6.    Investment Securities

Securities are classified at the time of purchase as investment securities held to maturity if it is management’s intent and the Company has the ability to hold the securities until maturity. These held to maturity securities are carried on the Company’s books at cost, adjusted for amortization of premium and accretion of discount which is computed using the level yield method which approximates the effective interest method. Alternatively, securities are classified as available for sale if it is management’s intent at the time of purchase to hold the securities for an indefinite period of time and/or to use the securities as part of the Company’s asset/liability management strategy. Securities classified as available for sale include securities which may be sold to effectively manage interest rate risk exposure, prepayment risk, and other factors (such as liquidity requirements). These available for sale securities are reported at fair value with unrealized aggregate appreciation/depreciation excluded from income and credited/charged to accumulated other comprehensive income (loss) within shareholders’ equity on a net of tax basis. Realized gains or losses on securities sold are computed upon the adjusted cost of the specific securities sold.

Securities classified as trading assets are purchased with the intent of selling them in the near term (less than 90 days) to generate profits from short-term changes in price. Trading securities are reported at fair value with unrealized gains and losses included in income. The trading account, which is managed by an outside third party, is invested in U.S. Treasury and municipal securities. As of June 30, 2026, there was a temporary $164,000 cash deficit within the trading account compared to $99,000 of cash held in the account available for future trading security purchases as of December 31, 2025. The cash balances are included in cash and cash equivalents on the Consolidated Balance Sheets.

Additionally, the Company holds equity securities which are comprised of ordinary shares issued by a borrower in satisfaction of debt previously contracted. The shares do not have a readily determinable fair value. Therefore, they are reported at cost within other assets on the Consolidated Balance Sheets and are adjusted when observable price changes are identified, or an impairment charge is recognized.

Allowance for Credit Losses – Held to Maturity Securities

The Company measures expected credit losses on held to maturity debt securities, which are comprised of U.S. government agency and mortgage-backed securities as well as municipal, corporate, and other bonds. The Company’s agency and mortgage-backed securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no allowance for credit losses has been established for these securities. The allowance for credit losses on the municipal, corporate, and other bonds within the held to maturity securities portfolio is calculated using the probability of default/loss given default (PD/LGD) method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source. At June 30, 2026 and December 31, 2025, the allowance for credit losses on the held to maturity securities portfolio totaled $67,000 and $90,000, respectively.

The allowance for credit losses on held to maturity debt securities is included within investment securities held to maturity on the Consolidated Balance Sheets. Changes in the allowance for credit losses are recorded within (recovery) provision for credit losses on the Consolidated Statements of Operations.

Accrued interest receivable on held to maturity debt securities totaled $452,000 and $384,000 at June 30, 2026 and December 31, 2025, respectively, and is included within accrued interest income receivable on the Consolidated Balance Sheets. This amount is excluded from the estimate of expected credit losses. Held to maturity debt securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity debt securities are placed on non-accrual status, unpaid interest credited to income is reversed. The Company had no held to maturity debt securities in non-accrual status or past due over 90 days still accruing interest at June 30, 2026 and December 31, 2025. The underlying issuers continue to make timely principal and interest payments on the securities.

Allowance for Credit Losses – Available for Sale Securities

The Company measures expected credit losses on available for sale debt securities when the Company does not intend to sell, or when it is not 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 available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company 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 evaluation 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 cash flows expected to be collected is less than the amortized cost, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. At times, based on management judgment, the Company may establish an allowance for credit losses in excess of the amount that the fair value is less than the amortized cost basis based on the specific circumstances surrounding the security. At June 30, 2026, the Company had an allowance for credit losses on the available for sale securities portfolio totaling $30,000 compared to no allowance at December 31, 2025.

The allowance for credit losses on available for sale debt securities is included within investment securities available for sale on the Consolidated Balance Sheets. Changes in the allowance for credit losses are recorded within (recovery) provision for credit losses on the Consolidated Statements of Operations. Losses are charged against the allowance when the Company believes the collectability of an available for sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available for sale debt securities totaled $1.1 million and $977,000 at June 30, 2026 and December 31, 2025, respectively, and is included within accrued interest income receivable on the Consolidated Balance Sheets. This amount is excluded from the estimate of expected credit losses. Available for sale debt securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available for sale debt securities are placed on non-accrual status, unpaid interest credited to income is reversed. It should be noted that the

Company had one available for sale debt securities in non-accrual status at June 30, 2026 totaling $500,000 with an associated allowance for credit losses of $30,000. When this corporate security was transferred to non-accrual status, interest income from investments was unfavorably impacted due to the reversal of previously recognized income. Specifically, unpaid interest on this security, which was reversed during the first six months of 2026, totaled $50,000. The Company had no available for sale debt securities in non-accrual status at December 31, 2025.

The cost basis and fair values of available for sale and held to maturity investment securities are summarized as follows:

Investment securities available for sale (AFS):

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Investment securities held to maturity (HTM):

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Investment securities available for sale (AFS):

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Investment securities held to maturity (HTM):

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The Company sold no AFS securities during the second quarter or first six months of 2026 and 2025.

The carrying value of securities, both available for sale and held to maturity, pledged to secure public and trust deposits was $150.5 million at June 30, 2026 and $142.7 million at December 31, 2025.

The interest rate environment and market yields can have a significant impact on the yield earned on mortgage-backed securities (MBS). Prepayment speed assumptions are an important factor to consider when evaluating the returns on an MBS. Generally, as interest rates decline, borrowers have more incentive to refinance into a lower rate, so prepayments will rise. Conversely, as interest rates increase, prepayments will decline. When an MBS is purchased at a premium, the yield will decrease as prepayments increase and the yield will increase as prepayments decrease. As of June 30, 2026, the Company had low premium risk as the book value of our mortgage-backed securities purchased at a premium was only 100.6% of the par value.

Contractual maturities of securities, cost basis for available for sale and carrying value for held to maturity as well as fair market values, at June 30, 2026 are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. The weighted average duration of the total investment securities portfolio at June 30, 2026 was 49.4 months and was longer than the duration at December 31, 2025 which was 45.1 months. The duration remains within our internally established guideline to not exceed 60 months which we believe was appropriate to maintain proper levels of liquidity, interest rate risk, market valuation sensitivity and profitability.

Total investment securities:

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The following tables summarize the available for sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of June 30, 2026 and December 31, 2025, aggregated by security type and length of time in a continuous loss position (in thousands):

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At June 30, 2026 within the available for sale debt securities portfolio, the Company had 44 U.S. Agency mortgage-backed securities, 10 municipal, and 19 corporate bonds that have been in a gross unrealized loss position for less than 12 months with depreciation of 1.3% from its amortized cost basis. Additionally, at June 30, 2026, within the available for sale debt securities portfolio, the Company had six U.S. Agency, 121 U.S. Agency mortgage-backed securities, 13 municipal, and 29 corporate bonds that have been in a gross unrealized loss position for greater than 12 months with depreciation of 12.5% from its amortized cost basis.

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These unrealized losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the value of securities will decrease; as market yields decrease, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, no allowance for credit losses has been recorded for these securities. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value or mature.

The following tables present the activity in the allowance for credit losses on available for sale debt securities by major security type for the three and six months ended June 30, 2026 and 2025 (in thousands).

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The Company recorded a provision for credit losses on available for sale debt securities of $30,000 during the first six months of 2026 in order to create a partial reserve for a senior debt corporate investment that was deemed to be credit impaired. For the first six months of 2025, the Company recognized a $640,000 provision for credit losses on available for sale debt securities as a result of the establishment of a full reserve for a corporate security due to further credit deterioration.

The following tables present the activity in the allowance for credit losses on held to maturity debt securities by major security type for the three and six months ended June 30, 2026 and 2025 (in thousands).

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As stated previously, the Company’s agency and mortgage-backed securities are issued by U.S. government entities and agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no allowance for credit losses has been established for

these securities. The allowance for credit losses on the municipal, corporate, and other bonds within the held to maturity securities portfolio is calculated using the PD/LGD method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source.

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Maintaining investment quality is a primary objective of the Company’s Investment Policy which, subject to certain limited exceptions, prohibits the purchase of any investment security below a Moody’s or Standard & Poor’s rating of A. The Company monitors the credit ratings of its debt securities on a quarterly basis. At June 30, 2026, 2.4% of the total investment securities portfolio was rated AAA as compared to 1.7% at December 31, 2025. At June 30, 2026, 80.6% of the total investment securities portfolio was rated AA or higher compared to 76.5% at December 31, 2025. Approximately 11.8% of the total investment securities portfolio was either rated below A or unrated at June 30, 2026 as compared to 13.5% at December 31, 2025.

Specifically, the following table summarizes the carrying value of held to maturity debt securities at June 30, 2026, aggregated by credit quality indicator (in thousands).

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Trading Securities

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The following table presents the Company’s trading securities, at estimated fair value (in thousands).

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The following table presents the net gain on trading securities included in trading securities revenue for the three- and six-month periods ended June 30, 2026 and 2025 (in thousands).

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