Citizens Community Bancorp Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain matters discussed in this report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the Company intends that these forward-looking statements be covered by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “estimates,” “intend,” “may,” “preliminary,” “planned,” “potential,” “should,” “will,” “would,” or the negative of those terms or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are inherently subject to many uncertainties in the Company’s operations and business environment. Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 13, 2025 (“2024 10-K”), and the following: • conditions in the financial markets and economic conditions generally; • the impact of inflation on our business and our customers; • geopolitical tensions, including current or anticipated impact of military conflicts; • higher lending risks associated with our commercial and agricultural banking activities; • future pandemics (including new variants of COVID-19); • cybersecurity risks; • adverse impacts on the regional banking industry and the business environment in which we operate; • interest rate risk; • lending risk; • changes in the fair value or ratings downgrades of our securities; • the sufficiency of allowance for credit losses; • competitive pressures among depository and other financial institutions; • disintermediation risk; • our ability to maintain our reputation; • our ability to maintain or increase our market share; • our ability to realize the benefits of net deferred tax assets; • our inability to obtain needed liquidity; • our ability to raise capital needed to fund growth or meet regulatory requirements; • our ability to attract and retain key personnel; • our ability to keep pace with technological change; • prevalence of fraud and other financial crimes; • the possibility that our internal controls and procedures could fail or be circumvented; • our ability to successfully execute our acquisition growth strategy; • risks posed by acquisitions and other expansion opportunities, including difficulties and delays in integrating the acquired business operations or fully realizing the cost savings and other benefits; • restrictions on our ability to pay dividends; • the potential volatility of our stock price; • accounting standards for credit losses; • legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or Bank; • public company reporting obligations; 59 • changes in federal or state tax laws; and • changes in accounting principles, policies or guidelines and their impact on financial performance. Stockholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this filing and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this report. GENERAL The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of 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. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands. PERFORMANCE SUMMARY The following is a summary of some of the significant factors that affected our operating results for the three 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 $3.2 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 Our consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses, and their related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that our management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. In addition to the policies included in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included as an exhibit in our annual report on our 2024 10-K, our critical accounting estimates are as follows: 60 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. We have selected a loss estimation methodology, utilizing a third-party model. See also Notes 1 and 3 to the unaudited consolidated financial statements for further discussion of our adoption of ASU 2016-13. Allowance for Credit Losses - Loans. We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing quarterly assessments of the estimated lifetime losses in our loan portfolio. In evaluating the level of the allowance for credit losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions, and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration. We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for credit losses recorded during a particular period may be adjusted. Our determination of the allowance for credit losses - loans is based on: (1) an individual allowance for specifically identified and evaluated loans that management has determined have unique risk characteristics. For these loans, the estimated loss is based on likelihood of default, payment history, and net realizable value of underlying collateral. Allowance for credit losses for collateral dependent loans are based on the fair value of the underlying collateral relative to the amortized cost of the loans. For loans that are not collateral dependent, the allowance for credit losses is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a collective allowance for loans not specifically identified in (1) above. The allowance for these loans is estimated by pooling loans with a similar risk profile and calculating a collective loss rate using the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. This collectively estimated loss is adjusted for qualitative factors. Assessing the allowance for credit losses - loans is inherently subjective as it requires making material estimates, including the amount, and timing of future cash flows expected to be received on collateral dependent loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio. STATEMENT OF OPERATIONS ANALYSIS Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest-bearing assets and the dollar amount of interest paid on interest-bearing liabilities. The interest income and expense of financial institutions (including those of the Bank) are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors. Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, and net interest margin for the three-month 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. 61 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 March 31, 2025, and March 31, 2024. Non-accruing loans have been included in the table as loans carrying a zero yield. NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS (Dollar amounts in thousands) Three months ended March 31, 2025, compared to the three months ended March 31, 2024: Three months ended March 31, 2025 Three months ended March 31, 2024 Average Balance Interest Income/ Expense Average Yield/ Rate Average Balance Interest Income/ Expense Average Yield/ Rate Average interest earning assets: Cash and cash equivalents $ 47,835 $ 524 4.44 % $ 13,071 $ 191 5.88 % Loans 1,363,352 18,602 5.53 % 1,456,586 20,168 5.57 % Investment securities 228,514 1,808 3.21 % 243,991 2,060 3.40 % Other investments 12,498 169 5.48 % 13,350 260 7.83 % Total interest earning assets $ 1,652,199 $ 21,103 5.18 % $ 1,726,998 $ 22,679 5.28 % Average interest-bearing liabilities: Savings accounts $ 167,001 $ 407 0.99 % $ 176,838 $ 421 0.96 % Demand deposits 382,355 2,033 2.16 % 353,995 2,017 2.29 % Money market 365,528 2,535 2.81 % 377,475 2,920 3.11 % CD’s 343,751 3,622 4.27 % 360,177 3,851 4.30 % Total deposits $ 1,258,635 $ 8,597 2.77 % $ 1,268,485 $ 9,209 2.92 % FHLB Advances and other borrowings 64,635 912 5.72 % 124,701 1,565 5.05 % Total interest-bearing liabilities $ 1,323,270 $ 9,509 2.91 % $ 1,393,186 $ 10,774 3.11 % Net interest income $ 11,594 $ 11,905 Interest rate spread 2.27 % 2.17 % Net interest margin 2.85 % 2.77 % Average interest earning assets to average interest-bearing liabilities 1.25 1.24 62 Rate/Volume Analysis. The following tables present the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e., holding the initial rate constant); and (2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant). Rate and volume changes have been discussed previously in the net interest income section above. RATE / VOLUME ANALYSIS (Dollar amounts in thousands) Three months ended March 31, 2025, compared to the three months ended March 31, 2024. Increase (decrease) due to Volume Rate Net Interest income: Cash and cash equivalents $ 412 $ (79) $ 333 Loans (1,273) (293) (1,566) Investment securities (126) (126) (252) Other investments (16) (75) (91) Total interest earning assets (1,003) (573) (1,576) Interest expense: Savings accounts (24) 10 (14) Demand deposits 155 (139) 16 Money market accounts (89) (296) (385) CD’s (173) (56) (229) Total deposits (131) (481) (612) FHLB Advances and other borrowings (296) (357) (653) Total interest bearing liabilities (427) (838) (1,265) Net interest income $ (576) $ 265 $ (311) 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 % 63 Provision for Credit Losses. We determine our provision for credit losses (“provision”) based on our desire to provide an adequate Allowance for Credit Losses (“ACL”) - Loans to reflect estimated lifetime losses in our loan portfolio and ACL - Unfunded Commitments to reflect estimated losses on our unfunded commitments to lend. We use a third-party model to collectively evaluate and estimate the ACL on loans and unfunded commitments on a pooled basis. The model pools loans and commitments with similar characteristics and calculates an estimated loss rate for the pool based on identified risk drivers. These risk drivers vary with loan type. Projections about future economic conditions and the effect they could have on future losses are inherent in the model. Loans with uniquely identified circumstances and risks are individually evaluated. Lifetime losses on these loans are estimated based on the loans’ individual characteristics. The total benefit, i.e., negative provision, for credit losses 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-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. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers, or our market areas, or otherwise, could all affect the adequacy of our ACL. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future. Non-interest Income . The following table reflects the various components of non-interest income for the three-month periods ended March 31, 2025 and 2024, respectively. Three months ended March 31, 2025 2024 % Change Non-interest Income: Service charges on deposit accounts $ 423 $ 471 (10.19) % Interchange income 518 541 (4.25) % Loan servicing income 559 582 (3.95) % Gain on sale of loans 720 1,020 (29.41) % Loan fees and service charges 120 230 (47.83) % Net gains on equity securities 10 167 N/M Other 243 253 (3.95) % Total non-interest income $ 2,593 $ 3,264 (20.56) % 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. 64 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-month periods ended March 31, 2025 and 2024, respectively. Three months ended March 31, 2025 2024 % Change Non-interest Expense: Compensation and related benefits $ 5,597 $ 5,483 2.08 % Occupancy 1,287 1,367 (5.85) % Data processing 1,719 1,597 7.64 % Amortization of intangible assets 179 179 — % Mortgage servicing rights expense, net 140 148 (5.41) % Advertising, marketing and public relations 167 164 1.83 % FDIC premium assessment 198 205 (3.41) % Professional services 508 566 (10.25) % Gains on repossessed assets, net 4 — N/M Other 664 1,068 (37.83) % Total non-interest expense $ 10,463 $ 10,777 (2.91) % Non-interest expense (annualized) / Average assets 2.41 % 2.36 % 2.12 % 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 $0.8 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 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. We manage our securities portfolio to provide liquidity, modify interest rate risk and enhance income. Our investment portfolio is comprised of securities available-for-sale and securities held-to-maturity. Securities available-for-sale decreased $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. 65 The amortized cost and market values of our available-for-sale securities by asset categories as of the dates indicated below were as follows: Available-for-sale securities Amortized Cost Fair Value March 31, 2025 U.S. government agency obligations $ 13,062 $ 12,986 Mortgage-backed securities 86,510 68,704 Corporate debt securities 42,436 39,591 Asset-backed securities 18,496 18,361 Totals $ 160,504 $ 139,642 December 31, 2024 U.S. government agency obligations $ 13,853 $ 13,753 Mortgage-backed securities 87,762 68,386 Corporate debt securities 44,931 41,716 Asset-backed securities 19,058 18,996 Totals $ 165,604 $ 142,851 The amortized cost and fair value of our held-to-maturity securities by asset categories as of the dates noted below were as follows: Held-to-maturity securities Amortized Cost Fair Value March 31, 2025 Obligations of states and political subdivisions $ 400 $ 379 Mortgage-backed securities 83,901 65,812 Totals $ 84,301 $ 66,191 December 31, 2024 Obligations of states and political subdivisions $ 500 $ 478 Mortgage-backed securities 85,004 65,144 Totals $ 85,504 $ 65,622 66 The composition of our available-for-sale portfolios by credit rating as of the dates indicated below was as follows: March 31, 2025 December 31, 2024 Available-for-sale securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 92,066 $ 74,225 $ 94,327 $ 74,910 AAA 7,677 7,649 7,210 7,148 AA 20,343 20,169 19,136 19,077 A 5,100 4,427 5,950 5,620 BBB 35,318 33,172 38,981 36,096 Non-rated — — — — Total available for sale securities $ 160,504 $ 139,642 $ 165,604 $ 142,851 The composition of our held-to-maturity portfolio by credit rating as of the dates indicated was as follows: March 31, 2025 December 31, 2024 Held-to-maturity securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 83,901 $ 65,812 $ 85,004 $ 65,144 A 400 379 500 478 Total $ 84,301 $ 66,191 $ 85,504 $ 65,622 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 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. As of December 31, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2024, 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 $1.8 million as collateral against specific municipal deposits. 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. 67 Loans. 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 Real estate loans: Commercial/Agricultural real estate Commercial real estate $ 709,975 52.5 % $ 709,018 51.8 % Agricultural real estate 71,071 5.3 % 73,130 5.3 % Multi-family real estate 237,872 17.6 % 220,805 16.1 % Construction and land development 58,461 4.3 % 78,489 5.7 % Residential mortgage Residential mortgage 129,070 9.5 % 132,341 9.7 % Purchased HELOC loans 2,560 0.2 % 2,956 0.2 % Total real estate loans 1,209,009 89.4 % 1,216,739 88.8 % C&I/Agricultural operating and Consumer Installment Loans: C&I/Agricultural operating Commercial and industrial (“C&I”) 109,620 8.1 % 115,657 8.4 % Agricultural operating 29,310 2.2 % 31,000 2.3 % Consumer installment Originated indirect paper 3,434 0.3 % 3,970 0.4 % Other consumer 4,679 0.3 % 5,012 0.4 % Total C&I/Agricultural operating and Consumer installment Loans 147,043 10.9 % 155,639 11.5 % Gross loans $ 1,356,052 100.3 % $ 1,372,378 100.3 % Unearned net deferred fees and costs and loans in process (2,542) (0.2) % (2,547) (0.2) % Unamortized discount on acquired loans (782) (0.1) % (850) (0.1) % Total loans (net of unearned income and deferred expense) 1,352,728 100.0 % 1,368,981 100.0 % Allowance for credit losses (20,205) (20,549) Total loans receivable, net $ 1,332,523 $ 1,348,432 Commercial real estate (”CRE”) lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis. 68 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 Loan Balance Outstanding in Millions $ 471 $ 239 $ 238 $ 58 Number of Loans 740 388 131 93 Average Loan Size in Millions $ 0.6 $ 0.6 $ 1.8 $ 0.6 Approximate Weighted Average LTV 52 % 53 % 61 % 70 % Weighted Average Seasoning in Months 46 43 42 N/A Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 % Criticized Loans in Millions $ 7.6 $ 8.3 $ 0.0 $ 0.0 Criticized Loans as a Percent of Total 1.6 % 3.5 % 0.0 % 0.0 % 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 51 % 80 % 61 % 70 % Minnesota 21 % 16 % 28 % 8 % Other 28 % 4 % 11 % 22 % 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 Loan Balance Outstanding in Millions $ 141 $ 87 $ 58 $ 28 Number of Loans 71 20 82 72 Average Loan Size in Millions $ 2.0 $ 4.4 $ 0.7 $ 0.4 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 % 69 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 Trailing 12 Month Net Charge-Offs 0.00 % (0.04) % 0.00 % 0.00 % Criticized Loans in Millions $ 0.0 $ 4.0 $ 0.0 $ 0.5 Criticized Loans as a Percent of Total 0.0 % 4.6 % 0.1 % 1.8 % The table below lists our CRE portfolio selected industry components by geographical location: Campground Hotel Restaurant Office Wisconsin 21 % 38 % 57 % 83 % Minnesota 0 % 41 % 27 % 8 % Other 79 % 21 % 16 % 9 % 70 Allowance for Credit Losses - Loans. The Allowance for Credit Losses - Loans (“ACL”) is a valuation allowance for expected future credit losses in the Company’s loan portfolio as of the balance sheet date. In determining the allowance, the Company estimates credit losses over the loan’s entire contractual term, adjusted for expected prepayments when appropriate. The allowance estimate considers qualitative and quantitative relevant information from internal and external sources relating to historical loss experience; known and inherent risks in our portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; reasonable and supportable forecasts for future conditions; and other relevant factors determined by management. To ensure that the ACL is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance. The entire ACL balance is available for any loan that, in management’s judgment, should be charged off. The determination of the ACL requires significant judgement to estimate credit losses. The ACL is measured collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that the loan does not share similar risk characteristics with other loans. The ACL on loans collectively evaluated is measured using the loss rate model. The Company categorizes its loan portfolio into four segments based on similar risk characteristics. Loans within each segment are pooled based on individual loan characteristics. Aggregated risk drivers are then calculated at a pool level. Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type. A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. The loss rate is then combined with the loan’s balance and contractual maturity, adjusted for expected prepayments, to determine expected future losses. Future and supportable economic forecasts are based on national economic conditions and their reversion to the mean is implicit in the model and generally occurs over a period of two years. Qualitative adjustments are made to the allowance calculated on collectively evaluated loans to incorporate factors not included in the model. Qualitative factors include but are not limited to: lending policies and procedures, the experience and ability of lending and other staff, the volume and severity of problem credits, quality of the loan review system, and other external factors. Loans that exhibit different risk characteristics from the pool are individually evaluated for credit losses. Loans can be identified for individual evaluation for a variety of reasons including delinquency, nonaccrual status, risk rating and loan modification. Accruing loans that exhibit different risk characteristics from their pool may also be within scope. On these loans, an allowance may be established so that the loan is reported, net, at the lower of: (a) its amortized cost; (b) the present value of the loan’s estimated future cash flows using the loan’s existing rate; or (c) at the fair value of any loan collateral, less estimated disposal costs, if the loan is collateral dependent. Collateral dependency is determined using the practical expedient when: (1) the borrower is experiencing financial difficulty; and (2) repayment is expected to be provided substantially through the sale or operation of the collateral. In addition, various regulatory agencies periodically review the ACL. These agencies may require the Company to make additions to the ACL or may require that certain loan balances be charged off or downgraded into classified loan categories when the agencies’ evaluation differs from management’s evaluation based on their judgments of collectability from the information available to them at the time of examination. The Allowance for Credit Losses - Unfunded Commitments is a liability for expected future credit losses on the Company’s commitments to lend. The Company estimates expected credit losses over the contractual period for which the Company is exposed to credit risk, via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The Allowance for Credit Losses - Unfunded Commitments on off-balance sheet exposures is included in other liabilities on the consolidated balance sheet. 71 Allowance for Credit Losses - Loans Roll Forward (in thousands, except ratios) March 31, 2025 and Three Months Ended December 31, 2024 and Three Months Ended Allowance for Credit Losses (“ACL”) ACL - Loans, at beginning of period $ 20,549 $ 21,000 Loans charged off: Commercial/Agricultural real estate (51) — C&I/Agricultural operating (20) (143) Residential mortgage — — Consumer installment (11) (7) Total loans charged off (82) (150) Recoveries of loans previously charged off: Commercial/Agricultural real estate 40 10 C&I/Agricultural operating 45 1 Residential mortgage 1 — Consumer installment 3 12 Total recoveries of loans previously charged off: 89 23 Net loan recoveries/(charge-offs) (“NCOs”) 7 (127) (Reversals)/additions to ACL - Loans via provision for credit losses charged to operations (351) (324) ACL - Loans, at end of period $ 20,205 $ 20,549 Average outstanding loan balance $ 1,363,352 $ 1,396,854 Ratios: NCOs (annualized) to average loans 0.00 % 0.04 % Allowance for Credit Losses - Loans Activity by Segment (in thousands, except ratios) Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Total Three months ended March 31, 2025 Allowance for Credit Losses - Loans: ACL - Loans, at beginning of period $ 16,516 $ 1,330 $ 2,489 $ 214 $ 20,549 Charge-offs (51) (20) — (11) (82) Recoveries 40 45 1 3 89 (Reversals)/additions to ACL - Loans via provision for credit losses charged to operations (261) 75 (152) (13) (351) ACL - Loans, at end of period $ 16,244 $ 1,430 $ 2,338 $ 193 $ 20,205 72 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 Twelve months ended December 31, 2024 Allowance for Credit Losses - Loans: ACL - Loans, at beginning of period $ 18,784 $ 1,105 $ 2,744 $ 275 $ 22,908 Charge-offs (39) (143) (4) (35) (221) Recoveries 56 36 7 22 121 (Reversals)/additions to ACL - Loans via provision for credit losses charged to operations (2,285) 332 (258) (48) (2,259) ACL - Loans, at end of period $ 16,516 $ 1,330 $ 2,489 $ 214 $ 20,549 Allowance for Credit Losses - Loans to Percentage (in thousands, except ratios) March 31, 2025 December 31, 2024 Loans, end of period $ 1,352,728 $ 1,368,981 ACL - Loans $ 20,205 $ 20,549 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 $0.44 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) March 31, 2025 and Three Months Ended December 31, 2024 and Twelve Months Ended ACL - Unfunded Commitments - beginning of period $ 334 $ 1,250 Increases to ACL - Unfunded Commitments via provision for credit losses charged to operations 101 (916) ACL - Unfunded Commitments - end of period $ 435 $ 334 Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of nonaccrual and problem loans in order to minimize the Bank’s risk of loss. Nonperforming loans are defined as nonaccrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that such classification is warranted. The accrual of interest income is discontinued on our loans according to the following schedule: • Commercial/agricultural real estate loans, past due 90 days or more; • C&I/Agricultural operating loans, past due 90 days or more; • Closed ended consumer installment loans, past due 120 days or more; and • Residential mortgage loans and open-ended consumer installment loans, past due 180 days or more. When interest accruals are discontinued, interest credited to income is reversed. If collection is in doubt, cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income. 73 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: March 31, 2025 and Three Months Then Ended (1) December 31, 2024 and Twelve Months Then Ended (1) Nonperforming assets: Nonaccrual loans Commercial real estate $ 4,948 $ 4,594 Agricultural real estate 5,934 6,222 Construction and land development — 103 Commercial and industrial 701 597 Agricultural operating 725 793 Residential mortgage 782 858 Consumer installment 1 1 Total nonaccrual loans $ 13,091 $ 13,168 Accruing loans past due 90 days or more 568 186 Total nonperforming loans (“NPLs”) 13,659 13,354 Other real estate owned 876 891 Other collateral owned — 24 Total nonperforming assets (“NPAs”) $ 14,535 $ 14,269 Average outstanding loan balance $ 1,363,352 $ 1,430,631 Loans, end of period $ 1,352,728 $ 1,368,981 Total assets, end of period $ 1,779,963 $ 1,748,519 ACL - Loans, at beginning of period $ 20,549 $ 22,908 Loans charged off: Commercial/Agricultural real estate $ (51) $ (39) C&I/Agricultural operating (20) (143) Residential mortgage — (4) Consumer installment (11) (35) Total loans charged off (82) (221) Recoveries of loans previously charged off: Commercial/Agricultural real estate 40 56 C&I/Agricultural operating 45 36 Residential mortgage 1 7 Consumer installment 3 22 Total recoveries of loans previously charged off: 89 121 Net loan recoveries/(charge-offs) (“NCOs”) 7 (100) (Reductions) additions to ACL - loans via provision for credit losses charged to operations (351) (2,259) ACL - Loans, at end of period $ 20,205 $ 20,549 Ratios: ACL-Loans to NCOs (annualized) N/M N/M NCOs (annualized) to average loans 0.00 % (0.01) % ACL-Loans to total loans 1.49 % 1.50 % ACL-Loans to nonaccrual loans 154.34 % 156.05 % Nonaccrual loans to total loans 0.97 % 0.96 % NPLs to total loans 1.01 % 0.98 % NPAs to total assets 0.82 % 0.82 % (1) Loan balances are stated at amortized cost. N/M means not meaningful 74 Nonaccrual Loans Roll Forward: Quarter Ended March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 Balance, beginning of period $ 13,168 $ 15,042 $ 8,352 $ 8,413 $ 13,184 Additions 694 1,054 7,486 352 961 Charge offs (21) (138) — — — Transfers to OREO — (201) (124) — — Payments received (752) (2,515) (641) (411) (5,767) Other, net 2 (74) (31) (2) 35 Balance, end of period $ 13,091 $ 13,168 $ 15,042 $ 8,352 $ 8,413 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 March 31, 2025: Other-Than-Insignificant Payment Delay Loan Class Amortized Cost Basis at March 31, 2025 % of Total Class of Financing Receivables Commercial real estate $ 322 0.05 % Residential mortgage $ 120 0.09 % 75 The table below shows a summary of criticized loans, split by special mention and substandard for the past five quarters. 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) March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 Special mention loan balances $ 14,990 $ 8,480 $ 11,047 $ 8,848 $ 13,737 Substandard loan balances 19,591 18,891 21,202 14,420 14,733 Criticized loans, end of period $ 34,581 $ 27,371 $ 32,249 $ 23,268 $ 28,470 Mortgage Servicing Rights. Mortgage servicing rights (“MSR”) assets are initially measured at fair value; assessed at least quarterly for impairment; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations. The valuation of MSRs and related amortization thereon are based on numerous factors, assumptions, and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs. The fair market value of the Company’s MSR asset was $5.1 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. Deposits. 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. Public deposits increased $20.8 million, largely due to expected seasonal inflows. Deposits by type for five quarters are detailed below: March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 Consumer deposits $ 861,746 $ 852,083 $ 844,808 $ 822,665 $ 827,290 Commercial deposits 423,654 412,355 406,095 395,148 400,910 Public deposits 211,261 190,460 176,844 187,698 202,175 Brokered deposits 26,993 33,250 92,920 114,033 97,114 Total deposits $ 1,523,654 $ 1,488,148 $ 1,520,667 $ 1,519,544 $ 1,527,489 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. March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 Non-interest bearing demand deposits $ 253,343 $ 252,656 $ 256,840 $ 255,703 $ 248,537 Interest bearing demand deposits 386,302 355,750 346,971 353,477 361,278 Savings accounts 167,614 159,821 169,096 170,946 177,595 Money market accounts 370,741 369,534 366,067 370,164 387,879 Certificate accounts 345,654 350,387 381,693 369,254 352,200 Total deposits $ 1,523,654 $ 1,488,148 $ 1,520,667 $ 1,519,544 $ 1,527,489 76 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. 77 Federal Home Loan Bank (FHLB) advances and Other Borrowings. 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 % Federal Home Loan Bank advances $ 0 $ 5,000 Senior Notes (4) 2039 $ 12,000 6.75 % 6.75 % 2039 $ 12,000 6.75 % 7.75 % Subordinated Notes (5) 2030 $ 15,000 6.00 % 6.00 % 2030 $ 15,000 6.00 % 6.00 % 2032 35,000 4.75 % 4.75 % 2032 35,000 4.75 % 4.75 % $ 50,000 $ 50,000 Unamortized debt issuance costs (336) (394) Total other borrowings $ 61,664 $ 61,606 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 $1,032.3 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: (a) A term note, which was subsequently refinanced in March 2022, modified in February of 2023, and refinanced in May 2024, requiring quarterly interest-only payments through January 2029, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%. (b) A $5.0 million line of credit, maturing August 1, 2025, that remains undrawn upon. (5) Subordinated notes resulted from the following: (a) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period. (b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years. In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period. 78 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 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 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. See Note 7, “Federal Home Loan Bank Advances and Other Borrowings” for more information. Stockholders’ Equity. 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. Liquidity management refers to our ability to ensure cash is available in a timely manner to meet loan demand, depositors’ needs, and meet other financial obligations as they become due without undue cost, risk, or disruption to normal operating activities. We manage and monitor our short-term and long-term liquidity positions and needs through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk. A key metric we monitor is our liquidity ratio, calculated as cash and unpledged securities portfolio divided by total assets. At 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. 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. 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. Our primary sources of funds are deposits, amortization, prepayments and maturities on the investment and loan portfolios and funds provided from operations. We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, and to fund loan commitments. While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Although $328.3 million of our $345.7 million (95%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s. We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank, and our correspondent banks. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk. Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate, commercial and industrial loans, and borrowing up to 75% of the value of those loans, not 79 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, 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. In reviewing the adequacy of our liquidity, we review and evaluate historical financial information, including information regarding general economic conditions, current ratios, management goals and the resources available to meet our anticipated liquidity needs. Management believes that our liquidity is adequate, and to management’s knowledge, there are no known events or uncertainties that will result or are likely to reasonably result in a material increase or decrease in our liquidity. Off-Balance Sheet Liabilities . In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments, issued to meet customer financial needs. Such financial instruments are recorded in the financial statements when they become payable. These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of 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. 80 Capital Resources. 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: Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio As of March 31, 2025 (Unaudited) Total capital (to risk weighted assets) $ 225,675 15.6 % $ 115,795 > = 8.0 % $ 144,744 > = 10.0 % Tier 1 capital (to risk weighted assets) 207,551 14.3 % 86,846 > = 6.0 % 115,795 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 207,551 14.3 % 65,135 > = 4.5 % 94,084 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 207,551 12.0 % 69,020 > = 4.0 % 86,275 > = 5.0 % As of December 31, 2024 (Audited) Total capital (to risk weighted assets) $ 225,432 15.6 % $ 115,755 > = 8.0 % $ 144,693 > = 10.0 % Tier 1 capital (to risk weighted assets) 207,749 14.4 % 86,816 > = 6.0 % 115,755 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 207,749 14.4 % 65,112 > = 4.5 % 94,051 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 207,749 11.9 % 69,787 > = 4.0 % 87,234 > = 5.0 % 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: Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio As of March 31, 2025 (Unaudited) Total capital (to risk weighted assets) $ 231,949 16.0 % $ 115,988 > = 8.0 % Tier 1 capital (to risk weighted assets) 163,825 11.3 % 86,991 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 163,825 11.3 % 65,243 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 163,825 9.5 % 69,117 > = 4.0 % As of December 31, 2024 (Audited) Total capital (to risk weighted assets) $ 232,926 16.1 % $ 115,914 > = 8.0 % Tier 1 capital (to risk weighted assets) 165,243 11.4 % 86,936 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 165,243 11.4 % 65,202 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 165,243 9.5 % 69,867 > = 4.0 % 81