Citizens Community Bancorp Inc.

Previous 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.

Current wording

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of September 30, 2025, and our consolidated results of operations for the nine months ended September 30, 2025, compared to the same period in the prior fiscal year ended September 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 and six months ended June 30, 2025, and June 30, 2024.

Current wording

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

Previous wording

Compared to the second quarter of 2024, the second quarter of 2025 net interest income increased $1.7 million. The second quarter 2025, increase from the same period in 2024, was largely due to: (1) $0.7 million of interest income recognized on the payoff of nonaccrual loans; (2) $0.4 million of accretion on the aforementioned payoffs; and (3) improvements in the net interest margin. Improving net interest margins were partially offset by the impact of a smaller loan portfolio and $0.2 million recognized in curing technical defaults on performing loans in the second quarter of 2024.

Current wording

Compared to the third quarter of 2024, the third quarter of 2025 net interest income increased $1.9 million. The third quarter 2025 increase from the same period in 2024 was largely due to: (1) $1.3 million in lower liability expense due to 50 basis point lower cost of funds; (2) $0.4 million of interest income recognized on the payoff of nonaccrual loans and loans with purchase credit discounts; (3) $0.4 million of accretion on the aforementioned payoffs; and (4) with higher asset yields offsetting a 4% decrease in interest-earning assets.

Previous 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 expense was largely due to: (1) the impact of three 30-89 day 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; (3) provisions on new loans with longer contractual life outpacing previously established provisions on prepaying and maturing loans of $0.15 million; and (4) an increase in off-balance sheet commitments from 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, was $1.525 million due to decreases in ACL as follows: (1) loan portfolio decreases and credit quality improvements of $0.6 million; (2) macro-economic improvements utilized by our third-party provider of $0.6 million; and (3) reductions in off-balance sheet reserves to fund commitments of $0.3 million.

Current wording

The total provision for credit losses for the third quarter ended September 30, 2025, was $0.650 million compared to a negative provision for credit losses of $0.400 million for the quarter ended September 30, 2024. The third quarter of 2025 provision was largely due to: (1) the impact of changes in credit quality, i.e. changes in reserve on impaired loans, and the impact of delinquent loans at June 30, 2025, becoming current at September 30, 2025; (2) net shrinkage of the loan portfolio of $0.1 million; (3) $51 thousand of net recoveries; (4) a decrease in off-balance sheet commitments for new construction loan originations of $0.1 million. The total benefit, i.e., negative provision, for credit losses for the third quarter ended September 30, 2024, of $0.400 million, was due to decreases in the ACL related to on-balance sheet ACL of $0.1 million; and reductions in off-balance sheet reserves to fund commitments of $0.3 million.

Previous wording

Non-interest expense increased $0.5 million in the second quarter of 2025 from $10.3 million in the second quarter of 2024. The increase was primarily due to an increase in compensation expense due to annual employee pay raises, effective late first quarter of 2025, higher incentive accruals and higher medical costs.

Current wording

Non-interest expense increased $0.7 million in the third quarter of 2025 from $10.4 million in the third quarter of 2024. The increase was primarily due to an increase in compensation expense due to annual employee pay raises, higher incentive accruals, and higher medical costs.

Previous 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.

Current wording

Provision for income taxes decreased to $0.85 million in the third quarter of 2025, from $0.9 million in the third quarter of 2024, primarily due to a lower effective tax rate. The decrease in the effective tax rate was primarily due to the positive impact of higher permanent tax deductions in 2025.

Previous wording

Non-interest income increased $0.3 million for the six-month period ended June 30, 2025, compared to the same period in 2024, primarily due to $0.6 million higher gain on equity securities offset by the Bank Owned Life Insurance death benefit of $0.2 million recognized in the second quarter of 2024.

Current wording

Non-interest income increased $0.4 million for the nine-month period ended September 30, 2025, compared to the same period in 2024, primarily due to: (1) $0.6 million higher gain on equity securities, and (2) higher gain on sale of loans of $0.4 million, partially offset by the (3) Bank Owned Life Insurance death benefit of $0.2 million recognized in the second quarter of 2024, and (4) lower service charges on deposit accounts, loan fees and service charges due to lower customer activity.

Previous wording

Non-interest expense increased $0.1 million in the six-month period ended June 30, 2025, compared to the same period in 2024, primarily due to higher second quarter compensation expense partially offset by the establishment in the first quarter 2024 of the SBA recourse reserve of $0.4 million.

Current wording

Non-interest expense increased $0.8 million in the nine-month period ended September 30, 2025, compared to the same period in 2024, primarily due to higher compensation expense for the reason discussed above, partially offset by the establishment in the first quarter 2024 of the SBA recourse reserve of $0.4 million.

Previous 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.

Current wording

Provision for income taxes decreased to $2.4 million in the nine months ended September 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 was primarily due to the positive impact of higher permanent tax deductions in 2025.

Previous wording

When comparing year-over-year results, changes in net interest income, provision for credit losses, non-interest income and non-interest expense are primarily due to the items discussed above. See the remainder of this section for a more thorough discussion.

Current wording

When comparing year-over-year results, changes in net interest income, provision for credit losses, non-interest income, non-interest expense, and provision for income taxes are primarily due to the items discussed above. See the remainder of this section for a more thorough discussion.

Previous 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.

Current wording

We reported net income of $3.7 million and $10.1 million, or $0.37 and $1.02 per diluted share for the three and nine months ended September 30, 2025, compared to net income of $3.3 million and $11.0 million, or $0.32 and $1.07 per diluted share for the three and nine months ended September 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 and six-month periods ended June 30, 2025, and June 30, 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 nine-month periods ended September 30, 2025, and September 30, 2024, respectively.

Previous wording

The net interest margin for the three-month period ended June 30, 2025, increased to 3.27%, compared to 2.72%, for the three-month period ended June 30, 2024. The higher net interest margin was due to: (1) a decrease in liability costs of 33 basis points; (2) the net favorable impacts of the $0.7 million of nonaccrual loan repayments in the second quarter; and (3) the $0.4 million decrease in liability costs, partially offset by the $0.2 million of one-time income recognized from curing technical defaults on performing loans in the second quarter of 2024, or 21 basis points, and higher asset yields of 10 basis points.

Current wording

The net interest margin for the three-month period ended September 30, 2025, increased to 3.20%, compared to 2.63%, for the three-month period ended September 30, 2024. The higher net interest margin was due to: (1) a decrease in liability costs of 48 basis points; (2) the net favorable impacts of the $0.4 million of payoffs of nonaccrual loans and loans with purchase credit discounts or 10 basis points; and (3) a net increase of 4 basis points in asset yields in addition to those discussed above.

Previous wording

The net interest margin for the six-month period ended June 30, 2025, increased to 3.06%, compared to 2.75%, for the six-month period ended June 30, 2024. The higher net interest margin was primarily due to: (1) a decrease in liability costs of 26 basis points; (2) the net favorable impact of the $0.7 million nonaccrual loan payoffs in the second quarter; and (3) the $0.4 million decrease in liability costs, partially offset by the $0.2 million of one-time income recognized from curing technical defaults on performing loans in the second quarter of 2024, and $0.4 million of interest income recognized on non-accrual loan payoffs in the first quarter of 2024, or 9 basis points.

Current wording

The net interest margin for the nine-month period ended September 30, 2025, increased to 3.11%, compared to 2.71%, for the nine-month period ended September 30, 2024. The higher net interest margin was primarily due to: (1) a decrease in liability costs of 33 basis points; and (2) the net favorable impact of the $0.74 million payoffs of nonaccrual loans and loans with purchase credit discounts, net of income recognized on loans modified.

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 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.

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 nine-month periods ended September 30, 2025, and September 30, 2024. Non-accruing loans have been included in the table as loans carrying a zero yield.

Previous 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.

Current wording

The total provision for credit losses for the third quarter ended September 30, 2025, was $0.650 million compared to a negative provision for credit losses of $0.400 million for the quarter ended September 30, 2024. The third quarter of 2025 provision was largely due to: (1) the impact of changes in credit quality, i.e. changes in reserve on impaired loans, and the impact of delinquent loans at June 30, 2025, becoming delinquent at September 30, 2025; (2) net shrinkage of the loan portfolio of $0.1 million; (3) $51 thousand of net recoveries; (4) a decrease in off-balance sheet commitments for new construction loan originations of $0.1 million. The total benefit, i.e., negative provision, for credit losses for the third quarter ended September 30, 2024, of $0.400 million was due to decreases in ACL related to on-balance sheet ACL of $0.1 million; and reductions in off-balance sheet reserves to fund commitments of $0.3 million.

Previous 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.

Current wording

Management believes that the provision recorded for the current year’s three- and nine-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 and six-month periods ended June 30, 2025 and 2024, respectively.

Current wording

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

Previous 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.

Current wording

Service charges on deposit accounts decreased $64 thousand from the third quarter of 2024, compared to the third quarter of 2025, and decreased $170 thousand for the nine months ended September 30, 2025, compared to the same period in 2024, primarily due to lower customer activity.

Previous 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.

Current wording

Gain on sale of loans increased in the three-month period ended September 30, 2025, compared to the three-month period ended September 30, 2024. Higher gains on SBA loan sales account for approximately 2/3 of the increase, with the remainder of the increase also impacted by higher gains on sale of residential loans. For the nine-month periods ending September 30, 2025, and 2024, loan sale gains increased approximately 60% due to higher SBA loan sales and 40% higher residential gains on sale

Previous 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.

Current wording

Loan fees and services charges were lower in the nine-month period ended September 30, 2025, compared to the same periods in 2024, due to lower customer activity.

Previous 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.

Current wording

Net gains (losses) on equity securities increased for the nine-month period ended September 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 and six-month periods ended June 30, 2025 and 2024, respectively.

Current wording

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

Previous 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.

Current wording

Compensation expense for the three-month period ended September 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 nine-month period ending September 30, 2025, was largely due to the same reason as in the third quarter period.

Previous 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.

Current wording

Data processing expense for the three and nine-months ended September 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 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.

Current wording

The decrease in other non-interest expense for the nine-months ended September 30, 2025, compared to the same period in 2024, is largely due to $0.2 million in branch closure costs in the second quarter of 2024 and the establishment of an SBA valuation reserve of $0.4 million in the first quarter of 2024, partially offset by additional SBA costs in 2025 of $0.1 million.

Previous wording

Income Taxes. 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. For the six months ended June 30, 2025, income tax expense decreased $0.5 million to $1.6 million, compared to the same period in 2024. The decrease in both periods is primarily due to lower pre-tax income and to a lesser extent, a lower effective tax rate, due to the positive impact of higher permanent tax deductions in 2025.

Current wording

Income Taxes. Provision for income taxes decreased to $0.85 million in the third quarter of 2025, from $0.9 million in the third quarter of 2024. For the nine months ended September 30, 2025, income tax expense decreased $0.6 million to $2.4 million, compared to the same period in 2024. The decrease in both periods is primarily due to lower pre-tax income and to a lesser extent, a lower effective tax rate, due to the positive impact of higher permanent tax deductions in 2025.

Previous 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.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents increased $32.2 million to $82.4 million at September 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, 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.

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 $5.3 million during the nine months ended September 30, 2025, to $137.6 million from $142.9 million at December 31, 2024. There were principal repayments of $8.9 million, and a net decrease in the corporate debt portfolio due to calls of $5.0 million and maturities of $2.5 million. These reductions were partially offset by purchases of $7.0 million of corporate debt and a decrease in the unrealized loss of $4.2 million.

Previous 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.

Current wording

Securities held-to-maturity decreased $4.0 million to $81.5 million during the nine-month period ended September 30, 2025, from $85.5 million at December 31, 2024, due to principal repayments.

Previous 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.

Current wording

At September 30, 2025, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $32.6 million as collateral to secure a line of credit with the Federal Reserve Bank. As of September 30, 2025, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of September 30, 2025, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.2 million and mortgage-backed securities with a carrying value of $1.9 million as collateral against specific municipal deposits. As of September 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

Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $0.02 billion, to $1.35 billion as of June 30, 2025, from $1.37 billion at December 31, 2024. The following table reflects the composition, of our loan portfolio at June 30, 2025, and December 31, 2024:

Current wording

Loans. Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $0.05 billion, to $1.32 billion as of September 30, 2025, from $1.37 billion at December 31, 2024. The following table reflects the composition, of our loan portfolio at September 30, 2025, and December 31, 2024:

Previous wording

The determination of the ACL requires significant judgement to estimate credit losses. The ACL is measured collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that the loan does not share similar risk characteristics with other loans. The ACL on loans collectively evaluated is measured using the loss rate model. The Company categorizes its loan portfolio into four segments based on similar risk characteristics. Loans within each segment are pooled based on individual loan characteristics. Aggregated risk drivers are then calculated at a pool level. Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type. A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. The loss rate is then combined with the loan’s balance and contractual maturity, adjusted for expected prepayments, to determine expected future losses. Future and supportable economic forecasts are based on national economic conditions and their reversion to the mean is implicit in the model and generally occurs over a period of two years.

Current wording

The determination of the ACL requires significant judgment to estimate credit losses. The ACL is measured collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that the loan does not share similar risk characteristics with other loans. The ACL on loans collectively evaluated is measured using the loss rate model. The Company categorizes its loan portfolio into four segments based on similar risk characteristics. Loans within each segment are pooled based on individual loan characteristics. Aggregated risk drivers are then calculated at a pool level. Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type. A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. The loss rate is then combined with the loan’s balance and contractual maturity, adjusted for expected prepayments, to determine expected future losses. Future and supportable economic forecasts are based on national economic conditions and their reversion to the mean is implicit in the model and generally occurs over a period of two years.

Previous 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.

Current wording

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.49 million at September 30, 2025, and $0.33 million at December 31, 2024, classified in other liabilities on the consolidated balance sheets.

Previous wording

Below is a summary of loan modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2025:

Current wording

There were no Loan Modifications made to Borrowers Experiencing Financial Difficulty during the three months ended September 30, 2025.

Previous 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.

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 special mention loans in 2025 was primarily due to an increase in special mention commercial loans in the first quarter of 2025 largely due to a C&I relationship in the first quarter of 2025 that showed weaker cash flow than expected, and in the second quarter of 2025, one new $9 million multi-family loan that is experiencing slower leasing activity than expected. In the third quarter, the $9 million special mention loan moved to substandard and nonaccrual, which was partially offset by the payoff of a $5.2 million substandard loan that was on nonaccrual.

Previous wording

The fair market value of the Company’s MSR asset was $5.1 million at June 30, 2025, compared to $5.4 million at June 30, 2024.

Current wording

The fair market value of the Company’s MSR asset was $4.8 million at September 30, 2025, compared to $5.0 million at September 30, 2024.

Previous 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.

Current wording

The unpaid balances of one-to-four family residential real estate loans serviced for others as of September 30, 2025, and December 31, 2024, were $475.9 million and $479.6 million, respectively. The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at September 30, 2025, and December 31, 2024, was 1.01% and 1.09%, respectively.

Previous 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:

Current wording

Deposits. Total deposits decreased $7.6 million during the nine months ended September 30, 2025, to $1.48 billion. The decrease is largely due to the reduction in brokered deposits. Public deposits are seasonal and the seasonal decrease for the nine months ended September 30, 2025, was largely offset by growth in commercial and consumer deposits. Deposits by type for five quarters are detailed below:

Previous 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.

Current wording

At September 30, 2025, the deposit portfolio composition was 58% consumer, 28% commercial, 12% public, and 2% wholesale deposits compared to 57% consumer, 28% commercial, 13% public and 2% brokered deposits at December 31, 2024.