0001367859czwi:CIAgriculturalOperatingPortfolioSegmentMemberczwi:SmallBusinessAssociationPaycheckProtectionProgramLoansMemberus-gaap:FinancialAssetNotPastDueMember2021-12-31



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017June 30, 2022
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to 
Commission file number 001-33003
CITIZENS COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Maryland
20-5120010
Maryland
20-5120010
(State or other jurisdiction of

incorporation or organization)
(IRS Employer

Identification Number)

2174 EastRidge Center
Eau Claire, WI 54701
(Address and Zip Code of principal executive offices)

715-836-9994
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per shareCZWINASDAQ Global Market

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




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x☒    No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large“large accelerated filer"filer”, "accelerated filer"“accelerated filer”, “smaller reporting company” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
Act:
Large accelerated filer¨☐Accelerated filer¨☐
Non-accelerated filer
¨ (do not check if a smaller reporting company)
☒		Smaller reporting company  x☒
Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨ ☐No  x☒

APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the registrant’sissuer’s classes of common stock, as of the latest practicable date:
At February 13, 2018August 4, 2022 there were 5,902,48110,530,415 shares of the registrant’s common stock, par value $0.01 per share, outstanding.




CITIZENS COMMUNITY BANCORP, INC.
FORM 10-Q
December 31, 2017June 30, 2022
INDEX
Page Number
Item 1.
Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2017 (Unaudited) and September 30, 20172021
45
Consolidated Statements of Operations (Unaudited) for the three and six months ended December 31, 2017 June 30, 2022 and 20162021
56
Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended December 31, 2017June 30, 2022 and 20162021
67
Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the three six months endedJune 30, 2022 and the year ended December 31, 20172021
78
Consolidated Statements of Cash Flows (Unaudited) for the three six months ended December 31, 2017June 30, 2022 and 20162021
810
Condensed Notes to Consolidated Financial Statements (Unaudited)
912
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
4157
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
5881
Item 4.
Controls and Procedures
6082
6083
Item 1.
6083
Item 1A.
6284
Item 2.
6284
Item 3.
6284
Item 4.
6284
Item 5.
6284
Item 6.
6385
6486
 

3
2



PART 1 – FINANCIAL INFORMATION


ITEM 1.FINANCIAL STATEMENTS

ITEM 1.FINANCIAL STATEMENTS
3
4




CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets
June 30, 2022 (unaudited) and December 31, 2017 (unaudited) and September 30, 20172021
(derived from audited financial statements)
(in thousands, except share and per share data)
December 31, 2017 September 30, 2017June 30, 2022December 31, 2021
Assets   Assets
Cash and cash equivalents$47,215
 $41,677
Cash and cash equivalents$31,743 $47,691 
Other interest-bearing deposits7,155
 8,148
Other interest bearing depositsOther interest bearing deposits1,505 1,511 
Securities available for sale "AFS"96,548
 95,883
Securities available for sale "AFS"177,068 203,068 
Securities held to maturity "HTM"5,227
 5,453
Securities held to maturity "HTM"99,249 71,141 
Non-marketable equity securities, at cost8,151
 7,292
Equity investmentsEquity investments1,365 1,328 
Other investmentsOther investments14,899 15,305 
Loans receivable730,918
 732,995
Loans receivable1,346,855 1,310,963 
Allowance for loan losses(5,859) (5,942)Allowance for loan losses(16,825)(16,913)
Loans receivable, net725,059
 727,053
Loans receivable, net1,330,030 1,294,050 
Loans held for sale2,179
 2,334
Loans held for sale1,172 6,670 
Mortgage servicing rights1,866
 1,886
Mortgage servicing rights, netMortgage servicing rights, net4,520 4,161 
Office properties and equipment, net8,517
 9,645
Office properties and equipment, net21,589 21,169 
Accrued interest receivable3,189
 3,291
Accrued interest receivable4,243 3,916 
Intangible assets5,287
 5,449
Intangible assets3,100 3,898 
Goodwill10,444
 10,444
Goodwill31,498 31,498 
Foreclosed and repossessed assets, net7,031
 6,017
Foreclosed and repossessed assets, net1,437 1,408 
Bank owned life insurance ("BOLI")Bank owned life insurance ("BOLI")24,622 24,312 
Other assets15,164
 16,092
Other assets15,567 8,502 
TOTAL ASSETS$943,032
 $940,664
TOTAL ASSETS$1,763,607 $1,739,628 
   
   
Liabilities and Stockholders’ Equity   Liabilities and Stockholders’ Equity
Liabilities:   Liabilities:
Deposits$741,069
 $742,504
Deposits$1,400,210 $1,387,535 
Federal Home Loan Bank advances94,000
 90,000
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advancesFederal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) advances102,030 111,527 
Other borrowings29,899
 30,319
Other borrowings87,124 58,426 
Other liabilities3,610
 4,358
Other liabilities9,500 11,274 
Total liabilities868,578
 867,181
Total liabilities1,598,864 1,568,762 
   
Stockholders’ equity:   
Common stock— $0.01 par value, authorized 30,000,000, 5,883,603 and 5,888,816 shares issued and outstanding, respectively59
 59
Stockholders’ Equity:Stockholders’ Equity:
Common stock—$0.01 par value, authorized 30,000,000; 10,530,415 and 10,502,442 shares issued and outstanding, respectivelyCommon stock—$0.01 par value, authorized 30,000,000; 10,530,415 and 10,502,442 shares issued and outstanding, respectively105 105 
Additional paid-in capital63,348
 63,383
Additional paid-in capital119,987 119,925 
Retained earnings12,104
 10,764
Retained earnings56,928 50,675 
Unearned deferred compensation(391) (456)
Accumulated other comprehensive (loss) income(666) (267)Accumulated other comprehensive (loss) income(12,277)161 
Total stockholders’ equity74,454
 73,483
Total stockholders’ equity164,743 170,866 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$943,032
 $940,664
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,763,607 $1,739,628 
See accompanying condensed notes to unaudited consolidated financial statements.

5
4




CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations (unaudited)
Three and Six Months Ended December 31, 2017June 30, 2022 and 20162021
(in thousands, except per share data)
 Three Months EndedSix Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Interest and dividend income:
Interest and fees on loans$14,893 $13,960 $28,660 $28,477 
Interest on investments1,810 1,518 3,419 2,621 
Total interest and dividend income16,703 15,478 32,079 31,098 
Interest expense:
Interest on deposits985 1,521 2,053 3,235 
Interest on FHLB and FRB borrowed funds297 384 608 795 
Interest on other borrowed funds1,154 742 1,984 1,473 
Total interest expense2,436 2,647 4,645 5,503 
Net interest income before provision for loan losses14,267 12,831 27,434 25,595 
Provision for loan losses400 — 400 — 
Net interest income after provision for loan losses13,867 12,831 27,034 25,595 
Non-interest income:
Service charges on deposit accounts482 395 970 793 
Interchange income614 647 1,163 1,177 
Loan servicing income600 825 1,301 1,718 
Gain on sale of loans414 1,522 1,136 3,117 
Loan fees and service charges141 151 233 429 
Net gains (losses) on investment securities(75)37 (112)272 
Other196 216 394 463 
Total non-interest income2,372 3,793 5,085 7,969 
Non-interest expense:
Compensation and related benefits5,589 5,449 10,987 11,018 
Occupancy1,343 1,314 2,708 2,630 
Data processing1,415 1,422 2,716 2,792 
Amortization of intangible assets399 399 798 798 
Mortgage servicing rights expense, net195 441 (132)(9)
Advertising, marketing and public relations250 194 462 357 
FDIC premium assessment118 82 233 247 
Professional services368 362 770 864 
Gain on repossessed assets, net(2)(29)(9)(146)
New market tax credit depletion162 — 325 — 
Other625 564 1,272 1,136 
Total non-interest expense10,462 10,198 20,130 19,687 
Income before provision for income tax5,777 6,426 11,989 13,877 
Provision for income taxes1,411 1,720 2,917 3,665 
Net income attributable to common stockholders$4,366 $4,706 $9,072 $10,212 
Per share information:
Basic earnings$0.41 $0.44 $0.86 $0.94 
Diluted earnings$0.41 $0.44 $0.86 $0.94 
Cash dividends paid$— $— $0.26 $0.23 
See accompanying condensed notes to unaudited consolidated financial statements.
6
 Three Months Ended
 December 31, 2017 December 31, 2016
Interest and dividend income:   
Interest and fees on loans$8,721
 $6,530
Interest on investments691
 418
Total interest and dividend income9,412
 6,948
Interest expense:   
Interest on deposits1,202
 1,119
Interest on FHLB borrowed funds261
 173
Interest on other borrowed funds422
 99
Total interest expense1,885
 1,391
Net interest income before provision for loan losses7,527
 5,557
Provision for loan losses100
 —
Net interest income after provision for loan losses7,427
 5,557
Non-interest income:   
Net gains on sale of available for sale securities—
 29
Service charges on deposit accounts460
 398
Loan fees and service charges776
 533
Settlement proceeds—
 —
Other703
 283
Total non-interest income1,939
 1,243
Non-interest expense:   
Compensation and benefits3,555
 2,604
Occupancy705
 1,068
Office438
 281
Data processing704
 472
Amortization of intangible assets162
 43
Amortization of mortgage servicing rights90
 —
Advertising, marketing and public relations149
 63
FDIC premium assessment142
 83
Professional services688
 401
Other510
 378
Total non-interest expense7,143
 5,393
Income before provision for income taxes2,223
 1,407
Provision for income taxes883
 467
Net income attributable to common stockholders$1,340
 $940
Per share information:   
Basic earnings$0.23
 $0.18
Diluted earnings$0.23
 $0.18
Cash dividends paid$—
 $—

CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Comprehensive (Loss) Income (unaudited)
Three and Six months ended June 30, 2022 and 2021
(in thousands)
 Three Months EndedSix Months Ended
 June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Net income attributable to common stockholders$4,366 $4,706 $9,072 $10,212 
Other comprehensive (loss) income, net of tax:
Securities available for sale
Net unrealized (losses) gains arising during period, net of tax(5,315)1,082 (12,438)596 
Reclassification adjustment for net gains included in net income, net of tax— (26)— (26)
Other comprehensive (loss) income, net of tax(5,315)1,056 (12,438)570 
Comprehensive (loss) income$(949)$5,762 $(3,366)$10,782 
See accompanying condensed notes to unaudited consolidated financial statements.
 


5
7




CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
Three months ended December 31, 2017 and 2016
(in thousands, except per share data)
 Three Months Ended
 December 31, 2017
 December 31, 2016
Net income attributable to common stockholders$1,340
 $940
Other comprehensive income (loss), net of tax:   
Securities available for sale   
Net unrealized losses arising during period(399) (1,683)
Reclassification adjustment for gains included in net income—
 17
Other comprehensive loss(399) (1,666)
Comprehensive gain (loss)$941
 $(726)
See accompanying condensed notes to unaudited consolidated financial statements.


6



CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statement of Changes in Stockholders’ Equity (unaudited)
ThreeSix Months Ended December 31, 2017June 30, 2022
(in thousands, except shares and per share data)
Additional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (loss)Total Stockholders’ Equity
Common Stock
SharesAmount
Balance, January 1, 2022Balance, January 1, 202210,502,442 $105 $119,925 $50,675 $161 $170,866 
Net incomeNet income— — — 4,706 — 4,706 
Other comprehensive loss, net of taxOther comprehensive loss, net of tax— — — — (7,123)(7,123)
Surrender of restricted shares of common stockSurrender of restricted shares of common stock(10,119)— (141)— — (141)
Restricted common stock awarded under the equity incentive planRestricted common stock awarded under the equity incentive plan38,586 — — — — — 
Restricted common stock issued upon achievement of the 2019 performance criteriaRestricted common stock issued upon achievement of the 2019 performance criteria11,834 — — — — — 
Common stock options exercisedCommon stock options exercised2,500 — 20 — — 20 
Common stock repurchasedCommon stock repurchased(18,462)— (211)(77)— (288)
Stock option expenseStock option expense— — 1 — — 1 
Amortization of restricted stockAmortization of restricted stock— — 195 — — 195 
Cash dividends ($0.26 per share)Cash dividends ($0.26 per share)— — — (2,742)— (2,742)
Balance at March 31, 2022Balance at March 31, 202210,526,781105 119,789 52,562 (6,962)165,494 
Net incomeNet income— — — 4,366 — 4,366 
Other comprehensive loss, net of taxOther comprehensive loss, net of tax— — — — (5,315)(5,315)
Forfeiture of unvested sharesForfeiture of unvested shares(866)— — — — — 
Restricted common stock awarded under the equity incentive planRestricted common stock awarded under the equity incentive plan4,500 — — — — — 
Stock option expenseStock option expense— — 1 — — 1 
Amortization of restricted stockAmortization of restricted stock— — 197 — — 197 
Balance at June 30, 2022Balance at June 30, 202210,530,415$105 $119,987 $56,928 $(12,277)$164,743 
    Additional Paid-In Capital Retained Earnings Unearned Deferred Compensation Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity
Common Stock 
Shares Amount 
Balance, October 1, 20175,888,816
 $59
 $63,383
 $10,764
 $(456) $(267) $73,483
Net income      1,340
     1,340
Other comprehensive loss, net of tax          (399) (399)
Forfeiture of unvested shares(10,410)   (104)   104
   —
Surrender of restricted shares of common stock—
   —
       —
Common stock awarded under the equity incentive plan4,000
   55
   (55)   —
Common stock repurchased—
   —
       —
Common stock options exercised1,250
   9
       9
Common stock canceled/retired Wells ESOP(53)   (1)       (1)
Stock option expense    6
       6
Amortization of restricted stock        16
   16
Cash dividends ($0.16 per share)      —
     —
Balance, December 31, 20175,883,603
 $59
 $63,348
 $12,104
 $(391) $(666) $74,454
See accompanying condensed notes to unaudited consolidated financial statements.
 


7
8


CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statement of Changes in Stockholders’ Equity (unaudited)
Twelve Months Ended December 31, 2021
(in thousands, except shares and per share data)
Additional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
 Common Stock
 SharesAmount
Balance, January 1, 202111,056,349 $111 $126,154 $32,809 $1,490 $160,564 
Net income— — — 5,506 — 5,506 
Other comprehensive loss, net of tax— — — — (486)(486)
Forfeiture of unvested shares(1,500)— — — — — 
Surrender of restricted shares of common stock(895)— (10)— — (10)
Restricted common stock awarded under the equity incentive plan64,399 — — — — — 
Common stock repurchased(224,481)(2)(2,552)(21)— (2,575)
Stock option expense— — 3 — — 3 
Amortization of restricted stock— — 171 — — 171 
Cash dividends ($0.23 per share)— — — (2,511)— (2,511)
Balance at March 31, 202110,893,872109 123,766 35,783 1,004 160,662 
Net income— — — 4,706 — 4,706 
Other comprehensive income, net of tax— — — — 1,056 1,056 
Surrender of restricted shares of common stock(1,149)— (15)— — (15)
Common stock options exercised2,000 — 17 — — 17 
Common stock repurchased(198,648)(2)(2,260)(372)— (2,634)
Stock option expense— — 2 — — 2 
Amortization of restricted stock— — 222 — — 222 
Balance at June 30, 202110,696,075107 121,732 40,117 2,060 164,016 
Net income— — — 4,997 — 4,997 
Other comprehensive income, net of tax— — — — (828)(828)
Surrender of restricted shares of common stock(222)— (3)— — (3)
Common stock options exercised3,800 — 35 — — 35 
Common stock repurchased(180,768)(2)(2,058)(454)— (2,514)
Stock option expense— — 2 — — 2 
Amortization of restricted stock— — 393 — — 393 
Balance, September 30, 202110,518,885 105 120,101 44,660 1,232 166,098 
Net income— — — 6,057 — 6,057 
Other comprehensive income, net of tax— — — — (1,071)(1,071)
Surrender of restricted shares of common stock(143)— (2)— — (2)
Common stock repurchased(16,300)— (186)(42)— (228)
Stock option expense— — 1 — — 1 
Amortization of restricted stock— — 11 — — 11 
Balance, December 31, 202110,502,442 $105 $119,925 $50,675 $161 $170,866 
See accompanying condensed notes to unaudited consolidated financial statements.


9


CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Cash Flows (unaudited)
ThreeSix Months Ended December 31, 2017June 30, 2022 and 20162021
(in thousands, except per share data)thousands)
Six Months Ended
June 30, 2022June 30, 2021
Cash flows from operating activities:
Net income attributable to common stockholders$9,072 $10,212 
Adjustments to reconcile net income to net cash provided by operating activities:
Premium amortization, net of discount accretion on investment securities57 32 
Depreciation expense1,163 1,092 
Provision for loan losses400 — 
Net realized loss (gain) on equity securities113 (236)
Net realized gain on debt securities— (36)
Increase in mortgage servicing rights resulting from transfers of financial assets(227)(601)
Mortgage servicing rights amortization and impairment, net(132)(9)
Amortization of intangible assets798 798 
Amortization of restricted stock392 393 
Net stock based compensation expense2 5 
Loss on sale of office properties and equipment— 26 
Decrease in deferred income taxes676 420 
Increase in cash surrender value of life insurance(310)(307)
Net gain from disposals of foreclosed and repossessed assets(9)(146)
Gain on sale of loans held for sale, net(1,136)(3,117)
New market tax credit depletion325 — 
Net change in:
Loans held for sale6,634 3,083 
Accrued interest receivable and other assets388 662 
Other liabilities(1,759)(1,998)
Total adjustments7,375 61 
Net cash provided by operating activities16,447 10,273 
Cash flows from investing activities:
Net decrease in other interest bearing deposits6 2,240 
Purchase of available for sale securities(5,760)(117,256)
Proceeds from principal payments of available for sale securities14,577 18,589 
Purchase of held to maturity securities(35,342)(20,543)
Proceeds from principal payments and maturities of held to maturity securities7,204 4,455 
Purchase of equity investments(150)— 
Net sales of other investments406 121 
Proceeds from sales of foreclosed and repossessed assets38 360 
Net (increase) decrease in loans(36,445)55,742 
Net capital expenditures(1,583)(1,181)
Proceeds from disposal of office properties and equipment— 10 
New market tax credit investment(4,056)— 
Net cash used in investing activities(61,105)(57,463)
10

 Three Months Ended
 December 31, 2017
 December 31, 2016
Cash flows from operating activities:   
Net income attributable to common stockholders$1,340
 $940
Adjustments to reconcile net income to net cash provided by operating activities:   
Net amortization of premium/discount on securities209
 244
Depreciation235
 282
Provision for loan losses100
 —
Net realized gain on sale of securities—
 (29)
Amortization of intangible assets162
 43
Amortization of restricted stock16
 16
Stock based compensation expense6
 8
Loss on sale of office properties—
 2
Provision for deferred income taxes—
 412
Net loss from disposals of foreclosed properties13
 10
Decrease (increase) in accrued interest receivable and other assets250
 (3,859)
Increase (decrease) in other liabilities435
 (368)
Total adjustments1,426
 (3,239)
Net cash provided by (used in) operating activities2,766
 (2,299)
Cash flows from investing activities:   
Purchase of investment securities(3,311) (15,739)
Net decrease in interest-bearing deposits993
 —
Proceeds from sale of securities available for sale—
 10,644
Principal payments on investment securities2,009
 1,525
Proceeds from sale of non-marketable equity securities56
 —
Purchase of non-marketable equity securities(915) (331)
Proceeds from sale of foreclosed properties542
 270
Net decrease in loans1,795
 24,820
Net capital expenditures(550) (118)
Net cash received from sale of office properties—
 7
Net cash provided by investing activities619
 21,078
Cash flows from financing activities:   
Net increase in Federal Home Loan Bank advances4,000
 14,200
Decrease in other borrowings(420) —
Net decrease in deposits(1,435) (22,565)
Exercise of common stock options9
 —
Common stock canceled/retired Wells ESOP(1) —
Repurchase shares of common stock—
 (16)
Net cash provided by (used in) financing activities2,153
 (8,381)
Net increase in cash and cash equivalents5,538
 10,398
Cash and cash equivalents at beginning of period41,677
 10,046
Cash and cash equivalents at end of period$47,215
 $20,444
Cash flows from financing activities:
Federal Home Loan Bank advances44,000 — 
Amortization of fair value adjustments for acquired Federal Home Loan Bank advances3 (2)
Federal Home Loan Bank advance call payments(27,500)— 
Federal Home Loan Bank advance termination payments(15,015)(8,102)
Federal Home Loan Bank maturities(11,000)(4,000)
Amortization of debt issuance costs107 52 
Proceeds from other borrowings, net of origination costs34,197 — 
Other borrowings principal reductions(5,606)— 
Net increase in deposits12,675 75,970 
Repurchase shares of common stock(288)(5,209)
Surrender of restricted shares of common stock(141)(25)
Common stock options exercised20 17 
Cash dividends paid(2,742)(2,511)
Net cash provided by financing activities28,710 56,190 
Net (decrease) increase in cash and cash equivalents(15,948)9,000 
Cash and cash equivalents at beginning of period47,691 119,440 
Cash and cash equivalents at end of period$31,743 $128,440 

Supplemental cash flow information:   
Cash paid during the period for:   
Interest on deposits$1,245
 $1,091
Interest on borrowings$577
 $264
Income taxes$—
 $2
Supplemental noncash disclosure:   
Transfers from loans receivable to foreclosed and repossessed assets$125
 $288

Supplemental cash flow information:
Cash paid during the period for:
Interest on deposits$2,121 $3,309 
Interest on borrowings$2,148 $2,307 
Income taxes$1,880 $3,340 
Supplemental noncash disclosure:
Transfers from loans receivable to other real estate owned ("OREO")$65 $45 

See accompanying condensed notes to unaudited consolidated financial statements.

8
11




CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of Citizens Community Federal N.A. (the “Bank”) included herein have been included by its parent company, Citizens Community Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Citizens Community Federal N.A. (the "Bank"), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. As used in this quarterly report, the terms “we”, “us”, “our”, and “Citizens Community Bancorp, Inc.” mean the Company and its wholly owned subsidiary, the Bank, unless the context indicates other meaning.
The Bank is a national banking association (a "National Bank"“National Bank”) and operates under the title of Citizens Community Federal National Association ("(“Citizens Community Federal N.A."” or “Bank” or “CCFBank”). The Company is a bank holding company, supervised by the Federal Reserve Bank of Minneapolis, (the "FRB"), and operates under the title of Citizens Community Bancorp, Inc. The U.S. Office of the Comptroller of the Currency (the "OCC"“OCC”), is the primary federal regulator for the Bank.
The consolidated income of the Company is principally derived from the income of the Bank, the Company’s wholly owned subsidiary, serving customers in Wisconsin and Minnesota and Michigan through 2125 branch locations. Its primary markets include the Chippewa Valley Region in Wisconsin, the Mankato and Twin Cities and Mankatomarkets in Minnesota, and various rural communities around these areas. The Bank offers traditional community banking services to businesses, Agriculturalagricultural operators and consumers, including one to fourone-to-four family residential mortgages.
The Bank is subject to competition from other financial institutions and non-financial institutions providing financial products. Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.
In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the June 30, 2022, balance sheet date as of December 31, 2017 and through the date the financial statements were available to be issued for items that should potentially be recognized or disclosed in these consolidated financial statements.
On August 18, 2017, the Company completed its merger with Wells Financial Corporation ("WFC"), pursuant to the merger agreement, dated March 17, 2017. At that time, the separate corporate existence of WFC ceased, and the Company survived the merger. In connection with the merger, the Company caused Wells Federal Bank to merge with and into the Bank, with the Bank surviving the merger. The merger expands the Bank's market share in Mankato and southern Minnesota, and added seven branch locations along with expanded services through Wells Insurance Agency, Inc.
The accompanying consolidated interim financial statements are unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Unless otherwise stated herein, and except for shares and per share amounts, all amounts are in thousands.
Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates – Preparation –Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, fair value of financial instruments, the allowance for loan losses, mortgage servicing rights, foreclosed and repossessed assets, valuation of acquired intangible assets arising from acquisitions, useful lives for depreciation and amortization, indefinite-lived intangible assets, stock-based compensationvaluation of goodwill and long-lived assets, stock based compensation, deferred tax assets, uncertain income tax positions and contingencies. Management does not anticipate any material changes to estimates made herein in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: those items described under the caption "Risk Factors"“Risk Factors” in Item 1A of the annual report on Form 10-K for the year ended September 30, 2017,December 31, 2021, filed with the SEC on December 13, 2017,March 2, 2022; the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 4, 2022; the matters described in “Risk Factors” in Item 1A of this Form 10-Q; external market factors such as market interest rates and unemployment rates,rates; changes to operating policies and procedures and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period.


9



Investment Securities; Held to Maturity and Available for Sale – Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of the date of each balance sheet. Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Investment securities not classified as held to maturity are classified as available
12

for sale. Available for sale securities are stated at fair value, with unrealized holding gains and losses deemed other than temporarily impaired due to non-credit issues being reported in other comprehensive income (loss), net of tax. Unrealized losses deemed other-than-temporary due to credit issues are reported in the Company’s net income in the period in which the losses arise. Realized gains or losses on sales of available for sale securities are calculated with the specific identification method and are included in the consolidated statements of operations under net gains on investment securities. Interest income includes amortization of purchase premium or accretion of purchase discount. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the underlying securities.
The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. As part of such monitoring, the credit quality of individual securities and their issuer is assessed. Significant inputs used to measure the amount of other-than-temporary impairment related to credit loss include, but are not limited to;to: the Company'sCompany’s intent and ability to sell the debt security prior to recovery, that it is more likely than not that the Company will not sell the security prior to recovery, default and delinquency rates of the underlying collateral, remaining credit support, and historical loss severities. Adjustments to market value of available for sale securities that are considered temporary are recorded in other comprehensive income or loss as separate components of stockholders'stockholders’ equity, net of tax. If the unrealized loss of a security is identified as other-than-temporary based on information available, such as the decline in the creditworthiness of the issuer, external market ratings, or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if credit loss exists. If there is a credit loss, it will be recorded in the Company'sCompany’s consolidated statement of operations. Non-credit components of the unrealized losses on available for sale securities will continue to be recognized in other comprehensive income (loss), net of tax.
Equity investments - The Company is required to maintain an investment in Federal Agricultural Mortgage Corporation (“Farmer Mac”) equity securities. Farmer Mac equity securities are carried at their fair market value, which is readily determinable. Changes in fair value are recognized as net gains (losses) on investment securities in the consolidated Statement of Operations.
Also included in equity investments are the Company’s investments in a Volker Rule-compliant Small Business Investment Company ("SBIC") and an investment fund. The SBIC and investment fund meet the definition of investment companies, as defined in ASC 946, Financial Services - Investment Companies. These investments seek returns by investing in various small businesses and do not have redemption rights. Distributions from the investments will be received as the underlying investments, which generally have a life of 10 years, are liquidated. We elected the practical expedient available in Topic 820, Fair Value Measurements, which permits the use of net asset value ("NAV") per share or equivalent to value investments in entities that are or are similar to investment companies. SBICs and investment funds report their investments at estimated fair value. We record the unrealized gains and losses resulting from changes in the fair value of these investments as gains or losses on equity securities in our consolidated statements of operations. The carrying value of these investments is equal to the capital account balance per each entities' quarterly financial statements.
Other Investments - As a member of the Federal Reserve Bank (“FRB”) System and the Federal Home Loan Bank (“FHLB”) System, the Bank is required to maintain an investment in the capital stock of these entities. These securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other exchange traded equity securities. As no ready market exists for these stocks, and they have no quoted market value, these investments are carried at cost and periodically evaluated for impairment based on the ultimate recovery of par value. Cash dividends are reported as other income in the consolidated statement of operations.
Also included in other investments is stock of our correspondent bank, Bankers’ Bank, without readily determinable fair value. This stock is carried at cost plus or minus changes resulting from observable price changes in orderly transactions for this stock, less other-than-temporary impairment charges, if any.
Management’s evaluation for impairment of these other investments, includes consideration of the financial condition and other available relevant information of the issuer. Based on management’s quarterly evaluation, no impairment has been recorded on these securities. Other investments totaling $14,899 at June 30, 2022 consisted of $7,010 of FHLB stock, $5,661 of Federal Reserve Bank stock and $2,228 of Bankers’ Bank stock. Other investments totaling $15,305 at December 31, 2021 consisted of $7,877 of FHLB stock and $5,200 of Federal Reserve Bank stock and $2,228 of Bankers’ Bank stock.
Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, and net ofof: deferred loan fees and costs.costs, accretable yield on acquired loans and non-accretable discount on purchased credit impaired (PCI) loans. Interest income is accrued on the unpaid principal balance of these loans. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the interest method without anticipating prepayments. Delinquencyover the contractual life of the loan with no prepayments assumed. If the loan is prepaid, any unamortized net fee is recognized at this time. Late charge fees are recognized into income when chargeable, assuming collection is reasonably assured.collected.
13

Interest income on commercial, mortgage and consumer loans is discontinued according to the following schedules:
•Commercial/agricultural real estate loans past due 90 days or more;
•Commercial/Commercial and industrial/agricultural non-real estateoperating loans past due 90 days or more;
•Closed end consumer non-real estateinstallment loans past due 120 days or more; and
•Residential real estatemortgage loans and open ended consumer non-real estateinstallment loans past due 180 days or more.
Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash basis or cost recovery method and is generally applied against principal, until qualifying for return to accrual status. Loans are returned to accrual status when payments are made that bring the loan account current with the contractual term of the loan and a 6six month payment history has been established. Interest on impaired loans consideredaccruing troubled debt restructuringsrestructured (“TDRs”TDR”) or substandard,, less than 90 days delinquent, is recognized as income as it accrues, based on the revised terms of the loan over an established period of continued payment. Substandard loans, as defined by the OCC, our primary banking regulator, are loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.
Residential real estatemortgage loans and open ended consumer installment loans are charged off to estimated net realizable value less estimated selling costs at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more. Closed endended consumer installment loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 120 days or more. Commercial loans, including Commercial/agricultural real estate, commercial and C&Iindustrial and agricultural operating loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 18090 days or more for open ended loans or loans secured by real estate collateral, or the loan becomes 120 days past due or more for loans secured by non-real estate collateral.more.
The Company defines Acquired Loans as all loans acquired in a business combination accounted for under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 805, "Business Combinations".

10



These loans include, but are not limited to loans accounted for under FASB ASC 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" as discussed below. All other loans are defined as Originated Loans.
Allowance for Loan Losses – The allowance for loan losses (“ALL”) is a valuation allowance for probable and inherent credit losses in our loan portfolio. Loan losses are charged against the ALL when management believes that the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the ALL. Management estimates the required ALL balance taking into account the following factors: past loan loss experience; the nature, volume and composition of our loan portfolio; known and inherent risks in our loan portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; and other relevant factors determined by management. The ALL consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for certain qualitative factors. The entire ALL balance is available for any loan that, in our management’s judgment, should be charged off.
A loan is impaired when full payment under the loan terms is not expected. Impaired loans consist of all TDRs, as well as individual substandard loans not considered a TDR, when full payment underthat are either (1) rated substandard or worse, (2) on nonaccrual status or (3) PCI loans which are impaired at the loan terms is not expected.time of acquisition. Substandard loans, as defined by the OCC, our primary banking regulator, are loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. All TDRs are individually evaluated for impairment. See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for more information on what we consider to be a TDR. If a TDRFor TDR’s or substandard loan isloans deemed to be impaired, a specific ALL allocation may be established so that the loan is reported, net, at the lower of (a) its outstanding principal balance,balance; (b) the present value of the loan’s estimated future cash flows using the loan’s existing rate; or (c) at the fair value of any loan collateral, less estimated disposal costs, if repayment is expected solely from the underlying collateral of the loan. For TDRs less than 9090+ days past due, and certain substandard loans that are less than 9090+ days delinquent, the likelihood of the loan migrating to over 90 days past due is also taken into account when determining the specific ALL allocation for these particular loans. Large groups of smaller balance homogeneous loans, such as non-TDR commercial, consumer and residential real estate loans, as well as non-TDR commercial loans, are collectively evaluated for impairment,ALL purposes, and accordingly, are not separately identified for impairmentALL disclosures.

Mortgage Servicing Rights- Mortgage servicing rights ("MSR") assets initially arose as a result of the WFC merger. WFC had retained the right to service certain loans sold in the secondary market. The Company continues to sell loans to investors in the secondary market and generally retains the rights to service mortgage loans sold to others. MSR assets are initially measured at fair value; assessed at least annually 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.

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

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount
14

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

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

11



risk grade of substandard or below, loans classified as non-accrual by the acquired institution, and loans that have been previously modified in a troubled debt restructuring.

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

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

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

For all acquired loans, the outstanding loan balances less any related accretable discount and/or non-accretable difference is referred to as the loans’ carrying amount.
Loans Acquired through Business Combination with Deteriorated Credit Quality - ASC Topic 310-30, "LoanHeld for Sale — Loans held for sale are those loans the Company has the intent to sell in the foreseeable future. They are carried at the lower of aggregate cost or fair value. Gains and Debt Securities Acquired with Deteriorated Credit Quality", applies to loans acquired in a business combination that have evidencelosses on sales of deterioration of credit quality since origination and for which it is probable, at acquisition, that we will be unable to collect all contractually required payments receivable. In accordance with this guidance, these loans are initially recordedrecognized at settlement dates, and are determined by the difference between the sales proceeds and the carrying value of the loans after allocating costs to servicing rights retained. Such gains and losses are included as non-interest income in the consolidated statements of operations. All sales are made without recourse. Interest rate lock commitments on mortgage loans to be funded and sold are valued at fair value, (as determinedand are included in other assets or liabilities, if material.
Transfers of financial assets—Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the entity, (2) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and (3) the entity does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.
Mortgage Servicing Rights— Mortgage servicing rights (“MSR”) assets result as the Company sells loans to investors in the secondary market and retains the rights to service mortgage loans sold to others. MSR assets are initially measured at fair value; assessed for impairment at least annually; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations.
The valuation of MSRs and related amortization, included in mortgage servicing rights expense in the consolidated statements of operations, thereon are based on numerous factors, assumptions and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.
15

Servicing fee income, which is reported on the consolidated statements of operations in non-interest income as loan servicing fee income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of outstanding principal; or a fixed amount per loan and are recorded as income when earned.
Goodwill and other intangible assets—The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets may be impaired. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A reporting unit is defined as any distinct, separately identifiable component of the Company’s 1 operating segment for which complete, discrete financial information is available and reviewed regularly by the presentsegment’s management. The Company has 1 reporting unit as of June 30, 2022, which is related to its banking activities. The impairment testing process is conducted by assigning net assets and goodwill to the Company’s reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisitionCompany’s reporting unit is calculated and compared to the investment inrecorded book value, “step one.” If the loan, orcalculated fair value of the “accretable yield”,Company’s reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of the Company’s reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the Company’s reporting unit’s goodwill to the implied fair value of goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as interest income over the life of the loans using a method that approximates the level-yield method. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference”, are not recognized as a yield adjustment, a loss accrual, or a valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairments. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition.December 31, 2021.
Foreclosed and Repossessed Assets, net – Assets acquired through foreclosure or repossession are initially recorded at fair value, less estimated costs to sell, which establishes a new cost basis. If the fair value declines subsequent to foreclosure or repossession, a valuation allowancewrite-down is recorded through expense. Costs incurred after acquisition are expensed and are included in non-interest expense, other on our Consolidated Statementsin the consolidated statements of Operations.operations.

New Markets Tax Credits - As a part of its commitment to the communities it serves, in the first quarter of 2022, the Company made an investment in an LLC that is sponsoring a community development project that has been awarded a New Markets Tax Credit (NMTC) through the U.S. Department of the Treasury’s Community Development Financial Institutions Fund. This investment is Community Reinvestment Act eligible and is designed to generate a return primarily through the realization of the tax credit. This LLC is considered a Variable Interest Entity (VIE) as the Company represents the holder of the equity investment at risk, but does not have the ability to direct the activities that most significantly affect the performance of the LLC. As such, the Company is not the primary beneficiary of the VIE and the LLC has not been consolidated. The investment is accounted for using the equity method of accounting and is amortized through non-interest expense as the related tax credits are utilized. The utilization of the tax credit is recognized as a reduction in income tax expense.
Goodwill andAs of June 30, 2022, the carrying amount of this investment, which is included in other intangible assets-The Company accounts for goodwill and other intangible assets in accordancethe consolidated balance sheets, was $3,731. The risk of loss with ASC Topic 350, "Intangibles - Goodwillthis investment is limited to its carrying value and Other." The Company recordsis tied to its ability to operate in compliance with the excessrules and regulations necessary for the qualification of the costtax credit generated by the investment. As of acquired entitiesJune 30, 2022, there were no known instances of noncompliance associated with the investment.
Leases - We determine if an arrangement is a lease at inception. All of our existing leases have been determined to be operating leases under ASC 842. Right-of-use (“ROU”) assets are included in other assets in our consolidated balance sheets. Operating lease liabilities are included in other liabilities in our consolidated balance sheets. Lease expense is included in non-interest expense, occupancy in the consolidated statements of operations.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date, based on the present value of lease payments over the fairlease term. As none of our existing leases provide an implicit rate, we use our incremental borrowing rate, based on information available at commencement date, in determining the present value of identifiable tangiblelease payments. The operating lease ROU asset also includes any lease payments made and intangible assets acquired, less liabilities assumed, as goodwill. The Company amortizes acquired intangible assets with definite useful economic livesexcludes lease incentives. Our lease terms may include options to extend or terminate the lease, when it is reasonably certain that we will exercise that option. Lease expense is recognized based on the total contractually required lease payments, over their useful economic lives utilizing the straight-line method. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amountsterm of the intangible assets may be impaired. Thelease, on a straight-line basis.
Debt and equity issuance costs—Debt issuance costs, which consist primarily of fees paid to note lenders, are deferred and included in other borrowings in the consolidated balance sheets. Debt issuance costs with a Company does not amortize goodwillcall option that
16

originated prior to 2020 and any acquired intangible assetsenior note debt issuance costs, are amortized over the contractual term of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations. Debt issuance costs that originated in 2020 and thereafter, are amortized through the first Company call option date of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations. Specific costs associated with an indefinite useful economic life, but reviews them 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 componentissuance of shares of the Company’s one operating segment for which complete, discrete financial information is availablecommon or preferred stock are netted against proceeds and reviewed regularly byrecorded in stockholders’ equity, as additional paid in capital, on the segment’s management. consolidated balance sheets, in the period of the share issuance.
    Advertising, Marketing and Public Relations Expense—The Company has one reporting unitexpenses all advertising, marketing and public relations costs as of September 30, 2017 which is related to its banking activities. The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as of September 30, 2017.they are incurred.
Income Taxes – The Company accounts for income taxes in accordance with the FASB ASCFinancial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Under this guidance, deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.basis. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary

12



differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.
The Tax Cuts and Jobs Act of 2017 ("the Tax Act"), enacted on December 22, 2017, reduces corporate Federal income tax rates for the Company from 34% to 24.5% for 2018, and 21% for 2019. GAAP requires the impact of the provisions of the Tax Act be accounted for in the period of enactment. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, we have made a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. The Company revalued its net deferred tax assets to account for the future impact of lower corporate taxes. For the items for which we were able to determine a reasonable estimate, we recorded an increased provisional amount of income tax expense of $275 in December 2017, related to the revaluation of the deferred tax assets to both the revaluation of timing differences and the unrealized loss on securities. The increase was partially offset by an approximately $135 reduction in income tax expense due to a lower corporate tax rate.
Provisional amounts. Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amounts recorded related to the re-measurement of our deferred tax balance was $275.
The Company regularly reviews the carrying amount of its net deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical performance, expectations of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carryforwardcarry forward periods, any experience with utilization of operating loss and tax credit carryforwardscarry forwards not expiring, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. Accordingly, the Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.

Revenue Recognition - The Company recognizes revenue in the consolidated statements of operations as it is earned and when collectability is reasonably assured. TheCompany’s primary source of revenue is interest income from interest earning assets, which is recognized on the accrual basis of accounting using the effective interest method. The recognition of revenues from interest earning assets is based upon formulas from underlying loan agreements, securities contracts or other similar contracts.
The Company accounts for revenue from contracts with customers in accordance with ASC Topic 606, “Revenue from Contracts with Customers.” Topic 606 provides that revenue from contracts with customers be recognized when performance obligations under the terms of a contract are satisfied. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing service. The company does not have any materially significant payment terms as payment is received shortly after the satisfaction of the performance obligation. The non-interest income line items recognized under the scope of Topic 606 are as follows:
Service charges on deposit accounts - Service charges on accounts consist of monthly service fees, transaction-based fees, overdraft services and other deposit account related fees. The Company’s performance obligation for monthly services fees is generally satisfied over the period in which the service is provided. Revenue for these monthly fees is recognized during the service period. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied at the time the service is provided. Payment for service charges on deposit accounts are primarily received immediately or in the following month through a direct charge to a customer’s account.
Interchange income - The Company earns interchange fees when cardholder debit card transaction are processed through card association networks. The interchange rates are generally set by the card association based upon purchase volumes and other factors. Interchange fees represent a percentage of the underlying transaction value. The Company has a continuous contract, based on customary business practices, with the card association networks to make funds available for settlement of card transactions. The Company’s performance obligation is satisfied over time as it makes funds available, and the related income is recognized when received.
Gain (loss) on repossessed assets - The Company records a gain or loss from the sale of repossessed assets, when control of the property or asset transfers to the buyer, which generally occurs at the time of an executed deed or sales agreement. When the company finances the sale of repossessed assets to a buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the repossessed asset is derecognized and the gain or loss on sale is recorded
17

upon transfer of control of the property to the buyer. In determining the gain on sale or loss on the sale, the Company adjust the transaction price and related gain or loss on sale if a significant financing component is present.
Non-interest income outside of the scope of Revenue from Contracts with Customers, Topic 606 is recognized on the accrual basis of accounting as services are provided or as transactions occur. Non-interest income outside of the scope of Topic 606 includes fees from brokerage and advisory service, deposit accounts, merchant services, ATM and debit card fees, mortgage banking activities, loan fees and service charges, net gains (losses) on investment securities, settlement proceeds, and other, miscellaneous services and transactions. Commission revenuewhich is recognized asprimarily made up of the effective date of the insurance policy or the date the customer is billed, whichever is later. The Company also receives contingent commissions from insurance companies which are based on the overall profitability of their relationship based primarily on the loss experience of the insurance placed by the Company. Contingent commissions from insurance companies are recognized when determinable. Commission revenue is included in other non-interest income in the consolidated statement of operations.BOLI related income.
Earnings Per Share – Basic earnings per common share is net income or loss divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable during the period, consisting of stock options outstanding under the Company’s stock incentive plans that have an exercise price that is less than the Company'sCompany’s stock price on the reporting date.
Loss Contingencies—Loss contingencies, including claims and legal actions arising in the normal course of business, are recorded as liabilities when the likelihood of loss is probable and an amount of loss can be reasonably estimated.
Other Comprehensive Income —Accumulated and other comprehensive income or loss is comprised of the unrealized and realized gains and losses on securities available for sale, net of tax, and is shown on the accompanying consolidated statements of comprehensive income.
Operating Segments—While our chief decision makersexecutive officers monitor the revenue streams of the various banking products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the
Company’s banking operations are considered by management to be aggregated in one1 reportable operating segment.
Reclassifications – Certain items previously reported were reclassified for consistency with the current presentation.
Recent Accounting Pronouncements - In May 2017,Pronouncements—The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB issued Accounting Standards Update ("ASU") 2017-09, "Compensation--Stock CompensationCodification (ASC). This section provides a summary description of recent ASUs that have potentially significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future.
Recent Accounting Pronouncements—Adopted
ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 718): Scope848) - Facilitation of Modification Accounting."the Effects of Reference Rate Reform on Financial Reporting--These ASUs provide optional and temporary relief, in the form of optional expedients and exceptions, for applying GAAP to modifications of contacts, hedging relationships and other transactions affected by reference rate (e.g. LIBOR) reforms. ASU 2017-09 provides specific guidance as to which changes to terms2020-04 and conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. For public entities, ASU 2017-09 is2021-01 are effective for fiscal years beginning afterthe Company immediately and through December 15, 2017,

13



including interim periods within those fiscal years. Early adoption is permitted.31, 2022. The Company expectsutilizes LIBOR, among other indexes, as a reference rate for underwriting variable rate loans. Reference rate reform has not had, nor does the adoption of ASU 2017-09 willCompany expect it to have, noa material effect on the Company'sCompany’s consolidated results ofbalance sheet, operations financial position or cash flows.
In March 2017, the FASB issued ASU 2017-08, "Receivables--Nonrefundable fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. For public entities, ASU 2017-08 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company expects the adoption of ASU 2017-08 will have no material effect on the Company's consolidated results of operations, financial position or cash flows.Recently Issued, But Not Yet Effective Accounting Pronouncements
In February 2017, the FASB issued ASU 2017-05, "Other Income--Gains and Losses from the Derecognition of Non-financial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Non-financial Assets." ASU 2017-05 clarifies previously issued ASU 2014-09, primarily with respect to (a) derecognition of an in substance non-financial asset, and (b) partial sales of non-financial assets. For public entities, ASU 2017-05 is effective at the same time of adoption of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is for annual reporting periods beginning after December 15, 2017 and related interim periods. Early adoption is not permitted. The Company expects the adoption of ASU 2017-05 will have no material effect on the Company's consolidated results of operations, financial position or cash flows.
In January, 2017, the FASB issued ASU 2017-04, "Intangibles--Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 intends to simplify how an entity is required to test goodwill impairment. For public entities, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and any related interim annual goodwill impairment tests thereon. The Company expects the adoption of ASU 2017-04 will have no material effect on the Company's consolidated results of operations, financial position or cash flows.
In January, 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." ASU 2017-01 narrows the definition of a "business" with respect to accounting for business combinations. For public entities, ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company expects the adoption of ASU 2017-01 will have no material effect on the Company's consolidated results of operations, financial position or cash flows.
In June, 2016 the FASB issued ASU 2016-13, “FinancialFinancial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.”Instruments--The ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the exceptedchanges accounting for credit losses on financial instrumentsloans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other commitments to extend credit. For public entities,things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. In November, 2019, the FASB issued ASU 2019-10, which delayed the effective date for ASU 2016-13 for smaller reporting companies, resulting in ASU 2016-13 becoming effective in the first quarter of 2023 for the Company. Earlier adoption is permitted; however, the Company elected not to adopt the ASU early. The Company has selected a loss estimation methodology, utilizing a third-party model, and is currently finalizing its process for model utilization. The impact of adoption on the financial condition and results of operations cannot yet be definitively determined due to the sensitivity of the model to various inputs and changing economic forecasts. The Company anticipates recording the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU is effective, which will be January 1, 2023.

18

ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures - The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model. The amendments eliminate the accounting guidance for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Thetroubled debt restructurings by creditors that have adopted the current expected credit losses model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has not yet evaluatedadopted the potential effectsamendments in ASU 2016-13, ASU 2022-02 becomes effective in the first quarter of adopting ASU 2016-132023. Management is assessing the impact that adoption of this standard will have on the Company’s consolidatedfinancial condition and results of operations financial position or cash flows. The Company has not yet evaluated the potential effectsin conjunction with its assessment of adopting ASU 2016-13 on the Company's consolidated results of operations, financial position or cash flows.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients.” ASU 2016-12 is intended to address certain specific issues identified by the FASB-IASB Joint Transition Resource Group for Revenue Recognition with respect to ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” For public entities, ASU 2016-12 and ASU 2014-09 are effective on a retrospective basis for the annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is not permitted. Based on our evaluation under the current guidance, we estimate that substantially all of our interest income and non-interest income will not be impacted by the adoption of these standards, because either the revenue from those contracts with customers is covered by other guidance in U.S. GAAP, or the anticipated revenue recognition outcomes with the adoption of these standards will likely be similar to our current revenue recognition practices. The company evaluated certain non-interest revenue streams, including deposit related fees, service charges and interchange fees, to determine the potential impact of the guidance on the Company's consolidated financial statements. The Company is expected to use the modified retrospective method for transition, in which the cumulative effect will be recognized at the date of adoption with no restatement of comparative periods presented. The Company expects additional financial statement disclosures of non-interest income revenue streams and associated internal controls to be implemented along with the adoption of these standards. In addition, we are reviewing our business processes, systems and controls to support recognition and disclosures under the new standard. The Company expects that the adoption of ASUs 2016-12 and 2014-09 will have no material effect on the Company's consolidated results of operations, financial position or cash flows.
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 is intended to simplify certain areas of share-based payment transaction accounting, including the income tax consequences, equity or liability classification of certain share awards, and classification on the statement of cash flows. ASU 2016-09 is effective for the annual periods, and interim periods within those

14



annual periods, beginning after December 15, 2016. Early adoption is permitted. The Company expects the adoptions of ASU 2016-09 to have no material effect on the Company's results of operations, financial position or cash flows.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". ASU 2016-02 is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for the annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company has not yet evaluated the impact of ASU 2016-02 on the Company's results of operations, financial position or cash flows.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. ASU 2016-01 is intended to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. For public entities, ASU 2016-01 is effective for the annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is not permitted, except for certain provisions of ASU 2016-01, which are not applicable to the Company.2016-13. The Company expects to adopt the adoption of ASU 2016-01 to have no material effect on the Company's consolidated results of operations, financial position or cash flows.guidance for our fiscal year beginning January 1, 2023.



15
19





NOTE 2 – INVESTMENT SECURITIES
The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of June 30, 2022 and December 31, 2017 and September 30, 2017,2021, respectively, were as follows:
Available for sale securitiesAmortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value
June 30, 2022
U.S. government agency obligations$21,677 $331 $146 $21,862 
Mortgage-backed securities103,093 2 13,735 89,360 
Corporate debt securities37,084 — 2,074 35,010 
Corporate asset-based securities32,148 — 1,312 30,836 
Total available for sale securities$194,002 $333 $17,267 $177,068 
December 31, 2021
U.S. government agency obligations$25,826 $440 $1 $26,265 
Obligations of states and political subdivisions140 — — 140 
Mortgage-backed securities107,636 409 878 107,167 
Corporate debt securities35,342 403 157 35,588 
Corporate asset-based securities33,902 133 127 33,908 
Total available for sale securities$202,846 $1,385 $1,163 $203,068 
Available for sale securities
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
December 31, 2017       
U.S. government agency obligations$18,098
 $19
 $526
 $17,591
Obligations of states and political subdivisions35,519
 135
 240
 35,414
Mortgage-backed securities38,490
 79
 549
 38,020
Agency securities147
 89
 2
 234
Corporate debt securities5,393
 —
 104
 5,289
Total available for sale securities$97,647
 $322
 $1,421
 $96,548
        
September 30, 2017       
U.S. government agency obligations$18,454
 $35
 $448
 $18,041
Obligations of states and political subdivisions35,656
 270
 131
 35,795
Mortgage-backed securities36,661
 124
 311
 36,474
Agency Securities147
 83
 —
 230
Corporate debt securities5,410
 —
 67
 5,343
Total available for sale securities$96,328
 $512
 $957
 $95,883
Held to maturity securitiesAmortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value
June 30, 2022
Obligations of states and political subdivisions$600 $— $39 $561 
Mortgage-backed securities98,649 14 14,436 84,227 
Total held to maturity securities$99,249 $14 $14,475 $84,788 
December 31, 2021
Obligations of states and political subdivisions$4,600 $— $7 $4,593 
Mortgage-backed securities66,541 104 2,061 64,584 
Total held to maturity securities$71,141 $104 $2,068 $69,177 
Held to maturity securities
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
December 31, 2017       
Obligations of states and political subdivisions$1,310
 $1
 $2
 $1,309
Mortgage-backed securities3,917
 100
 5
 4,012
Total held to maturity securities$5,227
 $101
 $7
 $5,321
        
September 30, 2017       
Obligations of states and political subdivisions$1,311
 $17
 $—
 $1,328
Mortgage-backed securities4,142
 136
 1
 4,277
Total held to maturity securities$5,453
 $153
 $1
 $5,605
As of December 31, 2017,At June 30, 2022, the Bank has pledged U.S. Government Agencymortgage-backed securities with a marketcarrying value of $2,500$5,646 as collateral against a borrowing line of credit with the Federal Reserve Bank. However, as of June 30, 2022, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of June 30, 2022, the Bank has pledged U.S. Government Agency securities with a carrying value of $3,026 and mortgage-backed securities with a carrying value of $2,476 as collateral against specific municipal deposits. As of June 30, 2022, the Bank also has mortgage-backed securities with a carrying value of $190 pledged as collateral to the Federal Home Loan Bank of Des Moines.
At December 31, 2017,2021, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $863 as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2017,2021, the Bank has pledged certain of its U.S. Government Agency securities with a marketcarrying value of $7,421$3,934 and mortgage-backed securities with a marketcarrying value of $18,836$2,879 as collateral against specific municipal deposits. As of December 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $267 pledged as collateral to the Federal Home Loan Bank of Des Moines.



For the three and six month periods ended June 30, 2022 there were no sales of available for sale securities. For the three and six month periods ended June 30, 2021, gross sales of available for sale securities were $1,965. Gross gains on the sale of available for sale securities for the three and six months periods ended June 30, 2021 were $36. There were 0 losses on the sale of available for sale securities for the three and six months ended June 30, 2021.
16
20




The estimated fair value of securities at June 30, 2022 and December 31, 2017 and September 30, 2017,2021, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Expected maturities may differ from contractual maturities on certain agency and municipal securities due to the call feature.
June 30, 2022December 31, 2021
Available for sale securitiesAmortized
Cost		Estimated
Fair Value		Amortized
Cost		Estimated
Fair Value
Due in one year or less$— $— $140 $140 
Due after one year through five years4,663 4,466 4,903 4,971 
Due after five years through ten years41,770 39,907 40,410 40,818 
Due after ten years44,476 43,335 49,757 49,972 
Total securities with contractual maturities$90,909 $87,708 $95,210 $95,901 
Mortgage-backed securities103,093 89,360 107,636 107,167 
Total available for sale securities$194,002 $177,068 $202,846 $203,068 
 December 31, 2017 September 30, 2017
Available for sale securities
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Due in one year or less$299
$299
 $160
$160
Due after one year through five years15,377
15,291
 15,008
15,056
Due after five years through ten years30,427
29,983
 30,586
30,330
Due after ten years12,907
12,721
 13,766
13,633
 $59,010
$58,294
 $59,520
$59,179
Mortgage backed securities38,490
38,020
 36,661
36,474
Securities without contractual maturities147
234
 147
230
Total available for sale securities$97,647
$96,548
 $96,328
$95,883


June 30, 2022December 31, 2021
Held to maturity securitiesAmortized
Cost		Estimated
Fair Value		Amortized
Cost		Estimated
Fair Value
Due after one year through five years$450 $425 $4,300 $4,298 
Due after five years through ten years150 136 300 295 
Total securities with contractual maturities600 561 4,600 4,593 
Mortgage-backed securities98,649 84,227 66,541 64,584 
Total held to maturity securities$99,249 $84,788 $71,141 $69,177 


























21
 December 31, 2017 September 30, 2017
Held to maturity securities
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Due after one year through five years$1,310
$1,309
 $1,311
$1,328
Mortgage backed securities3,917
4,012
 4,142
4,277
Total held to maturity securities$5,227
$5,321
 $5,453
$5,605


Securities with unrealized losses at June 30, 2022 and December 31, 2017 and September 30, 2017,2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

 Less than 12 Months12 Months or MoreTotal
Available for sale securitiesFair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
June 30, 2022
U.S. government agency obligations$3,585 $146 $— $— $3,585 $146 
Mortgage-backed securities82,467 12,384 6,786 1,351 89,253 13,735 
Corporate debt securities32,433 1,901 2,577 173 35,010 2,074 
Corporate asset-based securities24,899 1,085 5,937 227 30,836 1,312 
Total$143,384 $15,516 $15,300 $1,751 $158,684 $17,267 
December 31, 2021
U.S. government agency obligations$1,169 $1 $— $— $1,169 $1 
Mortgage backed securities89,010 878 — — 89,010 878 
Corporate debt securities17,240 142 735 15 17,975 157 
Corporate asset-based securities19,296 127 — — 19,296 127 
Total$126,715 $1,148 $735 $15 $127,450 $1,163 
 Less than 12 Months12 Months or MoreTotal
Held to maturity securitiesFair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss		Fair
Value		Unrealized
Loss
June 30, 2022
Obligations of states and political subdivisions$561 $39 $— $— $561 $39 
Mortgage-backed securities53,014 7,353 30,939 7,083 83,953 14,436 
Total$53,575 $7,392 $30,939 $7,083 $84,514 $14,475 
December 31, 2021
Obligations of states and political subdivisions$593 $7 $— $— $593 $7 
Mortgage-backed securities46,969 1,346 14,716 715 61,685 2,061 
Total$47,562 $1,353 $14,716 $715 $62,278 $2,068 
The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. As part of such monitoring, the credit quality of individual securities and their issuer is assessed. Significant inputs used to measure the amount of other-than-temporary impairment related to credit loss include, but are not limited to; the Company’s intent and ability to sell the debt security prior to recovery, that it is more likely than not that the Company will not sell the security prior to recovery, default and delinquency rates of the underlying collateral, remaining credit support, and historical loss severities. Adjustments to market value of available for sale securities that are considered temporary are recorded as separate components of stockholders’ equity, net of tax. If the unrealized loss of a security is identified as other-than-temporary based on information available, such as the decline in the creditworthiness of the issuer, external market ratings, or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if credit loss exists. If there is a credit loss, it will be recorded in the Company’s consolidated statement of operations. Non-credit components of the unrealized losses on available for sale securities will continue to be recognized in other comprehensive income (loss), net of tax. Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not deemed other-than-temporary. Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur.



22
  Less than 12 Months 12 Months or More Total
Available for sale securities 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
December 31, 2017            
U.S. government agency obligations $3,952
 $35
 $10,976
 $491
 $14,928
 $526
Obligations of states and political subdivisions 17,702
 168
 3,043
 72
 20,745
 240
Mortgage backed securities 21,934
 258
 9,786
 291
 31,720
 549
Agency securities 41
 2
 —
 —
 41
 2
Corporate debt securities 5,289
 104
 —
 —
 5,289
 104
Total $48,918
 $567
 $23,805
 $854
 $72,723
 $1,421
September 30, 2017            
U.S. government agency obligations $8,296
 $186
 $6,932
 $262
 $15,228
 $448
Obligations of states and political subdivisions 8,170
 62
 3,701
 70
 11,871
 132
Mortgage backed securities 14,167
 96
 9,753
 215
 23,920
 311
Corporate debt securities 5,343
 67
 —
 —
 5,343
 67
Total $35,976
 $411
 $20,386
 $547
 $56,362
 $958

17




  Less than 12 Months 12 Months or More Total
Held to maturity securities 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
December 31, 2017            
Obligations of states and political subdivisions $1,133
 $1
 $140
 $1
 $1,273
 $2
Mortgage-backed securities 368
 5
 —
 —
 368
 5
Total $1,501
 $6
 $140
 $1
 $1,641
 $7
September 30, 2017            
Obligations of states and political subdivisions $—
 $—
 $—
 $—
 $—
 $—
Mortgage-backed securities 406
 1
 —
 —
 406
 1
Total $406
 $1
 $—
 $—
 $406
 $1


18



NOTE 3 – LOANS, ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS
Portfolio Segments:
Residential real estate loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower's documented income, credit scores, and collateral values. Under consumer home equity loan guidelines, the borrower will be approved for a loan based on a percentage of their home's appraised value less the balance owed on the existing first mortgage. Credit risk is minimized within the residential real estate portfolio as relatively small loan amounts are spread across many individual borrowers. Management evaluates trends in past due loans and current economic factors such as the housing price index on a regular basis.
Commercial and agricultural real estate loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business. Management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 75%.
Consumer non-real estate loans are comprised of originated indirect paper loans secured primarily by boatsCommercial and recreational vehicles, purchased indirect paper loans secured primarily by household goods and other consumer loans secured primarily by automobiles and other personal assets. Consumer loans underwriting terms often depend on the collateral type, debt to income ratio and the borrower's creditworthiness as evidenced by their credit score. Collateral value alone may not provide an adequate source of repayment of the outstanding loan balance in the event of a consumer non-real estate default. This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral.
Commercial non-real estateindustrial (“C&I”) loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Agricultural non-real estateoperating loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines. Operating lines are typically written for one year and secured by the crop and other farm assets or other business assets, as considered necessary. Agricultural loans carry significant credit risks as they may involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields. SBA PPP loan balances are 100% guaranteed under the Small Business Association’s Paycheck Protection Program and may be forgiven in full, depending on use of funds and eligibility. These SBA-backed loans helped businesses keep their workforce employed during the COVID-19 crisis. Eligible borrowers, who qualify for full loan forgiveness during the eight to twenty four week period following loan disbursement, can apply for forgiveness, once all proceeds for which the borrower requested forgiveness has been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan.

Residential mortgage loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower’s documented income, credit scores, and collateral values. Under consumer home equity loan guidelines, the borrower will be approved for a loan based on a percentage of their home’s appraised value less the balance owed on the existing first mortgage. Credit risk is minimized within the residential mortgage portfolio due to relatively small loan account balances spread across many individual borrowers. Management evaluates trends in past due loans and current economic factors such as the housing price index on a regular basis.
Consumer installment loans are comprised of originated indirect paper loans secured primarily by boats and recreational vehicles and other consumer loans secured primarily by automobiles and other personal assets. Consumer loan underwriting terms often depend on the collateral type, debt to income ratio and the borrower’s creditworthiness as evidenced by their credit score. In the event of a consumer installment loan default, collateral value alone may not provide an adequate source of repayment of the outstanding loan balance. This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral.


19
23




Credit Quality/Risk Ratings:
Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio. Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant.
Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience. The Bank’s loan portfolio isratings are presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows:
1 through 4 - Pass. A "Pass"“Pass” loan means that the condition of the borrower and the performance of the loan is satisfactory or better.
5 - Watch. A "Watch"“Watch” loan has clearly identifiable developing weaknesses that deserve additional attention from management. Weaknesses that are not corrected or mitigated, may jeopardize the ability of the borrower to repay the loan in the future.
6 - Special Mention. A "Special Mention"“Special Mention” loan has one or more potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position in the future.
7 - Substandard. A "Substandard"“Substandard” loan is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
8 - Doubtful. A "Doubtful"“Doubtful” loan has all the weaknesses inherent in a Substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
9 - Loss. Loans classified as "Loss"“Loss” are considered uncollectible, and their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future.

2024




Below is a summary of originated and acquired loans by type and risk rating as of June 30, 2022:
1 to 56789TOTAL
Originated Loans:
Commercial/Agricultural real estate:
Commercial real estate$583,783 $6,084 $6,134 $— $— $596,001 
Agricultural real estate55,382 406 1,535 — — 57,323 
Multi-family real estate175,684 280 — — — 175,964 
Construction and land development113,974 — 43 — — 114,017 
C&I/Agricultural operating:
Commercial and industrial112,171 10,448 1,494 — — 124,113 
Agricultural operating18,230 52 2,005 — — 20,287 
Residential mortgage:
Residential mortgage63,266 — 2,441 — — 65,707 
Purchased HELOC loans3,419 — — — — 3,419 
Consumer installment:
Originated indirect paper12,651 — 85 — — 12,736 
Other consumer7,416 — 56 — — 7,472 
Total originated loans before SBA PPP loans1,145,976 17,270 13,793 — — 1,177,039 
 SBA PPP loans— — — — — — 
Total originated loans$1,145,976 $17,270 $13,793 $— $— $1,177,039 
Acquired Loans:
Commercial/Agricultural real estate:
Commercial real estate$104,436 $— $2,480 $— $— $106,916 
Agricultural real estate17,581 — 2,903 — — 20,484 
Multi-family real estate3,965 — — — — 3,965 
Construction and land development1,035 — 136 — — 1,171 
C&I/Agricultural operating:
Commercial and industrial14,647 4 238 — — 14,889 
Agricultural operating4,125 — 57 — — 4,182 
Residential mortgage:
Residential mortgage21,798 — 1,070 — — 22,868 
Consumer installment:
Other consumer310 — 3 — — 313 
Total acquired loans$167,897 $4 $6,887 $— $— $174,788 
Total Loans:
Commercial/Agricultural real estate:
Commercial real estate$688,219 $6,084 $8,614 $— $— $702,917 
Agricultural real estate72,963 406 4,438 — — 77,807 
Multi-family real estate179,649 280 — — — 179,929 
Construction and land development115,009 — 179 — — 115,188 
Commercial/Agricultural non-real estate:
Commercial and industrial126,818 10,452 1,732 — — 139,002 
Agricultural operating22,355 52 2,062 — — 24,469 
Residential mortgage:
Residential mortgage85,064 — 3,511 — — 88,575 
Purchased HELOC loans3,419 — — — — 3,419 
Consumer installment:
Originated indirect paper12,651 — 85 — — 12,736 
Other consumer7,726 — 59 — — 7,785 
Gross loans before SBA PPP Loans1,313,873 17,274 20,680 — — 1,351,827 
SBA PPP loans— — — — — — 
Gross loans$1,313,873 $17,274 $20,680 $— $— $1,351,827 
Less:
Unearned net deferred fees and costs and loans in process(2,338)
Unamortized discount on acquired loans(2,634)
Allowance for loan losses(16,825)
Loans receivable, net$1,330,030 
25

Below is a summary of originated and acquired loans by type and risk rating as of December 31, 2017:2021:
1 to 56789TOTAL
Originated Loans:
Commercial/Agricultural real estate:
Commercial real estate$572,724 $667 $5,004 $— $— $578,395 
Agricultural real estate50,834 1,267 271 — — 52,372 
Multi-family real estate173,760 290 — — — 174,050 
Construction and land development75,146 — 3,467 — — 78,613 
C&I/Agricultural operating:
Commercial and industrial107,798 57 82 — — 107,937 
Agricultural operating23,935 764 1,503 — — 26,202 
Residential mortgage:
Residential mortgage60,754 — 3,101 — — 63,855 
Purchased HELOC loans3,706 — 165 — — 3,871 
Consumer installment:
Originated indirect paper15,818 — 153 — — 15,971 
Other consumer8,404 — 69 — — 8,473 
Total Originated loans before SBA PPP loans1,092,879 3,045 13,815 — — 1,109,739 
SBA PPP loans8,755 — — — — 8,755 
Total originated loans$1,101,634 $3,045 $13,815 $— $— $1,118,494 
Acquired Loans:
Commercial/Agricultural real estate:
Commercial real estate$116,839 $1,314 $1,917 $— $— $120,070 
Agricultural real estate21,051 — 5,072 — — 26,123 
Multi-family real estate4,299 — — — — 4,299 
Construction and land development735 172 — — — 907 
C&I/Agricultural operating:
Commercial and industrial13,931 5 294 — — 14,230 
Agricultural operating4,936 — 450 — — 5,386 
Residential mortgage:
Residential mortgage25,869 — 1,266 — — 27,135 
Consumer installment:
Other consumer398 — 3 — — 401 
Total acquired loans$188,058 $1,491 $9,002 $— $— $198,551 
Total Loans:
Commercial/Agricultural real estate:
Commercial real estate$689,563 $1,981 $6,921 $— $— $698,465 
Agricultural real estate71,885 1,267 5,343 — — 78,495 
Multi-family real estate178,059 290 — — — 178,349 
Construction and land development75,881 172 3,467 — — 79,520 
C&I/Agricultural operating:
Commercial and industrial121,729 62 376 — — 122,167 
Agricultural operating28,871 764 1,953 — — 31,588 
Residential mortgage:
Residential mortgage86,623 — 4,367 — — 90,990 
Purchased HELOC loans3,706 — 165 — — 3,871 
Consumer installment:
Originated indirect paper15,818 — 153 — — 15,971 
Other consumer8,802 — 72 — — 8,874 
Gross loans before SBA PPP loans1,280,937 4,536 22,817 — — 1,308,290 
SBA PPP loans8,755 — — — — 8,755 
Gross loans$1,289,692 $4,536 $22,817 $— $— $1,317,045 
Less:
Unearned net deferred fees and costs and loans in process(2,482)
Unamortized discount on acquired loans(3,600)
Allowance for loan losses(16,913)
Loans receivable, net$1,294,050 
26
  1 to 5 6 7 8 9 TOTAL
Originated Loans:            
Residential real estate:            
One to four family $126,364
 $—
 $2,032
 $—
 $—
 $128,396
Purchased HELOC loans 16,968
 —
 —
 —
 —
 16,968
Commercial/Agricultural real estate:            
Commercial real estate 110,614
 48
 153
 —
 —
 110,815
Agricultural real estate 11,019
 483
 78
 —
 —
 11,580
Multi-family real estate 30,722
 —
 146
 —
 —
 30,868
Construction and land development 12,682
 —
 —
 —
 —
 12,682
Consumer non-real estate:            
Originated indirect paper 79,290
 8
 194
 —
 —
 79,492
Purchased indirect paper 26,210
 —
 —
 —
 —
 26,210
Other Consumer 14,386
 —
 79
 —
 —
 14,465
Commercial/Agricultural non-real estate:            
Commercial non-real estate 39,498
 —
 96
 —
 —
 39,594
Agricultural non-real estate 11,004
 708
 937
 —
 —
 12,649
Total originated loans $478,757
 $1,247
 $3,715
 $—
 $—
 $483,719
Acquired Loans:            
Residential real estate:            
One to four family $90,183
 $761
 $1,737
 $—
 $—
 $92,681
Commercial/Agricultural real estate:            
Commercial real estate 55,831
 1,737
 3,260
 —
 —
 60,828
Agricultural real estate 47,860
 628
 4,959
 —
 —
 53,447
Multi-family real estate 1,497
 —
 211
 —
 —
 1,708
Construction and land development 6,615
 —
 541
 —
 —
 7,156
Consumer non-real estate:            
Other Consumer 4,710
 —
 67
 —
 —
 4,777
Commercial/Agricultural non-real estate:            
Commercial non-real estate 17,272
 423
 1,534
 —
 —
 19,229
Agricultural non-real estate 10,944
 25
 92
 —
 —
 11,061
Total acquired loans $234,912
 $3,574
 $12,401
 $—
 $—
 $250,887
Total Loans:            
Residential real estate:            
One to four family $216,547
 $761
 $3,769
 $—
 $—
 $221,077
Purchased HELOC loans 16,968
 —
 —
 —
 —
 16,968
Commercial/Agricultural real estate:            
Commercial real estate 166,445
 1,785
 3,413
 —
 —
 171,643
Agricultural real estate 58,879
 1,111
 5,037
 —
 —
 65,027
Multi-family real estate 32,219
 —
 357
 —
 —
 32,576
Construction and land development 19,297
 —
 541
 —
 —
 19,838
Consumer non-real estate:            
Originated indirect paper 79,290
 8
 194
 —
 —
 79,492
Purchased indirect paper 26,210
 —
 —
 —
 —
 26,210
Other Consumer 19,096
 —
 146
 —
 —
 19,242
Commercial/Agricultural non-real estate:            
Commercial non-real estate 56,770
 423
 1,630
 —
 —
 58,823
Agricultural non-real estate 21,948
 733
 1,029
 —
 —
 23,710
Gross loans $713,669
 $4,821
 $16,116
 $—
 $—
 $734,606
Less:            
Unearned net deferred fees and costs and loans in process           1,252
Unamortized discount on acquired loans           (4,940)
Allowance for loan losses           (5,859)
Loans receivable, net           $725,059


21




Below is a summary of originated loans by type and risk rating as of September 30, 2017:
  1 to 5 6 7 8 9 TOTAL
Originated Loans:            
Residential real estate:            
One to four family $130,837
 $—
 $1,543
 $—
 $—
 $132,380
Purchased HELOC loans 18,071
 —
 —
 —
 —
 18,071
Commercial/Agricultural real estate:            
Commercial real estate 96,953
 49
 153
 —
 —
 97,155
Agricultural real estate 10,051
 497
 80
 —
 —
 10,628
Multi-family real estate 24,338
 —
 148
 —
 —
 24,486
Construction and land development 12,399
 —
 —
 —
 —
 12,399
Consumer non-real estate:            
Originated indirect paper 85,330
 8
 394
 —
 —
 85,732
Purchased indirect paper 29,555
 —
 —
 —
 —
 29,555
Other Consumer 14,361
 —
 135
 —
 —
 14,496
Commercial/Agricultural non-real estate:            
Commercial non-real estate 35,102
 —
 96
 —
 —
 35,198
Agricultural non-real estate 10,798
 708
 987
 —
 —
 12,493
Total originated loans $467,795
 $1,262
 $3,536
 $—
 $—
 $472,593
Acquired Loans:            
Residential real estate:            
One to four family $94,932
 $873
 $1,378
 $—
 $—
 $97,183
Commercial/Agricultural real estate:            
Commercial real estate 57,795
 1,814
 3,198
 —
 —
 62,807
Agricultural real estate 51,516
 266
 5,592
 —
 —
 57,374
Multi-family real estate 1,519
 —
 223
 —
 —
 1,742
Construction and land development 6,739
 —
 570
 —
 —
 7,309
Consumer non-real estate:            
Other Consumer 6,130
 —
 42
 —
 —
 6,172
Commercial/Agricultural non-real estate:            
Commercial non-real estate 18,257
 372
 1,424
 —
 —
 20,053
Agricultural non-real estate 11,259
 28
 93
 —
 —
 11,380
Total acquired loans $248,147
 $3,353
 $12,520
 $—
 $—
 $264,020
Total Loans:            
Residential real estate:            
One to four family $225,769
 $873
 $2,921
 $—
 $—
 $229,563
Purchased HELOC loans 18,071
 —
 —
 —
 —
 18,071
Commercial/Agricultural real estate:            
Commercial real estate 154,748
 1,863
 3,351
 —
 —
 159,962
Agricultural real estate 61,567
 763
 5,672
 —
 —
 68,002
Multi-family real estate 25,857
 —
 371
 —
 —
 26,228
Construction and land development 19,138
 —
 570
 —
 —
 19,708
Consumer non-real estate:            
Originated indirect paper 85,330
 8
 394
 —
 —
 85,732
Purchased indirect paper 29,555
 —
 —
 —
 —
 29,555
Other Consumer 20,491
 —
 177
 —
 —
 20,668
Commercial/Agricultural non-real estate:            
Commercial non-real estate 53,359
 372
 1,520
 —
 —
 55,251
Agricultural non-real estate 22,057
 736
 1,080
 —
 —
 23,873
Gross loans $715,942
 $4,615
 $16,056
 $—
 $—
 $736,613
Less:            
Unearned net deferred fees and costs and loans in process           1,471
Unamortized discount on acquired loans           (5,089)
Allowance for loan losses           (5,942)
Loans receivable, net           $727,053

22



Allowance for Loan Losses - The ALL represents management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change.
There are many factors affecting the ALL; some are quantitative, while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which result in probable credit losses), includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized.
As an integral part of their examination process, various regulatory agencies also review the Bank’s ALL. Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of our management based on information available to the regulators at the time of their examinations.

27

Changes in the ALL by loan type for the periods presented below were as follows:
 Residential Real Estate Commercial/Agriculture Real Estate Consumer Non-real Estate Commercial/Agricultural Non-real Estate Unallocated Total
Three Months Ended December 31, 2017:           
Allowance for Loan Losses:           
Beginning balance, October 1, 2017$1,458
 $2,523
 $936
 $897
 $128
 $5,942
Charge-offs(24) (1) (193) —
 —
 (218)
Recoveries13
 —
 22
 —
 —
 35
Provision—
 75
 25
 —
 —
 100
Allowance allocation adjustment(8) 7
 120
 (17) (102) —
Total Allowance on originated loans$1,439
 $2,604
 $910
 $880
 $26
 $5,859
Purchased credit impaired loans—
 —
 —
 —
 —
 —
Other acquired loans—
 —
 —
 —
 —
 —
Total Allowance on acquired loans$—
 $—
 $—
 $—
 $—
 $—
Ending balance, December 31, 2017$1,439
 $2,604
 $910
 $880
 $26
 $5,859
Allowance for Loan Losses at December 31, 2017:           
Amount of allowance for loan losses arising from loans individually evaluated for impairment$223
 $—
 $27
 $49
 $—
 $299
Amount of allowance for loan losses arising from loans collectively evaluated for impairment$1,216
 $2,604
 $883
 $831
 $26
 $5,560
Loans Receivable as of December 31, 2017:          —
Ending balance of originated loans$145,735
 $165,960
 $121,033
 $52,243
 $—
 $484,971
Ending balance of purchased credit-impaired loans570
 7,223
 —
 3,131
 —
 10,924
Ending balance of other acquired loans91,028
 113,163
 4,725
 26,107
 —
 235,023
Ending balance of loans$237,333
 $286,346
 $125,758
 $81,481
 $—
 $730,918
Ending balance: individually evaluated for impairment$5,653
 $213
 $268
 $746
 $—
 $6,880
Ending balance: collectively evaluated for impairment$231,680
 $286,133
 $125,490
 $80,735
 $—
 $724,038

Commercial/Agricultural Real EstateC&I/Agricultural operatingResidential MortgageConsumer InstallmentUnallocatedTotal
Three months ended June 30, 2022
Allowance for Loan Losses:
Beginning balance, April 1, 2022$12,394 $2,104 $460 $160 $782 $15,900 
Charge-offs(122)(247)(35)(14)— (418)
Recoveries3 9 — 11 — 23 
Provision427 44 47 (14)44 548 
Total allowance on originated loans12,702 1,910 472 143 826 16,053 
Purchased credit impaired loans— — — — — — 
Other acquired loans:
Beginning balance, April 1, 2022789 58 62 9 — 918 
Charge-offs— — (21)(2)— (23)
Recoveries— — 25 — — 25 
Provision(125)(7)(18)2 — (148)
Total allowance on other acquired loans664 51 48 9 — 772 
Total allowance on acquired loans664 51 48 9 — 772 
Ending balance, June 30, 2022$13,366 $1,961 $520 $152 $826 $16,825 
23
28




Commercial/Agricultural Real EstateC&I/Agricultural operatingResidential MortgageConsumer InstallmentUnallocatedTotal
Six months ended June 30, 2022
Allowance for Loan Losses:
Beginning balance, January 1, 2022$12,354 $1,959 $518 $225 $774 $15,830 
Charge-offs(157)(310)(35)(23)— (525)
Recoveries6 19 1 21 — 47 
Provision499 242 (12)(80)52 701 
Total allowance on originated loans12,702 1,910 472 143 826 16,053 
Purchased credit impaired loans— — — — — — 
Other acquired loans:
Beginning balance, January 1, 2022856 69 130 28 — 1,083 
Charge-offs— — (33)(2)— (35)
Recoveries— — 25 — — 25 
Provision(192)(18)(74)(17)— (301)
Total allowance on other acquired loans664 51 48 9 — 772 
Total allowance on acquired loans664 51 48 9 — 772 
Ending balance, June 30, 2022$13,366 $1,961 $520 $152 $826 $16,825 
Allowance for Loan Losses at June 30, 2022:
Amount of allowance for loan losses arising from loans individually evaluated for impairment$809 $— $34 $— $— $843 
Amount of allowance for loan losses arising from loans collectively evaluated for impairment$12,557 $1,961 $486 $152 $826 $15,982 
Loans Receivable as of June 30, 2022:
Ending balance of originated loans$943,305 $144,400 $69,126 $20,208 $— $1,177,039 
Ending balance of purchased credit-impaired loans6,848 652 985 — — 8,485 
Ending balance of other acquired loans125,688 18,419 21,883 313 — 166,303 
Ending balance of loans$1,075,841 $163,471 $91,994 $20,521 $— $1,351,827 
Ending balance: individually evaluated for impairment$19,305 $4,375 $5,955 $161 $— $29,796 
Ending balance: collectively evaluated for impairment$1,056,536 $159,096 $86,039 $20,360 $— $1,322,031 
,

 Residential Real Estate Commercial/Agriculture Real Estate Consumer Non-real Estate Commercial/Agricultural Non-real Estate Unallocated Total
Three months ended December 31, 2016:           
Allowance for Loan Losses:           
Beginning balance, October 1, 2016$2,039
 $1,883
 $1,466
 $652
 $28
 $6,068
Charge-offs(43) —
 (172) —
 —
 (215)
Recoveries3
 —
 61
 —
 —
 64
Provision—
 —
 —
 —
 —
 —
Allowance allocation adjustment(187) (11) (17) 19
 196
 —
Total Allowance on originated loans$1,812
 $1,872
 $1,338
 $671
 $224
 $5,917
Purchased credit impaired loans—
 —
 —
 —
 —
 —
Other acquired loans—
 —
 —
 —
 —
 —
Total Allowance on acquired loans$—
 $—
 $—
 $—
 $—
 $—
Ending balance, December 31, 2016$1,812
 $1,872
 $1,338
 $671
 $224
 $5,917
Allowance for Loan Losses at December 31, 2016:           
Amount of allowance for loan losses arising from loans individually evaluated for impairment$399
 $—
 $46
 $32
 $—
 $477
Amount of allowance for loan losses arising from loans collectively evaluated for impairment$1,413
 $1,872
 $1,292
 $639
 $224
 $5,440
Loans Receivable as of December 31, 2016:          
Ending balance of originated loans$149,450
 $95,889
 $175,250
 $30,424
 $—
 $451,013
Ending balance of purchased credit-impaired loans256
 2,097
 4
 867
 —
 3,224
Ending balance of other acquired loans24,628
 53,190
 600
 16,249
 —
 94,667
Ending balance of loans$174,334
 $151,176
 $175,854
 $47,540
 $—
 $548,904
Ending balance: individually evaluated for impairment$4,459
 $—
 $609
 $179
 $—
 $5,247
Ending balance: collectively evaluated for impairment$169,875
 $151,176
 $175,245
 $47,361
 $—
 $543,657
The Bank has originated substantially all loans currently recorded on the Company’s accompanying Consolidated Balance Sheet, except as noted below.
In February 2016, the Bank selectively purchased loans from Central Bank in Rice Lake and Barron, Wisconsin in the amount of $16,363. In May 2016, the Bank acquired loans from Community Bank of Northern Wisconsin, headquartered in Rice Lake, Wisconsin totaling $111,740. In August 2017, the Bank acquired loans from Wells Federal, headquartered in Wells, Minnesota totaling $189,077.
During October 2012, the Bank entered into an agreement to purchase short term consumer loans from a third party on an ongoing basis. As part of the servicer agreement entered into in connection with this purchase agreement, the third party seller agreed to purchase or substitute performing consumer loans for all contracts that become 120 days past due. Pursuant to the ongoing loan purchase agreement, a restricted reserve account was established at 3% of the outstanding consumer loan balances purchased up to a maximum of $1,000, with such percentage amount of the loans being deposited into a segregated reserve account. The funds in the reserve account are to be released to compensate the Bank for any purchased loans that are not purchased back by the seller or substituted with performing loans and are ultimately charged off by the Bank. During the first quarter of fiscal 2015, the Board of Directors increased the limit of these purchased consumer loans to a maximum of $50,000. As of December 31, 2017, the balance of these purchased consumer loans was $26,210 compared to $29,555 as of September 30, 2017. As of September 30, 2017, new purchases from this third party have been terminated. The balance in the cash reserve account at December 31, 2017 was $816, which is included in Deposits on the accompanying Consolidated Balance Sheet. To date, the Company has not charged off or experienced losses related to the purchased loans.


24
29




Commercial/Agricultural Real EstateC&I/Agricultural operatingResidential MortgageConsumer InstallmentUnallocatedTotal
Three months ended June 30, 2021
Allowance for Loan Losses:
Beginning balance, April 1, 2021$11,109 $1,633 $941 $450 $895 $15,028 
Charge-offs(51)— — (12)— (63)
Recoveries1 30 2 21 — 54 
Provision(169)519 (172)(97)(40)41 
Total allowance on originated loans10,890 2,182 771 362 855 15,060 
Purchased credit impaired loans— — — — — — 
Other acquired loans:
Beginning balance, April 1, 20211,301 94 388 49 — 1,832 
Charge-offs— (7)— (3)— (10)
Recoveries— 3 1 — — 4 
Provision167 (9)(158)(41)— (41)
Total allowance on other acquired loans1,468 81 231 5 — 1,785 
Total allowance on acquired loans1,468 81 231 5 — 1,785 
Ending balance, June 30, 2021$12,358 $2,263 $1,002 $367 $855 $16,845 
The weighted average rate earned on these purchased consumer loans was 4.14% as of December 31, 2017. From March 2014 through December 2015, the rate earned for all new loan originations of these purchased consumer loans was 4.00%. As of January 2016, new loans purchased were at an interest rate of 4.25% due to the increase in the Prime Rate.
30

Commercial/Agricultural Real EstateC&I/Agricultural operatingResidential MortgageConsumer InstallmentUnallocatedTotal
Six months ended June 30, 2021
Allowance for Loan Losses:
Beginning balance, January 1, 2021$10,271 $2,112 $1,041 $489 $906 $14,819 
Charge-offs(51)— — (37)— (88)
Recoveries6 38 9 31 — 84 
Provision664 32 (279)(121)(51)245 
Total allowance on originated loans$10,890 $2,182 $771 $362 $855 $15,060 
Purchased credit impaired loans— — — — — — 
Other acquired loans
Beginning balance, January 1, 20211,684 141 335 64 — 2,224 
Charge-offs(200)(7)— (3)— (210)
Recoveries— 10 2 4 — 16 
Provision(16)(63)(106)(60)— (245)
Total allowance on other acquired loans1,468 81 231 5 — 1,785 
Total allowance on acquired loans1,468 81 231 5 — 1,785 
Ending balance, June 30, 2021$12,358 $2,263 $1,002 $367 $855 $16,845 
Allowance for Loan Losses at June 30, 2021:
Amount of allowance for loan losses arising from loans individually evaluated for impairment$796 $527 $144 $— $— $1,467 
Amount of allowance for loan losses arising from loans collectively evaluated for impairment$11,562 $1,736 $858 $367 $855 $15,378 
Loans Receivable as of June 30, 2021
Ending balance of originated loans$666,866 $178,722 $77,914 $30,673 $— $954,175 
Ending balance of purchased credit-impaired loans14,069 1,252 1,115 — — 16,436 
Ending balance of other acquired loans163,771 23,342 32,666 648 — 220,427 
Ending balance of loans$844,706 $203,316 $111,695 $31,321 $— $1,191,038 
Ending balance: individually evaluated for impairment$23,607 $6,598 $8,385 $277 $— $38,867 
Ending balance: collectively evaluated for impairment$821,099 $196,718 $103,310 $31,044 $— $1,152,171 

31

Commercial/Agricultural Real EstateC&I/Agricultural operatingResidential MortgageConsumer InstallmentUnallocatedTotal
Allowance for Loan Losses at December 31, 2021:
Amount of allowance for loan losses arising from loans individually evaluated for impairment$797 $99 $113 $— $— $1,009 
Amount of allowance for loan losses arising from loans collectively evaluated for impairment$12,413 $1,929 $535 $253 $774 $15,904 
Loans Receivable as of December 31, 2021:
Ending balance of originated loans$883,430 $142,894 $67,726 $24,444 $— $1,118,494 
Ending balance of purchased credit-impaired loans9,060 1,101 1,044 — — 11,205 
Ending balance of other acquired loans142,339 18,515 26,091 401 — 187,346 
Ending balance of loans$1,034,829 $162,510 $94,861 $24,845 $— $1,317,045 
Ending balance: individually evaluated for impairment$21,792 $3,337 $7,007 $257 $— $32,393 
Ending balance: collectively evaluated for impairment$1,013,037 $159,173 $87,854 $24,588 $— $1,284,652 

Loans receivable by loan type as of the end of the periods shown below were as follows:
 Residential Real Estate Commercial/Agriculture Real Estate Loans Consumer non-Real Estate Commercial/Agriculture non-Real Estate Totals
 December 31, 2017 September 30, 2017 December 31, 2017 September 30, 2017 December 31, 2017 September 30, 2017 December 31, 2017 September 30, 2017 December 31, 2017 September 30, 2017
Performing loans                   
Performing TDR loans$3,076
 $3,085
 $2,143
 $1,890
 $157
 $167
 $561
 $88
 $5,937
 $5,230
Performing loans other231,539
 242,198
 281,903
 268,619
 125,217
 131,695
 79,195
 77,213
 717,854
 719,725
Total performing loans234,615
 245,283
 284,046
 270,509
 125,374
 131,862
 79,756
 77,301
 723,791
 724,955
                    
Nonperforming loans (1)                   
Nonperforming TDR loans591
 593
 556
 —
 9
 28
 170
 —
 1,326
 621
Nonperforming loans other2,127
 1,758
 1,744
 3,391
 375
 447
 1,555
 1,823
 5,801
 7,419
Total nonperforming loans2,718
 2,351
 2,300
 3,391
 384
 475
 1,725
 1,823
 7,127
 8,040
Total loans$237,333
 $247,634
 $286,346
 $273,900
 $125,758
 $132,337
 $81,481
 $79,124
 $730,918
 $732,995
(1)
Nonperforming loans are either 90+ days past due or nonaccrual.

 Commercial/Agricultural Real Estate LoansC&I/Agricultural OperatingResidential MortgageConsumer InstallmentTotals
 June 30, 2022December 31, 2021June 30, 2022December 31, 2021June 30, 2022December 31, 2021June 30, 2022December 31, 2021June 30, 2022December 31, 2021
Performing loans
Performing TDR loans$2,050 $4,618 $1,182 $649 $2,713 $2,681 $17 $36 $5,962 $7,984 
Performing loans other1,065,304 1,021,346 161,523 160,570 87,448 90,591 20,442 24,729 1,334,717 1,297,236 
Total performing loans1,067,354 1,025,964 162,705 161,219 90,161 93,272 20,459 24,765 1,340,679 1,305,220 
Nonperforming loans (1)
Nonperforming TDR loans2,177 3,389 56 554 516 593 1 3 2,750 4,539 
Nonperforming loans other6,310 5,476 710 737 1,317 996 61 77 8,398 7,286 
Total nonperforming loans8,487 8,865 766 1,291 1,833 1,589 62 80 11,148 11,825 
Total loans$1,075,841 $1,034,829 $163,471 $162,510 $91,994 $94,861 $20,521 $24,845 $1,351,827 $1,317,045 

(1)Nonperforming loans are either 90+ days past due or nonaccrual.
As of June 30, 2022 the Company had $257,478 in unused commitments, compared to $270,985 in unused commitments as of December 31, 2021.


25
32




An aging analysis of the Company’s residentialcommercial/agricultural real estate, commercial/agriculture real estate,C&I, agricultural operating, residential mortgage, consumer and other loansinstallment and purchased third party loans as of June 30, 2022 and December 31, 2017 and September 30, 2017,2021, respectively, was as follows:
30-59 Days Past Due and Accruing60-89 Days Past Due and AccruingGreater Than 89 Days Past Due and AccruingTotal
Past Due and Accruing		Nonaccrual LoansTotal Past Due Accruing and Nonaccrual LoansCurrentTotal
Loans
June 30, 2022
Commercial/Agricultural real estate:
Commercial real estate$— $— $— $— $5,275 $5,275 $697,642 $702,917 
Agricultural real estate78 — — 78 3,169 3,247 74,560 77,807 
Multi-family real estate— — — — — — 179,929 179,929 
Construction and land development— — — — 43 43 115,145 115,188 
C&I/Agricultural operating:
Commercial and industrial7 8 — 15 211 226 138,776 139,002 
Agricultural operating146 — — 146 555 701 23,768 24,469 
Residential mortgage:
Residential mortgage1,032 668 712 2,412 1,122 3,534 85,041 88,575 
Purchased HELOC loans— — — — — — 3,419 3,419 
Consumer installment:
Originated indirect paper13 — — 13 41 54 12,682 12,736 
Other consumer54 3 2 59 18 77 7,708 7,785 
Total$1,330 $679 $714 $2,723 $10,434 $13,157 $1,338,670 $1,351,827 
December 31, 2021
Commercial/Agricultural real estate:
Commercial real estate$36 $— $— $36 $5,374 $5,410 $693,055 $698,465 
Agricultural real estate498 4 — 502 3,490 3,992 74,503 78,495 
Multi-family real estate— — — — — — 178,349 178,349 
Construction and land development— — — — — — 79,520 79,520 
C&I/Agricultural operating:
Commercial and industrial— 32 — 32 298 330 121,837 122,167 
SBA PPP loans— — — — — — 8,755 8,755 
Agricultural operating1,123 — — 1,123 993 2,116 29,472 31,588 
Residential mortgage:
Residential mortgage1,471 487 156 2,114 1,268 3,382 87,608 90,990 
Purchased HELOC loans117 — — 117 165 282 3,589 3,871 
Consumer installment:
Originated indirect paper38 27 — 65 55 120 15,851 15,971 
Other consumer58 10 4 72 22 94 8,780 8,874 
Total$3,341 $560 $160 $4,061 $11,665 $15,726 $1,301,319 $1,317,045 

33
 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days 
Total
Past Due
 Current 
Total
Loans
 Nonaccrual Loans Recorded
Investment > 89
Days and
Accruing
December 31, 2017               
Residential real estate:               
One to four family$3,312
 $1,174
 $1,634
 $6,120
 $214,957
 $221,077
 $2,253
 $466
Purchased HELOC loans438
 —
 —
 438
 16,530
 16,968
 —
 —
Commercial/Agricultural real estate:               
Commercial real estate1,530
 —
 103
 1,633
 170,010
 171,643
 321
 —
Agricultural real estate589
 —
 1,331
 1,920
 63,107
 65,027
 1,742
 —
Multi-family real estate—
 —
 146
 146
 32,430
 32,576
 146
 —
Construction and land development1,963
 438
 27
 2,428
 17,410
 19,838
 91
 —
Consumer non-real estate:               
Originated indirect paper415
 19
 87
 521
 78,971
 79,492
 81
 42
Purchased indirect paper595
 316
 211
 1,122
 25,088
 26,210
 —
 211
Other Consumer199
 38
 32
 269
 18,973
 19,242
 29
 20
Commercial/Agricultural non-real estate:               
Commercial non-real estate488
 —
 96
 584
 58,239
 58,823
 1,537
 —
Agricultural non-real estate109
 114
 91
 314
 23,396
 23,710
 188
 —
Total$9,638
 $2,099
 $3,758
 $15,495
 $719,111
 $734,606
 $6,388
 $739
September 30, 2017               
Residential real estate:               
One to four family$2,811
 $393
 $1,228
 $4,432
 $225,131
 $229,563
 $2,200
 $151
Purchased HELOC loans250
 —
 —
 250
 17,821
 18,071
 —
 —
Commercial/Agricultural real estate:               
Commercial real estate332
 70
 282
 684
 159,278
 159,962
 572
 —
Agricultural real estate57
 —
 2,405
 2,462
 65,540
 68,002
 2,723
 96
Multi-family real estate—
 —
 —
 —
 26,228
 26,228
 —
 —
Construction and land development—
 —
 —
 —
 19,708
 19,708
 —
 —
Consumer non-real estate:               
Originated indirect paper426
 112
 123
 661
 85,071
 85,732
 74
 80
Purchased indirect paper601
 305
 221
 1,127
 28,428
 29,555
 —
 221
Other Consumer120
 79
 57
 256
 20,412
 20,668
 76
 25
Commercial/Agricultural non-real estate:               
Commercial non-real estate75
 23
 156
 254
 54,997
 55,251
 1,618
 —
Agricultural non-real estate757
 —
 120
 877
 22,996
 23,873
 189
 16
Total$5,429
 $982
 $4,592
 $11,003
 $725,610
 $736,613
 $7,452
 $589


26




At December 31, 2017,June 30, 2022, the Company has identified impairedindividually evaluated loans for impairment with a recorded investment of $24,266,$29,386, consisting of $7,263 TDR loans, $10,923(1) $8,485 purchased credit impaired (“PCI”) loans, with a carrying amount of $8,075; (2) $7,118 TDR loans, net of TDR PCI loans; and $6,080(3) $14,193 of substandard non-TDR, loans, which includes $3,202 of non-PCI acquired loans. The $24,266 total$29,386 recorded investment of impaired loans individually evaluated for impairment includes $2,631$5,962 of performing TDR loans. At September 30, 2017,December 31, 2021, the Company identified impairedindividually evaluated loans for impairment with a recorded investment of $24,359,$31,740, consisting of $5,851(1) $11,205 PCI loans, with a carrying amount of $10,552; (2) $9,860 TDR loans, $12,035 purchased credit impaired loans,net of TDR PCI loans; and $6,473(3) $11,328 of substandard non-TDR, loans, which includes $2,387 of non-PCI acquired loans. The $24,359 total$31,740 recorded investment of impaired loans individually evaluated for impairment includes $5,230$7,984 of performing TDR loans. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis.
A summary of the Company’s impaired loans individually evaluated for impairment as of June 30, 2022, December 31, 20172021 and SeptemberJune 30, 20172021 was as follows:
Three Months EndedSix Months Ended
 Recorded InvestmentUnpaid Principal BalanceRelated AllowanceAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
June 30, 2022
With No Related Allowance Recorded:
Commercial/Agricultural real estate$13,290 $13,502 $— $13,565 $169 $15,514 $305 
C&I/Agricultural operating4,246 4,375 — 5,131 32 4,961 82 
Residential mortgage5,684 5,754 — 6,066 62 6,482 133 
Consumer installment162 161 — 186 2 226 4 
Total$23,382 $23,792 $— $24,948 $265 $27,183 $524 
With An Allowance Recorded:
Commercial/Agricultural real estate$5,803 $5,803 $809 $6,142 $3 $5,458 $14 
C&I/Agricultural operating— — — 219 — 276 10 
Residential mortgage201 201 34 256 1 467 2 
Consumer installment— — — — — 1 — 
Total$6,004 $6,004 $843 $6,617 $4 $6,202 $26 
June 30, 2022 Totals:
Commercial/Agricultural real estate$19,093 $19,305 $809 $19,707 $172 $20,972 $319 
C&I/Agricultural operating4,246 4,375 — 5,350 32 5,237 92 
Residential mortgage5,885 5,955 34 6,322 63 6,949 135 
Consumer installment162 161 — 186 2 227 4 
Total$29,386 $29,796 $843 $31,565 $269 $33,385 $550 
34
 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized
December 31, 2017         
With No Related Allowance Recorded:         
Residential real estate$5,338
 $5,338
 $—
 $4,677
 $242
Commercial/agriculture real estate11,703
 11,703
 —
 12,164
 6
Consumer non-real estate127
 127
 —
 280
 21
Commercial/agricultural non-real estate5,305
 5,305
 —
 5,550
 8
Total$22,473
 $22,473
 $—
 $22,671
 $277
With An Allowance Recorded:         
Residential real estate$1,556
 $1,556
 $223
 $1,377
 $66
Commercial/agriculture real estate—
 —
 —
 —
 —
Consumer non-real estate141
 141
 28
 205
 —
Commercial/agricultural non-real estate96
 96
 49
 60
 —
Total$1,793
 $1,793
 $300
 $1,642
 $66
December 31, 2017 Totals:         
Residential real estate$6,894
 $6,894
 $223
 $6,054
 $308
Commercial/agriculture real estate11,703
 11,703
 —
 12,164
 6
Consumer non-real estate268
 268
 28
 485
 21
Commercial/agricultural non-real estate5,401
 5,401
 49
 5,610
 8
Total$24,266
 $24,266
 $300
 $24,313
 $343


27




Twelve Months Ended
 Recorded InvestmentUnpaid Principal BalanceRelated AllowanceAverage Recorded InvestmentInterest Income Recognized
December 31, 2021
With No Related Allowance Recorded:
Commercial/Agricultural real estate$15,521 $15,905 $— $19,412 $964 
C&I/Agricultural operating3,153 3,337 — 4,622 146 
Residential mortgage6,221 6,306 — 7,316 316 
Consumer installment256 256 — 306 85 
Total$25,151 $25,804 $— $31,656 $1,511 
With An Allowance Recorded:
Commercial/Agricultural real estate$5,887 $5,887 $797 $4,089 $62 
C&I/Agricultural operating— — 99 391 84 
Residential mortgage701 701 113 890 17 
Consumer installment1 1 — 2 — 
Total$6,589 $6,589 $1,009 $5,372 $163 
December 31, 2021 Totals
Commercial/Agricultural real estate$21,408 $21,792 $797 $23,501 $1,026 
C&I/Agricultural operating3,153 3,337 99 5,013 230 
Residential mortgage6,922 7,007 113 8,206 333 
Consumer installment257 257 — 308 85 
Total$31,740 $32,393 $1,009 $37,028 $1,674 

Three Months EndedSix Months Ended
 Recorded InvestmentUnpaid Principal BalanceRelated AllowanceAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
June 30, 2021
With No Related Allowance Recorded:
Commercial/Agricultural real estate$21,872 $22,416 $— $20,468 $252 $21,413 $491 
C&I/Agricultural operating3,328 3,517 — 4,626 20 5,114 90 
Residential mortgage7,615 7,705 — 7,842 81 8,031 161 
Consumer installment277 277 — 266 3 296 6 
Total$33,092 $33,915 $— $33,202 $356 $34,854 $748 
With An Allowance Recorded:
Commercial/Agricultural real estate$1,191 $1,191 $796 $3,213 $— $2,905 $62 
C&I/Agricultural operating3,081 3,081 527 1,580 41 1,314 41 
Residential mortgage680 680 144 666 7 804 15 
Consumer installment— — — — — 1 — 
Total$4,952 $4,952 $1,467 $5,459 $48 $5,024 $118 
June 30, 2021 Totals:
Commercial/Agricultural real estate$23,063 $23,607 $796 $23,681 $252 $24,318 $553 
C&I/Agricultural operating6,409 6,598 527 6,206 61 6,428 131 
Residential mortgage8,295 8,385 144 8,508 88 8,835 176 
Consumer installment277 277 — 266 3 297 6 
Total$38,044 $38,867 $1,467 $38,661 $404 $39,878 $866 
35

 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized
September 30, 2017         
With No Related Allowance Recorded:         
Residential real estate$4,015
 $4,015
 $—
 $3,440
 $9
Commercial/agriculture real estate12,626
 12,626
 —
 4,460
 2
Consumer non-real estate433
 433
 —
 340
 16
Commercial/agricultural non-real estate5,795
 5,795
 —
 2,628
 11
Total$22,869
 $22,869
 $—
 $10,868
 $38
With An Allowance Recorded:         
Residential real estate$1,198
 $1,198
 $214
 $1,545
 $2
Commercial/agriculture real estate—
 —
 —
 —
 —
Consumer non-real estate269
 269
 65
 306
 —
Commercial/agricultural non-real estate23
 23
 23
 101
 —
Total$1,490
 $1,490
 $302
 $1,952
 $2
September 30, 2016 Totals:         
Residential real estate$5,213
 $5,213
 $214
 $4,985
 $11
Commercial/agriculture real estate12,626
 12,626
 —
 4,460
 2
Consumer non-real estate702
 702
 65
 646
 16
Commercial/agricultural non-real estate5,818
 5,818
 23
 2,729
 11
Total$24,359
 $24,359
 $302
 $12,820
 $40
Troubled Debt Restructuring – A TDR includes a loan modification where a borrower is experiencing financial difficulty, and the Bank grants a concession to that borrower that the Bank would not otherwise consider, except for the borrower’s financial difficulties. Concessions include, but are not limited to, anmay include: extension of loan terms,the loan’s term, renewals of existing balloon loans, reductions in interest rates and consolidating existing Bank loans at modified terms. A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status. There were 54 delinquent TDRsaccruing TDR loans greater than 60 days past due, with a recorded investment of $738$463 at December 31, 2017,June 30, 2022, compared to 31 such loansloan with a recorded investment of $504$4 at September 30, 2017.December 31, 2021.
Following is a summary of TDR loans by accrual status as of June 30, 2022 and December 31, 20172021.
June 30, 2022December 31, 2021
Troubled debt restructure loans:
Accrual status$6,163 $7,984 
Non-accrual status2,549 4,539 
Total$8,712 $12,523 
There was 1 loan commitment for $38 meeting our TDR criteria as of June 30, 2022 and September 30, 2017.no loan commitments meeting our TDR criteria as of December 31, 2021. There were no TDR commitments or unused lines of credit totaling $77 and $10 meeting our TDR criteria as of June 30, 2022 and December 31, 2017.2021, respectively.
  December 31, 2017 September 30, 2017
Troubled debt restructure loans:    
Accrual status $5,936
 $5,230
Non-accrual status 1,327
 621
Total $7,263
 $5,851

28




The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the three and six months ended December 31, 2017June 30, 2022:    
Number of ContractsMaturity ExtensionModified PaymentModified Under- writingOtherPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentSpecific Reserve
Three months ended June 30, 2022
TDRs:
Commercial/Agricultural real estate1 $— $— $425 $— $425 $425 $— 
C&I/Agricultural operating2 — — 446 — 446 446 — 
Residential mortgage2 32 — — — 32 32 — 
Consumer installment— — — — — — — — 
Totals5 $32 $— $871 $— $903 $903 $— 

Number of ContractsMaturity ExtensionModified PaymentModified Under- writingOtherPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentSpecific Reserve
Six months ended June 30, 2022
TDRs:
Commercial/Agricultural real estate5 $1,241 $— $425 $— $1,666 $1,666 $— 
C&I/Agricultural operating3 — — 596 — 596 596 — 
Residential mortgage6 63 — 507 — 570 570 — 
Consumer installment— — — — — — — — 
Totals14 $1,304 $— $1,528 $— $2,832 $2,832 $— 


36

The following provides detail, including specific reserve and reasons for modification, related to loans identified as TDRs during the yearthree and six months ended SeptemberJune 30, 2017:     2021:     
  Number of Contracts Modified Rate Modified Payment Modified Under- writing Other Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserve
Three months ended December 31, 2017                
TDRs:                
Residential real estate 1
 $—
 $—
 $22
 $—
 $22
 $22
 $—
Commercial/Agricultural real estate 4
 —
 410
 259
 146
 815
 815
 —
Consumer non-real estate —
 —
 —
 —
 —
 —
 —
 —
Commercial/Agricultural non-real estate 4
 —
 84
 471
 88
 643
 643
 —
Totals 9
 $—
 $494
 $752
 $234
 $1,480
 $1,480
 $—
Number of ContractsMaturity ExtensionModified PaymentModified Under- writingOtherPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentSpecific Reserve
Three months ended June 30, 2021
TDRs:
Commercial/Agricultural real estate1 $1 $— $— $— $1 $1 $— 
C&I/Agricultural operating— — — — — — — — 
Residential mortgage— — — — — — — — 
Consumer installment1 — — 18 — 18 18 — 
Totals2 $1 $— $18 $— $19 $19 $— 
  Number of Contracts Modified Rate Modified Payment Modified Under- writing Other Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserve
Year ended September 30, 2017                
TDRs:                
Residential real estate 9
 $—
 $—
 $679
 $236
 $915
 $915
 $24
Commercial/Agricultural real estate 8
 —
 —
 1,822
 68
 1,890
 1,890
 —
Consumer non-real estate 4
 —
 —
 4
 28
 32
 32
 —
Commercial/Agricultural non-real estate 2
 —
 —
 —
 93
 93
 93
 —
Totals 23
 $—
 $—
 $2,505
 $425
 $2,930
 $2,930
 $24
Number of ContractsMaturity ExtensionModified PaymentModified Under- writingOtherPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentSpecific Reserve
Six months ended June 30, 2021
TDRs:
Commercial/Agricultural real estate3 $39 $81 $— $— $120 $120 $— 
C&I/Agricultural operating1 — — 240 — 240 240 — 
Residential mortgage2 66 — 14 — 80 80 — 
Consumer installment2 6 — 18 — 24 24 — 
Totals8 $111 $81 $272 $— $464 $464 $— 
A summary of loans by loan segment modified in a troubled debt restructuring as of December 31, 2017June 30, 2022 and SeptemberJune 30, 2017,2021, was as follows:
 June 30, 2022June 30, 2021
 Number of
Modifications		Recorded
Investment		Number of
Modifications		Recorded
Investment
Troubled debt restructurings:
Commercial/Agricultural real estate18 $4,226 25 $8,298 
C&I/Agricultural operating6 1,238 10 4,469 
Residential mortgage42 3,230 48 3,774 
Consumer installment4 18 8 56 
Total troubled debt restructurings70 $8,712 91 $16,597 
 December 31, 2017 September 30, 2017
 
Number of
Modifications
 
Recorded
Investment
 
Number of
Modifications
 
Recorded
Investment
Troubled debt restructurings:       
Residential real estate33
 $3,667
 32
 $3,678
Commercial/Agricultural real estate12
 2,699
 8
 1,890
Consumer non-real estate19
 166
 20
 195
Commercial/Agricultural non-real estate6
 731
 2
 88
Total troubled debt restructurings70
 $7,263
 62
 $5,851


29
37




The following table provides information related to restructuredthe number of loans that were consideredmodified in default as of December 31, 2017 and September 30, 2017:    
 December 31, 2017 September 30, 2017
 
Number of
Modifications
 
Recorded
Investment
 
Number of
Modifications
 
Recorded
Investment
Troubled debt restructurings:       
Residential real estate4
 $591
 4
 $593
Commercial/Agricultural real estate2
 556
 —
 —
Consumer non-real estate2
 9
 3
 28
Commercial/Agricultural non-real estate2
 171
 —
 —
Total troubled debt restructurings10
 $1,327
 7
 $621
Included above are fivea TDR loan that became in defaultduring the previous twelve months which subsequently defaulted during the three and six months ended December 31, 2017.June 30, 2022 and June 30, 2021, as well as the recorded investment in these restructured loans as of June 30, 2022 and June 30, 2021:
Three Months Ended
June 30, 2022June 30, 2021
Number of
Modifications		Recorded
Investment		Number of
Modifications		Recorded
Investment
Troubled debt restructurings:
Commercial/Agricultural real estate— $— — $— 
C&I/Agricultural operating— — — — 
Residential mortgage— — — — 
Consumer installment— — — — 
Total troubled debt restructurings— $— — $— 
Six Months Ended
 June 30, 2022June 30, 2021
 Number of
Modifications		Recorded
Investment		Number of
Modifications		Recorded
Investment
Troubled debt restructurings:
Commercial/Agricultural real estate— $— — $— 
C&I/Agricultural operating— — — — 
Residential mortgage— — 1 19 
Consumer installment— — — — 
Total troubled debt restructurings— $— 1 $19 






















38

All acquired loans were initially recorded at fair value at the acquisition date. The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:
 June 30, 2022December 31, 2021
Accountable for under ASC 310-30 (Purchased Credit Impaired “PCI” loans)
Outstanding balance$8,485 $11,205 
Carrying amount$8,075 $10,552 
Accountable for under ASC 310-20 (non-PCI loans)
Outstanding balance$166,303 $187,346 
Carrying amount$164,079 $184,399 
Total acquired loans
Outstanding balance$174,788 $198,551 
Carrying amount$172,154 $194,951 
 December 31, 2017
Accountable for under ASC 310-30 (Purchased Credit Impaired "PCI" loans) 
Outstanding balance$10,923
Carrying amount$8,734
Accountable for under ASC 310-20 (non-PCI loans)
Outstanding balance$239,964
Carrying amount$237,213
Total acquired loans 
Outstanding balance$250,887
Carrying amount$245,947

The table below shows scheduled accretion by year for the accretable difference recognized due to fair value purchase accounting on recent whole bank acquisitions. In addition, the Company has $1.35 million of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount. The scheduled accretion on this balance is estimated to be approximately $100 per year; however, large balance payoffs, as seen in 2021 and 2020, would accelerate this accretion.
Fiscal years ending December 31,Purchase Accounting Accretable Discount
2022$366 
2023279 
2024131 
202596 
Total$872 
2022 is the six month period from July 1, 2022 through December 31, 2022.

The following table provides changes in accretablenon-accretable yield for all acquired loans accounted for under ASC 310-20:from prior acquisitions with deteriorated credit quality:
 June 30, 2022December 31, 2021
Balance at beginning of period$653 $1,087 
Additions to non-accretable difference for acquired purchased credit impaired loans— — 
Non-accretable difference realized as interest from payoffs of purchased credit impaired loans(96)(105)
Transfers from non-accretable difference to accretable discount(115)(329)
Non-accretable difference used to reduce loan principal balance(32)— 
Balance at end of period$410 $653 

39
 December 31, 2017
Balance at beginning of period$2,893
Acquisitions—
Reduction due to unexpected early payoffs—
Reclass from non-accretable difference—
Disposals/transfers—
Accretion(142)
Balance at end of period$2,751


NOTE 4 – MORTGAGE SERVICING RIGHTS
Mortgage servicing rights--Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balances of these loans as of June 30, 2022 and December 31, 20172021 were $544,734 and September 30, 2017 were $280,947 and $282,392,$556,086, respectively, and consisted of one to four family residential real estate loans. These loans are serviced primarily for the Federal Home Loan Mortgage Corporation, Federal Home Loan Bank and the Federal National Mortgage Association.
Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $2,332$4,985 and $3,208,$2,781 at June 30, 2022 and December 31, 2017 and September 30, 2017,2021, respectively.
Mortgage servicing rights activity for the three monthsand six month periods ended December 31, 2017June 30, 2022 and year ended SeptemberJune 30, 20172021 were as follows:

As of and for the Three Months EndedAs of and for the Three Months EndedAs of and for the Six Months EndedAs of and for the Six Months Ended
June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Mortgage servicing rights:
Mortgage servicing rights, beginning of period$4,614 $5,124 $4,727 $5,266 
Increase in mortgage servicing rights resulting from transfers of financial assets101 304 227 601 
Amortization during the period(195)(464)(434)(903)
Mortgage servicing rights, end of period4,520 4,964 4,520 4,964 
Valuation allowance:
Valuation allowance, beginning of period— (1,125)(566)(2,014)
Additions— — — — 
Recoveries— 23 566 912 
Valuation allowance, end of period— (1,102)— (1,102)
Mortgage servicing rights, net$4,520 $3,862 $4,520 $3,862 
Fair value of mortgage servicing rights; end of period$5,475 $3,894 $5,475 $3,894 
The current period change in valuation allowance, if applicable, is included in non-interest expense as mortgage servicing rights expense, net on the consolidated statement of operations. Servicing fees totaled $352 and $352 for the three months ended June 30, 2022 and June 30, 2021, respectively. Servicing fees totaled $703 and $704 for the six months ended June 30, 2022 and June 30, 2021, respectively. Servicing fees are included in loan servicing income on the consolidated statement of operations. Late fees and ancillary fees related to loan servicing are not material.
To estimate the fair value of the MSR asset, a valuation model is applied at the loan level to calculate the present value of the expected future cash flows. The valuation model incorporates various assumptions that would impact market participants’ estimations of future servicing income. Central to the valuation model is the discount rate. Fair value at both June 30, 2022 and June 30, 2021, was determined using discount rates ranging from 9% to 12%. Other assumptions utilized in the valuation model include, but are not limited to, prepayment speed, servicing costs, delinquencies, costs of advances, foreclosure costs, ancillary income, and income earned on float and escrow.
30
40




  Three Months Ended Twelve Months Ended
  December 31, 2017 September 30, 2017
Balance at beginning of period $1,886
 $—
MSR asset acquired —
 1,909
MSRs capitalized 70
 13
Amortization during the period (90) (36)
Valuation allowance at end of period —
 —
Net book value at end of period $1,866
 $1,886
Fair value of MSR asset at end of period $2,020
 $1,951
Residential mortgage loans serviced for others $280,947
 $282,392
Net book value of MSR asset to loans serviced for others 0.63% 0.67%



31




NOTE 5 – LEASES
We have operating leases for our corporate offices (1), bank branch offices (5), and an ATM location (1). Our leases have remaining lease terms ranging from approximately 0.75 to 6.00 years, some of which include options to extend the leases for up to 5 additional years. As of June 30, 2022, we have no additional lease commitments that have not yet commenced. The Company also leases a portion of some of its facilities and receives rental income from such lease agreements, all of which are considered operating leases.
Six Months Ended
June 30, 2022June 30, 2021
The components of total lease cost were as follows:
Operating lease cost$279 $279 
Variable lease cost21 17 
Total lease cost$300 $296 
The components of total lease income were as follows:
Operating lease income$17 $16 
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$278 $276 
June 30, 2022December 31, 2021
Supplemental balance sheet information related to leases was as follows:
Operating lease right-of-use assets$1,909 $2,159 
Operating lease liabilities$1,979 $2,228 
Weighted average remaining lease term in years; operating leases5.175.55
Weighted average discount rate; operating leases2.77 %2.73 %
Cash obligations and receipts under lease contracts are as follows:
Fiscal years ending December 31,PaymentsReceipts
2022$280 $17 
2023506 27 
2024419 10 
2025403 — 
2026346 — 
Thereafter480 — 
Total2,434 $54 
Less: effects of discounting(455)
Lease liability recognized$1,979 

41


NOTE 6 – DEPOSITS
The following is a summary of deposits by type at June 30, 2022 and December 31, 2021, respectively:
June 30, 2022December 31, 2021
Non-interest bearing demand deposits$276,815 $276,631 
Interest bearing demand deposits401,857 396,231 
Savings accounts239,322 222,674 
Money market accounts328,718 288,985 
Certificate accounts153,498 203,014 
Total deposits$1,400,210 $1,387,535 

At June 30, 2022, the scheduled maturities of time deposits were as follows for the year ended, except December 31, 2022 which is the six months ended:
December 31, 2022$65,125 
December 31, 202357,325 
December 31, 202417,353 
December 31, 202511,595 
December 31, 20261,502 
After December 31, 2026598 
Total$153,498 

Time deposits of $250 or more were $17,641 and $22,381 at June 30, 2022 and December 31, 2021, respectively. Brokered deposits were $6 at June 30, 2022 and $11 at December 31, 2021, respectively.





























42

NOTE 7 – FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES AND OTHER BORROWINGS
A summary of Federal Home Loan Bank advances and other borrowings at June 30, 2022 and December 31, 2017 and September 30, 20172021 is as follows:
June 30, 2022December 31, 2021
Stated MaturityAmountRange of Stated RatesAmountRange of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4)2022$39,000 1.61 %1.63 %$11,000 2.45 %2.45 %
202310,000 1.43 %2.01 %20,000 1.43 %1.44 %
202420,530 0.00 %1.45 %20,530 0.00 %1.45 %
20255,000 1.45 %1.45 %5,000 1.45 %1.45 %
202927,500 1.01 %1.13 %42,500 1.00 %1.13 %
2030— — %— %12,500 0.52 %0.86 %
Subtotal102,030 111,530 
Unamortized discount on acquired notes— (3)
Federal Home Loan Bank advances, net$102,030 $111,527 
Senior Notes (5)2034$23,250 3.00 %4.00 %$28,856 3.00 %3.50 %
Subordinated Notes (6)2027$15,000 6.75 %6.75 %$15,000 6.75 %6.75 %
203015,000 6.00 %6.00 %15,000 6.00 %6.00 %
203235,000 4.75 %4.75 %— — %— %
$65,000 $30,000 
Unamortized debt issuance costs(1,126)(430)
Total other borrowings$87,124 $58,426 
Totals$189,154 $169,953 
(1)    The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $920,774 and $861,900 at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $230,585 compared to $204,271 as of December 31, 2021.
(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $111,530 and $123,530, during the six months ended June 30, 2022 and the twelve months ended December 31, 2021, respectively.
(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of June 30, 2022 and December 31, 2021 were 1.66% and 2.45%, respectively.
(4)    At June 30, 2022, FHLB term notes totaling $27,500 can be called or replaced by the FHLB on a quarterly basis, and if not called, will mature at various dates in 2029. At December 31, 2021, FHLB term notes totaling $55,000 could be called or replaced by the FHLB on a quarterly basis, and if not called, would mature at various dates in 2029 and 2030.
(5)    Senior notes, entered into by the Company in June 2019 consist of the following:
(a) A term note, which was subsequently refinanced in March 2022, requiring quarterly interest-only payments through March 2025, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.
43

 December 31, 2017 September 30, 2017
Advances from FHLB:   
Fixed rates$94,000
 $90,000
    
Senior notes:   
Variable rate due in May 202110,389
 10,694
Variable rate due in August 20224,875
 5,000
 15,264
 15,694
Subordinated notes:   
6.75% due August 2027, variable rate commencing August 20225,000
 5,000
6.75% due August 2027, variable rate commencing August 202210,000
 10,000
 15,000
 15,000
Less: unamortized debt issuance costs(365) (375)
Total other borrowings29,899
 30,319
    
TOTALS$123,899
 $120,319
(b) A $5,000 line of credit, maturing August 1, 2022, that remains undrawn upon. The line was renewed on August 1, 2022, and will mature August 1, 2023.
(6)    Subordinated notes resulted from the following:
(a) The Company’s private sale in August 2017, which bears a fixed interest rate of 6.75% for five years. In August 2022, they convert to a three-month LIBOR plus 4.90% rate, and the interest rate will reset quarterly thereafter. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due quarterly. The Company sent the required redemption notice to the note holders in June 2022, and this subordinated note will be called and repaid in full on August 10, 2022.
(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
(c) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years. In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
Federal Home Loan Bank Advances and Irrevocable Standby Letters of Credit
The Bank had one long-term fixed rate advance from the FHLB with a contractual interest rate of 0.99% at December 31, 2017. Advances from the FHLB have terms of 24 months or less, mature at various dates through 2018, and are secured by $316,155 of real estate and commercial and industrial loans. Each Federal Home Loan Bank advance is payable at the maturity date, with a prepayment penalty for fixed rate advances.
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"(“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest bearing deposit balances. These balances were $36,905$190,400 and $30,233$176,150 at June 30, 2022 and December 31, 20172021, respectively.
Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“FRB PPPLF”) Program
The Bank has originated Small Business Administration’s Paycheck Protection Program (“SBA PPP”) loans and Septemberhas complied with the requirements to pledge these loans to the FRB PPPLF program which provides 100% funding for SBA PPP loans upon request. This FRB PPPLF program expired on July 30, 2017, respectively.
At2021. The Bank had no outstanding loan balances under this facility at June 30, 2022 and December 31, 2017, the Bank’s available and unused portion of this borrowing arrangement was approximately $185,236, compared to $92,959 as of September 30, 2017.
Maximum2021. There were no month-end borrowed amounts outstanding under this borrowing agreement were $94,000 and $90,000 during the threesix months ended June 30, 2022 and the twelve months ended December 31, 2017 and year ended September 30, 2017,2021, respectively.
Senior Notes and Revolving Line of Credit
On May 16, 2016, In July 2021, the Company entered into a Loan Agreement evidencing an $11,000 term loan maturing on May 15, 2021. The proceeds from the Loan were used by the Company for the sole purpose of financing the acquisition, by merger, of Community Bank of Northern Wisconsin.

On May 30, 2017, the Company extended a $5,000 term loan facility for the sole purpose of financing the acquisition, by merger, of Wells Financial Corporation. On August 17, 2017, this term loan was funded and matures on August 15, 2022 with a ten year amortization.

The variable rate senior notes provide for a floating interest rate that resets quarterly at rates that are indexedpledged these SBA PPP loans to the three-month London interbank offered rate ("LIBOR") plus 2.70%. The contractual interest rates for those notes ranged from 4.01% to 4.07% during the three months ended December 31, 2017, and from 3.44% to 4.01% during the year ended September 30, 2017. The weighted average contractual interest rates payable were 4.07% and 4.01% at December 31, 2017 and September 30, 2017, respectively.FHLB.




32
44





Subordinated Notes

NOTE 8 - CAPITAL MATTERS
On August 10, 2017,Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Although these terms are not used to represent overall financial condition, if adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At June 30, 2022, the Company entered into two subordinated note agreements in the amounts of $5,000 and $10,000, both maturing on August 9, 2027. The proceeds of the loans were used by the Company for the sole purpose of financing the acquisition, by merger, of Wells Financial Corporation.

Bank was categorized as “Well Capitalized”, under Prompt Corrective Action Provisions.
The subordinated notes are unsecuredBank’s Tier 1 (leverage) and are subordinate to the claims of other creditors of the Company. The subordinated notes mature in August 2027, and convert to variable interest rate notes in August 2022. These notes provide for an annual fixed interest rate for the first five years of 6.75%. After the fixed interest period and through maturity, the interest rate will be reset quarterly to equal the three-month LIBOR rate, plus 4.90%. Interest on the Notes will be payable quarterly in arrears on March 31,risk-based capital ratios at June 30, September 302022 and December 31, of each year through the maturity date.2021, respectively, are presented below:

 ActualFor Capital Adequacy
Purposes		To Be Well Capitalized
Under Prompt Corrective
Action Provisions
 AmountRatioAmountRatioAmountRatio
As of June 30, 2022
Total capital (to risk weighted assets)$213,799 14.3 %$119,200 > =8.0 %$149,000 > =10.0 %
Tier 1 capital (to risk weighted assets)196,974 13.2 %$89,400 > =6.0 %119,200 > =8.0 %
Common equity tier 1 capital (to risk weighted assets)196,974 13.2 %$67,050 > =4.5 %96,850 > =6.5 %
Tier 1 leverage ratio (to adjusted total assets)196,974 11.4 %69,189 > =4.0 %86,486 > =5.0 %
As of December 31, 2021
Total capital (to risk weighted assets)$187,783 13.4 %$111,694 > =8.0 %$139,618 > =10.0 %
Tier 1 capital (to risk weighted assets)170,870 12.2 %83,771 > =6.0 %111,694 > =8.0 %
Common equity tier 1 capital (to risk weighted assets)170,870 12.2 %62,828 > =4.5 %90,752 > =6.5 %
Tier 1 leverage ratio (to adjusted total assets)170,870 10.0 %68,323 > =4.0 %85,403 > =5.0 %
Debt Issuance Costs


Debt issuance costs, consisting primarily of investment banking






45


The Company’s Tier 1 (leverage) and loan origination fees, of $380 were incurred in conjunction with the seniorrisk-based capital ratios at June 30, 2022 and the issuance of subordinated notes for the year ended September 30, 2017. The unamortized amount of debt issuance costs at December 31, 2017 and September 30, 2017 was $365 and $375. These debt issuance costs2021, respectively, are included in other borrowings on the consolidated balance sheet.presented below:

 ActualFor Capital Adequacy
Purposes
 AmountRatioAmountRatio
As of June 30, 2022
Total capital (to risk weighted assets)$224,247 15.1 %119,200 > =8.0 %
Tier 1 capital (to risk weighted assets)142,422 9.6 %89,400 > =6.0 %
Common equity tier 1 capital (to risk weighted assets)142,422 9.6 %67,050 > =4.5 %
Tier 1 leverage ratio (to adjusted total assets)142,422 8.2 %69,189 > =4.0 %
As of December 31, 2021
Total capital (to risk weighted assets)$182,242 13.1 %$111,694 > =8.0 %
Tier 1 capital (to risk weighted assets)135,329 9.7 %83,771 > =6.0 %
Common equity tier 1 capital (to risk weighted assets)135,329 9.7 %62,828 > =4.5 %
Tier 1 leverage ratio (to adjusted total assets)135,329 7.9 %68,323 > =4.0 %
Maturities of FHLB advances and other borrowings are as follows:

















46

Fiscal years ending September 30, 
2018$94,000
2019—
2020—
202110,389
20224,841
Thereafter14,669
 $123,899


NOTE 69 – STOCK-BASED COMPENSATION
In February 2005,On March 27, 2018, the Company’s stockholders of Citizens Community Bancorp, Inc. approved the Company’s 2004 Recognition and Retention Plan. This plan provides for the grant of up to 113,910 shares of the Company’s common stock to eligible participants under this plan. As of December 31, 2017, 113,910 restricted shares under this plan were granted. In February 2005, the Company’s stockholders also approved the Company’s 2004 Stock Option and Incentive Plan. This plan provides for the grant of nonqualified and incentive stock options and stock appreciation rights to eligible participants under the plan. The plan provides for the grant of awards for up to 284,778 shares of the Company’s common stock. At December 31, 2017, 284,778 options had been granted under this plan to eligible participants.
In February 2008, the Company’s stockholders approved the Company’s 20082018 Equity Incentive Plan. The aggregate number of shares of common stock reserved and available for issuance under the 2018 Equity Incentive Plan is 350,000 shares. As of June 30, 2022, 218,894 restricted shares had been granted under this plan. This amount includes 11,834 shares of performance based restricted stock granted in 2019 and issued in January 2022 upon achievement of the performance criteria and completion of the three year performance period beginning in January 2019 and ending December 31, 2021. As of June 30, 2022, no stock options had been granted under this plan.
In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan is 597,605 shares. Under this Plan,for a term of 10 years. Due to the Compensation Committee may grant stock options and stock appreciation rights that, upon exercise, result in the issuance of 426,860 shares of the Company’s common stock. The Committee may also grant shares of restricted stock and restricted stock units for an aggregate of 170,745 shares of Company common stockplan’s expiration, no new awards can be granted under this plan. As of December 31, 2017, 73,660June 30, 2022, there are 400 awarded unvested restricted shares under this plan were granted. As of December 31, 2017, 181,000and 63,400 awarded unexercised options had been granted to eligible participants.
remaining from the plan. Restricted shares granted to date under these plansthe 2008 Equity Incentive Plan were awarded at no cost to the employee and vest pro rata over a two to five-year period from the grant date, as determined by the Board of Directors at issuance.date. Options granted to date under these plansthis plan vest pro rata over a five-year period from the grant date. Unexercised nonqualified stock options expire within 15 years of the grant date and unexercised incentive stock options expire within 10 years of the grant date.
CompensationNet compensation expense related to restricted stock awards from both the 2004 Recognitionthese plans was $197 and Retention Plan and the 2008 Equity Incentive Plan was $16 and $16$392 for the three and six months ended December 31, 2017,June 30, 2022, compared to $222 and December 31, 2016, respectively.$393 for the three and six months ended June 30, 2021.


33Restricted Common Stock Award



Restricted Common Stock Award
 December 31, 2017 September 30, 2017June 30, 2022December 31, 2021
 Number of Shares Weighted
Average
Grant Price		 Number of Shares Weighted
Average
Grant Price		Number of SharesWeighted
Average
Grant Price		Number of SharesWeighted
Average
Grant Price
Restricted Shares        Restricted Shares
Unvested and outstanding at beginning of fiscal year 42,378
 $12.07
 23,159
 $9.59
Unvested and outstanding at beginning of yearUnvested and outstanding at beginning of year75,630 $11.20 57,242 $12.23 
Granted 4,000
 13.60
 25,569
 13.53
Granted43,086 14.00 64,399 10.78 
Vested —
 —
 (6,350) 8.88
Vested(25,467)11.24 (44,511)13.26 
Forfeited (10,410) 9.97
 —
 —
Forfeited(866)11.33 (1,500)10.78 
Unvested and outstanding fiscal to date 35,968
 $12.86
 42,378
 $12.07
Unvested and outstanding at end of periodUnvested and outstanding at end of period92,383 $12.49 75,630 $11.20 
The Company accounts for stock-basedstock option-based employee compensation related to the Company’s 2004 Stock Option and2008 Equity Incentive Plan and the 20082018 Equity Incentive Plan using the fair-value-based method. Accordingly, management records compensation expense based on the value of the award as measured on the grant date and then the Company recognizes that cost over the vesting period for the award. The compensation cost recognized for stock-basedstock option-based employee compensation related to boththese plans for the three and six month periods ended December 31, 2017June 30, 2022 was $1 and December 31, 2016,$2, respectively. The compensation cost recognized for stock option-based employee compensation related to these plans for the three and six month periods ended June 30, 2021 was $6$2 and $8,$5, respectively.
47

Common Stock Option Awards

  Option Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
2018        
Outstanding at September 30, 2017 146,606
 $9.45
   
Granted 8,000
 13.60
    
Exercised (1,250) 7.04
    
Forfeited or expired (26,894) —
    
Outstanding at December 31, 2017 126,462
 $9.77
 6.47 

Exercisable at December 31, 2017 56,462
 $7.71
 3.67 $327
Fully vested and expected to vest 126,462
 $9.77
 6.47 $596
2017        
Outstanding at September 30, 2016 140,706
 $8.67
    
Granted 23,000
 13.75
    
Exercised (14,100) 8.27
    
Forfeited or expired (3,000) 11.00
    
Outstanding at September 30, 2017 146,606
 $9.45
 6.68 

Exercisable at September 30, 2017 57,712
 $7.70
 3.89 $361
Fully vested and expected to vest 146,606
 $9.45
 6.68 $659
Common Stock Option Awards
Option SharesWeighted
Average
Exercise
Price		Weighted
Average
Remaining
Contractual
Term in Years		Aggregate
Intrinsic
Value
June 30, 2022
Outstanding at beginning of year65,900 $11.20 
Exercised(2,500)8.00 
Forfeited or expired— — 
Outstanding at end of period63,400 $11.33 4.27$159 
Exercisable at end of period59,200 $11.16 4.20$158 
December 31, 2021
Outstanding at beginning of year72,300 $11.05 
Exercised(5,800)8.99 
Forfeited or expired(600)13.76 
Outstanding at end of year65,900 $11.20 4.61$169 
Exercisable at end of year61,700 $11.03 4.54$169 
Information related to the 2004 Stock Option and Incentive Plan and 2008 Equity Incentive Plan during each yearfor the respective periods follows:
Six months ended June 30, 2022Twelve months ended December 31, 2021
Intrinsic value of options exercised$19 $28 
Cash received from options exercised$20 $52 
Tax benefit realized from options exercised$— $— 
  2018 2017
Intrinsic value of options exercised $9
 $69
Cash received from options exercised $9
 $114
Tax benefit realized from options exercised $—
 $—

Set forth below is a table showing relevant assumptions used in calculating stock option expense related to the Company’s 2004 Stock Option and Incentive Plan and 2008 Equity Incentive Plan:


34
48





  2018 2017
Dividend yield 1.18% 1.16%
Risk-free interest rate 2.4% 2.2%
Weighted average expected life (years) 10
 10
Expected volatility 2.3% 2.4%
NOTE 710 – FAIR VALUE ACCOUNTING
ASC Topic 820-10, “Fair Value Measurements and Disclosures” establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The statementtopic describes three levels of inputs that may be used to measure fair value:
Level 1- Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.
Level 2- Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3- Significant unobservable inputs that reflect the Company’s assumptions about the factors that market participants would use in pricing an asset or liability.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement.
The fair value of securities available for sale is determined by obtaining market price quotes from independent third parties wherever such quotes are available (Level 1 inputs); or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Where such quotes are not available, the Company utilizeswe utilize independent third party valuation analysis to support the Company’sour own estimates and judgments in determining fair value (Level 3 inputs).


35
49




Assets Measured on a Recurring Basis
The following tables present the financial instruments measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2017 and September 30, 2017:2021:
Fair
Value		Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
June 30, 2022
Investment securities:
U.S. government agency obligations$21,862 $— $21,862 $— 
Mortgage-backed securities89,360 — 89,360 — 
Corporate debt securities35,010 — 35,010 — 
Corporate asset-backed securities30,836 — 30,836 — 
Total investment securities177,068 — 177,068 — 
Equity Investments:
Equity Investments285 285 — — 
Equity investments measured at NAV(1)1,080 — — — 
Total equity investments1,365 285 — — 
Total$178,433 $285 $177,068 $— 
December 31, 2021
Investment securities:
U.S. government agency obligations$26,265 $— $26,265 $— 
Obligations of states and political subdivisions140 — 140 — 
Mortgage-backed securities107,167 — 107,167 — 
Corporate debt securities35,588 — 35,588 — 
Corporate asset backed securities33,908 — 33,908 — 
Total investment securities203,068 — 203,068 — 
Equity Investments:
Equity Investments368 368 — — 
Equity investments measured at NAV(1)960 — — — 
Total equity investments1,328 368 — — 
Total$204,396 $368 $203,068 $— 
(1) Investments valued at NAV are excluded from being reported under the fair value hierarchy but are presented to permit reconciliation with the balance sheet in accordance with ASC 820-10-35-54B.








50
 
Fair
Value
 
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
December 31, 2017       
Investment securities:       
U.S. government agency obligations$17,591
 $—
 $17,591
 $—
Obligations of states and political subdivisions35,414
 —
 35,414
 —
Mortgage-backed securities38,020
 —
 38,020
 —
Agency Securities234
 —
 234
 —
Corporate debt securities5,289
 —
 5,289
 —
Total$96,548
 $—
 $96,548
 $—
September 30, 2017       
Investment securities:       
U.S. government agency obligations$18,041
 $—
 $18,041
 $—
Obligations of states and political subdivisions35,795
 —
 35,795
 —
Mortgage-backed securities36,474
 —
 36,474
 —
Agency securities230
 —
 230
 —
Corporate debt securities5,343
   5,343
  
Total$95,883
 $—
 $95,883
 $—


Assets Measured on Nonrecurring Basis
The following tables present the financial instruments measured at fair value on a nonrecurring basis as of June 30, 2022 and December 31, 2017 and September 30, 2017:2021:
Carrying ValueQuoted Prices in
Active Markets
for Identical
Instruments
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Fair
Value
 
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level  3)
December 31, 2017       
June 30, 2022June 30, 2022
Foreclosed and repossessed assets, net$7,031
 $—
 $—
 $7,031
Foreclosed and repossessed assets, net$1,437 $— $— $1,437 
Impaired loans with allocated allowances1,793
 —
 —
 1,793
Impaired loans with allocated allowances5,161 — — 5,161 
Mortgage servicing rights2,020
 —
 —
 2,020
Mortgage servicing rights4,520 — — 5,475 
Total$10,844
 $—
 $—
 $10,844
Total$11,118 $— $— $12,073 
September 30, 2017       
December 31, 2021December 31, 2021
Foreclosed and repossessed assets, net$6,017
 $—
 $—
 $6,017
Foreclosed and repossessed assets, net$1,408 $— $— $1,408 
Impaired loans with allocated allowances1,490
 —
 —
 1,490
Impaired loans with allocated allowances5,580 — — 5,580 
Mortgage servicing rights1,951
 —
 —
 1,951
Mortgage servicing rights4,161 — — 4,312 
Total$9,458
 $—
 $—
 $9,458
Total$11,149 $— $— $11,300 
The fair value of impaired loans referenced above was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.
The fair value of foreclosed and repossessed assets was determined by obtaining market price valuations from independent third parties wherever such quotes were available for other collateral owned. The Company utilized independent third party appraisals to support the Company’s estimates and judgments in determining fair value for other real estate owned.

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















36
51





The following table represents additional quantitative information about assets measured at fair value on a
recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine their fair value at
December 31, 2017.June 30, 2022.
 
Fair
Value
 Valuation Techniques (1) Significant Unobservable Inputs (2) Range
December 31, 2017       
Foreclosed and repossessed assets, net$7,031
 Appraisal value Estimated costs to sell 10 - 15%
Impaired loans with allocated allowances$1,793
 Appraisal value Estimated costs to sell 10 - 15%
Mortgage servicing rights$2,020
 Discounted cash flows Discounted rates 9.5% - 12.5%
September 30, 2017       
Foreclosed and repossessed assets, net$6,017
 Appraisal value Estimated costs to sell 10 - 15%
Impaired loans with allocated allowances$1,490
 Appraisal value Estimated costs to sell 10 - 15%
Mortgage servicing rights$1,951
 Discounted cash flows Discounted rates 9.5% - 12.5%
Fair
Value		Valuation Techniques (1)Significant Unobservable Inputs (2)Range
June 30, 2022
Foreclosed and repossessed assets, net$1,437 Appraisal valueEstimated costs to sell10% - 15%
Impaired loans with allocated allowances$5,161 Appraisal valueEstimated costs to sell10% - 15%
Mortgage servicing rights$5,475 Discounted cash flowsDiscounted rates9% - 12%
December 31, 2021
Foreclosed and repossessed assets, net$1,408 Appraisal valueEstimated costs to sell10% - 15%
Impaired loans with allocated allowances$5,580 Appraisal valueEstimated costs to sell10% - 15%
Mortgage servicing rights$4,312 Discounted cash flowsDiscounted rates9% - 12%
(1)     Fair value is generally determined through independent third-party appraisals of the underlying
collateral, which generally includes various level 3 inputs which are not observable.
(2)     The fair value basis of impaired loans and real estate owned may be adjusted to reflect management
estimates of disposal costs including, but not limited to, real estate brokerage commissions, legal fees,
and delinquent property taxes.
Fair Values of Financial Instruments
ASC 825-10 and ASC 270-10, Interim Disclosures about Fair Value Financial Instruments, require disclosures about fair value financial instruments and significant assumptions used to estimate fair value. The estimated fair values of financial instruments not previously disclosed are determined as follows:
Cash and Cash Equivalents
Due to their short-term nature, the carrying amounts of cash and cash equivalents are considered to be a reasonable estimate of fair value and represents a level 1 measurement.
Other Interest-Bearing Deposits
Fair value of interest bearing deposits is estimated using a discounted cash flow analysis based on current interest rates being offered by instruments with similar terms and represents a level 3 measurement.
Non-marketable Equity Securities, at cost
Non-marketable equity securities are comprised of Federal Home Loan Bank stock and Federal Reserve Bank stock carried at cost, which are their redeemable fair values since the market for each category of this stock is restricted and represents a level 1 measurement.
Loans Receivable, net
Fair value is estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as real estate, C&I and consumer. The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity date using market discount rates reflecting the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Bank’s repayment schedules for each loan classification. The fair value of variable rate loans approximates carrying value. The net carrying value of the loans acquired through the CBN acquisition approximates the fair value of the loans at December 31, 2017. The fair value of loans is considered to be a level 3 measurement.


3752





Loans Held for Sale
Fair values are based on quoted market prices of similar loans sold on the secondary market.
Mortgage Servicing Rights
Fair values are estimated using discounted cash flows based on current market rates and conditions.
Impaired Loans (carried at fair value)    
Impaired loans are loans in which the Company has measured impairment, generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Foreclosed Assets (carried at fair value)
Foreclosed assets are the only non-financial assets valued on a non-recurring basis which are held by the Company at fair value, less cost to sell. At foreclosure or repossession, if the fair value, less estimated costs to sell, of the collateral acquired (real estate, vehicles, equipment) is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The fair value of foreclosed assets held-for-sale is estimated using Level 3 inputs based on observable market data.
Accrued Interest Receivable and Payable
Due to their short-term nature, the carrying amounts of accrued interest receivable and payable are considered to be a reasonable estimate of fair value and represents a level 1 measurement.
Deposits
The fair value of deposits with no stated maturity, such as demand deposits, savings accounts, and money market accounts, is the amount payable on demand at the reporting date and represents a level 1 measurement. The fair value of fixed rate certificate accounts is calculated by using discounted cash flows applying interest rates currently being offered on similar certificates and represents a level 3 measurement. The net carrying value of fixed rate certificate accounts acquired through the CBN acquisition approximates the fair value of the certificates at December 31, 2017 and represents a level 3 measurement.
Federal Home Loan Bank ("FHLB") Advances
The fair value of long-term borrowed funds is estimated using discounted cash flows based on the Bank’s current incremental borrowing rates for similar borrowing arrangements. The carrying value of short-term borrowed funds approximates their fair value and represents a level 2 measurement.
Off-Balance Sheet Instruments
The fair value of off-balance sheet commitments would be estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the customers. Since this amount is immaterial to the Company’s consolidated financial statements, no amount for fair value is presented. The table below represents what we would receive to sell an asset or what we would have to pay to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount and estimated fair value of the Company'sCompany’s financial instruments as of the dates indicated below were as follows:

 June 30, 2022December 31, 2021
 Valuation Method UsedCarrying
Amount		Estimated
Fair
Value		Carrying
Amount		Estimated
Fair
Value
Financial assets:
Cash and cash equivalents(Level I)$31,743 $31,743 $47,691 $47,691 
Other interest-bearing deposits(Level II)1,505 1,516 1,511 1,535 
Securities available for sale “AFS”(Level II)177,068 177,068 203,068 203,068 
Securities held to maturity “HTM”(Level II)99,249 84,788 71,141 69,177 
Equity investments(Level I)285 285 368 368 
Equity investments valued at NAV(1)N/A1,080 1,080 960 960 
Other investments(Level II)14,899 14,899 15,305 15,305 
Loans receivable, net(Level III)1,330,030 1,310,750 1,294,050 1,319,293 
Loans held for sale - Residential mortgage(Level I)860 866 1,224 1,250 
Loans held for sale - SBA(Level III)312 330 5,446 5,776 
Mortgage servicing rights(Level III)4,520 5,475 4,161 4,312 
Accrued interest receivable(Level I)4,243 4,243 3,916 3,916 
Financial liabilities:
Deposits(Level III)$1,400,210 $1,400,585 $1,387,535 $1,388,390 
FHLB advances(Level II)102,030 101,029 111,527 113,285 
Other borrowings(Level I)87,124 87,124 58,426 58,426 
Accrued interest payable(Level I)962 962 586 586 
(1) Investments valued at NAV are excluded from being reported under the fair value hierarchy but are presented to permit reconciliation with the balance sheet in accordance with ASC 820-10-35-54B.

38
53




NOTE 11—EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares outstanding for the period. A reconciliation of the basic and diluted earnings per share is as follows:

Three Months EndedSix Months Ended
(Share count in thousands)June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Basic
Net income attributable to common stockholders$4,366 $4,706 $9,072 $10,212 
Weighted average common shares outstanding10,530 10,778 10,528 10,879 
Basic earnings per share$0.41 $0.44 $0.86 $0.94 
Diluted
Net income attributable to common stockholders$4,366 $4,706 $9,072 $10,212 
Weighted average common shares outstanding10,530 10,778 10,528 10,879 
Add: Dilutive stock options outstanding12 12 13 8 
Average shares and dilutive potential common shares10,542 10,790 10,541 10,887 
Diluted earnings per share$0.41 $0.44 $0.86 $0.94 
Additional common stock option shares that have not been included due to their antidilutive effect— 21 — 21 
54
  December 31, 2017 September 30, 2017
 Valuation Method Used
Carrying
Amount
 
Estimated
Fair
Value
 
Carrying
Amount
 
Estimated
Fair
Value
Financial assets:        
Cash and cash equivalents(Level 1)$47,215
 $47,215
 $41,677
 $41,677
Other interest-bearing deposits(Level 1)7,155
 7,144
 8,148
 8,143
Securities available for sale "AFS"See above96,548
 96,548
 95,883
 95,883
Securities held to maturity "HTM"(Level II)5,227
 5,321
 5,453
 5,605
Non-marketable equity securities, at cost(Level II)8,151
 8,151
 7,292
 7,292
Loans receivable, net(Level III)725,059
 733,582
 727,053
 737,119
Loans held for sale(Level II)2,179
 2,179
 2,334
 2,334
Mortgage servicing rights(Level III)1,866
 2,020
 1,886
 1,951
Accrued interest receivable(Level 1)3,189
 3,189
 3,291
 3,291
Financial liabilities:        
Deposits(Level III)$741,069
 $744,900
 $742,504
 $746,025
FHLB advances(Level III)94,000
 93,926
 90,000
 89,998
Other borrowings(Level 1)29,899
 29,899
 30,319
 30,319
Other liabilities(Level 1)3,426
 3,426
 4,131
 4,131
Accrued interest payable(Level 1)184
 184
 227
 227


39





NOTE 812 – OTHER COMPREHENSIVE INCOME (LOSS)
The following table showstables show the tax effects allocated to each component of other comprehensive income (loss) for the three and six months ended December 31, 2017June 30, 2022 and 2016:2021:
Three months ended
June 30, 2022June 30, 2021
Before-Tax
Amount		Tax Benefit
(Expense)		Net-of-Tax
Amount		Before-Tax
Amount		Tax Benefit
(Expense)		Net-of-Tax
Amount
Unrealized losses on securities:
Net unrealized (losses) gains arising during the period$(7,331)$2,016 $(5,315)$1,492 $(410)$1,082 
Reclassification adjustment for gains included in net income— — — (36)10 (26)
Other comprehensive (loss) income$(7,331)$2,016 $(5,315)$1,456 $(400)$1,056 
 2017 2016
 
Before-Tax
Amount
 
Tax
Expense
 
Net-of-Tax
Amount
 
Before-Tax
Amount
 
Tax
Expense
 
Net-of-Tax
Amount
Unrealized gains (losses) on securities:           
Net unrealized (losses) gains arising during the period$(654) $255
 $(399) $(2,828) $1,145
 $(1,683)
Less: reclassification adjustment for gains included in net income—
 —
 —
 29
 (12) 17
Other comprehensive loss$(654) $255
 $(399) $(2,799) $1,133
 $(1,666)
Six Months Ended
June 30, 2022June 30, 2021
Before-Tax
Amount		Tax
Expense		Net-of-Tax
Amount		Before-Tax
Amount		Tax
Expense		Net-of-Tax
Amount
Unrealized (losses) gains on securities:
Net unrealized (losses) gains arising during the period$(17,156)$4,718 $(12,438)$820 $(224)$596 
Reclassification adjustment for gains included in net income— — — (36)10 (26)
Other comprehensive (loss) income$(17,156)$4,718 $(12,438)$784 $(214)$570 
The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax for the twelve months ended September 30, 2017December 31, 2021 and the threesix months ended December 31, 2017June 30, 2022 were as follows:
Unrealized
Gains (Losses)
on AFS
Securities		Other Accumulated
Comprehensive
Income (Loss), net of tax
Beginning Balance, January 1, 2021$2,056 $1,490 
Current year-to-date other comprehensive loss(1,834)(1,329)
Ending balance, December 31, 2021$222 $161 
Current year-to-date other comprehensive loss(17,156)(12,438)
Ending balance, June 30, 2022$(16,934)$(12,277)
55

 
Unrealized
Gains  (Losses)
on
Securities
 
Defined
Benefit
Plans
 
Other Accumulated
Comprehensive
Income (Loss)
Balance, October 1, 2016$614
 $—
 $614
Current year-to-date other comprehensive income (loss), net of tax(881) —
 (881)
Ending balance, September 30, 2017$(267) $—
 $(267)
Current year-to-date other comprehensive loss, net of tax(399) —
 (399)
Ending balance, December 31, 2017$(666) $—
 $(666)

Reclassifications out of accumulated other comprehensive income (loss) for the three monthsand six month periods ended December 31, 2017June 30, 2022 and June 30, 2021 were as follows:
Details about Accumulated Other Comprehensive Income ComponentsAmounts Reclassified from Accumulated Other Comprehensive Income (Loss)(1)
Details about Accumulated Other Comprehensive Income (Loss) ComponentsThree months ended June 30, 2022Six months ended June 30, 2022(1)Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities$—
$— Net gaingains (losses) on sale of available for saleinvestment securities
Tax Effecteffect—
— Provision for income taxes
Total reclassifications for the period$—
$— Net income attributable to common shareholdersstockholders
(1)    Amounts in parentheses indicate decreases to profit/loss.
Reclassifications out of accumulated other comprehensive income for the three months ended December 31, 2016 were as follows:
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) ComponentsThree months ended June 30, 2021Six months ended June 30, 2021(1)Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities$36 $36 Net gains (losses) on investment securities
Tax effect(10)(10)Provision for income taxes
Total reclassifications for the period$26 $26 Net income attributable to common stockholders
56
Details about Accumulated Other Comprehensive Income Components Amounts Reclassified from Accumulated Other Comprehensive Income(1)Affected Line Item on the Statement of Operations
Unrealized gains and losses    
Sale of securities $29
 Net gain on sale of available for sale securities
Tax Effect (12) Provision for income taxes
Total reclassifications for the period $17
 Net income attributable to common shareholders
(1)    Amounts in parentheses indicate decreases to profit/loss.

40







ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 fiscal year ended September 30, 2017, which wasDecember 31, 2021, filed with the SEC on December 13, 2017,March 2, 2022 (“2021 10-K”), the matters described in “Risk Factors” in Item 1A for the quarter ended March 31, 2022 and in Item 1A of this Form 10-Q, and the following:


•conditions in the financial markets and economic conditions generally;
•adverse impacts to the possibility of a deterioration inCompany or Bank arising from the residential real estate markets;COVID-19 pandemic;
interest rate risk;
lending risk;
the sufficiency of loan allowances;
changes in the fair value or ratings downgrades of our securities;
competitive pressures among depository and other financial institutions;
our ability to realize the benefits of net deferred tax assets;
our ability to maintain or increase our market share;
•acts of terrorism and political or military actions by the United States or other governments;
legislative•the possibility of a deterioration in the residential real estate markets;
•interest rate risk;
•lending risk;
•higher lending risks associated with our commercial and agricultural banking activities;
•the sufficiency of loan allowances;
•changes in the fair value or regulatory changes or actions, or significant litigation, adversely affecting the Bank;ratings downgrades of our securities;
increases in FDIC insurance premiums or special assessments by the FDIC;•competitive pressures among depository and other financial institutions;
•disintermediation risk;
•our ability to maintain our reputation;
•our ability to maintain or increase our market share;
•our ability to realize the benefits of net deferred tax assets;
•our inability to obtain needed liquidity;
•our ability to raise capital needed to fund growth or meet regulatory requirements;
•our ability to attract and retain key personnel;
•our ability to keep pace with technological change;
•prevalence of fraud and other financial crimes;
•cybersecurity risks;
•the possibility that our internal controls and procedures could fail or be circumvented;
•our ability to attract and retain key personnel;successfully execute our acquisition growth strategy;
our ability to keep pace with technological change;
cybersecurity risks;
•risks posed by acquisitions and other expansion opportunities;opportunities, including difficulties and delays in integrating the acquired business operations or fully realizing the cost savings and other benefits;
•restrictions on our ability to pay dividends;
•the potential volatility of our stock price;
•accounting standards for loan losses;
•legislative or regulatory changes or actions, or significant litigation, adversely affecting the Company or Bank;
•public company reporting obligations;
•changes in federal or state tax laws; and
•changes in accounting principles, policies or guidelines and their impact on financial performance;performance.
restrictions on our ability to pay dividends; and
the potential volatility of our stock price.


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.


57





GENERAL
The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of December 31, 2017,June 30, 2022, and our consolidated results of operations for the three and six months ended December 31, 2017,June 30, 2022, compared to the same periodperiods in the prior fiscal year for the three and six months ended December 31, 2016.June 30, 2021. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on December 13, 2017.our 2021 10-K. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.


41



PERFORMANCE SUMMARY
The following table sets forth our results of operations and related summary information for the three month periods ended December 31, 2017 and 2016, respectively:
 Three Months Ended December 31,
 2017 2016
Net income as reported$1,340
 $940
EPS - basic, as reported$0.23
 $0.18
EPS - diluted, as reported$0.23
 $0.18
Cash dividends paid$—
 $—
Return on average assets (annualized)0.57% 0.54%
Return on average equity (annualized)7.19% 5.81%
Efficiency ratio, as reported (1)75.46% 79.31%
(1)The efficiency ratio is calculated as non-interest expense divided by the sum of net interest income plus non-interest income. A lower ratio indicates greater efficiency.
Key factors behind these results were:
Total loans were $730,918 at December 31, 2017, a decrease of $2,077, or 0.28%, from their balances at September 30, 2017, due primarily to the continued shift toward a larger commercial loan portfolio and runoff of indirect loans. Total deposits were $741,069 at December 31, 2017, a decrease of $1,435, or 0.19%, from their balances at September 30, 2017. Despite the decline in total deposits, demand deposits, both interest bearing and non-interest bearing, increased from their balances at September 30, 2017.
Net loan charge-offs increased slightly from $151 for the three months ended December 31, 2016 to $183 for the three months ended December 31, 2017. Increased levels of commercial loans led to an increased provision for loan losses of $100 for the three month period ended December 31, 2017, compared to $0 for the three months ended December 31, 2016. Annualized net loan charge-offs as a percentage of average loans were 0.10% for the three months ended December 31, 2017, compared to 0.11% for the three months ended December 31, 2016.
Net interest income was $7,527 for the three month period ended December 31, 2017, an increase of $1,970 or 35.45% from the prior comparable three month period.
The net interest margin of 3.42% for the three months ended December 31, 2017 represents a 6 bp increase from a net interest margin of 3.36% for the three months ended December 31, 2016 due to higher yields on earning assets.
Non-interest income increased from $1,243 for the three months ended December 31, 2016 to $1,939 for the three months ended December 31, 2017. Growth in non-interest income is being driven by the impact of the WFC acquisition which has resulted in higher deposit charges and increased loan fees and service charges due to gain on sale of residential loan income.
Non-interest expense increased $1,750 for the three months ended December 31, 2017, compared to the three month period ended December 31, 2016. During the three months ended December 31, 2017, compensation and benefits costs increased $951 relative to the comparable prior year period, primarily due to the addition of WFC employees, despite achieving all planned WFC staff reductions. During the current three month period, occupancy expense decreased primarily due to 2017 branch closures. Amortization of intangible asset expense increased due to the premium paid for the core deposit intangible related to the WFC acquisition and the premium on the Wells Insurance Agency customer relationships for the current three month period ended December 31, 2017, compared to the same period in the prior year.
The Tax Cuts and Jobs Act of 2017 ("the Tax Act"), enacted on December 22, 2017, reduces corporate Federal income tax rates for the Company from 34% to 24.5% for 2018, and 21% for 2019. GAAP requires the impact of the provisions of the Tax Act be accounted for in the period of enactment. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, we have made a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. The Company revalued its net deferred tax assets to account for the future impact of lower corporate taxes. For the items for which we were able to determine a reasonable estimate, we recorded an increased provisional amount of income tax expense of $275 in December 2017, related to the revaluation of the deferred tax assets to both the revaluation of timing differences and the

42



unrealized loss on securities. The increase was partially offset by an approximately $135 reduction in income tax expense due to a lower corporate tax rate.
Provisional amounts. Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amounts recorded related to the re-measurement of our deferred tax balance was $275.

CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses, and their related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that our management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. In addition to the policies included in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included as an exhibit toin our Form 10-K annual report for the fiscal year ending September 30, 2017,on our 2021 10-K, our critical accounting estimates are as follows:
Allowance for Loan Losses.
We maintain an allowance for loan losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated probable incurred losses in our loan portfolio. In evaluating the level of the allowance for loan loss, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions and other relevant factors determined by management. We follow all applicable regulatory guidance, including the “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued by the Federal Financial Institutions Examination Council (FFIEC). We believe that the Bank’s Allowance for Loan Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for loan losses recorded during a particular period may be adjusted.
Our determination of the allowance for loan losses is based on (1) specific allowances for specifically identified and evaluated impaired loans and their corresponding estimated loss based on likelihood of default, payment history, and net realizable value of underlying collateral. Specific allocations for collateral dependent loans are based on fair value of the underlying collateral relative to the unpaid principal balance of individually impaired loans. For loans that are not collateral dependent, the specific allocation is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a general allowance on loans not specifically identified in (1) above, based on historical loss ratios, which are adjusted for qualitative and general economic factors. We continue to refine our allowance for loan losses methodology, with an increased emphasis on historical performance adjusted for applicable economic and qualitative factors.
Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio.
Goodwill.We will adopt ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments” through a cumulative-effect adjustment on January 1, 2023. We have selected a loss estimation methodology, utilizing a third-party model, and are currently finalizing our process for model utilization. The impact of adoption on our financial condition and results of operations cannot yet be definitively determined due to the sensitivity of the model to various inputs and changing economic forecasts.


58

Goodwill.
We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill. The Company amortizes acquired intangible assets with definite useful economic lives over their useful economic lives utilizing the straight-line method. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets may be impaired. The Company does not amortize goodwill, and any acquired intangible asset with an indefinite useful economic life, but reviews themgoodwill 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

43



has one reporting unit as of December 31, 2017June 30, 2022, which is related to its banking activities. The Company performed the required goodwill impairment test and determined that goodwill was not impaired as of September 30, 2017.December 31, 2021.
Fair Value Measurements and Valuation Methodologies.
We apply various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities. However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items. Examples of these items include loans, deposits, borrowings, goodwill, core deposit intangible assets, other assets and liabilities obtained or assumed in business combinations, and certain other financial instruments. These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, and liquidation values. The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations, financial condition or disclosures of fair value information.
In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of income.operations. Examples include but are not limited to; loans, investment securities, goodwill, core deposit intangible assets and deferred tax assets, among others. Specific assumptions, estimates and judgments utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 2, 3, 4 and 610 of Condensed Notes to Consolidated Financial Statements.
Income Taxes.
Amounts provided for income tax expenses are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income taxes,tax assets and liabilities, which arise principally from temporary differences between the amounts reported in the financial statements and the tax basis of certain assets and liabilities, are included in the amounts provided for income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and if necessary, tax planning strategies in making this assessment.
The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and application of specific provisions of federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be material to our consolidated results of our operations and reported earnings. We believe that the deferred tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements. As of December 31, 2017,June 30, 2022, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary.
59

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 bearingnon-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin for the three month period and six-month periods ended December 31, 2017June 30, 2022, and 2016,June 30, 2021, respectively.
Tax equivalent netNet interest income was $7,527 for the three months ended December 31, 2017, compared to $5,557$14.3 million for the three months ended December 31, 2016, respectively. June 30, 2022, and $27.4 million for the six months ended June 30, 2022, compared to $12.8 million for the three months ended June 30, 2021, and $25.6 million for the six months ended June 30, 2021. Net interest income for the three and six months ended June 30, 2022, increased from the same period one year ago due to 1) both organic loan and investment growth from June 30, 2021; 2) the positive impact of nonaccrual loan payoffs and purchased loan credit impairment accretion; 3) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield; and 4) lower liability costs. This was partially offset by $1.3 million and $2.8 million decreases in the accretion of deferred fees related to SBA Paycheck Protection Program (“SBA PPP”) loans for the three and six months ended June 30, 2022, respectively, compared to the prior year periods.
The net interest margin for the three monththree-month period ended December 31, 2017June 30, 2022, was 3.42%3.46%, compared to 3.36%3.22% for the three monththree-month period ended December 31, 2016.

44



As shown in the rate/volume analysis in the following pages, volume changes resulted in an increase of $1,856 inJune 30, 2021. The net interest margin increase was due to 1) the positive impact of nonaccrual loan payoffs with purchased loan credit impairment accretion and interest income recognition of 10bp; 2) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield; and 3) lower deposit costs, partially offset by 1) a 32-basis point decrease in SBA PPP deferred loan fee accretion in loan yields and 2) the impact of additional interest expense on the subordinated debt issued in March of 2022.
The net interest margin for the three monthsix-month period ended December 31, 2017June 30, 2022, was 3.35%, compared to the comparable prior year period. The changes in the composition of interest earning assets resulted in an increase of $2,1963.26% for the three monthsix-month period ended December 31, 2017, compared to the same period in the prior year. Rate changes on interest earning assets increasedJune 30, 2021. The net interest margin increase was due to 1) the positive impact of nonaccrual loan payoffs with purchased loan credit impairment accretion and interest income recognition of 5bp ; 2) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield; 3) lower deposit costs and 4) the positive impact of investing lower yield cash into investment securities; partially offset by $268 fora 35-basis point decrease in SBA PPP deferred loan fee accretion in loan yields and the three month period ended December 31, 2017, compared to the same period in the prior year. Rate changes on interest-bearing liabilities increasedimpact of additional interest expense by $154 over the same period in the prior year, resulting in a net increase of $114 in net interest income as a result of changes in interest rates due to competitive pricing during the three month period ended December 31, 2017. Rate increases on investment securities are reflective of growth of and changes in the composition of the investment portfolio.subordinated debt issued in March 2022.












60


Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following Net Interest Income Analysisnet 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 periodand six-month periods ended December 31, 2017,June 30, 2022, and for the comparable prior year three month period.June 30, 2021. Non-accruing loans have been included in the table as loans carrying a zero yield.
Average interest earning assets were $879,838 for the three month period ended December 31, 2017, and $664,319 for the three month period ended December 31, 2016, respectively. Interest income on interest earning assets was $9,412 for the three month period ended December 31, 2017, compared to $6,948 for the three month period ended December 31, 2016, respectively. Interest income is comprised primarily of interest income on loans and interest income on investment securities adjusted for the tax benefit of tax-exempt securities. Interest income on loans was $8,721 for the three month period ended December 31, 2017, compared to $6,530 for the three month period ended December 31, 2016, respectively, The increase in loan interest income in the current year three month period was primarily due to an increase in loans due to the WFC acquisition. Interest income on investment securities was $513 for the three month period ended December 31, 2017 compared to $358 for the three month period ended December 31, 2016, respectively.
Average interest-bearing liabilities were $781,307 for the three month period ended December 31, 2017, compared to $576,276 for the three month period ended December 31, 2016, respectively. Interest expense on interest-bearing liabilities was $1,885 for the three month period ended December 31, 2017, compared to $1,391 for the three month period ended December 31, 2016, respectively. Interest expense increased during the current three month period compared to the comparable prior year period, primarily due to increases in rates on FHLB advances and other borrowings.
For the three months ended December 31, 2017, interest expense on interest-bearing deposits increased $182, from volume and mix changes and decreased $99 from the impact of the rate environment, resulting in an aggregate increase of $83 in interest expense on interest-bearing deposits relative to December 31, 2016. Interest expense on FHLB advances and other borrowings increased $158 from volume and mix changes and increased $253 from the impact of the rate environment during the three month period ended December 31, 2017 for an aggregate increase of $411 relative to the three month period ended December 31, 2016.

45



NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS
(Dollar amounts in thousands)

Three months ended December 31, 2017June 30, 2022 compared to the three months ended December 31, 2016:June 30, 2021:
 Three months ended June 30, 2022Three months ended June 30, 2021
Average
Balance		Interest
Income/
Expense		Average
Yield/
Rate (1)		Average
Balance		Interest
Income/
Expense		Average
Yield/
Rate (1)
Average interest earning assets:
Cash and cash equivalents$25,195 $43 0.68 %$113,561 $28 0.10 %
Loans1,328,661 14,893 4.50 %1,186,439 13,960 4.72 %
Interest-bearing deposits1,509 8 2.13 %1,754 9 2.06 %
Investment securities (1)285,332 1,593 2.23 %283,557 1,308 1.85 %
Other investments14,969 166 4.45 %15,020 173 4.62 %
Total interest earning assets (1)$1,655,666 $16,703 4.05 %$1,600,331 $15,478 3.88 %
Average interest-bearing liabilities:
Savings accounts$230,784 $125 0.22 %$219,804 $99 0.18 %
Demand deposits410,468 300 0.29 %360,314 257 0.29 %
Money market323,907 287 0.36 %258,638 182 0.28 %
CD’s134,338 223 0.67 %240,224 868 1.45 %
IRA’s35,701 50 0.56 %39,970 115 1.15 %
Total deposits$1,135,198 $985 0.35 %$1,118,950 $1,521 0.55 %
FHLB Advances and other borrowings186,050 1,451 3.13 %171,261 1,126 2.64 %
Total interest-bearing liabilities$1,321,248 $2,436 0.74 %$1,290,211 $2,647 0.82 %
Net interest income$14,267 $12,831 
Interest rate spread3.31 %3.06 %
Net interest margin (1)3.46 %3.22 %
Average interest earning assets to average interest-bearing liabilities1.25 1.24 
(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the quarters ended June 30, 2022 and June 30, 2021. The FTE adjustment to net interest income included in the rate calculations totaled $0 and $1 thousand for the three months ended June 30, 2022 and June 30, 2021, respectively.









61

 Three months ended December 31, 2017 Three months ended December 31, 2016
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate (1)
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate (1)
Average interest earning assets:           
Cash and cash equivalents$30,848
 $67
 0.86% $10,238
 $12
 0.47%
Loans733,203
 8,721
 4.72% 561,519
 6,530
 4.61%
Interest-bearing deposits7,714
 32
 1.65% 745
 3
 1.60%
Investment securities (1)100,737
 513
 2.23% 86,617
 358
 1.97%
Non-marketable equity securities, at cost7,336
 79
 4.27% 5,200
 45
 3.43%
Total interest earning assets$879,838
 $9,412
 4.27% $664,319
 $6,948
 4.19%
Average interest-bearing liabilities:           
Savings accounts$96,230
 $22
 0.09% $43,743
 $17
 0.15%
Demand deposits146,838
 90
 0.24% 48,989
 74
 0.60%
Money market123,459
 167
 0.54% 130,057
 134
 0.41%
CD’s263,429
 839
 1.26% 245,646
 814
 1.31%
IRA’s34,992
 84
 0.95% 29,000
 80
 1.09%
Total deposits664,948
 1,202
 0.72% 497,435
 1,119
 0.89%
FHLB Advances and other borrowings116,359
 683
 2.33% 78,841
 272
 1.37%
Total interest-bearing liabilities$781,307
 $1,885
 0.96% $576,276
 $1,391
 0.96%
Net interest income  $7,527
     $5,557
  
Interest rate spread    3.31%     3.23%
Net interest margin    3.42%     3.36%
Average interest earning assets to average interest-bearing liabilities    1.13
     1.15


NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS
(Dollar amounts in thousands)
Six months ended June 30, 2022 compared to the six months ended June 30, 2021:

 Six months ended June 30, 2022Six months ended June 30, 2021
 Average
Balance		Interest
Income/
Expense		Average
Yield/
Rate (1)		Average
Balance		Interest
Income/
Expense		Average
Yield/
Rate (1)
Average interest earning assets:
Cash and cash equivalents$30,174 $56 0.37 %$121,557 $57 0.09 %
Loans1,316,469 28,660 4.39 %1,199,925 28,477 4.79 %
Interest-bearing deposits1,510 15 2 %2,591 29 2.26 %
Investment securities (1)286,789 3,009 2.1 %243,492 2,193 1.82 %
Other investments15,112 339 4.52 %15,029 342 4.59 %
Total interest earning assets (1)$1,650,054 $32,079 3.92 %$1,582,594 $31,098 3.96 %
Average interest bearing liabilities:
Savings accounts$227,687 $219 0.19 %$208,787 $182 0.18 %
Demand deposits410,678 517 0.25 %345,576 507 0.30 %
Money market311,524 503 0.33 %256,391 384 0.30 %
CD’s147,696 687 0.94 %253,063 1,911 1.52 %
IRA’s36,381 127 0.70 %40,421 251 1.25 %
Total deposits$1,133,966 $2,053 0.37 %$1,104,238 $3,235 0.59 %
FHLB Advances and other borrowings176,139 2,592 2.97 %175,922 2268 2.60 %
Total interest bearing liabilities$1,310,105 $4,645 0.71 %$1,280,160 $5,503 0.87 %
Net interest income$27,434 $25,595 
Interest rate spread3.21 %3.09 %
Net interest margin (1)3.35 %3.26 %
Average interest earning assets to average interest bearing liabilities1.26 1.24 
(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the six months ended June 30, 2022 and June 30, 2021. The FTE adjustment to net interest income included in the rate calculations totaled $1 and $2 thousand for the six-month periods ended June 30, 2022 and June 30, 2021, respectively.














62



Rate/Volume Analysis. The following tabletables presents 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). ChangesRate changes have been discussed previously in the net interest income section above. For the three and six months ended June 30, 2022, compared to the same periods in 2021, the loan volume increased due to both rate andstrong organic growth. Investment securities volume which cannot be segregated have been allocatedincreases are due to an increase in proportionportfolio balances, largely due to the relationshippurchases of the dollar amountsmortgage-backed securities. The decrease in certificate volumes is due to CD shrinkage, with some of the change in each category.this decrease moving to money markets.

46




RATE / VOLUME ANALYSIS
(Dollar amounts in thousands)
Three months ended December 31, 2017June 30, 2022 compared to the three months ended December 31, 2016.June 30, 2021.
 Increase (decrease) due to
 VolumeRateNet
Interest income:
Cash and cash equivalents$(70)$85 $15 
Loans1,618 (685)933 
Interest-bearing deposits(1)— (1)
Investment securities8 277 285 
Other investments(1)(6)(7)
Total interest earning assets1,554 (329)1,225 
Interest expense:
Savings accounts5 21 26 
Demand deposits37 6 43 
Money market accounts51 54 105 
CD’s(260)(385)(645)
IRA’s(11)(54)(65)
Total deposits(178)(358)(536)
FHLB Advances and other borrowings103 0222 325 
Total interest bearing liabilities(75)(136)(211)
Net interest income$1,629 $(193)$1,436 
63

 Increase (decrease) due to
 Volume Rate Net
Interest income:     
Cash and cash equivalents$33
 $22
 $55
Loans2,038
 153
 2,191
Interest-bearing deposits29
 —
 29
Investment securities75
 80
 155
Non-marketable equity securities, at cost21
 13
 34
Total interest earning assets2,196
 268
 2,464
Interest expense:     
Savings accounts16
 (11) 5
Demand deposits101
 (85) 16
Money market accounts(7) 40
 33
CD’s57
 (32) 25
IRA’s15
 (11) 4
Total deposits182
 (99) 83
FHLB Advances and other borrowings158
 253
 411
Total interest bearing liabilities340
 154
 494
Net interest income$1,856
 $114
 $1,970
Six months ended June 30, 2022 compared to the six months ended June 30, 2021.
 Increase (decrease) due to
 VolumeRateNet
Interest income:
Cash and cash equivalents$(107)$106 $(1)
Loans2,648 (2,465)183 
Interest-bearing deposits(11)(3)(14)
Investment securities420 396 816 
Other investments2 (5)(3)
Total interest earning assets2,952 (1,971)981 
Interest expense:
Savings accounts17 20 37 
Demand deposits88 (78)10 
Money market accounts87 32 119 
CD’s(597)(627)(1,224)
IRA’s(23)(101)(124)
Total deposits(428)(754)(1,182)
FHLB Advances and other borrowings3 321 324 
Total interest bearing liabilities(425)(433)(858)
Net interest income$3,377 $(1,538)$1,839 
Provision for Loan Losses. We determine our provision for loan losses (“provision”) based on our desire to provide an adequate allowance for loan losses (“ALL”) to reflect probable and inherent credit losses in our loan portfolio. Within the last year, we have experienced lower levels of charge-offs and nonperforming loans. With both local and national unemployment rates improving slightly in recent quarters and improved asset quality due to our stricter underwriting standards, we anticipate our actual charge-off experience to remain stable throughout the remainder of the fiscal year ending September 30, 2018. However, weWe continue to monitor adverse general economic conditions that could affect our commercial and agricultural portfolios in the future.
NetTotal provision for loan charge-offslosses for both the three and six months ended June 30, 2022, was $0.4 million, compared to no provision for the three month period and six months ended December 31, 2017 were $183, compared to $151,June 30, 2021. Based on loan growth alone, the provision would have been $0.950 million for the comparable prior year period. Annualizedsecond quarter. However, upgrades in the classification of substandard loans due to improving collateral positions and loan payoffs, with $0.55 million of specific reserves at March 31, 2022, partially offset the growth-related provision. In addition, the majority of the second quarter charge-offs of $0.4 million had been provided for in previous quarters and the charge-offs reduced specific reserves. There were no loan loss provisions for the quarters ended March 31, 2022, June 30, 2021, or March 31, 2021. Continued improving economic conditions in our markets, as evidenced by unemployment rates below the national average in our two largest population centers, have resulted in improving overall economic trends for businesses.
Note that in discussing ALL allocations, the entire ALL balance is available for any loan that, in management’s judgment, should be charged off. The ALL and related need for no provision was due to loan shrinkage and low net charge-offs to average loans were 0.10% for the three months ended December 31, 2017, compared to 0.11% for the comparable period in the prior year. Non-accrual loans were $6,388 at December 31, 2017, compared to $7,452 at September 30, 2017. Refer to the “Allowance for Loan Losses” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections below for more information related to non-performing loans.previous quarter.
We recorded a provision of $100 and $0 for the three month periods ended December 31, 2017 and December 31, 2016, respectively. Management believes that the provision takenrecorded for the current year three month and six-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 make adjustments toadjust our provision, as necessary, if changing facts and circumstances require a change in the ALL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ALL. If there are significant charge-offs against the ALL, or we otherwise determine that the ALL is inadequate, we will need to record an additional provision in the future. See the section below captioned “Allowance for Loan Losses” in this discussion for further analysis of our provision for loan losses.

47
64




Non-interest Income (Loss). The following table reflects the various components of non-interest income for the three and six- month periods ended December 31, 2017June 30, 2022 and 2016,2021, respectively.
 Three months ended June 30,Six months ended June 30,
 20222021% Change20222021% Change
Non-interest Income:
Service charges on deposit accounts$482 $395 22.03 %$970 $793 22.32 %
Interchange income614 647 (5.10)%1,163 1,177 (1.19)%
Loan servicing income600 825 (27.27)%1,301 1,718 (24.27)%
Gain on sale of loans414 1,522 (72.80)%1,136 3,117 (63.55)%
Loan fees and service charges141 151 (6.62)%233 429 (45.69)%
Net gains (losses) on investment securities(75)37 N/M(112)272 (141.18)%
Other196 216 (9.26)%394 463 (14.90)%
Total non-interest income$2,372 $3,793 (37.46)%$5,085 $7,969 (36.19)%
 Three months ended December 31, %
 2017 2016 Change
Non-interest Income:     
Net gain on available for sale securities$—
 $29
 (100.00)%
Service charges on deposit accounts460
 398
 15.58 %
Loan fees and service charges776
 533
 45.59 %
Other703
 283
 148.41 %
Total non-interest income$1,939
 $1,243
 55.99 %
The increase of $62 in serviceService charges on deposit accounts increased to $482 for the three month period months ended December 31, 2017, was primarily due to an increase in checking account related service charges. Loan fees andJune 30, 2022, from $395 for the prior year quarter. For the six months ended June 30, 2022, service charges increased $243 during the three month period ended December 31, 2017, mainly due to an increase$970, compared to $793 in secondary market fee income generated from customer mortgage activity. Other non-interest income increased for the current three month period ended December 31, 2017 over the comparable prior year period, due to an increase in interchange income and commission fee income generated from the acquired insurance and investment services activities. Total non-interest income increased $696 during the current three month period ended December 31, 2017 over the comparable prior year period. GrowthThe increase for both periods is due to higher customer spending activity.
Loan servicing income decreased with reduced capitalization of mortgage servicing rights due to lower mortgage loan origination fees in non-interest income is being driven byboth the impactthree and six-month periods ended June 30, 2022, compared to the same periods in the prior year.
Gain on sale of loans decreased in the WFC acquisition which has resultedcurrent three and six-month periods ended June 30, 2022, compared to the three and six months ended June 30, 2021, due to lower mortgage loan origination volumes.
The change in higher deposit charges and increased loan fees and service charges for the three and six months ended June 30, 2022 and 2021, is largely due to decreases in commercial loan-related customer activity.
The change in net gains (losses) on investment securities between the three and six months ended June 30, 2022, and the three and six months ended June 30, 2021, respectively, is primarily due to unrealized losses on equity securities with readily determinable fair value in 2022 and modest realized gain on sale of residential loan income.available for sale securities in 2021. The change in net gains (losses) on investment securities for the six-month periods ended June 30, 2022 and 2021, is primarily due to the corresponding changes in unrealized gains on equity securities with readily determinable fair value and to a lesser extent, the realized gain on sale of AFS securities in the second quarter of 2021.











65

Non-interest Expense. The following table reflects the various components of non-interest expense for the three and three monthsix-month periods ended December 31, 2017June 30, 2022 and 2016,2021, respectively.
 Three months ended June 30,Six months ended June 30,
 20222021% Change20222021% Change
Non-interest Expense:
Compensation and related benefits$5,589 $5,449 2.57 %$10,987 $11,018 (0.28)%
Occupancy1,343 1,314 2.21 %2,708 2,630 2.97 %
Data processing1,415 1,422 (0.49)%2,716 2,792 (2.72)%
Amortization of intangible assets399 399 — %798 798 — %
Mortgage servicing rights expense, net195 441 (55.78)%(132)(9)NM
Advertising, marketing and public relations250 194 28.87 %462 357 29.41 %
FDIC premium assessment118 82 43.90 %233 247 (5.67)%
Professional services368 362 1.66 %770 864 (10.88)%
Gains on repossessed assets, net(2)(29)93.10 %(9)(146)93.84 %
New market tax credit depletion162 — NM325 — NM
Other625 564 10.82 %1,272 1,136 11.97 %
Total non-interest expense$10,462 $10,198 2.59 %$20,130 $19,687 2.25 %
Non-interest expense (annualized) / Average assets2.38 %2.41 %(1.24)%2.31 %2.34 %(1.28)%
 Three months ended December 31, %
 2017 2016 Change
Non-interest Expense:     
Compensation and benefits$3,555
 $2,604
 36.52 %
Occupancy - net705
 1,068
 (33.99)
Office438
 281
 55.87
Data processing704
 472
 49.15
Amortization of intangible assets162
 43
 276.74
Amortization of mortgage servicing rights90
 —
 NA
Advertising, marketing and public relations149
 63
 136.51
FDIC premium assessment142
 83
 71.08
Professional services688
 401
 71.57
Other510
 378
 34.92
Total non-interest expense$7,143
 $5,393
 32.45 %
      
Non-interest expense (annualized) / Average assets3.01% 3.10% (2.90)%
DuringCompensation expense for the three monthsthree-month period ended December 31, 2017, compensation and benefits costs increased $951 relative to the comparable prior year period. During the current three month period, compensation and benefits costs increased primarily due to the addition of WFC employees. All planned WFC staff reductions were realized by SeptemberJune 30, 2017. During the current three month period, occupancy expense decreased primarily due to the impact of four branch closures in the first quarter of fiscal 2017, including lease termination charges of $455, partially offset by increases from the acquisition of WFC in the fourth quarter of fiscal 2017. Office expense increased $157 over2022, was higher than the comparable prior year period primarily due to increasedmerit and benefit increases in late March of 2022, partially offset by lower variable mortgage compensation related to lower mortgage activity. Compensation expense for the six-month period ended June 30, 2022, was lower than the comparable prior year periods due to lower variable mortgage production compensation related to lower mortgage loan origination activity, partially offset by the impact of the merit raise in 2022.

Net mortgage servicing rights expense decreased during the three months ended June 30, 2022, compared to the comparable prior year period as amortization expense decreased, resulting largely from the impact of lower future forecasted prepayment rates and the quarter ended June 30, 2021, had $23 thousand of impairment reversal. Amortization expense decreased in the six months ended June 30, 2022, compared to the six months ended June 30, 2021, by $469 thousand. This was partially offset by a decrease in MSR impairment reversals for the six months ended June 30, 2022, of $566 thousand, compared to the comparable prior year period reversal of $912 thousand.
48



maintenance contract costs, largelyThe FDIC insurance premium increased during the three months ended June 30, 2022, from the comparable prior year periods due to an increase in the assessment base. The FDIC insurance premium decreased during the six months ended June 30, 2022, from the comparable prior year periods due to the WFC acquisition. Advertising expensefavorable impact of increased $86 overbank capital ratios.
Professional services costs decreased during the six months ended June 30, 2022, from the comparable prior year period due to an increased focus on advertising activities. Amortizationthe need for fewer outside professionals, primarily in the first quarter of intangible assets expense increased for the current three month period ended December 31, 2017,2022 compared to the samefirst quarter of 2021, due to lower fees from our independent registered public accounting firm and other costs to prepare our Form 10-K.
Net gains on repossessed assets decreased due to fewer and lower value repossessed property sales resulting in lower corresponding gains on sale.
In the first quarter of 2022, the Bank invested $4.1 million in a New Market Tax Credit. Based on current accounting guidance, the related non-tax-deductible asset depletion will occur over a 5-year period in lockstep with the prior year due to higher amortization resulting from premiums paid to acquire WFC's core deposits and Wells Insurance Agency customer relationships. Professional fees increased due to one time special project costs in fiscal 2018, partially offset by lower audit costs. Total non-interest expense increased $1,750 forrecognition of the three month period ended December 31, 2017, compared totax credit. The Emerging Issues Task Force of the same periodFinancial Accounting Standards Board is in the prior year.process of reviewing this accounting and is expected to issue guidance that would change the depletion to seven years proportional with the tax credit.
Income Taxes. Income tax expense was $883$1.4 and $2.9 million for the three and six months ended December 31, 2017,June 30, 2022, respectively, compared to $467$1.7 and $3.7 million for the three and six months ended December 31, 2016, respectively.June 30, 2021. The effective tax rate increased from 33.2% to 39.7%was 24.4% and 24.3% for the three monthand six-month periods ended December 31, 2016June 30, 2022, compared to 26.8% and December 31, 2017, respectively.
The Tax Cuts and Jobs Act of 2017 ("the Tax Act"), enacted on December 22, 2017, reduces corporate Federal income tax rates26.4% for the Company from 34%comparable prior year periods. The lower effective tax rate is due to 24.5% for 2018, and 21% for 2019. GAAP requires the impact of the provisions of theNew Market Tax Act be accounted for in the period of enactment. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, we have made a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment.Credit. The Company revalued its net deferred tax assets to account for the future impact of lower corporate taxes. For the items for which we were able to determine a reasonable estimate, we recorded an increased provisional amount of income tax expense of $275 in December 2017, related to the revaluation of the deferred tax assetsis due to both the revaluation of timing differenceslower effective tax rate and the unrealized loss on securities. The increase was partially offset by an approximately $135 reduction in income tax expense due to a lower corporate tax rate.pre-tax income.
Provisional amounts. Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amounts recorded related to the re-measurement of our deferred tax balance was $275.
66



BALANCE SHEET ANALYSIS
Cash and Cash Equivalents. Our cash balances decreased $15.9 million to $31.7 million in the first half of 2022 as we deployed cash to support loan growth.
Investment Securities. We manage our securities portfolio to provide liquidity and enhance income. Our investment portfolio is comprised of securities available for sale and securities held to maturity.
Securities available for sale, which represent the majority of our investment portfolio, were $177.1 million at June 30, 2022, compared with $203.1 million at December 31, 2021. The decrease in the available for sale portfolio is due to unrealized losses of $17.2 million and principal repayments, partially offset by purchases of corporate debt securities and mortgage-backed certificates.
Securities held to maturity increased to $99.2 million at June 30, 2022, compared to $71.1 million at December 31, 2021. This increase was largely due to the purchase of agency mortgage-backed securities, net of repayments. The unrealized loss on the held to maturity portfolio increased by $12.5 million in the first half of 2022, to $14.5 million.
The amortized cost and market values of our available for sale securities by asset categories as of the dates indicated below were as follows:
Available for sale securitiesAmortized
Cost		Fair
Value
June 30, 2022
U.S. government agency obligations$21,677 $21,862 
Obligations of states and political subdivisions— — 
Mortgage-backed securities103,093 89,360 
Corporate debt securities37,084 35,010 
Corporate asset-backed securities32,148 30,836 
Totals$194,002 $177,068 
December 31, 2021
U.S. government agency obligations$25,826 $26,265 
Obligations of states and political subdivisions140 140 
Mortgage-backed securities107,636 107,167 
Corporate debt securities35,342 35,588 
Corporate asset-backed securities33,902 33,908 
Totals$202,846 $203,068 

67

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 securitiesAmortized
Cost		Fair
Value
June 30, 2022
Obligations of states and political subdivisions$600 $561 
Mortgage-backed securities98,649 84,227 
Totals$99,249 $84,788 
December 31, 2021
Obligations of states and political subdivisions$4,600 $4,593 
Mortgage-backed securities66,541 64,584 
Totals$71,141 $69,177 
The composition of our available for sale portfolios by credit rating as of the dates indicated below was as follows:
June 30, 2022December 31, 2021
Available for sale securitiesAmortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
U.S. government agency$121,692 $108,175 $131,115 $131,008 
AAA8,773 8,471 9,662 9,710 
AA26,453 25,412 26,727 26,762 
A5,700 5,417 5,700 5,720 
BBB31,384 29,593 29,642 29,868 
Non-rated— — — — 
Total available for sale securities$194,002 $177,068 $202,846 $203,068 
The composition of our held to maturity portfolio by credit rating as of the dates indicated was as follows:
June 30, 2022December 31, 2021
Held to maturity securitiesAmortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
U.S. government agency$98,649 $84,227 $66,541 $64,584 
AAA— — — — 
AA— — 4,000 4,000 
A600 561 600 593 
Total$99,249 $84,788 $71,141 $69,177 
At June 30, 2022, the Bank has pledged mortgage-backed securities with a carrying value of $5.6 million as collateral against a borrowing line of credit with the Federal Reserve Bank with no borrowings outstanding on this line of credit. As of June 30, 2022, the Bank has pledged U.S. Government Agency securities with a carrying value of $3.0 million and mortgage-backed securities with a carrying value of $2.5 million as collateral against specific municipal deposits. As of June 30, 2022, the Bank also has mortgage-backed securities with a carrying value of $0.2 million pledged as collateral to the Federal Home Loan Bank of Des Moines.
At December 31, 2021, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $0.9 million as collateral to secure a line of credit with the Federal Reserve Bank with no borrowings outstanding on this line of credit. As of December 31, 2021, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $3.9 million and mortgage-backed securities with a carrying value of $2.9 million as collateral against specific municipal deposits. As of December 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.2 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

68

Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, increased by $35.9 million, to $1.35 billion as of June 30, 2022, from $1.31 billion at December 31, 2021. The originated loan portfolio, before SBA PPP loans, increased $67.3 million in the six-month period of 2022. Total SBA PPP loans decreased $8.8 million, entirely due to debt forgiveness. Acquired loans decreased by $2,077, or 0.28%, to $730,918 as of December 31, 2017 from $732,995 at September 30, 2017.$23.8 million. The following table reflects the composition, or mix, of our loan portfolio at June 30, 2022, and December 31, 2017 and September 30, 2017:2021:


June 30, 2022December 31, 2021
AmountPercentAmountPercent
Real estate loans:
Commercial/Agricultural real estate
Commercial real estate$702,917 52.1 %$698,465 53.3 %
Agricultural real estate77,807 5.8 %78,495 6.0 %
Multi-family real estate179,929 13.4 %178,349 13.6 %
Construction and land development115,188 8.6 %79,520 6.1 %
Residential mortgage
Residential mortgage88,575 6.6 %90,990 6.9 %
Purchased HELOC loans3,419 0.3 %3,871 0.3 %
Total real estate loans1,167,835 86.8 %1,129,690 86.2 %
C&I/Agricultural operating and Consumer Installment Loans:
C&I/Agricultural operating
Commercial and industrial (“C&I”)139,002 10.3 %122,167 9.3 %
Agricultural operating24,469 1.8 %31,588 2.4 %
Consumer installment— %
Originated indirect paper12,736 0.9 %15,971 1.2 %
Other consumer7,785 0.6 %8,874 0.7 %
Total C&I/Agricultural operating and Consumer installment Loans183,992 13.6 %178,600 13.6 %
Gross loans before C&I SBA PPP loans1,351,827 100.4 %1,308,290 99.8 %
SBA PPP loans— — %8,755 0.7 %
Gross loans$1,351,827 100.4 %$1,317,045 100.5 %
Unearned net deferred fees and costs and loans in process(2,338)(0.2)%(2,482)(0.2)%
Unamortized discount on acquired loans(2,634)(0.2)%(3,600)(0.3)%
Total loans (net of unearned income and deferred expense)1,346,855 100.0 %1,310,963 100.0 %
Allowance for loan losses(16,825)(16,913)
Total loans receivable, net$1,330,030 $1,294,050 








69
 December 31, 2017 September 30, 2017
 Amount Percent Amount Percent
Real estate loans:       
Residential real estate$238,045
 32.5 % $247,634
 33.8 %
Commercial/agricultural real estate289,084
 39.6 % 273,900
 37.4 %
Total real estate loans527,129
 72.1 % 521,534
 71.2 %
Non-real estate loans:       
Consumer non-real estate124,944
 17.1 % 135,955
 18.5 %
Commercial/agricultural loans82,533
 11.3 % 79,124
 10.8 %
Total non-real estate loans207,477
 28.4 % 215,079
 29.3 %
Gross loans734,606
 

 736,613
 

Unearned net deferred fees and costs and loans in process1,252
 0.2 % 1,471
 0.2 %
Unamortized discount on acquired loans(4,940) (0.7)% (5,089) (0.7)%
Total loans (net of unearned income and deferred expense)730,918
 100.0 % 732,995
 100.0 %
Allowance for loan losses(5,859)   (5,942)  
Total loans receivable, net$725,059
   $727,053
  
At December 31, 2017, commercial/agricultural real estate loans increased $15,184 or 5.5% from their September 30, 2017 balance. Commercial/agricultural non-real estate loans increased $3,409 or 4.3% from their September 30, 2017 balance. These increases are a result of commercial loan origination growth. Residential real estate loans decreased $9,589 or $3.9% from their September 30, 2017 balances, as paydowns outpaced residential real estate loan originations. Consumer indirect paper loans decreased $19,174 or 22.5% from their September 30, 2017 balances. The decrease in this portion of consumer

49





non-real estateThe following table summarizes SBA PPP loans relates to the Company's decision to cease originating loan volume through its indirect dealer network in fiscal 2017 and the elimination of purchased indirect loan originations.by origination year at June 30, 2022:
2020 Originations2021 OriginationsTotal
BalanceNet Deferred Fee IncomeBalanceNet Deferred Fee IncomeBalanceNet Deferred Fee Income
SBA PPP loans, January 1, 2021$123,702 $2,991 $— $— $123,702 $2,991 
2021 SBA PPP loan originations— — 55,854 3,494 55,854 3,494 
Less: 2021 SBA PPP loan forgiveness and fee accretion(121,574)(2,987)(49,227)(3,201)(170,801)(6,188)
SBA PPP loans, December 31, 20212,128 4 6,627 293 8,755 297 
Less: 2022 SBA PPP loan forgiveness and fee accretion(2,128)(4)(6,627)(293)(8,755)(297)
SBA PPP loans, June 30, 2022$— $— $— $— $— $— 
Allowance for Loan Losses. The loan portfolio is our primary asset subject to credit risk. To address this credit risk, we maintain an ALL for probable and inherent credit losses through periodic charges to our earnings. These charges are shown in our consolidated statements of operations as PLL. See “Provision for Loan Losses” earlier in this quarterly report. We attempt to control, monitor, and minimize credit risk through the use of prudent lending standards, a thorough review of potential borrowers prior to lending and ongoing and timely review of payment performance. Asset quality administration, including early identification of loans performing in a substandard manner, as well as timely and active resolution of problems, further enhances management of credit risk and minimization of loan losses. Any losses that occur and that are charged off against the ALL are periodically reviewed with specific efforts focused on achieving maximum recovery of both principal and interest.
At least quarterly, we review the adequacy of the ALL. Based on an estimate computed pursuant to the requirements of ASC 450-10, “Accounting for Contingencies”Contingencies” and ASC 310-10, “Accounting by Creditors for Impairment of a Loan”Loan”, the analysis of the ALL consists of three components: (i) specific credit allocation established for expected losses relating to specific impaired loans for which the recorded investment in the loan exceeds its fair value; (ii) general portfolio allocation based on historical loan loss experience for significant loan categories; and (iii) general portfolio allocation based on qualitative factors such as economic conditions and other relevant factors specific to the markets in which we operate. We continue to refine our ALL methodology by introducing a greater level of granularity to our loan portfolio. We currently segregate loans into pools based on common risk characteristics for purposes of determining the ALL. The additional segmentation of the portfolio is intended to provide a more effective basis for the determination of qualitative factors affecting our ALL. In addition, management continually evaluates our ALL methodology to assess whether modifications in our methodology are appropriate in light of underwriting practices, market conditions, identifiable trends, regulatory pronouncements or other factors. We believe that any modifications or changes to the ALL methodology would be to enhance the ALL. However, any such modifications could result in materially different ALL levels in future periods.
The specific credit allocation for the ALL is based on a regular analysis of all loans that are considered impaired. In compliance with ASC 310-10, the fair value of the loan is determined based on either the present value of expected cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less the expected cost of sale for such collateral. At June 30, 2022, the Company individually evaluated loans for impairment with a recorded investment of $29.4 million, consisting of (1) $8.5 million purchased credit impaired (“PCI”) loans, with a carrying amount of $8.1 million; (2) $7.1 million TDR loans, net of TDR PCI loans; and (3) $14.2 million of substandard non-TDR, non-PCI loans. The $29.4 million total of loans individually evaluated for impairment includes $6.0 million of performing TDR loans. At December 31, 20172021, the Company individually evaluated loans for impairment with a recorded investment of $31.7 million, consisting of (1) $11.2 million PCI loans, with a carrying amount of $10.6 million; (2) $9.9 million TDR loans, net of TDR PCI loans; and September(3) $11.3 million of substandard non-TDR, non-PCI loans. The $31.7 million total of loans individually evaluated for impairment includes $8.0 million of performing TDR loans. At June 30, 2017,2022, and December 31, 2021, we had 119201 and 134 such impaired235 loans individually evaluated for impairment, respectively, all secured by real estate or personal property with an aggregate recorded investment of $6,880 and $7,510, respectively.property. Of the impairedoriginated loans respectively,individually evaluated for impairment, there were 28 such individual43 loans where the estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling $1,793$5.5 million for which $299$0.26 million in specific ALL was recorded as of June 30, 2022.
The allowance for loan losses modestly decreased $0.1 million to $16.8 million at June 30, 2022, representing 1.25% of loans receivable. A portion of the current loan portfolio includes loans purchased through whole bank acquisitions in recent years resulting in purchased credit impairments which are not included in the allowance for loan losses. As the originated portfolio grows and the acquired portfolio shrinks, the percentage of originated loans to total loans grows, as does the overall percentage of the allowance to total loans. The allowance for loan losses was $16.9 million at December 31, 2017.2021, representing
At December 31, 2017,
70

1.30% of loans receivable, less the ALL100% SBA guaranteed PPP loans. The decrease in the allowance at June 30, 2022, was $5,859, or 0.80%due to net loan charge-offs, partially offset by a provision of our total loan portfolio, compared to ALL of $5,942, or 0.81%$0.4 million. Approximately $350 thousand of the total loan portfolio at September 30, 2017. This level was based on our analysis of the loan portfolio risk at December 31, 2017, taking into account the factors discussed above. At December 31, 2017, the ALL was 0.83% of our total loan portfolio, excluding the third party purchased consumer loans referenced elsewhere herein, compared to 0.84% of the total loan portfolio excluding these third party purchased consumer loans at September 30, 2017. We have established a separate restricted reserve account for these third party purchased consumer loans. The fundscharge-offs in the reserve account aresecond quarter had specific reserves previously established, so there was no impact on the provision for loan losses.
Allowance for Loan Losses to be released to compensate the Bank for any nonperforming purchased loans that are not purchased back by the seller or substituted with performing loans and are ultimately charged off.Loans, net of SBA PPP Loans
(in thousands, except ratios)
June 30,
2022		December 31,
2021
Loans, end of period$1,346,855 $1,310,963 
SBA PPP loans, net of deferred fees— (8,457)
Loans, net of SBA PPP loans and deferred fees$1,346,855 $1,302,506 
Allowance for loan losses$16,825 $16,913 
ALL to loans net of SBA PPP loans and deferred fees1.25 %1.30 %
ALL to loans, end of period1.25 %1.29 %
All of the nine factors identified in the FFIEC'sFFIEC’s Interagency Policy Statement on the Allowance for Loan and Lease Losses are taken into account in determining the ALL. The impact of the factors in general categories are subject to change; thus, the allocations are management’s estimate of the loan loss categories in which the probable and inherent loss has occurred as of the date of our assessment. Of the nine factors, we believe the following have the greatest impact on our customers’ ability to repay loans and our ability to recover potential losses through collateral sales: (1) lending policies and procedures; (2) economic and business conditions; and (3) the value of the underlying collateral. As loan balances and estimated losses in a particular loan type decrease or increase and as the factors and resulting allocations are monitored by management, changes in the risk profile of the various parts of the loan portfolio may be reflected in the allocated allowance. The general component covers non-impaired loans and is based on historical loss experience adjusted for these and other qualitative factors. In addition, management continues to refine the ALL estimation process as new information becomes available. These refinements could also cause increases or decreases in the ALL. See Provision for loan losses in the Consolidated Statements of Operations (unaudited) for further details. The unallocated portion of the ALL is intended to account for imprecision in the estimation process or relevant current information that may not have been considered in the process.
Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of non-accrualnonaccrual and problem loans in order to minimize the Bank'sBank’s risk of loss. Non-performingNonperforming loans are defined as non-accrualnonaccrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that

50



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;
•Commercial/agricultural non-real estateC&I/Agricultural operating loans, past due 90 days or more;
•Closed ended consumer non-real estateinstallment loans, past due 120 days or more; and
•Residential real estatemortgage loans and open endedopen-ended consumer non-real estateinstallment loans, past due 180 days or more.
When interest accruals are discontinued, interest credited to income is reversed. If collection is in doubt, cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income. A TDR typically involves the granting of some concession to the borrower involving a loan modification, such as modifying the payment schedule or making interest rate changes. TDR loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC 310-10.

5171




The following table identifies the various components of non-performingnonperforming assets and other balance sheet information as of the dates indicated below and changes in the ALL for the periods then ended:
June 30, 2022 and Six Months Then EndedDecember 31, 2021 and Twelve Months Then Ended
Nonperforming assets:
Nonaccrual loans
Commercial real estate$5,275 $5,374 
Agricultural real estate3,169 3,490 
Construction and land development43 — 
Commercial and industrial211 298 
Agricultural operating555 993 
Residential mortgage1,122 1,433 
Consumer installment59 77 
Total nonaccrual loans$10,434 $11,665 
Accruing loans past due 90 days or more714 160 
Total nonperforming loans (“NPLs”)11,148 11,825 
Other real estate owned1,427 1,406 
Other collateral owned10 2 
Total nonperforming assets (“NPAs”)$12,585 $13,233 
Troubled Debt Restructurings (“TDRs”)$8,712 $12,523 
Accruing TDR's$6,163 $7,984 
Nonaccrual TDRs$2,549 $4,539 
Average outstanding loan balance$1,316,469 $1,216,244 
Loans, end of period$1,346,855 $1,310,963 
Total assets, end of period$1,763,607 $1,739,628 
ALL, at beginning of period$16,913 $17,043 
Loans charged off:
Commercial/Agricultural real estate(157)(251)
C&I/Agricultural operating(310)(7)
Residential mortgage(68)— 
Consumer installment(25)(81)
Total loans charged off(560)(339)
Recoveries of loans previously charged off:
Commercial/Agricultural real estate6 28 
C&I/Agricultural operating19 123 
Residential mortgage26 13 
Consumer installment21 45 
Total recoveries of loans previously charged off:72 209 
Net loans charged off (“NCOs”)(488)(130)
Additions to ALL via provision for loan losses charged to operations400 — 
ALL, at end of period$16,825 $16,913 
Ratios:
ALL to NCOs (annualized)1,709.70 %13,010.00 %
NCOs (annualized) to average loans0.07 %0.01 %
ALL to total loans1.25 %1.29 %
NPLs to total loans0.83 %0.90 %
NPAs to total assets0.71 %0.76 %
 December 31, 2017
and Three Months
Then Ended		 September 30, 2017
and Twelve Months
Then Ended
Nonperforming assets:   
Nonaccrual loans$6,388
 $7,452
Accruing loans past due 90 days or more739
 589
Total nonperforming loans (“NPLs”)7,127
 8,041
Other real estate owned6,996
 5,962
Other collateral owned35
 55
Total nonperforming assets (“NPAs”)$14,158
 $14,058
Troubled Debt Restructurings (“TDRs”)$7,263
 $5,851
Nonaccrual TDRs$1,327
 $621
Average outstanding loan balance$731,957
 $653,717
Loans, end of period$730,918
 $732,995
Total assets, end of period$943,032
 $940,664
ALL, at beginning of period$5,942
 $6,068
Loans charged off:   
Residential real estate(24) (233)
Commercial/Agricultural real estate(1) (389)
Consumer non-real estate(194) (9)
Commercial/Agricultural non-real estate—
 —
Total loans charged off(219) (631)
Recoveries of loans previously charged off:   
Residential real estate13
 14
Commercial/Agricultural real estate—
 —
Consumer non-real estate22
 171
Commercial/Agricultural non-real estate1
 1
Total recoveries of loans previously charged off:36
 186
Net loans charged off (“NCOs”)(183) (445)
Additions to ALL via provision for loan losses charged to operations100
 319
ALL, at end of period$5,859
 $5,942
Ratios:   
ALL to NCOs (annualized)800.41% 1,335.28%
NCOs (annualized) to average loans0.10% 0.07%
ALL to total loans0.80% 0.81%
NPLs to total loans0.98% 1.10%
NPAs to total assets1.50% 1.49%








52
72




An aging analysisThe following table shows the detail of the Company’snon-performing assets by originated and acquired portfolios:

Nonperforming Originated / Acquired Assets
(in thousands, except ratios)
June 30, 2022December 31, 2021
Nonperforming assets:
Originated nonperforming assets:
Nonaccrual loans$7,770 $6,448 
Accruing loans past due 90 days or more700 63 
Total originated nonperforming loans (“NPL”)8,470 6,511 
Other real estate owned (“OREO”)— — 
Other collateral owned10 2 
Total originated nonperforming assets (“NPAs”)$8,480 $6,513 
Acquired nonperforming assets:
Nonaccrual loans$2,664 $5,217 
Accruing loans past due 90 days or more14 97 
Total acquired nonperforming loans (“NPL”)2,678 5,314 
Other real estate owned (“OREO”)1,427 1,406 
Other collateral owned— — 
Total acquired nonperforming assets (“NPAs”)$4,105 $6,720 
Total nonperforming assets (“NPAs”)$12,585 $13,233 
Loans, end of period$1,346,855 $1,310,963 
Total assets, end of period$1,763,607 $1,739,628 
Ratios:
Originated NPLs to total loans0.63 %0.50 %
Acquired NPLs to total loans0.20 %0.41 %
Originated NPAs to total assets0.48 %0.37 %
Acquired NPAs to total assets0.23 %0.39 %




















73

Nonaccrual Loans Roll forward:
Quarter Ended
 June 30, 2022March 31, 2022December 31, 2021September 30, 2021June 30, 2021
Balance, beginning of period$11,858 $11,665 $11,706 $8,075 $8,678 
Additions1,918 720 428 4,859 863 
Acquired nonaccrual loans— — — — — 
Charge offs(437)(15)(1)(24)(58)
Transfers to OREO(65)— (19)— — 
Return to accrual status— (51)(30)— (696)
Payments received(2,830)(461)(422)(1,202)(712)
Other, net(10)— 3 (2)— 
Balance, end of period$10,434 $11,858 $11,665 $11,706 $8,075 
Nonperforming loans as ofdecreased by $0.7 million to $11.1 million at June 30, 2022, from December 31, 20172021. This decrease is largely due to payoffs of acquired nonaccrual loans, partially offset by increases in originated nonaccrual loans and Septemberoriginated accruing loans past due 90 days or more. Nonperforming assets decreased to $12.6 million or 0.71% of total assets at June 30, 2017, respectively, was as follows
 30-59 Days
Past Due		 60-89 Days
Past Due		 Greater
Than
89 Days		 Total
Past Due		 Nonaccrual Loans Recorded Investment > 89 Days and Accruing
December 31, 2017           
Originated loans$4,640
 $1,276
 $1,716
 $7,632
 $1,751
 $436
Acquired loans4,998
 823
 2,042
 7,863
 4,637
 303
Total$9,638
 $2,099
 $3,758
 $15,495
 $6,388
 $739
September 30, 2017           
Originated loans$3,376
 $725
 $1,744
 $5,845
 $1,785
 $458
Acquired loans2,053
 257
 2,848
 5,158
 5,667
 131
Total$5,429
 $982
982
$4,592
 $11,003
 $7,452
 $589
Non-performing loans2022, compared to $13.2 million, or 0.76% of $7,127total assets at December 31, 2017, which included $1,3272021. Included in nonperforming assets at June 30, 2022, are $4.1 million of non-accrualnonperforming assets acquired during recent whole-bank acquisitions.
Refer to the “Allowance for Loan Losses” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections above for more information related to nonperforming loans.
Included in the above table are nonaccrual TDR loans. Nonaccrual TDR loans decreased to $2.5 million at June 30, 2022, from $4.5 million at December 31, 2021.
 June 30, 2022December 31, 2021
 Number of
Modifications		Recorded
Investment		Number of
Modifications		Recorded
Investment
Troubled debt restructurings: Accrual Status
Commercial/Agricultural real estate10 $2,049 11 $4,618 
C&I/Agricultural operating4 1,182 3 649 
Residential mortgage36 2,915 36 2,681 
Consumer installment3 17 6 36 
Total loans53 $6,163 56 $7,984 
Accruing troubled debt restructured originated loans, reflected a decrease of $914 from the non-performing loans balance of $8,041 at September 30, 2017. The decrease was partiallyrestructurings decreased $1.8 million to $6.2 million largely due to the resolutionpayoff of a $3.3 million loan in the first quarter, partially offset by modest additions.
The table below shows a summary of criticized loans for the past five quarters, with the decrease largely due to decreases in special mention loans.See Note 3, “Loans, Allowance for Loan Losses and pay down on a single large commercial credit account. Most of these non-performing loan relationships are secured primarily by collateral including residential real estate and commercial or agricultural assets.Impaired Loans” for additional information.
Other real estate owned ("OREO") increased by $1,034,
(in thousands)
June 30,
2022		March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021
Special mention loan balances$17,274 $1,849 $4,536 $2,548 $12,308 
Substandard loan balances20,680 24,822 22,817 27,137 25,890 
Criticized loans, end of period$37,954 $26,671 $27,353 $29,685 $38,198 
74

Classified assets decreased to $20.7 million at June 30, 2022, from $5,962 at September 30, 2017 to $6,996$22.8 million at December 31, 2017. Other collateral owned decreased $20 during2021, largely due to non-accruing loan payoffs, along with the three months ended December 31, 2017 to $35 fromfirst quarter payoff of a substandard accruing troubled debt restructuring loan of $3.3 million partially offset by the September 30, 2017 balancenew classification of $55. The increase$3.8 million of five agricultural relationships in OREO wasthe first quarter.
Special mention loans increased $15.4 million in the quarter, primarily due to the transfer into OREOaddition of two loans in the second quarter of 2022. One is a closed branch, acquiredcommercial real estate loan for $5.4 million secured by a hotel (50% LTV at origination) and has rebounded more slowly from Wells Financial,the pandemic due to reliance on seasonal events and company meetings. Performance year to date and bookings show good progress. The second special mention loan is a $10.4 million C&I fully secured working capital loan. Negotiations are ongoing with the borrower to improve the loan structure and cash flow of the business.
Hotels and restaurants represent our portfolio’s two industry sectors most directly and adversely affected by the recent pandemic and related government actions. These sector loans totaled approximately $97 million and $48 million, respectively, at June 30, 2022. The weighted-average loan-to-value percentage and debt service coverage ratio on these hotel industry sector loans were 61% and 2.6 times, respectively. Approximately $35.0 million of restaurant sector loans are to franchise quick-service restaurants.
As of June 30, 2022, the Bank had $0.4 million of remaining residential mortgage loan modifications, due to pandemic-related borrower requests. As of June 30, 2022, all previously deferred commercial loans have exited deferral status. While the Company has no indication that any of the modified credits are specifically impaired, additional risk and uncertainty inherent in the current pandemic-affected environment have been considered. See “Allowance for Loan Losses” section above for discussion of pandemic-related qualitative factor, and related provision for loan losses.
Accretable difference:
The table below shows scheduled accretion by year for the accretable difference recognized due to fair value purchase accounting on recent whole bank acquisitions. In addition, the Company has $1.35 million of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount. The scheduled accretion on this balance is estimated to be approximately $100 thousand per year; however, large balance payoffs, as seen in 2021 and 2020, would accelerate this accretion.
Fiscal years ending December 31,Purchase Accounting Accretable Difference
2022$366 
2023279 
2024131 
202596 
Total872 
Mortgage Servicing Rights. Mortgage servicing rights (“MSR”) assets are initially measured at fair value; assessed at least quarterly for impairment; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded in non-interest expense in the consolidated statement of operations. The valuation of MSRs and related amortization thereon are based on numerous factors, assumptions, and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.
The fair market value of the Company’s MSR asset increased from $4.3 million at December 31, 2021, to $5.5 million at June 30, 2022, primarily due to higher future forecasted interest rates and resulting lower forecasted prepayments. As a result, $0.6 million of previously recorded impairment on the MSR asset was reversed during the three-month period ended March 31, 2022. At June 30, 2022, the Company did not have an MSR impairment, or related valuation allowance.
The unpaid balances of one- to four-family residential real estate loans serviced for others as of June 30, 2022, and December 31, 2021, were $544.7 million and $556.1 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at June 30, 2022, and December 31, 2021, was 1.01% and 0.78%, respectively.
Deposits. Deposits increased $12.7 million to $1.40 billion at June 30, 2022, from $1.39 billion at December 31, 2021. The increase was due in part to seasonal factors related to taxes and two large retail and one large commercial deposit. These
75

large deposits totaling $19 million are approximately evenly split between retail and commercial deposits and are expected to decrease substantially over the next three quarters. This growth was partially offset by sales and writedowns on OREO properties.
Our non-performing assets were $14,158 at retail certificate of deposit account balances decreasing by $49.5 million from December 31, 2017, or 1.50% of total assets, compared2021, as the Company chose not to $14,058, or 1.49% of total assets at September 30, 2017. The increase in non-performing assets since September 30, 2017 was primarily due to the transfer into OREO of a closed branch, acquired from Wells Financial, partially offset by the impact of pay downs on non-performing loans.
Net charge offs for the three month period ended December 31, 2017 were $183, compared to $151 for the same prior year period. The ratio of annualized net charge-offs to average loans receivable was 0.10% for the three month period ended December 31, 2017, compared to 0.07% for the twelve months ended September 30, 2017.
Investment Securities. We manage our securities portfolio in an effort to enhance income and provide liquidity. Our investment portfolio is comprised of securities available for sale and securities held to maturity. The weighted average lifematch higher rate local retail certificate competition. In addition, some of the investment portfolio was 4.7 years at December 31, 2017, compared with 4.6 years at September 30, 2017. The modified duration of the investment portfolio was 4.3 years at December 31, 2017, compared with 4.1 years at September 30, 2017.
Securities helddecrease in retail certificates has moved to maturity were $5,227 at December 31, 2017, compared with $5,453 at September 30, 2017. Securities available for sale, which represent the majority of our investment portfolio, were $96,548 at December 31, 2017, compared with $95,883 at September 30, 2017.
The amortized cost andmoney market values of our available for sale securities by asset categories as of the dates indicated below were as follows:

53



Securities available for sale
Amortized
Cost
 
Fair
Value
December 31, 2017   
U.S. government agency obligations$18,098
 $17,591
Obligations of states and political subdivisions35,519
 35,414
Mortgage backed securities38,490
 38,020
Agency securities147
 234
Corporate debt securities5,393
 5,289
Totals$97,647
 $96,548
September 30, 2017   
U.S. government agency obligations$18,454
 $18,041
Obligations of states and political subdivisions35,656
 35,795
Mortgage backed securities36,661
 36,474
Agency securities147
 230
Corporate debt securities5,410
 5,343
Totals$96,328
 $95,883
The amortized cost and fair value of our held to maturity securities by asset categories as of the dates noted below were as follows:
Securities held to maturity
Amortized
Cost
 
Fair
Value
December 31, 2017   
Obligations of states and political subdivisions$1,310
 $1,309
Mortgage-backed securities3,917
 4,012
Totals$5,227
 $5,321
September 30, 2017   
Obligations of states and political subdivisions$1,311
 $1,328
Mortgage-backed securities4,142
 4,277
Totals$5,453
 $5,605
The composition of our available for sale portfolios by credit rating as of the dates indicated below was as follows:
 December 31, 2017 September 30, 2017
Available for sale securitiesAmortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value
Agency$56,588
 $55,611
 $55,115
 $54,515
AAA724
 719
 725
 730
AA26,354
 26,275
 26,405
 26,474
A11,343
 11,317
 7,776
 7,876
BBB—
 —
 3,618
 3,579
Non-rated2,638
 2,626
 2,689
 2,709
Total available for sale securities$97,647
 $96,548
 $96,328
 $95,883

54



The composition of our held to maturity portfolio by credit rating as of the dates indicated was as follows:
 December 31, 2017 September 30, 2017
Securities held to maturityAmortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value
U.S. government agency$3,917
 $4,012
 $4,142
 $4,277
AAA—
 —
 —
 —
AA—
 —
 —
 —
A960
 959
 961
 969
BBB—
 —
 —
 —
Below investment grade—
 —
 —
 —
Non-rated350
 350
 350
 359
Total$5,227
 $5,321
 $5,453
 $5,605
At December 31, 2017, securities with a market value of $2,500 were pledged against a line of credit with the Federal Reserve Bank of Minneapolis. As of December 31, 2017, this line of credit had a zero balance. The Bank has pledged U.S. Government Agency securities with a market value of $7,421 and mortgage-backed securities with a market value of $18,836 as collateral against specific municipal deposits. As of December 31, 2017, the Bank also has mortgage backed securities with a market value of 1,229 pledged as collateral to the Federal Home Loan Bank of Des Moine against the MPF Credit Enhancement fee.
Deposits. Deposits decreased to $741,069 at December 31, 2017, from $742,504 at September 30, 2017, largely due to deposit runoff in markets where branch closures took place.accounts.
The following is a summary of deposits by type at June 30, 2022 and December 31, 2017 and September 30, 2017,2021, respectively:
June 30, 2022December 31, 2021
Non-interest bearing demand deposits$276,815 $276,631 
Interest bearing demand deposits401,857 396,231 
Savings accounts239,322 222,674 
Money market accounts328,718 288,985 
Certificate accounts153,498 203,014 
Total deposits$1,400,210 $1,387,535 
























76

  December 31, 2017 September 30, 2017
Non-interest bearing demand deposits $78,685
 $75,318
Interest bearing demand deposits 149,058
 147,912
Savings accounts 98,941
 102,756
Money market accounts 125,831
 125,749
Certificate accounts 288,554
 290,769
Total deposits $741,069
 $742,504
Deposits from closed branches, in markets that the Bank no longer competes in, decreased by $4,506 during the three months ended December 31, 2017, and total $47,952 as of December 31, 2017. Noninterest bearing deposits increased to $78,685 at December 31, 2017, compared to $75,318 at September 30, 2017. Non-maturity deposits increased to $452,515 or 61.1% of total deposits compared to $451,735 at September 30, 2017, or 60.8% of total deposits.
Our objective is to grow core deposits and build customer relationships in our core markets by expanding our branch network, deposit product offerings, including Treasury Management, and providing excellent customer service. Management expects to continue to place emphasis on both retaining and generating additional core deposits in 2018 through competitive pricing of deposit products, our branch delivery systems that have already been established and electronic banking.
Institutional certificates of deposit as a funding source decreased to $12,910 at December 31, 2017 from $14,402 as of September 30, 2017. Institutional certificates of deposit remain a part of our deposit mix as we continue to pursue funding sources to lower the Bank's cost of funds.
The Bank had $37,475 and $42,840 in brokered deposits at December 31, 2017 and September 30, 2017, respectively. Brokered deposit levels are within all regulatory directives thereon.
Federal Home Loan Bank (FHLB) advances (borrowings) and Other Borrowings.A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at June 30, 2022 and December 31, 2021 is as follows:
June 30, 2022December 31, 2021
Stated MaturityAmountRange of Stated RatesAmountRange of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4)2022$39,000 1.61 %1.63 %$11,000 2.45 %2.45 %
202310,000 1.43 %2.01 %20,000 1.43 %1.44 %
202420,530 0.00 %1.45 %20,530 0.00 %1.45 %
20255,000 1.45 %1.45 %5,000 1.45 %1.45 %
202927,500 1.01 %1.13 %42,500 1.00 %1.13 %
2030— — %— %12,500 0.52 %0.86 %
Subtotal102,030 111,530 
Unamortized discount on acquired notes— (3)
Federal Home Loan Bank advances, net$102,030 $111,527 
Senior Notes (5)2034$23,250 3.00 %4.00 %$28,856 3.00 %3.50 %
Subordinated Notes (6)2027$15,000 6.75 %6.75 %$15,000 6.75 %6.75 %
203015,000 6.00 %6.00 %15,000 6.00 %6.00 %
203235,000 4.75 %4.75 %— — %— %
$65,000 $30,000 
Unamortized debt issuance costs(1,126)(430)
Total other borrowings$87,124 $58,426 
Totals$189,154 $169,953 
(1)    The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $920,774 and $861,900 at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $230,585 compared to $204,271 as of December 31, 2021.
(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $111,530 and $123,530, during the six months ended June 30, 2022 and the twelve months ended December 31, 2021, respectively.
(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of June 30, 2022 and December 31, 2021 were 1.66% and 2.45%, respectively.
(4)    At June 30, 2022, FHLB term notes totaling $27,500 can be called or replaced by the FHLB on a quarterly basis, and if not called, will mature at various dates in 2029. At December 31, 2021, FHLB term notes totaling $55,000 could be called or replaced by the FHLB on a quarterly basis, and if not called, would mature at various dates in 2029 and 2030.
(5)    Senior notes, entered into by the Company in June 2019 consist of the following:
(a) A term note, which was subsequently refinanced in March 2022, requiring quarterly interest-only payments through March 2025, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.
(b) A $5,000 line of credit, maturing August 1, 2022, that remains undrawn upon. The line was renewed on August 1, 2022 and will mature on August 1, 2023.
77

(6)    Subordinated notes resulted from the following:
(a) The Company’s private sale in August 2017, which bears a fixed interest rate of 6.75% for five years. In August 2022, they convert to a three-month LIBOR plus 4.90% rate, and the interest rate will reset quarterly thereafter. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due quarterly. The company sent the required notice to the note holders in June 2022, and this subordinated note will be called and repaid in full on August 10, 2022.
(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
(c) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years. In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
FHLB advances decreased $9.5 million to $102.0 million as of June 30, 2022, compared to $111.5 million as of December 31, 2021. The Bank terminated $15.0 million of advances in the quarter ended March 31, 2022, incurring a $0.002 million prepayment penalty, as we modestly reduced excess liquidity. In the quarter ended June 30, 2022, $27.5 million of FHLB advances were $94,000 ascalled by the FHLB. The remaining callable term notes are expected to be called in the third quarter of December 31, 20172022. The Bank added a $5 million advance maturing in the second quarter of 2023 and $90,000 asthe Bank had $34 million of September 30, 2017, as we continue to utilize theseFHLB advances as necessary, to supplement core deposits to meet our funding and liquidity needs, and as we evaluate all options to lower the Bank's cost of funds.maturing overnight. 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"(“LOC”) is supported by loan collateral as an alternative to directly pledging

55



investment securities on behalf of a municipal customer as collateral for their interest bearinginterest-bearing deposit balances. The Bank’s current unused borrowing capacity, supported by loan collateral as of December 31, 2017,June 30, 2022, is approximately $185,236.$190.4 million.
TheSee Note 7, “Federal Home Loan Bank had one long-term fixed rate advance fromand Federal Reserve Bank Advances and Other Borrowings” for more information.
At June 30, 2022, the Bank has pledged $920.8 million of loans to secure the current FHLB with a contractual interest rateoutstanding advances and letters of 0.99%credit and to provide the unused borrowing capacity, compared to $861.9 million of loans pledged at December 31, 2017. Advances from the FHLB have terms of 24 months or less, mature2021.
Stockholders’ Equity. Total stockholders’ equity was $164.7 million at various dates through 2018, and are secured by $316,155 of real estate and commercial and industrial loans. Each Federal Home Loan Bank advance is payableJune 30, 2022, compared to $170.9 million at the maturity date, with a prepayment penalty for fixed rate advances.
On May 16, 2016, the Company entered into a Loan Agreement evidencing an $11,000 term loan maturing on May 15,December 31, 2021. The proceeds fromdecrease in stockholder’s equity was attributable to 1) the Loan$12.4 million decrease in accumulated other comprehensive income due to an increase in unrealized loss on available for sale securities; 2) the payment of the annual cash dividend paid in February to common stockholders of $0.26 per share or $2.7 million, and 3) the repurchase of approximately 18 thousand shares of the Company’s common stock, which reduced equity by $0.3 million. These reductions to equity were usedpartially offset by the Company for the sole purposenet income of financing the acquisition, by merger, of Community Bank of Northern Wisconsin.
On May 30, 2017, the Company extended a $5,000 term loan facility for the sole purpose of financing the acquisition, by merger, of Wells Financial Corporation. On August 17, 2017, this term loan was funded and matures on August 15, 2022 with a ten year amortization.$9.1 million.
The variable rate senior notes provide for a floating interest rate that resets quarterly at rates that are indexed toCompany repurchased all remaining authorized shares of the three-month London interbank offered rate ("LIBOR") plus 2.70%. The contractual interest rates for those notes ranged from 4.01% to 4.07%Company’s stock under the November 2020 share repurchase program during the three months ended December 31, 2017, and from 3.44% to 4.01%September 30, 2021. On July 23, 2021, the Board of Directors adopted a new share repurchase program. Under this new share repurchase program, no shares were repurchased during the yearcurrent quarter and approximately eighteen thousand shares were repurchased during the six months ended September 30, 2017. The weighted average contractual interest rates payable were 4.07% and 4.01% at December 31, 2017 and September 30, 2017, respectively.
On August 10, 2017, the Company entered into two subordinated note agreements in the amounts of $5,000 and $10,000, both maturing on August 9, 2027. The proceeds of the loans were used by the Company for the sole purpose of financing the acquisition, by merger, of Wells Financial Corporation.
The subordinated notes are unsecured and are subordinate to the claims of other creditors of the Company. The subordinated notes mature in August 2027, and convert to variable interest rate notes in August 2022. These notes provide for an annual fixed interest rate for the first five years of 6.75%. After the fixed interest period and through maturity, the interest rate will be reset quarterly to equal the three-month LIBOR rate, plus 4.90%. Interest on the Notes will be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year through the maturity date.2022. The Company is authorized to repurchase an additional 354 thousand shares under this July 2021 share repurchase program.
Stockholders’ Equity. Total stockholders’ equity was $74,454 at December 31, 2017, compared to $73,483 at September 30, 2017. Total stockholders’ equity increased by $971 during the three months ended December 31, 2017, primarily as a result of an increase in retained earnings due to net income of $1,340, partially offset by unrealized losses on AFS securities of $536.
Liquidity and Asset / Liability Management.Our primary sources of funds are deposits; contractual amortization, prepayments, and maturities of outstanding loans; other short-term investments;loans and funds provided from operations.investment securities; and borrowings. We use our sources of funds primarily to meet ongoing commitments, to pay non-renewing, maturing certificates of deposit and savings withdrawals, and to fund loan commitments. We have enhanced our liquidity monitoring and updated what we consider to be sources of on-balance sheet cash. We consider our interest-bearing cash and unpledged investment securities to be our sources of on-balance sheet liquidity. At June 30, 2022, our on-balance sheet liquidity ratio was 14.7%. While scheduled payments from the amortization of loans and investment securities and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by factors partially outside of the Bank’s control, including general interest rates, economic conditions, and competition. Although $143,575$101.2 million of our $288,554 (50.0%$153.5 million (65.9%) June 30, 2022, CD portfolio as of December 31, 2017 will maturematures within the next 12 months, we have historically retained a majority of our maturing CD’s. However, dueCDs. Due to strategic pricing
78

decisions regarding rate matching and branch closures,based on currently liquidity levels, our retention rate may decrease in the future.future, although some deposits may be retained and moved to money market accounts. At June 30, 2022, the Bank had approximately $65.1 million of certificate of deposit accounts maturing in the second half of 2022, with a weighted average cost of approximately 0.67%. Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits. In our present interest rate environment, and based on maturing yields, this shouldis intended to also improvereduce our cost of funds.
We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank US Bank, Bankers’ Bank and First Tennessee Bank.correspondent banks. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk. Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate loans and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. As of December 31, 2017,June 30, 2022, we havehad approximately $185,236$230.6 million available under this arrangement, supported by loan collateral, as compared to $193,913$204.2 million at September 30, 2017. December 31, 2021.
We also maintain linesa line of credit of $1,637 with the Federal Reserve Bank $5,000 with US Bank, $13,500 with Bankers’ Bank and $11,000 with First Tennessee Bankwhich has a $1.0 million capacity, based on our current pledged collateral position. Additionally, we have $25.0 million of uncommitted federal funds purchased lines of credit, as partwell as a $5.0 million revolving line of our contingency funding plan.
credit which is available as needed for general liquidity purposes.
In reviewing our adequacy of liquidity, we review and evaluate historical financial information, including information regarding general economic conditions, current ratios, management goals and the resources available to meet our anticipated

56



liquidity needs. Management believes that our liquidity is adequate and, toadequate. To management’s knowledge, there are no known events or uncertainties that will result, or are likely to reasonably result, in a material increase or decrease in our liquidity.

Off-Balance Sheet Liabilities. Some of our financial instruments have off-balance sheet risk. These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of December 31, 2017,June 30, 2022, the Company had $102,862$257.5 million in unused commitments, compared to $79,794$271.0 million in unused commitments as of September 30, 2017.December 31, 2021.
79

Capital Resources. As of June 30, 2022 and December 31, 2017,2021, as shown in the table below, ourthe Bank’s Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions for both the Bank and at the Company level.provisions.
Below are the amounts and ratios for our capital levels as of the dates noted below for the Bank.Bank:
 ActualFor Capital Adequacy
Purposes		To Be Well Capitalized
Under Prompt Corrective
Action Provisions
 AmountRatioAmount RatioAmount Ratio
As of June 30, 2022 (Unaudited)
Total capital (to risk weighted assets)$213,799 14.3 %$119,200 > =8.0 %$149,000 > =10.0 %
Tier 1 capital (to risk weighted assets)196,974 13.2 %89,400 > =6.0 %119,200 > =8.0 %
Common equity tier 1 capital (to risk weighted assets)196,974 13.2 %67,050 > =4.5 %96,850 > =6.5 %
Tier 1 leverage ratio (to adjusted total assets)196,974 11.4 %69,189 > =4.0 %86,486 > =5.0 %
As of December 31, 2021 (Audited)
Total capital (to risk weighted assets)$187,783 13.4 %$111,694 > =8.0 %$139,618 > =10.0 %
Tier 1 capital (to risk weighted assets)170,870 12.2 %83,771 > =6.0 %111,694 > =8.0 %
Common equity tier 1 capital (to risk weighted assets)170,870 12.2 %62,828 > =4.5 %90,752 > =6.5 %
Tier 1 leverage ratio (to adjusted total assets)170,870 10.0 %68,323 > =4.0 %85,403 > =5.0 %
 Actual 
For Capital Adequacy
Purposes
 
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
 Amount Ratio Amount   Ratio Amount   Ratio
As of December 31, 2017 (Unaudited)               
Total capital (to risk weighted assets)$90,478,000
 13.3% $54,289,000
 >= 8.0% $67,861,000
 >= 10.0%
Tier 1 capital (to risk weighted assets)84,619,000
 12.5% 40,716,000
 >= 6.0% 54,289,000
 >= 8.0%
Common equity tier 1 capital (to risk weighted assets)84,619,000
 12.5% 30,537,000
 >= 4.5% 44,110,000
 >= 6.5%
Tier 1 leverage ratio (to adjusted total assets)84,619,000
 9.2% 36,601,000
 >= 4.0% 45,751,000
 >= 5.0%
As of September 30, 2017 (Audited)               
Total capital (to risk weighted assets)$88,511,000
 13.2% $53,504,000
 >= 8.0% $66,880,000
 >= 10.0%
Tier 1 capital (to risk weighted assets)82,569,000
 12.4% 40,128,000
 >= 6.0% 53,504,000
 >= 8.0%
Common equity tier 1 capital (to risk weighted assets)82,569,000
 12.4% 30,096,000
 >= 4.5% 43,472,000
 >= 6.5%
Tier 1 leverage ratio (to adjusted total assets)82,569,000
 9.2% 35,776,000
 >= 4.0% 44,720,000
 >= 5.0%

At June 30, 2022 and December 31, 2017,2021, the Bank was categorized as "Well Capitalized"“Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.


57



Below are the amounts and ratios for our capital levels as of the dates noted below for the Company.Company:
 ActualFor Capital Adequacy
Purposes
 AmountRatioAmount Ratio
As of June 30, 2022 (Unaudited)
Total capital (to risk weighted assets)$224,247 15.1 %$119,200 > =8.0 %
Tier 1 capital (to risk weighted assets)142,422 9.6 %89,400 > =6.0 %
Common equity tier 1 capital (to risk weighted assets)142,422 9.6 %67,050 > =4.5 %
Tier 1 leverage ratio (to adjusted total assets)142,422 8.2 %69,189 > =4.0 %
As of December 31, 2021 (Audited)
Total capital (to risk weighted assets)$182,242 13.1 %$111,694 > =8.0 %
Tier 1 capital (to risk weighted assets)135,329 9.7 %83,771 > =6.0 %
Common equity tier 1 capital (to risk weighted assets)135,329 9.7 %62,828 > =4.5 %
Tier 1 leverage ratio (to adjusted total assets)135,329 7.9 %68,323 > =4.0 %

80

 Actual 
For Capital Adequacy
Purposes
 
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
 Amount Ratio Amount   Ratio Amount   Ratio
As of December 31, 2017 (Unaudited)               
Total capital (to risk weighted assets)$81,305,000
 12.0% $54,289,000
 >= 8.0% $67,861,000
 >= 10.0%
Tier 1 capital (to risk weighted assets)60,446,000
 8.9% 40,716,000
 >= 6.0% 54,289,000
 >= 8.0%
Common equity tier 1 capital (to risk weighted assets)60,446,000
 8.9% 30,537,000
 >= 4.5% 44,110,000
 >= 6.5%
Tier 1 leverage ratio (to adjusted total assets)60,446,000
 6.6% 36,601,000
 >= 4.0% 45,751,000
 >= 5.0%
As of September 30, 2017 (Audited)               
Total capital (to risk weighted assets)$79,889,000
 12.0% $53,504,000
 >= 8.0% $66,880,000
 >= 10.0%
Tier 1 capital (to risk weighted assets)58,947,000
 8.8% 40,128,000
 >= 6.0% 53,504,000
 >= 8.0%
Common equity tier 1 capital (to risk weighted assets)58,947,000
 8.8% 30,096,000
 >= 4.5% 43,472,000
 >= 6.5%
Tier 1 leverage ratio (to adjusted total assets)58,947,000
 6.6% 35,776,000
 >= 4.0% 44,720,000
 >= 5.0%

At December 31, 2017, the Company was categorized as "Well Capitalized" under Prompt corrective Action Provisions.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time and are not predictable or controllable. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. Like other financial institutions, our interest income and interest expense are affected by general economic conditions and policies of regulatory authorities, including the monetary policies of the Federal Reserve. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.
How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk through several means including through the use of third party reporting software. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.
In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and re-pricing terms of our interest earning assets and interest bearing liabilities. These policies are implemented by our Asset and Liability Management Committee (ALCO). The ALCO is comprised of members of the Bank'sBank’s senior management and Board of Directors. The ALCO establishes guidelines for and monitors the volume and mix of our assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The Committee’s objectives are to manage assets and funding sources to produce results that are consistent with liquidity, cash flow, capital adequacy, growth, risk and profitability goals for the Bank. The ALCO meets on a regularly scheduled basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis. At each meeting, the Committee recommends strategy changes, as appropriate, based on this review. The

58



Committee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Bank’s Board of Directors on a regularly scheduled basis.

In order to managemanaging our assets and liabilities andto achieve desired levels of liquidity, credit quality, cash flow, interest rate risk, profitability and capital targets, we have focused our strategies on:
•originating shorter-term secured consumer, commercial, agricultural and agricultureconsumer loan maturities;
•originating variable rate commercial and agricultureagricultural loans;
•the sale of a vast majority of longer-term fixed-rate residential loans in the secondary market with retained servicing;
•managing our funding needs by utilizinggrowing core deposits, institutional certificatesdeposits;
•utilize brokered certificate of deposits and borrowings as appropriate, which may have fixed rates with varying maturities;
•purchasing investment securities to extend terms and lock in fixedmodify our interest rates;
reducing non-interest expense and managing our efficiency ratio by implementing technologies to enhance customer service and increase employee productivity;
realigning supervision and control of our branch network by modifying their configuration, staffing, locations and reporting structure to focus resources on our most productive markets;
managing our exposure to changes in interest rates, including, but not limited to the sale of longer term fixed rate consumer loans;
with the acquisition of WFC, entering into selling loans on the secondary market with retained servicing; and
originating balloon mortgage loans with a term of seven years or less to minimize the impact of sudden rate changes.risk profile.
At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCO may determine to increase the Bank’s interest rate risk position somewhat in order to maintain or improve its net interest margin.
81

The following table sets forth, at June 30, 2022 and December 31, 2017,2021 an analysis of our interest rate risk as measured by the estimated changes in Economic Value of Equity ("EVE"(“EVE”) resulting from an immediate and permanent shift in the yield curve (up 300 basis points and down 100 basis points). As of June 30, 2022 and December 31, 2017,2021, due to the current level of interest rates, EVE estimates for decreases in interest rates greater than 100 basis points are not meaningful.
Percent Change in Economic Value of Equity (EVE)
Change in Interest Rates in Basis Points (“bp”)
Rate Shock in Rates (1)		At June 30, 2022At December 31, 2021
 
 +300 bp4 %(5)%
 +200 bp2 %(3)%
 +100 bp1 %(1)%
 -100 bp(3)%(1)%
Change in Interest Rates in Basis Points (“bp”)
Rate Shock in Rates (1)
Economic Value of Equity (EVE) EVE Ratio (EVE as a % of Assets)  
 Amount Change % Change EVE Ratio Change  
 (Dollars in thousands)      
 +300 bp$139,202
 $(27,003) (16)% 15.91% (158)  bp 
 +200 bp152,199
 (14,006) (8)% 16.87% (62)  
 +100 bp162,518
 (3,687) (2)% 17.52% 3
  
0 bp166,205
 —
 —
 17.49% —
   
 -100 bp157,345
 (8,860) (5)% 16.24% (125)   
(1)Assumes an immediate and parallel shift in the yield curve at all maturities.

The following table sets forth, at September 30, 2017, an analysis of our interest rate risk as measured by the estimated changes in EVE resulting from an immediate and permanent shift in the yield curve (up 300 basis points and down 100 basis points).
Change in Interest Rates in Basis Points (“bp”)
Rate Shock in Rates (1)
Economic Value of Equity (EVE) EVE Ratio (EVE as a % of Assets)  
 Amount Change % Change EVE Ratio Change  
 (Dollars in thousands)      
 +300 bp$131,737
 $(28,971) (18)% 15.16% (181)  bp 
 +200 bp145,141
 (15,567) (10)% 16.18% (79)  
 +100 bp156,188
 (4,520) (3)% 16.91% (6)  
0 bp160,708
 —
 —
 16.97% —
   
 -100 bp152,204
 (8,504) (5)% 15.75% (122)   
(1)Assumes an immediate and parallel shift in the yield curve at all maturities.
Our overall interest rate sensitivity is demonstrated by net interest income shock analysis which measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in our net

59



interest income over the next 12 months in the event of an immediate and parallel shift in the yield curve (up 300 basis points and down 100 basis points). The table below presents our projected change in net interest income for the various rate shock levels at June 30, 2022, and December 31, 20172021.
Percent Change in Net Interest Income Over One Year Horizon
Change in Interest Rates in Basis Points (“bp”)
Rate Shock in Rates (1)		At June 30, 2022At December 31, 2021
 
 +300 bp1 %(11)%
 +200 bp1 %(7)%
 +100 bp— %(4)%
 -100 bp(2)%— %
(1)Assumes an immediate and September 30, 2017.parallel shift in the yield curve at all maturities.
 Change in Net Interest Income Over One Year Horizon
 At December 31, 2017 At September 30, 2017
Change in Interest Rates in Basis Points (“bp”)
Rate Shock in Rates (1)
Dollar Change in Net Interest Income (in thousands) Percentage Change Dollar Change in Net Interest Income (in thousands) Percentage Change
      
 +300 bp$(2,942) (9.14)% $(3,117) (9.62)%
 +200 bp(1,581) (4.91)% (1,858) (5.74)%
 +100 bp(256) (0.79)% (642) (1.99)%
0 bp—
   —
 — %
 -100 bp237
 0.74 % (327) (1.02)%
(1)Assumes an immediate and parallel shift in the yield curve at all maturities.
Note: The table above may not be indicative of future results.
The assumptions used to measure and assess interest rate risk include interest rates, loan prepayment rates, deposit decay (runoff) rates, and the market values of certain assets under differing interest rate scenarios. Actual values may differ from those projections set forth above should market conditions vary from the assumptions used in preparing the analysis. Further, the computations do not contemplate any actions we may undertake in response to changes in interest rates.


ITEM 4.CONTROLS AND PROCEDURES
ITEM 4.CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934),1934, as amended (The "Exchange Act"(the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives. We carried out an evaluation as of December 31, 2017,June 30, 2022, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
82

design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017June 30, 2022 at reaching a level of reasonable assurance.


There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange ActAct) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS

Item 1.LEGAL PROCEEDINGS
In the normal course of business, the Company and/or the Bank occasionally become involved in other various legal proceedings. In our opinion, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.
On March 22, 2017, Paul Parshall, a Wells stockholder, filed a putative Class Action Complaint in the District Court of Faribault County, Minnesota (“Court”) captioned Paul Parshall v. Wells Financial Corp., et al. and docketed at 22-CV-17-179.
83

60





The Complaint was subsequently amended on June 15, 2017. Named as Defendants were Wells, each of the current members of the Wells Board (“Individual Defendants”) and CCBI. The Amended Complaint asserts, inter alia, that the Individual Defendants breached their fiduciary duties. The Amended Complaint further asserts that Wells and CCBI aided and abetted the purported breaches of fiduciary duty. On September 27, 2017, the Court approved a Stipulation of Dismissal and entered its Order of Dismissal dismissing, with prejudice, the Litigation and all claims, demands or causes of action that were asserted, could have been asserted, or are held by the Plaintiff and without prejudice as to any absent members of the putative class. The Court retained jurisdiction to hear and rule upon an Application for Fees and Expenses that may be filed by Plaintiff’s counsel. Such Application, if any, must be filed by February 28, 2018.

61




Item 1A.RISK FACTORS
A detailed discussion of the Company's risk factors is disclosedItem 1A.RISK FACTORS
The information in Part I, Item 1A, “Risk Factors,” of the Company’sthis Form 10-K, for the fiscal year ended September 30, 2017. There have been no material changes to10-Q should be read in conjunction with the risk factors discloseddescribed in “Risk Factors” in Item 1A of our 2021 10-K and the information under “Forward-Looking Statements” in this Form 10-Q and in our Form2021 10-K. Please refer to that section for disclosures regarding the risks and uncertainties relating to our business. The following additional risk factors have been added due to the implementation of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") enacted in December 2017:
Changes in federal or state tax laws could adversely affect our financial condition and results of operations. Our financial condition and results of operations are impacted by tax policy implemented at the federal and state level. The Tax Act was enacted in December 2017. Among other things, the Tax Act reduces the corporate federal income tax rate for the Company from 34 percent to 24.5 percent for 2018, and 21 percent for 2019, which would result in changes in the valuation of deferred tax asset and liabilities. We revalued our net deferred tax assets to account for the future impact of the lower corporate tax rates. Certain elements of the Tax Act are pending final regulations from the Internal Revenue Service and state taxing jurisdictions, and we cannot determine its full effects at this time. We also cannot predict whether any other tax legislation will be enacted in the future or whether any such changes to existing federal or state tax law would have a material adverse effect on our financial condition and results of operations. We continue to evaluate the impact the Tax Act and other potential tax reform proposals may have on our financial conduction and results of operations.
Changes in federal or state tax laws could adversely affect our business, financial condition and results of operations. Our business, financial condition and results of operations are impacted by tax policy implemented at the federal and state level. The Tax Act was enacted in December 2017. Among other things, the Tax Act reduces the corporate federal income tax rate for the Company from 34 percent to 24.5 percent for 2018, and 21 percent for 2019, which would result in changes in the valuation of deferred tax asset and liabilities, and includes a number of provisions that will have an impact on the banking industry, borrowers and the market for single-family residential real estate. We revalued our net deferred tax assets to account for the future impact of the lower corporate tax rates. The recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could reduce our profitability and  materially adversely affect our business, financial condition and results of operations.
Certain elements of the Tax Act are pending final regulations from the Internal Revenue Service and state taxing jurisdictions, and we cannot determine its full effects at this time. We also cannot predict whether any other tax legislation will be enacted in the future or whether any such changes to existing federal or state tax law would have a material adverse effect on our business, financial condition and results of operations. We continue to evaluate the impact the Tax Act and other potential tax reform proposals may have on our business, financial conduction and results of operations.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)Not applicable.
(b)Not applicable.
(c)Issuer Purchases of Equity Securities.
On July 23, 2021, the Board of Directors adopted a new share repurchase program. Under this new share repurchase program, the Company may repurchase up to approximately 5% of the outstanding shares of its common stock as of July 23, 2021, or 532,962 shares, from time to time. Under this new share repurchase program, no shares were repurchased during the quarter ended June 30, 2022. As of June 30, 2022, 354,266 shares remain available for repurchase under the current share repurchase authorization.
Item 2.PeriodUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)Not applicable.
(b)Not applicable.
(c)Not applicable.
Item 3.DEFAULTS UPON SENIOR SECURITIES
Item 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4.MINE SAFETY DISCLOSURES
Item 4.MINE SAFETY DISCLOSURES
Not applicable.
Item 5.OTHER INFORMATION
Item 5.OTHER INFORMATION
Not applicable.

84


62






Item 6.EXHIBITS
(a) Exhibits
Item 6.EXHIBITS
(a) Exhibits
31.1
Rule 13a-14(a) Certification of the Company’s Chief Executive Officer
101The following materialsfinancial statements from Citizens Community Bancorp, Inc.’sthe Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2017June 30, 2022 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith:Inline XBRL: (i) Consolidated Balance Sheets;Sheets, (ii) Consolidated Statements of Operations;Operations, (iii) Consolidated Statements of Comprehensive Income, (Loss); (iv) Consolidated StatementStatements of Changes in Stockholders’ Equity;Equity, (v) Consolidated Statements of Cash Flows;Flows, and (vi) Condensed Notes to Consolidated Financial Statements.Statements, tagged as blocks of text and including detailed tags.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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

85
63






SIGNATURES
In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CITIZENS COMMUNITY BANCORP, INC.
Date: February 13, 2018August 4, 2022By:/s/ Stephen M. Bianchi
Stephen M. Bianchi
Chief Executive Officer
Date: February 13, 2018August 4, 2022By:/s/ James S. Broucek
James S. Broucek
Chief Financial Officer

64

86