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

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of the financial condition and results of operations of Steele Bancorp, Inc. (the "Bancorp"). Please refer to the financial statements and other information in this report as well as the Company's 2025 Form 10-K for an understanding of the following discussion and analysis.

The Bancorp is a bank holding company that, through its sole subsidiary Central Penn Bank & Trust (“the "Bank”), (collectively, the "Company"), provides full-service banking to individual, municipality and corporate customers. The Bank operates thirteen offices spanning the counties of Union, Snyder, Northumberland and Centre in Northcentral Pennsylvania. Gathering deposits and making loans are the major lines of business. The deposits are mainly deposits of individuals and small businesses and include various types of checking accounts, statement savings, money market accounts, interest checking accounts, individual retirement accounts, and certificates of deposit. Milestone Insurance Services, LLC ("Milestone") was formed in 2003 and is a wholly owned subsidiary of the Bank. Milestone is licensed to sell title insurance. The Company is supervised by the Board of Governors of the Federal Reserve System while the Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.

The Company's merger with Northumberland Bancorp ("NUBC") was completed on August 1, 2025. NUBC was a Pennsylvania corporation that conducted its business primarily through its wholly owned subsidiary The Northumberland National Bank, which operated from a main office in Northumberland, Pennsylvania, and had six branches throughout Central Pennsylvania. NUBC's results are included in our financial statements from the acquisition date forward, impacting comparisons to the prior year first quarter and second quarter.

Comparison of Financial Condition at MarchJune 31,30, 2026 and December 31, 2025

Total assets at MarchJune 31,30, 2026, were $1.27 billion, an increase of $7.31$12.29 million, or 0.61.0 percent from $1.26 billion at December 31, 2025. The increase in total assets was primarily due to thean increase in interest-bearing demandtotal deposits of $14.64$9.92 million.million, an increase of $4.45 million in debt securities available for sale and an increase of $5.80 million in loans.

Total average assets increased 1.122.05 percent from $1.25 billion at December 31, 2025 to $1.27$1.28 billion at MarchJune 31,30, 2026. Average earning assets were $1.15 billion at December 31, 2025 and $1.20$1.18 billion at MarchJune 31,30, 2026. Average interest-bearing liabilities were $895.90 million at December 31, 2025 and $909.64$907.52 million at MarchJune 31,30, 2026.

Cash and cash equivalents increased $8.36$5.02 million or 17.110.2 percent from $49.01 million at December 31, 2025 to $57.37$54.03 million at MarchJune 31,30, 2026. The increase is primarily related to increased interest-bearing demand deposits.

Loans decreasedincreased $1.27$5.80 million to $916.90$923.97 million at MarchJune 31,30, 2026 from $918.17 million at December 31, 2025.

Interest bearing deposits increased $1.09$8.37 million to $890.56$897.84 million at MarchJune 31,30, 2026 from $889.47 million at December 31, 2025. Noninterest-bearing deposits increased 1.50.7 percent, or $3.34$1.55 million from $221.31 million at December 31, 2025 to $224.64$222.86 million at MarchJune 31,30, 2026.

Total stockholders' equity increased by $3.75$6.03 million, or 3.25.1 percent, from $118.40 million at December 31, 2025, to $122.15$124.43 million at MarchJune 31,30, 2026. Accumulated other comprehensive loss increased from $1.14 million as of December 31, 2025 to $2.28$2.67 million as of MarchJune 31,30, 2026.

The loan-to-deposit ratio is a key measurement of liquidity and lending efficiency. Our loan-to-deposit ratio was 82.2%82.4% as of MarchJune 31,30, 2026 compared to 82.7% at December 31, 2025. The Company continues to have an optimal loan-to-deposit ratio, which indicates profitability and liquidity are balanced, the Company is able to earn interest on loans while maintaining sufficient funds to meet withdrawal demands.

Debt securities available-for-sale decreasedincreased by $121$4.45 thousandmillion to $220.69$225.26 million at MarchJune 31,30, 2026 from $220.81 million at December 31, 2025. Within the portfolio U.S. treasury securities increased by $1.40 million, U.S. government agencies decreased $3.98$5.94 million, U.S. government sponsored enterprise mortgage-backed securities increased $5.76$12.33 million, tax exempt state and municipal bonds decreased $1.60$2.91 million, and taxable state and municipal securities decreased $246$455 thousand. Gross unrealized losses increased from $2.96 million as of December 31, 2025 to $3.57$3.84 million as of MarchJune 31,30, 2026. The fair value of these securities was influenced by market interest rates, prepayment speeds on mortgage securities, bid to offer spreads in the market place and credit premiums for the various types of agency debt.

Gross loans receivable decreasedincreased $1.26$6.01 million from $919.24 million at December 31, 2025 to $917.98$925.24 million at MarchJune 31,30, 2026. OtherCommercial mortgages increased $18.30 million and other construction and land development loans decreased $14.37$12.23 million due to construction phases ending and loans converting to commercial mortgages. The percentage change and distribution of the loan portfolio is shown in the table below:

The allowance for credit losses was $9.76$9.93 million at MarchJune 31,30, 2026, compared to $9.90 million at December 31, 2025. This allowance equaled 1.06 percent and 1.08 percent of total loans, net of unearned income, as of MarchJune 31,30, 2026 and December 31, 2025, respectively.2025. The Company'sCompany recorded a provision for credit losses of $119 thousand for the three months ended June 30, 2026. The Company recorded a recovery of credit losses of $15 thousand for the firstsix quartermonths ofended 2026June was30, $134 thousand.2026. The credit loss reserve is analyzed quarterly and reviewed by the Company’s Board of Directors. No concentration or apparent deterioration in classes of loans or pledged collateral was evident. Regular loan meetings with the Company’s Board of Directors are held to review new loans. Delinquent loans, loan exceptions and certain large loans are addressed by the full Board no less than monthly to determine compliance with policies. Allowance for credit losses was considered adequate based on delinquency trends and actual loans written off as it relates to the loan portfolio.

Individually evaluated loans were $7.26$11.27 million as of MarchJune 31,30, 2026, an increase from $6.83 million as of December 31, 2025. As of MarchJune 31,30, 2026, there was a required reserve of $660$1.13 thousandmillion for individually evaluated loans, as compared to the reserve of $615 thousand at December 31, 2025. Please see Note 5 within the Company’s Notes to the Consolidated Financial Statements for more information regarding the Company’s loan portfolio as of MarchJune 31,30, 2026 and December 31, 2025.

Collectively evaluated loans totaled $910.72$913.98 million, with an ACL of $9.10$8.81 million as of MarchJune 31,30, 2026 and $912.41 million with an ACL of $9.29 million as of December 31, 2025.

The allowance for collectively evaluated loans decreased $194$482 thousand when compared to December 31, 2025 primarily due to the decrease in pooled loan balances.balances in higher loss rate call codes due to loan migration.

Based upon the calculation, management’s current judgements about the credit quality of the loan portfolio, and after considering all known relevant internal and external factors that affect loan collectability, management believes the level of ACLL is reasonable for the credit risk in the loan portfolio as of MarchJune 31,30, 2026 and December 31, 2025.

The average balance and average rate paid on deposits year-to-date for the periods ending MarchJune 31,30, 2026 and December 31, 2025 are summarized as follows:

The average balance of borrowed funds decreased $13.17$15.43 million to $17.79$15.53 million as of MarchJune 31,30, 2026 from $30.96 million as of December 31, 2025 due primarily to the following:

Total borrowed funds consisted of the following year-to-date at MarchJune 31,30, 2026 and December 31, 2025:

See Note 7 within the Company’s Notes to the Consolidated Financial Statements for more information regarding the Company’s borrowed funds as of MarchJune 31,30, 2026 and December 31, 2025.

Details concerning capital ratios at MarchJune 31,30, 2026 and December 31, 2025 are presented in Note 9, “Regulatory Matters,” to the consolidated financial statements for the three and six months ended MarchJune 31,30, 2026 and year ended December 31, 2025 included elsewhere in this document. The Company meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s financial statements. Management believes, as of MarchJune 31,30, 2026, that the Bank met all capital adequacy requirements to which it was subject, this is the second quarter that the Bank's CBRL fell below the required minimum and thus is deemed to be in the CBRL grace period. Management believes that the Bank will have a CBRL ratio above the minimum threshold in the second quarter of 2026.subject.

The Bank’s total Tier 1 Capital increased $5.67$7.69 million to $111.72$113.73 million at MarchJune 31,30, 2026 from $106.05 million at December 31, 2025. The Bank’s resulting Tier 1 Leverage Ratio increased to 8.94%9.01% at MarchJune 31,30, 2026 from 8.56% at December 31, 2025.

Comparison of Earnings for the Three and Six Months Ended MarchJune 31,30, 2026 and 2025

Interest Income: Interest income increased $9.77$9.84 million, or 132.0127.6 percent, to $17.18$17.54 million for the three months ended MarchJune 31,30, 2026, compared with $7.40$7.71 million for the three months ended MarchJune 31,30, 2025. TheInterest average yield on the earning assetsincome increased 66$19.61 basismillion, pointsor from129.8 5.24percent, percentto $34.72 million for the threesix months ended MarchJune 31,30, 20252026, tocompared 5.90with percent$15.11 million for the threesix months ended MarchJune 31, 2026. The increase in rates was in addition to the growth in average balance of earning assets from the merger which increased $614.28 million as result of the merger to $1.20 billion for the three months ended March 31, 2026 compared to $581.56 million for30, 2025.

To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the balance sheet as it pertains to net interest income on a tax equivalent basis, the tables below reflects these changes for MarchJune 31,30, 2026 versus 2025:

Provision for (Recovery of) Credit Losses: During the firstsecond quarter of 2026, the Company recorded a $134$212 thousand recoveryprovision offor the allowance for credit losses.losses for loans. The Company did not recordrecorded a provision for or recovery of credit losses for off balance sheet credit exposures as of March$93 31,thousand for the three months ended June 30, 2026. As of the three months ended MarchJune 31,30, 2025 the Company recorded a $70$192 thousand provision for credit losses for loans and a $63$36 thousand recovery of credit losses for off balance sheet credit exposures. The Company recorded a provision for credit losses for loans of $78 thousand and a recovery of credit losses for off balance sheet credit exposures of $93 thousand for the six months ended June 30, 2026, as compared to the $262 thousand provision for loan credit losses for loans and $100 thousand recovery of credit losses for off balance sheet credit exposures recorded for the six months ended June 30, 2025.

See Note 5 within the Company’s Notes to the Consolidated Financial Statements for more information regarding the Company’s (recovery of) provision for credit losses as of MarchJune 31,30, 2026.

Noninterest Income for the Three Months Ended: Noninterest income increased by $982$1.36 thousand,million, or 167.9%,258.4%, to $1.57$1.89 million for the three months ended MarchJune 31,30, 2026, from the $585$527 thousand recognized during the same period of 2025. Service charges on deposit accounts increased by $143$145 thousand to $274$275 thousand for the three months ended MarchJune 31,30, 2026 compared to $131$130 thousand recognized during the same period of 2025. ATM fees and debit card income increased $260$296 thousand and an addition of trust fee income of $351$386 thousand was recognized in 2026 when compared to MarchJune 31,30, 2025. Both increases are the direct result of the merger with NUBC. Net marketable equity security gains increased by $224 thousand for the three months ended June 30, 2026, from the $10 thousand loss recognized during the same period of 2025 due to an increase in market rates in 2026.

Noninterest Expense for the Three Months Ended: Noninterest expenses increased $4.90$4.85 million or 158.2155.0 percent, from $3.10$3.13 million for the three months ended MarchJune 31,30, 2025, to $7.99 million for the three months ended MarchJune 31,30, 2026. The increase was largely due to an increase of $2.63$2.55 million in salaries and employee benefit expenses due to the merger with NUBC, an increase in amortization of core deposit intangible of $666 thousand as a result of the merger with NUBC for which there was no comparable expense during 2025, a $318$331 thousand increase in net occupancy and equipment expense, a $265$298 thousand increase in data processing fees and by a $813$766 thousand increase in other expenses, including but not limited to amortization expense of acquired assets and liabilities, software expense and ATM expense due to increased utilization and volume due to the merger.

Provision for Income Taxes: The Company recorded income tax provision of $1.04$1.18 million in the firstsecond quarter of 2026, an increase of $622$775 thousand, or 148.4%,190.4 percent, compared to $419$407 thousand in the firstsecond quarter of 2025. The Company recorded income tax provision of $2.22 million for the six months ended June 30, 2026, an increase of $1.40 million, or 168.8 percent, compared to $827 thousand for the six months ended June 30, 2025. The increase in income tax provision was due to higher taxable income in 2026 as compared to 2025 due to the merger with NUBC. The Company's effective tax rate decreased to 17.6%18.0% at MarchJune 31,30, 2026, compared to 18.8%18.6% at MarchJune 31,30, 2025. The effective tax rate was greater in 2025 as a result of non-deductible merger expenses of $163$248 thousand during the quartersix months ended MarchJune 31,30, 2025.

The Company reviews cash flow projections regularly and updates them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and saving withdrawals. While deposits and securities sold under agreements to repurchase are its primary source of funds, when needed it is also able to generate cash through borrowings from the FHLB. At MarchJune 31,30, 2026, the Bank had remaining available capacity with FHLB, subject to certain collateral restrictions, of $453.89$448.13 million.

Results of the net interest income simulation indicate that the Company is liability sensitive as of MarchJune 31,30, 2026 and MarchJune 31,30, 2025. The simulation process requires certain estimates and assumptions including, but not limited to, asset growth, the mix of assets and liabilities, the interest rate environment and local and national economic conditions. Asset growth and the mix of assets can, to a degree, be influenced by management. Other areas, such as the interest rate environment and economic factors, cannot be controlled. In addition, competitive pressures can make it difficult to price deposits and loans in a manner that optimally minimizes interest rate risk. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes; changes in market conditions and customer behavior; and changes in management strategies.