MGNO 10-K & 10-Q changes, risk factors and insider trading

This discussion and analysis reviews our consolidated 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 consolidated financial statements and footnotes thereto that appear in Item 8 of this Form 10-K. The information contained in this section should be read in conjunction with these consolidated financial statements and footnotes and the business and financial information provided in this Form 10-K.

Overview

Magnolia Bancorp, Inc. completed its common stock offering and the conversion of Mutual Savings and Loan Association in January 2025. Magnolia conducts its operations primarily through its wholly owned subsidiary, Mutual Savings and Loan Association. The Company’s loan portfolio consists primarily of fixed-rate one-to-four family residential mortgage loans that we have originated. The Company intends to continue our focus on originating primarily fixed-rate one-to-four family residential mortgage loans, and to a lesser extent residential construction loans and home equity lines of credit. In prior years, the Company has also originated commercial real estate loans and multi-family residential loans which represent approximately 2.4% of our loan portfolio at December 31, 2025. We also originate share loans, which are loans secured by deposit accounts at the Company. We generally do not purchase or sell loans. We offer a variety of deposit accounts including checking accounts, NOW accounts and certificates of deposit. The Company is subject to regulation and examination by the Federal Reserve, and the Association is subject to regulation and examination by the OCC and the FDIC.

Our 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 are also affected by our provisions for credit losses, non-interest income and non-interest expense. Non-interest income consists primarily of rental income and service charges and other fees on deposit accounts. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, audit and regulatory examination fees, insurance premiums, and other expenses.

Our 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.

The Federal Reserve Board began increasing its federal funds rate in March 2022 to combat inflation, with 11 increases aggregating 5.25% occurring between March 2022 and July 2023. These increases resulted in substantial increases in market interest rates, including the rates we pay on our certificates of deposit. As interest rates rose during this period, our cost of funds increased and the demand for our fixed-rate loans decreased, resulting in declines in our net interest income. We elected not to match the highest market rates being paid on longer term certificates of deposit in light of the substantial increases in market interest rates, and we shortened the average maturity of our certificates of deposit. In an effort to offset the declines in net interest income during this period, we took steps to control our total non-interest expenses, which decreased in 2024 from 2023. Our non-interest expenses increased in 2025 as a result of the increase in expenses associated with being a public reporting entity. We incurred a net loss for the year ended December 31, 2025, as non-interest expense increased more than our net interest income increased.

During 2025, the Federal Reserve Board decreased its federal funds rate a total of 0.75%. We expect these rate reductions will continue to result in declines in our cost of funds. At December 31, 2025, we had $4.9 million of certificates of deposit scheduled to mature within 12 months, with $4.3 million of such short-term certificates of deposit bearing an interest rate between 3.00% and 4.00%. We also expect the demand for our fixed-rate loans will begin to increase as market interest rates decline. However, we expect our total non-interest expenses to increase due to our need to hire additional lending and accounting personnel, and the increased expenses associated with being a public company.

Business Strategy

Our principal objective is to build long-term value for our shareholders 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:

We intend to continue to pursue these business strategies subject to changes necessitated by future market conditions, regulatory restrictions and other factors. There are risks associated with our plans to increase our commercial real estate loans and multi-family residential loans. While we intend to mitigate these risks by following our loan underwriting policies with respect to such loans and by hiring additional loan officers who are experienced in this area, there can be no assurance that we can hire additional loan officers with such experience or that such loan officers will be able to generate a sufficient volume of new loans to cover their compensation. In addition, we expect our commercial real estate loan portfolio and our multi-family residential loan portfolio to each account for less than 5% of our total loan portfolio for the foreseeable future.

Anticipated Increase in Noninterest Expense

Following the completion of the conversion, our noninterest expense has increased because of the increased costs associated with operating as a public company and the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan and grants under our stock-based benefit plans. Our noninterest expense is expected to continue to increase due to our need to hire additional personnel and expected grants under our stock-based benefit plans.

Critical Accounting Policies and Use of Critical Accounting Estimates

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated 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 policy discussed below to be our critical accounting policy. 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.

We consider the accounting policy for the allowance for credit losses to be our critical accounting policy. Under the current expected credit loss model (“CECL”), the allowance for credit losses represents management’s estimate of lifetime credit losses on loans as of the balance sheet date using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Comparison of Financial Condition at December 31, 2025 and 2024

Total Assets. Total assets were $37.4 million at December 31, 2025, a decrease of $6.6 million, or 14.9%, from $44.0 million at December 31, 2024. This decrease is primarily due to a decrease of $5.4 million in cash and cash equivalents and a decrease of $1.2 million in other assets.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $5.4 million, or 54.6%, to $4.5 million at December 31, 2025 from $9.9 million at December 31, 2024. As market interest rates continued to remain at relatively high rates and in light of the reduced demand for our fixed-rate mortgage loans, we elected not to match the highest market rates being paid on longer term deposits and did not renew higher rate certificates of deposits. We used our excess liquidity to fund the decrease in deposits. Our cash and cash equivalents were 12.1% of total assets at December 31, 2025 compared to 22.6% of total assets at December 31, 2024.

Loans Receivable, Net. Loans receivable, net, increased by approximately $100,000 or 0.3%, to $30.7 million at December 31, 2025 from $30.6 million at December 31, 2024. During the year ended December 31, 2025, our total loan originations increased by $3.9 million, or 288.5%, from $1.3 million during the year ended December 31, 2024. Originations of one- to-four family residential loans representing most of the loan portfolio increased by $3.2 million in the year ended December 31, 2025 compared to 2024, as the demand for our fixed-rate loans increased compared to 2024.

Deposits. Total deposits decreased by $12.7 million, or 42.9%, to $16.8 million at December 31, 2025 from $29.5 million at December 31, 2024. Core deposits (defined as deposits other than certificates of deposit) decreased by $9.2 million, or 46.0%, to $10.8 million at December 31, 2025 from $20.0 million at December 31, 2024. The decline in core deposits was primarily due to the completion of the conversion, which resulted in $7.7 million on deposit at the Association being used to purchase shares of common stock of Magnolia Bancorp (with the remaining shares purchased with a loan to the ESOP), and an additional $1.4 million of deposits being refunded to purchasers in the over-subscribed community offering. To a lesser extent, the decrease was also partially due to our certificates of deposit decreasing by $3.5 million, or 36.6%, from $9.6 million at December 31, 2024. Certificates of deposit decreased primarily due to payoffs of higher rate maturing term deposits.

Management continued its strategy of pursuing growth in demand accounts and lower cost core deposits, but market conditions affected this strategy during the year ended December 31, 2025. Management intends to continue its efforts to increase core deposits, with an emphasis on growth in consumer deposits.

Borrowings. We had no FHLB advances at December 31, 2025 or December 31, 2024. We have a line of credit totaling $12.7 million with the FHLB for advances which is secured by a blanket collateral agreement covering substantially all of our loans receivable.

Total Equity. Total equity increased by $6.1 million, or 43.7%, to $20.0 million at December 31, 2025 from $13.9 million at December 31, 2024. The increase resulted from the proceeds of the conversion in January 2025 of $8.3 million less the $1.4 million in stock offering costs and $645,000 in unearned ESOP compensation, which was partially offset by our net loss of $170,000 for the year ended December 31, 2025.

Average Balances, Net Interest Income, and Yields Earned and Rates Paid

The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. As we did not own any tax-exempt securities during the periods presented, no yield adjustments were made. All average balances are based on daily balances.

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Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

Comparison of Operating Results for the Year Ended December 31, 2025 and 2024

General. We had a net loss of $170,000 for the year ended December 31, 2025 compared to a net loss of $100,000 for the year ended December 31, 2024. This $70,000 increase in the net loss was due to an increase of $331,000 in total non-interest expense and a decrease of $6,000 in the income tax benefit, which was partially offset by an increase of $268,000 in net interest income. During 2025, the Federal Reserve Board decreased its federal funds rate by 0.75% to a range of 3.5% to 3.75%. We expect these rate reductions will continue to result in declines in our cost of funds and improvement in our net interest income. We also expect the demand for our fixed-rate loans will continue to increase as market interest rates decline. However, we expect our total non-interest expenses to remain high following the conversion due to our need to hire additional lending and accounting personnel and the increased expenses associated with being a public company.

Interest Income. Interest income increased by $118,000 or 8.1% to $1,576,000 for the year ended December 31, 2025 from $1,458,000 for the year ended December 31, 2024. The increase in interest income was due to an increase of $104,000 or 102% in interest on deposits with other banks and cash equivalents, as the average balance increased by $2.5 million or 113% due to the conversion proceeds.

Interest income also increased due to higher interest on loans. Loan income increased $17,000 or 1.3% as the average yield on loans increased from 4.24% in 2024 to 4.37% in 2025 due to new loan originations having higher rates than on loans that have paid off. Our total loan originations increased by $3.9 million, or 288.5%, from $1.3 million during 2024, as the demand for our fixed-rate loans increased. Market interest rates for fixed-rate loans currently exceed the average yield on our loan portfolio.

Interest Expense. Total interest expense decreased by $150,000 or 38.5% to $240,000 for the year ended December 31, 2025 from $390,000 for the year ended December 31, 2024. The decrease was primarily due to the decrease of $123,000 in interest expense on certificates of deposit and a decrease of $26,000 in interest expense on FHLB advances in the year ended December 31, 2025 compared to December 31, 2024. The average balance of certificates of deposit declined in 2025 by $3.0 million from the year ended December 31, 2024, as we did not renew $2 million of term deposits that matured with an average rate of 4.1%.

At December 31, 2025, $4.8 million or 79.7% of our total certificates of deposit were scheduled to mature within the following 12 months. We shortened the average maturity of our certificates of deposit in anticipation of market interest rates beginning to decline. If the Federal Reserve Board continues to reduce its federal funds rate and market interest rates on new certificates of deposit decrease from current levels, we expect these rate reductions will eventually result in declines in our cost of funds.

There was no interest expense on FHLB advances during the year ended December 31, 2025 as there were no outstanding advances during the period. Interest expense during the year ended December 31, 2024 was $26,000, and the advances had an average balance of $462,000 during that period. All outstanding FHLB advances were repaid upon maturity prior to December 31, 2024.

Net Interest Income. Net interest income increased by $268,000, or 25.1%, to $1,336,000 for the year ended December 31, 2025 compared to $1,068,000 for the year ended December 31, 2024. The increase was primarily due to an increase in the average balance of other interest-earning assets as a result of the stock transaction in January 2025 and a decrease in average interest-bearing liabilities as high rate time deposits were not renewed.

Provision for Credit Losses. We made no provision for credit losses in either the year ended December 31, 2025 or 2024. We had no loan charge-offs in the year ended December 31, 2025. In September 2024, we foreclosed on one loan resulting in a $15,000 write-off which reduced our allowance for credit losses from $200,000 at December 31, 2024 to $185,000 at December 31, 2025. Our total non-performing assets as of December 31, 2025 and 2024 were $136,000 and $34,000, respectively. The allowance for credit losses was $185,000 at December 31, 2025, representing 136% of non-performing assets at December 31, 2025. As of December 31, 2025, we had two loans totaling $136,000 that were 30 days or more delinquent, compared to no delinquencies at December 31, 2024. The two past due loans with an outstanding balance of $136,000 were 90 days past due and on nonaccrual at December 31, 2025. No additional provision for credit losses was deemed necessary in the loan portfolio.

Non-interest Income. Non-interest income decreased $1,000 for the year ended December 31, 2025 to $34,000 compared to the year of 2024. A nominal decrease in customer service charges and fees was offset by a nominal increase in rental income.

Non-interest Expense. Non-interest expense increased by $331,000, or 26.9%, to $1,561,000 for the year ended December 31, 2025 compared to $1,230,000 for the year ended December 31, 2024. The increase in non-interest expense in the year of 2025 was primarily due to increases of:

The above increases were partially offset by a decrease of:

The increase in audit and regulatory examination fees and legal expense resulted primarily from additional professional fees related to preparation and filing of public company filings. The increase in salaries and employee benefits in the year ended December 31, 2025 was primarily due to hiring an additional accounting employee and contract resources and incurring compensation expense for the Company’s new ESOP and stock plans. Advertising expense increased in the year of 2025 as we implemented a social media campaign in certain markets. The increase in data processing is due primarily to rising costs of processing transactions.

Income Tax Provision (Benefit). We had an income tax benefit of $21,000 for the year ended December 31, 2025 compared to an income tax benefit of $27,000 for the comparable year of 2024. The tax benefit in the year of 2025 represented an effective tax rate of 11.0% on our pre-tax loss of $191,000 for such period, and our tax benefit for the year of 2024 represented an effective tax rate of 21.0% on our pre-tax loss of $127,000 for such period. Operating losses and the valuation allowance for the deferred tax asset resulted in the change in the effective rate between the periods. We expect we will continue to provide a valuation allowance on our net deferred taxes until such time we can generate positive income from operations.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans, and to a lesser extent borrowings. We have the ability to borrow from the Federal Home Loan Bank of Dallas. All advances outstanding during 2024 matured and were paid prior to December 31, 2024, and we did not utilize any FHLB advances in 2025.

While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing and lending activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. For further information, see the statements of cash flows in the consolidated financial statements that appear in Item 8 of this Form 10-K.

We are committed to maintaining a strong liquidity position. We monitor our liquidity on a daily basis and 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 can be retained. At December 31, 2025, certificates of deposit that are scheduled to mature within the next 12 months totaled $4.8 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 raise interest rates on deposits to attract new accounts or utilize Federal Home Loan Bank of Dallas advances, which may result in higher levels of interest expense.

At December 31, 2025, the Association 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 10 of the notes to the consolidated financial statements as of and for the year ended December 31, 2025.

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at December 31, 2025. When we disburse funds pursuant to outstanding commitments, those disbursements increase our outstanding loans and are treated as loan originations in the period in which the funds are disbursed.

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Other interest income decreased by $14,000 due primarily to interest earned on deposits with other banks decreasing by $13,000 as the average yield on these deposits decreased from 4.82% in 2025 to 4.13% in 2026. The Federal Reserve reduced the federal funds rate three times in 2025 starting in September 2025. In addition, the average balance of such deposits decreased by $446,000 during the three months ended June 30, 2026, compared to 2025.

Salaries and employee benefits increased due to hiring an officer in June 2025 who replaced the former accounting staff, netting additional salary costs of $21,000 during the three months ended June 30, 2026, compared to the three months ended June 30, 2025. This position also replaced outsourced accounting expenses which resulted in less accounting and auditing expenses of $27,000 during the three months ended June 30, 2026 compared to 2025.

On June 1, 2026, the Company hired a new President and the former President transitioned to the Executive Chairman role. The former president had a salary reduction as his work commitment decreased. The net additional payroll expense was $6,000 during the three months ended June 30, 2026, compared to the three months ended June 30, 2025.

Salaries and employee benefits also increased due to incurring stock compensation expense of $14,000 from stock awards granted. The Company granted equity awards under the 2025 Stock Option Plan and the 2025 Recognition and the Retention Plan in November 2025 and started recording expenses at that time.

Accounting and auditing expenses decreased due to hiring an officer in June 2025 and reducing contract accounting costs as discussed above. This was offset by an increase of $10,000 in auditing expenses due to additional regulatory filings required during the current year.

Advertising expenses decreased as the Company did not run promotional ads during the three months ended June 30, 2026, compared to incurring $17,000 of expense in the three months ended June 30, 2025.

Other expenses increased $14,000 for the three months ended June 30, 2026, from the three months ended June 30, 2025, due to incurring membership fees in the OTC Market for the first year. Other expenses also increased due to the timing of the Company’s annual meeting. The annual meeting was held in May 2026 in the current year and in September 2025 for the previous year.

Comparison of Operating Results for the Six Months Ended June 30, 2026 and 2025

General. We had a net loss of $134,000 for the six months ended June 30, 2026, compared to a net loss of $66,000 for the comparable period of 2025. This $68,000 increase in the net loss was due to an increase of $65,000 in total noninterest expense and a $16,000 effect of income taxes offset partially by an increase of $17,000 in net interest income.

Interest Income. Interest income decreased by $27,000 or 3.3% to $779,000 in the six months ended June 30, 2026, from $806,000 in the comparable period of 2025. The decrease was primarily due to a decrease of $51,000 in other interest income offset by an increase of $24,000 in loan interest and fee income.

Other interest income decreased by $51,000 primarily due to earning less interest on deposits with other banks. The due from bank average balance decreased by $1.4 million due to conversion proceeds held on deposit during the prior year. Interest on deposits with other banks also decreased as the average yield on deposits decreased from 4.53% in 2025 to 3.70 % in 2026. The Federal Reserve reduced the federal funds rate three times in 2025 starting in September 2025.

Loan income increased $24,000 as the average yield on loans increased from 4.31% in 2025 to 4.52% in 2026 due to new loan originations having higher rates than on loans that were paid off.

Interest Expense. Total interest expense decreased by $44,000 or 30.8% to $99,000 for the six months ended June 30, 2026, from $143,000 for the comparable period of 2025. The decrease was primarily due to the decrease in the amount of and the yield on certificates of deposit during the six months ended June 30, 2026 compared to 2025. The average balance of certificates of deposit declined during the six months ended June 30, 2026, by $1.7 million as we elected not to renew higher average rate term deposits that matured during the period. The average rate paid on certificates of deposit decreased to 3.07% in the six months ended June 30, 2026, from 3.55% for the six months ended June 30, 2025, reflecting the roll-off of higher rate certificates of deposits.

Net Interest Income. Net interest income increased by $17,000, or 2.6%, to $680,000 for the six months ended June 30, 2026, compared to $663,000 for the comparable period of 2025. The increase was primarily due to an increase in the average interest rate spread to 3.07% for the six months ended June 30, 2026, from 2.63% for the six months ended June 30, 2025, as the cost of funds decreased as higher paying certificate of deposits that matured were not renewed. The ability to shift our funding mix and rates was due to the completion of our stock offering and conversion in January of 2025.

Provision for Credit Losses. We made no provision for credit losses in either the six months ended June 30, 2026 or 2025. Our total non-performing assets as of June 30, 2026 and 2025 were $67,000 and $73,000, respectively. The allowance for credit losses was $185,000 at June 30, 2026, representing 276% of non-performing assets at June 30, 2026. As of June 30, 2026, we had one loan totaling $67,000 that was on nonaccrual. No additional provision for credit losses was deemed necessary in the loan portfolio.

Noninterest Income. Noninterest income decreased $4,000 to $13,000 for the six months ended June 30, 2026. Noninterest income is comprised of customer service charges and rental income.

Noninterest Expense. Noninterest expense increased by $65,000, or 8.5%, to $827,000 for the six months ended June 30, 2026, compared to $762,000 for the comparable period of 2025. The increase in noninterest expense was due to additional salary and employee benefit expenses of $87,000 and higher other expenses of $18,000 offset partially by a decrease in advertising expenses of $18,000.

Salaries and employee benefits increased due to hiring an officer in June 2025 who replaced the former accounting staff, netting additional salary costs of $42,000 during the six months ended June 30, 2026, compared to the six months ended June 30, 2025.

On June 1, 2026, the Company hired a new President and the former President transitioned to the Executive Chairman role. The former president had a salary reduction as his work commitment decreased. The net additional payroll expense was $6,000 during the six months ended June 30, 2026, compared to the six months ended June 30, 2025.

Salaries also increased due to incurring stock compensation expense of $28,000 from stock awards granted. The Company granted equity awards under the 2025 Stock Option Plan and the 2025 Recognition and the Retention Plan in November 2025 and started recording expenses at that time.

Advertising expenses decreased as the Company did not run promotional ads during the six months ended June 30, 2026, compared to incurring $18,000 of expense in the six months ended June 30, 2025.

Other expenses increased $18,000 for the six months ended June 30, 2026, from the six months ended June 30, 2025, due to incurring membership fees in the OTC Market for the first year. Other expenses also increased due to the timing of the Company’s annual meeting. The annual meeting was held in May 2026 in the current year and in September 2025 for the previous year.

Income Tax Provision (Benefit). We had no income taxes recorded for the six months ended June 30, 2026, compared to an income tax benefit of $16,000 for the comparable period of 2025. The Company provided a valuation allowance at December 31, 2025, for the net deferred tax asset recorded. This is due to recent operating losses. Since 2024, the Company has experienced higher noninterest expenses primarily related to additional costs since its mutual to stock conversion and becoming a public company. The Company will continue to evaluate the need for a valuation allowance against these deferred items and will adjust the valuation allowance as deemed appropriate. Both positive and negative information is included in the evaluation which includes a history of recent cumulative losses and near-term expectations, and risks associated with estimates of future income. An objective history of recent losses generally provides better evidence in the evaluation than a subjective estimate of future income.