Citizens Community Bancorp Inc. (CZWI)

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the Company intends that these forward-looking statements be covered by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “estimates,” “intend,” “may,” “preliminary,” “planned,” “potential,” “should,” “will,” “would,” or the negative of those terms or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are inherently subject to many uncertainties in the Company’s operations and business environment.

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 5, 2026, (“2025 10-K”), and the following:

•conditions in the financial markets and economic conditions generally;

•the impact of inflation on our business and our customers;

•geopolitical tensions, including current or anticipated impact of military conflicts;

•the impact of a prolonged U.S. government shutdown on our business and our customers;

•higher lending risks associated with our commercial and agricultural banking activities;

•future pandemics;

•cybersecurity risks;

•adverse impacts on the regional banking industry and the business environment in which we operate;

•interest rate risk;

•lending risk;

•changes in the fair value or ratings downgrades of our securities;

•the sufficiency of allowance for credit losses;

•competitive pressures from others in the financial services industry, including non-depository institutions;

•disintermediation risk (including the use of emerging financial technologies, such as cryptocurrencies);

•our ability to maintain our reputation;

•our ability to maintain or increase our market share;

•our ability to realize the benefits of net deferred tax assets;

•our ability to obtain needed liquidity;

•our ability to raise capital needed to fund growth or meet regulatory requirements;

•our ability to attract and retain key personnel;

•our ability to keep pace with technological change;

•prevalence of fraud and other financial crimes;

•the possibility that our internal controls and procedures could fail or be circumvented;

•our ability to successfully execute our acquisition growth strategy;

•risks posed by acquisitions and other expansion opportunities, including difficulties and delays in integrating acquired business operations or fully realizing the cost savings and other benefits;

•restrictions on our ability to pay dividends;

•volatility of our stock price (including possible removal from the Russell 3000® Index and related indexes);

•accounting standards for credit losses;

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•legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or Bank;

•public company reporting obligations;

•changes in federal or state tax laws; and

•changes in accounting principles, policies or guidelines and their impact on financial performance.

Stockholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this filing and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this report.

GENERAL

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of March 31, 2026, and our consolidated results of operations for the three months ended March 31, 2026, compared to the same period in the prior fiscal year ended March 31, 2025. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2025 10-K. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

PERFORMANCE SUMMARY

We reported net income of $3.8 million or $0.39 per diluted share for the three months ended March 31, 2026, compared to net income of $3.2 million or $0.32 per diluted share for the three months ended March 31, 2025, respectively.

The following is a summary of some of the significant factors that affected our operating results for the three months ended March 31, 2026, and March 31, 2025.

Compared to the first quarter of 2025, the first quarter of 2026 net interest income increased $1.4 million. The first quarter 2026 increase from the same period in 2025 was largely due to: (1) a 20 basis point increase in loan yields due to new loan originations and existing loans repricing at higher rates; and (2) a 28 basis point decrease in deposits costs; (3) a reduction in other borrowings, largely due to the redemption of subordinated debt on September 1, 2025, partially offset by a lower average balance of loans with growth in lower yielding interest-bearing cash.

The total provision for credit losses for the first quarter ended March 31, 2026, was $0.75 million compared to a negative provision for credit losses of $0.25 million for the quarter ended March 31, 2025. The first quarter of 2026 provision was largely due to: (1) a net increase of $0.4 million, with increases in reserves on impaired loans, partially offset by loss rates on collectively evaluated loans; (2) modest charge-offs of $0.2 million; (3) an increase in economic scenarios based on information provided by our third-party model provider of $0.1 million; and (4) the net impact of new loan growth, net of a decrease in the portfolio duration of $0.05 million. The first quarter ended March 31, 2025, negative provision for credit losses was primarily due to decreases in ACL related to: (1) on-balance sheet ACL of $0.1 million, and (2) reductions in off-balance sheet reserves to fund commitments of $0.3 million.

Non-interest income increased $0.5 million in the first quarter of 2026, compared to the first quarter of 2025, primarily due to higher gains on the sale of loans, due in part to the backlog of SBA loans unable to be sold during the fourth quarter of 2025, due to the government shutdown and then sold in the first quarter of 2026.

Non-interest expense increased $0.2 million in the first quarter of 2026 from $10.5 million in the first quarter of 2025. The increase was primarily due to an increase in compensation due to the full quarter impact of the 2025 annual employee pay raises and benefit expenses, partially offset by lower data processing costs.

Provision for income taxes increased to $0.88 million in the first quarter of 2026, from $0.78 million in the first quarter of 2025, primarily due to the impact of a 2025 tax credit investment.

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CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses, and their related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that our management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. In addition to the policies included in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included as an exhibit in our annual report on our 2025 10-K, our critical accounting estimates are as follows:

Allowance for Credit Losses

We have selected a loss estimation methodology, utilizing a third-party model. See also Notes 1 and 3 to the unaudited consolidated financial statements for further discussion of our adoption of ASU 2016-13.

Allowance for Credit Losses - Loans. We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing quarterly assessments of the estimated lifetime losses in our loan portfolio. In evaluating the level of the allowance for credit losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions, and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration. We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for credit losses recorded during a particular period may be adjusted.

Our determination of the allowance for credit losses - loans is based on: (1) an individual allowance for specifically identified and evaluated loans that management has determined have unique risk characteristics. For these loans, the estimated loss is based on likelihood of default, payment history, and net realizable value of underlying collateral. Allowance for credit losses for collateral dependent loans are based on the fair value of the underlying collateral relative to the amortized cost of the loans. For loans that are not collateral dependent, the allowance for credit losses is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a collective allowance for loans not specifically identified in (1) above. The allowance for these loans is estimated by pooling loans with a similar risk profile and calculating a collective loss rate using the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. This collectively estimated loss is adjusted for qualitative factors.

Assessing the allowance for credit losses - loans is inherently subjective as it requires making material estimates, including the amount, and timing of future cash flows expected to be received on collateral dependent loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio.

STATEMENT OF OPERATIONS ANALYSIS

Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest-bearing assets and the dollar amount of interest paid on interest-bearing liabilities. The interest income and expense of financial institutions (including those of the Bank) are significantly affected by general economic condit

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following discussion sets forth management’s discussion and analysis of our results of operations for the year ended December 31, 2025 and December 31, 2024, and our financial position as of December 31, 2025 and December 31, 2024, respectively. The MD&A should be read in conjunction with our consolidated financial statements, related notes, the selected financial data and the statistical information presented elsewhere in this Annual Report on Form 10-K for a more complete understanding of the following discussion and analysis. Unless otherwise noted, years refer to the Company’s fiscal years ended December 31, 2025 and December 31, 2024.

PERFORMANCE SUMMARY

The following is a summary of some of the significant factors that affected our operating results for the twelve months ended December 31, 2025, compared to the same 2024 period. In 2025, net interest income increased $4.7 million, due to: (1) the ongoing impact of lower short-term interest rates on the Bank’s liability-sensitive balance sheet which lowered liability costs; (2) higher asset yields; partially offset by (3) the impact of lower interest income due to a smaller sized balance sheet. The Company recorded a $1.950 million provision for credit losses largely due to the impact of changes in credit quality, largely due to an increase in reserves on individually evaluated loans. The $3.175 million of negative provision for credit losses in 2024 was largely due to the impact of improving forecasted future economic conditions, as forecasted by Moody’s, who the Company utilizes for economic forecasts and the impact of balance sheet optimization, which resulted in loan portfolio shrinkage. Non-interest income for the twelve months ended December 31, 2025, compared to the same period in 2024 increased approximately $1.0 million. This increase was largely due to: (1) higher gains on equity securities; (2) higher gain on sale of loans, due to an increase in SBA gains and mortgage gains, with SBA being about two thirds of the increase; partially offset by (3) lower fee income on deposit activity, due to lower activity; and (4) a decrease in loan fees and service charges primarily due to lower fees collected on loan payoffs. Non-interest expense increased approximately 1.5% or $0.6 million primarily due to a $1.1 million increase in compensation due to higher incentive compensation and merit increases, partially offset by a decrease in other expense due to lower SBA recourse expense.

When comparing year-over-year results, changes in net interest income, provision for credit losses, non-interest income and non-interest expense are primarily due to the items discussed above. See the remainder of this section for a more thorough discussion. Unless otherwise stated, all monetary amounts in the tables (but not the narrative) set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

We reported net income of $14.42 million for the twelve months ended December 31, 2025, compared to net income of $13.75 million for the twelve months ended December 31, 2024. Diluted earnings per share were $1.46 for the twelve months ended December 31, 2025, compared to $1.34 for the twelve months ended December 31, 2024. Return on average assets for the twelve months ended December 31, 2025, was 0.82%, compared to 0.76% for the twelve months ended December 31, 2024. The return on average equity was 7.89% for the twelve months ended December 31, 2025, and 7.84% for the comparable period in 2024.

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

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CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses, and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. Below is a discussion of our critical accounting estimates.

Allowance for Credit Losses

We utilize a loss estimation methodology and third-party model to determine our allowance for credit losses, under the guidance of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments”. See also Notes 1 and 3 to the audited consolidated financial statements for further discussion of our adoption of ASU 2016-13.

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, Board of Governors of the Federal Reserve, 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. Specific allocations 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 specific allocation is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a collective allowance for loans not specifically identified in (1) above. The allowance for these loans is estimated by pooling loans with a similar risk profile and calculating a collective loss rate using the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. This collectively estimated loss is adjusted for qualitative factors.

Assessing the allowance for credit losses - loans is inherently subjective as it requires making material estimates, including the amount, and timing of future cash flows expected to be received on impaired 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.

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STATEMENT OF OPERATIONS ANALYSIS

Twelve months ended December 31, 2025 vs. Twelve months ended December 31, 2024

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 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 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, interest rate spread, and net interest margin.

Net interest income was $51.2 million for 2025 compared to $46.5 million for 2024. The increase was largely due to the impact of lower short-term interest rates which, with the Company’s liability sensitive balance sheet (See Market Risk Section of the MD&A), resulted in lower deposit costs, a decrease in other borrowing expense due to lower balances and modestly higher net yield on assets. These increases to net interest income were partially offset by $61 million lower asset balances, including an $84 million decrease in average loan balances, partially offset by higher balances in lower yielding cash and cash equivalents.

The net interest margin for 2025 was 3.12% compared to 2.73% for 2024. The increase in the net interest margin was largely due to lower liability costs of 0.36%.

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table shows interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest bearing liabilities, expressed in dollars and rates. Also presented is the weighted average yield on interest earning assets, rates paid on interest bearing liabilities and the resultant spread at December 31, 2025 and December 31, 2024. Non-accruing loans average balances are included in the table with the loans carrying a zero yield.

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Rate/Volume Analysis. The following table presents 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 variances were discussed previously above. Volume variances for the twelve months ended December 31, 2025, compared to the same period in 2024 were: (1) lower average total loan balances in 2025, due to the full year impact of 2024 loan shrinkage and additional 2025 loan shrinkage; partially offset by (2) higher average balances of interest-bearing cash, (3) lower average balances in certificates due to lower brokered deposit balances, and (4) lower borrowing balances due to reductions in FHLB advances and subordinated debt.

(1)The change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each.

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.

Total provision for credit losses for the twelve months ended December 31, 2025, was $1.950 million, compared to negative provision of $3.175 million for the twelve months ended December 31, 2024. The Company’s $1.950 million provision for credit losses in 2025 was largely due to the impact of changes in credit quality, largely due to an increase in reserves on individually evaluated loans. The $3.175 million negative provision for credit losses in 2024 was largely due to the impact of improving forecasted future economic conditions by Moody’s, who the Company utilizes for economic forecasts and the impact of balance sheet optimization, which resulted in loan portfolio shrinkage.

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

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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 twelve-month period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ACL. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future.

Non-Interest Income. The following table reflects the various components of non-interest income for 2025 and 2024, respectively.

N/M means not meaningful

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

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

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

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

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Non-Interest Expense. The following table reflects the various components of non-interest expense for 2025 and 2024.

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

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

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

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

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

Income Taxes. Income tax provision was $3.0 million in 2025 compared to $3.7 million for 2024. The 2025 effective tax rate was 17.3% compared to 21.2% for 2024. The reduction in tax rate was larger due to an increase in tax credits, partially due to a 2025 purchased tax credit investment.

Income tax expense recorded in the accompanying Consolidated Statements of Operations involves interpretation and application of certain accounting pronouncements and federal and state tax codes. We undergo examinations by various taxing authorities. Such taxing authorities may require that changes in the amount of tax expense or the amount of the valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations.

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BALANCE SHEET ANALYSIS

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

Cash and Cash Equivalents. Cash and cash equivalents increased from $50.2 million at December 31, 2024, to $118.9 million at December 31, 2025, largely due to an increase in interest-bearing balances.

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 (“AFS”) and securities held to maturity (“HTM”).

Securities AFS (recorded at fair value), which represent the majority of our investment portfolio, decreased to $134.1 million at December 31, 2025, compared with $142.9 million at December 31, 2024. This decrease was due to principal repayments and maturities on amortizing securities of $15 million, and calls of corporate debt securities of $9 million, partially offset by purchases of $10 million and lower unrealized losses of $5.2 million.

Securities held to maturity decreased to $80.2 million at December 31, 2025, compared to $85.5 million at December 31, 2024. The decrease was largely due to principal repayments. The unrecognized loss on the held to maturity portfolio decreased by $3.8 million during the year to $16.1 million at December 31, 2025.

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

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The amortized cost and fair values of our investment securities by maturity, as of December 31, 2025 were as follows:

The amortized cost and fair values of our investment securities by maturity, as of December 31, 2024 were as follows:

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The following tables show the fair value and gross unrealized losses of securities with unrealized losses, as of the dates indicated below, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position:

Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not due to credit impairment. Management has determined that the Company neither intends to sell, nor will it be required to sell, each debt security before its anticipated recovery, and therefore recovery of cost will occur.

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The composition of our investment securities portfolio by credit rating as of the periods indicated below was as follows:

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

At December 31, 2024, the Bank pledged certain of its mortgage-backed securities with a carrying value of $34.0 million as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2024, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.3 million and mortgage-backed securities with a carrying value of $1.8 million as collateral against specific municipal deposits. As of December 31, 2024, the Bank also has mortgage-backed securities with a carrying value of $0.5 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

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

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

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

Our loan portfolio is diversified by types of borrowers and industry groups within the market areas that we serve. Significant loan concentrations are considered to exist for a financial entity when the amounts of loans to multiple borrowers engaged in similar activities cause them to be similarly impacted by economic or other conditions. As illustrated above, at December 31, 2025, the largest loan concentration we identified was commercial real estate loans which comprised 51% of our total loan portfolio. Approximately 89% of our total gross loans are secured by real estate.

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The following table sets forth, as of December 31, 2025 and December 31, 2024, respectively, the fixed and adjustable-rate loans in our loan portfolio:

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. The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at December 31, 2025:

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The table below lists the above CRE portfolio by geographical location:

The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at December 31, 2025:

The table below lists our CRE portfolio selected industry components by geographical location:

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Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2025, are shown below.

(1)Includes loans having no stated maturity and overdraft loans.

Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2024, are shown below.

(1)Includes loans having no stated maturity and overdraft loans.

We believe that the critical factors in the overall management of credit or loan quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, recording an adequate allowance to provide for incurred loan losses, and reasonable non-accrual and charge-off policies.

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Risk Management and the 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 projected 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. As the Company’s commercial lending function started after the Great Recession, the Company’s historical credit experience is insufficient to estimate expected credit loss. The Company utilized peer information to supplement expected loss experience. Peer selection was a review of institutions with comparable asset size, geography, and portfolio concentrations. Management judgment is required at each point in the measurement process. Future and supportable economic forecasts are based on national economic conditions and their reversion to the mean is implicit in the model and generally occurs over a period of two years.

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 impairment. 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. However, if it is probable that the Company will foreclose on the collateral, the use of the fair value of the collateral to calculate the allowance for credit loss is required.

In addition, various regulatory agencies periodically review the ACL. These agencies may require the Company to make additions to the ACL or may require that certain loan balances be charged off or downgraded into classified loan categories when the agencies’ evaluation differs from management’s evaluation based on their judgments of collectability from the information available to them at the time of examination.

The Allowance for Credit Losses - Unfunded Commitments is a liability for expected future credit losses on the Company’s commitments to lend. The Company estimates expected credit losses over the contractual period for which the Company is exposed to credit risk, via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Allowance for Credit Losses - Unfunded Commitments on off-balance sheet exposures is included in other liabilities on the consolidated balance sheet.

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Allowance for Credit Losses - Loans

(in thousands, except ratios)

Allowance for Credit Losses - Loans Activity by Segment

(in thousands, except ratios)

Allowance for Credit Losses - Loans Percentage

(in thousands, except ratios)

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Allowance for Credit Losses - Unfunded Commitments:

(in thousands)

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.490 million at December 31, 2025, and $0.334 million at December 31, 2024, classified in other liabilities on the consolidated balance sheets.

Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We employ early identification of non-accrual and problem loans in order to minimize the risk of loss. Non-performing loans are defined as either 90 days or more past due or non-accrual. The accrual of interest income is discontinued according to the following schedules:

•Commercial/agricultural real estate loans past due 90 days or more;

•Commercial and industrial/agricultural operating loans past due 90 days or more;

•Closed ended consumer installment loans past due 120 days or more; and

•Residential mortgage and open ended consumer installment loans past due 180 days or more.

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The following table identifies the various components of non-performing assets and other balance sheet information as of the dates indicated below and changes in the ACL for the periods then ended:

N/M means not meaningful

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Nonaccrual Loans Roll Forward

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

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

Below is a summary of loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2025.

The table below shows a summary of criticized loans, split by special mention and substandard balances, as of the past five quarter-ends. Criticized loans increased by $18.5 million in the twelve months ended December 31, 2025. Special mention loans increased $16.0 million during 2025, largely due to additions of a $6.0 million owner occupied CRE loan relationship and a $5 million owner occupied CRE loan relationship. Substandard loans increased $2.5 million from December 31, 2024, primarily due to the addition of a $9 million multi-family loan partially offset by the payoff of a $5 million forestry services loan relationship.

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

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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 amortized cost of MSR assets decreased as amortization exceeded additions due to loan sales, resulting in the unpaid balances of one-to-four family residential real estate loans serviced for others to decrease as of December 31, 2025, to $474.0 million from $479.6 million at December 31, 2024.

The fair market value of the Company’s MSR asset was $4.7 million at December 31, 2025, and $5.2 million at December 31, 2024. At December 31, 2025, and December 31, 2024, the Company did not have an MSR impairment, or related valuation allowance. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at December 31, 2025, and December 31, 2024, was 0.98% and 1.09%, respectively.

Intangible Assets. We had intangible assets of $0.4 million at December 31, 2025, compared to $1.0 million at December 31, 2024. The intangible assets at December 31, 2025, consisted of core deposit intangible assets arising from a 2017 acquisition. Intangible assets associated with a 2019 acquisition became fully amortized during 2025. Amortization of these intangibles was $0.6 million in 2025, and $0.7 million in 2024. Amortization expense is scheduled to be $0.4 million in 2026.

Deposits. At December 31, 2025, deposits increased by $36.0 million compared to December 31, 2024, balances. The growth in money market accounts was largely due to growth in retail accounts, and to a lesser extent, commercial accounts.

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Deposit Composition by Type

(in thousands)

Consumer, commercial and government deposits have been stable over the periods reported. There are no material customer or industry deposit concentrations.

Deposit Portfolio Composition

(in thousands)

At December 31, 2025, the deposit portfolio composition was 58% consumer, 28% commercial, 12% public, and 2% wholesale deposits. At December 31, 2024, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits.

Uninsured and uncollateralized deposits were $323.5 million, or 21% of total deposits at December 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024. Uninsured deposits at December 31, 2025, were $478.4 million, or 31% of total deposits, and $428.0 million, or 29% of total deposits at December 31, 2024, with the difference being an increase in fully secured government deposits.

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Federal Home Loan Bank (FHLB) advances and other borrowings. A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at December 31, 2025, and December 31, 2024, is as follows:

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had pledged balances of $1.018 billion and $1.075 billion at December 31, 2025 and 2024, respectively. At December 31, 2025, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $434 million compared to $425 million as of December 31, 2024.

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

(3) There were no FHLB borrowings outstanding as of December 31, 2025. The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2024 was 1.45%.

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

(a) A term note, which was originally entered into in June 2019 and subsequently refinanced in March 2022, modified in February of 2023, and refinanced in May 2024, requiring quarterly interest-only payments through January 2029, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.

(b) A $5.0 million term note entered into in October 2025, requiring quarterly interest-only payments through October 2028, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 4.00%.

(c) The $5.0 million line of credit was terminated by the Company in October 2025.

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

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years. In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term SOFR plus 329 basis points. The note is callable by the Bank when, and any time after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

Federal Home Loan Bank (FHLB) advances and other borrowings

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

FHLB advances decreased from $5.0 million at December 31, 2024 to $0 as of December 31, 2025, as proceeds from investment security and loan portfolio shrinkage were used to reduce borrowings. In 2024, $64.5 million of FHLB advances matured. A $10 million FHLB advance, which the FHLB could call one-time, was called in June 2024. 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, was approximately $433.7 million at December 31, 2025, and $424.7 million at December 31, 2024. The Company refinanced its senior debt in May 2024 and reduced the balance by $6.1 million.

The Bank maintains two unsecured federal funds purchased lines of credit with its banking partners which total $70.0 million. 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 December 31, 2025, or December 31, 2024.

At December 31, 2025, and 2024, the Bank had the ability to borrow $24.5 million and $24.9 million, respectively from the Federal Reserve Bank of Minneapolis. The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $32.1 million and $34.0 million as of December 31, 2025, and 2024, respectively. There were no Federal Reserve borrowings outstanding as of December 31, 2025, and 2024.

Stockholders’ Equity. Total stockholders’ equity was $187.9 million at December 31, 2025, compared to $179.1 million at December 31, 2024. The increase in stockholders’ equity included the Company’s net income of $14.4 million and a decrease in the unrealized loss on available-for-sale securities of $3.9 million, net of tax, due to lower interest rates. These increases were partially offset by: (1) the repurchase of approximately 385 thousand shares of the Company’s common stock, which reduced equity by $6.1 million and (2) the payment of the annual cash dividend, paid in February to common stockholders of $0.36 per share which was a 12.5% increase from the prior year dividend amount of $0.32 per share, or $3.3 million.

In 2021, the Board of Directors adopted a 5% share repurchase program, which ended in 2024 as the 5% authorization was completed by the 202 thousand shares repurchased in 2024. In July 2024, the Board of Directors adopted a 5% share repurchase program. Approximately 274 thousand shares were repurchased under this program, before the authorization expired in June of 2025. In July 2025, the Board of Directors adopted a 5% share repurchase program. Approximately 385 thousand shares were repurchased under this program and as of December 31, 2025, 113 thousand shares remain available for repurchase under this program.

Liquidity and Asset / Liability Management. 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 December 31, 2025, our on-balance sheet liquidity ratio increased to 14.8% percent from 11.75% at December 31, 2024,

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remaining above our internal requirement of 10%. This was largely due to reductions in the AFS and HTM investment portfolios.

There are no material customers or industry deposit concentrations. At December 31, 2025, the deposit portfolio composition was largely unchanged from the prior quarter at 58% consumer, 28% commercial, 12% public, and 2% wholesale deposits. At December 31, 2024, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits.

Uninsured and uncollateralized deposits were $323.5 million, or 21% of total deposits at December 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024. Uninsured deposits at December 31, 2025, were $478.4 million, or 31% of total deposits, and $428.0 million, or 29% of total deposits at December 31, 2024, with the difference being an increase in fully secured government deposits.

On-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability was $792 million, or 245% of uninsured and uncollateralized deposits at December 31, 2025. At December 31, 2024, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability was $724.8 million, or 273% 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 $330.2 million of our $347.3 million (95%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s. In 2024, retail non-maturity interest-bearing accounts were approximately flat with growth in certificate accounts. Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits. However, this is challenging in the current competitive environment.

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 $433.7 million available to borrow under this arrangement, supported by loan collateral as of December 31, 2025. We also had borrowing capacity of $24.5 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 approved brokered certificate lines of credit with counter parties at December 31, 2025, we believe that the Bank could access this market, which provides an additional potential source of liquidity. See Note 9, “Federal Home Loan Bank and Other Borrowings” of “Notes to Consolidated Financial Statements” which are included in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, 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 December 31, 2025, the Company had approximately $198.8 in unused loan commitments, compared to approximately $137.0 million in unused loan commitments as of December 31, 2024. In addition, there were $3.2 million of commitments for contributions of capital to an SBIC and an investment company at December 31, 2025. These commitments totaled $2.9 million of commitments at December 31, 2024. See Note 11, “Commitments and Contingencies”; “Financial Instruments with Off-Balance Sheet Risk” of “Notes to Consolidated Financial Statements” which are included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for further detail.

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Capital Resources. As of the dates indicated below, our Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions for the Bank.

Below are the amounts and ratios for our capital levels as of the dates noted below for the Bank.

At 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.