salaries and employee benefits of $380,000, or 8.7%, partially offset by an increase in occupancy and equipment expense of $42,000, or 4.4%, an increase in professional and legal fees of $50,000, or 36.8%, an increase in data processing expense of $61,000, or 9.6%, an increase in advertising of $41,000, or 93.2%, and an increase in other expenses of $34,000, or 9.0%.

Provision (Benefit) for Income Taxes .

The provision (benefit) for income taxes increased by $275,000, or 387.3%, to $204,000 for the six months ended June 30, 2026, compared to ($71,000) for the six months ended June 30, 2025.

While pretax income decreased by $2.2 million, or 68.9%, for the six months ended June 30, 2026, $3.5 million of the pretax income for the six months ended June 30, 2025, was from the non-taxable proceeds of the bank owned life insurance.

The effective tax rate was 21% for both periods.

Liquidity and Capital Resources

3 unchanged sentences

We also have the ability to borrow from the Federal Home Loan Bank of Dallas and from two correspondent banks.

At March 31, 2026, we had no outstanding advances from the Federal Home Loan Bank of Dallas.

At March 31, 2026, we had no outstanding balances under the correspondent bank credit facilities.

Time deposits that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 at March 31, 2026 and December 31, 2025 were $50.0 million and $50.2 million, respectively.

Based on collateral pledged, consisting of all shares of FHLB stock owned and the blanket pledge of approximately $233.0 million of its qualifying mortgage loans as of March 31, 2026, the Bank was eligible to borrow up to an additional $187.0 million as of March 31, 2026.

At June 30, 2026, we had no outstanding advances from the Federal Home Loan Bank of Dallas.

At June 30, 2026, we had no outstanding balances under the correspondent bank credit facilities.

Time deposits that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 at June 30, 2026 and December 31, 2025 were $50.1 million and $50.2 million, respectively.

At June 30, 2026, certificates of deposit that are scheduled to mature on or before June 30, 2027 totaled $222.1 million.

Management expects that a substantial portion of the maturing certificates of deposit will be renewed.

However, if a substantial portion of these deposits is not retained, we may raise interest rates on deposits to attract new accounts or utilize Federal Home Loan Bank of Dallas advances, which may result in higher levels of interest expense.

Based on collateral pledged, consisting of all shares of FHLB stock owned and the blanket pledge of approximately $218.5 million of its qualifying mortgage loans as of June 30, 2026, the Bank was eligible to borrow up to an additional $187.4 million as of June 30, 2026.

The Bank has an unsecured federal funds line of credit with FNBB that expires on June 30, 2027.

The Bank is eligible to borrow up to $27.2 million.

There was no amount outstanding on this line of credit as of March 31, 2026 and December 31, 2025.

There was no amount outstanding on this line of credit as of June 30, 2026 and December 31, 2025.

The Bank is eligible to borrow from TIB’s Federal Funds Purchase Line Program, which provides overnight liquidity through pledge of certain qualifying securities.

The Bank is eligible to borrow up to $15.0 million and repayment is due the next day.

There was no amount outstanding on this line of credit as of March 31, 2026 and December 31, 2025.

There was no amount outstanding on this line of credit as of June 30, 2026 and December 31, 2025.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.

8 unchanged sentences

The amount of dividends that the Bank may declare and pay to the Company is governed by applicable bank regulations.

At March 31, 2026, the Company (on an unconsolidated basis) had liquid assets of $18.2 million.

At June 30, 2026, the Company (on an unconsolidated basis) had liquid assets of $17.3 million.

We believe we maintain a strong liquidity position, and are committed to maintaining it.

2 unchanged sentences

Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At March 31, 2026, the Bank was categorized as well-capitalized under applicable bank regulatory capital guidelines.

At June 30, 2026, the Bank was categorized as well-capitalized under applicable bank regulatory capital guidelines.

Management is not aware of any conditions or events since the most recent notification that would change its category.

Off-Balance Sheet Arrangements

At March 31, 2026, we had $34.7 million of outstanding commitments to originate loans, which primarily consists of $16.2 million of remaining funds to be disbursed on construction loans in process and $18.4 million of unused balances of home equity lines of credit.

At March 31, 2026, certificates of deposit that are scheduled to mature on or before March 31, 2027 totaled $222.6 million.

Management expects that a substantial portion of the maturing certificates of deposit will be renewed.

At June 30, 2026, we had $44.9 million of outstanding commitments to originate loans, which primarily consists of $17.2 million of remaining funds to be disbursed on construction loans in process and $18.7 million of unused balances of home equity lines of credit.

Management of Market Risk

17 unchanged sentences

The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100, 200, 300 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth, as of March 31, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

The following table sets forth, as of June 30, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

All estimated changes presented in the table are within the policy limits established by the Company’s board of directors.

At March 31, 2026

At June 30, 2026

EVE as a Percentage of Present Value

10 unchanged sentences

(4) EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at March 31, 2026, we would have experienced a 24.19% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 15.25% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

The table above indicates that at June 30, 2026, we would have experienced a 24.02% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 15.82% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

Change in Net Interest Income.

The following table sets forth, as of March 31, 2026, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

The following table sets forth, as of June 30, 2026, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

All estimated changes presented in the table are within the policy limits established by the Company’s board of directors.

At March 31, 2026

At June 30, 2026

Change in Interest Rates

4 unchanged sentences

(1) Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that as of March 31, 2026, we would have experienced a 17.67% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 7.96% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

The table above indicates that as of June 30, 2026, we would have experienced a 16.96% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 8.59% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement.

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis