{"url_path":"/sec/mfbi/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":"2026-06-25","source_url":"https://www.sec.gov/Archives/edgar/data/2024899/0001104659-26-077799-index.html","accession_number":"0001104659-26-077799","cik":"0002024899","ticker":"MFBI","issuer_name":"Monroe Federal Bancorp, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/2024899/0001104659-26-077799-index.html","primary_entity_key":"0002024899","primary_entity_name":"Monroe Federal Bancorp, Inc."},"word_count":8630,"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 financial statements 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 financial statements, which appear elsewhere in this annual report. You should read the information in this section in conjunction with the other business and financial information provided in this annual report.\n\n**Overview**\n\nOur business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations, in residential real estate loans and, to a lesser extent, commercial real estate loans. To a significantly lesser extent, we also originate multi-family mortgage loans, construction and land development loans, commercial and industrial loans, home equity loans and lines of credit, and consumer loans. We also invest in securities, which have historically consisted primarily of U.S. government and agency securities, mortgage-backed securities and obligations issued by U.S. government sponsored enterprises, and state and municipal securities. We offer a variety of deposit accounts including checking accounts, savings accounts and certificate of deposit accounts.\n\n​\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 service charges on deposit accounts, other service charges and fees, and income from bank owned life insurance. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contract services, director fees, FDIC deposit insurance premiums, and other expenses.\n\n31\n\n[Table of Contents](#TOC)\n\nWe invest in bank owned life insurance to provide us with a funding source to offset some costs of our benefit plan obligations. Bank owned life insurance provides us with non-interest income that is nontaxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for credit losses. At March 31, 2026, our investment in bank owned life insurance was $3.7 million, which was inside this investment limit.\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\n​\n\n**Business Strategy**\n\nOur principal objective is to build long-term value for our stockholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers by emphasizing personalized and efficient customer service. Highlights of our current business strategy include:\n\n●Continue to focus on originating one- to four-family residential mortgage loans. We are primarily a one- to four-family residential mortgage loan lender for borrowers in our primary market area. At March 31, 2026, $68.0 million, or 60.9% of our total loan portfolio, consisted of residential mortgage loans. We expect that residential mortgage lending will remain our primary lending activity. Historically, we have not sold loans we have originated. We have developed the infrastructure necessary to sell one- to four-family residential mortgage loans, particularly longer term one- to four-family residential mortgage loans, to help mitigate our interest rate risk exposure to the secondary market. Sales are expected to begin early in fiscal year 2027.\n\n​\n\n●Grow and diversify our loan portfolio prudently by increasing originations of commercial real estate loans and commercial and industrial loans**.** Although we intend to continue our historical focus on the origination of residential mortgage loans, we intend to prudently increase our originations of commercial real estate loans and commercial and industrial loans to diversify our loan portfolio and increase yield. At March 31, 2026, commercial real estate loans amounted to $27.3 million, or 24.5% of total loans, and commercial and industrial loans amounted to $6.3 million, or 5.7% of total loans.\n\n​\n\n●Maintain our strong asset quality through conservative loan underwriting. We intend to maintain strong asset quality through what we believe are our conservative underwriting standards and credit monitoring processes. At March 31, 2026, nonperforming assets totaled $250,000 or 0.2% of total assets. At March 31, 2025, nonperforming assets totaled $629,000, or 0.4% of total assets.\n\n●Continue efforts to grow low-cost “core” deposits. We consider our core deposits to include all deposits other than certificates of deposit. We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits totaled $83.2 million, or 66.8% of total deposits, at March 31, 2026.\n\n●Remain a community-oriented institution and rely on high quality service to maintain and build a loyal local customer base**.** We were originally chartered in 1875. Through the goodwill we have developed over years of providing timely, efficient banking services, we believe that we have been able to attract a loyal base of local retail customers on which we hope to continue to build our banking business.\n\n●Grow organically and through opportunistic branching. We intend to grow our balance sheet organically on a managed basis, and the capital we raised in the conversion and stock offering enabled us to increase our lending and investment capacity. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns. These opportunities may include establishing loan production offices, establishing new, or de novo, branch offices and/or acquiring\n\n32\n\n[Table of Contents](#TOC)\n\nbranch offices. The capital we raised in the stock offering will help us fund any such opportunities that may arise. We have no current plans or intentions regarding any such expansion activities.\n\n​\n\n**Critical Accounting Policies and Use of Critical Accounting Estimates**\n\n​\n\nThe 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 are based on historical experience 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\n​\n\nThe 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.\n\n​\n\nThe following represent our critical accounting policies:\n\n​\n\nAllowance for Credit Losses. The allowance for credit losses is the estimated amount considered necessary to cover inherent, 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, management makes significant estimates and has identified this policy as one of our most critical accounting policies.\n\n​\n\nManagement performs a quarterly evaluation of the allowance for credit losses on loans and unfunded commitments. 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.\n\n​\n\nThe allowance for credit losses is evaluated following the accounting guidance in Accounting Standards Update (ASU) No. 2016-13 *Financial Instruments – Credit Losses (Topic 326)* for the fiscal year ended March 31, 2026. ASC 326 replaced the incurred loss impairment methodology with a new CECL methodology that reflects expected credit losses over the lives of the credit instruments and requires consideration of a broader range of information to estimate credit losses. ASC 326 requires an estimate of all expected credit losses for loans based on historical experience, current conditions, and reasonable and supportable forecasts.\n\n​\n\nActual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.\n\n​\n\nDeferred 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\n\n33\n\n[Table of Contents](#TOC)\n\nasset 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.\n\n​\n\nFair 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 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. For further information, see note 13 to the notes to financial statements.\n\n​\n\n**Selected Consolidated Financial Data**\n\n​\n\nThe following tables set forth selected historical financial and other data of the Company at the dates and for the years indicated. The data at and for the years ended March 31, 2026 and 2025 is derived, in part, from, and should be read together with, the audited consolidated financial statements and related notes appearing elsewhere in this annual report.\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**At March 31, **\n\n​\n\n**  ​ ​ ​**\n\n**2026**\n\n**  ​ ​**\n\n**2025**\n\n​\n\n**(In thousands)**\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\n142,429\n\n​\n\n$\n\n144,329\n\nCash and cash equivalents\n\n​\n\n​\n\n1,455\n\n​\n\n​\n\n2,078\n\nAvailable-for-sale securities\n\n​\n\n​\n\n18,446\n\n​\n\n​\n\n23,143\n\nLoans, net\n\n​\n\n​\n\n110,529\n\n​\n\n​\n\n106,996\n\nPremises and equipment, net\n\n​\n\n​\n\n5,031\n\n​\n\n​\n\n5,125\n\nRestricted stock\n\n​\n\n​\n\n728\n\n​\n\n​\n\n837\n\nBank-owned life insurance\n\n​\n\n​\n\n3,734\n\n​\n\n​\n\n3,605\n\nTotal deposits\n\n​\n\n​\n\n124,550\n\n​\n\n​\n\n120,664\n\nBorrowings\n\n​\n\n​\n\n3,834\n\n​\n\n​\n\n9,972\n\nTotal stockholder's equity\n\n​\n\n​\n\n12,401\n\n​\n\n​\n\n12,069\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**For the Years Ended March 31, **\n\n​\n\n  ​ ​ ​\n\n**2026**\n\n**  ​ ​ ​**\n\n**2025**\n\n​\n\n​\n\n**(In thousands)**\n\nSelected Consolidated Operating Data:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nTotal interest income\n\n​\n\n$\n\n6,186\n\n​\n\n$\n\n5,901\n\nTotal interest expense\n\n​\n\n​\n\n2,443\n\n​\n\n​\n\n2,229\n\nNet interest income\n\n​\n\n​\n\n3,743\n\n​\n\n​\n\n3,672\n\n(Recovery of) provision for credit losses\n\n​\n\n​\n\n(57)\n\n​\n\n​\n\n15\n\nNet interest income after (recovery of) provision for credit losses\n\n​\n\n​\n\n3,800\n\n​\n\n​\n\n3,657\n\nTotal noninterest income\n\n​\n\n​\n\n439\n\n​\n\n​\n\n354\n\nTotal noninterest expense\n\n​\n\n​\n\n4,938\n\n​\n\n​\n\n4,471\n\nLoss before income taxes\n\n​\n\n​\n\n(699)\n\n​\n\n​\n\n(460)\n\nBenefit for income taxes\n\n​\n\n​\n\n(184)\n\n​\n\n​\n\n(133)\n\nNet loss\n\n​\n\n$\n\n(515)\n\n​\n\n$\n\n(327)\n\n​\n\n34\n\n[Table of Contents](#TOC)\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nAt or For the Years Ended March 31, \n\n​\n\n​\n\n  ​ ​\n\n2026\n\n  ​ ​\n\n2025\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Performance Ratios:**\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\nReturn on average assets\n\n​\n\n(0.35)\n\n%\n\n​\n\n(0.22)\n\n%\n\nReturn on average equity\n\n​\n\n(4.18)\n\n​\n\n​\n\n(3.33)\n\n​\n\nInterest rate spread (1)\n\n​\n\n2.48\n\n​\n\n​\n\n2.41\n\n​\n\nNet interest margin (2)\n\n​\n\n2.69\n\n​\n\n​\n\n2.59\n\n​\n\nNoninterest expense as a percentage of average assets\n\n​\n\n3.37\n\n​\n\n​\n\n3.03\n\n​\n\nEfficiency ratio (3)\n\n​\n\n118.07\n\n​\n\n​\n\n111.04\n\n​\n\nAverage interest-earning assets as a percentage of average interest-bearing liabilities\n\n​\n\n112.01\n\n​\n\n​\n\n111.36\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Capital Ratios:**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nAverage equity as a percentage of average assets\n\n​\n\n8.40\n\n%\n\n​\n\n6.66\n\n%\n\nTotal capital as a percentage of risk-weighted assets\n\n​\n\n—\n\n​\n\n​\n\n—\n\n​\n\nTier 1 capital as a percentage of risk-weighted assets\n\n​\n\n—\n\n​\n\n​\n\n—\n\n​\n\nCommon equity Tier 1 capital as a percentage of risk-weighted assets\n\n​\n\n—\n\n​\n\n​\n\n—\n\n​\n\nTier 1 capital as a percentage of average assets\n\n​\n\n9.60\n\n​\n\n​\n\n10.00\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Asset Quality Ratios:**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nAllowance for credit losses on loans as a percentage of total loans\n\n​\n\n0.72\n\n%\n\n​\n\n0.79\n\n%\n\nAllowance for credit losses on loans as a percentage of non-performing loans\n\n​\n\n319.60\n\n​\n\n​\n\n135.45\n\n​\n\nAllowance for credit losses on loans as a percentage of non-accrual loans\n\n​\n\n319.60\n\n​\n\n​\n\n135.45\n\n​\n\nNon-accrual loans as a percentage of total loans\n\n​\n\n0.22\n\n​\n\n​\n\n0.58\n\n​\n\nNet recoveries (charge-offs) as a percentage of average outstanding loans\n\n​\n\n0.00\n\n​\n\n​\n\n0.00\n\n​\n\nNon-performing loans as a percentage of total loans\n\n​\n\n0.22\n\n​\n\n​\n\n0.58\n\n​\n\nNon-performing loans as a percentage of total assets\n\n​\n\n0.18\n\n​\n\n​\n\n0.44\n\n​\n\nTotal non-performing assets as a percentage of total assets\n\n​\n\n0.18\n\n​\n\n​\n\n0.44\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Other Data:**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nNumber of offices\n\n​\n\n4\n\n​\n\n​\n\n4\n\n​\n\nNumber of full-time employees\n\n​\n\n23\n\n​\n\n​\n\n23\n\n​\n\nNumber of part-time employees\n\n​\n\n3\n\n​\n\n​\n\n4\n\n​\n\n_______________\n\n(1)Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.\n\n(2)Represents net interest income as a percentage of average interest-earning assets.\n\n(3)Represents noninterest expenses divided by the sum of net interest income and noninterest income.\n\n​\n\nComparison of Financial Condition at March 31, 2026 and March 31, 2025\n\nTotal Assets. Total assets were $142.4 million at March 31, 2026, a decrease of $1.9 million, or 1.3%, from $144.3 at March 31, 2025. The decrease was primarily comprised of a decrease in available for sale investment securities of $4.7 million and a decrease in cash and cash equivalents of $623,000, which was partially offset by an increase in net loans of $3.5 million.\n\n​\n\nCash and Cash Equivalents. Cash and cash equivalents decreased $623,000, or 30.0%, to $1.5 million at March 31, 2026 from $2.1 million at March 31, 2025. The decrease was due primarily to a decrease in cash and due from banks of $357,000, or 21.4%, from $1.7 million at March 31, 2025 to $1.3 million at March 31, 2026 and a decrease in interest-bearing deposits held in other financial institutions of $307,000, or 75.6%, from $406,000 at March 31, 2025 to $99,000 at March 31, 2026. This was partially offset by an increase in federal funds sold to $41,000 at March 31, 2026 from no federal funds sold at March 31, 2025.\n\n​\n\n35\n\n[Table of Contents](#TOC)\n\nInvestment Securities. Investment securities available for sale decreased $4.7 million, or 20.3%, to $18.4 million at March 31, 2026, from $23.1 million at March 31, 2025. The decrease was primarily attributable to the sale of $4.2 million of securities during the fiscal year ended March 31, 2026. The Company sold the securities to fund 1-4 family residential, commercial residential and commercial and industrial loan demand. The loss recognized on the sale of the loans was $261,000. The unrealized loss on securities totaled $4.1 million at March 31, 2026.\n\n​\n\nNet Loans. Net loans increased $3.5 million, or 3.3%, to $110.5 million at March 31, 2026 from $107.0 million at March 31, 2025. During the fiscal year ended March 31, 2026, loan originations totaled $24.8 million, comprised of $7.3 million of loans secured by one- to four-family residential real estate, $5.9 million of commercial real estate loans, $4.2 million of construction and land loans, $4.1 million of home equity loans, $2.2 million of commercial and industrial loans, $600,000 of multi-family loans and $400,000 of consumer loans. The majority of the consumer loans originated were auto loans.\n\n​\n\nDuring the fiscal year ended March 31, 2026, commercial real estate loans increased $3.1 million, or 12.8%, to $27.3 million at March 31, 2026, commercial and industrial loans increased $2.0 million, or 46.5%, to $6.3 million at March 31, 2026, home equity lines of credit increased $500,000, or 11.4%, to $4.9 million at March 31, 2026 and multifamily loans increased $200,000, or 12.5%, to $1.8 million at March 31, 2026. These increases were partially offset by a decrease in one-to-four family residential loans of $1.9 million, or 2.7%, to $68.0 million at March 31, 2026, a decrease in construction and land development loans of $400,000, or 16.0%, to $2.1 million at March 31, 2026, and a decrease in consumer loans of $200,000, or 15.4%, to $1.1 million at March 31, 2026.\n\n​\n\nThe increase in the Company’s loan portfolio has been due to increased loan demand, primarily in commercial mortgage and commercial and industrial loans. The Company also increased its participation loans purchased during the year ended March 31, 2026.\n\n​\n\nThe Company’s strategy includes growing the loan portfolio, focusing on commercial real estate loans and home equity lines of credit.\n\n​\n\nDeposits. Deposits increased by $3.8 million, or 3.1%, to $124.5 million at March 31, 2026 from $120.7 million at March 31, 2025. Core deposits decreased $3.7 million, or 4.3%, to $83.2 million at March 31, 2026 from $86.9 million at March 31, 2025. Certificates of deposit increased $7.5 million, or 22.2%, to $41.3 million at March 31, 2026 from $33.8 million at March 31, 2025. The decrease in core deposits was due primarily to a $5.5 million decrease in the account held by a significant commercial customer whose account balance fluctuates routinely in the normal course of its business, which was partially offset by an increase in savings and money market accounts of $2.7 million. The increase in certificates of deposit was due primarily to certificate of deposit specials offered to offset the decrease in core deposits and to fund increased loan demand during the year-ended March 31, 2026.\n\n​\n\nDuring the fiscal year ended March 31, 2026, management continued its strategy of pursuing growth in demand accounts and other lower cost core deposits, in part by enhancing products and services offered and increased marketing. Management intends to continue its efforts to increase core deposits, with an emphasis on growth in consumer and business demand deposits.\n\nAdvances from the Federal Home Loan Bank. Advances from the Federal Home Loan Bank totaled $3.8 million at March 31, 2026, a decrease of $6.2 million, or 62.0%, from the $10.0 million balance at March 31, 2025. The decrease in advances was primarily due to the increase in deposits and the use of investment sale proceeds to pay down outstanding advances.\n\n​\n\nStockholders’ Equity. Stockholders’ equity increased $332,000, or 2.8%, to $12.4 million at March 31, 2026, from $12.1 million at March 31, 2025. The increase was primarily from a $806,000 decrease in the unrealized loss on available for sale securities, which was partially offset by a decrease in retained earnings of $515,000 as a result of the Company’s net operating loss for fiscal year 2026.\n\n​\n\n36\n\n[Table of Contents](#TOC)\n\n**Average Balances and Yields**. The following table sets forth average balance sheets, average yields and rates, and other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using daily average balances. Non-accrual loans are included in average balances only. The average balance of available-for-sale securities does not include unrealized losses during the periods. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Net deferred loan fees/costs are immaterial.\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**  ​ ​ ​**\n\n****​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n \n\n​\n\n​\n\n****​\n\n​\n\n**For the Year Ended March 31, **\n\n \n\n​\n\n​\n\n****​\n\n​\n\n**2026**\n\n​\n\n**2025**\n\n** **\n\n​\n\n​\n\n****​\n\n**  ​ ​ ​**\n\n**Average**\n\n  ​ ​ ​\n\n​\n\n​\n\n  ​ ​ ​\n\n​\n\n  ​ ​ ​\n\n**Average**\n\n  ​ ​ ​\n\n​\n\n​\n\n  ​ ​ ​\n\n​\n\n** **\n\n​\n\n​\n\n****​\n\n​\n\n**Outstanding**\n\n​\n\n​\n\n​\n\n​\n\n**Average**\n\n​\n\n**Outstanding**\n\n​\n\n​\n\n​\n\n​\n\n**Average**\n\n** **\n\n​\n\n​\n\n****​\n\n​\n\n**Balance**\n\n​\n\n**Interest**\n\n​\n\n**Yield/Rate**\n\n​\n\n**Balance**\n\n​\n\n**Interest**\n\n​\n\n**Yield/Rate**\n\n \n\n**Interest-earning assets:**\n\n \n\n​\n\n​\n\n​\n\n​\n\nInterest-bearing deposits and other\n\n \n\n​\n\n​\n\n$\n\n1,790\n\n​\n\n$\n\n98\n\n \n\n5.47\n\n%  \n\n$\n\n2,860\n\n​\n\n$\n\n171\n\n \n\n5.98\n\n%\n\nAvailable-for-sale securities\n\n \n\n​\n\n​\n\n \n\n27,521\n\n​\n\n \n\n470\n\n \n\n1.71\n\n​\n\n \n\n29,470\n\n​\n\n \n\n492\n\n \n\n1.67\n\n​\n\nLoans\n\n \n\n​\n\n​\n\n \n\n109,964\n\n​\n\n \n\n5,618\n\n \n\n5.11\n\n​\n\n \n\n108,821\n\n​\n\n \n\n5,216\n\n \n\n4.79\n\n​\n\nTotal interest-earning assets\n\n \n\n​\n\n​\n\n \n\n139,275\n\n​\n\n \n\n6,186\n\n \n\n4.44\n\n​\n\n \n\n141,151\n\n​\n\n \n\n5,879\n\n \n\n4.17\n\n​\n\nNoninterest earning assets\n\n \n\n​\n\n​\n\n​\n\n8,128\n\n​\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\n \n\n7,261\n\n​\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\nAllowance for credit losses\n\n \n\n​\n\n​\n\n​\n\n(908)\n\n​\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\n \n\n(879)\n\n​\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\nTotal assets\n\n​\n\n​\n\n​\n\n$\n\n146,495\n\n​\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\n$\n\n147,533\n\n​\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Interest-bearing liabilities:**\n\n​\n\n​\n\n​\n\n \n\n  ​\n\n​\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\n \n\n  ​\n\n​\n\n \n\n  ​\n\n \n\n  ​\n\n​\n\nInterest-bearing demand accounts\n\n​\n\n \n\n​\n\n$\n\n27,234\n\n​\n\n \n\n7\n\n \n\n0.03\n\n%  \n\n$\n\n34,797\n\n​\n\n \n\n7\n\n \n\n0.02\n\n%\n\nSavings accounts\n\n​\n\n \n\n​\n\n \n\n21,623\n\n​\n\n \n\n113\n\n \n\n0.52\n\n​\n\n \n\n19,509\n\n​\n\n \n\n35\n\n \n\n0.18\n\n​\n\nMoney market accounts\n\n​\n\n \n\n​\n\n \n\n30,079\n\n​\n\n \n\n583\n\n \n\n1.94\n\n​\n\n \n\n29,213\n\n​\n\n \n\n429\n\n \n\n1.47\n\n​\n\nCertificates of deposit\n\n​\n\n \n\n​\n\n \n\n36,878\n\n​\n\n \n\n1,368\n\n \n\n3.71\n\n​\n\n \n\n35,749\n\n​\n\n \n\n1,386\n\n \n\n3.88\n\n​\n\nTotal interest-bearing deposits\n\n​\n\n \n\n​\n\n \n\n115,814\n\n​\n\n \n\n2,071\n\n \n\n1.79\n\n​\n\n \n\n119,268\n\n​\n\n \n\n1,857\n\n \n\n1.56\n\n​\n\nFederal Home Loan Bank advances\n\n​\n\n \n\n​\n\n \n\n8,417\n\n​\n\n \n\n366\n\n \n\n4.35\n\n​\n\n \n\n7,423\n\n​\n\n \n\n368\n\n \n\n4.96\n\n​\n\nFederal Funds purchased\n\n​\n\n \n\n​\n\n \n\n116\n\n​\n\n \n\n6\n\n \n\n5.17\n\n​\n\n \n\n66\n\n​\n\n \n\n4\n\n \n\n6.06\n\n​\n\nTotal interest-bearing liabilities\n\n​\n\n \n\n​\n\n \n\n124,347\n\n​\n\n \n\n2,443\n\n \n\n1.96\n\n​\n\n \n\n126,757\n\n​\n\n \n\n2,229\n\n \n\n1.76\n\n​\n\nNoninterest-bearing demand deposits\n\n​\n\n \n\n​\n\n \n\n8,042\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n \n\n8,248\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nOther noninterest-bearing liabilities\n\n​\n\n​\n\n​\n\n \n\n1,800\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n \n\n2,700\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nTotal liabilities\n\n​\n\n​\n\n​\n\n \n\n134,189\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n \n\n137,705\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nTotal stockholders' equity\n\n​\n\n​\n\n​\n\n \n\n12,306\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n \n\n9,828\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nTotal liabilities and stockholders' equity\n\n​\n\n​\n\n​\n\n \n\n146,495\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n \n\n147,533\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nNet interest income\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n$\n\n3,743\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n$\n\n3,650\n\n​\n\n​\n\n​\n\nNet interest rate spread (1)\n\n​\n\n​\n\n​\n\n \n\n​\n\n​\n\n​\n\n​\n\n​\n\n2.48\n\n%  \n\n \n\n​\n\n​\n\n​\n\n​\n\n​\n\n2.41\n\n%  \n\nNet interest-earning assets (2)\n\n​\n\n​\n\n​\n\n$\n\n14,928\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n$\n\n14,394\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nNet interest margin (3)\n\n​\n\n​\n\n​\n\n \n\n​\n\n​\n\n​\n\n​\n\n​\n\n2.69\n\n%  \n\n \n\n​\n\n​\n\n​\n\n​\n\n​\n\n2.59\n\n%  \n\nAverage interest-earning assets to interest-bearing liabilities\n\n​\n\n​\n\n​\n\n \n\n112.01\n\n%  \n\n​\n\n​\n\n​\n\n​\n\n​\n\n \n\n111.36\n\n%  \n\n​\n\n​\n\n​\n\n​\n\n​\n\n(1)Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.\n\n(2)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.\n\n(3)Net interest margin represents net interest income divided by average total interest-earning assets.\n\n​\n\n37\n\n[Table of Contents](#TOC)\n\n**Rate/Volume Analysis**. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**  ​ ​ ​**\n\n**Years Ended March 31, 2026 vs.**\n\n​\n\n​\n\n**2025**\n\n​\n\n​\n\n**Increase (Decrease)**\n\n​\n\n**Total**\n\n​\n\n​\n\n**Due to:**\n\n​\n\n**Increase**\n\n​\n\n​\n\n**Volume**\n\n  ​ ​ ​\n\n**Rate**\n\n  ​ ​ ​\n\n**(Decrease)**\n\n​\n\n​\n\n**(In thousands)**\n\n**Interest-earning assets:**\n\n \n\n​\n\n  ​\n\n \n\n​\n\n  ​\n\n \n\n​\n\n  ​\n\nLoans, net\n\n​\n\n$\n\n55\n\n​\n\n$\n\n347\n\n​\n\n$\n\n402\n\nAvailable-for-sale securities\n\n​\n\n \n\n(33)\n\n​\n\n \n\n11\n\n​\n\n \n\n(22)\n\nOther interest-earning assets\n\n​\n\n \n\n(64)\n\n​\n\n \n\n(9)\n\n​\n\n \n\n(73)\n\nTotal interest-earning assets\n\n​\n\n \n\n(42)\n\n​\n\n \n\n349\n\n​\n\n \n\n307\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Interest-bearing liabilities:**\n\n​\n\n \n\n  ​\n\n​\n\n \n\n  ​\n\n​\n\n \n\n  ​\n\nInterest-bearing demand accounts\n\n​\n\n \n\n(2)\n\n​\n\n \n\n2\n\n​\n\n \n\n—\n\nSavings accounts\n\n​\n\n \n\n4\n\n​\n\n​\n\n74\n\n​\n\n \n\n78\n\nMoney market accounts\n\n​\n\n \n\n13\n\n​\n\n \n\n141\n\n​\n\n \n\n154\n\nCertificates of deposit\n\n​\n\n \n\n44\n\n​\n\n \n\n(62)\n\n​\n\n \n\n(18)\n\nTotal deposits\n\n​\n\n \n\n59\n\n​\n\n \n\n155\n\n​\n\n \n\n214\n\nFederal Home Loan Bank advances\n\n​\n\n \n\n49\n\n​\n\n​\n\n-51\n\n​\n\n​\n\n(2)\n\nFederal funds purchased\n\n​\n\n \n\n3\n\n​\n\n​\n\n(1)\n\n​\n\n \n\n2\n\nTotal interest-bearing liabilities\n\n​\n\n \n\n111\n\n​\n\n \n\n103\n\n​\n\n \n\n214\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nChange in net interest income\n\n​\n\n$\n\n(153)\n\n​\n\n$\n\n246\n\n​\n\n$\n\n93\n\n​\n\n​\n\nComparison of Operating Results for the Fiscal Years Ended March 31, 2026 and 2025\n\nGeneral. Net loss for the fiscal year ended March 31, 2026, was $515,000, a decrease in earnings of $188,000 or 57.5%, compared to a net loss of $327,000 for the fiscal year ended March 31, 2025. The decrease in earnings was primarily due to an increase in noninterest expense of $467,000, or 10.4%, which was partially offset by an increase in noninterest income of $63,000, or 16.8%, a decrease in the provision for credit losses of $72,000, or 372.5%, an increase in net interest income of $93,000, or 2.5%, and an increase in the benefit for income taxes of $51,000, or 38.3%.\n\nInterest Income. Interest income increased $307,000, or 5.2%, to $6.2 million for the fiscal year ended March 31, 2026, compared to $5.9 million for the fiscal year ended March 31, 2025. This increase was attributable to a $402,000, or 7.7%, increase in interest on loans receivable, which was partially offset by a $73,000, or 42.9%, decrease in interest-bearing deposits and other and a $22,000, or 4.5%, decrease in interest on investment securities.\n\nThe average yield on loans increased by 32 basis points to 5.11% for the fiscal year ended March 31, 2026 from 4.79% for the fiscal year ended March 31, 2025, while the average balance of loans increased by $1.1 million, or 1.1%, during the fiscal year ended March 31, 2026 compared to the average balance for the fiscal year ended March 31, 2025. The increase in average yield on loans reflects the increase in the Company’s commercial real estate and commercial and industrial loan portfolios. These loans typically have a higher interest rate than 1-4 family residential loans. To a lesser degree, the Company’s adjustable-rate loans that have the five-year treasury as the index, adjusted upward during the year.\n\n​\n\nThe average balance of investment securities decreased $2.0 million, or 6.8%, to $27.5 million for the fiscal year ended March 31, 2026 from $29.5 million for the fiscal year ended March 31, 2025, while the average yield on\n\n38\n\n[Table of Contents](#TOC)\n\ninvestment securities increased by four basis points to 1.71% for the fiscal year ended March 31, 2026 from 1.67% for the fiscal year ended March 31, 2025. The increase in the average yield on investment securities was primarily due to the sale of $4.2 million of lower-yielding securities during the fiscal year ended March 31, 2026.\n\n​\n\nInterest income on other interest-bearing deposits, comprised primarily of overnight deposits and stock in the Federal Home Loan Bank, decreased $73,000, or 42.7%, for the fiscal year ended March 31, 2026, due to a decrease in the average balance of $1.1 million, or 37.9%, to $1.8 million for the fiscal year ended March 31, 2026 from $2.9 million for the fiscal year ended March 31, 2025 and a decrease in the yield of 51 basis points, to 5.47% for the fiscal year ended March 31, 2026 from 5.98% for the fiscal year ended March 31, 2025. The decrease in the average yield was due to the decrease in market interest rates period-to-period.\n\nInterest Expense. Total interest expense increased $214,000, or 9.6%, to $2.4 million for the fiscal year ended March 31, 2026 from $2.2 million for the fiscal year ended March 31, 2025. Interest expense on deposits increased $214,000, or 11.5%, due primarily to an increase of 23 basis points in the average cost of deposits to 1.79% for the fiscal year ended March 31, 2026 from 1.56% for the fiscal year ended March 31, 2025, which was partially offset by a decrease of $3.4 million, or 2.9%, in the average balance of interest-bearing deposits to $115.8 million for the fiscal year ended March 31, 2026 from $119.2 million for the fiscal year ended March 31, 2025.\n\n​\n\nInterest expense on borrowings was $372,000 for both fiscal years ended March 31, 2026 and 2025. The weighted-average rate on borrowings decreased by 61 basis points, to 4.36%, for the fiscal year ended March 31, 2026 compared to 4.97% for the fiscal year ended March 31, 2025, which was partially offset by a $1 million, or 13.3%, increase in the average balance outstanding to $8.5 million for the fiscal year ended March 31, 2026 from $7.5 million for the fiscal year ended March 31, 2025.\n\n​\n\nNet Interest Income**.** Net interest income increased $93,000, or 2.5%, and was $3.7 million for both fiscal years ended March 31, 2026 and 2025. The increase in net interest income was from an increase in the interest rate spread to 2.48% for the fiscal year ended March 31, 2026 from 2.41% for the fiscal year ended March 31, 2025, as well as an increase in the average net interest earning assets of $534,000 period-to-period. The net interest margin increased to 2.69% for the fiscal year ended March 31, 2026 from 2.59% for the fiscal year ended March 31, 2025.\n\n​\n\nProvision for Credit Losses. The Company recorded a decrease in the provision for credit losses of $72,000, or 480.0%, for the fiscal year ended March 31, 2026 to a recovery for credit losses of $57,000 compared to a provision for credit losses of $15,000 recorded for the fiscal year ended March 31, 2025. The allowance for credit losses on loans was $799,000 at March 31, 2026, a decrease of $54,000, or 6.3%, compared to $853,000 at March 31, 2025. The allowance for credit losses on off-balance sheet commitments was $72,000 at March 31, 2026, a decrease of $4,000, or 5.3%, over the $76,000 total at March 31, 2025. The allowance for credit losses on loans represented 0.72% of total loans at March 31, 2026, and 0.79% of total loans at March 31, 2025.\n\n​\n\nThe determination of the adequacy of the allowance for credit losses included consideration of the balances of nonperforming loans, delinquent loans and net charge-offs in both periods. The Company had nonperforming loans of $250,000 at March 31, 2026 compared to nonperforming loans of $629,000 at March 31, 2025. Classified loans totaled $1.6 million at March 31, 2026, compared to $128,000 at March 31, 2025. The increase in classified loans was primarily due to the addition of a $1.4 million commercial residential loan to substandard assets. At March 31, 2026, the loan was performing. Total loans past due greater than 30 days totaled $601,000 at March 31, 2026 compared to no total loans past due greater than 30 days at March 31, 2025.\n\n​\n\nThe allowance for credit losses reflects the estimate management believes to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at March 31, 2026 and 2025. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact the Company’s financial condition and results of operations. In addition, bank regulatory agencies periodically review the allowance for credit losses and may require an increase in the provision for credit losses or the recognition of loan charge-offs, based on judgments different than those of management.\n\n39\n\n[Table of Contents](#TOC)\n\n​\n\nNon-Interest Income*.* Noninterest income increased $63,000, or 16.8%, to $439,000 for the fiscal year ended March 31, 2026 from $376,000 for the fiscal year ended March 31, 2025. The other income increase of $56,000, or 150.4%, and the cash surrender value of bank owned live insurance (BOLI) increase of $14,000, or 12.3%, were partially offset by a $4,000, or 22.2%, decrease in loan servicing fees and a $4,000, or 2.0%, decrease in service fees on deposits. The annualized net yield on BOLI was 3.55% as of 3/31/26, compared to 3.45% as of 3/31/25.\n\nThe other income increase was primarily from the recoupment of legal fees and other fees expensed in prior fiscal years from the borrower of a charged off loan.\n\nNoninterest Expense. Noninterest expense increased $467,000, or 10.4%, to $4.9 million for the fiscal year ended March 31, 2026, compared to $4.5 million for the fiscal year ended March 31, 2025. The increase was due primarily to a $261,000 loss on the sale of investment securities, a $45,000 or 2.0%, increase in salaries and employee benefits, a $68,000, or 12.5%, increase in data processing fees, a $69,000, or 15.6%, increase in other noninterest expenses, and a $31,000, or 7.9%, increase in professional services. This was partially offset by an $11,000 or 12.5%, decrease in FDIC insurance premiums, a $7,000, or 5.7%, decrease in directors’ fees, and a $7,000, or 8.4%, decrease in advertising.\n\n​\n\nThe increase in salaries and employee benefits was due primarily to the hiring of a new employee to help with servicing loans sold to the secondary market, the grant of stock awards and options to the Company’s directors and officers and normal merit increases year over year. The increase in other noninterest expenses was primarily related to the Company’s 150th anniversary celebration, an increase in licensing fees, and an increase in the financial institution tax paid year-to-year. The increase in professional services was primarily due to the payment to outside firms for the Company’s CECL model validation and computer network intrusion audit. The decrease in directors’ fees was from the retirement of board member William Hibner in December, 2025. The Company chose not to replace Mr. Hibner after he retired, consequently reducing the number of board members to six from seven.\n\n​\n\nBenefit for Income Taxes. The Company’s income tax benefit provision increased by $51,000, or 38.3%, to a total of $184,000 for the fiscal year ended March 31, 2026, compared to a benefit provision of $133,000 during the fiscal year ended March 31, 2025. The increase in the income tax benefit provision was due primarily to a $188,000 increase in pretax loss. The tax benefit provision and effective tax rates reflect the Company’s nontaxable interest income in each period.\n\n​\n\nManagement of Market Risk\n\nGeneral. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. The board of directors establishes policies and guidelines for managing interest rate risk. All directors participate in discussions during the regular board meetings evaluating the interest rate risk inherent in our assets and liabilities, and the level of risk that is appropriate. These discussions take into consideration our business strategy, operating environment, capital, liquidity and performance objectives consistent with the policy and guidelines approved by them.\n\nThe board of directors delegates the responsibility for interest rate risk management to the asset/liability management committee consisting of the Company’s executive officers. The asset/liability management committee provides quarterly reports to the board of directors. If an exception to the interest rate risk policy tolerance limits arise, the asset/liability management committee documents and communicates it to the board of directors at its next scheduled meeting along with a recommended course of action to address the exception consistent with established policy and guidelines.\n\n40\n\n[Table of Contents](#TOC)\n\nOur asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we are using to manage interest rate risk are:\n\n●maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;\n\n●maintaining a high level of liquidity;\n\n●growing our core deposit accounts;\n\n●managing our investment securities portfolio so as to reduce the average maturity and effective life of the portfolio; and\n\n●continuing to diversify our loan portfolio by adding more commercial real estate loans and commercial and industrial loans, which typically have shorter maturities and/or balloon payments.\n\nBy following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.\n\n​\n\nWe maintain a significant deposit account with a commercial customer. The asset/liability management committee monitors the status of the account at its monthly meeting and the account is segregated as a separate line item on the deposit reports reviewed by the committee. Furthermore, there is regular verbal communication between senior management and the depositor regarding any expected changes in the depositor’s business that could result in material inflows and outflows from the account in the short-term so that we may proactively manage any risks due to expected fluctuations in the account balance.\n\nWe maintain uninsured deposits that exceed the Federal Deposit Insurance Corporation insurance limit. Senior management reviews uninsured deposit balances monthly to manage any risks due to fluctuations in the balances of uninsured deposits. We do not maintain any internal policy limits on concentrations in uninsured deposits in total or by type of depositor. We may accept brokered deposits up to an internal policy limit of less than 15.0% of total assets from brokers approved by the board of directors. Before a broker is approved by the board of directors, we conduct financial analysis and due diligence on the broker. We had brokered deposits of $3.1 million at March 31, 2026.\n\nHistorically, we have not sold loans we have originated. We recently developed the infrastructure necessary to sell one- to four-family residential mortgage loans, particularly longer term one- to four-family residential mortgage loans, to the secondary market to further help mitigate our interest rate risk exposure.\n\nWe have not engaged in hedging activities, such as engaging in futures or options. We do not anticipate entering into similar transactions in the future.\n\nEconomic Value of Equity. We 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 instantaneously by 100, 200 and 300 basis point increments or decreases instantaneously by 100, 200 and 300 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.\n\n41\n\n[Table of Contents](#TOC)\n\nThe following table sets forth, as of March 31 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. The estimated changes presented in the table exceeded the policy limits established by our board of directors in an increased rate scenario of 200 and 300 basis points.\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**At March 31, 2026**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**EVE as a Percentage of**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Present**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Value of Assets **(3)\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Estimated Increase**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**(Decrease) in**\n\n​\n\n​\n\n​\n\n**Increase**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**EVE**\n\n​\n\n​\n\n​\n\n**(Decrease)**\n\n**Change in Interest**\n\n  ​ ​ ​\n\n**Estimated**\n\n  ​ ​ ​\n\n​\n\n​\n\n  ​ ​ ​\n\n​\n\n  ​ ​ ​\n\n​\n\n  ​ ​ ​\n\n**(basis**\n\n**Rates (basis points)**(1)\n\n​\n\n**EVE **(2)\n\n​\n\n**Amount**\n\n​\n\n**Percent**\n\n​\n\n**EVE Ratio**(4)\n\n​\n\n**points)**\n\n​\n\n​\n\n​\n\n​\n\n \n\n**(Dollars in thousands)**\n\n​\n\n​\n\n​\n\n​\n\n300\n\n​\n\n$\n\n13,756\n\n​\n\n$\n\n(5,727)\n\n \n\n(29.39)\n\n%  \n\n10.91\n\n%  \n\n(307)\n\n200\n\n​\n\n$\n\n15,748\n\n​\n\n$\n\n(3,735)\n\n \n\n(19.17)\n\n%  \n\n12.08\n\n%  \n\n(190)\n\n100\n\n​\n\n$\n\n18,267\n\n​\n\n$\n\n(1,216)\n\n \n\n(6.24)\n\n%  \n\n13.55\n\n%  \n\n(43)\n\nLevel\n\n​\n\n$\n\n19,483\n\n​\n\n \n\n—\n\n \n\n—\n\n%  \n\n13.98\n\n%  \n\n—\n\n(100)\n\n​\n\n$\n\n19,996\n\n​\n\n$\n\n513\n\n \n\n2.63\n\n%  \n\n13.93\n\n%  \n\n(5)\n\n(200)\n\n​\n\n$\n\n20,054\n\n​\n\n$\n\n571\n\n \n\n2.93\n\n%  \n\n13.60\n\n%  \n\n(38)\n\n(300)\n\n​\n\n$\n\n19,338\n\n​\n\n$\n\n(145)\n\n \n\n(0.74)\n\n%  \n\n12.82\n\n%  \n\n(116)\n\n(1)Assumes an immediate uniform change in interest rates at all maturities. One basis point equals 0.01%.\n\n(2)EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.\n\n(3)Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.\n\n(4)EVE Ratio represents EVE divided by the present value of assets.\n\nThe table above indicates that at March 31, 2026, we would have experienced a 6.24% decrease in EVE in the event of an instantaneous parallel 100 basis point increase in market interest rates and a 2.63% increase in EVE in the event of an instantaneous 100 basis point decrease in market interest rates.\n\nChange in Net Interest Income. The table sets forth, as of March 31, 2026, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. All estimated changes presented in the table are within the policy limits established by the Company’s board of directors.\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**At March 31, 2026**\n\n \n\n**Change in Interest Rates**\n\n  ​ ​ ​\n\n**Net Interest Income Year 1**\n\n  ​ ​ ​\n\n​\n\n** **\n\n**(basis points)**(1)\n\n​\n\n**Forecast**\n\n​\n\n**Year 1 Change from Level**\n\n** **\n\n​\n\n** **\n\n**(Dollars in thousands)**\n\n​\n\n​\n\n​\n\n300\n\n​\n\n$\n\n3,465\n\n \n\n(10.86)\n\n%\n\n200\n\n​\n\n$\n\n3,647\n\n \n\n(6.20)\n\n%\n\n100\n\n​\n\n$\n\n3,863\n\n \n\n(0.63)\n\n%\n\nLevel\n\n​\n\n$\n\n3,888\n\n \n\n—\n\n​\n\n(100)\n\n​\n\n$\n\n3,824\n\n \n\n(1.64)\n\n%\n\n(200)\n\n​\n\n$\n\n3,699\n\n \n\n(4.86)\n\n%\n\n(300)\n\n​\n\n$\n\n3,494\n\n \n\n(10.13)\n\n%\n\n(1)Assumes an immediate uniform change in interest rates at all maturities. One basis point equals 0.01%.\n\nThe table above indicates that as of March 31, 2026, we would have experienced a 0.63% decrease in net interest income in the event of an instantaneous parallel 100 basis point increase in market interest rates and a 1.64% decrease in net interest income in the event of an instantaneous 100 basis point decrease in market interest rate.\n\nCertain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. Modeling changes in EVE and NII require making certain assumptions that may or may not reflect the manner in which\n\n42\n\n[Table of Contents](#TOC)\n\nactual yields and costs respond to changes in market interest rates. For instance, the EVE and NII tables presented above 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. 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 EVE and NII 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 EVE and NII and will differ from actual results.\n\nEVE and net interest NII 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 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.\n\nOur primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Cincinnati, the Federal Reserve Bank of Cleveland and a correspondent bank. At March 31, 2026, we had the ability to borrow up to $47.4 million from the Federal Home Loan Bank of Cincinnati under a collateral pledge facility. At March 31, 2026, we had $3.1 million of outstanding advances under this facility. At March 31, 2026, we had no outstanding borrowings from the Federal Reserve Bank of Cleveland, but had the capacity to borrow up to $5.7 million. At March 31, 2026, we had no outstanding borrowings from the correspondent bank, but had the capacity to borrow up to $5.0 million.\n\nWhile 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 short-term investments. The levels of these assets depend 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. For the fiscal year ended March 31, 2026, cash flows from operating, investing, and financing activities resulted in a net decrease in cash and cash equivalents of $622,000. Net cash provided by investing activities amounted to $1.9 million, net cash used in financing activities amounted to $2.2 million, and net cash used in operating activities amounted to $318,000.\n\nWe believe we maintain a strong liquidity position, and are committed to maintaining it. 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\n​\n\nMonroe Federal Bancorp is a separate legal entity from Monroe Federal Savings and Loan Association Bank and must provide for its own liquidity to fund its operating expenses and other financial obligations. Its primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to Monroe Federal Bancorp is governed by applicable regulations. At March 31, 2026, Monroe Federal Bancorp (on an unconsolidated basis) had liquid assets of $1.5 million.\n\n​\n\nAt March 31, 2026, the Bank was categorized as well-capitalized under regulatory capital guidelines. Management is not aware of any conditions or events since the most recent notification that would change our category. For further information, see note 9 to the notes to consolidated financial statements.\n\n43\n\n[Table of Contents](#TOC)\n\nOff-Balance Sheet Arrangements. At March 31, 2026, we had $19.3 million of outstanding commitments, consisting of $3.9 million in commitments to originate loans and $15.4 million of undisbursed funds on previously originated loans. At March 31, 2026, certificates of deposit that are scheduled to mature on or before March 31, 2027, totaled $29.7 million. 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 Federal Home Loan Bank of Cincinnati advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.\n\n**Impact of Inflation and Changing Prices**\n\n****The financial statements and related data presented in this prospectus have been prepared according to GAAP which requires 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 increasing operating costs. Unlike most industrial companies, virtually all of 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."}