UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30,~~March 31, ~~2022~~2023

 TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File No. 001-40609

1895 Bancorp of Wisconsin, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		61-1993378
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

7001 West Edgerton Avenue Greenfield, Wisconsin		53220
(Address of Principal Executive Offices)		(Zip Code)

(414) 421-8200

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BCOW

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)


Large accelerated filer 		Accelerated filer 
Non-accelerated filer 		Smaller reporting company 
		Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No 

~~6,621,077~~6,215,222 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of ~~November 7, 2022.~~April 30, 2023.

1895 Bancorp of Wisconsin, Inc.

Form 10-Q

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Balance Sheets at ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022	1

	Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) ~~Income~~ for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	4

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3236

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4345

Item 4.	Controls and Procedures	4345

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4345

Item 1A.	Risk Factors	4345

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4346

Item 3.	Defaults Upon Senior Securities	4346

Item 4.	Mine Safety Disclosures	4346

Item 5.	Other Information	4346

Item 6.	Exhibits	4447

	SIGNATURES	4548

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

1895 Bancorp of Wisconsin, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
	(unaudited)						(unaudited)
Assets
Cash and due from banks	$	13,002		$	65,300		$	24,657		$	26,029
Fed funds sold		2,700			1,503			4,358			2,315
Cash and cash equivalents		15,702			66,803			29,015			28,344

Marketable equity securities, stated at fair value		2,723			3,544			3,170			2,924
Available-for-sale securities, stated at fair value		118,414			112,440			113,414			114,492
Loans held for sale		365			1,183			—			125
Loans, net of allowance for loan losses of $3,180 and $2,858 at September 30, 2022 and December 31, 2021, respectively		354,740			323,789
Loans, net of deferred costs								370,395			362,777
Allowance for credit losses for loans								(3,693	)		(3,203	)
Total loans, net of deferred loan costs and allowance for credit losses								366,702			359,574
Premises and equipment, net		5,562			5,864			5,403			5,451
Mortgage servicing rights, net		1,890			2,036			1,823			1,860
Federal Home Loan Bank (FHLB) stock, at cost		3,205			3,032			4,811			3,429
Accrued interest receivable		1,106			948			1,246			1,257
Cash value of life insurance		14,209			13,892			14,424			14,316
Other assets		11,401			6,108			11,579			11,244
TOTAL ASSETS	$	529,317		$	539,639		$	551,587		$	543,016
Liabilities and Stockholders’ Equity
Deposits	$	379,298		$	384,501		$	371,966		$	387,721
Advance payments by borrowers for taxes and insurance		10,225			1,860			3,986			1,029
FHLB advances		56,951			55,442			91,978			71,464
Accrued interest payable		142			109			490			291
Other liabilities		6,798			6,834			7,228			7,149
TOTAL LIABILITIES		453,414			448,746			475,648			467,654
Preferred stock, $0.01 par value, 10,000,000 shares authorized at September 30, 2022 and December 31, 2021		—			—
Common stock (par value $0.01 per share) Authorized - 90,000,000 shares at September 30, 2022 and December 31, 2021 Issued – 6,253,854 at September 30, 2022 and 6,402,571 at December 31, 2021 (includes 116,387 and 97,128 unvested shares, respectively) Outstanding – 6,223,791 at September 30, 2022 and 6,372,508 at December 31, 2021 (includes 116,387 and 97,128 unvested shares, respectively)		63			64
Preferred stock, $0.01 par value, 10,000,000 shares authorized at March 31, 2023 and December 31, 2022								—			—
Common stock (par value $0.01 per share) Authorized - 90,000,000 shares at March 31, 2023 and December 31, 2022 Issued – 6,221,930 at March 31, 2023 and 6,236,168 at December 31, 2022 (includes 202,063 and 211,349 unvested shares, respectively) Outstanding – 6,191,867 at March 31, 2023 and 6,206,105 at December 31, 2022 (includes 202,063 and 211,349 unvested shares, respectively)								62			62
Additional paid-in capital		50,943			52,805			49,977			49,931
Unallocated common stock of Employee Stock Ownership Plan (ESOP), 458,765 and 377,077 shares at September 30, 2022 and December 31, 2021, respectively		(4,354	)		(3,432	)
Less treasury stock at cost, 30,063 shares at September 30, 2022 and December 31, 2021		(301	)		(301	)
Unallocated common stock of Employee Stock Ownership Plan (ESOP), 448,928 and 453,792 shares at March 31, 2023 and December 31, 2022, respectively								(4,260	)		(4,307	)
Less treasury stock at cost, 30,063 shares at March 31, 2023 and December 31, 2022								(301	)		(301	)
Retained earnings		41,443			41,615			40,324			41,468
Accumulated other comprehensive (loss) income, net of income taxes		(11,891	)		142			(9,863	)		(11,491	)
Total stockholders’ equity		75,903			90,893			75,939			75,362
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	529,317		$	539,639		$	551,587		$	543,016

See accompanying notes to the unaudited consolidated financial statements.

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts) – Unaudited


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2022			2021			2022			2021			2023			2022
Interest and dividend income:
Loans, including fees	$	3,563		$	2,939		$	9,862		$	9,357		$	3,826		$	3,290
Securities, taxable		613			368			1,727			971			602			548
Other		139			74			279			181			284			48
Total interest and dividend income		4,315			3,381			11,868			10,509			4,712			3,886
Interest expense:
Interest-bearing deposits		196			171			551			620			982			169
Borrowed funds		200			178			550			579			493			170
Other interest-bearing liabilities		2			—			7			—
Other interest-bearing funds														2			2
Total interest expense		398			349			1,108			1,199			1,477			341
Net interest income		3,917			3,032			10,760			9,310			3,235			3,545
Provision for loan losses		—			30			210			30
Net interest income after provision for loan losses		3,917			3,002			10,550			9,280
Provision for credit losses														75			105
Net interest income after provision for credit losses														3,160			3,440
Noninterest income:
Service charges and other fees		229			242			722			713			224			236
Loan servicing, net		167			204			515			971			174			177
Net gain on sale of loans		83			448			266			1,361			38			78
Net gain on sale of securities		—			—			—			12
Increase in cash surrender value of insurance		108			103			317			304			108			104
Unrealized (loss) on marketable equity securities		(159	)		(377	)		(892	)		(5	)
Unrealized gain (loss) on marketable equity securities														220			(210	)
Other		51			8			58			15			6			6
Total noninterest income		479			628			986			3,371			770			391
Noninterest expense:
Salaries and employee benefits		2,528			2,137			6,846			7,290			2,913			2,285
Advertising and promotions		33			52			146			84			49			14
Data processing		221			206			630			611			225			201
Occupancy and equipment		326			341			1,010			1,076			338			354
FDIC assessment		36			38			99			105			37			27
Other		1,107			1,028			3,149			3,086			880			1,065
Total noninterest expense		4,251			3,802			11,880			12,252			4,442			3,946
Income (loss) before income taxes		145			(172	)		(344	)		399
Income tax expense (benefit)		21			(57	)		(172	)		45
Net income (loss)	$	124		$	(115	)	$	(172	)	$	354
Earnings (loss) per common share:
Loss before income taxes														(512	)		(115	)
Income tax (benefit)														(151	)		(60	)
Net loss													$	(361	)	$	(55	)
Loss per share:
Basic	$	0.02		$	(0.02	)	$	(0.03	)	$	0.06		$	(0.07	)	$	(0.01	)
Diluted	$	0.02		$	(0.02	)	$	(0.03	)	$	0.06
Diluted(1)													$	(0.07	)	$	(0.01	)
Average common shares outstanding:
Basic		5,810,185			6,011,247			5,842,184			6,035,289			5,535,489			5,873,964
Diluted		5,983,241			6,011,247			5,842,184			6,262,722
Diluted(1)														5,535,489			5,873,964

See accompanying notes to the unaudited consolidated financial statements.

(1) Diluted loss per share and average shares outstanding excludes all common shares if their effect is anti-dilutive.

1895 Bancorp of Wisconsin, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

(In thousands) - Unaudited

Three months ended
September 30,

Nine months ended
September 30,

2022

2021

2022

2021

Net income (loss)

$
124

$
(115
)

$
(172
)

$
354

Other comprehensive (loss) income:

Unrealized holding (losses) arising during the
period on available-for-sale securities

(4,549
)

(39
)

(16,483
)

(392
)
Reclassification adjustment for (gains) realized in net
income on available-for-sale securities

—

—

—

(12
)
Other comprehensive (loss) before tax effect

(4,549
)

(39
)

(16,483
)

(404
)
Tax effect of other comprehensive (loss) income items

1,228

10

4,451

108

Other comprehensive (loss), net of tax

(3,321
)

(29
)

(12,032
)

(296
)
Comprehensive (loss) income

$
(3,197
)

$
(144
)

$
(12,204
)

$
58


	Three months ended March 31,
	2023			2022
Net loss	$	(361	)	$	(55	)
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period on available-for-sale securities		2,230			(7,144	)
Other comprehensive income (loss) before tax effect		2,230			(7,144	)
Tax effect of other comprehensive income (loss) items		(602	)		1,929
Other comprehensive income (loss), net of tax		1,628			(5,215	)
Comprehensive income (loss)	$	1,267		$	(5,270	)

See accompanying notes to the unaudited consolidated financial statements.

1895 Bancorp of Wisconsin, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands) - Unaudited

Common stock

Additional paid-in capital

Unallocated common stock of ESOP

Treasury Stock

Retained earnings

Accumulated other comprehensive income (loss)

Total

Balance as of June 30, 2022
$
64

$
52,855

$
(4,401
)

$
(301
)

$
41,319

$
(8,570
)

$
80,966

Net income

—

—

—

—

124

—

124

Other comprehensive loss

—

—

—

—

—

(3,321
)

(3,321
)
ESOP shares committed to be released (4,892 shares)

—

2

47

—

—

—

49

Repurchase and retirement of shares-stock repurchase program
(184,270 shares)

(1
)

(1,994
)

—

—

—

—

(1,995
)
Stock compensation expense

—

80

—

—

—

—

80

Balance as of September 30, 2022
$
63

$
50,943

$
(4,354
)

$
(301
)

$
41,443

$
(11,891
)

$
75,903

Balance as of June 30, 2021
$
49

$
20,188

$
(1,580
)

$
(1,228
)

$
42,000

$
871

$
60,300

Net loss

—

—

—

—

(115
)

—

(115
)
Other comprehensive (loss)

—

—

—

—

—

(29
)

(29
)
Purchase of treasury stock

—

—

—

(136
)

—

—

(136
)
ESOP shares committed to be released (3,420 shares)

—

(10
)

18

—

—

—

8

Gross proceeds from stock offering

15

35,505

—

—

—

—

35,520

Stock offering costs

—

(1,976
)

—

—

—

—

(1,976
)
Purchase of 131,727 shares by ESOP

—

—

(1,429
)

—

—

—

(1,429
)
Retirement of treasury shares from stock offering

—

(1,053
)

—

1,053

—

—

0

Stock compensation expense

—

65

—

—

—

—

65

Balance as of September 30, 2021
$
64

$
52,719

$
(2,991
)

$
(311
)

$
41,885

$
842

$
92,208

Balance as of January 1, 2022
$
64

$
52,805

$
(3,432
)

$
(301
)

$
41,615

$
142

$
90,893

Net loss

—

—

—

—

(172
)

—

(172
)
Other comprehensive loss

—

—

—

—

—

(12,033
)

(12,033
)
Reimbursement of stock offering costs

—

2

—

—

—

—

2

Purchase of 96,446 shares by ESOP

—

—

(1,062
)

—

—

—

(1,062
)
ESOP shares committed to be released (14,757 shares)

—

11

140

—

—

—

151

Repurchase and retirement of shares-stock repurchase program
(184,270 shares)

(1
)

(1,994
)

—

—

—

—

(1,995
)
Retirement of common stock

—

(81
)

—

—

—

—

(81
)
Stock compensation expense

—

200

—

—

—

—

200

Balance as of September 30, 2022
$
63

$
50,943

$
(4,354
)

$
(301
)

$
41,443

$
(11,891
)

$
75,903

Balance as of January 1, 2021
$
49

$
20,134

$
(1,615
)

$
(1,228
)

$
41,531

$
1,138

$
60,009

Net income

—

—

—

—

354

—

354

Other comprehensive loss

—

—

—

—

—

(296
)

(296
)
Purchase of treasury stock

—

—

—

(151
)

—

(151
)
ESOP shares committed to be released (6,930 shares)

—

6

53

—

—

—

59

Gross proceeds from stock offering

15

35,505

—

—

—

—

35,520

Stock offering costs

—

(1,976
)

—

—

—

—

(1,976
)
Purchase of 131,727 shares by ESOP

—

—

(1,429
)

—

—

—

(1,429
)
Issuance of treasury stock – stock compensation plan

—

(15
)

—

15

—

—

0

Retirement of common stock

—

(70
)

—

—

—

—

(70
)
Retirement of treasury shares from stock offering

—

(1,053
)

—

1,053

—

—

0

Stock compensation expense

—

188

—

—

—

—

188

Balance as of September 30, 2021
$
64

$
52,719

$
(2,991
)

$
(311
)

$
41,885

$
842

$
92,208


	Common Stock		Additional Paid-In Capital			Unallocated Common Stock of ESOP			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance as of January 1, 2022	$	64	$	52,805		$	(3,432	)	$	(301	)	$	41,615		$	142		$	90,893
Net loss		—		—			—			—			(55	)		—			(55	)
Other comprehensive (loss)		—		—			—			—			—			(5,215	)		(5,215	)
Reimbursement of stock offering costs		—		1			—			—			—			—			1
Purchase of 45,212 shares by ESOP		—		—			(517	)		—			—			—			(517	)
ESOP shares committed to be released (4,933 shares)		—		2			49			—			—			—			51
Retirement of common stock		—		(15	)		—			—			—			—			(15	)
Stock compensation expense		—		59			—			—			—			—			59
Balance as of March 31, 2022	$	64	$	52,852		$	(3,900	)	$	(301	)	$	41,560		$	(5,073	)	$	85,202

Balance as of January 1, 2023	$	62	$	49,931		$	(4,307	)	$	(301	)	$	41,468		$	(11,491	)	$	75,362
Net loss		—		—			—			—			(361	)		—			(361	)
Other comprehensive income		—		—			—			—			—			1,628			1,628
Cumulative effect of change in accounting principle due to adoption of ASU 2016-13		—		—			—			—			(783	)		—			(783	)
ESOP shares committed to be released (4,864 shares)		—		—			47			—			—			—			47
Repurchase and retirement of shares-stock repurchase program (12,903 shares)				(129	)														(129	)
Retirement of common stock		—		(13	)		—			—			—			—			(13	)
Stock compensation expense		—		188			—			—			—			—			188
Balance as of March 31, 2023	$	62	$	49,977		$	(4,260	)	$	(301	)	$	40,324		$	(9,863	)	$	75,939

See accompanying notes to the unaudited consolidated financial statements.

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) - Unaudited


	Nine months ended September 30,						Three months ended March 31,
	2022			2021			2023			2022
	(unaudited)
Cash flows from operating activities:
Net (loss) income	$	(172	)	$	354
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Cash flows from operating activities
Net loss							$	(361	)	$	(55	)
Adjustments to reconcile net loss to net cash from operating activities
Net amortization of investment securities		121			81			20			43
Depreciation		464			497			128			154
Provision for loan losses		210			30
Provision for credit losses								75			105
Net change in fair value of marketable equity securities		892			5			(220	)		210
Net gain on sale of available for sale securities		—			(12	)
Stock compensation expense		200			188			188			59
Adjustment to mortgage servicing rights valuation		—			(370	)
(Benefit from) provision for deferred income tax		(172	)		45
(Benefit from) deferred income tax								(151	)		(60	)
Originations of mortgage loans held for sale		(19,006	)		(90,869	)		(2,300	)		(6,504	)
Proceeds from sales of mortgage loans held for sale		20,416			102,235			2,464			6,821
Net gain on sale of mortgage loans held for sale		(266	)		(1,361	)		(38	)		(78	)
ESOP compensation		151			59			47			51
Net change in cash value of life insurance		(317	)		(304	)		(108	)		(104	)
Changes in operating assets and liabilities:
Changes in operating assets and liabilities
Net change in mortgage servicing rights		146			94			37			48
Accrued interest receivable and other assets		(907	)		(568	)		(481	)		(1,096	)
Accrued interest payable and other liabilities		(6	)		915			(387	)		(12	)
Net cash provided by operating activities		1,754			11,019
Net cash used in operating activities								(1,087	)		(418	)
Cash flows from investing activities
Proceeds from sales of available-for-sale securities		—			1,018
Maturities, prepayments, and calls of available-for-sale securities		14,561			9,296			3,287			3,693
Purchases of available-for-sale securities		(37,139	)		(39,218	)		—			(31,162	)
Purchase of marketable equity securities		(71	)		(87	)		(26	)		(32	)
Net increase in loans		(31,486	)		(10,715	)
Purchase of FHLB stock, net		(174	)		—
Net (increase) in loans								(7,615	)		(2	)
Net (increase) in FHLB stock, net								(1,382	)		—
Net capital expenditures for premises and equipment		(162	)		(194	)		(80	)		(99	)
Net cash used in investing activities		(54,471	)		(39,900	)		(5,816	)		(27,602	)
Cash flows from financing activities
Net decrease in deposits		(5,203	)		(5,534	)
Net (decrease) increase in deposits								(15,755	)		6,452
Net increase in advance payments by borrowers for taxes and insurance		8,365			9,245			2,957			2,875
Proceeds from issuance of Federal Home Loan Bank advances		10,000			—
Proceeds from the issuance of Federal Home Loan Bank advances								64,500			10,000
Principal payments on Federal Home Loan Bank advances		(8,491	)		(12,464	)		(43,986	)		(6,993	)
Gross proceeds from stock offering		—			35,520
Stock offering costs		—			(1,976	)
Reimbursement of stock offering costs		2			—			—			1
Repurchase of common stock for cancellation		(1,995	)		—			(129	)		—
Purchases of treasury stock		—			(151	)
Purchase of ESOP shares		(1,062	)		(1,429	)
Retirement of common stock								(13	)		(15	)
Purchases of ESOP shares								—			(517	)
Net cash provided by financing activities		1,616			23,211			7,574			11,803
Net decrease in cash and cash equivalents		(51,101	)		(5,670	)
Net increase (decrease) in cash and cash equivalents								671			(16,217	)
Cash and cash equivalents at beginning of period		66,803			92,526			28,344			66,803
Cash and cash equivalents at end of period	$	15,702		$	86,856		$	29,015		$	50,586
Supplemental cash flow information:
Supplemental cash flow information
Cash paid during the year for interest	$	1,075		$	1,269		$	1,278		$	333
Noncash activities:
Retirement of common stock	$	78		$	70
Loans transferred to held for sale		325			9,448
Issuance of treasury stock - stock compensation plan		—			15
Retirement of treasury stock		—			1,053

See accompanying notes to the unaudited consolidated financial statements.

1895 BANCORP OF WISCONSIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

1895 Bancorp of Wisconsin, Inc., a Maryland corporation (the “Company” or “New 1895 Bancorp”) was formed to serve as the stock holding company for PyraMax Bank, FSB (the “Bank”) as part of the mutual-to-stock conversion of 1895 Bancorp of Wisconsin, MHC. Upon completion of the conversion, which occurred on July 14, 2021, 1895 Bancorp of Wisconsin, MHC and 1895 Bancorp of Wisconsin, a federal corporation (“Old 1895 Bancorp”), ceased to exist and New 1895 Bancorp became the successor corporation to Old 1895 Bancorp. The conversion was accomplished by the merger of 1895 Bancorp of Wisconsin, MHC with and into Old 1895 Bancorp followed by the merger of Old 1895 Bancorp with and into New 1895 Bancorp. The shares of New 1895 Bancorp common stock that were offered for sale in connection with the conversion represented the majority ownership interest in Old 1895 Bancorp owned by 1895 Bancorp of Wisconsin, MHC. On July 14, 2021, public stockholders of Old 1895 Bancorp received 1.3163 shares of common stock of New 1895 Bancorp in exchange for each of their shares of Old 1895 Bancorp common stock. The shares of Old 1895 Bancorp common stock owned by 1895 Bancorp of Wisconsin, MHC were canceled at that time. The conversion and offering were completed on July 14, 2021, and New 1895 Bancorp was organized as a fully public stock holding company, with 100% of the common stock being held by the public. The consolidated financial statements and other financial information contained in these consolidated financial statements are for New 1895 Bancorp.

The cost of the reorganization and the issuing of the common stock totaling $2.0 million were deferred and deducted from the sales proceeds of the offering.

PyraMax Bank is a stock savings bank headquartered in Greenfield, Wisconsin. PyraMax Bank operates as a full-service financial institution, providing a full range of financial services, including the granting of commercial, residential, and consumer loans and acceptance of deposits from individual customers and small businesses in the metropolitan Milwaukee, Wisconsin area. PyraMax Bank is subject to competition from other financial and nonfinancial institutions providing financial products. In addition, PyraMax Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

The accompanying unaudited interim consolidated financial statements and the notes thereto have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, results of operations, changes in stockholders' equity and cash flows as of and for the periods presented. Certain amounts from prior periods have been reclassified to conform with current period presentation.

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the audited annual consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as filed with the Securities and Exchange Commission on March ~~29, 2022 and amended on April 29, 2022.~~30, 2023.

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and reported amounts of revenues and expenses during the reporting period. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for ~~loan~~credit losses, the fair value of investment securities, financial instruments and mortgage servicing rights, and the valuation of deferred income tax assets. Actual results could differ from those estimates.

On April 5, 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies and define an “emerging growth company.” As an emerging growth company, the Company may delay adoption of new or revised financial accounting standards until such date that the standards are required to be adopted by non-issuer companies. If such standards would not apply to non-issuer companies, no deferral would be applicable. The Company intends to take advantage of the benefits of the extended transition periods allowed under the JOBS Act.

Accordingly, the Company’s financial statements may not be comparable to those of public companies that adopt new or revised financial accounting standards as of an earlier date. The effective dates of the recent accounting standards in Note 2 reflect those that relate to non-issuer companies.

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued)

Subsequent Events

~~The Company~~Management has ~~evaluated subsequent events~~reviewed the Company's operations for potential ~~recognition and/~~disclosure or ~~disclosure through~~financial statement impacts related to events occurring after March 31, 2023, but prior to the ~~date~~release of the unaudited consolidated financial statements ~~included~~contained in this quarterly report on Form 10-Q were issued.

On May 4, 2023, the Company announced that it had adopted its second stock repurchase program to be implemented upon completion of its existing stock repurchase program. Under the new repurchase program, which is subject to regulatory non-objection, the Company may repurchase up to 10% of its current outstanding shares. Following receipt of regulatory non-objection, repurchases are expected to commence upon completion of the existing stock repurchase program, which has 9,945 shares remaining to be repurchased. For additional information, refer to Form 8-K filed by the Company on May 4, 2023.

There were no additional ~~significant~~ subsequent event disclosures or financial statement impacts related to events ~~for the quarter ended September 30, 2022 through the issuance date of these unaudited consolidated financial statements~~occurring after March 31, 2023 that warranted adjustment to or disclosure in ~~the~~these unaudited consolidated financial statements.

NOTE 2 – ~~RECENT~~SIGNIFICANT ACCOUNTING ~~STANDARDS~~POLICIES

On January 1, 2023, we adopted ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), using the modified retrospective approach, as further described in the section below titled Recently Adopted Accounting Standards. Adoption of the standard resulted in changes to our available-for-sale securities and allowance for credit losses policies, as presented below. Refer to Note 1 to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K regarding additional significant accounting policies, including accounting policies in effect prior to the adoption of ASU 2016-13.

Credit Losses for Available-for-Sale Debt Securities

For available-for-sale ("AFS") debt securities where fair value is less than amortized cost, the security is considered impaired when amounts are deemed uncollectible or when the Company intends, or more likely than not will be required, to sell the AFS debt security before recovery of the amortized cost basis.

On a quarterly basis the Company evaluates the AFS debt securities for impairment. Securities that are in an unrealized loss position are reviewed to determine if a securities credit loss exists based on certain quantitative and qualitative factors. The primary factors considered in evaluating whether an impairment exists include: (a) the extent to which the fair value is less than the amortized cost basis, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, and (d) whether the Company intends to sell the security and whether it is more likely than not that the Company will not be required to sell the security.

If a determination is made that an AFS debt security is impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as a provision for credit losses on securities through an allowance for credit losses. The provision for credit losses on securities will be limited to the difference between the security’s amortized cost basis and fair value. Any future changes may be reversed, limited to the amount previously expensed, in the period they occur. The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net of tax.

Allowance for Credit Losses

Under the current expected credit loss (“CECL”) model, the allowance for credit losses ("ACL") on financial assets is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the financial assets’ amortized cost basis to present the net amount expected to be collected on the financial assets. The CECL model also applies to certain off-balance sheet credit exposures.

The ~~following Accounting Standards Updates (“ASUs”) have been issued~~Company estimates the allowance for credit losses on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to write-off accrued interest receivable by reversing interest income at the time of this determination. Therefore, the Company has made a policy election to exclude accrued interest from the amortized cost basis and therefore excludes it from the measurement of the allowance for credit losses.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Expected credit losses are reflected in the allowance for credit losses through a charge to provision for credit losses. The Company’s estimate of the allowance for credit losses reflects credit losses currently expected over the remaining contractual life of the assets. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written off and the allowance for credit losses is reduced by the ~~Financial Accounting Standards Board (“FASB”) and may impact~~same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible. When available information confirms that specific financial assets, or portions thereof, are uncollectible, these amounts are charged off against the ~~Company’s financial statements in future reporting periods:~~allowance for credit losses. Subsequent recoveries, if any, are credited to the allowance for credit losses when received.

The Company measures the allowance for credit losses of financial assets on a collective portfolio segment basis when the financial assets share similar risk characteristics. The Company has identified the following portfolio segments of financial assets with similar risk characteristics for measuring expected credit losses: commercial real estate, residential real estate – first mortgage, residential real estate – construction, consumer – home equity and lines of credit and other consumer loans. The Company further segments the commercial loan portfolios by risk rating and the residential and consumer loan portfolios by delinquency.

The Company utilizes the weighted average maturity (WARM) methodology to measure the ACL. This methodology incorporates both quantitative and qualitative information to assess lifetime expected credit losses at the portfolio segment level. The quantitative component includes the calculation of loss rates that are based on historical lookback periods. The Company calculates a loss rate based on historical loan level loss experience for portfolio segments with similar risk characteristics. The historical loss rate is adjusted for select macroeconomic variables that consider both historical trends as well as forecasted trends. The Company measures expected credit losses of these financial assets by applying loss rates to the amortized cost basis of each asset taking into consideration amortization, prepayment and default assumptions.

The Company considers qualitative adjustments to expected credit loss estimates for information not already captured in the loss estimation process. Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Adjustments will not be made for information that has already been considered and included in the quantitative component. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in loan composition, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics.

Collateral Dependent Financial Assets

For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable and where the borrower is experiencing financial difficulty, the allowance for credit losses is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. Fair value is generally calculated based on the value of the underlying collateral less estimated costs to sell.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Financial assets include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to loan credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures through a charge to provision for loan losses for off-balance sheet credit exposures. The allowance for credit losses on off-balance sheet credit exposures is estimated by portfolio segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration management’s assumption of the likelihood that funding will occur, and is included in other liabilities on the Company’s Consolidated Balance Sheets.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Adopted Accounting Standards

ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, amending the effective date for this standard. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2022, and interim periods within fiscal years beginning after December 15, 2022. In March 2022, the FASB issued ASU ~~2022-02—~~2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for ~~TDRs~~troubled debt restructurings by creditors, ~~in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors,~~ while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit ~~Losses—Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6.~~Losses. The Company adopted ASU 2016-13 and ASU 2022-02 as of ~~ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The amendments should be applied prospectively, however, an entity has~~January 1, 2023 using the ~~option to apply a~~ modified retrospective ~~transition~~ method ~~related to the recognition~~for all financial assets measured at amortized cost and measurement of TDRs, which would result in a cumulative effect adjustment to retained earnings in the period of adoption. Management has elected to defer adoption of ASC 2016-13, as well as ASU 2022-02, until January 1, 2023.off-balance sheet credit exposures. The ~~Company has implemented and is currently testing and evaluating a third-party software solution to assist with the~~ adoption of ASU ~~2016-13. The impact~~2016-13 resulted in an initial increase of ~~adopting ASU 2016-13 on~~$412,000 to the Company’s consolidated financial statements is still being quantified. Management will continue to progress on its implementation project plan and improve the Company’s approach throughout the deferral period.

~~ASU 2016-02,~~ ~~Leases (Topic 842)~~. This ASU affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial reporting. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liabilityallowance for ~~those leases previously classified as operating leases. The lease asset will represent the right to use the underlying asset~~credit losses for ~~the lease term,~~loans and the ~~lease liability will represent the discounted value~~establishment of ~~the required lease payments to the lessor.~~a $665,000 allowance for credit losses for unfunded loan commitments. The ~~ASU will also require entities to disclose key information about leasing arrangements. ASU 2016-02~~allowance for credit losses for unfunded loan commitments is ~~effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted.~~

On November 15, 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, amending the effective date for this standard. On June 3, 2020, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, updating the effective date for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company adopted ASC 842 on January 1, 2022. The cumulative effect did not have a material impactincluded in other liabilities on the Company's ~~statement of operations. Where the Company is a lessee, the Company recorded an initial increase in both assets and liabilities~~Consolidated Balance Sheets. The after-tax cumulative-effect adjustment of $~~529,000~~783,000 ~~to reflect the right~~was recorded in retained earnings as of ~~use asset and the lease liability.~~January 1, 2023.

NOTE 3 – AVAILABLE-FOR-SALE SECURITIES

The amortized costs and fair values of securities available-for-sale were as follows:


	September 30, 2022									March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)									(in thousands)
U.S. Treasury notes	$	29,576	$	—	$	(3,241	)	$	26,335	$	29,618	$	—	$	(2,502	)	$	27,116
Obligations of states and political subdivisions		21,398		4		(3,736	)		17,666		21,225		11		(3,170	)		18,066
Government-sponsored mortgage-backed securities		77,048		—		(9,266	)		67,782		70,636		—		(7,761	)		62,875
Asset-backed securities		5,222		—		(21	)		5,201		4,202		—		(53	)		4,149
Certificates of deposit		1,459		—		(29	)		1,430		1,244		—		(36	)		1,208
Total	$	134,703	$	4	$	(16,293	)	$	118,414	$	126,925	$	11	$	(13,522	)	$	113,414


	December 31, 2021									December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)									(in thousands)
U.S. Treasury notes	$	19,501	$	8	$	(25	)	$	19,484	$	29,597	$	—	$	(2,970	)	$	26,627
Obligations of states and political subdivisions		20,758		207		(205	)		20,760		21,379		6		(3,729	)		17,656
Government-sponsored mortgage-backed securities		64,049		563		(463	)		64,149		73,235	$	—		(8,968	)		64,267
Asset-backed securities		6,479		45		(1	)		6,523		4,563	$	—		(46	)		4,517
Certificates of deposit		1,459		65		—			1,524		1,459	$	—		(34	)		1,425
Total	$	112,246	$	888	$	(694	)	$	112,440	$	130,233	$	6	$	(15,747	)	$	114,492

~~Available-for-sale securities with a carrying~~The fair value of available-for-sale securities that were pledged as collateral at March 31, 2023 and December 31, 2022, were $~~3.7~~9.4 million and $~~1.8~~3.6 million, ~~were pledged as collateral at September 30, 2022 and December 31, 2021,~~ respectively.

The amortized costs and fair values of available-for-sale securities, ~~available-for-sale,~~ by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. In addition, expected maturities will differ from contractual maturities for mortgage-backed securities and asset-backed securities, as the expected repayment terms may be less than the underlying mortgage pool contractual maturities. Therefore, these securities are not included in the maturity categories in the maturity summary below.


	September 30, 2022				March 31, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)				(in thousands)
Debt and other securities:
Due in one year or less	$	1,788	$	1,769	$	1,683	$	1,674
Due after one through 5 years		21,397		19,497		26,784		24,795
Due after 5 through 10 years		20,486		17,231		20,305		17,322
Due after 10 years		8,762		6,934		3,315		2,599
Total debt and other securities		52,433		45,431		52,087		46,390
Mortgage-related securities		77,048		67,782		70,636		62,875
Asset-backed securities		5,222		5,201		4,202		4,149
Total	$	134,703	$	118,414	$	126,925	$	113,414

810

NOTE 3 – AVAILABLE-FOR-SALE SECURITIES (continued)

Gross unrealized losses on securities available-for-sale and the fair values of the related securities, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position were as follows:


	September 30, 2022															March 31, 2023
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)															(in thousands)
U.S. Treasury notes	$	26,335	$	(3,241	)	$	—	$	—		$	26,335	$	(3,241	)	$	—	$	—		$	27,116	$	(2,502	)	$	27,116	$	(2,502	)
Obligations of states and political subdivisions		9,642		(1,655	)		7,602		(2,081	)		17,244		(3,736	)		1,631		(23	)		16,010		(3,147	)		17,641		(3,170	)
Government-sponsored mortgage-backed securities		47,967		(5,414	)		19,815		(3,852	)		67,782		(9,266	)		6,185		(204	)		56,690		(7,557	)		62,875		(7,761	)
Asset-backed securities		4,917		(21	)		—		—			4,917		(21	)		3,691		(38	)		458		(15	)		4,149		(53	)
Certificates of deposit		1,430		(29	)		—		—			1,430		(29	)		1,208		(36	)		—		—			1,208		(36	)
Total	$	90,291	$	(10,360	)	$	27,417	$	(5,933	)	$	117,708	$	(16,293	)	$	12,715	$	(301	)	$	100,274	$	(13,221	)	$	112,989	$	(13,522	)


	December 31, 2021															December 31, 2022
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)															(in thousands)
U.S. Treasury notes	$	12,971	$	(25	)	$	—	$	—		$	12,971	$	(25	)	$	—	$	—		$	26,627	$	(2,970	)	$	26,627	$	(2,970	)
Obligations of states and political subdivisions		5,414		(82	)		4,105		(123	)		9,519		(205	)		5,088		(396	)		12,145		(3,333	)		17,233		(3,729	)
Government-sponsored mortgage-backed securities		39,392		(463	)		—		—			39,392		(463	)		19,084		(1,310	)		45,183		(7,658	)		64,267		(8,968	)
Asset-backed securities		808		(1	)		—		—			808		(1	)		4,517		(46	)		—		—			4,517		(46	)
Certificates of deposit																	1,425		(34	)		—		—			1,425		(34	)
Total	$	58,585	$	(571	)	$	4,105	$	(123	)	$	62,690	$	(694	)	$	30,114	$	(1,786	)	$	83,955	$	(13,961	)	$	114,069	$	(15,747	)

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, the Company had 9389 and 2492 debt securities with unrealized losses representing aggregate depreciation of approximately ~~12.2~~10.7% and ~~1.1~~12.1%, respectively, from their respective amortized cost basis. These unrealized losses relate principally to changes in interest rates and were not caused by changes in the financial condition of the issuers, the quality of any underlying assets or applicable credit enhancements. In analyzing whether unrealized losses on debt securities are other-than-temporary, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, industry analysts’ reports, the financial condition and performance of the issuer and the quality of any underlying assets or credit enhancements. As management has the intent and ability to hold these debt securities to projected recovery, none of these declines are deemed to be other-than-temporary.

911

~~NOTE 3 – AVAILABLE-FOR-SALE SECURITIES (continued)~~

~~The following table provides a summary of the proceeds from sales of securities available-for-sale, as well as gross gains and losses, for the periods presented:~~

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

(in thousands)

(in thousands)

Proceeds from sales of securities available-for-sale

$
—

$
—

$
—

$
1,018

Gross realized gains

$
—

$
—

$
—

$
12

Gross realized losses

—

—

—

—

Net realized gains

$
—

$
—

$
—

$
12

NOTE 4 – LOANS

Major classifications of loans, reported at amortized cost, are summarized as follows:


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
	(in thousands)						(in thousands)
Commercial:
Real estate	$	207,714		$	185,223		$	215,026		$	210,858
Land development		—			1,400			—			—
Other		45,074			38,160			45,288			43,708
Residential real estate:
First mortgage		83,900			80,661			88,792			85,444
Construction		2,653			3,388			2,261			3,248
Consumer:
Home equity and lines of credit		17,601			17,032			18,091			18,590
Other		115			128			84			99
Subtotal(1)		357,057			325,992			369,542			361,947
Net deferred loan costs		863			655			853			830
Allowance for loan losses		(3,180	)		(2,858	)
Allowance for credit losses for loans								(3,693	)		(3,203	)
Loans, net	$	354,740		$	323,789		$	366,702		$	359,574

(1) Totals do not include accrued interest receivable, which were $894,000 and $874,000 at March 31, 2023 and December 31, 2022, respectively, which are recorded separately on the Company’s Consolidated Balance Sheets.

Deposit accounts in an overdrawn position and reclassified as loans totaled $~~13,000~~30,000 and $~~106,000~~98,000 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The Company provides several types of loans to its customers, including commercial, residential, construction and consumer loans. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to one borrower or to multiple borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. While the Company’s credit risks are geographically concentrated within the metropolitan Milwaukee, Wisconsin area, there are no concentrations with individual borrowers or groups of related borrowers.

During the normal course of business, the Company may transfer a portion of a loan as a participation loan to another financial institution in order to manage portfolio risk. In order to be eligible for sales treatment, all cash flows from the loan must be divided proportionately, and rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties, and no loan holder can have the right to pledge or exchange the entire loan. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, the Company had transferred $~~30.4~~30.1 million and $~~32.1~~30.3 million in participation loans which were eligible for sales treatment to other financial institutions, all of which continue to be serviced by the Company.

1012

NOTE 4 – LOANS (continued)

~~An analysis of past due loans is presented below:~~

September 30, 2022

30-89 Days Past Due

90 Days or More Past Due

Total Past Due

Current Loans

Total Loans

(in thousands)

Commercial:

Real estate

$
—

$
—

$
—

$
207,714

$
207,714

Land development

—

—

—

—

—

Other

—

—

—

45,074

45,074

Residential real estate:

First mortgage

339

—

339

83,561

83,900

Construction

—

—

—

2,653

2,653

Consumer:

Home equity and lines of credit

27

—

27

17,574

17,601

Other

—

—

—

115

115

Total

$
366

—

$
366

$
356,691

$
357,057

December 31, 2021

30-89 Days Past Due

90 Days or More Past Due

Total Past Due

Current

Total Loans

(in thousands)

Commercial:

Real estate

—

—

—

$
185,223

$
185,223

Land development

—

—

—

1,400

1,400

Other

33

—

33

38,127

38,160

Residential real estate:

First mortgage

342

—

342

80,319

80,661

Construction

—

—

—

3,388

3,388

Consumer:

Home equity and lines of credit

—

—

—

17,032

17,032

Other

—

—

—

128

128

Total

$
375

—

$
375

$
325,617

$
325,992

~~There were no loans 90 days or more past due and accruing interest as of September 30, 2022 or December 31, 2021, respectively.~~

A summary of activity in the allowance for credit losses for loans and the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2023 and in the allowance for loan losses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, ~~and September 30, 2021, respectively,~~ is presented below:


	Commercial		Residential		Consumer			Total			Commercial		Residential		Consumer			Total
	(in thousands)										(in thousands)
Three months ended September 30, 2022
Three months ended March 31, 2023
Allowance for credit losses for loans
Beginning balance											$	1,944	$	752	$	507		$	3,203
Provision for credit losses												54		21		—			75
CECL Adoption Adjustment(1)												666		75		(329	)	$	412
Loans charged-off												—		—		(6	)		(6	)
Recoveries												5		—		4			9
Ending balance											$	2,669	$	848	$	176		$	3,693

Allowance for credit losses for unfunded loan commitments(2)
Beginning balance											$	—	$	—	$	—		$	—
Provision for credit losses												—		—		—			—
CECL Adoption Adjustment(1)												640		25		—		$	665
Loans charged-off												—		—		—			—
Recoveries												—		—		—			—
Ending balance											$	640	$	25	$	—		$	665

Total Allowance for credit losses for loans and unfunded loan commitments											$	3,309	$	873	$	176		$	4,358

Three months ended March 31, 2022
Allowance for loan losses
Beginning balance	$	1,924	$	745	$	463		$	3,132		$	1,657	$	745	$	456		$	2,858
Provision for loan losses		—		—		—			—			105		—		—			105
Loans charged-off		—		—		(1	)		(1	)		—		—		(3	)		(3	)
Recoveries		4		—		45			49			52		—		5			57
Ending balance	$	1,928	$	745	$	507		$	3,180		$	1,814	$	745	$	458		$	3,017
Three months ended September 30, 2021
Allowance for loan losses
Beginning balance	$	1,618	$	745	$	369		$	2,732
Provision for loan losses		30		—		—			30
Loans charged-off		—		—		(1	)		(1	)
Recoveries		4		—		23			27
Ending balance	$	1,652	$	745	$	391		$	2,788

11(1) On January 1, 2023, the Company adopted ASU 2016-13 ("CECL"). See Note 2 for additional information regarding the adoption of ASU 2016-13.

(2) The allowance for credit losses for unfunded loan commitments is included in other liabilities on the Company's Consolidated Balance Sheets.

NOTE 4 – LOANS (continued)

Commercial

Residential

Consumer

Total

(in thousands)

Nine months ended September 30, 2022

Allowance for loan losses

Beginning balance

$
1,657

$
745

$
456

$
2,858

Provision for loan losses

210

—

—

210

Loans charged-off

—

—

(5
)

(5
)
Recoveries

61

—

56

117

Ending balance

$
1,928

$
745

$
507

$
3,180

Nine months ended September 30, 2021

Allowance for loan losses

Beginning balance

$
1,609

$
745

$
349

$
2,703

Provision for loan losses

30

—

—

30

Loans charged-off

—

—

(18
)

(18
)
Recoveries

13

—

60

73

Ending balance

$
1,652

$
745

$
391

$
2,788

The provision for credit losses is determined by the Company as the amount that is to be added to the ACL accounts to bring the ACL to a level that, in management's judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The following table presents the components of the provision for credit losses:

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for ~~loan~~credit losses. The credit quality indicators monitored differ depending on the class of loan. The credit quality indicators for commercial real estate and other commercial loans are based on the following ratings:

12•

~~NOTE 4 – LOANS (continued)~~

Doubtful ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is unlikely.

~~A summary of the Company’s internal risk ratings of loans is presented below:~~

September 30, 2022

Pass

Watch and Special Mention

Substandard

Total

(in thousands)

Commercial:

Real estate

$
199,479

$
4,059

$
4,176

$
207,714

Land development

—

—

—

—

Other

42,290

762

2,022

45,074

Total

$
241,769

$
4,821

$
6,198

$
252,788

December 31, 2021

Pass

Watch and Special Mention

Substandard

Total

(in thousands)

Commercial:

Real estate

$
172,172

$
8,963

$
4,088

$
185,223

Land development

1,400

—

—

1,400

Other

37,414

1

745

38,160

Total

$
210,986

$
8,964

$
4,833

$
224,783

~~There were~~ no ~~loans rated Doubtful or Loss as of September 30, 2022 or December 31, 2021, respectively.~~

Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing ~~according~~or in nonaccrual status. Refer to Note 1 to the ~~contractual terms of the loan. Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected~~Consolidated Financial Statements in ~~accordance~~our 2022 Annual Report on Form 10-K, filed with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. Information regarding the credit quality indicators most closely monitoredSEC on March 30, 2023, for ~~residential real estate and consumer loans is presented below:~~additional information on our nonaccrual policy.

September 30, 2022

Performing

Non Performing

Total

(in thousands)

Residential real estate:

First mortgage

$
83,175

$
725

$
83,900

Construction

2,653

—

2,653

Consumer:

Home equity and lines of credit

17,567

34

17,601

Other

115

—

115

Total

$
103,510

$
759

$
104,269

1314

NOTE 4 – LOANS (continued)

December 31, 2021

Performing

Non Performing

Total

(in thousands)

Residential real estate:

First mortgage

$
79,722

$
939

$
80,661

Construction

3,388

—

3,388

Consumer:

Home equity and lines of credit

16,954

78

17,032

Other

128

—

128

Total

$
100,192

$
1,017

$
101,209

~~Information regarding impaired~~The following table presents the amortized cost basis of our loans ~~is presented below:~~by credit quality indicator and origination year, at March 31, 2023:

As of and for the Nine Months Ended September 30, 2022

Recorded Investment

Unpaid Principal

Reserve

Average Investment

Interest Recognized

(in thousands)

Impaired loans with reserve:

Commercial:

Real estate

$
—

$
—

$
—

$
—

$
—

Land development

—

—

—

—

—

Other

—

—

—

—

—

Residential real estate:

First mortgage

—

—

—

—

—

Construction

—

—

—

—

—

Consumer:

Home equity and lines of credit

—

—

—

—

—

Other

—

—

—

—

—

Total impaired loans
with reserve

$
—

$
—

$
—

$
—

$
—

Impaired loans with no reserve:

Commercial:

Real estate

$
4,176

$
4,176

NA

$
3,897

$
111

Land development

—

—

NA

—

—

Other

2,022

2,022

NA

1,009

86

Residential real estate:

First mortgage

1,132

1,349

NA

1,231

50

Construction

—

—

NA

—

—

Consumer:

Home equity and lines of credit

34

39

NA

35

1

Other

—

—

NA

—

—

Total impaired loans
with no reserve

7,364

7,586

NA

6,172

248

Total impaired loans

$
7,364

$
7,586

$
—

$
6,172

$
248


	March 31, 2023
	2023		2022		2021		2020		2019		2018 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial real estate:
Pass	$	2,055	$	68,500	$	51,027	$	42,137	$	9,921	$	37,656	$	69	$	-	$	211,365
Watch and special mention		-		-		-		-		848		248		-		-		1,096
Substandard		-		165		616		-		296		1,339		-		149		2,565
Total commercial real estate		2,055		68,665		51,643		42,137		11,065		39,243		69		149		215,026
Other commercial loans:
Pass		5,177		16,242		8,101		2,079		366		2,261		8,292		-		42,518
Watch and special mention		-		-		-		-		28		72		-		-		100
Substandard		-		283		329		178		17		156		1,707		-		2,670
Total other commercial loans		5,177		16,525		8,430		2,257		411		2,489		9,999		-		45,288
Total commercial loans		7,232		85,190		60,073		44,394		11,476		41,732		10,068		149		260,314
Residential real estate - first mortgage:
Performing		2,304		14,167		33,038		16,511		3,448		18,625		-		-		88,093
Nonaccrual		-		-		-		-		-		699		-		-		699
Total residential real estate - first mortgage		2,304		14,167		33,038		16,511		3,448		19,324		-		-		88,792
Residential real estate - construction:
Performing		-		725		1,536		-		-		-		-		-		2,261
Nonaccrual		-		-		-		-		-		-		-		-		-
Total residential real estate - construction		-		725		1,536		-		-		-		-		-		2,261
Total residential real estate		2,304		14,892		34,574		16,511		3,448		19,324		-		-		91,053
Consumer - home equity and lines of credit:
Performing		-		72		156		116		182		1,496		15,496		540		18,058
Nonaccrual		-		-		-		-		-		33		-		-		33
Total consumer - home equity and lines of credit		-		72		156		116		182		1,529		15,496		540		18,091
Consumer - other
Performing		-		56		1		10		5		12		-		-		84
Nonaccrual		-		-		-		-		-		-		-		-		-
Total consumer - other		-		56		1		10		5		12		-		-		84
Total consumer		-		128		157		126		187		1,541		15,496		540		18,175
Total loans	$	9,536	$	100,210	$	94,804	$	61,031	$	15,111	$	62,597	$	25,564	$	689	$	369,542

1415

NOTE 4 – LOANS (continued)

As of and for the Year Ended December 31, 2021

Recorded Investment

Unpaid Principal

Reserve

Average Investment

Interest Recognized

(in thousands)

Impaired loans with reserve:

Commercial:

Real estate

$
—

$
—

$
—

$
—

$
—

Land development

—

—

—

—

—

Other

—

—

—

—

—

Residential real estate:

First mortgage

—

—

—

—

—

Construction

—

—

—

—

—

Consumer:

Home equity and lines of credit

—

—

—

—

—

Other

—

—

—

—

—

Total impaired loans
with reserve

$
—

—

$
—

$
—

$
—

$
—

Impaired loans with no reserve:

Commercial:

Real estate

$
4,088

$
4,089

NA

$
5,615

$
213

Land development

—

—

NA

734

33

Other

745

796

NA

1,478

35

Residential real estate:

First mortgage

1,357

1,572

NA

914

34

Construction

—

—

NA

—

—

Consumer:

Home equity and lines of credit

37

41

NA

17

22

Other

—

—

NA

—

—

Total impaired loans
with no reserve

6,227

6,498

NA

8,758

337

Total impaired loans

$
6,227

$
6,498

$
—

$
8,758

$
337

A summary of the credit quality indicators, at amortized cost, prior to the adoption of CECL is presented below:


	December 31, 2022
	Pass		Watch and Special Mention		Substandard		Total
	(in thousands)
Commercial:
Real estate	$	206,655	$	2,932	$	1,271	$	210,858
Land development		—		—		—		—
Other		41,569		35		2,104		43,708
Total	$	248,224	$	2,967	$	3,375	$	254,566

There were no ~~additional funds committed to impaired~~commercial loans rated Doubtful or Loss as of ~~September 30, 2022 and~~March 31, 2023 or December 31, ~~2021, respectively.~~2022.


	December 31, 2022
	Performing		Non-Performing		Total
	(in thousands)
Residential real estate:
First mortgage	$	84,730	$	714	$	85,444
Construction		3,248		—		3,248
Consumer:
Home equity and lines of credit		18,535		55		18,590
Other		99		—		99
Total	$	106,612	$	769	$	107,381

The following table presents gross charge-offs of our loans for each portfolio class, by origination year, that occurred during the three months ended March 31, 2023. Refer to Note 1 to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K for additional information on our charge-off policy.


	March 31, 2023
	2023		2022		2021		2020		2019		2018 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other		-		-		-		-		-		-		-		-		-
Total commercial loans		-		-		-		-		-		-		-		-		-
Residential real estate:
First mortgage		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-
Total residential real estate		-		-		-		-		-		-		-		-		-
Consumer:
Home equity and lines of credit		-		-		-		-		-		-		-		-		-
Other		-		4		-		-		-		2		-		-		6
Total consumer		-		4		-		-		-		2		-		-		6
Total current period charge-offs	$	-	$	4	$	-	$	-	$	-	$	2	$	-	$	-	$	6

NOTE 4 – LOANS (continued)

~~Nonperforming~~An analysis of past due loans, ~~are as follows:~~net of amortized costs, is presented below:

September 30, 2022

December 31, 2021

(in thousands)

Nonaccrual loans, other than troubled debt restructurings

$
575

$
826

Nonaccrual loans, troubled debt restructurings

184

191

Total nonperforming loans

$
759

$
1,017

Troubled debt restructurings, accruing

$
406

$
418


	March 31, 2023
	Loans Past Due 30-89 Days		Loans Past Due 90+ Days		Total Past Due		Current Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	—	$	—	$	—	$	215,026	$	215,026
Land development		—		—		—		—		—
Other		—		—		—		45,288		45,288
Residential real estate:
First mortgage		207		—		207		88,585		88,792
Construction		—		—		—		2,261		2,261
Consumer:
Home equity and lines of credit		40		—		40		18,051		18,091
Other		—		—		—		84		84
Total	$	247		—	$	247	$	369,295	$	369,542


	December 31, 2022
	Loans Past Due 30-89 Days		Loans Past Due 90+ Days		Total Past Due		Current Loans		Total Loans
	(in thousands)
Commercial:
Real estate		1,732		—		1,732	$	209,126	$	210,858
Land development		—		—		—		—		—
Other		—		—		—		43,708		43,708
Residential real estate:
First mortgage		181		63		244		85,200		85,444
Construction		—		—		—		3,248		3,248
Consumer:
Home equity and lines of credit		72		21		93		18,497		18,590
Other		2		—		2		97		99
Total	$	1,987		84	$	2,071	$	359,876	$	361,947

There were no loans ~~modified~~90 days or more past due and accruing interest as ~~troubled debt restructurings during the nine months ended September 30, 2022 and year ended~~of March 31, 2023 or December 31, ~~2021,~~2022, respectively.

The CARES Act and related legislation included an option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and December 31, 2021. The relief could only be applied to modifications for borrowers that were not more than 30 ~~days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. As of September 30, 2022, the Company had 1 to 3 month deferrals of approximately $245,000~~ ~~in interest, escrow, and principal payments on $4.6~~ ~~million in outstanding loans.~~

1517

NOTE 4 – LOANS (continued)

The following table presents the amortized cost of our loans on nonaccrual status as of March 31, 2023 and December 31, 2022. All loans that were 90 days or more past due were on nonaccrual status as of March 31, 2023 and December 31, 2022.


	March 31, 2023			December 31, 2022
	(in thousands)
Commercial:
Real estate	$	—		$	—
Land development		—			—
Other		—			—
Residential real estate:
First mortgage		699			714
Construction		—			—
Consumer:
Home equity and lines of credit		33			55
Other		—			—
Total nonaccrual loans	$	732		$	769
Total nonaccrual loans to total loans		0.20	%		0.21	%
Total nonaccrual loans to total assets		0.13	%		0.14	%

The Company ~~considers a~~had $732,000 of loans that were in nonaccrual status as of March 31, 2023, with no related allowance for credit losses. During the three months ended March 31, 2023, there was no interest earned on nonaccrual loans and no accrued interest was reversed on nonaccrual loans.

At March 31, 2023, the Company held loans that were individually evaluated for impairment due to financial difficulties experienced by the borrower and for which the repayment, on the basis of our assessment, is expected to be provided substantially through the sale or operation of the collateral. The ACL for these collateral dependent loans is primarily based on the fair value of the underlying collateral at the reporting date. The following describes the type of collateral that secure collateral dependent loans:

•

Commercial real estate loans are primarily secured by office and industrial buildings and warehouses.

•

Commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment.

•

One-to-four-family mortgages are primarily secured by first liens on residential real estate.

•

Home equity loans are primarily secured by first and junior loans on residential real estate.

The table below summarizes collateral dependent loans and the related ACL at March 31, 2023 for which the borrower is experiencing financial difficulty:


	Loans		ACL
	(in thousands)
Commercial:
Real estate		2,594		—
Land development		—		—
Other		2,836		—
Residential real estate:
First mortgage		901		—
Construction		—		—
Consumer:
Home equity and lines of credit		33		—
Other		—		—
Total	$	6,364		—

NOTE 4 – LOANS (continued)

A summary of the allowance for loan losses for loans evaluated individually and collectively for impairment, at amortized cost, prior to the adoption of CECL is presented below:


	December 31, 2022
	Commercial		Residential		Consumer		Total
	(in thousands)
Loans:
Individually evaluated for impairment	$	3,525	$	917	$	55	$	4,497
Collectively evaluated for impairment		251,041		87,775		18,634		357,450
Total loans	$	254,566	$	88,692	$	18,689	$	361,947

Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,944		752		507		3,203
Total allowance for loan losses	$	1,944	$	752	$	507	$	3,203

NOTE 4 – LOANS (continued)

Information regarding impaired loans, at amortized cost, prior to the adoption of CECL is presented below:


	As of and for the Year Ended December 31, 2022
	Recorded Investment			Unpaid Principal		Reserve		Average Investment		Interest Recognized
	(in thousands)
Impaired loans with reserve:
Commercial:
Real estate	$	—		$	—	$	—	$	—	$	—
Land development		—			—		—		—		—
Other		—			—		—		—		—
Residential real estate:
First mortgage		—			—		—		—		—
Construction		—			—		—		—		—
Consumer:
Home equity and lines of credit		—			—		—		—		—
Other		—			—		—		—		—
Total impaired loans with reserve	$	—	—	$	—	$	—	$	—	$	—

Impaired loans with no reserve:
Commercial:
Real estate	$	1,422		$	1,470	NA		$	3,952	$	177
Land development		—			—	NA			—		—
Other		2,103			2,103	NA			1,325		110
Residential real estate:
First mortgage		917			1,138	NA			1,011		55
Construction		—			—	NA			—		—
Consumer:
Home equity and lines of credit		55			60	NA			37		2
Other		—			—	NA			—		—
Total impaired loans with no reserve		4,497			4,771	NA			6,325		344

Total impaired loans	$	4,497		$	4,771	$	—	$	6,325	$	344

The adoption of ASU 2022-02 eliminated troubled debt ~~restructuring in~~restructurings (TDR's) recognition and measurement guidance, as well as all TDR related disclosures. Refer to Note 2 for additional information. TDRs were loan modifications where concessions were granted to borrowers experiencing financial difficulties. The Company did not modify any loans for borrowers that are experiencing financial difficulty and did not have any previous modifications that were made during the past 12 months that experienced a payment default ~~if it becomes past due more than 90 days.~~during the three months ended March 31, 2023. At December 31, 2022, the Company had $538,000 of TDR's, of which $183,000 was on nonaccrual. There were no loan modifications that were classified as a TDR during the year ended December 31, 2022. Further, there were ~~troubled debt restructurings~~noTDR's within the past twelve months for which there was a default during the ~~nine~~three months ended ~~September 30, 2022 and 2021.~~March 31, 2022.

NOTE 7 – FEDERAL HOME LOAN BANK ADVANCES

A summary ofFederal Home Loan Bank advances ~~consist of the following:~~follows:

September 30, 2022

December 31, 2021

Rate

Amount

Rate

Amount

(dollars in thousands)

Fixed rate, fixed term advance, maturing Feb 2022

—

$
—

1.62
%

$
6,500

Fixed rate, fixed term advance, maturing Feb 2023

1.62
%

6,500

1.62
%

6,500

Fixed rate, fixed term advance, maturing July 2027

2.90
%

5,000

—

—

Putable advance, maturing Oct 2029 first put option date Nov 2020

—

—

1.03
%

10,000

Putable advance, maturing Feb 2030 first put option date Feb 2023

0.98
%

5,000

0.98
%

5,000

Putable advance, maturing Mar 2030 first put option date Mar 2025

0.89
%

10,000

0.89
%

10,000

Putable advance, maturing Mar 2032 first put option date Mar 2027

1.74
%

10,000

—

—

Putable advance, maturing July 2029 first put option date January 2023

1.68
%

5,000

—

—

Advance structured note, payments due monthly, maturing Feb 2030

—

—

7.47
%

542

Advance structured note, payments due monthly, maturing April 2030

1.05
%

7,679

1.05
%

8,405

Advance structured note, payments due monthly, maturing May 2030

1.19
%

7,772

1.19
%

8,495

Total

$
56,951

$
55,442


	March 31, 2023					December 31, 2022
	Rate			Amount		Rate			Amount
	(dollars in thousands)

Fixed rate, fixed term advance, maturing Feb 2023		—			—		1.62	%		6,500
Fixed rate, fixed term advance, maturing April 2023		4.84	%		5,000		—			—
Fixed rate, fixed term advance, maturing April 2023		4.92	%		5,000		—			—
Fixed rate, fixed term advance, maturing July 2027		2.90	%		5,000		2.90	%		5,000
Putable advance, maturing July 2029, first option date January 2023		—			—		1.68	%		5,000
Putable advance, maturing February 2030, first option date February 2023		—			—		0.98	%		5,000
Putable advance, maturing October 2029, first put option date April 2023		2.96	%		5,000		2.96	%		5,000
Putable advance, maturing January 2028, first option date July 2023		3.34	%		2,500		—			—
Putable advance, maturing January 2028, first option date July 2023		3.22	%		2,500		—			—
Putable advance, maturing February 2028, first option date August 2023		3.37	%		2,500		—			—
Putable advance, maturing February 2028, first option date November 2023		3.82	%		5,000		—			—
Putable advance, maturing January 2028, first option date January 2024		3.44	%		5,000		—			—
Putable advance, maturing February 2028, first option date February 2024		3.63	%		5,000		—			—
Putable advance, maturing March 2028, first option date March 2024		3.47	%		5,000		—			—
Putable advance, maturing Mar 2030, first put option date Mar 2025		0.89	%		10,000		0.89	%		10,000
Putable advance, maturing Mar 2032, first put option date Mar 2027		1.74	%		10,000		1.74	%		10,000
Advance structured note, payments due monthly, maturing April 2030		1.05	%		7,191		1.05	%		7,435
Advance structured note, payments due monthly, maturing May 2030		1.19	%		7,287		1.19	%		7,529
SOFR Floater advance, maturing October 2023		5.07	%		5,000		4.54	%		5,000
SOFR Floater advance, maturing October 2024		5.12	%		5,000		4.59	%		5,000
Total				$	91,978				$	71,464

The scheduled maturities and required principal payments of Federal Home Loan Bank advances are presented below:


	September 30, 2022					March 31, 2023
	Weighted Average Rate			Amount		Weighted Average Rate			Amount
	(dollars in thousands)					(dollars in thousands)
2022		1.12	%	$	486
2023		1.50	%		8,457		4.50	%	$	16,470
2024		1.12	%		1,980		3.99	%		6,979
2025		1.12	%		2,002		1.12	%		2,002
2026		1.12	%		2,024		1.12	%		2,024
2027							2.38	%		7,047
Thereafter		0.93	%		42,002		2.49	%		57,456
Total				$	56,951		2.90	%	$	91,978

Actual maturities may differ from scheduled maturities due to call options on various ~~Federal Home Loan Bank~~FHLB advances.

The Company maintains a master contract agreement with the ~~Federal Home Loan Bank,~~FHLB, which provides for borrowing up to the lesser of 22.22 times the value of the ~~Federal Home Loan Bank~~FHLB stock owned, a determined percentage of the book value of the Company’s qualifying real estate loans, or a determined percentage of the Company’s assets. The ~~Federal Home Loan Bank~~FHLB provides both fixed and floating rate advances. Floating rates are tied to short-term market rates of interest such as the Secured Overnight Financing Rate ("SOFR"), federal funds or Treasury bill rates. ~~Federal Home Loan Bank~~FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity.

The Company has pledged qualifying real estate and commercial and industrial loans with collateral values of approximately $~~251.4~~164.1 million at March 31, 2023 and $~~232.7~~172.4 million ~~as collateral for Federal Home Loan Bank advances as of September 30, 2022 and~~at December 31, ~~2021, respectively. Collateral values to borrow against were approximately $171.0~~ ~~million and $147.5~~ ~~million as of September 30, 2022 and December 31, 2021, respectively. Federal Home Loan Bank~~2022. FHLB advances were also secured by approximately $~~3.2~~4.8 million and $~~3.0~~3.4 million of ~~Federal Home Loan Bank~~FHLB stock held by the Company as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The Company’s available and unused portion of this borrowing agreement totaled $~~112.6~~71.2 million and $~~90.9~~100.0 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Additional borrowing would require additional stock purchase.

Additionally, at ~~September 30, 2022 the Company~~March 31, 2023 we had a $15.0 million federal funds rate line of credit with the BMO Harris Bank, none of which was drawn at ~~September 30, 2022.~~March 31, 2023. The Company also had aan $~~10.0~~8.8 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately $~~13.2~~11.8 million at ~~September 30, 2022.~~March 31, 2023. The Company had not drawn on the Federal Reserve line as of ~~September 30, 2022.~~March 31, 2023. We also have the ability to participate in the Federal Reserve's new Bank Term Funding Program as needed.

1823

NOTE 8 – INCOME TAXES

Income tax ~~expense~~ (benefit) was $($21151~~,000~~,000) and ($5760,000) for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and ($172,000) and $~~45~~,000 for the nine months ended September 30, 2022 and 2021,~~ respectively.

Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available evidence, it is more likely than not that some portion of the deferred asset will not be realized. As required by generally accepted accounting principles, available evidence is weighted heavily on cumulative losses, with less weight placed on future projected profitability. The realization of deferred tax assets is dependent on the existence of taxable income of the appropriate character (e.g., ordinary or capital) within the carry-back and carry-forward periods available under tax law, which would consider future reversals of existing taxable temporary differences and available tax planning strategies. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the deferred tax valuation allowance was $934,000, reducing our net deferred tax asset to $~~8.4~~8.1 million and $~~3.8~~8.3 million at each respective date.

The board and management continue to assess the deferred tax assets in light of recent changes in market conditions, forecasted future projected income and available tax planning strategies. As such, there may be additional deferred tax asset impairment in subsequent periods.

1924

NOTE 9 – COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company may be involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial statements. No material legal proceedings existed at ~~September 30, 2022.~~March 31, 2023.

In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These instruments include commitments to extend credit and commitments to sell loans. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the balance sheets.

The Company’s exposure to credit losses is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments. As some of the commitments are expected to expire without being drawn upon, and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements of the Company.

ASU 2016-13 requires that we establish an allowance for credit losses for off-balance sheet credit exposures, including unfunded loan commitments, that meet certain requirements. The allowance for credit losses for off-balance sheet credit exposures is estimated by portfolio segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, also taking into consideration management’s assumption of the likelihood that funding will occur. The allowance for credit losses for off-balance sheet credit exposures is included in other liabilities on the Company’s Consolidated Balance Sheets. Additional provisions for expected losses occur through a charge to the provision for credit losses. The adoption of the ASU 2016-13 resulted in the establishment of a $665,000 allowance for credit losses for unfunded loan commitments, based on $41.1 million in outstanding loan commitments that are expected to fund. At March 31, 2023, the allowance for credit losses for unfunded commitments was $665,000 and there were $36.9 million in outstanding commitments to extend credit were expected to fund.

The contractual amounts of off-balance-sheet credit-related financial instruments are summarized below:


	September 30, 2022						March 31, 2023
	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total
	(in thousands)						(in thousands)
Commitments to extend credit	$	12,257	$	72,300	$	84,557	$	4,191	$	74,490	$	78,681
Standby letters of credit		—		150		150		—		150		150
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program		1,365		—		1,365		904		—		904
Commitments to sell loans		2,184		—		2,184		853		—		853
Overdraft protection program commitments		3,933		—		3,933		3,845		—		3,845


	December 31, 2021						December 31, 2022
	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total
	(in thousands)						(in thousands)
Commitments to extend credit	$	21,586	$	56,921	$	78,507	$	3,391	$	80,631	$	84,022
Standby letters of credit		—		175		175		—		150		150
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program		1,214		—		1,214		894		—		894
Commitments to sell loans		5,410		—		5,410		1,292		—		1,292
Overdraft protection program commitments		3,993		—		3,993		3,881		—		3,881

2025

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

Commitments to extend credit are agreements to lend to a customer at fixed or variable rates, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; real estate; and stocks and bonds. Commitments to sell loans represent commitments obtained by the Company from a secondary market agency to purchase mortgages from the Company at specified interest rates and within specified periods of time.

Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all standby letters of credit have expiration dates within one year. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting these commitments. Standby letters of credit are not reflected in the financial statements, since recording the fair value of these guarantees would not have a significant impact on the financial statements.

The Company participates in the Federal Home Loan Bank of Chicago Mortgage Partnership Finance Program (the “Program”). In addition to entering into forward commitments to sell mortgage loans to a secondary market agency, the Company enters into firm commitments to deliver loans to the Federal Home Loan Bank of Chicago through the Program. Under the Program, loans are funded by the Federal Home Loan Bank of Chicago, and the Company receives an agency fee reported as a component of gain on sale of loans. The Company had $~~711,000~~431,000 of commitments to deliver loans through the Program as of ~~September 30, 2022.~~March 31, 2023. Once delivered to the Program, the Company provides a contractually agreed-upon credit enhancement and performs servicing of the loans. Under the credit enhancement, the Company is liable for losses on loans delivered through the Program after application of any mortgage insurance and a contractually agreed-upon credit enhancement provided by the Program, subject to an agreed-upon maximum. The Company receives a fee for this credit enhancement. The Company records a liability for expected losses in excess of anticipated credit enhancement fees. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the Company had no liability outstanding related to the Program.

Unfunded commitments under overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit may or may not require collateral and may or may not contain a specific maturity date.

2126

NOTE 10 – EMPLOYEE STOCK OWNERSHIP PLAN

The Company established a tax qualified Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees, ~~effective January 1, 2019,~~ in ~~connection~~conjunction with the ~~mutual holding company reorganization and organization of Old 1895 Bancorp.~~reorganization. Eligible employees become 20% vested in their accounts after 1 year of service, 40% vested after 2 years of service, 60% vested after 3 years of service, 80% vested after 4 years of service, and 100% vested after 5 or more years of service, or earlier, upon death, disability or attainment of normal retirement age.

On January 8, 2019, the ESOP purchased 175,528 shares (231,047 shares adjusted for the conversion) of the Company’s common stock, which was funded by a loan from Old 1895 Bancorp. Unreleased ESOP shares collateralize the loan payable, and the cost of the shares is recorded as contra-equity account in the stockholders’ equity of the Company. Shares are to be released as debt payments are made by the ESOP to the loan. The ESOP’s sources of repayment of the loan can include dividends, if any, on the unallocated stock held by the ESOP, and discretionary contributions from the Company to the ESOP and earnings thereon.

As part of the mutual-to-stock conversion and stock offering completed on July 14, 2021, the ESOP refinanced the aforementioned loan with New 1895 Bancorp, enabling the ESOP to purchase an aggregate of 283,360 additional shares of common stock. ~~During~~The ESOP completed the ~~nine months ended September 30, 2022, the ESOP purchased an additional~~ ~~96,446~~ ~~shares at an average price~~purchase of $~~10.95. As of September 30, 2022, the ESOP had purchased~~ all of the additional 283,360 shares at an average price of $10.90. in the second quarter of 2022.

Compensation expense for the ESOP is recorded at an amount equal to the shares allocated by the ESOP multiplied by the average fair market value of the shares during the period. The Company recognizes compensation expense ratably over the year based upon the Company’s estimate of the number of shares expected to be allocated by the ESOP. Unearned compensation applicable to the ESOP is reflected as a reduction of stockholders’ equity in the consolidated balance sheet.

The difference between the average fair market value and the cost of the shares allocated by the ESOP is recorded as an adjustment to stockholders’ equity. The Company recognized $~~49,000~~47,000 and $~~10,000~~51,000 in compensation expense for the three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021, respectively, and $151,000~~ ~~and $61,000~~ ~~for the nine months ended September 30, 2022 and September 30, 2021,~~ respectively.

The following table provides the allocated and unallocated shares of common stock associated with the ESOP.


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
	(dollars in thousands)				(dollars in thousands)
Shares committed to be released		14,757		22,401		4,864		19,730
Total allocated shares		37,641		15,239		55,900		36,170
Total unallocated shares		458,765		377,077		448,928		453,792
Total ESOP shares		511,163		414,717		509,692		509,692
Fair value of unallocated shares (based on $10.58 and $10.99 share price as of September 30, 2022 and December 31, 2021, respectively)	$	4,854	$	4,144
Fair value of unallocated shares (based on $8.04 and $10.00 share price as of March 31, 2023 and December 31, 2022, respectively)					$	3,609	$	4,538

2227

NOTE 11 – RELATED PARTY TRANSACTIONS

A summary of loans to directors, executive officers, and their affiliates follows:


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
	(in thousands)						(in thousands)
Beginning balance	$	932		$	1,034		$	1,015		$	932
Adjustments due to changes in directors, executive officers, and/or principal stockholders		—			202			—			—
New loans		4			53			—			169
Repayments		(71	)		(357	)		(14	)		(86	)
Ending balance	$	865		$	932		$	1,001		$	1,015

Deposits from directors, executive officers, and their affiliates totaled $~~759,000~~670,000 and $~~1.1~~583,000 ~~million~~ at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The Company utilizes the services of law firms in which certain of the Company’s directors are partners. Fees paid to the firms for these services were immaterial for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

NOTE 12 – FAIR VALUE MEASUREMENTS

ASC Topic 820, Fair Value Measurements and Disclosures defines fair values, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This accounting standard applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. The standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing an asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and

the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels.

Level 1 inputs – In general, fair values determined by Level 1 inputs use quoted market prices in active markets for identical assets or liabilities that we have the ability to access.

Level 2 inputs – Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets where there are few transactions and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs – Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Some assets and liabilities, such as securities available-for-sale, are measured at fair value on a recurring basis under GAAP. Other assets and liabilities, such as ~~impaired~~collateral dependent loans, may be measured at fair value on a nonrecurring basis.

2328

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)

Following is a description of the Company’s valuation methodology and significant inputs used for each asset and liability measured at fair value on a recurring or nonrecurring basis.

Securities – Marketable equity securities and securities available-for-sale may be classified as Level 1 or Level 2 measurements within the fair value hierarchy. Level 1 securities include equity securities traded on a national exchange. The fair value measurements of Level 1 securities are based on the quoted market price of those securities. Level 2 securities include U.S. Treasury notes, U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities and mortgage-related securities. The fair value measurements of Level 2 securities are obtained from independent pricing services and are based on recent sales of similar securities and other observable market data.

~~Impaired~~Collateral dependent loans – The Company does not record loans at fair value on a recurring basis. However, ~~periodically, a loan is considered impaired and is~~individually evaluated loans are reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. Independent appraisals are obtained to determine the fair values of underlying collateral, and generally utilize one or more valuation methodologies, which typically include comparable sales and income approaches. Management routinely evaluates the fair value measurements of independent appraisers and adjusts those valuations based on differences noted between actual selling prices of collateral and the most recently appraised value. Such adjustments are usually significant, which results in a Level 3 classification. ~~All other impaired loan measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and are not considered fair value measurements.~~

Rate lock commitments – Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value in other assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements for fixed-rate commitments and also considers the difference between current levels of interest rates and the committed rates. While there are Level 2 and 3 inputs used in the valuation models, the Company has determined that one or more of the inputs significant in the valuation of both of the mortgage banking derivatives fall within Level 3 of the fair value hierarchy. The change in fair value is recorded through an adjustment to the statement of operations, within mortgage banking income.

Mortgage servicing rights – The Company utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of mortgage servicing rights. The model utilizes prepayment assumptions to project cash flows related to the mortgage servicing rights based upon the current interest rate environment, which is then discounted to estimate an expected fair value of the mortgage servicing rights. The model considers characteristics specific to the underlying mortgage portfolio, such as: contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges and costs to service. Given the significance of the unobservable inputs utilized in the estimation process, mortgage servicing rights are classified as Level 3 within the fair value hierarchy. The Company records the mortgage servicing rights at the lower of amortized cost or fair value.

Assets measured at fair value on a recurring basis are summarized below, along with the level of the fair value hierarchy of the inputs utilized to determine such fair value.


			Recurring Fair Value Measurements Using								Recurring Fair Value Measurements Using
	September 30, 2022		Level 1		Level 2		Level 3		March 31, 2023		Level 1		Level 2		Level 3
	(in thousands)								(in thousands)
Marketable equity securities	$	2,723	$	2,723	$	—	$	—	$	3,170	$	3,170	$	—	$	—
Securities available-for-sale:
U.S. Treasury notes		26,336		—		26,335		—		27,116		—		27,116		—
Obligations of states and political subdivisions		17,665		—		17,666		—		18,066		—		18,066		—
Government-sponsored mortgage-backed securities		67,782		—		67,782		—		62,875		—		62,875		—
Asset-backed securities		5,201		—		5,201		—		4,149		—		4,149		—
Certificates of deposit		1,430		—		1,430		—		1,208		—		1,208		—
Total	$	121,137	$	2,723	$	118,414	$	—	$	116,584	$	3,170	$	113,414	$	—

2429

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)


			Recurring Fair Value Measurements Using								Recurring Fair Value Measurements Using
	December 31, 2021		Level 1		Level 2		Level 3		December 31, 2022		Level 1		Level 2		Level 3
	(in thousands)								(in thousands)
Marketable equity securities	$	3,544	$	3,544	$	—	$	—	$	2,924	$	2,924	$	—	$	—
Securities available-for-sale:
U.S. Treasury notes		19,484		—		19,484		—		26,627		—		26,627		—
Obligations of states and political subdivisions		20,760		—		20,760		—		17,656		—		17,656		—
Government-sponsored mortgage-backed securities		64,149		—		64,149		—		64,267		—		64,267		—
Asset-backed securities		6,523		—		6,523		—		4,517		—		4,517		—
Certificates of deposit		1,524		—		1,524		—		1,425		—		1,425		—
Total	$	115,984	$	3,544	$	112,440	$	—	$	117,416	$	2,924	$	114,492	$	—

~~Impaired~~Individually evaluated collateral dependent loans are measured at fair value on a non-recurring basis. There were no individually evaluated collateral dependent loans ~~that were considered impaired~~ with a specific valuation allowance as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Mortgage servicing rights are measured at fair value on a non-recurring basis. There was no impairment on mortgage servicing rights as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

The carrying values and estimated fair values of financial instruments are presented below:


	September 30, 2022								March 31, 2023
	Carrying Value		Level 1		Level 2		Level 3		Carrying Value		Level 1		Level 2		Level 3
	(in thousands)								(in thousands)
Financial assets:
Cash and cash equivalents	$	15,702	$	15,702	$	—	$	—	$	29,015	$	29,015	$	—	$	—
Available-for-sale securities		118,414		—		118,414		—		113,414		—		113,414		—
Marketable equity securities		2,723		2,723		—		—		3,170		3,170		—		—
Loans held for sale		365		—		365		—
Loans		354,740		—		—		333,696
Loans, net										366,702		—		—		345,540
Rate lock commitments		10		—		—		10		5		—		—		5
Accrued interest receivable		1,106		1,106		—		—		1,246		1,246		—		—
Federal Home Loan Bank stock		3,205		—		—		3,205
Federal Home Loan Bank Stock										4,811		—		—		4,811
Cash value of life insurance		14,209		—		—		14,209		14,424		—		—		14,424
Financial liabilities:
Deposits		379,298		301,137		—		77,102		371,966		284,319		—		87,036
Advance payments by borrowers for taxes and insurance		10,225		10,225		—		—		3,986		3,986		—		—
Federal Home Loan Bank advances		56,951		—		—		58,085		91,978		—		—		87,072
Accrued interest payable		142		142		—		—		490		490		—		—

2530

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)


	December 31, 2021								December 31, 2022
	Carrying Value		Level 1		Level 2		Level 3		Carrying Value		Level 1		Level 2		Level 3
	(in thousands)								(in thousands)
Financial assets:
Cash and cash equivalents	$	66,803	$	66,803	$	—	$	—	$	28,344	$	28,344	$	—	$	—
Available-for-sale securities		112,440		—		112,440		—		114,492		—		114,492		—
Marketable equity securities		3,544		3,544		—		—		2,924		2,924		—		—
Loans held for sale		1,183		—		1,183		—		125		—		125		—
Loans		323,789		—		—		323,182
Loans, net										359,574		—		—		335,987
Rate lock commitments		30		—		—		30		6		—		—		6
Accrued interest receivable		948		948		—		—		1,257		1,257		—		—
Federal Home Loan Bank Stock		3,032		—		—		3,032		3,429		—		—		3,429
Cash value of life insurance		13,892		—		—		13,892		14,316		—		—		14,316
Financial liabilities:
Deposits		384,501		303,908		—		80,473		387,721		308,162		—		78,418
Advance payments by borrowers for taxes and insurance		1,860		1,860		—		—		1,029		1,029		—		—
Federal Home Loan Bank advances		55,442		—		—		55,981		71,464		—		—		69,633
Accrued interest payable		109		109		—		—		291		291		—		—

The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business.

Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts, nor is it recorded as an intangible ~~assets~~asset on the balance sheets. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

NOTE 13 – EQUITY AND REGULATORY MATTERS

PyraMax Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, ~~PyraMax~~the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's 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 their components, risk weightings and other factors. The Company is exempt from consolidated capital requirements as those requirements do not apply to certain small bank holding companies with consolidated assets under $3 billion.

Quantitative measures established by regulation to ensure capital adequacy require ~~PyraMax~~the Bank to maintain minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1, Tier 1 and Total capital to risk-weighted assets, and of Tier 1 capital to average assets. ~~PyraMax~~The Bank met all applicable capital adequacy requirements as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, respectively.~~2022.

As of ~~September 30, 2022, and December~~March 31, ~~2021, PyraMax~~2023, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, ~~PyraMax~~the Bank must maintain minimum regulatory capital ratios as set forth in the table below. ~~PyraMax~~There are no conditions or events since March 31, 2023 that management believes have changed the capital category of the Bank.

The Bank’s actual and required capital amounts and ratios are presented below:


	September 30, 2022															March 31, 2023
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)															(dollars in thousands)
PyraMax Bank
Leverage (Tier 1)	$	64,937		11.9	%	$	21,761		4.0	%	$	27,201		5.0	%	$	64,703		11.8	%	$	21,994		4.0	%	$	27,492		5.0	%

Risk-based:
Common Equity Tier 1		64,937		16.9	%		17,325		4.5	%		25,025		6.5	%		64,703		16.3	%		17,896		4.5	%		25,849		6.5	%
Tier 1		64,937		16.9	%		23,100		6.0	%		30,800		8.0	%		64,703		16.3	%		23,861		6.0	%		31,815		8.0	%
Total		68,117		17.7	%		30,800		8.0	%		38,501		10.0	%		69,061		17.4	%		31,815		8.0	%		39,768		10.0	%


	December 31, 2021															December 31, 2022
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)															(dollars in thousands)
PyraMax Bank
Leverage (Tier 1)	$	65,179		11.9	%	$	21,838		4.0	%	$	27,298		5.0	%	$	65,497		11.9	%	$	22,086		4.0	%	$	27,608		5.0	%

Risk-based:
Common Equity Tier 1		65,179		19.4	%		15,124		4.5	%		21,846		6.5	%		65,497		16.6	%		17,711		4.5	%		25,583		6.5	%
Tier 1		65,179		19.4	%		20,166		6.0	%		26,888		8.0	%		65,497		16.6	%		23,615		6.0	%		31,486		8.0	%
Total		68,037		20.2	%		26,888		8.0	%		33,610		10.0	%		68,700		17.5	%		31,486		8.0	%		39,358		10.0	%

On July 29, 2022, the Company adopted a stock repurchase program. Under the repurchase program, the Company may repurchase up to 5% of the current outstanding shares. On August 26, 2022, the Company received a non-objection letter from the Federal Reserve Bank of Chicago ("FRB") to repurchase 319,766 shares, which represented 5% of the shares outstanding at the time discussions were held with the FRB. The Company began purchasing shares on September 1, 2022 and ~~through September 30, 2022,~~as of March 31, 2023, the Company had repurchased ~~184,270~~309,821 shares for a total purchase price of $23.3 million.

2732

NOTE 14 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per ~~common~~ share is computed by dividing net (loss) income by the weighted average number of common shares outstanding, adjusted for weighted average unallocated ESOP shares, during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards and restricted stock units, though no actual shares of common stock related to restricted stock units are issued until the settlement of such units, to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company’s common stock.period. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. Antidilutive options are disregarded in earnings per share calculations. For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, ~~zero~~ ~~and~~ ~~182,457~~131,093 average shares ~~respectively,~~ were excluded from the computation of diluted EPS because the effect would be antidilutive. For the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, ~~209,508~~ ~~and~~ ~~zero~~189,715 average shares were excluded from the computation of diluted EPS because the effect would be antidilutive.

Earnings (loss) per common share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are presented in the following table.


	Three months ended September 30,					Three months ended March 31,
	2022		2021			2023			2022
	(In thousands, except per share amounts)					(In thousands, except per share amounts)

Net income (loss)	$	124	$	(115	)
Net (loss)						$	(361	)	$	(55	)

Weighted shares outstanding for basic EPS
Weighted average shares outstanding		6,271		6,269			5,986,822			6,275,850
Less: Weighted average unallocated ESOP shares		461		258			451,333			401,886

Weighted average shares outstanding for basic EPS		5,810		6,011			5,535,489			5,873,964
Additional dilutive shares(1)		173		—			—			—

Weighted average shares outstanding for dilutive EPS		5,983		6,011			5,535,489			5,873,964

Basic income (loss) per share	$	0.02	$	(0.02	)
Diluted income (loss) per share	$	0.02	$	(0.02	)
Basic (loss) per share						$	(0.07	)	$	(0.01	)
Diluted (loss) per share(1)						$	(0.07	)	$	(0.01	)

Nine months ended September 30,

2022

2021

(In thousands, except per share amounts)

Net (loss) income

$
(172
)

$
354

Weighted shares outstanding for basic EPS

Weighted average shares outstanding

6,279

6,261

Less: Weighted average unallocated ESOP shares

437

226

Weighted average shares outstanding for basic EPS

5,842

6,035

Additional dilutive shares

—

228

Weighted average shares outstanding for dilutive EPS

5,842

6,263

Basic (loss) income per share

$
(0.03
)

$
0.06

Diluted (loss) income per share

$
(0.03
)

$
0.06

(1) For the three months ended March 31, 2023 and March 31, 2022, the effect of stock options was anti-dilutive and therefore no dilutive shares are included in the weighted average shares outstanding or diluted loss calculations.

2833

NOTE 15 – STOCK BASED COMPENSATION

Stock-Based Compensation Plans

On March 27, 2020, the Company’s stockholders approved the 1895 Bancorp of Wisconsin, Inc. 2020 Equity Incentive Plan (the “2020 Equity Incentive Plan”). A total of 238,467 (~~313,894~~ ~~stock options adjusted for the conversion)~~ stock options and 95,387 (~~125,557~~ ~~shares adjusted for the conversion)~~ restricted shares were approved for award. As of ~~September 30, 2022,~~March 31, 2023, no shares of common stock remained available for grant as stock options, restricted stock or restricted stock units under the 2020 Equity Incentive Plan. The stock options granted to employees and non-employee directors under this plan vest in five installments with the first installment vesting on the first anniversary of the date of grant. The exercise price for all stock options granted is equal to the quoted NASDAQ market close price on the date that the awards were granted and expire ten years after the grant date, if not exercised. The restricted stock awards granted to employees and non-employee directors under this plan vest in five installments with the first installment vesting on the first anniversary of the date of grant.

On August 26, 2022, the Company’s ~~stockholders~~shareholders approved the 1895 Bancorp of Wisconsin, Inc. 2022 Equity Incentive Plan (the “2022 Equity Incentive Plan”). A total of 354,200 stock options and 141,680 restricted shares were approved for award. As of March 31, 2023, 14,745 shares of common stock remain available for grant as stock options and 11,298 shares remain available for grant as restricted stock or stock units under the 2022 Equity Incentive Plan. The stock options granted to employees and non-employee directors under this plan vest in five installments with the first installment vesting on the first anniversary of the date of grant. The exercise price for all stock options granted is equal to the quoted NASDAQ market close price on the date that the awards were granted and expire ten years after the grant date, if not exercised. The restricted stock awards granted to employees and non-employee directors under this plan vest in five installments with the first installment vesting on the first anniversary of the date of grant.

Upon approval of the 2022 Equity Incentive Plan, if awards under the 2020 Equity Incentive Plan are forfeited and again become available for grant, no further awards will be granted under the 2020 Equity Incentive Plan. However, any restricted stock or stock options outstanding under the 2020 Equity Incentive Plan on the approval date of the 2022 Equity Incentive Plan will remain outstanding and subject to the terms and conditions of the 2020 Equity Incentive Plan.

Accounting for Stock-Based Compensation Plan

The fair value of stock options granted is estimated on the grant date using a Black-Scholes pricing model. The fair value of restricted shares is equal to the quoted NASDAQ market closing price on the date of grant. The fair value of stock grants is recognized as compensation expense on a straight-line basis over the vesting period of the grants. Compensation expense is included in salaries and employee benefits in the consolidated statements of operations.~~The following assumptions were used in estimating the fair value of options granted during the nine months ended September 30, 2022 and September 30, 2021, respectively:~~

For the Nine Months Ended

September 30,
2022

September 30,
2022

Dividend yield

0.00
%

0.00
%
Risk-free interest rate

3.13
%

0.96
%
Expected volatility

24.64
%

24.64
%
Weighted average expected life

6.5

6.5

Weighted average per share value of options

$
3.25

$
2.10

Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock options represent the period of time that the options are expected to be outstanding and is based on the historical results from the previous awards. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the actual volatility of 1895 Bancorp of Wisconsin, Inc. stock for the weighted average life time period prior to issuance date.The following assumptions were used in estimating the fair value of options granted during the three months ended March 31, 2023 and March 31, 2022, respectively:


	For the Three Months Ended
	March 31, 2023			March 31, 2022

Dividend yield		0.00	%	N/A (1)
Risk-free interest rate		3.59	%	N/A (1)
Expected volatility		24.64	%	N/A (1)
Weighted average expected life (years)		6.50		N/A (1)
Weighted average per share value of options	$	3.37		N/A (1)

(1) There were no stock options granted during the three months ended March 31, 2022.

NOTE 15 – STOCK BASED COMPENSATION (continued)

A summary of the Company’s stock option activity for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 is presented below.


Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining in Contractual Term (Years)		Aggregate Intrinsic Value		Shares		Weighted Average Exercise Price		Weighted Average Remaining in Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2021		300,720	$	6.19		8.40	$	1,443,067
Outstanding December 31, 2022									656,130		$	8.27		8.69	$	1,122,214
Granted		107,505		9.93		6.50		—	3,000			9.94		6.50		—
Exercised		—		—		—		—		—		—	N/A		N/A
Forfeited		—		—		—		—		—		—	N/A		N/A
Outstanding September 30, 2022		408,225		7.17		8.24	$	1,557,498
Options exercisable at September 30, 2022		112,824		6.09		7.61	$	553,129
Outstanding March 31, 2023										659,130		8.27	8.45		661,227
Options exercisable at March 31, 2023									135,983			6.17	7.14		302,158

The following table summarizes information about the Company’s nonvested stock option activity for the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


Stock Options	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021		248,043		$	1.58
Nonvested at December 31, 2022							543,306		$	2.82
Granted		107,505			3.25	3,000				3.37
Vested(1)		(60,147	)		1.56		(23,159	)		1.61
Forfeited		—			—		—			—
Nonvested at September 30, 2022		295,401		$	2.19
Nonvested at March 31, 2023							523,147		$	2.87

(1)

Includes ~~2,105~~2,106 shares vested under a nonqualified stock option inducement award to the Company’s President and Chief Operating Officer.

The Company amortizes the expense related to stock options as compensation expense over the vesting period. The Company recognized $~~33,000~~84,000 and $~~26,000~~23,000 in stock option expense during the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021. Additionally, the Company recognized $80,000~~ ~~and $74,000~~ ~~in stock option expense during the nine months ended September 30, 2022 and 2021,~~ respectively.

At ~~September 30, 2022,~~March 31, 2023, the Company had $~~593,000~~1.3 million in estimated unrecognized compensation costs related to outstanding stock options that is expected to be recognized over a weighted average period of ~~3.96~~4.2 years.

The following table summarizes information about the Company’s restricted stock activity for the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


Restricted Stock	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021		97,128		$	6.25
Nonvested at December 31, 2022						211,349			$	8.71
Granted		42,791			9.93		—			—
Vested(1)(2)		(23,532	)		6.20		(9,286	)		6.56
Forfeited		—			—		—			—
Nonvested at September 30, 2022		116,387		$	7.61
Nonvested at March 31, 2023							202,063		$	8.81

(1)

Includes 263 shares vested under a restricted stock inducement award to the Company’s President and Chief Executive Officer.

(2)

Includes ~~7,238~~1,335 shares surrendered by employees to cover payroll tax costs related to the vested shares.

The Company amortizes the expense related to restricted stock awards as compensation expense over the vesting period. The Company recognized $~~47,000~~104,000 and $~~39,000~~36,000 in restricted stock expense during the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively. Additionally, the Company recognized $120,000~~ ~~and $114,000~~ ~~in restricted stock shares expense during the nine months ended September 30, 2022 and 2021,~~ respectively. At ~~September 30, 2022,~~March 31, 2023, the Company had $~~804,000~~1.6 million of unrecognized compensation expense related to restricted stock shares that is expected to be recognized over a weighted average period of ~~3.83~~4.1 years.

3035

~~NOTE 16 – LEASES~~

The Company has operating leases consisting primarily of real estate leases. The Company leases real estate property for bank branches and office space with terms extending through 2028. As of September 30, 2022, the Company reported $~~471,000~~ ~~of right-of-use asset and $471,000~~ ~~lease liability in its consolidated balance sheet under other assets and other liabilities, respectively. The Company’s average remaining maturity for its leases is~~ ~~5.5~~ ~~years and its average discount rate is~~ ~~1.79~~%.

At September 30, 2022, the Company was obligated under noncancelable operating leases for office space and other commitments. Rent expense under operating leases, included in net occupancy and equipment expense, was $~~19,000~~ ~~and $57,000~~ ~~for the three and nine months ended September 30, 2022, respectively, and $21,000~~ ~~and $62,000~~ ~~for the three and nine months ended September 30, 2021, respectively.~~

~~Rent commitments were as follows as of September 30, 2022:~~

(in thousands)

2022

$
21

2023

87

2024

89

2025

91

2026

94

Thereafter

112

Amounts representing interest

(23
)
Total

$
471

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition and results of operations at ~~September 30, 2022~~March 31, 2023 and for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•

statements regarding the quality of our loan and investment portfolios; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•

our ability to maintain liquidity, primarily through deposits, in light of recent events in the banking industry;

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for ~~loan~~credit losses;

•

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made or will make;

•

our ability to manage market risk, credit risk and operational ~~risk in the current economic environment;~~

•

~~the actual or anticipated impacts of military conflict, terrorism or other geopolitical events;~~risk;

•

our ability to access cost-effective funding;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to implement and change our business strategies;

•

competition among depository and other financial institutions;

•

adverse changes in the securities or secondary mortgage markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, ~~and~~ capital requirements ~~including as a result of Basel III;~~

•

~~the impact of the Dodd-Frank Act~~ and ~~the implementing regulations;~~insurance premiums;

•

changes in the quality or composition of our loan or investment portfolios;

•

technological changes that may be more difficult or expensive than expected;

•

the inability of third-party providers to perform as expected;

•

a failure in or breach of our operational or security systems or infrastructure, including cyberattacks;

•

the ~~inability~~actual or anticipated impacts of ~~third-party providers to perform as expected;~~military conflict, terrorism or other geopolitical events;

3236

•

our ability to enter new markets successfully and capitalize on growth opportunities;

•

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we have acquired or may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

•

our ability to retain key employees;

•

changes in consumer spending, borrowing and savings habits;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight ~~Board;~~

•

Board, including the effects of our ~~ability to retain key employees;~~adoption of the Current Expected Credit Loss ("CECL") accounting standard, which we implemented on January 1, 2023;

•

our compensation expense associated with equity allocated or awarded to our employees; ~~and~~

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Additionally, the outbreak of COVID-19 may continue to adversely impact a broad range of industries in which the Company’s customers operate and will continue to impair their ability to fulfill their financial obligations to the Company.

Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to continue to have a material impact on our operations.

The CARES Act and related legislation included an option to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and December 31, 2021. The relief could only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. As of September 30, 2022, the Company had 1 to 3 month deferrals of approximately $245,000 in interest, escrow, and principal payments on $4.6 million in outstanding loans.

The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to originate PPP loans. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP. As part of the first round of this program, the Bank had funded 246 PPP loans totaling $30.3 million, with no outstanding balance remaining as of September 30, 2022.

On December 27, 2020, the Relief Act became law and provided an additional $284 billion for the PPP, as well as extending the PPP through June 30, 2021. As of September 30, 2022, we had funded 143 second round PPP loans totaling $10.5 million, of which $10.2 million had been forgiven as of September 30, 2022.

Because of ~~the above~~these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Additional factors that may affect our results are discussed under the heading "Risk Factors" in our most recent Annual Report on Form 10-K ~~under~~(fiscal year ended December 31, 2022) filed with the ~~heading “Risk Factors.”~~Securities and Exchange Commission (“SEC”) on March 30, 2023, and in this Quarterly Report on Form 10-Q. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events. Accordingly, you should not place undue reliance on forward-looking statements.

Critical Accounting Policies

As a result of the complex and dynamic nature of the Company’s business, management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations. The policy decision process not only ensures compliance with the current accounting principles generally accepted in the United States of America (“GAAP”), but also reflects management’s discretion with regard to choosing the most suitable methodology for reporting the Company’s financial performance. It is management’s opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity in the selection process. These estimates affect the reported amounts of assets and liabilities as well as disclosures of revenues and expenses during the reporting period. Actual results could meaningfully differ from these estimates. Management believes that the critical accounting estimates include the allowance for ~~loan~~credit losses, determination of fair value for financial instruments, and valuation of deferred income taxes.

A summary of the accounting policies used by management is disclosed in Note 1, “Summary of Significant Accounting Policies” in the Company's most recent Form 10-K (fiscal year ended December 31, ~~2021)~~2022) filed with the Securities and Exchange Commission (“SEC”) on March ~~29, 2022 and amended on April 29, 2022.~~30, 2023.

On January 1, 2023 we adopted ASU 2016-13, Financial Instruments - Credit Losses. This guidance replaced the incurred loss methodology, which was used to calculate the allowance for loan losses as described in the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K, with an expected lifetime loss methodology, as described in Note 2 to the Consolidated Financial Statements.

During 2023, we did not substantively change any material aspect of our overall methodologies and processes used in developing the remaining critical accounting estimates from those described in the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K, other than those related to the adoption of ASU 2016-13.

Comparison of Financial Condition at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022

Total Assets. Total assets ~~decreased $10.3~~increased $8.6 million, or ~~1.9%~~1.6%, to ~~$529.3~~$551.6 million at ~~September 30, 2022~~March 31, 2023 from ~~$539.6~~$543.0 million at December 31, ~~2021.~~2022. This ~~decrease~~increase was primarily due to a ~~$51.1~~$7.9 million ~~decrease in cash and cash equivalents, partially offset by a $31.0 million~~net increase in ~~loans held for investment, a $6.0 million increase in available-for-sale investment securities and a $5.3 million increase in other assets.~~loans.

Cash and Cash Equivalents. Cash and cash equivalents ~~decreased $51.1~~increased $0.7 million, or ~~76.5%~~2.5%, to ~~$15.7~~$29.0 million at ~~September 30, 2022~~March 31, 2023 from ~~$66.8~~$28.3 million at December 31, ~~2021.~~2022. This ~~decrease~~increase was primarily due to ~~the purchase of $37.1~~$64.5 million in available-for-sale securities, $31.5 million of net loan growth, $19.0 million in originations of loans held for sale, $8.5 million in principal payments on FHLB advances and a $5.2 million decrease in deposits. These decreases were partially offset by $10.0 million from the issuance of additional FHLB advances, ~~$20.4 million from the sale of mortgage loans held for sale, $14.6~~$3.3 million from maturities, ~~prepayments~~payments and calls of available-for-sale securities, ~~and an $8.4~~a $3.0 million net increase in advance payments by borrowers for taxes and ~~insurance.~~insurance and $2.5 million from the sale of mortgage loans held for sale. These increases were partially offset by $44.0 million in principal payments on FHLB advances, a $15.7 million decrease in deposits, a $7.6 million net increase in loans and $2.3 million in originations of loans held for sale.

Available-for-Sale Securities. Available-for-sale securities ~~increased $6.0~~decreased $1.1 million, or ~~5.3%~~1.0%, to ~~$118.4~~$113.4 million at ~~September 30, 2022,~~March 31, 2023, from ~~$112.4~~$114.5 million at December 31, ~~2021. The increase~~2022. This decrease was primarily due to ~~purchases of securities totaling $37.1 million during the nine months ended September 30, 2022, partially offset by~~ maturities, ~~prepayments~~payments and calls of securities totaling ~~$14.6~~$3.3 million, ~~and~~partially offset by a $2.2 million reduction in the net unrealized ~~gain~~losses on securities held within the ~~portfolio of $16.5 million, resulting in a~~portfolio. The net unrealized loss ~~of $16.3~~was $13.5 million at September 30, 2022. The increase in securities purchases was the result of management’s strategy, implemented in the fourth quarter of 2021, to invest a significant portion of the Company’s liquidity that was held in cash and cash equivalents into securities with higher yields to increase future earnings, while maintaining a high degree of liquidity.March 31, 2023.

Loans Held for Sale. Loans held for sale decreased ~~$818,000, or 69.1%,~~$125,000, to ~~$365,000~~zero at ~~September 30, 2022, from $1.2 million at December~~March 31, ~~2021.~~2023. This decrease was due primarily to a decrease in the volume of first mortgage residential real estate loan originations sold into the secondary market as a result of the changing interest rate ~~environment.~~environment and lower inventory of housing available in our market. Mortgage loan originations and sales were ~~$19.0~~$2.3 million and ~~$20.4~~$2.5 million, respectively, during the first ~~nine~~three months of ~~2022~~2023 compared to ~~$90.9~~$6.5 million and ~~$102.2~~$6.8 million, respectively, for the same period in ~~2021.~~2022.

~~Net~~ Loans. ~~Net loans~~Loans held for investment, net of deferred costs, increased ~~$30.9~~$7.6 million, or ~~9.6%~~2.1%, to ~~$354.7~~$370.4 million at ~~September 30, 2022,~~March 31, 2023, from ~~$323.8~~$362.8 million at December 31, ~~2021.~~2022. The majority of this growth was in commercial real estate loans which increased ~~$22.5~~$4.1 million during ~~this period~~the first quarter to ~~$207.7~~$215.0 million. Also contributing to this growth was an increase in non-real estate commercial loans which grew ~~$6.9~~$1.6 million during this period to ~~$45.1~~$45.3 million. The growth in these types of loans is consistent with the Company’s long-term loan strategy to increase the level of commercial and commercial real estate loans within our portfolio. First mortgage residential real estate loans also increased $3.4 million during the first quarter of 2023 to $88.8 million.

~~Other Assets.~~Allowance for Credit Losses. ~~Other assets increased $5.3~~On January 1, 2023, the Company adopted ASU 2016-13 which replaced the incurred loss methodology, which was previously used to calculate the allowance for loan losses, with an expected lifetime loss methodology ("CECL"), as described in Note 2 to the Consolidated Financial Statements. The adoption of ASU 2016-13 resulted in an initial increase of $412,000 to the allowance for credit losses for loans ("ACL for loans") and the establishment of a $665,000 allowance for credit losses for unfunded loan commitments ("ACL for unfunded loan commitments"). The ACL for loans is included as a separate line item on the Company's Consolidated Balance Sheets and the ACL for unfunded loan commitments is included in other liabilities. The total allowance for credit losses was $4.4 million at March 31, 2023.

The ACL for loans was $3.7 million, or ~~86.7%~~1.00%, of loans, net of deferred costs, at March 31, 2023 compared to an allowance for loan losses of $3.2 million, or 0.88% of loans, net of deferred costs, at December 31, 2022. The increase in the ACL for loans was primarily the result of the $412,000 increase related to the adoption of ASU 2016-13 and a $75,000 provision for credit losses for loans. The ACL for unfunded loan commitments was $665,000 at March 31, 2023. Nonaccrual loans represented 0.20% of total loans at March 31, 2023, compared to 0.21% of total loans at December 31, 2022. Net recoveries for the three months ended March 31, 2023 were $3,000 compared to net recoveries of $54,000 for the three months ended March 31, 2022.

FHLB Stock. FHLB stock increased $1.4 million, or 41.2%, from ~~$6.1~~$3.4 million at December 31, ~~2021~~2022 to ~~$11.4~~$4.8 million at ~~September 30, 2022.~~March 31, 2023. This increase was primarily due to ~~a $4.6 million~~the net increase in ~~deferred tax assets, which was primarily~~FHLB advances and the ~~result~~requirement of ~~the increase in unrealized losses on available-for-sale securities. Other assets also increased as a result of a $471,000 increase in right of use lease assets~~FHLB to hold additional stock as a result of the ~~adoption of ASU 2016-02 in the first quarter of 2022, and a $189,000 increase in prepaid expenses, which was primarily due to the payment of annual insurance premiums in the first quarter of 2022.~~increased advances.

Deposits. Deposits decreased ~~$5.2~~$15.7 million, or ~~1.4%~~4.0%, to ~~$379.3~~$372.0 million at ~~September 30, 2022,~~March 31, 2023, from ~~$384.5~~$387.7 million at December 31, ~~2021.~~2022. This decrease was primarily due to a ~~$6.7~~$9.1 million decrease in money market accounts, a ~~$2.4~~$7.9 million decrease in ~~certificates of deposit~~noninterest bearing checking accounts and a ~~$2.0~~$6.4 million decrease in ~~interest bearing checking~~savings accounts. These decreases were partially offset by ~~a $3.3~~an $8.1 million increase in ~~statement savings~~certificates of deposit. The decrease in deposits was partially due to customers who transferred some or all of their deposits to higher rate investment alternatives, including treasury securities and higher rate deposit accounts at other financial institutions. Based on the relatively higher rates of interest being offered by other financial institutions in our market and the higher cost of other funding alternatives, the Company determined that it was more cost effective to replace a ~~$2.6 million increase~~portion of these deposits, many of which were with customers that had no other banking relationships with the Company, with FHLB advances. The Company continues to build upon its banking relationships with its core customers, including deposits, and in attracting new relationships. The decrease in deposits was also partially due to the use of deposit funds by our commercial customers who utilized their noninterest and lower rate deposit balances to fund their operations, as their borrowing cost has increased during the current interest rate environment. As market rates have increased, we have also seen a shift in our deposit mix from noninterest bearing checking ~~accounts.~~accounts and lower interest NOW and savings accounts into money market accounts and certificates of deposits.

Advance Payments by Borrowers for Taxes and Insurance. Advance payments by borrowers for taxes and insurance increased ~~$8.3~~$3.0 million to ~~$10.2~~$4.0 million at ~~September 30, 2022~~March 31, 2023 from ~~$1.9~~$1.0 million at December 31, ~~2021.~~2022. The increase was due to normal seasonal activity.

~~Borrowings.~~FHLB Advances. ~~Borrowings, consisting entirely of~~ FHLB advances, increased ~~$1.5~~$20.5 million, or ~~2.7%~~28.7%, to ~~$56.9~~$92.0 million at ~~September 30, 2022,~~March 31, 2023, from ~~$55.4~~$71.5 million at December 31, ~~2021.~~2022. The increase in FHLB advances was primarily used to partially fund outgoing cash flows from the decrease in deposits and the increase in net loans.

Total Stockholders’ Equity. Total stockholders’ equity ~~decreased $15.0~~increased $0.5 million to $75.9 million at ~~September 30, 2022,~~March 31, 2023, from ~~$90.9~~$75.4 million at December 31, ~~2021.~~2022. The ~~decrease~~increase was primarily due to a ~~$16.5~~$2.2 million ~~increase~~decrease in net unrealized losses on available-for-sale securities, which net of taxes, resulted in a ~~$12.0~~$1.6 million ~~decrease~~increase in stockholders’ equity. The increase in net unrealized losses on available-for-sale securities ~~resulted primarily from~~was the result of changes in market interest rates. This increase was partially offset by a $1.1 million decrease in retained earnings. The decrease in ~~stockholders' equity~~retained earnings was ~~also partially due to~~primarily the ~~repurchase and retirement~~result of a net loss of $361,000 for the ~~Company's common stock during the third~~first quarter of ~~2022~~2023 and ~~an increase in unallocated common stock held by~~ the ~~ESOP. During the third quarter~~adoption of ~~2022, the~~ASU 2016-13 on January 1, 2023, which had a $783,000 negative impact on retained earnings. The Company ~~repurchased 184,270~~also purchased 12,903 shares of its common stock ~~pursuant to~~during the first quarter of 2023 under its stock repurchase ~~program that was adopted by the Board of Directors on July 29, 2022. The~~

repurchase of these shares resulted in a $2.0 million decrease in stockholders' equity. See "Note 13 - Equity and Regulatory Matters" for additional information regarding the Company's stock repurchase program. The increase in unallocated common shares held by the ESOP, was the result of additional shares purchased by the ESOP during the nine months ended September 30, 2022,plan which resulted in a ~~$1.1 million decrease~~$129,000 reduction in stockholders' equity.

Average Balances and Yields

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material.


	Three Months Ended September 30,																Three Months Ended March 31,
	2022								2021								2023								2022
	Average Outstanding Balance			Interest and Dividends		Yield/Cost Rate			Average Outstanding Balance			Interest and Dividends		Yield/Cost Rate			Average Outstanding Balance			Interest and Dividends		Yield/Cost Rate			Average Outstanding Balance			Interest and Dividends		Yield/Cost Rate
	(Dollars in thousands)																(Dollars in thousands)
Interest-earning assets:
Loans(1)	$	352,651		$	3,563		4.01	%	$	330,353		$	2,939		3.53	%	$	364,331		$	3,826		4.26	%	$	329,775		$	3,290		4.05	%
Securities available-for-sale		124,578			613		1.95	%		89,748			368		1.63	%		113,864			602		2.15	%		133,975			548		1.66	%
Other interest-earning assets		22,264			139		2.48	%		95,316			74		0.31	%		19,619			284		5.87	%		40,690			48		0.48	%
Total interest-earning assets		499,493			4,315		3.43	%		515,417			3,381		2.60	%		497,814			4,712		3.84	%		504,440			3,886		3.12	%
Non-interest-earning assets		35,090								32,739								36,969								33,622
Total assets	$	534,583							$	548,156							$	534,783							$	538,062
Interest-earning liabilities:
NOW accounts	$	35,186		$	10		0.12	%	$	34,134		$	9		0.10	%	$	31,429		$	52		0.67	%	$	36,494		$	8		0.08	%
Money market accounts		93,344			79		0.34	%		93,554			60		0.25	%		115,328			542		1.91	%		96,711			71		0.30	%
Savings accounts		67,977			9		0.05	%		66,416			8		0.05	%		58,805			7		0.05	%		66,407			8		0.05	%
Certificates of deposit		80,213			98		0.49	%		80,046			94		0.47	%		82,878			381		1.86	%		80,986			82		0.41	%
Total interest-bearing deposits		276,720			196		0.28	%		274,150			171		0.25	%		288,440			982		1.38	%		280,598			169		0.24	%
Federal Home Loan Bank advances		57,435			200		1.38	%		57,002			178		1.24	%		80,028			493		2.50	%		54,784			170		1.25	%
Other interest-bearing liabilities		9,910			2		0.08	%		10,851		―		―				3,946			2		0.22	%		3,875			2		0.24	%
Total interest-bearing liabilities		344,065			398		0.46	%		342,003			349		0.41	%		372,414			1,477		1.61	%		339,257			341		0.41	%
Non-interest-bearing deposits		105,359								97,151								82,531								105,970
Other non-interest-bearing liabilities		6,597								6,500								6,482								6,454
Total liabilities		456,021								445,654								461,427								451,681
Total stockholders’ equity		78,562								102,502								73,356								86,381
Total liabilities and stockholders’ equity	$	534,583							$	548,156							$	534,783							$	538,062
Net interest income				$	3,917							$	3,032							$	3,235							$	3,545
Net interest-earning assets	$	155,428							$	173,414							$	125,400							$	165,183
Interest rate spread(2)							2.97	%							2.19	%							2.23	%							2.71	%
Net interest margin(3)							3.11	%							2.33	%							2.64	%							2.85	%
Average interest-earning assets to average interest-bearing liabilities		145.17	%							150.71	%							133.67	%							148.69	%

(1)

Includes loan (expense) fees ~~(expense)~~ of ~~$20,000~~($19,000) and ~~($8,000)~~$105,000 for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

(2)

Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

Nine Months Ended September 30,

2022

2021

Average
Outstanding
Balance

Interest and
Dividends

Yield/Cost
Rate

Average
Outstanding
Balance

Interest and
Dividends

Yield/Cost
Rate

(Dollars in thousands)

Interest-earning assets:

Loans(1)

$
340,626

$
9,862

3.87
%

$
333,235

$
9,357

3.75
%
Securities available-for-sale

128,920

1,727

1.79
%

76,520

971

1.70
%
Other interest-earning assets

33,193

279

1.12
%

86,195

181

0.28
%
Total interest-earning
   assets

502,739

11,868

3.16
%

495,950

10,509

2.83
%
Non-interest-earning assets

34,827

33,274

Total assets

$
537,566

$
529,224

Interest-earning liabilities:

NOW accounts

$
36,016

$
26

0.10
%

$
33,191

$
27

0.11
%
Money market accounts

95,612

223

0.31
%

98,041

200

0.27
%
Savings accounts

67,358

25

0.05
%

64,493

27

0.06
%
Certificates of deposit

81,813

277

0.45
%

81,888

366

0.60
%
Total interest-bearing deposits

280,799

551

0.26
%

277,613

620

0.30
%
Federal Home Loan Bank advances

56,673

550

1.30
%

63,363

579

1.22
%
Other interest-bearing liabilities

6,919

7

0.13
%

7,937

—

―

Total interest-bearing
   liabilities

344,391

1,108

0.43
%

348,913

1,199

0.46
%
Non-interest-bearing deposits

104,787

96,056

Other non-interest-bearing
   liabilities

6,515

5,791

Total liabilities

455,693

450,760

Total stockholders’ equity

81,873

78,464

Total liabilities and
   stockholders’ equity

$
537,566

$
529,224

Net interest income

$
10,760

$
9,310

Net interest-earning assets

$
158,348

$
147,037

Interest rate spread(2)

2.73
%

2.37
%
Net interest margin(3)

2.86
%

2.51
%
Average interest-earning
   assets to average interest-bearing
   liabilities

145.98
%

142.14
%

~~(1)~~

~~Includes loan fees (expense) of $352,000 and ($39,000) for the nine months ended September 30, 2022 and 2021, respectively.~~

~~(2)~~

~~Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.~~

~~(3)~~

~~Net interest margin represents net interest income divided by average total interest-earning assets.~~

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in average rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior period average rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments included within the following table.


	Three Months Ended September 30, 2022 vs. 2021									Three Months Ended March 31, 2023 vs. 2022
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Total Increase (Decrease)			Volume			Rate			Total Increase (Decrease)
	(Dollars in thousands)									(Dollars in thousands)
Interest-earning assets:
Loans	$	207		$	417		$	624		$	357		$	179		$	536
Securities		162			83			245			(57	)		111			54
Other		(8	)		73			65			(11	)		247			236
Total interest-earning assets		361			573			934			289			537			826
Interest-bearing liabilities:
NOW	―				(1	)		(1	)		1			(45	)		(44	)
Money market deposits	―				(19	)		(19	)		(16	)		(455	)		(471	)
Savings		(1	)	―				(1	)		1			—			1
Certificates of deposit	―				(4	)		(4	)		(2	)		(297	)		(299	)
Total interest-bearing deposits		(1	)		(24	)		(25	)		(16	)		(797	)		(813	)
Borrowings		(2	)		(20	)		(22	)		(102	)		(221	)		(323	)
Other	―				(2	)		(2	)		—			—			—
Total interest-bearing liabilities		(3	)		(46	)		(49	)		(118	)		(1,018	)		(1,136	)
Change in net interest income	$	358		$	527		$	885		$	171		$	(481	)	$	(310	)

Nine Months Ended September 30,
2022 vs. 2021

Increase (Decrease) Due to

Volume

Rate

Total
Increase
(Decrease)

(Dollars in thousands)

Interest-earning assets:

Loans

$
210

$
295

$
505

Securities

699

57

756

Other

(25
)

123

98

Total interest-earning assets

884

475

1,359

Interest-bearing liabilities:

NOW

(3
)

4

1

Money market deposits

5

(28
)

(23
)
Savings

(1
)

3

2

Certificates of deposit

―

89

89

Total interest-bearing deposits

1

68

69

Borrowings

70

(41
)

29

Other

―

(7
)

(7
)
Total interest-bearing liabilities

71

20

91

Change in net interest income

$
955

$
495

$
1,450

Comparison of Operating Results for the Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Net Income (Loss). We recorded a net ~~income~~loss of ~~$124,000~~$361,000 for the three months ended ~~September 30, 2022, an increase of $239,000 from~~March 31, 2023, compared to a net loss of ~~$115,000 recorded~~$55,000 for the three months ended ~~September 30, 2021. This increase~~March 31, 2022. The increased loss was primarily due to a ~~$915,000 million increase~~$280,000 decrease in net interest income after provision for ~~loan~~credit losses ~~which was~~and a $496,000 increase in noninterest expense, partially offset by a ~~$449,000~~$379,000 increase ~~in noninterest expense, a $149,000 decrease~~ in noninterest income and a ~~$78,000~~$91,000 increase in income tax ~~expense.~~benefit.

Interest and Dividend Income. Interest and dividend income increased ~~$934,000,~~$826,000, or ~~27.6%~~21.2%, to ~~$4.3~~$4.7 million for the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$3.4~~$3.9 million for the three months ended ~~September 30, 2021.~~March 31, 2022. The increase was due primarily to a ~~$624,000~~$536,000 increase in interest and fees on loans, a $236,000 increase in interest on other interest earning assets and a ~~$245,000~~$54,000 increase in interest earned on taxable securities. The increase in interest and fees earned on loans was primarily due to a ~~$22.3~~$34.5 million increase in the average amount of loans outstanding, from ~~$330.4~~$329.8 million in the ~~third~~first quarter of ~~2021~~2022 to ~~$352.7~~$364.3 million in the ~~third~~first quarter of ~~2022,~~2023, and a 4821 basis point increase in the yield earned on loans, from ~~3.53%~~4.05% for the ~~third~~first quarter of ~~2021~~2022 to ~~4.01%~~4.26% in the ~~third~~first quarter of ~~2022.~~2023. The increase in the yield earned on loans during the ~~third~~first quarter of ~~2022~~2023 was primarily due ~~an increase~~to increases in market ~~rates as well as the collection of $212,000 in loan prepayment fees during the quarter.~~rates. The increase in loans was consistent with the Company's strategy to grow the loan portfolio. The increase in interest earned on other interest earning assets, the majority of which is comprised of fed funds sold and FHLB stock, was primarily due to a 539 basis point increase in yield, from 0.48% for the first quarter of 2022 to 5.87% in the first quarter of 2023, partially offset by a $21.1 million decrease in the average balance outstanding, from $40.7 million in the first quarter of 2022 to $19.6 million in the first quarter of 2023. The increase in interest on taxable securities was primarily due to a 49 basis point increase in the ~~Company’s strategy~~yield, from 1.66% for the first quarter of 2022 to ~~deploy excess liquidity into securities, which resulted~~2.15% in the first quarter of 2023. This increase was partially offset by a $20.1 million decrease in the average ~~outstanding balance~~amount of securities ~~increasing $34.9~~outstanding, from $134.0 million ~~or 38.8%, from $89.7 million for~~in the ~~third~~first quarter of ~~2021~~2022 to ~~$124.6~~$113.9 million ~~for~~in the ~~third~~first quarter of ~~2022.~~2023.

Interest Expense. Interest expense increased ~~$49,000,~~$1.1 million, or ~~14.0%~~322.6%, to ~~$398,000~~$1.5 million for the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$349,000~~$341,000 for the three months ended ~~September 30, 2021.~~March 31, 2022. This increase was primarily due to an $813,000 increase in interest expense on deposits and a $323,000 increase in interest expense on FHLB ~~advances~~advances. The increase in interest expense on deposits was

primarily due to a 114 basis point increase in the average rate paid on deposits and a $7.8 million increase in average deposits outstanding from the first quarter of 2022 to the first quarter of 2023. The increase in interest expense on deposits was primarily due to the increase in market rates of interest and also a shift in our deposit mix. As market rates increased, many of our deposit customers transferred funds from noninterest bearing checking accounts and low interest NOW and savings accounts into higher rate products, including money market accounts and certificates of deposit. The average balance of noninterest bearing checking accounts decreased $23.4 million, or 22.1%, while NOW and savings accounts decreased $5.1 million, or 13.9%, and $7.6 million, or 11.4%, respectively, from the first quarter of 2022 to the first quarter of 2023. During the same period, the average balance of money market accounts and certificates of deposits increased $18.6 million, or 19.2%, and $1.9 million, or 2.3%, respectively. Interest expense on money market accounts increased $471,000, or 663.4%, from the first quarter of 2022 to the first quarter of 2023 as a result of the increase in average balances outstanding and also a 161 basis point increase in the average rate paid on these accounts. Interest expense on certificates of deposit increased $299,000, or 364.6%, from the first quarter of 2022 to the first quarter of 2023 as a result of the increase in average balances outstanding and also a 145 basis point increase in the average rate paid on these accounts.

Interest expense on FHLB advances increased ~~$22,000,~~$323,000, or ~~12.4%~~190.0%, from ~~$178,000~~$170,000 for the ~~third~~first quarter of ~~2021~~2022 to ~~$200,000~~$493,000 for the ~~third~~first quarter of ~~2022.~~2023. This increase was primarily due to a 14125 basis point increase in the average rate paid on the advances from ~~1.24%~~1.25% in the ~~third~~first quarter of ~~2021~~2022 to ~~1.38%~~2.50% in the ~~third~~first quarter of ~~2022. Interest expense on money market accounts increased $19,000,~~2023 and a $25.2 million, or ~~31.6%~~46.0%, ~~from $60,000~~increase in the ~~third~~average balance outstanding, from $54.8 million in the first quarter of ~~2021~~2022 to ~~$79,000~~$80.0 million in the ~~third~~first quarter of ~~2022. This increase was primarily the result of a 9 basis point~~2023. The increase in the average rate paid on ~~money~~FHLB advances was primarily due to the changes in market ~~accounts, from 0.25% in the third quarter of 2021 to 0.34% in the third quarter of 2022.~~interest rates.

Net Interest Income. Net interest income ~~increased $885,000,~~decreased $310,000, or ~~29.2%~~8.9%, to ~~$3.9~~$3.2 million for the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$3.0~~$3.5 million for the three months ended ~~September 30, 2021.~~March 31, 2022. This ~~increase~~decrease was primarily due to a ~~$624,000~~$1.1 million increase in interest expense partially offset by an $826,000 increase in interest and fees on loans and a $245,000 increase in interest earned on taxable securities and a $65,000 increase in interest earned on other interest-earning assets. These increases were partially offset by a $49,000 increase in interest expense.dividend income. Our net interest rate spread ~~increased 78~~decreased 48 basis points to ~~2.97%~~2.23% for the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~2.19%~~2.71% for the three months ended ~~September 30, 2021.~~March 31, 2022. Our net interest margin ~~also increased 78~~decreased 21 basis points to ~~3.11%~~2.64%, from ~~2.33%~~2.85% over the same period.

Provision for ~~Loan~~Credit Losses. The ~~Company did not make any~~ provision for ~~loan~~credit losses ~~during~~was $75,000 for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to a ~~$30,000~~$105,000 provision for the three months ended ~~September 30, 2021. The allowance for loan losses was $3.2 million,~~March 31, 2022.

Noninterest Income. Noninterest income increased $379,000, or ~~0.89%~~96.9%, ~~of total loans at September 30, 2022, compared~~ to $2.9 million, or 0.88% of total loans at December 31, 2021. Nonaccrual loans constituted 0.21% of total loans at September 30, 2022, compared to 0.31% of total loans at December 31, 2021. Net recoveries$770,000 for the three months ended ~~September 30, 2022 were $48,000 compared to net recoveries of $26,000~~March 31, 2023, from $391,000 for the three months ended ~~September 30, 2021.~~

~~Non-interest Income~~. ~~Non-interest income decreased $149,000, or 23.7%, to $479,000 for the three months ended September 30, 2022, from $628,000 for the three months ended September 30, 2021.~~March 31, 2022. The ~~decrease~~increase was primarily the result of a ~~$365,000 decrease in net gain on sale of loans, partially offset by a $218,000~~$430,000 increase in income associated with changes in the market value of equity ~~securities. The~~securities, partially offset by a $40,000 decrease in ~~the~~ net gain on sale of loans was primarily due to the decrease in the sale of mortgage loans held for sale, which decreased $26.6 million, from $32.2 million in the third quarter of 2021 to $5.6 million in the third quarter of 2022.loans. The increase in the market value of marketable equity securities was due to an increase in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the $430,000 change in the market of equity securities in ~~non-interest~~noninterest expense. The decrease in the net gain on sale of loans was primarily due to the decrease in the sale of mortgage loans held for sale, which decreased $4.3 million, from $6.8 million in the first quarter of 2022 to $2.5 million in the first quarter of 2023. This decrease was primarily the result of the changing interest rate environment and lower inventory of housing available in our market.

~~Non-interest~~Noninterest Expense. ~~Non-interest~~Noninterest expense increased ~~$449,000,~~$496,000, or ~~11.8%~~12.7%, to ~~$4.3~~$4.4 million for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$3.8~~$3.9 million for the three months ended ~~September 30, 2021.~~March 31, 2022. This increase was primarily due to a ~~$391,000~~$628,000 increase in salaries and ~~employee~~ benefits ~~expense.~~expense, partially offset by $185,000 decrease in other noninterest expenses. The increase in salaries and ~~employee~~ benefits expense was primarily due ~~primarily~~ to a ~~$218,000~~$430,000 increase in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the change in the market of equity securities in ~~non-interest~~noninterest income. ~~The remaining $173,000~~Also contributing to the increase in ~~other~~ salaries and ~~employee~~ benefits expense was a $129,000 increase stock option expense, which was primarily related to the ~~result~~issuance of ~~a $65,000 increase~~stock options and awards under the 2022 Equity Incentive Plan. The decrease in ~~wages, a $39,000 increase in ESOP expense and a $21,000 increase in the accrual for incentive bonuses.~~

~~Income Tax (Benefit) Expense.~~ We recorded an income tax expense of $21,000 for the three months ended September 30, 2022, compared to an income tax benefit of $57,000 for the three months ended September 30, 2021. The increase in income tax expenseother noninterest expenses was primarily due to a ~~increase in income before taxes during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.~~

~~Comparison of Operating Results for the Nine Months Ended September 30, 2022 and 2021~~

~~Net (Loss) Income.~~ We recorded a net loss of $172,000 for the nine months ended September 30, 2022, compared to net income of $354,000 recorded for the nine months ended September 30, 2021. This decrease was primarily due to a $2.4 million$117,000 decrease in ~~non-interest income,~~professional and consulting fees, which ~~was partially offset by a $1.3 million increase in net interest income after provision for loan losses, a $372,000 decrease in~~includes accounting, tax and attorney services. The Company has taken various actions to reduce noninterest expense and ~~a $217,000 decrease in income tax expense.~~

~~Interest and Dividend Income.~~ Interest and dividend income increased $1.4 million, or 12.9%, to $11.9 million for the nine months ended September 30, 2022, from $10.5 million for the nine months ended September 30, 2021. The increase was due primarily to an increase in interest earned on taxable securities and an increase in interest earned on loans. Interest income on taxable securities increased $756,000, or 77.9% from $971,000 in the first nine months of 2021 to $1.7 million in the first nine months of 2022. This increase was primarily due to the Company’s strategy to deploy excess liquidity into securities, which resulted in the average outstanding balance of securities increasing $52.4 million, or 68.5%, from $76.5 million for the first nine months of 2021 to $128.9 million for the same period of 2022. The increase in interest income on loans was primarily the result of a 12 basis point increase in the yield earned on loans from 3.75% for the first nine months of 2021 to 3.87% for the same period in 2022 and a $7.4 million increase in average loans outstanding for the same period.

~~Interest Expense.~~ Interest expense decreased $91,000, or 7.6%, to $1.1 million for the nine months ended September 30, 2022, from $1.2 million for the nine months ended September 30, 2021. This decrease was primarily due to a decline in the cost of our interest-bearing deposits, which decreased 4 basis points from 0.30% for the first nine months of 2021 to 0.26% for the same period in 2022. This decline was primarily due to the low interest rate environment. Also contributing to the decrease in ~~interest expense was a $6.7 million decrease in the average outstanding balance of FHLB advances, which was~~professional and consulting fees is partially ~~offset by an 8 basis point increase in the average rate paid on these advances.~~

~~Net Interest Income.~~ Net interest income increased $1.5 million, or 15.6%, to $10.8 million for the nine months ended September 30, 2022 from $9.3 million for the nine months ended September 30, 2021. Our net interest rate spread increased 36 basis points to 2.73% for the nine months ended September 30, 2022, from 2.37% for the nine months ended September 30, 2021 while our net interest margin also increased 35 basis points to 2.86% from 2.51% over the same period.

~~Provision for Loan Losses.~~ ~~Provision for loan losses for the nine months ended September 30, 2022 was $210,000 compared to $30,000 for the nine months ended September 30, 2021. The increase in provision was primarily~~ due to these actions. In addition, the ~~increase~~Company has taken various steps to reduce salaries and benefits expenses. These actions include evaluating all open positions prior to rehiring and also a reduction-in-force implemented in ~~loans outstanding. Net recoveries for the nine months ended September 30, 2022 were $112,000 compared to net recoveries of $55,000 for the nine months ended September 30, 2021.~~

~~Non-interest Income~~. Non-interest income decreased $2.4 million, or 70.8%, to $986,000 for the nine months ended September 30, 2022 from $3.4 million for the nine months ended September 30, 2021. This decrease was due primarily to a $1.1 million decrease in net gains on the sale of loans, an $887,000 decline in income associated with changes in the market value of marketable equity securities and a $456,000 decrease in loan servicing fees. The decrease in the net gain on sale of loans was primarily due to the decrease in the sale of mortgage loans held for sale, which decreased $81.8 million, from $102.2 million in the first nine months of 2021 to $20.4 million in the same period of 2022. The decrease in the market value of marketable equity securities was due to a decrease in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the change in the market of equity securities in non-interest expense. The decrease in loan servicing fees was primarily due to the reversal of a $369,000 impairment previously recorded against the value of mortgage servicing rights in the first nine months of 2021. The value of mortgage servicing rights increased asApril 2023. As a result of ~~an increase in market interest rates.~~these actions, the number of of full-time equivalent employees has been reduced by 15 since March 2022. The costs associated with these actions will partially offset their expected benefits during 2023.

~~Non-interest Expense.~~ Non-interest expense decreased $372,000, or 3.0%, to $11.9 million for the nine months ended September 30, 2022 from $12.3 million for the nine months ended September 30, 2021. This decrease was primarily due to a $444,000 decrease in salaries and employee benefits expense. The decrease in salaries and employee benefits expense primarily resulted from an $887,000 decline in the market value of marketable equity securities held in our deferred compensation plan. We record an offsetting amount for the change in the market of equity securities in non-interest income. This decrease was partially offset by a $443,000 increase in other salaries and benefits expense, which was primarily the result of a $134,000 increase in wages, a $91,000 increase in ESOP expense and a $156,000 increase in the accrual for incentive bonuses.

Income Tax (Benefit) Expense. We recorded an income tax benefit of ~~$172,000~~$151,000 for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to an income tax ~~expense~~benefit of ~~$45,000~~$60,000 for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The ~~decrease~~increase in income tax

~~expense~~ benefit was primarily due to ~~a decrease~~an increase in ~~income~~the loss before taxes during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate

risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.

Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we use to manage interest rate risk are:

•

originating commercial real estate and commercial loans, which tend to have shorter terms and higher interest rates than owner occupied one- to four-family residential real estate loans, and which generate customer relationships that can result in larger non-interest-bearing checking accounts;

•

selling substantially all of our conforming and eligible jumbo, longer-term, fixed-rate one- to four-family residential real estate loans and retaining the non-conforming and shorter-term, fixed-rate and adjustable-rate one- to four-family residential real estate loans that we originate, subject to market conditions and periodic review of our asset/liability management needs; and

•

reducing our dependence on jumbo and brokered certificates of deposit to support lending and investment activities and increasing our reliance on core deposits, including checking accounts and savings accounts, which are less interest rate sensitive than certificates of deposit.

Our board of directors is responsible for the review and oversight of our executive management team and other essential operational staff which are responsible for our asset/liability analysis. These officers act as an asset/liability committee and are charged with developing and implementing an asset/liability management plan, and they meet at least quarterly to review pricing and liquidity needs and assess our interest rate risk. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

The table below sets forth, as of ~~September 30, 2022,~~March 31, 2023, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.


Change in Interest Rates (basis points) (1)	Net Interest Income Year 1 Forecast		Year 1 Change from Level			Net Interest Income Year 1 Forecast		Year 1 Change from Level
	(Dollars in thousands)					(Dollars in thousands)
+400	$	16,863		15.03	%	$	17,790		29.02	%
+300		16,231		10.72	%		16,795		21.81	%
+200		15,611		6.49	%		15,792		14.53	%
+100		15,179		3.54	%		14,794		7.29	%
Level		14,660		—	%		13,788		—	%
-100		14,237		(2.88	)%		13,173		(4.47	)%
-200		13,800		(5.86	)%		12,495		(9.38	)%
-300							11,938		(13.42	)%
-400							11,090		(19.57	)%

(1)

Assumes an immediate uniform change in interest rates at all maturities.

Economic Value of Equity. We also monitor interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) would change in the event of a range of

assumed changes in market interest rates. The quarterly reports developed in the simulation model assist us in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within our policy guidelines.

The table below sets forth, as of ~~September 30, 2022,~~March 31, 2023, the estimated changes in our EVE that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on

numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.


			Estimated Increase (Decrease) in EVE								Estimated Increase (Decrease) in EVE
Basis Point (“bp”) Change in Interest Rates(1)	Estimated EVE(2)		Amount			Percent			Estimated EVE(2)		Amount			Percent
	(Dollars in thousands)								(Dollars in thousands)
+400	$	74,095	$	(8,389	)		(10.17	)%	$	81,970	$	3,717			4.75	%
+300		75,768		(6,716	)		(8.14	)%		81,085		2,832			3.62	%
+200		77,525		(4,959	)		(6.01	)%		80,217		1,964			2.51	%
+100		79,923		(2,561	)		(3.10	)%		79,317		1,064			1.36	%
Level		82,484		—			—			78,253		—			—
-100		83,160		676			0.82	%		78,054		(199	)		(0.25	)%
-200		82,783		299			0.36	%		76,900		(1,353	)		(1.73	)%
-300										72,805		(5,448	)		(6.96	)%
-400										69,353		(8,900	)		(11.37	)%

(1)

Assumes an instantaneous uniform change in interest rates at all maturities.

(2)

EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

The table above indicates that at ~~September 30, 2022,~~March 31, 2023, in the event of a 100-basis point increase in interest rates, we would have experienced a ~~3.10%~~1.35% increase in our EVE and in the event of a 100-basis point decrease in interest rates, we would have experienced a 0.25% decrease in our EVE. In the event of a 200-basis point increase in interest rates at ~~September 30, 2022,~~March 31, 2023, we would have experienced a ~~6.01%~~2.50% increase in our EVE and in the event of a 200-basis point decrease in interest rates, we would have experienced a 1.72% decrease in our EVE.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and will differ from actual results.

EVE calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, FHLB advances, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. ~~We also have the ability to borrow from the FHLB.~~ At ~~September 30, 2022,~~March 31, 2023, we had ~~$57.0~~$92.0 million outstanding in advances from the FHLB. At ~~September 30, 2022,~~March 31, 2023, we had ~~$112.6~~$71.2 million in additional borrowing capacity at the Federal Home Loan Bank of ~~Chicago.~~Chicago, based on the level of qualifying real estate loans currently pledged to the FHLB. Additionally, at ~~September 30, 2022,~~March 31, 2023, we had a $15.0 million federal funds line of credit with the BMO Harris Bank, none of which was drawn at ~~September 30, 2022.~~March 31, 2023. The Company also had ~~a $10.0~~an $8.8 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately ~~$13.2~~$11.8 million at ~~September 30, 2022.~~March 31, 2023. The Company had not drawn on the Federal Reserve line as of ~~September 30, 2022.~~March 31, 2023. We also have the ability to participate in the Federal Reserve's new Bank Term Funding Program as needed.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents and available-for-sale investment securities. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash ~~provided by~~used in operating activities was ~~$1.8~~$1.1 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to

4143

~~compared to net cash provided by operating activities of $11.0 million~~$418,000 for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Net cash used in investing activities ~~which consists~~was $5.8 million for the three months ended March 31, 2023, as compared to $27.6 million for the three months ended March 31, 2022. Net cash used in investment activities during the first quarter of 2023 consisted primarily of ~~disbursements for loan originations~~a $7.6 million net increase in loans and a $1.4 million increase in FHLB stock, partially offset by $3.3 million from maturities, calls and payments on available-for-sale securities. Net cash used in investment activities during the first quarter of 2022 consisted primarily of the purchase of $31.2 million of available-for-sale securities, partially offset by ~~proceeds~~$3.7 million from ~~maturing securities~~maturities, calls and ~~pay downs~~payments on ~~securities, was $54.5 million for the nine months ended September 30, 2022, as compared to $39.9 million for the nine months ended September 30, 2021.~~available-for-sale securities. Net cash provided by financing activities ~~consisting~~was $7.6 million for the three months ended March 31, 2023, as compared to $11.8 million for the three months ended March 31, 2022. Net cash provided by financing activities for the first quarter of 2023 primarily resulted from borrowings of ~~increases~~$64.5 million of FHLB advances and a $3.0 million increase in ~~borrowings and~~ advance payments by borrowers for taxes and insurance, ~~was $1.6~~partially offset by $44.0 million ~~for the nine months ended September 30, 2022, as compared to $23.2~~in principal payments on FHLB advances and a $15.8 million ofdecrease in deposits. Net cash provided by financing activities ~~during~~for the ~~nine months ended September 30, 2021. The primary source~~first quarter of ~~the difference~~2022 primarily resulted from borrowings of $10.0 million of FHLB advances, a $6.5 million increase in ~~cash provided~~deposits and a $2.9 million increase in advance payments by ~~financing activities were net proceeds of $33.5~~borrowers for taxes and insurance, partially offset by $7.0 million ~~from the stock offering~~ in ~~2021.~~principal payments on FHLB advances.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments based on our current strategy to increase core deposits, along with the continued use of FHLB advances as well as brokered certificates of deposit as needed, to fund loan growth.

Capital

At ~~September 30, 2022,~~March 31, 2023, PyraMax Bank exceeded all of its regulatory capital requirements with a Tier 1 leverage capital level of ~~$64.9~~$64.7 million, or ~~11.9%~~11.8% of adjusted total assets, which is above the well-capitalized required level of ~~$27.2~~$27.5 million, or 5.0%. The Bank had total risk-based capital of ~~$68.1~~$69.1 million, or ~~17.7%~~17.4% of risk-weighted assets, which is above the well-capitalized required level of ~~$38.5~~$39.8 million, or 10.0%. Management is not aware of any conditions or events since the most recent notification that would change our category. For additional information, see Note 13 of the Notes to Financial Statements.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process ~~accorded to~~as the loans we make. For additional information, see Note 9 of the Notes to Financial Statements.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowings and deposits, and agreements with respect to securities.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

4244

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of ~~September 30, 2022.~~March 31, 2023. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

~~During~~Except for changes in controls relating to the ~~quarter ended September 30, 2022,~~adoption of the CECL accounting standard, there ~~have been~~were no changes in the Company’s internal ~~controls~~control over financial reporting in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at ~~September 30, 2022,~~March 31, 2023, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in the Form 10-Q, you should carefully consider the risk factors that appeared under Item 1A “Risk Factors” disclosed in the Company’s December 31, ~~2021~~2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission. ~~There are no~~Further, the following risk factors represent material ~~changes from~~updates and additions to the risk factors ~~included~~previously disclosed in ~~the~~our Annual Report on Form ~~10-K.~~10-K for the fiscal year ended December 31, 2022. The risk factors set forth below also identify important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

Recent banking industry events may adversely affect our business and the market price of our common stock.

Recent developments and events in the financial services industry, including the failures of Silicon Valley Bank, Signature Bank and First Republic Bank and the voluntary liquidation of Silvergate Bank, have resulted in decreased confidence in banks among depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events have occurred against the backdrop of a rapidly rising interest rate environment which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These events and developments could materially and adversely impact our business or financial condition, including through potential liquidity pressures, reduced net interest margins, and potential increased credit losses. These recent events and developments have, and could continue to, adversely impact the market price and volatility of our common stock. These recent events may also result in changes to laws or regulations governing banks and bank holding companies, increased regulatory scrutiny, or the imposition of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our businesses. The cost of resolving the recent failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

The premiums of the FDIC’s deposit insurance program are expected to increase, and banking regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies. Changes resulting from these events could include increased regulatory oversight, higher capital requirements or changes in the way regulatory capital is calculated, and the impositions of additional restrictions through regulatory changes or supervisory or enforcement activities, each of which could have a material impact on our business.

A failure to address the federal debt ceiling in a timely manner, downgrades of the U.S. credit rating and uncertain credit and financial market conditions may affect the stability of securities issued or guaranteed by the federal government, which may affect the valuation or liquidity of our investment securities portfolio and increase future borrowing costs.

As a result of uncertain political, credit and financial market conditions, including the potential consequences of the federal government defaulting on its obligations for a period of time due to federal debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose credit default and liquidity risks. Given that future

deterioration in the U.S. credit and financial markets is a possibility, no assurance can be made that losses or significant deterioration in the fair value of our U.S. government issued or guaranteed investments will not occur. At March 31, 2023, the fair value of U.S. Treasury notes and government-sponsored mortgage-backed securities held in our securities portfolio totaled $27.1 million and $62.9 million, respectively. Downgrades to the U.S. credit rating could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until U.S. political, credit and financial market conditions have been sufficiently resolved or stabilized, it may increase our future borrowing costs.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Common Stock Repurchases. The following table presents information regarding shares of our common stock repurchased during the ~~third quarter of 2022.~~three months ended March 31, 2023.

Period

Total Number of Shares (or Units) Purchased (1)

Weighted Average Price Paid per Share (or Unit)

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

Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1 to July 31, 2022

—

$ —

—

319,766
August 1 to August 31, 2022

—

—

—

319,766
September 1 to September 30, 2022

184,270

10.78

184,270

135,496

(1) On July 29, 2022, the Board of Directors of the Company adopted a stock repurchase program. Regulatory non-objection was received on August 26, 2022. Under the repurchase program, the Company may repurchase up to 319,766 shares of its common stock, or approximately 5% of its outstanding shares of common stock at the time regulatory non-objection was sought. Shares may be repurchased from time to time in open market or private transactions, through block trades, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The repurchase program has no expiration date.


Period	Total Number of Shares (or Units) Purchases (1)		Weighted Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of a Publicly Announced Plans or Programs		Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

January 1 to January 31, 2023		6,639		10.03		6,639		16,209
February 1 to February 28, 2023		6,264		9.96		6,264		9,945
March 1 to March 31, 2023		—		—		—		9,945

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

4346

Item 6. Exhibits


Exhibit
Number		Description

3.1		Articles of Incorporation of 1895 Bancorp of Wisconsin, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-254135))

3.2		Bylaws of 1895 Bancorp of Wisconsin, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-254135))

~~10.1~~		1895 Bancorp of Wisconsin, Inc. 2022 Equity Incentive Plan (incorporated by reference to Appendix A to the proxy statement for the Annual Meeting of Stockholders (File No. 001-40609), filed under the Exchange Act on July 18, 2022)

~~10.2~~		~~Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-8 (File No. 333-267139), filed on August 29, 2022)~~

~~10.3~~		~~Form of Incentive Stock Option Award Agreement (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-8 (File No. 333-267139), filed on August 29, 2022)~~

~~10.4~~		~~Form of Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-8 (File No. 333-267139), filed on August 29, 2022)~~

~~10.5~~		First Amendment to Employment Agreement among PyraMax Bank, FSB, 1895 Bancorp of Wisconsin, Inc. and Richard Hurd (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-40609), filed on October 4, 2022)

~~10.6~~		First Amendment to Employment Agreement among PyraMax Bank, FSB, 1895 Bancorp of Wisconsin, Inc. and David Ball (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-40609), filed on October 4, 2022)

~~10.7~~		First Amendment to Employment Agreement among PyraMax Bank, FSB, 1895 Bancorp of Wisconsin, Inc. and Monica Baker (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-40609), filed on October 4, 2022)

~~10.8~~		First Amendment to Employment Agreement among PyraMax Bank, FSB, 1895 Bancorp of Wisconsin, Inc. and Steven Klitzing (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No. 001-40609), filed on October 4, 2022)

~~10.9~~		First Amendment to Employment Agreement among PyraMax Bank, FSB, 1895 Bancorp of Wisconsin, Inc. and Thomas Peterson (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K (File No. 001-40609), filed on October 4, 2022)

31.1		Certification of Chief Executive Officer Pursuant to Section 312 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 312 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0		The following materials for the quarter ended ~~September 30, 2022,~~March 31, 2023, formatted in ~~XBRL (Extensible~~iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive (Loss) Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements *
104.0		The cover page of this Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2022,~~March 31, 2023, formatted in ~~XBRL~~iXBRL (contained in Exhibit 101.0) *

_____________

* Furnished, not filed.

4447

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.


		1895 BANCORP OF WISCONSIN, INC.


Date: ~~November 10, 2022~~May 12, 2023		/s/ David R. Ball
		David R. Ball
		President and Chief Executive Officer


Date: ~~November 10, 2022~~May 12, 2023		/s/ Steven T. Klitzing
		Steven T. Klitzing
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

4548


	Three Months Ended September 30, 2022			Three Months Ended September 30, 2021			Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021			Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
	(in thousands)						(in thousands)						(in thousands)
Mortgage servicing rights beginning balance	$	1,939		$	2,109		$	2,036		$	1,806		$	1,860		$	2,036
Additions		10			137			57			457			9			27
Amortization		(59	)		(164	)		(203	)		(551	)		(46	)		(75	)
Decrease in valuation allowance		—			—			—			370
Mortgage servicing rights ending balance	$	1,890		$	2,082		$	1,890		$	2,082		$	1,823		$	1,988

Fair value at beginning of period	$	3,273		$	2,361		$	2,477		$	1,806		$	3,376		$	2,477
Fair value at end of period	$	3,335		$	2,285		$	3,335		$	2,285		$	3,488		$	2,811


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
	(in thousands)				(in thousands)
Non-interest bearing checking	$	109,280	$	106,664	$	84,613	$	92,465
Interest bearing checking		35,444		37,467		31,978		32,514
Money market		88,137		94,823		112,161		121,215
Statement savings		68,275		64,954		55,567		61,969
Certificates of deposit		78,162		80,593		87,647		79,558
Total	$	379,298	$	384,501	$	371,966	$	387,721


	September 30, 2022
	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	—	$	—	$	—	$	207,714	$	207,714
Land development		—		—		—		—		—
Other		—		—		—		45,074		45,074
Residential real estate:
First mortgage		339		—		339		83,561		83,900
Construction		—		—		—		2,653		2,653
Consumer:
Home equity and lines of credit		27		—		27		17,574		17,601
Other		—		—		—		115		115
Total	$	366		—	$	366	$	356,691	$	357,057


	September 30, 2022
	Performing		Non Performing		Total
	(in thousands)
Residential real estate:
First mortgage	$	83,175	$	725	$	83,900
Construction		2,653		—		2,653
Consumer:
Home equity and lines of credit		17,567		34		17,601
Other		115		—		115
Total	$	103,510	$	759	$	104,269


Estimated future amortization as of September 30, 2022:	(in thousands)
2022	$	82
Estimated future amortization as of March 31, 2023:			(in thousands)
2023		229	$	147
2024		207		204
2025		185		186
2026		163		167
2027				147
Thereafter		1,024		972
Total	$	1,890	$	1,823


	For the Nine Months Ended
	September 30, 2022			September 30, 2022

Dividend yield		0.00	%		0.00	%
Risk-free interest rate		3.13	%		0.96	%
Expected volatility		24.64	%		24.64	%
Weighted average expected life		6.5			6.5
Weighted average per share value of options	$	3.25		$	2.10