Citizens Community Bancorp Inc.

Previous wording

•our inability to obtain needed liquidity;

Current wording

•our ability to obtain needed liquidity;

Previous wording

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of March 31, 2025, and our consolidated results of operations for the three months ended March 31, 2025, compared to the same period in the prior fiscal year ended March 31, 2024. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2024 10-K. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

Current wording

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of June 30, 2025, and our consolidated results of operations for the six months ended June 30, 2025, compared to the same period in the prior fiscal year ended June 30, 2024. This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2024 10-K. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

Previous wording

The following is a summary of some of the significant factors that affected our operating results for the three months ended March 31, 2025, and March 31, 2024. Compared to the first quarter of 2024, net interest income decreased $0.3 million. The decrease was primarily due to the impact of a smaller loan portfolio, partially offset by a temporary increase in a higher balance of lower yielding cash and higher net interest margin.

Current wording

The following is a summary of some of the significant factors that affected our operating results for the three and six months ended June 30, 2025, and June 30, 2024.

Previous wording

The total benefit, i.e., negative provision, for credit losses for the first quarter ended March 31, 2025, was $0.3 million compared to a negative provision for credit losses of $0.8 million for the quarter ended March 31, 2024. The first quarter of 2025 negative provision was due to decreases in ACL related to: (1) on-balance sheet ACL of $0.1 million, and (2) reductions in off-balance sheet reserves to fund commitments of $0.3 million. The first quarter ended March 31, 2024, negative provision for credit losses was primarily due to net recoveries on an agricultural credit and the impact of the payoff of two large loans.

Current wording

The total provision for credit losses for the second quarter ended June 30, 2025, was $1.350 million compared to a negative provision for credit losses of $1.525 million for the quarter ended June 30, 2024. The second quarter of 2025 provision was largely due to: (1) the impact of three 30-89 days delinquent commercial relationships resulting in a $0.7 million provision; (2) the impact of modestly worsening macro-economic assumptions used by our third party provider of $0.3 million; and (3) provisions on new loans with longer contractual life outpacing previously established provisions on prepaying and maturing loans of $0.15 million and an increase in off-balance sheet commitments for new construction loan originations of $0.2 million. The total benefit, i.e., negative provision, for credit losses for the second quarter ended June 30, 2024, of $1.525 million was due to decreases in ACL related to: (1) loan portfolio decreases and credit quality improvements of $0.6 million; (2) improvements in the Moody’s economic scenario per our third-party provider of $0.6 million; and (3) reductions in off-balance sheet reserves to fund commitments of $0.3 million.

Previous wording

Provision for income taxes decreased to $0.8 million in the first quarter of 2025, from $1.1 million in the first quarter of 2024, primarily due to a decrease in the effective tax rate. The decrease in the effective tax rate is primarily due to the positive impact of higher permanent tax deductions in 2025.

Current wording

Provision for income taxes decreased to $0.8 million in the second quarter of 2025, from $1.0 million in the second quarter of 2024, primarily due to a decrease in pre-tax income and a lower effective tax rate. The decrease in the effective tax rate is primarily due to the positive impact of higher permanent tax deductions in 2025.

Previous wording

Income Taxes. Provision for income taxes decreased to $0.8 million in the first quarter of 2025, from $1.1 million in the first quarter of 2024, primarily due to a decrease in the effective tax rate. The decrease in the effective tax rate was primarily due to the positive impact of higher permanent tax deductions in 2025.

Current wording

Provision for income taxes decreased to $0.6 million in the six months ended June 30, 2025, compared to the same period in 2024, due to a decrease in pre-tax income and a lower effective tax rate. The decrease in the effective tax rate is primarily due to the positive impact of higher permanent tax deductions in 2025.

Previous wording

We reported net income of $3.2 million, or $0.32 per diluted share for the three months ended March 31, 2025, compared to net income of $4.1 million or $0.39 per diluted share for the three months ended March 31, 2024.

Current wording

We reported net income of $3.3 million and $6.5 million, or $0.33 and $0.65 per diluted share for the three and six months ended June 30, 2025, compared to net income of $3.7 million and $7.8 million, or $0.35 and $0.75 per diluted share for the three and six months ended June 30, 2024, respectively.

Previous wording

Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, and net interest margin for the three-month period ended March 31, 2025, and March 31, 2024, respectively.

Current wording

Interest rate spread and net interest margin are used to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest earning assets and the rate paid for interest-bearing liabilities that fund those assets. Net interest margin is expressed as the percentage of net interest income to average interest earning assets. Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, and net interest margin for the three-month and six-month periods ended June 30, 2025, and June 30, 2024, respectively.

Previous wording

Net interest income was $11.6 million for the three months ended March 31, 2025, compared to $11.9 million for the three months ended March 31, 2024. Interest income for the three months ended March 31, 2025 decreased from the same period one year ago due to a lower balance of loans and investment securities, partially offset by a higher balance of interest-bearing cash. In addition, lower asset yields were primarily due to the impact of lower short-term interest rates of 100 basis points due to lower Federal Open Market Committee reductions in later 2024 on all asset categories. The decrease in interest income was partially offset by lower interest expense due to both lower balances of FHLB advances, a decrease in liability costs and the impact of a higher net interest margin. The decrease in loans was primarily due to the impact of shrinkage in non-strategic loan relationships, with the proceeds used to reduce FHLB advances. The net interest margin for the three-month period ended March 31, 2025, increased to 2.85%, compared to 2.77%, for the three-month period ended March 31, 2024. The higher net interest margin was due to a 20 basis point decrease in liability costs, partially offset by lower asset yields of 10 basis points. Lower asset yields were favorably impacted by the impact of new loan originations and loan repricing.

Current wording

Net interest income was $13.3 million for the three months ended June 30, 2025, compared to $11.6 million for the three months ended June 30, 2024. Interest income for the three months ended June 30, 2025, increased from the same period one year ago due to: (1) $0.7 million of income realized on the payoff of nonaccrual loans; (2) $0.4 million increase in accretion due to aforementioned payoffs in the second quarter of 2025; (3) growth in the net interest margin due to the positive impact of lower liability costs of 33 basis points; and (4) improving asset yields, partially offset by: (1) the impact of lower balances of loans and investment securities; and (2) one-time income of $0.2 million recognized from curing technical defaults on performing loans in the second quarter of 2024. Lower short-term interest rates of 100 basis points, due to lower Federal Open Market Committee reductions, favorably impacted liability costs, new loan originations and repricing along with the items we discussed above more than offset the impact of lower short-term interest rate on variable rate loans.

Previous wording

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following net interest income analysis table presents interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates on a tax equivalent basis. Shown below is the weighted average tax equivalent yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the three-month periods ended March 31, 2025, and March 31, 2024. Non-accruing loans have been included in the table as loans carrying a zero yield.

Current wording

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following net interest income analysis table presents interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates on a tax equivalent basis. Shown below is the weighted average tax equivalent yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the three and six-month periods ended June 30, 2025, and June 30, 2024. Non-accruing loans have been included in the table as loans carrying a zero yield.

Previous wording

Management believes that the provision recorded for the current year’s three-month period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers, or our market areas, or otherwise, could all affect the adequacy of our ACL. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future.

Current wording

Management believes that the provision recorded for the current year’s three and six month periods is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans. We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers, or our market areas, or otherwise, could all affect the adequacy of our ACL. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future.

Previous wording

Non-interest Income. The following table reflects the various components of non-interest income for the three-month periods ended March 31, 2025 and 2024, respectively.

Current wording

Non-interest Income. The following table reflects the various components of non-interest income for the three and six-month periods ended June 30, 2025 and 2024, respectively.

Previous wording

Service charges on deposit accounts decreased $48 thousand from the first quarter of 2024 to the first quarter of 2025 primarily due to lower customer activity.

Current wording

Service charges on deposit accounts decreased $58 thousand from the second quarter of 2024, compared to the second quarter of 2025, and decreased $106 thousand for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to lower customer activity.

Previous wording

Gain on sale of loans decreased in the three-month period ended March 31, 2025, compared to the three-month period ended March 31, 2024, primarily due to lower gains on SBA loan sales.

Current wording

Gain on sale of loans increased in the three-month period ended June 30, 2025, compared to the three-month period ended June 30, 2024, primarily due to higher gains on SBA loan sales. For the six-month periods ending June 30, 2025, and 2024, loan sale gains increased due to higher residential gains on sale.

Previous wording

Loan fees and services charges were lower for the three-month period ended March 31, 2025, compared to the same periods in 2024, due to lower customer activity.

Current wording

Loan fees and services charges were lower for the three and six-month periods ended June 30, 2025, compared to the same periods in 2024, due to lower customer activity.

Previous wording

The decrease in net gains on equity securities between the three-month period ended March 31, 2025, and the three-month period ended March 31, 2024, was primarily due to the impact of equity mark-to-market losses.

Current wording

The increase in net gains on equity securities between the three-month period ended June 30, 2025, and the three-month period ended June 30, 2024, was primarily due to the impact of mark-to-market losses on equity securities as the second quarter of 2024 had an unrealized loss on the exchange of a debt security for an equity security. For the six-month period ended June 30, 2025, compared to the same period in 2024, the change was due to second quarter 2024 losses, partially offset by gains recognized in the first quarter of 2024 due to increased valuations of equity securities.

Previous wording

Non-interest Expense. The following table reflects the various components of non-interest expense for the three-month periods ended March 31, 2025 and 2024, respectively.

Current wording

Non-interest Expense. The following table reflects the various components of non-interest expense for the three and six-month periods ended June 30, 2025 and 2024, respectively.

Previous wording

Compensation expense for the three-month period ended March 31, 2025, increased from the same period in 2024, largely due to annual employee pay raises, effective late first quarter of 2024.

Current wording

Compensation expense for the three-month period ended June 30, 2025, increased from the same period in 2024, due to annual employee pay raises, effective late first quarter of 2025, higher incentive accruals and higher medical costs. The increase for the six-month period ending June 30, 2025, was largely due to the increases in the second quarter period.

Previous wording

Data processing expense for the three months ended March 31, 2025, increased from the same 2024 periods, largely due to inflationary pressures and the impact of new software implementation costs to aid in future efficiency efforts.

Current wording

Data processing expense for the three and six-months ended June 30, 2025, increased from the same 2024 periods, largely due to inflationary pressures and the impact of new software implementation costs to aid in future efficiency efforts.

Previous wording

The decrease in other non-interest expense for the three months ended March 31, 2025, compared to the same period in 2024 is primarily due to the establishment of an SBA valuation reserve of $0.4 million in the first quarter of 2024.

Current wording

The decrease in other non-interest expense for the three months ended June 30, 2025, compared to the same period in 2024, is largely due to the branch closure costs in the second quarter of 2024. For the six months ended June 30, 2025, compared to the same period in 2024, the decrease is primarily due to the establishment of an SBA valuation reserve of $0.4 million in the first quarter of 2024 and the branch closure costs in the second quarter of 2024.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents increased $50.0 million to $100.2 million at March 31, 2025, compared to $50.2 million at December 31, 2024. This increase was primarily due to the net proceeds from loan shrinkage and deposit growth increasing on-balance sheet liquidity and growing interest-bearing deposits.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents increased $17.3 million to $67.5 million at June 30, 2025, compared to $50.2 million at December 31, 2024. This increase was primarily due to the net proceeds from loan shrinkage increasing on-balance sheet liquidity and growing interest-bearing cash.

Previous wording

Investment Securities. We manage our securities portfolio to provide liquidity, modify interest rate risk and enhance income. Our investment portfolio is comprised of securities available-for-sale and securities held-to-maturity. Securities available-for-sale decreased $3.3 million during the three months ended March 31, 2025, to $139.6 million from $142.9 million at December 31, 2024. There were principal repayments of $2.6 million and a maturity of $2.5 million, partially offset by a decrease in the unrealized loss of $1.9 million.

Current wording

Investment Securities. We manage our securities portfolio to provide liquidity, manage interest rate risk and enhance income. Our investment portfolio is comprised of securities available-for-sale and securities held-to-maturity. Securities available-for-sale decreased $8.1 million during the six months ended June 30, 2025, to $134.8 million from $142.9 million at December 31, 2024. There were principal repayments of $6.3 million, and a net decrease in the corporate debt portfolio due to calls of $3.2 million and maturities of $2.5 million, partially offset by purchases of $1.9 million. These net decreases were partially offset by a decrease in the unrealized loss of $2.0 million.

Previous wording

Securities held-to-maturity decreased $1.2 million to $84.3 million during the three-month period ended March 31, 2025, from $85.5 million at December 31, 2024, due to principal repayments.

Current wording

Securities held-to-maturity decreased $2.5 million to $83.0 million during the six-month period ended June 30, 2025, from $85.5 million at December 31, 2024, due to principal repayments.

Previous wording

At March 31, 2025, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $33.6 million as collateral to secure a line of credit with the Federal Reserve Bank. As of March 31, 2025, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of March 31, 2025, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.3 million and mortgage-backed securities with a carrying value of $2.0 million as collateral against specific municipal deposits. As of March 31, 2025, the Bank also has mortgage-backed securities with a carrying value of $0.5 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Current wording

At June 30, 2025, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $33.2 million as collateral to secure a line of credit with the Federal Reserve Bank. As of June 30, 2025, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of June 30, 2025, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.3 million and mortgage-backed securities with a carrying value of $1.7 million as collateral against specific municipal deposits. As of June 30, 2025, the Bank also has mortgage-backed securities with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Previous wording

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.44 million at March 31, 2025, and $0.33 million at December 31, 2024, classified in other liabilities on the consolidated balance sheets.

Current wording

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.63 million at June 30, 2025, and $0.33 million at December 31, 2024, classified in other liabilities on the consolidated balance sheets.

Previous wording

Nonperforming assets were $14.5 million at March 31, 2025, compared to $14.3 million at December 31, 2024. This modest increase was due to a $0.4 million increase in residential loans delinquent more than 90 days not on nonaccrual status.

Current wording

Nonperforming assets were $13.0 million at June 30, 2025, compared to $14.3 million at December 31, 2024. This net decrease was largely due to: (1) a payoff of an agricultural relationship in the second quarter of 2025; (2) other payments received modestly larger than the sum of new additions; and (3) the increase of $0.4 million in residential loans delinquent more than 89 days not on nonaccrual status.

Previous wording

The table below shows a summary of criticized loans, split by special mention and substandard for the past five quarters. The increase in criticized loans from March 31, 2024, was primarily due to (1) one forestry services credit that moved from special mention to substandard in the third quarter of 2024 and (2) an increase in special mention commercial loans due to a new special mention C&I relationship in the first quarter of 2025 that showed weaker cash flow than expected. There was a payoff of a special mention loan in the second quarter of 2024.

Current wording

The table below shows a summary of criticized loans, split by special mention and substandard loans for the past five quarters. The increase in criticized loans from June 30, 2024, was primarily due to: (1) one forestry services credit that moved from special mention to substandard in the third quarter of 2024; and (2) an increase in special mention commercial loans due to a new special mention C&I relationship in the first quarter of 2025 that showed weaker cash flow than expected, and one new $9 million multi-family loan that is experiencing slower leasing activity than expected.

Previous wording

The unpaid balances of one-to-four family residential real estate loans serviced for others as of March 31, 2025, and December 31, 2024, were $475.8 million and $479.6 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at March 31, 2025, and December 31, 2024, was 1.07% and 1.09%, respectively.

Current wording

The unpaid balances of one-to-four family residential real estate loans serviced for others as of June 30, 2025, and December 31, 2024, were $475.2 million and $479.6 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at June 30, 2025, and December 31, 2024, was 1.07% and 1.09%, respectively.

Previous wording

Deposits. Total deposits increased $35.5 million during the quarter ended March 31, 2025, to $1.52 billion. Consumer deposits increased $9.7 million. Commercial deposits increased by $11.3 million. Public deposits increased $20.8 million, largely due to expected seasonal inflows. Deposits by type for five quarters are detailed below:

Current wording

Deposits. Total deposits decreased $9.7 million during the six months ended June 30, 2025, to $1.48 billion. The decrease is largely due to the reduction in brokered deposits. Deposits by type for five quarters are detailed below:

Previous wording

At March 31, 2025, the deposit portfolio composition was 56% consumer, 28% commercial, 14% public, and 2% wholesale deposits compared to 57% consumer, 28% commercial, 13% public and 2% brokered deposits at December 31, 2024.

Current wording

At June 30, 2025, the deposit portfolio composition was 58% consumer, 27% commercial, 13% public, and 2% wholesale deposits compared to 57% consumer, 28% commercial, 13% public and 2% brokered deposits at December 31, 2024.

Previous wording

Uninsured and uncollateralized deposits were $271.7 million, or 18% of total deposits, at March 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024. Uninsured deposits alone at March 31, 2025, were $444.4 million, or 29% of total deposits, and $428.0 million, or 29% of total deposits at December 31, 2024.

Current wording

Uninsured and uncollateralized deposits were $263.2 million, or 18% of total deposits, at June 30, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024. Uninsured deposits alone at June 30, 2025, were $419.6 million, or 28% of total deposits, and $428.0 million, or 29% of total deposits at December 31, 2024.

Previous wording

On-balance sheet liquidity collateralized new borrowing capacity and uncommitted federal funds borrowing availability was $852 million, or 314% of uninsured and uncollateralized deposits at March 31, 2025. At December 31, 2024, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability totaled $724.8 million, or 273% of uninsured and uncollateralized deposits.

Current wording

On-balance sheet liquidity collateralized new borrowing capacity and uncommitted federal funds borrowing availability was $730 million, or 277% of uninsured and uncollateralized deposits at June 30, 2025. At December 31, 2024, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability totaled $724.8 million, or 273% of uninsured and uncollateralized deposits.

Previous wording

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $1,032.3 million and $1,075.0 million at March 31, 2025 and December 31, 2024, respectively. At March 31, 2025, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $501.5 million compared to $424.7 million as of December 31, 2024.

Current wording

(1) The FHLB advance shown is a fixed rate advance, requires interest-only monthly payments, and is collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $1,027.3 million and $1,075.0 million at June 30, 2025 and December 31, 2024, respectively. At June 30, 2025, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $424.4 million compared to $424.7 million as of December 31, 2024.

Previous wording

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $5.0 million and $81.0 million, during the three months ended March 31, 2025 and the twelve months ended December 31, 2024, respectively.

Current wording

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $5.0 million and $81.0 million, during the six months ended June 30, 2025 and the twelve months ended December 31, 2024, respectively.

Previous wording

(b) A $5.0 million line of credit, maturing August 1, 2025, that remains undrawn upon.

Current wording

(b) A $5.0 million line of credit, maturing August 1, 2025, that remains undrawn upon, and was renewed for a term of one year on August 1, 2025.

Previous wording

(a) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

Current wording

(a) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years. The note is callable by the Bank when, and anytime after, the floating rate is initially set. On July 7, 2025, the Board of Directors approved the redemption of the entire $15 million balance of the 6% subordinated debentures due September 1, 2030, which were scheduled to reprice on September 1, 2025, to SOFR plus 591 basis points. The redemption will occur on September 1, 2025.

Previous wording

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years. In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

Current wording

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75% for five years. In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term SOFR plus 329 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

Previous wording

FHLB advances decreased to $0.0 million as of March 31, 2025, compared to $5.0 million as of December 31, 2024. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances. The Bank’s current unused borrowing capacity, supported by loan collateral as of March 31, 2025, is approximately $501.5 million.

Current wording

FHLB advances decreased to $0.0 million as of June 30, 2025, compared to $5.0 million as of December 31, 2024. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances. The Bank’s current unused borrowing capacity, supported by loan collateral as of June 30, 2025, is approximately $424.4 million.

Previous wording

At March 31, 2025, and December 31, 2024, the Bank had the ability to borrow $25.1 million and $24.9 million from the Federal Reserve Bank of Minneapolis. The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $33.6 million and $34.0 million as of March 31, 2025, and December 31, 2024, respectively. There were no related Federal Reserve borrowings outstanding as of March 31, 2025, or December 31, 2024.

Current wording

At June 30, 2025, and December 31, 2024, the Bank had the ability to borrow $24.7 million and $24.9 million from the Federal Reserve Bank of Minneapolis. The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $33.2 million and $34.0 million as of June 30, 2025, and December 31, 2024, respectively. There were no related Federal Reserve borrowings outstanding as of June 30, 2025, or December 31, 2024.

Previous wording

Stockholders’ Equity. Stockholders’ equity was $180.1 million at March 31, 2025, compared to $179.1 million at December 31, 2024. The increase in stockholder’s equity was attributable to net income of $3.2 million for the three-month period ended March 31, 2025, a decrease from December 31, 2024, in net unrealized losses of $1.455 million from the AFS securities portfolio reflected in accumulated other comprehensive income, partially offset by the annual cash dividend paid in February to common stockholders of $0.36 per share, or $3.6 million.

Current wording

Stockholders’ Equity. Stockholders’ equity was $183.5 million at June 30, 2025, compared to $179.1 million at December 31, 2024. The increase in stockholders’ equity was attributable to: (1) net income of $6.5 million for the six-month period ended June 30, 2025; and (2) a decrease from December 31, 2024, in net unrealized losses from the AFS securities portfolio reflected in accumulated other comprehensive income of $1,536. These increases were partially offset by the annual cash dividend paid in February to common stockholders of $0.36 per share, or $3.6 million.