1895 Bancorp of Wisconsin (BCOW) 10-Q 2022 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from _______________ to _______________

Commission File

No. 001-40609

1895 Bancorp of Wisconsin, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	61-1993378
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
7001 West Edgerton Avenue Greenfield, Wisconsin	53220
(Address of Principal Executive Offices)	(Zip Code)

(414)

421-8200

(Registrant’s Telephone Number, Including Area Code)

N/A

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	BCOW	The NASDAQ Stock Market, LLC

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

YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES  ☒    NO  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act. (Check one)

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act).

YES  ☐    NO  ☒

6,365,270 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of May 9, 2022.

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 March 31, 2022 (unaudited) and December 31, 2021		1
	Consolidated Statements of Operations for the Three Months ended March 31, 2022 and 2021 (unaudited)		2
	Consolidated Statements of Comprehensive (Loss) Income for the Three Months ended March 31, 2022 and 2021 (unaudited)		3
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, 2022 and 2021 (unaudited)		4
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2022 and 2021 (unaudited)		5
	Notes to Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		40
Item 4.	Controls and Procedures		40
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3.	Defaults Upon Senior Securities		40
Item 4.	Mine Safety Disclosures		40
Item 5.	Other Information		40
Item 6.	Exhibits		41
	SIGNATURES		41

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	March 31, 2022			December 31, 2021
	(unaudited)
Assets
Cash and due from banks	$	46,093		$	65,300
Fed funds sold		4,493			1,503
Cash and cash equivalents		50,586			66,803
Marketable equity securities, stated at fair value		3,366			3,544
Available for sale securities, stated at fair value		132,722			112,440
Loans held for sale		944			1,183
Loans, net		323,686			323,789
Premises and equipment, net		5,809			5,864
Mortgage servicing rights, net		1,988			2,036
Federal Home Loan Bank (FHLB) stock, at cost		3,032			3,032
Accrued interest receivable		1,033			948
Cash value of life insurance		13,996			13,892
Other assets		9,123			6,108
TOTAL ASSETS	$	546,285		$	539,639
Liabilities and Stockholders’ Equity
Deposits	$	390,953		$	384,501
Advance payments by borrowers for taxes and insurance		4,735			1,860
FHLB advances		58,449			55,442
Accrued interest payable		117			109
Other liabilities		6,829			6,834
TOTAL LIABILITIES		461,083			448,746
Common stock (par value $0.01 per share)
Authorized - 90,000,000 shares at March 31, 2022 and December 31, 2021
Issued – 6,401,261 at March 31, 2022 and 6,402,571 at December 31, 2021 (includes 87,842 and 97,128 unvested shares, respectively)
Outstanding – 6,371,198 at March 31, 2022 and 6,372,508 at December 31, 2021 (includes 87,842 and 97,128 unvested shares, respectively)		64			64
Preferred stock, $0.01 par value, 10,000,000 shares authorized at March 31, 2022 and December 31, 2021		0			0
Additional paid-in capital		52,852			52,805
Unallocated common stock of Employee Stock Ownership Plan (ESOP), 417,356  a nd 377,077 shares at March 31, 2022 and December 31, 2021, respectively		(3,900	)		(3,432	)
Less treasury stock at cost, 30,063 at March 31, 2022 and December 31, 2021		(301	)		(301	)
Retained earnings		41,560			41,615
Accumulated other comprehensive (loss) income, net of income taxes		(5,073	)		142
Total stockholders’ equity		85,202			90,893
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	546,285		$	539,639

See accompanying notes to the consolidated financial statements.

1

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts) – Unaudited

	Three months ended March 31
	2022			2021
Interest and dividend income:
Loans, including fees	$	3,290		$	3,294
Securities, taxable		548			267
Other		48			56
Total interest and dividend income		3,886			3,617
Interest expense:
Interest-bearing deposits		169			256
Borrowed funds		172			200
Total interest expense		341			456
Net interest income		3,545			3,161
Provision for loan losses		105			0
Net interest income after provision for loan losses		3,440			3,161
Noninterest income:
Service charges and other fees		236			222
Loan servicing, net		177			574
Net gain on sale of loans		78			567
Net gain on sale of securities		0			12
Increase in cash surrender value of insurance		104			100
Unrealized (loss) gain on marketable equity securities		(210	)		131
Other		6			4
Total noninterest income		391			1,610
Noninterest expense:
Salaries and employee benefits		2,285			2,455
Advertising and promotions		14			18
Data processing		201			197
Occupancy and equipment		354			373
FDIC assessment		27			33
Other		1,065			1,013
Total noninterest expense		3,946			4,089
(Loss) income before income taxes		(115	)		682
Income tax (benefit) expense		(60	)		161
Net (loss) income	$	(55	)	$	521
(Loss) earnings per common share:
Basic (1)	$	(0.01	)	$	0.11
Diluted (1)	$	(0.01	)	$	0.11
Average common shares outstanding:
Basic (1)		5,873,964			4,588,688
Diluted (1)		5,873,964			4,697,342

(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). Refer to Note 14 Earnings Per Share for retroactive recognition given to the exchange ratio applied in the Conversion for the three months ended March 31, 2021.

See accompanying notes to the consolidated financial statements.

2

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands) - Unaudited

	Three months ended March 31
	2022			2021
Net (loss) income	$	(55	)	$	521
Other comprehensive (loss) income:
Unrealized holding (losses) gains arising during the period		(7,144	)		(801	)
Reclassification adjustment for gains realized in net income		0			(12	)
Other comprehensive (loss) income before tax effect		(7,144	)		(813	)
Tax effect of other comprehensive (loss) income items		1,929			219
Other comprehensive (loss) income, net of tax		(5,215	)		(594	)
Comprehensive (loss) income	$	(5,270	)	$	(73	)

See accompanying notes to the consolidated financial statements.

3

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands) - Unaudited

	Common stock		Additional paid- in capital			Treasury Stock			Unallocated common stock of ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total
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 (1,755 shares) (1)		—		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
Balance as of January 1, 2022	$	64	$	52,805		$	(301	)	$	(3,432	)	$	41,615		$	142		$	90,893
Net loss		—		—			—			—			(55	)		—			(55	)
Other comprehensive loss		—		—			—			—			—			(5,215	)		(5,215	)
Reimbursement of stock offering costs		—		1			—			—			—			—			1
Purchase of ESOP shares		—		—			—			(517	)		—			—			(517	)
ESOP shares committed to be released (4,933 shares)		—		2			—			49			—			—			51
Retirement of common stock		—		(15	)		0			—			—			—			(15	)
Stock compensation expense		—		59			—			—			—			—			59
Balance as of March 31, 2022	$	64	$	52,852		$	(301)		$	(3,900	)	$	41,560		$	(5,073	)	$	85,202

(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).

See accompanying notes to the consolidated financial statements.

4

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) - Unaudited

	Three months ended March 31,
	2022			2021
	(unaudited)
Cash flows from operating activities:
Net (loss) income	$	(55	)	$	521
Adjustments to reconcile net income to net cash used in operating activities:
Net amortization of investment securities		43			49
Depreciation		154			167
Provision for loan losses		105			—
Net change in fair value of marketable equity securities		210			(131	)
Net gain on sale of available for sale securities		—			(12	)
Stock compensation expense		59			58
Adjustment to mortgage servicing rights valuation		—			(369	)
(Benefit from) provision for deferred income tax		(60	)		161
Originations of mortgage loans held for sale		(6,504	)		(40,153	)
Proceeds from sales of mortgage loans held for sale		6,821			40,376
Net gain on sale of mortgage loans held for sale		(78	)		(567	)
ESOP compensation		51			21
Net change in cash value of life insurance		(104	)		(100	)
Changes in operating assets and liabilities:
Net change in mortgage servicing rights		48			28
Accrued interest receivable and other assets		(1,111	)		(818	)
Accrued interest payable and other liabilities		(12	)		(316	)
Net cash used in operating activities		(433	)		(1,085	)
Cash Flows From Investing Activities
Proceeds from sales of available for sale securities		—			1,018
Maturities, prepayments, and calls of available for sale securities		3,693			2,052
Purchases of available for sale securities		(31,162	)		(13,158	)
Net change in marketable equity securities		(32	)		(23	)
Net (increase) decrease in loans		(2	)		1,508
Net capital expenditures for premises and equipment		(99	)		(26	)
Net cash used in investing activities		(27,602	)		(8,629	)
Cash Flows From Financing Activities
Net increase (decrease) in deposits		6,452			(2,190	)
Net increase in advance payments by borrowers for taxes and insurance		2,875			3,360
Proceeds from issuance of Federal Home Loan Bank advances		10,000			—
Principal payments on Federal Home Loan Bank advances		(6,993	)		(486	)
Reimbursement of stock offering costs		1			—
Purchases of treasury stock		—			(15	)
Purchase of ESOP shares		(517	)		—
Net cash provided by financing activities		11,818			669
Net decrease in cash and cash equivalents		(16,217	)		(9,045	)
Cash and cash equivalents at beginning of period		66,803			92,526
Cash and cash equivalents at end of period	$	50,586		$	83,481
Supplemental cash flow information:
Cash paid during the year for interest	$	333		$	496
Noncash activities:
Retirement of common stock	$	15		$	—
Issuance of treasury stock – stock compensation plans		—			15

See accompanying notes to the consolidated financial statements.

5

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

1895 Bancorp of Wisconsin, Inc., a Maryland corporation (the “Company” or “New 1895 Bancorp”) was formed to serve as the stock holding company for PyraMax Bank, FSB (the “Bank”) as part of the

mutual-to-stock

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

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

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

The accompanying unaudited interim 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 financial statements contain all normal recurring adjustments necessary to present fairly the financial positions results of operations, changes in equity and cash flows for the periods presented.

The accompanying unaudited financial statements and related notes should be read in conjunction with the audited annual financial statements and the notes thereto included in the Company’s Annual Report on Form

10-K

for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on March 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 of securities, financial instruments and mortgage servicing rights, and the valuation of deferred income tax assets. Actual results could differ from those estimates.

On April 5, 2012, the

Jumpstart Our Business Startups Act

(the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies and define an “emerging growth company.” As an emerging growth company, the Company may delay adoption of new or revised financial accounting standards until such date that the standards are required to be adopted by

non-issuer

companies. If such standards would not apply to

non-issuer

companies, no deferral would be applicable. The Company intends to take advantage of the benefits of the extended transition periods allowed under the JOBS Act.

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

non-issuer

companies.

6

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

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 March 31, 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) have been issued by the 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. 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. ASU

2016-13

will be effective for fiscal years beginning after December 15, 2022, and interim periods within fiscal years beginning after December 15, 2022. Management has elected to defer adoption to the new effective date and is currently evaluating the impact of adopting ASU

2016-13

on the Company’s consolidated financial statements.

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. The Company adopted ASC 842 on January 1, 2022. The cumulative effect did not have a material impact on the Company’s statements of operations. Where the Company is a lessee, the Company recorded an initial increase in assets and liabilities of $529,000 to reflect the right of use asset and the lease liability.

7

NOTE 2 – RECENT ACCOUNTING STANDARDS (continued)

ASU

2020-04,

Facilitation of 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 adoption of this guidance resulted in the application of certain practical expedients, which did not have a material effect on the Company’s consolidated financial statements.​​​​​​​

NOTE 3 – AVAILABLE FOR SALE SECURITIES

The amortized costs and fair values of securities

available-for-sale

were as follows:

	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury notes	$	29,534	$	0	$	(1,528	)	$	28,006
Obligations of states and political subdivisions		22,000		31		(1,435	)		20,596
Government-sponsored mortgage-backed securities		80,560		20		(4,065	)		76,515
Asset-backed securities		6,119		4		(2	)		6,121
Certificates of deposit		1,459		25		—			1,484
Total	$	139,672	$	80	$	(7,030	)	$	132,722

	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

Available for sale securities with a carrying value of $4.3 million and $1.8 million were pledged as collateral at March 31, 2022 and December 31, 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.​​​​​​​

8

NOTE 3 – AVAILABLE FOR SALE SECURITIES (continued)

	March 31, 2022
	Amortized Cost		Fair Value
	(in thousands)
Debt and other securities:
Due in one year or less	$	1,350	$	1,354
Due after one through 5 years		18,686		17,993
Due after 5 through 10 years		21,859		20,563
Due after 10 years		11,098		10,176
Total debt and other securities		52,993		50,086
Mortgage-related securities		80,560		76,515
Asset-backed securities		6,119		6,121
Total	$	139,672	$	132,722

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:

	March 31, 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	$	28,006	$	(1,528	)	$	—	$	—		$	28,006	$	(1,528	)
Obligations of states and political subdivisions		13,706		(902	)		3,691		(533	)		17,397		(1,435	)
Government-sponsored mortgage-backed securities		62,610		(3,544	)		7,979		(521	)		70,589		(4,065	)
Asset-backed securities		570		(2	)		—		—			570		(2	)
Total	$	104,892	$	(5,976	)	$	11,670	$	(1,054	)	$	116,562	$	(7,030	)

	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	)

At March 31, 2022 and December 31, 2021, respectively, the Company had 68 and 24 debt securities with unrealized losses representing aggregate depreciation of approximately 5.7% and 1.1% 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.

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 March 31,
	2022		2021
	(in thousands)
Proceeds from sales of securities available-for-sale	$	0	$	1,018
Gross realized gains		0		12
Gross realized losses		—		—

9

NOTE 4 – LOANS

Major classifications of loans are summarized as follows:

	March 31, 2022			December 31, 2021
	(in thousands)
Commercial:
Real estate	$	188,256		$	185,223
Land development		1,366			1,400
Other		37,447			38,160
Residential real estate:
First mortgage		79,767			80,661
Construction		3,258			3,388
Consumer:
Home equity and lines of credit		15,654			17,032
Other		104			128
Subtotal		325,852			325,992
Net deferred loan costs		851			655
Allowance for loan losses		(3,017	)		(2,858	)
Loans, net	$	323,686		$	323,789

Deposit accounts in an overdrawn position and reclassified as loans totaled $48,000 and $106,000 at March 31, 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 March 31, 2022 and December 31, 2021, respectively, the Company had transferred $29.9 million and $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.

An analysis of past due loans is presented below:

	March 31, 2022
	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	—	$	—	$	—	$	188,256	$	188,256
Land development		—		—		—		1,366		1,366
Other		—		—		—		37,447		37,447
Residential real estate:
First mortgage		264		—		264		79,503		79,767
Construction		—		—		—		3,258		3,258
Consumer:
Home equity and lines of credit		—		—		—		15,654		15,654
Other		—		—		—		104		104
Total	$	264	$	—	$	264	$	325,588	$	325,852

10

NOTE 4 – LOANS (continued)

	December 31, 2021
	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans
	(in thousands)
Commercial:
Real estate	$	—	$	—	$	—	$	185,223	$	185,223
Land development		—		—		—		1,400		1,400
Other		33		—		33		38,127		38,160
Residential real estate:
First mortgage		342		—		342		80,319		80,661
Construction		—		—		—		3,388		3,388
Consumer:
Home equity and lines of credit		—		—		—		17,032		17,032
Other		—		—		—		128		128
Total	$	375	$	—	$	375	$	325,617	$	325,992

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

A summary of activity in the allowance for loan losses for the three months ended March 31, 2022 and March 31, 2021, respectively, is presented below:

	Commercial		Residential		Consumer			Total
	(in thousands)
Three months ended March 31, 2022
Allowance for loan losses
Beginning balance	$	1,657	$	745	$	456		$	2,858
Provision (credit) for loan losses		105		0		0			105
Loans charged-off		0		0		(3	)		(3	)
Recoveries		52		0		5			57
Ending balance	$	1,814	$	745	$	458		$	3,017
Three months ended March 31, 2021
Allowance for loan losses
Beginning balance	$	1,609	$	745	$	349		$	2,703
Provision for loan losses		—		—		—			—
Loans charged-off		0		0		(16	)		(16	)
Recoveries		5		0		7			12
Ending balance	$	1,614	$	745	$	340		$	2,699

11

NOTE 4 – LOANS (continued)

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

	March 31, 2022
	Commercial		Residential		Consumer		Total
	(in thousands)
Loans:
Individually evaluated for impairment	$	4,082	$	1,336	$	36	$	5,454
Collectively evaluated for impairment		222,987		81,689		15,722		320,398
Total loans	$	227,069	$	83,025	$	15,758	$	325,852
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,814		745		458		3,017
Total allowance for loan losses	$	1,814	$	745	$	458	$	3,017

	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

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.

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.

12

NOTE 4 – LOANS (continued)

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

	March 31, 2022
	Pass		Watch and Special Mention		Substandard		Total
	(in thousands)
Commercial:
Real estate	$	180,938	$	3,721	$	3,597	$	188,256
Land development		1,366		—		—		1,366
Other		36,962		0		485		37,447
Total	$	219,266	$	3,721	$	4,082	$	227,069

	December 31, 2021
	Pass		Watch and Special Mention		Substandard		Total
	(in thousands)
Commercial:
Real estate	$	172,172	$	8,963	$	4,088	$	185,223
Land development		1,400		—		—		1,400
Other		37,414		1		745		38,160
Total	$	210,986	$	8,964	$	4,833	$	224,783

There were 0 loans rated Doubtful or Loss as of March 31, 2022 or December 31, 2021, respectively.

Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing according 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 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:

	March 31, 2022
	Performing		Non Performing		Total
	(in thousands)
Residential real estate:
First mortgage	$	78,844	$	923	$	79,767
Construction		3,258		—		3,258
Consumer:
Home equity and lines of credit		15,618		36		15,654
Other		104		—		104
Total	$	97,824	$	959	$	98,783

13

NOTE 4 – LOANS (continued)

	December 31, 2021
	Performing		Non Performing		Total
	(in thousands)
Residential real estate:
First mortgage	$	79,722	$	939	$	80,661
Construction		3,388		—		3,388
Consumer:
Home equity and lines of credit		16,954		78		17,032
Other		128		—		128
Total	$	100,192	$	1,017	$	101,209

Information regarding impaired loans is presented below:

	As of and for the Three Months ended March 31, 2022
	Recorded Investment		Unpaid Principal		Reserve		Average Investment		Interest Recognized
	(in thousands)
Impaired loans with reserve:
Commercial:
Real estate	$	—	$	—	$	—	$	—	$	—
Land development		—		—		—		—		—
Other		—		—		—		—		—
Residential real estate:
First mortgage		—		—		—		—		—
Construction		—		—		—		—		—
Consumer:
Home equity and lines of credit		—		—		—		—		—
Other		—		—		—		—		—
Total impaired loans with reserve		—		—		—		—		—
Impaired loans with no reserve:
Commercial:
Real estate		3,597		3,597		NA		3,923		37
Land development		—		—		NA		0		0
Other		485		485		NA		558		56
Residential real estate:
First mortgage		1,336		1,557		NA		1,344		15
Construction		—		—		NA		—		—
Consumer:
Home equity and lines of credit		36		41		NA		36		0
Other		—		—		NA		—		—
Total impaired loans with no reserve		5,454		5,680		NA		5,861		108
Total impaired loans	$	5,454	$	5,680	$	0	$	5,861	$	108

14

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	$	0	$	8,758	$	337

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

There were 0 additional funds committed to impaired loans as of March 31, 2022 and December 31, 2021, respectively.

Nonperforming loans are as follows:

	March 31, 2022		December 31, 2021
	(in thousands)
Nonaccrual loans, other than troubled debt restructurings	$	770	$	826
Nonaccrual loans, troubled debt restructurings		189		191
Total nonperforming loans (NPLs)	$	959	$	1,017
Troubled debt restructurings, accruing	$	414	$	418

15

NOTE 4 – LOANS (continued)

There were 0 loans modified as troubled debt restructurings during the three months ended March 31, 2022 and year ended December 31, 2021, respectively.

The provisions of the CARES Act included an election 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, 2021 or (ii) 60 days after the end of the

COVID-19

national emergency. The relief can 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 March 31, 2022, the Company had 1 to 3 month deferrals of approximately $264,000 in interest, escrow, and principal payments on $7.3 million in outstanding loans.

The Company considers a troubled debt restructuring in default if it becomes past due more than 90 days. There were 0troubled debt restructurings within the past twelve months for which there was a default during the three months ended March 31, 2022 and 2021.

Information on

non-accrual

loans is presented below:

	March 31, 2022			December 31, 2021
	(in thousands)
Commercial:
Real estate	$	—		$	—
Land development		—			—
Other		—			—
Residential real estate:
First mortgage		923			939
Construction		—			—
Consumer:
Home equity and lines of credit		36			78
Other		—			—
Total non-accrual loans	$	959		$	1,017
Total non-accrual loans to total loans		0.29	%		0.31	%
Total non-accrual loans to total assets		0.18	%		0.19	%

NOTE 5 – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included in the balance sheets. The unpaid principal balance of mortgage loans serviced for others was $325.4 million and $332.9 million as of March 31, 2022 and December 31, 2021, respectively.

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

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
	(in thousands)
Mortgage servicing rights beginning balance	$	2,036		$	1,806
Additions		27			203
Amortization		(75	)		(231	)
Decrease in valuation allowance		0			369
Mortgage servicing rights ending balance	$	1,988		$	2,147
Fair value at beginning of period	$	2,477		$	1,806
Fair value at end of period	$	2,811		$	2,153

16

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 March 31, 2022, the model used discount rates ranging from 10% to 13.5%, and prepayment speeds ranging from 9.6% to 35.8%, respectively, both of which were based on market data from independent organizations. As of March 31, 2021 the model used discount rates ranging from 10% to 13.5%, and prepayment speeds ranging from 14.6% to 44.7%, respectively, both of which were based on market data from independent organizations.

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 March 31, 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.

	(in thousands)
Estimated future amortization as of March 31, 2022:
2022	$	235
2023		265
2024		221
2025		189
2026		163
Thereafter		915
Total	$	1,988

NOTE 6 – DEPOSITS

The composition of deposits is summarized below:

	March 31, 2022		December 31, 2021
	(in thousands)
Non-interest bearing checking	$	108,096	$	106,664
Interest bearing checking		37,215		37,467
Money market		96,725		94,823
Statement savings		67,985		64,954
Certificates of deposit		80,932		80,593
Total	$	390,953	$	384,501

The Company held $9.7 million and $10.0 million in certificates of deposit which met or exceeded the FDIC insurance limit of $250,000 as of March 31, 2022 and December 31, 2021, respectively. The Company did 0t hold any brokered deposits as of March 31, 2022 and December 31, 2021.

As of March 31, 2022, the scheduled maturities of certificates of deposit for the annual periods are presented below:

	(in thousands)
2022	$	61,677
2023		17,124
2024		1,030
2025		580
2026		346
Thereafter		175
Total	$	80,932

17

NOTE 7 – FEDERAL HOME LOAN BANK ADVANCES

Federal Home Loan Bank advances consist of the following:

	March 31, 2022					December 31, 2021
	Rate			Amount		Rate			Amount
	(dollars in thousands)
Fixed rate, fixed term advance, maturing Feb 2022		N/A		$	0		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
Putable advance, maturing Mar 2032 first put option date Mar 2027		1.74	%		10,000		—			—
Advance structured note, payments due monthly, maturing Feb 2030		7.47	%		531		7.47	%		542
Advance structured note, payments due monthly, maturing April 2030		1.05	%		8,164		1.05	%		8,405
Advance structured note, payments due monthly, maturing May 2030		1.19	%		8,254		1.19	%		8,495
Total				$	58,449				$	55,442

The scheduled maturities of Federal Home Loan Bank advances are presented below:

	March 31, 2022
	Weighted Average Rate			Amount
	(dollars in thousands)
2022		1.27	%	$	1,488
2023		1.54	%		8,506
2024		1.28	%		2,032
2025		1.30	%		2,059
2026		1.31	%		2,086
Thereafter		1.22	%		42,278
Total				$	58,449

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 $145.1 million and $147.5 million of qualifying loans as collateral for Federal Home Loan Bank advances as of March 31, 2022 and December 31, 2021, respectively. Federal Home Loan Bank advances are also secured by approximately $3.0 million of Federal Home Loan Bank stock held by the Company as of March 31, 2022 and December 31, 2021. The Company’s available and unused portion of this borrowing agreement totaled $85.6 million and $90.9 million as of March 31, 2022 and December 31, 2021, respectively. Additional borrowing would require additional stock purchase.

Additionally, at March 31, 2022 we had a $15.0 million federal funds rate line of credit with the BMO Harris Bank, none of which was drawn at March 31, 2022. The Company also had a $10.7 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately $13.5 million at March 31, 2022. The Company had 0t drawn on the Federal Reserve line as of March 31, 2022.

18

NOTE 8 – INCOME TAXES

Income tax (benefit) expense was ($60,000) and $161,000 for the three months ended March 31, 2022 and 2021, respectively.

Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available evidence, it is more likely than not that some portion of the deferred asset will not be realized. As required by generally accepted accounting principles, available evidence is weighted heavily on cumulative losses, with less weight placed on future projected profitability. The realization of deferred tax assets is dependent on the existence of taxable income of the appropriate character (e.g., ordinary or capital) within the carry-back and carry-forward periods available under tax law, which would consider future reversals of existing taxable temporary differences and available tax planning strategies. As of March 31, 2022, and December 31, 2021, the deferred tax valuation allowance was $934,000, reducing our net deferred tax asset to $5.8 million and $3.8 million at each respective date.

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

COVID-19,

the board and management continue to assess their deferred tax assets including 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 March 31, 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:

	March 31, 2022
	Fixed Rate		Variable Rate		Total
	(in thousands)
Commitments to extend credit	$	19,062	$	66,506	$	85,568
Standby letters of credit		—		175		175
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program		1,245		—		1,245
Commitments to sell loans		5,364		—		5,364
Overdraft protection program commitments		3,948		—		3,948

	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

19

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 $813,000 of commitments to deliver loans through the Program as of March 31, 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 March 31, 2022, and December 31, 2021, the Company had 0 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% vested in their accounts after 1 year of service, 40% vested after 2 years of service, 60% vested after 3 years of service, 80% vested after 4 years of service, and 100% vested after 5 or more years of service, or earlier, upon death, disability or attainment of normal retirement age.

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

As part of the

mutual-to-stock

conversion and stock offering completed on July 14, 2021, the ESOP refinanced the aforementioned loan with New 1895 Bancorp, enabling the ESOP to purchase an aggregate of 283,360 additional shares of common stock. During the first quarter of 2022, the ESOP purchased 45,212 additional shares at an average price of $11.36. As of March 31, 2022, the ESOP had purchased 232,126 of the additional shares at an average price of $10.97.

20

NOTE 10 – EMPLOYEE STOCK OWNERSHIP PLAN (continued)

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

The difference between the average fair market value and the cost of the shares allocated by the ESOP is recorded as an adjustment to stockholders’ equity. The Company recognized $51,000 and $21,000 in compensation expense for the three months ended March 31, 2022 and March 31, 2021, respectively.

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

	March 31, 2022		December 31, 2021
	(dollars in thousands)
Shares committed to be released		4,933		22,401
Total allocated shares		37,640		15,239
Total unallocated shares		417,356		377,077
Total ESOP shares		459,929		414,717
Fair value of unallocated shares (based on $10.85 and $10.99 share price as of March 31, 2022 and December 31, 2021, respectively)	$	4,528	$	4,144

NOTE 11 – RELATED PARTY TRANSACTIONS

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

	March 31, 2022			December 31, 2021
	(in thousands)
Beginning balance	$	932		$	1,034
Adjustments due to changes in directors, executive officers, and/or principal stockholders		0			202
New loans		4			53
Repayments		(41	)		(357	)
Ending balance	$	895		$	932

Deposits from directors, executive officers, and their affiliates totaled $1.2 million and $1.1 million at March 31, 2022 and December 31, 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 $6,000 and $6,000 during the three months ended March 31, 2022 and 2021, respectively.

NOTE 12 – FAIR VALUE MEASUREMENTS

ASC Topic 820,

Fair Value Measurements and Disclosures

defines fair values, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This accounting standard applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. The standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing an asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

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

21

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)

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

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

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

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

Some assets and liabilities, such as securities

available-for-sale,

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

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

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

Rate lock commitments

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

22

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)

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
	March 31, 2022		Level 1		Level 2		Level 3
	(in thousands)
Marketable equity securities	$	3,366	$	3,366	$	—	$	—
Securities available-for-sale:
U.S. Treasury notes		28,006		—		28,006		—
Obligations of states and political subdivisions		20,596		—		20,596		—
Government-sponsored mortgage-backed securities		76,515		—		76,515		—
Asset-backed securities		6,121		—		6,121		—
Certificates of deposit		1,484		—		1,484		—
Total	$	136,088	$	3,366	$	132,722	$	—

	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	$	—

Impaired loans are measured at fair value on a

non-recurring

basis. There were 0 loans that were considered impaired with a specific valuation allowance as of March 31, 2022 and December 31, 2021.

Mortgage servicing rights are measured at fair value on a

non-recurring

basis. There was 0 impairment on mortgage servicing rights as of March 31, 2022 and December 31, 2021.

23

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)

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

	March 31, 2022
	Carrying Value		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and cash equivalents	$	50,586	$	50,586	$	—	$	—
Available for sale securities		132,722		—		132,722		—
Marketable equity securities		3,366		3,366		—		—
Loans held for sale		944		—		944		—
Loans		323,686		—		—		315,013
Rate lock commitments		19		—		—		19
Accrued interest receivable		1,033		1,033		—		—
Federal Home Loan Bank stock		3,032		—		—		3,032
Cash value of life insurance		13,996		—		—		13,996
Financial liabilities:
Deposits		390,953		310,021		—		80,322
Advance payments by borrowers for taxes and insurance		4,735		4,735		—		—
Federal Home Loan Bank advances		58,449		—		—		56,535
Accrued interest payable		117		117		—		—

	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		—		—

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

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing

on-

and

off-balance-sheet

financial instruments without attempting to estimate the value of anticipated future business.

24

NOTE 12 – FAIR VALUE MEASUREMENTS (continued)

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.

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 March 31, 2022 and December 31, 2021.

As of March 31, 2022, and December 31, 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:​​​​​​​

	March 31, 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)	$	65,031		12.1	%	$	21,540		4.0	%	$	26,925		5.0	%
Risk-based:
Common Equity Tier 1		65,031		18.3	%		15,980		4.5	%		23,082		6.5	%
Tier 1		65,031		18.3	%		21,307		6.0	%		28,409		8.0	%
Total		68,048		19.2	%		28,409		8.0	%		35,511		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	%

25

NOTE 14 – EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net 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 months ended March 31, 2022, 189,715 average shares were excluded from the computation of diluted EPS because the effect would be antidilutive.

Earnings per common share for the three months ended March 31, 2022 and 2021 are presented in the following table.

	Three months ended March 31,
	2022			2021 (1)		2021 (2)
	(dollars in thousands, except per share amounts)
Net income	$	(55	)	$	521	$	521
Weighted shares outstanding for basic EPS
Weighted average shares outstanding		6,275,850			4,749,287		6,251,486
Less: Weighted average unallocated ESOP shares		401,886			160,599		211,396
Weighted average shares outstanding for basic EPS		5,873,964			4,588,688		6,040,090
Additional dilutive shares		—			108,654		143,021
Weighted average shares outstanding for dilutive EPS		5,873,964			4,697,342		6,183,111
Basic income per share	$	(0.01	)	$	0.11	$	0.09
Diluted income per share	$	(0.01	)	$	0.11	$	0.08

(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).

(2)  Amounts related to periods prior to the date of Conversion (July 2021) have been restated to give the retroactive recognition to the exchange ratio applied in the Conversion (1.3163) (See Note 1)

NOTE 15 – STOCK BASED COMPENSATION

Stock-Based Compensation Plan

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 stock options and 95,387 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.

Accounting for Stock-Based Compensation Plan

The fair value of stock options granted is estimated on the grant date using a Black-Scholes pricing model. The fair value of restricted shares is equal to the quoted NASDAQ market closing price on the date of grant. The fair value of stock grants is recognized as compensation expense on a straight-line basis over the vesting period of the grants. Compensation expense is included in salaries and employee benefits in the consolidated statements of operations. The following assumptions were used in estimating the fair value of options granted during the three months ended March 31, 2022 and March 31, 2021:

26

NOTE 15 – STOCK BASED COMPENSATION (continued)

	For the Three Months Ended
	March 31, 2022 (1)		March 31, 2021
Dividend yield		N/A		0.00	%
Risk-free interest rate		N/A		0.96	%
Expected volatility		N/A		24.64	%
Weighted average expected life		N/A		6.5
Weighted average per share value of options	$	N/A	$	2.76

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

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.

A summary of the Company’s stock option activity for the period ended March 31, 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		0		0		—		0
Exercised		0		0		—		—
Forfeited		0		0		—		—
Outstanding March 31, 2022		300,720		6.19		8.16		1,403,629
Options exercisable at March 31, 2022		75,835		6.15		8.12		356,984

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

Stock Options	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021		248,043		$	1.58
Granted		0			0
Vested (1)		(23,158	)		1.61
Forfeited		0			0
Nonvested at March 31, 2022		224,885		$	1.58

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

The Company amortizes the expense related to stock options as compensation expense over the vesting period. The Company recognized $23,000 in stock option expense during the three months ended March 31, 2022 and 2021.

27

NOTE 15 – STOCK BASED COMPENSATION (continued)

At March 31, 2022, the Company had $300,000 in estimated unrecognized compensation costs related to outstanding stock options that is expected to be recognized over a weighted average period of 3.22 years.

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

Restricted Stock	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021		97,128		$	6.25
Granted		0			0
Vested (1)(2)		(9,286	)		6.56
Forfeited		0			0
Nonvested at March 31, 2022		87,842		$	6.21

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

(2)  Includes 1,310 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 $36,000 and $35,000 in restricted stock expense during the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022, the Company had $464,000 of unrecognized compensation expense related to restricted stock shares that is expected to be recognized over a weighted average period of 3.22 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 March 31, 2022, the Company reported $510,000 of

right-of-use

asset and $510,000 lease liability in its consolidated balance sheets under other assets and other liabilities, respectively.

At March 31, 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 $20,000 for the three months ended March 31, 2022 and 2021, respectively.

Rent commitments were as follows as of March 31, 2022:

	(in thousands)
2022	$	64
2023		87
2024		89
2025		91
2026		94
Thereafter		112
Amounts representing interest		(27	)
Total	$	510

28

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

General

Management’s discussion and analysis of financial condition and results of operations at March 31, 2022 and for the three months ended March 31, 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 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 make;

• 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;

• 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;

29

• 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 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 have a material impact on our operations.

The provisions of the CARES Act included an election 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, 2021 or (ii) 60 days after the end of the

COVID-19

national emergency. The relief can 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 March 31, 2022, the Company had 1 to 3 month deferrals of approximately $264,000 in interest, escrow, and principal payments on $7.3 million in outstanding loans.

The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to originate PPP loans. The 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 March 31, 2022, the Bank had funded 246 PPP loans totaling $30.3 million. Less than $1,000 in PPP loans were outstanding as of March 31, 2022.

30

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, 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 March 31, 2022, we had funded 143 second round PPP loans totaling $10.5 million, of which $10.0 million had been forgiven as of March 31, 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 of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and 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. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change 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 determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies.

Management performs a quarterly evaluation of the allowance for loan losses. Consideration 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. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations.

31

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 found in Note 12 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 income 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 the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities 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 reviewed 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.

Comparison of Financial Condition at March 31, 2022 and December 31, 2021

Total Assets.

 Total assets increased $6.7 million, or 1.2%, to $546.3 million at March 31, 2022 from $539.6 million at December 31, 2021. This increase was primarily due to a $20.3 million increase in

available-for-sale

securities and a $3.0 million increase in other assets, offset by a $16.2 million decrease in cash and cash equivalents.

Cash and Cash Equivalents.

Cash and cash equivalents decreased $16.2 million, or 24.3%, to $50.6 million at March 31, 2022 from $66.8 million at December 31, 2021. This decrease was primarily due to the purchase of $31.2 million in

available-for-sale

securities, $7.0 million in principal payments on FHLB advances and $6.5 million in originations of mortgage loans held for sale, partially offset by $10.0 million from the issuance of an FHLB advance, $6.8 million from the sale of mortgage loans held for sale, a $6.5 increase in deposits and $3.7 million from maturities, prepayments and calls of

available-for-sale

securities.

Available-for-Sale

Securities.

 Available for sale securities increased $20.3 million, or 18.0%, to $132.7 million at March 31, 2022, from $112.4 million at December 31, 2021. The increase was primarily due to purchases of securities totaling $31.2 million during the three months ended March 31, 2022, partially offset by maturities, prepayments and calls of securities totaling $3.7 million and a reduction in the unrealized gain held within the portfolio of $7.1 million. The increase in securities purchases was the result of management’s decision to invest a 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. The purchases consisted primarily of government-sponsored mortgage-backed securities, which increased $12.4 million and U.S. Treasury notes, which increased $8.5 million.

32

Loans Held for Sale.

 Loans held for sale decreased $239,000, or 20.2%, to $944,000 at March 31, 2022, from $1.2 million at December 31, 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 $6.5 million and $6.8 million, respectively, during the first quarter of 2022 compared to $40.2 million and $40.4 million, respectively, for the first quarter of 2021.

Net Loans.

 Net loans decreased $103,000, to $323.7 million at March 31, 2022, from $323.8 million at December 31, 2021.

Other Assets.

Other assets increased $3.0 million, or 49.4%, from $6.1 million at December 31, 2021 to $9.1 million at March 31, 2022. This increase was primarily due to a $1.9 million increase in deferred tax assets, which was the result of the increase in unrealized losses on available for sale securities. Other assets also increased as a result of a $521,000 increase in prepaid expenses, primarily due to the payment of annual insurance premiums in the first quarter of 2022, and a $510,000 increase in right of use lease assets as a result of the adoption of ASU

2016-02

in the first quarter of 2022.

Deposits.

 Deposits increased $6.5 million, or 1.7%, to $391.0 million at March 31, 2022, from $384.5 million at December 31, 2021. This increase was primarily due to a $1.4 million increase in noninterest bearing checking accounts, a $1.9 million increase in money market accounts and a $3.0 million increase in statement savings accounts. We believe that a significant factor underlying this increase is that our customers are maintaining greater than usual cash balances as a result of the current economic environment, including those which are the result of the

COVID-19

pandemic. These increases were offset by a $252,000 decrease in interest bearing checking accounts.

Advance Payments by Borrowers for Taxes and Insurance.

 Advance payments by borrowers for taxes and insurance increased $2.9 million to $4.7 million at March 31, 2022 from $1.8 million at December 31, 2021. The increase was due to normal seasonal activity.

Borrowings.

Borrowings, consisting entirely of FHLB advances, increased $3.0 million, or 5.4%, to $58.4 million at March 31, 2022, from $55.4 million at December 31, 2021. The increase was due to an advance of $10.0 million borrowed during the quarter ended March 31, 2022, offset by maturities and principal repayments on existing advances of $7.0 million.

Total Stockholders’ Equity.

Total stockholders’ equity decreased $5.7 million to $85.2 million at March 31, 2022, from $90.9 million at December 31, 2021. The decrease was primarily due to a $7.1 million increase in the gross unrealized losses on

available-for-sale

securities, which net of taxes, resulted in a $5.2 million decrease in stockholders’ equity.

33

Average Balances and Yields

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

	Three Months Ended March 31,
	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)	$	329,775		$	3,290		4.05	%	$	332,726		$	3,294		4.01	%
Securities available-for-sale		133,975			548		1.66	%		60,283			267		1.80	%
Other interest-earning assets		40,690			48		0.48	%		87,006			56		0.26	%
Total interest-earning assets		504,440			3,886		3.12	%		480,015			3,617		3.06	%
Non-interest-earning assets		33,622								32,419
Total assets	$	538,062							$	512,434
Interest-earning liabilities:
NOW accounts	$	36,494		$	8		0.08	%	$	31,843		$	8		0.11	%
Money market accounts		96,711			71		0.30	%		102,056			79		0.31	%
Savings accounts		66,407			8		0.05	%		62,022			10		0.06	%
Certificates of deposit		80,986			82		0.41	%		84,289			159		0.76	%
Total interest-bearing deposits		280,598			169		0.24	%		280,210			256		0.37	%
Federal Home Loan Bank advances		54,784			170		1.25	%		68,079			200		1.19	%
Other interest-bearing liabilities		3,705			2		0.25	%		5,227			—		—
Total interest-bearing liabilities		339,087			341		0.41	%		353,516			456		0.52	%
Non-interest-bearing deposits		105,970								94,763
Other non-interest-bearing liabilities		6,795								5,176
Total liabilities		451,852								453,455
Total stockholders’ equity		86,210								58,979
Total liabilities and stockholders’ equity	$	538,062							$	512,434
Net interest income				$	3,545							$	3,161
Net interest-earning assets	$	165,353							$	126,499
Interest rate spread (2)							2.71	%							2.53	%
Net interest margin (3)							2.85	%							2.67	%
Average interest-earning assets to average interest-bearing liabilities		148.76	%							135.78	%

(1)  Includes loan fees of $105,000 for 2022 and $146,000 for 2021.

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

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

34

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 March 31, 2022 vs. 2021
	Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	(31	)		27			(4	)
Securities		300			(19	)		281
Other		15			(23	)		(8	)
Total interest-earning assets		284			(15	)		269
Interest-bearing liabilities:
NOW		(3	)		3			—
Money market deposits		4			4			8
Savings		—			2			2
Certificates of deposit		6			71			77
Total interest-bearing deposits		7			80			87
Borrowings		41			(11	)		30
Other		—			(2	)		(2	)
Total interest-bearing liabilities		48			67			115
Change in net interest income	$	332			52			384

Comparison of Operating Results for the Three Months Ended March 31, 2022 and 2021

Net Income.

 We recorded a net loss of $55,000 for the three months ended March 31, 2022, a decrease of $576,000 from net income of $521,000 recorded for the three months ended March 31, 2021. This decrease was due to a $1.2 million decrease in

non-interest

income, which was partially offset by a $279,000 increase in net interest income after provision for loan losses, a $221,000 decrease in income tax expense and a $143,000 decrease in

non-interest

expense.

Interest and Dividend Income.

Interest and dividend income increased $269,000, or 7.4%, to $3.9 million for the three months ended March 31, 2022, from $3.6 million for the three months ended March 31, 2021. The increase was due primarily to an increase in interest earned on taxable securities, which increased $281,000, or 105.2% from $267,000 in the first quarter of 2021 to $548,000 in the first quarter 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 $73.7 million, or 122.2%, from $60.3 million for the first quarter of 2021 to $134.0 million for the first quarter of 2022.

Interest Expense.

Interest expense decreased $115,000, or 25.2%, to $341,000 for the three months ended March 31, 2022, from $456,000 for the three months ended March 31, 2021. This decrease was primarily due to a decline in the cost of our interest-bearing deposits, which decreased 13 basis points from 0.37% for the first quarter of 2021 to 0.24% for the first quarter of 2022. This decline was primarily due to the continued low interest rate environment.

Net Interest Income.

 Net interest income increased $384,000, or 12.2%, to $3.5 million for the three months ended March 31, 2022, from $3.2 million for the three months ended March 31, 2021. This increase was due to a $269,000 increase in interest income and a $115,000 decrease in interest expense. Our net interest rate spread increased 18 basis points to 2.71% for the three months ended March 31, 2022, from 2.53% for the three months ended March 31, 2021. Our net interest margin also increased 18 basis points to 2.85% from 2.67% over the same period.

35

Provision for Loan Losses.

Provision for loan losses for the three months ended March 31, 2022 was $105,000 compared to zero for the three months ended March 31, 2021. The allowance for loan losses was $3.0 million, or 0.93%, of total loans (and 0.93% excluding PPP loans), at March 31, 2022, compared to $2.9 million, or 0.88% of total loans (and 0.89% excluding PPP loans), at December 31, 2021. Nonaccrual loans constituted 0.29% of total gross loans (and 0.29% excluding PPP loans) at March 31, 2022, compared to 0.31% of gross loans at December 31, 2021 (and 0.32% excluding PPP loans). Net recoveries for the three months ended March 31, 2022 were $54,000 compared to net charge-offs of $4,000 for the three months ended March 31, 2021.

Non-interest

Income

.

 Non-interest

income decreased $1.2 million, or 75.7%, to $391,000 for the three months ended March 31, 2022, from $1.6 million for the three months ended March 31, 2021. The decrease was primarily the result of a $489,000 decrease in net gain on sale of loans, a $397,000 decrease in loan servicing fees and a $341,000 decline in the market value of marketable 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 $33.6 million, from $40.4 million in the first quarter of 2021 to $6.8 million in the first quarter of 2022.    The reduction in loan servicing fees was primarily the result of a $369,000 decrease in the valuation allowance for our mortgage servicing rights during the first quarter of 2021. The decrease in the market value of marketable equity securities was due to a decrease in the market value of mutual funds held in our deferred compensation plan.

Non-interest

Expense.

Non-interest

expense decreased $143,000, or 3.5%, to $3.9 million for the three months ended March 31, 2022 from $4.1 million for the three months ended March 31, 2021. This decrease was primarily due to a $170,000 decrease in salaries and employee benefits. The decrease in salaries and benefits was due primarily to a $341,000 decrease in the market value of mutual funds held in our deferred compensation plan, offset by $197,000 increase in the accrual for discretionary bonus expense.

Income Tax Expense.

We recorded an income tax benefit of $60,000 for the three months ended March 31, 2022, compared to an income tax expense of $161,000 for the three months ended March 31, 2021. The decrease in income tax expense was primarily due to a decrease in income before taxes during the three months ended March 31, 2022.

Management of Market Risk

General

. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.

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

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

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

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

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

36

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 March 31, 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	$	13,734		10.06	%
+300		13,391		7.31	%
+200		13,064		4.69	%
+100		12,763		2.28	%
Level		12,479		—	%
-100		12,197		(2.26	)%

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

Economic Value of Equity

.

We also monitor interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. The quarterly reports developed in the simulation model assist us in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within our policy guidelines.

The table below sets forth, as of March 31, 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	$	61,766	$	(6,739	)		(9.84	%)
+300		63,259		(5,246	)		(7.66	%)
+200		64,741		(3,764	)		(5.49	%)
+100		67,100		(1,405	)		(2.05	%)
Level		68,505		—			—	%
-100		65,387		(3,118	)		(4.55	%)

(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 March 31, 2022, in the event of a

100-basis

point increase in interest rates, we would have experienced a 2.05% decrease in our EVE. In the event of a

200-basis

point increase in interest rates at March 31, 2022, we would have experienced a 5.49% 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.

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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 March 31, 2022, we had $58.4 million outstanding in advances from the FHLB. At March 31, 2022, we had $85.6 million in additional borrowing capacity at the Federal Home Loan Bank of Chicago. Additionally, at March 31, 2022 we had a $15.0 million federal funds line of credit with the BMO Harris Bank, none of which was drawn at March 31, 2022. The Company also had a $10.7 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately $13.5 million at March 31, 2022. The Company had not drawn on the Federal Reserve line as of March 31, 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 used in operating activities was $433,000 for the three months ended March 31, 2022. Net cash used in operating activities was $1.1 million for the three months ended March 31, 2021. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of available for sale securities, offset by proceeds from maturing securities and pay downs on securities, was $27.6 million for the three months ended March 31, 2022. Net cash used in investing activities was $8.6 million for the three months ended March 31, 2021. Net cash provided by financing activities, consisting primarily of increases in deposits and advance payments by borrowers for taxes and insurance of $6.5 million and $2.9 million, respectively, as well as $10.0 million in proceeds from the issuance of FHLB advances, offset by $7.0 million from the principal payments on FHLB advances, was $11.8 million for the three months ended March 31, 2022. Net cash provided by financing activities was $669,000 for the three months ended March 31, 2021, consisting primarily of $3.4 million of advance payments by borrowers for taxes and insurance, offset in part by a decrease in deposits of $2.2 million.

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

Capital

At March 31, 2022, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $65.0 million, or 12.1% of adjusted total assets, which is above the well-capitalized required level of $26.9 million, or 5.0%, and total risk-based capital of $68.0 million, or 19.2% of risk-weighted assets, which is above the well-capitalized required level of $35.5 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.

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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.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule

13a-15(e)

promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 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 March 31, 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.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at March 31, 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

In addition to the other information set forth in the Form

10-Q,

you should carefully consider the risk factors that appeared under Item 1A “Risk Factors” disclosed in the Company’s December 31, 2021 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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number	Description
3.1	Charter 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))
31.1	Certification of Chief Executive Officer Pursuant to Section 312 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 312 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0	The following materials for the quarter ended March 31, 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 *

* Furnished, not filed.

SIGNATURES

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

	1895 BANCORP OF WISCONSIN, INC.
Date: May 13, 2022	/s/ Richard B. Hurd
	Richard B. Hurd
	Chief Executive Officer
Date: May 13, 2022	/s/ Steven T. Klitzing
	Steven T. Klitzing
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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