UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q  

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission file number 001-33003

CITIZENS COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland	20-5120010
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

2174 EastRidge Center

Eau Claire, WI 54701

(Address and Zip Code of principal executive offices)

715-836-9994

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	CZWI	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐ No  ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

At November 7, 2022 there were 10,483,610 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

CITIZENS COMMUNITY BANCORP, INC.

FORM 10-Q

September 30, 2022

INDEX

			Page Number
Part I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021	5
		Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2022 and 2021	6
		Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the three and nine months ended September 30, 2022 and 2021	7
		Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2022 and the year ended December 31, 2021	8
		Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2022 and 2021	10
		Condensed Notes to Consolidated Financial Statements (Unaudited)	12
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	83
	Item 4.	Controls and Procedures	84
Part II – OTHER INFORMATION			85
	Item 1.	Legal Proceedings	85
	Item 1A.	Risk Factors	86
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
	Item 3.	Defaults Upon Senior Securities	86
	Item 4.	Mine Safety Disclosures	86
	Item 5.	Other Information	86
	Item 6.	Exhibits	87
SIGNATURES			88

3

PART 1 – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

4

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Balance Sheets

September 30, 2022 (unaudited) and December 31, 2021

(derived from audited financial statements)

(in thousands, except share and per share data)

	September 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	29,411	$	47,691
Other interest bearing deposits	368		1,511
Securities available for sale "AFS"	167,764		203,068
Securities held to maturity "HTM"	97,610		71,141
Equity investments	1,461		1,328
Other investments	15,907		15,305
Loans receivable	1,375,876		1,310,963
Allowance for loan losses	(17,217)		(16,913)
Loans receivable, net	1,358,659		1,294,050
Loans held for sale	666		6,670
Mortgage servicing rights, net	4,371		4,161
Office properties and equipment, net	21,427		21,169
Accrued interest receivable	4,716		3,916
Intangible assets	2,701		3,898
Goodwill	31,498		31,498
Foreclosed and repossessed assets, net	1,584		1,408
Bank owned life insurance ("BOLI")	24,784		24,312
Other assets	17,275		8,502
TOTAL ASSETS	$	1,780,202	$	1,739,628
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	1,434,368	$	1,387,535
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advances	102,530		111,527
Other borrowings	72,351		58,426
Other liabilities	7,634		11,274
Total liabilities	1,616,883		1,568,762
Stockholders’ Equity:
Common stock—$0.01 par value, authorized 30,000,000; 10,478,210 and 10,502,442 shares issued and outstanding, respectively	105		105
Additional paid-in capital	119,638		119,925
Retained earnings	60,833		50,675
Accumulated other comprehensive (loss) income	(17,257)		161
Total stockholders’ equity	163,319		170,866
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,780,202	$	1,739,628

See accompanying condensed notes to unaudited consolidated financial statements.

5

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Operations (unaudited)

Three and Nine Months Ended September 30, 2022 and 2021

(in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Interest and dividend income:
Interest and fees on loans	$	15,937	$	14,537	$	44,597	$	43,014
Interest on investments	2,022		1,638		5,441		4,260
Total interest and dividend income	17,959		16,175		50,038		47,274
Interest expense:
Interest on deposits	1,681		1,354		3,734		4,589
Interest on FHLB and FRB borrowed funds	568		389		1,176		1,183
Interest on other borrowed funds	1,253		744		3,237		2,217
Total interest expense	3,502		2,487		8,147		7,989
Net interest income before provision for loan losses	14,457		13,688		41,891		39,285
Provision for loan losses	375		—		775		—
Net interest income after provision for loan losses	14,082		13,688		41,116		39,285
Non-interest income:
Service charges on deposit accounts	535		463		1,505		1,256
Interchange income	597		600		1,760		1,776
Loan servicing income	611		842		1,912		2,560
Gain on sale of loans	194		1,014		1,330		4,131
Loan fees and service charges	267		118		500		547
Net gains (losses) on investment securities	(55)		73		(167)		344
Other	323		338		717		801
Total non-interest income	2,472		3,448		7,557		11,415
Non-interest expense:
Compensation and related benefits	5,900		5,718		16,887		16,736
Occupancy	1,429		1,313		4,137		3,943
Data processing	1,382		1,582		4,098		4,374
Amortization of intangible assets	399		399		1,197		1,197
Mortgage servicing rights expense, net	197		37		65		28
Advertising, marketing and public relations	300		220		762		577
FDIC premium assessment	119		148		352		395
Professional services	382		328		1,152		1,192
Gain on repossessed assets, net	(8)		(3)		(17)		(149)
New market tax credit depletion	163		—		488		—
Other	1,014		578		2,286		1,714
Total non-interest expense	11,277		10,320		31,407		30,007
Income before provision for income tax	5,277		6,816		17,266		20,693
Provision for income taxes	1,284		1,819		4,201		5,484
Net income attributable to common stockholders	$	3,993	$	4,997	$	13,065	$	15,209
Per share information:
Basic earnings	$	0.38	$	0.47	$	1.24	$	1.41
Diluted earnings	$	0.38	$	0.47	$	1.24	$	1.41
Cash dividends paid	$	—	$	—	$	0.26	$	0.23

See accompanying condensed notes to unaudited consolidated financial statements.

6

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Comprehensive (Loss) Income (unaudited)

Three and Nine months ended September 30, 2022 and 2021

(in thousands)

	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net income attributable to common stockholders	$	3,993	$	4,997	$	13,065	$	15,209
Other comprehensive (loss) income, net of tax:
Securities available for sale
Net unrealized (losses) gains arising during period, net of tax	(4,980)		(797)		(17,418)		(201)
Reclassification adjustment for net gains included in net income, net of tax	—		(31)		—		(57)
Other comprehensive (loss) income, net of tax	(4,980)		(828)		(17,418)		(258)
Comprehensive (loss) income	$	(987)	$	4,169	$	(4,353)	$	14,951

See accompanying condensed notes to unaudited consolidated financial statements.

7

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Nine Months Ended September 30, 2022

(in thousands, except shares and per share data)

				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance, January 1, 2022	10,502,442	$	105	$	119,925	$	50,675	$	161	$	170,866
Net income	—	—		—		4,706		—		4,706
Other comprehensive loss, net of tax	—	—		—		—		(7,123)		(7,123)
Surrender of restricted shares of common stock	(10,119)	—		(141)		—		—		(141)
Restricted common stock awarded under the equity incentive plan	38,586	—		—		—		—		—
Restricted common stock issued upon achievement of the 2019 performance criteria	11,834	—		—		—		—		—
Common stock options exercised	2,500	—		20		—		—		20
Common stock repurchased	(18,462)	—		(211)		(77)		—		(288)
Stock option expense	—	—		1		—		—		1
Amortization of restricted stock	—	—		195		—		—		195
Cash dividends ($0.26 per share)	—	—		—		(2,742)		—		(2,742)
Balance at March 31, 2022	10,526,781	105		119,789		52,562		(6,962)		165,494
Net income	—	—		—		4,366		—		4,366
Other comprehensive loss, net of tax	—	—		—		—		(5,315)		(5,315)
Forfeiture of unvested shares	(866)	—		—		—		—		—
Restricted common stock awarded under the equity incentive plan	4,500	—		—		—		—		—
Stock option expense	—	—		1		—		—		1
Amortization of restricted stock	—	—		197		—		—		197
Balance at June 30, 2022	10,530,415	105		119,987		56,928		(12,277)		164,743
Net income	—	—		—		3,993		—		3,993
Other comprehensive loss, net of tax	—	—		—		—		(4,980)		(4,980)
Forfeiture of unvested shares	(1,260)	—		—		—		—		—
Surrender of restricted shares of common stock	(120)	—		(2)		—		—		(2)
Restricted common stock awarded under the equity incentive plan	2,136	—		—		—		—		—
Common stock repurchased	(52,961)	—		(603)		(88)		—		(691)
Stock option expense	—	—		1		—		—		1
Amortization of restricted stock	—	—		255		—		—		255
Balance, September 30, 2022	10,478,210	$	105	$	119,638	$	60,833	$	(17,257)	$	163,319

See accompanying condensed notes to unaudited consolidated financial statements.

8

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Twelve Months Ended December 31, 2021

(in thousands, except shares and per share data)

				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance, January 1, 2021	11,056,349	$	111	$	126,154	$	32,809	$	1,490	$	160,564
Net income	—	—		—		5,506		—		5,506
Other comprehensive loss, net of tax	—	—		—		—		(486)		(486)
Forfeiture of unvested shares	(1,500)	—		—		—		—		—
Surrender of restricted shares of common stock	(895)	—		(10)		—		—		(10)
Restricted common stock awarded under the equity incentive plan	64,399	—		—		—		—		—
Common stock repurchased	(224,481)	(2)		(2,552)		(21)		—		(2,575)
Stock option expense	—	—		3		—		—		3
Amortization of restricted stock	—	—		171		—		—		171
Cash dividends ($0.23 per share)	—	—		—		(2,511)		—		(2,511)
Balance at March 31, 2021	10,893,872	109		123,766		35,783		1,004		160,662
Net income	—	—		—		4,706		—		4,706
Other comprehensive income, net of tax	—	—		—		—		1,056		1,056
Surrender of restricted shares of common stock	(1,149)	—		(15)		—		—		(15)
Common stock options exercised	2,000	—		17		—		—		17
Common stock repurchased	(198,648)	(2)		(2,260)		(372)		—		(2,634)
Stock option expense	—	—		2		—		—		2
Amortization of restricted stock	—	—		222		—		—		222
Balance at June 30, 2021	10,696,075	107		121,732		40,117		2,060		164,016
Net income	—	—		—		4,997		—		4,997
Other comprehensive loss, net of tax	—	—		—		—		(828)		(828)
Surrender of restricted shares of common stock	(222)	—		(3)		—		—		(3)
Common stock options exercised	3,800	—		35		—		—		35
Common stock repurchased	(180,768)	(2)		(2,058)		(454)		—		(2,514)
Stock option expense	—	—		2		—		—		2
Amortization of restricted stock	—	—		221		—		—		221
Balance, September 30, 2021	10,518,885	105		119,929		44,660		1,232		165,926
Net income	—	—		—		6,057		—		6,057
Other comprehensive loss, net of tax	—	—		—		—		(1,071)		(1,071)
Surrender of restricted shares of common stock	(143)	—		(2)		—		—		(2)
Common stock repurchased	(16,300)	—		(186)		(42)		—		(228)
Stock option expense	—	—		1		—		—		1
Amortization of restricted stock	—	—		183		—		—		183
Balance, December 31, 2021	10,502,442	$	105	$	119,925	$	50,675	$	161	$	170,866

See accompanying condensed notes to unaudited consolidated financial statements.

9

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30, 2022 and 2021

(in thousands)

	Nine Months Ended
	September 30, 2022		September 30, 2021
Cash flows from operating activities:
Net income attributable to common stockholders	$	13,065	$	15,209
Adjustments to reconcile net income to net cash provided by operating activities:
Premium amortization, net of discount accretion on investment securities	59		59
Depreciation expense	1,773		1,669
Provision for loan losses	775		—
Net realized loss (gain) on equity securities	167		(266)
Net realized gain on debt securities	—		(78)
Increase in mortgage servicing rights resulting from transfers of financial assets	(275)		(858)
Mortgage servicing rights amortization and impairment, net	65		28
Amortization of intangible assets	1,197		1,197
Amortization of restricted stock	647		614
Net stock based compensation expense	3		7
Loss on sale of office properties and equipment	271		22
Decrease in deferred income taxes	252		726
Increase in cash surrender value of life insurance	(472)		(465)
Net gain from disposals of foreclosed and repossessed assets	(17)		(150)
Gain on sale of loans held for sale, net	(1,330)		(4,131)
New market tax credit depletion	488		—
Net change in:
Loans held for sale	7,334		5,531
Accrued interest receivable and other assets	356		529
Other liabilities	(3,625)		(2,023)
Total adjustments	7,668		2,411
Net cash provided by operating activities	20,733		17,620
Cash flows from investing activities:
Net decrease in other interest bearing deposits	1,143		2,240
Purchase of available for sale securities	(10,543)		(123,756)
Proceeds from principal payments of available for sale securities	21,799		24,189
Proceeds from sales of available for sale securities	—		9,118
Purchase of held to maturity securities	(35,342)		(34,114)
Proceeds from principal payments and maturities of held to maturity securities	8,838		9,846
Purchase of equity investments	(300)		—
Net (purchases) sales of other investments	(602)		122
Proceeds from sales of foreclosed and repossessed assets	56		507
Net increase in loans	(65,476)		(11,374)
Net capital expenditures	(2,446)		(2,368)
Proceeds from disposal of office properties and equipment	14		38
New market tax credit investment	(4,056)		—
Net cash used in investing activities	(86,915)		(125,552)

10

Cash flows from financing activities:
Federal Home Loan Bank advances	72,000		—
Amortization of fair value adjustments for acquired Federal Home Loan Bank advances	3		14
Federal Home Loan Bank advance call payments	(55,000)		—
Federal Home Loan Bank advance termination payments	(15,015)		(8,102)
Federal Home Loan Bank maturities	(11,000)		(4,000)
Amortization of debt issuance costs	340		72
Proceeds from other borrowings, net of origination costs	34,191		—
Other borrowings principal reductions	(20,606)		—
Net increase in deposits	46,833		113,059
Repurchase shares of common stock	(979)		(7,723)
Surrender of restricted shares of common stock	(143)		(28)
Common stock options exercised	20		52
Cash dividends paid	(2,742)		(2,511)
Net cash provided by financing activities	47,902		90,833
Net decrease in cash and cash equivalents	(18,280)		(17,099)
Cash and cash equivalents at beginning of period	47,691		119,440
Cash and cash equivalents at end of period	$	29,411	$	102,341

Supplemental cash flow information:
Cash paid during the period for:
Interest on deposits	$	3,784	$	4,725
Interest on borrowings	$	4,698	$	3,664
Income taxes	$	3,365	$	5,250
Supplemental noncash disclosure:
Transfers from loans receivable to other real estate owned ("OREO")	$	92	$	45
Transfers from office properties and equipment to foreclosed and repossessed assets	$	130	$	79

See accompanying condensed notes to unaudited consolidated financial statements. 

11

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of Citizens Community Federal N.A. (the “Bank”) included herein have been included by its parent company, Citizens Community Bancorp, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. As used in this quarterly report, the terms “we”, “us”, “our”, and “Citizens Community Bancorp, Inc.” mean the Company and its wholly owned subsidiary, the Bank, unless the context indicates other meaning.

The Bank is a national banking association (a “National Bank”) and operates under the title of Citizens Community Federal National Association (“Citizens Community Federal N.A.” or “Bank” or “CCFBank”). The Company is a bank holding company, supervised by the Federal Reserve Bank of Minneapolis, and operates under the title of Citizens Community Bancorp, Inc. The U.S. Office of the Comptroller of the Currency (the “OCC”), is the primary federal regulator for the Bank.

The consolidated income of the Company is principally derived from the income of the Bank, the Company’s wholly owned subsidiary, serving customers in Wisconsin and Minnesota through 24 branch locations. Its primary markets include the Chippewa Valley Region in Wisconsin, the Mankato and Twin Cities markets in Minnesota, and various rural communities around these areas. The Bank offers traditional community banking services to businesses, agricultural operators and consumers, including one-to-four family residential mortgages.

The Bank is subject to competition from other financial institutions and non-financial institutions providing financial products. Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the September 30, 2022, balance sheet date and through the date the financial statements were available to be issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

The accompanying consolidated interim financial statements are unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Unless otherwise stated herein, and except for shares and per share amounts, all amounts are in thousands.

Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates –Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, fair value of financial instruments, the allowance for loan losses, mortgage servicing rights, foreclosed and repossessed assets, valuation of intangible assets arising from acquisitions, useful lives for depreciation and amortization, valuation of goodwill and long-lived assets, stock based compensation, deferred tax assets, uncertain income tax positions and contingencies. Management does not anticipate any material changes to estimates made herein in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: those items described under the caption “Risk Factors” in Item 1A of the annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 2, 2022; the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended March 31, 2022 and June 30, 2022, filed with the SEC on May 4, 2022 and August 4, 2022, respectively; the matters described in “Risk Factors” in Item 1A of this Form 10-Q; external market factors such as market interest rates and unemployment rates; changes to operating policies and procedures and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period.

Investment Securities; Held to Maturity and Available for Sale – Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of the date of each balance sheet. Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Investment securities not classified as held to maturity are classified as available

12

for sale. Available for sale securities are stated at fair value, with unrealized holding gains and losses being reported in other comprehensive income (loss), net of tax. Unrealized losses deemed other-than-temporary due to credit issues are reported in the Company’s net income in the period in which the losses arise. Realized gains or losses on sales of available for sale securities are calculated with the specific identification method and are included in the consolidated statements of operations under net gains on investment securities. Interest income includes amortization of purchase premium or accretion of purchase discount. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the securities.

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. As part of such monitoring, the credit quality of individual securities and their issuer is assessed. Significant inputs used to measure the amount of other-than-temporary impairment related to credit loss include, but are not limited to: the Company’s intent and ability to sell the debt security prior to recovery, that it is more likely than not that the Company will not sell the security prior to recovery, default and delinquency rates of the underlying collateral, remaining credit support, and historical loss severities. Adjustments to market value of available for sale securities that are considered temporary are recorded in other comprehensive income or loss as separate components of stockholders’ equity, net of tax. If the unrealized loss of a security is identified as other-than-temporary based on information available, such as the decline in the creditworthiness of the issuer, external market ratings, or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if credit loss exists. If there is a credit loss, it will be recorded in the Company’s consolidated statement of operations. Non-credit components of the unrealized losses on available for sale securities will continue to be recognized in other comprehensive income (loss), net of tax.

Equity investments - The Company is required to maintain an investment in Federal Agricultural Mortgage Corporation (“Farmer Mac”) equity securities. Farmer Mac equity securities are carried at their fair market value, which is readily determinable. Changes in fair value are recognized as net gains (losses) on investment securities in the consolidated Statement of Operations.

Also included in equity investments are the Company’s investments in a Volker Rule-compliant Small Business Investment Company ("SBIC") and an investment fund. The SBIC and investment fund meet the definition of investment companies, as defined in ASC 946, Financial Services - Investment Companies. These investments seek returns by investing in various small businesses and do not have redemption rights. Distributions from the investments will be received as the underlying investments, which generally have a life of 10 years, are liquidated. We elected the practical expedient available in Topic 820, Fair Value Measurements, which permits the use of net asset value ("NAV") per share or equivalent to value investments in entities that are or are similar to investment companies. SBICs and investment funds report their investments at estimated fair value. We record the unrealized gains and losses resulting from changes in the fair value of these investments as gains or losses on equity securities in our consolidated statements of operations. The carrying value of these investments is equal to the capital account balance per each entities' quarterly financial statements.

Other Investments - As a member of the Federal Reserve Bank (“FRB”) System and the Federal Home Loan Bank (“FHLB”) System, the Bank is required to maintain an investment in the capital stock of these entities. These securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other exchange traded equity securities. As no ready market exists for these stocks, and they have no quoted market value, these investments are carried at cost and periodically evaluated for impairment based on the ultimate recovery of par value. Cash dividends are reported as other income in the consolidated statement of operations.

Also included in other investments is stock of our correspondent bank, Bankers’ Bank, without readily determinable fair value. This stock is carried at cost plus or minus changes resulting from observable price changes in orderly transactions for this stock, less other-than-temporary impairment charges, if any.

Management’s evaluation for impairment of these other investments, includes consideration of the financial condition and other available relevant information of the issuer. Based on management’s quarterly evaluation, no impairment has been recorded on these securities. Other investments totaling $15,907 at September 30, 2022 consisted of $8,011 of FHLB stock, $5,667 of Federal Reserve Bank stock and $2,229 of Bankers’ Bank stock. Other investments totaling $15,305 at December 31, 2021 consisted of $7,877 of FHLB stock and $5,200 of Federal Reserve Bank stock and $2,228 of Bankers’ Bank stock.

Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of: deferred loan fees and costs, accretable yield on acquired loans and non-accretable discount on purchased credit impaired (PCI) loans. Interest income is accrued on the unpaid principal balance of these loans. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the interest method over the contractual life of the loan with no prepayments assumed. If the loan is prepaid, any unamortized net fee is recognized at this time. Late charge fees are recognized into income when collected.

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Interest income on commercial, mortgage and consumer loans is discontinued according to the following schedules:

•Commercial/agricultural real estate loans past due 90 days or more;

•Commercial and industrial/agricultural operating loans past due 90 days or more;

•Closed end consumer installment loans past due 120 days or more; and

•Residential mortgage loans and open ended consumer installment loans past due 180 days or more.

Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual status. Loans are returned to accrual status when payments are made that bring the loan account current with the contractual term of the loan and a six month payment history has been established. Interest on accruing troubled debt restructured (“TDR”) loans, less than 90 days delinquent, is recognized as income as it accrues, based on the revised terms of the loan over an established period of continued payment.

Residential mortgage loans and open ended consumer installment loans are charged off to estimated net realizable value less estimated selling costs at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more. Closed ended consumer installment loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 120 days or more. Commercial/agricultural real estate, commercial and industrial and agricultural operating loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 90 days or more.

Allowance for Loan Losses – The allowance for loan losses (“ALL”) is a valuation allowance for probable and inherent credit losses in our loan portfolio. Loan losses are charged against the ALL when management believes that the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the ALL. Management estimates the required ALL balance taking into account the following factors: past loan loss experience; the nature, volume and composition of our loan portfolio; known and inherent risks in our portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; and other relevant factors determined by management. The ALL consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for certain qualitative factors. The entire ALL balance is available for any loan that, in management’s judgment, should be charged off.

A loan is impaired when full payment under the loan terms is not expected. Impaired loans consist of all TDRs, as well as individual loans not considered a TDR, that are either (1) rated substandard or worse, (2) on nonaccrual status or (3) PCI loans which are impaired at the time of acquisition. Substandard loans, as defined by the OCC, our primary banking regulator, are loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. All TDRs are individually evaluated for impairment. See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for more information on what we consider to be a TDR. For TDR’s or substandard loans deemed to be impaired, a specific ALL allocation may be established so that the loan is reported, net, at the lower of (a) its outstanding principal balance; (b) the present value of the loan’s estimated future cash flows using the loan’s existing rate; or (c) at the fair value of any loan collateral, less estimated disposal costs, if repayment is expected solely from the underlying collateral of the loan. For TDRs less than 90+ days past due, and certain substandard loans that are less than 90+ days delinquent, the likelihood of the loan migrating to over 90 days past due is also taken into account when determining the specific ALL allocation for these particular loans. Large groups of smaller balance homogeneous loans, such as non-TDR commercial, consumer and residential real estate loans, are collectively evaluated for ALL purposes, and accordingly, are not separately identified for ALL disclosures.

Acquired Loans— Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value with no carryover of related allowance for loan losses. Any allowance for loan loss on these pools reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that no longer are expected to be received). Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including: the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount

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of the expected cash flows on such loans and if we expect to fully collect the new carrying value of the loans. As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable yield.

Loans acquired with deteriorated credit quality are accounted for in accordance with Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30) if, at acquisition, the loans have evidence of credit quality deterioration since origination and it is probable that all contractually required payments will not be collected. At acquisition, the Company considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality. These factors include, but are not limited to: loans 90 days or more past due, loans with an internal risk grade of substandard or below, loans classified as non-accrual by the acquired institution, and loans that have been previously modified in a troubled debt restructuring.

Under the ASC 310-30 model, the excess of cash flows expected to be collected at acquisition over recorded fair value is referred to as the accretable yield and is the interest component of expected cash flow. The accretable discount is recognized into income over the remaining life of the loan if the timing and/or amount of cash flows expected to be collected can be reasonably estimated (the accretion method). If the timing or amount of cash flows expected to be collected cannot be reasonably estimated, the cost recovery method of income recognition is used. The difference between the loan’s total scheduled principal and interest payments over all cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the non-accretable difference. The non-accretable difference represents contractually required principal and interest payments which the Company does not expect to collect.

Over the life of the loan, management continues to estimate cash flows expected to be collected. Decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized subsequent to acquisition, if any, and next, an increase in the amount of accretable discount to be subsequently recognized in interest income on a prospective basis over the loan’s remaining life.

Acquired loans that were not individually determined to be purchased with deteriorated credit quality are accounted for in accordance with ASC 310-20, Nonrefundable Fees and Other Costs (ASC 310-20), whereby the premium or discount derived from the fair market value adjustment, on a loan-by-loan or pooled basis, is recognized into interest income on a level yield basis over the remaining expected life of the loan or pool.

For all acquired loans, the outstanding loan balances less any related accretable discount and/or non-accretable difference is referred to as the loans’ carrying amount.

Loans Held for Sale — Loans held for sale are those loans the Company has the intent to sell in the foreseeable future. They are carried at the lower of aggregate cost or fair value. Gains and losses on sales of loans are recognized at settlement dates, and are determined by the difference between the sales proceeds and the carrying value of the loans after allocating costs to servicing rights retained. Such gains and losses are included as non-interest income in the consolidated statements of operations. All sales are made without recourse. Interest rate lock commitments on mortgage loans to be funded and sold are valued at fair value, and are included in other assets or liabilities, if material.

Transfers of financial assets—Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the entity, (2) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and (3) the entity does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.

Mortgage Servicing Rights— Mortgage servicing rights (“MSR”) assets result as the Company sells loans to investors in the secondary market and retains the rights to service mortgage loans sold to others. MSR assets are initially measured at fair value; assessed for impairment at least annually; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations.

The valuation of MSRs and related amortization, included in mortgage servicing rights expense in the consolidated statements of operations, thereon are based on numerous factors, assumptions and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.

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Servicing fee income, which is reported on the consolidated statements of operations in non-interest income as loan servicing fee income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of outstanding principal; or a fixed amount per loan and are recorded as income when earned.

Goodwill and other intangible assets—The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets may be impaired. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A reporting unit is defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has one reporting unit as of September 30, 2022, which is related to its banking activities. The impairment testing process is conducted by assigning net assets and goodwill to the Company’s reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of the Company’s reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated fair value of the Company’s reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of the Company’s reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the Company’s reporting unit’s goodwill to the implied fair value of goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as of December 31, 2021.

Foreclosed and Repossessed Assets, net – Assets acquired through foreclosure or repossession are initially recorded at fair value, less estimated costs to sell, which establishes a new cost basis. If the fair value declines subsequent to foreclosure or repossession, a write-down is recorded through expense. Costs incurred after acquisition are expensed and are included in non-interest expense, other in the consolidated statements of operations.

New Markets Tax Credits - As a part of its commitment to the communities it serves, in the first quarter of 2022, the Company made an investment in an LLC that is sponsoring a community development project that has been awarded a New Markets Tax Credit (NMTC) through the U.S. Department of the Treasury’s Community Development Financial Institutions Fund. This investment is Community Reinvestment Act eligible and is designed to generate a return primarily through the realization of the tax credit. This LLC is considered a Variable Interest Entity (VIE) as the Company represents the holder of the equity investment at risk, but does not have the ability to direct the activities that most significantly affect the performance of the LLC. As such, the Company is not the primary beneficiary of the VIE and the LLC has not been consolidated. The investment is accounted for using the equity method of accounting and is amortized through non-interest expense as the related tax credits are utilized. The utilization of the tax credit is recognized as a reduction in income tax expense.

As of September 30, 2022, the carrying amount of this investment, which is included in other assets in the consolidated balance sheets, was $3,528. The risk of loss with this investment is limited to its carrying value and is tied to its ability to operate in compliance with the rules and regulations necessary for the qualification of the tax credit generated by the investment. As of September 30, 2022, there were no known instances of noncompliance associated with the investment.

Leases - We determine if an arrangement is a lease at inception. All of our existing leases have been determined to be operating leases under ASC 842. Right-of-use (“ROU”) assets are included in other assets in our consolidated balance sheets. Operating lease liabilities are included in other liabilities in our consolidated balance sheets. Lease expense is included in non-interest expense, occupancy in the consolidated statements of operations.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date, based on the present value of lease payments over the lease term. As none of our existing leases provide an implicit rate, we use our incremental borrowing rate, based on information available at commencement date, in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease, when it is reasonably certain that we will exercise that option. Lease expense is recognized based on the total contractually required lease payments, over the term of the lease, on a straight-line basis.

Debt and equity issuance costs—Debt issuance costs, which consist primarily of fees paid to note lenders, are deferred and included in other borrowings in the consolidated balance sheets. Debt issuance costs with a Company call option that

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originated prior to 2020 and senior note debt issuance costs, are amortized over the contractual term of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations. Debt issuance costs that originated in 2020 and thereafter, are amortized through the first Company call option date of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations. Specific costs associated with the issuance of shares of the Company’s common or preferred stock are netted against proceeds and recorded in stockholders’ equity, as additional paid in capital, on the consolidated balance sheets, in the period of the share issuance.

    Advertising, Marketing and Public Relations Expense—The Company expenses all advertising, marketing and public relations costs as they are incurred.

Income Taxes – The Company accounts for income taxes in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Under this guidance, deferred taxes 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 basis. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

The Company regularly reviews the carrying amount of its net deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical performance, expectations of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carry forward periods, any experience with utilization of operating loss and tax credit carry forwards not expiring, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. Accordingly, the Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.

Revenue Recognition - The Company’s primary source of revenue is interest income from interest earning assets, which is recognized on the accrual basis of accounting using the effective interest method. The recognition of revenues from interest earning assets is based upon formulas from underlying loan agreements, securities contracts or other similar contracts.

The Company accounts for revenue from contracts with customers in accordance with ASC Topic 606, “Revenue from Contracts with Customers.” Topic 606 provides that revenue from contracts with customers be recognized when performance obligations under the terms of a contract are satisfied. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing service. The company does not have any materially significant payment terms as payment is received shortly after the satisfaction of the performance obligation. The non-interest income line items recognized under the scope of Topic 606 are as follows:

Service charges on deposit accounts - Service charges on accounts consist of monthly service fees, transaction-based fees, overdraft services and other deposit account related fees. The Company’s performance obligation for monthly services fees is generally satisfied over the period in which the service is provided. Revenue for these monthly fees is recognized during the service period. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied at the time the service is provided. Payment for service charges on deposit accounts are primarily received immediately or in the following month through a direct charge to a customer’s account.

Interchange income - The Company earns interchange fees when cardholder debit card transaction are processed through card association networks. The interchange rates are generally set by the card association based upon purchase volumes and other factors. Interchange fees represent a percentage of the underlying transaction value. The Company has a continuous contract, based on customary business practices, with the card association networks to make funds available for settlement of card transactions. The Company’s performance obligation is satisfied over time as it makes funds available, and the related income is recognized when received.

Gain (loss) on repossessed assets - The Company records a gain or loss from the sale of repossessed assets, when control of the property or asset transfers to the buyer, which generally occurs at the time of an executed deed or sales agreement. When the company finances the sale of repossessed assets to a buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the repossessed asset is derecognized and the gain or loss on sale is recorded

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upon transfer of control of the property to the buyer. In determining the gain on sale or loss on the sale, the Company adjust the transaction price and related gain or loss on sale if a significant financing component is present.

Non-interest income outside of the scope of Revenue from Contracts with Customers, Topic 606 is recognized on the accrual basis of accounting as services are provided or as transactions occur. Non-interest income outside of the scope of Topic 606 includes mortgage banking activities, loan fees and service charges, net gains (losses) on investment securities, and other, which is primarily made up of BOLI related income.

Earnings Per Share – Basic earnings per common share is net income or loss divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable during the period, consisting of stock options outstanding under the Company’s stock incentive plans that have an exercise price that is less than the Company’s stock price on the reporting date.

Loss Contingencies—Loss contingencies, including claims and legal actions arising in the normal course of business, are recorded as liabilities when the likelihood of loss is probable and an amount of loss can be reasonably estimated.

Other Comprehensive Income —Accumulated and other comprehensive income or loss is comprised of the unrealized and realized gains and losses on securities available for sale, net of tax, and is shown on the accompanying consolidated statements of comprehensive income.

Operating Segments—While our executive officers monitor the revenue streams of the various banking products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications – Certain items previously reported were reclassified for consistency with the current presentation.

Recent Accounting Pronouncements—The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have potentially significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future.

Recent Accounting Pronouncements—Adopted

ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting--These ASUs provide optional and temporary relief, in the form of optional expedients and exceptions, for applying GAAP to modifications of contacts, hedging relationships and other transactions affected by reference rate (e.g. LIBOR) reforms. ASU 2020-04 and ASU 2021-01 are effective for the Company immediately and through December 31, 2022. The Company utilizes LIBOR, among other indexes, as a reference rate for underwriting variable rate loans. Reference rate reform has not had, nor does the Company expect it to have, a material effect on the Company’s consolidated balance sheet, operations or cash flows.

Recently Issued, But Not Yet Effective Accounting Pronouncements

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments--The ASU changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. In November, 2019, the FASB issued ASU 2019-10, which delayed the effective date for ASU 2016-13 for smaller reporting companies, resulting in ASU 2016-13 becoming effective in the first quarter of 2023 for the Company. Earlier adoption is permitted; however, the Company elected not to adopt the ASU early. The Company has selected a loss estimation methodology, utilizing a third-party model, and is currently finalizing its process for model utilization. The impact of adoption on the financial condition and results of operations cannot yet be definitively determined due to the sensitivity of the model to various inputs and changing economic forecasts. The Company anticipates recording the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU is effective, which will be January 1, 2023.

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ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures - The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has not yet adopted the amendments in ASU 2016-13, ASU 2022-02 becomes effective in the first quarter of 2023. Management is assessing the impact that adoption of this standard will have on the Company’s financial condition and results of operations in conjunction with its assessment of the impact of ASU 2016-13. The Company expects to adopt the guidance for our fiscal year beginning January 1, 2023.

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NOTE 2 – INVESTMENT SECURITIES

The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of September 30, 2022 and December 31, 2021, respectively, were as follows:

Available for sale securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022
U.S. government agency obligations	$	19,357	$	210	$	253	$	19,314
Mortgage-backed securities	99,198		—		19,271		79,927
Corporate debt securities	41,861		—		3,751		38,110
Corporate asset-based securities	31,149		—		736		30,413
Total available for sale securities	$	191,565	$	210	$	24,011	$	167,764
December 31, 2021
U.S. government agency obligations	$	25,826	$	440	$	1	$	26,265
Obligations of states and political subdivisions	140		—		—		140
Mortgage-backed securities	107,636		409		878		107,167
Corporate debt securities	35,342		403		157		35,588
Corporate asset-based securities	33,902		133		127		33,908
Total available for sale securities	$	202,846	$	1,385	$	1,163	$	203,068

Held to maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022
Obligations of states and political subdivisions	$	600	$	—	$	54	$	546
Mortgage-backed securities	97,010		7		20,330		76,687
Total held to maturity securities	$	97,610	$	7	$	20,384	$	77,233
December 31, 2021
Obligations of states and political subdivisions	$	4,600	$	—	$	7	$	4,593
Mortgage-backed securities	66,541		104		2,061		64,584
Total held to maturity securities	$	71,141	$	104	$	2,068	$	69,177

At September 30, 2022, the Bank has pledged mortgage-backed securities with a carrying value of $5,519 as collateral against a borrowing line of credit with the Federal Reserve Bank. However, as of September 30, 2022, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of September 30, 2022, the Bank has pledged U.S. Government Agency securities with a carrying value of $2,827 and mortgage-backed securities with a carrying value of $2,329 as collateral against specific municipal deposits. As of September 30, 2022, the Bank also has mortgage-backed securities with a carrying value of $166 pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2021, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $863 as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2021, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $3,934 and mortgage-backed securities with a carrying value of $2,879 as collateral against specific municipal deposits. As of December 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $267 pledged as collateral to the Federal Home Loan Bank of Des Moines.

For the three and nine month periods ended September 30, 2022 there were no sales of available for sale securities. For the three and nine month periods ended September 30, 2021, gross sales of available for sale securities were $7,153 and $9,118, respectively. Gross gains on the sale of available for sale securities for the three and nine months periods ended September 30, 2021 were $56 and $92, respectively. Gross losses on the sale of losses on the sale of available for sale securities for both the three and nine months ended September 30, 2021 were $14.

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The estimated fair value of securities at September 30, 2022 and December 31, 2021, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Expected maturities may differ from contractual maturities on certain agency and municipal securities due to the call feature.

	September 30, 2022				December 31, 2021
Available for sale securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	—	$	—	$	140	$	140
Due after one year through five years	4,462		4,125		4,903		4,971
Due after five years through ten years	46,730		43,178		40,410		40,818
Due after ten years	41,175		40,534		49,757		49,972
Total securities with contractual maturities	$	92,367	$	87,837	$	95,210	$	95,901
Mortgage-backed securities	99,198		79,927		107,636		107,167
Total available for sale securities	$	191,565	$	167,764	$	202,846	$	203,068

	September 30, 2022				December 31, 2021
Held to maturity securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due after one year through five years	$	450	$	415	$	4,300	$	4,298
Due after five years through ten years	150		131		300		295
Total securities with contractual maturities	600		546		4,600		4,593
Mortgage-backed securities	97,010		76,687		66,541		64,584
Total held to maturity securities	$	97,610	$	77,233	$	71,141	$	69,177

21

Securities with unrealized losses at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

	Less than 12 Months				12 Months or More				Total
Available for sale securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2022
U.S. government agency obligations	$	4,368	$	253	$	—	$	—	$	4,368	$	253
Mortgage-backed securities	25,929		4,526		53,924		14,745		79,853		19,271
Corporate debt securities	29,891		2,866		8,219		885		38,110		3,751
Corporate asset-based securities	13,137		179		17,276		557		30,413		736
Total	$	73,325	$	7,824	$	79,419	$	16,187	$	152,744	$	24,011
December 31, 2021
U.S. government agency obligations	$	1,169	$	1	$	—	$	—	$	1,169	$	1
Mortgage backed securities	89,010		878		—		—		89,010		878
Corporate debt securities	17,240		142		735		15		17,975		157
Corporate asset-based securities	19,296		127		—		—		19,296		127
Total	$	126,715	$	1,148	$	735	$	15	$	127,450	$	1,163

	Less than 12 Months				12 Months or More				Total
Held to maturity securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2022
Obligations of states and political subdivisions	$	—	$	—	$	546	$	54	$	546	$	54
Mortgage-backed securities	32,918		6,600		43,518		13,730		76,436		20,330
Total	$	32,918	$	6,600	$	44,064	$	13,784	$	76,982	$	20,384
December 31, 2021
Obligations of states and political subdivisions	$	593	$	7	$	—	$	—	$	593	$	7
Mortgage-backed securities	46,969		1,346		14,716		715		61,685		2,061
Total	$	47,562	$	1,353	$	14,716	$	715	$	62,278	$	2,068

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. As part of such monitoring, the credit quality of individual securities and their issuer is assessed. Significant inputs used to measure the amount of other-than-temporary impairment related to credit loss include, but are not limited to; the Company’s intent and ability to sell the debt security prior to recovery, that it is more likely than not that the Company will not sell the security prior to recovery, default and delinquency rates of the underlying collateral, remaining credit support, and historical loss severities. Adjustments to market value of available for sale securities that are considered temporary are recorded as separate components of stockholders’ equity, net of tax. If the unrealized loss of a security is identified as other-than-temporary based on information available, such as the decline in the creditworthiness of the issuer, external market ratings, or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if credit loss exists. If there is a credit loss, it will be recorded in the Company’s consolidated statement of operations. Non-credit components of the unrealized losses on available for sale securities will continue to be recognized in other comprehensive income (loss), net of tax. Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not deemed other-than-temporary. Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur.

22

NOTE 3 – LOANS, ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

Portfolio Segments:

    Commercial and agricultural real estate loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business. Management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 75%.

Commercial and industrial (“C&I”) loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Agricultural operating loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines. Operating lines are typically written for one year and secured by the crop and other farm assets or other business assets, as considered necessary. Agricultural loans carry significant credit risks as they may involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields. SBA PPP loan balances are 100% guaranteed under the Small Business Association’s Paycheck Protection Program and may be forgiven in full, depending on use of funds and eligibility. These SBA-backed loans helped businesses keep their workforce employed during the COVID-19 crisis. Eligible borrowers, who qualify for full loan forgiveness during the eight to twenty four week period following loan disbursement, can apply for forgiveness, once all proceeds for which the borrower requested forgiveness has been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan.

Residential mortgage loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower’s documented income, credit scores, and collateral values. Under consumer home equity loan guidelines, the borrower will be approved for a loan based on a percentage of their home’s appraised value less the balance owed on the existing first mortgage. Credit risk is minimized within the residential mortgage portfolio due to relatively small loan account balances spread across many individual borrowers. Management evaluates trends in past due loans and current economic factors such as the housing price index on a regular basis.

Consumer installment loans are comprised of originated indirect paper loans secured primarily by boats and recreational vehicles and other consumer loans secured primarily by automobiles and other personal assets. Consumer loan underwriting terms often depend on the collateral type, debt to income ratio and the borrower’s creditworthiness as evidenced by their credit score. In the event of a consumer installment loan default, collateral value alone may not provide an adequate source of repayment of the outstanding loan balance. This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral.

23

Credit Quality/Risk Ratings:

    Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio. Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant.

Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience. The Bank’s loan portfolio ratings are presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows:

1 through 4 - Pass. A “Pass” loan means that the condition of the borrower and the performance of the loan is satisfactory or better.

5 - Watch. A “Watch” loan has clearly identifiable developing weaknesses that deserve additional attention from management. Weaknesses that are not corrected or mitigated, may jeopardize the ability of the borrower to repay the loan in the future.

6 - Special Mention. A “Special Mention” loan has one or more potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position in the future.

7 - Substandard. A “Substandard” loan is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

8 - Doubtful. A “Doubtful” loan has all the weaknesses inherent in a Substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

9 - Loss. Loans classified as “Loss” are considered uncollectible, and their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future.

24

Below is a summary of originated and acquired loans by type and risk rating as of September 30, 2022:

	1 to 5		6		7		8		9		TOTAL
Originated Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	597,339	$	6,038	$	6,971	$	—	$	—	$	610,348
Agricultural real estate	60,117		648		1,537		—		—		62,302
Multi-family real estate	193,484		274		—		—		—		193,758
Construction and land development	116,103		—		44		—		—		116,147
C&I/Agricultural operating:
Commercial and industrial	109,485		12,873		1,992		—		—		124,350
Agricultural operating	18,589		341		1,917		—		—		20,847
Residential mortgage:
Residential mortgage	74,473		—		2,834		—		—		77,307
Purchased HELOC loans	3,357		—		—		—		—		3,357
Consumer installment:
Originated indirect paper	11,177		—		57		—		—		11,234
Other consumer	6,972		—		44		—		—		7,016
Total originated loans before SBA PPP loans	1,191,096		20,174		15,396		—		—		1,226,666
SBA PPP loans	—		—		—		—		—		—
Total originated loans	$	1,191,096	$	20,174	$	15,396	$	—	$	—	$	1,226,666
Acquired Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	89,779	$	—	$	1,561	$	—	$	—	$	91,340
Agricultural real estate	17,769		—		1,636		—		—		19,405
Multi-family real estate	3,914		—		—		—		—		3,914
Construction and land development	1,579		—		124		—		—		1,703
C&I/Agricultural operating:
Commercial and industrial	10,247		4		214		—		—		10,465
Agricultural operating	5,017		—		169		—		—		5,186
Residential mortgage:
Residential mortgage	20,302		—		1,124		—		—		21,426
Consumer installment:
Other consumer	291		—		3		—		—		294
Total acquired loans	$	148,898	$	4	$	4,831	$	—	$	—	$	153,733
Total Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	687,118	$	6,038	$	8,532	$	—	$	—	$	701,688
Agricultural real estate	77,886		648		3,173		—		—		81,707
Multi-family real estate	197,398		274		—		—		—		197,672
Construction and land development	117,682		—		168		—		—		117,850
Commercial/Agricultural non-real estate:
Commercial and industrial	119,732		12,877		2,206		—		—		134,815
Agricultural operating	23,606		341		2,086		—		—		26,033
Residential mortgage:
Residential mortgage	94,775		—		3,958		—		—		98,733
Purchased HELOC loans	3,357		—		—		—		—		3,357
Consumer installment:
Originated indirect paper	11,177		—		57		—		—		11,234
Other consumer	7,263		—		47		—		—		7,310
Gross loans before SBA PPP Loans	1,339,994		20,178		20,227		—		—		1,380,399
SBA PPP loans	—		—		—		—		—		—
Gross loans	$	1,339,994	$	20,178	$	20,227	$	—	$	—	$	1,380,399
Less:
Unearned net deferred fees and costs and loans in process											(2,447)
Unamortized discount on acquired loans											(2,076)
Allowance for loan losses											(17,217)
Loans receivable, net											$	1,358,659

25

Below is a summary of originated and acquired loans by type and risk rating as of December 31, 2021:

	1 to 5		6		7		8		9		TOTAL
Originated Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	572,724	$	667	$	5,004	$	—	$	—	$	578,395
Agricultural real estate	50,834		1,267		271		—		—		52,372
Multi-family real estate	173,760		290		—		—		—		174,050
Construction and land development	75,146		—		3,467		—		—		78,613
C&I/Agricultural operating:
Commercial and industrial	107,798		57		82		—		—		107,937
Agricultural operating	23,935		764		1,503		—		—		26,202
Residential mortgage:
Residential mortgage	60,754		—		3,101		—		—		63,855
Purchased HELOC loans	3,706		—		165		—		—		3,871
Consumer installment:
Originated indirect paper	15,818		—		153		—		—		15,971
Other consumer	8,404		—		69		—		—		8,473
Total Originated loans before SBA PPP loans	1,092,879		3,045		13,815		—		—		1,109,739
SBA PPP loans	8,755		—		—		—		—		8,755
Total originated loans	$	1,101,634	$	3,045	$	13,815	$	—	$	—	$	1,118,494
Acquired Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	116,839	$	1,314	$	1,917	$	—	$	—	$	120,070
Agricultural real estate	21,051		—		5,072		—		—		26,123
Multi-family real estate	4,299		—		—		—		—		4,299
Construction and land development	735		172		—		—		—		907
C&I/Agricultural operating:
Commercial and industrial	13,931		5		294		—		—		14,230
Agricultural operating	4,936		—		450		—		—		5,386
Residential mortgage:
Residential mortgage	25,869		—		1,266		—		—		27,135
Consumer installment:
Other consumer	398		—		3		—		—		401
Total acquired loans	$	188,058	$	1,491	$	9,002	$	—	$	—	$	198,551
Total Loans:
Commercial/Agricultural real estate:
Commercial real estate	$	689,563	$	1,981	$	6,921	$	—	$	—	$	698,465
Agricultural real estate	71,885		1,267		5,343		—		—		78,495
Multi-family real estate	178,059		290		—		—		—		178,349
Construction and land development	75,881		172		3,467		—		—		79,520
C&I/Agricultural operating:
Commercial and industrial	121,729		62		376		—		—		122,167
Agricultural operating	28,871		764		1,953		—		—		31,588
Residential mortgage:
Residential mortgage	86,623		—		4,367		—		—		90,990
Purchased HELOC loans	3,706		—		165		—		—		3,871
Consumer installment:
Originated indirect paper	15,818		—		153		—		—		15,971
Other consumer	8,802		—		72		—		—		8,874
Gross loans before SBA PPP loans	1,280,937		4,536		22,817		—		—		1,308,290
SBA PPP loans	8,755		—		—		—		—		8,755
Gross loans	$	1,289,692	$	4,536	$	22,817	$	—	$	—	$	1,317,045
Less:
Unearned net deferred fees and costs and loans in process											(2,482)
Unamortized discount on acquired loans											(3,600)
Allowance for loan losses											(16,913)
Loans receivable, net											$	1,294,050

26

Allowance for Loan Losses - The ALL represents management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change.

There are many factors affecting the ALL; some are quantitative, while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which result in probable credit losses), includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized.

As an integral part of their examination process, various regulatory agencies also review the Bank’s ALL. Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of our management based on information available to the regulators at the time of their examinations.

27

Changes in the ALL by loan type for the periods presented below were as follows:

	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Three months ended September 30, 2022
Allowance for Loan Losses:
Beginning balance, July 1, 2022	$	12,702	$	1,910	$	472	$	143	$	826	$	16,053
Charge-offs	—		—		—		(9)		—		(9)
Recoveries	35		8		1		27		—		71
Provision	380		7		10		(38)		217		576
Total allowance on originated loans	13,117		1,925		483		123		1,043		16,691
Purchased credit impaired loans	—		—		—		—		—		—
Other acquired loans:
Beginning balance, July 1, 2022	664		51		48		9		—		772
Charge-offs	(48)		—		—		—		—		(48)
Recoveries	—		—		2		1		—		3
Provision	49		(2)		(21)		(1)		(226)		(201)
Total allowance on other acquired loans	665		49		29		9		(226)		526
Total allowance on acquired loans	665		49		29		9		(226)		526
Ending balance, September 30, 2022	$	13,782	$	1,974	$	512	$	132	$	817	$	17,217

28

	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Nine months ended September 30, 2022
Allowance for Loan Losses:
Beginning balance, January 1, 2022	$	12,354	$	1,959	$	518	$	225	$	774	$	15,830
Charge-offs	(157)		(310)		(35)		(32)		—		(534)
Recoveries	41		27		2		48		—		118
Provision	879		249		(2)		(118)		269		1,277
Total allowance on originated loans	13,117		1,925		483		123		1,043		16,691
Purchased credit impaired loans	—		—		—		—		—		—
Other acquired loans:
Beginning balance, January 1, 2022	856		69		130		28		—		1,083
Charge-offs	(48)		—		(33)		(2)		—		(83)
Recoveries	—		—		27		1		—		28
Provision	(143)		(20)		(95)		(18)		(226)		(502)
Total allowance on other acquired loans	665		49		29		9		(226)		526
Total allowance on acquired loans	665		49		29		9		(226)		526
Ending balance, September 30, 2022	$	13,782	$	1,974	$	512	$	132	$	817	$	17,217
Allowance for Loan Losses at September 30, 2022:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	699	$	—	$	—	$	—	$	—	$	699
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	13,083	$	1,974	$	512	$	132	$	817	$	16,518
Loans Receivable as of September 30, 2022:
Ending balance of originated loans	$	982,555	$	145,197	$	80,664	$	18,250	$	—	$	1,226,666
Ending balance of purchased credit-impaired loans	5,785		578		908		—		—		7,271
Ending balance of other acquired loans	110,577		15,073		20,518		294		—		146,462
Ending balance of loans	$	1,098,917	$	160,848	$	102,090	$	18,544	$	—	$	1,380,399
Ending balance: individually evaluated for impairment	$	18,698	$	4,829	$	6,290	$	113	$	—	$	29,930
Ending balance: collectively evaluated for impairment	$	1,080,219	$	156,019	$	95,800	$	18,431	$	—	$	1,350,469

29

	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Three months ended September 30, 2021
Allowance for Loan Losses:
Beginning balance, July 1, 2021	$	10,890	$	2,182	$	771	$	362	$	855	$	15,060
Charge-offs	—		—		—		(12)		—		(12)
Recoveries	4		10		—		5		—		19
Provision	1,004		(218)		(185)		(80)		(83)		438
Total allowance on originated loans	11,898		1,974		586		275		772		15,505
Purchased credit impaired loans	—		—		—		—		—		—
Other acquired loans:
Beginning balance, July 1, 2021	1,468		81		231		5		—		1,785
Charge-offs	—		—		—		(24)		—		(24)
Recoveries	—		3		1		—		—		4
Provision	(371)		(10)		(106)		49		—		(438)
Total allowance on other acquired loans	1,097		74		126		30		—		1,327
Total allowance on acquired loans	1,097		74		126		30		—		1,327
Ending balance, September 30, 2021	$	12,995	$	2,048	$	712	$	305	$	772	$	16,832

30

	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Nine months ended September 30, 2021
Allowance for Loan Losses:
Beginning balance, January 1, 2021	$	10,271	$	2,112	$	1,041	$	489	$	906	$	14,819
Charge-offs	(51)		—		—		(49)		—		(100)
Recoveries	10		48		9		36		—		103
Provision	1,668		(186)		(464)		(201)		(134)		683
Total allowance on originated loans	$	11,898	$	1,974	$	586	$	275	$	772	$	15,505
Purchased credit impaired loans	—		—		—		—		—		—
Other acquired loans
Beginning balance, January 1, 2021	1,684		141		335		64		—		2,224
Charge-offs	(200)		(7)		—		(27)		—		(234)
Recoveries	—		13		3		4		—		20
Provision	(387)		(73)		(212)		(11)		—		(683)
Total allowance on other acquired loans	1,097		74		126		30		—		1,327
Total allowance on acquired loans	1,097		74		126		30		—		1,327
Ending balance, September 30, 2021	$	12,995	$	2,048	$	712	$	305	$	772	$	16,832
Allowance for Loan Losses at September 30, 2021:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	1,033	$	271	$	59	$	—	$	—	$	1,363
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	11,962	$	1,777	$	653	$	305	$	772	$	15,469
Loans Receivable as of September 30, 2021
Ending balance of originated loans	$	792,115	$	147,272	$	72,907	$	27,103	$	—	$	1,039,397
Ending balance of purchased credit-impaired loans	9,183		1,219		1,097		—		—		11,499
Ending balance of other acquired loans	155,220		19,876		29,698		516		—		205,310
Ending balance of loans	$	956,518	$	168,367	$	103,702	$	27,619	$	—	$	1,256,206
Ending balance: individually evaluated for impairment	$	22,744	$	6,451	$	7,705	$	291	$	—	$	37,191
Ending balance: collectively evaluated for impairment	$	933,774	$	161,916	$	95,997	$	27,328	$	—	$	1,219,015

31

	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Allowance for Loan Losses at December 31, 2021:
Amount of allowance for loan losses arising from loans individually evaluated for impairment	$	797	$	99	$	113	$	—	$	—	$	1,009
Amount of allowance for loan losses arising from loans collectively evaluated for impairment	$	12,413	$	1,929	$	535	$	253	$	774	$	15,904
Loans Receivable as of December 31, 2021:
Ending balance of originated loans	$	883,430	$	142,894	$	67,726	$	24,444	$	—	$	1,118,494
Ending balance of purchased credit-impaired loans	9,060		1,101		1,044		—		—		11,205
Ending balance of other acquired loans	142,339		18,515		26,091		401		—		187,346
Ending balance of loans	$	1,034,829	$	162,510	$	94,861	$	24,845	$	—	$	1,317,045
Ending balance: individually evaluated for impairment	$	21,792	$	3,337	$	7,007	$	257	$	—	$	32,393
Ending balance: collectively evaluated for impairment	$	1,013,037	$	159,173	$	87,854	$	24,588	$	—	$	1,284,652

Loans receivable by loan type as of the end of the periods shown below were as follows:

	Commercial/Agricultural Real Estate Loans				C&I/Agricultural Operating				Residential Mortgage				Consumer Installment				Totals
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Performing loans
Performing TDR loans	$	1,363	$	4,618	$	2,505	$	649	$	3,014	$	2,681	$	9	$	36	$	6,891	$	7,984
Performing loans other	1,088,934		1,021,346		157,487		160,570		97,586		90,591		18,481		24,729		1,362,488		1,297,236
Total performing loans	1,090,297		1,025,964		159,992		161,219		100,600		93,272		18,490		24,765		1,369,379		1,305,220
Nonperforming loans (1)
Nonperforming TDR loans	1,932		3,389		169		554		344		593		—		3		2,445		4,539
Nonperforming loans other	6,688		5,476		687		737		1,146		996		54		77		8,575		7,286
Total nonperforming loans	8,620		8,865		856		1,291		1,490		1,589		54		80		11,020		11,825
Total loans	$	1,098,917	$	1,034,829	$	160,848	$	162,510	$	102,090	$	94,861	$	18,544	$	24,845	$	1,380,399	$	1,317,045

(1)Nonperforming loans are either 90+ days past due or nonaccrual.

As of September 30, 2022 the Company had $262,022 in unused commitments, compared to $270,985 in unused commitments as of December 31, 2021.

32

An aging analysis of the Company’s commercial/agricultural real estate, C&I, agricultural operating, residential mortgage, consumer installment and purchased third party loans as of September 30, 2022 and December 31, 2021, respectively, was as follows:

	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Greater Than 89 Days Past Due and Accruing		Total Past Due and Accruing		Nonaccrual Loans		Total Past Due Accruing and Nonaccrual Loans		Current		Total Loans
September 30, 2022
Commercial/Agricultural real estate:
Commercial real estate	$	—	$	—	$	—	$	—	$	5,848	$	5,848	$	695,840	$	701,688
Agricultural real estate	—		70		—		70		2,729		2,799		78,908		81,707
Multi-family real estate	—		—		—		—		—		—		197,672		197,672
Construction and land development	—		—		—		—		43		43		117,807		117,850
C&I/Agricultural operating:
Commercial and industrial	—		—		—		—		188		188		134,627		134,815
Agricultural operating	74		231		—		305		668		973		25,060		26,033
Residential mortgage:
Residential mortgage	1,443		250		244		1,937		1,246		3,183		95,550		98,733
Purchased HELOC loans	117		—		—		117		—		117		3,240		3,357
Consumer installment:
Originated indirect paper	—		—		3		3		30		33		11,201		11,234
Other consumer	20		17		1		38		20		58		7,252		7,310
Total	$	1,654	$	568	$	248	$	2,470	$	10,772	$	13,242	$	1,367,157	$	1,380,399
December 31, 2021
Commercial/Agricultural real estate:
Commercial real estate	$	36	$	—	$	—	$	36	$	5,374	$	5,410	$	693,055	$	698,465
Agricultural real estate	498		4		—		502		3,490		3,992		74,503		78,495
Multi-family real estate	—		—		—		—		—		—		178,349		178,349
Construction and land development	—		—		—		—		—		—		79,520		79,520
C&I/Agricultural operating:
Commercial and industrial	—		32		—		32		298		330		121,837		122,167
SBA PPP loans	—		—		—		—		—		—		8,755		8,755
Agricultural operating	1,123		—		—		1,123		993		2,116		29,472		31,588
Residential mortgage:
Residential mortgage	1,471		487		156		2,114		1,268		3,382		87,608		90,990
Purchased HELOC loans	117		—		—		117		165		282		3,589		3,871
Consumer installment:
Originated indirect paper	38		27		—		65		55		120		15,851		15,971
Other consumer	58		10		4		72		22		94		8,780		8,874
Total	$	3,341	$	560	$	160	$	4,061	$	11,665	$	15,726	$	1,301,319	$	1,317,045

33

At September 30, 2022, the Company individually evaluated loans for impairment with a recorded investment of $29,714, consisting of (1) $7,271 purchased credit impaired (“PCI”) loans, with a carrying amount of $7,055; (2) $8,526 TDR loans, net of TDR PCI loans; and (3) $14,133 of substandard non-TDR, non-PCI loans. The $29,714 recorded investment of loans individually evaluated for impairment includes $6,891 of performing TDR loans. At December 31, 2021, the Company individually evaluated loans for impairment with a recorded investment of $31,740, consisting of (1) $11,205 PCI loans, with a carrying amount of $10,552; (2) $9,860 TDR loans, net of TDR PCI loans; and (3) $11,328 of substandard non-TDR, non-PCI loans. The $31,740 recorded investment of loans individually evaluated for impairment includes $7,984 of performing TDR loans. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis.

A summary of the Company’s loans individually evaluated for impairment as of September 30, 2022, December 31, 2021 and September 30, 2021 was as follows:

							Three Months Ended				Nine Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
September 30, 2022
With No Related Allowance Recorded:
Commercial/Agricultural real estate	$	12,002	$	12,038	$	—	$	12,646	$	105	$	14,636	$	410
C&I/Agricultural operating	4,710		4,829		—		4,478		57		4,898		139
Residential mortgage	6,229		6,290		—		5,957		85		6,419		218
Consumer installment	113		113		—		138		1		198		5
Total	$	23,054	$	23,270	$	—	$	23,219	$	248	$	26,151	$	772
With An Allowance Recorded:
Commercial/Agricultural real estate	$	6,660	$	6,660	$	699	$	6,232	$	81	$	5,758	$	95
C&I/Agricultural operating	—		—		—		—		—		207		10
Residential mortgage	—		—		—		101		—		350		2
Consumer installment	—		—		—		—		—		1		—
Total	$	6,660	$	6,660	$	699	$	6,333	$	81	$	6,316	$	107
September 30, 2022 Totals:
Commercial/Agricultural real estate	$	18,662	$	18,698	$	699	$	18,878	$	186	$	20,394	$	505
C&I/Agricultural operating	4,710		4,829		—		4,478		57		5,106		149
Residential mortgage	6,229		6,290		—		6,058		85		6,769		220
Consumer installment	113		113		—		138		1		198		5
Total	$	29,714	$	29,930	$	699	$	29,552	$	329	$	32,467	$	879

34

							Twelve Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2021
With No Related Allowance Recorded:
Commercial/Agricultural real estate	$	15,521	$	15,905	$	—	$	19,412	$	964
C&I/Agricultural operating	3,153		3,337		—		4,622		146
Residential mortgage	6,221		6,306		—		7,316		316
Consumer installment	256		256		—		306		85
Total	$	25,151	$	25,804	$	—	$	31,656	$	1,511
With An Allowance Recorded:
Commercial/Agricultural real estate	$	5,887	$	5,887	$	797	$	4,089	$	62
C&I/Agricultural operating	—		—		99		391		84
Residential mortgage	701		701		113		890		17
Consumer installment	1		1		—		2		—
Total	$	6,589	$	6,589	$	1,009	$	5,372	$	163
December 31, 2021 Totals
Commercial/Agricultural real estate	$	21,408	$	21,792	$	797	$	23,501	$	1,026
C&I/Agricultural operating	3,153		3,337		99		5,013		230
Residential mortgage	6,922		7,007		113		8,206		333
Consumer installment	257		257		—		308		85
Total	$	31,740	$	32,393	$	1,009	$	37,028	$	1,674

							Three Months Ended				Nine Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
September 30, 2021
With No Related Allowance Recorded:
Commercial/Agricultural real estate	$	16,409	$	16,820	$	—	$	19,618	$	172	$	20,417	$	663
C&I/Agricultural operating	3,264		3,451		—		3,484		29		4,893		119
Residential mortgage	7,203		7,291		—		7,498		79		7,917		240
Consumer installment	291		291		—		284		3		324		9
Total	$	27,167	$	27,853	$	—	$	30,884	$	283	$	33,551	$	1,031
With An Allowance Recorded:
Commercial/Agricultural real estate	$	5,924	$	5,924	$	1,033	$	3,558	$	—	$	4,107	$	62
C&I/Agricultural operating	3,000		3,000		271		3,041		41		1,891		82
Residential mortgage	414		414		59		547		2		747		17
Consumer installment	—		—		—		—		—		1		—
Total	$	9,338	$	9,338	$	1,363	$	7,146	$	43	$	6,746	$	161
September 30, 2021
Commercial/Agricultural real estate	$	22,333	$	22,744	$	1,033	$	23,176	$	172	$	24,524	$	725
C&I/Agricultural operating	6,264		6,451		271		6,525		70		6,784		201
Residential mortgage	7,617		7,705		59		8,045		81		8,664		257
Consumer installment	291		291		—		284		3		325		9
Total	$	36,505	$	37,191	$	1,363	$	38,030	$	326	$	40,297	$	1,192

35

Troubled Debt Restructuring – A TDR includes a loan modification where a borrower is experiencing financial difficulty, and the Bank grants a concession to that borrower that the Bank would not otherwise consider, except for the borrower’s financial difficulties. Concessions may include: extension of the loan’s term, renewals of existing balloon loans, reductions in interest rates and consolidating existing Bank loans at modified terms. A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status. There were three delinquent accruing TDR loans greater than 60 days past due, with a recorded investment of $250 at September 30, 2022, compared to one such loan with a recorded investment of $4 at December 31, 2021.

Following is a summary of TDR loans by accrual status as of September 30, 2022 and December 31, 2021.

	September 30, 2022		December 31, 2021
Troubled debt restructure loans:
Accrual status	$	6,910	$	7,984
Non-accrual status	2,426		4,539
Total	$	9,336	$	12,523

There was one loan commitment for $38 meeting our TDR criteria as of September 30, 2022 and no loan commitments meeting our TDR criteria as of December 31, 2021. There were unused lines of credit totaling $83 and $10 meeting our TDR criteria as of September 30, 2022 and December 31, 2021, respectively.

The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the three and nine months ended September 30, 2022:    

	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended September 30, 2022
TDRs:
Commercial/Agricultural real estate	2	$	—	$	—	$	1,539	$	—	$	1,539	$	1,539	$	—
C&I/Agricultural operating	2	1,424		—		140		—		1,564		1,564		—
Residential mortgage	3	7		147		—		—		154		154		—
Consumer installment	—	—		—		—		—		—		—		—
Totals	7	$	1,431	$	147	$	1,679	$	—	$	3,257	$	3,257	$	—

	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Nine months ended September 30, 2022
TDRs:
Commercial/Agricultural real estate	7	$	1,241	$	—	$	1,964	$	—	$	3,205	$	3,205	$	—
C&I/Agricultural operating	5	1,424		—		736		—		2,160		2,160		—
Residential mortgage	9	70		147		507		—		724		724		—
Consumer installment	—	—		—		—		—		—		—		—
Totals	21	$	2,735	$	147	$	3,207	$	—	$	6,089	$	6,089	$	—

36

The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the three and nine months ended September 30, 2021:     

	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Three months ended September 30, 2021
TDRs:
Commercial/Agricultural real estate	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
C&I/Agricultural operating	—	—		—		—		—		—		—		—
Residential mortgage	4	186		—		188		—		374		374		—
Consumer installment	—	—		—		—		—		—		—		—
Totals	4	$	186	$	—	$	188	$	—	$	374	$	374	$	—

	Number of Contracts	Maturity Extension		Modified Payment		Modified Under- writing		Other		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve
Nine months ended September 30, 2021
TDRs:
Commercial/Agricultural real estate	3	$	39	$	81	$	—	$	—	$	120	$	120	$	—
C&I/Agricultural operating	1	—		—		240		—		240		240		—
Residential mortgage	6	252		—		202		—		454		454		—
Consumer installment	2	6		—		18		—		24		24		—
Totals	12	$	297	$	81	$	460	$	—	$	838	$	838	$	—

A summary of loans by loan segment modified in a troubled debt restructuring as of September 30, 2022 and September 30, 2021, was as follows:

	September 30, 2022			September 30, 2021
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:
Commercial/Agricultural real estate	14	$	3,295	23	$	8,048
C&I/Agricultural operating	8	2,674		8	4,285
Residential mortgage	44	3,358		45	3,308
Consumer installment	2	9		7	48
Total troubled debt restructurings	68	$	9,336	83	$	15,689

37

There were no loans modified in a TDR during the previous twelve months which subsequently defaulted during the three months ended September 30, 2022 or 2021, respectively. The following table provides the number of loans modified in a TDR during the previous twelve months which subsequently defaulted during the nine months ended September 30, 2022 and September 30, 2021, as well as the recorded investment in these restructured loans as of September 30, 2022 and September 30, 2021:

    

	Nine Months Ended
	September 30, 2022			September 30, 2021
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings:
Commercial/Agricultural real estate	—	$	—	—	$	—
C&I/Agricultural operating	—	—		—	—
Residential mortgage	—	—		1	19
Consumer installment	—	—		—	—
Total troubled debt restructurings	—	$	—	1	$	19

38

All acquired loans were initially recorded at fair value at the acquisition date. The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:

	September 30, 2022		December 31, 2021
Accountable for under ASC 310-30 (Purchased Credit Impaired “PCI” loans)
Outstanding balance	$	7,271	$	11,205
Carrying amount	$	7,055	$	10,552
Accountable for under ASC 310-20 (non-PCI loans)
Outstanding balance	$	146,462	$	187,346
Carrying amount	$	144,602	$	184,399
Total acquired loans
Outstanding balance	$	153,733	$	198,551
Carrying amount	$	151,657	$	194,951

The table below shows scheduled accretion by year for the accretable difference recognized due to fair value purchase accounting on recent whole bank acquisitions. In addition, the Company has $1,207 of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount. The scheduled accretion on this balance is estimated to be approximately $100 per year; however, large balance payoffs, as seen in 2022, 2021 and 2020, would accelerate this accretion.

Fiscal years ending December 31,	Purchase Accounting Accretable Discount
2022	$	148
2023	279
2024	131
2025	95
Total	$	653

2022 is the three month period from October 1, 2022 through December 31, 2022.

The following table provides changes in non-accretable yield for all acquired loans from prior acquisitions with deteriorated credit quality:

	September 30, 2022		December 31, 2021
Balance at beginning of period	$	653	$	1,087
Additions to non-accretable difference for acquired purchased credit impaired loans	—		—
Non-accretable difference realized as interest from payoffs of purchased credit impaired loans	(130)		(105)
Transfers from non-accretable difference to accretable discount	(115)		(329)
Non-accretable difference used to reduce loan principal balance	(192)		—
Balance at end of period	$	216	$	653

39

NOTE 4 – MORTGAGE SERVICING RIGHTS

Mortgage servicing rights--Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balances of these loans as of September 30, 2022 and December 31, 2021 were $531,804 and $556,086, respectively, and consisted of one to four family residential real estate loans. These loans are serviced primarily for the Federal Home Loan Mortgage Corporation, Federal Home Loan Bank and the Federal National Mortgage Association. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $6,637 and $2,781 at September 30, 2022 and December 31, 2021, respectively.

Mortgage servicing rights activity for the three and nine month periods ended September 30, 2022 and September 30, 2021 were as follows:

	As of and for the Three Months Ended		As of and for the Three Months Ended		As of and for the Nine Months Ended		As of and for the Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Mortgage servicing rights:
Mortgage servicing rights, beginning of period	$	4,520	$	4,964	$	4,727	$	5,266
Increase in mortgage servicing rights resulting from transfers of financial assets	48		256		275		858
Amortization during the period	(197)		(418)		(631)		(1,322)
Mortgage servicing rights, end of period	4,371		4,802		4,371		4,802
Valuation allowance:
Valuation allowance, beginning of period	—		(1,102)		(566)		(2,014)
Additions	—		—		—		—
Recoveries	—		382		566		1,294
Valuation allowance, end of period	—		(720)		—		(720)
Mortgage servicing rights, net	$	4,371	$	4,082	$	4,371	$	4,082
Fair value of mortgage servicing rights; end of period	$	5,795	$	4,161	$	5,795	$	4,161

The current period change in valuation allowance, if applicable, is included in non-interest expense as mortgage servicing rights expense, net on the consolidated statement of operations. Servicing fees totaled $346 and $354 for the three months ended September 30, 2022 and September 30, 2021, respectively. Servicing fees totaled $1,049 and $1,058 for the nine months ended September 30, 2022 and September 30, 2021, respectively. Servicing fees are included in loan servicing income on the consolidated statement of operations. Late fees and ancillary fees related to loan servicing are not material.

To estimate the fair value of the MSR asset, a valuation model is applied at the loan level to calculate the present value of the expected future cash flows. The valuation model incorporates various assumptions that would impact market participants’ estimations of future servicing income. Central to the valuation model is the discount rate. Fair value at both September 30, 2022 and September 30, 2021, was determined using discount rates ranging from 9% to 12%. Other assumptions utilized in the valuation model include, but are not limited to, prepayment speed, servicing costs, delinquencies, costs of advances, foreclosure costs, ancillary income, and income earned on float and escrow.

40

NOTE 5 – LEASES

We have operating leases for our corporate offices (1), bank branch offices (5), and an ATM location (1). Our leases have remaining lease terms ranging from approximately 1.08 to 5.75 years, some of which include options to extend the leases for up to 5 additional years. As of September 30, 2022, we have no lease commitments that have not yet commenced. The Company also leases a portion of some of its facilities and receives rental income from such lease agreements, all of which are considered operating leases.

	Nine Months Ended
	September 30, 2022			September 30, 2021
The components of total lease cost were as follows:
Operating lease cost	$	419		$	418
Variable lease cost	35			36
Total lease cost	$	454		$	454
The components of total lease income were as follows:
Operating lease income	$	26		$	27
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	419		$	415
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	215		$	2
	September 30, 2022			December 31, 2021
Supplemental balance sheet information related to leases was as follows:
Operating lease right-of-use assets	$	2,000		$	2,159
Operating lease liabilities	$	2,069		$	2,228
Weighted average remaining lease term in years; operating leases	5.10			5.55
Weighted average discount rate; operating leases	2.96		%	2.73		%

41

Cash obligations and receipts under lease contracts are as follows:

Fiscal years ending December 31,	Payments		Receipts
2022	$	138	$	9
2023	539		27
2024	467		10
2025	452		—
2026	396		—
Thereafter	542		—
Total	2,534		$	46
Less: effects of discounting	(465)
Lease liability recognized	$	2,069

42

NOTE 6 – DEPOSITS

The following is a summary of deposits by type at September 30, 2022 and December 31, 2021, respectively: 

	September 30, 2022		December 31, 2021
Non-interest bearing demand deposits	$	285,670	$	276,631
Interest bearing demand deposits	394,924		396,231
Savings accounts	236,107		222,674
Money market accounts	328,544		288,985
Certificate accounts	189,123		203,014
Total deposits	$	1,434,368	$	1,387,535

At September 30, 2022, the scheduled maturities of time deposits were as follows for the year ended, except December 31, 2022 which is the three months ended:

December 31, 2022	$	23,737
December 31, 2023	97,183
December 31, 2024	56,040
December 31, 2025	10,119
December 31, 2026	1,524
After December 31, 2026	520
Total	$	189,123

Time deposits of $250 or more were $24,257 and $22,381 at September 30, 2022 and December 31, 2021, respectively. Brokered deposits were $19,868 at September 30, 2022 and $11 at December 31, 2021, respectively.

43

NOTE 7 – FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES AND OTHER BORROWINGS

A summary of Federal Home Loan Bank advances and other borrowings at September 30, 2022 and December 31, 2021 is as follows:

		September 30, 2022						December 31, 2021
	Stated Maturity	Amount		Range of Stated Rates				Amount		Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4)	2022	$	67,000	3.08	%	3.13	%	$	11,000	2.45	%	2.45	%
	2023	10,000		1.43	%	2.01	%	20,000		1.43	%	1.44	%
	2024	20,530		0.00	%	1.45	%	20,530		0.00	%	1.45	%
	2025	5,000		1.45	%	1.45	%	5,000		1.45	%	1.45	%
	2029	—		—	%	—	%	42,500		1.00	%	1.13	%
	2030	—		—	%	—	%	12,500		0.52	%	0.86	%
Subtotal		102,530						111,530
Unamortized discount on acquired notes		—						(3)
Federal Home Loan Bank advances, net		$	102,530					$	111,527
Senior Notes (5)	2034	$	23,250	3.00	%	5.50	%	$	28,856	3.00	%	3.50	%
Subordinated Notes (6)	2027	$	—	—	%	—	%	$	15,000	6.75	%	6.75	%
	2030	15,000		6.00	%	6.00	%	15,000		6.00	%	6.00	%
	2032	35,000		4.75	%	4.75	%	—		—	%	—	%
		$	50,000					$	30,000
Unamortized debt issuance costs		(899)						(430)
Total other borrowings		$	72,351					$	58,426
Totals		$	174,881					$	169,953

(1)    The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $960,192 and $861,900 at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $277,959 compared to $204,271 as of December 31, 2021.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $134,530 and $123,530, during the nine months ended September 30, 2022 and the twelve months ended December 31, 2021, respectively.

(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of September 30, 2022 and December 31, 2021 were 3.11% and 2.45%, respectively.

(4)    At September 30, 2022, no FHLB term notes can be called by the FHLB. At December 31, 2021, FHLB term notes totaling $55,000 could be called by the FHLB on a quarterly basis, and if not called, would mature at various dates in 2029 and 2030. These notes were called by the FHLB in 2022.

(5)    Senior notes, entered into by the Company in June 2019 consist of the following:

(a) A term note, which was subsequently refinanced in March 2022, requiring quarterly interest-only payments through March 2025, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.

44

(b) A $5,000 line of credit, maturing August 1, 2023, that remains undrawn upon.

(6)    Subordinated notes resulted from the following:

(a) The Company’s private sale in August 2017, which bore a fixed interest rate of 6.75% for five years. In August 2022, they converted to a three-month LIBOR plus 4.90% rate, and the interest rate will reset quarterly thereafter. The note was callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments were due quarterly. The Company sent the required redemption notice to the note holders in June 2022, and this subordinated note was called and repaid in full on August 10, 2022.

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

(c) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years. In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

Federal Home Loan Bank Letters of Credit

The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest bearing deposit balances. These balances were $190,400 and $176,150 at September 30, 2022 and December 31, 2021, respectively.

Federal Funds Purchased Lines of Credit

The Bank maintains three unsecured federal funds purchased lines of credit with its banking partners which total $75,000. These lines bear interest at the lender bank’s announced daily federal funds rate, mature daily and are revocable at the discretion of the lending institution. There were no borrowings outstanding on these lines of credit as of September 30, 2022 or December 31, 2021.

Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“FRB PPPLF”) Program

The Bank has originated Small Business Administration’s Paycheck Protection Program (“SBA PPP”) loans and has complied with the requirements to pledge these loans to the FRB PPPLF program which provides 100% funding for SBA PPP loans upon request. This FRB PPPLF program expired on July 30, 2021. The Bank had no outstanding loan balances under this facility at December 31, 2021. There were no month-end borrowed amounts outstanding under this agreement during the twelve months ended December 31, 2021, respectively. In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

45

NOTE 8 - CAPITAL MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Although these terms are not used to represent overall financial condition, if adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2022, the Bank was categorized as “Well Capitalized”, under Prompt Corrective Action Provisions.

The Bank’s Tier 1 (leverage) and risk-based capital ratios at September 30, 2022 and December 31, 2021, respectively, are presented below:

	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
As of September 30, 2022
Total capital (to risk weighted assets)	$	219,988	14.4	%	$	122,333	> =	8.0	%	$	152,916	> =	10.0	%
Tier 1 capital (to risk weighted assets)	202,771		13.3	%	$	91,750	> =	6.0	%	122,333		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	202,771		13.3	%	$	68,812	> =	4.5	%	99,396		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	202,771		11.6	%	69,913		> =	4.0	%	87,391		> =	5.0	%
As of December 31, 2021
Total capital (to risk weighted assets)	$	187,783	13.4	%	$	111,694	> =	8.0	%	$	139,618	> =	10.0	%
Tier 1 capital (to risk weighted assets)	170,870		12.2	%	83,771		> =	6.0	%	111,694		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	170,870		12.2	%	62,828		> =	4.5	%	90,752		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	170,870		10.0	%	68,323		> =	4.0	%	85,403		> =	5.0	%

46

The Company’s Tier 1 (leverage) and risk-based capital ratios at September 30, 2022 and December 31, 2021, respectively, are presented below:

	Actual				For Capital Adequacy Purposes
	Amount		Ratio		Amount			Ratio
As of September 30, 2022
Total capital (to risk weighted assets)	$	213,594	14.0	%	122,333		> =	8.0	%
Tier 1 capital (to risk weighted assets)	146,337		9.6	%	91,750		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	146,337		9.6	%	68,812		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	146,337		8.4	%	69,913		> =	4.0	%
As of December 31, 2021
Total capital (to risk weighted assets)	$	182,242	13.1	%	$	111,694	> =	8.0	%
Tier 1 capital (to risk weighted assets)	135,329		9.7	%	83,771		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	135,329		9.7	%	62,828		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	135,329		7.9	%	68,323		> =	4.0	%

47

NOTE 9 – STOCK-BASED COMPENSATION

On March 27, 2018, the stockholders of Citizens Community Bancorp, Inc. approved the 2018 Equity Incentive Plan. The aggregate number of shares of common stock initially reserved and available for issuance under the 2018 Equity Incentive Plan was 350,000 shares. As of September 30, 2022, 221,030 restricted shares had been granted under this plan. This amount includes 11,834 shares of performance based restricted stock granted in 2019 and issued in January 2022 upon achievement of the performance criteria and completion of the three year performance period beginning in January 2019 and ending December 31, 2021. In addition, it includes 1,119 shares of performance based restricted stock granted in 2020 and 638 shares of performance based restricted stock granted in 2021 issued in August of 2022. Both of these issuances were approved by the Compensation Committee in accordance with plan documents and were to a former employee. As of September 30, 2022, no stock options had been granted under this plan.

In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan for a term of 10 years. Due to the plan’s expiration, no new awards can be granted under this plan. As of September 30, 2022, there are no awarded unvested restricted shares and 63,400 awarded unexercised options remaining from the plan. Restricted shares granted under the 2008 Equity Incentive Plan were awarded at no cost to the employee and vest pro rata over a two to five-year period from the grant date. Options granted to date under this plan vest pro rata over a five-year period from the grant date. Unexercised incentive stock options expire within 10 years of the grant date.

Net compensation expense related to restricted stock awards from these plans was $255 and $647 for the three and nine months ended September 30, 2022, compared to $221 and $614 for the three and nine months ended September 30, 2021.

Restricted Common Stock Award

	September 30, 2022			December 31, 2021
	Number of Shares	Weighted Average Grant Price		Number of Shares	Weighted Average Grant Price
Restricted Shares
Unvested and outstanding at beginning of year	75,630	$	11.20	57,242	$	12.23
Granted	43,465	13.99		64,399	10.78
Vested	(26,157)	11.28		(44,511)	13.26
Forfeited	(2,126)	11.10		(1,500)	10.78
Unvested and outstanding at end of period	90,812	$	12.51	75,630	$	11.20

The Company accounts for stock option-based employee compensation related to the Company’s 2008 Equity Incentive Plan and 2018 Equity Incentive Plan using the fair-value-based method. Accordingly, management records compensation expense based on the value of the award as measured on the grant date and then the Company recognizes that cost over the vesting period for the award. The compensation cost recognized for stock option-based employee compensation related to these plans for the three and nine month periods ended September 30, 2022 was $1 and $3, respectively. The compensation cost recognized for stock option-based employee compensation related to these plans for the three and nine month periods ended September 30, 2021 was $2 and $7, respectively.

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Common Stock Option Awards

	Option Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
September 30, 2022
Outstanding at beginning of year	65,900	$	11.20
Exercised	(2,500)	8.00
Forfeited or expired	—	—
Outstanding at end of period	63,400	$	11.33	4.02	$	85
Exercisable at end of period	61,800	$	11.27	3.99	$	85
December 31, 2021
Outstanding at beginning of year	72,300	$	11.05
Exercised	(5,800)	8.99
Forfeited or expired	(600)	13.76
Outstanding at end of year	65,900	$	11.20	4.61	$	169
Exercisable at end of year	61,700	$	11.03	4.54	$	169

Information related to the 2008 Equity Incentive Plan for the respective periods follows:

	Nine months ended September 30, 2022		Twelve months ended December 31, 2021
Intrinsic value of options exercised	$	19	$	28
Cash received from options exercised	$	20	$	52
Tax benefit realized from options exercised	$	—	$	—

49

NOTE 10 – FAIR VALUE ACCOUNTING

ASC Topic 820-10, “Fair Value Measurements and Disclosures” establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:

Level 1- Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2- Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3- Significant unobservable inputs that reflect the Company’s assumptions about the factors that market participants would use in pricing an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement.

The fair value of securities available for sale is determined by obtaining market price quotes from independent third parties wherever such quotes are available (Level 1 inputs); or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Where such quotes are not available, we utilize independent third party valuation analysis to support our own estimates and judgments in determining fair value (Level 3 inputs).

50

Assets Measured on a Recurring Basis

The following tables present the financial instruments measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:

	Fair Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2022
Investment securities:
U.S. government agency obligations	$	19,314	$	—	$	19,314	$	—
Mortgage-backed securities	79,927		—		79,927		—
Corporate debt securities	38,110		—		38,110		—
Corporate asset-backed securities	30,413		—		30,413		—
Total investment securities	167,764		—		167,764		—
Equity Investments:
Equity Investments	292		292		—		—
Equity investments measured at NAV(1)	1,169		—		—		—
Total equity investments	1,461		292		—		—
Total	$	169,225	$	292	$	167,764	$	—
December 31, 2021
Investment securities:
U.S. government agency obligations	$	26,265	$	—	$	26,265	$	—
Obligations of states and political subdivisions	140		—		140		—
Mortgage-backed securities	107,167		—		107,167		—
Corporate debt securities	35,588		—		35,588		—
Corporate asset backed securities	33,908		—		33,908		—
Total investment securities	203,068		—		203,068		—
Equity Investments:
Equity Investments	368		368		—		—
Equity investments measured at NAV(1)	960		—		—		—
Total equity investments	1,328		368		—		—
Total	$	204,396	$	368	$	203,068	$	—

(1) Investments valued at NAV are excluded from being reported under the fair value hierarchy but are presented to permit reconciliation with the balance sheet in accordance with ASC 820-10-35-54B.

51

Assets Measured on Nonrecurring Basis

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021:

	Carrying Value		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2022
Foreclosed and repossessed assets, net	$	1,584	$	—	$	—	$	1,584
Impaired loans with allocated allowances	5,961		—		—		5,961
Mortgage servicing rights	4,371		—		—		5,795
Total	$	11,916	$	—	$	—	$	13,340
December 31, 2021
Foreclosed and repossessed assets, net	$	1,408	$	—	$	—	$	1,408
Impaired loans with allocated allowances	5,580		—		—		5,580
Mortgage servicing rights	4,161		—		—		4,312
Total	$	11,149	$	—	$	—	$	11,300

The fair value of impaired loans referenced above was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.

The fair value of foreclosed and repossessed assets was determined by obtaining market price valuations from independent third parties wherever such quotes were available for other collateral owned. The Company utilized independent third party appraisals to support the Company’s estimates and judgments in determining fair value for other real estate owned.

The fair value of mortgage servicing rights was estimated using discounted cash flows based on current market rates and other factors.

52

The following table represents additional quantitative information about assets measured at fair value on a

recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine their fair value at

September 30, 2022.

	Fair Value		Valuation Techniques (1)	Significant Unobservable Inputs (2)	Range
September 30, 2022
Foreclosed and repossessed assets, net	$	1,584	Appraisal value	Estimated costs to sell	10% - 15%
Impaired loans with allocated allowances	$	5,961	Appraisal value	Estimated costs to sell	10% - 15%
Mortgage servicing rights	$	5,795	Discounted cash flows	Discounted rates	9% - 12%
December 31, 2021
Foreclosed and repossessed assets, net	$	1,408	Appraisal value	Estimated costs to sell	10% - 15%
Impaired loans with allocated allowances	$	5,580	Appraisal value	Estimated costs to sell	10% - 15%
Mortgage servicing rights	$	4,312	Discounted cash flows	Discounted rates	9% - 12%

(1)     Fair value is generally determined through independent third-party appraisals of the underlying

    collateral, which generally includes various level 3 inputs which are not observable.

(2)     The fair value basis of impaired loans and real estate owned may be adjusted to reflect management

    estimates of disposal costs including, but not limited to, real estate brokerage commissions, legal fees,

    and delinquent property taxes.

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The table below represents what we would receive to sell an asset or what we would have to pay to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount and estimated fair value of the Company’s financial instruments as of the dates indicated below were as follows:

		September 30, 2022				December 31, 2021
	Valuation Method Used	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	(Level I)	$	29,411	$	29,411	$	47,691	$	47,691
Other interest-bearing deposits	(Level II)	368		371		1,511		1,535
Securities available for sale “AFS”	(Level II)	167,764		167,764		203,068		203,068
Securities held to maturity “HTM”	(Level II)	97,610		77,233		71,141		69,177
Equity investments	(Level I)	292		292		368		368
Equity investments valued at NAV(1)	N/A	1,169		1,169		960		960
Other investments	(Level II)	15,907		15,907		15,305		15,305
Loans receivable, net	(Level III)	1,358,659		1,311,744		1,294,050		1,319,293
Loans held for sale - Residential mortgage	(Level I)	666		674		1,224		1,250
Loans held for sale - SBA	(Level III)	—		—		5,446		5,776
Mortgage servicing rights	(Level III)	4,371		5,795		4,161		4,312
Accrued interest receivable	(Level I)	4,716		4,716		3,916		3,916
Financial liabilities:
Deposits	(Level III)	$	1,434,368	$	1,433,028	$	1,387,535	$	1,388,390
FHLB advances	(Level II)	102,530		101,008		111,527		113,285
Other borrowings	(Level I)	72,351		72,351		58,426		58,426
Accrued interest payable	(Level I)	251		251		586		586

(1) Investments valued at NAV are excluded from being reported under the fair value hierarchy but are presented to permit reconciliation with the balance sheet in accordance with ASC 820-10-35-54B.

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NOTE 11—EARNINGS PER SHARE

Earnings per share is based on the weighted average number of shares outstanding for the period. A reconciliation of the basic and diluted earnings per share is as follows:

	Three Months Ended				Nine Months Ended
(Share count in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Basic
Net income attributable to common stockholders	$	3,993	$	4,997	$	13,065	$	15,209
Weighted average common shares outstanding	10,510		10,610		10,522		10,788
Basic earnings per share	$	0.38	$	0.47	$	1.24	$	1.41
Diluted
Net income attributable to common stockholders	$	3,993	$	4,997	$	13,065	$	15,209
Weighted average common shares outstanding	10,510		10,610		10,522		10,788
Add: Dilutive stock options outstanding	9		13		11		10
Average shares and dilutive potential common shares	10,519		10,623		10,533		10,798
Diluted earnings per share	$	0.38	$	0.47	$	1.24	$	1.41
Additional common stock option shares that have not been included due to their antidilutive effect	21		—		—		21

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NOTE 12 – OTHER COMPREHENSIVE INCOME (LOSS)

The following tables show the tax effects allocated to each component of other comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021:

	Three months ended
	September 30, 2022						September 30, 2021
	Before-Tax Amount		Tax Benefit (Expense)		Net-of-Tax Amount		Before-Tax Amount		Tax Benefit (Expense)		Net-of-Tax Amount
Unrealized losses on securities:
Net unrealized (losses) gains arising during the period	$	(6,868)	$	1,888	$	(4,980)	$	(1,099)	$	302	$	(797)
Reclassification adjustment for gains included in net income	—		—		—		(42)		11		(31)
Other comprehensive (loss) income	$	(6,868)	$	1,888	$	(4,980)	$	(1,141)	$	313	$	(828)

	Nine Months Ended
	September 30, 2022						September 30, 2021
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Unrealized (losses) gains on securities:
Net unrealized (losses) gains arising during the period	$	(24,024)	$	6,606	$	(17,418)	$	(278)	$	77	$	(201)
Reclassification adjustment for gains included in net income	—		—		—		(78)		21		(57)
Other comprehensive (loss) income	$	(24,024)	$	6,606	$	(17,418)	$	(356)	$	98	$	(258)

The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax for the twelve months ended December 31, 2021 and the nine months ended September 30, 2022 were as follows:

	Unrealized Gains (Losses) on AFS Securities		Other Accumulated Comprehensive Income (Loss), net of tax
Beginning Balance, January 1, 2021	$	2,056	$	1,490
Current year-to-date other comprehensive loss	(1,834)		(1,329)
Ending balance, December 31, 2021	$	222	$	161
Current year-to-date other comprehensive loss	(24,024)		(17,418)
Ending balance, September 30, 2022	$	(23,802)	$	(17,257)

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Reclassifications out of accumulated other comprehensive income (loss) for the three and nine month periods ended September 30, 2022 and September 30, 2021 were as follows:

	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components	Three months ended September 30, 2022		Nine months ended September 30, 2022		(1)	Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities	$	—	$	—		Net gains (losses) on investment securities
Tax effect	—		—			Provision for income taxes
Total reclassifications for the period	$	—	$	—		Net income attributable to common stockholders

	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components	Three months ended September 30, 2021		Nine months ended September 30, 2021		(1)	Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities	$	42	$	78		Net gains (losses) on investment securities
Tax effect	(11)		(21)			Provision for income taxes
Total reclassifications for the period	$	31	$	57		Net income attributable to common stockholders

57

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the Company intends that these forward-looking statements be covered by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “estimates,” “intend,” “may,” “preliminary,” “planned,” “potential,” “should,” “will,” “would,” or the negative of those terms or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are inherently subject to many uncertainties in the Company’s operations and business environment.

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 2, 2022 (“2021 10-K”), the matters described in “Risk Factors” in Item 1A for the quarters ended March 31, 2022 and June 30, 2022, and in Item 1A of this Form 10-Q, and the following:

•conditions in the financial markets and economic conditions generally;

•adverse impacts to the Company or Bank arising from the COVID-19 pandemic;

•acts of terrorism and political or military actions by the United States or other governments;

•the possibility of a deterioration in the residential real estate markets;

•interest rate risk;

•lending risk;

•higher lending risks associated with our commercial and agricultural banking activities;

•the sufficiency of loan allowances;

•changes in the fair value or ratings downgrades of our securities;

•competitive pressures among depository and other financial institutions;

•disintermediation risk;

•our ability to maintain our reputation;

•our ability to maintain or increase our market share;

•our ability to realize the benefits of net deferred tax assets;

•our inability to obtain needed liquidity;

•our ability to raise capital needed to fund growth or meet regulatory requirements;

•our ability to attract and retain key personnel;

•our ability to keep pace with technological change;

•prevalence of fraud and other financial crimes;

•cybersecurity risks;

•the possibility that our internal controls and procedures could fail or be circumvented;

•our ability to successfully execute our acquisition growth strategy;

•risks posed by acquisitions and other expansion opportunities, including difficulties and delays in integrating the acquired business operations or fully realizing the cost savings and other benefits;

•restrictions on our ability to pay dividends;

•the potential volatility of our stock price;

•accounting standards for loan losses;

•legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or Bank;

•public company reporting obligations;

•changes in federal or state tax laws; and

•changes in accounting principles, policies or guidelines and their impact on financial performance.

Stockholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this filing and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this report.

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GENERAL

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of September 30, 2022, and our consolidated results of operations for the three and nine months ended September 30, 2022, compared to the same periods in the prior fiscal year for the three and nine months ended September 30, 2021. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2021 10-K. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses, and their related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that our management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. In addition to the policies included in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included as an exhibit in our annual report on our 2021 10-K, our critical accounting estimates are as follows:

Allowance for Loan Losses.

We maintain an allowance for loan losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated probable incurred losses in our loan portfolio. In evaluating the level of the allowance for loan loss, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued by the Federal Financial Institutions Examination Council (FFIEC). We believe that the Bank’s Allowance for Loan Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for loan losses recorded during a particular period may be adjusted.

Our determination of the allowance for loan losses is based on (1) specific allowances for specifically identified and evaluated impaired loans and their corresponding estimated loss based on likelihood of default, payment history, and net realizable value of underlying collateral. Specific allocations for collateral dependent loans are based on fair value of the underlying collateral relative to the unpaid principal balance of individually impaired loans. For loans that are not collateral dependent, the specific allocation is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a general allowance on loans not specifically identified in (1) above, based on historical loss ratios, which are adjusted for qualitative and general economic factors. We continue to refine our allowance for loan losses methodology, with an increased emphasis on historical performance adjusted for applicable economic and qualitative factors.

Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount, and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio.

We will adopt ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments” through a cumulative-effect adjustment on January 1, 2023. We have selected a loss estimation methodology, utilizing a third-party model, and are currently finalizing our process for model utilization. The impact of adoption on our financial condition and results of operations cannot yet be definitively determined due to the sensitivity of the model to various inputs and changing economic forecasts.

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Goodwill.

We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill. The Company amortizes acquired intangible assets with definite useful economic lives over their useful economic lives utilizing the straight-line method. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets may be impaired. The Company does not amortize goodwill, but reviews goodwill for impairment at a reporting unit level on an annual basis, or when events or changes in circumstances indicate that the carrying amounts may be impaired. A reporting unit is defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has one reporting unit as of September 30, 2022, which is related to its banking activities. The Company performed the required goodwill impairment test and determined that goodwill was not impaired as of December 31, 2021.

Fair Value Measurements and Valuation Methodologies.

We apply various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit intangible assets, other assets and liabilities obtained or assumed in business combinations, and certain other financial instruments. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations, financial condition or disclosures of fair value information.

In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of operations. Examples include but are not limited to: loans, investment securities, goodwill, core deposit intangible assets and deferred tax assets, among others. Specific assumptions, estimates and judgments utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 2, 3, 4 and 10 of Condensed Notes to Consolidated Financial Statements.

Income Taxes.

Amounts provided for income tax expenses are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities, which arise principally from temporary differences between the amounts reported in the financial statements and the tax basis of certain assets and liabilities, are included in the amounts provided for income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and if necessary, tax planning strategies in making this assessment.

The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and application of specific provisions of federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be material to our consolidated results of operations and reported earnings. We believe that the deferred tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements. As of September 30, 2022, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary.

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STATEMENT OF OPERATIONS ANALYSIS

Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest-bearing assets and the dollar amount of interest paid on interest-bearing liabilities. The interest income and expense of financial institutions (including those of the Bank) are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors.

Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin for the three and nine-month periods ended September 30, 2022, and September 30, 2021, respectively.

Net interest income was $14.5 million for the three months ended September 30, 2022, and $41.9 million for the nine months ended September 30, 2022, compared to $13.7 million for the three months ended September 30, 2021, and $39.3 million for the nine months ended September 30, 2021. Net interest income for the three and nine months ended September 30, 2022, increased from the same period one year ago due to: 1) both organic loan and investment growth from September 30, 2021; 2) the positive impact of nonaccrual loan payoffs and purchased loan credit impairment accretion; 3) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield; and 4) lower liability costs. This was partially offset by $1.9 million and $4.9 million decreases in the accretion of deferred fees related to SBA Paycheck Protection Program (“SBA PPP”) loans for the three and nine months ended September 30, 2022, respectively, compared to the prior year periods.

The net interest margin for the three-month period ended September 30, 2022, was 3.43%, compared to 3.34% for the three-month period ended September 30, 2021. The net interest margin increase was due to: 1) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield and 2) lower deposit costs, partially offset by: 1) a 46-basis point decrease in SBA PPP deferred loan fee accretion in loan yields and 2) the impact of additional interest expense on the subordinated debt issued in March of 2022.

The net interest margin for the nine-month period ended September 30, 2022, was 3.38%, compared to 3.29% for the nine-month period ended September 30, 2021. The net interest margin increase was due to: 1) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield; 2) the positive impact of nonaccrual loan payoffs with purchased loan credit impairment accretion and interest income recognition of 3 basis points; 3) lower deposit costs; and 4) the positive impact of investing lower yield cash into investment securities. This was partially offset by a 39-basis point decrease in SBA PPP deferred loan fee accretion and the impact of additional interest expense due to subordinated debt issued in March 2022.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following net interest income analysis table presents interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates on a tax equivalent basis. Shown below is the weighted average tax equivalent yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the three and nine-month periods ended September 30, 2022, and September 30, 2021. Non-accruing loans have been included in the table as loans carrying a zero yield.

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Three months ended September 30, 2022 compared to the three months ended September 30, 2021:

	Three months ended September 30, 2022						Three months ended September 30, 2021
	Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)		Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)
Average interest earning assets:
Cash and cash equivalents	$	11,043	$	60	2.16	%	$	111,192	$	50	0.18	%
Loans	1,370,897		15,937		4.61	%	1,192,636		14,537		4.84	%
Interest-bearing deposits	1,079		7		2.57	%	1,512		8		2.10	%
Investment securities (1)	274,868		1,768		2.57	%	303,325		1,412		1.85	%
Other investments	14,910		187		4.98	%	14,961		168		4.46	%
Total interest earning assets (1)	$	1,672,797	$	17,959	4.26	%	$	1,623,626	$	16,175	3.95	%
Average interest-bearing liabilities:
Savings accounts	$	227,985	$	204	0.36	%	$	216,304	$	95	0.17	%
Demand deposits	413,033		575		0.55	%	392,080		280		0.28	%
Money market	331,469		519		0.62	%	276,582		193		0.28	%
CD’s	136,624		335		0.97	%	207,494		682		1.30	%
IRA’s	34,446		48		0.55	%	39,525		104		1.04	%
Total deposits	$	1,143,557	$	1,681	0.58	%	$	1,131,985	$	1,354	0.47	%
FHLB Advances and other borrowings	192,338		1,821		3.76	%	169,891		1,133		2.65	%
Total interest-bearing liabilities	$	1,335,895	$	3,502	1.04	%	$	1,301,876	$	2,487	0.76	%
Net interest income			$	14,457					$	13,688
Interest rate spread					3.22	%					3.19	%
Net interest margin (1)					3.43	%					3.34	%
Average interest earning assets to average interest-bearing liabilities					1.25						1.25

(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the quarters ended September 30, 2022, and September 30, 2021. The FTE adjustment to net interest income included in the rate calculations totaled $0 and $1 thousand for the three months ended September 30, 2022, and September 30, 2021, respectively.

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NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021:

	Nine months ended September 30, 2022						Nine months ended September 30, 2021
	Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)		Average Balance		Interest Income/ Expense		Average Yield/ Rate (1)
Average interest earning assets:
Cash and cash equivalents	$	23,727	$	116	0.65	%	$	118,064	$	107	0.12	%
Loans	1,334,811		44,598		4.47	%	1,197,469		43,014		4.80	%
Interest-bearing deposits	1,365		22		2.15	%	2,227		37		2.22	%
Investment securities (1)	282,771		4,777		3.38	%	263,655		3,606		1.83	%
Other investments	15,044		525		4.67	%	15,006		510		4.54	%
Total interest earning assets (1)	$	1,657,718	$	50,038	4.04	%	$	1,596,421	$	47,274	3.96	%
Average interest bearing liabilities:
Savings accounts	$	227,787	$	424	0.25	%	$	211,320	$	277	0.18	%
Demand deposits	411,471		1,045		0.34	%	361,248		788		0.29	%
Money market	318,246		1,011		0.42	%	263,195		577		0.29	%
CD’s	143,965		1,079		1	%	237,706		2,592		1.46	%
IRA’s	35,729		175		0.65	%	40,119		355		1.18	%
Total deposits	$	1,137,198	$	3,734	0.44	%	$	1,113,588	$	4,589	0.55	%
FHLB Advances and other borrowings	181,598		4,413		3.25	%	173,889		3,400		2.61	%
Total interest bearing liabilities	$	1,318,796	$	8,147	0.83	%	$	1,287,477	$	7,989	0.83	%
Net interest income			$	41,891					$	39,285
Interest rate spread					3.21	%					3.13	%
Net interest margin (1)					3.38	%					3.29	%
Average interest earning assets to average interest bearing liabilities					1.26						1.24

(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the nine months ended September 30, 2022, and September 30, 2021. The FTE adjustment to net interest income included in the rate calculations totaled $1 and $3 thousand for the nine-month periods ended September 30, 2022, and September 30, 2021, respectively.

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Rate/Volume Analysis. The following tables present the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: 1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e., holding the initial rate constant) and 2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant). Rate changes have been discussed previously in the net interest income section above. For the three and nine months ended September 30, 2022, compared to the same periods in 2021, the loan volume increased due to strong organic growth. The decrease in certificate volumes is due to CD shrinkage, with some of this decrease moving to money markets. Investment securities volume decreases for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, are primarily due to: 1) principal repayments and 2) unrealized losses in the available for sale securities portfolio, partially offset by purchases. Investment securities volume increases for the nine months ended September 30, 2022, compared to the same period in the prior year are due to an increase in portfolio balances, largely due to purchases of mortgage-backed securities.

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

Three months ended September 30, 2022 compared to the three months ended September 30, 2021.

	Increase (decrease) due to
	Volume		Rate		Net
Interest income:
Cash and cash equivalents	$	(270)	$	280	$	10
Loans	2,099		(699)		1,400
Interest-bearing deposits	(3)		2		(1)
Investment securities	(144)		500		356
Other investments	(1)		20		19
Total interest earning assets	1,681		103		1,784
Interest expense:
Savings accounts	5		104		109
Demand deposits	16		279		295
Money market accounts	44		282		326
CD’s	(193)		(154)		(347)
IRA’s	(12)		(44)		(56)
Total deposits	(140)		467		327
FHLB Advances and other borrowings	163		525		688
Total interest bearing liabilities	23		992		1,015
Net interest income	$	1,658	$	(889)	$	769

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Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

	Increase (decrease) due to
	Volume		Rate		Net
Interest income:
Cash and cash equivalents	$	(264)	$	273	$	9
Loans	4,728		(3,144)		1,584
Interest-bearing deposits	(14)		(1)		(15)
Investment securities	278		893		1,171
Other investments	1		14		15
Total interest earning assets	4,729		(1,965)		2,764
Interest expense:
Savings accounts	23		124		147
Demand deposits	117		140		257
Money market accounts	136		298		434
CD’s	(806)		(707)		(1,513)
IRA’s	(35)		(145)		(180)
Total deposits	(565)		(290)		(855)
FHLB Advances and other borrowings	156		857		1,013
Total interest bearing liabilities	(409)		567		158
Net interest income	$	5,138	$	(2,532)	$	2,606

Provision for Loan Losses. We determine our provision for loan losses (“provision”) based on our desire to provide an adequate allowance for loan losses (“ALL”) to reflect probable and inherent credit losses in our loan portfolio. We continue to monitor adverse general economic conditions that could affect our commercial and agricultural portfolios in the future.

Total provision for loan losses for the three and nine months ended September 30, 2022, was $0.4 million and $0.8 million, respectively, compared to no provision for the three and nine months ended September 30, 2021. Based on loan growth alone, the provision would have been $0.5 million for the third quarter and $0.95 million in the second quarter. However, payments on, and improved collateral position on substandard loans reduced specific reserves, reducing the provision. In addition, approximately $0.3 million of second quarter 2022 charge-offs had been provided for in previous quarters and the related charge-offs reduced second quarter 2022 specific reserves. There were no loan loss provisions for the quarters ended March 31, 2022, September 30, 2021, June 30, 2021, or March 31, 2021. Continued improving economic conditions in our markets, as evidenced by unemployment rates below the national average in our two largest population centers, have resulted in improving overall economic trends for businesses.

Note that in discussing ALL allocations, the entire ALL balance is available for any loan that, in management’s judgment, should be charged off.

Management believes that the provision recorded for the current year three and nine-month period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ALL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ALL. If there are significant charge-offs against the ALL, or we otherwise determine that the ALL is inadequate, we will need to record an additional provision in the future.

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Non-interest Income. The following table reflects the various components of non-interest income for the three and nine- month periods ended September 30, 2022 and 2021, respectively.

	Three months ended September 30,						Nine months ended September 30,
	2022		2021		% Change		2022		2021		% Change
Non-interest Income:
Service charges on deposit accounts	$	535	$	463	15.55	%	$	1,505	$	1,256	19.82	%
Interchange income	597		600		(0.50)	%	1,760		1,776		(0.90)	%
Loan servicing income	611		842		(27.43)	%	1,912		2,560		(25.31)	%
Gain on sale of loans	194		1,014		(80.87)	%	1,330		4,131		(67.80)	%
Loan fees and service charges	267		118		126.27	%	500		547		(8.59)	%
Net gains (losses) on investment securities	(55)		73		N/M		(167)		344		N/M
Other	323		338		(4.44)	%	717		801		(10.49)	%
Total non-interest income	$	2,472	$	3,448	(28.31)	%	$	7,557	$	11,415	(33.80)	%

Service charges on deposit accounts increased to $535 for the three months ended September 30, 2022, from $463 for the prior year quarter. For the nine months ended September 30, 2022, service charges increased to $1,505, compared to $1,256 in the comparable prior year period. The increase for both periods is due to higher customer spending activity.

Loan servicing income decreased with reduced capitalization of mortgage servicing rights due to lower mortgage loan origination volume in both the three and nine-month periods ended September 30, 2022, compared to the same periods in the prior year.

Gain on sale of loans decreased in the current three and nine-month periods ended September 30, 2022, compared to the three and nine months ended September 30, 2021, due to lower mortgage loan origination volumes.

The increase in loan fees and service charges for the three-month period ended September 30, 2022, compared to the three-month period ended September 30, 2021, is largely due to a loan prepayment on an acquired loan. For the nine-month period September 30, 2022, the decrease in loan fees and service charges from the nine-month period ending September 30, 2021, is due to net decreases in commercial loan-related customer activity.

The change in net gains (losses) on investment securities between the three and nine months ended September 30, 2022, and the three and nine months ended September 30, 2021, respectively, is primarily due to: 1) net unrealized losses on equity securities with readily determinable fair value in 2022, compared to net unrealized gains on equity securities with readily determinable fair value in 2021 and 2) modest net realized gains on sale of available for sale securities in the second quarter of 2021 of $36 and third quarter of 2021 of $42 primarily due to sales of trust-preferred securities.

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Non-interest Expense. The following table reflects the various components of non-interest expense for the three and nine-month periods ended September 30, 2022 and 2021, respectively.

	Three months ended September 30,								Nine months ended September 30,
	2022			2021			% Change		2022			2021			% Change
Non-interest Expense:
Compensation and related benefits	$	5,900		$	5,718		3.18	%	$	16,887		$	16,736		0.90	%
Occupancy	1,429			1,313			8.83	%	4,137			3,943			4.92	%
Data processing	1,382			1,582			(12.64)	%	4,098			4,374			(6.31)	%
Amortization of intangible assets	399			399			—	%	1,197			1,197			—	%
Mortgage servicing rights expense, net	197			37			432.43	%	65			28			132.14	%
Advertising, marketing and public relations	300			220			36.36	%	762			577			32.06	%
FDIC premium assessment	119			148			(19.59)	%	352			395			(10.89)	%
Professional services	382			328			16.46	%	1,152			1,192			(3.36)	%
Gains on repossessed assets, net	(8)			(3)			(166.67)	%	(17)			(149)			88.59	%
New market tax credit depletion	163			—			N/M		488			—			N/M
Other	1,014			578			75.43	%	2,286			1,714			33.37	%
Total non-interest expense	$	11,277		$	10,320		9.27	%	$	31,407		$	30,007		4.67	%
Non-interest expense (annualized) / Average assets	2.51		%	2.34		%	7.36	%	2.38		%	2.34		%	1.71	%

Compensation expense for the three-month and nine-month periods ended September 30, 2022, were higher than the comparable prior year periods primarily due to merit and benefit increases in late March of 2022, partially offset by lower variable mortgage compensation related to lower mortgage activity.

Net mortgage servicing rights expense increased during the three and nine months ended September 30, 2022, compared to the comparable prior year periods. While amortization expense decreased in the current three month period due to the impact of lower forecasted prepayments, this decrease was more than offset by $382 thousand of impairment reversal in the comparable prior year period. Amortization expense decreased in the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, by $691 thousand. This was partially offset by a decrease in MSR impairment reversals for the nine months ended September 30, 2022, of $566 thousand, compared to the comparable prior year period reversal of $1,294 thousand.

The FDIC insurance premium decreased for the three-month and nine-month periods ended September 30, 2022, from the comparable prior year periods due to the favorable impact of increased bank capital ratios, largely due to both a $15 million capital injection following the Company’s subordinated debt issuance in March of 2022 and the impact of growth in the Bank’s retained earnings.

Professional services costs increased during the three months ended September 30, 2022, from the comparable prior year period due to the use of outside professionals who finished projects on behalf of the Company. Despite the increase in the third quarter compared to the prior year third quarter, the current year nine-month period professional fees decreased compared to the same period in 2021. This decrease was largely due to the need for fewer outside professionals and lower fees from our independent registered public accounting firm and other costs to prepare our Form 10-K in the first quarter of 2022 compared to the first quarter of 2021.

Net gains on repossessed assets decreased for the nine month period ended September 30, 2022, compared to the same period in 2021 due to fewer and lower value repossessed property sales resulting in lower corresponding gains on sale.

In the first quarter of 2022, the Bank invested $4.1 million in a New Market Tax Credit. Based on current accounting guidance, the related non-tax-deductible asset depletion will occur over a 5-year period in lockstep with the recognition of the tax credit. The Emerging Issues Task Force of the Financial Accounting Standards Board has issued guidance that, if implemented in its current proposal, would change the depletion expense from equal to the tax credit until the asset is depleted, to being proportional with the new market tax credit recognized, which is seven years.

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The increase in other expenses during the three and nine months ended September 30, 2022, from the comparable prior year periods is largely due to branch closure costs.

Income Taxes. Income tax expense was $1.3 and $4.2 million for the three and nine months ended September 30, 2022, respectively, compared to $1.8 and $5.5 million for the three and nine months ended September 30, 2021. The effective tax rate was 24.3% for both the three and nine-month periods ended September 30, 2022, compared to 26.7% and 26.5% for the comparable prior year periods. The lower effective tax rate is due to the impact of the New Market Tax Credit. The lower tax expense is due to both the lower effective tax rate and lower pre-tax income.

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BALANCE SHEET ANALYSIS

Cash and Cash Equivalents. Our cash balances decreased $18.3 million to $29.4 million in the first three quarters of 2022 as we deployed cash to support loan growth.

Investment Securities. We manage our securities portfolio to provide liquidity and enhance income. Our investment portfolio is comprised of securities available for sale and securities held to maturity.

Securities available for sale, which represent the majority of our investment portfolio, were $167.8 million at September 30, 2022, compared with $203.1 million at December 31, 2021. The decrease in the available for sale portfolio is due to unrealized losses of $24.0 million arising during the period and principal repayments, partially offset by purchases of corporate debt securities and mortgage-backed certificates.

Securities held to maturity increased to $97.6 million at September 30, 2022, compared to $71.1 million at December 31, 2021. This increase was largely due to the purchase of agency mortgage-backed securities, net of repayments. The unrealized loss on the held to maturity portfolio increased by $18.4 million in the first three quarters of 2022, to $20.4 million.

The amortized cost and market values of our available for sale securities by asset categories as of the dates indicated below were as follows:

Available for sale securities	Amortized Cost		Fair Value
September 30, 2022
U.S. government agency obligations	$	19,357	$	19,314
Mortgage-backed securities	99,198		79,927
Corporate debt securities	41,861		38,110
Corporate asset-backed securities	31,149		30,413
Totals	$	191,565	$	167,764
December 31, 2021
U.S. government agency obligations	$	25,826	$	26,265
Obligations of states and political subdivisions	140		140
Mortgage-backed securities	107,636		107,167
Corporate debt securities	35,342		35,588
Corporate asset-backed securities	33,902		33,908
Totals	$	202,846	$	203,068

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The amortized cost and fair value of our held to maturity securities by asset categories as of the dates noted below were as follows:

Held to maturity securities	Amortized Cost		Fair Value
September 30, 2022
Obligations of states and political subdivisions	$	600	$	546
Mortgage-backed securities	97,010		76,687
Totals	$	97,610	$	77,233
December 31, 2021
Obligations of states and political subdivisions	$	4,600	$	4,593
Mortgage-backed securities	66,541		64,584
Totals	$	71,141	$	69,177

The composition of our available for sale portfolios by credit rating as of the dates indicated below was as follows:

	September 30, 2022				December 31, 2021
Available for sale securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	$	115,150	$	95,941	$	131,115	$	131,008
AAA	8,717		8,442		9,662		9,710
AA	25,837		25,272		26,727		26,762
A	5,700		5,218		5,700		5,720
BBB	36,161		32,891		29,642		29,868
Non-rated	—		—		—		—
Total available for sale securities	$	191,565	$	167,764	$	202,846	$	203,068

The composition of our held to maturity portfolio by credit rating as of the dates indicated was as follows:

	September 30, 2022				December 31, 2021
Held to maturity securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	$	97,010	$	76,687	$	66,541	$	64,584
AAA	—		—		—		—
AA	—		—		4,000		4,000
A	600		546		600		593
Total	$	97,610	$	77,233	$	71,141	$	69,177

At September 30, 2022, the Bank has pledged mortgage-backed securities with a carrying value of $5.5 million as collateral against a borrowing line of credit with the Federal Reserve Bank with no borrowings outstanding on this line of credit. As of September 30, 2022, the Bank has pledged U.S. Government Agency securities with a carrying value of $2.8 million and mortgage-backed securities with a carrying value of $2.3 million as collateral against specific municipal deposits. As of September 30, 2022, the Bank also has mortgage-backed securities with a carrying value of $0.2 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2021, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $0.9 million as collateral to secure a line of credit with the Federal Reserve Bank with no borrowings outstanding on this line of credit. As of December 31, 2021, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $3.9 million and mortgage-backed securities with a carrying value of $2.9 million as collateral against specific municipal deposits. As of December 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.3 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

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Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, increased by $64.9 million, to $1.38 billion as of September 30, 2022, from $1.31 billion at December 31, 2021. The originated loan portfolio, before SBA PPP loans, increased $116.9 million in the nine-month period ended September 30, 2022. Total SBA PPP loans decreased $8.8 million, entirely due to debt forgiveness. Acquired loans decreased by $44.8 million. The following table reflects the composition, or mix, of our loan portfolio at September 30, 2022, and December 31, 2021:

	September 30, 2022				December 31, 2021
	Amount		Percent		Amount		Percent
Real estate loans:
Commercial/Agricultural real estate
Commercial real estate	$	701,688	51.1	%	$	698,465	53.3	%
Agricultural real estate	81,707		5.9	%	78,495		6.0	%
Multi-family real estate	197,672		14.4	%	178,349		13.6	%
Construction and land development	117,850		8.6	%	79,520		6.1	%
Residential mortgage
Residential mortgage	98,733		7.2	%	90,990		6.9	%
Purchased HELOC loans	3,357		0.2	%	3,871		0.3	%
Total real estate loans	1,201,007		87.4	%	1,129,690		86.2	%
C&I/Agricultural operating and Consumer Installment Loans:
C&I/Agricultural operating
Commercial and industrial (“C&I”)	134,815		9.8	%	122,167		9.3	%
Agricultural operating	26,033		1.9	%	31,588		2.4	%
Consumer installment							—	%
Originated indirect paper	11,234		0.8	%	15,971		1.2	%
Other consumer	7,310		0.5	%	8,874		0.7	%
Total C&I/Agricultural operating and Consumer installment Loans	179,392		13.0	%	178,600		13.6	%
Gross loans before C&I SBA PPP loans	1,380,399		100.4	%	1,308,290		99.8	%
SBA PPP loans	—		—	%	8,755		0.7	%
Gross loans	$	1,380,399	100.4	%	$	1,317,045	100.5	%
Unearned net deferred fees and costs and loans in process	(2,447)		(0.2)	%	(2,482)		(0.2)	%
Unamortized discount on acquired loans	(2,076)		(0.2)	%	(3,600)		(0.3)	%
Total loans (net of unearned income and deferred expense)	1,375,876		100.0	%	1,310,963		100.0	%
Allowance for loan losses	(17,442)				(16,913)
Total loans receivable, net	$	1,358,434			$	1,294,050

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The following table summarizes SBA PPP loans by origination year at September 30, 2022:

	2020 Originations				2021 Originations				Total
	Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income		Balance		Net Deferred Fee Income
SBA PPP loans, January 1, 2021	$	123,702	$	2,991	$	—	$	—	$	123,702	$	2,991
2021 SBA PPP loan originations	—		—		55,854		3,494		55,854		3,494
Less: 2021 SBA PPP loan forgiveness and fee accretion	(121,574)		(2,987)		(49,227)		(3,201)		(170,801)		(6,188)
SBA PPP loans, December 31, 2021	2,128		4		6,627		293		8,755		297
Less: 2022 SBA PPP loan forgiveness and fee accretion	(2,128)		(4)		(6,627)		(293)		(8,755)		(297)
SBA PPP loans, September 30, 2022	$	—	$	—	$	—	$	—	$	—	$	—

Allowance for Loan Losses. The loan portfolio is our primary asset subject to credit risk. To address this credit risk, we maintain an ALL for probable and inherent credit losses through periodic charges to our earnings. These charges are shown in our consolidated statements of operations as provision for loan losses. See “Provision for Loan Losses” earlier in this quarterly report. We attempt to control, monitor, and minimize credit risk through the use of prudent lending standards, a thorough review of potential borrowers prior to lending and ongoing and timely review of payment performance. Asset quality administration, including early identification of loans performing in a substandard manner, as well as timely and active resolution of problems, further enhances management of credit risk and minimization of loan losses. Any losses that occur and that are charged off against the ALL are periodically reviewed with specific efforts focused on achieving maximum recovery of both principal and interest.

At least quarterly, we review the adequacy of the ALL. Based on an estimate computed pursuant to the requirements of ASC 450-10, “Accounting for Contingencies” and ASC 310-10, “Accounting by Creditors for Impairment of a Loan”, the analysis of the ALL consists of three components: (i) specific credit allocation established for expected losses relating to specific impaired loans for which the recorded investment in the loan exceeds its fair value; (ii) general portfolio allocation based on historical loan loss experience for significant loan categories; and (iii) general portfolio allocation based on qualitative factors such as economic conditions and other relevant factors specific to the markets in which we operate. We continue to refine our ALL methodology by introducing a greater level of granularity to our loan portfolio. We currently segregate loans into pools based on common risk characteristics for purposes of determining the ALL. The additional segmentation of the portfolio is intended to provide a more effective basis for the determination of qualitative factors affecting our ALL. In addition, management continually evaluates our ALL methodology to assess whether modifications in our methodology are appropriate in light of underwriting practices, market conditions, identifiable trends, regulatory pronouncements or other factors. We believe that any modifications or changes to the ALL methodology would be to enhance the ALL. However, any such modifications could result in materially different ALL levels in future periods.

The specific credit allocation for the ALL is based on a regular analysis of all loans that are considered impaired. In compliance with ASC 310-10, the fair value of the loan is determined based on either the present value of expected cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less the expected cost of sale for such collateral. At September 30, 2022, the Company individually evaluated loans for impairment with a recorded investment of $29.7 million, consisting of (1) $7.3 million purchased credit impaired (“PCI”) loans, with a carrying amount of $7.1 million; (2) $8.5 million TDR loans, net of TDR PCI loans; and (3) $14.1 million of substandard non-TDR, non-PCI loans. The $29.7 million total of loans individually evaluated for impairment includes $6.9 million of performing TDR loans. At December 31, 2021, the Company individually evaluated loans for impairment with a recorded investment of $31.7 million, consisting of (1) $11.2 million PCI loans, with a carrying amount of $10.6 million; (2) $9.9 million TDR loans, net of TDR PCI loans; and (3) $11.3 million of substandard non-TDR, non-PCI loans. The $31.7 million total of loans individually evaluated for impairment includes $8.0 million of performing TDR loans. At September 30, 2022, and December 31, 2021, we had $29.7 million and 192 loans individually evaluated for impairment, respectively, all secured by real estate or personal property. Of the originated loans individually evaluated for impairment, there were 5 loans where the estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling $6.7 million for which $0.7 million in specific ALL was recorded as of September 30, 2022.

The allowance for loan losses modestly increased $0.3 million to $17.2 million at September 30, 2022, representing 1.25% of loans receivable. A portion of the current loan portfolio includes loans purchased through whole bank acquisitions in recent years resulting in purchased credit impairments which are not included in the allowance for loan losses. As the originated portfolio grows and the acquired portfolio shrinks, the percentage of originated loans to total loans grows, as does the overall

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percentage of the allowance to total loans. The allowance for loan losses was $16.9 million at December 31, 2021, representing 1.30% of loans receivable, less the 100% SBA guaranteed PPP loans. The increase in the allowance at September 30, 2022, was due to a provision of $0.8 million, partially offset by net loan charge-offs. Approximately $0.3 million of the charge-offs in the second quarter had specific reserves previously established, so there was no impact on the provision for loan losses.

Allowance for Loan Losses to Loans, net of SBA PPP Loans

(in thousands, except ratios)

	September 30, 2022			December 31, 2021
Loans, end of period	$	1,375,876		$	1,310,963
SBA PPP loans, net of deferred fees	—			(8,457)
Loans, net of SBA PPP loans and deferred fees	$	1,375,876		$	1,302,506
Allowance for loan losses	$	17,217		$	16,913
ALL to loans net of SBA PPP loans and deferred fees	1.25		%	1.30		%
ALL to loans, end of period	1.25		%	1.29		%

All of the nine factors identified in the FFIEC’s Interagency Policy Statement on the Allowance for Loan and Lease Losses are taken into account in determining the ALL. The impact of the factors in general categories are subject to change; thus, the allocations are management’s estimate of the loan loss categories in which the probable and inherent loss has occurred as of the date of our assessment. Of the nine factors, we believe the following have the greatest impact on our customers’ ability to repay loans and our ability to recover potential losses through collateral sales: (1) lending policies and procedures; (2) economic and business conditions; and (3) the value of the underlying collateral. As loan balances and estimated losses in a particular loan type decrease or increase and as the factors and resulting allocations are monitored by management, changes in the risk profile of the various parts of the loan portfolio may be reflected in the allocated allowance. The general component covers non-impaired loans and is based on historical loss experience adjusted for these and other qualitative factors. In addition, management continues to refine the ALL estimation process as new information becomes available. These refinements could also cause increases or decreases in the ALL. See Provision for loan losses in the Consolidated Statements of Operations (unaudited) for further details. The unallocated portion of the ALL is intended to account for imprecision in the estimation process or relevant current information that may not have been considered in the process.

Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of nonaccrual and problem loans in order to minimize the Bank’s risk of loss. Nonperforming loans are defined as nonaccrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that such classification is warranted. The accrual of interest income is discontinued on our loans according to the following schedule:

•Commercial/agricultural real estate loans, past due 90 days or more;

•C&I/Agricultural operating loans, past due 90 days or more;

•Closed ended consumer installment loans, past due 120 days or more; and

•Residential mortgage loans and open-ended consumer installment loans, past due 180 days or more.

When interest accruals are discontinued, interest credited to income is reversed. If collection is in doubt, cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income. A TDR typically involves the granting of some concession to the borrower involving a loan modification, such as modifying the payment schedule or making interest rate changes. TDR loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC 310-10.

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The following table identifies the various components of nonperforming assets and other balance sheet information as of the dates indicated below and changes in the ALL for the periods then ended:

	September 30, 2022 and Nine Months Then Ended			December 31, 2021 and Twelve Months Then Ended
Nonperforming assets:
Nonaccrual loans
Commercial real estate	$	5,848		$	5,374
Agricultural real estate	2,729			3,490
Construction and land development	43			—
Commercial and industrial	188			298
Agricultural operating	668			993
Residential mortgage	1,246			1,433
Consumer installment	50			77
Total nonaccrual loans	$	10,772		$	11,665
Accruing loans past due 90 days or more	248			160
Total nonperforming loans (“NPLs”)	11,020			11,825
Other real estate owned	1,584			1,406
Other collateral owned	—			2
Total nonperforming assets (“NPAs”)	$	12,604		$	13,233
Troubled Debt Restructurings (“TDRs”)	$	9,336		$	12,523
Accruing TDRs	$	6,910		$	7,984
Nonaccrual TDRs	$	2,426		$	4,539
Average outstanding loan balance	$	1,334,811		$	1,216,244
Loans, end of period	$	1,375,876		$	1,310,963
Total assets, end of period	$	1,780,202		$	1,739,628
ALL, at beginning of period	$	16,913		$	17,043
Loans charged off:
Commercial/Agricultural real estate	(205)			(251)
C&I/Agricultural operating	(310)			(7)
Residential mortgage	(68)			—
Consumer installment	(34)			(81)
Total loans charged off	(617)			(339)
Recoveries of loans previously charged off:
Commercial/Agricultural real estate	41			28
C&I/Agricultural operating	27			123
Residential mortgage	29			13
Consumer installment	49			45
Total recoveries of loans previously charged off:	146			209
Net loans charged off (“NCOs”)	(471)			(130)
Additions to ALL via provision for loan losses charged to operations	775			—
ALL, at end of period	$	17,217		$	16,913
Ratios:
ALL to NCOs (annualized)	2,734.05		%	13,010.00		%
NCOs (annualized) to average loans	0.05		%	0.01		%
ALL to total loans	1.25		%	1.29		%
NPLs to total loans	0.80		%	0.90		%
NPAs to total assets	0.71		%	0.76		%

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The following table shows the detail of non-performing assets by originated and acquired portfolios:

Nonperforming Originated / Acquired Assets

(in thousands, except ratios)

	September 30, 2022			December 31, 2021
Nonperforming assets:
Originated nonperforming assets:
Nonaccrual loans	$	8,294		$	6,448
Accruing loans past due 90 days or more	169			63
Total originated nonperforming loans (“NPL”)	8,463			6,511
Other real estate owned (“OREO”)	—			—
Other collateral owned	—			2
Total originated nonperforming assets (“NPAs”)	$	8,463		$	6,513
Acquired nonperforming assets:
Nonaccrual loans	$	2,478		$	5,217
Accruing loans past due 90 days or more	79			97
Total acquired nonperforming loans (“NPL”)	2,557			5,314
Other real estate owned (“OREO”)	1,584			1,406
Other collateral owned	—			—
Total acquired nonperforming assets (“NPAs”)	$	4,141		$	6,720
Total nonperforming assets (“NPAs”)	$	12,604		$	13,233
Loans, end of period	$	1,375,876		$	1,310,963
Total assets, end of period	$	1,780,202		$	1,739,628
Ratios:
Originated NPLs to total loans	0.61		%	0.50		%
Acquired NPLs to total loans	0.19		%	0.41		%
Originated NPAs to total assets	0.48		%	0.37		%
Acquired NPAs to total assets	0.23		%	0.39		%

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Nonaccrual Loans Roll Forward:

	Quarter Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Balance, beginning of period	$	10,434	$	11,858	$	11,665	$	11,706	$	8,075
Additions	257		1,918		720		428		4,859
Acquired nonaccrual loans	—		—		—		—		—
Charge offs	(4)		(437)		(15)		(1)		(24)
Transfers to OREO	(27)		(65)		—		(19)		—
Return to accrual status	(117)		—		(51)		(30)		—
Repurchases of government guaranteed loans	517		—		—		—		—
Payments received	(288)		(2,830)		(461)		(422)		(1,202)
Other, net	—		(10)		—		3		(2)
Balance, end of period	$	10,772	$	10,434	$	11,858	$	11,665	$	11,706

Nonperforming loans decreased by $0.8 million to $11.0 million at September 30, 2022, from December 31, 2021. This decrease is largely due to payoffs of acquired nonaccrual loans, partially offset by increases in originated nonaccrual loans, the repurchase of a government guaranteed loan and increases in originated accruing loans past due 90 days or more. Nonperforming assets decreased to $12.6 million or 0.71% of total assets at September 30, 2022, compared to $13.2 million, or 0.76% of total assets at December 31, 2021. Included in nonperforming assets at September 30, 2022, are $4.1 million of nonperforming assets acquired during recent whole-bank acquisitions.

Refer to the “Allowance for Loan Losses” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections above for more information related to nonperforming loans.

Included in the above table are nonaccrual TDR loans. Nonaccrual TDR loans decreased to $2.4 million at September 30, 2022, from $4.5 million at December 31, 2021.

	September 30, 2022			December 31, 2021
	Number of Modifications	Recorded Investment		Number of Modifications	Recorded Investment
Troubled debt restructurings: Accrual Status
Commercial/Agricultural real estate	10	$	1,363	11	$	4,618
C&I/Agricultural operating	6	2,505		3	649
Residential mortgage	37	3,033		36	2,681
Consumer installment	2	9		6	36
Total loans	55	$	6,910	56	$	7,984

Accruing troubled debt restructurings decreased $1.1 million to $6.9 million largely due to the payoff of a $3.3 million loan in the first quarter, partially offset by modest additions.

The table below shows a summary of criticized loans for the past five quarters. In the second quarter of 2022, two loans became categorized as special mention. One is a commercial real estate loan secured by a hotel and has rebounded more slowly from the pandemic due to reliance on seasonal events and company meetings. Performance year to date and current bookings show good progress. The second special mention loan is a $10.4 million fully secured working capital C&I loan. Negotiations are ongoing with the borrower to improve the loan structure and performance of the business. In the third quarter of 2022, this loan increased its outstanding balance by $2.4 million with a draw on a secured line of credit. The loan was categorized as special mention at June 30, 2022 and is projected to decrease to June 2022 levels by mid-first quarter 2023. See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for additional information.

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	(in thousands)
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Special mention loan balances	$	20,178	$	17,274	$	1,849	$	4,536	$	2,548
Substandard loan balances	20,227		20,680		24,822		22,817		27,137
Criticized loans, end of period	$	40,405	$	37,954	$	26,671	$	27,353	$	29,685

Classified assets decreased to $20.2 million at September 30, 2022, from $22.8 million at December 31, 2021, largely due to non-accruing loan payoffs, along with the first quarter payoff of a substandard accruing troubled debt restructuring loan of $3.3 million partially offset by the new classification of $3.8 million of five agricultural relationships in the first quarter.

Special mention loans increased $15.7 million in the first nine months of 2022, primarily due to the addition of two loans in the second quarter of 2022 and a draw on a line of credit on one of the loans in the third quarter. One is a commercial real estate loan for $5.4 million secured by a hotel (50% LTV at origination) and has rebounded more slowly from the pandemic due to reliance on seasonal events and company meetings. Performance year to date and bookings show good progress. The second special mention loan is a $10.4 million C&I fully secured working capital loan. Negotiations are ongoing with the borrower to improve the loan structure and cash flow of the business.

Hotels and restaurants represent our portfolio’s two industry sectors most directly and adversely affected by the recent pandemic and related government actions. These sector loans totaled approximately $93 million and $48 million, respectively, at September 30, 2022. The weighted-average loan-to-value percentage on these hotel industry sector loans was 57%. Approximately $35.6 million of restaurant sector loans are to franchise quick-service restaurants.

As of September 30, 2022, the Bank had $0.2 million of remaining residential mortgage loan modifications, due to pandemic-related borrower requests. As of September 30, 2022, all previously deferred commercial loans have exited deferral status. While the Company has no indication that any of the modified credits are specifically impaired, additional risk and uncertainty inherent in the current pandemic-affected environment have been considered. See “Allowance for Loan Losses” section above for discussion of pandemic-related qualitative factor, and related provision for loan losses.

The table below shows scheduled accretion by year for the accretable difference recognized due to fair value purchase accounting on recent whole bank acquisitions. In addition, the Company has $1.21 million of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount. The scheduled accretion on this balance is estimated to be approximately $100 thousand per year; however, large balance payoffs, as seen in 2022, 2021 and 2020, would accelerate this accretion.

Fiscal years ending December 31,	Purchase Accounting Accretable Difference
2022	$	148
2023	279
2024	131
2025	95
Total	$	653

Mortgage Servicing Rights. Mortgage servicing rights (“MSR”) assets are initially measured at fair value; assessed at least quarterly for impairment; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations. The valuation of MSRs and related amortization thereon are based on numerous factors, assumptions, and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.

The fair market value of the Company’s MSR asset increased from $4.3 million at December 31, 2021, to $5.8 million at September 30, 2022, primarily due to higher future forecasted interest rates and resulting lower forecasted prepayments. As a

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result, $0.6 million of previously recorded impairment on the MSR asset was reversed during the three-month period ended March 31, 2022. At September 30, 2022, the Company did not have an MSR impairment, or related valuation allowance.

The unpaid balances of one- to four-family residential real estate loans serviced for others as of September 30, 2022, and December 31, 2021, were $531.8 million and $556.1 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at September 30, 2022, and December 31, 2021, was 1.09% and 0.78%, respectively.

Deposits. Deposits increased $46.8 million to $1.43 billion at September 30, 2022, from $1.39 billion at December 31, 2021. Retail certificate of deposit account balances decreased by $33.6 million from December 31, 2021, as the Company chose not to match higher rate local retail certificate competition in the first and second quarters of 2022. Retail certificates have grown approximately $16 million since the low point in late second quarter of 2022. In late third quarter of 2022, the Bank added $19.9 million of brokered CDs. In addition, some of the decrease in retail certificates has moved to money market accounts, which increased almost $40 million from year-end.

The following is a summary of deposits by type at September 30, 2022 and December 31, 2021, respectively:

	September 30, 2022		December 31, 2021
Non-interest bearing demand deposits	$	285,670	$	276,631
Interest bearing demand deposits	394,924		396,231
Savings accounts	236,107		222,674
Money market accounts	328,544		288,985
Certificate accounts	189,123		203,014
Total deposits	$	1,434,368	$	1,387,535

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Federal Home Loan Bank (FHLB) advances (borrowings) and Other Borrowings. A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at September 30, 2022 and December 31, 2021 is as follows:

		September 30, 2022						December 31, 2021
	Stated Maturity	Amount		Range of Stated Rates				Amount		Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4)	2022	$	67,000	3.08	%	3.13	%	$	11,000	2.45	%	2.45	%
	2023	10,000		1.43	%	2.01	%	20,000		1.43	%	1.44	%
	2024	20,530		0.00	%	1.45	%	20,530		0.00	%	1.45	%
	2025	5,000		1.45	%	1.45	%	5,000		1.45	%	1.45	%
	2029	—		—	%	—	%	42,500		1.00	%	1.13	%
	2030	—		—	%	—	%	12,500		0.52	%	0.86	%
Subtotal		102,530						111,530
Unamortized discount on acquired notes		—						(3)
Federal Home Loan Bank advances, net		$	102,530					$	111,527
Senior Notes (5)	2034	$	23,250	3.00	%	5.50	%	$	28,856	3.00	%	3.50	%
Subordinated Notes (6)	2027	$	—	—	%	—	%	$	15,000	6.75	%	6.75	%
	2030	15,000		6.00	%	6.00	%	15,000		6.00	%	6.00	%
	2032	35,000		4.75	%	4.75	%	—		—	%	—	%
		$	50,000					$	30,000
Unamortized debt issuance costs		(899)						(430)
Total other borrowings		$	72,351					$	58,426
Totals		$	174,881					$	169,953

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $960,192 and $861,900 at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $277,959 compared to $204,271 as of December 31, 2021.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $134,530 and $123,530, during the nine months ended September 30, 2022 and the twelve months ended December 31, 2021, respectively.

(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of September 30, 2022 and December 31, 2021 were 3.11% and 2.45%, respectively.

(4) At September 30, 2022, no FHLB term notes can be called by the FHLB. At December 31, 2021, FHLB term notes totaling $55,000 could be called by the FHLB on a quarterly basis, and if not called, would mature at various dates in 2029 and 2030. These notes were called by the FHLB in 2022.

(5)    Senior notes, entered into by the Company in June 2019 consist of the following:

(a) A term note, which was subsequently refinanced in March 2022, requiring quarterly interest-only payments through March 2025, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.

(b) A $5,000 line of credit, maturing August 1, 2023, that remains undrawn upon.

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(6)    Subordinated notes resulted from the following:

(a) The Company’s private sale in August 2017, which bore a fixed interest rate of 6.75% for five years. In August 2022, they converted to a three-month LIBOR plus 4.90% rate, and the interest rate will reset quarterly thereafter. The note was callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments were due quarterly. The Company sent the required redemption notice to the note holders in June 2022, and this subordinated note was called and repaid in full on August 10, 2022.

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

(c) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years. In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

FHLB advances decreased $9.0 million to $102.5 million as of September 30, 2022, compared to $111.5 million as of December 31, 2021. The Bank terminated $15.0 million of advances in the quarter ended March 31, 2022, incurring a $0.002 million prepayment penalty, as we modestly reduced excess liquidity. $27.5 million of FHLB advances were called by the FHLB in each of the quarters ended June 30, 2022, and September 30, 2022. The Bank added a $5 million advance maturing in the second quarter of 2023 and the Bank had $67 million of FHLB advances maturing overnight as of September 30, 2022. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances. The Bank’s current unused borrowing capacity, supported by loan collateral as of September 30, 2022, is approximately $278.0 million.

The Bank maintains three unsecured federal funds purchased lines of credit with banking partners which total $75 million. These lines bear interest at the lender banks announced daily federal funds rate, mature daily, and are revocable at the discretion of the lending institution. There were no borrowings outstanding on these lines of credit as of September 30, 2022, or December 31, 2021.

See Note 7, “Federal Home Loan Bank and Federal Reserve Bank Advances and Other Borrowings” for more information.

At September 30, 2022, the Bank has pledged $960.2 million of loans to secure the current FHLB outstanding advances and letters of credit and to provide the unused borrowing capacity, compared to $861.9 million of loans pledged at December 31, 2021.

Stockholders’ Equity. Total stockholders’ equity was $163.3 million at September 30, 2022, compared to $170.9 million at December 31, 2021. The decrease in stockholder’s equity was attributable to: 1) the $17.4 million decrease in accumulated other comprehensive (loss) income due to an increase in unrealized loss on available for sale securities; 2) the payment of the annual cash dividend paid in February to common stockholders of $0.26 per share or $2.7 million; and 3) the repurchase of approximately 71 thousand shares of the Company’s common stock, which reduced equity by $1.0 million. These reductions to equity were largely offset by net income of $13.1 million, and amortization of restricted stock of $0.6 million.

On July 23, 2021, the Board of Directors adopted a new share repurchase program. Under this new share repurchase program, fifty-three thousand shares were repurchased during the current quarter and approximately seventy-one thousand shares were repurchased during the nine months ended September 30, 2022. The Company is authorized to repurchase an additional 301 thousand shares under this July 2021 share repurchase program.

Liquidity and Asset / Liability Management. Our primary sources of funds are deposits; contractual amortization, prepayments, and maturities of outstanding loans and investment securities; and borrowings. We use our sources of funds primarily to meet ongoing commitments, to pay non-renewing, maturing certificates of deposit and savings withdrawals, and to fund loan commitments. We have enhanced our liquidity monitoring and updated what we consider to be sources of on-balance sheet cash. We consider our interest-bearing cash and unpledged investment securities to be our sources of on-balance sheet liquidity. At September 30, 2022, our on-balance sheet liquidity ratio was 13.6%. While scheduled payments from the amortization of loans and investment securities and maturing short-term investments are relatively predictable sources of funds,

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deposit flows and loan prepayments are influenced by factors partially outside of the Bank’s control, including general interest rates, economic conditions, and competition. Although $93.8 million of our $189.1 million (49.6%) September 30, 2022, CD portfolio matures within the next 12 months, we have historically retained a majority of our maturing CDs. Due to strategic pricing decisions regarding rate matching based on currently liquidity levels, our retention rate may decrease in the future, although some deposits may be retained and moved to money market accounts. Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits. In our present interest rate environment, and based on maturing yields, this is intended to also reduce our cost of funds.

We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank and correspondent banks. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk. Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate loans and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. As of September 30, 2022, we had approximately $278.0 million available under this arrangement, supported by loan collateral, as compared to $204.2 million at December 31, 2021.

We maintain a line of credit with the Federal Reserve Bank which has a $1.0 million capacity, based on our current pledged collateral position. Additionally, we have a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.

We have $75 million of federal fund purchase lines of credit from other banks at September 30, 2022. These lines are unsecured and are revocable at the discretion of the lending institution.

In reviewing our adequacy of liquidity, we review and evaluate historical financial information, including information regarding general economic conditions, current ratios, management goals and the resources available to meet our anticipated liquidity needs. Management believes that our liquidity is adequate. To management’s knowledge, there are no known events or uncertainties that will result, or are likely to reasonably result, in a material increase or decrease in our liquidity.

Off-Balance Sheet Liabilities. Some of our financial instruments have off-balance sheet risk. These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of September 30, 2022, the Company had $265.1 million in unused commitments, compared to $271.0 million in unused commitments as of December 31, 2021.

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Capital Resources. As of September 30, 2022, and December 31, 2021, as shown in the table below, the Bank’s Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions.

Below are the amounts and ratios for our capital levels as of the dates noted below for the Bank:

	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
As of September 30, 2022 (Unaudited)
Total capital (to risk weighted assets)	$	219,988	14.4	%	$	122,333	> =	8.0	%	$	152,916	> =	10.0	%
Tier 1 capital (to risk weighted assets)	202,771		13.3	%	91,750		> =	6.0	%	122,333		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	202,771		13.3	%	68,812		> =	4.5	%	99,396		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	202,771		11.6	%	69,913		> =	4.0	%	87,391		> =	5.0	%
As of December 31, 2021 (Audited)
Total capital (to risk weighted assets)	$	187,783	13.4	%	$	111,694	> =	8.0	%	$	139,618	> =	10.0	%
Tier 1 capital (to risk weighted assets)	170,870		12.2	%	83,771		> =	6.0	%	111,694		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	170,870		12.2	%	62,828		> =	4.5	%	90,752		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	170,870		10.0	%	68,323		> =	4.0	%	85,403		> =	5.0	%

At September 30, 2022, and December 31, 2021, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.

Below are the amounts and ratios for our capital levels as of the dates noted below for the Company:

	Actual				For Capital Adequacy Purposes
	Amount		Ratio		Amount			Ratio
As of September 30, 2022 (Unaudited)
Total capital (to risk weighted assets)	$	213,594	14.0	%	$	122,333	> =	8.0	%
Tier 1 capital (to risk weighted assets)	146,337		9.6	%	91,750		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	146,337		9.6	%	68,812		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	146,337		8.4	%	69,913		> =	4.0	%
As of December 31, 2021 (Audited)
Total capital (to risk weighted assets)	$	182,242	13.1	%	$	111,694	> =	8.0	%
Tier 1 capital (to risk weighted assets)	135,329		9.7	%	83,771		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	135,329		9.7	%	62,828		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	135,329		7.9	%	68,323		> =	4.0	%

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time and are not predictable or controllable. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. Like other financial institutions, our interest income and interest expense are affected by general economic conditions and policies of regulatory authorities, including the monetary policies of the Federal Reserve. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk through several means including through the use of third-party reporting software. In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and re-pricing terms of our interest earning assets and interest-bearing liabilities. These policies are implemented by our Asset and Liability Management Committee (ALCO). The ALCO is comprised of members of the Bank’s senior management and Board of Directors. The ALCO establishes guidelines for and monitors the volume and mix of our assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The Committee’s objectives are to manage assets and funding sources to produce results that are consistent with liquidity, cash flow, capital adequacy, growth, risk and profitability goals for the Bank. The ALCO meets on a regularly scheduled basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis. At each meeting, the Committee recommends strategy changes, as appropriate, based on this review. The Committee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Bank’s Board of Directors on a regularly scheduled basis.

In managing our assets and liabilities to achieve desired levels of interest rate risk, we have focused our strategies on:

•originating shorter-term secured commercial, agricultural and consumer loan maturities;

•originating variable rate commercial and agricultural loans;

•the sale of a vast majority of longer-term fixed-rate residential loans in the secondary market with retained servicing;

•managing our funding needs growing core deposits;

•utilize brokered certificate of deposits and borrowings as appropriate, which may have fixed rates with varying maturities;

•purchasing investment securities to modify our interest rate risk profile.

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCO may determine to increase the Bank’s interest rate risk position somewhat in order to maintain or improve its net interest margin.

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The following table sets forth, at September 30, 2022 and December 31, 2021 an analysis of our interest rate risk as measured by the estimated changes in Economic Value of Equity (“EVE”) resulting from an immediate and permanent shift in the yield curve (up 300 basis points and down 200 basis points). As of December 31, 2021, due to the level of interest rates, EVE estimates for decreases in interest rates greater than 100 basis points were not meaningful.

	Percent Change in Economic Value of Equity (EVE)
Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	At September 30, 2022		At December 31, 2021
+300 bp	0	%	(5)	%
+200 bp	0	%	(3)	%
+100 bp	0	%	(1)	%
-100 bp	0	%	(1)	%
-200 bp	(4)	%	N/M

(1)Assumes an immediate and parallel shift in the yield curve at all maturities.

Our overall interest rate sensitivity is demonstrated by net interest income shock analysis which measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in our net interest income over the next 12 months in the event of an immediate and parallel shift in the yield curve (up 300 basis points and down 200 basis points). The table below presents our projected change in net interest income for the various rate shock levels at September 30, 2022, and December 31, 2021. As of December 31, 2021, due to the level of interest rates, projected changes in net interest income for rate shock level decreases greater than 100 basis points were not meaningful.

	Percent Change in Net Interest Income Over One Year Horizon
Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	At September 30, 2022		At December 31, 2021
+300 bp	0	%	(11)	%
+200 bp	0	%	(7)	%
+100 bp	0	%	(4)	%
-100 bp	0	%	0	%
-200 bp	(4)	%	N/M

(1)Assumes an immediate and parallel shift in the yield curve at all maturities.

Note: The table above may not be indicative of future results.

The assumptions used to measure and assess interest rate risk include interest rates, loan prepayment rates, deposit decay (runoff) rates, and the market values of certain assets under differing interest rate scenarios. Actual values may differ from those projections set forth above should market conditions vary from the assumptions used in preparing the analysis. Further, the computations do not contemplate any actions we may undertake in response to changes in interest rates.

ITEM 4.CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives. We carried out an evaluation as of September 30, 2022, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the

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effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022, at reaching a level of reasonable assurance.

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

In the normal course of business, the Company and/or the Bank occasionally become involved in other various legal proceedings. In our opinion, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.

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Item 1A.RISK FACTORS

The information in this Form 10-Q should be read in conjunction with the risk factors described in “Risk Factors” in Item 1A of our 2021 10-K and the information under “Forward-Looking Statements” in this Form 10-Q and in our 2021 10-K.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)Not applicable.

(b)Not applicable.

(c)Issuer Purchases of Equity Securities.

On July 23, 2021, the Board of Directors adopted a new share repurchase program. Under this new share repurchase program, the Company may repurchase up to approximately 5% of the outstanding shares of its common stock as of July 23, 2021, or 532,962 shares, from time to time. Under this new share repurchase program, 52,961 shares were repurchased during the quarter ended September 30, 2022. As of September 30, 2022, 301,305 shares remain available for repurchase under the current share repurchase authorization.

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2022 - July 31, 2022	—	$	—	—	354,266
August 1, 2022 - August 31, 2022	32,961	$	13.25	32,961	321,305
September 1, 2022 - September 30, 2022	20,000	$	12.61	20,000	301,305
Total	52,961	$	13.01	52,961

Item 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.MINE SAFETY DISCLOSURES

Not applicable.

Item 5.OTHER INFORMATION

Not applicable.

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Item 6.EXHIBITS

(a) Exhibits

10.1	Business Note Renewal, Dated August 1, 2022, issued by Citizens Community Bancorp, Inc. to Chippewa Valley Bank (filed herewith).
31.1	Rule 13a-14(a) Certification of the Company’s Chief Executive Officer
31.2	Rule 13a-14(a) Certification of the Company’s Chief Financial Officer
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CITIZENS COMMUNITY BANCORP, INC.
Date: November 7, 2022	By:	/s/ Stephen M. Bianchi
		Stephen M. Bianchi
		Chief Executive Officer
Date: November 7, 2022	By:	/s/ James S. Broucek
		James S. Broucek
		Chief Financial Officer

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