Eagle Bancorp Montana, Inc. (EBMT)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Eagle Bancorp Montana, Inc. is a bank holding company registered under the Bank Holding Company Act, is incorporated under the laws of Delaware and headquartered in Helena, Montana. Its wholly-owned subsidiary, Opportunity Bank of Montana (the "Bank"), is a Montana-state-chartered bank that is a member of the Federal Reserve System.

This discussion and analysis provides information that management believes is necessary to understand Eagle's financial condition, changes in financial condition, results of operations, and cash flows for the three months ended March 31, 2026, as compared to the same period of 2025. The following should be read in conjunction with the Company's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2025, included in Eagle's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission ("SEC") on March 9, 2026, and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, included in Part I - Item 1. Financial Statements of this report. The results of operations for the three months ended March 31, 2026, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.

Executive Summary

The Company’s primary business activity is the ownership of the Bank. The Bank focuses on consumer, commercial, and agricultural lending. It engages in typical banking activities: acquiring deposits from local markets and originating loans and investing in securities. Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, net gains and losses on sale of assets, and mortgage loan service fees. Net interest income and noninterest income are offset by provisions for credit losses, general administrative and other expenses, including salaries and employee benefits and occupancy and equipment costs, as well as by state and federal income tax expense.

The Bank has focused on diversifying the loan portfolio over the past decade, adding commercial and agricultural loans to the strong mortgage lending proficiency. Loan originations represented by single-family residential mortgages enabled the Bank to successfully market home equity loans, as well as a wide range of shorter-term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). The Bank has grown the commercial loan portfolio in both real estate and non-real estate, and further added agricultural loans, which have a shorter term and slightly higher interest rate, through acquisitions. The purpose of diversification is to mitigate the Bank’s exposure to specific market segments, as well as to improve our ability to manage our interest rate spread. This has provided additional interest income and improved interest rate sensitivity. The Bank’s management recognizes that fee income will also enable it to be less dependent on specialized lending and it now maintains a significant loan serviced portfolio which provides a steady source of fee income. Fee income is also supplemented with fees generated from deposit accounts. The Bank has a high percentage of non-maturity deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread. Non-maturity deposits and certificates of deposits do not automatically reprice as interest rates rise. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes. Such income will be, and has recently been, adversely affected in periods of lower mortgage activity.

Management continues to focus on improving the Bank’s earnings. Management believes the Bank needs to continue to concentrate on increasing net interest margin, other areas of fee income and control of operating expenses to achieve earnings growth going forward. Management’s strategy of growing the loan portfolio and deposit base is expected to help achieve these goals as follows: loans typically earn higher rates of return than investments; a larger deposit base should yield higher fee income; increasing the asset base will reduce the relative impact of fixed operating costs. The biggest challenge to this strategy is funding growth in an efficient manner. It may become more difficult to maintain deposit growth due to significant competition, the current conditions in the banking industry and possible reduced customer demand for deposits as customers may shift into other asset classes.

The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee decreased the federal funds target rate to 3.75% during the year ended December 31, 2025. The rate remained at 3.75% during the three months ended March 31, 2026.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition

Comparisons of financial condition in this section are between March 31, 2026 and December 31, 2025.

Total assets were $2.09 billion at March 31, 2026, a decrease of $14.52 million, or 0.7%, from $2.11 billion at December 31, 2025. Loans receivable, net increased by $207,000 from December 31, 2025. Securities available-for-sale decreased $6.81 million, or 2.4%, from December 31, 2025. Total liabilities were $1.90 billion at March 31, 2026, a decrease of $15.66 million, or 0.8%, from $1.91 billion at December 31, 2025. The decrease was largely due to a decrease in FHLB advances, offset by an increase in total deposits. Total borrowings decreased $11.32 million from December 31, 2025 and total deposits increased $4.48 million from December 31, 2025. Total shareholders’ equity increased $1.15 million, or 0.6%, from December 31, 2025.

Financial Condition Details

Investment Activities

The following table summarizes investment activities:

Securities available-for-sale were $274.89 million at March 31, 2026, a decrease of $6.80 million, or 2.4% from $281.69 million at December 31, 2025. The decrease was primarily due to maturity, principal payments and call activity of $3.89 million and a decrease in fair value of $2.72 million.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition – continued

Lending Activities

The following table includes the composition of the Bank’s loan portfolio by loan category:

Total loans, net increased $207,000 to $1.50 billion at March 31, 2026 from $1.50 billion at December 31, 2025. The increase was largely driven by an increase in total commercial real estate loans of $7.79 million, an increase in total residential loans of $4.99 million and an increase of $1.21 million in home equity loans. The increases were largely offset by a decrease of $12.45 million in total commercial loans and a decrease of $1.27 million in consumer loans.

Total loan originations were $170.95 million for the three months ended March 31, 2026. Total residential 1-4 family originations were $91.77 million, which includes $69.26 million of loans held-for-sale originations. Total commercial originations were $45.38 million. Total commercial real estate originations were $25.71 million. Home equity loan originations totaled $5.98 million. Consumer loan originations totaled $2.11 million. Loans held-for-sale increased by $2.45 million to $9.90 million at March 31, 2026 from $7.45 million at December 31, 2025.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition – continued

Lending Activities– continued

Generally, our collection procedures provide that when a loan is 15 or more days delinquent, the borrower is sent a past due notice. If the loan becomes 30 days delinquent, the borrower is sent a written delinquency notice requiring payment. If the delinquency continues, subsequent efforts are made to contact the delinquent borr

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

The following discussion and analysis of the financial condition and results of operations of Eagle is intended to help investors understand our company and our operations. The financial review is provided as a supplement to and should be read in conjunction with the Consolidated Financial Statements and the related Notes included elsewhere in this report.

Introduction

Eagle Bancorp Montana, Inc. is a bank holding company registered under the Bank Holding Company Act, is incorporated under the laws of Delaware and headquartered in Helena, Montana. Through its wholly-owned subsidiary, Opportunity Bank of Montana, a Montana state-chartered bank that is a member of the Federal Reserve System, the Company provides commercial and consumer banking services.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") describes Eagle and its subsidiaries' results of operations for the year ended December 31, 2025 as compared to the year ended December 31, 2024, and also analyzes our financial condition as of December 31, 2025 as compared to December 31, 2024. Like most banking institutions, our principal business consists of attracting deposits from the general public and the business community and making loans secured by various types of collateral, including real estate and other consumer assets. We are significantly affected by prevailing economic conditions, particularly interest rates, as well as government policies concerning, among other things, monetary and fiscal affairs, housing and financial institutions and regulations regarding lending and other operations, privacy and consumer disclosure. Attracting and maintaining deposits is influenced by a number of factors, including interest rates paid on competing investments offered by other financial and nonfinancial institutions, account maturities, fee structures and levels of personal income and savings. Lending activities are affected by the demand for funds and thus are influenced by interest rates, the number and quality of lenders and regional economic conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from maturities of investment securities and income provided from operations.

Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, net gains and losses on sale of assets, and mortgage loan service fees. Net interest income and noninterest income are offset by provisions for credit losses, general administrative and other expenses, including salaries and employee benefits and occupancy and equipment costs, as well as by state and federal income tax expense.

The Bank has a strong mortgage lending focus, with a large portion of its loan originations represented by single-family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of shorter-term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). The Bank has also focused on adding commercial loans to our portfolio, both real estate and non-real estate. We have made significant progress in this initiative over the past decade. As of December 31, 2025, commercial real estate loans represented 60.5% of the total loan portfolio, including farmland loans representing 10.7% of the total loan portfolio. Commercial business loans represented 18.7% of the total loan portfolio, including agricultural loans representing 8.9% of the total loan portfolio. The purpose of this diversification is to mitigate our dependence on the residential mortgage market, as well as to improve our ability to manage our interest rate spread. Recent acquisitions have added to our agricultural loans, which generally have shorter maturities and nominally higher interest rates. This has provided additional interest income and improved interest rate sensitivity. The Bank’s management recognizes that fee income will also enable it to be less dependent on specialized lending and it maintains a significant loan serviced portfolio, which provides a steady source of fee income. As of December 31, 2025, we had mortgage servicing rights, net of $15.04 million compared to $15.38 million as of December 31, 2024. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes. Such income will be, and has recently been, adversely affected in periods of lower mortgage activity.

Fee income is also supplemented with fees generated from deposit accounts. The Bank has a high percentage of non-maturity deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread. Non-maturity deposits and certificates of deposit do not automatically reprice as interest rates rise.

Management continues to focus on improving the Bank's earnings. Management believes the Bank needs to continue to concentrate on increasing net interest margin, other areas of fee income and control operating expenses to achieve earnings growth going forward. Management’s strategy of growing the loan portfolio and deposit base is expected to help achieve these goals as follows: loans typically earn higher rates of return than investments; a larger deposit base should yield higher fee income; increasing the asset base will reduce the relative impact of fixed operating costs. The biggest challenge to the strategy is funding the growth of the statement of financial condition in an efficient manner. Though deposit growth has been steady, it may become more difficult to maintain due to significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes.

Other than short term residential construction loans, we do not offer “interest only” mortgage loans on residential 1-4 family properties (where the borrower pays interest but no principal for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).

The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee decreased the federal funds target rate to 4.50% during the year ended December 31, 2024. The rate decreased to 3.75% during the year ended December 31, 2025.

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Critical Accounting Policies and Estimates

The accounting and financial reporting policies of Eagle are in accordance with generally accepted accounting principles ("GAAP") and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Eagle has identified certain of its accounting policies as “critical accounting policies,” consisting of those related to the allowance for credit losses and goodwill. In determining which accounting policies are critical in nature, Eagle has identified the policies that require significant judgment or involve complex estimates. Eagle’s financial results could differ significantly if different judgments or estimates are used in the application of these policies. The critical accounting policies and related estimates are summarized below.

Allowance for Credit Losses

The allowance for credit losses ("ACL") on loans is a valuation account that is management’s estimate of the amount considered necessary to absorb expected losses in the loan portfolio at the balance sheet date. The allowance is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans and is established through the provision for credit losses. Increases in the allowance are charged against income, and decreases in the allowance are recorded through net income as a reversal of the provision for credit losses.

Quarterly, an assessment is performed of the risks expected in the loan portfolio. A detailed review is conducted for significant loans identified as having weaknesses that do not share common risk characteristics with other loans. The methodology for determining the adequacy of the allowance for credit losses is considered a critical accounting policy by management due to its complexity and the high degree of judgment involved. The primary factors and assumptions considered include loan volume, credit ratings, delinquency status, prepayment speeds, weighted average lives, and other relevant available information from internal and external sources related to past events and historical loss experience. Management uses qualitative judgment to adjust loss rates to reflect management’s assessment of current economic conditions, along with reasonable and supportable forecasts. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment for subsequent evaluations of the loan portfolio could have a material impact on the amount of the allowance that is necessary to increase the amount of provision to be charged against earnings. See Note 3 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further information.

Goodwill

The excess of consideration paid over fair value of net assets acquired for acquisitions is recorded as goodwill. Goodwill is not amortized but is tested at least annually for impairment or more frequently if events occur or circumstances change that indicate impairment may exist. A goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying value. An impairment charge is recorded for the amount by which the carrying amount exceeds the reporting unit's fair value. A weighted average of both the market and income approaches is used in valuing the reporting unit’s fair value. Weightings are assigned to the approaches regarding fair value and the sensitivity of other weighting scenarios is considered. The market approach incorporates comparable public company information, valuation multiples and consideration of a market control premium along with data related to comparable observed purchase transactions in the financial services industry. The income approach consists of discounting projected future cash flows, which are derived from internal forecasts and economic expectations for the reporting unit. The significant inputs and assumptions for the income approach include a discount rate and projected earnings of the Company in future years for which there is inherent uncertainty. The sensitivity of a range of reasonable discount rates based on the current economic environment is considered.

During the quarter ended September 30, 2024, management performed a quantitative goodwill impairment test with assistance from a third-party valuation specialist. The interim determination was primarily driven by a revision in the Company's earnings outlook in comparison to budget. The interim goodwill impairment assessment as of August 31, 2024 concluded that goodwill was not impaired. No interim goodwill impairment tests were performed in 2025. Our quantitative annual impairment tests as of October 31, 2025 and 2024 also did not result in impairment. However, changing economic conditions that may adversely affect the Company's performance, the fair value of its assets and liabilities, or its stock price could result in future impairment. Any resulting impairment loss could have a material adverse impact on the Company's financial condition and results of operations. Management will continue to monitor events that could influence this conclusion in the future.

The Company's accounting policies and discussion of recent accounting pronouncements is included in Note 1 to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data".

Financial Condition

December 31, 2025 compared to December 31, 2024

Total assets were $2.11 billion at December 31, 2025, an increase of $3.28 million or 0.2% from $2.10 billion at December 31, 2024. Securities available-for-sale decreased by $10.90 million or 3.7% from December 31, 2024. Loans receivable, net decreased by $2.15 million or 0.1%, to $1.50 billion at December 31, 2025 from $1.50 billion at December 31, 2024. Total liabilities were $1.91 billion at December 31, 2025, a decrease of $13.78 million, or 0.7%, from $1.93 billion at December 31, 2024. Total deposits increased by $100.37 million or 6.0% to $1.78 billion from $1.68 billion at December 31, 2024. Total borrowings decreased $117.61 million to $82.47 million at December 31, 2025, from $200.08 million at December 31, 2024. Total shareholders’ equity increased by $17.04 million or 9.7% from December 31, 2024.

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Financial Condition Details

Investment Activities

We maintain a portfolio of investment securities, classified as either available-for-sale or held-to-maturity to enhance total return on investments. Our investment securities generally include U.S. government and agency obligations, U.S. treasury obligations, Small Business Administration pools, municipal securities, corporate obligations, mortgage-backed securities (“MBSs”), collateralized mortgage obligations (“CMOs”) and asset-backed securities (“ABSs”), all with varying characteristics as to rate, maturity and call provisions. There were no held-to-maturity investment securities included in the investment portfolio at December 31, 2025 or 2024. All investment securities included in the investment portfolio are available-for-sale. Eagle also has interest-bearing deposits in other banks and federal funds sold, as well as stock in FHLB and FRB. FHLB stock was $2.65 million and $7.78 million at December 31, 2025 and 2024, respectively. FRB stock was $4.13 million at December 31, 2025 and 2024.

The following table summarizes investment activities:

Securities available-for-sale were $281.69 million at December 31, 2025, a decrease of $10.90 million, or 3.7%, from $292.59 million at December 31, 2024. The decrease was primarily due to maturity, principal payments and call activity of $27.12 million partially offset by $7.04 million in investment purchases and an increase in fair value of $9.88 million.

The following table sets forth information regarding amortized costs, fair values, weighted average yields and maturities of investments. The yields have been computed on a tax equivalent basis. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur.

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Lending Activities

The following table includes the composition of the Bank’s loan portfolio by loan category:

Loans receivable, net decreased $2.15 million, or 0.1%, to $1.50 billion at December 31, 2025 from $1.50 billion at December 31, 2024. Total residential loans decreased $15.63 million, and consumer loans decreased $4.09 million. These decreases were largely offset by increases in home equity loans of $10.53 million, total commercial loans of $5.50 million and total commercial real estate loans of $2.06 million.

Total loan originations were $614.74 million for the year ended December 31, 2025. Total residential 1-4 family originations were $278.90 million, which includes $225.11 million of originations of loans held-for-sale. Total commercial originations were $154.29 million. Total commercial real estate originations were $136.33 million. Home equity loan originations totaled $32.65 million. Consumer loan originations totaled $12.57 million. Loans held-for-sale decreased by $5.92 million, to $7.45 million at December 31, 2025 from $13.37 million at December 31, 2024.

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The following table includes the composition of the commercial real estate loan category:

Commercial real estate loans made up $635.97 million or 41.9% of the Bank's total loan portfolio at December 31, 2025, compared to $645.96 million or 42.5% at December 31, 2024. The Bank's commercial real estate loans are primarily permanent loans secured by improved property such as office buildings, retail stores, commercial warehouses, and apartment buildings. The terms and conditions of each loan are tailored to the needs of the borrower and based on the financial strength of the project and any guarantors. Generally, commercial real estate loans originated by the Bank will not exceed 80.0% of the appraised value or the selling price of the property, whichever is less. The Bank's commercial real estate portfolio's average loan-to-value ratio range was 32% to 48% as of December 31, 2025.

The Bank's asset quality with respect to commercial real estate loans has remained strong despite recent economic and market conditions. The Bank has limited exposure in the office space sector, none of which is located in central business districts. Management believes that the Bank has implemented appropriate risk management practices, including regular and ongoing loan reviews, stress tests, and sensitivity analysis. Loan reviews include monitoring past due rates, non-performing trends, concentrations, loan to values, and other qualitative factors. The Bank's loan policy is robust and is updated annually or as needed to meet the risk mitigation and strategic goals of the bank.

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Loan Maturities. The following table sets forth the estimated maturity of the loan portfolio of the Bank at December 31, 2025. Balances exclude allowance for credit losses. Scheduled principal repayments of loans do not necessarily reflect the actual life of such assets. The average life of a loan is typically substantially less than its contractual terms because of prepayments. In addition, due on sale clauses on loans generally give the Bank the right to declare loans immediately due and payable in the event, among other things, the borrower sells the real property, subject to the mortgage, and the loan is not paid off. All mortgage loans are shown to be maturing based on the date of the last payment required by the loan agreement, except as noted.

Loans having no stated maturity, those without a scheduled payment, demand loans and matured loans, are shown as due within six months.

(1) Excludes loans held-for-sale

The following table includes loans by fixed or adjustable rates at December 31, 2025:

(1) Excludes loans held-for-sale

Delinquent Loans. The following table provides information regarding the Bank’s delinquent loans:

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Nonperforming Assets. The following table sets forth information regarding nonperforming assets:

Nonaccrual loans as of December 31, 2025 and 2024 include $460,000 and $591,000, respectively, of acquired loans that deteriorated subsequent to the acquisition date.

During the year ended December 31, 2025, the Bank sold four real estate owned and other repossessed assets resulting in a net loss of $10,000. There were no subsequent write-downs on real estate owned or other repossessed assets during the year ended December 31, 2025. During the year ended December 31, 2024, the Bank sold two real estate owned and other repossessed assets resulting in a net loss of $6,000. There were no subsequent write-downs on real estate owned or other repossessed assets during the year ended December 31, 2024.

Management, in compliance with regulatory guidelines, conducts an internal loan review program, whereby loans are placed or classified in categories depending upon the level of risk of nonpayment or loss. These categories are special mention, substandard, doubtful or loss. Management utilizes relevant available information to establish an allowance for credit losses on loans. The allowance is measured on a collective pool basis when similar risk characteristics exist. Loans considered to have different risk characteristics that do not fall within any pool will be analyzed individually on a quarterly basis for potential individual reserve requirements. Collateral-dependent loans and nonperforming loans will generally be evaluated individually.

Management’s evaluation of classification of assets and adequacy of the allowance for credit losses is reviewed by the Board on a regular basis and by regulatory agencies as part of their examination process. We also utilize a third-party review as part of our loan classification process. In addition, on an annual basis or more often if needed, the Company formally reviews the ratings of all commercial real estate, real estate construction, and commercial business loans that have a principal balance of $750,000 or more.

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The following table reflects our classified assets:

Allowance for Credit Losses. The Bank segregates its loan portfolio for credit losses into the following broad categories: residential 1-4 family, commercial real estate, home equity, consumer and commercial. The Bank provides for a general allowance for expected losses in the portfolio in the categories referenced above. General loss percentages which are calculated based on historical analyses and other factors such as volume and severity of delinquencies, local and national economy, underwriting standards and other factors. This portion of the allowance is calculated for expected losses which probably exist as of the evaluation date even though they might not have been identified by the more objective processes used. This is due to the risk of error and/or inherent imprecision in the process. This portion of the allowance is subjective in nature and requires judgments based on qualitative factors which do not lend themselves to exact mathematical calculations such as: trends in delinquencies and nonaccruals; trends in volume; terms and portfolio mix; new credit products; changes in lending policies and procedures; and changes in the outlook for the local and national economy.

At least quarterly, the management of the Bank evaluates the need to establish an allowance for credit losses on specific loans when a finding is made that a loss is estimable and probable. Such evaluation includes a review of all loans for which full collectability may not be reasonably assured and considers, among other matters: the estimated market value of the underlying collateral of problem loans; prior loss experience; economic conditions; and overall portfolio quality.

Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. At December 31, 2025, we had $17.37 million in allowance for credit losses. At December 31, 2024, we had $16.85 million in allowance for credit losses.

While we believe we have established our existing allowance for credit losses in accordance with generally accepted accounting principles, there can be no assurance that bank regulators, in reviewing our loan portfolio, will not request that we significantly increase our allowance for credit losses, or that general economic conditions, a deteriorating real estate market, or other factors will not cause us to significantly increase our allowance for credit losses, therefore negatively affecting our financial condition and earnings.

In originating loans, we recognize that credit losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a secured loan, the quality of the security for the loan.

It is our policy to review our loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly basis.

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The following table includes information for allowance for credit losses:

Net loan charge-offs for each loan category to average loans outstanding during the period including loans held-for-sale are considered insignificant for the periods presented in the table above.

The following table presents allocation of the allowance for credit losses by loan category and the percentage of loans in each category to total loans:

Deposits and Other Sources of Funds

Deposits. Deposits are the Company’s primary source of funds. Core deposits are deposits that are more stable and somewhat less sensitive to rate changes. They also represent a lower cost source of funds than rate sensitive, more volatile accounts such as certificates of deposit. We believe that our core deposits are checking, savings, money market and IRA accounts. Based on our historical experience, we include IRA accounts funded by certificates of deposit as core deposits because they exhibit the principal features of core deposits in that they are stable and generally are not rate sensitive. Core deposits were $1.34 billion or 75.2% of the Bank’s total deposits at December 31, 2025. The high percentage of core deposits, particularly transaction accounts, continues to reflect our strategy to restructure our liabilities to more closely align with the lower‑cost funding profile of a commercial bank. Although a meaningful portion of our funding remains in certificates of deposit, balances in this category slightly decreased during 2025. This modest decline has eased some pressure on our overall cost of funds; however, certificates of deposit still represent a higher‑cost funding source and could continue to influence our cost structure going forward.

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The following table includes deposit accounts and associated weighted average interest rates for each category of deposits: