QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2026
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 000-56767
SECURITY MIDWEST BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland
99-4917712
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
510 E. Monroe
Springfield, Illinois
62701
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (217) 789-3500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 14, 2026, the registrant had 889,781 shares of common stock outstanding.
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued
—
—
Common stock, $0.01 par value, 10,000,000 shares authorized,
889,781 shares issued
8,898
8,898
Additional paid-in capital
7,356,250
7,346,633
Unallocated common stock of ESOP
(576,136
)
(591,707
)
Retained earnings
19,779,279
18,971,057
Accumulated other comprehensive loss
(2,830,970
)
(3,118,996
)
Total shareholders' equity
23,737,321
22,615,885
Total liabilities and shareholders' equity
$
244,450,157
$
256,519,260
See Notes to Condensed Consolidated Financial Statements
1
Security Midwest Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2026
2025
2026
2025
Interest Income
Loans
$
2,304,132
$
1,835,976
$
4,391,169
$
3,631,427
Investment securities
706,674
295,811
1,393,437
605,088
Interest-bearing deposits and other
207,984
329,660
501,993
758,771
Total interest income
3,218,790
2,461,447
6,286,599
4,995,286
Interest Expense
Deposits
558,536
547,016
1,115,018
1,119,100
Federal Home Loan Bank advances
328,375
—
638,873
33
Total interest expense
886,911
547,016
1,753,891
1,119,133
Net Interest Income
2,331,879
1,914,431
4,532,708
3,876,153
Provision for Credit Losses
24,140
8,750
96,940
8,750
Net Interest Income After Provision for Credit Losses
2,307,739
1,905,681
4,435,768
3,867,403
Noninterest Income
Service fees on deposits
210,155
258,599
460,388
501,163
Debit card fees
102,768
102,550
200,297
196,055
Mortgage loan servicing fees, net
30,263
26,453
70,582
59,409
Gain on sale of loans
12,549
37,085
33,746
73,503
Other noninterest income
62,211
76,456
161,557
125,868
Total noninterest income
417,946
501,143
926,570
955,998
Noninterest Expense
Salaries and employee benefits
1,251,550
1,116,091
2,463,498
2,235,299
Occupancy and equipment
157,989
150,412
294,652
299,130
Data processing fees
180,233
145,610
352,456
296,268
FDIC insurance premiums
27,126
26,500
53,126
50,853
Advertising
58,962
50,623
118,089
93,833
Directors fees
27,100
24,099
55,200
48,199
Debit card expense
19,389
25,020
38,948
35,785
Professional fees
230,081
188,452
388,104
292,257
Telephone and internet
36,447
36,454
72,428
71,694
Other
195,387
175,144
400,642
362,606
Total noninterest expense
2,184,264
1,938,405
4,237,143
3,785,924
Income before income taxes
541,421
468,419
1,125,195
1,037,477
Provision for income taxes
151,342
118,871
316,973
286,384
Net Income
$
390,079
$
349,548
$
808,222
$
751,093
Earnings per share - basic and diluted
$
0.47
n/a
$
0.97
n/a
See Notes to Condensed Consolidated Financial Statements
2
Security Midwest Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2026
2025
2026
2025
Net income
$
390,079
$
349,548
$
808,222
$
751,093
Other comprehensive income:
Net unrealized gains (losses) on available-for-sale securities
350,219
53,310
(197,075
)
1,137,670
Unrealized gain on cash flow hedge
343,446
—
599,909
—
Tax expense
(197,696
)
(15,194
)
(114,808
)
(324,237
)
Other comprehensive income
495,969
38,116
288,026
813,433
Comprehensive income
$
886,048
$
387,664
$
1,096,248
$
1,564,526
See Notes to Condensed Consolidated Financial Statements
3
Security Midwest Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)
Accumulated
Additional
Unallocated
Other
Common
Paid-in
Common Stock
Retained
Comprehensive
For the Three Months Ended June 30, 2026
Stock
Capital
of ESOP
Earnings
Income (Loss)
Total
Balance at April 1, 2026
$
8,898
$
7,351,292
$
(583,917
)
$
19,389,200
$
(3,326,939
)
$
22,838,534
Net income
—
—
—
390,079
—
390,079
Release of ESOP Shares
—
4,958
7,781
—
—
12,739
Other comprehensive income
—
—
—
—
495,969
495,969
Balance at June 30, 2026
$
8,898
$
7,356,250
$
(576,136
)
$
19,779,279
$
(2,830,970
)
$
23,737,321
For the Six Months Ended June 30, 2026
Balance at January 1, 2026
$
8,898
$
7,346,633
$
(591,707
)
$
18,971,057
$
(3,118,996
)
$
22,615,885
Net income
—
—
—
808,222
—
808,222
Release of ESOP Shares
—
9,617
15,571
—
—
25,188
Other comprehensive income
—
—
—
—
288,026
288,026
Balance at June 30, 2026
$
8,898
$
7,356,250
$
(576,136
)
$
19,779,279
$
(2,830,970
)
$
23,737,321
See Notes to Condensed Consolidated Financial Statements
Accumulated
Additional
Unallocated
Other
Common
Paid-in
Common Stock
Retained
Comprehensive
For the Three Months Ended June 30, 2025
Stock
Capital
of ESOP
Earnings
Income (Loss)
Total
Balance at April 1, 2025
$
—
$
—
$
—
$
19,073,870
$
(3,945,524
)
$
15,128,346
Net income
—
—
—
349,548
—
349,548
Other comprehensive income
—
—
—
—
38,116
38,116
Balance at June 30, 2025
$
—
$
—
$
—
$
19,423,418
$
(3,907,408
)
$
15,516,010
For the Six Months Ended June 30, 2025
Balance at January 1, 2025
$
—
$
—
$
—
$
18,672,325
$
(4,720,841
)
$
13,951,484
Net income
—
—
—
751,093
—
751,093
Other comprehensive income
—
—
—
—
813,433
813,433
Balance at June 30, 2025
$
—
$
—
$
—
$
19,423,418
$
(3,907,408
)
$
15,516,010
See Notes to Condensed Consolidated Financial Statements
4
Security Midwest Bancorp, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2026
2025
Operating Activities
Net income
$
808,222
$
751,093
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization
121,541
108,410
(Accretion) amortization of premiums and discounts
(52,561
)
143,625
Accretion of deferred loan origination fees, net
(31,917
)
(31,084
)
Amortization of mortgage servicing rights
29,189
26,181
Deferred income taxes
96,684
241,302
Provision for credit losses
96,940
8,750
Gain on sale of loans
(33,746
)
(73,503
)
Proceeds from sale of loans
1,753,193
3,725,288
Origination of loans held for sale
(1,732,442
)
(3,679,383
)
Increase in cash surrender value of life insurance
(36,649
)
(34,803
)
Release of ESOP shares
25,188
—
Changes in:
Accrued interest receivable
(105,928
)
61,140
Other assets
203,152
(374,765
)
Accrued expenses and other liabilities
(1,035,902
)
(500,787
)
Net cash provided by operating activities
104,964
371,464
Investing Activities
Proceeds from maturities of held-to-maturity securities
—
735,000
Proceeds from paydowns of mortgage-backed securities
2,728,429
1,242,819
Purchase of available-for-sale securities
(1,750,000
)
—
Proceeds from calls and maturities of available-for-sale securities
—
910,000
Net change in loans
(18,601,714
)
1,384,274
Purchase of Federal Home Loan Bank stock
(450,000
)
—
Purchase of premises and equipment
(108,875
)
(82,918
)
Net cash (used in) provided by investing activities
(18,182,160
)
4,189,175
Financing Activities
Net decrease in deposit accounts
(12,075,442
)
(3,892,684
)
Proceeds from stock subscriptions in escrow
—
4,599,937
Proceeds from Federal Home Loan Bank advances
10,000,000
—
Repayments of Federal Home Loan Bank advances
(10,000,000
)
—
Net change in advances by borrowers for taxes and insurance
53,444
50,457
Net cash (used in) provided by financing activities
(12,021,998
)
757,710
(Decrease) Increase in Cash and Cash Equivalents
(30,099,194
)
5,318,349
Cash and Cash Equivalents, Beginning of Period
50,378,538
43,540,304
Cash and Cash Equivalents, End of Period
$
20,279,344
$
48,858,653
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits and borrowings
$
1,741,792
$
1,139,088
Income taxes
—
—
Supplemental Disclosure of Noncash Investing Activities
Transfers from loans to real estate acquired through foreclosure
$
—
$
4,500
See Notes to Condensed Consolidated Financial Statements
5
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations
Security Midwest Bancorp, Inc. (“Security Midwest Bancorp” or the “Company”) is a Maryland corporation incorporated on September 11, 2024 to serve as the bank holding company for Security Bank, s.b. (the “Bank”) in connection with the Bank’s conversion from the mutual form of organization to the stock form of organization (the “Conversion”). The Conversion was completed on July 31, 2025. In connection with the Conversion, Security Midwest Bancorp acquired 100% ownership of Security Bank and the Company sold 889,781 shares of its common stock at $10.00 per share, for gross offering proceeds of $8,897,810. The cost of the conversion and issuance of common stock was approximately $1.55 million, which was deducted from the gross offering proceeds. The Company’s employee stock ownership plan purchased 62,285 shares of the common stock sold by the Company, which was equal to 7% of the shares of common stock issued by the Company. The ESOP purchased the shares using a loan from the Company. The Company contributed $6.2 million of the net proceeds from the offering to the Bank, loaned $622,850 of the net proceeds to the ESOP and retained approximately $479,000 of the net proceeds.
The Bank is a state-chartered bank engaged primarily in the business of making residential mortgage and commercial loans and accepting deposits. Its operations are conducted through its three offices located in Springfield, Illinois. The Bank faces competition from other financial institutions and is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.
The Bank has two wholly owned subsidiaries: SB Financial Services, Inc. and 510 Monroe Holdings, LLC. SB Financial Services, Inc. sells insurance, on an agency basis, and related products, and also has a brokerage business. 510 Monroe Holdings, LLC was formed for the purpose of holding real estate acquired through foreclosure or other proceedings.
The condensed consolidated financial statements included herein as of June 30, 2026, and for the interim three and six months ended June 30, 2026 and 2025 are unaudited. The unaudited condensed interim financial statements and the notes thereto have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in the opinion of management, contains all normal recurring adjustments necessary to present fairly the condensed consolidated financial position, results of operations, changes in equity and cash flows as of and for the periods presented. Such adjustments are the only adjustments contained in the condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K as of and for the year ended December 31, 2025, as filed by Security Midwest Bancorp, Inc. with the Securities and Exchange Commission on April 7, 2026.
Principles of Consolidation
The consolidated financial statements as of and for the three and six months ended June 30, 2026, include the accounts of the Company and the Bank, its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation. The financial statements for the three and six months ended June 30, 2025, represent the Bank only, as the conversion to stock form, including the formation of Security Midwest Bancorp, Inc. was completed on July 31, 2025. References herein to the “Company” for periods prior to the completion of the stock conversion should be deemed to refer to the “Bank.”
6
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and fair values of financial instruments.
Investment Securities
Investment securities classified and accounted for as available for sale may be sold prior to maturity for asset/liability management purposes or may be sold in response to changes in interest rates or changes in prepayment risk, and to increase regulatory capital or other similar factors. Available-for-sale securities are carried at fair value with any adjustments to fair value, after tax, reported in other comprehensive income (loss).
Held-to-maturity securities consisted of certificates of deposit that management had the intent and ability to hold to maturity. Held-to-maturity securities were carried at amortized cost. The Company had no securities held-to-maturity or held for trading purposes as of June 30, 2026 and December 31, 2025.
Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities, identified as the call date as to premiums and the maturity date as to discounts. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
The Company’s accounting treatment for a credit-related impairment, when the fair value of securities is below amortized cost, is set forth within this Note 1 at Allowance for Credit Losses.
The Company recognized no credit-related impairments on debt securities during the three and six months ended June 30, 2026 and 2025.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized losses are recognized through a valuation allowance by charges to income. The Company had no loans held for sale at June 30, 2026 and December 31, 2025.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for unearned income, charge-offs net of recoveries, the allowance for credit losses and any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.
7
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan. For all loan portfolio segments except residential and consumer loans, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.
The Company charges-off residential and consumer loans, or portions thereof, when management reasonably determines the amount of the loss. The Company adheres to delinquency thresholds established by applicable regulatory guidance to determine the charge-off timeframe for these loans.
Loans at these delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.
Loans are placed on nonaccrual status when past due 90 days or earlier, or when management considers collection of principal and interest is unlikely. For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.
When cash payments are received on collateral dependent loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Loans restructured due to financial difficulties of the borrower recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.
Allowance for Credit Losses
The allowance for credit losses is established as losses are estimated to have occurred through a provision for credit losses charged to income. Credit losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for credit losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
8
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company accounts for the allowance for credit losses in accordance with Accounting Standards Update (ASU) No. 2016-13 Financial Instruments—Credit Losses (Topic 326). ASC 326 requires a “current expected credit loss” (CECL) methodology that reflects expected credit losses over the lives of the credit instruments and requires consideration of a broad range of information to estimate credit losses. ASC 326 requires an estimate of all expected credit losses for financial assets measured at amortized cost, including loans and held-to-maturity debt securities, based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also applies to off-balance sheet credit exposures, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments.
Available-for-sale securities
For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or 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 securities available-for-sale that do not meet the above 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 and adverse conditions 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 by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of tax. The Company elected to use zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses. Management concluded that no allowance for credit losses was required on available-for-sale securities at June 30, 2026 and December 31, 2025.
Accrued interest receivable on available-for-sale securities totaled approximately $221,000 and $210,000 at June 30, 2026 and December 31, 2025, respectively, and is included within accrued interest receivable on the balance sheet. This amount is excluded from the estimate of expected credit losses. The Company has not experienced any losses of accrued interest receivable on investment securities in the six months ended June 30, 2026 and the year ended December 31, 2025.
Loans
The allowance for credit losses (ACL) is a valuation allowance that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Management’s determination of the adequacy of the ACL is based on the assessment of the expected credit losses on loans over the expected life of the loan. The ACL is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged off and expected to be charged off. The Company made the policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Accrued interest receivable on loans totaled approximately $599,000 and $503,000 at June 30, 2026 and December 31, 2025, respectively, and is included within accrued interest receivable on the balance sheet. Management estimates the ACL balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience of a defined peer group, by affiliate, paired with economic forecasts provide the basis for the quantitatively modeled estimates of expected credit losses. The Company adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the qualitative factors.
9
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The ACL is measured on a collective (pool) basis when similar risk characteristics exist. The Company uses the average historical loss method to measure the quantitative portion of the ACL over four-quarter forecast and four-quarter reversion periods.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for estimated selling costs as appropriate.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructuring will be executed with an individual borrower experiencing financial difficulties, or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Unfunded Commitments
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on unfunded commitments is adjusted through the provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life consistent with the related ACL methodology. The allowance for credit losses on unfunded commitments is included within accrued expenses and other liabilities on the consolidated balance sheets.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.
A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.
10
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Segment Information
The Company has one reportable operating segment, commercial banking. The Company’s chief operating decision maker (CODM) is the President of the Company, who monitors revenue streams of our products and services. The identifiable segment operations are managed and financial performance is evaluated on a Company-wide basis. The commercial banking segment provides an array of financial products and services including commercial, residential mortgage and consumer lending activities, along with commercial and consumer savings and banking services, to individual and business customers through its office locations in Illinois.
The accounting policies of the banking segment are described in management's discussion and analysis of financial condition and results of operations of the Company. The CODM assesses performance for the banking segment and decides how to allocate resources based on net income (reported on the consolidated statements of income). The measure of segment assets is reported on the consolidated balance sheets as total assets.
The CODM uses net income to evaluate income generated from segment assets (return on average assets) in deciding whether to reinvest profits into the commercial banking segment. Net income is also used by the CODM to monitor budget versus actual results. Net income as well as other common Company-wide financial performance and credit quality metrics, such as return on average assets, return on average equity, earnings per common share, net interest margin, operating efficiency and nonaccrual loans to total loans, among others, are used for competitive analysis by benchmarking to the Company’s competitors as well as used in assessing the performance of the segment and for establishing management’s compensation. Loans, investments and deposits provide revenue in the banking operation. Interest expense, provision for credit losses, salaries and employee benefits and data processing are the significant expense components in the banking operation.
Subsequent Events
Management has reviewed the Company's operations for potential disclosure or financial statement impacts related to events occurring after June 30, 2026, but prior to the release of the unaudited condensed consolidated financial statements contained in this quarterly report on Form 10-Q were issued.
There were no additional subsequent event disclosures or financial statement impacts related to events occurring after June 30, 2026, that warranted adjustment to or disclosure in these unaudited condensed consolidated financial statements.
Note 2: Securities
The amortized cost and fair values, together with gross unrealized gains and losses of securities, are as follows:
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Available-for-sale Securities:
June 30, 2026
Municipal bonds, taxable
$
7,389,218
$
—
$
(748,667
)
$
6,640,551
Municipal bonds, non-taxable
1,498,021
—
(71,276
)
1,426,745
U.S. Government agencies
1,097,650
—
(113,840
)
983,810
Corporate bonds
1,750,000
—
(7,298
)
1,742,702
Residential mortgage-backed securities
25,546,921
23,774
(2,018,368
)
23,552,327
Collateralized mortgage obligations
42,752,429
4,812
(1,526,415
)
41,230,826
$
80,034,239
$
28,586
$
(4,485,864
)
$
75,576,961
11
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Available-for-sale Securities:
December 31, 2025
Municipal bonds, taxable
$
7,399,943
$
—
$
(719,587
)
$
6,680,356
Municipal bonds, non-taxable
1,512,725
—
(71,981
)
1,440,744
U.S. Government agencies
1,120,039
—
(110,988
)
1,009,051
Residential mortgage-backed securities
26,839,252
22,560
(1,923,132
)
24,938,680
Collateralized mortgage obligations
44,088,148
755
(1,457,830
)
42,631,073
$
80,960,107
$
23,315
$
(4,283,518
)
$
76,699,904
The amortized cost and fair value of securities at June 30, 2026, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties:
Amortized
Fair
Cost
Value
June 30, 2026
Available-for-sale
Within one year
$
—
$
—
One to five years
7,067,250
6,549,971
Five to ten years
4,667,639
4,243,837
After ten years
—
—
11,734,889
10,793,808
Mortgage-backed securities
68,299,350
64,783,153
Totals
$
80,034,239
$
75,576,961
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was approximately $45.7 million and $47.5 million at June 30, 2026 and December 31, 2025, respectively.
The Company had no sales of investment securities during the three and six months ended June 30, 2026 and 2025.
Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Based on evaluation of available evidence, including recent changes in market interest rates and information obtained from regulatory filings, management believes the declines in fair value for these securities are not attributable to credit related events.
12
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table shows the number of securities and aggregate depreciation from the Company’s amortized cost basis at June 30, 2026 and December 31, 2025.
June 30, 2026
December 31, 2025
Number of
Aggregate
Number of
Aggregate
Description of Securities
securities
depreciation
securities
depreciation
Available-for-sale Securities:
Municipal bonds, taxable
14
(10.1
)%
14
(9.7
)%
Municipal bonds, non-taxable
4
(4.8
)%
4
(4.8
)%
U.S. Government agencies
4
(10.4
)%
4
(9.9
)%
Corporate bonds
3
(0.4
)%
—
—
%
Residential mortgage-backed securities
64
(9.0
)%
64
(8.1
)%
Collateralized mortgage obligations
24
(4.1
)%
26
(3.5
)%
Total
113
(6.3
)%
112
(5.7
)%
Should any of these securities experience credit related impairment, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the credit-related impairment is identified.
The following tables show the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2026 and December 31, 2025:
June 30, 2026
Less than 12 Months
12 Months or More
Total
Description of Securities
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Available-for-sale Securities:
Municipal bonds, taxable
$
—
$
—
$
6,640,551
$
(748,667
)
$
6,640,551
$
(748,667
)
Municipal bonds, non-taxable
—
—
1,426,745
(71,276
)
1,426,745
(71,276
)
U.S. Government agencies
—
—
983,810
(113,840
)
983,810
(113,840
)
Corporate bonds
1,742,702
(7,298
)
—
—
1,742,702
(7,298
)
Residential mortgage-backed securities
10,248,393
(281,521
)
10,183,888
(1,736,847
)
20,432,281
(2,018,368
)
Collateralized mortgage obligations
23,572,032
(276,971
)
11,939,046
(1,249,444
)
35,511,078
(1,526,415
)
$
35,563,127
$
(565,790
)
$
31,174,040
$
(3,920,074
)
$
66,737,167
$
(4,485,864
)
December 31, 2025
Less than 12 Months
12 Months or More
Total
Description of Securities
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Available-for-sale Securities:
Municipal bonds, taxable
$
—
$
—
$
6,680,356
$
(719,587
)
$
6,680,356
$
(719,587
)
Municipal bonds, non-taxable
—
—
1,440,744
(71,981
)
1,440,744
(71,981
)
U.S. Government agencies
—
—
1,009,051
(110,988
)
1,009,051
(110,988
)
Residential mortgage-backed securities
10,795,977
(188,068
)
10,971,115
(1,735,064
)
21,767,092
(1,923,132
)
Collateralized mortgage obligations
27,675,202
(185,699
)
12,477,160
(1,272,131
)
40,152,362
(1,457,830
)
$
38,471,179
$
(373,767
)
$
32,578,426
$
(3,909,751
)
$
71,049,605
$
(4,283,518
)
13
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
U.S. Government Agencies, Corporate Bonds and Municipal Bonds
Unrealized losses on these securities have not been recognized into income because the issuers' bonds are of high credit quality, values have only been impacted by changes in interest rates since the securities were purchased, and the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis. The fair value is expected to recover as the bonds approach the maturity date.
Mortgage-backed Securities and Collateralized Mortgage Obligations
The unrealized losses on the Company’s investment in residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in interest rates and illiquidity. The Company expects to recover the amortized cost basis over the term of the securities. The decline in market value is attributable to changes in interest rates and illiquidity, not credit quality, and the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis. The fair value is expected to recover as the securities approach the maturity date.
Note 3: Loans and Allowance for Credit Losses
Categories of loans include:
June 30,
December 31,
2026
2025
Real Estate Loans:
1-4 Family, including construction
$
41,669,345
$
35,146,513
Multifamily
4,927,066
4,023,910
Commercial
60,729,639
54,409,430
Construction and development
4,472,242
4,063,650
Farmland
4,341,940
4,386,528
Other Loans:
Consumer
5,340,176
4,470,587
Commercial and industrial
16,263,250
12,554,862
Total loans
137,743,658
119,055,480
Allowance for credit losses
(1,166,219
)
(1,034,193
)
Deferred loan fees, net
(288,138
)
(244,030
)
Unearned dealer interest
33,297
39,260
Net loans
$
136,322,598
$
117,816,517
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans were approximately $66,190,000 and $68,446,000 at June 30, 2026 and December 31, 2025, respectively.
The Company provides residential, commercial and consumer loans primarily to residents and businesses located in central Illinois. Such loans originated in other geographical areas amounted to approximately $31,065,000 and $23,770,000, or approximately 22.6% and 20.0% of the gross loan balances at June 30, 2026 and December 31, 2025, respectively. A substantial portion of the Company’s borrowers' ability to honor their contracts is dependent on economic conditions and the specific economy in the respective geographic areas.
14
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Risk characteristics of each loan portfolio segment are described as follows:
Residential Real Estate
These loans include first liens and junior liens on 1-4 family residential real estate (both owner and non-owner occupied). One-to-four family residential loans generally carry less risk than other loan types as they tend to be smaller balance loans, without concentrations, to a single borrower or group of borrowers. Repayment depends on the individual borrower’s capacity. The main risks for these loans are changes in the value of the collateral and stability of the local economic environment and its impact on the borrowers’ employment. Management specifically considers unemployment and changes in real estate values in the Company’s market area.
Multifamily Real Estate
These loans include loans on residential real estate secured by property with five or more units. Multifamily real estate loans generally involve a greater degree of credit risk than 1-4 family residential real estate loans due to the reliance on the successful operation of the project. The main risks are changes in the value of the collateral, ability of borrowers to collect rents, vacancy and changes in the tenants’ employment status. Management specifically considers unemployment and changes in real estate values in the Company’s market area.
Commercial Real Estate
These loans consist of non-farm and non-residential real estate. Although terms vary, commercial real estate loans generally have amortization periods of 15 to 25 years, as well as balloon payments of two to five years, and terms which provide that the interest rates thereon may be adjusted annually at the Company’s discretion, based on a designated index and the credit risk of the borrower. Commercial real estate loans generally have greater credit risks compared to 1-4 family residential real estate loans, as they usually involve larger loan balances secured by non-homogeneous or specific-use properties. Repayment of these loans typically relies on the successful operation of a business or the generation of lease income by the property and is therefore more sensitive to adverse conditions in the economy and real estate market.
Construction and Development Real Estate
These loans include construction loans for 1-4 family residential and commercial properties (both owner and non-owner occupied) and first liens on land. Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the improvements by the builder for the end user. In the event that a loan is made on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. Construction loans also run the risk that improvements will not be completed on time or in accordance with specifications and projected costs. Construction real estate loans generally have terms of one year to 18 months during the construction period and interest rates based on a designated index.
Farmland Real Estate
These loans include loans on farm ground and land known to be used or usable for agricultural purposes, such as crop or livestock production. Repayment of these loans typically relies on the successful operation of a business. This loan type is sensitive to adverse economic conditions.
Commercial and Industrial
The commercial and industrial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The Company’s commercial business loan portfolio is comprised of loans for a variety of purposes and generally is secured by equipment, machinery and other business assets. Repayment is directly dependent on the
15
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
successful operation of the borrower’s business and the borrower’s ability to convert the assets to operating revenue and possess greater risk than most other types of loans should the repayment capacity of the borrower not be adequate.
Consumer Loans
These loans include vehicle loans, share loans and unsecured loans. Other loans consist of single-pay personal loans, including overdraft accounts and other small miscellaneous loans. Consumer loans tend to carry more risk than real estate loans; however, they tend to be smaller balance loans without concentrations to a single borrower or group of borrowers. Loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
The following tables present the activity in and balances of the allowance for credit losses by portfolio segment as of and for the three and six months ended June 30, 2026 and 2025 and as of and for the year ended December 31, 2025:
Provision for
Three Months Ended
April 1,
(recovery of)
June 30,
June 30, 2026
2026
credit losses
Charge-offs
Recoveries
2026
Real Estate Loans:
1-4 Family, including construction
$
320,172
$
31,162
$
—
$
—
$
351,334
Multifamily
7,397
10,055
—
—
17,452
Commercial
418,863
(14,273
)
—
1,944
406,534
Construction and development
134,591
(44,427
)
—
—
90,164
Farmland
6,567
(478
)
—
—
6,089
Other Loans:
Consumer
75,849
4,417
(147
)
471
80,590
Commercial and industrial
157,562
56,494
—
—
214,056
Total allowance for credit losses on loans
1,121,001
42,950
(147
)
2,415
1,166,219
Allowance for credit losses on unfunded commitments
47,487
(18,810
)
—
—
28,677
Total allowance for credit losses
$
1,168,488
$
24,140
$
(147
)
$
2,415
$
1,194,896
Provision for
Three Months Ended
April 1,
(recovery of)
June 30,
June 30, 2025
2025
credit losses
Charge-offs
Recoveries
2025
Real Estate Loans:
1-4 Family, including construction
$
453,896
$
(10,499
)
$
(69
)
$
—
$
443,328
Multifamily
8,610
(255
)
—
—
8,355
Commercial
433,234
(36,139
)
(3,269
)
23,863
417,689
Construction and development
37,663
53,526
—
—
91,189
Farmland
5,636
1,340
—
—
6,976
Other Loans:
Consumer
79,187
(5,374
)
(195
)
1,132
74,750
Commercial and industrial
107,634
(2,599
)
—
1,765
106,800
Total allowance for credit losses on loans
1,125,860
—
(3,533
)
26,760
1,149,087
Allowance for credit losses on unfunded commitments
23,950
8,750
—
—
32,700
Total allowance for credit losses
$
1,149,810
$
8,750
$
(3,533
)
$
26,760
$
1,181,787
16
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Provision for
Six Months Ended
January 1,
(recovery of)
June 30,
June 30, 2026
2026
credit losses
Charge-offs
Recoveries
2026
Real Estate Loans:
1-4 Family, including construction
$
312,091
$
39,243
$
—
$
—
$
351,334
Multifamily
7,613
9,839
—
—
17,452
Commercial
363,132
43,418
(16
)
—
406,534
Construction and development
88,647
1,517
—
—
90,164
Farmland
5,936
153
—
—
6,089
Other Loans:
Consumer
88,032
(7,864
)
(349
)
771
80,590
Commercial and industrial
168,742
41,244
—
4,070
214,056
Total allowance for credit losses on loans
1,034,193
127,550
(365
)
4,841
1,166,219
Allowance for credit losses on unfunded commitments
59,287
(30,610
)
—
—
28,677
Total allowance for credit losses
$
1,093,480
$
96,940
$
(365
)
$
4,841
$
1,194,896
Provision for
Six Months Ended
January 1,
(recovery of)
June 30,
June 30, 2025
2025
credit losses
Charge-offs
Recoveries
2025
Real Estate Loans:
1-4 Family, including construction
$
471,164
$
(14,962
)
$
(12,874
)
$
—
$
443,328
Multifamily
10,150
(1,795
)
—
—
8,355
Commercial
452,406
(51,957
)
(6,623
)
23,863
417,689
Construction and development
24,529
66,660
—
—
91,189
Farmland
6,838
138
—
—
6,976
Other Loans:
Consumer
90,013
12,235
(28,630
)
1,132
74,750
Commercial and industrial
107,111
(11,319
)
—
11,008
106,800
Total allowance for credit losses on loans
1,162,211
(1,000
)
(48,127
)
36,003
1,149,087
Allowance for credit losses on unfunded commitments
22,950
9,750
—
—
32,700
Total allowance for credit losses
$
1,185,161
$
8,750
$
(48,127
)
$
36,003
$
1,181,787
Provision for
January 1,
(recovery of)
December 31,
December 31, 2025
2025
credit losses
Charge-offs
Recoveries
2025
Real Estate Loans:
1-4 Family, including construction
$
471,164
$
(43,872
)
$
(115,201
)
$
—
$
312,091
Multifamily
10,150
(2,537
)
—
—
7,613
Commercial
452,406
(74,319
)
(43,612
)
28,657
363,132
Construction and development
24,529
64,118
—
—
88,647
Farmland
6,838
(902
)
—
—
5,936
Other Loans:
Consumer
90,013
26,809
(30,072
)
1,282
88,032
Commercial and industrial
107,111
35,755
(7,074
)
32,950
168,742
Total allowance for credit losses on loans
1,162,211
5,052
(195,959
)
62,889
1,034,193
Allowance for credit losses on unfunded comitments
22,950
36,337
—
—
59,287
Total allowance for credit losses
$
1,185,161
$
41,389
$
(195,959
)
$
62,889
$
1,093,480
17
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Information regarding the credit quality indicators most closely monitored, for other than residential real estate loans, by class as of June 30, 2026 and December 31, 2025, is as follows:
The Company evaluates consumer and one-to-four family residential loans based on the delinquency status of each loan. Generally, the likelihood of loss for consumer and residential loans increases as the loan becomes more delinquent; therefore, management has established the delinquency status of consumer and residential loans as the primary credit quality indicator. In addition to monitoring delinquency status, certain substandard non-owner occupied one-to-four family residential loans are evaluated and categorized into the risk categories listed below based on relevant information about the ability of borrowers to service their debt.
The Company categorizes all other loans into the following risk categories based on relevant information about the ability of borrowers to service their debt.
Pass (risk rating 1 – 4) – A pass asset is well protected by the current worth and paying capacity of the obligator (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner. Pass assets also include certain assets considered watch, which are still protected by the worth and paying capacity of the borrower but deserve closer attention and a higher level of credit monitoring.
Special Mention (risk rating 5) – A special mention asset has potential weaknesses that deserve management’s close attention. The asset may also be subject to a weak or speculative market or to economic conditions, which may, in the future, adversely affect the obligator. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard (risk rating 6) – A substandard asset is an asset with a well-defined weakness that jeopardizes repayment, in whole or in part, of the debt. These credits are inadequately protected by the current worth and paying capacity of the obligor or of the collateral pledged. These assets are characterized by the distinct possibility that the Company will sustain some loss of principal and/or interest if the deficiencies are not corrected. It is not necessary for a loan to have an identifiable loss potential in order to receive this rating.
Doubtful (risk rating 7) – An asset that has all the weaknesses inherent in the substandard classification, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely likely, but it is not identified at this point due to pending factors.
Loss (risk rating 8) – An asset, or portion thereof, classified as loss is considered uncollectible and of such little value that its continuance on the Company’s books as an asset is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery would occur. As such, it is not practical or desirable to defer the write-off.
18
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Information regarding the credit quality indicators most closely monitored for other than residential real estate and consumer loans by class as of June 30, 2026 and December 31, 2025, is as follows:
Amortized Cost Basis by Origination Year
2026
2025
2024
2023
2022
Prior
Total
June 30, 2026
Real Estate Loans:
Multifamily:
Risk Rating
Pass
$
1,144,000
$
—
$
—
$
—
$
1,094,842
$
2,688,224
$
4,927,066
Special Mention
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
Doubtful
—
—
—
—
—
—
—
Total Multifamily Loans
$
1,144,000
$
—
$
—
$
—
$
1,094,842
$
2,688,224
$
4,927,066
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Commercial
Risk Rating
Pass
$
9,840,684
$
4,652,145
$
15,787,371
$
14,382,972
$
4,489,849
$
7,240,622
$
56,393,643
Special Mention
—
305,126
—
185,693
1,047,434
384,447
1,922,700
Substandard
—
—
—
—
—
2,413,296
2,413,296
Doubtful
—
—
—
—
—
—
—
Total Commercial Loans
$
9,840,684
$
4,957,271
$
15,787,371
$
14,568,665
$
5,537,283
$
10,038,365
$
60,729,639
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
16
$
16
Construction and development
Risk Rating
Pass
$
—
$
2,964,821
$
220,834
$
1,266,413
$
—
$
—
$
4,452,068
Special Mention
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
20,174
20,174
Doubtful
—
—
—
—
—
—
—
Total Construction and Development Loans
$
—
$
2,964,821
$
220,834
$
1,266,413
$
—
$
20,174
$
4,472,242
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Farmland
Risk Rating
Pass
$
589,917
$
1,494,503
$
122,470
$
—
$
—
$
1,894,224
$
4,101,114
Special Mention
—
—
—
21,785
—
219,041
240,826
Substandard
—
—
—
—
—
—
—
Doubtful
—
—
—
—
—
—
—
Total Farmland Loans
$
589,917
$
1,494,503
$
122,470
$
21,785
$
—
$
2,113,265
$
4,341,940
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Other Loans:
Commercial and industrial
Risk Rating
Pass
$
3,235,362
$
6,199,366
$
1,829,366
$
281,734
$
3,328,271
$
783,263
$
15,657,362
Special Mention
—
—
—
—
—
—
—
Substandard
—
—
—
123,129
8,798
473,961
605,888
Doubtful
—
—
—
—
—
—
—
Total Commercial and Industrial Loans
$
3,235,362
$
6,199,366
$
1,829,366
$
404,863
$
3,337,069
$
1,257,224
$
16,263,250
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
19
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Amortized Cost Basis by Origination Year
2025
2024
2023
2022
2021
Prior
Total
December 31, 2025
Real Estate Loans:
Multifamily:
Risk Rating
Pass
$
—
$
—
$
—
$
1,120,234
$
2,596,198
$
307,478
$
4,023,910
Special Mention
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
Doubtful
—
—
—
—
—
—
—
Total Multifamily Loans
$
—
$
—
$
—
$
1,120,234
$
2,596,198
$
307,478
$
4,023,910
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Commercial
Risk Rating
Pass
$
4,706,140
$
16,008,333
$
16,322,270
$
4,595,265
$
1,592,970
$
5,964,808
$
49,189,786
Special Mention
316,380
—
188,616
1,058,949
494,611
—
2,058,556
Substandard
—
93,952
—
—
—
3,067,136
3,161,088
Doubtful
—
—
—
—
—
—
—
Total Commercial Loans
$
5,022,520
$
16,102,285
$
16,510,886
$
5,654,214
$
2,087,581
$
9,031,944
$
54,409,430
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
43,612
$
43,612
Construction and development
Risk Rating
Pass
$
2,528,781
$
221,443
$
1,284,769
$
—
$
—
$
—
$
4,034,993
Special Mention
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
28,657
28,657
Doubtful
—
—
—
—
—
—
—
Total Construction and Development Loans
$
2,528,781
$
221,443
$
1,284,769
$
—
$
—
$
28,657
$
4,063,650
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Farmland
Risk Rating
Pass
$
1,513,435
$
124,097
$
480,000
$
—
$
852,934
$
1,174,313
$
4,144,779
Special Mention
—
—
23,867
—
—
217,882
241,749
Substandard
—
—
—
—
—
—
—
Doubtful
—
—
—
—
—
—
—
Total Farmland Loans
$
1,513,435
$
124,097
$
503,867
$
—
$
852,934
$
1,392,195
$
4,386,528
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Other Loans:
Commercial and industrial
Risk Rating
Pass
$
4,375,584
$
2,844,047
$
264,762
$
3,447,290
$
134,340
$
849,078
$
11,915,101
Special Mention
—
—
124,987
11,922
2,683
460,556
600,148
Substandard
—
—
—
—
36,702
2,911
39,613
Doubtful
—
—
—
—
—
—
—
Total Commercial and Industrial Loans
$
4,375,584
$
2,844,047
$
389,749
$
3,459,212
$
173,725
$
1,312,545
$
12,554,862
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
7,074
$
7,074
The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due 90 days or more and accruing and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed monthly.
20
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents the amortized cost in residential and consumer loans based on payment activity:
Amortized Cost Basis by Origination Year
2026
2025
2024
2023
2022
Prior
Total
June 30, 2026
Real Estate Loans:
1-4 Family, including construction
Risk Rating
Performing
$
9,233,307
$
7,815,370
$
2,507,066
$
3,312,124
$
3,198,227
$
15,419,817
$
41,485,911
Nonperforming
—
—
107,405
—
—
76,029
183,434
Total 1-4 Family Loans
$
9,233,307
$
7,815,370
$
2,614,471
$
3,312,124
$
3,198,227
$
15,495,846
$
41,669,345
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Other Loans:
Consumer
Risk Rating
Performing
$
1,614,905
$
528,849
$
381,149
$
853,983
$
193,481
$
1,731,937
$
5,304,304
Nonperforming
—
—
—
—
—
35,872
35,872
Total Consumer Loans
$
1,614,905
$
528,849
$
381,149
$
853,983
$
193,481
$
1,767,809
$
5,340,176
Current period gross charge-offs
$
—
$
—
$
—
$
202
$
—
$
147
$
349
Amortized Cost Basis by Origination Year
2025
2024
2023
2022
2021
Prior
Total
December 31, 2025
Real Estate Loans:
1-4 Family, including construction
Risk Rating
Performing
$
8,174,987
$
2,729,459
$
3,688,437
$
3,433,214
$
6,490,489
$
10,349,900
$
34,866,486
Nonperforming
35,831
108,884
—
—
—
135,312
280,027
Total 1-4 Family Loans
$
8,210,818
$
2,838,343
$
3,688,437
$
3,433,214
$
6,490,489
$
10,485,212
$
35,146,513
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
40,177
$
75,024
$
115,201
Other Loans:
Consumer
Risk Rating
Performing
$
674,893
$
480,286
$
1,111,528
$
276,947
$
22,278
$
1,867,688
$
4,433,620
Nonperforming
—
—
—
—
—
36,967
36,967
Total Consumer Loans
$
674,893
$
480,286
$
1,111,528
$
276,947
$
22,278
$
1,904,655
$
4,470,587
Current period gross charge-offs
$
—
$
—
$
—
$
—
$
—
$
30,072
$
30,072
The Company evaluates the loan risk grading system definitions and allowance for credit losses methodology on an ongoing basis. No significant changes were made to either during the past year.
21
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of June 30, 2026 and December 31, 2025:
June 30, 2026
90 Days or
Total Loans >
30-59 Days
60-89 Days
Greater
Total
Total Loans
90 Days &
Past Due
Past Due
Past Due
Past Due
Current
Receivable
Accruing
Real Estate Loans
1-4 Family, including construction
$
—
$
—
$
67,192
$
67,192
$
41,602,153
$
41,669,345
$
—
Multifamily
—
—
—
—
4,927,066
4,927,066
—
Commercial
—
—
—
—
60,729,639
60,729,639
—
Construction and development
—
—
—
—
4,472,242
4,472,242
—
Farmland
—
—
—
—
4,341,940
4,341,940
—
Other Loans:
Consumer
35,872
—
—
35,872
5,304,304
5,340,176
—
Commercial and industrial
—
—
—
—
16,263,250
16,263,250
—
Total
$
35,872
$
—
$
67,192
$
103,064
$
137,640,594
$
137,743,658
$
—
December 31, 2025
90 Days or
Total Loans >
30-59 Days
60-89 Days
Greater
Total
Total Loans
90 Days &
Past Due
Past Due
Past Due
Past Due
Current
Receivable
Accruing
Real Estate Loans
1-4 Family, including construction
$
247,255
$
26,352
$
67,432
$
341,039
$
34,805,474
$
35,146,513
$
—
Multifamily
—
—
—
—
4,023,910
4,023,910
—
Commercial
—
—
—
—
54,409,430
54,409,430
—
Construction and development
—
—
—
—
4,063,650
4,063,650
—
Farmland
—
—
—
—
4,386,528
4,386,528
—
Other Loans:
Consumer
31,441
—
—
31,441
4,439,146
4,470,587
—
Commercial and industrial
—
—
—
—
12,554,862
12,554,862
—
Total
$
278,696
$
26,352
$
67,432
$
372,480
$
118,683,000
$
119,055,480
$
—
The following tables present collateral-dependent loans by classes of loan type:
June 30, 2026
Type of Collateral
Business
Allowance
Real
Assets and
for Credit
Estate
Other
Total
Losses
Real Estate Loans
1-4 Family, including construction
$
383,471
$
—
$
383,471
$
—
Multifamily
—
—
—
—
Commercial
2,413,296
—
2,413,296
—
Construction and development
20,174
—
20,174
—
Farmland
—
—
—
—
Other Loans:
Consumer
—
35,872
35,872
13,234
Commercial and industrial
—
605,888
605,888
21,239
Total
$
2,816,941
$
641,760
$
3,458,701
$
34,473
22
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2025
Type of Collateral
Business
Allowance
Real
Assets and
for Credit
Estate
Other
Total
Losses
Real Estate Loans
1-4 Family, including construction
$
451,729
$
—
$
451,729
$
—
Multifamily
—
—
—
—
Commercial
3,161,088
—
3,161,088
—
Construction and development
28,657
—
28,657
—
Farmland
—
—
—
—
Other Loans:
Consumer
—
36,967
36,967
13,234
Commercial and industrial
—
39,613
39,613
25,766
Total
$
3,641,474
$
76,580
$
3,718,054
$
39,000
Non-performing loans as of June 30, 2026 and December 31, 2025, are as follows:
June 30, 2026
Nonaccrual
Nonaccrual
Total
Loans 90 Days or
Total Non-
Interest
Loans
Loans
Nonaccrual
Greater Delinquent
Performing
Income
Without ACL
With ACL
Loans
and Accruing
Loans
Recognized
Real Estate Loans
1-4 Family, including construction
$
183,434
$
—
$
183,434
$
—
$
183,434
5,413
Multifamily
—
—
—
—
—
—
Commercial
—
—
—
—
—
—
Construction and development
—
—
—
—
—
—
Farmland
—
—
—
—
—
—
Other Loans:
Consumer
—
35,872
35,872
—
35,872
1,455
Commercial and industrial
—
—
—
—
—
—
Total nonaccrual
$
183,434
$
35,872
$
219,306
$
—
$
219,306
$
6,868
December 31, 2025
Nonaccrual
Nonaccrual
Total
Loans 90 Days or
Total Non-
Interest
Loans
Loans
Nonaccrual
Greater Delinquent
Performing
Income
Without ACL
With ACL
Loans
and Accruing
Loans
Recognized
Real Estate Loans
1-4 Family, including construction
$
280,027
$
—
$
280,027
$
—
$
280,027
$
13,896
Multifamily
—
—
—
—
—
—
Commercial
—
—
—
—
—
—
Construction and development
—
—
—
—
—
—
Farmland
—
—
—
—
—
—
Other Loans:
Consumer
—
36,967
36,967
—
36,967
3,935
Commercial and industrial
—
—
—
—
—
—
Total nonaccrual
$
280,027
$
36,967
$
316,994
$
—
$
316,994
$
17,831
23
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
There were no material loans modified for borrowers experiencing financial difficulty during the six months ended June 30, 2026 and the year ended December 31, 2025.
Note 4: Borrowings
The Company had outstanding borrowings as of June 30, 2026 and December 31, 2025, comprised solely of advances from the Federal Home Loan Bank (FHLB) totaling $35,000,000, bearing interest at a rate of 3.81% and weighted-average rate of 4.02%, respectively. The advances outstanding at June 30, 2026 were scheduled to mature in August 2026. The advances outstanding at December 31, 2025 were scheduled to mature in February 2026 and were renewed with a new maturity date in May 2026.
Outstanding advances at June 30, 2026 were secured by a pledge of all shares of FHLB stock owned, and investment securities with a fair value of approximately $35,000,000. Based on a collateral pledge of qualifying mortgage loans of $45,341,000 and investment securities with a pledged remaining fair value of approximately $9,829,000, the Company was eligible to borrow up to an additional approximate amount of $32,958,000 as of June 30, 2026. Outstanding advances at December 31, 2025 were secured by a pledge of all shares of FHLB stock owned, and investment securities with a fair value of approximately $35,000,000. Based on a collateral pledge of qualifying mortgage loans of $22,101,000 and investment securities with a pledged remaining fair value of approximately $11,561,000, the Company was eligible to borrow up to an additional approximate amount of $31,597,000 as of December 31, 2025.
The Company has an unsecured federal funds purchase line of credit through the Bankers’ Bank with a maturity date of June 30, 2026. The maximum amount of the established unsecured line is $3,000,000 at June 30, 2026 and December 31, 2025. The line is subject to annual reviews and terms may be altered in the event of significant change in the financial condition of the Company. Interest rates are variable. There were no funds advanced on this line as of June 30, 2026 and December 31, 2025.
Note 5: Regulatory Matters
Security Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under U.S. GAAP reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.
Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), common equity Tier I capital (as defined) to total risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of June 30, 2026, that the Bank met all capital adequacy requirements to which it is subject.
As of June 30, 2026, the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based capital, Tier I risk-based capital, common equity Tier I risk-based capital and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management believes have changed the Bank’s category.
24
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Bank’s actual and required capital amounts and ratios are as follows:
Minimum Capital
Minimum to be Well
Actual
Requirement
Capitalized
June 30, 2026
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Common equity Tier 1 capital to risk-weighted assets
$
24,881
18.28
%
$
6,124
4.50
%
$
8,846
6.50
%
Tier 1 capital to risk-weighted assets
24,881
18.28
%
8,165
6.00
%
10,887
8.00
%
Total capital to risk-weighted assets
26,076
19.16
%
10,887
8.00
%
13,609
10.00
%
Tier 1 leverage to adjusted average assets
24,881
10.10
%
9,850
4.00
%
12,313
5.00
%
Minimum Capital
Minimum to be Well
Actual
Requirement
Capitalized
December 31, 2025
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Common equity Tier 1 capital to risk-weighted assets
$
23,914
19.91
%
$
5,405
4.50
%
$
7,808
6.50
%
Tier 1 capital to risk-weighted assets
23,914
19.91
%
7,207
6.00
%
9,609
8.00
%
Total capital to risk-weighted assets
24,888
20.72
%
9,609
8.00
%
12,012
10.00
%
Tier 1 leverage to adjusted average assets
23,914
10.63
%
8,996
4.00
%
11,246
5.00
%
Note 6: Derivative Instruments
The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position.
The Company entered into a pay-fixed/receive-variable interest rate swap transaction, with a combined notional value of $40.0 million, designated as a cash flow hedge, during the last quarter of 2025. This derivative relationship hedges the risk of variability in cash flows attributable to forecasted payments on future variable rate borrowings. The pay-fixed swap agreement term is set to expire in 2028. The pay-fixed swap agreement will pay a coupon rate of 3.38% while receiving the Federal Reserve Bank’s Secured Overnight Financing Rate (“SOFR”) rate of 3.68% as of June 30, 2026 and 3.29% as of December 31, 2025.
The Company recorded an unrealized gain of approximately $498,000, or $356,000 net of tax, on the interest rate swap transaction, within comprehensive income for the six months ended June 30, 2026. The Company recorded an unrealized loss of approximately $102,000, or $73,000 net of tax, on the interest rate swap transaction, within comprehensive income for the year ended December 31, 2025. The Company recognized an interest expense credit effect of approximately $24,000 and $53,000 for the three and six months ended June 30, 2026. Management anticipates a transfer from accumulated other comprehensive income to credit interest expense of approximately $211,000 over the next 12 months.
25
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7: Disclosures about Fair Value of Assets and Liabilities
Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2
Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3
Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Recurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2026 and December 31, 2025.
Fair
Fair Value Measurements Using
Value
Level 1
Level 2
Level 3
June 30, 2026
Assets
Available for sale securities
Municipal bonds, taxable
$
6,640,551
$
—
$
6,640,551
$
—
Municipal bonds, non-taxable
1,426,745
—
1,426,745
—
U.S. Government agencies
983,810
—
983,810
—
Corporate bonds
1,742,702
—
1,742,702
—
Residential mortgage-backed securities
23,552,327
—
23,552,327
—
Collateralized mortgage obligations
41,230,826
—
41,230,826
—
Derivative Instruments
Interest rate swap
497,880
—
497,880
—
Fair
Fair Value Measurements Using
Value
Level 1
Level 2
Level 3
December 31, 2025
Assets
Available for sale securities
Municipal bonds, taxable
$
6,680,356
$
—
$
6,680,356
$
—
Municipal bonds, non-taxable
1,440,744
—
1,440,744
—
U.S. Government agencies
1,009,051
—
1,009,051
—
Residential mortgage-backed securities
24,938,680
—
24,938,680
—
Collateralized mortgage obligations
42,631,073
—
42,631,073
—
Liabilities
Derivative Instruments
Interest rate swap
102,029
—
102,029
—
26
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the six months ended June 30, 2026 and the year ended December 31, 2025.
Available-for-sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 are not available, securities are classified within Level 3 of the hierarchy. The Company had no Level 3 securities.
Interest Rate Swaps
The fair value of interest rate swaps is determined based upon pricing obtained from an independent pricing service and is classified as a Level 2 measurement.
Nonrecurring Measurements
The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2026 and December 31, 2025:
Fair
Fair Value Measurements Using
Value
Level 1
Level 2
Level 3
June 30, 2026
Collateral dependent loans
$
22,638
$
—
$
—
$
22,638
December 31, 2025
Collateral dependent loans
$
23,733
$
—
$
—
$
23,733
The Company’s nonrecurring fair value adjustments to collateral dependent loans are recorded to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported at initial recognition of significant borrower distress and on an ongoing basis until recovery or charge-off.
The fair values of collateral dependent loans are generally determined using the sales comparison approach. Unobservable inputs consist primarily of adjustments for differences between sales of comparable properties.
The following table provides quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements at June 30, 2026 and December 31, 2025:
Range
Fair
Valuation
Unobservable
(Weighted-
Value
Technique
Inputs
Average)
June 30, 2026
Marketability
Collateral dependent loans
$
22,638
Appraisal
discount
10%
December 31, 2025
Marketability
Collateral dependent loans
$
23,733
Appraisal
discount
10%
27
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The estimated fair values of the Company’s financial instruments not carried at fair value on the consolidated balance sheets are as follows:
Carrying
Fair
Fair Value Measurements Using
Value
Value
Level 1
Level 2
Level 3
June 30, 2026
Financial assets:
Cash and cash equivalents
$
20,279,344
$
20,279,344
$
20,279,344
$
—
$
—
Loans, net
136,322,598
134,383,000
—
—
134,383,000
FHLB stock
2,025,000
2,025,000
—
2,025,000
—
Mortgage servicing rights, net
310,570
563,000
—
—
563,000
Bank owned life insurance
2,344,974
2,344,974
—
2,344,974
—
Accrued interest receivable
857,889
857,889
857,889
—
—
Financial liabilities:
Deposits
184,430,041
184,424,328
141,300,518
43,123,810
—
Advances from the FHLB
35,000,000
35,001,000
—
35,001,000
—
Advances by borrowers for
taxes and insurance
453,146
453,146
—
453,146
—
Accrued interest payable
165,117
165,117
165,117
—
—
Carrying
Fair
Fair Value Measurements Using
Value
Value
Level 1
Level 2
Level 3
December 31, 2025
Financial assets:
Cash and cash equivalents
$
50,378,538
$
50,378,538
$
50,378,538
$
—
$
—
Loans, net
117,816,517
108,908,000
—
—
108,908,000
FHLB stock
1,575,000
1,575,000
—
1,575,000
—
Mortgage servicing rights, net
326,764
582,000
—
—
582,000
Bank owned life insurance
2,308,325
2,308,325
—
2,308,325
—
Accrued interest receivable
751,961
751,961
751,961
—
—
Financial liabilities:
Deposits
196,505,483
196,538,974
152,221,974
44,317,000
—
Advances from the FHLB
35,000,000
35,008,000
—
35,008,000
—
Advances by borrowers for
taxes and insurance
399,702
399,702
—
399,702
—
Accrued interest payable
153,018
153,018
153,018
—
—
Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates may not be realizable in an immediate settlement of the instrument. In some instances, there are no quoted market prices for the Company’s various financial instruments, in which case fair values may be based on estimates using present value or other valuation techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristic of the financial instruments, or other factors. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Subsequent changes in assumptions could significantly affect the estimates.
28
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 8: Stock Conversion and Change in Corporate Form
On July 31, 2025, the Bank completed the conversion to stock form and is now the wholly owned subsidiary of Security Midwest Bancorp, Inc. Security Midwest Bancorp, Inc. sold 889,781 shares of common stock, which includes 62,285 shares sold to the Company's Employee Stock Ownership Plan, for gross offering proceeds (before deducting offering expenses) of approximately $8.9 million based on the offering price of $10.00 per share. The common stock of Security Midwest Bancorp, Inc. began quoting on the OTCQB Market on August 1, 2025 under the symbol "SBMW".
The Bank has established a liquidation account in the amount of retained earnings contained in the final prospectus. The liquidation account will be maintained for the benefit of eligible account holders who maintain deposit accounts in the Bank after conversion.
The conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result. Security Midwest Bancorp, Inc. is an emerging growth company, and, for as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” Security Midwest Bancorp, Inc. intends to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, its financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Note 9: Employee Stock Ownership Plan (ESOP)
In connection with the Conversion, the Company established an Employee Stock Ownership Plan (“ESOP”) for the exclusive benefit of eligible employees. It is expected that the Bank will make annual contributions to the ESOP in amounts as defined by the ESOP loan documents. The contributions will be used to repay the ESOP loan. Certain ESOP shares are pledged as collateral for the ESOP loan. As the ESOP loan is repaid, shares are released from collateral and allocated to eligible participants, based on the proportion of loan repayments paid in the year. Shares allocated to eligible participants will become 100% vested upon completion of five years of service with the Bank, including years of service prior to the formation of the ESOP.
The ESOP activity for the six months ended June 30, 2026 is as follows:
June 30,
2026
Shares committed to be released to participants
4,672
Shares allocated to participants
—
Unreleased shares
57,613
ESOP Shares at end of plan year
62,285
Fair value of unreleased shares
$
978,845
The fair value of unallocated ESOP shares totaled $979,000 and $858,000 at June 30, 2026 and December 31, 2025, respectively.
In connection with the Company’s Conversion, the ESOP borrowed $622,850 from the Company for the purpose of purchasing shares of the Company’s stock. A total of 62,285 shares were purchased with the loan proceeds. Company stock purchased by the ESOP is shown as a reduction of shareholders’ equity. The ESOP loan is expected to be repaid over a period of 20 years.
Payments on the ESOP loan are scheduled to be made annually on December 31st of each year. Compensation expense is recognized over the service period based on the average fair value of the shares and totaled approximately $13,000 and $25,000 for the three and six months ended June 30, 2026, respectively. There was no ESOP compensation expense for the three and six months ended June 30, 2025.
29
Security Midwest Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10: Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Unallocated common shares held by the ESOP are shown as a reduction in shareholders’ equity and are excluded from weighted-average common shares outstanding for both basic and diluted earnings per share calculations until they are committed to be released.
The Company had no dilutive or potentially dilutive securities during the three and six months ended June 30, 2026.
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended June 30,
2026
2025
Net income
$
390,079
$
349,548
Weighted-average common shares outstanding, gross
889,781
—
Less weighted average unallocated ESOP shares
(58,003
)
—
Weighted-average common shares outstanding
831,778
—
Earnings per share- basic and diluted
$
0.47
n/a
Six Months Ended June 30,
2026
2025
Net income
$
808,222
$
751,093
Weighted-average common shares outstanding, gross
889,781
—
Less weighted average unallocated ESOP shares
(58,392
)
—
Weighted-average common shares outstanding
831,389
—
Earnings per share- basic and diluted
$
0.97
n/a
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion and analysis reflects our financial information and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the accompanying unaudited financial statements and the audited consolidated financial statements included in our Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:
•
statements of our goals, intentions and expectations;
•
statements regarding our business plans, prospects, growth and operating strategies;
•
statements regarding the asset quality of our loan and investment portfolios; and
•
estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
•
acts of war, terrorism, natural disasters or global market disruptions, including global pandemics;
•
general economic conditions, including any recessionary conditions and/or increases in unemployment, either nationally or in our market areas, that are worse than expected;
•
adverse changes in the financial services industry, securities and local real estate markets (including real estate values);
•
our ability to access cost-effective funding and to maintain adequate liquidity, primarily through deposits;
•
significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for credit losses;
•
credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for credit losses and provision for credit losses;
•
our ability to implement and change our business strategies, including our ability to attract and maintain deposits and our success in introducing new financial products;
•
competition among depository and other financial institutions, including with respect to our ability to charge overdraft fees;
•
inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans originated for holding in our portfolio;
31
•
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;
•
our success in increasing our commercial real estate and commercial and industrial lending;
•
our ability to maintain or improve our asset quality even as we increase our commercial real estate and commercial and industrial lending;
•
fluctuations in the demand for loans, deposits and non-banking services in our market area, including changes in consumer spending and savings habits;
•
technological changes that may be more difficult or expensive than expected;
•
changes in accounting and/or tax estimates;
•
risks related to a high concentration of loans secured by real estate located in our market area;
•
our ability to enter new markets successfully and capitalize on growth opportunities;
•
changes in laws or government regulations or policies affecting financial institutions and/or their holding companies, including changes in regulatory fees, capital requirements and insurance premiums;
•
changes in laws or government regulations or policies affecting the cannabis industry;
•
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
•
changes in our compensation and benefit plans, our ability to attract and retain key members of our senior management team and our ability to address staffing needs expeditiously in response to product demand or to implement our strategic plans;
•
loan delinquencies and changes in the underlying cash flows of our borrowers;
•
our ability to control costs and expenses, particularly those associated with operating as a public reporting company;
•
a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
•
our ability to manage market risk, credit risk and operational risk;
•
the potential effects of new or increased tariffs and trade restrictions;
•
the ability of third-party service providers to perform their obligations to us; and
•
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this report.
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use with respect to critical accounting policies are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual
32
results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following represent our critical accounting policies:
Allowance for Credit Losses. The allowance for credit losses is the estimated amount considered necessary to cover expected, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for credit losses which is charged against income. In determining the allowance for credit losses, we make significant estimates and have identified this policy as one of our most critical accounting policies.
We perform a quarterly evaluation of the allowance for credit losses. Our determination of the adequacy of the allowance for credit losses is based on the assessment of the expected credit losses on loans over the expected life of the loans. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.
In accordance with the provisions of the accounting standards under CECL, we estimate the allowance for credit losses balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience of a defined peer group, by affiliate, paired with economic forecasts, provide the basis for the quantitatively modeled estimates of expected credit losses. We adjust our quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the qualitative factors.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. We use the average historical loss method to measure the quantitative portion of the allowance for credit losses over the forecast and reversion periods.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When we determine that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Determining the proper valuation allowance for deferred taxes is critical in properly valuing the deferred tax asset and the related recognition of income tax expense or benefit. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.
Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We estimate the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively
33
traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology we utilize is presented in Note 7 herein.
Comparison of Financial Condition at June 30, 2026 and December 31, 2025
Total assets. Total assets were $244.5 million at June 30, 2026, a decrease of $12.1 million, or 4.7%, from December 31, 2025. The decrease was primarily comprised of a decrease in cash and cash equivalents of $30.1 million and a decrease in available for sale securities of $1.1 million, which were partially offset by an increase in loans of $18.5 million.
Cash and cash equivalents. Cash and cash equivalents decreased by $30.1 million, or 59.7%, to $20.3 million at June 30, 2026 from December 31, 2025. The decrease was attributable primarily to the growth in loans of $18.5 million and a decrease in deposits of $12.1 million.
Investment securities. Investment securities available-for-sale decreased $1.1 million, or 1.5%, to $75.6 million at June 30, 2026 from $76.7 million at December 31, 2025. The decrease was due primarily to repayments of available-for-sale securities of $2.7 million, partially offset by purchases of $1.8 million, and the effects of a $197,000 increase in the gross unrealized loss on securities available-for-sale during the six months ended June 30, 2026, to a total unrealized loss of $4.5 million at June 30, 2026 compared to $4.3 million at December 31, 2025.
During the fourth quarter of 2025, management implemented a strategy to enhance portfolio yields, whereby $7.6 million of low-yielding securities were sold and $41.4 million of available-for-sale securities were purchased, funded by the sale proceeds and $35.0 million in advances from the Federal Home Loan Bank (FHLB). Management anticipated, and the Company has realized, an increase in net interest income from the overall higher yields obtained along with an improved interest rate risk position following these transactions.
Loans, net. Loans, net increased by $18.5 million, or 15.7%, to $136.3 million at June 30, 2026, compared to $117.8 million at December 31, 2025. During the six months ended June 30, 2026, loan originations totaled $27.6 million, an increase of $10.1 million, or 57.7%, compared to the loan origination volume of $17.5 million for the six months ended June 30, 2025. Such amounts included loans originated for sale totaling $1.7 million for the six months ended June 30, 2026, compared to $3.7 million for the six months ended June 30, 2025. We did not have any loans held for sale at June 30, 2026 and December 31, 2025.
During the six months ended June 30, 2026, the increase in our loan portfolio was primarily comprised of increases in residential one- to four-family loans of $6.5 million, or 18.6%, to $41.7 million at June 30, 2026; commercial real estate loans of $6.3 million, or 11.6%, to $60.7 million at June 30, 2026; construction and development loans of $409,000, or 10.1%, to $4.5 million at June 30, 2026; multifamily loans of $903,000, or 22.4% to $4.9 million at June 30, 2026; commercial and industrial loans of $3.7 million, or 29.5%, to $16.3 million at June 30, 2026 and consumer loans of $870,000, or 19.5% to $5.3 million at June 30, 2026.
Our strategy is to grow our loan portfolio, with a focus on owner-occupied one- to four-family residential real estate loans and commercial loans (both commercial real estate and commercial and industrial).
Deposits. Deposits decreased by $12.1 million, or 6.1%, to $184.4 million at June 30, 2026 from $196.5 million at December 31, 2025. The decrease was primarily due to a decrease in demand deposits, both retail and commercial, which decreased $13.0 million, or 10.2%, to $113.5 million at June 30, 2026, compared to December 31, 2025 and a $1.2 million, or 2.6%, decrease in certificates of deposit, to $43.1 million at June 30, 2026 from $44.3 million at December 31, 2025. These decreases were partially offset by an increase in savings deposits, of $2.0 million, or 7.9%, to $27.8 million at June 30, 2026, compared to December 31, 2025.
34
At each of June 30, 2026 and December 31, 2025, we had a concentration of deposits from cannabis-related business (CRB) customers, comprised primarily of commercial demand accounts. These deposits totaled $41.4 million and $59.1 million at these respective dates. The balances tend to be cyclical during the year with mid-year balances being lower.
During the six months ended June 30, 2026, we continued our strategy of pursuing growth in demand accounts and other lower cost core deposits, in part by enhancing the products and services we offer, expanding our offering of CRB services into other states, and streamlining commercial banking services through enhanced cash management and treasury management services. We intend to continue our efforts to increase our core deposit base, with an emphasis on growth in consumer and business demand deposits.
Borrowings. Advances from the FHLB totaled $35.0 million at both June 30, 2026 and December 31, 2025.
During the fourth quarter of 2025, advances were used to fund purchases of available-for-sale securities. In addition, management entered into an interest rate swap with a notional value of $40.0 million, as a hedge to protect the cost of borrowings from interest rate changes. The pay-fixed-rate swap has a three-year term and is scheduled to mature in November 2028.
Shareholders' Equity. Shareholders' equity increased $1.1 million, or 4.9%, to $23.7 million at June 30, 2026, compared to $22.6 million at December 31, 2025. The increase was due primarily to net income of $808,000 during the six months ended June 30, 2026, combined with a $288,000 decrease in accumulated other comprehensive loss.
Comparison of Operating Results for the Three Months ended June 30, 2026 and 2025
General. Net income for the three months ended June 30, 2026 was $390,000, an increase of $41,000, or 11.6%, compared to the three months ended June 30, 2025. The increase in net income was primarily due to a $418,000 increase in net interest income, which was partially offset by a $246,000 increase in noninterest expense, a $15,000 increase in the provision for credit losses, an $83,000 decrease in noninterest income and a $32,000 increase in income taxes.
Interest income. Interest income increased $758,000, or 30.8%, to $3.2 million for the three months ended June 30, 2026 from the three months ended June 30, 2025. This increase was attributable to a $468,000, or 25.5%, increase in interest on loans and a $411,000, or 138.9%, increase in interest on investment securities, which were partially offset by a $121,000, or 36.8%, decrease in interest on interest-bearing deposits and other assets.
The average yield on loans increased by 36 basis points to 6.90% for the three months ended June 30, 2026 from 6.54% for the three months ended June 30, 2025, while the average balance of loans increased by $21.3 million, or 19.0%, to $133.6 million during the three months ended June 30, 2026 over the average balance for the three months ended June 30, 2025. The increase in the average yield was due to higher market interest rates year-to-year. While the Federal Reserve Board (FRB) had acted to decrease the Fed Funds rate in the latter parts of 2024 and 2025, these rate adjustments did not have a corresponding effect on interest rates in our lending.
The average yield on investment securities increased by 116 basis points to 3.50% for the three months ended June 30, 2026 from 2.34% for the three months ended June 30, 2025, while the average balance of investment securities increased $30.2 million, or 59.6%, to $80.8 million for the three months ended June 30, 2026 from $50.6 million for the three months ended June 30, 2025. During the fourth quarter of 2025, management implemented a strategy to enhance investment security portfolio yields, whereby $7.6 million of low-yielding securities were sold and $41.4 million of available-for-sale securities were purchased, funded by the sale proceeds and $35.0 million in advances from the Federal Home Loan Bank (FHLB). The increase in the average yield and the average outstanding balance was a result of this strategy.
The average balance of interest-bearing deposits and other assets, comprised primarily of certificates of deposit in other financial institutions, overnight deposits and stock in the Federal Home Loan Bank of Chicago, decreased $10.8 million, or 37.8%, for the three months ended June 30, 2026, while the average yield increased seven basis points, to 4.68% for the three months ended June 30, 2026 from 4.61% for the three months ended June 30, 2025.
Interest Expense. Total interest expense increased $340,000, or 62.2%, to $887,000 for the three months ended June 30, 2026 compared to $547,000 for the three months ended June 30, 2025. The increase was primarily comprised of a $328,000 increase in interest expense on borrowings, and a $12,000, or 2.2%, increase in interest expense on deposits. The increase in interest expense on deposits was primarily due to an increase of $4.5 million, or 3.7%, in the average balance of deposits, to $127.8 million for the three months ended June 30, 2026 from $123.3 million for the three months ended June 30, 2025, partially offset by a decrease of two basis points in the average cost of deposits to 1.75% for the three months ended June 30, 2026 from 1.77% for the three months ended June 30, 2025.
35
The increase in interest expense on borrowings was due primarily to the $36.3 million increase in the average borrowings outstanding, and a 361 basis point increase in the average cost of borrowings, to 3.61% for the three months ended June 30, 2026 as the Company had no borrowings outstanding during the three months ended June 30, 2025. The interest expense on borrowings in 2026 was reduced by $24,000 as a result of the interest rate swap. The borrowings were used to purchase investment securities during the fourth quarter of 2025, as previously discussed.
Net Interest Income. Net interest income increased $418,000, or 21.8%, to $2.3 million for the three months ended June 30, 2026 compared to $1.9 million for the three months ended June 30, 2025. The interest rate spread increased to 3.39% for the three months ended June 30, 2026 from 3.37% for the three months ended June 30, 2025. The net interest margin increased to 4.02% for the three months ended June 30, 2026 from 4.00% for the three months ended June 30, 2025.
Average Balances and Yields. The following table sets forth average balance sheets, average yields and rates, and other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using daily average balances. Non-accrual loans are included in average balances only. The average balance of available-for-sale securities does not include unrealized losses during the periods. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Net deferred loan fees/costs are immaterial.
For the Three Months Ended June 30,
2026
2025
Average Outstanding Balance
Interest
Yield/ Rate
Average Outstanding Balance
Interest
Yield/ Rate
Interest-earning assets:
(Dollars in thousands)
Loans
$
133,634
$
2,304
6.90
%
$
112,327
$
1,836
6.54
%
Investment securities
80,798
707
3.50
%
50,635
296
2.34
%
Interest-bearing deposits and other
17,759
208
4.68
%
28,550
329
4.61
%
Total interest-earning assets
232,191
3,219
5.55
%
191,512
2,461
5.14
%
Non-interest-earning assets
11,405
8,410
Allowance for credit losses
(1,135
)
(1,140
)
Total assets
$
242,461
$
198,782
Interest-bearing liabilities:
Interest-bearing demand
$
57,490
134
0.93
%
$
54,930
125
0.91
%
Savings accounts
27,668
35
0.51
%
25,849
19
0.29
%
Certificates of deposit
42,684
390
3.65
%
42,515
403
3.79
%
Total deposits
127,842
559
1.75
%
123,294
547
1.77
%
Borrowings
36,319
328
3.61
%
—
—
0.00
%
Total interest-bearing liabilities
164,161
887
2.16
%
123,294
547
1.77
%
Non-interest-bearing deposits
52,229
59,026
Non-interest-bearing liabilities
2,853
1,095
Total liabilities
219,243
183,415
Equity
23,218
15,367
Total liabilities and equity
$
242,461
$
198,782
Net interest income
$
2,332
$
1,914
Net interest rate spread (1)
3.39
%
3.37
%
Net interest-earning assets (2)
$
68,030
$
68,218
Net interest margin (3)
4.02
%
4.00
%
Average interest-earning assets to interest-bearing liabilities
141.44
%
155.33
%
(1)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income annualized divided by average total interest-earning assets.
36
Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.
Three Months Ended June 30,
2026 vs. 2025
Total
Increase (decrease) due to
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
363
$
105
$
468
Investment securities
224
187
411
Other interest-earning assets
(126
)
5
(121
)
Total interest-earning assets
461
297
758
Interest-bearing liabilities:
Interest-bearing demand
6
3
9
Savings accounts
1
15
16
Certificates of deposit
2
(15
)
(13
)
Total deposits
9
3
12
Borrowings
328
—
328
Total interest-bearing liabilities
337
3
340
Change in net interest income
$
124
$
294
$
418
Provision for Credit Losses. Based on an analysis of the factors described in “—Critical Accounting Policies—Allowance for Credit Losses,” we recorded a provision for credit losses of $24,000 for the three months ended June 30, 2026, compared to $9,000 for the three months ended June 30, 2025. The allowance for credit losses on loans was $1.2 million at June 30, 2026 and $1.0 million at December 31, 2025 and represented 0.85% of total loans at June 30, 2026 and 0.87% of total loans at December 31, 2025. Net (recoveries) charge-offs totaled $(2,000) and $(23,000) during the three months ended June 30, 2026 and 2025, respectively.
Management’s determination of the allowance for credit losses on loans at June 30, 2026 primarily included consideration of the $8.4 million, or 6.5%, increase in gross loans outstanding during the three months ended June 30, 2026, along with decreases in nonperforming and delinquent loans. Total nonperforming loans were $219,000 at June 30, 2026, compared to $317,000 at December 31, 2025. Total loans past due 30 days or greater were $103,000 and $372,000 at those respective dates. As a percentage of nonperforming loans, the allowance for credit losses on loans was 531.8% at June 30, 2026 compared to 326.3% at December 31, 2025.
The allowance for credit losses on unfunded commitments was $29,000 at June 30, 2026, a decrease of $30,000, or 50.8%, from the $59,000 allowance at December 31, 2025.
Our estimates and assumptions used in the determination of the adequacy of the allowance for credit losses could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Any such increase in future provisions that may be required may adversely impact our financial condition and results of operations.
37
Noninterest Income. Noninterest income information is as follows.
Three Months Ended June 30,
Change
2026
2025
Amount
Percent
(Dollars in thousands)
Service fees on deposit accounts
$
210
$
259
$
(49
)
-18.9
%
Debit card fees
103
103
0
0.0
%
Mortgage loan servicing fees, net
30
26
4
15.4
%
Gain on sale of loans
13
37
(24
)
-64.9
%
Other
62
76
(14
)
-18.4
%
Total noninterest income
$
418
$
501
$
(83
)
-16.6
%
Service fees on deposit accounts decreased with the implementation of a new fee structure for CRB accounts in 2026.The decrease in gain on sale of loans was due to a decrease in sales volume year-to-year.
Noninterest Expense. Noninterest expense information is as follows.
Three Months Ended June 30,
Change
2026
2025
Amount
Percent
(Dollars in thousands)
Salaries and employee benefits
$
1,252
$
1,116
$
136
12.2
%
Occupancy and equipment
158
150
8
5.3
%
Data processing fees
180
146
34
23.3
%
FDIC insurance premiums
27
27
0
0.0
%
Advertising
59
51
8
15.7
%
Directors fees
27
24
3
12.5
%
Debit card expense
19
25
(6
)
-24.0
%
Professional fees
230
188
42
22.3
%
Telephone and internet
37
36
1
2.8
%
Other
195
175
20
11.4
%
Total noninterest expense
$
2,184
$
1,938
$
246
12.7
%
The increase in salaries and employee benefits was due primarily to increases in staffing levels, normal annual merit increases and expense of the new employee stock ownership plan (ESOP). The increase in data processing was due primarily to the addition of software to enhance deposit growth and compliance capabilities.The increase in professional fees was due primarily to costs associated with reporting requirements as a public stock company.
Income Taxes. Income taxes increased by $32,000, or 27.3%, to $151,000 for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The provision for income taxes increased due to a $73,000, or 15.6% increase in pretax income, due to the nature and timing of certain nontaxable income items and nondeductible expense items. The effective tax rates were 28.0% and 25.4% for the three months ended June 30, 2026 and 2025, respectively.
Comparison of Operating Results for the Six Months ended June 30, 2026 and 2025
General. Net income for the six months ended June 30, 2026 was $808,000, an increase of $57,000, or 7.6%, compared to the six months ended June 30, 2025. The increase in net income was primarily due to a $657,000 increase in net interest income, which was partially offset by a $451,000 increase in noninterest expense, an $88,000 increase in the provision for credit losses, a $29,000 decrease in noninterest income and a $31,000 increase in income taxes.
Interest income. Interest income increased $1.3 million, or 25.9%, to $6.3 million for the six months ended June 30, 2026 from $5.0 million for the six months ended June 30, 2025. This increase was attributable to a $760,000, or 20.9%, increase in interest on loans and a $789,000, or 130.4%, increase in interest on investment securities, which were partially offset by a $257,000, or 33.9%, decrease in interest on interest-bearing deposits and other assets.
38
The average yield on loans increased by 39 basis points to 6.85% for the six months ended June 30, 2026 from 6.46% for the six months ended June 30, 2025, while the average balance of loans increased by $15.8 million, or 14.1%, to $128.3 million during the six months ended June 30, 2026 over the average balance for the six months ended June 30, 2025. The increase in the average yield was due to higher market interest rates year-to-year. While the Federal Reserve Board (FRB) had acted to decrease the Fed Funds rate in the latter parts of 2024 and again in 2025, these rate adjustments did not have a corresponding effect on interest rates in our lending.
The average yield on investment securities increased by 109 basis points to 3.45% for the six months ended June 30, 2026 from 2.36% for the six months ended June 30, 2025, while the average balance of investment securities increased $29.4 million, or 57.3%, to $80.8 million for the six months ended June 30, 2026 from $51.4 million for the six months ended June 30, 2025. During the fourth quarter of 2025, management implemented a strategy to enhance investment security portfolio yields, whereby $7.6 million of low-yielding securities were sold and $41.4 million of available-for-sale securities were purchased, funded by the sale proceeds and $35.0 million in advances from the Federal Home Loan Bank (FHLB). The increase in the average yield and the average outstanding balance was a result of this strategy.
The average balance of interest-bearing deposits and other assets, comprised primarily of certificates of deposit in other financial institutions, overnight deposits and stock in the Federal Home Loan Bank of Chicago, decreased $11.3 million, or 30.7%, for the six months ended June 30, 2026, while the average yield decreased 19 basis points, to 3.94% for the six months ended June 30, 2026 from 4.13% for the six months ended June 30, 2025.
Interest Expense. Total interest expense increased $635,000, or 56.7%, to $1.8 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily comprised of a $639,000 increase in interest expense on borrowings, which was partially offset by a $4,000, or 0.4%, decrease in interest expense on deposits. The decrease in interest expense on deposits was primarily due to a decrease of 6 basis points in the average cost of deposits to 1.74% for the six months ended June 30, 2026 from 1.80% for the six months ended June 30, 2025, partially offset by an increase of $4.2 million, or 3.4%, in the average balance of deposits, to $128.2 million for the six months ended June 30, 2026 from $124.0 million for the six months ended June 30, 2025.
39
The increase in interest expense on borrowings was due primarily to the $35.7 million increase in the average borrowings outstanding, and a 358 basis point increase in the average cost of borrowings, to 3.58% for the six months ended June 30, 2026, as the Company had no borrowings outstanding during the six months ended June 30, 2025. The interest expense on borrowings in 2026 was reduced by $53,000 as a result of the interest rate swap. The borrowings were used to purchase investment securities during the fourth quarter of 2025, as previously discussed.
Net Interest Income. Net interest income increased $657,000, or 17.0%, to $4.5 million for the six months ended June 30, 2026 compared to $3.9 million for the six months ended June 30, 2025. The interest rate spread increased to 3.22% for the six months ended June 30, 2026 from 3.18% for the six months ended June 30, 2025. The net interest margin was 3.87% for both the six months ended June 30, 2026 and 2025.
Average Balances and Yields. The following table sets forth average balance sheets, average yields and rates, and other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using daily average balances. Non-accrual loans are included in average balances only. The average balance of available-for-sale securities does not include unrealized losses during the periods. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Net deferred loan fees/costs are immaterial.
For the Six Months Ended June 30,
2026
2025
Average Outstanding Balance
Interest
Yield/ Rate
Average Outstanding Balance
Interest
Yield/ Rate
Interest-earning assets:
(Dollars in thousands)
Loans
$
128,256
$
4,391
6.85
%
$
112,430
$
3,631
6.46
%
Investment securities
80,810
1,394
3.45
%
51,365
605
2.36
%
Interest-bearing deposits and other
25,468
502
3.94
%
36,755
759
4.13
%
Total interest-earning assets
234,534
6,287
5.36
%
200,550
4,995
4.98
%
Non-interest-earning assets
11,282
8,459
Allowance for credit losses
(1,120
)
(1,150
)
Total assets
$
244,696
$
207,859
Interest-bearing liabilities:
Interest-bearing demand
$
57,750
261
0.90
%
$
54,260
232
0.86
%
Savings accounts
27,080
56
0.41
%
25,936
38
0.29
%
Certificates of deposit
43,394
798
3.68
%
43,843
849
3.87
%
Total deposits
128,224
1,115
1.74
%
124,039
1,119
1.80
%
Borrowings
35,663
639
3.58
%
1
—
0.00
%
Total interest-bearing liabilities
163,887
1,754
2.14
%
124,040
1,119
1.80
%
Non-interest-bearing deposits
55,213
67,699
Non-interest-bearing liabilities
2,522
1,089
Total liabilities
221,622
192,828
Equity
23,074
15,031
Total liabilities and equity
$
244,696
$
207,859
Net interest income
$
4,533
$
3,876
Net interest rate spread
3.22
%
3.18
%
Net interest-earning assets
$
70,647
$
76,510
Net interest margin
3.87
%
3.87
%
Average interest-earning assets to interest-bearing liabilities
143.11
%
161.68
%
(1)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income annualized divided by average total interest-earning assets.
40
Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.
Six Months Ended June 30,
2026 vs. 2025
Total
Increase (decrease) due to
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
533
$
227
$
760
Investment securities
436
353
789
Other interest-earning assets
(224
)
(33
)
(257
)
Total interest-earning assets
745
547
1,292
Interest-bearing liabilities:
Interest-bearing demand
15
14
29
Savings accounts
2
16
18
Certificates of deposit
(9
)
(42
)
(51
)
Total deposits
8
(12
)
(4
)
Borrowings
639
—
639
Total interest-bearing liabilities
647
(12
)
635
Change in net interest income
$
98
$
559
$
657
Provision for Credit Losses. Based on an analysis of the factors described in “—Critical Accounting Policies—Allowance for Credit Losses,” we recorded a provision for credit losses of $97,000 for the six months ended June 30, 2026, compared to $9,000 for the six months ended June 30, 2025. The allowance for credit losses on loans was $1.2 million at June 30, 2026 and $1.0 million at December 31, 2025 and represented 0.85% of total loans at June 30, 2026 and 0.87% of total loans at December 31, 2025. Net (recoveries) charge-offs totaled $(4,000) and $12,000 during the six months ended June 30, 2026 and 2025, respectively.
Management’s determination of the allowance for credit losses on loans at June 30, 2026 primarily included consideration of the $18.7 million, or 15.7%, increase in gross loans outstanding during the six months ended June 30, 2026, along with decreases in nonperforming and delinquent loans. Total nonperforming loans were $219,000 at June 30, 2026, compared to $317,000 at December 31, 2025. Total loans past due 30 days or greater were $103,000 and $372,000 at those respective dates. As a percentage of nonperforming loans, the allowance for credit losses on loans was 531.8% at June 30, 2026 compared to 326.3% at December 31, 2025.
The allowance for credit losses on unfunded commitments was $29,000 at June 30, 2026, a decrease of $30,000, or 50.8%, from the $59,000 allowance at December 31, 2025.
Our estimates and assumptions used in the determination of the adequacy of the allowance for credit losses could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Any such increase in future provisions that may be required may adversely impact our financial condition and results of operations.
41
Noninterest Income. Noninterest income information is as follows.
Six Months Ended June 30,
Change
2026
2025
Amount
Percent
(Dollars in thousands)
Service fees on deposit accounts
$
460
$
501
$
(41
)
-8.2
%
Debit card fees
200
196
4
2.0
%
Mortgage loan servicing fees, net
71
59
12
20.3
%
Gain on sale of loans
34
74
(40
)
-54.1
%
Other
162
126
36
28.6
%
Total noninterest income
$
927
$
956
$
(29
)
-3.0
%
Service fees on deposit accounts decreased with the implementation of a new fee structure for CRB accounts in 2026. The decrease in gain on sale of loans was due to a decrease in sales volume year-to-year. Other noninterest income increased due primarily to an increase in late charges and fees on loans and an increase in fees on cashless ATMs at certain CRB locations.
Noninterest Expense. Noninterest expense information is as follows.
Six Months Ended June 30,
Change
2026
2025
Amount
Percent
(Dollars in thousands)
Salaries and employee benefits
$
2,464
$
2,235
$
229
10.2
%
Occupancy and equipment
295
299
(4
)
-1.3
%
Data processing fees
352
296
56
18.9
%
FDIC insurance premiums
53
51
2
3.9
%
Advertising
118
94
24
25.5
%
Directors fees
55
48
7
14.6
%
Debit card expense
39
36
3
8.3
%
Professional fees
388
292
96
32.9
%
Telephone and internet
72
72
0
0.0
%
Other
401
363
38
10.5
%
Total noninterest expense
$
4,237
$
3,786
$
451
11.9
%
The increase in salaries and employee benefits was due primarily to increases in staffing levels, normal annual merit increases and expense of the new employee stock ownership plan (ESOP). The increase in data processing was due primarily to the addition of software to enhance deposit growth and compliance capabilities. The increase in professional fees was due primarily to costs associated with reporting requirements as a public stock company.
Income Taxes. Income taxes increased by $31,000, or 10.7%, to $317,000 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The provision for income taxes increased due to an $88,000, or 8.5% increase in pretax income, due to the nature and timing of certain nontaxable income items and nondeductible expense items. The effective tax rates were 28.2% and 27.6% for the six months ended June 30, 2026 and 2025, respectively.
42
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Management of Market Risk
General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage the impact of changes in market interest rates on net interest income and capital. We have an Asset/Liability and Investment Committee that is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. The Committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.
As part of our ongoing asset-liability management, we intend to use the following strategies to manage our interest rate risk:
i.
increase our commercial loan portfolio (commercial and industrial loans as well as commercial real estate loans) with shorter term, higher yielding loan products;
ii.
emphasize the marketing of our savings, money market and demand accounts;
iii.
continue to maintain a high level of cash and cash equivalents; and
iv.
invest in short- to medium-term to repricing and/or maturity securities depending on market interest rates.
Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by up to 400 basis points, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.
The table below sets forth, as of June 30, 2026, the calculation of the estimated changes in our net interest income that would result from the designated instantaneous changes in the United States Treasury yield curve.
At June 30, 2026
Change in Interest Rates (basis
Net Interest Income
Year 1 Change
points) (1)
Year 1 Forecast
From Level
400
$
9,616
9.30%
300
9,473
7.67%
200
9,296
5.66%
100
9,076
3.16%
Level
8,798
—
(100)
8,389
-4.65%
(200)
7,827
-11.04%
(300)
7,222
-17.91%
(400)
6,942
-21.10%
(1)
Assumes an instantaneous uniform change in interest rates at all maturities.
43
The table above indicates that at June 30, 2026, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 5.66% increase in net interest income, and in the event of an instantaneous parallel 200 basis point decrease in interest rates, we would have experienced a 11.04% decrease in net interest income.
Net Economic Value. We also compute amounts by which the net present value of our assets and liabilities (economic value of equity, or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by up to 400 basis points, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.
The table below sets forth, as of June 30, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.
At June 30, 2026
Change in
EVE as a Percentage of Present Value of Assets (3)
Interest Rates (basis
Estimated Increase (Decrease) in EVE
EVE
Increase (Decrease)
points) (1)
Estimated EVE (2)
Amount
Percent
Ratio (4)
(basis points)
(Dollars in thousands)
400
$
44,228
$
4,163
10.39%
19.59
%
321
300
43,902
3,837
9.58%
19.07
%
269
200
43,195
3,130
7.81%
18.39
%
201
100
41,971
1,906
4.76%
17.51
%
113
Level
40,065
—
—
16.38
%
—
(100)
37,209
(2,856
)
-7.13%
14.91
%
(147
)
(200)
32,963
(7,102
)
-17.73%
12.95
%
(343
)
(300)
26,806
(13,259
)
-33.09%
10.33
%
(605
)
(400)
18,414
(21,651
)
-54.04%
6.96
%
(942
)
(1)
Assumes an immediate uniform change in interest rates at all maturities.
(2)
EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)
Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)
EVE Ratio represents EVE divided by the present value of assets.
The table above indicates that at June 30, 2026, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced an 7.81% increase in EVE, and in the event of an instantaneous parallel 200 basis point decrease in interest rates, we would have experienced a 17.73% decrease in EVE. At June 30, 2026, all estimated changes presented in the above tables were within the current policy limits established by the board of directors.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. In the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the tables.
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Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.
Liquidity and Capital Resources
Liquidity Management. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from sales, maturities and calls of securities. We also have the ability to borrow from the Federal Home Loan Bank of Chicago (FHLB). At June 30, 2026, we had advances outstanding from the FHLB of $35.0 million and we had the ability to borrow an additional $33.0 million. We also had the ability to borrow $3.0 million from a private bankers’ bank at that date.
The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We calculate our liquidity ratio as the sum of cash, short-term assets (generally securities with a remaining maturity of less than one year) and marketable assets divided by the sum of net deposits (generally time deposits of $250,000 or more and brokered deposits less than $250,000), short-term liabilities (generally borrowings with a remaining maturity of one year or less) and volatile liabilities (generally federal funds purchased, securities sold under agreements to repurchase, and time deposits of $250,000 or more). We seek to maintain a liquidity ratio of 20.0% or greater. We believe that we had enough sources of liquidity to satisfy our short and long-term liquidity needs as of June 30, 2026.
We monitor and adjust our investments in liquid assets based upon our assessment of: (1) expected deposit flows; (2) expected loan demand; (3) yields available on cash and cash equivalents and securities; and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in cash and cash equivalents and short- and intermediate-term securities.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At June 30, 2026, cash and cash equivalents totaled $20.3 million. Investment securities classified as available-for-sale, which provide an additional source of liquidity, totaled $75.6 million at June 30, 2026.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.
For the six months ended June 30, 2026, cash flows from operating activities, investing activities and financing activities resulted in a net decrease in cash and cash equivalents of $30.1 million. Net cash provided by operating activities amounted to $105,000, primarily due to net income of $808,000 and the decreases of certain accrued expenses. Net cash used in investing activities amounted to $18.2 million, primarily due to a net increase in loans of $18.6 million, which was partially offset by proceeds from maturities and paydowns on investment securities of $2.7 million. Net cash used in financing activities amounted to $12.0 million, primarily due to a net decrease in deposits of $12.1 million.
For the six months ended June 30, 2025, cash flows from operating activities, investing activities and financing activities resulted in a net increase in cash and cash equivalents of $5.3 million. Net cash provided by operating activities amounted to $371,000, primarily due to net income of $751,000. Net cash provided by investing activities amounted to $4.2 million, primarily due to a net decrease in loans of $1.4 million and proceeds from maturities and paydowns on investment securities of $2.0 million. Net cash provided by financing activities amounted to $758,000, primarily due to a net increase in borrowings of $4.6 million, partially offset by a decrease in deposits of $3.9 million. For further information, see the statements of cash flows contained in the consolidated financial statements.
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We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. We had loan commitments of $8.9 million at June 30, 2026. Certificates of deposit due within one year of June 30, 2026, totaled $39.5 million, or 91.6% of our certificates of deposit, and 21.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Capital Management. At June 30, 2026 and December 31, 2025, Security Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. See “Regulation and Supervision—Federal Bank Regulation—Capital Requirements” and Note 5 of the Notes to the Consolidated Financial Statements.
Item 4. Controls and Procedures.
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2026. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
During the quarter ended June 30, 2026, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. At June 30, 2026, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SECURITY MIDWEST BANCORP, INC.
Date: August 14, 2026
By:
/s/ Stephan P. Antonacci
Stephan P. Antonacci
President and Chief Executive Officer
Date: August 14, 2026
By:
/s/ Brenda Minder
Brenda Minder
Executive Vice President and Chief Financial Officer