What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-05 · 190 added, 306 removed, 536 unchanged (48% of the section changed)

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Such forward-looking statements are inherently subject to many uncertainties in the Company’s operations and business environment.

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 5, 2024 (“2023 10-K”), the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended March 31, 2024, filed with the SEC on May 8, 2024;

the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended June 30, 2024, filed with the SEC on August 6, 2024;

the matters described in “Risk Factors” in Item 1A of this Form 10-Q, and the following:

• conditions in the financial markets and economic conditions generally;

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• cybersecurity risks;

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

• adverse impacts on the regional banking industry and the business environment in which we operate;

• interest rate risk;

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The forward-looking statements made herein are only made as of the date of this filing and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this report.

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

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of March 31, 2025, and our consolidated results of operations for the three months ended March 31, 2025, compared to the same period in the prior fiscal year ended March 31, 2024.

This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2024 10-K.

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PERFORMANCE SUMMARY

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

Compared to third quarter 2023, third quarter 2024 net interest income decreased $0.8 million.

The decrease was primarily due to the impact of higher short-term interest rates on the Bank’s liability-sensitive balance sheet, i.e., higher deposit costs, and customer account shifts to higher-cost certificates, partially offset by higher yields on assets, and a decrease in lower yielding on-balance sheet assets included in liquidity to more normal levels.

The total benefit, i.e., negative provision, for credit losses for the third quarter ended September 30, 2024,was $0.4 million compared to a negative provision for credit losses of $0.3 million for the quarter ended September 30, 2023.

The third quarter of 2024 negative provision was due to decreases in ACL related to:

(1) on-balance sheet ACL of $0.1 million;

and (2) reductions in off-balance sheet reserves to fund commitments of $0.3 million.

The third quarter ended September 30, 2023, negative provision for credit losses was primarily due to net recoveries on an agricultural credit and the impact of the payoff of two large loans.

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

Non-interest expense increased $0.4 million in the third quarter of 2024 from $10.0 million in the third quarter of 2023.

The increase was primarily related to higher compensation expense due to both the impact of 2024 merit increases and higher incentive compensation.

Provision for income taxes decreased to $0.9 million in the third quarter of 2024, from $2.5 million in the third quarter of 2023, primarily due to a decrease in the effective tax rate.

The decrease in the effective tax rate is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023, the impact of which began to be recognized in the third quarter of 2023.

This change reduces the Company’s 2023 Wisconsin state income tax rate and thus, its overall effective tax rate.

The third quarter ended September 30, 2023, reflects three quarters of the related 2023 tax benefit, retroactive to January 1, 2023, as a reduction of income tax expense.

This positive impact was more than offset by a one-time tax expense of $1.8 million reflecting the impact of the lower 2023 Wisconsin state tax rate on the future realization of existing net deferred tax assets.

The following is a summary of some of the significant factors that affected our operating results for the three months ended March 31, 2025, and March 31, 2024.

Compared to the first quarter of 2024, net interest income decreased $0.3 million.

The decrease was primarily due to the impact of a smaller loan portfolio, partially offset by a temporary increase in a higher balance of lower yielding cash and higher net interest margin.

The total benefit, i.e., negative provision, for credit losses for the first quarter ended March 31, 2025, was $0.3 million compared to a negative provision for credit losses of $0.8 million for the quarter ended March 31, 2024.

The first quarter of 2025 negative provision was due to decreases in ACL related to:

(1) on-balance sheet ACL of $0.1 million, and (2) reductions in off-balance sheet reserves to fund commitments of $0.3 million.

The first quarter ended March 31, 2024, negative provision for credit losses was primarily due to net recoveries on an agricultural credit and the impact of the payoff of two large loans.

Non-interest income decreased $0.7 million in the first quarter of 2025 compared to the first quarter of 2024, primarily due to $0.3 lower gain on sale of loans, $0.2 million decrease on loan, deposit and interchange revenue due to lower customer activity and $0.2 million lower gain on equity securities.

Non-interest expense decreased $0.3 million in the first quarter of 2025 from $10.8 million in the first quarter of 2024.

The decrease was primarily due to a $0.4 million decrease in other expense due to a lower SBA recourse reserve, partially offset by $0.1 million higher compensation expense due to the impact of 2024 merit increases.

Provision for income taxes decreased to $0.8 million in the first quarter of 2025, from $1.1 million in the first quarter of 2024, primarily due to a decrease in the effective tax rate.

The decrease in the effective tax rate is primarily due to the positive impact of higher permanent tax deductions in 2025.

When comparing year-over-year results, changes in net interest income, provision for credit losses, non-interest income and non-interest expense are primarily due to the items discussed above.

See the remainder of this section for a more thorough discussion.

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

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

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

costs, and customer account shifts to higher-cost certificates, partially offset by higher yields on assets.

The Company’s interest-bearing liabilities increased from 2.46% for the nine months ended September 30, 2023, to 3.18% for the same period in 2024.

This increase in interest-bearing liabilities cost was partially offset by higher interest income on interest earning assets of $5.4 million primarily due to the impact of higher interest rates.

The total benefit, i.e., negative provision, for credit losses was $2.725 million for the nine months ended September 30, 2024, compared to a provision for credit losses of $0.175 million for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, the negative provision was due to decreases in ACL related to:

(1) the $0.9 million impact of loan portfolio decreases and credit quality improvements;

(2) $0.6 million due to improvements in the Moody’s economic scenario per our third-party provider;

(3) reductions in off-balance sheet reserves to fund commitments of $0.9 million;

(4) a decrease in the allowance for credit losses on individually evaluated loans of $0.5 million largely in the first quarter;

and (5) net loan recoveries.

The provision for credit losses for the nine months ended September 30, 2023, was $0.175 million, primarily due to growth in the loan portfolio, partially offset by the impact of net recoveries of $0.187 million, reductions in reserves on individually evaluated loans, and third quarter loan payoffs.

Non-interest income for the nine months ended September 30, 2024, increased $0.3 million compared to the nine-months ended September 30, 2023.

Higher gains on loan sales, loan fees and service charges and a bank owned life insurance death benefit were partially offset by net losses on equity securities.

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

Provision for income taxes decreased to $0.9 million in the third quarter of 2024, from $2.5 million in the third quarter of 2023, primarily due to a decrease in the effective tax rate.

The lower effective tax rate is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023, the impact of which began to be recognized in the third quarter of 2023.

The Wisconsin state budget, signed by Governor Evers on July 5, 2023, provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023.

This change reduces the Company’s 2023 Wisconsin state income tax rate and thus, its overall effective tax rate.

The third quarter ended September 30, 2023, reflects three quarters of the related 2023 tax benefit, retroactive to January 1, 2023, as a reduction of income tax expense.

We reported net income of $3.2 million, or $0.32 per diluted share for the three months ended March 31, 2025, compared to net income of $4.1 million or $0.39 per diluted share for the three months ended March 31, 2024.

CRITICAL ACCOUNTING ESTIMATES

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In addition to the policies included in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included as an exhibit in our annual report on our 2024 10-K, our critical accounting estimates are as follows:

Allowance for Credit Losses - Loans.

Allowance for Credit Losses

We adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments” through a cumulative-effect adjustment on January 1, 2023.

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

Allowance for Credit Losses - Loans.

We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio.

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We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration.

We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory

requirements.

We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory requirements.

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

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In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio.

We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill.

The Company does not amortize goodwill, but reviews goodwill for impairment at a reporting unit level on an annual basis, or when events or changes in circumstances indicate that the carrying amounts may be impaired.

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

The Company has one reporting unit as of September 30, 2024, which is related to its banking activities.

The Company performed the required goodwill impairment test and determined that goodwill was not impaired as of December 31, 2023.

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

STATEMENT OF OPERATIONS ANALYSIS

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Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets.

The narrative below discusses net interest income, and net interest margin for the three-month and nine-month periods ended September 30, 2024, and September 30, 2023, respectively.

Net interest income was $11.3 million for the three months ended September 30, 2024, compared to $12.1 million for the three months ended September 30, 2023.

Interest income for the three months ended September 30, 2024, decreased from the same period one year ago due to higher net interest-bearing deposit balances and costs.

This was partially offset by increases in asset yields due to (1) contractual repricing and higher coupons on new loans;

and (2) principal reductions in low-yielding investments.

The net interest margin for the three-month period ended September 30, 2024, decreased to 2.63%, compared to 2.79%, for the three-month period ended September 30, 2023.

The lower net interest margin was due to higher deposit costs attributable to higher market interest rates and customers moving from lower cost savings and money market accounts to higher yielding certificate accounts;

and the impact of higher short-term interest rates which increased FHLB advance and other borrowing costs.

This was partially offset by increases in loan yields due to contractual repricing and rates on new loans exceeding the portfolio as a whole.

Net interest income was $34.8 million for the nine months ended September 30, 2024, compared to $36.6 million for the nine months ended September 30, 2023.

Net interest income for the nine months ended September 30, 2024, decreased from the same period one year ago, due to higher interest-bearing balances and costs, which increased 72 basis points.

This was partially

(1) positive loan volume variance due to growth in loans outstanding;

(2) increases in loan and investment yields due to:

(a) contractual repricing and higher coupons on new loans;

(b) principal reductions in low-yielding investments;

and (c) one-time income in the first and second quarters of $0.4 million recognized on nonaccrual payoffs and $0.4 million recognized from curing technical defaults on performing loans.

The net interest margin for the nine-month period ended September 30, 2024, was 2.71%, compared to 2.85%, for the nine-month period ended September 30, 2023.

The decreased net interest margin was due to:

(1) higher liability costs due to higher market interest rates;

(2) customers moving balances from lower cost savings and money market accounts to higher yielding certificate accounts, increasing deposit costs;

and (3) the impact of higher short-term interest rates which increased FHLB advance and other borrowing costs.

This was partially offset by:

(1) increases in loan yields due to contractual repricing;

(2) rates on new loans exceeding the portfolio as a whole;

and (3) a six-basis point increase in yield due to income recognized on nonaccrual loan payoffs and curing technical defaults on performing loans in the first and second quarter;

and 4) principal reductions in low-yielding investments

The narrative below discusses net interest income, and net interest margin for the three-month period ended March 31, 2025, and March 31, 2024, respectively.

Net interest income was $11.6 million for the three months ended March 31, 2025, compared to $11.9 million for the three months ended March 31, 2024.

Interest income for the three months ended March 31, 2025 decreased from the same period one year ago due to a lower balance of loans and investment securities, partially offset by a higher balance of interest-bearing cash.

In addition, lower asset yields were primarily due to the impact of lower short-term interest rates of 100 basis points due to lower Federal Open Market Committee reductions in later 2024 on all asset categories.

The decrease in interest income was partially offset by lower interest expense due to both lower balances of FHLB advances, a decrease in liability costs and the impact of a higher net interest margin.

The decrease in loans was primarily due to the impact of shrinkage in non-strategic loan relationships, with the proceeds used to reduce FHLB advances.

The net interest margin for the three-month period ended March 31, 2025, increased to 2.85%, compared to 2.77%, for the three-month period ended March 31, 2024.

The higher net interest margin was due to a 20 basis point decrease in liability costs, partially offset by lower asset yields of 10 basis points.

Lower asset yields were favorably impacted by the impact of new loan originations and loan repricing.

Average Balances, Net Interest Income, Yields Earned and Rates Paid.

The following net interest income analysis table presents interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates on a tax equivalent basis.

Shown below is the weighted average tax equivalent yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the three-month periods ended September 30, 2024, and September 30, 2023.

Non-accruing loans have been included in the table as loans carrying a zero yield.

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(Dollar amounts in thousands)

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

Three months ended September 30, 2024

Three months ended September 30, 2023

Three months ended March 31, 2025, compared to the three months ended March 31, 2024:

Three months ended March 31, 2025

Three months ended March 31, 2024

Balance Interest

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Average interest earning assets to average interest-bearing liabilities 1.25 1.24

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

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

Nine months ended September 30, 2024 Nine months ended September 30, 2023

Balance Interest

Expense Average

Balance Interest

Expense Average

Average interest earning assets:

Cash and cash equivalents $ 19,073 $ 823 5.76 % $ 19,066 $ 768 5.39 %

Loans receivable 1,441,972 60,204 5.58 % 1,420,423 54,169 5.10 %

Interest bearing deposits — — — % 84 1 1.59 %

Investment securities 240,054 6,038 3.36 % 261,507 6,505 3.33 %

Other investments 12,983 589 6.06 % 16,447 779 6.33 %

Total interest earning assets $ 1,714,082 $ 67,654 5.27 % $ 1,717,527 $ 62,222 4.84 %

Average interest bearing liabilities:

Savings accounts $ 173,946 $ 1,300 1.00 % $ 208,446 $ 1103 0.71 %

Demand deposits 355,356 6,192 2.33 % 370,235 5,047 1.82 %

Money market accounts 378,740 9,005 3.18 % 298,957 4,759 2.13 %

CD’s 364,131 12,215 4.48 % 300,279 6,989 3.11 %

Total deposits $ 1,272,173 $ 28,712 3.01 % $ 1,177,917 $ 17,898 2.03 %

FHLB advances and other borrowings 108,897 4,176 5.12 % 214,034 7,722 4.82 %

Total interest bearing liabilities $ 1,381,070 $ 32,888 3.18 % $ 1,391,951 $ 25,620 2.46 %

Net interest income $ 34,766 $ 36,602

Interest rate spread 2.09 % 2.38 %

Net interest margin 2.71 % 2.85 %

Average interest earning assets to average interest bearing liabilities 1.24 1.23

Rate/Volume Analysis.

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and (2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant).

Rate changes have been discussed previously in the net interest income section above.

For the three month period ended September 30, 2024, compared to the same period in 2023, average earning assets decreased modestly due to net principal repayments on available for sale (“AFS”) and held-to-maturity (“HTM”) security portfolios and a less than 1% decline in loan balances.

Average interest-bearing liabilities saw customer preferences leading to growth in money market and certificate accounts, with the growth in deposits funding a decrease in FHLB advances.

For the nine-month period ended September 30, 2024, compared to the same period in 2023, loan volume increases due to organic growth, primarily in late 2023 and early 2024, more than offset a reduction in low-yielding AFS and HTM securities.

For the nine-month period ended September 30, 2024, the volume change in interest-bearing liabilities are similar to the three months ended September 30, 2024, explanation .

Rate and volume changes have been discussed previously in the net interest income section above.

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

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

Three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Increase (decrease) due to

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Net interest income $ (576) $ 265 $ (311)

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

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

Increase (decrease) due to

Volume Rate Net

Interest income:

Cash and cash equivalents $ — $ 55 $ 55

Loans receivable 833 5,202 6,035

Interest bearing deposits (1) — (1)

Investment securities (539) 72 (467)

Other investments (158) (32) (190)

Total interest earning assets 135 5,297 5,432

Interest expense:

Savings accounts (207) 404 197

Demand deposits (210) 1,355 1,145

Money market accounts 1,459 2,787 4,246

CD’s 1,674 3,552 5,226

Total deposits 2,716 8,098 10,814

FHLB advances and other borrowings (4,018) 472 (3,546)

Total interest bearing liabilities (1,302) 8,570 7,268

Net interest income $ 1,437 $ (3,273) $ (1,836)

The table below shows the principal balance and current contractual rate of fixed rate certificates of deposit as of March 31, 2025.

The table also shows the principal balance and current contractual rate of fixed rate loans and securities as of March 31, 2025, that mature or reprice.

Portfolio Contractual Repricing:

(in millions, except yields)

Q2 2025 Q3 2025 Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 FY 2027

Maturing Certificate Accounts:

Contractual Balance $ 174 $ 101 $ 28 $ 23 $ 8 $ — $ — $ 8

Contractual Interest Rate 4.59 % 3.98 % 3.72 % 3.66 % 3.47 % — % — % 4.01 %

Maturing or Repricing Loans:

Contractual Balance $ 52 $ 18 $ 55 $ 45 $ 51 $ 120 $ 98 $ 243

Contractual Interest Rate 6.62 % 6.14 % 4.64 % 4.53 % 4.18 % 3.61 % 3.72 % 4.66 %

Maturing or Repricing Securities:

Contractual Balance $ 5 $ 3 $ 4 $ 2 $ 7 $ 7 $ 3 $ 6

Contractual Interest Rate 5.64 % 4.07 % 4.31 % 3.72 % 3.57 % 3.44 % 3.27 % 4.47 %

Provision for Credit Losses.

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Lifetime losses on these loans are estimated based on the loans’ individual characteristics.

The third quarter of 2024 negative provision was due to decreases in ACL related to:

(1) on-balance sheet ACL of $0.1 million;

and (2) reductions in off-balance sheet reserves to fund commitments of $0.3 million.

The third quarter ended September 30, 2023, negative provision for credit losses was primarily due to net recoveries on an agricultural credit and the impact of the payoff of two large loans.

For the nine months ended September 30, 2024, the negative provision was due to decreases in ACL related to:

(1) the $0.9 million impact of loan portfolio decreases and credit quality improvements;

(2) $0.6 million due to improvements in the Moody’s economic scenario per our third-party provider;

(3) reductions in off-balance sheet reserves to fund commitments of $0.9 million;

(4) a decrease in the allowance for credit losses on individually evaluated loans of $0.5 million largely in the first quarter;

and (5) net loan recoveries.

The provision for credit losses for the nine months ended September 30, 2023, was $0.175 million, primarily the result of growth in the loan portfolio, partially offset by the impact of net recoveries of $0.187 million, reductions in reserves on individually evaluated loans and third quarter 2023 loan payoffs.

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

The impact of higher

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

The total benefit, i.e., negative provision, for credit losses for the first quarter ended March 31, 2025,was $0.3 million compared to a negative provision for credit losses of $0.8 million for the quarter ended March 31, 2024.

The first quarter of 2025 negative provision was due to decreases in ACL related to a decrease in on-balance sheet ACL of $0.35 million;

partially offset by an increase in off-balance sheet reserves to fund commitments of $0.1 million.

The first quarter of 2024 negative provision for credit losses was primarily due to net recoveries on an agricultural credit and the impact of the payoff of two large loans.

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

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

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

Management believes that the provision recorded for the current year’s three- and nine-month periods is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans.

Management believes that the provision recorded for the current year’s three-month period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans.

We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL.

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Non-interest Income .

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

Three months ended September 30, Nine months ended September 30,

2024 2023 % Change 2024 2023 % Change

The following table reflects the various components of non-interest income for the three-month periods ended March 31, 2025 and 2024, respectively.

Three months ended March 31,

2025 2024 % Change

Non-interest Income:

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Loan fees and service charges 120 230 (47.83) %

Net realized gains on debt securities — — N/M — 12 N/M

Net (losses) gains on equity securities (78) 116 N/M (569) 170 N/M

Bank Owned Life Insurance (BOLI) death benefit — — N/M 184 — N/M

Net gains on equity securities 10 167 N/M

Other 243 253 (3.95) %

Total non-interest income $ 2,593 $ 3,264 (20.56) %

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

For the nine-month periods ending September 30, 2024, and 2023, gain on sale of loans increased approximately 60% due to higher SBA gains on sale of loans and approximately 40% due to higher residential gains on sale of loans.

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

The decrease in net (losses) gains on equity securities between the three-month period ended September 30, 2024, and the three-month period ended September 30, 2023, is primarily the result of equity mark-to-market losses in the third quarter of 2024, and mark-to-market gains in the third quarter of 2023.

The decrease in net (losses) gains on equity securities between the nine-month period ended September 30, 2024, and the nine-month period ended September 30, 2023, is primarily the result of the $0.4 million loss recognized as a result of an exchange of senior debt for preferred equity of a community development financial institution in the second quarter of 2024.

See Investment Securities for more details.

In addition, there were other equity mark-to-market losses in the second and third quarters of 2024.

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

N/M means not meaningful

Service charges on deposit accounts decreased $48 thousand from the first quarter of 2024 to the first quarter of 2025 primarily due to lower customer activity.

Gain on sale of loans decreased in the three-month period ended March 31, 2025, compared to the three-month period ended March 31, 2024, primarily due to lower gains on SBA loan sales.

Loan fees and services charges were lower for the three-month period ended March 31, 2025, compared to the same periods in 2024, due to lower customer activity.

The decrease in net gains on equity securities between the three-month period ended March 31, 2025, and the three-month period ended March 31, 2024, was primarily due to the impact of equity mark-to-market losses.

Non-interest Expense.

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

Three months ended September 30, Nine months ended September 30,

2024 2023 % Change 2024 2023 % Change

The following table reflects the various components of non-interest expense for the three-month periods ended March 31, 2025 and 2024, respectively.

Three months ended March 31,

2025 2024 % Change

Non-interest Expense:

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Professional services 508 566 (10.25) %

Gains on repossessed assets, net 65 100 (35.00) % 47 62 (24.19) %

Gains on repossessed assets, net 4 — N/M

Other 664 1,068 (37.83) %

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Non-interest expense (annualized) / Average assets 2.41 % 2.36 % 2.12 %

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

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

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

Mortgage servicing rights expenses, net, decreased slightly in the nine-month period ended September 30, 2024, compared to the comparable 2023 period, due to the impact of slowing prepayments, and to a lesser extent, a smaller servicing portfolio, partially offset by the third quarter 2024 impairment.

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

The increase in other non-interest expense for the nine months ended September 30, 2024, from the comparable prior year period is largely due to:

1) the establishment of an SBA valuation reserve of $0.4 million in the first quarter of 2024, and 2) the second quarter 2024 write down of the remaining lease asset of a closed branch of $0.2 million, partially offset by selected one-time expense recoveries of $0.1 million.

N/M means not meaningful

Compensation expense for the three-month period ended March 31, 2025, increased from the same period in 2024, largely due to annual employee pay raises, effective late first quarter of 2024.

Data processing expense for the three months ended March 31, 2025, increased from the same 2024 periods, largely due to inflationary pressures and the impact of new software implementation costs to aid in future efficiency efforts.

The decrease in other non-interest expense for the three months ended March 31, 2025, compared to the same period in 2024 is primarily due to the establishment of an SBA valuation reserve of $0.4 million in the first quarter of 2024.

Income Taxes.

Provision for income taxes decreased to $0.9 million in the third quarter of 2024 from $2.5 million in the third quarter of 2023.

Provision for income taxes for the nine-month period ending September 30, 2024, decreased $1.9 million, to $3.0 million, compared to $4.9 million for the nine-month period ended September 30, 2023, as pre-tax income decreased $0.169 million.

The decrease in the effective tax rate in 2024 is primarily due to the Wisconsin state budget, signed by Governor Evers on July 5, 2023, which provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023.

This change reduces the Company’s 2023 Wisconsin state income tax rate and thus, its overall effective tax rate.

The third quarter ended September 30, 2023, reflects three quarters of the related 2023 tax benefit, retroactive to January 1, 2023, as a reduction of income tax expense.

Provision for income taxes decreased to $0.8 million in the first quarter of 2025, from $1.1 million in the first quarter of 2024, primarily due to a decrease in the effective tax rate.

The decrease in the effective tax rate was primarily due to the positive impact of higher permanent tax deductions in 2025.

BALANCE SHEET ANALYSIS

Cash and Cash Equivalents.

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

Cash and cash equivalents increased $50.0 million to $100.2 million at March 31, 2025, compared to $50.2 million at December 31, 2024.

This increase was primarily due to the net proceeds from loan shrinkage and deposit growth increasing on-balance sheet liquidity and growing interest-bearing deposits.

Investment Securities.

1 unchanged sentence

Our investment portfolio is comprised of securities available-for-sale and securities held-to-maturity.

Securities available for sale decreased $6.3 million during the nine months ended September 30, 2024, to $149.4 million from $155.7 million at December 31, 2023.

Along with principal repayments and changes in fair value, there was an exchange of a community development financial institution’s senior debt for a preferred equity security in the company’s operating subsidiary of $2.25 million, resulting in a decrease in AFS securities and an increase in equity securities during the second quarter of 2024.

The exchange resulted in the recognition of $0.168 million of unrealized losses on available-for-sale securities, previously included in other comprehensive income, as well as an additional $0.270 million loss, for a total loss of $0.438 million.

This total loss of $0.438 million was recognized on the June 30, 2024, consolidated statement of operations as net losses on equity securities.

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

Securities available-for-sale decreased $3.3 million during the three months ended March 31, 2025, to $139.6 million from $142.9 million at December 31, 2024.

There were principal repayments of $2.6 million and a maturity of $2.5 million, partially offset by a decrease in the unrealized loss of $1.9 million.

Securities held-to-maturity decreased $1.2 million to $84.3 million during the three-month period ended March 31, 2025, from $85.5 million at December 31, 2024, due to principal repayments.

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

Available-for-sale securities Amortized

September 30, 2024

March 31, 2025

government agency obligations $ 13,062 $ 12,986

11 unchanged sentences

Held-to-maturity securities Amortized

September 30, 2024

March 31, 2025

Obligations of states and political subdivisions $ 400 $ 379

6 unchanged sentences

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

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Available-for-sale securities Amortized

8 unchanged sentences

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

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Held-to-maturity securities Amortized

3 unchanged sentences

Total $ 84,301 $ 66,191 $ 85,504 $ 65,622

At September 30, 2024, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $34.7 million as collateral to secure a line of credit with the Federal Reserve Bank.

As of September 30, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of September 30, 2024, the Bank has pledged certain of its U.S.

At March 31, 2025, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $33.6 million as collateral to secure a line of credit with the Federal Reserve Bank.

As of March 31, 2025, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of March 31, 2025, the Bank has pledged certain of its U.S.

Government Agency securities with a carrying value of $0.3 million and mortgage-backed securities with a carrying value of $2.0 million as collateral against specific municipal deposits.

As of September 30, 2024, the Bank also has mortgage-backed securities with a carrying value of $0.1 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

As of March 31, 2025, the Bank also has mortgage-backed securities with a carrying value of $0.5 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2024, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $34.0 million as collateral to secure a line of credit with the Federal Reserve Bank.

2 unchanged sentences

Government Agency securities with a carrying value of $0.3 million and mortgage-backed securities with a carrying value of $1.8 million as collateral against specific municipal deposits.

As of December 31, 2023, the Bank also has mortgage-backed securities with a carrying value of $0.2 million and U.S.

Government Agencies with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $36.0 million, to $1.42 billion as of September 30, 2024, from $1.46 billion at December 31, 2023.

The following table reflects the composition, of our loan portfolio at September 30, 2024, and December 31, 2023:

September 30, 2024 December 31, 2023

As of December 31, 2024, the Bank also has mortgage-backed securities with a carrying value of $0.5 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $0.02 billion, to $1.35 billion as of March 31, 2025, from $1.37 billion at December 31, 2024.

The following table reflects the composition, of our loan portfolio at March 31, 2025, and December 31, 2024:

March 31, 2025 December 31, 2024

Amount Percent Amount Percent

26 unchanged sentences

The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis.

The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at September 30, 2024:

The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at March 31, 2025:

Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE

3 unchanged sentences

Approximate Weighted Average LTV 52 % 53 % 61 % 70 %

Weighted Average Seasoning in Months 42 39 38 NA

Weighted Average Seasoning in Months 46 43 42 N/A

Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 %

6 unchanged sentences

Other 28 % 4 % 11 % 22 %

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

The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at March 31, 2025:

Campground Hotel Restaurant Office

3 unchanged sentences

Approximate Weighted Average LTV 48 % 50 % 48 % 57 %

Weighted Average Seasoning in Months 40 N/A N/A 46

Trailing 12 Month Net Charge-Offs 0.00 % (0.04) % 0.00 % 0.00 %

Criticized Loans in Millions $ 0.0 $ 3.9 $ 0.0 $ 0.5

Criticized Loans as a Percent of Total 0.0 % 4.5 % 0.1 % 1.8 %

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

Campground Hotel Restaurant Office

Wisconsin 20 % 38 % 56 % 83 %

Minnesota 0 % 41 % 27 % 8 %

Other 80 % 21 % 17 % 9 %

The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at December 31, 2024:

Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE

Loan Balance Outstanding in Millions $ 471 $ 238 $ 221 $ 78

Number of Loans 746 385 129 91

Average Loan Size in Millions $ 0.6 $ 0.6 $ 1.7 $ 0.9

Approximate Weighted Average LTV 52 % 51 % 62 % 74 %

Weighted Average Seasoning in Months 44 41 41 N/A

Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 %

Criticized Loans in Millions $ 7.6 $ 4.2 $ 0.0 $ 0.1

Criticized Loans as a Percent of Total 1.6 % 1.7 % 0.0 % 0.1 %

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

Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE

Wisconsin 52 % 79 % 63 % 55 %

Minnesota 20 % 17 % 33 % 7 %

Other 28 % 4 % 4 % 38 %

The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at December 31, 2024:

Campground Hotel Restaurant Office

Loan Balance Outstanding in Millions $ 139 $ 88 $ 59 $ 28

Number of Loans 68 20 78 71

Average Loan Size in Millions $ 2.0 $ 4.4 $ 0.8 $ 0.4

Approximate Weighted Average LTV 49 % 51 % 48 % 58 %

Weighted Average Seasoning in Months 38 48 38 44

49 unchanged sentences

(in thousands, except ratios)

September 30, 2024 and Three Months Ended June 30, 2024 and Three Months Ended December 31, 2023 and Three Months Ended

March 31, 2025 and Three Months Ended December 31, 2024 and Three Months Ended

Allowance for Credit Losses (“ACL”)

20 unchanged sentences

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

Three months ended September 30, 2024

Three months ended March 31, 2025

Allowance for Credit Losses - Loans:

4 unchanged sentences

ACL - Loans, at end of period $ 16,244 $ 1,430 $ 2,338 $ 193 $ 20,205

The following table presents the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the twelve months ended December 31, 2024:

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

Nine months ended September 30, 2024

Allowance for Credit Losses - Loans:

ACL - Loans, at beginning of period $ 18,784 $ 1,105 $ 2,744 $ 275 $ 22,908

Charge-offs (39) — (4) (28) (71)

Recoveries 46 35 7 10 98

Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations (1,868) 211 (253) (25) (1,935)

ACL - Loans, at end of period $ 16,923 $ 1,351 $ 2,494 $ 232 $ 21,000

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

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

Twelve months ended December 31, 2024

1 unchanged sentence

ACL - Loans, at beginning of period $ 18,784 $ 1,105 $ 2,744 $ 275 $ 22,908

Cumulative effect of ASU 2016-13 adoption 4,510 (331) 1,119 216 (808) 4,706

Charge-offs (39) (143) (4) (35) (221)

4 unchanged sentences

(in thousands, except ratios)

September 30,

2025 December 31,

2 unchanged sentences

ACL - Loans to loans, end of period 1.49 % 1.50 %

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

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.44 million at March 31, 2025, and $0.33 million at December 31, 2024, classified in other liabilities on the consolidated balance sheets.

Allowance for Credit Losses - Unfunded Commitments:

(in thousands)

September 30, 2024 and Three Months Ended September 30, 2024 and Nine Months Ended

March 31, 2025 and Three Months Ended December 31, 2024 and Twelve Months Ended

ACL - Unfunded Commitments - beginning of period $ 334 $ 1,250

Cumulative effect of ASU 2016-13 adoption — —

Increases to ACL - Unfunded Commitments via provision for credit losses charged to operations 101 (916)

11 unchanged sentences

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

September 30, 2024 and Nine Months Then Ended (1) December 31, 2023 and Twelve Months Then Ended (1)

March 31, 2025 and Three Months Then Ended (1) December 31, 2024 and Twelve Months Then Ended (1)

Nonperforming assets:

17 unchanged sentences

ACL - Loans, at beginning of period $ 20,549 $ 22,908

Cumulative effect of ASU 2016-13 adoption — 4,706

Loans charged off:

21 unchanged sentences

(1) Loan balances are stated at amortized cost.

N/M means not meaningful

Nonaccrual Loans Roll Forward:

Quarter Ended

2025 December 31,

2024 September 30,

1 unchanged sentence

2024 March 31,

2024 December 31,

2023 September 30,

Balance, beginning of period $ 13,168 $ 15,042 $ 8,352 $ 8,413 $ 13,184

2 unchanged sentences

Transfers to OREO — (201) (124) — —

Return to accrual status — — — — (190)

Payments received (752) (2,515) (641) (411) (5,767)

1 unchanged sentence

Balance, end of period $ 13,091 $ 13,168 $ 15,042 $ 8,352 $ 8,413

Nonperforming assets were $17.1 million at September 30, 2024, compared to $15.4 million at December 31, 2023.

Nonperforming assets increased largely due to one agricultural real estate loan relationship in forestry services that moved from special mention to substandard and was placed on nonaccrual in the third quarter.

This increase was offset by nonperforming loan payoffs of $5.4 million during the first quarter of 2024.

Nonperforming assets were $14.5 million at March 31, 2025, compared to $14.3 million at December 31, 2024.

This modest increase was due to a $0.4 million increase in residential loans delinquent more than 90 days not on nonaccrual status.

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

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

Term Extension

Loan Class Amortized Cost Basis at

September 30, 2024 % of Total Class of Financing Receivables

Residential mortgage $ 5 — %

Other Consumer $ 1 0.02 %

Below is a summary of loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2025:

Other-Than-Insignificant Payment Delay

Loan Class Amortized Cost Basis at

September 30, 2024 % of Total Class of Financing Receivables

March 31, 2025 % of Total Class of Financing Receivables

Commercial real estate $ 322 0.05 %

Residential mortgage $ 120 0.09 %

The table below shows a summary of criticized loans, split by special mention and substandard for the past five quarters.

From September 30, 2023 through June 30, 2024, special mention credit loans decreased in each quarter.

In the first and second quarters of 2024, this was due to loan payoffs.

Special mention loans increased by $2.2 million to $11.0 million at September 30, 2024, compared to $8.8 million at June 30, 2024.

The increase was largely due to one loan of $8.7 million, which is secured by a multi-family unit.

The addition of the multi-family unit to special mention was partially offset by the movement of a $7.7 million agricultural real estate loan relationship in forestry services that moved to substandard and was placed on nonaccrual.

The increase in criticized loans from March 31, 2024, was primarily due to (1) one forestry services credit that moved from special mention to substandard in the third quarter of 2024 and (2) an increase in special mention commercial loans due to a new special mention C&I relationship in the first quarter of 2025 that showed weaker cash flow than expected.

There was a payoff of a special mention loan in the second quarter of 2024.

(in thousands)

(Loan balance at unpaid principal balance) September 30,

2024 June 30,

2024 March 31,

(Loan balance at unpaid principal balance) March 31,

2025 December 31,

2024 September 30,

2024 June 30,

2024 March 31,

Special mention loan balances $ 14,990 $ 8,480 $ 11,047 $ 8,848 $ 13,737

10 unchanged sentences

Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.

The fair market value of the Company’s MSR asset was $5.0 million at September 30, 2024, compared to $5.6 million at December 31, 2023.

At September 30, 2024, the MSR valuation allowance was $0.36 million due to higher forecasted future prepayments in a small tranche of higher coupon recent loan production.

At December 31, 2023, there was no MSR impairment or related valuation allowance.

The unpaid balances of one-to-four family residential real estate loans serviced for others as of September 30, 2024, and December 31, 2023, were $482.9 million and $495.5 million, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at September 30, 2024, and December 31, 2023, was 1.04% and 1.13%, respectively.

Total deposits increased $1.1 million during the quarter ended September 30, 2024, to $1.52 billion.

Consumer deposits increased $22.1 million, including an increase in CDs of $17.9 million.

The fair market value of the Company’s MSR asset was $5.1 million at March 31, 2025, compared to $5.4 million at March 31, 2024.

The unpaid balances of one-to-four family residential real estate loans serviced for others as of March 31, 2025, and December 31, 2024, were $475.8 million and $479.6 million, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at March 31, 2025, and December 31, 2024, was 1.07% and 1.09%, respectively.

Total deposits increased $35.5 million during the quarter ended March 31, 2025, to $1.52 billion.

Consumer deposits increased $9.7 million.

Commercial deposits increased by $11.3 million.

Brokered deposits decreased $30.1 million as the company decreased brokered MMDAs by $24.6 million and $5.5 million in brokered CDs matured and were not replaced.

Public deposits decreased $10.9 million, largely due to expected seasonal outflows.

Public deposits increased $20.8 million, largely due to expected seasonal inflows.

Deposits by type for five quarters are detailed below:

2025 December 31,

2024 September 30,

1 unchanged sentence

2024 March 31,

2024 December 31,

2023 September 30,

Consumer deposits $ 861,746 $ 852,083 $ 844,808 $ 822,665 $ 827,290

3 unchanged sentences

Total deposits $ 1,523,654 $ 1,488,148 $ 1,520,667 $ 1,519,544 $ 1,527,489

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

September 30,

2024 June 30,

2024 March 31, 2024 December 31, 2023 September 30,

At March 31, 2025, the deposit portfolio composition was 56% consumer, 28% commercial, 14% public, and 2% wholesale deposits compared to 57% consumer, 28% commercial, 13% public and 2% brokered deposits at December 31, 2024.

2025 December 31,

2024 September 30, 2024 June 30, 2024 March 31,

Non-interest bearing demand deposits $ 253,343 $ 252,656 $ 256,840 $ 255,703 $ 248,537

4 unchanged sentences

Total deposits $ 1,523,654 $ 1,488,148 $ 1,520,667 $ 1,519,544 $ 1,527,489

Uninsured and uncollateralized deposits were $267.1 million, or 18% of total deposits, at September 30, 2024, and $275.8 million, or 18% of total deposits, at December 31, 2023.

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

On-balance sheet liquidity collateralized new borrowing capacity and uncommitted federal funds borrowing availability was $718 million, or 269% of uninsured and uncollateralized deposits at September 30, 2024.

Uninsured and uncollateralized deposits were $271.7 million, or 18% of total deposits, at March 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024.

Uninsured deposits alone at March 31, 2025, were $444.4 million, or 29% of total deposits, and $428.0 million, or 29% of total deposits at December 31, 2024.

On-balance sheet liquidity collateralized new borrowing capacity and uncommitted federal funds borrowing availability was $852 million, or 314% of uninsured and uncollateralized deposits at March 31, 2025.

At December 31, 2024, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability totaled $724.8 million, or 273% of uninsured and uncollateralized deposits.

Federal Home Loan Bank (FHLB) advances and Other Borrowings.

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

September 30, 2024 December 31, 2023

A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at March 31, 2025, and December 31, 2024, is as follows:

March 31, 2025 December 31, 2024

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

Federal Home Loan Bank advances (1), (2), (3) 2025 $ 0 — % — % 2025 $ 5,000 1.45 % 1.45 %

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

2028 0 0.00 % 0.00 % 2028 10,000 3.82 % 3.82 %

Federal Home Loan Bank advances $ 0 $ 5,000

6 unchanged sentences

Totals $ 61,664 $ 66,606

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $1,082.0 million and $1,106.3 million at September 30, 2024 and December 31, 2023, respectively.

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

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

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

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

(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 $1,032.3 million and $1,075.0 million at March 31, 2025 and December 31, 2024, respectively.

At March 31, 2025, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $501.5 million compared to $424.7 million as of December 31, 2024.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $5.0 million and $81.0 million, during the three months ended March 31, 2025 and the twelve months ended December 31, 2024, respectively.

(3) There were no FHLB borrowings outstanding as of March 31, 2025.

The weighted-average interest rate on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2024, was 1.45%.

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

9 unchanged sentences

In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points.

The note is callable by the Bank when, and

anytime after, the floating rate is initially set.

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

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

FHLB advances decreased $58.5 million to $21.0 million as of September 30, 2024 , compared to $79.5 million as of December 31, 2023.

The decrease is a result of decreased funding needs due to increases in deposits, loan shrinkage and the FHLB’s call of a $10 million advance, with an interest rate of 3.82% in June of 2024.

The Company does not have any callable advances at September 30, 2024 .

At September 30, 2024 , short-term FHLB advances consisted of $16.0 million maturing in 2024 and other maturities of $5 million.

FHLB advances decreased to $0.0 million as of March 31, 2025, compared to $5.0 million as of December 31, 2024.

The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank.

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

The Bank’s current unused borrowing capacity, supported by loan collateral as of September 30, 2024 , is approximately $414.4 million.

At September 30, 2024 , and December 31, 2023, the Bank had the ability to borrow $27.1 million and $22.4 million from the Federal Reserve Bank of Minneapolis.

The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $34.7 million and $29.2 million as of September 30, 2024 and December 31, 2023, respectively.

There were no related Federal Reserve borrowings outstanding as of September 30, 2024 , or December 31, 2023.

The Bank’s current unused borrowing capacity, supported by loan collateral as of March 31, 2025, is approximately $501.5 million.

At March 31, 2025, and December 31, 2024, the Bank had the ability to borrow $25.1 million and $24.9 million from the Federal Reserve Bank of Minneapolis.

The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $33.6 million and $34.0 million as of March 31, 2025, and December 31, 2024, respectively.

There were no related Federal Reserve borrowings outstanding as of March 31, 2025, or December 31, 2024.

The Bank maintains two unsecured federal funds purchased lines of credit with banking partners which total $70 million.

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

There were no borrowings outstanding on these lines of credit as of September 30, 2024 , or December 31, 2023.

There were no borrowings outstanding on these lines of credit as of March 31, 2025, or December 31, 2024.

Additionally, we have a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.

1 unchanged sentence

Stockholders’ Equity.

Stockholders’ equity was $180.1 million at September 30, 2024, compared to $173.3 million at December 31, 2023.

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

The Company repurchased 223 thousand shares of the Company’s common stock in the third quarter of 2024 at an average price of $12.91 per share.

The Company repurchased 382 thousand shares of the Company’s common stock in the nine-month period ended September 30, 2024, at an average price of $12.32 per share.

As of September 30, 2024, approximately 333 thousand shares remain available for repurchase under the July 2024 share repurchase authorization.

Stockholders’ equity was $180.1 million at March 31, 2025, compared to $179.1 million at December 31, 2024.

The increase in stockholder’s equity was attributable to net income of $3.2 million for the three-month period ended March 31, 2025, a decrease from December 31, 2024, in net unrealized losses of $1.455 million from the AFS securities portfolio reflected in accumulated other comprehensive income, partially offset by the annual cash dividend paid in February to common stockholders of $0.36 per share, or $3.6 million.

The Company repurchased no shares of common stock in the quarter-ended March 31, 2025.

As of March 31, 2025, approximately 238 thousand shares remain available for repurchase under the July 2024 share repurchase authorization.

Liquidity and Asset / Liability Management.

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A key metric we monitor is our liquidity ratio, calculated as cash and unpledged securities portfolio divided by total assets.

At September 30, 2024 , our on-balance sheet liquidity ratio increased by 0.1% to 11.5% from the December 31, 2023, level.

At March 31, 2025, our on-balance sheet liquidity ratio increased by 2.63% to 14.38% from the December 31, 2024, level.

There are no material customers or industry deposit concentrations.

A decrease in deposits during January occurred as commercial customers decreased their cash balances to support the needs of their businesses.

Uninsured and uncollateralized deposits were $267.1 million, or 18% of total deposits, at September 30, 2024, and $275.8 million, or 18% of total deposits, at December 31, 2023.

Deposits decreased during January 2025, as commercial customers decreased their cash balances to support the needs of their businesses.

At March 31, 2025, the deposit portfolio composition was 56% consumer, 28% commercial, 14% public, and 2% brokered deposits compared to 57% consumer, 28% commercial, 13% public and 2% brokered deposits at December 31, 2024.

Uninsured and uncollateralized deposits were $271.1 million, or 18% of total deposits, at March 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024.

Uninsured deposits alone, i.e., excluding fully secured government deposits, at March 31, 2025, were $444.4 million, or 29% of total deposits, and $428.0 million, or 29% of total deposits at December 31, 2024.

At December 31, 2024, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability totaled $724.8 million, or 273% of uninsured and uncollateralized deposits.

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We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk.

Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate, commercial and industrial loans, and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets.

Currently, we have approximately $414.4 million available to borrow under this arrangement, supported by loan collateral as of September 30, 2024.

Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate, commercial and industrial loans, and borrowing up to 75% of the value of those loans, not

to exceed 35% of the Bank’s total assets.

Currently, we have approximately $501.5 million available to borrow under this arrangement, supported by loan collateral as of March 31, 2025.

We also had borrowing capacity of $25.1 million at the Federal Reserve Bank.

The Bank maintains $70 million of uncommitted federal funds purchased lines with correspondent banks as part of our contingency funding plan.

In addition, the Company has a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.

While the Bank does not have formal brokered certificate lines of credit with counter parties at September 30, 2024, we believe that the Bank could access this market, which provides an additional potential source of liquidity, as evidenced by access to this market during the past four quarters.

In addition, we have a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.

While the Bank does not have formal brokered certificate lines of credit with counter parties at March 31, 2025, we believe that the Bank could access this market, which provides an additional potential source of liquidity, as evidenced by access to this market during the past four quarters.

See Note 7, “Federal Home Loan Bank and Other Borrowings” of “Notes to Consolidated Financial Statements” which are included in Part I, Item 1, “Financial Statements and Supplementary Data” of this Form 10-Q, for further detail.

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These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit.

As of September 30, 2024, the Company had approximately $147.9 million in unused loan commitments, compared to approximately $210.4 million in unused commitments as of December 31, 2023.

In addition, there are $3.1 million of commitments for contributions of capital to an SBIC and an investment company at September 30, 2024.

As of March 31, 2025, the Company had approximately $171.0 million in unused loan commitments, compared to approximately $137.0 million in unused commitments as of December 31, 2024.

In addition, there are $2.2 million of commitments for contributions of capital to an SBIC and an investment company at March 31, 2025.

These commitments totaled $2.9 million at December 31, 2024.

Capital Resources.

As of September 30, 2024, and December 31, 2023, as shown in the table below, the Bank’s Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions.

As of March 31, 2025, and December 31, 2024, as shown in the table below, the Bank’s Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions.

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

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Amount Ratio Amount Ratio Amount Ratio

As of September 30, 2024 (Unaudited)

As of March 31, 2025 (Unaudited)

Total capital (to risk weighted assets) $ 225,675 15.6 % $ 115,795 > = 8.0 % $ 144,744 > = 10.0 %

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Tier 1 leverage ratio (to adjusted total assets) 207,749 11.9 % 69,787 > = 4.0 % 87,234 > = 5.0 %

At September 30, 2024, and December 31, 2023, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.

At March 31, 2025, and December 31, 2024, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.

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

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Amount Ratio Amount Ratio

As of September 30, 2024 (Unaudited)

As of March 31, 2025 (Unaudited)

Total capital (to risk weighted assets) $ 231,949 16.0 % $ 115,988 > = 8.0 %

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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 2. Management’s Discussion and Analysis