Quarterly Report (10-q)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

	For the quarterly period ended September 30, 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 number: 001-39182

FFBW, INC.

(Exact name of registrant as specified in its charter)

Maryland		37-1962248
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1360 South Moorland Road		53005
Brookfield, Wisconsin
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (262) 542-4448

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	FFBW	The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

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 filing 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 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, 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.

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 Act). YES ☐ NO ☒

As of October 31, 2022 there were 5,554,311 issued and outstanding shares of the Registrant’s Common Stock.

Table of Contents

FFBW, Inc.

Form 10-Q

Index


		Page
Part I. Financial Information		3

Item 1.	Financial Statements	3

	Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	3

	Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	4

	Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	5

	Statements of Changes in Equity for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	6

	Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	7

	Notes to Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38

Item 4.	Controls and Procedures	38

Part II. Other Information		39

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

	Signature Page	42

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Part I. – Financial Information

Item 1. Financial Statements

FFBW, Inc.

Balance Sheets

September 30, 2022 (Unaudited) and December 31, 2021

(In thousands, except share data)


	September 30,		December 31,
	2022		2021
Assets
Cash and due from banks	$	15,722	$	52,483
Fed funds sold		327		14,519
Cash and cash equivalents		16,049		67,002
Available for sale securities, stated at fair value		47,472		48,398
Loans held for sale		—		500
Loans, net of allowance for loan and lease losses of $2,530 and $2,430, respectively		228,300		222,104
Premises and equipment, net		6,684		5,506
Other equity investments		1,463		1,353
Accrued interest receivable		901		813
Cash value of life insurance		10,238		10,029
Other assets		2,676		1,372
TOTAL ASSETS	$	313,783	$	357,077


Liabilities and Equity

Deposits	$	233,954	$	255,250
Advance payments by borrowers for taxes and insurance		1,313		102
FHLB advances		—		6,500
Accrued interest payable		139		7
Other liabilities		917		1,246
Total liabilities	$	236,323	$	263,105
Preferred stock ($0.01 par value, 50,000,000 authorized, no shares issued or outstanding as of September 30, 2022 and December 31, 2021, respectively)	$	—	$	—
Common stock ($0.01 par value, 100,000,000 authorized, 5,565,823 and 6,734,970 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively)		55		67
Additional paid in capital		44,075		58,273
Unallocated common stock of Employee Stock Ownership Plan ("ESOP") (527,568 and 550,509 shares at September 30, 2022 and December 31, 2021, respectively)		(5,276)		(5,506)
Retained earnings		42,081		40,365
Accumulated other comprehensive income (loss), net of income taxes		(3,475)		773
Total equity	$	77,460	$	93,972
TOTAL LIABILITIES AND EQUITY	$	313,783	$	357,077

See accompanying notes to financial statements.

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FFBW, Inc.

Statements of Income

Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(In thousands, except per share data)


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Interest and dividend income:
Loans, including fees	$	2,734	$	2,392	$	7,932	$	7,862
Securities
Taxable		282		204		737		617
Tax-exempt		48		46		142		140
Other		103		32		207		64

Total interest and dividend income		3,167		2,674		9,018		8,683

Interest expense:
Interest-bearing deposits		247		236		629		733
Borrowed funds		3		10		16		44

Total interest expense		250		246		645		777

Net interest income		2,917		2,428		8,373		7,906
Provision for loan losses		93		—		93		—

Net interest income after provision for loan losses		2,824		2,428		8,280		7,906

Noninterest income:
Service charges and other fees		148		127		439		354
Net gain on sale of loans		—		12		31		232
Increase in cash surrender value of insurance		73		70		209		188
Other noninterest income		27		117		81		167

Total noninterest income		248		326		760		941

Noninterest expense:
Salaries and employee benefits		1,383		1,209		3,942		3,957
Occupancy and equipment		315		269		874		795
Data processing		240		258		626		853
Technology		77		84		200		203
Foreclosed assets		—		(1)		—		—
Professional fees		124		110		404		325
Other noninterest expense		255		247		705		728

Total noninterest expense		2,394		2,176		6,751		6,861

Income before income taxes		678		578		2,289		1,986
Provision for income taxes		168		119		573		405

Net income	$	510	$	459	$	1,716	$	1,581

Earnings per share
Basic	$	0.10	$	0.07	$	0.31	$	0.24
Diluted	$	0.10	$	0.07	$	0.30	$	0.24

See accompanying notes to financial statements.

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FFBW, Inc.

Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2022 and 2021, (Unaudited)

(In thousands)


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income	$	510	$	459	$	1,716	$	1,581
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period		(2,247)		(188)		(5,821)		(704)
Reclassification adjustment for (gains) losses realized in net income		—		—		—		—
Other comprehensive income (loss) before tax effect		(2,247)		(188)		(5,821)		(704)
Tax effect of other comprehensive income (loss) items		608		50		1,573		203
Other comprehensive income (loss), net of tax		(1,639)		(138)		(4,248)		(501)
Comprehensive income (loss)	$	(1,129)	$	321	$	(2,532)	$	1,080

See accompanying notes to financial statements.

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FFBW, Inc.

Statements of Changes in Equity

For the Nine Months Ended September 30, 2022 and 2021, (Unaudited)

(In thousands, except share data)


						Unallocated				Accumulated
	Number			Additional		Common				Other
	of	Common		Paid-In		Stock of		Retained		Comprehensive
	Shares	Stock		Capital		ESOP		Earnings		Income (Loss)		Total
Balance at December 31, 2020	7,695,214	$	77	$	69,090	$	(5,811)	$	38,382	$	1,527	$	103,265
Net income	—		—		—		—		670		—		670
ESOP shares committed to be released (7,647 shares)	—		—		6		76		—		—		82
Stock based compensation expense	—		—		81		—		—		—		81
Repurchase of common stock	(408,753)		(4)		(4,614)		—		—		—		(4,618)
Other comprehensive loss	—		—		—		—		—		(404)		(404)
Balance at March 31, 2021	7,286,461	$	73	$	64,563	$	(5,735)	$	39,052	$	1,123	$	99,076
Net income	—		—		—		—		452		—		452
ESOP shares committed to be released (15,294 shares)	—		—		9		76		—		—		85
Stock based compensation expense	10,712		—		101		—		—		—		101
Repurchase of common stock	(263,140)		(3)		(2,983)		—		—		—		(2,986)
Other comprehensive income	—		—		—		—		—		41		41
Balance at June 30, 2021	7,034,033	$	70	$	61,690	$	(5,659)	$	39,504	$	1,164	$	96,769
Net income	—		—		—		—		459		—		459
ESOP shares committed to be released (22,941 shares)	—		—		13		77		—		—		90
Stock based compensation expense	7,296		—		118		—		—		—		118
Repurchase of common stock	(125,790)		(1)		(1,471)		—		—		—		(1,472)
Other comprehensive income	—		—		—		—		—		(138)		(138)
Balance at September 30, 2021	6,915,539	$	69	$	60,350	$	(5,582)	$	39,963	$	1,026	$	95,826

Balance at December 31, 2021	6,734,970	$	67	$	58,273	$	(5,506)	$	40,365	$	773	$	93,972
Net income	—		—		—		—		567		—		567
ESOP shares committed to be released (7,647 shares)	—		—		15		77		—		—		92
Stock based compensation expense	—		—		108		—		—		—		108
Repurchase of common stock	(480,769)		(5)		(5,878)		—		—		—		(5,883)
Other comprehensive loss	—		—		—		—		—		(1,670)		(1,670)
Balance at March 31, 2022	6,254,201	$	62	$	52,518	$	(5,429)	$	40,932	$	(897)	$	87,186
Net income	—		—		—		—		639		—		639
ESOP shares committed to be released (15,294 shares)	—		—		15		76		—		—		91
Stock based compensation expense	17,500		—		120		—		—		—		120
Repurchase of common stock	(265,769)		(2)		(3,239)		—		—		—		(3,241)
Other comprehensive loss	—		—		—		—		—		(939)		(939)
Balance at June 30, 2022	6,005,932	$	60	$	49,414	$	(5,353)	$	41,571	$	(1,836)	$	83,856
Net income	—		—		—		—		510		—		510
ESOP shares committed to be released (22,941 shares)	—		—		17		77		—		—		94
Stock based compensation expense	—		—		137		—		—		—		137
Repurchase of common stock	(440,109)		(5)		(5,493)		—		—		—		(5,498)
Other comprehensive loss	—		—		—		—		—		(1,639)		(1,639)
Balance at September 30, 2022	5,565,823	$	55	$	44,075	$	(5,276)	$	42,081	$	(3,475)	$	77,460

See accompanying notes to financial statements.

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FFBW, Inc.

Statements of Cash Flows

For the Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(In thousands)


	Nine months ended
	September 30,
	2022		2021
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income	$	1,716	$	1,581
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		93		—
Depreciation		244		220
Net accretion of loan portfolio discount and amortization of deposit premium		24		183
Net amortization on securities available for sale		247		405
Loss on sales and impairments of foreclosed assets		—		2
Increase in cash surrender value of life insurance		(209)		(188)
ESOP compensation		277		257
Stock based compensation		365		300
Changes in operating assets and liabilities:
Accrued interest receivable		(88)		152
Loans held for sale		500		1,708
Other assets		197		246
Accrued interest payable		132		195
Other liabilities		(329)		(424)
Net cash provided by operating activities	$	3,169	$	4,637
Cash flows from investing activities:
Proceeds from sales of available for sale securities	$	—	$	3
Maturities, calls, paydowns on available for sale securities		5,018		15,917
Purchases of available for sale securities		(10,269)		(2,655)
Net change in loans		(6,242)		8,307
Purchases of premises and equipment		(1,422)		(107)
Purchase of life insurance		—		(2,500)
Proceeds from sale of foreclosed assets		—		122
Net cash provided by (used in) investing activities	$	(12,915)	$	19,087
Cash flows from financing activities:
Net change in deposits and advance payments	$	(20,085)	$	24,975
Repayments of FHLB advances		(6,500)		(6,000)
Proceeds from FHLB advances		—		5,000
Repurchase of common stock		(14,622)		(9,076)
Net cash (used in) provided by financing activities	$	(41,207)	$	14,899
Net change in cash and cash equivalents	$	(50,953)	$	38,623
Cash and cash equivalents at beginning		67,002		41,479
Cash and cash equivalents at end	$	16,049	$	80,102

Supplemental Cash Flow Disclosures:
Cash paid for interest	$	513	$	581
Cash paid for income taxes		507		890

See accompanying notes to financial statements

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FFBW, Inc.

Form 10-Q

Notes to Financial Statements (Unaudited – In thousands, except share data)

NOTE 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of FFBW, Inc. and its wholly-owned subsidiary, First Federal Bank of Wisconsin, (collectively the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America.

In the opinion of management, all adjustments necessary for a fair presentation of the financial statements have been included. The results of operations for the three and nine month period ended September 30, 2022 are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the Financial Statements and notes thereto for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (“SEC”) as part of FFBW, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021.

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

NOTE 2 - Summary of Significant Accounting Policies

Organization

FFBW, Inc. (the “Company”), a Maryland corporation, is a publicly traded stock holding company. The Company provides a variety of financial services to individual and corporate customers through its wholly owned subsidiary, First Federal Bank of Wisconsin (the “Bank”). The Bank is a community bank headquartered in Waukesha, Wisconsin, with offices in Waukesha, Brookfield and Milwaukee.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, 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. Actual results could differ from those estimates. 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, fair value of financial instruments, the valuation of other real estate owned and the valuation of deferred income tax assets.

Revenue Recognition

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

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The majority of the Company's revenue-generating transactions are not subject to ASC 606, including all interest and dividend income generated from financial instruments. Certain noninterest income items, including loan servicing income, gain on sales of loans, gain on sales of securities, and other noninterest income have been evaluated and were determined to not fall within the scope of ASC 606. Elements of noninterest income that are within the scope of ASC 606, are as follows:

Service charges and other fees - The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Management reviewed the deposit account agreements and determined that the agreements can be terminated at any time by either the Company or the account holder. Transaction fees, such as balance transfers, wires and overdraft charges are settled the day the performance obligation is satisfied. The Company's monthly service charges and maintenance fees are for services provided to the customer on a monthly basis and are considered a series of services that have the same pattern of transfer each month. The review of service charges assessed on deposit accounts included the amount of variable consideration that is a part of the monthly charges. It was found that the waiver of service charges due to insufficient funds and dormant account fees is immaterial and would not require a change in the accounting treatment for these fees under the new revenue standards.

Interchange fees - Customers use a Bank-issued debit card to purchase goods and services, and the Company earns interchange fees on those transactions, typically a percentage of the sale amount of the transaction. The Company records the amount due when it receives the settlement from the payment network. Payments from the payment network are received and recorded into income on a daily basis. These fees are included in “service charges and other fees” on the Statements of Income. There are no contingent debit card interchange fees recorded by the Company that could be subject to a clawback in future periods.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and balances due from banks, non-maturity deposits in the Federal Home Loan Bank of Chicago (FHLB), and fed funds sold. The Company has not experienced any losses in such accounts.

Available for Sale Securities

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital requirements, and other similar factors. Securities classified as available for sale are carried at fair value. Unrealized gains or losses are reported as increases or decreases in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method.

Declines in fair value of securities that are deemed to be other than temporary, if applicable, are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient enough to allow for any anticipated recovery in fair value.

Loans Acquired in a Transfer

The Company acquires loans (including debt securities) individually and in groups or portfolios. These loans are initially measured at fair value with no allowance for loan losses. The Company’s allowance for loan losses on all acquired loans reflect only those losses incurred subsequent to acquisition.

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Certain acquired loans may have experienced deterioration of credit quality between origination and the Company’s acquisition of the loans. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into pools of loans based on common risk characteristics (for example, credit score, loan type, and date of origination). The Company considers expected prepayments and estimates the amount and timing of undiscounted principal, interest, and other cash flows expected at acquisition for each loan and aggregated pool of loans. The excess of the loan’s or pool’s scheduled contractual principal and interest payments over all cash flows expected at acquisition is calculated as the nonaccretable difference. The excess of cash flows expected to be collected over the fair value of each loan or pool (accretable yield) is accreted into interest income over the remaining life of the loan or pool.

At each reporting date, the Company continues to estimate cash flows expected to be collected for each loan or pool. If expected cash flows have decreased from the acquisition date estimate, the Company recognizes an allowance for loan losses. If expected cash flows have increased from the acquisition date estimate, the Company increases the amount of accretable yield to be recognized as interest income over the remaining life of the loan or pool.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Mortgage loans held for sale are sold with the mortgage servicing rights released by the Company. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loan sold.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for deferred loan fees and costs, charge-offs, and an allowance for loan losses. Interest on loans is accrued and credited to income based on the unpaid principal balance. Loan-origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to make payments as they become due. When loans are placed on nonaccrual status or charged off, all unpaid accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is maintained at the level considered adequate by management to provide for losses that are probable as of the balance sheet date. The allowance for loan losses is established through a provision for loan losses charged to expense as losses are estimated to have occurred. Loan losses are charged against the allowance when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. In determining the adequacy of the allowance balance, the Company makes evaluations of the loan portfolio and related off-balance sheet commitments, considers current economic conditions and historical loss experience, and reviews specific problem loans and other factors.

When establishing the allowance for loan losses, management categorizes loans into risk categories generally based on the nature of the collateral and the basis of repayment. These risk categories and their relevant risk characteristics are as follows:

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Commercial development: These loans are secured by vacant land and/or property that are in the process of improvement. Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the improvements by the builder for the end user. Construction loans include not only construction of new structures, but loans originated to finance additions to or alterations of existing structures. Until a permanent loan originates, or payoff occurs, all commercial construction loans secured by real estate are reported in this loan pool. Development loans also have the risk that improvements will not be completed on time, or in accordance with specifications and projected costs.

Commercial real estate: These loans are primarily secured by office and industrial buildings, warehouses, small retail shopping facilities, and various special purpose properties, including restaurants. These loans are subject to underwriting standards and processes similar to commercial and industrial loans. Loans to closely held businesses are generally guaranteed in full by the owners of the business. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to the general economic factors or conditions specific to the real estate market, such as geographic location and/or purpose type.

Commercial and industrial: Commercial and industrial loans are extended primarily to small and middle market customers. Such credits typically comprise working capital loans, asset acquisition loans, and loans for other business purposes. Loans to closely held businesses are generally guaranteed in full by the owners of the business. Commercial and industrial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for commercial and industrial loans.

One-to-four family owner-occupied: These loans are generally to individuals and are underwritten by evaluating the credit history of the borrower, the ability of the borrower to meet the debt service requirements of the loan and total debt obligations, the underlying collateral, and the loan to collateral value. Underwriting standards for one-to-four family owner-occupied loans are heavily influenced by statutory requirements, which include, but are not limited to, loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements.

One-to-four family investor-owned: These loans may be to individuals or businesses and are subject to underwriting standards and processes similar to commercial and industrial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property(ies). The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to the general economic factors or conditions specific to the real estate market, such as geographic location and/or purpose type.

Multifamily real estate: These loans include loans to finance non-farm properties with five or more units in structures primarily to accommodate households. Such credits are typically originated to finance the acquisition or refinancing of an apartment building. These loans are subject to underwriting standards and processes similar to commercial and industrial loans. Loans to closely held businesses are generally guaranteed in full by the owners of the business. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the subject multifamily property, with assumptions made for vacancy rates. Cash flows of the borrowers rely on the receipt of rental income from the tenants of the property who are themselves subject to fluctuations in national and local economic conditions and unemployment trends.

Consumer: These loans may take the form of installment loans, demand loans, or single payment loans, and are extended to individuals for household, family, and other personal expenditures. These loans generally include direct consumer automobile loans and credit card loans. Also included in this category are junior liens on one-to-four family residential properties. These loans are generally smaller in size and are underwritten by evaluating the credit history of the borrower, the ability of the borrower to meet the debt service requirements of the loan and total debt obligations.

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Management regularly evaluates the allowance for loan losses using the Company’s past loan loss experience, known and inherent risks in the loan portfolio, composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, current economic conditions, and other relevant factors. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change.

A loan is impaired when, based on current information, it is probable that the Company will not collect all amounts due in accordance with the contractual terms of the loan agreement. Management determines whether a loan is impaired on a case-by-case basis, taking into consideration the payment status, collateral value, length and reason of any payment delays, the borrower’s prior payment record, and any other relevant factors. Large groups of smaller-balance homogeneous loans, such as residential mortgage and consumer loans, are collectively evaluated in the allowance for loan losses analysis and are not subject to impairment analysis unless such loans have been subject to a restructuring agreement. Specific allowances for impaired loans are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent.

In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the Company to make additions to the allowance for loan losses based on their judgments of collectability based on information available to them at the time of their examination.

Troubled Debt Restructurings

Loans are accounted for as troubled debt restructurings when a borrower is experiencing financial difficulties that lead to a restructuring of the loan and the Company grants a “concession” to the borrower that they would not otherwise consider. These concessions include a modification of terms, such as a reduction of the stated interest rate or loan balance, a reduction of accrued interest, an extension of the maturity date at an interest rate lower than a current market rate for a new loan with similar risk, or some combination thereof to facilitate repayment. Troubled debt restructurings are considered impaired loans.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, less costs to sell, at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

Premises and Equipment

Depreciable assets are stated at cost less accumulated depreciation. Provisions for depreciation are computed on straight-line and accelerated methods over the estimated useful lives of the assets.

Other Equity Investments

Other Equity Investments consist of Federal Home Loan Bank of Chicago (“FHLB”) stock and Bankers’ Bank stock. The Company's investment in the FHLB stock is carried at cost, which approximates fair value. The Company is required to hold the stock as a member of the FHLB and transfer of the stock is substantially restricted. The stock is evaluated for impairment on an annual basis. The Company is required to adjust its reported value of Bankers’ Bank stock, which is considered an equity security without a readily determinable market value, if a comparable transaction is observed.

Income Taxes

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of assets and liabilities that will result in

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taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision for income taxes. The differences relate principally to the allowances for loan losses, deferred compensation, depreciation, FHLB stock dividends and non-accrual interest. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

The Company’s policy is to recognize interest and penalties related to income tax issues as components of income tax expense. During the periods shown, the Company did not recognize any interest or penalties related to income tax expense in its statements of operations.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Advertising

Advertising costs are expensed as incurred.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) is shown on the statements of comprehensive income (loss). The Company’s accumulated other comprehensive income (loss) is composed of the unrealized gains (losses) on securities available for sale, net of tax and is shown on the statements of changes in equity. Reclassification adjustments out of other comprehensive income (loss) for gains/losses realized on sales of securities available for sale comprise the entire balance of “net gain/loss on sale of securities” on the statements of income.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, unfunded commitments under lines of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

Life Insurance

The Company has purchased life insurance policies on certain key members of the management team. Life insurance is measured at the amount that could be realized under the insurance contract as of the balance sheet date, which is generally the cash surrender value of the policy.

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Recent Accounting Pronouncements

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company is an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies. An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the Company is first required to file a registration statement. The Company has elected to use the extended transition period described above and intends to maintain its emerging growth company status as allowed under the JOBS Act.

The following ASUs have been issued by the FASB and may impact the Company's financial statements in future reporting periods:

ASU No. 2016-13, “Credit Losses (Topic 326).”

ASU No. 2019-04, “Codification Improvements to Topic 326.”

ASU No. 2019-05, “Financial Instruments-Credit Losses.”

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, 2022. Early adoption will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is expecting to see an increase in its allowance for loan losses upon adoption but is still assessing the final impact of adopting ASU 2016-13 on its financial statements.

ASU No. 2016-02, “Leases (Topic 842): Amendments to the Leases Analysis.”

ASU No. 2018-10, "Codification Improvements to Topic 842."

ASU No. 2018-11, "Targeted Improvements"

For lessees, Topic 842 requires leases to be recognized on the balance sheet, along with disclosure of key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, 2018-10 and 2018-11. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification expense recognition in the income statement.

For lessors, Topic 842 requires lessors to classify leases as sales-type, direct financing or operating leases. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating the lessor has transferred substantially all the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating leases.

The new standard is effective for fiscal years beginning after December 15, 2021, and for interim periods beginning after December 15, 2022, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) the new standard's effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company expects to adopt the new standard during the fourth quarter of 2022, with an effective date of January 1, 2022. The Company is expecting to record a right of use asset and corresponding lease obligation for its outstanding leases.

NOTE 3 – 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

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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.

The following table presents the earnings per share calculations for the three and nine months ended September 30:


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income	$	510	$	459	$	1,716	$	1,581
Basic potential common shares
Weighted average shares outstanding		5,728,305		6,912,234		6,153,345		7,182,778
Weighted average unallocated Employee Stock Ownership Plan Shares		(530,179)		(560,767)		(539,101)		(569,689)
Basic weighted average shares outstanding		5,198,126		6,351,467		5,614,244		6,613,089
Dilutive potential common shares		36,120		22,535		25,368		15,713
Dilutive weighted average shares outstanding		5,234,246		6,374,002		5,639,612		6,628,802

Basic earnings per share	$	0.10	$	0.07	$	0.31	$	0.24
Diluted earnings per share	$	0.10	$	0.07	$	0.30	$	0.24

NOTE 4 – Available for Sale Securities

Amortized costs and fair values of available for sale securities are summarized as follows:


			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2022
Obligations of the US government and US government sponsored agencies	$	1,823	$	-	$	(170)	$	1,653
Obligations of states and political subdivisions		14,163		-		(1,847)		12,316
Mortgage-backed securities		25,442		-		(2,076)		23,366
Certificates of deposit		500		3		(12)		491
Corporate debt securities		10,307		-		(661)		9,646
Total available for sale securities	$	52,235	$	3	$	(4,766)	$	47,472

December 31, 2021
Obligations of the US government and US government sponsored agencies	$	1,028	$	19	$	(7)	$	1,040
Obligations of states and political subdivisions		14,289		376		(41)		14,624
Mortgage-backed securities		25,452		658		(54)		26,056
Certificates of deposit		750		22		-		772
Corporate debt securities		5,821		111		(26)		5,906
Total available for sale securities	$	47,340	$	1,186	$	(128)	$	48,398

Fair values of securities are estimated based on financial models or prices paid for similar securities. It is possible interest rates could change considerably, resulting in a material change in estimated fair value.

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The following table presents the portion of the Company’s portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position:


	Less Than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
September 30, 2022
Obligations of the US government and US government sponsored agencies	$	1,207	$	(98)	$	431	$	(72)	$	1,638	$	(170)
Obligations of states and political subdivisions		9,146		(1,166)		2,881		(681)		12,027		(1,847)
Mortgage-backed securities		20,484		(1,741)		2,881		(335)		23,365		(2,076)
Certificates of deposit		238		(12)		—		—		238		(12)
Corporate debt securities		7,752		(531)		1,270		(130)		9,022		(661)
Total	$	38,827	$	(3,548)	$	7,463	$	(1,218)	$	46,290	$	(4,766)
December 31, 2021
Obligations of the US government and US government sponsored agencies	$	497	$	(7)	$	—	$	—	$	497	$	(7)
Obligations of states and political subdivisions		3,129		(10)		937		(31)	$	4,066		(41)
Mortgage-backed securities		4,116		(24)		1,881		(30)		5,997		(54)
Corporate debt securities		2,874		(26)		—		—		2,874		(26)
Total	$	10,616	$	(67)	$	2,818	$	(61)	$	13,434	$	(128)

At September 30, 2022, the investment portfolio included 19 securities available for sale, which had been in an unrealized loss position for greater than twelve months, and 111 securities available for sale, which had been in an unrealized loss position for less than twelve months. At December 31, 2021, the investment portfolio included 5 securities available for sale, which had been in an unrealized loss position for greater than twelve months, and 15 securities available for sale, which had been in an unrealized loss position for less than twelve months. Because these securities have a fixed interest rate, their fair value is sensitive to movements in market interest rates. These unrealized losses are considered temporary because the Company does not currently have the intent to sell the securities before recovery of the losses; therefore we expect to collect all contractually due amounts from these securities. Accordingly, these investments were reduced to their fair values through accumulated other comprehensive income, not through earnings.

We regularly assess our securities portfolio for other than temporary impairment (“OTTI”). These assessments are based on the nature of the securities, the underlying collateral, the financial condition of the issuer, the extent and duration of the loss, our intent related to the individual securities, and the likelihood that we will have to sell securities prior to expected recovery. We did not have any impairment losses recognized in earnings for the three and nine months ended September 30, 2022 or September 30, 2021.

The amortized cost and fair value of available for sale securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities in mortgage-backed securities since the anticipated maturities are not readily determinable. Therefore, these securities are not included in the maturity categories in the following maturity summary listed below:


	September 30, 2022
	Amortized Cost		Fair Value
Due in one year or less	$	292	$	295
Due after one year through 5 years		9,667		9,179
Due after 5 years through 10 years		11,751		10,502
Due after 10 years		5,083		4,130
Subtotal	$	26,793	$	24,106
Mortgage-backed securities		25,442		23,366
Total	$	52,235	$	47,472

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There were no sales of available for sale securities during the nine months ended September 30, 2022 and 2021.

Available for sale securities with a carrying value of $936 and $1,038 were pledged at September 30, 2022 and December 31, 2021, respectively.

NOTE 5 - Loans

Major classifications of loans are as follows:


	September 30,		December 31,
	2022		2021
Commercial
Development	$	15,841	$	21,396
Real estate		99,374		94,830
Commercial and industrial		24,801		18,387
Residential real estate and consumer
One-to-four family owner-occupied		18,754		18,158
One-to-four family investor-owned		27,737		26,234
Multifamily		41,602		42,511
Consumer		3,085		3,312
Subtotal	$	231,194	$	224,828
Deferred loan fees		(364)		(294)
Allowance for loan losses		(2,530)		(2,430)
Net loans	$	228,300	$	222,104

Deposit accounts in an overdraft position and reclassified as loans approximated $9 and $23 at September 30, 2022 and December 31, 2021, respectively.

A summary of the activity in the allowance for loan losses by portfolio segment is as follows:


			Residential real
			estate
Three Months Ended	Commercial		and consumer		Total

Balance at June 30, 2022	$	1,375	$	1,058	$	2,433
Provision for loan losses		204		(111)		93
Loans charged off		—		—		—
Recoveries of loans previously charged off		—		4		4
Balance at September 30, 2022	$	1,579	$	951	$	2,530


Balance at June 30, 2021	$	1,590	$	834	$	2,424
Provision for loan losses		(31)		31		—
Loans charged off		(1)		—		(1)
Recoveries of loans previously charged off		1		2		3
Balance at September 30, 2021	$	1,559	$	867	$	2,426

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			Residential real
			estate
Nine Months Ended	Commercial		and consumer		Total

September 30, 2022
Balance at December 31, 2021	$	1,516	$	914	$	2,430
Provision for loan losses		63		30		93
Loans charged off		—		(3)		(3)
Recoveries of loans previously charged off		—		10		10
Total ending allowance balance	$	1,579	$	951	$	2,530


September 30, 2021
Balance at December 31, 2020	$	1,834	$	977	$	2,811
Provision for loan losses		116		(116)		—
Loans charged off		(393)		—		(393)
Recoveries of loans previously charged off		2		6		8
Total ending allowance balance	$	1,559	$	867	$	2,426

Information about how loans were evaluated for impairment and the related allowance for loan losses follows:


			Residential Real
			Estate and
September 30, 2022	Commercial		Consumer		Total
Loans:
Individually evaluated for impairment	$	—	$	495	$	495
Collectively evaluated for impairment		140,016		90,683		230,699
Total loans	$	140,016	$	91,178	$	231,194

Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment		1,579		951		2,530
Total allowance for loan losses	$	1,579	$	951	$	2,530


			Residential Real
			Estate and
December 31, 2021	Commercial		Consumer		Total
Loans:
Individually evaluated for impairment	$	112	$	817	$	929
Collectively evaluated for impairment		134,501		89,398		223,899
Total loans	$	134,613	$	90,215	$	224,828

Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment		1,516		914		2,430
Total allowance for loan losses	$	1,516	$	914	$	2,430

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Information regarding impaired loans follows:


	Principal		Recorded		Related		Average		Interest
As of September 30, 2022	Balance		Investment		Allowance		Investment		Recognized
Loans with no related allowance for loan losses:
Residential real estate and consumer
One-to-four family owner-occupied		460		451		—		460		3
Consumer		45		44		—		44		—
Total loans with no related allowance for loan losses		505		495		—		504		3

Total impaired loans	$	505	$	495	$	—	$	504	$	3


	Principal		Recorded		Related		Average		Interest
As of December 31, 2021	Balance		Investment		Allowance		Investment		Recognized
Loans with no related allowance for loan losses:
Commercial
Commercial and industrial		116		112		—		77		—
Residential real estate and consumer
One-to-four family owner-occupied		819		770		—		831		7
Consumer		47		47		—		49		—
Total loans with no related allowance for loan losses		982		929		—		957		7

Total impaired loans	$	982	$	929	$	—	$	957	$	7

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

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.

Commercial loans and one-to-four family investor-owned and multifamily loans are generally evaluated using the following internally prepared ratings:

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

“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, and collectability of the contractual loan payments is unlikely.

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Information regarding the credit quality indicators most closely monitored for commercial loans by class follows:


			Special
	Pass		Mention		Substandard		Doubtful		Totals
September 30, 2022
Development	$	15,841	$	—	$	—	$	—	$	15,841
Real estate		96,897		2,321		156		—		99,374
Commercial and industrial		19,763		—		5,038		—		24,801
One-to-four family investor-owned		27,691		—		46		—		27,737
Multifamily		41,602		—		—		—		41,602
Totals	$	201,794	$	2,321	$	5,240	$	—	$	209,355
December 31, 2021
Development	$	21,396	$	—	$	—	$	—	$	21,396
Real estate		93,653		843		334		—		94,830
Commercial and industrial		18,387		—		—		—		18,387
One-to-four family investor-owned		26,234		—		—		—		26,234
Multifamily		42,511		—		—		—		42,511
Totals	$	202,181	$	843	$	334	$	—	$	203,358

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.

Information regarding the credit quality indicators most closely monitored for residential real estate and consumer loans by class follows:


	Performing		Non-performing		Totals
September 30, 2022
One-to-four family owner-occupied	$	18,605	$	149	$	18,754
Consumer		3,085		—		3,085
	$	21,690	$	149	$	21,839
December 31, 2021
One-to-four family owner-occupied	$	17,986	$	172	$	18,158
Consumer		3,312		—		3,312
	$	21,298	$	172	$	21,470

Loan aging information follows:


			Loans Past Due		Loans Past Due				Nonaccrual
	Current Loans		30-89 Days		90+ Days		Total Loans		Loans
September 30, 2022
Commercial
Development	$	15,841	$	—	$	—	$	15,841	$	—
Real estate		99,374		—		—		99,374		—
Commercial and industrial		24,801		—		—		24,801		—
Residential real estate and consumer
One-to-four family owner-occupied		18,754		—		—		18,754		149
One-to-four family investor-owned		27,548		189		—		27,737		—
Multifamily		41,602		—		—		41,602		—
Consumer		3,085		—		—		3,085		—
Total	$	231,005	$	189	$	—	$	231,194	$	149

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			Loans Past Due		Loans Past Due				Nonaccrual
	Current Loans		30-89 Days		90+ Days		Total Loans		Loans
December 31, 2021
Commercial
Development	$	21,396	$	—	$	—	$	21,396	$	—
Real estate		94,830		—		—		94,830		112
Commercial and industrial		18,387		—		—		18,387		—
Residential real estate and consumer
One-to-four family owner-occupied		18,044		114		—		18,158		172
One-to-four family investor-owned		26,234		—		—		26,234		—
Multifamily		42,511		—		—		42,511		—
Consumer		3,312		—		—		3,312		—
Total	$	224,714	$	114	$	—	$	224,828	$	284

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

When, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that the Company would not otherwise consider, the modified loan is classified as a troubled debt restructuring. Loan modifications may consist of forgiveness of interest and/or principal, a reduction of the interest rate, allowing interest-only payments for a period of time, and/or extending amortization terms. During the nine months ended and as of September 30, 2022, there were no new troubled debt restructurings. No troubled debt restructurings defaulted within 12 months of their modification date during the nine months ended September 30, 2022. During the year ended and as of December 31, 2021, there was one commercial real estate loan totaling $116 and one 1-4 family owner-occupied loan totaling $115 that were new troubled debt restructurings. No troubled debt restructurings defaulted within 12 months of their modifications during the year ended December 31, 2021.

During April 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law which provides optional, temporary relief from accounting for certain pandemic-related loan modifications as a TDR. During 2020, the Bank offered payment deferrals to loan customers that were excluded from TDR classification based on the CARES Act. There were no loans remaining on a modified status as of September 30, 2022.

Management regularly monitors impaired loan relationships. In the event facts and circumstances change, an additional provision for loan losses may be necessary.

NOTE 6 - Deposits

The composition of deposits are as follows:


	September 30,		December 31,
	2022		2021

Non interest-bearing checking	$	52,044	$	54,243
Interest-bearing checking		12,401		12,864
Money market		77,858		87,585
Statement savings accounts		34,121		33,968
Health savings accounts		10,519		10,608
Certificates of deposit		47,011		55,982
Total	$	233,954	$	255,250

Certificates of deposit that meet or exceed the FDIC insurance limit of $250 totaled $7,925 and $10,894 at September 30, 2022 and December 31, 2021, respectively.

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The scheduled maturities of certificates of deposit are as follows as of September 30, 2022:


2022	$	11,174
2023		26,335
2024		8,409
2025		532
2026		394
2027		167
Total	$	47,011

The core deposit premium intangible had a net carrying value of $244 at September 30, 2022 and $316 at December 31, 2021.

NOTE 7– FHLB Advances

At September 30, 2022 there were no outstanding FHLB advances. At December 31, 2021, the Company had $6,500 in outstanding fixed rate, fixed term advances with a rates between 0.0% and 1.7%.

The Company has a master contract agreement with the FHLB that provides for a borrowing up to the lesser of a determined multiple of FHLB stock owned or a determined percentage of the book value of the Company’s qualifying one-to-four family, multifamily, commercial real estate and commercial business loans. The Company pledged approximately $160,026 and $154,649 of one-to-four family, multifamily, commercial real estate and commercial business loans to secure FHLB advances at September 30, 2022 and December 31, 2021, respectively. FHLB provides both fixed and floating rate advances. Floating rates are tied to short-term market rates of interest, such as Federal funds, FHLB discount note or prime rates. Fixed rate advances are priced in reference to market rates of interest at the time of the advance, namely the rates that FHLB pays to borrowers at various maturities. Certain FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. FHLB advances are also secured by $851 of FHLB stock owned by the Company at both September 30, 2022 and December 31, 2021.

At September 30, 2022, the Company’s available and unused portion of this borrowing agreement based on the amount of FHLB stock was $18,903.

In addition, the Company has a $7,000 federal funds line of credit through Bankers’ Bank of Wisconsin, which was not drawn on as of September 30, 2022. The Company also has the authority to borrow through the Federal Reserve’s Discount Window.

NOTE 8 – Employee Stock Ownership Plan

The Company maintains a leveraged employee stock ownership plan (“ESOP”) that covers substantially all employees. The Bank makes annual contributions to the ESOP equal to the ESOP’s debt service. The ESOP shares initially were pledged as collateral for this debt. As the debt is repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in the year. Because the debt is intercompany, it is eliminated in consolidation for presentation in these financial statements. The shares pledged as collateral are reported as unearned ESOP shares in the balance sheet.

As shares are committed to be released from collateral and allocated to active participants, the Company reports compensation expense equal to the current market price of the shares and the shares will become outstanding for earnings-per-shares (EPS) computations. During the nine months ended September 30, 2022 and 2021, 22,941 and 22,941 shares were committed to be released, respectively. During the nine months ended September 30, 2022 the average fair value per share of stock was $12.19 resulting in total ESOP compensation expense of $277 for the nine months ended September 30, 2022. During the nine months ended September 30, 2021 the average fair value per share

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of stock was $11.20 resulting in total ESOP compensation expense of $257 for the nine months ended September 30, 2021.

The ESOP shares as of September 30, 2022 and December 31, 2021 were as follows:


	September 30, 2022		December 31, 2021
Shares allocated to active participants		92,889		62,305
Shares committed to be released and allocated to participants		22,941		30,584
Shares distributed		(4,414)		—
Total unallocated shares		527,568		550,509
Total ESOP shares		638,984		643,398
Fair value of unallocated shares (based on $11.90 and $11.80 share price at September 30, 2022 and December 31, 2021, respectively)	$	6,278	$	6,496

NOTE 9 - Share-based Compensation Plans

The Company adopted the FFBW, Inc. 2018 Equity Incentive Plan in 2018. In May 2021, the Company adopted the FFBW, Inc. 2021 Equity Incentive Plan. ASC Topic 718 requires that the grant date fair value of equity awards to employees and directors be recognized as compensation expense over the period during which they are required to provide service in exchange for such awards.

The following table summarizes the impact of the Company’s share-based payment plans in the financial statements for the period shown:


	Nine Months Ended
	September 30,
	2022		2021
Total cost of stock grant plan during the year	$	219	$	173
Total cost of stock option plan during the year		146		127
Total cost of share-based payment plans during the year	$	365	$	300

Amount of related income tax benefit recognized in income	$	90	$	71

Options are granted with an exercise price equal to no less than the market price of the Company’s shares at the date of grant: those option awards generally vest pro-rata over five years of service and have 10-year contractual terms. Restricted shares typically vest pro-rata over a five year period, 20% per year beginning one year from the issuance date. Under the FFBW, Inc. 2021 Equity Incentive Plan, certain restricted shares awarded to Board of Director members vest in one year.

Share amounts related to periods prior to the date of the closing of the Offering on January 16, 2020 have been restated to give retroactive recognition to the 1.1730 exchange ratio applied in the offering.

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The following tables summarize stock options activity for the nine months ended September 30, 2022 and 2021:


	Outstanding
				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
	Stock Option	Exercise		Contractual	Value
	Awards	Price		Term (years)	(in dollars)
Options outstanding as of December 31, 2021	316,875	$	10.73
Granted	27,000		12.16
Exercised	—		—
Expired or cancelled	(400)		11.25
Forfeited	—		—
Options outstanding as of September 30, 2022	343,475	$	10.84	6.93	$	367,450
Options exercisable as of September 30, 2022	152,482	$	10.69	6.61	$	184,271



				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
	Stock Option	Exercise		Contractual	Value
	Awards	Price		Term (years)	(in dollars)
Options outstanding as of December 31, 2020	269,220	$	10.51
Granted	76,000		11.27
Exercised	—		—
Expired or canceled	—		—
Forfeited	(19,057)		10.01
Options outstanding as of September 30, 2021	326,163	$	10.72	8.00	$	207,476
Options exercisable as of September 30, 2021	134,066	$	10.80	7.50	$	63,140

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions. Since the Company does not have sufficient historical fair value estimates of its stock, the Company calculates expected volatility using the historical volatility of the Dow Jones U.S. Financial Services Index. The risk-free interest rate for periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of options is estimated based on the assumption that options will be exercised evenly throughout their life after vesting and represents the period of time that options granted are expected to remain outstanding.

There were no options granted during the three months ended September 30, 2022.

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The following is a summary of changes in restricted shares for the nine months ended September 30, 2022 and 2021:


		Weighted
		Average
	Number of	Grant Date Fair
	Shares	Value
Nonvested stock awards as of December 31, 2021	59,737	$	11.02
Granted	17,500		11.25
Vested	(8,923)		11.22
Forfeited	(200)		11.25
Nonvested stock awards as of September 30, 2022	68,114	$	11.05

Nonvested stock awards as of December 31, 2020	62,060	$	10.73
Granted	22,750		11.35
Vested	(19,561)		10.77
Forfeited	(5,519)		10.08
Nonvested stock awards as of September 30, 2021	59,730	$	11.02

As of September 30, 2022, there was $1.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including share option and non-vested share awards) granted under the Company’s equity incentive plans. At September 30, 2022, the weighted-average period over which the unrecognized compensation expense is expected to be recognized was approximately 3.0 years.

NOTE 10 – Equity and Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by federal 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, the 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 components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1, Tier 1, and Total capital to risk-weighted assets and of Tier 1 capital to average assets. It is management’s opinion, as of September 30, 2022, that the Bank met all applicable capital adequacy requirements.

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

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The Bank’s actual capital amounts and ratios are presented in the following tables:


											To Be Well
											Capitalized
											Under Prompt
					For Capital Adequacy						Corrective
	Actual				Purposes						Action Provisions
	Amount		Ratio		Amount				Ratio		Amount				Ratio
September 30, 2022
Common Equity Tier 1 capital (to risk‑weighted assets)	$	70,487	26.6	%	$	≥	11,942	≥	4.5	%	$	≥	17,249	≥	6.5	%
Tier 1 capital (to risk‑weighted assets)		70,487	26.6			≥	15,922	≥	6.0			≥	21,230	≥	8.0
Total capital (to risk‑weighted assets)		73,017	27.5			≥	21,230	≥	8.0			≥	26,537	≥	10.0
Tier 1 capital (to average assets)		70,487	21.8			≥	12,949	≥	4.0			≥	16,186	≥	5.0

December 31, 2021
Common Equity Tier 1 capital (to risk‑weighted assets)	$	75,554	29.6	%	$	≥	11,467	≥	4.5	%	$	≥	16,564	≥	6.5	%
Tier 1 capital (to risk‑weighted assets)		75,554	29.6			≥	15,290	≥	6.0			≥	20,386	≥	8.0
Total capital (to risk‑weighted assets)		77,984	30.6			≥	20,386	≥	8.0			≥	25,483	≥	10.0
Tier 1 capital (to average assets)		75,554	21.4			≥	14,137	≥	4.0			≥	17,671	≥	5.0

NOTE 11 – Fair Value

Accounting standards describe three levels of inputs that may be used to measure fair value (the fair value hierarchy). The level of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement of that asset or liability.

Following is a brief description of each level of the fair value hierarchy:

Level 1 - Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.

Level 2 - Fair value measurement is based on: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

Level 3 - Fair value measurement is based on valuation models and methodologies that incorporate at least one significant assumption that cannot be corroborated by observable market data. Level 3 measurements reflect the Company’s estimates about assumptions market participants would use in measuring fair value of 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, as well as the classification of the asset or liability within the fair value hierarchy.

Available for sale securities - Available for sale securities 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 measurement of a Level 1 security is based on the quoted price of the security. Level 2 securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage related securities. The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

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Loans - Loans are not measured at fair value on a recurring basis. However, loans considered to be impaired may be measured at fair value on a nonrecurring basis. The fair value measurement of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. Independent appraisals are obtained that utilize one or more valuation methodologies - typically they will incorporate a comparable sales approach and an income approach. 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 recent 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, thus, are not fair value measurements.

Foreclosed assets - Real estate acquired through or in lieu of loan foreclosure are not measured at fair value on a recurring basis. However, foreclosed assets are initially measured at fair value (less estimated costs to sell) when they are acquired and may also be measured at fair value (less estimated costs to sell) if they become subsequently impaired. The fair value measurement for each asset may be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

Other equity investments - Certain equity investments are measured at fair value on a non-recurring basis using observable transactions and are classified as Level 2.

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Assets measured at fair value on a recurring basis are summarized below:


	Recurring Fair Value Measurements Using
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total

As of September 30, 2022
Assets:
Available for sale securities:
Obligations of the US government and US government sponsored agencies	$	—	$	1,653	$	—	$	1,653
Obligations of states and political subdivisions		—		12,316		—		12,316
Mortgage-backed securities		—		23,366		—		23,366
Certificates of deposit		—		491		—		491
Corporate debt securities		—		9,646		—		9,646
Total available for sale securities	$	—	$	47,472	$	—	$	47,472


As of December 31, 2021
Assets:
Available for sale securities:
Obligations of the US government and US government sponsored agencies	$	—	$	1,040	$	—	$	1,040
Obligations of states and political subdivisions		—		14,624		—		14,624
Mortgage-backed securities		—		26,056		—		26,056
Certificates of deposit		—		772		—		772
Corporate debt securities		—		5,906		—		5,906
Total available for sale securities	$	—	$	48,398	$	—	$	48,398

Information regarding the fair value of assets measured at fair value on a nonrecurring basis follows:

Nonrecurring Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Assets

Identical

Observable

Unobservable

Measured at

Instruments

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

As of September 30, 2022

Assets:

Other equity investments

503

—

503

—

As of December 31, 2021

Assets:

Other equity investments

503

—

503

—

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As of September 30, 2022 and December 31, 2021, there were no impaired loans requiring a write down to their estimated fair value.

There were no foreclosed assets as of September 30, 2022 or December 31, 2021.

The carrying value and estimated fair value of financial instruments as of September 30, 2022 and December 31, 2021 follow:


	September 30, 2022
	Carrying			Fair Value
	Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	16,049	$	16,049	$	—	$	—
Available for sale securities		47,472		—		47,472		—
Loans		228,300		—		—		221,743
Accrued interest receivable		901		901		—		—
Cash value of life insurance		10,238		10,238		—		—
Other equity investments		1,463		—		503		960

Financial liabilities:
Deposits		233,954		194,253		—		46,179
Advance payments by borrowers for taxes and insurance		1,313		1,313		—		—
Accrued interest payable		139		139		—		—


	December 31, 2021
	Carrying			Fair Value
	Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	67,002	$	67,002	$	—	$	—
Available for sale securities		48,398		—		48,398		—
Loans held for sale		500		—		500		—
Loans		222,104		—		—		224,612
Accrued interest receivable		813		813		—		—
Cash value of life insurance		10,029		10,029		—		—
Other equity investments		1,353		—		503		850

Financial liabilities:
Deposits		255,250		199,238		—		55,970
Advance payments by borrowers for taxes and insurance		102		102		—		—
FHLB advances		6,500		—		—		6,489
Accrued interest payable		7		7		—		—

Limitations - 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.

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

FORWARD-LOOKING STATEMENTS

This Quarterly 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,” “believe,” “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 asset 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;

●

Economic and/or policy changes related to the COVID-19 pandemic;

●

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;

● 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

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

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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

Cash and cash equivalents. Cash and cash equivalents decreased $51.0 million, or 76.0%, to $16.0 million at September 30, 2022 from $67.0 million at December 31, 2021. The decrease resulted from a decrease in deposits, share repurchase activity and lending activity.

Net Loans. Net loans increased $6.2 million, or 2.8%, to $228.3 million at September 30, 2022 from $222.1 million at December 31, 2021. The increase resulted from a net increase in commercial and industrial, commercial real estate and 1-4 family loans.

Available for sale securities. Available for sale securities decreased $926,000 or 1.9%, to $47.5 million at September 30, 2022 from $48.4 million at December 31, 2021 due to a decrease in the fair market value of the portfolio during the period.

Other equity investments. Other equity investments increased $110,000, or 8.1%, to $1.5 million at September 30, 2022 from $1.4 million at December 31, 2021.

Other assets. Other assets increased $1.3 million, or 95.0%, to $2.7 million at September 30, 2022 from $1.4 million at December 31, 2021. The increase resulted primarily from an increase in deferred tax assets associated with the decrease in the fair market value of the portfolio during the period.

Deposits. Deposits decreased $21.3 million, or 8.3%, to $234.0 million at September 30, 2022 from $255.3 million at December 31, 2021. The decrease resulted primarily from decreases in consumer certificates of deposit, consumer money market accounts, commercial checking and commercial money market accounts.

Borrowings. Borrowings, consisting entirely of FHLB advances, were paid down to zero at September 30, 2022 from $6.5 million at December 31, 2021.

Other liabilities. Other liabilities decreased $329,000, or 26.4%, to $917,000 at September 30, 2022 from $1.2 million at December 31, 2021. The decrease resulted, in part, from a decrease in outstanding accounts payable.

Total Equity. Total equity decreased $16.5 million, or 17.6%, to $77.5 million at September 30, 2022 from $94.0 million at December 31, 2021. The decrease resulted primarily from stock repurchases and a decline in the market value of the investment portfolio offset in part by net income of $1.7 million during the period.

Nonperforming Loans, Potential Problem Loans and Foreclosed Properties. We practice early identification of non-accrual and problem loans in order to minimize the Company’s risk of loss. Non-performing loans are defined as non-accrual loans and restructured loans that were 90 days or more past due at the time of their restructure, or when management determines that such classification is warranted. The accrual of interest income is generally discontinued when contractual payments have become 90 or more days past due or when management has serious doubts about further collectability of principal or interest. Cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income. A troubled debt restructuring (TDR) typically involves the granting of some concession to the borrower involved in the loan modification, such as modifying the payment schedule or making interest changes. TDR loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC 310-10.

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The following table identifies the various components of non-performing assets and other balance sheet information as of the dates indicated below and changes in the allowance for loan losses (ALLL) for the periods then ended:



	At and For the			At and For the
	Nine Months			Twelve Months
	Ended			Ended
	September 30, 2022			December 31, 2021

	(in thousands)
Nonperforming assets:
Nonaccrual loans	$	149		$	284
Accruing loans past due 90 days or more		—			—
Total nonperforming loans ("NPLs")	$	149		$	284
Foreclosed assets		—			—
Total nonperforming assets ("NPAs")	$	149		$	284
Troubled Debt Restructurings ("TDRs")		303			531
Nonaccrual TDRs		149			269
Average outstanding loan balance		224,693			209,175
Loans, end of period		231,194			224,828
ALLL, at beginning of period		2,430			2,811
Loans charged off:
Commercial		—			(393)
Residential real estate and consumer		(3)			—
Total loans charged off	$	(3)		$	(393)
Recoveries of loans previously charged off:
Residential real estate and consumer		10			12
Total recoveries of loans previous charged off		10			12
Net loans charged off ("NCOs'")	$	7		$	(381)
Additions to ALLL via provision for loan losses charged to operations		93			—
ALLL, at end of period	$	2,530		$	2,430
Ratios:
NCOs (annualized) to average loans		0.00	%		0.18	%
ALLL to total loans		1.09	%		1.08	%
NPL to total loans		0.06	%		0.13	%
NPAs to total assets		0.05	%		0.08	%
Total Assets	$	313,783		$	357,077

Total loans past due increased to $189,000 as of September 30, 2022 from $114,000 as of December 31, 2021. We believe our credit and underwriting policies continue to support more effective lending decisions by the Company, which increases the likelihood of maintaining loan quality going forward. Moreover, we believe the favorable trends regarding our nonperforming loans and nonperforming assets reflect our continued adherence to improved underwriting criteria and practices. We believe our current ALLL is adequate to cover probable losses in our current loan portfolio.

There were no foreclosed assets at both September 30, 2022 and December 31, 2021.

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

Interest and Dividend Income. Total interest and dividend income increased $493,000 or 18.4%, to $3.2 million for the three months ended September 30, 2022 compared to $2.7 million for the three months ended September 30, 2021. Average interest-earning assets decreased $28.2 million, or 8.6%, to $298.9 million for the three months ended September 30, 2022 compared to $327.1 million for the three months ended September 30, 2021, and the weighted average yield on interest-earning assets increased 96 basis points when comparing the 2022 and 2021 periods. The increase in average yield was primarily the result of higher yielding additions to our loan and securities portfolios and an increase in the rate paid on our deposits with the Federal Reserve.

Interest Expense. Total interest expense increased $4,000, or 1.6%, to $250,000 for the three months ended September 30, 2022, compared to $246,000 for the three months ended September 30, 2021. Average interest-bearing liabilities decreased $12.9 million, or 6.4%, to $188.3 million for the three months ended September 30, 2022, from $201.2 million for the three months ended September 30, 2021. The rate paid on interest-bearing liabilities increased four basis points to 0.53% for the three months ended September 30, 2022, compared to 0.49% for the three months ended September 30, 2021.

Provision for Loan Losses. The loan loss provision increased $93,000, for the three months ended September 30, 2022, compared to $0 at September 30, 2021. At September 30, 2022, our allowance for loan losses was $2.5 million, or 1.09%, of total loans.

Noninterest Income. Noninterest income decreased $78,000, or 23.9%, to $248,000 for the three months ended September 30, 2022, compared to $326,000 for the three months ended September 30, 2021. The decrease was due primarily to non-recurrence of grant income of $86,000 that was recognized in 2021.

Noninterest Expense. Noninterest expense increased $218,000 to $2.4 million for the three months ended September 30, 2022 compared to $2.2 million for the three months ended September 30, 2021. The increase was primarily due to an increase in salaries and employee benefits expenses of $174,000.

Income Tax Expense. We recorded an income tax expense of $168,000 for the three months ended September 30, 2022 compared to $119,000 for the three months ended September 30, 2021, an increase of $49,000, or 41.2%.

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	For the Three Months Ended September 30,
	2022								2021
	Average								Average
	Outstanding								Outstanding					Yield/
	Balance			Interest		Yield/ Rate			Balance			Interest		Rate

	(in thousands)								(in thousands)
Interest-earning assets:
Loans	$	227,708		$	2,734		4.76	%	$	204,907		$	2,392	4.63	%
Available for sale securities		50,769			330		2.58	%		50,180			250	1.98	%
Interest-bearing deposits		18,926			97		2.03	%		70,748			26	0.15	%
Other equity investments		1,463			6		1.63	%		1,279			6	1.86	%
Total interest-earning assets		298,866			3,167		4.20	%		327,114			2,674	3.24	%
Noninterest-earning assets		27,612								28,894
Allowance for loan losses		(2,467)								(2,425)
Total assets	$	324,011							$	353,583

Interest-bearing liabilities:
Demand accounts	$	12,914		$	11		0.34	%	$	10,785		$	10	0.37	%
Money market accounts		81,580			126		0.61	%		83,293			80	0.38	%
Savings accounts		34,532			8		0.09	%		34,189			9	0.10	%
Health savings accounts		10,570			4		0.15	%		10,845			4	0.15	%
Certificates of deposit		47,992			98		0.81	%		54,996			133	0.96	%
Total interest-bearing deposits		187,588			247		0.52	%		194,108			236	0.48	%
Borrowings		734			3		1.62	%		7,109			10	0.56	%
Total interest-bearing liabilities		188,322			250		0.53	%		201,217			246	0.49	%
Noninterest-bearing deposits		50,789								53,388
Other non-interest bearing liabilities		2,104								2,139
Total liabilities		241,215								256,744
Equity		82,796								96,839
Total liabilities and equity	$	324,011							$	353,583
Net interest income					2,917								2,428
Net interest rate spread⁽¹⁾							3.67	%						2.75	%
Net interest-earning assets⁽²⁾		110,544								125,897
Net interest margin⁽³⁾							3.91	%						2.94	%
Average of interest-earning assets to interest-bearing liabilities		158.70	%							162.57	%

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

(2)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

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

Table of Contents

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

Interest and Dividend Income. Total interest and dividend income increased $335,000, or 3.9%, to $9.0 million for the nine months ended September 30, 2022 compared to $8.7 million for the nine months ended September 30, 2021. Average interest-earning assets decreased $10.1 million, or 3.2%, to $310.3 million for the nine months ended September 30, 2022 compared to $320.4 million for the nine months ended September 30, 2021, and the weighted average yield on interest-earning assets increased 27 basis points when comparing the 2022 and 2021 periods. The increase in average yield was primarily the result of the increased return on investments and interest-bearing deposits.

Interest Expense. Total interest expense decreased $132,000, or 17.0%, to $645,000 for the nine months ended September 30, 2022, compared to $777,000 for the nine months ended September 30, 2021. Average interest-bearing liabilities increased $5.2 million, or 2.7%, to $197.1 million for the nine months ended September 30, 2022, from $191.9 million for the nine months ended September 30, 2021. The rate paid on interest-bearing liabilities decreased 10 basis points to 0.44% for the nine months ended September 30, 2022, compared to 0.54% for the nine months ended September 30, 2021.

Provision for Loan Losses. The loan loss provision was $93,000 for the nine months ended September 30, 2022 compared to $0 for the nine months ended September 30, 2021. At September 30, 2022, our allowance for loan loss was $2.5 million, or 1.09%, of total loans.

Noninterest Income. Noninterest income decreased $181,000, or 19.2%, to $760,000 for the nine months ended September 30, 2022, compared to $941,000 for the nine months ended September 30, 2021. The decrease was due primarily to a decrease in the gain on sale of loans of $201,000.

Noninterest Expense. Noninterest expense decreased $110,000 to $6.8 million for the nine months ended September 30, 2022 compared to $6.9 million for the nine months ended September 30, 2021. The decrease was primarily due to a decrease in data processing expenses of $227,000 offset in part by an increase in occupancy and equipment expenses of $79,000.

Income Tax Expense. We recorded an income tax expense of $573,000 for the nine months ended September 30, 2022 compared to $405,000 for the nine months ended September 30, 2021, an increase of $168,000, or 41.5%.

Table of Contents


	For the Nine Months Ended September 30,
	2022								2021
	Average								Average
	Outstanding								Outstanding					Yield/
	Balance			Interest		Yield/ Rate			Balance			Interest		Rate

	(in thousands)								(in thousands)
Interest-earning assets:
Loans	$	224,693		$	7,932		4.72	%	$	207,200		$	7,862	5.07	%
Available for sale securities		48,613			879		2.42	%		55,089			757	1.84	%
Interest-bearing deposits		35,543			196		0.74	%		56,782			47	0.11	%
Other equity investments		1,408			11		1.04	%		1,279			17	1.78	%
Total interest-earning assets		310,257			9,018		3.89	%		320,350			8,683	3.62	%
Noninterest-earning assets		29,794								27,620
Allowance for loan losses		(2,480)								(2,619)
Total assets	$	337,571							$	345,351

Interest-bearing liabilities:
Demand accounts	$	12,965		$	31		0.32	%	$	10,542		$	25	0.32	%
Money market accounts		83,548			263		0.42	%		75,686			221	0.39	%
Savings accounts		34,053			25		0.10	%		34,137			26	0.10	%
Health savings accounts		10,669			12		0.15	%		10,921			12	0.15	%
Certificates of deposit		51,869			298		0.77	%		53,508			449	1.12	%
Total interest-bearing deposits		193,104			629		0.44	%		184,794			733	0.53	%
Borrowings		3,989			16		0.54	%		7,126			44	0.83	%
Total interest-bearing liabilities		197,093			645		0.44	%		191,920			777	0.54	%
Noninterest-bearing deposits		50,634								51,835
Other non-interest bearing liabilities		1,994								1,739
Total liabilities		249,721								245,494
Equity		87,850								99,857
Total liabilities and equity	$	337,571							$	345,351
Net interest income					8,373								7,906
Net interest rate spread⁽¹⁾							3.45	%						3.08	%
Net interest-earning assets⁽²⁾		113,164								128,430
Net interest margin⁽³⁾							3.61	%						3.30	%
Average of interest-earning assets to interest-bearing liabilities		157.42	%							166.92	%

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

(2)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

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

Table of Contents

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in average rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior period average rate). The total column represents the sum of the prior columns. For purposes of these tables, 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.


	For Three Months Ended September 30,
	2022 vs. 2021
	Increase (Decrease) Due to				Total Increase
	Volume		Rate		(Decrease)

	(In thousands)
Interest-earning assets:
Loans	$	266		76	$	342
Available for sale securities		3		77		80
Interest-bearing deposits		(19)		90		71
Other equity investments		1		(1)		—
Total interest-earning assets	$	251	$	242	$	493

Interest-bearing liabilities:
Demand accounts	$	2	$	(1)	$	1
Money market accounts		(2)		48		46
Savings accounts		—		(1)		(1)
Health savings accounts		—		—		—
Certificates of deposit		(17)		(18)		(35)
Total deposits	$	(17)	$	28	$	11
Borrowings		(9)		2		(7)
Total interest-bearing liabilities		(26)		30		4
Change in net interest income	$	277	$	212	$	489


	For Nine Months Ended September 30,
	2022 vs. 2021
	Increase (Decrease) Due to				Total Increase
	Volume		Rate		(Decrease)

	(In thousands)
Interest-earning assets:
Loans	$	664	$	(594)	$	70
Available for sale securities		(89)		211		122
Interest-bearing deposits		(18)		167		149
Other equity investments		2		(8)		(6)
Total interest-earning assets	$	559	$	(224)	$	335

Interest-bearing liabilities:
Demand accounts	$	6	$	—	$	6
Money market accounts		23		19		42
Savings accounts		—		(1)		(1)
Certificates of deposit		(14)		(137)		(151)
Total deposits	$	15	$	(119)	$	(104)
Borrowings		(19)		(9)		(28)
Total interest-bearing liabilities		(4)		(128)		(132)
Change in net interest income	$	563	$	(96)	$	467

Table of Contents

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-Chicago. At September 30, 2022, we had no outstanding advances from the FHLB-Chicago and we had an additional availability of $18.9 million of FHLB-Chicago advances based on the FHLB stock owned.

Additionally, at September 30, 2022 we had a $7 million federal funds rate line of credit with the Bankers’ Bank of Wisconsin, of which $0 was drawn at September 30, 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.

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 change our mix of deposits to become less reliant on certificates of deposit, we anticipate that we will continue to allow a significant portion of higher-costing certificates of deposit to run off at maturity. We also anticipate continued use of FHLB-Chicago advances as well as continuing to utilize brokered certificates of deposit and online sources, as needed, to fund future loan growth and our operations.

At September 30, 2022, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $70.5 million, or 21.8% of adjusted total assets, which is above the well-capitalized required level of $16.2 million, or 5.0%; and total risk-based capital of $73.0 million, or 27.5% of risk-weighted assets, which is above the well-capitalized required level of $26.5 million, or 10.0%. Management is not aware of any conditions or events since September 30, 2022, that would change our category.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

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

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

Table of Contents

Part II – Other Information

Item 1. Legal Proceedings

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at September 30, 2022, 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

The presentation of Risk Factors is not required for smaller reporting companies like FFBW, Inc.

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

(a)

There were no sales of unregistered securities during the period covered by this Report.

(b)

Not applicable.

(c)

On January 27, 2021 the Company’s Board of Directors authorized the repurchase of up to 769,271 shares of the Company’s common stock, representing approximately 10% of the Company’s then outstanding shares. The Company completed this program in August 2021. On September 3, 2021 the Company adopted a new program to repurchase up to an additional 690,000 shares of the Company’s common stock, representing approximately 10% of the Company’s then outstanding shares. The Company completed this second program in March 2022. On May 11, 2022, the Company adopted a new program to repurchase up to an additional 625,000 shares, representing approximately 10% of the Company’s then outstanding shares. The Company completed this program in August 2022. On September 14, 2022 the Company adopted an additional program to repurchase up to 400,000 shares of the Company’s common stock, representing approximately 7% of the Company’s then outstanding shares.

Repurchases will be made from time to time in the open market, through block trades, in privately negotiated stock purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. Such repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interest of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital and the Company’s financial performance. Open market purchases will be conducted in accordance with the limitations set forth in Rule 10b-18 of the Securities and Exchange Commission and other applicable legal requirements.

The table below sets forth the Company’s common stock repurchases during the three months ended September 30, 2022.


					(d)
				(c)	Maximum number
				Total number of	of
				shares	shares that may yet
	(a)	(b)		purchased as part	be
	Total number of	Average		of publicly	purchased under
	shares	price paid		announced plans or	the plans
Period	purchased	per share		programs	or programs
July 1 - July 31, 2022	72,176	$	12.16	72,176	287,055
August 1 - August 31, 2022	287,055		12.53	287,055	—
September 1- September 30, 2022	80,878		12.29	80,878	319,122
Total	440,109			440,109

Table of Contents

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits

3.1	Amended and Restated Articles of Incorporation of FFBW⁽¹⁾
3.2	Bylaws of FFBW⁽²⁾
4	Form of Common Stock Certificate⁽²⁾
31.1	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	(101.INS)	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
	(101.SCH)	Inline XBRL Taxonomy Extension Schema Document
	(101.CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase Document
	(101.DEF)	Inline XBRL Taxonomy Extension Definition Linkbase Document
	(101.LAB)	Inline XBRL Taxonomy Extension Label Linkbase Document
	(101.PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

(1)

Incorporated by reference to pre-effective amendment No. 1 to the Registration Statement on Form S-1 (file no. 333-233740), filed on November 1, 2019.

(2)

Incorporated by reference to the Registration Statement on Form S-1 (file no. 333-233740), filed on September 13, 2019.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		FFBW, Inc.

Date: November 3, 2022	By:	/s/ Edward H. Schaefer
		Edward H. Schaefer
		President and Chief Executive Officer




Date: November 3, 2022	By:	/s/ Steven L. Wierschem
		Steven L. Wierschem
		Chief Financial Officer

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