What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-10 compared with 2026-05-06 · 186 added, 84 removed, 361 unchanged (43% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Dollars in thousands except per share amounts and ratios, unless otherwise noted)

The following is management's discussion and analysis of our financial condition and results of operations for the unaudited periods covered by this Form 10-Q.

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The area includes significant agricultural production, manufacturing, retail, gaming and tourism, and several colleges and universities.

Recent Developments

On June 16, 2026, the Corporation and the Bank entered into an equity distribution agreement with Piper Sandler & Co., as sales agent, pursuant to which the Corporation may offer and sell, from time to time, shares of its common stock with an aggregate gross sales price of up to $30.0 million, including through “at-the-market” offerings and other permitted methods.

The sales agent is entitled to a commission of up to 3.0% of the gross sales price of the common stock sold in such offering.

The Corporation is not obligated to sell any shares of its common stock pursuant to the equity distribution agreement, and may suspend or terminate sales thereunder at any time.

Any shares sold will be issued pursuant to the Corporation’s effective shelf registration statement on Form S-3 and related prospectus supplement, and net proceeds, if any, are expected to be used for general corporate purposes, which may include, without limitation, contribution to the capital of the Bank to support its lending activities and growth.

On June 11, 2026, the Corporation, 401 Merger Sub, Inc., a Michigan corporation and a wholly owned subsidiary of the Corporation, and Grand River, entered into an Agreement and Plan of Merger.

The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Grand River, with Grand River as the surviving entity, and immediately following the Merger, Grand River will merge with and into the Corporation, with the Corporation as the surviving entity.

The Merger Agreement further provides that immediately following the Second Step Merger, Grand River Bank, a Michigan state-chartered member bank and wholly owned subsidiary of Grand River, will merge with and into the Bank, with the Bank as the surviving bank.

We expect to complete the Merger in the fourth quarter of 2026, subject to satisfaction of closing conditions, including receipt of customary required regulatory approvals and the approval of the Agreement by the shareholders of Grand River.

Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, each voting and non-voting share of common stock of Grand River issued and outstanding immediately prior to the Effective Time, other than certain shares held by Grand River or the Corporation or dissenting shares, will be converted into the right to receive, at the election of the holder thereof, and subject to adjustment and proration, as applicable, (i) an amount of cash equal to the quotient of (A) $18,262,391, divided by (B) the product obtained by multiplying (x) the number of shares of Grand River Common Stock issued and outstanding as of the Effective Time by (y) 0.35, rounded to the nearest cent, or (ii) the number of shares of common stock of the Corporation, no par value, multiplied by the Exchange Ratio.

The Exchange Ratio is defined in the Merger Agreement as a number, as adjusted, of shares of Isabella Common Stock equal to the quotient of (A) 839,003 shares of Isabella Common Stock, divided by (B) the difference of (1) the aggregate number of shares of Grand River Common Stock issued and outstanding immediately prior to the Effective Time, other than certain shares held by Grand River or the Corporation or dissenting shares, minus (2) the Cash Conversion Number, rounded to the nearest ten thousandth.

Merger Consideration elections by Grand River shareholders will be subject to proration procedures whereby 65% of the shares of Grand River Common Stock will be exchanged for the Per Share Stock Consideration and 35% of the shares of Grand River common stock will be exchanged for the Per Share Cash Consideration.

Based on the assumption of 9,136,529 shares of Grand River Common Stock issued and outstanding as of the Effective Time, the Per Share Cash Consideration to be paid is estimated to be approximately $5.71 and the Exchange Ratio is estimated to be approximately 0.1413.

At March 31, 2026, Grand River had approximately $511.7 million in total assets, $433.0 million in total loans and $438.9 million in total deposits.

The pro forma company is projected to have approximately $2.7 billion in total assets.

Forward-Looking Statements

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• increased competition for deposits among traditional and nontraditional financial services companies, and related changes in deposit customer behavior;

• the lingering inflationary pressures, and the risk of the resurgence of elevated levels of inflation, in the United States and our market areas, and its impact on market interest rates, the labor market, the economy as a whole, and credit quality;

• the persistent inflationary pressures in the United States and its impact on market interest rates, the labor market, the economy as a whole, and credit quality;

• elevated asset prices;

• our ability to effectively execute our expansion strategy and manage our growth, including identifying and consummating suitable acquisitions;

• risks relating to the proposed Merger including, without limitation:

the timing of consummation of the proposed transaction between the Corporation and Grand River;

the risk that any condition to closing of the proposed Merger may not be satisfied or waived;

the risk that the Merger may not be completed at all;

the diversion of management time on issues related to the proposed Merger;

the expected impact of the proposed Merger and on the combined entities’ operations, financial condition, and financial results;

the businesses of Corporation and Grand River may not be combined successfully, or such combination may take longer to accomplish than expected;

the cost savings from the proposed Merger may not be fully realized or may take longer to realize than expected;

operating costs, customer loss and business disruption following the proposed Merger, including adverse effects on relationships with employees, may be greater than expected;

the risk of deposit and customer attrition;

increased competitive pressures on solicitations of customers by competitors;

regulatory approvals of the proposed Merger may not be obtained, or adverse conditions may be imposed in connection with regulatory approvals of the proposed Merger;

and the risk that the Grand River shareholders may not approve the proposed Merger;

• risks associated with concentrations of our business in market areas, loans secured by real estate, and public funds deposits as a percentage of total deposits;

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As a result, the non-GAAP financial measures that we discuss in this Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.

Moreover, the

manner in which we calculate the non-GAAP financial measures that we discuss in this report may differ from that of other companies reporting measures with similar names.

Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this report may differ from that of other companies reporting measures with similar names.

Available Information

The Corporation maintains an Internet web site at ir.isabellabank.com.

The Corporation makes available, free of charge, on its web site (under ir.isabellabank.com/sec-filings/default) the Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Exchange Act as soon as reasonably practicable after the Corporation files such material with, or furnishes it to, the SEC.

The Corporation also makes available, free of charge, through its web site (under ir.isabellabank.com/governance/governance-documents) links to the Corporation’s Code of Conduct and Business Ethics and the charters for its board committees.

The Corporation maintains an Internet website at ir.isabellabank.com.

The Corporation makes available, free of charge, on its website (under ir.isabellabank.com/sec-filings/default) the Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Exchange Act as soon as reasonably practicable after the Corporation files such material with, or furnishes it to, the SEC.

The Corporation also makes available, free of charge, through its website (under ir.isabellabank.com/governance/governance-documents) links to the Corporation’s Code of Conduct and Business Ethics and the charters for its board committees.

In addition, the SEC maintains an Internet site (at www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The Corporation routinely posts important information for investors on its web site (under ir.isabellabank.com and, more specifically, under the News tab at ir.isabellabank.com/news).

The Corporation intends to use its web site as a means of disclosing material non-public information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure).

Accordingly, investors should monitor the Corporation’s web site, in addition to following the Corporation’s press releases, SEC filings, public conference calls, presentations and webcasts.

The information contained on, or that may be accessed through, the Corporation’s web site is not incorporated by reference into, and is not a part of, this Form 10-Q.

Reclassifications

Certain amounts reported in the interim 2025 consolidated financial statements have been reclassified to conform with the 2026 presentation.

The most significant of these changes related to amounts that were previously reported as commercial and industrial loans being reclassified as commercial real estate loans.

The Corporation routinely posts important information for investors on its website (under ir.isabellabank.com and, more specifically, under the News tab at ir.isabellabank.com/news).

The Corporation intends to use its website as a means of disclosing material non-public information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure).

Accordingly, investors should monitor the Corporation’s website, in addition to following the Corporation’s press releases, SEC filings, public conference calls, presentations and webcasts.

The information contained on, or that may be accessed through, the Corporation’s website is not incorporated by reference into, and is not a part of, this Form 10-Q.

Executive Summary

Financial Condition (March 31, 2026 to December 31, 2025 comparison)

Total assets increased $42,508 to $2,251,956 as of March 31, 2026.

This increase was primarily due to an increase of $23,103 in interest bearing cash and a $22,577 increase in loans.

The AFS securities portfolio decreased $5,047 to $492,744 as of March 31, 2026.

The decrease was a result of maturities and principal paydowns of $53,053, offset by $48,918 in purchases.

Net unrealized losses on AFS securities were $10,622 as of March 31, 2026, compared to $9,898 at December 31, 2025.

Financial Condition (June 30, 2026 to December 31, 2025 comparison)

Total assets increased $10.2 million, or 0.5%, to $2.2 billion as of June 30, 2026.

This increase was primarily due to an increase of $53.3 million in loans and an increase of $15.7 million in cash and cash equivalents.

These increases were offset by a $58.5 million decline in AFS securities.

The AFS securities portfolio decreased $58.5 million, or 11.8%, to $439.3 million as of June 30, 2026.

The decrease was a result of maturities and principal paydowns of $121.8 million, offset by $64.4 million in purchases.

Net unrealized losses on AFS securities were $10.8 million as of June 30, 2026, compared to $9.9 million at December 31, 2025.

Net unrealized losses as a percentage of the amortized cost of AFS securities were consistent compared to December 31, 2025, at 2%.

Loans increased $22,577 to $1,558,941 as of March 31, 2026.

Adjusted loans (non-GAAP), which exclude advances to mortgage brokers, increased $27,170, primarily by growth in the commercial real estate and residential real estate portfolios of $20,885 and $10,453, respectively.

Most residential originations were adjustable rate products, which are put on the balance sheet rather than sold in the secondary market.

Loans increased $53.3 million, or 3.5%, to $1.6 billion as of June 30, 2026, primarily by growth in the commercial real estate and residential real estate portfolios of $33.5 million and $22.1 million, respectively.

Most residential originations were adjustable rate products, which are retained on the balance sheet rather than sold in the secondary market.

The consumer loan portfolio continues to decrease amid declining demand, competition, and our adherence to credit quality standards.

Advances to mortgage brokers decreased $4,593 during the quarter due to lower participation demand from our counterparty.

The ACL increased $287 to $14,014 as of March 31, 2026.

The increase is due to loan growth and an increase in loss rates driven by loans charged off during the quarter.

Nonaccrual loans were $4,418 as of March 31, 2026 compared to $4,578 at December 31, 2025.

Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.37% at March 31, 2026, compared to 0.44% at year-end 2025.

We believe that our credit quality remains strong.

Total deposits increased $40,191 to $1,859,845 as of March 31, 2026.

The growth was primarily a result of new customer relationships and included a $40,913 increase in money market accounts and a $20,303 increase in savings deposits.

The growth was offset by a $15,126 decline in noninterest bearing deposits and a $3,666 decline in certificates of deposit.

Total equity was $233,961, or $31.90 per share, at March 31, 2026 compared to $231,396, or $31.60 per share, as of December 31, 2025.

Our tangible book value per share (non-GAAP) was $25.32 as of March 31, 2026, compared to $25.01 as of December 31, 2025.

The ACL increased $752,000, or 5.5%, to $14.5 million as of June 30, 2026.

The increase is due to loan growth and an increase in loss rates driven by loans charged off during the year.

Nonaccrual loans were $7.8 million as of June 30, 2026 compared to $4.6 million at December 31, 2025.

Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.06% at June 30, 2026, compared to 0.44% at year-end 2025.

Total deposits decreased $9.7 million, or 0.5%, to $1.8 billion as of June 30, 2026.

The decline was a result of a $20.7 million decline in certificates of deposit, a $14.0 million decline in interest bearing demand deposits, and a $12.3 million decline in noninterest bearing demand deposits.

These declines were offset by a $20.4 million increase in savings deposits and a $16.8 million increase in money market accounts.

Total equity was $248.7 million, or $32.60 per share, at June 30, 2026 compared to $231.4 million, or $31.60 per share, as of December 31, 2025.

The increase in total equity is primarily due to the issuance of 303,371 shares as part of the previously announced at-the-market stock offering, increasing total equity by $11.7 million, net of estimated expenses.

Tangible book value per share (non-GAAP) was $26.27 as of June 30, 2026, compared to $25.01 as of December 31, 2025.

Net unrealized losses in the AFS securities portfolio reduced tangible book value per share (non-GAAP) by $1.14 and $1.09 for the respective periods.

Share repurchases totaled 8,062 during the first three months of 2026 for a value of $402 at an average repurchase price of $49.86 per share.

We continue to have robust liquidity levels and capital.

As of March 31, 2026, we had $817,775 of unencumbered sources of liquidity and strong consolidated capital ratios;

As of June 30, 2026, we had $754.8 million of unencumbered sources of liquidity and strong consolidated capital ratios;

the Tier 1 Leverage Ratio was 9.59%, Tier 1 risk-based capital was 12.34%, and Total risk-based capital was 14.63%.

Comparison of Operating Results for the three months ended March 31, 2026, and 2025, unless otherwise noted

Net income in first quarter 2026 was $4,992, or $0.68 per diluted share, compared with $3,949, or $0.53 per diluted share, in first quarter 2025.

Net interest income was $16,882 in first quarter 2026 and $14,525 in first quarter 2025, representing 3.33% and 3.06% of earning assets, or NIM on an FTE basis, respectively.

The book yield from securities was 2.52% and 2.20% during the first quarters of 2026 and 2025, respectively.

Our yield on loans expanded to 5.78% in first quarter 2026 from 5.71% in first quarter 2025.

Comparison of Operating Results for the three and six months ended June 30, 2026, and 2025, unless otherwise noted

Net income for the three months ended June 30, 2026 was $5.0 million, or $0.69 per diluted share, compared with $5.0 million, or $0.68 per diluted share, for the three months ended June 30, 2025.

Net income for the six months ended June 30, 2026 was $10.0 million, or $1.37 per diluted share, compared with $9.0 million, or $1.21 per diluted share, for the six months ended June 30, 2025.

Net interest income was $18.1 million for the three months ended June 30, 2026 and $15.1 million for the three months ended June 30, 2025, representing 3.54% and 3.14% of earning assets, or NIM on an FTE basis (non-GAAP), respectively.

The book yield from securities was 2.82% and 2.38% for the three months ended June 30, 2026 and 2025, respectively.

The yield on loans increased to 5.86% for the three months ended June 30, 2026 from 5.71% for the three months ended June 30, 2025.

The increase in loan yields was primarily due to higher rates on new loans and variable rate commercial loans that continue to reprice.

Our cost of interest-bearing liabilities in first quarter 2026 decreased to 2.14% from 2.26% in first quarter 2025 due to lower rates on money market and certificate of deposit products.

The provision for credit losses was $604 in first quarter 2026, driven by a $287 increase in the ACL on loans, net charge offs totaling $253, and an increase in the reserve for unfunded commitments.

The provision for credit losses in first quarter 2025 was a credit of $107 due to the change in ACL on loans and $52 in net recoveries, offset by an increase in the reserve for unfunded commitments.

Noninterest income for the three months ended March 31, 2026 and 2025 was $4,361 and $3,528, respectively.

The cost of interest-bearing liabilities for the three months ended June 30, 2026 decreased to 2.09% from 2.24% for the three months ended June 30, 2025 primarily due to lower rates on money market and certificate of deposit products.

Net interest income was $35.0 million for the six months ended June 30, 2026 and $29.7 million for the six months ended June 30, 2025, representing 3.43% and 3.10% of earning assets, or NIM on an FTE basis (non-GAAP), respectively.

The book yield from securities was 2.67% and 2.31% for the six months ended June 30, 2026 and 2025, respectively.

The yield on loans increased to 5.82% for the six months ended June 30, 2026 from 5.72% for the six months ended June 30, 2025.

The increase in loan yields was primarily due to higher rates on new loans and variable rate commercial loans that continue to reprice.

The cost of interest-bearing liabilities for the six months ended June 30, 2026 decreased to 2.12% from 2.25% for the six months ended June 30, 2025 primarily due to lower rates on money market and certificate of deposit products.

The provision for credit losses was $895,000 for the three months ended June 30, 2026, driven by a $465,000 increase in the ACL on loans and net charge offs totaling $384,000.

The provision for credit losses for the three months ended June 30, 2025 was a credit of $1.1 million, which reflects $1.4 million in net recoveries, offset by a $242,000 increase in the ACL on loans and an increase in the reserve for unfunded commitments.

Recoveries of $1.6 million during second quarter 2025 were related to overdrawn deposit accounts from a single customer that were charged off during the third quarter of 2024.

The provision for credit losses was $1.5 million for the six months ended June 30, 2026, as compared to a credit of $1.2 million for the six months ended June 30, 2025.

Net charge offs for the six months ended June 30, 2026 totaled $637,000, while there were net recoveries of $1.5 million for the six months ended June 30, 2025.

Noninterest income for the three months ended June 30, 2026 and 2025 was $4.4 million and $3.7 million, respectively.

Service charges and fees increased $504,000 as a result of internal initiatives designed to align our fees with the market.

Wealth management fees grew $129 due to growth in assets under management since first quarter 2025.

Earnings on BOLI policies increased $76 compared to first quarter 2025 due to additional investments in a separate account BOLI in 2025.

Earnings on BOLI policies increased $134,000 compared to second quarter 2025 due to additional investments in a separate account BOLI in 2025.

Wealth management fees grew $132,000 due to growth in assets under management since second quarter 2025.

Noninterest income for the six months ended June 30, 2026 and 2025 was $8.7 million and $7.2 million, respectively.

Service charges and fees increased $907,000 as a result of internal initiatives designed to align our fees with the market.

Wealth management fees grew $261,000 due to growth in assets under management.

Earnings on BOLI policies increased $210,000 due to additional investments in a separate account BOLI in 2025.

Other noninterest income in 2026 includes a $137,000 gain related to a death benefit from a BOLI policy.

Noninterest expenses for the three-month period ended March 31, 2026 increased $1,363 in comparison to the same period in 2025.

Compensation and benefit expenses increased $545, reflecting annual merit increases, incentives, and higher medical

insurance claims compared to first quarter 2025.

Other professional services increased $304 as a result of costs related to profitability initiatives and product implementation costs.

Income tax expense for the three months ended March 31, 2026 and 2025 was $985 and $912, respectively, while the ETR for the same periods was 16% and 19%, respectively.

The ETR in the first three months of 2025 included a one-time tax expense totaling $166 due to the taxes owed from the lifetime earnings on BOLI policies that were surrendered during first quarter 2025.

Excluding the one-time charge, the ETR was 15% for the first three months of 2025.

Noninterest expenses for the three months ended June 30, 2026 and 2025 were $15.4 million and $13.7 million, respectively.

Compensation and benefit expenses increased $651,000, reflecting annual merit increases, incentives, and higher medical insurance claims.

Occupancy and equipment increased $240,000 and merger-related expenses of $505,000 were included in noninterest expenses in second quarter 2026.

Noninterest expenses for the six months ended June 30, 2026 and 2025 were $30.0 million and $27.0 million, respectively.

Compensation and benefit expenses increased $1.2 million for the same reasons as the quarterly comparison.

Occupancy and equipment expenses increased $480,000 and merger-related expenses during second quarter 2026 totaled $505,000.

Income tax expense for both of the three months ended June 30, 2026 and 2025 was $1.1 million, while the ETR was 18% for both periods.

Income tax expense for both of the six months ended June 30, 2026 and 2025 was $2.1 million, while the ETR was 17% for the six months ended June 30, 2026 and 19% for the six months ended June 30, 2025.

The ETR in the first six months of 2025 included a one-time tax expense totaling $166,000 due to the taxes owed from the lifetime earnings on BOLI policies that were surrendered during first quarter 2025.

Excluding the one-time charge, the ETR was 17% for the first six months of 2025.

Selected Financial Data (Unaudited)

The following table outlines our results of operations and provides certain performance measures as of the dates and for the periods indicated:

Three Months Ended

Three Months Ended Six Months Ended

(dollars in thousands, except per share amounts) June 30,

2026 March 31,

2026 December 31,

2025 September 30,

2025 March 31

2025 June 30,

2026 June 30,

Basic earnings $ 0.69 $ 0.68 $ 0.64 $ 0.71 $ 0.68 $ 1.37 $ 1.21

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Three Months Ended

March 31, 2026 December 31, 2025 March 31, 2025

June 30, 2026 March 31, 2026 June 30, 2025

(dollars in thousands) Average

Interest Average

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AFS securities (2)

Taxable 432,520 2,902 2.69 % 430,376 2,489 2.35 % 461,483 2,513 2.18 %

Nontaxable (3)

63,607 600 3.78 % 67,878 637 3.81 % 72,869 697 3.84 %

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refer to the "Reconciliation of Non-GAAP Financial Measures" section of this Form 10-Q.

Six Months Ended

June 30, 2026 June 30, 2025

(dollars in thousands) Average Balance Tax Equivalent Interest Average Yield/Rate Average Balance Tax Equivalent Interest Average Yield/Rate

INTEREST EARNING ASSETS

$ 1,523,109 $ 44,071 5.82 % $ 1,379,774 $ 39,180 5.72 %

AFS securities (2)

Taxable 431,452 5,391 2.52 % 449,919 4,616 2.07 %

Nontaxable 65,731 1,237 3.80 % 74,551 1,421 3.84 %

FHLB stock 5,600 139 4.95 % 8,291 285 6.89 %

Federal funds sold 5 — 3.57 % 5 — 4.03 %

41,006 775 3.76 % 33,856 735 4.32 %

Total interest earning assets (3)

2,066,903 51,613 5.03 % 1,946,396 46,237 4.78 %

NONEARNING ASSETS

Allowance for credit losses (13,881) (13,127)

Cash and demand deposits due from banks 22,825 22,956

Premises and equipment 29,098 28,134

Other assets 116,776 104,770

Total assets $ 2,221,721 $ 2,089,129

INTEREST BEARING LIABILITIES

Interest bearing demand deposits $ 261,570 499 0.38 % $ 238,455 462 0.39 %

Money market deposits 458,556 5,344 2.35 % 454,855 5,786 2.56 %

Savings 296,925 991 0.67 % 286,399 1,082 0.76 %

Certificates of deposit 401,952 7,056 3.54 % 391,657 7,524 3.87 %

Short-term borrowings 101,378 1,743 3.47 % 42,607 665 3.15 %

FHLB advances 8,895 176 3.93 % 7,459 170 4.53 %

Subordinated debt, net of unamortized issuance costs

29,534 570 3.86 % 29,444 532 3.62 %

Total interest bearing liabilities 1,558,810 16,379 2.12 % 1,450,876 16,221 2.25 %

NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS’ EQUITY

Demand deposits 407,890 406,160

Other liabilities 18,051 15,200

Shareholders’ equity 236,970 216,893

Total liabilities and shareholders’ equity $ 2,221,721 $ 2,089,129

Net interest income (FTE) (5)

$ 35,234 $ 30,016

Net yield on interest earning assets (FTE) (5)

3.43 % 3.10 %

(1) Includes loans HFS and nonaccrual loans.

(2) Average balances for AFS securities are based on amortized cost.

(3) Includes FTE adjustments of $268,000 and $362,000, respectively.

(4) Includes average interest bearing deposits with other banks, net of FRB daily cash letter.

(5) Non-GAAP financial measure;

refer to the "Reconciliation of Non-GAAP Financial Measures" section of this Form 10-Q.

The following table displays loan balances as of the dates indicated:

(dollars in thousands) June 30,

2026 March 31,

2026 December 31,

2025 September 30,

2025 March 31

2025 June 30,

Commercial and industrial $ 231,590 $ 225,369 $ 220,450 $ 218,132 $ 207,719

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The following table presents the composition of our commercial real estate portfolio by industry as of the dates indicated:

March 31, 2026 December 31, 2025

Balance Percent of Total Balance Percent of Total

June 30, 2026 December 31, 2025

(dollars in thousands) Balance Percent of Total Balance Percent of Total

Investment and development $ 139,114 20.66 % $ 134,013 20.95 %

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Construction 14,598 2.17 % 16,193 2.53 %

Educational services 10,433 1.58 % 10,582 1.65 %

Wholesale trade 11,347 1.69 % 11,123 1.74 %

Educational services 10,282 1.53 % 10,582 1.65 %

Other 46,372 6.86 % 46,693 7.29 %

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The following table displays deposit balances as of the dates indicated:

(dollars in thousands) June 30,

2026 March 31,

2026 December 31,

2025 September 30,

2025 March 31

2025 June 30,

Noninterest bearing demand deposits $ 414,018 $ 411,216 $ 426,342 $ 421,027 $ 493,477

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Three Months Ended

(dollars in thousands) June 30,

2026 March 31,

2026 December 31,

2025 September 30,

2025 March 31

2025 June 30,

NONPERFORMING ASSETS

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Foreclosed assets 620 573 938 1,018 667

Debt securities — — — — —

Total nonperforming assets $ 8,410 $ 4,991 $ 5,516 $ 4,479 $ 1,862

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Nonaccrual loans to total loans 0.49 % 0.28 % 0.30 % 0.24 % 0.08 %

ACL as a % of nonaccrual loans 317.20 % 299.85 % 381.91 % N/M N/M

ACL as a % of nonaccrual loans 185.87 % 317.20 % 299.85 % 381.91 % N/M

ALLOWANCE FOR CREDIT LOSSES

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Total $ 384 $ 253 $ 34 $ 74 $ (1,432)

Net (recoveries) charge-offs to average loans 0.02 % 0.00 % 0.01 % (0.10 %) 0.00 %

Net charge-offs / (recoveries) to average loans 0.02 % 0.02 % 0.00 % 0.01 % (0.10 %)

DELINQUENT AND NONACCRUAL LOANS

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Capital consists solely of common stock, retained earnings, and accumulated other comprehensive income (loss).

We are authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases.

Pursuant to these authorizations, we issued 9,682 shares or $433 of common stock during the first three months of 2026, as compared to 17,332 shares or $419 of common stock during the same period in 2025.

We offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments.

Pursuant to this plan, we increased shareholders’ equity by $156 and $167 during the three-month periods ended March 31, 2026 and 2025, respectively.

We are authorized to raise capital through the issuance of securities from our shelf registration statement on Form S-3 (the “Registration Statement,” dividend reinvestment, employee and director stock purchases, and shareholder stock purchases.

Under the Registration Statement, we established an at-the-market common stock offering program permitting the sale of common stock up to an aggregate gross sales price of $30 million.

The at-the-market offering provides us with additional flexibility to access the capital markets efficiently and is intended to be used for general corporate purposes, which may include, without limitation, contribution to the capital of the Bank to support its lending activities and growth.

Pursuant to these authorizations, including our at-the-market offering, we issued 310,276 shares, or $12.4 million of common stock, during the first six months of 2026, as compared to 28,830 shares, or $759,000 of common stock, during the same period in 2025.

We also offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments.

Pursuant to this plan, we increased shareholders’ equity by $190,000 and $201,000 during the six-month periods ended June 30, 2026 and 2025, respectively.

We also grant restricted stock awards pursuant to the RSP.

Pursuant to this plan, we increased shareholders’ equity by $16 during the first three months of 2026, as compared to $7 during the same period in 2025.

Pursuant to this plan, we increased shareholders’ equity by $29,000 during the first six months of 2026, as compared to $21,000 during the same period in 2025.

We have publicly announced a common stock repurchase program.

Pursuant to this repurchase program, we repurchased 8,062 shares or $402 of common stock during the first three months of 2026 and 45,582 shares or $1,145 of common stock during the first three months of 2025.

As of March 31, 2026, we were authorized to repurchase up to an additional 453,210 shares of common stock under the repurchase program.

Pursuant to this repurchase program, we repurchased 13,166 shares or $626,000 of common stock during the first six months of 2026 and 103,406 shares or $2.7 million of common stock during the first six months of 2025.

As of June 30, 2026, we were authorized to repurchase up to an additional 448,106 shares of common stock under the repurchase program.

The FRB has established minimum risk-based capital guidelines.

1 unchanged sentence

Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital.

As of March 31, 2026, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action.

Management believes that no conditions or events have occurred since March 31, 2026 that would materially adversely change such capital classifications.

As of June 30, 2026, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action.

Management believes that no conditions or events have occurred since June 30, 2026 that would materially adversely change such capital classifications.

From time to time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status.

The following table sets forth our consolidated capital ratios as of the dates indicated:

2026 March 31,

2026 December 31,

2025 September 30,

2025 March 31

2025 June 30,

Common equity tier 1 capital 12.34 % 11.71 % 11.73 % 12.37 % 12.46 %

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Our primary sources of liquidity are retail deposits, cash and cash equivalents, and unencumbered AFS securities.

Cash, cash equivalents and unencumbered AFS securities totaled $303,441, or 13.47% of assets, as of March 31, 2026, compared to $337,011, or 15.25%, as of December 31, 2025.

Cash, cash equivalents and unencumbered AFS securities totaled $237.9 million, or 10.72% of assets, as of June 30, 2026, compared to $337.0 million, or 15.25%, as of December 31, 2025.

The decrease in the amount and percentage of primary liquidity is primarily due to a decrease in AFS securities, offset by an increase in cash and cash equivalents.

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Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral.

As of March 31, 2026, we had available lines of credit of $397,670.

As of June 30, 2026, we had available lines of credit of $403.0 million.

We monitor our daily liquidity position to meet our cash flow needs.

1 unchanged sentence

Our liquidity stress testing is designed with consideration of these and other factors that could pose undue risk to liquidity.

Our liquidity position remained strong as of March 31, 2026, which is illustrated in the following table:

Our liquidity position remained strong as of June 30, 2026, which is illustrated in the following table:

(dollars in thousands) June 30,

2026 March 31,

2026 December 31,

2025 September 30,

2025 March 31

2025 June 30,

Total cash and cash equivalents $ 41,774 $ 50,105 $ 26,041 $ 161,301 $ 108,554

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Coverage ratio of uninsured deposits with total cash and liquidity 112 % 112 % 112 % 134 % 127 %

(1) In cludes estimated unencumbered lendable value of FHLB collateral of $170,000 as of March 31, 2026.

(1) In cludes estimated unencumbered lendable value of FHLB collateral of $120.0 million as of June 30, 2026.

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

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The following tables provide a detailed analysis, and reconciliation for, our non-GAAP financial measures as of the dates and for the periods indicated:

Three Months Ended

Three Months Ended Six Months Ended

(dollars in thousands, except per share amounts) June 30,

2026 March 31,

2026 December 31,

2025 September 30,

2025 March 31

2025 June 30,

2026 June 30,

Loans $ 1,589,672 $ 1,558,941 $ 1,536,364 $ 1,431,905 $ 1,397,513 $ 1,589,672 $ 1,397,513

23 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