{"url_path":"/sec/cpbi/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-18","source_url":"https://www.sec.gov/Archives/edgar/data/1979332/0001193125-26-275962-index.html","accession_number":"0001193125-26-275962","cik":"0001979332","ticker":"CPBI","issuer_name":"Central Plains Bancshares, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1979332/0001193125-26-275962-index.html","primary_entity_key":"0001979332","primary_entity_name":"Central Plains Bancshares, Inc."},"word_count":6961,"has_tables":true,"body_markdown":"Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.\n\nThis discussion and analysis reflects our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition as of March 31, 2026, and our results of operations for years ended March 31, 2026 and 2025. The information in this section has been derived from the consolidated financial statements that appear elsewhere in this annual report. You should read the information in this section in conjunction with the business and financial information regarding Central Plains Bancshares provided in this document.\n\nOverview\n\nCentral Plains Bancshares conducts its operations primarily through Home Federal Savings. Home Federal Savings’ business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential mortgage loans secured by properties located in our primary market area, as well as commercial real estate loans. To a lesser extent, we also originate commercial and industrial loans, multi-family residential real estate loans, construction and land development loans, agricultural real estate and non-real estate loans and consumer loans. We offer a variety of deposit accounts including checking accounts, savings accounts and certificate of deposit accounts. In addition, we offer electronic banking services including mobile banking, on-line banking and bill pay, and electronic funds transfer via Zelle®. We have not needed to use significant levels of borrowings to fund our operations in recent years. Home Federal Savings is subject to comprehensive regulation and examination by the OCC.\n\nOur results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of interchange income, service charges on deposit accounts, servicing fees on loans and gain on sale of loans. Non-interest expense currently consists primarily of salaries and employee benefits, data processing, occupancy and equipment and other expenses.\n\nOur results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.\n\nCritical Accounting Policies\n\nOur most significant accounting policies are described in Note 1 to the consolidated financial statements. Certain of these accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be our critical accounting estimates.\n\nThe estimates and assumptions that we use are based on historical experience, future forecasts and various other factors and are believed to be reasonable under the circumstances. Actual 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.\n\nCritical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.\n\nThe Jumpstart Our Business Startups (\"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 determined 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.\n\n37\n\n[Table of Contents](#toc_page)\n\n \n\nThe following are our accounting policies that require significant judgments and estimates.\n\nAllowance for Credit Losses. The Current Expected Credit Losses (\"CECL\") accounting methodology requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans and other financial assets measured at amortized cost. The accounting estimates relating to the allowance for credit losses is a “critical accounting policy” as:\n\n•\nchanges in the provision for credit losses can materially affect our financial results;\n\n•\nestimates relating to the allowance for credit losses require us to project future borrower performance, including cash flows, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default;\n\n•\nthe allowance for credit losses is influenced by factors outside of our control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions such as trends in housing prices, interest rates, GDP, inflation, energy prices and unemployment; and\n\n•\nconsiderable judgment is required to determine whether the models used to generate the allowance for credit losses produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses.\n\nBecause our estimates of the allowance for credit losses involve judgment and are influenced by factors outside our control, there is uncertainty inherent in these estimates. Our estimate of lifetime expected credit losses is inherently uncertain because it is highly sensitive to changes in economic conditions and other factors outside of our control. Changes in such estimates could significantly impact our allowance and provision for credit losses. See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for a discussion of our allowance for credit losses.\n\nInvestment Securities. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity are classified as available for sale and recorded at fair value, with unrealized gains and losses on a net-of-tax basis excluded from earnings and reported in other comprehensive income. The fair value of a security is determined based on quoted market prices. If quoted market prices are not available, fair value is determined based on quoted market prices of similar instruments or discounted cash flow models that incorporate market inputs and assumptions including discount rates, prepayment speeds, and loss rates. We did not have any securities classified as trading at March 31, 2026 or 2025.\n\nPurchased premiums and discounts are amortized and accreted to the earlier of call or maturity of the related security using the interest method. Realized gains and losses on the sale of securities are recognized on the specific identification method in the statements of income.\n\nManagement monitors securities for impairment. If we intend to sell the security or will more likely than not be required to sell the security before recovery of the entire amortized cost basis, then an impairment has occurred. However, even if we do not intend to sell the security and will not likely be required to sell the security before recovery of its entire amortized cost basis, we must evaluate expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, the credit component of the impairment is recorded as a loss in the statement of income and the non-credit component is recognized through other comprehensive income (loss).\n\nPension Liability. We have a defined benefit pension plan covering certain employees. Our funding policy with respect to the pension plan is to contribute, at a minimum, amounts sufficient to meet minimum funding requirements as set by law. Pension expense is determined by an external actuarial valuation based on assumptions that are evaluated annually as of March 31, the measurement date for the pension obligation. The service cost component of pension expense is reflected as “Salaries and Employee Benefits” in the Consolidated Statements of Income. All other components of pension expense are reflected as “Other General and Administrative Expenses”.\n\nThe Consolidated Statements of Financial Condition reflect an accrued pension benefit cost due to funding levels and unrecognized actuarial amounts. The most significant assumptions used in calculating the pension obligation are the weighted-average discount rate used to determine the present value of the pension obligation, the weighted-average expected long-term rate of return on plan assets, and the assumed rate of annual compensation increases. These assumptions are re-evaluated annually with the external actuaries, taking into consideration both current market conditions and anticipated long-term market conditions.\n\nThe discount rate is determined by matching the anticipated defined pension plan cash flows to the spot rates of a high-quality corporate bond index/yield curve and solving for the single equivalent discount rate which would produce the same present value. This methodology is applied consistently from year to year. The discount rate utilized in 2026 was 5.75%.\n\n38\n\n[Table of Contents](#toc_page)\n\n \n\nThe weighted average expected long-term rate of return on plan assets is determined based on the current and anticipated future mix of assets in the plan. The assets currently consist of equity securities, U.S. Government and Government-agency debt securities, and real estate investments. The weighted average expected long-term rate of return on plan assets utilized for 2025 was 5.25%. We anticipate using a weighted average expected long-term rate of return on plan assets of 5.50% in 2026.\n\nThe assumed rate of annual compensation increases of 4.00% in 2026 reflected expected trends in salaries and the employee base.\n\nDetailed information on the pension plan, the actuarially determined disclosures, and the assumptions used are provided in Note 14 of the Notes to the Consolidated Financial Statements.\n\nComparison of Financial Condition at March 31, 2026 and March 31, 2025\n\nThe following table sets forth selected historical financial data at the dates presented. The information is derived in part from, and should be read together with, the audited consolidated financial statements and related notes included in this Annual Report on Form 10-K.\n\n \n\n \n\n \n\nAt March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n \n\n(Dollars in thousands)\n\n \n\nSelected Consolidated Financial Condition Data:\n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal assets\n\n \n\n$\n\n558,647\n\n \n\n \n\n$\n\n508,702\n\n \n\nCash and cash equivalents\n\n \n\n \n\n29,929\n\n \n\n \n\n \n\n28,682\n\n \n\nInvestment securities held-to-maturity\n\n \n\n \n\n175\n\n \n\n \n\n \n\n222\n\n \n\nInvestment securities available-for-sale\n\n \n\n \n\n62,534\n\n \n\n \n\n \n\n59,369\n\n \n\nLoans, net of allowance for credit losses\n\n \n\n \n\n442,537\n\n \n\n \n\n \n\n396,756\n\n \n\nTotal liabilities\n\n \n\n \n\n469,657\n\n \n\n \n\n \n\n425,370\n\n \n\nDeposits\n\n \n\n \n\n460,356\n\n \n\n \n\n \n\n416,201\n\n \n\nTotal equity\n\n \n\n$\n\n88,990\n\n \n\n \n\n$\n\n83,332\n\n \n\nTotal Assets. Total assets increased $49.9 million, or 9.8%, to $558.6 million at March 31, 2026 from $508.7 million at March 31, 2025. The increase was primarily due to a $45.8 million, or 11.5%, increase in net loans.\n\nCash and Cash Equivalents. Cash and cash equivalents increased $1.2 million, or 4.3%, to $29.9 million at March 31, 2026 from $28.7 million at March 31, 2025. The increase was primarily attributable to the timing of payments related to accounts payable and accrued expenses, including fluctuations in vendor disbursements near period end. We regularly evaluate our liquidity position in light of alternative uses of available funds and prevailing market conditions.\n\nInvestment Securities Available for Sale. Securities available-for-sale increased $3.1 million, or 5.3%, to $62.5 million at March 31, 2026 from $59.4 million at March 31, 2025. We purchased $10.4 million in securities, received principal payments of $8.5 million, had net discount amortization of $19,000 and a decrease in the unrealized loss on the securities portfolio of $1.2 million during the year ended March 31, 2026.\n\nGross Loans. Gross loans held for investment increased $46.1 million, or 11.5%, to $448.3 million at March 31, 2026, from $402.2 million at March 31, 2025. We experienced increases in five loan categories: real estate construction, real estate residential, real estate commercial, commercial non-real estate, and agriculture loans. The largest increase was in commercial non-real estate loans, which increased $16.4 million, or 51.2%, to $48.4 million from $32.0 at March 31, 2025.\n\nTotal Deposits. Total deposits increased $44.2 million, or 10.6%, to $460.4 million at March 31, 2026 from $416.2 million at March 31, 2025. The increase in deposits reflected increases in money market, savings accounts, and time deposits, which increased by $52.9 million from $198.9 million at March 31, 2025 to $251.8 million at March 31, 2026. Included in the increase in time deposits was $20.3 million of brokered deposits obtained during the year to support balance sheet growth and liquidity management.\n\nNon-interest bearing deposits and NOW accounts decreased $8.7 million, or 6.0%, to $208.6 million at March 31, 2026 from $217.3 million at March 31, 2025. We believe that long-term customers have continued to seek higher-yield deposits in the current market interest rate environment. We also had brokered deposits of $27.6 million at March 31, 2026 and $7.3 million at March 31, 2025, which are included in the other time deposits.\n\n39\n\n[Table of Contents](#toc_page)\n\n \n\nBorrowings. We had no borrowings at March 31, 2026 or March 31, 2025. We have had limited borrowings in recent periods, as we have generally been able to utilize cash provided by our increase in deposits to fund our operations, although we will utilize FHLB and FRB's Discount Window advances as needed to support increased loan funding.\n\nTotal Equity. Total equity increased $5.7 million, or 6.8% to $89.0 million at March 31, 2026 from $83.3 million at March 31, 2025. This increase in total equity is the result of net income of $4.0 million for the year ended March 31, 2026 and other comprehensive income of $1.4 million.\n\nAverage Balance Sheets and Related Yields and Rates\n\nThe following table sets forth average annualized balance sheets, average yields and costs, and certain other information for the periods presented. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Loan fees are included in interest income on loans and are not material.\n\n \n\n \n\n \n\nYear Ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n \n\nAverage\nOutstanding\nBalance\n\n \n\n \n\nInterest\n\n \n\n \n\nAverage\nYield/Rate\n\n \n\n \n\nAverage\nOutstanding\nBalance\n\n \n\n \n\nInterest\n\n \n\n \n\nAverage\nYield/Rate\n\n \n\n \n\n \n\n(Dollars in thousands)\n\n \n\nInterest-earning assets:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nLoans\n\n \n\n$\n\n418,754\n\n \n\n \n\n$\n\n25,097\n\n \n\n \n\n \n\n5.99\n\n%\n\n \n\n$\n\n391,330\n\n \n\n \n\n$\n\n22,246\n\n \n\n \n\n \n\n5.68\n\n%\n\nMortgage-backed securities\n\n \n\n \n\n52,972\n\n \n\n \n\n \n\n2,115\n\n \n\n \n\n \n\n3.99\n\n%\n\n \n\n \n\n51,975\n\n \n\n \n\n \n\n1,976\n\n \n\n \n\n \n\n3.80\n\n%\n\nInvestment securities (1)\n\n \n\n \n\n7,391\n\n \n\n \n\n \n\n165\n\n \n\n \n\n \n\n2.23\n\n%\n\n \n\n \n\n7,194\n\n \n\n \n\n \n\n168\n\n \n\n \n\n \n\n2.34\n\n%\n\nInterest-bearing deposits and other\n\n \n\n \n\n12,250\n\n \n\n \n\n \n\n288\n\n \n\n \n\n \n\n2.35\n\n%\n\n \n\n \n\n12,451\n\n \n\n \n\n \n\n313\n\n \n\n \n\n \n\n2.51\n\n%\n\nTotal interest-earning assets\n\n \n\n \n\n491,367\n\n \n\n \n\n \n\n27,665\n\n \n\n \n\n \n\n5.63\n\n%\n\n \n\n \n\n462,950\n\n \n\n \n\n \n\n24,703\n\n \n\n \n\n \n\n5.34\n\n%\n\nNon-interest-earning assets\n\n \n\n \n\n24,504\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n19,032\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal assets\n\n \n\n$\n\n515,871\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n$\n\n481,982\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nInterest-bearing liabilities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nSavings accounts\n\n \n\n$\n\n47,083\n\n \n\n \n\n \n\n250\n\n \n\n \n\n \n\n0.53\n\n%\n\n \n\n$\n\n42,924\n\n \n\n \n\n \n\n195\n\n \n\n \n\n \n\n0.45\n\n%\n\nMoney market accounts\n\n \n\n \n\n33,146\n\n \n\n \n\n \n\n750\n\n \n\n \n\n \n\n2.26\n\n%\n\n \n\n \n\n27,530\n\n \n\n \n\n \n\n631\n\n \n\n \n\n \n\n2.29\n\n%\n\nNOW accounts\n\n \n\n \n\n133,070\n\n \n\n \n\n \n\n2,250\n\n \n\n \n\n \n\n1.69\n\n%\n\n \n\n \n\n128,546\n\n \n\n \n\n \n\n2,147\n\n \n\n \n\n \n\n1.67\n\n%\n\nCertificates of deposit\n\n \n\n \n\n119,430\n\n \n\n \n\n \n\n5,082\n\n \n\n \n\n \n\n4.26\n\n%\n\n \n\n \n\n101,820\n\n \n\n \n\n \n\n4,547\n\n \n\n \n\n \n\n4.47\n\n%\n\nIndividual retirement accounts\n\n \n\n \n\n17,569\n\n \n\n \n\n \n\n600\n\n \n\n \n\n \n\n3.42\n\n%\n\n \n\n \n\n16,693\n\n \n\n \n\n \n\n595\n\n \n\n \n\n \n\n3.56\n\n%\n\nTotal interest-bearing deposits\n\n \n\n \n\n350,298\n\n \n\n \n\n \n\n8,932\n\n \n\n \n\n \n\n2.55\n\n%\n\n \n\n \n\n317,513\n\n \n\n \n\n \n\n8,115\n\n \n\n \n\n \n\n2.56\n\n%\n\nBorrowings\n\n \n\n \n\n1,324\n\n \n\n \n\n \n\n59\n\n \n\n \n\n \n\n4.46\n\n%\n\n \n\n \n\n1,752\n\n \n\n \n\n \n\n99\n\n \n\n \n\n \n\n5.65\n\n%\n\nTotal interest-bearing liabilities\n\n \n\n \n\n351,622\n\n \n\n \n\n \n\n8,991\n\n \n\n \n\n \n\n2.56\n\n%\n\n \n\n \n\n319,265\n\n \n\n \n\n \n\n8,214\n\n \n\n \n\n \n\n2.57\n\n%\n\nOther non-interest-bearing liabilities\n\n \n\n \n\n90,969\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n98,895\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal liabilities\n\n \n\n \n\n442,591\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n418,160\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal equity\n\n \n\n \n\n73,280\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n63,822\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal liabilities and total equity\n\n \n\n$\n\n515,871\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n$\n\n481,982\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nNet interest income\n\n \n\n \n\n \n\n \n\n$\n\n18,674\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n$\n\n16,489\n\n \n\n \n\n \n\n \n\nNet interest rate spread (2)\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n3.07\n\n%\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n2.76\n\n%\n\nNet interest-earning assets (3)\n\n \n\n$\n\n139,745\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n$\n\n143,685\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nNet interest margin (4)\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n3.80\n\n%\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n3.56\n\n%\n\nAverage interest-earning assets to interest-bearing liabilities\n\n \n\n \n\n139.74\n\n%\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n145.00\n\n%\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n(1)\nRepresents investments in municipal bonds.\n\n(2)\nNet interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.\n\n(3)\nNet interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.\n\n(4)\nNet interest margin represents net interest income divided by average total interest-earning assets.\n\n40\n\n[Table of Contents](#toc_page)\n\n \n\nRate/Volume Analysis\n\nThe following table presents the effects of changing rates and volumes on our net interest income for the years presented. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.\n\n \n\n \n\n \n\nYears Ended March 31, 2026 vs. 2025\n\n \n\n \n\n \n\nIncrease (Decrease) Due to\n\n \n\n \n\n \n\nVolume\n\n \n\n \n\nRate\n\n \n\n \n\nNet\n\n \n\nInterest-earning assets:\n\n \n\n(Dollars in thousands)\n\n \n\nLoans\n\n \n\n$\n\n2,183\n\n \n\n \n\n$\n\n668\n\n \n\n \n\n$\n\n2,851\n\n \n\nMortgage-backed securities\n\n \n\n \n\n84\n\n \n\n \n\n \n\n55\n\n \n\n \n\n \n\n139\n\n \n\nInvestment securities (1)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n(3\n\n)\n\n \n\n \n\n(3\n\n)\n\nInterest-bearing deposits and other\n\n \n\n \n\n15\n\n \n\n \n\n \n\n(40\n\n)\n\n \n\n \n\n(25\n\n)\n\nTotal interest-earning assets\n\n \n\n \n\n2,282\n\n \n\n \n\n \n\n680\n\n \n\n \n\n \n\n2,962\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nInterest-bearing liabilities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nSavings accounts\n\n \n\n \n\n9\n\n \n\n \n\n \n\n46\n\n \n\n \n\n \n\n55\n\n \n\nMoney market accounts\n\n \n\n \n\n118\n\n \n\n \n\n \n\n1\n\n \n\n \n\n \n\n119\n\n \n\nNow accounts\n\n \n\n \n\n93\n\n \n\n \n\n \n\n10\n\n \n\n \n\n \n\n103\n\n \n\nCertificates of deposits\n\n \n\n \n\n780\n\n \n\n \n\n \n\n(245\n\n)\n\n \n\n \n\n535\n\n \n\nIndividual retirement accounts\n\n \n\n \n\n4\n\n \n\n \n\n \n\n1\n\n \n\n \n\n \n\n5\n\n \n\nBorrowings\n\n \n\n \n\n(40\n\n)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n(40\n\n)\n\nTotal interest-bearing liabilities\n\n \n\n \n\n964\n\n \n\n \n\n \n\n(187\n\n)\n\n \n\n \n\n777\n\n \n\nChange in net interest income\n\n \n\n$\n\n1,318\n\n \n\n \n\n$\n\n867\n\n \n\n \n\n$\n\n2,185\n\n \n\n \n\n(1)\nRepresents investments in municipal bonds.\n\nComparison of Operating Results for the Years Ended March 31, 2026 and 2025\n\nThe following table sets forth selected historical financial data for the fiscal years presented. The information is derived in part from, and should be read together with, the audited consolidated financial statements and related notes included in this Annual Report on Form 10-K.\n\n \n\n \n\n \n\nFor the year ended March 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n \n\n(Dollars in thousands)\n\n \n\nSelected Consolidated Operating Data:\n\n \n\n \n\n \n\n \n\n \n\n \n\nInterest income\n\n \n\n$\n\n27,665\n\n \n\n \n\n$\n\n24,703\n\n \n\nInterest expense\n\n \n\n \n\n8,991\n\n \n\n \n\n \n\n8,214\n\n \n\nNet interest income before provision for credit losses\n\n \n\n \n\n18,674\n\n \n\n \n\n \n\n16,489\n\n \n\nProvision for credit losses\n\n \n\n \n\n306\n\n \n\n \n\n \n\n200\n\n \n\nNet interest income after provision for credit losses\n\n \n\n \n\n18,368\n\n \n\n \n\n \n\n16,289\n\n \n\nNon-interest income\n\n \n\n \n\n2,667\n\n \n\n \n\n \n\n2,610\n\n \n\nNon-interest expense\n\n \n\n \n\n16,044\n\n \n\n \n\n \n\n14,376\n\n \n\nIncome before income tax expense\n\n \n\n \n\n4,991\n\n \n\n \n\n \n\n4,523\n\n \n\nIncome tax expense\n\n \n\n \n\n991\n\n \n\n \n\n \n\n869\n\n \n\nNet income\n\n \n\n$\n\n4,000\n\n \n\n \n\n$\n\n3,654\n\n \n\nGeneral. Net income increased $346,000, or 9.5%, to $4.0 million for the year ended March 31, 2026, compared to $3.7 million for the year ended March 31, 2025.\n\nInterest and Dividend Income. Interest and dividend income increased $3.0 million, or 12.0%, to $27.7 million for the year ended March 31, 2026 from $24.7 million for the year ended March 31, 2025. The increase was due primarily to an increase in interest income on loans, which is our primary source of interest income.\n\n41\n\n[Table of Contents](#toc_page)\n\n \n\nInterest income on loans increased $2.9 million, or 12.8%, to $25.1 million for the year ended March 31, 2026 from $22.2 million for the year ended March 31, 2025. The average balance of loans increased $27.4 million, or 7.0%, to $418.7 million for the year ended March 31, 2026 from $391.3 million for the year ended March 31, 2025. The increase is due to our continued focus on growing our loan portfolio consistent with maintaining asset quality. Our yield on loans increased 31 basis points to 5.99% for the year ended March 31, 2026 from 5.68% for the year ended March 31, 2025. The increase in yield was primarily due to loan repricing upon reaching scheduled reset dates and growth in the loan portfolio.\n\nInterest income on securities increased $136,000, or 6.3%, to $2.3 million for the year ended March 31, 2026 from $2.1 million for the year ended March 31, 2025, due to a 16 basis point increase in the average yield from 3.62% for the year ended March 31, 2025 to 3.78% for the year ended March 31, 2026, and by a $1.2 million increase in the average balance of securities to $60.4 million for the year ended March 31, 2026 from $59.2 million for the year ended March 31, 2025.\n\nInterest Expense. Interest expense increased $777,000, or 9.5%, to $9.0 million for the year ended March 31, 2026 compared to $8.2 million for the year ended March 31, 2025, driven primarily by an increase in the average balance of interest-bearing liabilities.\n\nInterest expense on deposits increased $817,000, or 10.1%, to $8.9 million for the year ended March 31, 2026 compared to $8.1 million for the year ended March 31, 2025. The increase was due to an increase in the average balances of all interest-bearing liabilities.\n\nThe average balances of certificates of deposit increased $17.6 million, or 17.3% to $119.4 million for the year ended March 31, 2026 from $101.8 million for the year ended March 31, 2025. Included in the increase in time deposits was $20.3 million of brokered deposits obtained during the year to support balance sheet growth and liquidity management. The average balances of NOW accounts increased $4.5 million, or 3.5% to $133.0 million for the year ended March 31, 2026 from $128.5 million for the year ended March 31, 2025. The average balances of savings accounts increased $4.2 million, or 9.7% to $47.1 million for the year ended March 31, 2026 from $42.9 million for the year ended March 31, 2025. The average balances of money market accounts increased $5.6 million, or 20.4% to $33.1 million for the year ended March 31, 2026 from $27.5 million for the year ended March 31, 2025. The average balances of individual retirement accounts increased $876,000, or 5.2% to $17.6 million for the year ended March 31, 2026 from $16.7 million for the year ended March 31, 2025.\n\nInterest expense on FHLB borrowings decreased $40,000, or 40.4%, to $59,000 for the year ended March 31, 2026 compared to $99,000 for the year ended March 31, 2025. The decrease was due to a decrease in the average balance of borrowings of $428,000, or 24.4%, to $1.3 million for the year ended March 31, 2026 compared to $1.8 million for the year ended March 31, 2025.\n\nNet Interest Income. Net interest income increased $2.1 million, or 12.8%, to $18.4 million for the year ended March 31, 2026 compared to $16.3 million for the year ended March 31, 2025.\n\nOur interest rate spread increased 31 basis points to 3.07% for the year ended March 31, 2026, compared to 2.76% for the year ended March 31, 2025, and our net interest margin increased 24 basis points to 3.80% for the year ended March 31, 2026 compared to 3.56% for the year ended March 31, 2025.\n\nProvision for Credit Losses. Provision for credit losses was $306,000 for the year ended March 31, 2026, compared to $200,000 for the year ended March 31, 2025. The increase in provision expense was primarily attributable to loan growth during the period, as gross loans held for investment increased $46.1 million, or 11.5%, with notable growth in commercial non-real estate, real estate, and agricultural loan segments.\n\nThe allowance for credit losses increased to $5.8 million at March 31, 2026 from $5.4 million at March 31, 2025, reflecting the higher level of outstanding loans as well as continued evaluation of portfolio risk characteristics. Despite the increase in the allowance balance, the allowance for credit losses as a percentage of total loans decreased to 1.30% at March 31, 2026 from 1.35% at March 31, 2025, primarily due to the mix and relative credit quality of loan growth during the period.\n\nWe will continue to assess and evaluate the estimated future credit loss impact of current market conditions in subsequent reporting periods, which will be highly dependent on credit quality, macroeconomic forecasts and conditions, as well as the composition of our loan and available-for-sale securities portfolios.\n\nNon-Interest Income. Non-interest income increased $60,000, or 2.3%, to $2.7 million for the year ended March 31, 2026 compared to $2.6 million for the year ended March 31, 2025. Gain on sale of loans increased $156,000, or 72.6%, to $371,000 for the year ended March 31, 2026 from $215,000 for the year ended March 31, 2025. Service charges on deposit accounts decreased $146,000, or 16.0%, to $766,000 for the year ended March 31, 2026 compared to $912,000 for the year ended March 31, 2025, primarily due to decreases in ATM surcharges and miscellaneous operating income. Other income from the Company's insurance and investment subsidiary increased $57,000, or 73.1%, to $135,000 for the year ended March 31, 2026, from $78,000 for the year ended March 31, 2025, primarily reflecting improved market performance.\n\n42\n\n[Table of Contents](#toc_page)\n\n \n\nNon-Interest Expense. Non-interest expense increased $1.6 million, or 11.6%, to $16.0 million for the year ended March 31, 2026 from $14.4 million for the year ended March 31, 2025. Salaries and employee benefits increased $874,000, or 11.1%, to $8.8 million for the year ended March 31, 2026 from $7.9 million for the year ended March 31, 2025, due to annual wage adjustments and a full year of recognizing stock based compensation expense from stock options and restricted stock awards granted under the 2024 Equity Incentive Plan. The Company implemented the 2024 Equity Incentive Plan on November 26, 2024, and began recognizing expense associated with this plan in December 2024. Other general and administrative expenses increased $273,000, or 10.5%, to $2.9 million for the year ended March 31, 2026 from $2.6 million for the year ended March 31, 2025, due to a combination of increases in insurance, auditing and consulting fees. The increase was primarily attributable to higher insurance, audit, and consulting expenses, as well as incremental costs related to recruiter fees and software licensing.\n\nOccupancy and equipment expenses increased $529,000, or 50.2%, to $1.6 million for the year ended March 31, 2026 from $1.1 million for the year ended March 31, 2025, due to recognizing a full year of depreciation for our newly constructed branches in Lincoln and Hastings, Nebraska.\n\nIncome Tax Expense. Income tax expense increased $122,000, or 14.0%, to $991,000 for the year ended March 31, 2026, compared to $869,000 for the year ended March 31, 2025, primarily reflecting higher pre-tax income. The effective tax rate increased to 19.9% for the year ended March 31, 2026 from 19.2% for the year ended March 31, 2025.\n\nThe increase in the effective tax rate was primarily driven by changes in the composition of taxable income and a lower relative benefit from permanent tax differences, including tax-exempt income, compared to the prior year.\n\nManagement of Market Risk\n\nGeneral. Our most significant form of market risk is interest rate risk. As a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Accordingly, a principal component of our operations is to manage interest rate risk and to limit the exposure of our financial condition and results of operations to changes in market interest rates.\n\nThe Board of Directors regularly reviews the interest rate risk inherent in our assets and liabilities and establishes the level of risk deemed appropriate. These reviews are conducted in the context of our overall business strategy, operating environment, capital position, liquidity profile and performance objectives, and are guided by policies and limits approved by the Board.\n\nOur asset/liability management strategy is designed to manage the impact of changes in interest rates on net interest income, which is our primary source of earnings. The primary techniques we use to manage interest rate risk include:\n\n•\nmaintaining capital levels in excess of the regulatory thresholds for \"well-capitalized\" institutions;\n\n•\nmaintaining adequate levels of on-balance sheet and contingent liquidity;\n\n•\nselling longer-term, fixed-rate loans into the secondary market, subject to market conditions; and\n\n•\ndiversifying our loan portfolio by increasing the proportion of commercial loans, which generally have shorter maturities and/or adjustable interest rates.\n\nThrough these strategies, we believe we are better positioned to respond to changes in market interest rates.\n\nWe do not currently engage in hedging activities, such as the use of interest rate futures or options, and we do not presently anticipate entering into such transactions.\n\nNet Interest Income Analysis. We assess our sensitivity to changes in interest rates using a net interest income (“NII”) simulation model provided by a third-party vendor. Net interest income represents the difference between the interest income earned on interest-earning assets, such as loans and securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings.\n\nUsing this model, we estimate net interest income over a one-year horizon under various interest rate scenarios. These scenarios assume gradual and parallel shifts in the United States Treasury yield curve, both upward and downward, of up to 400 basis points. A basis point equals one one-hundredth of one percent; therefore, 100 basis points equals 1.0%. For example, an increase in interest rates from 3.0% to 4.0% represents a 100 basis point increase.\n\n43\n\n[Table of Contents](#toc_page)\n\n \n\nThe following table sets forth, at March 31, 2026, the calculation of the estimated changes in our NII that would result from the designated changes in the United States Treasury yield curve over a one-year period.\n\n \n\nChanges in Interest Rates\n(basis points)(1)\n\n \n\nNII Year 1 Forecast\n(Dollars in thousands)\n\n \n\n \n\nChange in Net\nInterest Income\nYear One\n(% change from\nyear one base)\n\n \n\n400\n\n \n\n$\n\n21,279\n\n \n\n \n\n \n\n1.43\n\n%\n\n300\n\n \n\n \n\n21,238\n\n \n\n \n\n \n\n1.23\n\n \n\n200\n\n \n\n \n\n21,171\n\n \n\n \n\n \n\n0.92\n\n \n\n100\n\n \n\n \n\n21,082\n\n \n\n \n\n \n\n0.49\n\n \n\nBase\n\n \n\n \n\n20,979\n\n \n\n \n\n \n\n—\n\n \n\n(100)\n\n \n\n \n\n20,918\n\n \n\n \n\n \n\n(0.29\n\n)\n\n(200)\n\n \n\n \n\n20,847\n\n \n\n \n\n \n\n(0.63\n\n)\n\n(300)\n\n \n\n \n\n20,762\n\n \n\n \n\n \n\n(1.03\n\n)\n\n(400)\n\n \n\n \n\n20,675\n\n \n\n \n\n \n\n(1.45\n\n)\n\n \n\n(1)\nAssumes a gradual change in interest rates at all maturities over a one-year period.\n\nThe table above indicates that at March 31, 2026, we would have experienced a 0.92% increase in NII in the event of a gradual, one-year 200 basis point increase in market interest rates, and a 0.63% decrease in NII in the event of a gradual, one-year 200 basis point decrease in market interest rates.\n\nMarket Value of Equity\n\nWe also use a third-party model to compute amounts by which the net present value of our assets and liabilities (market value of equity or \"MVE\") 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.\n\nThe following table sets forth, at March 31, 2026, the calculation of the estimated changes in our MVE that would result from the designated immediate changes in the United States Treasury yield curve.\n\n \n\n \n\n \n\n \n\n \n\n \n\nEstimated Increase (Decrease) in MVE\n\n \n\n \n\nMVE as a Percentage of Present Value of Assets(3)\n\n \n\n \n\n \n\n(Dollars in thousands)\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nChanges in Interest Rates\n(basis points)(1)\n\n \n\nEstimated\nMVE(2)\n\n \n\n \n\nDollar\nChange\n\n \n\n \n\nPercent\nChange\n\n \n\n \n\nMVE Ratio(4)\n\n \n\n \n\nIncrease\n(Decrease)\n(basis points)\n\n \n\n400\n\n \n\n$\n\n137,275\n\n \n\n \n\n$\n\n6,588\n\n \n\n \n\n \n\n5.04\n\n%\n\n \n\n \n\n27.38\n\n%\n\n \n\n \n\n352\n\n \n\n300\n\n \n\n \n\n137,028\n\n \n\n \n\n \n\n6,341\n\n \n\n \n\n \n\n4.85\n\n \n\n \n\n \n\n26.77\n\n \n\n \n\n \n\n291\n\n \n\n200\n\n \n\n \n\n136,265\n\n \n\n \n\n \n\n5,578\n\n \n\n \n\n \n\n4.27\n\n \n\n \n\n \n\n26.03\n\n \n\n \n\n \n\n217\n\n \n\n100\n\n \n\n \n\n134,129\n\n \n\n \n\n \n\n3,442\n\n \n\n \n\n \n\n2.63\n\n \n\n \n\n \n\n25.06\n\n \n\n \n\n \n\n120\n\n \n\nBase\n\n \n\n \n\n130,687\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n23.86\n\n \n\n \n\n \n\n—\n\n \n\n(100)\n\n \n\n \n\n124,211\n\n \n\n \n\n \n\n(6,476\n\n)\n\n \n\n \n\n(4.96\n\n)\n\n \n\n \n\n22.24\n\n \n\n \n\n \n\n(162\n\n)\n\n(200)\n\n \n\n \n\n114,439\n\n \n\n \n\n \n\n(16,248\n\n)\n\n \n\n \n\n(12.43\n\n)\n\n \n\n \n\n20.13\n\n \n\n \n\n \n\n(373\n\n)\n\n(300)\n\n \n\n \n\n100,754\n\n \n\n \n\n \n\n(29,933\n\n)\n\n \n\n \n\n(22.90\n\n)\n\n \n\n \n\n17.45\n\n \n\n \n\n \n\n(641\n\n)\n\n(400)\n\n \n\n \n\n85,115\n\n \n\n \n\n \n\n(45,572\n\n)\n\n \n\n \n\n(34.87\n\n)\n\n \n\n \n\n14.53\n\n \n\n \n\n \n\n(933\n\n)\n\n \n\n(1)\nAssumes an immediate uniform change in interest rate at all maturities.\n\n(2)\nMVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.\n\n(3)\nPresent value of assets represents the discounted present value of incoming cash flows on interest-earning assets.\n\n(4)\nMVE Ratio represents MVE divided by the present value of assets.\n\nThe table above indicates that at March 31, 2026, we would have experienced a 4.27% increase in market value of equity MVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 12.43% decrease in MVE in the event of an instantaneous 200 basis point decrease in market interest rates. As of March 31, 2026, all changes in net interest income NII and MVE reflected in the above tables were within policy limits established by the Board of Directors.\n\nCertain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. Modeling changes in NII and MVE 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. For instance, the NII and MVE tables presented above assume that the composition of our\n\n44\n\n[Table of Contents](#toc_page)\n\n \n\ninterest-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. However, the shape of the yield curve changes constantly and the value and pricing of our assets and liabilities, including our deposits, may not closely correlate with changes in market interest rates. Accordingly, although the NII and MVE tables may provide an indication of our interest rate risk exposure at a particular point in time and in the context of a particular yield curve, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on NII and MVE and will differ from actual results.\n\nNII and MVE 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.\n\nLiquidity and Capital Resources\n\nLiquidity. Liquidity refers to our ability to generate sufficient cash flows to fund loan demand, repay maturing borrowings, meet deposit withdrawal requirements, and fund operating expenses. Our primary sources of funds include deposits; scheduled repayments of loans and investment securities, including interest payments; maturities and sales of loans and investment securities; borrowings from the FRB; advances from the FHLB; and cash flows generated from operations.\n\nOur funding needs vary from period to period based on loan demand, deposit activity, and the level of amortization and prepayments on loans and investment securities. The use of borrowings from the FRB, FHLB advances, and other sources is influenced by loan originations, deposit inflows and outflows, and balance sheet management strategies designed to enhance net interest income.\n\nWhile contractual maturities and scheduled amortization of loans and investment securities are relatively predictable sources of liquidity, deposit flows and loan prepayments are influenced by market interest rates, general economic conditions, and competitive factors. Our most liquid assets consist of cash and short-term investments, the levels of which are dependent on our operating, financing, lending, and investing activities during any given period.\n\nOur cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.\n\nFor the year ended March 31, 2026, cash flows from operating, investing, and financing activities resulted in a net increase in cash and cash equivalents of $1.2 million. Net cash provided by operating activities totaled $6.4 million, driven primarily by net income of $4.0 million.\n\nNet cash used in investing activities totaled $48.7 million, primarily reflecting a net increase in loans of $46.1 million and purchases of available-for-sale investment securities of $10.5 million, partially offset by proceeds from principal paydowns and maturities of available-for-sale investment securities of $8.5 million.\n\nNet cash provided by financing activities totaled $43.5 million, consisting primarily of net increases in deposit accounts.\n\nFor the year ended March 31, 2025, cash flows from operating, investing, and financing activities resulted in a net increase in cash and cash equivalents of $17.2 million. Net cash provided by operating activities totaled $4.5 million, driven primarily by net income of $3.7 million.\n\nNet cash used in investing activities totaled $27.9 million, primarily reflecting a net increase in loans of $22.6 million and purchases of available-for-sale investment securities of $6.2 million, partially offset by proceeds from principal paydowns and maturities of available-for-sale investment securities of $8.3 million.\n\nNet cash provided by financing activities totaled $40.7 million, consisting primarily of net increases in deposit accounts.\n\nWe 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. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.\n\nAt March 31, 2026, Home Federal Savings was categorized as well-capitalized for bank regulatory purposes. Management is not aware of any conditions or events since the most recent notification that would change our category. For further information, see note 8 to the notes to consolidated financial statements.\n\n45\n\n[Table of Contents](#toc_page)\n\n \n\nOff-Balance Sheet Arrangements. At March 31, 2026, we had $48.4 million of unfunded loan commitments, $10.2 million of which represents the balance of remaining funds to be disbursed on construction loans in process. Certificates of deposit (excluding retirement account deposits) that are scheduled to mature in less than one year from March 31, 2026 totaled $89.0 million at March 31, 2026. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances, FRB borrowings, or our private bankers’ bank line of credit or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.\n\nImpact of Inflation and Changing Prices\n\nThe consolidated financial statements and related data presented in this Annual Report have been prepared according to GAAP which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.\n\nCurrent Accounting Developments\n\nIn March 2024, the Financial Accounting Standards Board (\"FASB\") issued Accounting Standards Update (\"ASU\") No. 2024-01, “Compensation—Stock Compensation (Topic 718): Scope Applications of Profits Interests and Similar Awards” (ASU 2024-01). ASU 2024-01 adds an example to Topic 718 which illustrates how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements under Topic 718 or under other U.S. GAAP. ASU 2024-01 is effective for annual periods beginning after December 15, 2025, although early adoption is permitted. Upon adoption, ASU 2024-01 is not expected to have an impact on the Company’s consolidated balance sheets or consolidated statements of income.\n\nIn November 2024, the FASB issued ASU 2024‑03, \"Income Statement Reporting—Comprehensive Income (Topic 220): Disaggregation of Income Statement Expenses,\" which requires expanded disclosures regarding the disaggregation of certain expense categories, including employee compensation, depreciation, and other material components of operating expenses. In January 2025, the FASB issued ASU 2025‑01, which clarifies the effective date of ASU 2024‑03. The guidance is effective for the Company for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this guidance; however, as the update is limited to expanded disclosures, it is not expected to have a material effect on the Company’s consolidated financial statements.\n\nConcentration - Commercial Real Estate\n\nOur market areas have experienced strong population and job growth, contributing to favorable economic conditions for generating new commercial loans. We target new commercial real estate loan originations to experienced, growing small- and mid-size owners and investors in our market area. Our commercial real estate loans are secured by owner-occupied and non-owner-occupied properties, including medical practices, insurance offices, warehouses, single- and multi-tenant retail and hotels. Our commercial residential real estate loans are secured by properties located within our primary market area, or we generally participate with a Nebraska-based bank for loans outside of our primary market area. Generally, our commercial real estate loans have terms and amortization periods up to 20 years with options for balloon payments and interest rate adjustments to occur every five years. The interest rate is fixed for the initial term (five years or less) and then adjusts again at the end of the next period matching the initial term or as negotiated at the end of the first term. Commercial real estate loans generally have terms and amortization periods up to 20 years. We generally limit the loan-to-value ratios of our commercial real estate loans to 75% of the purchase price or appraised value, whichever is lower.\n\nWe consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property, and the debt service coverage ratio (the ratio of net operating income to debt service). Generally, the debt service coverage ratio on these loans is at least 1.20x. The significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers.\n\n46\n\n[Table of Contents](#toc_page)"}