Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis is intended to assist in understanding our financial condition and results of operations. The information in this section should be read in conjunction with the unaudited consolidated financial statements of Magnolia Bancorp, Inc. and the notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q as well as the business and financial information included in the Company's Form 10-K filed with the SEC for the year ended December 31, 2025.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect" and words of similar meaning, include but are not limited to:

●	statements of our goals, intentions and expectations;

●	statements regarding our business plans, prospects, growth and operating strategies;

●	statements regarding the quality of our loans and other assets; and

●	estimates of our risks and future costs and benefits.

These forward-looking statements are based on the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not undertake any obligation to update any forward-looking statements after the date of this report.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim, any obligation to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of this statement or to reflect the occurrence of anticipated or unanticipated events.

Overview

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 fixed-rate one-to-four family residential mortgage loans, and to a lesser extent residential construction loans and home equity lines of credit. The Company also originates commercial real estate loans and multi-family residential loans which represent approximately 1.9% of our loan portfolio at June 30, 2026. 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, savings and certificates of deposit. The Company is subject to regulation and examination by the Office of the Comptroller of the Currency, the FDIC and the Federal Reserve Board.

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, noninterest income and noninterest expense. Noninterest income consists primarily of rental income and service charges and other fees on deposit accounts. Noninterest expense 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. Demand for our loan products is susceptible to changes in overall market lending rates. Markets rates for our fixed rate loan products have held steady during 2025 and into 2026 despite action taken by the Federal Reserve to gradually lower market rates and reduce inflation. While we have experienced a reduction in our cost of funds which has resulted in an increase in our net interest income, we have also experienced lower demand for our fixed rate mortgage loans during 2026, which has resulted in lower loan originations. Reduced volume in loan originations has the impact of reducing our net interest income as we generally do not achieve a comparable interest rate for the cash received and invested from loan repayments. In addition, we incur higher noninterest expenses due to fewer deferrals of direct loan origination costs from loans being originated during the period. We expect this trend of reduced loan demand to continue until overall market conditions improve the affordability of homeownership.

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical estimates are included in its Annual Report on Form 10-K for the year ended December 31, 2025. Our accounting policies for the allowance for credit losses and income taxes comprise those that management believe involve the most critical estimates.

During the six months ended June 30, 2026, the measurement of the Company's deferred income tax assets and liabilities was identified as a critical accounting estimate.

There were no other material changes or developments during the reporting period with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as previously disclosed in its Form 10-K for the year ended December 31, 2025.

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

Total Assets. Total assets were $35.9 million at June 30, 2026, a decrease of $1.5 million, or 3.9%, from $37.4 million at December 31, 2025.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $626,000, or 13.9%, to $3.9 million at June 30, 2026, from $4.5 million at December 31, 2025. The decrease was primarily due to a decrease in deposits.

Loans Receivable, Net. Loans receivable, net, decreased by $647,000, or 2.1%, to $30.1 million at June 30, 2026, from $30.7 million at December 31, 2025. Loans decreased due to paydowns being higher than our originations.

Deposits. Total deposits decreased by $1.5 million, or 9.1%, to $15.3 million at June 30, 2026, from $16.8 million at December 31, 2025, primarily due to a decrease of $1.6 million in interest-bearing demand deposits.

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

Total Equity. Total equity decreased by $110,000, or 0.6%. The decrease was primarily due to our net loss of $134,000 for the first six months of 2026.

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.

		Three Months Ended June 30,
		2026												2025
		Average Balance				Interest				Average Yield/ Rate				Average Balance				Interest				Average Yield/ Rate
		(dollars in thousands)												(dollars in thousands)
Interest-earning assets:
Loans receivable(1)		$	30,064			$	341				4.54	%		$	30,784			$	334				4.34	%
FHLB stock			372				3				3.23				357				4				4.48
Other interest-earning assets			4,363				45				4.13				4,809				58				4.82
Total interest-earning assets			34,799				389				4.47				35,950				396				4.41
Noninterest-earning assets			1,481												1,569
Total assets		$	36,280											$	37,519
Interest-bearing liabilities:
Savings and NOW accounts(2)		$	8,251				3				0.15			$	8,625				2				0.09
Certificates of deposit			6,122				46				3.01				7,045				60				3.41
Total interest-bearing liabilities			14,373				49				1.36				15,670				62				1.58
Noninterest-bearing liabilities			2,003												1,765
Total liabilities			16,376												17,435
Total equity			19,904												20,084
Total liabilities and equity		$	36,280											$	37,519
Net interest-earning assets		$	20,426											$	20,280
Net interest income; average interest spread						$	340				3.11	%						$	334				2.82	%
Net interest margin(3)											3.91	%											3.72	%
Average interest-earning assets to average interest-bearing liabilities											242.11	%											229.42	%

_______________________________

(1)

Includes nonaccrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for credit losses.

(2)

Includes interest-bearing demand accounts.

(3)

Equals net interest income divided by average interest-earning assets.

		Six Months Ended June 30,
		2026												2025
		Average Balance				Interest				Average Yield/ Rate				Average Balance				Interest				Average Yield/ Rate
		(dollars in thousands)												(dollars in thousands)
Interest-earning assets:
Loans receivable(1)		$	30,460			$	689				4.52	%		$	30,830			$	665				4.31	%
FHLB stock			370				7				3.78				355				8				4.51
Other interest-earning assets			4,481				83				3.70				5,872				133				4.53
Total interest-earning assets			35,311				779				4.41				37,057				806				4.35
Noninterest-earning assets			1,476												2,069
Total assets		$	36,787											$	39,126
Interest-bearing liabilities:
Savings and NOW accounts(2)		$	8,656				5				0.12			$	8,851				4				0.09
Certificates of deposit			6,115				94				3.07				7,824				139				3.55
Total interest-bearing liabilities			14,771				99				1.34				16,675				143				1.72
Noninterest-bearing liabilities			2,079												1,969
Total liabilities			16,850												18,644
Total equity			19,937												20,482
Total liabilities and equity		$	36,787											$	39,126
Net interest-earning assets		$	20,540											$	20,382
Net interest income; average interest spread						$	680				3.07	%						$	663				2.63	%
Net interest margin(3)											3.85	%											3.58	%
Average interest-earning assets to average interest-bearing liabilities											239.06	%											222.23	%

_______________________________

(1)

Includes nonaccrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for credit losses.

(2)

Includes interest-bearing demand accounts.

(3)

Equals net interest income divided by average interest-earning assets.

Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in the 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.

		Three Months Ended June 30, 2026 vs 2025												Six Months Ended June 30, 2026 vs 2025
		Increase (Decrease) Due to								Total Increase				Increase (Decrease) Due to								Total Increase
		Rate				Volume				(Decrease)				Rate				Volume				(Decrease)
		(dollars in thousands)												(dollars in thousands)
Interest income:
Loans receivable		$	15			$	(8	)		$	7			$	32			$	(8	)		$	24
FHLB stock			(1	)			-				(1	)			(1	)			-				(1	)
Other interest-earning assets			(8	)			(5	)			(13	)			(24	)			(26	)			(50	)
Total interest income			6				(13	)			(7	)			7				(34	)			(27	)
Interest expense:
Savings and NOW accounts			1				-				1				1				-				1
Certificates of deposit			(7	)			(7	)			(14	)			(19	)			(26	)			(45	)
Total interest expense			(6	)			(7	)			(13	)			(18	)			(26	)			(44	)
Increase (decrease) in net interest income		$	12			$	(6	)		$	6			$	25			$	(8	)		$	17

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

General. We had a net loss of $65,000 for the three months ended June 30, 2026, compared to a net loss of $36,000 for the comparable period of 2025. This $29,000 increase in the net loss was due to an increase of $24,000 in total noninterest expense and an $8,000 effect of income taxes, which was offset by an increase of $6,000 in net interest income.

Interest Income. Interest income decreased by $7,000 or 1.8% to $389,000 in the three months ended June 30, 2026, from $396,000 in the comparable period of 2025. The decrease was primarily due to a decrease of $14,000 in other interest income offset by an increase of $7,000 in loan interest and fee income.

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.

Loan income increased $7,000 due primarily to the average yield on loans increasing from 4.34% in 2025 to 4.54% in 2026 due to new loan originations having higher rates than on loans that have paid off. The higher yield on the loan portfolio was partially offset by a decline of $720,000 in the average outstanding loan balance.

Interest Expense. Total interest expense decreased by $13,000 or 21.0% to $49,000 for the three months ended June 30, 2026, from $62,000 the comparable period of 2025. The decrease was due to the decrease in the amount of and the yield on certificates of deposit during the three months ended June 30, 2026, compared to 2025. The average balance of certificates of deposit declined during the three months ended June 30, 2026, by $923,000 as we elected not to renew higher rate term deposits that matured during the period. The average rate paid on certificates of deposit decreased to 3.01% in the three months ended June 30, 2026, from 3.41% for the three months ended June 30, 2025, reflecting the roll-off of higher rate certificates of deposits.

Net Interest Income. Net interest income increased by $6,000, or 1.8%, to $340,000 for the three months ended June 30, 2026, compared to $334,000 for the comparable period of 2025. The increase was primarily due to an increase in the average interest rate spread to 3.11% for the three months ended June 30, 2026, from 2.82% for the three months ended June 30, 2025, as the cost of funds decreased as higher paying certificates of deposit 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 three 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 $3,000 to $5,000 for the three months ended June 30, 2026. Noninterest income is comprised of customer service charges and rental income.

Noninterest Expense. Noninterest expense increased by $24,000, or 6.2%, to $410,000 for the three months ended June 30, 2026, compared to $386,000 for the comparable period of 2025. The increase in noninterest expense was due to additional salary and employee benefit expenses of $45,000 and higher other expenses of $14,000 offset partially by a reduction in accounting and auditing fees of $10,000 and advertising expenses of $17,000.

Salaries and employee benefits increased due to hiring an officer in June 2025 who replaced the former accounting staff, netting additional salary costs of $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.

Income Tax Provision (Benefit). We had no income taxes recorded for the three months ended June 30, 2026, compared to an income tax benefit of $8,000 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.

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.

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. We did not utilize any FHLB advances in 2026 or 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 accompanying statements of cash flows that appear in Item 1 of this Form 10-Q.

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 June 30, 2026, certificates of deposit that are scheduled to mature within the next 12 months totaled $5.2 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 June 30, 2026, 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 7 of the notes to the unaudited consolidated financial statements as of and for the six months ended June 30, 2026.

At June 30, 2026, we had $2.2 million of outstanding commitments to originate loans, which included $1.1 million in revolving lines of credit, and $1.1 million in residential construction loans. At June 30, 2026, none of our revolving lines of credit related to commercial real estate loans.