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~~

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

For the quarterly period ended September 30, ~~2021~~

2022

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

 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)~~

(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~~YesNo

~~☒ 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~~

YesNo

~~☒ 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)

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 ☒~~

~~6,371,508~~

YesNo

6,621,077 shares

of the Registrant’s common stock, par value $0.01 per share, were outstanding as of November

~~, 2021.~~

7, 2022.

~~Table of Contents~~

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, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021		1

	Consolidated Statements of Operations for the Three ~~Months~~ and Nine Months Ended September 30, 2022 and 2021 ~~and 2020~~ (unaudited)		2

	Consolidated Statements of Comprehensive (Loss) Income for the Three ~~Months~~ and Nine Months Ended September 30, 2022 and 2021 ~~and 2020~~ (unaudited)		3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 ~~and 2020~~ (unaudited)		4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 ~~and 2020~~ (unaudited)		5

	Notes to Consolidated Financial Statements (unaudited)		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		42	43

Item 4.	Controls and Procedures		42	43

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		43

Item 1A.	Risk Factors		43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 3.	Defaults Upon Senior Securities		43

Item 4.	Mine Safety Disclosures		43

Item 5.	Other Information		43

Item 6.	Exhibits		43	44

	SIGNATURES		44	45

~~Table of Contents~~

PART I – FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements~~

Item 1. Financial Statements

1895 ~~BANCORP OF WISCONSIN, INC.~~

Bancorp of Wisconsin, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

September 30,
2021

December 31,
2020


(unaudited)

Assets

Cash and due from banks    $ 84,433 $ 87,977
Fed funds sold    2,423 4,549

Cash and cash equivalents    86,856 92,526
Marketable equity securities, stated at fair value    3,309 2,992
Available for sale securities, stated at fair value    87,121 58,703
Loans held for sale    1,927 2,484
Loans, net    330,310 329,073
Premises and equipment, net    5,972 6,275
Mortgage servicing rights, net    2,082 1,806
Federal Home Loan Bank (FHLB) stock, at cost    3,032 3,032
Accrued interest receivable    896 912
Cash value of life insurance    13,789 13,485
Other assets    5,895 5,469

TOTAL ASSETS    $ 541,189 $ 516,757

Liabilities and Stockholders’ Equity

Deposits    374,314 379,848
Advance payments by borrowers for taxes and insurance    11,982 2,737
FHLB advances    55,934 68,398
Accrued interest payable    113 183
Other liabilities    6,638 5,583

TOTAL LIABILITIES    448,981 456,749

Common stock (par value $0.01 per share) Authorized - 90,000,000 shares at September 30, 2021 and December 31, 2020 Issued – 6,405,204 at September 30, 2021 and 4,961,626 at December 31, 2020 (includes 104,499 and 84,949 unvested shares, respectively)
(1)
Outstanding – 6,374,141 at September 30, 2021 and 4,834,401 at December 31, 2020 (includes 104,499 and 84,949 unvested shares, respectively)
(1)
   64 49
Preferred stock, $0.01 par value, 10,000,000 shares authorized at September 30, 2021 and December 31, 2020    0   0
Additional
paid-in
capital
   52,719 20,134
Unallocated common stock of Employee Stock Ownership Plan (ESOP), 337,361 and 161,486 shares at September 30, 2021 and December 31, 2020, respectively
(1)
   (2,991 ) (1,615 )
Less treasury stock at cost, 31,063 at September 30, 2021 and 127,225 December 31, 2020
(1)
   (311 ) (1,228 )
Retained earnings    41,885 41,530
Accumulated other comprehensive income, net of income taxes    842 1,138

Total stockholders’ equity    92,208 60,008

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY    $ 541,189 $ 516,757

~~(1)~~

~~Amounts related to periods prior to the date of Conversion (July 2021) have~~

~~not~~

~~been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (1.3163) (See Note 1)~~


	September 30, 2022			December 31, 2021
	(unaudited)
Assets
Cash and due from banks	$	13,002		$	65,300
Fed funds sold		2,700			1,503
Cash and cash equivalents		15,702			66,803

Marketable equity securities, stated at fair value		2,723			3,544
Available-for-sale securities, stated at fair value		118,414			112,440
Loans held for sale		365			1,183
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
Premises and equipment, net		5,562			5,864
Mortgage servicing rights, net		1,890			2,036
Federal Home Loan Bank (FHLB) stock, at cost		3,205			3,032
Accrued interest receivable		1,106			948
Cash value of life insurance		14,209			13,892
Other assets		11,401			6,108
TOTAL ASSETS	$	529,317		$	539,639
Liabilities and Stockholders’ Equity
Deposits	$	379,298		$	384,501
Advance payments by borrowers for taxes and insurance		10,225			1,860
FHLB advances		56,951			55,442
Accrued interest payable		142			109
Other liabilities		6,798			6,834
TOTAL LIABILITIES		453,414			448,746
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
Additional paid-in capital		50,943			52,805
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	)
Retained earnings		41,443			41,615
Accumulated other comprehensive (loss) income, net of income taxes		(11,891	)		142
Total stockholders’ equity		75,903			90,893
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	529,317		$	539,639

See accompanying notes to the unaudited consolidated financial statements.

~~Table of Contents~~

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


2021

2020

2021

2020

Interest and dividend income:
Loans, including fees    $ 2,939 $ 3,617    $ 9,357 $ 10,228
Securities, taxable    368 304    971 1,092
Other    74 17    181 65

Total interest and dividend income    3,381 3,938    10,509 11,385

Interest expense:
Interest-bearing deposits    171 480    620 1,946
Borrowed funds    178 207    579 516

Total interest expense    349 687    1,199 2,462

Net interest income    3,032 3,251    9,310 8,923
Provision for loan losses    30 500    30 500

Net interest income after provision for loan losses    3,002 2,751    9,280 8,423

Noninterest income:
Service charges and other fees    242 215    713 578
Loan servicing, net    204 252    971 112
Net gain on sale of loans    448 936    1,361 2,665
Net gain on sale of securities    0   1,014    12 1,022
Increase in cash surrender value of insurance    103 101    304 299
Unrealized (loss) gain on marketable equity securities    (377 ) 198    (5 ) 270
Other    8 43    15 42

Total noninterest income    628 2,759    3,371 4,988

Noninterest expense:
Salaries and employee benefits    2,137 2,419    7,290 6,506
Foreclosed assets, net    0   0      0   (8 )
Advertising and promotions    52 31    84 103
Data processing    206 206    611 573
Occupancy and equipment    341 319    1,076 1,016
FDIC assessment    38 31    105 81
Other    1,028 887    3,086 2,670

Total noninterest expense    3,802 3,893    12,252 10,941

(Loss) income before income taxes    (172 ) 1,617    399 2,470
Income tax (benefit) expense    (57 ) 1,205    45 1,577

Net (loss) income    $ (115 ) $ 412    $ 354 $ 893

(Loss) earnings per common share:
Basic
(1)
   $ (0.02 ) $ 0.09    $ 0.06 $ 0.20

Diluted
(1)
   $ (0.02 ) $ 0.09    $ 0.06 $ 0.20

Average common shares outstanding:
Basic
(1)
   6,011,247 4,481,625    6,035,289 4,494,234
Diluted
(1)
   6,220,755 4,519,626    6,262,722 4,529,967

~~(1)~~

~~Amounts related to periods prior to the date of Conversion (July 2021) have~~

~~not~~

~~been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (1.3163) (See Note 1)~~


	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Interest and dividend income:
Loans, including fees	$	3,563		$	2,939		$	9,862		$	9,357
Securities, taxable		613			368			1,727			971
Other		139			74			279			181
Total interest and dividend income		4,315			3,381			11,868			10,509
Interest expense:
Interest-bearing deposits		196			171			551			620
Borrowed funds		200			178			550			579
Other interest-bearing liabilities		2			—			7			—
Total interest expense		398			349			1,108			1,199
Net interest income		3,917			3,032			10,760			9,310
Provision for loan losses		—			30			210			30
Net interest income after provision for loan losses		3,917			3,002			10,550			9,280
Noninterest income:
Service charges and other fees		229			242			722			713
Loan servicing, net		167			204			515			971
Net gain on sale of loans		83			448			266			1,361
Net gain on sale of securities		—			—			—			12
Increase in cash surrender value of insurance		108			103			317			304
Unrealized (loss) on marketable equity securities		(159	)		(377	)		(892	)		(5	)
Other		51			8			58			15
Total noninterest income		479			628			986			3,371
Noninterest expense:
Salaries and employee benefits		2,528			2,137			6,846			7,290
Advertising and promotions		33			52			146			84
Data processing		221			206			630			611
Occupancy and equipment		326			341			1,010			1,076
FDIC assessment		36			38			99			105
Other		1,107			1,028			3,149			3,086
Total noninterest expense		4,251			3,802			11,880			12,252
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:
Basic	$	0.02		$	(0.02	)	$	(0.03	)	$	0.06
Diluted	$	0.02		$	(0.02	)	$	(0.03	)	$	0.06
Average common shares outstanding:
Basic		5,810,185			6,011,247			5,842,184			6,035,289
Diluted		5,983,241			6,011,247			5,842,184			6,262,722

See accompanying notes to the unaudited consolidated financial statements.

~~Table~~

1895 Bancorp of ~~Contents~~

~~1895 BANCORP OF WISCONSIN, INC.~~

Wisconsin, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands) - Unaudited

Three months ended

September 30

Nine months ended

September 30


2021

2020

2021

2020

Net (loss) income    $ (115 ) $ 412 $ 354 $ 893

Other comprehensive (loss) income:
Unrealized holding (losses) gains arising during the period    (39 ) 233 (392 ) 2,574
Reclassification adjustment for gains realized in net income    0   (1,014 ) (12 ) (1,022 )

Other comprehensive (loss) income before tax effect    (39 ) (781 ) (404 ) 1,552
Tax effect of other comprehensive (loss) income items    (10 ) (211 ) (108 ) 419

Other comprehensive (loss) income, net of tax    (29 ) (570 ) (296 ) 1,133

Comprehensive (loss) income    $ (144 ) $ (158 ) $ 58 $ 2,026


	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

See accompanying notes to the unaudited consolidated financial statements.

~~Table~~

1895 Bancorp of ~~Contents~~

~~1895 BANCORP OF WISCONSIN, INC.~~

Wisconsin, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands) - Unaudited

Common
stock
(1)

Additional paid-in

capital

Treasury Stock

Unallocated
common

stock
of ESOP(1)

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Total

Balance as of January 1, 2020    $ 49    $ 19,981 $ —   $ (1,685 ) $ 40,213 $ 107 $ 58,665
Net income    —      —   —   —   287 —   287
1895 Bancorp of Wisconsin, Inc. common stock held by PyraMax Bank reclassified to treasury stock    —      —   (175 ) —   —   —   (175 )
Other comprehensive loss    —      —   —   —   —   (124 ) (124 )
ESOP shares committed to be released (1,755 shares)    —      1 —   17 —   —   18

Balance as of March 31, 2020    $ 49    $ 19,982 $ (175 ) $ (1,668 ) $ 40,500 $ (17 ) $ 58,671

Net income    —      —   —   —   194 —   194
Other comprehensive income    —      —   —   —   —   1,827 1,827
Repurchase of 1895 Bancorp of Wisconsin, Inc. common stock (25,476 shares repurchased)    —      —   (231 ) —   —   —   (231 )
ESOP shares committed to be released (1,755 shares)    —      (4 ) —   18 —   —   14
Stock compensation expense    —      44 —   —   —   —   44

Balance as of June 30, 2020    $ 49    $ 20,022 $ (406 ) $ (1,650 ) $ 40,694 $ 1,810 $ 60,519

Net income    —      —   —   —   412 —   412
Other comprehensive loss    —      —   —   —   —   (570 ) (570 )
Repurchase of 1895 Bancorp of Wisconsin, Inc. common stock (81,249 shares repurchased)    —      —   (793 ) —   —   —   (793 )
ESOP shares committed to be released (1,755 shares)    —      (1 ) —   18 —   —   17
Stock compensation expense    —      55 —   —   —   —   55

Balance as of September 30, 2020    $ 49    $ 20,076 $ (1,199 ) $ (1,632 ) $ 41,106 $ 1,240 $ 59,640

Balance as of January 1, 2021    $ 49    $ 20,134 $ (1,228 ) $ (1,615 ) $ 41,530 $ 1,138 $ 60,008
Net income    —      —   —   —   521 —   521
Other comprehensive loss    —      —   —   —   —   (594 ) (594 )
Purchase of treasury stock    —      —   (15 ) —   —   —   (15 )
ESOP shares committed to be released (2,310 shares)    —      3 —   18 —   —   21
Issuance of treasury stock – stock compensation plan    —      (15 ) 15 —   —   —   —
Stock compensation expense    —      58 —   —   —   —   58

Balance as of March 31, 2021    $ 49    $ 20,180 $ (1,228 ) $ (1,597 ) $ 42,051 $ 544 $ 59,999

Net loss    —      —   —   —   (51 ) —   (51 )
Other comprehensive income    —      —   —   —   —   327 327
ESOP shares committed to be released (2,310 shares)       13 17 30
Retirement of common stock    —      (70 ) —   —   —   —   (70 )
Stock compensation expense    —      65 —   —   —   —   65

Balance as of June 30, 2021    $ 49    $ 20,188 $ (1,228 ) $ (1,580 ) $ 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 (2,310 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 —   —   —   —
Stock compensation expense    —      65 —   —   —   —   65

Balance as of September 30, 2021    $ 64    $ 52,719 $ (311 ) $ (2,991 ) $ 41,885 $ 842 $ 92,208

~~(1)~~

~~Amounts related to periods prior to the date of Conversion (July 2021) have~~

~~not~~

~~been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (1.3163) (See Note 1)~~


	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

See accompanying notes to the unaudited consolidated financial statements.

~~Table of Contents~~

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) - Unaudited

Nine months ended
September 30,


2021

2020



(unaudited)

Cash flows from operating activities:

Net income    $ 354 $ 893
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net amortization of investment securities    81 180
Depreciation    497 494
Provision for loan losses    30 500
Net loss on sale of premises and equipment    —   33
Change in fair value of marketable equity securities    5 (315 )
Net gain on sale of available for sale securities    (12 ) (1,022 )
Stock compensation expense    188 99
Adjustment to mortgage servicing rights valuation    (370 ) 575
Provision for deferred income tax    45 1,814
Originations of mortgage loans held for sale    (68,556 ) (158,442 )
Proceeds from sales of mortgage loans held for sale    70,474 156,730
Net gain on sale of mortgage loans held for sale    (1,361 ) (2,665 )
ESOP compensation    59 49
Net change in cash value of life insurance    (304 ) (299 )
Changes in operating assets and liabilities:
Mortgage servicing rights    94 (18 )
Accrued interest receivable and other assets    (655 ) (609 )
Accrued interest payable and other liabilities    915 (651 )

Net cash provided by (used in) operating activities    1,484 (2,654 )

Cash Flows From Investing Activities

Proceeds from sales of available for sale securities    1,018 19,283
Maturities, prepayments, and calls of available for sale securities    9,296 51,697
Purchases of available for sale securities    (39,218 ) (50,517 )
Net increase in loans    (1,267 ) (18,646 )
Net capital expenditures for premises and equipment    (194 ) (226 )
Net increase in Federal Home Loan Bank stock    —   (2,119 )

Net cash used in investing activities    (30,365 ) (528 )

Cash Flows From Financing Activities

Net (decrease) increase in deposits    (5,534 ) 10,389
Net increase in advance payments by borrowers for taxes and insurance    9,245 9,747
Proceeds from issuance of Federal Home Loan Bank advances    —   52,000
Principal payments on Federal Home Loan Bank advances    (12,464 ) (739 )
Gross proceeds from stock offering    35,520 —
Stock offering costs    (1,976 ) —
Purchase of ESOP shares    (1,429 ) —
Purchases of treasury stock    (151 ) (1,024 )

Net cash provided by financing activities    23,211 70,373

Net (decrease) increase in cash and cash equivalents    (5,670 ) 67,191
Cash and cash equivalents at beginning of period    92,526 11,707

Cash and cash equivalents at end of period    $ 86,856 $ 78,898

Supplemental cash flow information:

Cash paid during the year for interest    $ 1,269 $ 2,639
Noncash activities:

Retirement of common stock    $ 70 $ —
Loans transferred to loans held for sale    —   124
Issuance of treasury stock – stock compensation plans    15 —
1895 Bancorp of Wisconsin, Inc. common stock held by PyraMax Bank reclassified to treasury stock    —   175
Retirement of treasury stock    1,053 —
Increase in net unsettled security purchases    —   5,122


	Nine months ended September 30,
	2022			2021
	(unaudited)
Cash flows from operating activities:
Net (loss) income	$	(172	)	$	354
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net amortization of investment securities		121			81
Depreciation		464			497
Provision for loan losses		210			30
Net change in fair value of marketable equity securities		892			5
Net gain on sale of available for sale securities		—			(12	)
Stock compensation expense		200			188
Adjustment to mortgage servicing rights valuation		—			(370	)
(Benefit from) provision for deferred income tax		(172	)		45
Originations of mortgage loans held for sale		(19,006	)		(90,869	)
Proceeds from sales of mortgage loans held for sale		20,416			102,235
Net gain on sale of mortgage loans held for sale		(266	)		(1,361	)
ESOP compensation		151			59
Net change in cash value of life insurance		(317	)		(304	)
Changes in operating assets and liabilities:
Net change in mortgage servicing rights		146			94
Accrued interest receivable and other assets		(907	)		(568	)
Accrued interest payable and other liabilities		(6	)		915
Net cash provided by operating activities		1,754			11,019
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
Purchases of available-for-sale securities		(37,139	)		(39,218	)
Purchase of marketable equity securities		(71	)		(87	)
Net increase in loans		(31,486	)		(10,715	)
Purchase of FHLB stock, net		(174	)		—
Net capital expenditures for premises and equipment		(162	)		(194	)
Net cash used in investing activities		(54,471	)		(39,900	)
Cash flows from financing activities
Net decrease in deposits		(5,203	)		(5,534	)
Net increase in advance payments by borrowers for taxes and insurance		8,365			9,245
Proceeds from issuance of Federal Home Loan Bank advances		10,000			—
Principal payments on Federal Home Loan Bank advances		(8,491	)		(12,464	)
Gross proceeds from stock offering		—			35,520
Stock offering costs		—			(1,976	)
Reimbursement of stock offering costs		2			—
Repurchase of common stock for cancellation		(1,995	)		—
Purchases of treasury stock		—			(151	)
Purchase of ESOP shares		(1,062	)		(1,429	)
Net cash provided by financing activities		1,616			23,211
Net decrease in cash and cash equivalents		(51,101	)		(5,670	)
Cash and cash equivalents at beginning of period		66,803			92,526
Cash and cash equivalents at end of period	$	15,702		$	86,856
Supplemental cash flow information:
Cash paid during the year for interest	$	1,075		$	1,269
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)

~~Table of Contents~~

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

1895 Bancorp of Wisconsin, Inc., a Maryland corporation ~~(“New~~(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.~~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%~~100% of the common stock being held by the public. The consolidated financial statements and other financial information ~~included~~contained in ~~Part I of this Quarterly Report~~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 ~~positions~~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, ~~2020,~~2021, as filed with the Securities and Exchange Commission on March ~~31, 2021.~~

29, 2022 and amended on April 29, 2022.

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 losses, the fair ~~values~~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~~ (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 ~~following~~ recent accounting standards in Note 2 reflect those that relate to

non-issuer

companies.

~~Impact of~~

~~COVID-19~~

~~On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus~~

~~(“COVID-19”)~~

as a global pandemic, which continues to spread throughout the United States and around the world. The declaration of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of

~~COVID-19~~

has adversely impacted a broad range of industries in which the Company’s customers operate and impaired their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to a range of 1.00% to 1.25%.

~~Table of Contents~~

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

~~This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the~~

~~COVID-19~~

~~outbreak may continue to adversely affect the Company’s financial condition and results of operations. As a result of the spread of the~~

~~COVID-19~~

~~coronavirus, economic uncertainties have arisen which may continue to negatively impact our business, financial condition, results of operations and cash flows.~~

Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this quarterly report on Form

10-Q

were issued.

There were no additional significant subsequent events for the quarter ended September 30, ~~2021~~2022 through the issuance date of these unaudited consolidated financial statements that warranted adjustment to or disclosure in the unaudited consolidated financial statements.

NOTE 2 – RECENT ACCOUNTING STANDARDS

The following Accounting Standards Updates ~~(ASUs)~~(“ASUs”) have been issued by the ~~FASB~~Financial Accounting Standards Board (“FASB”) and may impact the Company’s financial statements in future reporting periods:

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. OnIn 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. ASU

2016-13

will be effective for fiscal years beginning after December 15, 2022, and interim periods within ~~those~~ fiscal ~~years.~~years beginning after December 15, 2022. In March 2022, the FASB issued ASU 2022-02—Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for TDRs 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.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 the option to apply a modified retrospective transition method related to the recognition 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 ~~to the new effective date~~of ASC 2016-13, as well as ASU 2022-02, until January 1, 2023. 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 of adopting ASU

2016-13

on the Company’s consolidated financial ~~statements.~~

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 liability for those leases previously classified as operating leases. The lease asset will represent the right to use the underlying asset for the lease term, and the lease liability will represent the discounted value of the required lease payments to the lessor. The ASU will also require entities to disclose key information about leasing arrangements. ASU

2016-02

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. ~~Management has elected to defer adoption to the new effective date and is currently evaluating the~~The Company adopted ASC 842 on January 1, 2022. The cumulative effect did not have a material impact ~~of adopting ASU~~

~~2016-02~~

on the ~~Company’s consolidated financial statements.~~

~~Table~~Company's statement of ~~Contents~~

~~NOTE 2 – RECENT ACCOUNTING STANDARDS (continued)~~

~~ASU~~

~~2020-04,~~

~~Facilitation of~~operations. Where the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative rates, such as SOFR. For instance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. ASU

~~2020-04~~

~~is effective March 12, 2020, through December 31, 2022. The~~ Company is ~~in the process of determining which optional expedients to elect, if any, as well as the timing and application of those elections. At this time,~~a lessee, the Company ~~does not expect any elections~~recorded an initial increase in both assets and liabilities of $529,000 to ~~have a significant impact on its financial statements.~~reflect the right of use asset and the lease liability.

NOTE 3 – ~~AVAILABLE FOR SALE~~AVAILABLE-FOR-SALE SECURITIES

The amortized costs and fair values of securities

available-for-sale

were as follows:


	September 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury notes	$	29,576	$	—	$	(3,241	)	$	26,335
Obligations of states and political subdivisions		21,398		4		(3,736	)		17,666
Government-sponsored mortgage-backed securities		77,048		—		(9,266	)		67,782
Asset-backed securities		5,222		—		(21	)		5,201
Certificates of deposit		1,459		—		(29	)		1,430
Total	$	134,703	$	4	$	(16,293	)	$	118,414


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury notes	$	19,501	$	8	$	(25	)	$	19,484
Obligations of states and political subdivisions		20,758		207		(205	)		20,760
Government-sponsored mortgage-backed securities		64,049		563		(463	)		64,149
Asset-backed securities		6,479		45		(1	)		6,523
Certificates of deposit		1,459		65		—			1,524
Total	$	112,246	$	888	$	(694	)	$	112,440

September 30, 2021


Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value



(in thousands)

Obligations of states and political subdivisions    $ 21,008    $ 287    $ (115 )    $ 21,180
Government-sponsored mortgage-backed securities    56,048    909    (100 )    56,857
Corporate collateralized mortgage obligations    744    1    —      745
Asset-backed securities    6,708    90    —      6,798
Certificates of deposit    1,459    82    —      1,541

Total    $ 85,967    $ 1,369    $ (215 )    $ 87,121



December 31, 2020


Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value



(in thousands)

Obligations of states and political subdivisions    $ 11,570    $ 244    $ (11 )    $ 11,803
Government-sponsored mortgage-backed securities    36,886    1,165    (12 )    38,039
Asset-backed securities    7,231    57    (7 )    7,281
Certificates of deposit    1,458    122    —      1,580

Total    $ 57,145    $ 1,588    $ (30 )    $ 58,703

~~Available for sale~~

Available-for-sale securities with a carrying value of ~~$1.9~~$3.7 million and ~~$2.0~~$1.8 million were pledged as collateral at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The amortized costs and fair values of 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
	Amortized Cost		Fair Value
	(in thousands)
Debt and other securities:
Due in one year or less	$	1,788	$	1,769
Due after one through 5 years		21,397		19,497
Due after 5 through 10 years		20,486		17,231
Due after 10 years		8,762		6,934
Total debt and other securities		52,433		45,431
Mortgage-related securities		77,048		67,782
Asset-backed securities		5,222		5,201
Total	$	134,703	$	118,414

~~Table of Contents~~

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

September 30, 2021


Amortized
Cost

Fair Value



(in thousands)

Debt and other securities:
Due in one year or less    $ 1,735    $ 1,750
Due after one through 5 years    4,122    4,266
Due after 5 through 10 years    5,101    5,135
Due after 10 years    11,509    11,570

Total debt and other securities    22,467    22,721
Mortgage-related securities    56,792    57,602
Asset-backed securities    6,708    6,798

Total    $ 85,967    $ 87,121

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
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
U.S. Treasury notes	$	26,335	$	(3,241	)	$	—	$	—		$	26,335	$	(3,241	)
Obligations of states and political subdivisions		9,642		(1,655	)		7,602		(2,081	)		17,244		(3,736	)
Government-sponsored mortgage-backed securities		47,967		(5,414	)		19,815		(3,852	)		67,782		(9,266	)
Asset-backed securities		4,917		(21	)		—		—			4,917		(21	)
Certificates of deposit		1,430		(29	)		—		—			1,430		(29	)
Total	$	90,291	$	(10,360	)	$	27,417	$	(5,933	)	$	117,708	$	(16,293	)


	December 31, 2021
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
U.S. Treasury notes	$	12,971	$	(25	)	$	—	$	—		$	12,971	$	(25	)
Obligations of states and political subdivisions		5,414		(82	)		4,105		(123	)		9,519		(205	)
Government-sponsored mortgage-backed securities		39,392		(463	)		—		—			39,392		(463	)
Asset-backed securities		808		(1	)		—		—			808		(1	)
Total	$	58,585	$	(571	)	$	4,105	$	(123	)	$	62,690	$	(694	)

September 30, 2021


Less than 12 months

12 months or longer

Total


Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss



(in thousands)

Obligations of states and political subdivisions    $ 5,338    $ (115 ) $ —      $ —      $ 5,338    $ (115 )
Government-sponsored mortgage-backed securities    15,620    (100 ) —      —      15,620    (100 )

Total    $ 20,958    $ (215 ) $ —      $ —      $ 20,958    $ (215 )



December 31, 2020


Less than 12 months

12 months or longer

Total


Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss



(in thousands)

Obligations of states and political subdivisions    $ 4,235    $ (11 ) $ —      $ —   $ 4,235    $ (11 )
Government-sponsored mortgage-backed securities    4,984    (12 ) —      —   4,984    (12 )
Asset-backed securities    —      —   638    (7 ) 638    (7 )

Total    $ 9,219    $ (23 ) $ 638    $ (7 ) $ 9,857    $ (30 )

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, the Company had 993 and 524 debt securities with unrealized losses representing aggregate depreciation of approximately ~~1.0%~~12.2% and ~~0.3%~~1.1%, 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.

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,


2021

2020

2021

2020



(in thousands)

(in thousands)

Proceeds from sales of securities
available-for-sale
   $ —      $ 19,005    $ 1,018    $ 19,283
Gross realized gains    —      1,014    12    1,022
Gross realized losses    —      —      —      —


	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

~~Table of Contents~~

NOTE 4 – LOANS

Major classifications of loans are summarized as follows:


	September 30, 2022			December 31, 2021
	(in thousands)
Commercial:
Real estate	$	207,714		$	185,223
Land development		—			1,400
Other		45,074			38,160
Residential real estate:
First mortgage		83,900			80,661
Construction		2,653			3,388
Consumer:
Home equity and lines of credit		17,601			17,032
Other		115			128
Subtotal		357,057			325,992
Net deferred loan costs		863			655
Allowance for loan losses		(3,180	)		(2,858	)
Loans, net	$	354,740		$	323,789

September 30,
2021

December 31,
2020



(in thousands)

Commercial:
Real estate    $ 183,089    $ 189,291
Land development    1,426    1,492
Other    43,311    46,184
Residential real estate:
First mortgage    82,411    68,968
Construction    3,732    2,954
Consumer:
Home equity and lines of credit    18,563    22,348
Other    160    361

Subtotal    332,692    331,598
Net deferred loan costs    406    178
Allowance for loan losses    (2,788 )    (2,703 )

Loans, net    $ 330,310    $ 329,073

Deposit accounts in an overdrawn position and reclassified as loans totaled $13,000 and $106,000 at September 30, 2022 and December 31, 2021, 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, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, the Company had transferred ~~$32.3~~$30.4 million and ~~$29.6~~$32.1 million in participation loans which were eligible for sales treatment to other financial institutions, all of which continue to be serviced by the Company.

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

September 30, 2021


30-89 Days

Past Due

90 Days or
More Past
Due

Total Past
Due

Current

Total Loans



(in thousands)

Commercial:
Real estate    $ 427    $ 276    $ 703    $ 182,386    $ 183,089
Land development    —      —      —      1,426    1,426
Other    —      —      —      43,311    43,311
Residential real estate:
First mortgage    230    —      230    82,181    82,411
Construction    —      —      —      3,732    3,732
Consumer:
Home equity and lines of credit    —      —      —      18,563    18,563
Other    —      —      —      160    160

Total    $ 657    $ 276    $ 933    $ 331,759    $ 332,692

~~Table of Contents~~

~~NOTE 4 – LOANS (continued)~~

December 31, 2020


30-89 Days

Past Due

90 Days or
More Past
Due

Total Past
Due

Current

Total Loans



(in thousands)

Commercial:
Real estate    $ 241    $ —      $ 241    $ 189,050    $ 189,291
Land development    —      —      —      1,492    1,492
Other    33    —      33    46,151    46,184
Residential real estate:
First mortgage    684    137    821    68,147    68,968
Construction    —      —      —      2,954    2,954
Consumer:
Home equity and lines of credit    121    23    144    22,204    22,348
Other    —      —      —      361    361

Total    $ 1,079    $ 160    $ 1,239    $ 330,359    $ 331,598

There were 0no loans 90 days or more past due and accruing interest as of September 30, ~~2021~~2022 or December 31, ~~2020.~~

2021, respectively.

A summary of activity in the allowance for loan losses for the three and nine months ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021, respectively, is presented below:

Commercial

Residential

Consumer

Total



(in thousands)

Three months ended September 30, 2021

Allowance for loan losses
Beginning balance    $ 1,618    $ 745    $ 369    $ 2,732
Provision (credit) for loan losses    30    0      0      30
Loans
charged-off
   0—      0—      (1 )    (1 )
Recoveries    4    0—      23    27

Ending balance    $ 1,652    $ 745    $ 391    $ 2,788

Three months ended September 30, 2020

Allowance for loan losses
Beginning balance    $ 1,243    $ 573    $ 298    $ 2,114
Provision (credit) for loan losses    360    100    40    500
Loans
charged-off
   0—      (060 )    (02 )    (62 )
Recoveries    2    88    8    98

Ending balance    $ 1,605    $ 701    $ 344    $ 2,650



Commercial

Residential

Consumer

Total



(in thousands)

Nine months ended September 30, 2021

Allowance for loan losses
Beginning balance    $ 1,609    $ 745    $ 349    $ 2,703
Provision (credit) for loan losses    30    0      0      30
Loans
charged-off
   0—      0—      (18 )    (18 )
Recoveries    13    0—      60    73

Ending balance    $ 1,652    $ 745    $ 391    $ 2,788

Nine months ended September 30, 2020

Allowance for loan losses
Beginning balance    $ 1,235    $ 573    $ 192    $ 2,000
Provision (credit) for loan losses    360    100    40    500
Loans
charged-off
   0—      (060 )    (7 )    (67 )
Recoveries    10    088    119    217

Ending balance    $ 1,605    $ 701    $ 344    $ 2,650


	Commercial		Residential		Consumer			Total
	(in thousands)
Three months ended September 30, 2022
Allowance for loan losses
Beginning balance	$	1,924	$	745	$	463		$	3,132
Provision for loan losses		—		—		—			—
Loans charged-off		—		—		(1	)		(1	)
Recoveries		4		—		45			49
Ending balance	$	1,928	$	745	$	507		$	3,180
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

~~Table of Contents~~

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

A summary of the allowance for loan losses for loans evaluated individually and collectively for impairment is presented below:


	September 30, 2022
	Commercial		Residential		Consumer		Total
	(in thousands)
Loans:
Individually evaluated for impairment	$	6,198	$	1,132	$	34	$	7,364
Collectively evaluated for impairment		246,590		85,421		17,682		349,693
Total loans	$	252,788	$	86,553	$	17,716	$	357,057

Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,928		745		507		3,180
Total allowance for loan losses	$	1,928	$	745	$	507	$	3,180


	December 31, 2021
	Commercial		Residential		Consumer		Total
	(in thousands)
Loans:
Individually evaluated for impairment	$	4,833	$	1,357	$	37	$	6,227
Collectively evaluated for impairment		219,950		82,692		17,123		319,765
Total loans	$	224,783	$	84,049	$	17,160	$	325,992

Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,657		745		456		2,858
Total allowance for loan losses	$	1,657	$	745	$	456	$	2,858

September 30, 2021


Commercial

Residential

Consumer

Total



(in thousands)

Loans:
Individually evaluated for impairment    $ 6,510    $ 880    $ —      $ 7,390
Collectively evaluated for impairment    221,316    85,263    18,723    325,302

Total loans    $ 227,826    $ 86,143    $ 18,723    $ 332,692

Allowance for loan losses:
Individually evaluated for impairment    $ 0—      $ 0—      $ 0—      $ 0—
Collectively evaluated for impairment    1,652    745    391    2,788

Total allowance for loan losses    $ 1,652    $ 745    $ 391    $ 2,788



December 31, 2020


Commercial

Residential

Consumer

Total



(in thousands)

Loans:
Individually evaluated for impairment    $ 10,573    $ 411    $ 21    $ 11,005
Collectively evaluated for impairment    226,394    71,511    22,688    320,593

Total loans    $ 236,967    $ 71,922    $ 22,709    $ 331,598

Allowance for loan losses:
Individually evaluated for impairment    $ 0—      $ 0—      $ 0—      $ 0—
Collectively evaluated for impairment    1,609    745    349    2,703

Total allowance for loan losses    $ 1,609    $ 745    $ 349    $ 2,703

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for loan losses. The credit quality indicators monitored differ depending on the class of loan.

Pass

ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable.

Watch and Special Mention

ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable.

Substandard

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 no longer probable.

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.

~~Table of Contents~~

~~NOTE 4 – LOANS (continued)~~

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

September 30, 2021


Pass

Watch and
Special
Mention

Substandard

Total



(in thousands)

Commercial:
Real estate    $ 164,407    $ 13,253    $ 5,428    $ 183,089
Land development    1,426    —      0      1,426
Other    41,459    568    1,284    43,311

Total    $ 207,292    $ 13,821    $ 6,712    $ 227,826



December 31, 2020


Pass

Watch and
Special
Mention

Substandard

Total



(in thousands)

Commercial:
Real estate    $ 163,961    $ 19,272    $ 6,058    $ 189,291
Land development    —      —      1,492    1,492
Other    37,675    5,705    2,804    46,184

Total    $ 201,636    $ 24,977    $ 10,354    $ 236,967

There were 0no loans rated Doubtful or Loss as of September 30, ~~2021~~2022 or December 31, ~~2020,~~2021, respectively.

Residential real estate and consumer loans are generally evaluated based on whether or not ~~loans are~~the loan is performing according 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 in accordance with ~~their contractual terms.~~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 monitored for residential real estate and consumer loans is presented below:

September 30, 2021


Performing

Non
Performing

Total



(in thousands)

Residential real estate:
First mortgage    $ 81,457    $ 954    $ 82,411
Construction    3,733    —      3,733
Consumer:
Home equity and lines of credit    18,479    84    18,563
Other    160    —      160

Total    $ 103,829    $ 1,038    $ 104,867


	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

~~Table of Contents~~

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

December 31, 2020


Performing

Non
Performing

Total



(in thousands)

Residential real estate:
First mortgages    $ 67,817    $ 1,151    $ 68,968
Construction    2,954    —      2,954
Consumer:
Home equity and lines of credit    22,212    136    22,348
Other    361    —      361

Total    $ 93,344    $ 1,287    $ 94,631

Information regarding impaired loans is presented below:

As of and for the Nine Months Ended September 30, 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 mortgages    —      —      —      —      —
Construction    —      —      —      —      —
Consumer:
Home equity and lines of credit    —      —      —      —      —
Other    —      —      —      —      —

Total impaired loans with reserve    —      —      —      —      —

Impaired loans with no reserve:
Commercial:
Real estate    5,226    5,226    NA    5,872    161
Land development    0      0      NA    979    32
Other    1,284    1,335    NA    1,611    24
Residential real estate:
First mortgages    880    964    NA    734    18
Construction    —      —      NA    —      —
Consumer:
Home equity and lines of credit    —      —      NA    10    22
Other    —      —      NA    —      —

Total impaired loans with no reserve    7,390    7,525    NA    9,206    257

Total impaired loans    $ 7,390    $ 7,525    $ 0      $ 9,206    $ 257


	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

~~Table of Contents~~

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

As of and for the Year Ended December 31, 2020


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 mortgages    —      —      —      36    —
Construction    —      —      —      —      —
Consumer:
Home equity and lines of credit    —      —      —      4    —
Other    —      —      —      —      —

Total impaired loans with reserve    —      —      —      40    —

Impaired loans with no reserve:
Commercial:
Real estate    6,277    6,277    NA    6,268    332
Land development    1,492    1,492    NA    503    40
Other    2,804    2,804    NA    2,301    138
Residential real estate:
First mortgages    411    495    NA    568    261
Construction    —      —      NA    —      —
Consumer:
Home equity and lines of credit    21    51    NA    24    3
Other    —      —      NA    —      —

Total impaired loans with no reserve    11,005    11,119    NA    9,664    774

Total impaired loans    $ 11,005    $ 11,119    $ 0      $ 9,704    $ 774

~~Management regularly monitors impaired loan relationships. In the event facts and circumstances change, additional reserves may be necessary.~~

There were 0no additional funds committed to impaired loans as of September 30, ~~2021~~2022 and December 31, ~~2020.~~

2021, respectively.

Nonperforming loans are as follows:


	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

September 30,
2021

December 31,
2020



(in thousands)

Nonaccrual loans, other than troubled debt restructurings    $ 1,120    $ 1,068
Nonaccrual loans, troubled debt restructurings    193    219

Total nonperforming loans (NPLs)    $ 1,313    $ 1,287

Troubled debt restructurings, accruing    $ 421    $ 432

~~Table of Contents~~

~~NOTE 4 – LOANS (continued)~~

There were 0no loans modified as troubled debt restructurings during the nine months ended September 30, ~~2021~~2022 and year ended December 31, ~~2020,~~2021, respectively.

The ~~provisions of the~~ CARES Act and related legislation included an ~~election~~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 ~~the earlier of (i)~~ December 31, ~~2020 or (ii) 60 days after the end of the~~

~~COVID-19~~

~~national emergency.~~2021. The relief ~~can~~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, ~~2021,~~2022, the Company had 1 to 3 month deferrals of approximately ~~$444,000~~$245,000 in interest, escrow, and principal payments on ~~$14.7~~$4.6 million in outstanding loans.

NOTE 4 – LOANS (continued)

The Company considers a troubled debt restructuring in default if it becomes past due more than 90 days. There were 0

notroubled debt restructurings within the past twelve months for which there was a default during the nine months ended September 30, ~~2021~~2022 and ~~2020.~~

2021.

Information on

non-accrual

loans is presented below:


	September 30, 2022			December 31, 2021
	(in thousands)
Commercial:
Real estate	$	—		$	—
Land development		—			—
Other		—			—
Residential real estate:
First mortgage		725			939
Construction		—			—
Consumer:
Home equity and lines of credit		34			78
Other		—			—
Total non-accrual loans	$	759		$	1,017
Total non-accrual loans to total loans		0.21	%		0.31	%
Total non-accrual loans to total assets		0.14	%		0.19	%

September 30,
2021

December 31,
2020



(in thousands)

Commercial:
Real estate    $ 275 $ —
Land development    —   —
Other    —   —
Residential real estate:
First mortgages    954 1,151
Construction    —   —
Consumer:
Home equity and lines of credit    84 136
Other    —   —

Total
non-accrual
loans
   $ 1,313 $ 1,287

Total
non-accrual
loans to total loans
   0.40 % 0.39 %
Total
non-accrual
loans to total assets
   0.24 % 0.25 %

NOTE 5 – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included in the Company’s consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others was ~~$339.3~~$309.6 million and ~~$345.1~~$332.9 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

A summary of activity in the Company’s mortgage servicing rights is presented below:


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

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

Three Months
Ended
September 30,
2021

Three Months
Ended
September 30,
2020

Nine Months
Ended
September 30,
2021

Nine Months
Ended
September 30,
2020



(in thousands)

(in thousands)

Mortgage servicing rights beginning balance    $ 2,109    $ 1,587    $ 1,806    $ 2,172
Additions    137    232    457    578
Amortization    (164 )    (199 )    (551 )    (560 )
Increase (decrease) in valuation allowance    0      (5 )    370    (575 )

Mortgage servicing rights ending balance    $ 2,082    $ 1,615    $ 2,082    $ 1,615

Fair value at beginning of period    $ 2,361    $ 1,587    $ 1,806    $ 2,404
Fair value at end of period    $ 2,285    $ 1,615    $ 2,285    $ 1,615

~~Table of Contents~~

~~NOTE 5 – MORTGAGE SERVICING RIGHTS (continued)~~

The estimated fair value of mortgage servicing rights was determined using a valuation model that calculates the present value of expected future servicing and ancillary income, net of expected servicing costs. The model incorporates various assumptions such as discount rates, prepayment speeds and ancillary income and servicing costs. As of September 30, ~~2021,~~2022, the model used discount rates ranging from ~~10%~~9.5% to ~~13.5%~~13%, and prepayment speeds ranging from ~~12.5%~~7.7% to ~~39.7%~~38.2%, respectively, both of which were based on market data from independent organizations. As of September 30, ~~2020,~~ 2021the model used discount rates ranging from ~~10%~~10% to ~~13.5%~~13.5%, and prepayment speeds ranging from ~~20.9%~~12.5% to ~~46.9%~~39.7%, respectively, both of which were based on market data from independent organizations.

NOTE 5 – MORTGAGE SERVICING RIGHTS (continued)

The following table summarizes the estimated future amortization expense for mortgage servicing rights for the annual periods indicated. The projections of amortization expense are based on existing asset balances as of September 30, ~~2021.~~2022. The actual amortization expense the Company recognizes in any given period may vary significantly depending on changes in interest rates, market conditions and regulatory requirements.


Estimated future amortization as of September 30, 2022:	(in thousands)
2022	$	82
2023		229
2024		207
2025		185
2026		163
Thereafter		1,024
Total	$	1,890

(in thousands)

Estimated future amortization as of September 30,
2021
:

2021    $ 440
2022    412
2023    385
2024    359
2025    328
Thereafter    158

Total    $ 2,082

NOTE 6 – DEPOSITS

The composition of deposits is summarized below:


	September 30, 2022		December 31, 2021
	(in thousands)
Non-interest bearing checking	$	109,280	$	106,664
Interest bearing checking		35,444		37,467
Money market		88,137		94,823
Statement savings		68,275		64,954
Certificates of deposit		78,162		80,593
Total	$	379,298	$	384,501

September 30,
2021

December 31,
2020



(in thousands)

Non-interest
bearing checking
   $ 100,018    $ 98,970
Interest bearing checking    34,387    30,630
Money market    93,110    103,724
Statement savings    66,653    58,895
Certificates of deposit
1
   80,146    87,629

Total    $ 374,314    $ 379,848

1	~~Included in these amounts are brokered deposits of $5.5 million at December 31, 2020. There were 0 brokered deposits at September 30, 2021.~~

The Company held ~~$9.5~~$7.9 million and ~~$8.7~~$10.0 million in certificates of deposit which met or exceeded the FDIC insurance limit of ~~$250,000~~$250,000 as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The Company did not hold any brokered deposits as of September 30, 2022 and December 31, 2021.

As of September 30, ~~2021,~~2022, the scheduled maturities of certificates of deposit for the annual periods are presented ~~below~~

:below:


	(in thousands)
2022	$	22,992
2023		43,226
2024		1,365
2025		9,950
2026		350
Thereafter		279
Total	$	78,162

(in thousands)

2021    $ 21,164
2022    55,902
2023    1,078
2024    1,237
2025    585
Thereafter    180

Total    $ 80,146

NOTE 7 – FEDERAL HOME LOAN BANK ADVANCES

Federal Home Loan Bank advances consist of the following:


	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

September 30, 2021

December 31, 2020


Rate

Amount

Rate

Amount



(dollars in thousands)

Fixed rate, fixed term advance, maturing Jul 2021    0   0      1.41 % $ 7,000
Fixed rate, fixed term advance, maturing Feb 2022    1.62 % 6,500    1.62 % 6,500
Fixed rate, fixed term advance, maturing Feb 2023    1.62 % 6,500    1.62 % 6,500
Putable advance, maturing Oct 2029 first put option date Nov 2020    1.03 % 10,000    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
Advance structured note, payments due monthly, maturing Feb 2030    7.47 % 553    7.47 % 584
Advance structured note, payments due monthly, maturing April 2030    1.05 % 8,646    1.05 % 9,365
Advance structured note, payments due monthly, maturing May 2030    1.19 % 8,735    1.19 % 9,449
Fixed rate,
COVID-19
Relief Advance, maturing May 2021
   0   0      0 % 4,000

Total    $ 55,934    $ 68,398

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


	September 30, 2022
	Weighted Average Rate			Amount
	(dollars in thousands)
2022		1.12	%	$	486
2023		1.50	%		8,457
2024		1.12	%		1,980
2025		1.12	%		2,002
2026		1.12	%		2,024
Thereafter		0.93	%		42,002
Total				$	56,951

September 30, 2021


Weighted
Average Rate

Amount



(dollars in thousands)

2021    1.26 % $ 491
2022    1.54 % 8,481
2023    1.54 % 8,507
2024    1.28 % 2,032
2025    1.30 % 2,059
Thereafter    1.07 % 34,364

Total    $ 55,934

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

The Company maintains a master contract agreement with the Federal Home Loan Bank, which provides for borrowing up to the lesser of 22.22 times the value of the Federal Home Loan Bank 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 provides both fixed and floating rate advances. Floating rates are tied to short-term market rates of interest such as ~~the London InterBank Offered Rate,~~ federal funds or Treasury bill rates. Federal Home Loan Bank advances are subject to a prepayment penalty if they are repaid prior to maturity.

The Company has pledged ~~approximately $150.1~~qualifying loans of $251.4 million and ~~$149.1~~$232.7 million ~~of qualifying loans~~ as collateral for Federal Home Loan Bank advances as of September 30, ~~2021~~2022 and December 31, ~~2020,~~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 advances ~~are~~were also secured by approximately ~~$3.0~~$3.2 million and $3.0 million of Federal Home Loan Bank stock held by the Company as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021, respectively. The Company’s available and unused portion of this borrowing agreement totaled ~~$93.6~~$112.6 million and ~~$79.6~~$90.9 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Additional borrowing would require additional stock purchase.

Additionally, at September 30, ~~2021 we~~2022 the Company had a ~~$15.0~~$15.0 million federal funds rate line of credit with the BMO Harris Bank, none of which was drawn at September 30, ~~2021.~~2022. The Company also had a ~~$6.2~~$10.0 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately ~~$9.2~~$13.2 million at September 30, ~~2021.~~2022. The Company had 0tnot drawn on the Federal Reserve line as of September 30, ~~2021.~~2022.

~~Table of Contents~~

NOTE 8 – INCOME TAXES

Income tax expense (benefit) ~~expense~~ was ~~($57,000)~~$21,000 and ~~$1.2 million~~($57,000) for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$45,000~~($172,000) and ~~$1.6 million~~$45,000 for the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ 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, ~~2021,~~2022, and December 31, ~~2020,~~2021, the deferred tax valuation ~~allowances~~allowance was ~~$934,000,~~$934,000, reducing our net deferred tax asset to ~~$3.4~~$8.4 million and $3.8 million at each respective date.

~~Due to recent changes in market conditions and current events related to~~

~~COVID-19,~~

~~the~~

The board and management continue to assess ~~their~~the deferred tax assets ~~including~~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.

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, ~~2021.~~

2022.

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.

The contractual amounts of

off-balance-sheet

credit-related financial instruments are summarized below:


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


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

September 30, 2021


Fixed Rate

Variable Rate

Total



(in thousands)

Commitments to extend credit    $ 8,215    $ 54,658    $ 62,873
Standby letters of credit    23    250    273
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program    1,200    —      1,200
Commitments to sell loans    14,404    —      14,404
Overdraft protection program commitments    4,027    —      4,027

December 31, 2020


Fixed Rate

Variable Rate

Total



(in thousands)

Commitments to extend credit    $ 12,084    $ 41,778    $ 53,862
Standby letters of credit    23    2,150    2,173
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program    1,087    —      1,087
Commitments to sell loans    53,847    —      53,847
Overdraft protection program commitments    4,104    —      4,104

~~Table of Contents~~

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 ~~$2.5 million~~$711,000 of commitments to deliver loans through the Program as of September 30, ~~2021.~~2022. 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, ~~2021,~~2022, and December 31, ~~2020,~~2021, the Company had 0no 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.

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 with the mutual holding company reorganization and organization of Old 1895 Bancorp. Eligible employees become ~~20%~~20% vested in their accounts after 1 year of service, ~~40%~~40% vested after 2 years of service, ~~60%~~60% vested after 3 years of service, ~~80%~~80% vested after 4 years of service, and ~~100%~~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. ~~As of~~During the nine months ended September 30, ~~2021,~~2022, the ESOP ~~had~~ purchased ~~131,727 of the~~an additional96,446 shares at an average price of ~~$10.79.~~

$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.

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.

~~Table of Contents~~

~~NOTE 10 – EMPLOYEE STOCK OWNERSHIP PLAN (continued)~~

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 ~~$10,000~~$49,000 and ~~$17,000~~$10,000 in compensation expense for the three months ended September 30, ~~2021~~2022 and September 30, ~~2020,~~2021, respectively, and ~~$59,000~~$151,000 and ~~$49,000~~$61,000 for the nine months ended September 30, ~~2021~~2022 and September 30, ~~2020,~~2021, respectively.

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


	September 30, 2022		December 31, 2021
	(dollars in thousands)
Shares committed to be released		14,757		22,401
Total allocated shares		37,641		15,239
Total unallocated shares		458,765		377,077
Total ESOP shares		511,163		414,717
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

September 30, 2021

December 31, 2020
(1)



(dollars in thousands)

Shares committed to be released    6,930    7,021
Total allocated shares    18,480    7,021
Total unallocated shares    337,361    161,486

Total ESOP shares    362,771    175,528

Fair value of unallocated shares (based on $10.92 and $9.96 share price as of September 30, 2021 and December 31, 2020, respectively)    $ 3,684    $ 1,608

~~(1)~~

~~Amounts related to periods prior to the date of Conversion (July 2021) have not been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (1.3163) (See Note 1).~~

NOTE 11 – RELATED PARTY TRANSACTIONS

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


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

September 30,
2021

December 31,
2020



(in thousands)

Beginning balance    $ 1,034    $ 1,172
New loans    32    512
Repayments    (287 )    (650 )

Ending balance    $ 779    $ 1,034

Deposits from directors, executive officers, and their affiliates totaled ~~$1.1~~$759,000 and $1.1 million ~~and $940,000~~ at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 ~~$7,000 and $6,000 during~~immaterial for the three ~~months ended September 30, 2021~~ and ~~2020, respectively, and $21,000 for the~~ nine months ended September 30, 2022 and 2021, ~~and 2020,~~ 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.

~~Table of Contents~~

~~NOTE 12 – FAIR VALUE MEASUREMENTS (continued)~~

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 ~~accounting principles generally accepted in the United States.~~GAAP. Other assets and liabilities, such as impaired loans, may be measured at fair value on a nonrecurring basis.

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 loans

– ~~Loans are~~The Company does not ~~measured~~record loans at fair value on a recurring basis. However, ~~loans determined to be~~periodically, a loan is considered impaired ~~may be measured~~and is reported at fair value ~~on a nonrecurring basis. The fair value measurements of collateral-dependent impaired loans are based on the fair values~~ 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 ~~includes~~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
	September 30, 2022		Level 1		Level 2		Level 3
	(in thousands)
Marketable equity securities	$	2,723	$	2,723	$	—	$	—
Securities available-for-sale:
U.S. Treasury notes		26,336		—		26,335		—
Obligations of states and political subdivisions		17,665		—		17,666		—
Government-sponsored mortgage-backed securities		67,782		—		67,782		—
Asset-backed securities		5,201		—		5,201		—
Certificates of deposit		1,430		—		1,430		—
Total	$	121,137	$	2,723	$	118,414	$	—

~~Table of Contents~~

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)


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

Recurring Fair Value Measurements Using


September 30, 2021

Level 1

Level 2

Level 3



(in thousands)

Marketable equity securities:    $ 3,309    $ 3,309    $ —      $ —
Securities
available-for-sale:

Obligations of states and political subdivisions    21,180    —      21,180    —
Government-sponsored mortgage-backed securities    56,857    —      56,857    —
Corporate collateralized mortgage obligations    745    —      745    —
Asset-backed securities    6,798    —      6,798    —
Certificates of deposit    1,541    —      1,541    —

Total    $ 90,430    $ 3,309    $ 87,121    $ —



Recurring Fair Value Measurements Using


December 31, 2020

Level 1

Level 2

Level 3



(in thousands)

Marketable equity securities:    $ 2,992    $ 2,992    $ —      $ —
Securities
available-for-sale:

Obligations of states and political subdivisions    11,803    —      11,803    —
Government-sponsored mortgage-backed securities    38,039    —      38,039    —
Asset-backed securities    7,281    —      7,281    —
Certificates of deposit    1,580    —      1,580    —

Total    $ 61,695    $ 2,992    $ 58,703    $ —

Impaired loans are measured at fair value on a

non-recurring

basis. There were 0no loans that were considered impaired with a specific valuation allowance as of September 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

Mortgage servicing rights are measured at fair value on a

non-recurring

basis. Mortgage servicing rights with a carrying value of $2.2 million were considered impaired and written down to their estimated fair value of $1.8 million as of December 31, 2020. As a result, the Company recognized a specific valuation allowance againstThere was no impairment on mortgage servicing rights as of ~~$369,000 during the period~~September 30, 2022 and December 31, ~~2020. At September 30, 2021, there was 0 valuation allowance against mortgage servicing rights.~~

2021.

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

September 30, 2021


Carrying Value

Level 1

Level 2

Level 3



(in thousands)

Financial assets:
Cash and cash equivalents    $ 86,856    $ 86,856    $ —      $ —
Available for sale securities    87,121    —      87,121    —
Marketable equity securities    3,309    3,309    —      —
Loans held for sale    1,927    —      1,927    —
Loans    330,310    —      —      332,175
Rate lock commitments    116    —      —      116
Accrued interest receivable    896    896    —      —
Federal Home Loan Bank stock    3,032    —      —      3,032
Cash value of life insurance    13,789    —      —      13,789
Financial liabilities:
Deposits    374,314    294,168    —      80,186
Advance payments by borrowers for taxes and insurance    11,982    11,982    —      —
Federal Home Loan Bank advances    55,934    —      —      57,133
Accrued interest payable    113    113    —      —


	September 30, 2022
	Carrying Value		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and cash equivalents	$	15,702	$	15,702	$	—	$	—
Available-for-sale securities		118,414		—		118,414		—
Marketable equity securities		2,723		2,723		—		—
Loans held for sale		365		—		365		—
Loans		354,740		—		—		333,696
Rate lock commitments		10		—		—		10
Accrued interest receivable		1,106		1,106		—		—
Federal Home Loan Bank stock		3,205		—		—		3,205
Cash value of life insurance		14,209		—		—		14,209
Financial liabilities:
Deposits		379,298		301,137		—		77,102
Advance payments by borrowers for taxes and insurance		10,225		10,225		—		—
Federal Home Loan Bank advances		56,951		—		—		58,085
Accrued interest payable		142		142		—		—

~~Table of Contents~~

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)


	December 31, 2021
	Carrying Value		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and cash equivalents	$	66,803	$	66,803	$	—	$	—
Available-for-sale securities		112,440		—		112,440		—
Marketable equity securities		3,544		3,544		—		—
Loans held for sale		1,183		—		1,183		—
Loans		323,789		—		—		323,182
Rate lock commitments		30		—		—		30
Accrued interest receivable		948		948		—		—
Federal Home Loan Bank Stock		3,032		—		—		3,032
Cash value of life insurance		13,892		—		—		13,892
Financial liabilities:
Deposits		384,501		303,908		—		80,473
Advance payments by borrowers for taxes and insurance		1,860		1,860		—		—
Federal Home Loan Bank advances		55,442		—		—		55,981
Accrued interest payable		109		109		—		—

December 31, 2020


Carrying Value

Level 1

Level 2

Level 3



(in thousands)

Financial assets:
Cash and cash equivalents    $ 92,526    $ 92,526    $ —      $ —
Available for sale securities    58,703    —      58,703    —
Marketable equity securities    2,992    2,992    —      —
Loans held for sale    2,484    —      2,484    —
Loans    329,073    —      —      332,882
Rate lock commitments    354    —      —      354
Accrued interest receivable    912    912    —      —
Federal Home Loan Bank Stock    3,032    —      —      3,032
Cash value of life insurance    13,485    —      —      13,485
Financial liabilities:
Deposits    379,848    292,219    —      87,884
Advance payments by borrowers for taxes and insurance    2,737    2,737    —      —
Federal Home Loan Bank advances    63,398    —      —      70,561
Accrued interest payable    183    183    —      —

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 todo 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 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 financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, PyraMax Bank must meet specific capital guidelines that involve quantitative measures of 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.

~~Table of Contents~~

~~NOTE 13 – EQUITY AND REGULATORY MATTERS (continued)~~

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 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. ~~It is management’s opinion that~~ PyraMax Bank met all applicable capital adequacy requirements as of September 30, ~~2021~~2022 and December 31, ~~2020.~~

2021, respectively.

As of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, PyraMax Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, PyraMax Bank must maintain minimum regulatory capital ratios as set forth in the table below. PyraMax Bank’s actual and required capital amounts and ratios are presented below:

September 30, 2021


Actual

For Capital Adequacy
Purposes

To Be Well Capitalized
Under Prompt Corrective
Action Provisions


Amount

Ratio

Amount

Ratio

Amount

Ratio



(dollars in thousands)

PyraMax Bank

Leverage (Tier 1)    $ 49,513    9.1 % $ 21,762    4.0 % $ 27,203    5.0 %
Risk-based:
Common Equity Tier 1    49,513    14.6 % 15,264    4.5 % 22,048    6.5 %
Tier 1    49,513    14.6 % 20,352    6.0 % 27,136    8.0 %
Total    47,457    14.0 % 27,136    8.0 % 33,920    10.0 %


December 31, 2020


Actual

For Capital Adequacy
Purposes

To Be Well Capitalized
Under Prompt Corrective
Action Provisions


Amount

Ratio

Amount

Ratio

Amount

Ratio



(dollars in thousands)

PyraMax Bank

Leverage (Tier 1)    $ 49,534    9.8 % $ 20,195    4.0 % $ 25,243    5.0 %
Risk-based:
Common Equity Tier 1    49,534    15.1 % 14,725    4.5 % 21,269    6.5 %
Tier 1    49,534    15.1 % 19,633    6.0 % 26,177    8.0 %
Total    52,237    16.0 % 26,177    8.0 % 32,722    10.0 %


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

Risk-based:
Common Equity Tier 1		64,937		16.9	%		17,325		4.5	%		25,025		6.5	%
Tier 1		64,937		16.9	%		23,100		6.0	%		30,800		8.0	%
Total		68,117		17.7	%		30,800		8.0	%		38,501		10.0	%


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

Risk-based:
Common Equity Tier 1		65,179		19.4	%		15,124		4.5	%		21,846		6.5	%
Tier 1		65,179		19.4	%		20,166		6.0	%		26,888		8.0	%
Total		68,037		20.2	%		26,888		8.0	%		33,610		10.0	%

~~Table~~

On July 29, 2022, the Company adopted a stock repurchase program. Under the repurchase program, the Company may repurchase up to 5% of ~~Contents~~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, the Company had repurchased 184,270 shares for a total purchase price of $2 million.

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. 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, zero and 182,457 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, 209,508 and zero 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, ~~2021~~2022 and ~~2020~~2021 are presented in the following table.

Three months ended September 30,

Nine months ended September 30,


2021

2020
(1)

2021

2020
(1)



(In thousands, except per share
amounts)

(In thousands, except per share
amounts)

Net (loss) income    $ (115 )    $ 412    $ 354    $ 893

Weighted shares outstanding for basic
EPS
Weighted average shares outstanding    6,269    4,647    6,261    4,660
Less: Weighted average unallocated
ESOP shares    250    165    226    166

Weighted average shares
outstanding for basic EPS    6,011    4,482    6,035    4,494
Additional dilutive shares    210    38    228    36

Weighted average shares
outstanding for dilutive EPS    6,221    4,520    6,263    4,530

Basic (loss) income per share    $ (0.02 )    $ 0.09    $ 0.06    $ 0.20
Diluted (loss) income per share    $ (0.02 )    $ 0.09    $ 0.06    $ 0.20


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

Net income (loss)	$	124	$	(115	)

Weighted shares outstanding for basic EPS
Weighted average shares outstanding		6,271		6,269
Less: Weighted average unallocated ESOP shares		461		258

Weighted average shares outstanding for basic EPS		5,810		6,011
Additional dilutive shares		173		—

Weighted average shares outstanding for dilutive EPS		5,983		6,011

Basic income (loss) per share	$	0.02	$	(0.02	)
Diluted income (loss) per share	$	0.02	$	(0.02	)


	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)~~

NOTE 15 – STOCK BASED COMPENSATION

Stock-Based Compensation ~~Plan~~

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, 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 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. 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 ~~val~~

uevalue 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 ~~compensation, payroll taxes~~salaries and ~~other~~ 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, ~~2021:~~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

~~Table of Contents~~

~~NOTE 15 – STOCK BASED COMPENSATION (continued)~~

For the Nine
Months Ended
September 30,

2021

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

NOTE 15 – STOCK BASED COMPENSATION (continued)

A summary of the Company’s stock option activity for the ~~period~~nine months ended September 30, ~~2021~~2022 is presented below.


Stock Options	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
Granted		107,505		9.93		6.50		—
Exercised		—		—		—		—
Forfeited		—		—		—		—
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

Stock Options

Shares
(1)

Weighted
Average
Exercise Price

Weighted
Average
Remaining in
Contractual
Term (Years)

Aggregate
Intrinsic
Value

Outstanding December 31, 2020    287,097    $ 5.99    9.30    593,838
Granted
(2)
   37,316    7.76    9.41    —
Exercised    0      0      —      —
Forfeited    0      0      —      —

Outstanding September 30, 2021    324,413    6.20    8.65    1,532,089

Options exercisable at September 30, 2021    57,415    5.99    8.55    282,833

~~(1)~~

~~Share amounts reflected in the tables are adjusted for the 1.3163 to 1 common share conversion ratio as part of the conversion and offering.~~

~~(2)~~

~~Includes 10,527 shares granted as a nonqualified stock option inducement award to the Company’s President and Chief Operating Officer.~~

The following table summarizes information about the Company’s nonvested stock option activity for the nine months ended September 30, ~~2021:~~2022:


Stock Options	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021		248,043		$	1.58
Granted		107,505			3.25
Vested(1)		(60,147	)		1.56
Forfeited		—			—
Nonvested at September 30, 2022		295,401		$	2.19

Stock Options

Shares
(1)

Weighted Average
Grant Date Fair
Value

Nonvested at December 31, 2020    287,097    $ 1.98
Granted
(2)
   37,316    2.10
Vested    (57,415 )    1.50
Forfeited    0      0

Nonvested at September 30, 2021    266,998    $ 2.09

(1)

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

~~(1)~~

~~Share amounts reflected in the tables are adjusted for the 1.3163 to 1 common share conversion ratio as part of the conversion and offering.~~

~~(2)~~

~~Includes 10,527 shares granted as 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 ~~$26,000~~$33,000 and ~~$22,000~~$26,000 in stock option expense during the three months ended September 30, ~~2021~~2022 and ~~2020, respectively.~~2021. Additionally, the Company recognized ~~$74,000~~$80,000 and ~~$39,000~~$74,000 in stock option expense during the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively.

At September 30, ~~2021,~~2022, the Company had ~~$374,000~~$593,000 in estimated unrecognized compensation costs related to outstanding stock options that is expected to be recognized over a weighted average period of ~~3.71~~3.96 years.

~~Table of Contents~~

~~NOTE 15 – STOCK BASED COMPENSATION (continued)~~

The following table summarizes information about the Company’s restricted stock activity for the nine months ended September 30, ~~2021:~~2022:


Restricted Stock	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021		97,128		$	6.25
Granted		42,791			9.93
Vested(1)(2)		(23,532	)		6.20
Forfeited		—			—
Nonvested at September 30, 2022		116,387		$	7.61

Restricted Stock

Shares
(1)

Weighted Average
Grant Date Fair
Value

Nonvested at December 31, 2020    111,802    $ 5.98
Granted
(2)
   15,052    7.76
Vested
(
3
)
   (22,355 )    5.98
Forfeited    —      0

Nonvested at September 30, 2021    104,499    $ 6.23

(1)

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

~~(1)~~

~~Share amounts reflected in the tables are adjusted for the 1.3163 to 1 common share conversion ratio as part of the conversion and offering.~~

~~(2)~~

~~Includes 1,313 shares granted as a nonqualified stock option inducement award to the Company’s President and Chief Operating Officer.~~

~~(3)~~

~~Includes 6,306 shares surrendered by employees to cover payroll tax costs related to the vested shares.~~

(2)

Includes 7,238 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 ~~$39,000~~$47,000 and ~~$33,000~~$39,000 in restricted stock expense during the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Additionally, the Company recognized ~~$114,000~~$120,000 and ~~$60,000~~$114,000 in restricted stock shares expense during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. At September 30, ~~2021,~~2022, the Company had ~~$577,000~~$804,000 of unrecognized compensation expense related to restricted stock shares that is expected to be recognized over a weighted average period of ~~3.70~~3.83 years.

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

~~Table~~

Item 2. Management’s Discussion and Analysis of ~~Contents~~

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition and results of operations at September 30, ~~2021~~2022 and for the three and nine months ended September 30, ~~2021~~2022 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:

•

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 losses;

~~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;~~

•

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

•

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;

•

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

•

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

•

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

•

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

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

•

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

~~Table of Contents~~

•

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

•

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;

•

our ability to retain key employees;

•

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

~~will~~ 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. ~~The World Health Organization has declared~~

~~COVID-19~~

~~to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.~~

~~Notwithstanding any actions by national, state and local governments to mitigate the impact of~~

~~COVID-19~~

~~or by the Company to address the adverse impacts of~~

~~COVID-19,~~

~~there can be no assurance that any of the foregoing activities will be successful in mitigating or preventing significant adverse effects on the Company. Government action in response to the~~

~~COVID-19~~

pandemic, including restrictions on individual and business activities and vaccination mandates, may affect our business and operations, including our workforce, human capital resources and infrastructure. The Company may also incur additional costs to remedy damages caused by such disruptions, which could adversely affect its financial condition and results of operations. While it is not possible to know the full universe or extent of these impacts as of the date of this filing, we are disclosing potentially material items of which we are aware.

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. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and providers. 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.

COVID-19

made between March 1, 2020 and ~~the earlier of (i)~~ December 31, ~~2020 or (ii) 60 days after the end of the~~

~~COVID-19~~

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 ~~Company is actively participating in assisting our customers with applications for resources through the program. PPP loans will have: (a) an interest rate of 1.0%, (b)~~

~~two-year~~

and five-year loan terms to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. 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, ~~at September 30, 2021, we~~the Bank had funded 246 PPP loans totaling $30.3 million, ~~of which all but $2,000 had been forgiven~~with no outstanding balance remaining as of September 30, ~~2021.~~

~~Table of Contents~~

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 ~~March 31,~~June 30, 2021. Among the changes to the PPP as a result of the Relief Act include: (1) an opportunity for a second PPP forgivable loan for small businesses and nonprofits with 300 or fewer employees that can demonstrate a loss of 25% of gross receipts in any quarter during 2020 compared to the corresponding quarter in 2019 (or demonstrating a loss of 25% of gross receipts for the calendar year 2020 compared to calendar year 2019); (2) allowing qualified borrowers to apply for a PPP loan up to 2.5 times (or 3.5 times for small businesses in the restaurant and hospitality industries) the borrower’s average monthly payroll costs

~~in the one-year period prior~~

to the date on which the loan is made or calendar year 2019, limited to a maximum loan amount of $2.0 million; (3) the addition of personal protective equipment expenses, costs associated with outdoor dining, uninsured costs related to property damaged and vandalism or looting due to 2020 public disturbances, supplier costs and a broader category of operational expenses (including cloud computing services and other business software) as eligible and forgivable expenses; (4) simplifying the loan forgiveness process for loans of $150,000 or less; and (5) eliminating the requirement that Economic Injury Disaster Loan (“EIDL”) Advances will reduce the borrower’s PPP loan forgiveness amount. Additionally, expenses paid with the proceeds of PPP loans that are forgiven (or are reasonably expected to be forgiven)

~~are now tax-deductible, reversing previous~~

guidance from the U.S. Department of the Treasury and the Internal Revenue Service, which did not allow deductions on expenses paid for with PPP loan proceeds which were forgiven (or reasonably expected to be forgiven). As of September 30, ~~2021,~~2022, we had funded 143 second round PPP loans totaling $10.5 million, ~~none~~ of which $10.2 million had been forgiven as of September 30, ~~2021.~~

2022.

Because of the above 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 in our Annual Report on Form

10-K

under the heading “Risk Factors.”

Critical Accounting Policies

~~The discussion and analysis~~

As a result of the ~~financial condition~~complex and ~~results~~dynamic nature of ~~operations are based on our financial statements, which are prepared~~the Company’s business, management must exercise judgment in ~~conformity~~selecting and applying the most appropriate accounting policies for its various areas of operations. The policy decision process not only ensures compliance with ~~generally accepted~~the current accounting principles ~~used~~generally accepted in the United States of ~~America. The preparation~~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 ~~these financial statements requires management~~the business have more significance than others due to ~~make~~the relative importance of those areas to overall performance, or the level of subjectivity in the selection process. These estimates ~~and assumptions affecting~~affect the reported amounts of assets and liabilities ~~disclosure~~as well as disclosures of ~~contingent assets~~revenues and ~~liabilities, and~~expenses during the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances.reporting period. Actual results ~~may~~could meaningfully differ from these ~~estimates under different assumptions or conditions, resulting in a change~~estimates. Management believes that ~~could have a material impact on~~ the ~~carrying value of our assets and liabilities and our results of operations.~~

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

~~The following represent our~~ critical accounting ~~policies:~~

~~Allowance for Loan Losses~~

The allowance for loan losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determiningestimates include the allowance for loan losses, ~~management makes significant estimates~~determination of fair value for financial instruments, and ~~has identified this policy as one~~valuation of ~~our most critical accounting policies.~~

~~Management performs a quarterly evaluation~~deferred income taxes. A summary of the ~~allowance for loan losses. Consideration~~accounting policies used by management is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.

The analysis has two components, specific and general allowances. The specific allowance is for unconfirmed losses related to loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral, adjusted for market conditions and selling expenses. If the fair value of the loan is less than the loan’s carrying value, a charge is recorded for the difference. The general allowance, which is for loans reviewed collectively, is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history.

~~Table of Contents~~

~~We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations.~~

This analysis establishes historical loss percentages and qualitative factors that are applied to the loan groups to determine the amount of the allowance for loan losses necessary for loans that are reviewed collectively. The qualitative component is critical in determining the allowance for loan losses as certain trends may indicate the need for changes to the allowance for loan losses based on factors beyond the historical loss history. Not incorporating a qualitative component could misstate the allowance for loan losses. Actual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.

~~Fair Value~~

. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Company estimates fair value. These estimates are subjective in nature and any imprecision in estimating these factors can impact the amount of gain or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by the Company can be founddisclosed in Note 121, “Summary of ~~the Notes to Financial Statements.~~

~~Deferred Tax Assets.~~

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable incomeSignificant Accounting Policies” in the ~~years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of~~most recent Form 10-K (fiscal year ended December 31, 2021) filed with the ~~deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount~~Securities and ~~timing of recognition of the resulting tax liabilities~~Exchange Commission (“SEC”) on March 29, 2022 and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewedamended on ~~a regular basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to increase the valuation allowance against our deferred tax assets.~~

April 29, 2022.

Comparison of Financial Condition at September 30, ~~2021~~2022 and December 31, ~~2020~~

2021

Total Assets.

Total assets ~~increased $24.4~~decreased $10.3 million, or ~~4.7%~~1.9%, to ~~$541.2~~$529.3 million at September 30, ~~2021~~2022 from ~~$516.8~~$539.6 million at December 31, ~~2020. The increase~~2021. This decrease was primarily due to a ~~net~~$51.1 million decrease in cash and cash equivalents, partially offset by a $31.0 million increase in

loans held for investment, a $6.0 million increase in available-for-sale

investment securities ~~of $28.4~~and a $5.3 million ~~during the nine month period ended September 30, 2021.~~

increase in other assets.

Cash and Cash Equivalents.

Cash and cash equivalents decreased ~~$5.7~~$51.1 million, or ~~6.1%~~76.5%, to ~~$86.9~~$15.7 million at September 30, ~~2021~~2022 from ~~$92.5~~$66.8 million at December 31, ~~2020. Balances~~2021. This decrease was primarily due to the purchase of $37.1 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 ~~the form of cash~~principal payments on FHLB advances and ~~cash equivalents~~a $5.2 million decrease in deposits. These decreases were ~~increased~~partially offset by ~~net proceeds of $33.5~~$10.0 million from the ~~July 2021 capital raise and reduced to fund~~issuance of additional FHLB advances, $20.4 million from the ~~purchase~~sale of ~~$39.2 million in~~

~~available-for-sale~~

~~securities.~~

~~Available-for-Sale~~

~~Securities.~~

~~Available~~mortgage loans held for sale, $14.6 million from maturities, prepayments and calls of available-for-sale securities and an $8.4 million net increase in advance payments by borrowers for taxes and insurance.

Available-for-Sale Securities. Available-for-sale securities increased ~~$28.4~~$6.0 million, or ~~48.4%~~5.3%, to ~~$87.1~~$118.4 million at September 30, ~~2021,~~2022, from ~~$58.7~~$112.4 million at December 31, ~~2020.~~2021. The increase was primarily due to purchases of securities totaling ~~$39.2~~$37.1 million during the nine months ended September 30, ~~2021,~~2022, partially offset ~~in part~~ by ~~$1.0 million of securities sales as well as~~ maturities, prepayments and calls of securities totaling ~~$9.3~~$14.6 million and a reduction in the unrealized gain held within the portfolio of ~~$404,000.~~

$16.5 million, resulting in a net unrealized loss of $16.3 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.

Loans Held for Sale.

Loans held for sale decreased ~~$557,000,~~$818,000, or ~~22.4%~~69.1%, to ~~$1.9 million~~$365,000 at September 30, ~~2021,~~2022, from ~~$2.5~~$1.2 million at December 31, ~~2020.~~2021. This decrease was due primarily to a decrease in the volume of first mortgage residential real estate loan originations ~~to be~~ sold into the secondary market as a result of the changing interest rate environment.

Mortgage loan originations and sales were $19.0 million and $20.4 million, respectively, during the first nine months of 2022 compared to $90.9 million and $102.2 million, respectively, for the same period in 2021.

Net Loans.

Net loans held for investment increased ~~$1.2~~$30.9 million, or ~~0.4%~~9.6%, to ~~$330.3~~$354.7 million at September 30, ~~2021,~~2022, from ~~$329.1~~$323.8 million at December 31, ~~2020.~~2021. The ~~increase~~majority of this growth was ~~due primarily to a $14.2 million increase~~ in ~~residential~~commercial real estate loans aswhich increased $22.5 million during this period to $207.7 million. Also contributing to this growth was an increase in non-real estate commercial loans which grew $6.9 million during this period to $45.1 million. The growth in these types of loans ~~were retained~~is consistent with the Company’s long-term loan strategy to increase the level of commercial and commercial real estate loans within ~~the~~our portfolio. ~~This was partially offset by a $9.1 million decrease in commercial loans and a $3.9 million decrease in consumer loans due to normal payment and refinancing activity and forgiveness of PPP loans.~~

~~Table of Contents~~

~~Deposits.~~

~~Deposits decreased $5.5~~

Other Assets. Other assets increased $5.3 million, or ~~1.5%~~86.7%, from $6.1 million at December 31, 2021 to ~~$374.3~~$11.4 million at September 30, ~~2021,~~2022. This increase was primarily due to a $4.6 million increase in deferred tax assets, which was primarily the result 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 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.

Deposits. Deposits decreased $5.2 million, or 1.4%, to $379.3 million at September 30, 2022, from ~~$379.8~~$384.5 million at December 31, ~~2020. Noninterest checking accounts increased $1.0~~2021. This decrease was primarily due to a $6.7 million or 1.1%, to $100.0 million. Statement savings accounts increased $7.8 million to $66.7 million at September 30, 2021 from $58.9 million, and interest-bearing checking accounts increased $3.8 million to $34.4 million from $30.6 million. These increases were offset by decreasesdecrease in money market accounts, ~~of $10.6 million to $93.1 million at September 30, 2021 from $103.7 million at December 31, 2020 and~~ a ~~$7.5~~$2.4 million decrease in certificates of ~~deposits to $80.1~~deposit and a $2.0 million ~~from $87.6 million at December 31, 2020, including a~~ decrease in ~~brokered certificates of deposits to none at September 30, 2021 from $5.5~~interest bearing checking accounts. These decreases were partially offset by a $3.3 million ~~at December 31, 2020. We continued our marketing focus on attracting~~

~~non-maturing~~

~~deposits as these~~increase in statement savings accounts ~~carry lower interest rates~~ and ~~offer more flexibility~~a $2.6 million increase in ~~a changing rate environment.~~

noninterest bearing checking accounts.

Advance Payments by Borrowers for Taxes and Insurance.

Advance payments by borrowers for taxes and insurance increased ~~$9.2~~$8.3 million to ~~$11.9~~$10.2 million at September 30, ~~2021~~2022 from ~~$2.7~~$1.9 million at December 31, ~~2020.~~2021. The increase was due to normal seasonal activity.

Borrowings.

Borrowings, consisting entirely of FHLB advances, ~~decreased $12.5~~increased $1.5 million, or ~~18.2%~~2.7%, to ~~$55.9~~$56.9 million at September 30, ~~2021,~~2022, from ~~$68.4~~$55.4 million at December 31, ~~2020. The decrease was due to principal repayments on existing advances.~~

2021.

Total Stockholders’ Equity.

Total stockholders’ equity ~~increased $32.2~~decreased $15.0 million to ~~$92.2~~$75.9 million at September 30, ~~2021,~~2022, from ~~$60.0~~$90.9 million at December 31, ~~2020.~~2021. The ~~increase~~decrease was primarily due to ~~the July 2021 capital raise which generated $35.5 million of gross proceeds. This was partially offset by~~ a ~~$1.4~~$16.5 million increase in net unrealized losses on available-for-sale securities, which net of taxes, resulted in a $12.0 million decrease in stockholders’ equity. The increase in net unrealized losses on available-for-sale securities resulted primarily from changes in market interest rates. The decrease in stockholders' equity was also partially due to the repurchase and retirement of the Company's common stock during the third quarter of 2022 and an increase in unallocated common stock held by the ESOP. During the third quarter of 2022, the Company repurchased 184,270 shares of its common stock, pursuant to the 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, ~~plan for~~was the result of additional shares purchased by the ESOP during the nine months ended September 30, ~~2021 due to the expansion of the ESOP plan. In addition, treasury stock declined $917,000 as~~2022, which resulted in a ~~result of the July 2021 stock offering.~~

~~Table of Contents~~

$1.1 million decrease in stockholders' equity.

Average Balances and Yields

The following ~~tables present~~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,
	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)	$	352,651		$	3,563		4.01	%	$	330,353		$	2,939		3.53	%
Securities available-for-sale		124,578			613		1.95	%		89,748			368		1.63	%
Other interest-earning assets		22,264			139		2.48	%		95,316			74		0.31	%
Total interest-earning assets		499,493			4,315		3.43	%		515,417			3,381		2.60	%
Non-interest-earning assets		35,090								32,739
Total assets	$	534,583							$	548,156
Interest-earning liabilities:
NOW accounts	$	35,186		$	10		0.12	%	$	34,134		$	9		0.10	%
Money market accounts		93,344			79		0.34	%		93,554			60		0.25	%
Savings accounts		67,977			9		0.05	%		66,416			8		0.05	%
Certificates of deposit		80,213			98		0.49	%		80,046			94		0.47	%
Total interest-bearing deposits		276,720			196		0.28	%		274,150			171		0.25	%
Federal Home Loan Bank advances		57,435			200		1.38	%		57,002			178		1.24	%
Other interest-bearing liabilities		9,910			2		0.08	%		10,851		―		―
Total interest-bearing liabilities		344,065			398		0.46	%		342,003			349		0.41	%
Non-interest-bearing deposits		105,359								97,151
Other non-interest-bearing liabilities		6,597								6,500
Total liabilities		456,021								445,654
Total stockholders’ equity		78,562								102,502
Total liabilities and stockholders’ equity	$	534,583							$	548,156
Net interest income				$	3,917							$	3,032
Net interest-earning assets	$	155,428							$	173,414
Interest rate spread(2)							2.97	%							2.19	%
Net interest margin(3)							3.11	%							2.33	%
Average interest-earning assets to average interest-bearing liabilities		145.17	%							150.71	%

(1)

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

Three Months Ended September 30,


2021

2020



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
   $ 330,353 $ 2,939    3.53 % $ 328,550 $ 3,617    4.37 %
Securities
available-for-sale
   89,748 368    1.63 % 61,059 304    1.97 %
Other interest-earning assets
   92,284 74    0.32 % 68,616 17    0.10 %





Total interest-earning assets
   512,385 3,381    2.62 % 458,225 3,938    3.42 %
Non-interest-earning
assets
   35,771    37,044





Total assets
   $ 548,156    $ 495,269





Interest-earning liabilities:

NOW accounts
   $ 34,134 $ 9    0.10 % $ 28,417 $ 8    0.11 %
Money market accounts
   93,554 60    0.25 % 82,041 103    0.50 %
Savings accounts
   66,416 8    0.05 % 55,683 14    0.10 %
Certificates of deposit
   80,046 94    0.47 % 97,355 355    1.45 %





Total interest-bearing deposits
   274,150 171    0.25 % 263,496 480    0.72 %
Federal Home Loan Bank advances
   57,002 178    1.24 % 69,049 207    1.19 %
Other interest-bearing liabilities
   10,851 —      —   10,886 —      —





Total interest-bearing liabilities
   342,003 349    0.41 % 343,431 687    0.80 %
Non-interest-bearing
deposits
   143,007    91,485
Other
non-interest-bearing
liabilities
   6,500    4,768





Total liabilities
   491,510    439,684
Total stockholders’ equity
   56,646    55,585





Total liabilities and stockholders’ equity
   $ 548,156    $ 495,269





Net interest income
   $ 3,032    $ 3,251





Net interest-earning assets
   $ 170,382    $ 114,794





Interest rate spread
(1)
      2.21 %    2.62 %
Net interest margin
(2)
      2.37 %    2.82 %
Average interest-earning assets to average interest-bearing liabilities
   149.82 %    133.43 %

~~(1)~~

(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.

~~(2)~~

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

(3)

34Net 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)

~~Table~~Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of ~~Contents~~

Nine Months Ended September 30,


2021

2020


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
   $ 333,234 $ 9,357    3.75 % $ 322,480 $ 10,228    4.24 %
Securities
available-for-sale
   76,520 971    1.70 % 66,177 1,092    2.20 %
Other interest-earning assets
   83,163 181    0.29 % 43,638 65    0.20 %





Total interest-earning assets
   492,917 10,509    2.85 % 432,295 11,385    3.52 %
Non-interest-earning
assets
   36,307    36,536





Total assets
   $ 529,224    $ 468,831





Interest-earning liabilities:

NOW accounts
   $ 33,191 $ 27    0.11 % $ 26,712 $ 39    0.19 %
Money market accounts
   98,041 200    0.27 % 73,759 355    0.64 %
Savings accounts
   64,493 27    0.06 % 51,919 44    0.11 %
Certificates of deposit
   81,888 366    0.60 % 113,004 1,508    1.78 %





Total interest-bearing deposits
   277,613 620    0.30 % 265,394 1,946    0.98 %
Federal Home Loan Bank advances
   63,363 579    1.22 % 55,706 516    1.24 %
Other interest-bearing liabilities
   7,937 —      —   7,619 —      —





Total interest-bearing liabilities
   348,913 1,199    0.46 % 328,719 2,462    1.00 %
Non-interest-bearing
deposits
   118,412    81,926
Other
non-interest-bearing
liabilities
   5,791    3,907





Total liabilities
   473,116    414,552
Total stockholders’ equity
   56,108    54,279





Total liabilities and stockholders’ equity
   $ 529,224    $ 468,831





Net interest income
   $ 9,310    $ 8,923





Net interest-earning assets
   $ 144,004    $ 103,576





Interest rate spread
(1)
      2.39 %    2.52 %
Net interest margin
(2)
      2.53 %    2.76 %
Average interest-earning assets to average interest-bearing liabilities
   141.27 %    131.51 %

~~(1)~~

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

~~(2)~~

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

(3)

35Net interest margin represents net interest income divided by average total interest-earning assets.

~~Table of Contents~~

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.

Three Months Ended September 30,
2021 vs. 2020


Increase (Decrease) Due to

Total
Increase
(Decrease)


Volume

Rate



(Dollars in thousands)

Interest-earning assets:

Loans
   $ 20    (698 )    (678 )
Securities
   103    (39 )    64
Other
   7    50    57






Total interest-earning assets
   130    (687 )    (557 )






Interest-bearing liabilities:

NOW
   (1 )    1    —
Money market deposits
   (17 )    60    43
Savings
   (4 )    9    5
Certificates of deposit
   54      207      261






Total interest-bearing deposits
   32    277    309
Borrowings
   39    (10 )    29
Other
   —      —      —






Total interest-bearing liabilities
   71    267    338






Change in net interest income
   $ 201    (420 )    (219 )

Nine Months Ended September 30,
2021 vs. 2020


Increase (Decrease) Due to

Total
Increase
(Decrease)


Volume

Rate



(Dollars in thousands)

Interest-earning assets:

Loans
   $ 357    (1,228 )    (871 )
Securities
   253    (374 )    (121 )
Other
   76    40    116






Total interest-earning assets
   686    (1,562 )    (876 )






Interest-bearing liabilities:

NOW
   (15 )    26    11
Money market deposits
   (207 )    363    156
Savings
   (16 )    33    17
Certificates of deposit
   334    808    1,142






Total interest-bearing deposits
   96    1,230    1,326
Borrowings
   (70 )    7    (63 )
Other
   —      —      —






Total interest-bearing liabilities
   26    1,237    1,263






Change in net interest income
   $ 712    (325 )    387

There were no out-of-period items or adjustments included within the following table.


	Three Months Ended September 30, 2022 vs. 2021
	Increase (Decrease) Due to
	Volume			Rate			Total Increase (Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	207		$	417		$	624
Securities		162			83			245
Other		(8	)		73			65
Total interest-earning assets		361			573			934
Interest-bearing liabilities:
NOW	―				(1	)		(1	)
Money market deposits	―				(19	)		(19	)
Savings		(1	)	―				(1	)
Certificates of deposit	―				(4	)		(4	)
Total interest-bearing deposits		(1	)		(24	)		(25	)
Borrowings		(2	)		(20	)		(22	)
Other	―				(2	)		(2	)
Total interest-bearing liabilities		(3	)		(46	)		(49	)
Change in net interest income	$	358		$	527		$	885


	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

~~Table of Contents~~

Comparison of Operating Results for the Three Months Ended September 30, ~~2021~~2022 and ~~2020~~

~~General.~~

2021

Net Income (Loss). We recorded a net ~~loss~~income of ~~$115,000~~$124,000 for the three months ended September 30, ~~2021, compared to~~2022, an increase of $239,000 from a net ~~income~~loss of ~~$412,000~~$115,000 recorded for the three months ended September 30, ~~2020.~~2021. This ~~decrease~~increase was primarily due to a ~~$2.1~~$915,000 million ~~decrease in~~

~~non-interest~~

~~income, which was partially offset by a $91,000 decrease in~~

~~non-interest~~

~~expense, a $251,000~~ increase in net interest income after provision for loan losses, which was partially offset by a $449,000 increase in noninterest expense, a $149,000 decrease in noninterest income and a ~~$1.3 million decrease~~$78,000 increase in income tax expense.

Interest and Dividend Income.

Interest and dividend income ~~decreased by $557,000,~~increased $934,000, or ~~14.1%~~27.6%, to $4.3 million for the three months ended September 30, 2022, from $3.4 million for the three months ended September 30, 2021. The increase was due primarily to a $624,000 increase in interest and fees on loans and a $245,000 increase in interest earned on taxable securities. The increase in interest and fees earned on loans was primarily due to a $22.3 million increase in the average amount of loans outstanding, from $330.4 million in the third quarter of 2021 to $352.7 million in the third quarter of 2022, and a 48 basis point increase in the yield earned on loans, from 3.53% for the third quarter of 2021 to 4.01% in the third quarter of 2022. The increase in the yield earned on loans during the third quarter of 2022 was due an increase in market rates as well as the collection of $212,000 in loan prepayment fees during the quarter. The increase in loans was consistent with the Company's strategy to grow the loan portfolio. The increase in interest earned on taxable securities was primarily due to the Company’s strategy to deploy excess liquidity into securities, which resulted in the average outstanding balance of securities increasing $34.9 million, or 38.8%, from $89.7 million for the third quarter of 2021 to $124.6 million for the third quarter of 2022.

Interest Expense. Interest expense increased $49,000, or 14.0%, to $398,000 for the three months ended September 30, 2022, from $349,000 for the three months ended September 30, 2021. This increase was primarily due to an increase in interest expense on FHLB advances and money market accounts. Interest expense on FHLB advances increased $22,000, or 12.4%, from $178,000 for the third quarter of 2021 to $200,000 for the third quarter of 2022. This increase was primarily due to a 14 basis point increase in the average rate paid on the advances from 1.24% in the third quarter of 2021 to 1.38% in the third quarter of 2022. Interest expense on money market accounts increased $19,000, or 31.6%, from $60,000 in the third quarter of 2021 to $79,000 in the third quarter of 2022. This increase was primarily the result of a 9 basis point increase in the average rate paid on money market accounts, from 0.25% in the third quarter of 2021 to 0.34% in the third quarter of 2022.

Net Interest Income. Net interest income increased $885,000, or 29.2%, to $3.9 million for the three months ended September 30, ~~2020. The decrease was due primarily to the declining interest rate environment brought on by the~~

~~COVID-19~~

~~pandemic. The average rate paid on loans declined to 3.53% for the three months ended September 30, 2021 compared to 4.37% for the three months ended September 30, 2020. As a result, interest income~~2022, from loans decreased by $678,000, or 18.7%, to $2.9 million, from $3.6 million. Interest earned on loans was also impacted by a $66,000 decrease in PPP loan fees recognized as interest during the three months ended September 30, 2021. We recognized $31,000 PPP loan fees as interest during the three months ended September 30, 2021, compared to $97,000 of PPP loan fees recognized as interest during the three months ended September 30, 2020.

~~Interest Expense.~~

Interest expense decreased $338,000, or 49.2%, to $349,000 for the three months ended September 30, 2021, from $687,000 for the three months ended September 30, 2020, as rates on interest-bearing liabilities decreased 39 basis points due to the declining interest rate environment.

~~Net Interest Income.~~

~~Net interest income decreased $219,000, or 6.7%, to~~ $3.0 million for the three months ended September 30, ~~2021, from $3.3 million~~2021. This increase was primarily due to a $624,000 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. Our net interest rate spread increased 78 basis points to 2.97% for the three months ended September 30, ~~2020. The rate for average interest-bearing liabilities decreased to 0.41%~~2022, from 2.19% for the three months ended September 30, ~~2021,~~2021. Our net interest margin also increased 78 basis points to 3.11% from ~~0.80%~~2.33% over the same period.

Provision for Loan Losses. The Company did not make any provision for loan losses during the three months ended September 30, 2022, compared to a $30,000 provision for the three months ended September 30, 2020. This 39 basis point decrease in the cost of funds came as the yield on interest-earning assets decreased by 80 basis points, to 2.62% for the three months ended September 30, 2021, from 3.42% for the three months ended September 30, 2020. Accordingly, our net interest rate spread decreased 41 basis points to 2.21% for the three months ended September 30, 2021, from 2.62% for the three months ended September 30, 2020. Our net interest margin also decreased to 2.37% from 2.82% over the same period.

~~Provision for Loan Losses.~~

~~Provision for loan losses decreased $470,000, or 94.0%, to $30,000 for the three months ended September 30, 2021, from $500,000 for the three months ended September 30, 2020.~~2021. The allowance for loan losses was ~~$2.8~~$3.2 million, or ~~0.84%~~0.89%, of total loans ~~(and 0.86% excluding PPP loans),~~ at September 30, ~~2021,~~2022, compared to ~~$2.7~~$2.9 million, or ~~0.82%~~0.88% of total ~~loans (and 0.86% excluding PPP loans), at December 31, 2020. Nonaccrual loans constituted 0.40% of total gross loans (and 0.41% excluding PPP loans) at September 30, 2021, compared to 0.39% of gross~~ loans at December 31, ~~2020 (and 0.41% excluding PPP loans).~~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 for the three months ended September 30, ~~2021~~2022 were ~~$26,000~~$48,000 compared to net recoveries of ~~$36,000~~$26,000 for the three months ended September 30, ~~2020.~~

2021.

Non-interest

Income

Non-interest

income decreased ~~$2.1 million,~~$149,000, or ~~77.2%~~23.7%, to $479,000 for the three months ended September 30, 2022, from $628,000 for the three months ended September 30, 2021. The decrease was primarily the result of a $365,000 decrease in net gain on sale of loans, partially offset by a $218,000 increase in income associated with changes in the market value of equity securities. 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 $26.6 million, from $32.2 million in the third quarter of 2021 ~~from $2.8~~to $5.6 million in the third quarter of 2022. 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 change in the market of equity securities in non-interest expense.

Non-interest Expense. Non-interest expense increased $449,000, or 11.8%, to $4.3 million for the three months ended September 30, 2020. The decrease was due primarily to a $1.0 million decrease in net gains realized on the sale of securities and a $488,000 decrease in net gains on the sale of loans due to a reduction in mortgage activity and a lower level of loan sales. In addition, we recognized a $575,000 decrease in the market value of equity securities in our Rabbi trust accounts. Loan servicing fees decreased $48,000. Service charges and other fees increased $27,000, or 12.6% to $242,000 for the three months ended September 30, 2021,2022 from $215,000 for the three months ended September 30, 2020. The increase in service charges and other fees was due to waived service charges during the three months ended September 30, 2020 as part of our initial response to the pandemic.

~~Non-interest~~

~~Expense.~~

~~Non-interest~~

~~expense decreased $91,000, or 2.3%, to~~ $3.8 million for the three months ended September 30, ~~2021 from $3.9 million~~2021. This increase was primarily due to a $391,000 increase in salaries and employee benefits expense. The increase in salaries and employee benefits expense was due primarily to a $218,000 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 income. The remaining $173,000 increase in other salaries and employee benefits expense was primarily the result of a $65,000 increase 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, ~~2020. The decrease was due primarily~~2022, compared to ~~a $282,000 decrease in salaries and employee benefits during the three months ended September 30, 2021 resulting from decreases in discretionary incentive pay.~~

~~Income Tax Expense.~~

~~We recorded~~ an income tax benefit of $57,000 for the three months ended September 30, ~~2021, compared to an income tax expense of $1.2 million for the three months ended September 30, 2020.~~2021. The ~~decrease~~increase in income tax expense was primarily due to a ~~decrease~~increase in income before taxes ~~and an increase to our deferred tax valuation allowance of $784,000 for the three months ended September 30, 2020, compared to none~~ during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

~~Table of Contents~~

Comparison of Operating Results for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~

~~General.~~

2021

Net (Loss) Income. We recorded a net ~~income~~loss of ~~$354,000~~$172,000 for the nine months ended September 30, ~~2021,~~2022, compared to net income of ~~$893,000~~$354,000 recorded for the nine months ended September 30, ~~2020.~~2021. This decrease was primarily due to a ~~$1.6~~$2.4 million decrease in

non-interest

income, ~~and a $1.3 million increase in~~

~~non-interest~~

~~expense,~~ which was partially offset by a ~~$387,000~~$1.3 million increase in net interest income ~~a $470,000 decrease in the~~after provision for loan losses, a $372,000 decrease in noninterest expense and a ~~$1.5 million~~$217,000 decrease in income tax expense.

Interest and Dividend Income.

Interest and dividend income ~~decreased $876,000,~~increased $1.4 million, or ~~7.7%~~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 ~~$11.4~~$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, ~~2020. The decrease was due primarily to the declining interest rate environment brought on by the~~

~~COVID-19~~

~~pandemic. The average rate paid on loans declined to 3.75% for the nine months ended September 30, 2021 compared to 4.24% for the nine months ended September 30, 2020. As a result, interest income~~2022, from loans decreased by $871,000, or 8.5%, to $9.4 million for the nine months ended September 30, 2021, from $10.2 million for the nine months ended September 30, 2020. The reduction in interest earned on loans was partially offset by $482,000 of PPP loan fees recognized as interest during the nine months ended September 30, 2021, from $97,000 for the nine months ended September 30, 2020.

~~Interest Expense.~~

~~Interest expense decreased $1.3 million, or 51.3%, to~~ $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 ~~from $2.5~~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 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, ~~2020, as rates on interest-bearing liabilities decreased 54 basis points due to the declining interest rate environment.~~

~~Net Interest Income.~~

~~Net interest income increased $387,000, or 4.3%, to~~2022 from $9.3 million for the nine months ended September 30, ~~2021 from $8.9 million~~2021. Our net interest rate spread increased 36 basis points to 2.73% for the nine months ended September 30, ~~2020. The rate for average interest-bearing liabilities decreased to 0.46%~~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 ~~1.00%~~2.51% over the same period.

Provision for Loan Losses. Provision for loan losses for the nine months ended September 30, 2020. This 54 basis point decrease in the cost of funds came as the yield on interest-earning assets decreased by 67 basis points, to 2.85% for the nine months ended September 30, 2021, from 3.52% for the nine months ended September 30, 2020. Accordingly, our net interest rate spread decreased 13 basis points to 2.39% for the nine months ended September 30, 2021, from 2.52% for the nine months ended September 30, 2020. Our net interest margin decreased 23 basis points to 2.53% from 2.76% over the same period.

~~Provision for Loan Losses.~~

~~Provision for loan losses decreased $470,000, or 94.0%,~~2022 was $210,000 compared to $30,000 for the nine months ended September 30, ~~2021, from $500,000 for~~2021. The increase in provision was primarily due to the ~~nine months ended September 30, 2020. The allowance for loan losses was $2.8 million, or 0.84%, of total~~increase in loans (and 0.86% excluding PPP loans), at September 30, 2021, compared to $2.7 million, or 0.82% of total loans (and 0.86% excluding PPP loans), at December 31, 2020. Nonaccrual loans constituted 0.40% of total gross loans (and 0.41% excluding PPP loans) at September 30, 2021, compared to 0.39% of gross loans at December 31, 2020 (and 0.41% excluding PPP loans).outstanding. Net recoveries for the nine months ended September 30, ~~2021~~2022 were ~~$55,000~~$112,000 compared to net recoveries of ~~$150,000~~$55,000 for the nine months ended September 30, ~~2020.~~

2021.

Non-interest

Income

Non-interest

income decreased ~~$1.6~~$2.4 million, or ~~32.4%~~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 from $5.0 million for the nine months ended September 30, 2020. The~~2021. This decrease was due primarily to ~~decreases~~a $1.1 million decrease in ~~net gain on the sale of loans of $1.3 million and~~ 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 ~~$1.0 million.~~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 ~~$859,000 increase~~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. Service charges and other fees increased $135,000, primarily due to waived service charges during~~rights in the first nine months ~~ended September 30, 2020 as part~~ of ~~our initial response to the pandemic.~~2021. The ~~decrease in~~

~~non-interest~~

~~income was due partially to a decrease in the market~~ value of ~~equity securities~~mortgage servicing rights increased as a result of an increase in ~~our Rabbi Trust accounts.~~

market interest rates.

Non-interest

Expense.

Non-interest

expense ~~increased $1.3 million,~~decreased $372,000, or ~~12.0%~~3.0%, to ~~$12.2~~$11.9 million for the nine months ended September 30, ~~2021~~2022 from ~~$10.9~~$12.3 million for the nine months ended September 30, ~~2020. The increases were~~2021. This decrease was primarily due to ~~an increase of $784,000, or 12.1%, in salaries and employee benefits. The increase~~a $444,000 decrease in salaries and employee benefits expense. The decrease in salaries and employee benefits expense primarily resulted from ~~increases in discretionary incentive pay offset by a decrease~~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 ~~our Rabbi Trust accounts.~~

~~Table~~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 ~~Contents~~

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 for the nine months ended September 30, 2022, compared to an income tax expense of $45,000 for the nine months ended September 30, ~~2021, compared to an income tax expense of $1.6 million for the nine months ended September 30, 2020.~~2021. The decrease in income tax

expense was primarily due to a decrease in income before taxes ~~and an increase to our deferred tax valuation allowance of $934,000 for the nine months ended September 30, 2020, compared to none~~ during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

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, ~~2021,~~2022, 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
	(Dollars in thousands)
+400	$	16,863		15.03	%
+300		16,231		10.72	%
+200		15,611		6.49	%
+100		15,179		3.54	%
Level		14,660		—	%
-100		14,237		(2.88	)%
-200		13,800		(5.86	)%

(1)

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

Change in Interest
Rates (basis points)
(1)

Net Interest Income
Year 1 Forecast

Year 1 Change
from Level


(Dollars in thousands)

+400
   $ 14,678    24.71 %
+300
   14,047    19.35 %
+200
   13,317    13.15 %
+100
   12,576    6.85 %
Level
   11,769    —   %
-100
   11,135    (5.39 )%

~~(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.

~~Table of Contents~~

The table below sets forth, as of September 30, ~~2021,~~2022, 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
Basis Point (“bp”) Change in Interest Rates(1)	Estimated EVE(2)		Amount			Percent
	(Dollars in thousands)
+400	$	74,095	$	(8,389	)		(10.17	)%
+300		75,768		(6,716	)		(8.14	)%
+200		77,525		(4,959	)		(6.01	)%
+100		79,923		(2,561	)		(3.10	)%
Level		82,484		—			—
-100		83,160		676			0.82	%
-200		82,783		299			0.36	%

(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.

Estimated Increase (Decrease) in EVE

Basis Point (“bp”) Change in
Interest Rates
(1)

Estimated EVE
(2)

Amount

Percent



(Dollars in thousands)

400
   $ 73,695    $ 8,060    12.28 %
300
   72,163    6,528    9.95 %
200
   70,980    5,345    8.14 %
100
   69,116    3,481    5.30 %
—
   65,635    —      —   %
(100)
   61,083    (4,552 )    (6.94 %)

~~(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, ~~2021,~~2022, in the event of a

100-basis

point increase in interest rates, we would have experienced a ~~5.30% increase~~3.10% decrease in our EVE. In the event of a

200-basis

point increase in interest rates at September 30, ~~2021,~~2022, we would have experienced a ~~8.14% increase~~6.01% 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, 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, ~~2021,~~2022, we had ~~$55.9~~$57.0 million outstanding in advances from the FHLB. At September 30, ~~2021,~~2022, we had ~~$93.6~~$112.6 million in additional borrowing capacity at the Federal Home Loan Bank of Chicago. Additionally, at September 30, ~~2021~~2022, 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, ~~2021.~~2022. The Company also had a ~~$6.2~~$10.0 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately ~~$9.2~~$13.2 million at September 30, ~~2021.~~2022. The Company had not drawn on the Federal Reserve line as of September 30, ~~2021.~~

2022.

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 operating activities was ~~$1.5~~$1.8 million for the nine months ended September 30, ~~2021. Net~~2022, as

compared to net cash ~~used in~~provided by operating activities ~~was $2.7~~of $11.0 million for the nine months ended September 30, ~~2020.~~2021. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of ~~available for sale~~available-for-sale securities, offset by proceeds from maturing securities and pay

~~Table of Contents~~

downs on securities, was ~~$30.4~~$54.5 million for the nine months ended September 30, 2021. Net cash used in investing activities was $528,000 for the nine months ended September 30, 2020. Net cash provided by financing activities, consisting primarily of $33.5 million in net proceeds from the July 2021 stock offering, offset by $12.5 million from the principal payments on FHLB advances, was $23.22022, as compared to $39.9 million for the nine months ended September 30, 2021. Net cash provided by financing activities, consisting primarily of increases in borrowings and advance payments by borrowers for taxes and insurance, was ~~$70.4~~$1.6 million for the nine months ended September 30, ~~2020, consisting primarily of $52.0~~2022, as compared to $23.2 million of cash provided by financing activities during the nine months ended September 30, 2021. The primary source of the difference in cash provided by financing activities were net proceeds of $33.5 million from ~~issuance of Federal Home Loan Bank advances.~~

the stock offering in 2021.

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

The Company’s Board of Directors authorized a stock repurchase plan in the first quarter of 2020 allowing the Company to repurchase up to 109,725 shares of stock. As of September 30, 2021, the Company had repurchased 109,725 shares at an average price of $9.60 under the approved stock repurchase plan.

At September 30, ~~2021, we~~2022, PyraMax Bank exceeded all of ~~our~~its regulatory capital requirements with a Tier 1 leverage capital level of ~~$49.5~~$64.9 million, or ~~9.1%~~11.9% of adjusted total assets, which is above the well-capitalized required level of $27.2 million, or 5.0%~~, and~~. The Bank had total risk-based capital of ~~$47.5~~$68.1 million, or ~~14.0%~~17.7% of risk-weighted assets, which is above the well-capitalized required level of ~~$33.9~~$38.5 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.

~~Table of Contents~~

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 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.

~~The following tables present contractual obligations at September 30, 2021 and December 31, 2020.~~

Payments Due by Period

Contractual Obligations

Total

Less Than
One Year

One to Three
Years

Three to Five
Years

More Than
Five Years



(Dollars in thousands)

At September 30, 2021:

Long-term debt obligations
   $ 55,934    $ 8,475    $ 10,526    $ 4,131    $ 32,802
Operating lease obligations
   245    77    168    —      —










Total
   $ 56,179    $ 8,552    $ 10,694    $ 4,131    $ 32,802










At December 31, 2020:

Long-term debt obligations
   $ 68,398    $ 12,956    $ 16,987    $ 4,091    $ 34,364
Operating lease obligations
   20    20    —      —      —










Total
   $ 68,418    $ 12,976    $ 16,987    $ 4,091    $ 34,364

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.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

~~Item 4.~~

~~Controls and Procedures~~

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, ~~2021.~~2022. 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 the quarter ended September 30, ~~2021,~~2022, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table of Contents~~

PART II – OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings~~

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, ~~2021,~~2022, 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~~

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, ~~2020~~2021 Annual Report on Form

10-K

filed with the Securities and Exchange Commission. There are no material changes from the risk factors included in the Annual Report on Form

10-K.

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

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

The following table presents information regarding shares of our common stock repurchased during the third quarter of 2022.


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.

Item 3. Defaults Upon Senior Securities

None.

~~Item 3.~~

~~Defaults Upon Senior Securities~~

~~None.~~

~~Item 4.~~

~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

Not applicable.

~~Item 5.~~

~~Other Information~~

Item 5. Other Information

None.

~~Item 6.~~

~~Exhibits~~

Item 6. Exhibits


Exhibit ~~Number~~		~~Description~~
Number		Description
~~3.1~~
3.1		~~Charter~~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 T. Klitzing (incorporated by reference to Exhibit ~~10.1 of~~10.4 to the ~~Company’s~~ Current Report on Form 8-K (File No. 001-40609), filed on ~~September 21, 2021 (Commission File~~ ~~No. 001-40609))~~October 4, 2022)

~~31.1~~ 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
~~101.0~~		The following materials for the quarter ended September 30, ~~2021,~~2022, formatted in XBRL (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, formatted in XBRL (contained in Exhibit 101.0) *

*	~~Furnished, not filed.~~

_____________

* Furnished, not filed.

~~Table of Contents~~

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.~~

	1895 BANCORP OF WISCONSIN, INC.


Date: November ~~12, 2021~~10, 2022		/s/ ~~Richard B. Hurd~~ David R. Ball
		~~Richard B. Hurd~~ David R. Ball
		President and Chief Executive Officer


Date: November ~~12, 2021~~10, 2022		/s/ Steven T. Klitzing
		Steven T. Klitzing
		~~Senior~~ Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)


	September 30, 2021			December 31, 2020
	(unaudited)
Assets
Cash and due from banks	$	84,433		$	87,977
Fed funds sold		2,423			4,549

Cash and cash equivalents		86,856			92,526
Marketable equity securities, stated at fair value		3,309			2,992
Available for sale securities, stated at fair value		87,121			58,703
Loans held for sale		1,927			2,484
Loans, net		330,310			329,073
Premises and equipment, net		5,972			6,275
Mortgage servicing rights, net		2,082			1,806
Federal Home Loan Bank (FHLB) stock, at cost		3,032			3,032
Accrued interest receivable		896			912
Cash value of life insurance		13,789			13,485
Other assets		5,895			5,469

TOTAL ASSETS	$	541,189		$	516,757

Liabilities and Stockholders’ Equity
Deposits		374,314			379,848
Advance payments by borrowers for taxes and insurance		11,982			2,737
FHLB advances		55,934			68,398
Accrued interest payable		113			183
Other liabilities		6,638			5,583

TOTAL LIABILITIES		448,981			456,749

Common stock (par value $0.01 per share) Authorized - 90,000,000 shares at September 30, 2021 and December 31, 2020 Issued – 6,405,204 at September 30, 2021 and 4,961,626 at December 31, 2020 (includes 104,499 and 84,949 unvested shares, respectively) (1) Outstanding – 6,374,141 at September 30, 2021 and 4,834,401 at December 31, 2020 (includes 104,499 and 84,949 unvested shares, respectively) (1)		64			49
Preferred stock, $0.01 par value, 10,000,000 shares authorized at September 30, 2021 and December 31, 2020		0			0
Additional paid-in capital		52,719			20,134
Unallocated common stock of Employee Stock Ownership Plan (ESOP), 337,361 and 161,486 shares at September 30, 2021 and December 31, 2020, respectively (1)		(2,991	)		(1,615	)
Less treasury stock at cost, 31,063 at September 30, 2021 and 127,225 December 31, 2020 (1)		(311	)		(1,228	)
Retained earnings		41,885			41,530
Accumulated other comprehensive income, net of income taxes		842			1,138

Total stockholders’ equity		92,208			60,008

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	541,189		$	516,757


	Three months ended September 30					Nine months ended September 30
	2021			2020		2021			2020
Interest and dividend income:
Loans, including fees	$	2,939		$	3,617	$	9,357		$	10,228
Securities, taxable		368			304		971			1,092
Other		74			17		181			65

Total interest and dividend income		3,381			3,938		10,509			11,385

Interest expense:
Interest-bearing deposits		171			480		620			1,946
Borrowed funds		178			207		579			516

Total interest expense		349			687		1,199			2,462

Net interest income		3,032			3,251		9,310			8,923
Provision for loan losses		30			500		30			500

Net interest income after provision for loan losses		3,002			2,751		9,280			8,423

Noninterest income:
Service charges and other fees		242			215		713			578
Loan servicing, net		204			252		971			112
Net gain on sale of loans		448			936		1,361			2,665
Net gain on sale of securities		0			1,014		12			1,022
Increase in cash surrender value of insurance		103			101		304			299
Unrealized (loss) gain on marketable equity securities		(377	)		198		(5	)		270
Other		8			43		15			42

Total noninterest income		628			2,759		3,371			4,988

Noninterest expense:
Salaries and employee benefits		2,137			2,419		7,290			6,506
Foreclosed assets, net		0			0		0			(8	)
Advertising and promotions		52			31		84			103
Data processing		206			206		611			573
Occupancy and equipment		341			319		1,076			1,016
FDIC assessment		38			31		105			81
Other		1,028			887		3,086			2,670

Total noninterest expense		3,802			3,893		12,252			10,941

(Loss) income before income taxes		(172	)		1,617		399			2,470
Income tax (benefit) expense		(57	)		1,205		45			1,577

Net (loss) income	$	(115	)	$	412	$	354		$	893

(Loss) earnings per common share:
Basic (1)	$	(0.02	)	$	0.09	$	0.06		$	0.20

Diluted (1)	$	(0.02	)	$	0.09	$	0.06		$	0.20

Average common shares outstanding:
Basic (1)		6,011,247			4,481,625		6,035,289			4,494,234
Diluted (1)		6,220,755			4,519,626		6,262,722			4,529,967


	Common stock (1)		Additional paid-in capital			Treasury Stock			Unallocated common stock of ESOP(1)			Retained earnings			Accumulated other comprehensive income (loss)			Total
Balance as of January 1, 2020	$	49	$	19,981		$	—		$	(1,685	)	$	40,213		$	107		$	58,665
Net income		—		—			—			—			287			—			287
1895 Bancorp of Wisconsin, Inc. common stock held by PyraMax Bank reclassified to treasury stock		—		—			(175	)		—			—			—			(175	)
Other comprehensive loss		—		—			—			—			—			(124	)		(124	)
ESOP shares committed to be released (1,755 shares)		—		1			—			17			—			—			18

Balance as of March 31, 2020	$	49	$	19,982		$	(175	)	$	(1,668	)	$	40,500		$	(17	)	$	58,671

Net income		—		—			—			—			194			—			194
Other comprehensive income		—		—			—			—			—			1,827			1,827
Repurchase of 1895 Bancorp of Wisconsin, Inc. common stock (25,476 shares repurchased)		—		—			(231	)		—			—			—			(231	)
ESOP shares committed to be released (1,755 shares)		—		(4	)		—			18			—			—			14
Stock compensation expense		—		44			—			—			—			—			44

Balance as of June 30, 2020	$	49	$	20,022		$	(406	)	$	(1,650	)	$	40,694		$	1,810		$	60,519

Net income		—		—			—			—			412			—			412
Other comprehensive loss		—		—			—			—			—			(570	)		(570	)
Repurchase of 1895 Bancorp of Wisconsin, Inc. common stock (81,249 shares repurchased)		—		—			(793	)		—			—			—			(793	)
ESOP shares committed to be released (1,755 shares)		—		(1	)		—			18			—			—			17
Stock compensation expense		—		55			—			—			—			—			55

Balance as of September 30, 2020	$	49	$	20,076		$	(1,199	)	$	(1,632	)	$	41,106		$	1,240		$	59,640

Balance as of January 1, 2021	$	49	$	20,134		$	(1,228	)	$	(1,615	)	$	41,530		$	1,138		$	60,008
Net income		—		—			—			—			521			—			521
Other comprehensive loss		—		—			—			—			—			(594	)		(594	)
Purchase of treasury stock		—		—			(15	)		—			—			—			(15	)
ESOP shares committed to be released (2,310 shares)		—		3			—			18			—			—			21
Issuance of treasury stock – stock compensation plan		—		(15	)		15			—			—			—			—
Stock compensation expense		—		58			—			—			—			—			58

Balance as of March 31, 2021	$	49	$	20,180		$	(1,228	)	$	(1,597	)	$	42,051		$	544		$	59,999

Net loss		—		—			—			—			(51	)		—			(51	)
Other comprehensive income		—		—			—			—			—			327			327
ESOP shares committed to be released (2,310 shares)				13						17									30
Retirement of common stock		—		(70	)		—			—			—			—			(70	)
Stock compensation expense		—		65			—			—			—			—			65

Balance as of June 30, 2021	$	49	$	20,188		$	(1,228	)	$	(1,580	)	$	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 (2,310 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			—			—			—			—
Stock compensation expense		—		65			—			—			—			—			65

Balance as of September 30, 2021	$	64	$	52,719		$	(311	)	$	(2,991	)	$	41,885		$	842		$	92,208


	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

	(in thousands)
Obligations of states and political subdivisions	$	21,008	$	287	$	(115	)	$	21,180
Government-sponsored mortgage-backed securities		56,048		909		(100	)		56,857
Corporate collateralized mortgage obligations		744		1		—			745
Asset-backed securities		6,708		90		—			6,798
Certificates of deposit		1,459		82		—			1,541

Total	$	85,967	$	1,369	$	(215	)	$	87,121


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

	(in thousands)
Obligations of states and political subdivisions	$	11,570	$	244	$	(11	)	$	11,803
Government-sponsored mortgage-backed securities		36,886		1,165		(12	)		38,039
Asset-backed securities		7,231		57		(7	)		7,281
Certificates of deposit		1,458		122		—			1,580

Total	$	57,145	$	1,588	$	(30	)	$	58,703


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020

	(in thousands)				(in thousands)
Proceeds from sales of securities available-for-sale	$	—	$	19,005	$	1,018	$	19,283
Gross realized gains		—		1,014		12		1,022
Gross realized losses		—		—		—		—


	September 30, 2021
	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans

	(in thousands)
Commercial:
Real estate	$	427	$	276	$	703	$	182,386	$	183,089
Land development		—		—		—		1,426		1,426
Other		—		—		—		43,311		43,311
Residential real estate:
First mortgage		230		—		230		82,181		82,411
Construction		—		—		—		3,732		3,732
Consumer:
Home equity and lines of credit		—		—		—		18,563		18,563
Other		—		—		—		160		160

Total	$	657	$	276	$	933	$	331,759	$	332,692


	September 30, 2021
	Pass		Watch and Special Mention		Substandard		Total

	(in thousands)
Commercial:
Real estate	$	164,407	$	13,253	$	5,428	$	183,089
Land development		1,426		—		0		1,426
Other		41,459		568		1,284		43,311

Total	$	207,292	$	13,821	$	6,712	$	227,826


	September 30, 2021
	Performing		Non Performing		Total

	(in thousands)
Residential real estate:
First mortgage	$	81,457	$	954	$	82,411
Construction		3,733		—		3,733
Consumer:
Home equity and lines of credit		18,479		84		18,563
Other		160		—		160

Total	$	103,829	$	1,038	$	104,867


	As of and for the Nine Months Ended September 30, 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 mortgages		—		—		—		—		—
Construction		—		—		—		—		—
Consumer:
Home equity and lines of credit		—		—		—		—		—
Other		—		—		—		—		—

Total impaired loans with reserve		—		—		—		—		—

Impaired loans with no reserve:
Commercial:
Real estate		5,226		5,226		NA		5,872		161
Land development		0		0		NA		979		32
Other		1,284		1,335		NA		1,611		24
Residential real estate:
First mortgages		880		964		NA		734		18
Construction		—		—		NA		—		—
Consumer:
Home equity and lines of credit		—		—		NA		10		22
Other		—		—		NA		—		—

Total impaired loans with no reserve		7,390		7,525		NA		9,206		257

Total impaired loans	$	7,390	$	7,525	$	0	$	9,206	$	257


	Three Months Ended September 30, 2021			Three Months Ended September 30, 2020			Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020

	(in thousands)						(in thousands)
Mortgage servicing rights beginning balance	$	2,109		$	1,587		$	1,806		$	2,172
Additions		137			232			457			578
Amortization		(164	)		(199	)		(551	)		(560	)
Increase (decrease) in valuation allowance		0			(5	)		370			(575	)

Mortgage servicing rights ending balance	$	2,082		$	1,615		$	2,082		$	1,615

Fair value at beginning of period	$	2,361		$	1,587		$	1,806		$	2,404
Fair value at end of period	$	2,285		$	1,615		$	2,285		$	1,615


	(in thousands)
2021	$	21,164
2022		55,902
2023		1,078
2024		1,237
2025		585
Thereafter		180

Total	$	80,146


	September 30, 2021
	Weighted Average Rate			Amount

	(dollars in thousands)
2021		1.26	%	$	491
2022		1.54	%		8,481
2023		1.54	%		8,507
2024		1.28	%		2,032
2025		1.30	%		2,059
Thereafter		1.07	%		34,364

Total				$	55,934


	September 30, 2021		December 31, 2020 (1)

	(dollars in thousands)
Shares committed to be released		6,930		7,021
Total allocated shares		18,480		7,021
Total unallocated shares		337,361		161,486

Total ESOP shares		362,771		175,528

Fair value of unallocated shares (based on $10.92 and $9.96 share price as of September 30, 2021 and December 31, 2020, respectively)	$	3,684	$	1,608


	September 30, 2021
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

	(dollars in thousands)
PyraMax Bank
Leverage (Tier 1)	$	49,513		9.1	%	$	21,762		4.0	%	$	27,203		5.0	%
Risk-based:
Common Equity Tier 1		49,513		14.6	%		15,264		4.5	%		22,048		6.5	%
Tier 1		49,513		14.6	%		20,352		6.0	%		27,136		8.0	%
Total		47,457		14.0	%		27,136		8.0	%		33,920		10.0	%


Stock Options	Shares (1)		Weighted Average Exercise Price		Weighted Average Remaining in Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2020		287,097	$	5.99		9.30		593,838
Granted (2)		37,316		7.76		9.41		—
Exercised		0		0		—		—
Forfeited		0		0		—		—

Outstanding September 30, 2021		324,413		6.20		8.65		1,532,089

Options exercisable at September 30, 2021		57,415		5.99		8.55		282,833


Stock Options	Shares (1)			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2020		287,097		$	1.98
Granted (2)		37,316			2.10
Vested		(57,415	)		1.50
Forfeited		0			0

Nonvested at September 30, 2021		266,998		$	2.09


			Estimated Increase (Decrease) in EVE
Basis Point (“bp”) Change in Interest Rates (1)	Estimated EVE (2)		Amount			Percent

	(Dollars in thousands)
400	$	73,695	$	8,060			12.28	%
300		72,163		6,528			9.95	%
200		70,980		5,345			8.14	%
100		69,116		3,481			5.30	%
—		65,635		—			—	%
(100)		61,083		(4,552	)		(6.94	%)


			Payments Due by Period
Contractual Obligations	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years

	(Dollars in thousands)
At September 30, 2021:
Long-term debt obligations	$	55,934	$	8,475	$	10,526	$	4,131	$	32,802
Operating lease obligations		245		77		168		—		—

Total	$	56,179	$	8,552	$	10,694	$	4,131	$	32,802

At December 31, 2020:
Long-term debt obligations	$	68,398	$	12,956	$	16,987	$	4,091	$	34,364
Operating lease obligations		20		20		—		—		—

Total	$	68,418	$	12,976	$	16,987	$	4,091	$	34,364

Large accelerated filer

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Emerging growth company