What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-07 · 490 added, 534 removed, 988 unchanged (51% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

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

March 31, 2023 (unaudited) and December 31, 2022

(derived from audited financial statements)

(in thousands, except share and per share data)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 65,050 $ 35,363

5 unchanged sentences

Loans receivable 1,420,955 1,411,784

Allowance for loan losses ( 17,217 ) ( 16,913 )

Allowance for credit losses ( 22,679 ) ( 17,939 )

Loans receivable, net 1,398,276 1,393,845

20 unchanged sentences

Retained earnings 61,720 65,400

Accumulated other comprehensive (loss) income ( 17,257 ) 161

Accumulated other comprehensive loss ( 16,591 ) ( 17,656 )

Total stockholders’ equity 164,561 167,088

3 unchanged sentences

Consolidated Statements of Operations (unaudited)

Three and Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

(in thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

March 31, 2023 March 31, 2022

Interest and dividend income:

7 unchanged sentences

Total interest expense 6,878 2,209

Net interest income before provision for loan losses 14,457 13,688 41,891 39,285

Provision for loan losses 375 — 775 —

Net interest income after provision for loan losses 14,082 13,688 41,116 39,285

Net interest income before provision for credit losses 12,795 13,167

Provision for credit losses 50 —

Net interest income after provision for credit losses 12,745 13,167

Non-interest income:

4 unchanged sentences

Loan fees and service charges 80 92

Net gains (losses) on investment securities ( 55 ) 73 ( 167 ) 344

Net gains on investment securities 56 ( 37 )

Other 253 198

13 unchanged sentences

Total non-interest expense 10,121 9,668

Income before provision for income tax 5,277 6,816 17,266 20,693

Income before provision for income taxes 4,916 6,212

Provision for income taxes 1,254 1,506

6 unchanged sentences

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Comprehensive (Loss) Income (unaudited)

Three and Nine months ended September 30, 2022 and 2021

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Three months ended March 31, 2023 and 2022

(in thousands)

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

March 31, 2023 March 31, 2022

Net income attributable to common stockholders $ 3,662 $ 4,706

Other comprehensive (loss) income, net of tax:

Other comprehensive gain (loss), net of tax:

Securities available for sale

Net unrealized (losses) gains arising during period, net of tax ( 4,980 ) ( 797 ) ( 17,418 ) ( 201 )

Reclassification adjustment for net gains included in net income, net of tax — ( 31 ) — ( 57 )

Other comprehensive (loss) income, net of tax ( 4,980 ) ( 828 ) ( 17,418 ) ( 258 )

Comprehensive (loss) income $ ( 987 ) $ 4,169 $ ( 4,353 ) $ 14,951

Net unrealized gains (losses) arising during period, net of tax 1,065 ( 7,123 )

Other comprehensive gain (loss), net of tax 1,065 ( 7,123 )

Comprehensive income (loss) $ 4,727 $ ( 2,417 )

See accompanying condensed notes to unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(in thousands, except shares and per share data)

3 unchanged sentences

Net income — — — 3,662 — 3,662

Other comprehensive loss, net of tax — — — — ( 7,123 ) ( 7,123 )

Other comprehensive income, net of tax — — — — 1,065 1,065

Forfeiture of unvested shares ( 1,168 ) — — — — —

Surrender of restricted shares of common stock ( 10,287 ) — ( 129 ) — — ( 129 )

1 unchanged sentence

Restricted common stock issued upon achievement of the 2020 performance criteria 18,551 — — — — —

Common stock options exercised 2,500 — 20 — — 20

Common stock repurchased ( 18,462 ) — ( 211 ) ( 77 ) — ( 288 )

Stock option expense — — 1 — — 1

Amortization of restricted stock — — 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)

1 unchanged sentence

Balance at March 31, 2023 10,482,821 $ 105 $ 119,327 $ 61,720 $ ( 16,591 ) $ 164,561

Net income — — — 4,366 — 4,366

Other comprehensive loss, net of tax — — — — ( 5,315 ) ( 5,315 )

Forfeiture of unvested shares ( 866 ) — — — — —

Restricted common stock awarded under the equity incentive plan 4,500 — — — — —

Stock option expense — — 1 — — 1

Amortization of restricted stock — — 197 — — 197

Balance at June 30, 2022 10,530,415 105 119,987 56,928 ( 12,277 ) 164,743

Net income — — — 3,993 — 3,993

Other comprehensive loss, net of tax — — — — ( 4,980 ) ( 4,980 )

Forfeiture of unvested shares ( 1,260 ) — — — — —

Surrender of restricted shares of common stock ( 120 ) — ( 2 ) — — ( 2 )

Restricted common stock awarded under the equity incentive plan 2,136 — — — — —

Common stock repurchased ( 52,961 ) — ( 603 ) ( 88 ) — ( 691 )

Stock option expense — — 1 — — 1

Amortization of restricted stock — — 255 — — 255

Balance, September 30, 2022 10,478,210 $ 105 $ 119,638 $ 60,833 $ ( 17,257 ) $ 163,319

See accompanying condensed notes to unaudited consolidated financial statements.

8 unchanged sentences

Other comprehensive loss, net of tax — — — — ( 7,123 ) ( 7,123 )

Forfeiture of unvested shares ( 1,500 ) — — — — —

Surrender of restricted shares of common stock ( 10,119 ) — ( 141 ) — — ( 141 )

Restricted common stock awarded under the equity incentive plan 38,586 — — — — —

Restricted stock issued upon achievement of the 2019 performance criteria 11,834 — — — — —

Common stock options exercised 2,500 — 20 — — 20

Common stock repurchased ( 18,462 ) — ( 211 ) ( 77 ) — ( 288 )

5 unchanged sentences

Net income — — — 4,366 — 4,366

Other comprehensive income, net of tax — — — — 1,056 1,056

Surrender of restricted shares of common stock ( 1,149 ) — ( 15 ) — — ( 15 )

Common stock options exercised 2,000 — 17 — — 17

Common stock repurchased ( 198,648 ) ( 2 ) ( 2,260 ) ( 372 ) — ( 2,634 )

Other comprehensive loss, net of tax — — — — ( 5,315 ) ( 5,315 )

Forfeiture of unvested shares ( 866 ) — — — — —

Common stock awarded under the equity incentive plan 4,500 — — — — —

Stock option expense — — 1 — — 1

3 unchanged sentences

Other comprehensive loss, net of tax — — — — ( 4,980 ) ( 4,980 )

Forfeiture of unvested shares ( 1,260 ) — — — — —

Surrender of restricted shares of common stock ( 120 ) — ( 2 ) — — ( 2 )

Common stock options exercised 3,800 — 35 — — 35

Restricted common stock awarded under the equity incentive plan 2,136 — — — — —

Common stock repurchased ( 52,961 ) — ( 603 ) ( 88 ) — ( 691 )

4 unchanged sentences

Other comprehensive loss, net of tax — — — — ( 399 ) ( 399 )

Forfeiture of unvested shares ( 500 ) — — — — —

Surrender of restricted shares of common stock ( 491 ) — ( 7 ) — — ( 7 )

Common stock options exercised 5,400 — 51 — — 51

Common stock repurchased ( 57,500 ) ( 1 ) ( 655 ) ( 129 ) — ( 785 )

Stock option expense — — 1 — — 1

Amortization of restricted stock — — 213 — — 213

3 unchanged sentences

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

(in thousands)

Nine Months Ended

September 30, 2022 September 30, 2021

Three Months Ended

March 31, 2023 March 31, 2022

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Premium amortization, net of discount accretion on investment securities 59 59

Investment securities net (discount accretion) premium amortization ( 30 ) 33

Depreciation expense 606 573

Provision for loan losses 775 —

Net realized loss (gain) on equity securities 167 ( 266 )

Net realized gain on debt securities — ( 78 )

Provision for credit losses 50 —

Net realized (gain) loss on equity securities ( 56 ) 37

Increase in mortgage servicing rights resulting from transfers of financial assets ( 16 ) ( 126 )

3 unchanged sentences

Net stock based compensation expense — 1

Loss on sale of office properties and equipment 271 22

Decrease in deferred income taxes 457 911

2 unchanged sentences

Gain on sale of loans held for sale, net ( 298 ) ( 722 )

New market tax credit depletion 488 —

New market tax credit depletion expense — 163

Net change in:

5 unchanged sentences

Cash flows from investing activities:

Net decrease in other interest bearing deposits 1,143 2,240

Purchase of available for sale securities ( 11,007 ) ( 1,750 )

Proceeds from principal payments of available for sale securities 5,077 7,076

Proceeds from sales of available for sale securities — 9,118

Purchase of held to maturity securities — ( 35,342 )

3 unchanged sentences

Proceeds from sales of foreclosed and repossessed assets 212 28

Net increase in loans ( 65,476 ) ( 11,374 )

Net (increase) decrease in loans ( 9,082 ) 20,704

Net capital expenditures ( 313 ) ( 797 )

5 unchanged sentences

Amortization of fair value adjustments for acquired Federal Home Loan Bank advances — 3

Federal Home Loan Bank advance call payments ( 55,000 ) —

Federal Home Loan Bank advance termination payments — ( 15,015 )

4 unchanged sentences

Net increase in deposits 12,073 40,688

Common stock restricted shares 1 —

Repurchase shares of common stock — ( 288 )

3 unchanged sentences

Net cash provided by financing activities 43,796 40,161

Net decrease in cash and cash equivalents ( 18,280 ) ( 17,099 )

Net increase in cash and cash equivalents 29,687 36,673

Cash and cash equivalents at beginning of period 35,363 47,691

7 unchanged sentences

Transfers from loans receivable to other real estate owned ("OREO") $ 25 $ —

Transfers from office properties and equipment to foreclosed and repossessed assets $ 130 $ 79

See accompanying condensed notes to unaudited consolidated financial statements.

14 unchanged sentences

Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

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

In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the March 31, 2023, balance sheet date and through the date the financial statements were available to be issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

The accompanying consolidated interim financial statements are unaudited.

6 unchanged sentences

These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future.

Estimates are used in accounting for, among other items, fair value of financial instruments, the allowance for loan losses, mortgage servicing rights, foreclosed and repossessed assets, valuation of intangible assets arising from acquisitions, useful lives for depreciation and amortization, valuation of goodwill and long-lived assets, stock based compensation, deferred tax assets, uncertain income tax positions and contingencies.

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.

1 unchanged sentence

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, 2022, filed with the SEC on March 7, 2023;

the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended March 31, 2022 and June 30, 2022, filed with the SEC on May 4, 2022 and August 4, 2022, respectively;

the matters described in “Risk Factors” in Item 1A of this Form 10-Q;

6 unchanged sentences

Held to maturity securities are stated at amortized cost.

Investment securities not classified as held to maturity are classified as available

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.

Unrealized losses deemed other-than-temporary due to credit issues are reported in the Company’s net income in the period in which the losses arise.

Unrealized losses deemed other-than-temporary due to credit issues are reported in the

Company’s net income in the period in which the losses arise.

Realized gains or losses on sales of available for sale securities are calculated with the specific identification method and are included in the consolidated statements of operations under net gains on investment securities.

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We record the unrealized gains and losses resulting from changes in the fair value of these investments as gains or losses on equity securities in our consolidated statements of operations.

The carrying value of these investments is equal to the capital account balance per each entities' quarterly financial statements.

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.

7 unchanged sentences

Based on management’s quarterly evaluation, no impairment has been recorded on these securities.

Other investments totaling $ 15,907 at September 30, 2022 consisted of $ 8,011 of FHLB stock, $ 5,667 of Federal Reserve Bank stock and $ 2,229 of Bankers’ Bank stock.

Other investments totaling $ 17,428 at March 31, 2023 consisted of $ 9,240 of FHLB stock, $ 5,680 of Federal Reserve Bank stock and $ 2,508 of Bankers’ Bank stock.

Other investments totaling $ 15,834 at December 31, 2022 consisted of $ 7,652 of FHLB stock and $ 5,674 of Federal Reserve Bank stock and $ 2,508 of Bankers’ Bank stock.

Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of:

deferred loan fees and costs, accretable yield on acquired loans and non-accretable discount on purchased credit impaired (PCI) loans.

Interest income is accrued on the unpaid principal balance of these loans.

deferred loan fees and costs, accretable yield on acquired loans and noncredit 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.

11 unchanged sentences

Loans are returned to accrual status when payments are made that bring the loan account current with the contractual term of the loan and a six month payment history has been established.

Interest on accruing troubled debt restructured (“TDR”) loans, less than 90 days delinquent, is recognized as income as it accrues, based on the revised terms of the loan over an established period of continued payment.

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

1 unchanged sentence

Commercial/agricultural real estate, commercial and industrial and agricultural operating loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 90 days or more.

Allowance for Loan Losses – The allowance for loan losses (“ALL”) is a valuation allowance for probable and inherent credit losses in our loan portfolio.

Loan losses are charged against the ALL when management believes that the collectability of a loan balance is unlikely.

Subsequent recoveries, if any, are credited to the ALL.

Management estimates the required ALL balance taking into account the following factors:

past loan loss experience;

the nature, volume and composition of our loan portfolio;

Allowance for Credit Losses – Loans The allowance for credit losses (“ACL”) 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;

2 unchanged sentences

current economic conditions;

reasonable and supportable forecasts for future conditions;

and other relevant factors determined by management.

The ALL consists of specific and general components.

The specific component relates to loans that are individually classified as impaired.

The general component covers non-impaired loans and is based on historical loss experience adjusted for certain qualitative factors.

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

A loan is impaired when full payment under the loan terms is not expected.

Impaired loans consist of all TDRs, as well as individual loans not considered a TDR, that are either (1) rated substandard or worse, (2) on nonaccrual status or (3) PCI loans which are impaired at the time of acquisition.

Substandard loans, as defined by the OCC, our primary banking regulator, are loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

All TDRs are individually evaluated for impairment.

See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for more information on what we consider to be a TDR.

For TDR’s or substandard loans deemed to be impaired, a specific ALL allocation may be established so that the loan is reported, net, at the lower of (a) its outstanding principal balance;

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.

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.

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 impairment.

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 repayment is expected solely from the underlying collateral of the loan.

For TDRs less than 90+ days past due, and certain substandard loans that are less than 90+ days delinquent, the likelihood of the loan migrating to over 90 days past due is also taken into account when determining the specific ALL allocation for these particular loans.

Large groups of smaller balance homogeneous loans, such as non-TDR commercial, consumer and residential real estate loans, are collectively evaluated for ALL purposes, and accordingly, are not separately identified for ALL disclosures.

Acquired Loans— Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value with no carryover of related allowance for loan losses.

Any allowance for loan loss on these pools reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that no longer are expected to be received).

Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

Management considers a number of factors in evaluating the acquisition-date fair value including:

the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

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

of the expected cash flows on such loans and if we expect to fully collect the new carrying value of the loans.

As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable yield.

Loans acquired with deteriorated credit quality are accounted for in accordance with Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30) if, at acquisition, the loans have evidence of credit quality deterioration since origination and it is probable that all contractually required payments will not be collected.

At acquisition, the Company considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality.

These factors include, but are not limited to:

loans 90 days or more past due, loans with an internal risk grade of substandard or below, loans classified as non-accrual by the acquired institution, and loans that have been previously modified in a troubled debt restructuring.

Under the ASC 310-30 model, the excess of cash flows expected to be collected at acquisition over recorded fair value is referred to as the accretable yield and is the interest component of expected cash flow.

The accretable discount is recognized into income over the remaining life of the loan if the timing and/or amount of cash flows expected to be collected can be reasonably estimated (the accretion method).

If the timing or amount of cash flows expected to be collected cannot be reasonably estimated, the cost recovery method of income recognition is used.

The difference between the loan’s total scheduled principal and interest payments over all cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the non-accretable difference.

The non-accretable difference represents contractually required principal and interest payments which the Company does not expect to collect.

Over the life of the loan, management continues to estimate cash flows expected to be collected.

Decreases in expected cash flows are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses.

Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized subsequent to acquisition, if any, and next, an increase in the amount of accretable discount to be subsequently recognized in interest income on a prospective basis over the loan’s remaining life.

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

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

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.

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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 fee income, is recorded for fees earned for servicing loans.

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;

4 unchanged sentences

A reporting unit is defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management.

The Company has one reporting unit as of September 30, 2022, which is related to its banking activities.

The Company has one reporting unit as of March 31, 2023, 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.

4 unchanged sentences

The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as of December 31, 2022.

The Company has monitored

events and conditions since December 31, 2022, 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.

6 unchanged sentences

As such, the Company is not the primary beneficiary of the VIE and the LLC has not been consolidated.

The investment is accounted for using the equity method of accounting and is amortized through non-interest expense as the related tax credits are utilized.

The utilization of the tax credit is recognized as a reduction in income tax expense.

As of September 30, 2022, the carrying amount of this investment, which is included in other assets in the consolidated balance sheets, was $ 3,528 .

With the adoption of ASU 2023-02 on January 1, 2023 discussed in Recent Accounting Pronouncements - Adopted below, the investment is 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 March 31, 2022, the carrying amount of this investment, which is included in other assets in the consolidated balance sheets, was $ 3,334 .

Prior to the adoption of ASU 2023-02, the carrying value of the investment as of December 31, 2022 was $ 3,350 .

The risk of loss with this investment is limited to its carrying value and is tied to its ability to operate in compliance with the rules and regulations necessary for the qualification of the tax credit generated by the investment.

As of September 30, 2022, there were no known instances of noncompliance associated with the investment.

As of March 31, 2023, there were no known instances of noncompliance associated with the investment.

Leases - We determine if an arrangement is a lease at inception.

10 unchanged sentences

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

Debt issuance costs with a Company call option that

originated prior to 2020 and senior note debt issuance costs, are amortized over the contractual term of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations.

Debt issuance costs with a Company call option that originated prior to 2020 and senior note debt issuance costs, are amortized over the contractual term of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations.

Debt issuance costs that originated in 2020 and thereafter, are amortized through the first Company call option date of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations.

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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.

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.

16 unchanged sentences

Reference rate reform has not had, nor does the Company expect it to have, a material effect on the Company’s consolidated balance sheet, operations or cash flows.

Recently Issued, But Not Yet Effective Accounting Pronouncements

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments-- The ASU changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology.

4 unchanged sentences

In November, 2019, the FASB issued ASU 2019-10, which delayed the effective date for ASU 2016-13 for smaller reporting companies, resulting in ASU 2016-13 becoming effective in the first quarter of 2023 for the Company.

Earlier adoption is permitted;

Earlier adoption was permitted;

however, the Company elected not to adopt the ASU early.

The Company has selected a loss estimation methodology, utilizing a third-party model, and is currently finalizing its process for model utilization.

The impact of adoption on the financial condition and results of operations cannot yet be definitively determined due to the sensitivity of the model to various inputs and changing economic forecasts.

The Company anticipates recording the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU is effective, which will be January 1, 2023.

The Company formed a cross-functional team to implement ASU 2016-13.

Key objectives of the team included selecting a loss estimation methodology, establishing processes and controls, data validation, creation of supporting analytics, documentation of policies and procedures, and developing disclosures.

As previously disclosed, the Company is utilizing a third-party model to assist in loss estimation including pooling loans with similar risk characteristics and modeling methodologies.

The Company adopted ASU 2016-13 using the modified retrospective approach effective January 1, 2023.

Results for the periods beginning on and after January 1, 2023 are presented under ASU 2016-13 while prior period amounts are reported in accordance with previously applicable accounting standards.

The company recorded a reduction to retained earnings of $ 4,432 upon the adoption of ASU 2016-13, primarily due to the requirement to estimated credit losses over the life of the loan and the duration of the Company’s portfolio.

The Company also recorded an increase to the ACL of $ 4,706 .

This increase was made up of two components, $ 4,576 for non-purchased credit deteriorated (“PCD”) loans and $ 130 for PCD loans.

An ACL on unfunded commitments of $ 1,537 was also established.

The Company elected not to record an allowance on HTM securities as the portfolio consists almost entirely of agency-backed securities that inherently have minimal nonpayment risk.

The transition adjustment included corresponding increases in deferred tax assets.

The Company adopted ASU 2016-13 using the prospective transition approach for financial assets considered PCD.

These assets were previously classified as purchase credit impaired ("PCI") and accounted for under ASC 310-30 prior to January 1, 2023.

In accordance with the standard, the Company did not reassess whether the PCI assets met the criteria of PCD assets as of the adoption date.

The amortized cost of the PCD assets were adjusted to reflect the addition of $ 130 to the allowance for credit losses.

This adjustment is included in the discussion of the transition adjustment above.

The remaining noncredit discount, based on the adjusted amortized cost, will be accreted into interest income at the effective interest rate over the remaining life of the assets.

The following table illustrates the impact of ASU 2016-13 adoption in thousands

Pre-ASU 2016-13 Adoption

December 31, 2022 Impact of

ASU 2016-13 Adoption As Reported under ASU 2016-13

January 1, 2023

Allowance for credit losses:

Commercial/Agricultural Real Estate $ 14,085 $ 4,510 $ 18,595

C&I/Agricultural operating 2,318 ( 331 ) 1,987

Residential Mortgage 599 1,119 1,718

Consumer Installment 129 216 345

Unallocated 808 ( 808 ) —

Total allowance for credit losses on loans 17,939 4,706 22,645

Allowance for credit losses on unfunded commitments — 1,537 1,537

Total allowance for credit losses $ 17,939 $ 6,243 $ 24,182

ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures - The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model.

1 unchanged sentence

In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

As the Company has not yet adopted the amendments in ASU 2016-13, ASU 2022-02 becomes effective in the first quarter of 2023.

Management is assessing the impact that adoption of this standard will have on the Company’s financial condition and results of operations in conjunction with its assessment of the impact of ASU 2016-13.

The Company expects to adopt the guidance for our fiscal year beginning January 1, 2023.

The company adopted ASU 2022-02 in conjunction with ASU 2016-13 on January 1, 2023 using the prospective approach.

ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method - This ASU expands the use of the proportional amortization method in accounting for tax credit investments to all tax credit investments that meet certain criteria.

The Company has determined that its New Markets Tax Credit investment qualifies for use of the proportional amortization method under this ASU and has elected to early adopt the update as of January 1, 2023 using the modified retrospective approach.

The transition adjustment resulted in an increase to retained earnings of $ 130 .

Amortization of the investment will now be recognized in the period of and proportional to recognition of the related tax credit and included in provision for income taxes in the consolidated statements of operations.

Prior to adoption of this amendment, the amortization was included in other non-interest expense as a separate line item.

The Company chose to adopt ASU 2023-02 because it felt that the proportional amortization method more accurately reflects the economic substance of its tax credit investment.

Proportional amortization better matches the cost of the investment with the benefits received, and including the amortization of the investment in provision for income taxes better reflects the benefit the Company receives from the transaction.

For the three months ended March 31, 2023, adopting ASU 2023-02 increased net income $ 32 .

Recently Issued, But Not Yet Effective Accounting Pronouncements

NOTE 2 – INVESTMENT SECURITIES

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

The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of March 31, 2023 and December 31, 2022, respectively, were as follows:

Available for sale securities Amortized

Losses Estimated

September 30, 2022

March 31, 2023

government agency obligations $ 25,213 $ 153 $ 184 $ 25,182

5 unchanged sentences

government agency obligations $ 18,373 $ 173 $ 233 $ 18,313

Obligations of states and political subdivisions 140 — — 140

Mortgage-backed securities 97,458 — 18,848 78,610

4 unchanged sentences

Losses Estimated

September 30, 2022

March 31, 2023

Obligations of states and political subdivisions $ 600 $ — $ 45 $ 555

5 unchanged sentences

Total held to maturity securities $ 96,379 $ 7 $ 19,607 $ 76,779

At September 30, 2022, the Bank has pledged mortgage-backed securities with a carrying value of $ 5,519 as collateral against a borrowing line of credit with the Federal Reserve Bank.

However, as of September 30, 2022, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of September 30, 2022, the Bank has pledged U.S.

At March 31, 2023, the Bank has pledged mortgage-backed securities with a carrying value of $ 30,396 as collateral against a borrowing line of credit with the Federal Reserve Bank.

However, as of March 31, 2023, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of March 31, 2023, the Bank has pledged U.S.

Government Agency securities with a carrying value of $ 2,224 and mortgage-backed securities with a carrying value of $ 2,116 as collateral against specific municipal deposits.

As of September 30, 2022, the Bank also has mortgage-backed securities with a carrying value of $ 166 pledged as collateral to the Federal Home Loan Bank of Des Moines.

As of March 31, 2023, the Bank also has mortgage-backed securities with a carrying value of $ 122 pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2022, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $ 5,421 as collateral to secure a line of credit with the Federal Reserve Bank.

3 unchanged sentences

As of December 31, 2022, the Bank also has mortgage-backed securities with a carrying value of $ 142 pledged as collateral to the Federal Home Loan Bank of Des Moines.

For the three and nine month periods ended September 30, 2022 there were no sales of available for sale securities.

For the three and nine month periods ended September 30, 2021, gross sales of available for sale securities were $ 7,153 and $ 9,118 , respectively.

Gross gains on the sale of available for sale securities for the three and nine months periods ended September 30, 2021 were $ 56 and $ 92 , respectively.

Gross losses on the sale of losses on the sale of available for sale securities for both the three and nine months ended September 30, 2021 were $ 14 .

The estimated fair value of securities at September 30, 2022 and December 31, 2021, by contractual maturity, is shown below.

For the three month periods ended March 31, 2023 and March 31, 2022, there were no sales of available for sale securities.

The estimated fair value of securities at March 31, 2023 and December 31, 2022, by contractual maturity, is shown below.

Expected maturities will differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Expected maturities may differ from contractual maturities on certain agency and municipal securities due to the call feature.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Available for sale securities Amortized

9 unchanged sentences

Total available for sale securities $ 196,307 $ 173,423 $ 190,344 $ 165,991

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Held to maturity securities Amortized

2 unchanged sentences

Cost Estimated

Due in one year or less $ 100 $ 97 $ — $ —

Due after one year through five years 500 458 450 415

3 unchanged sentences

Total held to maturity securities $ 95,301 $ 77,183 $ 96,379 $ 76,779

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

Securities with unrealized losses at March 31, 2023 and December 31, 2022, 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

3 unchanged sentences

Value Unrealized

September 30, 2022

March 31, 2023

government agency obligations $ 5,015 $ 7 $ 2,923 $ 177 $ 7,938 $ 184

14 unchanged sentences

Value Unrealized

September 30, 2022

March 31, 2023

Obligations of states and political subdivisions $ — $ — $ 555 $ 45 $ 555 $ 45

15 unchanged sentences

Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur.

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

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Portfolio Segments:

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Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields.

SBA PPP loan balances are 100% guaranteed under the Small Business Association’s Paycheck Protection Program and may be forgiven in full, depending on use of funds and eligibility.

These SBA-backed loans helped businesses keep their workforce employed during the COVID-19 crisis.

Eligible borrowers, who qualify for full loan forgiveness during the eight to twenty four week period following loan disbursement, can apply for forgiveness, once all proceeds for which the borrower requested forgiveness has been used.

Borrowers can apply for forgiveness any time up to the maturity date of the loan.

Residential mortgage loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower’s documented income, credit scores, and collateral values.

6 unchanged sentences

This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral.

Credit Quality/Risk Ratings:

Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio.

Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant.

Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience.

The Bank’s loan portfolio ratings are presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies.

The definitions of the various risk rating categories are as follows:

1 through 4 - Pass.

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

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.

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.

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

1 to 5 6 7 8 9 TOTAL

Originated Loans:

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 March 31, 2023 follows:

March 31, 2023

Amortized Cost % of Total

Commercial/Agricultural real estate:

12 unchanged sentences

Other consumer 6,727 0.5 %

Total originated loans before SBA PPP loans 1,191,096 20,174 15,396 — — 1,226,666

SBA PPP loans — — — — — —

Total originated loans $ 1,191,096 $ 20,174 $ 15,396 $ — $ — $ 1,226,666

Acquired Loans:

Total loans receivable $ 1,420,955 100 %

Less Allowance for credit losses ( 22,679 )

Net loans receivable $ 1,398,276

Loans are stated at the unpaid principal balance outstanding at December 31, 2022.

December 31, 2022

Loan Principal Balance % of Total

Commercial/Agricultural real estate:

8 unchanged sentences

Residential mortgage 105,389 7.5 %

Consumer installment:

Other consumer 291 — 3 — — 294

Total acquired loans $ 148,898 $ 4 $ 4,831 $ — $ — $ 153,733

Commercial/Agricultural real estate:

Commercial real estate $ 687,118 $ 6,038 $ 8,532 $ — $ — $ 701,688

Agricultural real estate 77,886 648 3,173 — — 81,707

Multi-family real estate 197,398 274 — — — 197,672

Construction and land development 117,682 — 168 — — 117,850

Commercial/Agricultural non-real estate:

Commercial and industrial 119,732 12,877 2,206 — — 134,815

Agricultural operating 23,606 341 2,086 — — 26,033

Residential mortgage:

Residential mortgage 94,775 — 3,958 — — 98,733

Purchased HELOC loans 3,262 0.2 %

2 unchanged sentences

Other consumer 7,150 0.5 %

Gross loans before SBA PPP Loans 1,339,994 20,178 20,227 — — 1,380,399

SBA PPP loans — — — — — —

Gross Loans $ 1,416,135 100.3 %

1 unchanged sentence

Unamortized discount on acquired loans ( 1,766 ) ( 0.1 ) %

Allowance for loan losses ( 17,217 )

Loans receivable, net $ 1,358,659

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

1 to 5 6 7 8 9 TOTAL

Originated Loans:

Total loans receivable $ 1,411,784 100.0 %

Less Allowance for loan losses ( 17,939 )

Net loans $ 1,393,845

Credit Quality/Risk Ratings:

Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio.

Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant.

Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience.

The Bank’s loan portfolio ratings are presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies.

The definitions of the various risk rating categories are as follows:

1 through 4 - Pass.

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

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.

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.

Below is a summary of the amortized cost of loans summarized by class, credit quality risk rating and year of origination as of March 31, 2023 and gross charge-offs for the three months ended March 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 $ 12,394 $ 138,884 $ 260,942 $ 94,027 $ 74,434 $ 123,651 $ 7,419 $ — $ 711,751

Risk rating 6 — — — 337 — 5,429 — — 5,766

Risk rating 7 — 190 534 4,630 284 1,517 13 — 7,168

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ 12,394 $ 139,074 $ 261,476 $ 98,994 $ 74,718 $ 130,597 $ 7,432 $ — $ 724,685

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Agricultural real estate

Risk rating 1 to 5 $ 10,263 $ 24,209 $ 17,372 $ 8,216 $ 5,793 $ 19,651 $ 1,886 $ — $ 87,390

Risk rating 6 — — — — — 537 — — 537

Risk rating 7 — 405 808 3 102 1,461 — — 2,779

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ 10,263 $ 24,614 $ 18,180 $ 8,219 $ 5,895 $ 21,649 $ 1,886 $ — $ 90,706

Current period gross charge-offs $ — $ — $ — $ 32 $ — $ — $ — $ — $ 32

Multi-family real estate

Risk rating 1 to 5 $ 1,263 $ 41,882 $ 88,727 $ 47,028 $ 8,832 $ 19,954 $ — $ — $ 207,686

Risk rating 6 — — — — — — — — —

Risk rating 7 — — — — — — — — —

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ 1,263 $ 41,882 $ 88,727 $ 47,028 $ 8,832 $ 19,954 $ — $ — $ 207,686

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Construction and land development

C&I/Agricultural operating:

Risk rating 1 to 5 $ 10,551 $ 39,920 $ 49,670 $ 9,022 $ 121 $ 951 $ 3,959 $ — $ 114,194

Risk rating 6 — — — — — — — — —

Risk rating 7 — — — — — 94 — — 94

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ 10,551 $ 39,920 $ 49,670 $ 9,022 $ 121 $ 1,045 $ 3,959 $ — $ 114,288

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Commercial/Agricultural operating:

Commercial and industrial

Risk rating 1 to 5 $ 2,852 $ 34,888 $ 31,344 $ 14,152 $ 8,607 $ 5,567 $ 32,509 $ — $ 129,919

Risk rating 6 — — — — 1 — 20 — 21

Risk rating 7 — — 438 — 1 38 — — 477

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ 2,852 $ 34,888 $ 31,782 $ 14,152 $ 8,609 $ 5,605 $ 32,529 $ — $ 130,417

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Agricultural operating

Risk rating 1 to 5 $ 435 $ 3,471 $ 1,555 $ 990 $ 714 $ 2,685 $ 12,124 $ — $ 21,974

Risk rating 6 — 30 — — — 132 149 — 311

Risk rating 7 — 521 1,185 — 36 141 — — 1,883

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ 435 $ 4,022 $ 2,740 $ 990 $ 750 $ 2,958 $ 12,273 $ — $ 24,168

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 $ 6,982 $ 32,697 $ 9,458 $ 3,065 $ 2,531 $ 38,069 $ 14,087 $ — $ 106,889

Risk rating 6 — — — — — — — — —

Risk rating 7 — — 23 — 14 2,721 57 55 2,870

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ 6,982 $ 32,697 $ 9,481 $ 3,065 $ 2,545 $ 40,790 $ 14,144 $ 55 $ 109,759

Current period gross charge-offs $ — $ — $ — $ — $ — $ 14 $ — $ — $ 14

Purchased HELOC loans

Risk rating 1 to 5 $ — $ — $ — $ — $ — $ — $ 3,206 $ — $ 3,206

Risk rating 6 — — — — — — — — —

Risk rating 7 — — — — — — — — —

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ — $ — $ — $ — $ — $ — $ 3,206 $ — $ 3,206

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Consumer installment:

Originated indirect paper

Other consumer 8,404 — 69 — — 8,473

Total Originated loans before SBA PPP loans 1,092,879 3,045 13,815 — — 1,109,739

SBA PPP loans 8,755 — — — — 8,755

Total originated loans $ 1,101,634 $ 3,045 $ 13,815 $ — $ — $ 1,118,494

Acquired Loans:

Commercial/Agricultural real estate:

Commercial real estate $ 116,839 $ 1,314 $ 1,917 $ — $ — $ 120,070

Agricultural real estate 21,051 — 5,072 — — 26,123

Multi-family real estate 4,299 — — — — 4,299

Construction and land development 735 172 — — — 907

C&I/Agricultural operating:

Commercial and industrial 13,931 5 294 — — 14,230

Agricultural operating 4,936 — 450 — — 5,386

Residential mortgage:

Residential mortgage 25,869 — 1,266 — — 27,135

Consumer installment:

Risk rating 1 to 5 $ — $ — $ — $ — $ — $ 9,277 $ — $ — $ 9,277

Risk rating 6 — — — — — — — — —

Risk rating 7 — — — — — 36 — — 36

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ — $ — $ — $ — $ — $ 9,313 $ — $ — $ 9,313

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Other consumer

Total acquired loans $ 188,058 $ 1,491 $ 9,002 $ — $ — $ 198,551

Risk rating 1 to 5 $ 502 $ 2,229 $ 1,175 $ 884 $ 709 $ 676 $ 536 $ — $ 6,711

Risk rating 6 — — — — — — — — —

Risk rating 7 8 — — — — 6 2 — 16

Risk rating 8 — — — — — — — — —

Risk rating 9 — — — — — — — — —

Total $ 510 $ 2,229 $ 1,175 $ 884 $ 709 $ 682 $ 538 $ — $ 6,727

Current period gross charge-offs $ — $ — $ — $ 10 $ 1 $ — $ — $ — $ 11

Total loans receivable $ 45,250 $ 319,326 $ 463,231 $ 182,354 $ 102,179 $ 232,593 $ 75,967 $ 55 $ 1,420,955

Total current period gross charge-offs $ — $ — $ — $ 42 $ 1 $ 14 $ — $ — $ 57

Below is a summary of the unpaid principal balance of loans summarized by class and credit quality risk rating as of December 31, 2022:

1 to 5 6 7 8 9 TOTAL

Commercial/Agricultural real estate:

12 unchanged sentences

Other consumer 7,132 — 18 — — 7,150

Gross loans before SBA PPP loans 1,280,937 4,536 22,817 — — 1,308,290

SBA PPP loans 8,755 — — — — 8,755

Gross loans $ 1,386,646 $ 12,170 $ 17,319 $ — $ — $ 1,416,135

3 unchanged sentences

Loans receivable, net $ 1,393,845

Allowance for Loan Losses - The ALL represents management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio.

Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change.

There are many factors affecting the ALL;

some are quantitative, while others require qualitative judgment.

The process for determining the ALL (which management believes adequately considers potential factors which result in probable credit losses), includes subjective elements and, therefore, may be susceptible to significant change.

To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods.

Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized.

As an integral part of their examination process, various regulatory agencies also review the Bank’s ALL.

Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of our management based on information available to the regulators at the time of their examinations.

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

Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total

Three months ended September 30, 2022

Allowance for Loan Losses:

Beginning balance, July 1, 2022 $ 12,702 $ 1,910 $ 472 $ 143 $ 826 $ 16,053

Charge-offs — — — ( 9 ) — ( 9 )

Recoveries 35 8 1 27 — 71

Provision 380 7 10 ( 38 ) 217 576

Total allowance on originated loans 13,117 1,925 483 123 1,043 16,691

Purchased credit impaired loans — — — — — —

Other acquired loans:

Beginning balance, July 1, 2022 664 51 48 9 — 772

Charge-offs ( 48 ) — — — — ( 48 )

Recoveries — — 2 1 — 3

Provision 49 ( 2 ) ( 21 ) ( 1 ) ( 226 ) ( 201 )

Total allowance on other acquired loans 665 49 29 9 ( 226 ) 526

Total allowance on acquired loans 665 49 29 9 ( 226 ) 526

Ending balance, September 30, 2022 $ 13,782 $ 1,974 $ 512 $ 132 $ 817 $ 17,217

Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total

Nine months ended September 30, 2022

Allowance for Loan Losses:

Beginning balance, January 1, 2022 $ 12,354 $ 1,959 $ 518 $ 225 $ 774 $ 15,830

Charge-offs ( 157 ) ( 310 ) ( 35 ) ( 32 ) — ( 534 )

Recoveries 41 27 2 48 — 118

Provision 879 249 ( 2 ) ( 118 ) 269 1,277

Total allowance on originated loans 13,117 1,925 483 123 1,043 16,691

Purchased credit impaired loans — — — — — —

Other acquired loans:

Beginning balance, January 1, 2022 856 69 130 28 — 1,083

Charge-offs ( 48 ) — ( 33 ) ( 2 ) — ( 83 )

Recoveries — — 27 1 — 28

Provision ( 143 ) ( 20 ) ( 95 ) ( 18 ) ( 226 ) ( 502 )

Total allowance on other acquired loans 665 49 29 9 ( 226 ) 526

Total allowance on acquired loans 665 49 29 9 ( 226 ) 526

Ending balance, September 30, 2022 $ 13,782 $ 1,974 $ 512 $ 132 $ 817 $ 17,217

Allowance for Loan Losses at September 30, 2022:

Amount of allowance for loan losses arising from loans individually evaluated for impairment $ 699 $ — $ — $ — $ — $ 699

Amount of allowance for loan losses arising from loans collectively evaluated for impairment $ 13,083 $ 1,974 $ 512 $ 132 $ 817 $ 16,518

Loans Receivable as of September 30, 2022:

Ending balance of originated loans $ 982,555 $ 145,197 $ 80,664 $ 18,250 $ — $ 1,226,666

Ending balance of purchased credit-impaired loans 5,785 578 908 — — 7,271

Ending balance of other acquired loans 110,577 15,073 20,518 294 — 146,462

Ending balance of loans $ 1,098,917 $ 160,848 $ 102,090 $ 18,544 $ — $ 1,380,399

Ending balance:

individually evaluated for impairment $ 18,698 $ 4,829 $ 6,290 $ 113 $ — $ 29,930

Ending balance:

collectively evaluated for impairment $ 1,080,219 $ 156,019 $ 95,800 $ 18,431 $ — $ 1,350,469

Allowance for Credit Losses - 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 table presents the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment as of March 31, 2023:

Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total

Three months ended September 30, 2021

Allowance for Loan Losses:

Beginning balance, July 1, 2021 $ 10,890 $ 2,182 $ 771 $ 362 $ 855 $ 15,060

Charge-offs — — — ( 12 ) — ( 12 )

Recoveries 4 10 — 5 — 19

Provision 1,004 ( 218 ) ( 185 ) ( 80 ) ( 83 ) 438

Total allowance on originated loans 11,898 1,974 586 275 772 15,505

Purchased credit impaired loans — — — — — —

Other acquired loans:

Beginning balance, July 1, 2021 1,468 81 231 5 — 1,785

Three months ended March 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 ( 32 ) — ( 14 ) ( 11 ) — ( 57 )

Recoveries 3 15 4 12 — 34

Provision ( 371 ) ( 10 ) ( 106 ) 49 — ( 438 )

Total allowance on other acquired loans 1,097 74 126 30 — 1,327

Total allowance on acquired loans 1,097 74 126 30 — 1,327

Ending balance, September 30, 2021 $ 12,995 $ 2,048 $ 712 $ 305 $ 772 $ 16,832

Additions to ACL - Loans via provision for credit losses charged to operations ( 70 ) ( 154 ) 292 ( 11 ) — 57

ACL - Loans, at end of period $ 18,496 $ 1,848 $ 2,000 $ 335 $ — $ 22,679

Allowance for Credit Losses - Unfunded Commitments:

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $ 1,530 at March 31, 2023 and $ 0 at December 31, 2022, classified in other liabilities on the consolidated balance sheets.

March 31, 2023 and Three Months Ended December 31, 2022 and Three Months Ended

ACL - Unfunded commitments - beginning of period $ — $ —

Cumulative effect of ASU 2016-13 adoption 1,537 —

Reductions to ACL - Unfunded commitments via provision for credit losses charged to operations ( 7 ) —

ACL - Unfunded commitments - End of period $ 1,530 $ —

Provision for credit losses - The provision for credit losses is determined by the Company as the amount to be added 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 provision for credit losses.

March 31, 2023 and Three Months Ended

Provision for credit losses on:

Unfunded commitments ( 7 )

Total provision for credit losses $ 50

Allowance for Loan Losses - Prior to the adoption of ASU 2016-13, the Allowance for Loan Losses (“ALL”) represented management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio.

Estimating the amount of the ALL required the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may have been susceptible to significant change.

There were many factors affecting the ALL;

some were quantitative, while others required qualitative judgment.

The process for determining the ALL (which management believed adequately considered potential factors which resulted in

probable credit losses), included subjective elements and, therefore, may have been susceptible to significant change.

To the extent actual outcomes differed from management estimates, additional provision for loan losses could have been required that could have adversely affected the Company’s earnings or financial position in future periods.

Allocations of the ALL may have been made for specific loans but the entire ALL was available for any loan that, in management’s judgment, should have been charged-off or for which an actual loss was realized.

As an integral part of their examination process, various regulatory agencies also reviewed the Bank’s ALL.

Such agencies may have required that changes in the ALL be recognized when such regulators’ credit evaluations differed from those of our management based on information available to the regulators at the time of their examinations.

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

Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total

Nine months ended September 30, 2021

Three months ended March 31, 2022

Allowance for Loan Losses:

12 unchanged sentences

Total allowance on acquired loans 789 58 62 9 — 918

Ending balance, September 30, 2021 $ 12,995 $ 2,048 $ 712 $ 305 $ 772 $ 16,832

Allowance for Loan Losses at September 30, 2021:

Ending balance, March 31, 2022 $ 13,183 $ 2,162 $ 522 $ 169 $ 782 $ 16,818

Allowance for Loan Losses at March 31, 2022:

Amount of allowance for loan losses arising from loans individually evaluated for impairment $ 1,280 $ 373 $ 69 $ — $ — $ 1,722

Amount of allowance for loan losses arising from loans collectively evaluated for impairment $ 11,903 $ 1,789 $ 453 $ 169 $ 782 $ 15,096

Loans Receivable as of September 30, 2021

Loans Receivable as of March 31, 2022

Ending balance of originated loans $ 890,440 $ 134,513 $ 63,362 $ 22,350 $ — $ 1,110,665

19 unchanged sentences

collectively evaluated for impairment $ 1,108,405 $ 161,527 $ 102,653 $ 16,631 $ — $ 1,389,216

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

Commercial/Agricultural Real Estate Loans C&I/Agricultural Operating Residential Mortgage Consumer Installment Totals

September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

Performing loans

Performing TDR loans $ 1,363 $ 4,618 $ 2,505 $ 649 $ 3,014 $ 2,681 $ 9 $ 36 $ 6,891 $ 7,984

Performing loans other 1,088,934 1,021,346 157,487 160,570 97,586 90,591 18,481 24,729 1,362,488 1,297,236

Total performing loans 1,090,297 1,025,964 159,992 161,219 100,600 93,272 18,490 24,765 1,369,379 1,305,220

Nonperforming loans (1)

Nonperforming TDR loans 1,932 3,389 169 554 344 593 — 3 2,445 4,539

Nonperforming loans other 6,688 5,476 687 737 1,146 996 54 77 8,575 7,286

Total nonperforming loans 8,620 8,865 856 1,291 1,490 1,589 54 80 11,020 11,825

Total loans $ 1,098,917 $ 1,034,829 $ 160,848 $ 162,510 $ 102,090 $ 94,861 $ 18,544 $ 24,845 $ 1,380,399 $ 1,317,045

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

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

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

30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing Greater Than 89 Days Past Due and Accruing Total

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 March 31, 2023 and December 31, 2022, respectively, was as follows:

(Loan balances at amortized cost) 30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing Greater Than 89 Days Past Due and Accruing Total

Past Due and Accruing Nonaccrual Loans Total Past Due Accruing and Nonaccrual Loans Current Total

September 30, 2022

March 31, 2023

Commercial/Agricultural real estate:

13 unchanged sentences

Total $ 2,154 $ 162 $ 224 $ 2,540 $ 10,410 $ 12,950 $ 1,408,005 $ 1,420,955

(Loan balances at unpaid principal balance) 30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing Greater Than 89 Days Past Due and Accruing Total

Past Due and Accruing Nonaccrual Loans Total Past Due Accruing and Nonaccrual Loans Current Total

December 31, 2022

6 unchanged sentences

Commercial and industrial — 26 — 26 552 578 135,435 136,013

SBA PPP loans — — — — — — 8,755 8,755

Agricultural operating 826 — — 826 890 1,716 27,090 28,806

6 unchanged sentences

Total $ 10,816 $ 595 $ 246 $ 11,657 $ 11,204 $ 22,861 $ 1,393,274 $ 1,416,135

At September 30, 2022, the Company individually evaluated loans for impairment with a recorded investment of $ 29,714 , consisting of (1) $ 7,271 purchased credit impaired (“PCI”) loans, with a carrying amount of $ 7,055 ;

(2) $ 8,526 TDR loans, net of TDR PCI loans;

and (3) $ 14,133 of substandard non-TDR, non-PCI loans.

The $ 29,714 recorded investment of loans individually evaluated for impairment includes $ 6,891 of performing TDR loans.

At December 31, 2021, the Company individually evaluated loans for impairment with a recorded investment of $ 31,740 , consisting of (1) $ 11,205 PCI loans, with a carrying amount of $ 10,552 ;

(2) $ 9,860 TDR loans, net of TDR PCI loans;

and (3) $ 11,328 of substandard non-TDR, non-PCI loans.

The $ 31,740 recorded investment of loans individually evaluated for impairment includes $ 7,984 of performing TDR loans.

A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis.

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

Three Months Ended Nine Months Ended

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized

September 30, 2022

With No Related Allowance Recorded:

Nonaccrual Loans - The following table presents the Company’s nonaccrual loans at March 31, 2023 with no allowance for credit losses and interest income that would have been recorded under the original terms of such nonaccrual loans:

March 31, 2023 Total Nonaccrual Loans Nonaccrual with no Allowance for Credit Losses Interest Income Not Recorded for Nonaccrual loans

Commercial/Agricultural real estate:

Commercial real estate $ 5,514 $ 636 $ 20

Agricultural real estate 2,496 1,252 69

Multi-family real estate — — —

Construction and land development — — —

C&I/Agricultural operating:

Commercial and industrial 452 15 8

Agricultural operating 794 358 55

Residential mortgage:

Consumer installment 113 113 — 138 1 198 5

Total $ 23,054 $ 23,270 $ — $ 23,219 $ 248 $ 26,151 $ 772

With An Allowance Recorded:

Commercial/Agricultural real estate $ 6,660 $ 6,660 $ 699 $ 6,232 $ 81 $ 5,758 $ 95

C&I/Agricultural operating — — — — — 207 10

Residential mortgage 1,131 825 12

Purchased HELOC loans — — —

Consumer installment:

Originated indirect paper 21 21 1

Other consumer 2 2 —

Total $ 10,410 $ 3,109 $ 165

September 30, 2022 Totals:

Collateral Dependent Loans - A loan is considered to be collateral dependent when, based upon management’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 table presents collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation.

Collateral Type

March 31, 2023 Real Estate Other Assets Total Without an Allowance With an Allowance Allowance Allocation

Commercial/Agricultural real estate:

Commercial real estate $ 7,810 $ — $ 7,810 $ 2,864 $ 4,946 $ 31

Agricultural real estate 2,793 — 2,793 1,551 1,242 418

Multi-family real estate — — — — — —

Construction and land development 94 — 94 94 — —

C&I/Agricultural operating:

Commercial and industrial — 478 478 38 440 220

Agricultural operating — 1,879 1,879 1,444 435 29

Residential mortgage:

Residential mortgage 3,100 — 3,100 2,625 475 97

Purchased HELOC loans — — — — — —

Consumer installment:

Originated indirect paper — 36 36 — 36 —

Other consumer — 16 16 16 — —

Total $ 13,797 $ 2,409 $ 16,206 $ 8,632 $ 7,574 $ 795

There were no outstanding commitments to borrowers experiencing financial difficulty as of March 31, 2023.

There were unused lines of credit totaling $ 71 on loans with borrowers experiencing financial difficulties as of March 31, 2023.

At December 31, 2022, the Company individually evaluated loans for impairment with a recorded investment of $ 26,823 , consisting of (1) $ 7,000 PCI loans, with a carrying amount of $ 6,904 ;

(2) $ 7,018 TDR loans, net of TDR PCI loans;

and (3) $ 12,901 of substandard non-TDR, non-PCI loans.

The $ 26,823 recorded investment of loans individually evaluated for impairment includes $ 5,171 of performing TDR loans.

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

Twelve Months Ended

19 unchanged sentences

Total $ 26,823 $ 26,919 $ 826 $ 31,336 $ 1,418

Three Months Ended Nine Months Ended

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized

September 30, 2021

Three Months Ended

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized

March 31, 2022

With No Related Allowance Recorded:

10 unchanged sentences

Total $ 7,229 $ 7,229 $ 1,722 $ 6,301 $ 22

September 30, 2021

March 31, 2022

Commercial/Agricultural real estate $ 20,321 $ 20,597 $ 1,280 $ 21,911 $ 147

3 unchanged sentences

Total $ 33,741 $ 34,250 $ 1,722 $ 35,386 $ 281

Loan Modifications Made to Borrowers Experiencing Financial Difficulty:

Term Extension

Loan Class Amortized Cost Basis at

March 31, 2023 % of Total Class of Financing Receivables

Commercial real estate $ 5,359 0.74 %

Commercial and industrial $ 25 0.02 %

Residential mortgage $ 38 0.03 %

Other-Than-Insignificant Payment Delay

Loan Class Amortized Cost Basis at

March 31, 2023 % of Total Class of Financing Receivables

Other consumer $ 22 0.33 %

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty:

Term Extension

Loan Class Financial Effect

Commercial real estate A weighted average of 6 months was added to the term of the loans

Commercial and industrial A weighted average of 5 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

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 three months ended March 31, 2023.

No loan modified within the last three months has subsequently defaulted.

Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due

Commercial real estate $ 5,359 $ — $ — $ —

Commercial and industrial 25 — — —

Residential mortgage 38 — — —

Other consumer 22 — — —

Total $ 5,444 $ — $ — $ —

Troubled Debt Restructuring – A TDR includes a loan modification where a borrower is experiencing financial difficulty, and the Bank grants a concession to that borrower that the Bank would not otherwise consider, except for the borrower’s financial difficulties.

3 unchanged sentences

If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status.

There were three delinquent accruing TDR loans greater than 60 days past due, with a recorded investment of $ 250 at September 30, 2022, compared to one such loan with a recorded investment of $ 4 at December 31, 2021.

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

September 30, 2022 December 31, 2021

There was one accruing, delinquent TDR loan greater than 60 days past due, with a recorded investment of $ 15 at December 31, 2022.

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

December 31, 2022

Troubled debt restructure loans:

2 unchanged sentences

Total $ 7,788

There was one loan commitment for $ 38 meeting our TDR criteria as of September 30, 2022 and no loan commitments meeting our TDR criteria as of December 31, 2021.

There were unused lines of credit totaling $ 83 and $ 10 meeting our TDR criteria as of September 30, 2022 and December 31, 2021, respectively.

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

Number of Contracts Maturity Extension Modified Payment Modified Under- writing Other Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserve

Three months ended September 30, 2022

Commercial/Agricultural real estate 2 $ — $ — $ 1,539 $ — $ 1,539 $ 1,539 $ —

C&I/Agricultural operating 2 1,424 — 140 — 1,564 1,564 —

Residential mortgage 3 7 147 — — 154 154 —

Consumer installment — — — — — — — —

Totals 7 $ 1,431 $ 147 $ 1,679 $ — $ 3,257 $ 3,257 $ —

Nine months ended September 30, 2022

Commercial/Agricultural real estate 7 $ 1,241 $ — $ 1,964 $ — $ 3,205 $ 3,205 $ —

C&I/Agricultural operating 5 1,424 — 736 — 2,160 2,160 —

Residential mortgage 9 70 147 507 — 724 724 —

Consumer installment — — — — — — — —

Totals 21 $ 2,735 $ 147 $ 3,207 $ — $ 6,089 $ 6,089 $ —

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

Three months ended September 30, 2021

Commercial/Agricultural real estate — $ — $ — $ — $ — $ — $ — $ —

C&I/Agricultural operating — — — — — — — —

Residential mortgage 4 186 — 188 — 374 374 —

Consumer installment — — — — — — — —

Totals 4 $ 186 $ — $ 188 $ — $ 374 $ 374 $ —

There was one TDR commitment totaling $ 26 meeting our TDR criteria as of December 31, 2022.

There were unused lines of credit totaling $ 484 meeting our TDR criteria as of December 31, 2022.

The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the three months ended March 31, 2022:

Nine months ended September 30, 2021

Three months ended March 31, 2022

Commercial/Agricultural real estate 4 $ 1,241 $ — $ — $ — $ 1,241 $ 1,241 $ —

3 unchanged sentences

Totals 9 $ 1,272 $ — $ 657 $ — $ 1,929 $ 1,929 $ —

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

September 30, 2022 September 30, 2021

Modifications Recorded

Investment Number of

Modifications Recorded

Troubled debt restructurings:

Commercial/Agricultural real estate 14 $ 3,295 23 $ 8,048

C&I/Agricultural operating 8 2,674 8 4,285

Residential mortgage 44 3,358 45 3,308

Consumer installment 2 9 7 48

Total troubled debt restructurings 68 $ 9,336 83 $ 15,689

There were no loans modified in a TDR during the previous twelve months which subsequently defaulted during the three months ended September 30, 2022 or 2021, respectively.

The following table provides the number of loans modified in a TDR during the previous twelve months which subsequently defaulted during the nine months ended September 30, 2022 and September 30, 2021, as well as the recorded investment in these restructured loans as of September 30, 2022 and September 30, 2021:

Nine Months Ended

September 30, 2022 September 30, 2021

Modifications Recorded

Investment Number of

Modifications Recorded

Troubled debt restructurings:

Commercial/Agricultural real estate — $ — — $ —

C&I/Agricultural operating — — — —

Residential mortgage — — 1 19

Consumer installment — — — —

Total troubled debt restructurings — $ — 1 $ 19

All acquired loans were initially recorded at fair value at the acquisition date.

The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:

September 30, 2022 December 31, 2021

Accountable for under ASC 310-30 (Purchased Credit Impaired “PCI” loans)

Outstanding balance $ 7,271 $ 11,205

Carrying amount $ 7,055 $ 10,552

Accountable for under ASC 310-20 (non-PCI loans)

Outstanding balance $ 146,462 $ 187,346

Carrying amount $ 144,602 $ 184,399

Total acquired loans

Outstanding balance $ 153,733 $ 198,551

Carrying amount $ 151,657 $ 194,951

The table below shows scheduled accretion by year for the accretable difference recognized due to fair value purchase accounting on recent whole bank acquisitions.

In addition, the Company has $ 1,207 of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount.

The scheduled accretion on this balance is estimated to be approximately $ 100 per year;

however, large balance payoffs, as seen in 2022, 2021 and 2020, would accelerate this accretion.

Fiscal years ending December 31, Purchase Accounting Accretable Discount

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

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

September 30, 2022 December 31, 2021

Balance at beginning of period $ 653 $ 1,087

Additions to non-accretable difference for acquired purchased credit impaired loans — —

Non-accretable difference realized as interest from payoffs of purchased credit impaired loans ( 130 ) ( 105 )

Transfers from non-accretable difference to accretable discount ( 115 ) ( 329 )

Non-accretable difference used to reduce loan principal balance ( 192 ) —

Balance at end of period $ 216 $ 653

There were no loans modified in a TDR during the previous twelve months which subsequently defaulted during the three months ended March 31, 2022.

NOTE 4 – MORTGAGE SERVICING RIGHTS

Mortgage servicing rights-- Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets.

The unpaid balances of these loans as of September 30, 2022 and December 31, 2021 were $ 531,804 and $ 556,086 , respectively, and consisted of one to four family residential real estate loans.

The unpaid balances of these loans as of March 31, 2023 and December 31, 2022 were $ 513,781 and $ 523,736 , respectively, and consisted of one to four family residential real estate loans.

These loans are serviced primarily for the Federal Home Loan Mortgage Corporation, Federal Home Loan Bank and the Federal National Mortgage Association.

Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $ 6,637 and $ 2,781 at September 30, 2022 and December 31, 2021, respectively.

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

As of and for the Three Months Ended As of and for the Three Months Ended As of and for the Nine Months Ended As of and for the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $ 4,552 and $ 2,649 at March 31, 2023 and December 31, 2022, respectively.

Mortgage servicing rights activity for the three month periods ended March 31, 2023 and March 31, 2022 were as follows:

As of and for the Three Months Ended As of and for the Three Months Ended

March 31, 2023 March 31, 2022

Mortgage servicing rights:

12 unchanged sentences

The current period change in valuation allowance, if applicable, is included in non-interest expense as mortgage servicing rights expense, net on the consolidated statement of operations.

Servicing fees totaled $ 346 and $ 354 for the three months ended September 30, 2022 and September 30, 2021, respectively.

Servicing fees totaled $ 1,049 and $ 1,058 for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Servicing fees totaled $ 317 and $ 351 for the three months ended March 31, 2023 and March 31, 2022, respectively.

Servicing fees are included in loan servicing income on the consolidated statement of operations.

3 unchanged sentences

Central to the valuation model is the discount rate.

Fair value at both September 30, 2022 and September 30, 2021, was determined using discount rates ranging from 9 % to 12 %.

Fair value at both March 31, 2023 and March 31, 2022, was determined using discount rates ranging from 9 % to 12 %.

Other assumptions utilized in the valuation model include, but are not limited to, prepayment speed, servicing costs, delinquencies, costs of advances, foreclosure costs, ancillary income, and income earned on float and escrow.

NOTE 5 – LEASES

We have operating leases for our corporate offices ( 1 ), bank branch offices ( 5 ), and an ATM location ( 1 ).

Our leases have remaining lease terms ranging from approximately 1.08 to 5.75 years, some of which include options to extend the leases for up to 5 additional years.

As of September 30, 2022, we have no lease commitments that have not yet commenced.

We have operating leases for 1 corporate office, 4 bank branch offices, 1 former bank branch office, and 1 ATM location.

Our leases have remaining lease terms ranging from approximately 0.58 to 5.25 years.

Some of the leases include an option to extend, the longest of with is for two 5 year terms.

As of March 31, 2023, we have no lease commitments that have not yet commenced.

The Company also leases a portion of some of its facilities and receives rental income from such lease agreements, all of which are considered operating leases.

Nine Months Ended

September 30, 2022 September 30, 2021

Three Months Ended

March 31, 2023 March 31, 2022

The components of total lease cost were as follows:

7 unchanged sentences

Operating cash flows from operating leases $ 138 $ 139

Right-of-use assets obtained in exchange for lease obligations:

Operating leases $ 215 $ 2

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Supplemental balance sheet information related to leases was as follows:

13 unchanged sentences

NOTE 6 – DEPOSITS

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

September 30, 2022 December 31, 2021

The following is a summary of deposits by type at March 31, 2023 and December 31, 2022, respectively:

March 31, 2023 December 31, 2022

Non-interest bearing demand deposits $ 247,735 $ 284,722

4 unchanged sentences

Total deposits $ 1,436,793 $ 1,424,720

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

At March 31, 2023, the scheduled maturities of time deposits were as follows for the year ended, except December 31, 2023, which is the nine months ended:

December 31, 2023 $ 102,059

5 unchanged sentences

Total $ 274,786

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

Brokered deposits were $ 19,868 at September 30, 2022 and $ 11 at December 31, 2021, respectively.

Time deposits of $250 or more were $ 87,549 and $ 66,827 at March 31, 2023 and December 31, 2022, respectively.

Brokered deposits were $ 63,962 at March 31, 2023 and consisted of $ 53,962 of brokered certificates of deposit and $ 10,000 of brokered money market accounts.

Brokered Deposits were $ 39,841 at December 31, 2022 and consisted of $ 39,839 of brokered certificates of deposit and $ 2 of brokered money market accounts.

At March 31, 2023, the scheduled maturities of brokered certificates of deposit were as follows for the year ended, except December 31, 2023, which is the nine months ended:

December 31, 2023 $ 39,839

December 31, 2025 (1) 8,634

December 31, 2028 (1) 5,489

Total $ 53,962

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

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

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

September 30, 2022 December 31, 2021

Stated Maturity Amount Range of Stated Rates Amount Range of Stated Rates

A summary of Federal Home Loan Bank advances and other borrowings at March 31, 2023 and December 31, 2022 is as follows:

March 31, 2023

December 31, 2022

Stated Maturity Amount Range of Stated Rates Stated Maturity Amount Range of Stated Rates

Federal Home Loan Bank advances (1), (2), (3) 2023 $ 157,000 1.43 % 4.92 % 2023 $ 117,000 1.43 % 4.31 %

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2025 5,000 1.45 % 1.45 % 2025 5,000 1.45 % 1.45 %

2025 5,000 1.45 % 1.45 % 5,000 1.45 % 1.45 %

2029 — — % — % 42,500 1.00 % 1.13 %

2030 — — % — % 12,500 0.52 % 0.86 %

Subtotal 102,530 111,530

Unamortized discount on acquired notes — ( 3 )

Federal Home Loan Bank advances, net $ 102,530 $ 111,527

Federal Home Loan Bank advances $ 182,530 $ 142,530

Senior Notes (4) 2034 $ 18,083 6.75 % 7.25 % 2034 $ 23,250 3.00 % 6.75 %

2 unchanged sentences

$ 50,000 $ 50,000

$ 50,000 $ 30,000

Unamortized debt issuance costs ( 783 ) ( 841 )

1 unchanged sentence

Totals $ 249,830 $ 214,939

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $ 960,192 and $ 861,900 at September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $ 277,959 compared to $ 204,271 as of December 31, 2021.

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

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

(4) At September 30, 2022, no FHLB term notes can be called by the FHLB.

At December 31, 2021, FHLB term notes totaling $ 55,000 could be called by the FHLB on a quarterly basis, and if not called, would mature at various dates in 2029 and 2030.

These notes were called by the FHLB in 2022.

(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 $ 1,017,535 and $ 984,878 at March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $ 213,372 compared to $ 256,773 as of December 31, 2022.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $ 182,530 and $ 157,530 , during the three months ended March 31, 2023 and the twelve months ended December 31, 2022, respectively.

(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of March 31, 2023 and December 31, 2022 were 4.55 % and 4.09 %, respectively.

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

(a) A term note, which was subsequently refinanced in March 2022, requiring quarterly interest-only payments through March 2025, and quarterly principal and interest payments thereafter.

(a) A term note, which was subsequently refinanced in March 2022 and modified in February of 2023, requiring quarterly interest-only payments through March 2027, 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 %.

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(5) Subordinated notes resulted from the following:

(a) The Company’s private sale in August 2017, which bore a fixed interest rate of 6.75 % for five years .

In August 2022, they converted to a three-month LIBOR plus 4.90 % rate, and the interest rate will reset quarterly thereafter.

The note was callable by the Bank when, and anytime after, the floating rate is initially set.

Interest-only payments were due quarterly.

The Company sent the required redemption notice to the note holders in June 2022, and this subordinated note was called and repaid in full on August 10, 2022.

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00 % for five years .

(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.

1 unchanged sentence

Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

(c) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75 % for five years .

(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.

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This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest bearing deposit balances.

These balances were $ 190,400 and $ 176,150 at September 30, 2022 and December 31, 2021, respectively.

These balances were $ 206,150 and $ 191,650 at March 31, 2023 and December 31, 2022, respectively.

Federal Reserve Borrowings

At March 31, 2023 and December 31, 2022, the Bank had the ability to borrow $ 19,869 and $ 4,118 from the Federal Reserve Bank of Minneapolis.

The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $ 30,396 and $ 5,421 as of March 31, 2023 and December 31, 2022, respectively.

There were no Federal Reserve borrowings outstanding as of March 31, 2023 and December 31, 2022.

In March of 2023, the Bank was approved to obtain funding from the Federal Reserve’s new Bank Term Funding Program (“BTFP”).

As of March 31, 2023, the Bank has not borrowed from this facility and has not pledged any collateral to this facility.

Federal Funds Purchased Lines of Credit

The Bank maintains three unsecured federal funds purchased lines of credit with its banking partners which total $ 75,000 .

As of March 31, 2023, the Bank maintains two unsecured federal funds purchased lines of credit with its banking partners which total $ 30,000 .

As of December 31, 2022, the Bank maintained three unsecured federal funds purchased lines of credit with its banking partners which totaled $ 75,000 .

These lines bear interest at the lender bank’s announced daily federal funds rate, mature daily and are revocable at the discretion of the lending institution.

There were no borrowings outstanding on these lines of credit as of September 30, 2022 or December 31, 2021.

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

The Bank has originated Small Business Administration’s Paycheck Protection Program (“SBA PPP”) loans and has complied with the requirements to pledge these loans to the FRB PPPLF program which provides 100% funding for SBA PPP loans upon request.

This FRB PPPLF program expired on July 30, 2021.

The Bank had no outstanding loan balances under this facility at December 31, 2021.

There were no month-end borrowed amounts outstanding under this agreement during the twelve months ended December 31, 2021, respectively.

In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

There were no borrowings outstanding on these lines of credit as of March 31, 2023 or December 31, 2022.

NOTE 8 - CAPITAL MATTERS

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If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

At September 30, 2022, the Bank was categorized as “Well Capitalized”, under Prompt Corrective Action Provisions.

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

At March 31, 2023, the Bank was categorized as “Well Capitalized”, under Prompt Corrective Action Provisions.

The Bank’s Tier 1 (leverage) and risk-based capital ratios at March 31, 2023, and December 31, 2022, respectively, are presented below:

Actual For Capital Adequacy

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Amount Ratio Amount Ratio Amount Ratio

As of September 30, 2022

As of March 31, 2023

Total capital (to risk weighted assets) $ 226,873 14.6 % $ 124,595 > = 8.0 % $ 155,744 > = 10.0 %

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Tier 1 leverage ratio (to adjusted total assets) 203,422 11.5 % 70,610 > = 4.0 % 88,262 > = 5.0 %

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

The Company’s Tier 1 (leverage) and risk-based capital ratios at March 31, 2023 and December 31, 2022, respectively, are presented below:

Actual For Capital Adequacy

Amount Ratio Amount Ratio

As of September 30, 2022

As of March 31, 2023

Total capital (to risk weighted assets) $ 220,131 14.1 % 124,595 > = 8.0 %

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The aggregate number of shares of common stock initially reserved and available for issuance under the 2018 Equity Incentive Plan was 350,000 shares.

As of September 30, 2022, 221,030 restricted shares had been granted under this plan.

As of March 31, 2023, 290,187 restricted shares had been granted under this plan.

This amount includes 11,834 shares of performance based restricted stock granted in 2019 and issued in January 2022 upon achievement of the performance criteria and completion of the three year performance period beginning in January 2019 and ending December 31, 2021.

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.

In addition, it includes 1,119 shares of performance based restricted stock granted in 2020 and 638 shares of performance based restricted stock granted in 2021 issued in August of 2022.

Both of these issuances were approved by the Compensation Committee in accordance with plan documents and were to a former employee.

As of September 30, 2022, no stock options had been granted under this plan.

As of March 31, 2023, no stock options had been granted under this plan.

In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan for a term of 10 years.

Due to the plan’s expiration, no new awards can be granted under this plan.

As of September 30, 2022, there are no awarded unvested restricted shares and 63,400 awarded unexercised options remaining from the plan.

Restricted shares granted under the 2008 Equity Incentive Plan were awarded at no cost to the employee and vest pro rata over a two to five-year period from the grant date.

As of March 31, 2023, there are no awarded unvested restricted shares and 57,000 awarded unexercised options remaining from the plan.

Options granted to date under this plan vest pro rata over a five-year period from the grant date.

Unexercised incentive stock options expire within 10 years of the grant date.

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

Net compensation expense related to restricted stock awards from these plans was $ 216 for the three months ended March 31, 2023, compared to $ 195 for the three months ended March 31, 2022.

Restricted Common Stock Award

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Number of Shares Weighted

6 unchanged sentences

Unvested and outstanding at end of period 96,374 $ 12.42 75,626 $ 12.30

The Company accounts for stock option-based employee compensation related to the Company’s 2008 Equity Incentive Plan and 2018 Equity Incentive Plan using the fair-value-based method.

The Company accounts for stock option-based employee compensation related to the Company’s 2008 Equity Incentive Plan using the fair-value-based method.

Accordingly, management records compensation expense based on the value of the award as measured on the grant date and then the Company recognizes that cost over the vesting period for the award.

The compensation cost recognized for stock option-based employee compensation related to these plans for the three and nine month periods ended September 30, 2022 was $ 1 and $ 3 , respectively.

The compensation cost recognized for stock option-based employee compensation related to these plans for the three and nine month periods ended September 30, 2021 was $ 2 and $ 7 , respectively.

The compensation cost recognized for stock option-based employee compensation related to the 2008 plan for the three month period ended March 31, 2023 was $ 0 as all options have vested.

The compensation cost recognized for stock option-based employee compensation related to these plans for the three month period ended March 31, 2022 was $ 1 .

Common Stock Option Awards

2 unchanged sentences

Term in Years Aggregate

September 30, 2022

March 31, 2023

Outstanding at beginning of year 58,000 $ 11.51

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

Nine months ended September 30, 2022 Twelve months ended December 31, 2021

Three months ended March 31, 2023 Twelve months ended December 31, 2022

Intrinsic value of options exercised $ — $ 38

14 unchanged sentences

Assets Measured on a Recurring Basis

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

The following tables present the financial instruments measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

Value Quoted Prices in

3 unchanged sentences

(Level 2) Significant

September 30, 2022

March 31, 2023

Investment securities:

12 unchanged sentences

government agency obligations $ 18,313 $ — $ 18,313 $ —

Obligations of states and political subdivisions 140 — 140 —

Mortgage-backed securities 78,610 — 78,610 —

9 unchanged sentences

Assets Measured on Nonrecurring Basis

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

The following tables present the financial instruments measured at fair value on a nonrecurring basis as of March 31, 2023 and December 31, 2022:

Carrying Value Quoted Prices in

3 unchanged sentences

(Level 2) Significant

September 30, 2022

March 31, 2023

Foreclosed and repossessed assets, net $ 1,113 $ — $ — $ 1,113

Impaired loans with allocated allowances 5,961 — — 5,961

Collateral dependent loans with allowances 6,779 — — 6,779

Mortgage servicing rights 4,120 — — 5,482

5 unchanged sentences

Total $ 12,453 $ — $ — $ 13,856

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

The fair value of collateral dependent loans with allowances, and impaired loans prior to the adoption of ASU 2016-13 on January 1, 2023, referenced above, was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.

The fair value of foreclosed and repossessed assets was determined by obtaining market price valuations from independent third parties wherever such quotes were available for other collateral owned.

3 unchanged sentences

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

September 30, 2022.

March 31, 2023.

Value Valuation Techniques (1) Significant Unobservable Inputs (2) Range

September 30, 2022

March 31, 2023

Foreclosed and repossessed assets, net $ 1,113 Appraisal value Estimated costs to sell 10 % - 15 %

Impaired loans with allocated allowances $ 5,961 Appraisal value Estimated costs to sell 10 % - 15 %

Collateral dependent loans with allowances $ 6,779 Appraisal value Estimated costs to sell 10 % - 15 %

Mortgage servicing rights $ 5,482 Discounted cash flows Discounted rates 9 % - 12 %

5 unchanged sentences

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

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

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

and delinquent property taxes.

(2) The fair value basis of collateral depended loans, impaired loans prior to the adoption of ASU 2016-12, 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, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Valuation Method Used Carrying

12 unchanged sentences

Loans held for sale - Residential mortgage (Level I) 393 402 — —

Loans held for sale - SBA (Level III) — — 5,446 5,776

Loans held for sale - SBA (Level II) 368 408 — —

Mortgage servicing rights (Level III) 4,120 5,482 4,262 5,665

9 unchanged sentences

A reconciliation of the basic and diluted earnings per share is as follows:

Three Months Ended Nine Months Ended

(Share count in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Share count in thousands) March 31, 2023 March 31, 2022

Net income attributable to common stockholders $ 3,662 $ 4,706

8 unchanged sentences

NOTE 12 – OTHER COMPREHENSIVE INCOME (LOSS)

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

The following tables show the tax effects allocated to each component of other comprehensive income (loss) for the three months ended March 31, 2023 and 2022:

Three months ended

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

Amount Tax Benefit

3 unchanged sentences

(Expense) Net-of-Tax

Unrealized losses on securities:

Net unrealized (losses) gains arising during the period $ ( 6,868 ) $ 1,888 $ ( 4,980 ) $ ( 1,099 ) $ 302 $ ( 797 )

Reclassification adjustment for gains included in net income — — — ( 42 ) 11 ( 31 )

Other comprehensive (loss) income $ ( 6,868 ) $ 1,888 $ ( 4,980 ) $ ( 1,141 ) $ 313 $ ( 828 )

Nine Months Ended

September 30, 2022 September 30, 2021

Expense Net-of-Tax

Amount Before-Tax

Expense Net-of-Tax

Unrealized (losses) gains on securities:

Net unrealized (losses) gains arising during the period $ ( 24,024 ) $ 6,606 $ ( 17,418 ) $ ( 278 ) $ 77 $ ( 201 )

Reclassification adjustment for gains included in net income — — — ( 78 ) 21 ( 57 )

Other comprehensive (loss) income $ ( 24,024 ) $ 6,606 $ ( 17,418 ) $ ( 356 ) $ 98 $ ( 258 )

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

Unrealized gain (losses) on securities:

Net unrealized gains (losses) arising during the period $ 1,469 $ ( 404 ) $ 1,065 $ ( 9,824 ) $ 2,701 $ ( 7,123 )

Other comprehensive income (loss) $ 1,469 $ ( 404 ) $ 1,065 $ ( 9,824 ) $ 2,701 $ ( 7,123 )

The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax for the twelve months ended December 31, 2022 and the three months ended March 31, 2023 were as follows:

Gains (Losses)

5 unchanged sentences

Ending balance, December 31, 2022 $ ( 24,353 ) $ ( 17,656 )

Current year-to-date other comprehensive loss ( 24,024 ) ( 17,418 )

Ending balance, September 30, 2022 $ ( 23,802 ) $ ( 17,257 )

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

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)

Details about Accumulated Other Comprehensive Income (Loss) Components Three months ended September 30, 2022 Nine months ended September 30, 2022 (1) Affected Line Item on the Statement of Operations

Unrealized gains and losses

Sale of securities $ — $ — Net gains (losses) on investment securities

Tax effect — — Provision for income taxes

Total reclassifications for the period $ — $ — Net income attributable to common stockholders

Current year-to-date other comprehensive income 1,469 1,065

Ending balance, March 31, 2023 $ ( 22,884 ) $ ( 16,591 )

Reclassifications out of accumulated other comprehensive income (loss) for the three month periods ended March 31, 2023 and March 31, 2022 were as follows:

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)

Details about Accumulated Other Comprehensive Income (Loss) Components Three months ended September 30, 2021 Nine months ended September 30, 2021 (1) Affected Line Item on the Statement of Operations

Details about Accumulated Other Comprehensive Income (Loss) Components Three months ended March 31, 2023 Three months ended March 31, 2022 (1) Affected Line Item on the Statement of Operations

Unrealized gains and losses

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements