CZWI 10-Q Quarterly Report Sept. 30, 2024

CITIZENS COMMUNITY BANCORP INC.

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czwi-20240930

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, 2024


☐			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 5, 2024 there were 10,033,890 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

CITIZENS COMMUNITY BANCORP, INC.

FORM 10-Q

September 30, 2024

INDEX


			Page Number
Part I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023	5
		Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2024 and 2023	6
		Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine months ended September 30, 2024 and 2023	7
		Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2024 and the year ended December 31, 2023	8
		Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2024 and 2023	10
		Condensed Notes to Consolidated Financial Statements (Unaudited)	12
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	85
	Item 4.	Controls and Procedures	86
Part II – OTHER INFORMATION			87
	Item 1.	Legal Proceedings	87
	Item 1A.	Risk Factors	88
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
	Item 3.	Defaults Upon Senior Securities	88
	Item 4.	Mine Safety Disclosures	88
	Item 5.	Other Information	88
	Item 6.	Exhibits	89
SIGNATURES			90

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Balance Sheets

September 30, 2024 (unaudited) and December 31, 2023

(derived from audited financial statements)

(in thousands, except share and per share data)


	September 30, 2024		December 31, 2023
Assets
Cash and cash equivalents	$	36,632	$	37,138

Available for sale ("AFS") securities, at fair value (amortized cost of $ 168,882 , net of allowance for credit losses of $ 0 at September 30, 2024 and amortized cost of $ 179,744 , net of allowance for credit losses of $ 0 at December 31, 2023)	149,432		155,743
Held to maturity ("HTM") securities, at amortized cost (fair value of $ 71,046 , net of allowance for credit losses of $ 0 at September 30, 2024 and fair value of $ 73,262 , net of allowance for credit losses of $ 0 at December 31, 2023)	87,033		91,229
Equity investments	5,096		3,284
Other investments	12,311		15,725
Loans receivable	1,424,828		1,460,792
Allowance for credit losses	( 21,000 )		( 22,908 )
Loans receivable, net	1,403,828		1,437,884
Loans held for sale	697		5,773
Mortgage servicing rights, net	3,696		3,865
Office properties and equipment, net	17,365		18,373
Accrued interest receivable	6,235		5,409
Intangible assets	1,158		1,694
Goodwill	31,498		31,498
Foreclosed and repossessed assets, net	1,572		1,795
Bank owned life insurance ("BOLI")	25,901		25,647

Other assets	16,683		16,334
TOTAL ASSETS	$	1,799,137	$	1,851,391


Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	1,520,667	$	1,519,092
Federal Home Loan Bank (“FHLB”) advances	21,000		79,530
Other borrowings	61,548		67,465
Other liabilities	15,773		11,970
Total liabilities	1,618,988		1,678,057

Stockholders’ Equity:

Common stock—$ 0.01 par value, authorized 30,000,000 ; 10,074,136 and 10,440,591 shares issued and outstanding, respectively	101		104
Additional paid-in capital	115,455		119,441
Retained earnings	78,438		71,117

Accumulated other comprehensive loss	( 13,845 )		( 17,328 )
Total stockholders’ equity	180,149		173,334
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,799,137	$	1,851,391

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Operations (unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

(in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Interest and dividend income:
Interest and fees on loans	$	20,115	$	19,083	$	60,204	$	54,169
Interest on investments	2,397		2,689		7,450		8,053
Total interest and dividend income	22,512		21,772		67,654		62,222
Interest expense:
Interest on deposits	10,165		7,388		28,712		17,898
Interest on FHLB and FRB borrowed funds	128		1,210		1,216		4,595
Interest on other borrowed funds	934		1,053		2,960		3,127
Total interest expense	11,227		9,651		32,888		25,620
Net interest income before provision for credit losses	11,285		12,121		34,766		36,602
(Negative) provision for credit losses	( 400 )		( 325 )		( 2,725 )		175
Net interest income after provision for credit losses	11,685		12,446		37,491		36,427
Non-interest income:
Service charges on deposit accounts	513		491		1,474		1,464
Interchange income	577		601		1,697		1,743
Loan servicing income	643		611		1,751		1,679
Gain on sale of loans	752		299		1,998		1,501
Loan fees and service charges	165		140		704		308

Net realized gains on debt securities	—		—		—		12


Net (losses) gains on equity securities	( 78 )		116		( 569 )		170
Bank Owned Life Insurance (BOLI) death benefit	—		—		184		—
Other	349		307		859		893
Total non-interest income	2,921		2,565		8,098		7,770
Non-interest expense:
Compensation and related benefits	5,743		5,293		16,901		15,967
Occupancy	1,242		1,335		3,942		4,117

Data processing	1,665		1,536		4,787		4,440
Amortization of intangible assets	178		179		536		576
Mortgage servicing rights expense, net	163		150		427		456
Advertising, marketing and public relations	225		185		575		472
FDIC premium assessment	201		204		606		608
Professional services	336		342		1,249		1,153
Losses on repossessed assets, net	65		100		47		62

Other	603		645		2,427		2,085
Total non-interest expense	10,421		9,969		31,497		29,936
Income before provision for income taxes	4,185		5,042		14,092		14,261
Provision for income taxes	899		2,544		3,043		4,895
Net income attributable to common stockholders	$	3,286	$	2,498	$	11,049	$	9,366
Per share information:
Basic earnings	$	0.32	$	0.24	$	1.07	$	0.89
Diluted earnings	$	0.32	$	0.24	$	1.07	$	0.89
Cash dividends paid	$	—	$	—	$	0.32	$	0.29

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Three and Nine months ended September 30, 2024 and 2023

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Net income attributable to common stockholders	$	3,286	$	2,498	$	11,049	$	9,366
Other comprehensive income (loss), net of tax:
Securities available for sale
Net unrealized gains (losses) arising during period, net of tax	3,552		( 2,862 )		3,353		( 4,074 )
Reclassification adjustment for net gains included in net income, net of tax	—		—		—		( 9 )
Reclassification for net loss on exchanged security, included in net income, net of tax	—		—		130		—
Other comprehensive income (loss), net of tax	3,552		( 2,862 )		3,483		( 4,083 )



Comprehensive income (loss)	$	6,838	$	( 364 )	$	14,532	$	5,283

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Nine Months Ended September 30, 2024

(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, December 31, 2023	10,440,591	$	104	$	119,441	$	71,117	$	( 17,328 )	$	173,334
Net income	—	—		—		4,088		—		4,088
Other comprehensive loss, net of tax	—	—		—		—		( 702 )		( 702 )

Surrender of restricted shares of common stock	( 9,471 )	—		( 113 )		—		—		( 113 )
Restricted common stock awarded under the equity incentive plan	16,955			—		—		—		—
Restricted common stock issued upon achievement of the 2021 performance criteria	8,805	—		—		—		—		—
Common stock repurchased	( 50,000 )	—		( 570 )		( 28 )		—		( 598 )




Amortization of restricted stock	—	—		158		—		—		158


Cash dividends ($ 0.32 per share)	—	—		—		( 3,346 )		—		( 3,346 )
Balance at March 31, 2024	10,406,880	104		118,916		71,831		( 18,030 )		172,821
Net income	—	—		—		3,675		—		3,675
Other comprehensive income, net of tax	—	—		—		—		633		633

Surrender of restricted shares of common stock	( 539 )	—		( 6 )		—		—		( 6 )


Common stock repurchased	( 109,000 )	( 1 )		( 1,230 )		( 5 )		—		( 1,236 )

Amortization of restricted stock	—	—		158		—		—		158

Balance at June 30, 2024	10,297,341	103		117,838		75,501		( 17,397 )		176,045
Net income	—	—		—		3,286		—		3,286
Other comprehensive income, net of tax	—	—		—		—		3,552		3,552




Common stock repurchased	( 223,205 )	( 2 )		( 2,542 )		( 349 )		—		( 2,893 )




Amortization of restricted stock	—	—		159		—		—		159



Balance, September 30, 2024	10,074,136	$	101	$	115,455	$	78,438	$	( 13,845 )	$	180,149

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Twelve Months Ended December 31, 2023

(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, December 31, 2022	10,425,119	$	104	$	119,240	$	65,400	$	( 17,656 )	$	167,088
Net income	—	—		—		3,662		—		3,662
Other comprehensive loss, net of tax	—	—		—		—		1,065		1,065
Forfeiture of unvested shares	( 1,168 )	—		—		—		—		—
Surrender of restricted shares of common stock	( 10,287 )	—		( 129 )		—		—		( 129 )
Restricted common stock awarded under the equity incentive plan	50,606	1		—		—		—		1
Restricted stock issued upon achievement of the 2020 performance criteria	18,551	—		—		—		—		—




Amortization of restricted stock	—	—		216		—		—		216
Cumulative change in accounting principle for adoption of ASU 2016-13	—	—		—		( 4,432 )		—		( 4,432 )
Cumulative change in accounting principle for adoption of ASU 2023-02	—	—		—		130		—		130
Cash dividends ($ 0.29 per share)	—	—		—		( 3,040 )		—		( 3,040 )
Balance at March 31, 2023	10,482,821	105		119,327		61,720		( 16,591 )		164,561
Net income	—	—		—		3,206		—		3,206
Other comprehensive loss, net of tax	—	—		—		—		( 2,286 )		( 2,286 )
Forfeiture of unvested shares	( 1,500 )	—		—		—		—		—




Common stock options exercised	3,000	—		28		—		—		28
Common stock repurchased	( 14,146 )	—		( 117 )		—		—		( 117 )

Amortization of restricted stock	—	—		166		—		—		166



Balance at June 30, 2023	10,470,175	105		119,404		64,926		( 18,877 )		165,558
Net income	—	—		—		2,498		—		2,498
Other comprehensive loss, net of tax	—	—		—		—		( 2,862 )		( 2,862 )
Forfeiture of unvested shares	( 2,084 )	—		—		—		—		—







Amortization of restricted stock	—	—		208		—		—		208



Balance, September 30, 2023	10,468,091	105		119,612		67,424		( 21,739 )		165,402
Net income	—	—		—		3,693		—		3,693
Other comprehensive loss, net of tax	—	—		—		—		4,411		4,411






Common stock repurchased	( 27,500 )	( 1 )		( 303 )		—		—		( 304 )




Amortization of restricted stock	—	—		132		—		—		132
Balance, December 31, 2023	10,440,591	$	104	$	119,441	$	71,117	$	( 17,328 )	$	173,334

See accompanying condensed notes to unaudited consolidated financial statements.

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30, 2024 and 2023

(in thousands)


	Nine Months Ended
	September 30, 2024		September 30, 2023
Cash flows from operating activities:
Net income attributable to common stockholders	$	11,049	$	9,366
Adjustments to reconcile net income to net cash provided by operating activities:
Net accretion on debt securities	( 64 )		( 46 )
Depreciation expense	1,644		1,787
(Negative provision) provision for credit losses	( 2,725 )		175
Net loss (gain) on equity securities	569		( 170 )
Net realized gain on sale of debt securities	—		( 12 )
Deferred tax asset valuation allowance	—		1,828
Increase in mortgage servicing rights resulting from transfers of financial assets	( 258 )		( 138 )
Mortgage servicing rights amortization and impairment, net	427		456
Amortization of intangible assets	536		576
Amortization of restricted stock	475		590


Decrease in deferred income taxes	284		226
Increase in cash surrender value of life insurance	( 753 )		( 513 )
Net gain from disposals of foreclosed and repossessed assets	( 23 )		62

Provision for valuation allowance on foreclosed properties	70		—
Gain on sale of loans held for sale, net	( 1,998 )		( 1,501 )
Proceeds from sale of loans held for sale	48,833		34,630
Originations of loans held for sale	( 41,759 )		( 35,866 )

Net change in:

Accrued interest receivable and other assets	( 2,528 )		( 1,615 )
Other liabilities	3,803		( 663 )
Total adjustments	6,533		( 194 )
Net cash provided by operating activities	17,582		9,172
Cash flows from investing activities:
Proceeds from Bank Owned Life Insurance (BOLI) death benefit	499		—
Net decrease in other interest bearing deposits	—		249
Purchase of available for sale securities	—		( 11,007 )
Proceeds from principal payments of available for sale securities	11,544		13,164
Proceeds from sales of available for sale securities	—		5,105

Proceeds from principal payments and maturities of held to maturity securities	4,184		4,031

Equity investment capital distribution	170		132
Purchase of equity investments	( 300 )		( 600 )
Net sales (purchases) of other investments	558		725
Proceeds from sales of foreclosed and repossessed assets	232		307
Proceeds from insurance claim on foreclosed and repossessed assets	27		—
Net decrease (increase) in loans	36,702		( 35,606 )
Net capital expenditures	( 649 )		( 771 )

Proceeds from disposal of office properties and equipment	13		12

Net cash provided by (used in) investing activities	52,980		( 24,259 )


Cash flows from financing activities:

Change in short term Federal Home Loan Bank advances, net	( 33,000 )		15,000

Federal Home Loan Bank advance repayment due to FHLB call	( 10,000 )		—

Federal Home Loan Bank advance long-term maturities	( 15,530 )		( 43,000 )
Amortization of debt issuance costs	166		165


Other borrowings principal reductions	( 6,083 )		( 5,167 )
Net increase in deposits	1,571		48,515
Restricted common stock awarded under the equity incentive plan	—		1

Repurchase shares of common stock	( 4,727 )		( 117 )
Surrender of restricted shares of common stock	( 119 )		( 129 )
Common stock options exercised	—		28
Cash dividends paid	( 3,346 )		( 3,040 )
Net cash (used in) provided by financing activities	( 71,068 )		12,256
Net decrease in cash and cash equivalents	( 506 )		( 2,831 )
Cash and cash equivalents at beginning of period	37,138		35,363
Cash and cash equivalents at end of period	$	36,632	$	32,532


Supplemental cash flow information:
Cash paid during the period for:
Interest on deposits	$	24,340	$	16,602
Interest on borrowings	$	3,924	$	8,363
Income taxes	$	2,064	$	3,855
Supplemental noncash disclosure:
Transfers from loans receivable to other real estate owned ("OREO")	$	73	$	144

See accompanying condensed notes to unaudited consolidated financial statements.

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 (the “FRB”), and operates under the title of Citizens Community Bancorp, Inc. The 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 primarily in Wisconsin and Minnesota through 22 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 balance sheet date of September 30, 2024, through the date on which the consolidated financial statements were available to be issued on November 5, 2024, 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 credit 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, 2023, filed with the SEC on March 5, 2024; the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended March 31, 2024, filed with the SEC on May 8, 2024; the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended June 30, 2024, filed with the SEC on August 6, 2024; the matters described in “Risk Factors” in Item 1A of this Form 10-Q; and 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.

Cash and Cash Equivalents— For purposes of reporting cash flows in the consolidated financial statements, cash and cash equivalents include cash, due from banks, and interest bearing deposits with original maturities of three months or less.

Investment Securities; Available for Sale and Held to Maturity – 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 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. 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.

Allowance for Credit Losses – Available for Sale Securities - The Company measures the allowance for credit losses on available for sale debt securities by evaluating securities in an unrealized loss position using a two-step process. First, the Company assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost. If it is determined that the Company intends or will be required to sell the security, it is written down to its fair value as net gains or losses on investment securities in our consolidated statement of operations. For agency mortgage-backed and asset-backed securities that do not meet the criteria in step one, there are no expected credit losses as they are guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. For other debt securities that do not meet the criteria in step one, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and the allowance for credit losses on available for sale investments is recorded for the credit loss, limited by the amount that the fair value is less that the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Allowance for Credit Losses – Held to Maturity Securities - The Company measures expected credit losses on held to maturity debt securities on a collective basis by major security type. For agency mortgage-backed securities there are no expected credit losses as they are guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. For other securities, the estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Company has elected to not measure an ACL on accrued interest on available for sale and held to maturity securities, as it would write off accrued interest in a timely manner if the related security was determined to have a credit loss. The Company has no available for sale securities or held to maturity securities which it deems to have a credit loss at September 30, 2024.

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 or losses on investment securities in our consolidated statement of operations.

Included in equity investments are preferred shares of a community development financial institution, which are carried at their fair market value. As no ready market exists for this investment, the Company utilizes significant unobservable inputs (Level 3 inputs) to determine fair value.We record the unrealized gains and losses resulting from changes in the fair value of this investment as net gains or losses on investment securities in our consolidated statements 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

net gains or losses on investment securities in our consolidated statements of operations. The carrying value of these investments is equal to the capital account as provided by the investee and adjusted as necessary.

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 our consolidated statements 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 $ 12,311 at September 30, 2024 consisted of $ 3,875 of FHLB stock, $ 5,712 of Federal Reserve Bank stock and $ 2,724 of Bankers’ Bank stock. Other investments totaling $ 15,725 at December 31, 2023 consisted of $ 7,302 of FHLB stock and $ 5,699 of Federal Reserve Bank stock and $ 2,724 of Bankers’ Bank stock.

Loans Receivable – 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 deteriorated (PCD) loans. Interest income is accrued on the unpaid principal balance of these loans and is presented as a separate line item on the consolidated balance sheets. 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.

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.

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 Credit Losses – Loans The allowance for credit losses (“ACL”) on loans is a valuation allowance for current expected credit losses in the Company’s loan portfolio. Prior to January 1, 2023, the valuation allowance was established for probable and inherent credit losses. Loan losses are charged against the ACL when management believes that the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the ACL. In determining the allowance, the company estimates credit losses over the loan’s entire contractual term, adjusted for expected prepayments when appropriate. The allowance estimate considers relevant available information from internal and external sources relating to historical loss experience; known and inherent risks in our portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; reasonable and supportable forecasts for future conditions; and other relevant factors determined by management. To ensure that the ACL is maintained at an adequate level, a detailed analysis is

performed on a quarterly basis and an appropriate provision is made to adjust the allowance. The entire ACL balance is available for any loan that, in management’s judgment, should be charged off.

The determination of the ACL requires significant judgement to estimate credit losses. The ACL on loans is measured collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that the loan does not share similar risk characteristics with other loans. The ACL on loans collectively evaluated is measured using the loss rate model. The Company categorizes its loan portfolio into four segments based on similar risk characteristics. Loans within each segment are pooled based on individual loan characteristics. Aggregated risk drivers are then calculated at a pool level. Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type. A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. For commercial/agricultural real estate loans, the loss rate is then combined with the loans balance and contractual maturity, adjusted for expected prepayments, to determine expected future losses. Future and supportable economic forecasts are based on national economic conditions and their reversion to the mean is implicit in the model and generally occurs over a period of two years. For commercial and industrial/agricultural operating, residential, and consumer loans, the loss rate is then combined with the loans balance and contractual maturity, to determine expected future losses.

Qualitative adjustments are made to the allowance calculated on collectively evaluated loans to incorporate factors not included in the model. Qualitative factors include but are not limited to, lending policies and procedures, the experience and ability of lending and other staff, the volume and severity of problem credits, quality of the loan review system, and other external factors.

Loans that exhibit different risk characteristics from the pool are individually evaluated. Loans can be identified for individual evaluation for a variety of reasons including delinquency, nonaccrual status, risk rating and loan modification. Accruing loans that exhibit different risk characteristics from their pool may also be within scope. On these loans, an allowance may be established so that the loan is reported, net, at the lower of (a) its amortized cost; (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 the loan is collateral dependent. Collateral dependency is determined using the practical expedient when: 1) the borrower is experiencing financial difficulty; and 2) repayment is expected to be provided substantially through the sale or operation of the collateral.

The Company has elected to not measure an ACL on accrued interest as it writes off accrued interest in a timely manner.

Allowance for Credit Losses - Unfunded Commitments - The ACL on unfunded commitments is a liability for credit losses on commitments to originate or fund loans, and standby letters of credit. It is included in “Other liabilities” on the consolidated balance sheets. Expected credit losses are estimated over the contractual period in which the Company is exposed to credit risk via a commitment that cannot be unconditionally canceled, adjusted for projected prepayments when appropriate. In addition, the estimate of the liability considers the likelihood that funding will occur. The ACL on unfunded commitments is adjusted through provision for credit losses on consolidated statements of operations. Because the business processes and risks associated with unfunded commitments are essentially the same as loans, the Company uses the same process to estimate the liability.

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; and 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 as “Mortgage servicing rights expense, net” in non-interest expense in the consolidated statements 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.

Servicing fee income, which is reported on the consolidated statements of operations in non-interest income as loan servicing 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.

Office Properties and Equipment— Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Maintenance and repair costs are charged to expense as incurred. Gains or losses on disposition of office properties and equipment are reflected in income. Buildings and related components are depreciated using the straight-line method with useful lives ranging from 10 to 40 years. Furniture, fixtures and equipment are depreciated using the straight-line (or accelerated) method with useful lives ranging from 3 to 10 years. Leasehold improvements are depreciated using the straight-line (or accelerated) method with useful lives based on the lesser of (a) the estimated life of the lease, or (b) the estimated useful life of the leasehold improvement. Depreciation expense is included in non-interest expense on the consolidated statements of operations.

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. The Company amortizes acquired intangible assets, primarily Core Deposit Intangibles (CDI) with definite useful economic lives over their useful economic lives originally ranging from 72 to 111 months 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. 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, 2024, 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, 2023. The Company has monitored events and conditions since December 31, 2023, and has determined that no triggering event has occurred that would require goodwill to be tested for impairment.

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.

Bank Owned Life Insurance (BOLI)— The Bank invests in bank-owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Bank is the owner and beneficiary of the policies. Income from the increase in cash surrender value of the policies as well as the receipt of death benefits is included in non-interest income on 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 and the third quarter of 2024, the Company made investments in LLC’s that are sponsoring community development projects that have been awarded New Markets Tax Credits (“NMTC”) through the U.S. Department of the Treasury’s Community Development Financial Institutions Fund. These investments are Community Reinvestment Act eligible and are designed to generate a return primarily through the realization of the tax credit. These LLC’s are considered a Variable Interest Entity (VIE) as the Company represents the holder of the equity investment at risk. However, the Company 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’s have not been consolidated. With the adoption of ASU 2023-02 on January 1, 2023, the investments are accounted for using the proportional amortization method, which requires amortizing the investment in the period of and in proportion to the recognition of the related tax credit. Amortization of the investment is included in provision for income taxes and the utilization of the tax credit is recorded as a reduction in provision for income taxes. Prior to the adoption of ASU 2023-02 the investment was accounted for using the equity method of accounting and was amortized through non-interest expense.

As of September 30, 2024, the carrying amount of this investment, which is included in other assets in the consolidated balance sheets, was $ 4,719 . 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, 2024, there were no known instances of noncompliance associated with either 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. Some of the Bank’s leases require it to make variable payments for the Bank’s share of property taxes, insurance, common area maintenance and other costs. These variable costs are recognized when incurred and are also included in lease expense.

Federal Hold Loan Bank (“FHLB”) advances - The Bank holds both $ 11,000 and $ 44,000 short-term and $ 10,000 and $ 35,530 long-term FHLB advances as of September 30, 2024 and December 31, 2023, respectively. For cash flow purposes the short-term FHLB advances are disclosed net with original maturities of three months or less.

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 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. 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. 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.

Share-Based Compensation— The Company may grant restricted stock awards and other stock-based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. The Company accounts for forfeitures as they occur. Forfeited restricted shares are canceled and returned to authorized and unissued shares. While time based restricted shares are subject to forfeiture, time based restricted stock award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares. The time based restricted shares granted under the 2018 Equity Incentive Plan (the “Plan”) are subject to a three-year vesting period. Compensation expense for time based restricted stock is recognized over the requisite service period of three years for the entire award on a straight-line basis. Performance based restricted shares are earned over a three-year period based on Board approved performance metrics and expense is recorded based on expected shares vesting. The performance based restricted stock award participants do not have voting rights and do not receive dividends or other distributions paid with respect to the performance based restricted shares. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Operations.

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.

The Company’s effective tax rates were 21.5 % and 50.5 % for the three months ended September 30, 2024 and September 30, 2023, and 21.6 % and 34.3 % for the nine months ended September 30, 2024 and September 30, 2023. The Wisconsin state budget, signed July 5, 2023, effective January 1, 2023, made originated loans in Wisconsin for business purposes up to $5,000 non-taxable. This change lowered the Company’s income tax rates for the three and six-month periods ended June 30, 2024, and lowered the Company’s income tax rate for the twelve-month period ended December 31, 2023, before related valuation allowance. Income tax expense in 2023, was lower due to the retroactive, effect of this change. This reduction of income tax expense was offset by a one-time tax expense of $ 1,828 in the three and nine-month periods ended September 30, 2023, as the impact of the resulting lower incremental tax rate decreased the estimated future realization of an existing deferred tax asset resulting in a valuation allowance.

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 fees 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 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.

Off-Balance-Sheet Financial Instruments— In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and commitments under lines of credit arrangements, issued to meet customer financial needs. Such financial instruments are recorded in the financial statements when they become payable.

Derivatives--Rate-lock Commitments and Forward Sale Agreements — The Company enters into commitments to originate loans, whereby the interest rate on the loan is determined prior to funding (rate-lock commitment). Rate-lock commitments on mortgage loans held for sale are derivative instruments. If material, derivative instruments are carried on the consolidated balance sheets at fair value, and changes in the fair value thereof are recognized in the consolidated statements of operations. The Company originates single-family residential loans for sale, pursuant to programs primarily with the Federal Home Loan Mortgage Corporation (“FHLMC”) and other similar third parties. In connection with these programs, at the time the Company initially issues a loan commitment, it does not lock in a specific interest rate. At the time the interest rate is locked in by the borrower, the Company concurrently enters into a forward loan sale agreement with the prospective loan purchaser, at a specific price, in order to manage the interest rate risk inherent to the rate-lock commitment. The forward sale agreement also meets the definition of a derivative instrument. Any change in the fair value of the loan commitment after the borrower locks in the interest rate is substantially offset by the corresponding change in the fair value of the forward loan sale agreement related to such loan. The period from the time the borrower locks in the interest rate, to the time the Company funds the loan and sells the loan to a third party varies, and could be up to 90 days. The fair value of each instrument will rise and fall in response to changes in market interest rates, subsequent to the dates the interest rate locks and forward sale agreements are entered into. In the event that interest rates rise after the Company enters into an interest rate lock, the fair value of the loan commitment will decline. However, the fair value of the forward loan sale agreement related to such loan commitment should increase by substantially the same amount, effectively eliminating the Company’s interest rate and price risks.

At September 30, 2024, the Company had $ 3,411 of loan commitments outstanding related to loans being originated for sale, all of which were subject to interest rate lock commitments and corresponding forward loan sale agreements, as described above. The net fair values of outstanding interest rate-lock commitments and forward sale agreements were considered immaterial to the Company’s consolidated financial statements as of September 30, 2024.

Common Stock Repurchased -The Company is incorporated in Maryland. Under Maryland Law, repurchased shares of the Company’s common stock must be returned. Shares repurchased are canceled and returned to authorized and unissued shares and recorded as a reduction of each of the applicable captions within stockholders’ equity on the consolidated balance sheets and consolidated statement of changes in stockholders’ equity.

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 was effective immediately upon issuance and will remain in effect through December 31, 2024. 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 2023-07, Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosures —This ASU, issued in November 2023, is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This update is effective for fiscal years beginning after December 15, 2023, and interim periods with fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact and applicability of these new disclosure requirements.

ASU 2023-09, Income Taxes – Improvements to Income Tax Disclosures – This ASU, issued in December 2023, is effective for fiscal years beginning after December 15, 2024 and interim periods therein, with early adoption permitted. This ASU requires expanded income tax-related note disclosures. The Company is currently evaluating the impact of these new disclosure requirements.

NOTE 2 – INVESTMENT SECURITIES

The amortized cost and fair value of securities available for sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income as of September 30, 2024 and December 31, 2023, respectively, were as follows:


Available for sale securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2024
U.S. government agency obligations	$	14,497	$	55	$	95	$	14,457

Mortgage-backed securities	89,439		—		15,419		74,020

Corporate debt securities	44,925		66		3,940		41,051
Asset-backed securities	20,021		38		155		19,904

Total available for sale securities	$	168,882	$	159	$	19,609	$	149,432

December 31, 2023
U.S. government agency obligations	$	16,655	$	77	$	156	$	16,576

Mortgage-backed securities	91,091		—		17,611		73,480

Corporate debt securities	47,158		6		5,990		41,174
Asset-backed securities	24,840		12		339		24,513

Total available for sale securities	$	179,744	$	95	$	24,096	$	155,743

The amortized cost and fair value of securities held to maturity and the corresponding amounts of gross unrecognized gains and losses as of September 30, 2024 and December 31, 2023, respectively, were as follows:


Held to maturity securities	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
September 30, 2024

Obligations of states and political subdivisions	$	500	$	—	$	19	$	481
Mortgage-backed securities	86,533		8		15,976		70,565
Total held to maturity securities	$	87,033	$	8	$	15,995	$	71,046

December 31, 2023
Obligations of states and political subdivisions	$	600	$	—	$	35	$	565
Mortgage-backed securities	90,629		6		17,938		72,697
Total held to maturity securities	$	91,229	$	6	$	17,973	$	73,262

At September 30, 2024, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $ 34,700 as collateral to secure a line of credit with the Federal Reserve Bank. As of September 30, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of September 30, 2024, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $ 353 and mortgage-backed securities with a carrying value of $ 1,811 as collateral against specific municipal deposits. As of September 30, 2024, the Bank also has mortgage-backed securities with a carrying value of $ 103 pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2023, the Bank had pledged certain of its mortgage-backed securities with a carrying value of $ 29,191 as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2023, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2023, the Bank had pledged certain of its U.S. Government Agency securities with a carrying value of $ 516 and mortgage-backed securities with a carrying value of $ 1,928 as collateral against specific municipal deposits. As of December 31, 2023, the Bank also had mortgage-backed securities with a carrying value of $ 179 and U.S. Government Agencies with a carrying value of $ 415 pledged as collateral to the Federal Home Loan Bank of Des Moines.

For the three and nine month periods ended September 30, 2024, there were no sales of available for sale securities. In June 2024, senior debt of a community development financial institution, classified as available-for-sale securities with a carrying value of $ 2,082 , was exchanged for preferred equity of the financial institution’s operating subsidiary. The exchange resulted in the recognition of $ 168 of unrealized losses on available-for-sale securities, previously included in other comprehensive income, as well as an additional $ 270 loss, for a total loss of $ 438 . This total loss of $ 438 was recognized on the June 30, 2024, consolidated statement of operations as net losses on equity securities. For the three month period ended September 30, 2023, there were no sales of available for sale securities. For the nine month period ended September 30, 2023, gross sales of available for sale securities were $ 5,105 , gross gains on the sale of available for sale securities were $ 12 , and gross losses on the sale of available for sale securities were $ 0 .

The estimated fair value of securities at September 30, 2024 and December 31, 2023, by contractual maturity, is shown below.


	September 30, 2024				December 31, 2023
Available for sale securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	2,500	$	2,491	$	—	$	—
Due after one year through five years	10,857		10,837		13,986		13,703
Due after five years through ten years	41,875		37,952		45,549		39,701
Due after ten years	24,211		24,132		29,118		28,859
Total securities with contractual maturities	79,443		75,412		88,653		82,263
Mortgage-backed securities	89,439		74,020		91,091		73,480

Total available for sale securities	$	168,882	$	149,432	$	179,744	$	155,743


	September 30, 2024				December 31, 2023
Held to maturity securities	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	100	$	99	$	100	$	100
Due after one year through five years	400		382		500		465
Due after five years through ten years	—		—		—		—

Total securities with contractual maturities	500		481		600		565
Mortgage-backed securities	86,533		70,565		90,629		72,697
Total held to maturity securities	$	87,033	$	71,046	$	91,229	$	73,262

Securities with unrealized losses at September 30, 2024 and December 31, 2023, 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, 2024
U.S. government agency obligations	$	4,750	$	11	$	3,382	$	84	$	8,132	$	95

Mortgage-backed securities	2,815		39		71,205		15,380		74,020		15,419

Corporate debt securities	—		—		36,204		3,940		36,204		3,940
Asset-backed securities	1,344		2		12,783		153		14,127		155

Total	$	8,909	$	52	$	123,574	$	19,557	$	132,483	$	19,609
December 31, 2023
U.S. government agency obligations	$	3,776	$	5	$	3,627	$	151	$	7,403	$	156

Mortgage-backed securities	—		$	—	$	73,476	$	17,611	$	73,476	$	17,611

Corporate debt securities	3,350		$	76	$	35,916	$	5,914	$	39,266	$	5,990
Asset-backed securities	3,348		$	22	$	20,008	$	317	$	23,356	$	339

Total	$	10,474	$	103	$	133,027	$	23,993	$	143,501	$	24,096

At September 30, 2024 no ACL was established for available for sale or held to maturity securities. Substantially all the held to maturity portfolio is made up of agency backed mortgage securities. These securities are guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. At September 30, 2024, there were no past due held to maturity securities. Accordingly, the Company does not expect to incur credit losses on these securities. Unrealized losses on available-for-sale investment securities have not been recognized into income because the issuers’ bonds are agency backed securities or other securities that all principal and interest is expected to be received on a timely basis. Furthermore, the Company does not intend to sell, and it is likely that management will not be required to sell, the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The issuers continue to make timely principal and interest payments on their bonds.

All of our available for sale and held to maturity investment securities are investment grade securities.

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

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 underwritten 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.

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.

Loans are stated at the principal amount outstanding net of unearned net deferred fees and costs and loans in process, unearned discounts on acquired loans, and allowance for credit losses (“ACL”). Unearned net deferred fees and costs includes deferred loan origination fees reduced by loan origination costs and is amortized to interest income over the life of the related loan using methods that approximated the effective interest rate method. Interest on substantially all loans is credited to income based on the principal amount outstanding. A summary of loans at September 30, 2024, and December 31, 2023, follows:


	September 30, 2024					December 31, 2023
		Amortized Cost		% of Total		Amortized Cost		% of Total
Commercial/Agricultural real estate:
Commercial real estate		$	728,447	51.1	%	$	748,447	51.2	%
Agricultural real estate		75,613		5.3	%	83,157		5.7	%
Multi-family real estate		239,065		16.8	%	228,004		15.6	%
Construction and land development		87,381		6.1	%	110,218		7.5	%
C&I/Agricultural operating:
Commercial and industrial		119,514		8.4	%	121,190		8.3	%
Agricultural operating		27,567		1.9	%	25,695		1.8	%
Residential mortgage:
Residential mortgage		134,467		9.5	%	128,479		8.8	%
Purchased HELOC loans		2,932		0.2	%	2,880		0.2	%
Consumer installment:
Originated indirect paper		4,405		0.3	%	6,535		0.4	%
Other consumer		5,437		0.4	%	6,187		0.4	%
Total loans receivable		$	1,424,828	100	%	$	1,460,792	100	%
Less: Allowance for credit losses		( 21,000 )				( 22,908 )
Net loans receivable		$	1,403,828			$	1,437,884

Credit Quality/Risk Ratings:

Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its commercial/agricultural real estate and commercial and industrial/agricultural operating loan portfolios. 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.

As of September 30, 2024, and December 31, 2023, there were no loans classified as doubtful with a risk rating of 8 and no loans classified as loss with a risk rating of 9.

Residential and consumer loans are typically not rated until they are past due 90 days at month-end which is why they are classified as pass graded 1-5 and once past due or have a history of delinquencies, get assigned a grade 7.

Below is a summary of the amortized cost of loans summarized by class, credit quality risk rating and year of origination as of September 30, 2024, and gross charge-offs for the nine months ended September 30, 2024:


	Amortized Cost Basis by Origination Year
	2024		2023		2022		2021		2020		Prior		Revolving		Revolving to Term		Total
Commercial/Agricultural real estate:
Commercial real estate
Risk rating 1 to 5	$	43,710	$	80,008	$	131,156	$	213,090	$	91,417	$	153,335	$	6,110	$	—	$	718,826
Risk rating 6	174		1,182		—		41		—		184		—		—		1,581
Risk rating 7	—		—		560		2,637		215		4,628		—		—		8,040


Total	$	43,884	$	81,190	$	131,716	$	215,768	$	91,632	$	158,147	$	6,110	$	—	$	728,447
Current period gross charge-offs	$	—	$	—	$	—	$	39	$	—	$	—	$	—	$	—	$	39
Agricultural real estate
Risk rating 1 to 5	$	2,840	$	11,214	$	17,260	$	10,480	$	7,457	$	18,923	$	1,043	$	—	$	69,217
Risk rating 6	—		202		—		—		—		—		—		—		202
Risk rating 7	—		—		481		5,256		—		457		—		—		6,194


Total	$	2,840	$	11,416	$	17,741	$	15,736	$	7,457	$	19,380	$	1,043	$	—	$	75,613
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family real estate
Risk rating 1 to 5	$	7,186	$	7,831	$	45,895	$	103,118	$	43,476	$	22,798	$	22	$	—	$	230,326
Risk rating 6	—		—		8,739		—		—		—		—		—		8,739
Risk rating 7	—		—		—		—		—		—		—		—		—


Total	$	7,186	$	7,831	$	54,634	$	103,118	$	43,476	$	22,798	$	22	$	—	$	239,065
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land development
Risk rating 1 to 5	$	19,026	$	34,974	$	9,964	$	6,177	$	1,355	$	881	$	14,898	$	—	$	87,275
Risk rating 6	—		—		—		—		—		—		—		—		—
Risk rating 7	—		—		—		—		—		106		—		—		106


Total	$	19,026	$	34,974	$	9,964	$	6,177	$	1,355	$	987	$	14,898	$	—	$	87,381
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial/Agricultural operating:
Commercial and industrial
Risk rating 1 to 5	$	12,380	$	14,760	$	32,378	$	24,049	$	8,436	$	4,646	$	19,955	$	—	$	116,604
Risk rating 6	—		—		244		13		—		—		260		—		517
Risk rating 7	—		384		35		421		53		—		1,500		—		2,393


Total	$	12,380	$	15,144	$	32,657	$	24,483	$	8,489	$	4,646	$	21,715	$	—	$	119,514
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural operating
Risk rating 1 to 5	$	2,706	$	3,219	$	3,210	$	708	$	537	$	2,128	$	14,158	$	—	$	26,666
Risk rating 6	—		—		—		—		—		—		—		—		—
Risk rating 7	—		—		473		428		—		—		—		—		901


Total	$	2,706	$	3,219	$	3,683	$	1,136	$	537	$	2,128	$	14,158	$	—	$	27,567
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Continued	Amortized Cost Basis by Origination Year
	2024		2023		2022		2021		2020		Prior		Revolving		Revolving to Term		Total
Residential mortgage:
Residential mortgage
Risk rating 1 to 5	$	11,617	$	30,760	$	31,412	$	7,530	$	2,274	$	31,177	$	16,415	$	—	$	131,185

Risk rating 7	—		—		493		—		—		2,689		100		—		3,282


Total	$	11,617	$	30,760	$	31,905	$	7,530	$	2,274	$	33,866	$	16,515	$	—	$	134,467
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	4	$	—	$	—	$	4
Purchased HELOC loans
Risk rating 1 to 5	$	—	$	—	$	—	$	—	$	—	$	—	$	2,815	$	—	$	2,815

Risk rating 7	—		—		—		—		—		—		117		—		117


Total	$	—	$	—	$	—	$	—	$	—	$	—	$	2,932	$	—	$	2,932
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer installment:
Originated indirect paper
Risk rating 1 to 5	$	—	$	—	$	—	$	—	$	—	$	4,361	$	—	$	—	$	4,361

Risk rating 7	—		—		—		—		—		44		—		—		44


Total	$	—	$	—	$	—	$	—	$	—	$	4,405	$	—	$	—	$	4,405
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	17	$	—	$	—	$	17
Other consumer
Risk rating 1 to 5	$	1,367	$	1,492	$	939	$	451	$	375	$	263	$	543	$	—	$	5,430

Risk rating 7	—		5		—		—		—		1		1		—		7


Total	$	1,367	$	1,497	$	939	$	451	$	375	$	264	$	544	$	—	$	5,437
Current period gross charge-offs	$	—	$	—	$	3	$	1	$	—	$	—	$	7	$	—	$	11
Total loans receivable	$	101,006	$	186,031	$	283,239	$	374,399	$	155,595	$	246,621	$	77,937	$	—	$	1,424,828
Total current period gross charge-offs	$	—	$	—	$	3	$	40	$	—	$	21	$	7	$	—	$	71

Below is a summary of the amortized cost of loans summarized by class, credit quality risk rating and year of origination as of December 31, 2023, and gross charge-offs for the twelve months ended December 31, 2023:


	Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving		Revolving to Term		Total
Commercial/Agricultural real estate:
Commercial real estate
Risk rating 1 to 5	$	73,564	$	133,583	$	236,774	$	90,881	$	71,104	$	107,999	$	10,204	$	—	$	724,109
Risk rating 6	309		—		9,510		—		—		—		—		—		9,819
Risk rating 7	25		696		3,213		4,548		183		5,854		—		—		14,519


Total	$	73,898	$	134,279	$	249,497	$	95,429	$	71,287	$	113,853	$	10,204	$	—	$	748,447
Current period gross charge-offs	$	—	$	—	$	10	$	—	$	—	$	4	$	—	$	—	$	14
Agricultural real estate
Risk rating 1 to 5	$	16,335	$	19,026	$	11,582	$	7,719	$	5,463	$	15,418	$	1,009	$	—	$	76,552
Risk rating 6	—		171		5,409		—		152		482		—		—		6,214
Risk rating 7	—		360		—		—		31		—		—		—		391


Total	$	16,335	$	19,557	$	16,991	$	7,719	$	5,646	$	15,900	$	1,009	$	—	$	83,157
Current period gross charge-offs	$	—	$	—	$	—	$	32	$	—	$	—	$	—	$	—	$	32
Multi-family real estate
Risk rating 1 to 5	$	5,016	$	50,617	$	95,686	$	45,685	$	8,591	$	22,364	$	45	$	—	$	228,004
Risk rating 6	—		—		—		—		—		—		—		—		—
Risk rating 7	—		—		—		—		—		—		—		—		—


Total	$	5,016	$	50,617	$	95,686	$	45,685	$	8,591	$	22,364	$	45	$	—	$	228,004
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land development
Risk rating 1 to 5	$	42,639	$	37,783	$	18,912	$	8,014	$	119	$	1,124	$	1,314	$	—	$	109,905
Risk rating 6	—		—		—		—		—		110		—		—		110
Risk rating 7	—		—		—		—		—		54		149		—		203


Total	$	42,639	$	37,783	$	18,912	$	8,014	$	119	$	1,288	$	1,463	$	—	$	110,218
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial/Agricultural operating:
Commercial and industrial
Risk rating 1 to 5	$	16,758	$	31,915	$	28,059	$	11,406	$	4,746	$	2,023	$	24,059	$	—	$	118,966
Risk rating 6	—		—		—		—		5		—		2,200		—		2,205
Risk rating 7	—		—		—		—		—		2		—		17		19


Total	$	16,758	$	31,915	$	28,059	$	11,406	$	4,751	$	2,025	$	26,259	$	17	$	121,190
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural operating
Risk rating 1 to 5	$	4,734	$	3,908	$	856	$	746	$	295	$	2,144	$	11,831	$	—	$	24,514
Risk rating 6	—		—		—		—		—		—		—		—		—
Risk rating 7	—		476		704		—		—		1		—		—		1,181


Total	$	4,734	$	4,384	$	1,560	$	746	$	295	$	2,145	$	11,831	$	—	$	25,695
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Continued	Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving		Revolving to Term		Total
Residential mortgage:
Residential mortgage
Risk rating 1 to 5	$	28,808	$	33,660	$	8,743	$	2,610	$	2,292	$	33,744	$	15,544	$	—	125,401

Risk rating 7	—		141		—		—		14		2,875		—		48		3,078


Total	$	28,808	$	33,801	$	8,743	$	2,610	$	2,306	$	36,619	$	15,544	$	48	$	128,479
Current period gross charge-offs	$	—	$	—	$	10	$	—	$	—	$	68	$	—	$	—	$	78
Purchased HELOC loans
Risk rating 1 to 5	$	—	$	—	$	—	$	—	$	—	$	—	$	2,880	$	—	$	2,880

Risk rating 7	—		—		—		—		—		—		—		—		—


Total	$	—	$	—	$	—	$	—	$	—	$	—	$	2,880	$	—	$	2,880
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer installment:
Originated indirect paper
Risk rating 1 to 5	$	—	$	—	$	—	$	—	$	—	$	6,491	$	—	$	—	$	6,491

Risk rating 7	—		—		—		—		—		44		—		—		44


Total	$	—	$	—	$	—	$	—	$	—	$	6,535	$	—	$	—	$	6,535
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	13	$	—	$	—	$	13
Other consumer
Risk rating 1 to 5	$	2,104	$	1,525	$	763	$	559	$	402	$	274	$	530	$	1	$	6,158

Risk rating 7	9		2		—		—		16		1		1		—		29


Total	$	2,113	$	1,527	$	763	$	559	$	418	$	275	$	531	$	1	$	6,187
Current period gross charge-offs	$	—	$	2	$	1	$	11	$	3	$	6	$	—	$	—	$	23
Total loans receivable	$	190,301	$	313,863	$	420,211	$	172,168	$	93,413	$	201,004	$	69,766	$	66	$	1,460,792
Total current period gross charge-offs	$	—	$	2	$	21	$	43	$	3	$	91	$	—	$	—	$	160

Allowance for Credit Losses - Loans- On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial instruments and transitioned to the Current Expected Credit Loss (“CECL”) model to estimate losses based on the lifetime of the loan. Under the new methodology, the ACL is comprised of collectively evaluated and individually evaluated components. The allowance for credit losses (“ACL”) represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining life of the assets. The provision for credit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for credit losses. In determining the adequacy of the allowance for credit losses, and therefore the provision to be charged to current earnings, the Company relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company’s credit exposure. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, the borrowers who might be facing financial difficulty. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and modifications, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. The Company estimates the appropriate level of allowance for credit losses by evaluating loans collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that a loan does not share similar risk characteristics with other loans.

The following tables present the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the three and nine months ended September 30, 2024:


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Total
Three months ended September 30, 2024
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period	$	17,033	$	1,117	$	2,784	$	244	$	21,178

Charge-offs	( 39 )		—		( 4 )		( 11 )		( 54 )
Recoveries	5		10		4		5		24
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations	( 76 )		224		( 290 )		( 6 )		( 148 )
ACL - Loans, at end of period	$	16,923	$	1,351	$	2,494	$	232	$	21,000


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Total
Nine months ended September 30, 2024
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period	$	18,784	$	1,105	$	2,744	$	275	$	22,908

Charge-offs	( 39 )		—		( 4 )		( 28 )		( 71 )
Recoveries	46		35		7		10		98
Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations	( 1,868 )		211		( 253 )		( 25 )		( 1,935 )
ACL - Loans, at end of period	$	16,923	$	1,351	$	2,494	$	232	$	21,000

The following table presents the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the three and nine months ended September 30, 2023:


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Three months ended September 30, 2023
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period	$	18,933	$	1,458	$	2,452	$	321	$	—	$	23,164

Charge-offs	—		—		( 54 )		( 3 )		—		( 57 )
Recoveries	206		10		—		2		—		218
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations	( 284 )		( 279 )		235		( 24 )		—		( 352 )
ACL - Loans, at end of period	$	18,855	$	1,189	$	2,633	$	296	$	—	$	22,973


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Nine months ended September 30, 2023
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period	$	14,085	$	2,318	$	599	$	129	$	808	$	17,939
Cumulative effect of ASU 2016-13 adoption	4,510		( 331 )		1,119		216		( 808 )		4,706
Charge-offs	( 46 )		—		( 78 )		( 30 )		—		( 154 )
Recoveries	236		41		40		24		—		341
Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations	70		( 839 )		953		( 43 )		—		141
ACL - Loans, at end of period	$	18,855	$	1,189	$	2,633	$	296	$	—	$	22,973

The following table presents the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the twelve months ended December 31, 2023:


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Twelve months ended December 31, 2023
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period	$	14,085	$	2,318	$	599	$	129	$	808	$	17,939
Cumulative effect of ASU 2016-13 adoption	4,510		( 331 )		1,119		216		( 808 )		4,706
Charge-offs	( 46 )		—		( 78 )		( 36 )		—		( 160 )
Recoveries	489		47		42		33		—		611
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations	( 254 )		( 929 )		1,062		( 67 )		—		( 188 )
ACL - Loans, at end of period	$	18,784	$	1,105	$	2,744	$	275	$	—	$	22,908

Allowance for Credit Losses - Unfunded Commitments - In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $ 460 at September 30, 2024, and $ 1,250 at December 31, 2023, classified in other liabilities on the consolidated balance sheets. The following table presents the balance and activity in the ACL - Unfunded Commitments for the three and nine months ended September 30, 2024, and the twelve months ended December 31, 2023.


	September 30, 2024 and Three Months Ended		September 30, 2024 and Nine Months Ended		December 31, 2023 and Twelve Months Ended
ACL - Unfunded Commitments - beginning of period	$	712	$	1,250	$	—
Cumulative effect of ASU 2016-13 adoption	—		—		1,537
Additions to ACL - Unfunded Commitments via provision for credit losses charged to operations	( 252 )		( 790 )		( 287 )
ACL - Unfunded Commitments - End of period	$	460	$	460	$	1,250

Provision for credit losses - The provision for credit losses is determined by the Company as the amount to be added (reversed) to the ACL loss accounts for various types of financial instruments (including loans and off-balance sheet credit exposures) after net charge-offs have been deducted to bring the ACL to a level that, in managements judgement, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The following table presents the components of the negative provision for credit losses.


	September 30, 2024 and Three Months Ended		September 30, 2024 and Nine Months Ended
(Negative) provision for credit losses on:
Loans	$	( 148 )	$	( 1,935 )
Unfunded Commitments	( 252 )		( 790 )
Total (negative) provision for credit losses	$	( 400 )	$	( 2,725 )

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, 2024, and December 31, 2023, respectively, was as follows:


(Loan balances at amortized cost)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans
September 30, 2024
Commercial/Agricultural real estate:
Commercial real estate	$	125	$	—	$	232	$	357	$	728,090	$	728,447
Agricultural real estate	229		—		354		583		75,030		75,613
Multi-family real estate	—		—		—		—		239,065		239,065
Construction and land development	413		—		—		413		86,968		87,381
C&I/Agricultural operating:
Commercial and industrial	48		253		421		722		118,792		119,514

Agricultural operating	—		—		901		901		26,666		27,567
Residential mortgage:
Residential mortgage	1,534		770		1,070		3,374		131,093		134,467
Purchased HELOC loans	—		—		117		117		2,815		2,932
Consumer installment:
Originated indirect paper	9		—		12		21		4,384		4,405

Other consumer	21		29		2		52		5,385		5,437
Total	$	2,379	$	1,052	$	3,109	$	6,540	$	1,418,288	$	1,424,828


(Loan balances at amortized cost)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans
December 31, 2023
Commercial/Agricultural real estate:
Commercial real estate	$	50	$	308	$	5,579	$	5,937	$	742,510	$	748,447
Agricultural real estate	30		—		361		391		82,766		83,157
Multi-family real estate	—		—		—		—		228,004		228,004
Construction and land development	—		—		54		54		110,164		110,218
C&I/Agricultural operating:
Commercial and industrial	248		—		—		248		120,942		121,190
Agricultural operating	—		—		1,179		1,179		24,516		25,695
Residential mortgage:
Residential mortgage	856		583		1,023		2,462		126,017		128,479
Purchased HELOC loans	117		—		—		117		2,763		2,880
Consumer installment:
Originated indirect paper	66		—		12		78		6,457		6,535

Other consumer	38		—		20		58		6,129		6,187
Total	$	1,405	$	891	$	8,228	$	10,524	$	1,450,268	$	1,460,792

Nonaccrual Loans - The following tables present the amortized cost basis of loans on nonaccrual status and of nonaccrual loans individually evaluated at September 30, 2024, December 31, 2023, and September 30, 2023, with no allowance for credit losses:


September 30, 2024	Total Nonaccrual Loans		Nonaccrual with no Allowance for Credit Losses
Commercial/Agricultural real estate:
Commercial real estate	$	4,778	$	4,547
Agricultural real estate	6,193		6,193

Construction and land development	106		106
C&I/Agricultural operating:
Commercial and industrial	1,956		1,775

Agricultural operating	901		901
Residential mortgage:
Residential mortgage	971		767
Purchased HELOC loans	117		117
Consumer installment:
Originated indirect paper	19		19

Other consumer	1		1
Total	$	15,042	$	14,426


December 31, 2023	Total Nonaccrual Loans		Nonaccrual with no Allowance for Credit Losses
Commercial/Agricultural real estate:
Commercial real estate	$	10,359	$	10,347
Agricultural real estate	391		391

Construction and land development	54		54
C&I/Agricultural operating:


Agricultural operating	1,180		1,180
Residential mortgage:
Residential mortgage	1,167		934

Consumer installment:
Originated indirect paper	15		15

Other consumer	18		18
Total	$	13,184	$	12,939


September 30, 2023	Total Nonaccrual Loans		Nonaccrual with no Allowance for Credit Losses
Commercial/Agricultural real estate:
Commercial real estate	$	10,570	$	10,556
Agricultural real estate	469		469

Construction and land development	94		94
C&I/Agricultural operating:


Agricultural operating	1,373		1,373
Residential mortgage:
Residential mortgage	923		685

Consumer installment:
Originated indirect paper	26		26

Other consumer	1		1
Total	$	13,456	$	13,204

The Company’s policy is to discontinue the accrual of interest income on all loans for which principal or interest is past due 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 ended consumer installment loans past due 120 days or more; and

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

The accrual of interest is discontinued earlier when, in the opinion of management, there is reasonable doubt as to the timely collection of interest or principal. Once interest accruals are discontinued, accrued but uncollected interest is charged against current year income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Interest on loans determined to be modified is recognized on an accrual basis in accordance with the restructured terms if the loan is in compliance with the modified terms. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

Collateral Dependent Loans - A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The following tables present the amortized cost basis of collateral dependent loans by portfolio segment and collateral type that were individually evaluated to determine expected credit losses and the related allowance for credit losses as of September 30, 2024, and December 31, 2023.


	Collateral Type
September 30, 2024	Real Estate		Other Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation
Commercial/Agricultural real estate:
Commercial real estate	$	8,214	$	—	$	8,214	$	6,784	$	1,430	$	203
Agricultural real estate	6,193		—		6,193		6,193		—		—

Construction and land development	106		—		106		106		—		—
C&I/Agricultural operating:
Commercial and industrial	—		2,394		2,394		2,160		234		88

Agricultural operating	—		901		901		901		—		—
Residential mortgage:
Residential mortgage	3,487		—		3,487		3,003		484		52

Consumer installment:
Originated indirect paper	—		44		44		44		—		—

Other consumer	—		6		6		6		—		—
Total	$	18,000	$	3,345	$	21,345	$	19,197	$	2,148	$	343


	Collateral Type
December 31, 2023	Real Estate		Other Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation
Commercial/Agricultural real estate:
Commercial real estate	$	15,086	$	—	$	15,086	$	11,350	$	3,736	$	703
Agricultural real estate	6,605		—		6,605		6,605		—		—

Construction and land development	313		—		313		313		—		—
C&I/Agricultural operating:
Commercial and industrial	—		2,219		2,219		2,219		—		—

Agricultural operating	—		1,181		1,181		1,181		—		—
Residential mortgage:
Residential mortgage	3,145		—		3,145		2,591		554		88

Consumer installment:
Originated indirect paper	—		44		44		44		—		—

Other consumer	—		29		29		29		—		—
Total	$	25,149	$	3,473	$	28,622	$	24,332	$	4,290	$	791

There were no outstanding commitments to borrowers experiencing financial difficulty as of September 30, 2024. There were unused lines of credit totaling $ 10 on loans with borrowers experiencing financial difficulties as of September 30, 2024.

The tables below detail Loan Modifications Made to Borrowers Experiencing Financial Difficulty during the three months ended September 30, 2024:


	Term Extension
Loan Class	Amortized Cost Basis at September 30, 2024		% of Total Class of Financing Receivables



Residential mortgage	$	5	—	%
Other consumer	$	1	0.02	%

	Other-Than-Insignificant Payment Delay
Loan Class	Amortized Cost Basis at September 30, 2024		% of Total Class of Financing Receivables
Commercial real estate	$	1,182	0.16	%

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the three months ended September 30, 2024:


Term Extension
Loan Class						Financial Effect



Residential mortgage						A weighted average of 36 months was added to the term of the loans
Other Consumer						A weighted average of 12 months was added to the term of the loans

Other-Than-Insignificant Payment Delay
Loan Class						Financial Effect
Commercial real estate						Payments were deferred a weighted average of 3 months

The tables below detail Loan Modifications made to Borrowers Experiencing Financial Difficulty during the twelve months ended September 30, 2024:


	Term Extension
Loan Class	Amortized Cost Basis at September 30, 2024		% of Total Class of Financing Receivables

Commercial and industrial	$	1,500	1.26	%

Residential mortgage	$	5	—	%
Other Consumer	$	1	0.02	%


	Other-Than-Insignificant Payment Delay
Loan Class	Amortized Cost Basis at September 30, 2024		% of Total Class of Financing Receivables
Commercial real estate	$	1,182	0.16	%
Commercial and industrial	$	836	0.70	%
Residential mortgage	$	240	0.18	%

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the twelve months ended September 30, 2024:


Term Extension
Loan Class						Financial Effect

Commercial and industrial						A weighted average of 11 months was added to the term of the loans

Residential mortgage						A weighted average of 36 months was added to the term of the loans
Other consumer						Payments were deferred a weighted average of 12 months

Other-Than-Insignificant Payment Delay
Loan Class						Financial Effect
Commercial real estate						Payments were deferred a weighted average of 3 months
Commercial and industrial						Payments were deferred a weighted average of 3 months
Residential mortgage						Payments were deferred a weighted average of 3 months

The tables below detail Loan Modifications Made to Borrowers Experiencing Financial Difficulty during the three months ended September 30, 2023:


	Term Extension
Loan Class	Amortized Cost Basis at September 30, 2023		% of Total Class of Financing Receivables
Commercial real estate	$	4,826	0.65	%

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the three months ended September 30, 2023:



Loan Class						Financial Effect
Commercial real estate						A weighted average of 20 months was added to the term of the loans

The tables below detail Loan Modifications Made to Borrowers Experiencing Financial Difficulty during the nine months ended September 30, 2023:


	Term Extension
Loan Class	Amortized Cost Basis at September 30, 2023		% of Total Class of Financing Receivables
Commercial real estate	$	4,826	0.65	%

Agricultural operating	$	179	0.73	%
Residential mortgage	$	36	0.03	%


	Other-Than-Insignificant Payment Delay
Loan Class	Amortized Cost Basis at September 30, 2023		% of Total Class of Financing Receivables
Residential mortgage	$	69	0.06	%
Other consumer	$	20	0.31	%

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the nine months ended September 30, 2023:



Loan Class						Financial Effect
Commercial real estate						A weighted average of 20 months was added to the term of the loans

Agricultural operating						A weighted average of 3 months was added to the term of the loans
Residential mortgage						A weighted average of 17 months was added to the term of the loans

Other-Than-Insignificant Payment Delay
Loan Class						Financial Effect












Residential Mortgage						Payments were deferred a weighted average of 6 months
Other consumer						Payments were deferred a weighted average of 3 months

The Company closely monitors the performance of loans that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table shows the performance of such loans that have been modified during the twelve months ended September 30, 2024.


	Current		30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due
Commercial real estate	$	1,182	$	—	$	—	$	—
Commercial and industrial	2,336		—		—		—

Residential mortgage	163		—		82		—
Other consumer	1		—		—		—
Total	$	3,682	$	—	$	82	$	—

No loan modified during the nine months ended September 30, 2023 has subsequently defaulted. The following table shows the performance of such loans that have been modified during the nine months ended September 30, 2023.


	Current		30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due
Commercial real estate	$	4,826	$	—	$	—	$	—

Agricultural operating	179		—		—		—
Residential mortgage	105		—		—		—
Other consumer	20		—		—		—
Total	$	5,130	$	—	$	—	$	—

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, 2024 and December 31, 2023 were $ 482,868 and $ 495,531 , 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 $ 6,393 and $ 2,665 at September 30, 2024 and December 31, 2023, respectively.

Mortgage servicing rights activity for the three and nine month periods ended September 30, 2024 and September 30, 2023, 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, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Mortgage servicing rights:
Mortgage servicing rights, beginning of period	$	3,731	$	4,008	$	3,865	$	4,262

Increase in mortgage servicing rights resulting from transfers of financial assets	128		86		258		138
Amortization during the period	( 127 )		( 150 )		( 391 )		( 456 )
Mortgage servicing rights, end of period	3,732		3,944		3,732		3,944
Valuation allowance:
Valuation allowance, beginning of period	—		—		—		—
Additions	( 36 )		—		( 41 )		—
Recoveries	—		—		5		—

Valuation allowance, end of period	( 36 )		—		( 36 )		—
Mortgage servicing rights, net	$	3,696	$	3,944	$	3,696	$	3,944
Fair value of mortgage servicing rights; end of period	$	5,025	$	5,701	$	5,025	$	5,701

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 $ 308 and $ 321 for the three months ended September 30, 2024 and September 30, 2023, respectively. Servicing fees totaled $ 929 and $ 976 for the nine months ended September 30, 2024 and September 30, 2023, 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 September 30, 2024, was determined using discount rates ranging from 9.125 % to 12.125 %. Fair value at September 30, 2023, was determined using discount rates ranging from 10.125 % to 13.125 %. 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.

NOTE 5 – LEASES

We have operating leases for 1 corporate office, 3 bank branch offices, 2 former bank branch office, and 1 ATM location. Our leases have remaining lease terms ranging from approximately 1.00 to 3.75 years. Some of the leases include an option to extend, the longest of which is for two 5 year terms. As of September 30, 2024, 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, 2024			September 30, 2023
The components of total lease cost were as follows:
Operating lease cost	$	349		$	382
Variable lease cost	82			59
Total lease cost	$	431		$	441

The components of total lease income were as follows:
Operating lease income	$	38		$	29

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	$	412		$	409
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	2		$	225


	September 30, 2024			December 31, 2023
Supplemental balance sheet information related to leases was as follows:
Operating lease right-of-use assets (1)	$	951		$	1,477
Operating lease liabilities (2)	$	1,330		$	1,686

Weighted average remaining lease term in years; operating leases	3.27			3.94
Weighted average discount rate; operating leases	3.25		%	3.20		%

(1) Operating lease right-of-use assets are recorded as other assets in the consolidated balance sheets.

(2) Operating lease liabilities are recorded as other liabilities in the consolidated balance sheets.

Cash obligations and receipts under lease contracts are as follows:


Fiscal years ending December 31,	Payments		Receipts

2024	138		22
2025	535		65
2026	465		30
2027	401		17
2028	141		16
Thereafter	—		11
Total	1,680		$	161
Less: effects of discounting	( 350 )
Lease liability recognized	$	1,330

In June of 2024, we closed our St Peter, Minnesota branch. We considered the branch closure a triggering event that required us to test the right of use asset for impairment. It was determined that the right of use asset was impaired and a $ 168 impairment loss was recorded. This impairment loss is included in other non-interest expense in the consolidated statements of operations.

NOTE 6 – DEPOSITS

The following is a summary of deposits by type at September 30, 2024 and December 31, 2023, respectively:


	September 30, 2024		December 31, 2023
Non-interest bearing demand deposits	$	256,840	$	265,704
Interest bearing demand deposits	346,971		343,276
Savings accounts	169,096		176,548
Money market accounts	366,067		374,055
Certificate accounts	381,693		359,509
Total deposits	$	1,520,667	$	1,519,092

At September 30, 2024, the scheduled maturities of certificate accounts were as follows for the year ended, except December 31, 2024, which is the three months ended:


December 31, 2024	$	158,795
December 31, 2025	208,728
December 31, 2026	7,256
December 31, 2027	856
December 31, 2028	5,907
After December 31, 2028	151
Total	$	381,693

Certificate accounts of $250 or more were $ 100,945 and $ 103,802 at September 30, 2024 and December 31, 2023, respectively.

Brokered deposits were $ 66,654 at September 30, 2024 and consisted of $ 48,578 of brokered certificate accounts and $ 18,076 of brokered money market accounts. Brokered Deposits were $ 98,259 at December 31, 2023 and consisted of $ 58,209 of brokered certificate accounts and $ 40,050 of brokered money market accounts.

At September 30, 2024, the scheduled maturities of brokered certificate accounts were as follows for the year ended, except December 31, 2024, which is the three months ended:


December 31, 2024	$	34,455
December 31, 2025 (1)	8,634


December 31, 2028 (1)	5,489
Total	$	48,578

(1) The Company can call the brokered certificate accounts maturing in the years ended December 31, 2025 and 2028, monthly beginning in March 2024.

NOTE 7 – FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

A summary of Federal Home Loan Bank advances and other borrowings at September 30, 2024 and December 31, 2023, is as follows:


	September 30, 2024							December 31, 2023
	Stated Maturity	Amount		Range of Stated Rates				Stated Maturity	Amount		Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4)	2024	$	16,000	1.45	%	4.94	%	2024	$	64,530	0.00	%	5.45	%
	2025	5,000		1.45	%	1.45	%	2025	5,000		1.45	%	1.45	%
	2028	—		0.00	%	0.00	%	2028	10,000		3.82	%	3.82	%







Federal Home Loan Bank advances		$	21,000						$	79,530

Senior Notes (5)	2039	$	12,000	7.25	%	7.75	%	2034	$	18,083	6.75	%	7.75	%

Subordinated Notes (6)	2030	$	15,000	6.00	%	6.00	%	2030	$	15,000	6.00	%	6.00	%
	2032	35,000		4.75	%	4.75	%	2032	35,000		4.75	%	4.75	%

		$	50,000						$	50,000

Unamortized debt issuance costs		( 452 )							( 618 )
Total other borrowings		$	61,548						$	67,465

Totals		$	82,548						$	146,995

(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 $ 1,081,967 and $ 1,106,267 at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $ 414,369 compared to $ 370,569 as of December 31, 2023.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $ 81,000 and $ 217,530 , during the nine months ended September 30, 2024 and the twelve months ended December 31, 2023, respectively.

(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of September 30, 2024 and December 31, 2023 were 3.28 % and 4.16 %, respectively.

(4) In June 2024, the FHLB called the $ 10,000 , 3.82 % advance maturing in 2028.

(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, modified in February of 2023, and refinanced in May 2024, requiring quarterly interest-only payments through January 2029, 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, 2025, that remains undrawn upon.

(6) Subordinated notes resulted from the following:

(a) 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.

(b) 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. The letters of credit balances were $ 206,750 and $ 452,280 at September 30, 2024 and December 31, 2023, respectively.

Federal Reserve Borrowings

At September 30, 2024 and December 31, 2023, the Bank had the ability to borrow $ 27,145 and $ 22,417 from the Federal Reserve Bank of Minneapolis. The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $ 34,700 and $ 29,191 as of September 30, 2024, and December 31, 2023, respectively. There were no Federal Reserve borrowings outstanding as of September 30, 2024, and December 31, 2023.

Federal Funds Purchased Lines of Credit

As of September 30, 2024, the Bank maintains two unsecured federal funds purchased lines of credit with its banking partners which total $ 70,000 . As of December 31, 2023, the Bank maintained three unsecured federal funds purchased lines of credit with its banking partners which totaled $ 70,000 . 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, 2024 or December 31, 2023.

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, 2024, 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, 2024, and December 31, 2023, 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, 2024
Total capital (to risk weighted assets)	$	226,597	15.0	%	$	120,814	> =	8.0	%	$	151,018	> =	10.0	%
Tier 1 capital (to risk weighted assets)	208,326		13.8	%	90,611		> =	6.0	%	120,814		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	208,326		13.8	%	67,958		> =	4.5	%	98,162		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	208,326		11.7	%	71,173		> =	4.0	%	88,966		> =	5.0	%
As of December 31, 2023
Total capital (to risk weighted assets)	$	228,092	14.6	%	$	124,883	> =	8.0	%	$	156,104	> =	10.0	%
Tier 1 capital (to risk weighted assets)	208,726		13.4	%	93,662		> =	6.0	%	124,883		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	208,726		13.4	%	70,247		> =	4.5	%	101,468		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	208,726		11.5	%	72,479		> =	4.0	%	90,599		> =	5.0	%

The Company’s Tier 1 (leverage) and risk-based capital ratios at September 30, 2024 and December 31, 2023, respectively, are presented below:


	Actual				For Capital Adequacy Purposes
	Amount		Ratio		Amount			Ratio
As of September 30, 2024
Total capital (to risk weighted assets)	$	231,825	15.3	%	$	120,972	> =	8.0	%
Tier 1 capital (to risk weighted assets)	163,554		10.8	%	90,729		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	163,554		10.8	%	68,047		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	163,554		9.2	%	71,173		> =	4.0	%
As of December 31, 2023
Total capital (to risk weighted assets)	$	230,160	14.7	%	$	124,883	> =	8.0	%
Tier 1 capital (to risk weighted assets)	160,794		10.3	%	93,662		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	160,794		10.3	%	70,247		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	160,794		8.9	%	72,479		> =	4.0	%

NOTE 9 – STOCK-BASED AND OTHER 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, 2024, 315,947 restricted shares had been granted under this plan. This amount includes 8,805 shares of performance based restricted stock granted in 2021 and issued in January 2024 upon achievement of the performance criteria and completion of the three-year performance period beginning in January 2021 and ending December 31, 2023. The amount also includes 18,551 shares of performance based restricted stock granted in 2020 and issued in January 2023 upon achievement of the performance criteria and completion of the three year performance period beginning in January 2020 and ending December 31, 2022. As of September 30, 2024, 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, 2024, there are no awarded unvested restricted shares, and 54,000 awarded unexercised vested options remaining from the plan. Options granted under this plan vested pro rata over a five-year period from the grant date and were fully vested as of October 2022. Unexercised incentive stock options expire within 10 years of the grant date.

Net compensation expense related to restricted stock awards from these plans was $ 159 and $ 475 for the three and nine months ended September 30, 2024, compared to $ 208 and $ 590 for the three and nine months ended September 30, 2023.

Restricted Common Stock Award


	September 30, 2024			December 31, 2023
	Number of Shares	Weighted Average Grant Price		Number of Shares	Weighted Average Grant Price
Restricted Shares
Unvested and outstanding at beginning of year	75,601	$	12.41	75,626	$	12.30
Granted	16,955	11.88		50,606	12.36
Vested	( 36,430 )	12.34		( 45,879 )	12.24
Forfeited	—	—		( 4,752 )	11.78
Unvested and outstanding at end of period	56,126	$	12.30	75,601	$	12.41


	September 30, 2024
	Number of Shares	Weighted Average Grant Price
Performance Based Restricted Shares
Unvested at beginning of year	41,993	$	12.61
Granted	—	—
Vested and issued	( 8,805 )	10.78
Forfeited	—	—
Unvested at end of period	33,188	$	13.09

Common Stock Option Awards


	Option Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
September 30, 2024
Outstanding at beginning of year	54,000	$	11.59



Outstanding at end of period	54,000	$	11.59	2.09	$	139
Exercisable at end of period	54,000	$	11.59	2.09	$	139

December 31, 2023
Outstanding at beginning of year	58,000	$	11.51

Exercised	( 3,000 )	9.21
Forfeited or expired	( 1,000 )	13.76
Outstanding at end of year	54,000	$	11.59	2.84	$	46
Exercisable at end of year	54,000	$	11.59	2.84	$	46

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


	Nine months ended September 30, 2024		Twelve months ended December 31, 2023
Intrinsic value of options exercised	$	—	$	2
Cash received from options exercised	$	—	$	28
Tax benefit realized from options exercised	$	—	$	—

Other Compensation

On January 25, 2024, the Company’s board of directors approved a phantom stock plan as part of the Company’s long-term incentive plan. The Plan allows certain employees to earn future cash awards linked to the company’s future common share price for time and performance based cash awards. The performance based cash awards vest based on a combination of a three-year time period and performance targets based on the Company’s return on equity. For performance based awards, the ultimate cash payout of these awards will be based on the January 25, 2027 closing share price of the Company’s common stock. The time based cash awards vest ratably over a three-year time period. For time based awards, the ultimate cash payout of these awards will be based on the closing share price of the Company’s common stock on the anniversary of the award date each year. On January 25, 2024, time based awards were based on 18,509 shares and performance based awards were based on 18,505 shares.

At the end of each reporting period, the Company estimates its potential liability related to the Plan and records any change to this liability as compensation expense in the consolidated statement of operations. At September 30, 2024, the related liability was $ 121 , which is included in other liabilities on the consolidated balance sheet. For the three and nine months ended September 30, 2024, the Company recorded related expense of $ 58 and $ 121 which is included in compensation and related benefits/non-interest expense on the Company’s consolidated statement of operations.

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).

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, 2024 and December 31, 2023:


	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, 2024
Investment securities:
U.S. government agency obligations	$	14,457	$	—	$	14,457	$	—

Mortgage-backed securities	74,020		—		74,020		—

Corporate debt securities	41,051		—		41,051		—
Asset-backed securities	19,904		—		19,904		—

Total investment securities	149,432		—		149,432		—
Equity Investments:
Farmer Mac equity securities	540		540		—		—
Preferred equity	1,812		—		—		1,812
Equity investments measured at NAV(1)	2,744		—		—		—
Total equity investments	5,096		540		—		1,812
Total	$	154,528	$	540	$	149,432	$	1,812

December 31, 2023
Investment securities:
U.S. government agency obligations	$	16,576	$	—	$	16,576	$	—

Mortgage-backed securities	73,480		—		73,480		—

Corporate debt securities	41,174		—		41,174		—
Corporate asset backed securities	24,513		—		24,513		—

Total investment securities	155,743		—		155,743		—
Equity Investments:
Farmer Mac equity securities	557		557		—		—
Equity investments measured at NAV(1)	2,727		—		—		—
Total equity investments	3,284		557		—		—
Total	$	159,027	$	557	$	155,743	$	—

(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.

During the three months ended June 30, 2024, senior debt of a community development financial institution, classified as available-for-sale securities was exchanged for preferred equity of the financial institution’s operating subsidiary. At September 30, 2024, the Company owned $ 1,812 preferred equity investments for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value. For the twelve months ended December 31, 2023, the Company did not own any securities for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value.

During the three and nine months ended September 30, 2024, $ 0 and $ 2,082 of senior debt, previously measured as a Level 1 instrument, was exchanged for preferred equity, now measured as a Level 3 instrument, resulting in a transfer out of Level 1 fair value measurement to Level 3 fair value measurement. The exchange resulted in the recognition of $ 0 and $ 168 of unrealized losses on available-for-sale securities during the three and nine months ended September 30, 2024, previously included in other comprehensive income, as well as an additional $ 270 loss, for a total loss of $ 438 . This total loss of $ 438 was recognized on the consolidated statement of operations as net losses on equity securities. There were no transfers in or out of Level 1, Level 2 or Level 3 fair value measurements relating to the available-for-sale securities above during the twelve months ended December 31, 2023. There were no losses included in earnings attributable to the change in unrealized gains or

losses relating to the available-for-sale securities above with fair value measurements utilizing significant unobservable inputs for the twelve months ended December 31, 2023, respectively.

Assets Measured on Nonrecurring Basis

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023:


	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, 2024
Foreclosed and repossessed assets, net	$	1,572	$	—	$	—	$	1,572
Collateral dependent loans	1,805		—		—		1,805
Mortgage servicing rights	3,696		—		—		5,025
Total	$	7,073	$	—	$	—	$	8,402
December 31, 2023
Foreclosed and repossessed assets, net	$	1,795	$	—	$	—	$	1,795
Collateral dependent loans	3,499		—		—		3,499
Mortgage servicing rights	3,865		—		—		5,589
Total	$	9,159	$	—	$	—	$	10,883

The fair value of collateral dependent loans with allowances 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.

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, 2024.


	Fair Value		Valuation Techniques (1)	Significant Unobservable Inputs (2)	Range
September 30, 2024
Foreclosed and repossessed assets, net	$	1,572	Appraisal value	Estimated costs to sell	10 % - 15 %
Collateral dependent loans	$	1,805	Appraisal value / Internal Collateral valuations	Estimated costs to sell	10 % - 15 %
Mortgage servicing rights	$	5,025	Discounted cash flows	Discounted rates	9.125 % - 12.125 %
December 31, 2023
Foreclosed and repossessed assets, net	$	1,795	Appraisal value	Estimated costs to sell	10 % - 15 %
Collateral dependent loans	$	3,499	Appraisal value / Internal Collateral valuations	Estimated costs to sell	10 % - 15 %
Mortgage servicing rights	$	5,589	Discounted cash flows	Discounted rates	9.375 % - 12.375 %

(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 collateral depended 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.

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, 2024				December 31, 2023
	Valuation Method Used	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	(Level I)	$	36,632	$	36,632	$	37,138	$	37,138

Securities available for sale “AFS”	(Level II)	149,432		149,432		155,743		155,743
Securities held to maturity “HTM”	(Level II)	87,033		71,046		91,229		73,262
Farmer Mac equity securities	(Level I)	540		540		557		557
Preferred equity	(Level III)	1,812		1,812		—		—
Equity investments valued at NAV(1)	N/A	2,744		N/A		2,727		N/A
Other investments	(Level II)	12,311		12,311		15,725		15,725
Loans receivable, net	(Level III)	1,403,828		1,379,680		1,437,884		1,374,387
Loans held for sale - Residential mortgage	(Level I)	535		535		1,134		1,134
Loans held for sale - SBA /FSA	(Level II)	162		162		4,639		4,639
Mortgage servicing rights	(Level III)	3,696		5,025		3,865		5,589
Accrued interest receivable	(Level I)	6,235		6,235		5,409		5,409
Financial liabilities:
Deposits	(Level III)	$	1,520,667	$	1,520,399	$	1,519,092	$	1,517,361
FHLB advances	(Level II)	21,000		20,915		79,530		79,087
Other borrowings	(Level II)	61,548		57,225		67,465		59,743
Accrued interest payable	(Level I)	6,887		6,887		3,175		3,175

(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.

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, 2024		September 30, 2023		September 30, 2024		September 30, 2023

Basic
Net income attributable to common stockholders	$	3,286	$	2,498	$	11,049	$	9,366
Weighted average common shares outstanding	10,198		10,470		10,335		10,473
Basic earnings per share	$	0.32	$	0.24	$	1.07	$	0.89
Diluted
Net income attributable to common stockholders	$	3,286	$	2,498	$	11,049	$	9,366
Weighted average common shares outstanding	10,198		10,470		10,335		10,473

Add: Dilutive stock options outstanding	6		—		5		2
Average shares and dilutive potential common shares	10,204		10,470		10,340		10,475
Diluted earnings per share	$	0.32	$	0.24	$	1.07	$	0.89
Additional common stock option shares that have not been included due to their antidilutive effect	20		40		20		40

Dilutive shares outstanding consist of exercisable stock options whose strike prices were less than the quarterly average closing price of the Company’s common stock. At September 30, 2024 and September 30, 2023, there were 20 and 40 exercisable stock options, respectively, with a potentially dilutive effect. However their strike prices were higher than the quarterly and annual average closing prices of the Company’s common stock and thus, excluded from diluted shares outstanding.

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, 2024 and 2023:


	Three Months Ended
	September 30, 2024						September 30, 2023
	Before-Tax Amount		Tax Benefit (Expense)		Net-of-Tax Amount		Before-Tax Amount		Tax Benefit (Expense)		Net-of-Tax Amount
Unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the period	$	4,605	$	( 1,053 )	$	3,552	$	( 3,701 )	$	839	$	( 2,862 )





Other comprehensive income (loss)	$	4,605	$	( 1,053 )	$	3,552	$	( 3,701 )	$	839	$	( 2,862 )


	Nine Months Ended
	September 30, 2024						September 30, 2023
	Before-Tax Amount		Tax Benefit (Expense)		Net-of-Tax Amount		Before-Tax Amount		Tax Benefit (Expense)		Net-of-Tax Amount
Unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the period	$	4,383	$	( 1,030 )	$	3,353	$	( 5,373 )	$	1,299	$	( 4,074 )
Reclassification adjustment for gains included in net income	—		—		—		( 12 )		3		( 9 )
Reclassification for net loss on exchanged security, included in net income, net of tax	168		( 38 )		130		—		—		—



Other comprehensive income (loss)	$	4,551	$	( 1,068 )	$	3,483	$	( 5,385 )	$	1,302	$	( 4,083 )

The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax for the twelve months ended December 31, 2023 and the nine months ended September 30, 2024 were as follows:


	Unrealized Gains (Losses) on AFS Securities		Other Accumulated Comprehensive Income (Loss), net of tax
Ending Balance, December 31, 2022	$	( 24,353 )	$	( 17,656 )
Current year-to-date other comprehensive income	352		328

Ending balance, December 31, 2023	$	( 24,001 )	$	( 17,328 )
Current year-to-date other comprehensive income	4,551		3,483
Ending balance, September 30, 2024	$	( 19,450 )	$	( 13,845 )

Reclassifications out of accumulated other comprehensive income (loss) for the three and nine month periods ended September 30, 2024 and September 30, 2023 were as follows:


	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components	Three months ended September 30, 2024		Nine months ended September 30, 2024		Affected Line Item on the Statement of Operations
Unrealized gains and losses
Debt security exchanged for equity security	$	—	$	( 168 )	Net (losses) gains on investment securities
Tax effect	—		38		Provision for income taxes
Total reclassifications for the period	$	—	$	( 130 )	Net loss 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, 2023		Nine months ended September 30, 2023		Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities	$	—	$	12	Net (losses) gains on investment securities
Tax effect	—		( 3 )		Provision for income taxes
Total reclassifications for the period	$	—	$	9	Net income attributable to common stockholders

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, 2023, filed with the SEC on March 5, 2024 (“2023 10-K”), the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended March 31, 2024, filed with the SEC on May 8, 2024; the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended June 30, 2024, filed with the SEC on August 6, 2024; the matters described in “Risk Factors” in Item 1A of this Form 10-Q, and the following:

• conditions in the financial markets and economic conditions generally;

• the impact of inflation on our business and our customers;

• geopolitical tensions, including current or anticipated impact of military conflicts;

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

• future pandemics (including new variants of COVID-19);

• cybersecurity risks;

• adverse impacts on the regional banking industry and the business environment in which it operates;

• interest rate risk;

• lending risk;

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

• the sufficiency of allowance for credit losses;

• 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;

• 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 credit 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.

GENERAL

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of September 30, 2024, and our consolidated results of operations for the three and nine months ended September 30, 2024, compared to the same periods in the prior fiscal year ended September 30, 2023. 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 2023 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.

PERFORMANCE SUMMARY

The following is a summary of some of the significant factors that affected our operating results for the three and nine months ended September 30, 2024, and September 30, 2023. Compared to third quarter 2023, third quarter 2024 net interest income decreased $0.8 million. The decrease was primarily due to the impact of higher short-term interest rates on the Bank’s liability-sensitive balance sheet, i.e., higher deposit costs, and customer account shifts to higher-cost certificates, partially offset by higher yields on assets, and a decrease in lower yielding on-balance sheet assets included in liquidity to more normal levels.

The total benefit, i.e., negative provision, for credit losses for the third quarter ended September 30, 2024,was $0.4 million compared to a negative provision for credit losses of $0.3 million for the quarter ended September 30, 2023. The third quarter of 2024 negative provision was due to decreases in ACL related to: (1) on-balance sheet ACL of $0.1 million; and (2) reductions in off-balance sheet reserves to fund commitments of $0.3 million. The third quarter ended September 30, 2023, negative provision for credit losses was primarily due to net recoveries on an agricultural credit and the impact of the payoff of two large loans.

Non-interest income increased $0.4 million in the third quarter of 2024 compared to the third quarter of 2023, primarily due to $0.5 million higher gain on sale of loans.

Non-interest expense increased $0.4 million in the third quarter of 2024 from $10.0 million in the third quarter of 2023. The increase was primarily related to higher compensation expense due to both the impact of 2024 merit increases and higher incentive compensation.

Provision for income taxes decreased to $0.9 million in the third quarter of 2024, from $2.5 million in the third quarter of 2023, primarily due to a decrease in the effective tax rate. The decrease in the effective tax rate is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023, the impact of which began to be recognized in the third quarter of 2023. This change reduces the Company’s 2023 Wisconsin state income tax rate and thus, its overall effective tax rate. The third quarter ended September 30, 2023, reflects three quarters of the related 2023 tax benefit, retroactive to January 1, 2023, as a reduction of income tax expense. This positive impact was more than offset by a one-time tax expense of $1.8 million reflecting the impact of the lower 2023 Wisconsin state tax rate on the future realization of existing net deferred tax assets.

When comparing year-over-year results, changes in net interest income, provision for credit losses, non-interest income and non-interest expense are primarily due to the items discussed above. See the remainder of this section for a more thorough discussion.

We reported net income of $3.3 million and $11.0 million, or $0.32 and $1.07 per diluted share for the three and nine months ended September 30, 2024, compared to net income of $2.5 million and $9.4 million or $0.24 and $0.89 per diluted share for the three and nine months ended September 30, 2023.

The following is a summary of some of the significant factors that affected our operating results for the nine months ended September 30, 2024, and September 30, 2023.

Compared to 2023, for the nine-month period ended September 30, 2024, net interest income decreased $1.8 million, primarily due to the impact of higher short-term interest rates on the Bank’s liability-sensitive balance sheet, i.e., higher deposit

costs, and customer account shifts to higher-cost certificates, partially offset by higher yields on assets. The Company’s interest-bearing liabilities increased from 2.46% for the nine months ended September 30, 2023, to 3.18% for the same period in 2024. This increase in interest-bearing liabilities cost was partially offset by higher interest income on interest earning assets of $5.4 million primarily due to the impact of higher interest rates.

The total benefit, i.e., negative provision, for credit losses was $2.725 million for the nine months ended September 30, 2024, compared to a provision for credit losses of $0.175 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, the negative provision was due to decreases in ACL related to: (1) the $0.9 million impact of loan portfolio decreases and credit quality improvements; (2) $0.6 million due to improvements in the Moody’s economic scenario per our third-party provider; (3) reductions in off-balance sheet reserves to fund commitments of $0.9 million; (4) a decrease in the allowance for credit losses on individually evaluated loans of $0.5 million largely in the first quarter; and (5) net loan recoveries. The provision for credit losses for the nine months ended September 30, 2023, was $0.175 million, primarily due to growth in the loan portfolio, partially offset by the impact of net recoveries of $0.187 million, reductions in reserves on individually evaluated loans, and third quarter loan payoffs.

Non-interest income for the nine months ended September 30, 2024, increased $0.3 million compared to the nine-months ended September 30, 2023. Higher gains on loan sales, loan fees and service charges and a bank owned life insurance death benefit were partially offset by net losses on equity securities.

Non-interest expense for the nine months ended September 30, 2024, increased $1.6 million largely due to higher compensation expense of $0.9 million, related to higher incentive costs and the impact of annual merit increases, and higher other expenses, primarily due to the establishment of a $0.4 million SBA recourse reserve..

Provision for income taxes decreased to $0.9 million in the third quarter of 2024, from $2.5 million in the third quarter of 2023, primarily due to a decrease in the effective tax rate. The lower effective tax rate is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023, the impact of which began to be recognized in the third quarter of 2023. The Wisconsin state budget, signed by Governor Evers on July 5, 2023, provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023. This change reduces the Company’s 2023 Wisconsin state income tax rate and thus, its overall effective tax rate. The third quarter ended September 30, 2023, reflects three quarters of the related 2023 tax benefit, retroactive to January 1, 2023, as a reduction of income tax expense. This positive impact was more than offset by a one-time tax expense of $1.8 million reflecting the impact of the lower 2023 Wisconsin state tax rate on the future realization of existing net deferred tax assets.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“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 2023 10-K, our critical accounting estimates are as follows:

Allowance for Credit Losses - Loans.

We adopted 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. See also Notes 1 and 3 to the unaudited consolidated financial statements for further discussion of our adoption of ASU 2016-13.

We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing quarterly assessments of the estimated lifetime losses in our loan portfolio. In evaluating the level of the allowance for credit losses, 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 Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration. We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory

requirements. However, based on periodic examinations by regulators, the amount of the allowance for credit losses recorded during a particular period may be adjusted.

Our determination of the allowance for credit losses - loans is based on: (1) an individual allowance for specifically identified and evaluated loans that management has determined have unique risk characteristics. For these loans, the estimated loss is based on likelihood of default, payment history, and net realizable value of underlying collateral. Allowance for credit losses for collateral dependent loans are based on the fair value of the underlying collateral relative to the amortized cost of the loans. For loans that are not collateral dependent, the allowance for credit losses 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 collective allowance for loans not specifically identified in (1) above. The allowance for these loans is estimated by pooling loans with a similar risk profile and calculating a collective loss rate using the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. This collectively estimated loss is adjusted for qualitative factors.

Assessing the allowance for credit losses - loans is inherently subjective as it requires making material estimates, including the amount, and timing of future cash flows expected to be received on collateral dependent 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.

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 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, 2024, 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, 2023. The Company has monitored events and conditions since December 31, 2023, and has determined that no triggering event has occurred that would require goodwill to be tested for impairment.

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, and net interest margin for the three-month and nine-month periods ended September 30, 2024, and September 30, 2023, respectively.

Net interest income was $11.3 million for the three months ended September 30, 2024, compared to $12.1 million for the three months ended September 30, 2023. Interest income for the three months ended September 30, 2024, decreased from the same period one year ago due to higher net interest-bearing deposit balances and costs. This was partially offset by increases in asset yields due to (1) contractual repricing and higher coupons on new loans; and (2) principal reductions in low-yielding investments. The net interest margin for the three-month period ended September 30, 2024, decreased to 2.63%, compared to 2.79%, for the three-month period ended September 30, 2023. The lower net interest margin was due to higher deposit costs attributable to higher market interest rates and customers moving from lower cost savings and money market accounts to higher yielding certificate accounts; and the impact of higher short-term interest rates which increased FHLB advance and other borrowing costs. This was partially offset by increases in loan yields due to contractual repricing and rates on new loans exceeding the portfolio as a whole.

Net interest income was $34.8 million for the nine months ended September 30, 2024, compared to $36.6 million for the nine months ended September 30, 2023. Net interest income for the nine months ended September 30, 2024, decreased from the same period one year ago, due to higher interest-bearing balances and costs, which increased 72 basis points. This was partially

offset by: (1) positive loan volume variance due to growth in loans outstanding; (2) increases in loan and investment yields due to: (a) contractual repricing and higher coupons on new loans; (b) principal reductions in low-yielding investments; and (c) one-time income in the first and second quarters of $0.4 million recognized on nonaccrual payoffs and $0.4 million recognized from curing technical defaults on performing loans.

The net interest margin for the nine-month period ended September 30, 2024, was 2.71%, compared to 2.85%, for the nine-month period ended September 30, 2023. The decreased net interest margin was due to: (1) higher liability costs due to higher market interest rates; (2) customers moving balances from lower cost savings and money market accounts to higher yielding certificate accounts, increasing deposit costs; and (3) the impact of higher short-term interest rates which increased FHLB advance and other borrowing costs. This was partially offset by: (1) increases in loan yields due to contractual repricing; (2) rates on new loans exceeding the portfolio as a whole; and (3) a six-basis point increase in yield due to income recognized on nonaccrual loan payoffs and curing technical defaults on performing loans in the first and second quarter; and 4) principal reductions in low-yielding investments

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-month periods ended September 30, 2024, and September 30, 2023. 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, 2024, compared to the three months ended September 30, 2023:


	Three months ended September 30, 2024						Three months ended September 30, 2023
	Average Balance		Interest Income/ Expense		Average Yield/ Rate		Average Balance		Interest Income/ Expense		Average Yield/ Rate
Average interest earning assets:
Cash and cash equivalents	$	25,187	$	360	5.69	%	$	21,298	$	302	5.63	%
Loans	1,429,928		20,115		5.60	%	1,435,284		19,083		5.27	%

Investment securities	236,960		1,966		3.30	%	252,226		2,119		3.33	%
Other investments	12,553		71		2.25	%	15,511		268		6.85	%
Total interest earning assets	$	1,704,628	$	22,512	5.25	%	$	1,724,319	$	21,772	5.01	%
Average interest-bearing liabilities:
Savings accounts	$	170,777	$	450	1.05	%	$	199,279	$	328	0.65	%
Demand deposits	357,201		2,152		2.40	%	354,073		1,863		2.09	%
Money market	381,369		3,126		3.26	%	298,098		1,889		2.51	%
CD’s	379,722		4,437		4.65	%	358,238		3,308		3.66	%

Total deposits	$	1,289,069	$	10,165	3.14	%	$	1,209,688	$	7,388	2.42	%
FHLB Advances and other borrowings	80,338		1,062		5.26	%	182,967		2,263		4.91	%
Total interest-bearing liabilities	$	1,369,407	$	11,227	3.26	%	$	1,392,655	$	9,651	2.75	%
Net interest income			$	11,285					$	12,121
Interest rate spread					1.99	%					2.26	%
Net interest margin					2.63	%					2.79	%
Average interest earning assets to average interest-bearing liabilities					1.24						1.24

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Nine months ended September 30, 2024, compared to the nine months ended September 30, 2023:


	Nine months ended September 30, 2024						Nine months ended September 30, 2023
	Average Balance		Interest Income/ Expense		Average Yield/ Rate		Average Balance		Interest Income/ Expense		Average Yield/ Rate
Average interest earning assets:
Cash and cash equivalents	$	19,073	$	823	5.76	%	$	19,066	$	768	5.39	%
Loans receivable	1,441,972		60,204		5.58	%	1,420,423		54,169		5.10	%
Interest bearing deposits	—		—		—	%	84		1		1.59	%
Investment securities	240,054		6,038		3.36	%	261,507		6,505		3.33	%
Other investments	12,983		589		6.06	%	16,447		779		6.33	%
Total interest earning assets	$	1,714,082	$	67,654	5.27	%	$	1,717,527	$	62,222	4.84	%
Average interest bearing liabilities:
Savings accounts	$	173,946	$	1,300	1.00	%	$	208,446	$	1103	0.71	%
Demand deposits	355,356		6,192		2.33	%	370,235		5,047		1.82	%
Money market accounts	378,740		9,005		3.18	%	298,957		4,759		2.13	%
CD’s	364,131		12,215		4.48	%	300,279		6,989		3.11	%

Total deposits	$	1,272,173	$	28,712	3.01	%	$	1,177,917	$	17,898	2.03	%
FHLB advances and other borrowings	108,897		4,176		5.12	%	214,034		7,722		4.82	%
Total interest bearing liabilities	$	1,381,070	$	32,888	3.18	%	$	1,391,951	$	25,620	2.46	%
Net interest income			$	34,766					$	36,602
Interest rate spread					2.09	%					2.38	%
Net interest margin					2.71	%					2.85	%
Average interest earning assets to average interest bearing liabilities					1.24						1.23

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 month period ended September 30, 2024, compared to the same period in 2023, average earning assets decreased modestly due to net principal repayments on available for sale (“AFS”) and held-to-maturity (“HTM”) security portfolios and a less than 1% decline in loan balances. Average interest-bearing liabilities saw customer preferences leading to growth in money market and certificate accounts, with the growth in deposits funding a decrease in FHLB advances. For the nine-month period ended September 30, 2024, compared to the same period in 2023, loan volume increases due to organic growth, primarily in late 2023 and early 2024, more than offset a reduction in low-yielding AFS and HTM securities. For the nine-month period ended September 30, 2024, the volume change in interest-bearing liabilities are similar to the three months ended September 30, 2024, explanation .

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

Three months ended September 30, 2024, compared to the three months ended September 30, 2023.


	Increase (decrease) due to
	Volume		Rate		Net
Interest income:
Cash and cash equivalents	$	56	$	2	$	58
Loans	(71)		1,103		1,032

Investment securities	(127)		(26)		(153)
Other investments	(42)		(155)		(197)
Total interest earning assets	(184)		924		740
Interest expense:
Savings accounts	(53)		175		122
Demand deposits	17		272		289
Money market accounts	592		645		1,237
CD’s	207		922		1,129

Total deposits	763		2,014		2,777
FHLB Advances and other borrowings	(1,352)		151		(1,201)
Total interest bearing liabilities	(589)		2,165		1,576
Net interest income	$	405	$	(1,241)	$	(836)

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

Nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.


	Increase (decrease) due to
	Volume		Rate		Net
Interest income:
Cash and cash equivalents	$	—	$	55	$	55
Loans receivable	833		5,202		6,035
Interest bearing deposits	(1)		—		(1)
Investment securities	(539)		72		(467)
Other investments	(158)		(32)		(190)
Total interest earning assets	135		5,297		5,432
Interest expense:
Savings accounts	(207)		404		197
Demand deposits	(210)		1,355		1,145
Money market accounts	1,459		2,787		4,246
CD’s	1,674		3,552		5,226

Total deposits	2,716		8,098		10,814
FHLB advances and other borrowings	(4,018)		472		(3,546)
Total interest bearing liabilities	(1,302)		8,570		7,268
Net interest income	$	1,437	$	(3,273)	$	(1,836)

Provision for Credit Losses. We determine our provision for credit losses (“provision”) based on our desire to provide an adequate Allowance for Credit Losses (“ACL”) - Loans to reflect estimated lifetime losses in our loan portfolio and ACL - Unfunded Commitments to reflect estimated losses on our unfunded commitments to lend. We use a third-party model to collectively evaluate and estimate the ACL on loans and unfunded commitments on a pooled basis. The model pools loans and commitments with similar characteristics and calculates an estimated loss rate for the pool based on identified risk drivers. These risk drivers vary with loan type. Projections about future economic conditions and the effect they could have on future losses are inherent in the model. Loans with uniquely identified circumstances and risks are individually evaluated. Lifetime losses on these loans are estimated based on the loans’ individual characteristics.

The total benefit, i.e., negative provision, for credit losses was $2.725 million for the nine months ended September 30, 2024, compared to a provision for credit losses of $0.175 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, the negative provision was due to decreases in ACL related to: (1) the $0.9 million impact of loan portfolio decreases and credit quality improvements; (2) $0.6 million due to improvements in the Moody’s economic scenario per our third-party provider; (3) reductions in off-balance sheet reserves to fund commitments of $0.9 million; (4) a decrease in the allowance for credit losses on individually evaluated loans of $0.5 million largely in the first quarter; and (5) net loan recoveries. The provision for credit losses for the nine months ended September 30, 2023, was $0.175 million, primarily the result of growth in the loan portfolio, partially offset by the impact of net recoveries of $0.187 million, reductions in reserves on individually evaluated loans and third quarter 2023 loan payoffs.

Continued strong economic conditions in our markets, as evidenced by unemployment rates below the national average in our two largest population centers, have resulted in positive overall economic trends for businesses. The impact of higher

interest rates and the impact of an inverted yield forecast are factors that the third-party model used for economic conditions in computing the ACL level.

Note that in discussing ACL allocations, the entire ACL 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’s three- and nine-month periods 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 ACL. 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 ACL. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future.

Non-interest Income . The following table reflects the various components of non-interest income for the three and nine-month periods ended September 30, 2024 and 2023, respectively.


	Three months ended September 30,						Nine months ended September 30,
	2024		2023		% Change		2024		2023		% Change
Non-interest Income:
Service charges on deposit accounts	$	513	$	491	4.48	%	$	1,474	$	1,464	0.68	%
Interchange income	577		601		(3.99)	%	1,697		1,743		(2.64)	%
Loan servicing income	643		611		5.24	%	1,751		1,679		4.29	%
Gain on sale of loans	752		299		151.51	%	1,998		1,501		33.11	%
Loan fees and service charges	165		140		17.86	%	704		308		128.57	%

Net realized gains on debt securities	—		—		N/M		—		12		N/M
Net (losses) gains on equity securities	(78)		116		N/M		(569)		170		N/M


Bank Owned Life Insurance (BOLI) death benefit	—		—		N/M		184		—		N/M
Other	349		307		13.68	%	859		893		(3.81)	%
Total non-interest income	$	2,921	$	2,565	13.88	%	$	8,098	$	7,770	4.22	%

Gain on sale of loans increased in the three-month period ended September 30, 2024, compared to the three-month period ended September 30, 2023, with the increase approximately 80% attributable to higher gains on SBA loan sales and the remainder due to residential gains on sale of loans. For the nine-month periods ending September 30, 2024, and 2023, gain on sale of loans increased approximately 60% due to higher SBA gains on sale of loans and approximately 40% due to higher residential gains on sale of loans.

Loan fees and services charges are higher for the three-month and nine-month periods ended September 30, 2024, compared to the same periods in 2023, due to forbearance fees and higher late charges .

The decrease in net (losses) gains on equity securities between the three-month period ended September 30, 2024, and the three-month period ended September 30, 2023, is primarily the result of equity mark-to-market losses in the third quarter of 2024, and mark-to-market gains in the third quarter of 2023. The decrease in net (losses) gains on equity securities between the nine-month period ended September 30, 2024, and the nine-month period ended September 30, 2023, is primarily the result of the $0.4 million loss recognized as a result of an exchange of senior debt for preferred equity of a community development financial institution in the second quarter of 2024. See Investment Securities for more details. In addition, there were other equity mark-to-market losses in the second and third quarters of 2024.

In the second quarter of 2024, the Company recognized $0.18 million of life insurance proceeds above the carrying value of the underlying insurance policy on an employee who passed, which is reflected in Bank Owned Life Insurance (BOLI) death benefit.

Non-interest Expense. The following table reflects the various components of non-interest expense for the three and nine-month periods ended September 30, 2024 and 2023, respectively.


	Three months ended September 30,								Nine months ended September 30,
	2024			2023			% Change		2024			2023			% Change
Non-interest Expense:
Compensation and related benefits	$	5,743		$	5,293		8.50	%	$	16,901		$	15,967		5.85	%
Occupancy	1,242			1,335			(6.97)	%	3,942			4,117			(4.25)	%

Data processing	1,665			1,536			8.40	%	4,787			4,440			7.82	%
Amortization of intangible assets	178			179			(0.56)	%	536			576			(6.94)	%
Mortgage servicing rights expense, net	163			150			8.67	%	427			456			(6.36)	%
Advertising, marketing and public relations	225			185			21.62	%	575			472			21.82	%
FDIC premium assessment	201			204			(1.47)	%	606			608			(0.33)	%
Professional services	336			342			(1.75)	%	1,249			1,153			8.33	%
Gains on repossessed assets, net	65			100			(35.00)	%	47			62			(24.19)	%

Other	603			645			(6.51)	%	2,427			2,085			16.40	%
Total non-interest expense	$	10,421		$	9,969		4.53	%	$	31,497		$	29,936		5.21	%

Non-interest expense (annualized) / Average assets	2.29		%	2.15		%	6.51	%	2.31		%	2.18		%	5.96	%

Compensation expense for the three and nine-month periods ended September 30, 2024, increased from the same period in 2023, largely due to annual employee pay raises effective late first quarter of 2024, along with higher incentive compensation in both the three and nine months ended September 30, 2024.

Data processing for the three and nine months ended September 30, 2024, increased from the same 2023 periods, largely due to inflationary pressures and the impact of new software implementation costs to aid in future efficiency efforts.

Mortgage servicing rights expenses, net, increased in the three months ended September 30, 2024 compared to the same period in 2023, primarily due to an impairment of $0.04 million due to higher forecasted future prepayments in a small tranche of higher coupon recent loan production, partially offset by slowing prepayments on the majority of the servicing portfolio, and to a lesser extent, a smaller servicing portfolio. Mortgage servicing rights expenses, net, decreased slightly in the nine-month period ended September 30, 2024, compared to the comparable 2023 period, due to the impact of slowing prepayments, and to a lesser extent, a smaller servicing portfolio, partially offset by the third quarter 2024 impairment.

Advertising expense increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023, due to higher marketing spends to support commercial loan and deposit growth and increased market analytics.

The increase in other non-interest expense for the nine months ended September 30, 2024, from the comparable prior year period is largely due to: 1) the establishment of an SBA valuation reserve of $0.4 million in the first quarter of 2024, and 2) the second quarter 2024 write down of the remaining lease asset of a closed branch of $0.2 million, partially offset by selected one-time expense recoveries of $0.1 million.

Income Taxes. Provision for income taxes decreased to $0.9 million in the third quarter of 2024 from $2.5 million in the third quarter of 2023. Provision for income taxes for the nine-month period ending September 30, 2024, decreased $1.9 million, to $3.0 million, compared to $4.9 million for the nine-month period ended September 30, 2023, as pre-tax income decreased $0.169 million. The decrease in the effective tax rate in 2024 is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023. This change reduces the Company’s 2023 Wisconsin state income tax rate and thus, its overall effective tax rate. The third quarter ended September 30, 2023, reflects three quarters of the related 2023 tax benefit, retroactive to January 1, 2023, as a reduction of income tax expense. This positive impact was more than offset by a one-time tax expense of $1.8 million reflecting the impact of the lower 2023 Wisconsin state tax rate on the future realization of existing net deferred tax assets.

BALANCE SHEET ANALYSIS

Cash and Cash Equivalents. Cash and cash equivalents decreased $0.5 million to $36.6 million at September 30, 2024, compared to $37.1 million at December 31, 2023.

Investment Securities. We manage our securities portfolio to provide liquidity, modify interest rate risk and enhance income. Our investment portfolio is comprised of securities available for sale and securities held to maturity. Securities available for sale decreased $6.3 million during the nine months ended September 30, 2024, to $149.4 million from $155.7 million at December 31, 2023. Along with principal repayments and changes in fair value, there was an exchange of a community development financial institution’s senior debt for a preferred equity security in the company’s operating subsidiary of $2.25 million, resulting in a decrease in AFS securities and an increase in equity securities during the second quarter of 2024. The exchange resulted in the recognition of $0.168 million of unrealized losses on available-for-sale securities, previously included in other comprehensive income, as well as an additional $0.270 million loss, for a total loss of $0.438 million. This total loss of $0.438 million was recognized on the June 30, 2024, consolidated statement of operations as net losses on equity securities.

Securities held to maturity decreased $4.2 million to $87.0 million during the nine-month period ended September 30, 2024, from $91.2 million at December 31, 2023, due to principal repayments.

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, 2024
U.S. government agency obligations	$	14,497	$	14,457

Mortgage-backed securities	89,439		74,020
Corporate debt securities	44,925		41,051
Asset-backed securities	20,021		19,904

Totals	$	168,882	$	149,432
December 31, 2023
U.S. government agency obligations	$	16,655	$	16,576

Mortgage-backed securities	91,091		73,480
Corporate debt securities	47,158		41,174
Asset-backed securities	24,840		24,513

Totals	$	179,744	$	155,743

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, 2024

Obligations of states and political subdivisions	$	500	$	481
Mortgage-backed securities	86,533		70,565
Totals	$	87,033	$	71,046
December 31, 2023
Obligations of states and political subdivisions	$	600	$	565
Mortgage-backed securities	90,629		72,697
Totals	$	91,229	$	73,262

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


	September 30, 2024				December 31, 2023
Available for sale securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	$	96,246	$	80,821	$	98,977	$	81,351
AAA	10,366		10,322		9,695		9,508
AA	17,345		17,239		23,913		23,709
A	5,950		5,571		8,200		7,292
BBB	38,975		35,479		38,959		33,883

Non-rated	—		—		—		—
Total available for sale securities	$	168,882	$	149,432	$	179,744	$	155,743

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


	September 30, 2024				December 31, 2023
Held to maturity securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. government agency	$	86,533	$	70,565	$	90,629	$	72,697
AAA	—		—		—		—
AA	—		—		—		—
A	500		481		600		565



Total	$	87,033	$	71,046	$	91,229	$	73,262

At September 30, 2024, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $34.7 million as collateral to secure a line of credit with the Federal Reserve Bank. As of September 30, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of September 30, 2024, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.4 million and mortgage-backed securities with a carrying value of $1.8 million as collateral against specific municipal deposits. As of September 30, 2024, the Bank also has mortgage-backed securities with a carrying value of $0.1 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2023, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $29.2 million as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2023, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2023, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.5 million and mortgage-backed securities with a carrying value of $1.9 million as collateral against specific municipal deposits. As of December 31, 2023, the Bank also has mortgage-backed securities with a carrying value of $0.2 million and U.S. Government Agencies with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $36.0 million, to $1.42 billion as of September 30, 2024, from $1.46 billion at December 31, 2023. The following table reflects the composition, of our loan portfolio at September 30, 2024, and December 31, 2023:


	September 30, 2024				December 31, 2023
	Amount		Percent		Amount		Percent
Real estate loans:
Commercial/Agricultural real estate
Commercial real estate	$	730,459	51.3	%	$	750,531	51.4	%
Agricultural real estate	76,043		5.3	%	83,350		5.7	%
Multi-family real estate	239,191		16.8	%	228,095		15.6	%
Construction and land development	87,875		6.2	%	110,941		7.6	%
Residential mortgage
Residential mortgage	134,944		9.5	%	129,021		8.8	%
Purchased HELOC loans	2,932		0.2	%	2,880		0.2	%
Total real estate loans	1,271,444		89.3	%	1,304,818		89.3	%
C&I/Agricultural operating and Consumer Installment Loans:
C&I/Agricultural operating
Commercial and industrial (“C&I”)	119,619		8.4	%	121,666		8.3	%
Agricultural operating	27,550		1.9	%	25,691		1.8	%
Consumer installment
Originated indirect paper	4,405		0.3	%	6,535		0.5	%
Other consumer	5,438		0.4	%	6,187		0.4	%
Total C&I/Agricultural operating and Consumer installment Loans	157,012		11.0	%	160,079		11.0	%


Gross loans	$	1,428,456	100.3	%	$	1,464,897	100.3	%
Unearned net deferred fees and costs and loans in process	(2,703)		(0.2)	%	(2,900)		(0.2)	%
Unamortized discount on acquired loans	(925)		(0.1)	%	(1,205)		(0.1)	%
Total loans (net of unearned income and deferred expense)	1,424,828		100.0	%	1,460,792		100.0	%
Allowance for credit losses	(21,000)				(22,908)
Total loans receivable, net	$	1,403,828			$	1,437,884

Commercial real estate (”CRE”) 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. The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at September 30, 2024:


	Non-Owner Occupied CRE			Owner- Occupied CRE			Multi-family CRE			Construction and Development CRE
Loan Balance Outstanding in Millions	$	489		$	241		$	239		$	88
Number of Loans	760			394			131			97
Average Loan Size in Millions	$	0.6		$	0.6		$	1.8		$	0.9
Approximate Weighted Average LTV	53		%	52		%	61		%	67		%
Weighted Average Seasoning in Months	42			39			38			NA
Trailing 12 Month Net Charge-Offs	0.00		%	(0.01)		%	0.00		%	0.00		%
Criticized Loans in Millions	$	8.0		$	1.8		$	8.7		$	0.1
Criticized Loans as a Percent of Total	1.6		%	0.8		%	3.7		%	0.1		%

The table below lists the above CRE portfolio by geographical location:


	Non-Owner Occupied CRE		Owner- Occupied CRE		Multi-family CRE		Construction and Development CRE
Wisconsin	52	%	78	%	62	%	50	%
Minnesota	22	%	18	%	33	%	8	%
Other	26	%	4	%	5	%	42	%

The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at September 30, 2024:


	Campground			Hotel			Restaurant			Office
Loan Balance Outstanding in Millions	$	151		$	91		$	54		$	31
Number of Loans	71			21			74			71
Average Loan Size in Millions	$	2.1		$	4.3		$	0.7		$	0.4
Approximate Weighted Average LTV	50		%	51		%	49		%	60		%
Weighted Average Seasoning in Months	34			47			39			43
Trailing 12 Month Net Charge-Offs	0.00		%	(0.04)		%	0.00		%	0.00		%
Criticized Loans in Millions	$	0.0		$	4.3		$	0.1		$	0.2
Criticized Loans as a Percent of Total	0.0		%	4.8		%	0.1		%	0.6		%

The table below lists our CRE portfolio selected industry components by geographical location:


	Campground		Hotel		Restaurant		Office
Wisconsin	21	%	39	%	53	%	84	%
Minnesota	0	%	40	%	29	%	8	%
Other	79	%	21	%	18	%	8	%

Allowance for Credit Losses - Loans.

The Allowance for Credit Losses - Loans (“ACL”) is a valuation allowance for expected future credit losses in the Company’s loan portfolio as of the balance sheet date. In determining the allowance, the Company estimates credit losses over the loan’s entire contractual term, adjusted for expected prepayments when appropriate. The allowance estimate considers qualitative and quantitative relevant information from internal and external sources relating to historical loss experience; known and inherent risks in our portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; reasonable and supportable forecasts for future conditions; and other relevant factors determined by management. To ensure that the ACL is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance. The entire ACL balance is available for any loan that, in management’s judgment, should be charged off.

The determination of the ACL requires significant judgement to estimate credit losses. The ACL is measured collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that the loan does not share similar risk characteristics with other loans. The ACL on loans collectively evaluated is measured using the loss rate model. The Company categorizes its loan portfolio into four segments based on similar risk characteristics. Loans within each segment are pooled based on individual loan characteristics. Aggregated risk drivers are then calculated at a pool level. Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type. A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. The loss rate is then combined with the loan’s balance and contractual maturity, adjusted for expected prepayments, to determine expected future losses.

Future and supportable economic forecasts are based on national economic conditions and their reversion to the mean is implicit in the model and generally occurs over a period of two years.

Qualitative adjustments are made to the allowance calculated on collectively evaluated loans to incorporate factors not included in the model. Qualitative factors include but are not limited to: lending policies and procedures, the experience and ability of lending and other staff, the volume and severity of problem credits, quality of the loan review system, and other external factors.

Loans that exhibit different risk characteristics from the pool are individually evaluated for credit losses. Loans can be identified for individual evaluation for a variety of reasons including delinquency, nonaccrual status, risk rating and loan modification. Accruing loans that exhibit different risk characteristics from their pool may also be within scope. On these loans, an allowance may be established so that the loan is reported, net, at the lower of: (a) its amortized cost; (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 the loan is collateral dependent. Collateral dependency is determined using the practical expedient when: (1) the borrower is experiencing financial difficulty; and (2) repayment is expected to be provided substantially through the sale or operation of the collateral.

In addition, various regulatory agencies periodically review the ACL. These agencies may require the Company to make additions to the ACL or may require that certain loan balances be charged off or downgraded into classified loan categories when the agencies’ evaluation differs from management’s evaluation based on their judgments of collectability from the information available to them at the time of examination.

The Allowance for Credit Losses - Unfunded Commitments is a liability for expected future credit losses on the Company’s commitments to lend. The Company estimates expected credit losses over the contractual period for which the Company is exposed to credit risk, via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Allowance for Credit Losses - Unfunded Commitments on off-balance sheet exposures is included in other liabilities on the consolidated balance sheet.

Allowance for Credit Losses - Loans Roll Forward

(in thousands, except ratios)



	September 30, 2024 and Three Months Ended			June 30, 2024 and Three Months Ended			December 31, 2023 and Three Months Ended
Allowance for Credit Losses (“ACL”)
ACL - Loans, at beginning of period	$	21,178		$	22,436		$	22,973

Loans charged off:
Commercial/Agricultural real estate	(39)			—			—
C&I/Agricultural operating	—			—			—
Residential mortgage	(4)			—			—
Consumer installment	(11)			(12)			(6)
Total loans charged off	(54)			(12)			(6)
Recoveries of loans previously charged off:
Commercial/Agricultural real estate	5			2			253
C&I/Agricultural operating	10			10			6
Residential mortgage	4			2			2
Consumer installment	5			2			9
Total recoveries of loans previously charged off:	24			16			270
Net loan recoveries/(charge-offs) (“NCOs”)	(30)			4			264
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations	(148)			(1,262)			(329)
ACL - Loans, at end of period	$	21,000		$	21,178		$	22,908





Average outstanding loan balance	$	1,429,928		$	1,439,535		$	1,458,558
Ratios:
NCOs (annualized) to average loans	0.01		%	—		%	(0.07)		%

Allowance for Credit Losses - Loans Activity by Segment

(in thousands, except ratios)


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Total
Three months ended September 30, 2024
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period	$	17,033	$	1,117	$	2,784	$	244	$	21,178

Charge-offs	(39)		—		(4)		(11)		(54)
Recoveries	5		10		4		5		24
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations	(76)		224		(290)		(6)		(148)
ACL - Loans, at end of period	$	16,923	$	1,351	$	2,494	$	232	$	21,000


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Total
Nine months ended September 30, 2024
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period	$	18,784	$	1,105	$	2,744	$	275	$	22,908

Charge-offs	(39)		—		(4)		(28)		(71)
Recoveries	46		35		7		10		98
Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations	(1,868)		211		(253)		(25)		(1,935)
ACL - Loans, at end of period	$	16,923	$	1,351	$	2,494	$	232	$	21,000

The following table present the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the twelve months ended December 31, 2023:


	Commercial/Agricultural Real Estate		C&I/Agricultural operating		Residential Mortgage		Consumer Installment		Unallocated		Total
Twelve months ended December 31, 2023
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period	$	14,085	$	2,318	$	599	$	129	$	808	$	17,939
Cumulative effect of ASU 2016-13 adoption	4,510		(331)		1,119		216		(808)		4,706
Charge-offs	(46)		—		(78)		(36)		—		(160)
Recoveries	489		47		42		33		—		611
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations	(254)		(929)		1,062		(67)		—		(188)
ACL - Loans, at end of period	$	18,784	$	1,105	$	2,744	$	275	$	—	$	22,908

Allowance for Credit Losses - Loans to Percentage

(in thousands, except ratios)


	September 30, 2024			December 31, 2023
Loans, end of period	$	1,424,828		$	1,460,792
ACL - Loans	$	21,000		$	22,908
ACL - Loans to loans, end of period	1.47		%	1.57		%

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.46 million at September 30, 2024, and $1.25 million at December 31, 2023, classified in other liabilities on the consolidated balance sheets.

Allowance for Credit Losses - Unfunded Commitments:

(in thousands)


	September 30, 2024 and Three Months Ended		September 30, 2024 and Nine Months Ended
ACL - Unfunded Commitments - beginning of period	$	712	$	1,250
Cumulative effect of ASU 2016-13 adoption	—		—
Increases to ACL - Unfunded Commitments via provision for credit losses charged to operations	(252)		(790)
ACL - Unfunded Commitments - end of period	$	460	$	460

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.

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 ACL for the periods then ended:


	September 30, 2024 and Nine Months Then Ended (1)			December 31, 2023 and Twelve Months Then Ended (1)
Nonperforming assets:
Nonaccrual loans
Commercial real estate	$	4,778		$	10,359
Agricultural real estate	6,193			391
Construction and land development	106			54
Commercial and industrial	1,956			—
Agricultural operating	901			1,180
Residential mortgage	1,088			1,167
Consumer installment	20			33
Total nonaccrual loans	$	15,042		$	13,184
Accruing loans past due 90 days or more	530			389
Total nonperforming loans (“NPLs”)	15,572			13,573
Other real estate owned	1,567			1,795
Other collateral owned	5			—
Total nonperforming assets (“NPAs”)	$	17,144		$	15,368



Average outstanding loan balance	$	1,441,972		$	1,430,035
Loans, end of period	$	1,424,828		$	1,460,792
Total assets, end of period	$	1,799,137		$	1,851,391
ACL - Loans, at beginning of period	$	22,908		$	17,939
Cumulative effect of ASU 2016-13 adoption	—			4,706
Loans charged off:
Commercial/Agricultural real estate	(39)			(46)
C&I/Agricultural operating	—			—
Residential mortgage	(4)			(78)
Consumer installment	(28)			(36)
Total loans charged off	(71)			(160)
Recoveries of loans previously charged off:
Commercial/Agricultural real estate	46			489
C&I/Agricultural operating	35			47
Residential mortgage	7			42
Consumer installment	10			33
Total recoveries of loans previously charged off:	98			611
Net loan recoveries/(charge-offs) (“NCOs”)	27			451
(Reductions) additions to ACL - loans via provision for credit losses charged to operations	(1,935)			(188)
ACL - Loans, at end of period	$	21,000		$	22,908
Ratios:
ACL-Loans to NCOs (annualized)	N/M			N/M
NCOs (annualized) to average loans	—		%	(0.03)		%
ACL-Loans to total loans	1.47		%	1.57		%
ACL-Loans to nonaccrual loans	139.61		%	173.76		%
Nonaccrual loans to total loans	1.06		%	0.90		%
NPLs to total loans	1.09		%	0.93		%
NPAs to total assets	0.95		%	0.83		%

(1) Loan balances are stated at amortized cost.

Nonaccrual Loans Roll Forward:


	Quarter Ended
	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023
Balance, beginning of period	$	8,352	$	8,413	$	13,184	$	13,456	$	15,663
Additions	7,486		352		961		538		33

Charge offs	—		—		—		—		(53)
Transfers to OREO	(124)		—		—		(23)		—
Return to accrual status	—		—		—		—		(190)

Payments received	(641)		(411)		(5,767)		(781)		(1,994)
Other, net	(31)		(2)		35		(6)		(3)
Balance, end of period	$	15,042	$	8,352	$	8,413	$	13,184	$	13,456

Nonperforming assets were $17.1 million at September 30, 2024, compared to $15.4 million at December 31, 2023. Nonperforming assets increased largely due to one agricultural real estate loan relationship in forestry services that moved from special mention to substandard and was placed on nonaccrual in the third quarter. This increase was offset by nonperforming loan payoffs of $5.4 million during the first quarter of 2024.

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

Below is a summary of loan modifications made to borrowers experiencing financial difficulty during the three months ended September 30, 2024.


	Term Extension
Loan Class	Amortized Cost Basis at September 30, 2024		% of Total Class of Financing Receivables



Residential mortgage	$	5	—	%
Other Consumer	$	1	0.02	%

	Other-Than-Insignificant Payment Delay
Loan Class	Amortized Cost Basis at September 30, 2024		% of Total Class of Financing Receivables
Commercial real estate	$	1,182	0.16	%

The table below shows a summary of criticized loans, split by special mention and substandard for the past five quarters. From September 30, 2023 through June 30, 2024, special mention credit loans decreased in each quarter. In the first and second quarters of 2024, this was due to loan payoffs. Special mention loans increased by $2.2 million to $11.0 million at September 30, 2024, compared to $8.8 million at June 30, 2024. The increase was largely due to one loan of $8.7 million, which is secured by a multi-family unit. The addition of the multi-family unit to special mention was partially offset by the movement of a $7.7 million agricultural real estate loan relationship in forestry services that moved to substandard and was placed on nonaccrual.


	(in thousands)
(Loan balance at unpaid principal balance)	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023
Special mention loan balances	$	11,047	$	8,848	$	13,737	$	18,392	$	20,043
Substandard loan balances	21,202		14,420		14,733		19,596		16,171
Criticized loans, end of period	$	32,249	$	23,268	$	28,470	$	37,988	$	36,214

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 was $5.0 million at September 30, 2024, compared to $5.6 million at December 31, 2023. At September 30, 2024, the MSR valuation allowance was $0.36 million due to higher forecasted future prepayments in a small tranche of higher coupon recent loan production. At December 31, 2023, there was no 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, 2024, and December 31, 2023, were $482.9 million and $495.5 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at September 30, 2024, and December 31, 2023, was 1.04% and 1.13%, respectively.

Deposits. Total deposits increased $1.1 million during the quarter ended September 30, 2024, to $1.52 billion. Consumer deposits increased $22.1 million, including an increase in CDs of $17.9 million. Commercial deposits increased by $20.0 million. Brokered deposits decreased $30.1 million as the company decreased brokered MMDAs by $24.6 million and $5.5 million in brokered CDs matured and were not replaced. Public deposits decreased $10.9 million, largely due to expected seasonal outflows. Deposits by type for five quarters are detailed below:


	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023
Consumer deposits	$	844,808	$	822,665	$	827,290	$	814,899	$	794,970
Commercial deposits	432,361		412,385		414,088		423,762		429,358
Public deposits	176,844		187,698		202,175		182,172		163,734
Brokered deposits	66,654		96,796		83,936		98,259		85,173
Total deposits	$	1,520,667	$	1,519,544	$	1,527,489	$	1,519,092	$	1,473,235

At September 30, 2024, the deposit portfolio composition was 56% consumer, 28% commercial, 12% public, and 4% brokered deposits compared to 54% consumer, 28% commercial, 12% public and 6% brokered deposits at December 31, 2023.


	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023
Non-interest bearing demand deposits	$	256,840	$	255,703	$	248,537	$	265,704	$	275,790
Interest bearing demand deposits	346,971		353,477		361,278		343,276		336,962
Savings accounts	169,096		170,946		177,595		176,548		183,702
Money market accounts	366,067		370,164		387,879		374,055		312,689
Certificate accounts	381,693		369,254		352,200		359,509		364,092
Total deposits	$	1,520,667	$	1,519,544	$	1,527,489	$	1,519,092	$	1,473,235

Uninsured and uncollateralized deposits were $267.1 million, or 18% of total deposits, at September 30, 2024, and $275.8 million, or 18% of total deposits, at December 31, 2023. Uninsured deposits alone, i.e., excluding fully secured government deposits, at September 30, 2024, were $413.6 million, or 27% of total deposits, and $427.5 million, or 28% of total deposits at December 31, 2023.

On-balance sheet liquidity collateralized new borrowing capacity and uncommitted federal funds borrowing availability was $718 million, or 269% of uninsured and uncollateralized deposits at September 30, 2024. At December 31, 2023, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability totaled $673.6 million, or 244% of uninsured and uncollateralized deposits .

Federal Home Loan Bank (FHLB) advances and Other Borrowings. A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at September 30, 2024, and December 31, 2023, is as follows:


	September 30, 2024							December 31, 2023
	Stated Maturity	Amount		Range of Stated Rates				Stated Maturity	Amount		Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4)	2024	$	16,000	1.45	%	4.94	%	2024	$	64,530	0.00	%	5.45	%
	2025	5,000		1.45	%	1.45	%	2025	5,000		1.45	%	1.45	%
	2028	0		0.00	%	0.00	%	2028	10,000		3.82	%	3.82	%







Federal Home Loan Bank advances		$	21,000						$	79,530

Senior Notes (5)	2039	$	12,000	7.25	%	7.75	%	2034	$	18,083	6.75	%	7.75	%

Subordinated Notes (6)	2030	$	15,000	6.00	%	6.00	%	2030	$	15,000	6.00	%	6.00	%
	2032	35,000		4.75	%	4.75	%	2032	35,000		4.75	%	4.75	%

		$	50,000						$	50,000

Unamortized debt issuance costs		(452)							(618)
Total other borrowings		$	61,548						$	67,465

Totals		$	82,548						$	146,995

(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 $1,082.0 million and $1,106.3 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $414.4 million compared to $370.6 million as of December 31, 2023.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $81.0 million and $217.5 million, during the nine months ended September 30, 2024 and the twelve months ended December 31, 2023, respectively.

(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of September 30, 2024 and December 31, 2023 were 3.28% and 4.16%, respectively.

(4) In June 2024, the FHLB called the $10.0 million, 3.82% advance maturing in 2028.

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

(b) A $5.0 million line of credit, maturing August 1, 2025, that remains undrawn upon.

(6) Subordinated notes resulted from the following:

(a) 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.

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 $58.5 million to $21.0 million as of September 30, 2024 , compared to $79.5 million as of December 31, 2023. The decrease is a result of decreased funding needs due to increases in deposits, loan shrinkage and the FHLB’s call of a $10 million advance, with an interest rate of 3.82% in June of 2024. The Company does not have any callable advances at September 30, 2024 . At September 30, 2024 , short-term FHLB advances consisted of $16.0 million maturing in 2024 and other maturities of $5 million. 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, 2024 , is approximately $414.4 million.

At September 30, 2024 , and December 31, 2023, the Bank had the ability to borrow $27.1 million and $22.4 million from the Federal Reserve Bank of Minneapolis. The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $34.7 million and $29.2 million as of September 30, 2024 and December 31, 2023, respectively. There were no related Federal Reserve borrowings outstanding as of September 30, 2024 , or December 31, 2023.

The Bank maintains two unsecured federal funds purchased lines of credit with banking partners which total $70 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, 2024 , or December 31, 2023. Additionally, we have a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.

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

Stockholders’ Equity. Stockholders’ equity was $180.1 million at September 30, 2024, compared to $173.3 million at December 31, 2023. The increase in stockholder’s equity was attributable to net income of $11.0 million for the nine-month period ended September 30, 2024, net unrealized gains of $3.5 million from the AFS securities portfolio reflected in accumulated other comprehensive income from December 31, 2023, partially offset by the annual cash dividend paid in February to common stockholders of $0.32 per share, or $3.3 million.

The Company repurchased 223 thousand shares of the Company’s common stock in the third quarter of 2024 at an average price of $12.91 per share. The Company repurchased 382 thousand shares of the Company’s common stock in the nine-month period ended September 30, 2024, at an average price of $12.32 per share. As of September 30, 2024, approximately 333 thousand shares remain available for repurchase under the July 2024 share repurchase authorization.

Liquidity and Asset / Liability Management. Liquidity management refers to our ability to ensure cash is available in a timely manner to meet loan demand, depositors’ needs, and meet other financial obligations as they become due without undue cost, risk, or disruption to normal operating activities. We manage and monitor our short-term and long-term liquidity positions and needs through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk. A key metric we monitor is our liquidity ratio, calculated as cash and unpledged securities portfolio divided by total assets. At September 30, 2024 , our on-balance sheet liquidity ratio increased by 0.1% to 11.5% from the December 31, 2023, level.

There are no material customers or industry deposit concentrations. A decrease in deposits during January occurred as commercial customers decreased their cash balances to support the needs of their businesses. At September 30, 2024, the deposit portfolio composition was 56% consumer, 28% commercial, 12% public, and 4% brokered deposits compared to 54% consumer, 28% commercial, 12% public and 6% brokered deposits at December 31, 2023.

Our primary sources of funds are deposits, amortization, prepayments and maturities on the investment and loan portfolios and funds provided from operations. We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, and to fund loan commitments. While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Although $365.4 million of our $381.7 million (96%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s.

We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank, and our 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, commercial and industrial loans, and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. Currently, we have approximately $414.4 million available to borrow under this arrangement, supported by loan collateral as of September 30, 2024. We also had borrowing capacity of $27.1 million at the Federal Reserve Bank. The bank maintains $70 million of uncommitted federal funds purchased lines with correspondent banks as part of our contingency funding plan. In addition, the Company has a $5.0 million revolving line of credit which is available as needed for general liquidity purposes. While the Bank does not have formal brokered certificate lines of credit with counter parties at September 30, 2024, we believe that the Bank could access this market, which provides an additional potential source of liquidity, as evidenced by access to this market during the past four quarters. See Note 7, “Federal Home Loan Bank and Other Borrowings” of “Notes to Consolidated Financial Statements” which are included in Part I, Item 1, “Financial Statements and Supplementary Data” of this Form 10-Q, for further detail.

In reviewing the adequacy of our 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, and 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 . In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments, issued to meet customer financial needs. Such financial instruments are recorded in the financial statements when they become payable. 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, 2024, the Company had approximately $147.9 million in unused loan commitments, compared to approximately $210.4 million in unused commitments as of December 31, 2023. In addition, there are $3.1 million of commitments for contributions of capital to an SBIC and an investment company at September 30, 2024. These commitments totaled $3.4 million at December 31, 2023.

Capital Resources. As of September 30, 2024, and December 31, 2023, 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, 2024 (Unaudited)
Total capital (to risk weighted assets)	$	226,597	15.0	%	$	120,814	> =	8.0	%	$	151,018	> =	10.0	%
Tier 1 capital (to risk weighted assets)	208,326		13.8	%	90,611		> =	6.0	%	120,814		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	208,326		13.8	%	67,958		> =	4.5	%	98,162		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	208,326		11.7	%	71,173		> =	4.0	%	88,966		> =	5.0	%
As of December 31, 2023 (Audited)
Total capital (to risk weighted assets)	$	228,092	14.6	%	$	124,883	> =	8.0	%	$	156,104	> =	10.0	%
Tier 1 capital (to risk weighted assets)	208,726		13.4	%	93,662		> =	6.0	%	124,883		> =	8.0	%
Common equity tier 1 capital (to risk weighted assets)	208,726		13.4	%	70,247		> =	4.5	%	101,468		> =	6.5	%
Tier 1 leverage ratio (to adjusted total assets)	208,726		11.5	%	72,479		> =	4.0	%	90,599		> =	5.0	%

At September 30, 2024, and December 31, 2023, 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, 2024 (Unaudited)
Total capital (to risk weighted assets)	$	231,825	15.3	%	$	120,972	> =	8.0	%
Tier 1 capital (to risk weighted assets)	163,554		10.8	%	90,729		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	163,554		10.8	%	68,047		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	163,554		9.2	%	71,173		> =	4.0	%
As of December 31, 2023 (Audited)
Total capital (to risk weighted assets)	$	230,160	14.7	%	$	124,883	> =	8.0	%
Tier 1 capital (to risk weighted assets)	160,794		10.3	%	93,662		> =	6.0	%
Common equity tier 1 capital (to risk weighted assets)	160,794		10.3	%	70,247		> =	4.5	%
Tier 1 leverage ratio (to adjusted total assets)	160,794		8.9	%	72,479		> =	4.0	%

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 for liquidity management and 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.

The following table sets forth, at September 30, 2024 and December 31, 2023, 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).


	Percent Change in Economic Value of Equity (EVE)
Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1)	At September 30, 2024		At December 31, 2023

+300 bp	0	%	0	%
+200 bp	0	%	0	%
+100 bp	0	%	0	%
-100 bp	0	%	0	%
-200 bp	(2)	%	(2)	%

(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, 2024, and December 31, 2023.


	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, 2024		At December 31, 2023

+300 bp	(11)	%	(13)	%
+200 bp	(7)	%	(8)	%
+100 bp	(4)	%	(4)	%
-100 bp	3	%	4	%
-200 bp	5	%	7	%

(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 projected changes in net interest income in the rate shock scenarios are largely due to the impact of growth in short-term certificates of deposits, which reprice faster and at a higher rate than other deposit products. 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, 2024, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the

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, 2024, 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.

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 2023 10-K and the information under “Forward-Looking Statements” in this Form 10-Q and in our 2023 10-K.

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

(a) Not applicable.

(b) Not applicable.

On July 23, 2021, the Board of Directors adopted a share repurchase program, pursuant to which Citizens Community Bancorp, Inc. is authorized to repurchase 532,962 shares of its common stock, or approximately 5% of the outstanding shares on that date. During the quarter ended September 30, 2024, the remaining 43,159 shares were repurchased under this 2021 share repurchase program. On July 25, 2024, the Board of Directors authorized an additional stock repurchase program of 5% or 512,709 shares. During the quarter ended September 30, 2024, 180,046 shares were repurchased under this program. As of September 30, 2024, an additional 332,663 shares remain available for repurchase under the 2024 share repurchase program.


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, 2024 - July 31, 2024	—	$	—	—	555,868
August 1, 2024 - August 31, 2024	207,205	$	12.89	207,205	348,663
September 1, 2024 - September 30, 2024	16,000	$	13.25	16,000	332,663
Total	223,205	$	12.91	223,205

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the three months ended September 30, 2024, none of our Section 16 officers or directors adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as defined in Item 408 of Regulation S-K during the covered period.

Item 6. EXHIBITS

(a) Exhibits


10.1						Business Note, dated August 1, 2024, 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, 2024, 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.

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 5, 2024

By:

/s/ Stephen M. Bianchi

Stephen M. Bianchi

Chief Executive Officer

Date: November 5, 2024

By:

/s/ James S. Broucek

James S. Broucek

Chief Financial Officer

TABLE OF CONTENTS

Part 1 Financial Information Item 1. Financial Statements Note 1 Nature Of Business and Summary Of Significant Accounting Policies Note 2 Investment Securities Note 3 Loans and Allowance For Credit Losses Note 4 Mortgage Servicing Rights Note 5 Leases Note 6 Deposits Note 7 Federal Home Loan Bank Advances and Other Borrowings Note 8 - Capital Matters Note 9 Stock-based and Other Compensation Note 10 Fair Value Accounting Note 11 Earnings Per Share Note 12 Other Comprehensive Income (loss)Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

10.1 Business Note, dated August 1, 2024, issued by Citizens Community Bancorp, Inc. to Chippewa Valley Bank (filed herewith) 31.1 Rule 13a-14(a) Certification of the Companys Chief Executive Officer 31.2 Rule 13a-14(a) Certification of the Companys Chief Financial Officer 32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

CZWI 10-Q Quarter ended Sept. 30, 2024

Exhibits