~~(9)~~

(9)

Allowance for Loan Losses and Credit Quality Information

The allowance for loan losses is summarized as follows:

(Dollars in thousands)	Single Family			Commercial Real Estate			Consumer			Commercial Business			Total			Single Family			Commercial Real Estate			Consumer			Commercial Business		Total
Balance, December 31, 2021																$	974			6,388			981			936		9,279
Provision for losses																	28			107			10			151		296
Charge-offs																	0			0			(1	)		0		(1	)
Recoveries																	0			0			1			9		10
Balance, March 31, 2022																$	1,002			6,495			991			1,096		9,584

Balance, December 31, 2020	$	1,030			7,295			1,389			985			10,699		$	1,030			7,295			1,389			985		10,699
Provision for losses		(191	)		(222	)		(171	)		8			(576	)		(191	)		(222	)		(171	)		8		(576	)
Charge-offs		0			0			(31	)		0			(31	)		0			0			(31	)		0		(31	)
Recoveries		0			0			2			38			40			0			0			2			38		40
Balance, March 31, 2021	$	839			7,073			1,189			1,031			10,132		$	839			7,073			1,189			1,031		10,132

Balance, December 31, 2019	$	857			5,060			1,507			1,140			8,564
Provision for losses		80			479			87			(186	)		460
Charge-offs		0			0			(12	)		0			(12	)
Recoveries		0			0			1			23			24
Balance, March 31, 2020	$	937			5,539			1,583			977			9,036
Allocated to:
Specific reserves																$	36			280			83			7		406
General reserves																	938			6,108			898			929		8,873
Balance, December 31, 2021																$	974			6,388			981			936		9,279

Allocated to:
Specific reserves	$	29			95			100			14			238		$	34			280			121			7		442
General reserves		1,001			7,200			1,289			971			10,461			968			6,215			870			1,089		9,142
Balance, December 31, 2020	$	1,030			7,295			1,389			985			10,699
Balance, March 31, 2022																$	1,002			6,495			991			1,096		9,584

Allocated to:
Specific reserves	$	29			86			78			12			205
General reserves		810			6,987			1,111			1,019			9,927
Balance, March 31, 2021	$	839			7,073			1,189			1,031			10,132

Loans receivable at December 31, 2020:
Loans receivable at December 31, 2021:
Individually reviewed for impairment	$	857			1,484			750			35			3,126		$	340			3,757			546			7		4,650
Collectively reviewed for impairment		134,166			379,220			54,641			82,638			650,665			162,982			393,111			41,099			60,158		657,350
Ending balance	$	135,023			380,704			55,391			82,673			653,791		$	163,322			396,868			41,645			60,165		662,000

Loans receivable at March 31, 2021:
Loans receivable at March 31, 2022:
Individually reviewed for impairment	$	852			1,408			660			37			2,957		$	478			3,551			523			7		4,559
Collectively reviewed for impairment		135,829			374,023			49,167			91,361			650,380			168,003			403,903			40,508			71,953		684,367
Ending balance	$	136,681			375,431			49,827			91,398			653,337		$	168,481			407,454			41,031			71,960		688,926

Table of Contents

The following table summarizes the amount of classified and unclassified loans at March 31, ~~2021~~ 2022 and December 31, ~~2020:~~2021:

	March 31, 2021														March 31, 2022
	Classified										Unclassified				Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans		Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	1,207		1,956		28		0		3,191		133,490		136,681	$	134		935		54		0		1,123		167,358		168,481
Commercial real estate:
Real estate rental and leasing		8,845		2,454		0		0		11,299		184,627		195,926		15,470		4,731		0		0		20,201		193,358		213,559
Other		8,292		5,440		0		0		13,732		165,773		179,505		6,296		9,318		0		0		15,614		178,281		193,895
Consumer		0		538		107		15		660		49,167		49,827		0		413		20		90		523		40,508		41,031
Commercial business		2,801		2,212		0		0		5,013		86,385		91,398		1,893		1,739		0		0		3,632		68,328		71,960
	$	21,145		12,600		135		15		33,895		619,442		653,337	$	23,793		17,136		74		90		41,093		647,833		688,926

	December 31, 2020														December 31, 2021
	Classified										Unclassified				Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans		Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	1,219		2,845		29		0		4,093		130,930		135,023	$	410		791		56		0		1,257		162,065		163,322
Commercial real estate:
Real estate rental and leasing		8,065		3,483		0		0		11,548		190,852		202,400		16,012		4,753		0		0		20,765		188,901		209,666
Other		8,774		9,750		0		0		18,524		159,780		178,304		6,824		9,571		0		0		16,395		170,807		187,202
Consumer		0		600		132		18		750		54,641		55,391		0		475		21		50		546		41,099		41,645
Commercial business		1,968		2,482		0		0		4,450		78,223		82,673		1,933		1,813		0		0		3,746		56,419		60,165
	$	20,026		19,160		161		18		39,365		614,426		653,791	$	25,179		17,403		77		50		42,709		619,291		662,000

Classified loans represent special mention, substandard (performing and non-performing), and non-performing loans categorized as doubtful and loss. Loans classified as special mention are loans that have potential weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Loans classified as substandard are loans that are generally inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have the weaknesses of those classified as substandard, with additional characteristics that make collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified as loss is essentially uncollateralized and/or considered uncollectible and of such little value that continuance as an asset on the balance sheet may not be warranted. Loans classified as substandard or doubtful require the Bank to perform an analysis of the individual loan and charge off any loans, or portion thereof, that are deemed uncollectible.

Table of Contents

The aging of past due loans at March 31, ~~2021~~ 2022 and December 31, ~~2020~~ 2021 is summarized as follows:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
March 31, 2021
March 31, 2022
Single family	$	1,034		0		297		1,331		135,350		136,681		0	$	679		0		265		944		167,537		168,481		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		195,926		195,926		0		0		0		0		0		213,559		213,559		0
Other		0		0		0		0		179,505		179,505		0		0		0		0		0		193,895		193,895		0
Consumer		305		25		291		621		49,206		49,827		0		393		34		122		549		40,482		41,031		0
Commercial business		0		0		0		0		91,398		91,398		0		0		0		0		0		71,960		71,960		0
	$	1,339		25		588		1,952		651,385		653,337		0	$	1,072		34		387		1,493		687,433		688,926		0
December 31, 2020
December 31, 2021
Single family	$	626		38		298		962		134,061		135,023		0	$	864		65		153		1,082		162,240		163,322		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		202,400		202,400		0		198		0		0		198		209,468		209,666		0
Other		0		0		0		0		178,304		178,304		0		226		3,402		0		3,628		183,574		187,202		0
Consumer		458		66		279		803		54,588		55,391		0		174		89		122		385		41,260		41,645		0
Commercial business		0		0		0		0		82,673		82,673		0		0		0		0		0		60,165		60,165		0
	$	1,084		104		577		1,765		652,026		653,791		0	$	1,462		3,556		275		5,293		656,707		662,000		0
													��

Impaired loans include loans that are non-performing (non-accruing) and loans that have been modified in a troubled debt restructuring (TDR). The following table summarizes impaired loans and related allowances as of March 31, ~~2021~~ 2022 and December 31, ~~2020:~~2021:

	March 31, 2021						December 31, 2020						March 31, 2022						December 31, 2021
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans with no related allowance recorded:
Single family	$	737		756		0		740		759		0	$	394		413		0		253		272		0
Commercial real estate:
Real estate rental and leasing		1,071		1,721		0		932		1,582		0
Other		198		198		0		211		211		0		185		185		0		189		189		0
Consumer		512		512		0		574		574		0		359		359		0		419		419		0

Loans with an allowance recorded:
Single family		115		115		29		117		117		29		84		84		34		87		87		36
Commercial real estate:
Real estate rental and leasing		0		0		0		166		166		5
Other		139		139		86		175		175		90		3,366		3,366		280		3,568		3,568		280
Consumer		148		148		78		176		176		100		164		164		121		127		127		83
Commercial business		37		588		12		35		586		14		7		7		7		7		7		7

Total:
Single family		852		871		29		857		876		29		478		497		34		340		359		36
Commercial real estate:
Real estate rental and leasing		1,071		1,721		0		1,098		1,748		5
Other		337		337		86		386		386		90		3,551		3,551		280		3,757		3,757		280
Consumer		660		660		78		750		750		100		523		523		121		546		546		83
Commercial business		37		588		12		35		586		14		7		7		7		7		7		7
	$	2,957		4,177		205		3,126		4,346		238	$	4,559		4,578		442		4,650		4,669		406

Table of Contents

The following table summarizes the average recorded investment and interest income recognized on impaired loans during the three months ended March 31, ~~2021~~ 2022 and ~~2020:~~2021:

	March 31, 2021				March 31, 2020				March 31, 2022				March 31, 2021
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	739		6		564		5	$	324		2		739		6
Commercial real estate:
Real estate rental and leasing		1,002		0		0		0		0		0		1,002		0
Other		205		0		279		2		187		0		205		0
Consumer		543		1		694		5		389		2		543		1

Loans with an allowance recorded:
Single family		116		0		425		6		86		0		116		0
Commercial real estate:
Real estate rental and leasing		83		0		182		0		0		0		83		0
Other		157		0		975		20		3,467		0		157		0
Consumer		162		0		196		2		146		1		162		0
Commercial business		36		0		433		2		7		0		36		0

Total:
Single family		855		6		989		11		410		2		855		6
Commercial real estate:
Real estate rental and leasing		1,085		0		182		0		0		0		1,085		0
Other		362		0		1,254		22		3,654		0		362		0
Consumer		705		1		890		7		535		3		705		1
Commercial business		36		0		433		2		7		0		36		0
	$	3,043		7		3,748		42	$	4,606		5		3,043		7

At March 31, ~~2021~~ 2022 and December 31, ~~2020,~~ 2021, non-accruing loans totaled ~~$2.5~~$4.5 million and ~~$2.7~~$4.6 million, respectively, for which the related allowance for loan losses was ~~$0.2~~$0.4 million for both periods. All of the interest income recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accruing loans for which no specific allowance has been recorded because management determined that the value of the collateral was sufficient to repay the loan totaled ~~$2.1~~$0.9 million at both March 31, ~~2021~~ 2022 and December 31, ~~2020.~~ 2021. Non-accrual loans also include certain loans that have had terms modified in a TDR.

The non-accrual loans at March 31, ~~2021~~ 2022 and December 31, ~~2020~~ 2021 are summarized as follows:

(Dollars in thousands)	March 31, 2021		December 31, 2020		March 31, 2022		December 31, 2021

Single family	$	497	$	502	$	478	$	340
Commercial real estate:
Real estate rental and leasing		1,071		1,098
Other		337		386		3,551		3,757
Consumer		612		689		500		517
Commercial business		8		9		7		7
	$	2,525	$	2,684	$	4,536	$	4,621

At March 31, ~~2021~~ 2022 and December 31, ~~2020,~~ 2021, there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling ~~$1.6~~$1.0 million and ~~$1.5~~$1.1 million, respectively. Of the loans that were restructured in the first quarter of ~~2021, the amount that was classified but performing was not material, and $0.1 million were non-performing at March 31, 2021. Of the loans that were restructured in the first quarter of 2020,~~ 2022,none were classified but performing, and ~~$0.4 million~~$0.2 were non-performing at March 31, ~~2020.~~2022.

Table of Contents

The following table summarizes TDRs at March 31, ~~2021~~ 2022 and December 31, ~~2020:~~2021:

March 31, 2021

December, 31, 2020

(Dollars in thousands)

Accruing

Non-Accrual

Total

Accruing

Non-Accrual

Total

Single family
$ 355 253 608 355 257 612
Commercial real estate
0 337 337 0 211 211
Consumer
49 538 587 62 568 630
Commercial business
28 0 28 25 0 25
$ 432 1,128 1,560 442 1,036 1,478

As of March 31, 2021, the Bank had commitments to lend an additional $1.4 million to a borrower who has TDR and non-accrual loans. These additional funds are for the construction of single family homes with a maximum loan-to-value ratio of 75%. These loans are secured by the homes under construction. At December 31, 2020, there were commitments to lend additional funds of $1.1 million to this same borrower.

	March 31, 2022						December, 31, 2021
(Dollars in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Single family	$	0		250		250		0		254		254
Commercial real estate		0		349		349		0		355		355
Consumer		23		375		398		29		413		442
	$	23		974		997		29		1,022		1,051

TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due, or acceptance of real estate or other assets in full or partial satisfaction of the debt. Loan modifications are not reported as TDRs after twelve months if the loan was modified at a market rate of interest for comparable risk loans, and the loan is performing in accordance with the terms of the restructured agreement for the entire twelve month period. All loans classified as TDRs are considered to be impaired.

When a loan is modified in a TDR, there may be a direct, material impact on the loans within the consolidated balance sheets, as principal balances may be partially forgiven. The financial effects of TDRs are presented in the following table and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the three months ended March 31, ~~2021~~ 2022 and March 31, ~~2020.~~2021.

	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020						Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family		0	$	0		0		1	$	94		101
Commercial real estate:
Other		1		139		139		2		293		293		1	$	165		165		1	$	139		139
Commercial business		1		14		14		0		0		0		0		0		0		1		14		14
Total		2	$	153		153		3	$	387		394		1	$	165		165		2	$	153		153

There were no0 loans that were restructured within the twelve months preceding March 31, 2022 and March 31, 2021 ~~and March 31, 2020~~ that subsequently defaulted during the three months ended March 31, ~~2021~~ 2022 and March 31, ~~2020.~~2021.

The Company considers a loan to have defaulted when it becomes 90 or more days past due under the modified terms, when it is placed in non-accrual status, when it becomes other real estate owned, or when it becomes non-compliant with some other material requirement of the modification agreement. Loans that were non-accrual prior to modification remain on non-accrual status for at least six months following modification. Non-accrual TDR loans that have performed according to the modified terms for six months may be returned to accrual status. Loans that were accruing prior to modification remain on accrual status after the modification as long as the loan continues to perform under the new terms.

TDRs are reviewed for impairment following the same methodology as other impaired loans. For loans that are collateral-dependent, the value of the collateral is reviewed and additional reserves may be added as needed. Loans that are not collateral-dependent may have additional reserves established if deemed necessary. The reserves for TDRs were $0.2 million, or ~~1.7%~~2.4%, of the total ~~$10.1~~$9.6 million in loan loss reserves at March 31, ~~2021~~ 2022 and ~~$0.1~~$0.2 million, or ~~0.9%~~2.6%, of the total ~~$10.7~~$9.3 million in loan loss reserves at December 31, ~~2020.~~2021.

~~Table of Contents~~

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 and the Bank’s regulators issued the Interagency Statement on Loan Modification and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus on April 7, 2020. Section 4013 of the CARES Act temporarily ~~allows~~allowed the Bank to grant modifications of loans to borrowers that were impacted by the pandemic without classifying the modifications as TDRs if the accommodation iswas granted before December 31, 2021. In accordance with the regulatory guidance, the Bank granted accommodations on certain loans to borrowers who were negatively impacted by the ~~COVID-19~~COVID-19 pandemic. At March 31, 2022 and March 31, 2021, the Bank had $0 and $34.5 million, respectively, of outstanding loans that were granted loan accommodations in accordance with Section 4013 of the CARES Act. ~~These accommodations are in addition to the TDRs that are disclosed above. The accommodations granted included $29.2 million~~

Table of loans that are required to make interest only payments for periods up to one year and $5.3 million of loans that had their loan amortization period increased. The commercial credit area continues to communicate regularly with the borrowers that have been granted loan accommodations and monitors their activity closely. This information is used to analyze the performance of these loans and to anticipate potential issues that these loans may develop so that risk ratings may be appropriately adjusted in a timely manner. It is anticipated that most borrowers that have been granted accommodations will be in a position to resume making their regular loan payments at the end of the initial accommodation period. Other borrowers, particularly in the hospitality and restaurant industries, may need additional accommodations when the current accommodation period ends as their operations may need more time to recover from the impact of the pandemic.

Contents

~~(10)~~

(10) Intangible Assets

The Company’s intangible assets consist of core deposit intangibles, goodwill and mortgage servicing rights. A summary of mortgage servicing activity is as follows:

(Dollars in thousands)	Three Months Ended March 31, 2021			Twelve Months Ended December 31, 2020			Three Months Ended March 31, 2020			Three Months Ended March 31, 2022			Twelve Months Ended December 31, 2021			Three Months Ended March 31, 2021
Balance, beginning of period	$	3,043			2,172			2,172		$	3,280			3,043			3,043
Originations		368			2,189			262			215			1,405			368
Amortization		(297	)		(1,318	)		(228	)		(225	)		(1,168	)		(297	)
Balance, end of period	$	3,114			3,043			2,206		$	3,270			3,280			3,114
Fair value of mortgage servicing rights	$	4,073			3,378			2,745		$	5,469			4,813			4,073

All of the loans sold where the Company continues to service the loans are serviced for FNMA under the individual loan sale program. The following is a summary of the risk characteristics of the loans being serviced for FNMA at March 31, ~~2021:~~2022:

			Weighted			Weighted						Weighted			Weighted
	Loan		Average			Average				Loan		Average			Average
	Principal		Interest			Remaining		Number		Principal		Interest			Remaining		Number
(Dollars in thousands)	Balance		Rate			Term (months)		of Loans		Balance		Rate			Term (months)		of Loans
Original term 15 year fixed rate										$	117,268		2.85	%		141		1,066
Original term 30 year fixed rate	$	400,702		3.55	%		312		2,628		428,532		3.43			312		2,671
Original term 15 year fixed rate		122,675		2.93			142		1,100

Amortization expense for intangible assets was $0.2 million and $0.3 million for ~~both~~ the three month periods ended March 31, 2022 and March 31, 2021, ~~and March 31, 2020.~~respectively. The gross carrying amount of intangible assets and the associated accumulated amortization at March 31, ~~2021~~ 2022 and December 31, ~~2020~~ 2021 is presented in the following table.

	March 31, 2021							March 31, 2022
	Gross					Unamortized		Gross					Unamortized
	Carrying		Accumulated			Intangible		Carrying		Accumulated			Intangible
(Dollars in thousands)	Amount		Amortization			Assets		Amount		Amortization			Assets
Mortgage servicing rights	$	5,692		(2,578	)		3,114	$	5,931		(2,661	)		3,270
Core deposit intangible		574		(542	)		32		154		(150	)		4
Goodwill		802		0			802		802		0			802
Total	$	7,068		(3,120	)		3,948	$	6,887		(2,811	)		4,076

	December 31, 2021
	Gross					Unamortized
	Carrying		Accumulated			Intangible
(Dollars in thousands)	Amount		Amortization			Assets
Mortgage servicing rights	$	5,854		(2,574	)		3,280
Core deposit intangible		574		(564	)		10
Goodwill		802		0			802
Total	$	7,230		(3,138	)		4,092

Table of Contents

December 31, 2020

Gross

Unamortized

Carrying

Accumulated

Intangible

(Dollars in thousands)

Amount

Amortization

Assets

Mortgage servicing rights
$ 5,691 (2,648 ) 3,043
Core deposit intangible
574 (517 ) 57
Goodwill
802 0 802
Total
$ 7,067 (3,165 ) 3,902

The following table indicates the estimated future amortization expense for intangible assets:

(Dollars in thousands)	Mortgage Servicing Rights		Core Deposit Intangible		Total Intangible Assets		Mortgage Servicing Rights		Core Deposit Intangible		Total Intangible Assets
Year ending December 31,
2021	$	650		22		672
2022		605		10		615	$	535		4		539
2023		557		0		557		672		0		672
2024		508		0		508		637		0		637
2025		407		0		407		569		0		569
2026								469		0		469
Thereafter		387		0		387		388		0		388
Total	$	3,114		32		3,146	$	3,270		4		3,274

No amortization expense relating to goodwill is recorded as GAAP does not allow goodwill to be amortized but ~~does require~~requires that ~~goodwill~~it be tested for impairment at least annually, or sooner, if there are indications that impairment may exist.

Projections of amortization are based on existing asset balances and the existing interest rate environment as of March 31, ~~2021.~~ 2022. The Company’s actual experience may be significantly different depending upon changes in mortgage interest rates and other market conditions.

~~(11)~~

(11) Leases

The Company accounts for its leases in accordance with ASU ~~2016-02,~~2016-02, Leases (Topic ~~842)~~842) and as of March 31, ~~2021~~ 2022 a ~~$3.0~~$0.3 million right-of-use asset and an offsetting lease payment obligation liability were recorded on the consolidated balance sheet in other assets and other liabilities, respectively.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. Because the Company only has operating leases and the right-of-use asset is offset by a lease payment obligation liability, the lease payments are the only amount that is recorded in occupancy expense in the consolidated statements of comprehensive (loss) income.

The Company’s leases relate to office space and bank branches with remaining lease terms between ~~seventeen~~five and ~~forty-nine~~thirty-seven months. Certain leases contain extension options which typically range from three to ten years. Because these extension options are not considered reasonably certain of exercise, they are not included in the lease term.

The table below summarizes the Company’s net lease cost for the three months ended March 31, ~~2021~~ 2022 and ~~2020.~~2021.

(Dollars in thousands)

Three Months Ended
March 31, 2021

Three Months Ended
March 31, 2020

Operating lease cost
$ 225 222

~~Table of Contents~~

(Dollars in thousands)	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Operating lease cost	$	57		225

The table below summarizes other information related to the Company’s operating leases:

(Dollars in thousands)	Three Months Ended March 31, 2021			Three Months Ended March 31, 2020			Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	225			222		$	57			225
Weighted-average remaining lease term – operating leases, in years		3.5			4.5			2.2			3.5
Weighted-average discount rate – operating leases		2.19	%		2.19	%		1.83	%		2.19	%

The decrease in the net lease cost and operating cash flows between the periods is related to the purchase of the combined corporate office and branch facility in Rochester, Minnesota during the fourth quarter of 2021. This facility had previously been leased by the Company.

Table of Contents

The table below summarizes the maturity of remaining lease liabilities at March 31, ~~2021:~~2022:

(Dollars in thousands)	March 31, 2021			March 31, 2022
2021	$	674
2022		932		$	155
2023		807			92
2024		729			77
2025		15			15
2026 and thereafter		0			0
Total lease payments		3,157			339
Less: Interest		(123	)		(7	)
Present value of lease liabilities	$	3,034		$	332

~~(12)~~

(12) Earnings per Common Share

The following table reconciles the weighted average shares outstanding and the earnings available to common stockholders used for basic and diluted earnings per common share:

	Three Months Ended
	March 31,		March 31,		Three Months Ended
(Dollars in thousands, except per share data)	2021		2020		March 31, 2022		March 31, 2021
Weighted average number of common shares outstanding used in basic earnings per common share calculation		4,560,743		4,625,908		4,391,325		4,560,743
Net dilutive effect of:
Restricted stock awards and options		28,681		27,718		33,878		28,681
Weighted average number of shares outstanding adjusted for effect of dilutive securities		4,589,424		4,653,626		4,425,203		4,589,424
Income available to common stockholders	$	3,418		1,385	$	1,487		3,418
Basic earnings per common share	$	0.75		0.30	$	0.34		0.75
Diluted earnings per common share	$	0.74		0.30	$	0.34		0.74

~~(13)~~

(13) Regulatory Capital and Oversight

The Bank is subject to the Basel III regulatory capital requirements. The Basel III requirements, among other things, (i) apply a set of capital requirements to the Bank, including requirements relating to common equity as a component of core capital, (ii) implement a “capital conservation buffer” against risk and a higher minimum Tier 1 capital requirement, and (iii) set forth rules for calculating risk-weighted assets for purposes of such requirements. The rules also made corresponding revisions to the prompt corrective action framework and include capital ratios and buffer requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The ~~Board of Governors of the Federal Reserve System~~FRB amended its Small Bank Holding Company Policy Statement (Policy Statement), to exempt small bank holding companies with assets less than $3$3 billion from the above capital requirements. The Policy Statement was also expanded to include savings and loan holding companies that meet the Policy Statement’s qualitative requirements for exemption. The Company currently meets the qualitative exemption requirements, and therefore, is exempt from the above capital requirements.

~~Table of Contents~~

Quantitative measures established by regulations to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table and defined in the regulation) of ~~Common Equity~~common equity Tier 1 capital to ~~risk weighted~~risk-weighted assets, Tier 1 capital to adjusted total assets, Tier 1 capital to ~~risk weighted~~risk-weighted assets and total capital to ~~risk weighted~~risk-weighted assets.

The Bank’s average total assets for the first quarter of ~~2021~~2022 were ~~$932.0 million,~~$1.0 billion, its adjusted total assets were ~~$931.2 million,~~$1.0 billion, and its risk-weighted assets were ~~$666.6~~$778.7 million. The following table presents the Bank’s capital amounts and ratios at March 31, ~~2021~~ 2022 for actual capital, required capital and excess capital, including ratios in order to qualify as being well capitalized under the prompt corrective actions regulations.

Actual

Required to be Adequately
Capitalized

Excess Capital

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

(Dollars in thousands)

Amount

Percent of
Assets⁽¹⁾

Amount

Percent of
Assets⁽¹⁾

Amount

Percent of
Assets⁽¹⁾

Amount

Percent of
Assets⁽¹⁾

March 31, 2021

Common equity Tier 1 capital
$ 93,092 13.97
%
$ 29,997 4.50
%
$ 63,095 9.47
%
$ 43,329 6.50
%
Tier 1 leverage
93,092 10.00 37,250 4.00 55,842 6.00 46,562 5.00
Tier 1 risk-based capital
93,092 13.97 39,996 6.00 53,096 7.97 53,328 8.00
Total risk-based capital
101,446 15.22 53,328 8.00 48,118 7.22 66,660 10.00

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	Actual					Required to be Adequately Capitalized					Excess Capital					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Percent of Assets⁽¹⁾			Amount		Percent of Assets⁽¹⁾			Amount		Percent of Assets⁽¹⁾			Amount		Percent of Assets⁽¹⁾
March 31, 2022
Common equity Tier 1 capital	$	99,354		12.76	%	$	35,040		4.50	%	$	64,314		8.26	%	$	50,614		6.50	%
Tier 1 leverage		99,354		9.55			41,633		4.00			57,721		5.55			52,042		5.00
Tier 1 risk-based capital		99,354		12.76			46,720		6.00			52,634		6.76			62,294		8.00
Total risk-based capital		108,938		13.99			62,294		8.00			46,644		5.99			77,867		10.00

⁽¹⁾⁽¹⁾ Based upon the Bank’s adjusted total assets for the purpose of the Tier 1 leverage capital ratio and risk-weighted assets for the purpose of the risk-based capital ratios.

The Bank must maintain a capital conservation buffer of 2.50% composed of common equity Tier 1 capital above its minimum risk-based capital requirements in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Management believes that, as of March 31, ~~2021,~~ 2022, the Bank’s capital ratios were in excess of those quantitative capital ratio standards set forth under the current prompt corrective action regulations, including the capital conservation buffer described above. However, there can be no assurance that the Bank will continue to maintain such status in the future. The ~~Office of the Comptroller of the Currency (OCC)~~OCC has extensive discretion in its supervisory and enforcement activities and can adjust the requirement to be ~~“well-capitalized”~~well-capitalized in the future.

~~(14)~~

(14) Stockholders’ Equity

The Company was authorized to repurchase up to $4.0 million of its common stock under the existing share repurchase program at March 31, 2021. The Company did not declare any dividends on its common stock but did repurchase 29,400repurchased 30,000 shares of its common stock in the open market for ~~$0.5~~a gross purchase price of $0.7 million under ~~the~~its share repurchase program during the first quarter of ~~2021.~~2022. At March 31, 2022, the Company was authorized to repurchase up to $3.4 million more of its common stock under the existing share repurchase program. The Company also declared a quarterly dividend of 6 cents per share that was paid to stockholders as of the record date on March 9, 2022.

~~(15)~~

(15) Commitments and Contingencies

The Bank issues standby letters of credit which guarantee the performance of customers to third parties. The standby letters of credit issued and available at March 31, ~~2021~~ 2022 were approximately ~~$5.1~~$10.5 million, expire over the next 18twenty-three months, and are collateralized primarily with commercial real estate mortgages. Since the conditions under which the Bank is required to fund the standby letters of credit may not materialize, the cash requirements are expected to be less than the total outstanding commitments.

From time to time, the Company is party to legal proceedings arising out of its lending and deposit operations. The Company is, and expects to become, engaged in foreclosure proceedings, collection actions, and other litigation as part of its normal banking activities. Among the various current litigation matters, the Company is involved in a bankruptcy litigation claim where the bankruptcy trustee is attempting to recover $1.9 million related to the principal and interest payments made to the Bank prior to the bankruptcy filing of a former customer of the Bank.

The Company examines each legal matter, and, in those situations where it determines that a particular legal matter presents loss contingencies that are both probable and reasonably estimable, establishes an appropriate accrual. In many situations, the Company is not able to estimate reasonably possible losses due to the preliminary nature of the legal matter, as well as a variety of other factors and uncertainties. For those legal matters where the Company is able to estimate a range of reasonably possible losses, management currently estimates that the aggregate range of losses from all of the Company’s outstanding litigation is from $0 to $0.9 million in excess of the amounts accrued, if any. This estimated aggregate range is based on an assessment of the information currently available to the Company and the actual aggregate losses could be higher. However, the Company does not believe these losses are probable to occur at this time. The Company reassesses all of its potential loss positions based on the available information each quarter and the estimated range of reasonably possible losses may change in the future. The Company typically vigorously pursues all available defenses related to litigation but may consider other alternatives, including settlement, in situations where there is an opportunity to resolve a legal matter on terms that are considered to be favorable to the Company when considering the continued expense and distraction of defending against any particular legal action.

~~Table of Contents~~

Based on the Company’s current understanding of all of the outstanding legal matters, management does not believe that judgments or settlements arising from any pending or threatened litigation, individually or in the aggregate, would have a material adverse effect on the consolidated financial condition or results of operations. However, litigation is unpredictable and the actual results of litigation cannot be determined with any certainty. Therefore, the ultimate aggregate resolution of any, or all, of the current outstanding legal matters could have a material adverse effect on the Company’s results of operations in the future.

~~(16)~~

(16) Business Segments

The Bank has been identified as a reportable operating segment in accordance with the provisions of ASC 280. HMN, the holding company, did not meet the quantitative thresholds for a reportable segment and therefore is included in the “Other” category.

The Company evaluates performance and allocates resources based on the segment’s net income, return on average assets and return on average equity. Each corporation is managed separately with its own officers and board of directors.

Table of Contents

The following table sets forth certain information about the reconciliations of reported profit and assets for each of the Company’s reportable segments.

(Dollars in thousands)	Home Federal Savings Bank			Other			Eliminations			Consolidated Total			Home Federal Savings Bank			Other			Eliminations			Consolidated Total
At or for the quarter ended March 31, 2022:
Interest income - external customers													$	7,565			0			0			7,565
Non-interest income - external customers														2,375			0			0			2,375
Intersegment interest income														0			9			(9	)		0
Intersegment non-interest income														59			1,638			(1,697	)		0
Interest expense														292			0			(9	)		283
Provision for loan losses														296			0			0			296
Non-interest expense														7,106			205			(59	)		7,252
Income tax expense (benefit)														667			(45	)		0			622
Net income														1,638			1,487			(1,638	)		1,487
Total assets														1,028,627			100,755			(99,984	)		1,029,398
At or for the quarter ended March 31, 2021:
Interest income - external customers	$	7,889			0			0			7,889		$	7,889			0			0			7,889
Non-interest income - external customers		3,254			1			0			3,255			3,254			1			0			3,255
Intersegment interest income		0			8			(8	)		0			0			8			(8	)		0
Intersegment non-interest income		58			3,594			(3,652	)		0			58			3,594			(3,652	)		0
Interest expense		461			0			(8	)		453			461			0			(8	)		453
Provision for loan losses		(576	)		0			0			(576	)		(576	)		0			0			(576	)
Non-interest expense		6,309			228			(58	)		6,479			6,309			228			(58	)		6,479
Income tax expense (benefit)		1,413			(43	)		0			1,370			1,413			(43	)		0			1,370
Net income		3,594			3,418			(3,594	)		3,418			3,594			3,418			(3,594	)		3,418
Total assets		970,641			105,195			(104,531	)		971,305			970,641			105,195			(104,531	)		971,305
At or for the quarter ended March 31, 2020:
Interest income - external customers	$	7,844			0			0			7,844
Non-interest income - external customers		2,471			0			0			2,471
Intersegment interest income		0			15			(15	)		0
Intersegment non-interest income		59			1,524			(1,583	)		0
Interest expense		907			0			(15	)		892
Provision for loan losses		460			0			0			460
Non-interest expense		6,874			186			(59	)		7,001
Income tax expense (benefit)		609			(32	)		0			577
Net income		1,524			1,385			(1,524	)		1,385
Total assets		783,615			95,197			(94,612	)		784,200

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Item 2:

HMN FINANCIAL, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Information

Safe Harbor Statement

This quarterly report on Form 10-Q and other reports filed by the Company with the SEC may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by such forward-looking terminology as “expect,” “estimate,” “intend,” “look,” “believe,” “anticipate,” “project,” “continue,” “may,” “will,” “would,” “could,” “target,” “goal,” “should,” and “trend,” or similar statements or variations of such terms and include, but are not limited to, those relating to ~~growing the Company’s core deposit relationships and loan balances; enhancing the financial performance of its core banking operations;~~ maintaining credit quality; maintaining net interest margins; ~~reducing non-performing assets; generating improved financial results;~~ the adequacy and amount of available liquidity and capital resources to ~~the Bank;~~Home Federal Savings Bank (the Bank); the Company’s liquidity and capital requirements; ~~expectations for core capital and strategies and potential strategies for maintenance thereof; improvements in loan production; changes in the size of the Bank’s loan portfolio;~~ the anticipated impacts of the COVID-19 ~~pandemic~~Pandemic and efforts to mitigate the same on the general economy, our clients, ~~deposit balances,~~ and the allowance for loan losses; the anticipated benefits that will be realized by clients from government assistance programs related to the COVID-19 pandemic, including the forgiveness of loans under the Paycheck Protection Program, the Company’s expectations relating to repurchases of its common stock during the COVID-19 pandemic and requests for loan payment accommodation from borrowers; the amount of the Bank’s non-performing assets in future periods and the appropriateness of the allowances therefor; anticipated future levels of the provision for loan losses; future losses on non-performing assets; the amount and composition of interest earning assets; the amount and compositions of non-interest and interest-bearing liabilities; the availability of alternate funding sources; the payment of dividends or repurchases of stock by HMN; the amount of deposits that will be withdrawn from checking and money market accounts and how the withdrawn deposits will be replaced; the projected changes in net interest income based on rate shocks; the range that interest rates may fluctuate over the next twelve months; the net market risk of interest rate shocks; the future outlook for the issuer of the trust preferred securities held by the Bank; the anticipated results of litigation and ~~the Company’s~~our assessment of the impact on ~~its~~our financial statements; the ability of the Bank to pay dividends to HMN; the ability to remain well capitalized; the impact of new accounting pronouncements; and compliance by the Bank with regulatory standards generally (including the Bank’s status as “well-capitalized”) and other supervisory directives or requirements to which the Company or the Bank are or may become expressly subject and possible responses of the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System, the Bank, and the Company due to any failure to comply with any such regulatory standard, directive or requirement.subject.

A number of factors, many of which ~~are, and~~ may ~~continue to~~ be amplified by the COVID-19 pandemic and efforts to mitigate the same, could cause actual results to differ materially from the Company’s assumptions and expectations. These include but are not limited to the adequacy and marketability of real estate and other collateral securing loans to borrowers; federal and state regulation and enforcement; possible legislative and regulatory changes, including changes to regulatory capital rules; the ability of the Bank to comply with other applicable regulatory capital requirements; enforcement activity of the ~~OCC~~Office of the Comptroller of the Currency (OCC) and the Federal Reserve Bank ~~(FRB)~~of Minneapolis in the event of our non-compliance with any applicable regulatory standard or requirement; adverse economic, business and competitive developments such as continued shrinking interest margins, reduced collateral values, deposit outflows, changes in credit or other risks posed by the Company’s loan and investment portfolios; changes in costs associated with traditional and alternate funding sources, including changes in collateral advance rates and policies of the Federal Home Loan Bank (FHLB) and the ~~FRB;~~Federal Reserve Bank; technological, computer-related or operational difficulties including those from any third party cyberattack; results of litigation; reduced demand for financial services and loan products; changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government or tax laws; domestic and international economic developments; the Company’s access to and adverse changes in securities markets; the market for credit related assets; the future operating results, financial condition, cash flow requirements and capital spending priorities of the Company and the Bank; the availability of internal and, as required, external sources of funding; ~~the Company’s~~our ability to attract and retain employees; or other significant uncertainties. Additional factors that may cause actual results to differ from the Company’s assumptions and expectations include those set forth in the Company’s most recent filings on Form 10-K and in this quarterly report on Form 10-Q, each as filed with the SEC. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. For additional discussion of the risks and uncertainties applicable to the Company, see the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020 and~~2021and Part II, Item 1A of its subsequently filed quarterly reports on Form 10-Q.

~~Table of Contents~~

All statements in this quarterly report on Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q.

Table of Contents

General

HMN is the stock savings bank holding company for the Bank, which operates community banking and loan production offices in Minnesota, Iowa and Wisconsin. The earnings of the Company are primarily dependent on the Bank's net interest income, which is the difference between interest earned on loans and investments, and the interest paid on interest-bearing liabilities such as deposits and other borrowings. The difference between the average rate of interest earned on assets and the average rate paid on liabilities is the ~~"interest~~interest rate ~~spread".~~spread. Net interest income is produced when interest-earning assets equal or exceed interest-bearing liabilities and there is a positive interest rate spread. Net interest income and net interest rate spread are affected by changes in interest rates, the volume and composition of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. The Company's net earnings are also affected by the generation of non-interest income, which consists primarily of gains from the sale of loans, ~~and real estate owned,~~ fees for servicing loans, commissions on the sale of uninsured investment products, and service charges on deposit accounts. The Bank incurs expenses in addition to interest expense in the form of compensation and benefits, occupancy and equipment expenses, provisions for loan losses, data processing costs, professional services, deposit insurance, amortization expense on mortgage servicing assets, advertising expenses, and income taxes. The earnings of financial institutions, such as the Bank, are also significantly affected by prevailing economic and competitive conditions, particularly changes in interest rates, government monetary and fiscal policies, and regulations of various regulatory authorities. Lending activities are influenced by the demand for and supply of business credit, single family and commercial properties, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of deposits are influenced by prevailing market rates of interest on competing investments, account maturities and the levels of personal income and savings.

Critical Accounting Estimates

~~Critical~~While our significant accounting policies are ~~those policies that~~described in the ~~Company's management believes are~~notes to our consolidated financial statements, we believe the following discussion addresses our most ~~important to understanding the Company’s financial condition and operating results. These~~ critical accounting ~~policies often~~estimates, which are those estimates made in accordance with U.S. generally accepted accounting principles (GAAP) that involve ~~estimates~~a significant level of estimation uncertainty and ~~assumptions that could~~have had or are reasonably likely to have a material impact on ~~the Company’s~~our financial ~~statements.~~condition or results of operations. The Company has identified the following critical accounting ~~policies~~estimates that management believes involve the most difficult, subjective, and/or complex judgments that are inherently uncertain. Therefore, actual financial results could differ significantly depending upon the estimates, assumptions and other factors used.

Allowance for Loan Losses and Related Provision

The allowance for loan losses is based on periodic analysis of the loan portfolio and is maintained at an amount considered to be appropriate by management to provide for probable losses inherent in the loan portfolio as of the balance sheet dates. In this analysis, management considers factors including, but not limited to, specific occurrences of loan impairment, actual and anticipated changes in the size of the portfolios, national, regional and ~~regional~~local economic conditions such as unemployment data, loan delinquencies, ~~local economic conditions,~~ demand for single family homes, demand for commercial real estate and building lots, loan portfolio composition, historical loss experience and observations made by the Company's ongoing internal audit and regulatory exam processes. Loans are charged off to the extent they are deemed to be uncollectible. The Company has established separate processes to determine the appropriateness of the loan loss allowance for its homogeneous and non-homogeneous loan portfolios. The determination of the allowance on the homogeneous single family and consumer loan portfolios is calculated on a pooled basis with individual determination of the allowance for all non-performing loans. The determination of the allowance for the non-homogeneous commercial, commercial real estate and multi-family loan portfolios involves assigning standardized risk ratings and loss factors that are periodically reviewed. The loss factors are estimated based on the Company's own loss experience and other qualitative factors and are assigned to all loans without identified credit weaknesses. For each non-performing loan, the Company also performs an individual analysis of impairment that is based on the expected cash flows or the value of the assets collateralizing the loans and establishes any necessary reserves or charges off all loans, or portions thereof, that are deemed uncollectible.

~~Table of Contents~~

The appropriateness of the allowance for loan losses is dependent upon management’s estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to adjustments due to changing economic prospects of borrowers or properties. The fair market value of collateral dependent loans is typically based on the appraised value of the property less estimated selling costs. The estimates are reviewed periodically and any adjustments are recorded in the provision for loan losses in the periods in which the adjustments become known. Because of the size of some loans, changes in estimates can have a significant impact on the loan loss provision. The allowance is allocated to individual loan categories based upon the relative risk characteristics of the loan portfolios, the actual loss experience and other qualitative factors. The Company increases its allowance for loan losses by charging the provision for loan losses against income and by receiving recoveries of previously charged off loans. The Company decreases its allowance by crediting the provision for loan losses and recording loan charge-offs. ~~Activity in the first quarter of 2021~~The current year activity resulted in a decrease in the allowance and a credit to the loan loss provision. The methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific loans as well as losses in the loan portfolio that have not been specifically identified. Although management believes that based on current conditions the allowance for loan losses is maintained at an appropriate amount to provide for probable loan losses inherent in the portfolio as of the balance sheet dates, future conditions may differ substantially from those anticipated in determining the allowance for loan losses and adjustments may be required in the future. In addition, the Company will be required to adopt Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments in the first quarter of 2023. See “Note 1 - New Accounting Pronouncements”in the Notes to Consolidated Financial Statements for further information on the potential impact of adopting ASU 2016-13.

Table of Contents

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

The Company maintains significant net deferred tax assets for deductible temporary differences, the largest of which ~~relates~~relate to unrealized losses on the investment portfolio and the allowance for loan losses. For tax purposes only the net charge-offs are deductible while the entire provision for loan losses is used to determine book income. A deferred tax asset is created because of the timing difference of when the expense is recognized for book and tax purposes. Under ~~U.S. generally accepted accounting principles (GAAP),~~GAAP, a valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon management’s judgment and evaluation of both positive and negative evidence, including the forecasts of future income, tax planning strategies, and assessments of the current and future economic and business conditions. The positive evidence considered includes the Company’s cumulative net income in the prior ~~three year~~three-year period, the ability to implement tax planning strategies to accelerate taxable income recognition, and the probability that taxable income will be generated in future periods. The Company could not currently identify any negative evidence. It is possible that future conditions may differ substantially from those anticipated in determining that no valuation allowance was required on deferred tax assets and adjustments may be required in the future.

Determining the ultimate settlement of any tax position requires significant estimates and judgments in arriving at the amount of tax benefits to be recognized in the financial statements. It is possible that the tax benefits realized upon the ultimate resolution of a tax position may result in tax benefits that are significantly different from those estimated.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2022 COMPARED TO THE QUARTER ENDED MARCH 31, 2021

~~Litigation~~Net Income
~~Estimates related~~

Net income was $1.5 million for the first quarter of 2022, a decrease of $1.9 million compared to ~~litigation are inherently subjective~~net income of $3.4 million for the first quarter of 2021. Diluted earnings per share for the first quarter of 2022 was $0.34, a decrease of $0.40 from diluted earnings per share of $0.74 for the first quarter of 2021. The decrease in net income between the periods was primarily because of a $0.9 million increase in the provision for loan losses due to an increase in the balance of the loan portfolio, a $0.9 million decrease in the gain on sales of loans due to a decrease in mortgage loan originations and sales and a $0.5 million increase in compensation and benefits expense primarily because of a decrease in the ~~ultimate resolution~~direct loan origination compensation costs that were deferred as a result of ~~any litigation may be different than current management estimates. See “~~~~Note 15 Commitments and Contingencies~~~~” for further information on outstanding litigation matters.~~the decreased mortgage loan production. These decreases in net income were partially offset by a $0.8 million decrease in income tax expense as a result of the decrease in pre-tax income between the periods.

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~~COVID-19 Pandemic~~

In 2020, the spread of COVID-19 slowed economic activity in many countries, including the United States. Millions of Americans were at some point ordered to stay home, including those residing in the states of Minnesota and Wisconsin, and many businesses were ordered to be closed for a period of time or to operate at reduced capacities in order to reduce the spread of COVID-19. These orders severely reduced the flow of commerce which has reduced, or entirely eliminated, the revenue streams for many small businesses. This reduction in income forced many small businesses to close temporarily, furlough employees, or terminate operations entirely.

In the first quarter of 2021, vaccines began to be distributed to targeted groups and subsequent to March 31, 2021, the distribution of the vaccines have become more widely available to the general public. The increase in the vaccinations, among other things, has allowed most schools to conduct in-person learning and has reduced the number of restrictions on most businesses. It has also allowed the Bank to re-open all of its lobbies to walk-in services during limited hours while continuing to offer drive-up service during normal business hours.

Despite the distribution of the vaccines in the first quarter of 2021, the extent of the impact of COVID-19 on the Company is difficult to determine as it is not clear how long it will take to distribute the vaccines to the general public, how many people will take the vaccines, or how effective the vaccines will be against any variants of the virus, among other factors. In addition, it is not clear when, or if, businesses will re-hire those workers displaced by the pandemic or what the long-term implications will be on customer behaviors as a result of the pandemic. Up to this point, the Company has not seen a negative impact on its deposit relationships as many of its clients have been able to conduct their business with the Bank through the drive ups, ATMs, night drop, on-line banking website, or by using its mobile banking app. The impact on the Bank’s loan portfolio is also unclear for many of the same reasons.

~~The~~ ~~Coronavirus Aid, Relief, and Economic Security~~ ~~(CARES)~~ ~~Act~~ ~~was signed into law on March 27, 2020 and the Bank’s regulators issued the~~ ~~Interagency Statement on Loan Modification and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus~~ on April 7, 2020. Section 4013 of the CARES Act temporarily allows the Bank to grant modifications of loans to borrowers that were impacted by the pandemic without classifying the modifications as TDRs if the accommodation is granted before December 31, 2021. In accordance with regulatory guidance, the Bank granted accommodations on certain loans to borrowers in accordance with Section 4013 of the CARES Act. See “~~Note 9 Allowance for Loan Losses and Credit Quality Information~~”~~for further information.~~

~~Paycheck Protection Program~~

~~The Bank actively participated in helping businesses that were negatively impacted by COVID-19 that applied for forgivable loans under the~~ ~~Paycheck Protection Program~~ (PPP) as part of the CARES Act. The CARES Act allocated $349 billion in funding to help small businesses that were negatively impacted by the COVID-19 pandemic. The Bank had the following activity related to the first round of the PPP during 2020 and through March 31, 2021:

Dollars in thousands

Number of
Loans

Amount

Net
Deferred
Fees

Originated
413 $ 53,153 $ 1,837
Repaid
(130 ) (19,484 ) 0
Net deferred fees recognized
0 0 (1,097 )
Balance, December 31, 2020
283 $ 33,669 $ 740
Repaid
(243 ) (21,419 ) 0
Net deferred fees recognized
0 0 (597 )
Balance, March 31, 2021
40 $ 12,250 $ 143

The Bank continues to submit applications for forgiveness on PPP loans that were outstanding at March 31, 2021 and it is anticipated that the majority of the remaining loans will be forgiven by the Small Business Administration (SBA). The remaining net deferred fees will be recognized into income over the remaining lives of the loans.

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~~The~~ ~~Consolidated Appropriations Act of 2021~~, which was signed into law on December 27, 2020, allocated $284 billion to the SBA to fund a second round of PPP and extended the application period for the program to March 31, 2021. The application period was later extended to May 31, 2021. The Bank is actively participating in the second round of the program and began submitting applications for borrowers on January 15, 2021 when the application window opened. The program was adjusted for the second round to allow applications from both first time borrowers and those that obtained loans during the first round of the program. The revised program, among other things, requires that borrowers demonstrate or certify that they experienced a 25% or greater reduction in gross receipts from a quarter in 2020 compared to the same quarter in 2019 and certify that current economic uncertainty makes the loan request necessary to support their ongoing operations. The Bank had the following activity related to the second round of PPP through March 31, 2021:

Dollars in thousands

Number of
Loans

Amount

Net
Deferred
Fees

Originated
416 $ 26,798 $ 1,476
Repaid
0 0 0
Net deferred fees recognized
0 0 (29 )
Balance, March 31, 2021
416 $ 26,798 $ 1,447

~~RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2021 COMPARED TO THE QUARTER ENDED MARCH 31, 2020~~

~~Net Income~~

Net income was $3.4 million for the first quarter of 2021, an increase of $2.0 million compared to net income of $1.4 million for the first quarter of 2020. Diluted earnings per share for the first quarter of 2021 was $0.74, an increase of $0.44 from diluted earnings per share of $0.30 for the first quarter of 2020. The increase in net income between the periods was primarily because of a $1.1 million decrease in the provision for loan losses due to an improvement in the credit quality of the loan portfolio, a $0.7 million increase in the gain on sales of loans due to the increase in mortgage loan originations and sales, a $0.4 million increase in net interest income due primarily to an increase in the average earning assets, and a $0.5 million decrease in non-interest expenses primarily related to decreases in legal and compensation expenses. These increases in net income were partially offset by a $0.8 million increase in income tax expense as a result of the increase in pre-tax income between the periods.

Net Interest Income

Net interest income was $7.3 million for the first quarter of 2022, a decrease of $0.1 million, or 2.1%, compared to $7.4 million for the first quarter of ~~2021, an increase of $0.4 million, or 7.0%, compared to $7.0~~2021. Interest income was $7.6 million for the first quarter of ~~2020. Interest income was~~2022, a decrease of $0.3 million, or 4.1%, from $7.9 million for the first quarter of ~~2021, an increase of $0.1 million, or 0.6%, from $7.8 million for the first quarter of 2020.~~2021. Interest income ~~increased primarily because of~~decreased despite the ~~$154.2~~$105.1 million increase in the average interest-earning assets between the periods primarily because of a decrease in the average yield earned on interest-earning assets between the periods. The average yield earned on interest-earning assets was 3.06% for the first quarter of 2022, a decrease of 50 basis points from 3.56% for the first quarter of ~~2021, a decrease of 68 basis points from 4.24% for the first quarter of 2020.~~2021. The decrease in the average yield is primarily related to the $0.6 million decrease in the yield enhancements recognized on Paycheck Protection Program (PPP) loans that were repaid between the periods and a decrease in the yields earned on ~~new~~ loans and investments ~~since~~due to the ~~prime~~continued low interest rate ~~was reduced in~~environment. This trend is expected to continue throughout 2022 as all of the ~~first quarter~~PPP loans have been repaid as of ~~2020.~~March 31, 2022.

Interest expense was $0.3 million for the first quarter of 2022, a decrease of $0.2 million, or 37.5%, compared to $0.5 million for the first quarter of ~~2021, a decrease of $0.4 million, or 49.2%, compared to $0.9 million for the first quarter of 2020.~~2021. Interest expense decreased despite the ~~$147.0~~$100.3 million increase in the average interest-bearing liabilities and non-interest bearing deposits between the periods primarily because of the decrease in the average interest rate paid on deposits. The average interest rate paid on interest-bearing liabilities and non-interest bearing deposits was 0.13% for the first quarter of 2022, a decrease of 9 basis points from 0.22% for the first quarter of ~~2021, a decrease of 31 basis points from 0.53% for the first quarter of 2020.~~2021. The decrease in the interest paid on interest-bearing liabilities was primarily because of the ~~decrease in~~repricing of maturing certificates of deposit ~~rates as a result of the decrease~~ in the ~~federal funds~~continued low interest rate ~~in the first quarter of 2020.~~environment.

Net interest margin (net interest income divided by average interest-earning assets) for the first quarter of ~~2021~~2022 was ~~3.36%~~2.94%, a decrease of 4042 basis points, compared to ~~3.76%~~3.36% for the first quarter of ~~2020.~~2021. The decrease in the net interest margin is primarily related to the decrease in the average yield earned on interest-earning ~~assets as a result of the prime rate decreases that occurred~~assets. The decrease in the ~~first quarter of 2020.~~average yield is primarily related to the $0.6 million decrease in the yield enhancements recognized on PPP loans that were repaid between the periods and a decrease in the yields earned on loans and investments due to the continued low interest rate environment.

~~Table of Contents~~

A summary of the Company’s net interest margin for the three-month periods ended March 31, ~~2021~~2022 and ~~2020~~2021 is as follows:

	For the Three-Month Period Ended														For the Three-Month Period Ended
	March 31, 2021							March 31, 2020							March 31, 2022							March 31, 2021
(Dollars in thousands)	Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate
Interest-earning assets:
Securities available for sale	$	164,518		498		1.23	%	$	103,269		501		1.95	%	$	295,370		788		1.08	%	$	164,518		498		1.23	%
Loans held for sale		5,087		37		2.95			2,754		24		3.52			3,967		34		3.52			5,087		37		2.95
Single family loans, net		144,965		1,329		3.72			127,235		1,276		4.03			170,047		1,437		3.43			144,965		1,329		3.72
Commercial loans, net		437,881		5,372		4.98			409,781		5,097		5.00			449,279		4,809		4.34			437,881		5,372		4.98
Consumer loans, net		52,238		622		4.83			68,418		843		4.96			40,727		471		4.69			52,238		622		4.83
Other		93,225		31		0.13			32,254		103		1.28			43,593		26		0.24			93,225		31		0.13
Total interest-earning assets		897,914		7,889		3.56			743,711		7,844		4.24			1,002,983		7,565		3.06			897,914		7,889		3.56

Interest-bearing liabilities:
Checking accounts		154,277		44		0.12			103,294		30		0.12			160,315		41		0.10			154,277		44		0.12
Savings accounts		105,795		16		0.06			81,150		16		0.08			121,033		18		0.06			105,795		16		0.06
Money market accounts		223,563		129		0.23			190,497		293		0.62			250,745		132		0.21			223,563		129		0.23
Certificate accounts		99,801		264		1.07			123,770		553		1.80			84,343		92		0.44			99,801		264		1.07
Total interest-bearing liabilities		583,436							498,711							616,436							583,436
Non-interest checking		236,471							173,986							303,697							236,471
Other non-interest bearing liabilities		2,544							2,793							2,636							2,544
Total interest-bearing liabilities and non-interest bearing deposits	$	822,451		453		0.22		$	675,490		892		0.53		$	922,769		283		0.13		$	822,451		453		0.22
Net interest income			$	7,436						$	6,952						$	7,282						$	7,436
Net interest rate spread						3.34	%						3.71	%						2.93	%						3.34	%
Net interest margin						3.36	%						3.76	%						2.94	%						3.36	%

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Provision for Loan Losses

The provision for loan losses was $0.3 million for the first quarter of 2022, an increase of $0.9 million compared to ($0.6) million for the first quarter of ~~2021, a decrease of $1.1 million compared to $0.5 million for the first quarter of 2020.~~2021. The provision for loan losses ~~decreased~~increased between the periods primarily because of ~~an improvement~~the growth in the loan portfolio during the first quarter of 2022. The credit ~~quality~~provision recorded in 2021 was primarily the result of improvements in the underlying operations supporting many of the portfolio and a reduction in certain loan loss reserve percentages as a result of an internal analysis of the loan portfolio. During 2020, the Company increased its allowance for loan losses due to the changes in the economic environment related to the disruption in business activity as a result of the COVID-19 pandemic. The amount of the increase in the allowance for loan losses related to the economic environment was based, in part, on the amount of loans ~~to borrowers in the hospitality, restaurant and entertainment industries~~ that were initially negatively impacted by the COVID-19 ~~pandemic. At March 31, 2021, the Bank had $34.5 million of loans that had been granted loan accommodations~~pandemic in accordance with Section 4013 of the CARES Act. The accommodations granted included $29.2 million of loans that are required to make interest only payments for periods up to December 31, 2021 and $5.3 million of loans that had their loan amortization period increased. Of these loans, $2.3 million were classified but still accruing at March 31, 2021 and all of these loans were current with their agreed upon payments. The commercial credit area continues to communicate regularly with the borrowers that have been granted loan accommodations and monitors their activity closely. This information is used to analyze the performance of these loans and to anticipate any potential issues that these loans may develop so that risk ratings may be appropriately adjusted in a timely manner. It is anticipated that most of the remaining borrowers that have been granted accommodations will be in a position to resume making their regular loan payments at the end of the initial accommodation period. Other borrowers, particularly in the hospitality and restaurant industries, may need additional accommodations when their initial accommodation period ends as their operations may need more time to recover from the impact of the pandemic.2020.

The allowance for loan losses is made up of general reserves on the entire loan portfolio and specific reserves on impaired loans. The general reserve amount includes quantitative reserves based on the size of the portfolio and our past loan loss history and qualitative reserves for other items determined to have a potential impact on future loan losses. The general reserves ~~decreased~~increased during the ~~first~~ quarter ~~of 2021~~ as a result of ~~a decrease~~an increase in the required quantitative reserves due to an ~~improvement~~increase in ~~the risk ratings on certain commercial loans and a reduction in certain loan loss reserve percentages as a result of an internal analysis of~~ the loan portfolio. ~~No changes were made to the~~The qualitative allowance for loan losses related to the disruption in business activity as a result of the COVID-19 pandemic was reduced during the ~~quarter. Despite the progress made~~quarter because of a perceived reduction in this risk due to improving conditions. The reduction in pandemic related qualitative reserves was partially offset by an increase in the ~~vaccination~~qualitative reserves for other economic factors. The other qualitative reserves were increased due to a perceived deterioration of ~~the general public~~economic condition during the ~~first~~ quarter, including an increase in the rate of ~~2021, it was determined that significant economic risks related to~~inflation, and enacted and expected increases in the ~~pandemic continued to exist and more time was needed to prudently evaluate the impact that these risks would have on our loan portfolio.~~federal funds rate.

~~Table of Contents~~

A reconciliation of the Company’s allowance for loan losses for the first quarters of 2022 and 2021 ~~and 2020~~ is summarized as follows:

(Dollars in thousands)	2021			2020			2022			2021
Balance at January 1,	$	10,699			8,564		$	9,279			10,699
Provision		(576	)		460			296			(576	)
Charge offs:
Consumer		(31	)		(12	)		(1	)		(31	)
Recoveries		40			24			10			40
Balance at March 31,	$	10,132			9,036		$	9,584			10,132

Allocated to:
General allowance	$	9,927			8,389		$	9,142			9,927
Specific allowance		205			647			442			205
	$	10,132			9,036		$	9,584			10,132

Non-Interest Income

Non-interest income was $2.4 million for the first quarter of 2022, a decrease of $0.9 million, or 27.0%, from $3.3 million for the first quarter of ~~2021, an increase of $0.8 million, or 31.7%, from $2.5 million for the first quarter of 2020.~~2021. Gain on sales of loans ~~increased $0.7~~decreased $0.9 million between the periods primarily because of ~~an increase~~a decrease in single family loan originations and sales. Loan servicing fees ~~increased $0.1 million~~decreased slightly between the periods due to ~~an increase~~a decrease in the aggregate balances of ~~single family mortgage~~Small Business Administration loans that were being serviced for others. ~~Other non-interest income increased $0.1 million due primarily to an~~These decreases were partially offset by a slight increase in ~~the gains realized on equity securities between the periods. Fees~~fees and service charges ~~increased slightly~~ between the periods due primarily to an increase in ~~debit card income.~~retail overdraft fees. Other non-interest income increased slightly due primarily to an increase in the sale of uninsured investment products between the periods.

Non-Interest Expense

Non-interest expense was $7.3 million for the first quarter of 2022, an increase of $0.8 million, or 11.9%, from $6.5 million for the first quarter of ~~2021, a decrease of~~2021. Compensation and benefits expense increased $0.5 million ~~or 7.5%, from $7.0 million for the first quarter of 2020. Professional services expense decreased $0.3 million between the periods~~ primarily because of a decrease ~~in legal expenses relating to an ongoing bankruptcy litigation claim. Compensation and benefits expense decreased $0.2 million primarily because of an increase~~ in the direct loan origination compensation costs that were deferred as a result of the ~~increased~~decreased mortgage loan production between the periods. Professional services expense increased $0.3 million between the periods primarily because of an increase in legal expenses relating to a bankruptcy litigation claim that was settled during the first quarter of 2022. Other non-interest expense ~~decreased~~increased slightly between the periods due primarily to a decrease in ~~advertising expense between~~ the ~~periods. Occupancy~~printing and ~~equipment expense~~supply costs that were deferred as a result of the decreased mortgage loan production and an increase in deposit insurance costs due to asset growth. Data processing expenses increased slightly between the periods due to ~~a decrease~~an increase in ~~building expenses as a result of having more employees working remotely in the first quarter of 2021.~~debit card and mobile banking costs. These ~~decreases~~increases in non-interest expense were partially offset by a ~~slight increase~~$0.1 million decrease in ~~data processing expenses~~occupancy and equipment expense due primarily to a decrease in rent expense between the periods ~~due to an increase~~as a result of purchasing the combined corporate and branch location in ~~internet and mobile banking costs.~~Rochester, Minnesota in the fourth quarter of 2021.

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Income Taxes

Income tax expense was $0.6 million for the first quarter of 2022, a decrease of $0.8 million from $1.4 million for the first quarter of ~~2021, an increase of $0.8 million from $0.6 million for the first quarter of 2020.~~2021. The ~~increase~~decrease in income tax expense between the periods is primarily the result of ~~an increase~~a decrease in pre-tax income.

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FINANCIAL CONDITION

Non-Performing Assets

The following table summarizes the amounts and categories of non-performing assets in the Bank’s portfolio and loan delinquency information as of the end of the two most recently completed quarters.

	March 31,			December 31,			March 31,			December 31,
(Dollars in thousands)	2021			2020			2022			2021
Non‑performing loans:
Single family	$	497		$	502		$	478		$	340
Commercial real estate		1,408			1,484			3,551			3,757
Consumer		612			689			500			517
Commercial		8			9
Commercial business								7			7
Total		2,525			2,684			4,536			4,621

Foreclosed and repossessed assets:
Commercial real estate	$	636			636			290			290
Consumer		30			0
		666			636
Total non‑performing assets	$	3,191		$	3,320		$	4,826		$	4,911
Total as a percentage of total assets		0.33	%		0.37	%		0.47	%		0.46	%
Total as a percentage of total loans receivable, net		0.39	%		0.42	%
Total as a percentage of total loans receivable								0.66	%		0.70	%
Allowance for loan losses to non-performing loans		401.37	%		398.72	%		211.31	%		200.81	%

Delinquency data:
Delinquencies ⁽¹⁾
30+ days	$	1,147		$	995		$	913		$	1,418
90+ days		0			0			0			0
Delinquencies as a percentage of loan portfolio ⁽¹⁾
30+ days		0.17	%		0.15	%		0.13	%		0.21	%
90+ days		0.00	%		0.00	%		0.00	%		0.00	%

⁽¹⁾	Excludes non-accrual loans.

Total non-performing assets were ~~$3.2~~$4.8 million at March 31, ~~2021,~~2022, a decrease of $0.1 million, or ~~3.9%~~1.8%, from ~~$3.3~~$4.9 million at December 31, ~~2020.~~2021. Non-performing loans decreased $0.1 million and foreclosed and repossessed assets remained the same during the first quarter of ~~2021.~~2022.

Dividends

The Company declared a quarterly dividend of 6 cents per share of common stock that was paid on March 9, 2022. The declaration and amount of any future cash dividends isremains subject to ~~among other things,~~ the ~~Company's financial condition~~sole discretion of the Board of Directors and will depend upon many factors, including the Company’s results of operations, ~~the Bank's compliance with regulatory~~financial condition, capital requirements, regulatory and contractual restrictions, business strategy and other ~~regulatory restrictions, tax considerations, industry standards, economic conditions, general business practices and other factors. The Company has not declared any dividend during~~factors deemed relevant by the ~~three year period ended March 31, 2021.~~Board of Directors.

LIQUIDITY AND CAPITAL RESOURCES

For the quarter ended March 31, ~~2021,~~2022, the net cash provided by operating activities was ~~$2.7~~$11.1 million. The Company collected ~~$33.2~~$12.1 million in principal repayments and maturities on securities and purchased securities and FHLB stock for ~~$66.4~~$25.2 million. The Company had a net ~~increase~~decrease in deposit balances of ~~$60.3~~$30.3 million and an increase of customer escrows of ~~$1.0~~$0.8 million during the quarter. It also purchased ~~$0.5~~$0.7 million of treasury stock, obtained $0.1 million in treasury stock for the taxes payable on stock awards, paid dividends to stockholders of $0.3 million, and ~~$0.1~~purchased $0.2 million of premises and equipment. Loans receivable also increased ~~$1.0~~$32.3 million during the quarter.

The Company has certificates of deposit with outstanding balances of ~~$70.1~~$54.8 million that come due over the next 12 months. Based upon past experience, management anticipates that the majority of the deposits will renew for another term. The Company believes that cash outflows from deposits that do not renew will be replaced with a combination of other customers’ deposits or FHLB advances. FRB borrowings ~~or proceeds from the sale of securities~~ could also be used to fund unanticipated outflows of certificates of deposit.

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The Company had ~~nine~~eleven deposit customers each with aggregate deposits greater than $5.0 million as of March 31, ~~2021.~~2022. The ~~$93.8~~$101.2 million in funds held by these customers may be withdrawn at any time, but management anticipates that the majority of these deposits will not be withdrawn from the Bank over the next twelve months. If these deposits were withdrawn, it is anticipated that they would be replaced with deposits from other customers or FHLB advances. FRB borrowings ~~or proceeds from the sale of securities~~ could also be used to replace unanticipated outflows of large checking and money market deposits.

~~Table of Contents~~

The Company had the ability to borrow ~~$171.0~~$182.6 million from the FHLB at March 31, ~~2021~~2022 based on the collateral value of the loans pledged. The credit policy of the FHLB relating to the collateral value of the loans collateralizing the available line of credit with the FHLB may change such that the current collateral pledged to secure future advances is no longer acceptable or the formulas for determining the excess pledged collateral may change. The FHLB could also reduce the amount of funds it will lend to the Bank. It is not anticipated that the Bank will need to find alternative funding sources in the next twelve months to replace the available borrowings from the FHLB. However, if needed, the Bank could borrow an additional ~~$53.4~~$72.7 million from the FRB at March 31, ~~2021~~2022 based on the collateral value of the loans pledged.

The Company’s primary source of cash is dividends from the Bank. At March 31, ~~2021,~~2022, the Company had ~~$10.5~~$11.4 million in cash. The primary use of cash by the Company is the payment of operating ~~expenses.~~expenses, the repurchase of Company stock, and the payment of dividends to stockholders.

The Company also serves as a source of capital, liquidity, and financial support to the Bank. Depending upon the operating performance of the Bank and the Company’s other liquidity and capital needs, including Company level expenses, the Company may find it prudent, subject to prevailing capital market conditions and other factors, to raise additional capital through issuance of its common stock or other equity securities. Additional capital would also potentially permit the Company to implement a strategy of growing Bank assets. Depending on the circumstances, if it were to raise capital, the Company may deploy it to the Bank for general banking purposes, or may retain some or all of it for use by the Company.

If the Company were to raise capital through the issuance of additional shares of common stock or other equity securities, it would dilute the ownership interests of existing stockholders and ~~if issued at a price less than the Company’s book value, would dilute the per share book value of the Company’s common stock, and~~ could result in a change in control of the Company and the Bank. New investors may also have rights, preferences and privileges senior to the Company’s current stockholders which may adversely impact the Company’s current stockholders. The Company’s ability to raise additional capital through the issuance of equity securities, if deemed prudent, will depend on, among other factors, conditions in the capital markets at that time, which are outside of its ~~control, and~~control. Accordingly, the Company may not be able to raise additional capital, if deemed prudent, on ~~the Company’s financial performance and plans.~~favorable economic terms or other terms acceptable to it.

Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. The ~~Company’s~~Company's market risk arises primarily from interest rate risk inherent in its investing, lending and deposit taking activities. Management actively monitors and manages its interest rate risk exposure.

The ~~Company’s~~Company's profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the ~~Company’s~~Company's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the projected changes in net interest income that occur if interest rates were to suddenly change up or down. The Rate Shock Table located in the following Asset/Liability Management section of this ~~report~~Management’s Discussion and Analysis discloses the ~~Company’s~~Company's projected changes in net interest income based upon immediate interest rate changes called rate shocks. The Company utilizes a model that uses the discounted cash flows from its interest-earning assets and its interest-bearing liabilities to calculate the current market value of those assets and liabilities. The model also calculates the changes in market value of the interest-earning assets and interest-bearing liabilities under different interest rate changes.

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The following table discloses the projected changes in the market value of the Company’s interest-earning assets and interest-bearing liabilities based upon incremental 100 basis-point changes in interest rates from interest rates in effect on March 31, ~~2021.~~2022.

(Dollars in thousands)

Market Value

Basis point change in interest rates
-100 0
+100

+200

Total market-risk sensitive assets
$ 971,491 961,872 942,186 921,913
Total market-risk sensitive liabilities
878,839 827,357 783,695 745,746
Off-balance sheet financial instruments
149 0 878 1,630
Net market risk
$ 92,503 134,515 157,613 174,537
Percentage change from current market value
(31.23
)%
0.00
%
17.17
%
29.75
%

(Dollars in thousands)	Market Value
Basis point change in interest rates	-100			0			+100			+200
Total market-risk sensitive assets	$	1,026,342			1,001,596			979,280			956,377
Total market-risk sensitive liabilities		884,967			832,107			789,265			752,326
Off-balance sheet financial instruments		112			0			265			496
Net market risk	$	141,263			169,489			189,750			203,555
Percentage change from current market value		(16.65	)%		0.00	%		11.95	%		20.10	%

The preceding table was prepared utilizing a model using the following assumptions (the Model Assumptions) regarding prepayment and decay ratios that were determined by management based upon their review of historical prepayment speeds and future prepayment projections. Fixed rate loans were assumed to prepay at annual rates of between 2% to ~~61%~~44%, depending on the note rate and the period to maturity. Adjustable rate mortgages (ARMs) were assumed to prepay at annual rates of between 5%6% and ~~51%~~44%, depending on the note rate and the period to maturity. Mortgage-backed securities were projected to have prepayments based upon the underlying collateral securing the instrument. Certificate accounts were assumed not to be withdrawn until maturity. Passbook accounts and money market accounts were assumed to decay at an annual rate of ~~8%,~~7% and 17%, respectively. Retail checking accounts, commercial checking accounts and commercial money market accounts were assumed to decay at annual rates of 6%, 22% and 13%, respectively. Callable investments were projected to be called at the first call date where the projected interest rate on similar remaining term instruments was less than the interest rate on the callable investment.

Certain shortcomings are inherent in the method of analysis presented in the above table. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. The model assumes that the difference between the current interest rate being earned or paid compared to a treasury instrument or other interest index with a similar term to maturity (the Interest Spread) will remain constant over the interest changes disclosed in the table. Changes in Interest Spread could impact projected market value changes. Certain assets, such as ARMs, have features which restrict changes in interest rates on a short-term basis and over the life of the assets. The market value of the interest-bearing assets that are approaching their lifetime interest rate caps could be different from the values disclosed in the table. Certain liabilities, such as certificates of deposit, have fixed rates that restrict interest rate changes until maturity. In the event of a change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed in calculating the foregoing table. The ability of many borrowers to service their debt may also decrease in the event of a substantial sustained increase in interest rates.

Asset/Liability Management

The Company’s management reviews the impact that changing interest rates will have on the Company’s net interest income projected for the next twelve months to determine if its current level of interest rate risk is acceptable. The following table projects the estimated impact on net interest income during the twelve month period ended March 31, ~~2022~~2023 of immediate interest rate changes called rate shocks:

(Dollars in thousands)	(Dollars in thousands)							(Dollars in thousands)
Rate Shock in Basis Points		Projected Change in Net Interest Income			Percentage Change				Projected Change in Net Interest Income			Percentage Change
+200		$	2,826			10.07	%		$	1,785			6.11	%
+100			1,376			4.91				860			2.94
0			0			0.00				0			0.00
-100			(1,550	)		(5.52	)			(1,321	)		(4.52	)

The preceding table was prepared utilizing the Model Assumptions. Certain shortcomings are inherent in the method of analysis presented in the foregoing table. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the foregoing table. The ability of many borrowers to service their debt may decrease in the event of a substantial increase in interest rates and could impact net interest income. The decrease in interest income in a declining rate environment is primarily because there are more loans and investments that would reprice to lower interest rates than there are deposits that would be able to be repriced lower to the same extent in the next twelve months.

3230

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In an attempt to manage its exposure to changes in interest rates, management closely monitors interest rate risk. The Bank has an Asset/Liability Committee that meets frequently to discuss changes in the interest rate risk position and projected profitability. This Committee makes adjustments to the asset-liability position of the Bank that are reviewed by the Board of Directors of the Bank. This Committee also reviews the Bank's portfolio, formulates investment strategies and oversees the timing and implementation of transactions as intended to assure attainment of the Bank's objectives in an effective manner. In addition, each quarter the Board reviews the Bank's asset/liability position, including simulations of the effect on the Bank's capital of various interest rate scenarios.

In managing its asset/liability composition, the Bank may, at times, depending on the relationship between long-term and short-term interest rates, market conditions and consumer preference, place more emphasis on managing net interest margin than on better matching the interest rate sensitivity of its assets and liabilities in an effort to enhance net interest income. Management believes that the increased net interest income resulting from a mismatch in the maturity of its asset and liability portfolios can, in certain situations, provide high enough returns to justify the increased exposure to sudden and unexpected changes in interest rates.

To the extent consistent with its interest rate spread objectives, the Bank attempts to manage its interest rate risk and has taken a number of steps to ~~restructure~~structure its balance sheet ~~in order~~ to better match the maturities of its assets and liabilities. ~~In the past, more long-term fixed rate loans were placed into the single family loan portfolio. In recent years, the~~The Bank ~~has continued to focus~~sells almost all of its ~~30 year~~originated 30-year fixed rate single family residential ~~lending program on~~ loans that are saleable to third parties and generally places only adjustable rate or shorter-term fixed rate loans that meet certain risk characteristics into its loan portfolio. AIn addition, a significant portion of the Bank’s commercial ~~loan production continues to be in~~loans that are placed into the portfolio are adjustable rate loans or fixed rate loans that reprice ~~every one, two or three~~in less than five years.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements other than commitments to originate and sell loans in the ordinary course of business.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4: Controls and Procedures

Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in internal controls. There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

3331

Table of Contents

HMN FINANCIAL, INC.

PART II - OTHER INFORMATION

ITEM 1.~~Legal Proceedings.~~

Legal Proceedings.

From time to time, the Company is party to legal proceedings arising out of its lending and deposit operations. ~~See Note 15 –~~ ~~Commitments~~The Company is, and ~~Contingencies~~ ~~for more information.~~expects to become, engaged in a number of foreclosure proceedings and other collection actions as part of its normal operations. Based on our current understanding of these pending legal proceedings, management does not believe that judgments or settlements arising from any pending or threatened litigation matters, individually or in the aggregate, would have a material adverse effect on the Company’s consolidated financial statements.

ITEM 1A.~~Risk Factors.~~

Risk Factors.

The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, filed with the SEC, under “Part 1, Item 1A. Risk Factors” could affect the Company’s financial performance and could cause its actual results for future periods to differ materially from its anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q.

ITEM 2.~~Unregistered Sales of Equity Securities and Use of Proceeds.~~

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information with respect to purchases made by the Company of its own stock during the first quarter of ~~2021:~~2022:

Period

Total Number
of Shares
Purchased

Average Price
Paid per Share

Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs (a)

Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be
Purchased under the Plans or
Programs (a)

January 1, 2021 to January 31, 2021
0 $ N/A 0 $ 4,549,407
February 1, 2021 to February 28, 2021
29,400 17.79 29,400 $ 4,026,381
March 1, 2021 to March 31, 2021
0 N/A 0 $ 4,026,381
Total
29,400 $ 17.79 29,400 $ 4,026,381

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs (a)
January 1, 2022 to January 31, 2022		0	$	N/A		0	$	4,147,650
February 1, 2022 to February 28, 2022		0		N/A		0	$	4,147,650
March 1, 2022 to March 31, 2022		30,000		24.78		743,400	$	3,404,250
Total		30,000	$	24.78		743,400	$	3,404,250

(a) On ~~November 28, 2018, our board~~July 27, 2021 the Company’s Board of ~~directors announced a share repurchase~~Directors increased the amount of shares authorized to be repurchased to $6.0 million. Subsequent to that authorization, ~~pursuant to which~~$2.6 million of shares have been repurchased under the ~~Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed $6 million.~~program. Share repurchases may be executed through various means, including through open market transactions, privately negotiated transactions or otherwise. The repurchase ~~authorization~~program does not obligate the Company to purchase any shares and has no set expiration date.

ITEM 3.~~Defaults Upon Senior Securities.~~

Defaults Upon Senior Securities.

None.

ITEM 4.~~Mine Safety Disclosures.~~

Mine Safety Disclosures.

Not applicable.

ITEM 5.~~Other Information.~~

Other Information.

None.

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Table of Contents

ITEM 6.~~Exhibits.~~

Exhibits.

INDEX TO EXHIBITS

Exhibit		Filing Status
Number	Exhibit

31.1	Rule 13a-14(a)/15d-14(a) Certification of CEO	Filed Electronically

31.2	Rule 13a-14(a)/15d-14(a) Certification of CFO	Filed Electronically

32	Section 1350 Certifications of CEO and CFO	Filed Electronically

101	Financial statements from the Quarterly Report on Form 10-Q of the Company for the period ended March 31, ~~2021,~~2022, filed with the Securities and Exchange Commission on May 4, ~~2021~~2022 formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL); (i) the Consolidated Balance Sheets at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, (ii) the Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2021~~2022 and ~~2020,~~2021, (iii) the Consolidated Statements of Stockholders’ Equity for the Three Month Periods Ended March 31, ~~2021~~2022 and ~~2020,~~2021, (iv) the Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2021~~2022 and ~~2020,~~2021, and (v) Notes to Consolidated Financial Statements.	Filed Electronically

104	Cover Page Interactive Data File from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2022 (formatted as Inline XBRL and contained in Exhibit 101).	Filed Electronically

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			HMN FINANCIAL, INC.

		Registrant


Date:	May 4, ~~2021~~ 2022	/s/ Bradley Krehbiel
			Bradley Krehbiel, President and Chief Executive Officer
			(~~Principal Executive~~Duly Authorized Officer)



Date:	May 4, ~~2021~~2022	/s/ Jon Eberle
		Jon Eberle, Senior Vice President and
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

3634

☐
OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _________ to _________

Delaware		41-1777397
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1016 Civic Center Drive N.W., Rochester, MN		55901
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code:		(507) 535-1200

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	HMNF	The Nasdaq Stock Market LLC

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒
Smaller reporting company ☒	Emerging growth company ☐

Class		Outstanding at April ~~30, 2021~~29, 2022
Common stock, $0.01 par value		~~4,732,575~~4,540,976

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF ~~THESECURITIES~~THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, ~~2021~~2022

		~~Page~~
Item 1:	Financial Statements	3

	Consolidated Balance Sheets at March 31, ~~2021~~2022 and December 31, ~~2020~~2021	3

	Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	4

	Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021	6

	Notes to Consolidated Financial Statements	7

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	3331

Item 4:	Controls and Procedures	3331

PART II – OTHER INFORMATION

Item 1:	Legal Proceedings	3432

Item 1A:	Risk Factors	3432

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	3432

Item 3:	Defaults Upon Senior Securities	3432

Item 4:	Mine Safety Disclosures	3432

Item 5:	Other Information	3432

Item 6:	Exhibits	3533

Signatures		3634

	Three Months Ended March 31,					Three Months Ended March 31,
(Dollars in thousands, except per share data)	2021			2020		2022			2021
Interest income:
Loans receivable	$	7,360			7,240	$	6,751			7,360
Securities available for sale:
Mortgage-backed and related		391			289		727			391
Other marketable		107			212		61			107
Other		31			103		26			31
Total interest income		7,889			7,844		7,565			7,889

Interest expense:
Deposits		453			892		283			453
Total interest expense		453			892		283			453
Net interest income		7,436			6,952		7,282			7,436
Provision for loan losses		(576	)		460		296			(576	)
Net interest income after provision for loan losses		8,012			6,492		6,986			8,012

Non-interest income:
Fees and service charges		739			714		766			739
Loan servicing fees		395			332		386			395
Gain on sales of loans		1,773			1,134		868			1,773
Other		348			291		355			348
Total non-interest income		3,255			2,471		2,375			3,255

Non-interest expense:
Compensation and benefits		3,821			4,047		4,288			3,821
Occupancy and equipment		1,107			1,123		1,050			1,107
Data processing		347			308		354			347
Professional services		203			487		529			203
Other		1,001			1,036		1,031			1,001
Total non-interest expense		6,479			7,001		7,252			6,479
Income before income tax expense		4,788			1,962		2,109			4,788
Income tax expense		1,370			577		622			1,370
Net income		3,418			1,385		1,487			3,418
Other comprehensive (loss) income, net of tax		(1,241	)		1,275
Comprehensive income available to common stockholders	$	2,177			2,660
Other comprehensive loss, net of tax							(10,018	)		(1,241	)
Comprehensive (loss) income available to common shareholders						$	(8,531	)		2,177
Basic earnings per share	$	0.75			0.30	$	0.34			0.75
Diluted earnings per share	$	0.74			0.30	$	0.34			0.74

												Unearned
��												Employee
									Accumulated			Stock						Total
			Additional						Other			Ownership						Stock-
	Common		Paid-In			Retained			Comprehensive			Plan			Treasury			Holders’
(Dollars in thousands)	Stock		Capital			Earnings			Loss			Shares			Stock			Equity
Balance, December 31, 2021	$	91		40,740			131,413			(1,583	)		(1,256	)		(59,374	)		110,031
Net income							1,487												1,487
Other comprehensive loss										(10,018	)								(10,018	)
Dividends paid to stockholders		0		0			(266	)		0			0			0			(266	)
Stock repurchases				0												(743	)		(743	)
Restricted stock awards				(182	)											182			0
Stock awards withheld for tax withholding																(53	)		(53	)
Amortization of restricted stock awards				62															62
Earned employee stock ownership plan shares				75									48						123
Balance, March 31, 2022	$	91		40,695			132,634			(11,601	)		(1,208	)		(59,988	)		100,623

	Carrying Value at March 31, 2021										Carrying Value at March 31, 2022
(Dollars in thousands)	Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3
Securities available for sale	$	179,278			0		179,278			0	$	284,648			0		284,648			0
Equity securities		201			0		201			0		217			0		217			0
Mortgage loan commitments		(27	)		0		(27	)		0		(131	)		0		(131	)		0
Total	$	179,452			0		179,452			0	$	284,734			0		284,734			0

	Carrying Value at December 31, 2020
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	148,090		0		148,090		0
Equity securities		149		0		149		0
Mortgage loan commitments		261		0		261		0
Total	$	148,500		0		148,500		0

	Carrying Value at December 31, 2021
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Securities available for sale	$	285,765		0		285,765		0
Equity securities		248		0		248		0
Mortgage loan commitments		26		0		26		0
Total	$	286,039		0		286,039		0

	For the period ended March 31,
(Dollars in thousands)	2021									2020
Securities available for sale:	Before Tax			Tax Effect			Net of Tax			Before Tax		Tax Effect		Net of Tax
Gross unrealized (losses) gains arising during the period	$	(1,721	)		(480	)		(1,241	)		1,770		495		1,275
Other comprehensive (loss) income	$	(1,721	)		(480	)		(1,241	)		1,770		495		1,275

	Less Than Twelve Months						Twelve Months or More						Total					Less Than Twelve Months							Twelve Months or More							Total
(Dollars in thousands)	# of Investments	Fair Value		Unrealized Losses			# of Investments	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			# of Investments		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2021
March 31, 2022
Mortgage backed securities:
Federal National Mortgage Association (FNMA)	10	$	48,284		(591	)	0	$	0		0		$	48,284		(591	)		24	$	94,362		(5,167	)		10	$	34,367		(2,504	)	$	128,729		(7,671	)
Federal Home Loan Mortgage Corporation (FHLMC)	8		38,717		(448	)	0		0		0			38,717		(448	)		15		77,184		(4,769	)		8		27,878		(2,114	)		105,062		(6,883	)
Other marketable securities:
U.S. Government agency obligations	6		29,922		(74	)	0		0		0			29,922		(74	)		6		29,129		(869	)		2		9,594		(404	)		38,723		(1,273	)
Corporate preferred stock	0		0		0		1		630		(70	)		630		(70	)		0		0		0			1		560		(140	)		560		(140	)
Total temporarily impaired securities	24	$	116,923		(1,113	)	1	$	630		(70	)	$	117,553		(1,183	)		45	$	200,675		(10,805	)		21	$	72,399		(5,162	)	$	273,074		(15,967	)

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2021
March 31, 2022
Mortgage-backed securities:
FNMA	$	83,797		878		(591	)		84,084	$	136,400		0		(7,671	)		128,729
FHLMC		49,563		227		(448	)		49,342		113,459		0		(6,883	)		106,576
Collateralized mortgage obligations:
FNMA		74		5		0			79		44		0		0			44
		133,434		1,110		(1,039	)		133,505		249,903		0		(14,554	)		235,349
Other marketable securities:
U.S. Government agency obligations		45,007		130		(74	)		45,063		49,993		19		(1,273	)		48,739
Municipal obligations		79		1		0			80
Corporate preferred stock		700		0		(70	)		630		700		0		(140	)		560
		45,786		131		(144	)		45,773		50,693		19		(1,413	)		49,299
	$	179,220		1,241		(1,183	)		179,278	$	300,596		19		(15,967	)		284,648

	March 31, 2021						December, 31, 2020
(Dollars in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Single family	$	355		253		608		355		257		612
Commercial real estate		0		337		337		0		211		211
Consumer		49		538		587		62		568		630
Commercial business		28		0		28		25		0		25
	$	432		1,128		1,560		442		1,036		1,478

	Actual					Required to be Adequately Capitalized					Excess Capital					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Percent of Assets⁽¹⁾			Amount		Percent of Assets⁽¹⁾			Amount		Percent of Assets⁽¹⁾			Amount		Percent of Assets⁽¹⁾
March 31, 2021
Common equity Tier 1 capital	$	93,092		13.97	%	$	29,997		4.50	%	$	63,095		9.47	%	$	43,329		6.50	%
Tier 1 leverage		93,092		10.00			37,250		4.00			55,842		6.00			46,562		5.00
Tier 1 risk-based capital		93,092		13.97			39,996		6.00			53,096		7.97			53,328		8.00
Total risk-based capital		101,446		15.22			53,328		8.00			48,118		7.22			66,660		10.00

Dollars in thousands	Number of Loans			Amount			Net Deferred Fees
Originated		413		$	53,153		$	1,837
Repaid		(130	)		(19,484	)		0
Net deferred fees recognized		0			0			(1,097	)
Balance, December 31, 2020		283		$	33,669		$	740
Repaid		(243	)		(21,419	)		0
Net deferred fees recognized		0			0			(597	)
Balance, March 31, 2021		40		$	12,250		$	143

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs (a)
January 1, 2021 to January 31, 2021		0	$	N/A		0	$	4,549,407
February 1, 2021 to February 28, 2021		29,400		17.79		29,400	$	4,026,381
March 1, 2021 to March 31, 2021		0		N/A		0	$	4,026,381
Total		29,400	$	17.79		29,400	$	4,026,381