5. SECURITIES

Equity Securities

Equity securities owned by the Company consist of common stock of various financial services providers. ASC Topic 321, Investments – Equity Securities requires all equity securities within its scope to be measured at fair value with changes in fair value recognized in net income. The Company had $1.6 million and $1.3 million in equity securities recorded at fair value as of June 30, 2026 and December 31, 2025, respectively. No equity securities were sold by the Company in the three or six months ended June 30, 2026, nor the three months ended June 30, 2025. The Company sold $46,000 in equity securities at fair value in the six months ended June 30, 2025. No gains or losses were recorded on the sale of equity securities for the three or six months ended June 30, 2026 and June 30, 2025. Due to changes in the fair value of the Company’s portfolio of equity securities, the Company recorded net gains of $220,000 and $278,000 for the three and six months ended June 30, 2026, respectively, and $40,000 and $12,000 for the three and six months ended June 30, 2025, respectively.

Debt Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities that are not classified as either held to maturity or trading are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. As of June 30, 2026, the Company’s debt securities portfolio includes primarily bonds issued by U.S. Government sponsored enterprises (approximately 17% of the investment portfolio), mortgage-backed securities issued by Government-sponsored entities and backed by residential mortgages (approximately 78% of the investment portfolio), corporate debt securities (approximately 3% of the investment portfolio) and municipal bonds

(approximately 2% of the investment portfolio). Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years.

At both June 30, 2026 and December 31, 2025, excluding securities of the U.S. Government and its agencies, the Company had holdings of securities from one issuer (Federal Farm Credit Bank) in excess of 10% of stockholders’ equity; holdings of Federal Farm Credit Bank securities had a fair value of $12.2 million as of both June 30, 2026 and December 31, 2025.

The amortized cost and fair value of debt securities as of June 30, 2026 and December 31, 2025, by contractual maturity, are shown in the tables below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid, with or without prepayment penalties. Securities not due at a single maturity date are shown separately.

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Certain obligations of the U.S. Government and state and political subdivisions as well as mortgage-backed securities are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The carrying value of the pledged assets was $160.9 million and $174.7 million on June 30, 2026 and December 31, 2025, respectively.

In addition to cash received from the scheduled maturities of investment securities, some debt securities available for sale are sold or called at current market values during normal operations. The Company received $6.8 million in gross proceeds from the sale of an available for sale U.S. Government agency security due to a portfolio yield restructuring plan that resulted in a $209,000 loss on the sale for the three and six months ended June 30, 2026. There were no sales of debt securities in the three or six months ended June 30, 2025.

The following tables summarize debt securities available for sale with unrealized losses at June 30, 2026 and December 31, 2025, aggregated by category and length of time in a continuous unrealized loss position.

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At June 30, 2026, one obligation of U.S. Government sponsored enterprises, six obligations of state and political subdivisions, three corporate debt securities and thirty-three mortgage-backed securities available for sale had unrealized losses. All but one mortgage-backed security has been in a continuous loss position for twelve months or more. The mortgage-backed securities in the Company’s portfolio are government sponsored enterprise (“GSE”) pass-through instruments issued by the Federal National Mortgage Association (“FNMA”) or Federal Home Loan Mortgage Corporation (“FHLMC”), which guarantees the timely payment of principal on these investments.

Under ASC 326, held to maturity debt securities may be pooled and evaluated for credit impairment, while available for sale securities are evaluated on an individual level, and pooling of securities is not allowed.

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For debt securities available for sale in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit losses is recorded for the credit loss, limited to the amount by which the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of June 30, 2026, management determined that an immaterial credit loss existed because the decline in fair value of the debt securities available for sale was mostly attributable to changes in interest rates and other market conditions, rather than erosion of issuer credit quality and, as a result, timely payment of contractual cash flows, including principal and interest, has continued and is not considered to be at risk. Therefore, the Company did not record an allowance for credit losses for these securities as of June 30, 2026 or December 31, 2025.

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Credit Quality Indicators

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All the Company’s held to maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities are either explicitly or implicitly guaranteed by the U.S. government, except for the Federal Farm Credit Bank securities, but all are highly rated by major rating agencies and have a long history of no credit losses.

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The Company monitors the credit quality of held to maturity debt securities using credit ratings. The credit ratings are sourced from nationally recognized rating agencies. All held to maturity debt securities were current in their payment of principal and interest as of both June 30, 2026 and December 31, 2025.

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The following tables summarize the amortized cost of held to maturity debt securities aggregated by credit quality indicator based on the latest information available at June 30, 2026 and December 31, 2025.

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