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What changed in Citizens Community Bancorp Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Citizens Community Bancorp Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+297 added−298 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-07)

Top changes in Citizens Community Bancorp Inc.'s 2023 10-K

297 paragraphs added · 298 removed · 190 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

25 edited+14 added−5 removed80 unchanged
Biggest changeThe FDIC’s implementing rules redefined the base for FDIC insurance assessments from the amount of insured deposits to average consolidated total assets less average tangible equity. Federal Home Loan Bank (“FHLB”) System . The Bank is a member of the FHLB of Chicago, which is one of the 11 regional Federal Home Loan Banks.
Biggest changeIn addition to deposit insurance assessments, the FDIC is authorized to collect assessments from FDIC insured depository institutions to service the outstanding obligations of Financing Corporation (FICO). The FDIC currently defines the base for FDIC insurance assessments based on average consolidated total assets less average tangible equity. Federal Home Loan Bank (“FHLB”) System .
Some of our competitors 7 are not subject to the same degree of regulation as that imposed on national banks or federally insured institutions, and these other institutions may be able to price loans and deposits more aggressively. We also face direct competition from other banks and their holding companies that have greater assets and resources than ours.
Some of our competitors are not subject to the same degree of regulation as that imposed on national banks or federally insured institutions, and these 7 other institutions may be able to price loans and deposits more aggressively. We also face direct competition from other banks and their holding companies that have greater assets and resources than ours.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. See “Bank Regulation - Prompt Corrective Action” below.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement 9 remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. See “Bank Regulation - Prompt Corrective Action” below.
Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories: well capitalized, adequately capitalized, undercapitalized, 10 significantly undercapitalized, and critically undercapitalized, in which all institutions are placed.
Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, in which all institutions are placed.
In connection with the acquisition, the Company merged United Bank with and into the Bank, with the Bank surviving the merger. On December 3, 2018, the Bank entered into a Purchase and Assumption Agreement with Lake Michigan Credit Union providing for the sale of the Bank’s one branch located in Rochester Hills, MI.
In connection with this acquisition, the Company merged United Bank with and into the Bank, with the Bank surviving the merger. On December 3, 2018, the Bank entered into a Purchase and Assumption Agreement with Lake Michigan Credit Union providing for the sale of the Bank’s one branch located in Rochester Hills, MI.
An institution subject to the Patriot Act must provide AML training to employees, designate an AML compliance officer and annually audit the AML program to assess its effectiveness. The FDIC continues to issue regulations and additional guidance with respect to the application and requirements of BSA and AML.
An institution subject to the Patriot Act must provide AML training to employees, designate an AML compliance 10 officer and annually audit the AML program to assess its effectiveness. The FDIC continues to issue regulations and additional guidance with respect to the application and requirements of BSA and AML.
The Change in Bank Control 9 Act (“CBCA”) prohibits a person or group of persons from acquiring “control” of a bank holding company unless the Federal Reserve has been notified and has not objected to the transaction.
The Change in Bank Control Act (“CBCA”) prohibits a person or group of persons from acquiring “control” of a bank holding company unless the Federal Reserve has been notified and has not objected to the transaction.
See Item 7; “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, under the heading “Balance Sheet Analysis” for further analysis of our loan portfolio. Investment Activities We maintain a portfolio of investments, consisting primarily of mortgage-backed securities, corporate asset-backed securities, U.S. Government sponsored agency securities, corporate debt securities and trust preferred securities.
See Item 7; “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, under the heading “Balance Sheet Analysis” for further analysis of our loan portfolio. Investment Activities We maintain a portfolio of investments, consisting primarily of mortgage-backed securities, asset-backed securities, U.S. Government sponsored agency securities and corporate debt securities.
On January 21, 2019, the Company and F&M Merger Sub, Inc., a newly formed Minnesota corporation and wholly-owned subsidiary of the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with F. & M. Bancorp. of Tomah, Inc., a Wisconsin corporation (“F&M”).
On January 21, 2019, the Company and F&M Merger Sub, Inc., a newly formed Minnesota corporation and wholly-owned subsidiary of the Company, entered into an Agreement and Plan of Merger with F. & M. Bancorp. of Tomah, Inc., a Wisconsin corporation (“F&M”).
WIA provided insurance products to the Bank’s customers and was sold on June 30, 2020. On October 19, 2018, the Company completed its previously announced acquisition (the “Acquisition”) of United Bank for a total cash consideration of approximately $51.1 million, subject to certain post-closing purchase price adjustments and future indemnity claims.
WIA provided insurance products to the Bank’s customers and was sold on June 30, 2020. On October 19, 2018, the Company completed its acquisition of United Bank for a total cash consideration of approximately $51.1 million, subject to certain post-closing purchase price adjustments and future indemnity claims.
These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence. Bank Regulation Anti-Money Laundering and OFAC Regulation .
These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily being deemed to have a controlling influence. Bank Regulation Anti-Money Laundering and OFAC Regulation .
We believe our human capital efforts, which include employee training, employee health and benefits packages, and engaging employees in volunteer activities in the communities that we serve, all contribute to our success in attracting, retaining and motivating strong employee talent. At March 7, 2023, we had 210 full-time employees and 236 total employees, company-wide.
We believe our human capital efforts, which include employee training, employee health and benefits packages, and engaging employees in volunteer activities in the communities that we serve, all contribute to our success in attracting, retaining and motivating strong employee talent. At March 5, 2024, we had 214 full-time employees and 232 total employees, company-wide.
Our primary activities consist of holding the stock of our wholly-owned subsidiary bank, Citizens Community Federal N.A. (the “Bank”), and providing commercial, agricultural and consumer banking activities through the Bank. At December 31, 2022, we had approximately $1.816 billion in total assets, $1.425 billion in deposits, and $167.1 million in equity.
Our primary activities consist of holding the stock of our wholly-owned subsidiary bank, Citizens Community Federal N.A. (the “Bank”), and providing commercial, agricultural and consumer banking activities through the Bank. At December 31, 2023, we had approximately $1.851 billion in total assets, $1.519 billion in deposits, and $173.3 million in equity.
Deposits are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) up to statutory limits. At December 31, 2022, our total deposits were $1.425 billion including interest bearing deposits of $1.140 billion and non-interest bearing deposits of $0.285 billion. Borrowings.
Deposits are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) up to statutory limits. At December 31, 2023, our total deposits were $1.519 billion including interest bearing deposits of $1.253 billion and non-interest bearing deposits of $0.266 billion. Borrowings.
The Bank receives dividends on its FHLB stock. Community Reinvestment Act. The Community Reinvestment Act (“CRA”) is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities.
The Community Reinvestment Act (“CRA”) is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities.
Our total gross outstanding loans, before net deferred loan costs and unamortized discounts on acquired loans, as of December 31, 2022, were $1.416 billion, consisting of $1.125 billion in commercial/agricultural real estate loans, $164.8 million in C&I/agricultural operating loans, $108.7 million in residential mortgage loans and $17.4 million in consumer installment loans.
Our total gross outstanding loans, before net deferred loan costs and unamortized discounts on acquired loans, as of December 31, 2023, were $1.465 billion, consisting of $1.173 billion in commercial/agricultural real estate loans, $147.4 million in C&I/agricultural operating loans, $131.9 million in residential mortgage loans and $12.7 million in consumer installment loans.
To arrive at an assessment rate for a banking institution, the FDIC places it in one of four risk categories determined by reference to its capital levels and supervisory ratings.
Under this system, the assessment rates for an insured depository institution vary according to the level of risk incurred in its activities. To arrive at an assessment rate for a banking institution, the FDIC places it in one of four risk categories determined by reference to its capital levels and supervisory ratings.
The deposits of the Bank are insured by the Deposit Insurance Fund (DIF) of the FDIC up to the limits set forth under applicable law and are subject to the deposit insurance premium assessments of the DIF. Under the Dodd-Frank Act, the maximum per depositor FDIC insurance amount increased from $100,000 to $250,000.
The deposits of the Bank are insured by the Deposit Insurance Fund (DIF) of the FDIC up to the limits set forth under applicable law and are subject to the deposit insurance premium assessments of the DIF. The current maximum per depositor FDIC insurance amount is $250,000. The FDIC applies a risk-based system for setting deposit insurance assessments.
This system bases CRA ratings on an institution’s actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements.
This system bases CRA ratings on an institution’s actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements. The ratings range from “outstanding” to a low of “substantial noncompliance.” The Bank had a CRA rating of “Satisfactory” as of its most recent regulatory examination.
FHLBs make loans or advances to members in accordance with policies and procedures established by the board of directors of the FHLB. These policies and procedures are subject to the regulation and oversight of the Federal Housing Financing Board. All advances from a FHLB are required to be fully secured by sufficient collateral as determined by the FHLB.
These policies and procedures are subject to the regulation and oversight of the Federal Housing Financing Board. All advances from a FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. Long-term advances are required to be used for residential home financing and small business and agricultural loans.
Long-term advances are required to be used for residential home financing and small business and agricultural loans. As a member, the Bank is required to purchase and maintain stock in the FHLB of Chicago based on activity and membership requirements. As of December 31, 2022, the Bank had $7.7 million in FHLB stock, which was in compliance with this requirement.
As a member, the Bank is required to purchase and maintain stock in the FHLB of Chicago based on activity and membership requirements. As of December 31, 2023, the Bank had $7.3 million in FHLB stock, which was in compliance with this requirement. The Bank receives dividends on its FHLB stock. Community Reinvestment Act.
The ratings range from “outstanding” to a low of “substantial noncompliance.” 11 The Bank had a CRA rating of “Satisfactory” as of its most recent regulatory examination. Consumer Compliance and Fair Lending Laws. The Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population.
Consumer Compliance and Fair Lending Laws. The Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population.
Many of these changes could result in meaningful regulatory changes for community banks such as the Bank, and their holding companies. Capital Adequacy Banks and bank holding companies, as regulated institutions, are required to maintain minimum levels of capital.
The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision. Capital Adequacy Banks and bank holding companies, as regulated institutions, are required to maintain minimum levels of capital.
The primary purpose of the FHLBs is to provide funding to their saving association members in support of the home financing credit function of the members. Each FHLB serves as a reserve or central bank for its members within its assigned region. FHLBs are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System.
Each FHLB serves as a reserve or central bank for its members within its assigned region. FHLBs are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. FHLBs make loans or advances to members in accordance with policies and procedures established by the board of directors of the FHLB.
Section 404(b) requires that an independent registered public accounting firm provide an attestation report on the Company’s internal control over financial reporting and the operating effectiveness of these controls, making the public reporting process more costly. 8 The Dodd-Frank Act In July 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
Section 404(b) requires that an independent registered public accounting firm provide an attestation report on the Company’s internal control over financial reporting and the operating effectiveness of these controls, making the public reporting process more costly. 8 Federal Banking Regulation Federal banking institutions, like the Bank, their holding companies and their affiliates are extensively regulated under federal law.
Removed
The Dodd-Frank Act has significantly changed the bank regulatory structure and affected the lending, investment, trading and operating activities of financial institutions and their holding companies. Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing regulations, some of which have not yet been issued in final form.
Added
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of applicable statutes and by the regulations and policies of various bank regulatory agencies, including our primary regulator, the Federal Reserve, and the Bank’s primary regulator, the OCC, as well as the FDIC, as the insurer of our deposits, and the Consumer Financial Protection Bureau (“CFPB”), as the regulator of consumer financial services and their providers.
Removed
The Dodd-Frank Act and implementing regulations have increased the regulatory burden, compliance cost and interest expense for the Company and the Bank. In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act.
Added
Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the Securities and Exchange Commission (“SEC”) and state securities authorities, and anti-money laundering laws enforced by the U.S. Department of the Treasury (“Treasury”) have an impact on our business.
Removed
While the Regulatory Relief Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion.
Added
The effect of these statutes, regulations, regulatory policies and accounting rules are significant to our operations and results.
Removed
The FDIC applies a risk-based system for setting deposit insurance assessments, which was amended by the Dodd-Frank Act. Under this system, the assessment rates for an insured depository institution vary according to the level of risk incurred in its activities.
Added
Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of federal banking institutions, their holding companies and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than stockholders.
Removed
In addition to deposit insurance assessments, the FDIC is authorized to collect assessments from FDIC insured depository institutions to service the outstanding obligations of Financing Corporation (FICO). The Dodd-Frank Act changed the assessment formula for determining deposit insurance premiums and modified certain insurance coverage provisions of the FDIA.
Added
These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of our business, the kinds and amounts of investments we may make, required capital levels relative to assets, the nature and amount of collateral for loans, the establishment of branches, our ability to merge, consolidate and acquire, dealings with the Company’s and the Bank’s insiders and affiliates and our payment of dividends.
Added
In reaction to the global financial crisis and particularly following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), we experienced heightened regulatory requirements and scrutiny.
Added
Although the reforms primarily targeted systemically significant financial service providers, their influence filtered down in varying degrees to community banks over time and caused our compliance and risk management processes, and the costs thereof, to increase.
Added
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (“Regulatory Relief Act”) eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving us of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds.
Added
In 2022, the Company adopted a clawback policy that is consistent with Section 10D and Rule 10D-1 of the Securities Exchange Act of 1934, as amended, and the listing standards adopted by the Nasdaq Stock Market, each of which were mandated by the Dodd-Frank Act.
Added
The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business.
Added
These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors.
Added
The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations.
Added
The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and the Bank. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described.
Added
The Bank is a member of the FHLB of Chicago, which is one of the 11 regional Federal Home Loan Banks. The primary purpose of the FHLBs is to provide funding to their saving association 11 members in support of the home financing credit function of the members.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

47 edited+14 added−20 removed87 unchanged
Biggest changeDetermining the appropriate level of the allowance for loan losses involves a high degree of subjectivity and requires us to make estimates of significant credit risks, which may undergo material changes. In evaluating our impaired loans, we assess repayment expectations and determine collateral values based on all information that is available to us.
Biggest changeIn evaluating our impaired loans, we assess repayment expectations and determine collateral values based on all information that is available to us. However, we must often make subjective decisions based on our assumption about the creditworthiness of the borrowers and the values of collateral securing these loans.
Changes in these standards are continuously occurring, and given recent economic conditions, more drastic changes may occur. The implementation of such changes could have a material adverse effect on our financial condition and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 19
Changes in these standards are continuously occurring, and given recent economic conditions, more drastic changes may occur. The implementation of such changes could have a material adverse effect on our financial condition and results of operations. 19 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Acquiring other banks or financial service companies, as well as other geographic and product expansion activities, involve various risks including: • risks of unknown or contingent liabilities; • unanticipated costs and delays; • risks that acquired new businesses do not perform consistent with our growth and profitability expectations; • risks of entering new markets or product areas where we have limited experience; • risks that growth will strain our infrastructure, staff, internal controls and management, which may require additional personnel, time and expenditures; • exposure to potential asset quality issues with acquired institutions; • difficulties, expenses and delays of integrating the operations and personnel of acquired institutions, and start-up delays and costs of other expansion activities; • potential disruptions to our business; • possible loss of key employees and customers of acquired institutions; • potential short-term decreases in profitability; and • diversion of our management’s time and attention from our existing operations and business.
Acquiring other banks or financial service companies, as well as other geographic and product expansion activities, involve various risks including: • risks of unknown or contingent liabilities; • unanticipated costs and delays; • risks that acquired new businesses do not perform consistent with our growth and profitability expectations; • risks of entering new markets or product areas where we have limited experience; • risks that growth will strain our infrastructure, staff, internal controls and management, which may require additional personnel, time and expenditures; • exposure to potential asset quality issues with acquired institutions; • difficulties, expenses and delays of integrating the operations and personnel of acquired institutions, and start-up delays and costs of other expansion activities; • potential disruptions to our business; • possible loss of key employees and customers of acquired institutions; 17 • potential short-term decreases in profitability; and • diversion of our management’s time and attention from our existing operations and business.
Our growth strategy includes acquisitions of other banks that serve customers or markets we find desirable, including our recent acquisitions of Community Bank of Northern Wisconsin (“CBN”), WFC, United Bank and F&M. The market for acquisitions remains highly competitive, and we may be unable to find satisfactory acquisition candidates in the future that fit our acquisition and growth strategy.
Our growth strategy includes acquisitions of other banks that serve customers or markets we find desirable, including our acquisitions of Community Bank of Northern Wisconsin (“CBN”), WFC, United Bank and F&M. The market for acquisitions remains highly competitive, and we may be unable to find satisfactory acquisition candidates in the future that fit our acquisition and growth strategy.
We intend to continue to evaluate potential acquisitions and expansion opportunities in the normal course of our business. Although the integration of F&M, United Bank, WFC and CBN have been successfully completed, we cannot assure you that we will be able to adequately or profitably manage the ongoing integration of any such future acquisitions.
We intend to continue to evaluate potential acquisitions and expansion opportunities in the normal course of our business. Although the integration of F&M, United Bank, WFC and CBN have been successfully completed, we cannot assure you that we will be able to adequately or profitably manage the ongoing integration of any future acquisitions.
See also “ The COVID-19 pandemic may continue to impact economic conditions and affect our financial condition, our results of operations and other aspects of our business. ” Changes in the fair value or ratings downgrades of our securities may reduce our stockholders’ equity, net earnings, or regulatory capital ratios.
See also “ The COVID-19 pandemic may continue to impact economic conditions and affect our financial condition, our results of operations and other aspects of our business. ” 14 Changes in the fair value or ratings downgrades of our securities may reduce our stockholders’ equity, net earnings, or regulatory capital ratios.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate 16 and remediate any information security vulnerabilities. Furthermore, the storage and transmission of such data is regulated at the federal and state level.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Furthermore, the storage and transmission of such data is regulated at the federal and state level.
Failure to comply with applicable laws, regulations or policies could result in sanction by regulatory agencies, civil monetary penalties, and/or damage to our reputation, which could have a material adverse 18 effect on our business, consolidated financial condition and results of operations.
Failure to comply with applicable laws, regulations or policies could result in sanction by regulatory agencies, civil monetary penalties, and/or damage to our reputation, which could have a material adverse effect on our business, consolidated financial condition and results of operations.
For example, customers can now pay bills and transfer funds directly without going through a bank. The process of eliminating banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits.
For example, customers can now pay bills and transfer funds directly without 15 going through a bank. The process of eliminating banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits.
An increase in interest rates or weakening economic conditions (such as high levels of unemployment) could further adversely impact the ability of borrowers to repay outstanding 13 loans, or could substantially weaken the value of collateral securing those loans.
An increase in interest rates or weakening economic conditions (such as high levels of unemployment) could further adversely impact the ability of borrowers to repay outstanding loans, or could substantially weaken the value of collateral securing those loans.
In addition, bank regulatory agencies periodically examine our allowance for loan losses and may require an increase in the allowance or the recognition of further loan charge-offs, based on judgments different from those of our management.
In addition, bank regulatory agencies periodically examine our allowance for credit losses and may require an increase in the allowance or the recognition of further loan charge-offs, based on judgments different from those of our management.
Consequently, shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other non-bank companies. Investors should be aware of these requirements when acquiring shares of our stock. Our reporting obligations as a public company are costly.
Consequently, stockholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other non-bank companies. Investors should be aware of these requirements when acquiring shares of our stock. Our reporting obligations as a public company are costly.
Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business.
Unauthorized disclosure of sensitive or confidential 13 client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business.
If charge-offs in future periods exceed our allowance for loan losses, we will need to take additional loan loss provisions to increase our allowance for loan losses. Any additional loan loss provision will reduce our net income or increase our net loss, which could have a direct material adverse effect on our financial condition and results of operations.
If charge-offs in future periods exceed our allowance for credit losses, we will need to take additional credit loss provisions to increase our allowance for credit losses. Any additional provision for credit losses will reduce our net income or increase our net loss, which could have a direct material adverse effect on our financial condition and results of operations.
These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.
These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily being deemed to have a controlling influence.
In addition, in the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.
In addition, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.
Once effective, this will change the current method of providing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and to greatly increase the types of data we will need to collect and review to determine the appropriate level of the allowance for loan losses.
This changed the current method of providing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and to greatly increase the types of data we will need to collect and review to determine the appropriate level of the allowance for loan losses.
If we cannot raise additional capital when needed or if we are subject to material unfavorable terms for such capital, we may be subject to increased regulatory supervision and the imposition of restrictions on our growth and business.
Accordingly, we cannot be assured of our ability to raise capital when needed or on favorable terms. If we cannot raise additional capital when needed or if we are subject to material unfavorable terms for such capital, we may be subject to increased regulatory supervision and the imposition of restrictions on our growth and business.
Banking regulators expect the new accounting standard will increase the allowance for loan losses. Any change in the allowance for loan losses at the time of adoption will be an adjustment to retained earnings and would change the Bank’s capital levels.
Banking regulators expect the new accounting standard will increase the allowance for loan losses. Any change in the allowance for loan losses will be an adjustment to retained earnings and would change the Bank’s capital levels.
Although the Bank manages lending risks through its underwriting and credit administration policies, no assurance can be given that such risks will not materialize, in which event, our financial condition, results of operations, cash flows and business prospects could be materially adversely affected. RISKS RELATED TO OUR BUSINESS AND OPERATIONS We are subject to interest rate risk.
Although the Bank manages lending risks through its underwriting and credit administration policies, no assurance can be given that such risks will not materialize, in which event, our financial condition, results of operations, cash flows and business prospects could be materially adversely affected.
Regulation includes, among other things, capital and reserve requirements, the level of deposit insurance premiums assessed, permissible investments and lines of business, mergers and acquisitions, restrictions on transactions with insiders and affiliates, anti-money laundering regulations, dividend limitations, community reinvestment requirements, limitations on products and services offered, loan limits, geographical limits, and consumer credit regulations.
Our compliance with these regulations, including compliance with regulatory commitments, is costly. 18 Regulation includes, among other things, capital and reserve requirements, the level of deposit insurance premiums assessed, permissible investments and lines of business, mergers and acquisitions, restrictions on transactions with insiders and affiliates, anti-money laundering regulations, dividend limitations, community reinvestment requirements, limitations on products and services offered, loan limits, geographical limits, and consumer credit regulations.
On January 31, 2020, the Federal Reserve Board approved the issuance of a final rule (which became effective October 1, 2020) that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another.
On October 1, 2020, a Federal Reserve Board final rule became effective that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another.
As a bank holding company, the Company is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations.
The Company is a legal entity separate and distinct from the Bank. As a bank holding company, the Company is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations.
At December 31, 2022, $166.0 million of our securities, were classified as available for sale (AFS) and $96.4 million were classified as held to maturity (HTM). The estimated fair value of our AFS securities portfolio may increase or decrease depending on market conditions. Our AFS securities portfolio is comprised of fixed-rate, and to a lesser extent, floating rate securities.
At December 31, 2023, $155.7 million of our securities, were classified as available for sale (AFS) and $91.2 million were classified as held to maturity (HTM). The estimated fair value of our AFS securities portfolio may increase or decrease depending on market conditions. Our AFS securities portfolio is comprised of fixed-rate, and to a lesser extent, floating rate securities.
Insured depository institutions and their holding companies are subject to comprehensive regulation and supervision by financial regulatory authorities covering all aspects of their organization, management and operations. We are also subject to regulation by the SEC. Our compliance with these regulations, including compliance with regulatory commitments, is costly.
Insured depository institutions and their holding companies are subject to comprehensive regulation and supervision by financial regulatory authorities covering all aspects of their organization, management and operations. We are also subject to regulation by the SEC.
If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In such cases, the trading price of our common stock could decline. RISKS RELATED TO ECONOMIC CONDITIONS Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
If any of the events or circumstances described in the 12 following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In such cases, the trading price of our common stock could decline.
Economic conditions have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans, the value of the collateral securing loans and the stability of our deposit funding sources.
In addition, our business is susceptible to broader economic trends within the United States economy. Economic conditions have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans, the value of the collateral securing loans and the stability of our deposit funding sources.
Inflation may have an adverse impact on our business and on our customers. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.
Inflation may have an adverse impact on our business and on our customers. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. The annual inflation rate as of December 2023 was 3.4% measured by consumer price index.
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. 12 Acts or threats of terrorism and political or military actions by the United States or other governments could adversely affect general economic industry conditions.
Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Geopolitical tensions, including current or anticipated impact of military conflicts , could adversely affect general economic industry conditions.
The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard referred to as Current Expected Credit Loss, or CECL, which will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses.
The Financial Accounting Standards Board (“FASB”) adopted a new accounting standard referred to as Current Expected Credit Loss, or CECL, which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. CECL became effective in January 2023 for smaller reporting companies such as the Company.
We operate primarily in the Wisconsin and Minnesota markets. As a result, our financial condition, results of operations and cash flows are significantly impacted by changes in the economic conditions in those areas. In addition, our business is susceptible to broader economic trends within the United States economy.
RISKS RELATED TO ECONOMIC CONDITIONS Our business may be adversely affected by conditions in the financial markets and economic conditions generally. We operate primarily in the Wisconsin and Minnesota markets. As a result, our financial condition, results of operations and cash flows are significantly impacted by changes in the economic conditions in those areas.
We believe there are 9,941,590 shares of our common stock held by nonaffiliates as of March 7, 2023.
We believe there are 9,047,304 shares of our common stock held by nonaffiliates as of March 5, 2024.
If we become unable to obtain funds when needed, it could have a material adverse effect on our business and, in turn, our consolidated financial condition and results of operations.
If we become unable to obtain funds when needed, it could have a material adverse effect on our business and, in turn, our consolidated financial condition and results of operations. Moreover, it could limit our ability to take advantage of what we believe to be good market opportunities for expanding our loan portfolio.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology driven by new or modified products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology driven by new or modified products and services.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. To the extent our future operating results erode capital or we elect to expand through loan growth or acquisition, we may be required to raise additional capital.
Future growth, operating results or regulatory requirements may require us to raise additional capital but that capital may not be available. We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations.
Since we receive substantially all of our revenue from dividends from the Bank, our ability to pay dividends on our common stock depends on our receipt of dividends from the Bank. 17 The Company is a legal entity separate and distinct from the Bank.
We are a bank holding company and our operations are conducted primarily by our banking subsidiary, the Bank. Since we receive substantially all of our revenue from dividends from the Bank, our ability to pay dividends on our common stock depends on our receipt of dividends from the Bank.
Our internal controls and procedures may fail or be circumvented. Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable assurances that the objectives of the system are met.
Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable assurances that the objectives of the system are met.
Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements.
The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. 16 Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.
However, we must often make subjective decisions based on our assumption about the creditworthiness of the borrowers and the values of collateral securing these loans. 14 Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of our control, may require an increase in our allowance for loan losses.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of our control, may require an increase in our allowance for credit losses.
We may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
To address risks inherent in our loan portfolio, we maintain an allowance for loan losses that represents management’s best estimate of probable losses that exist within our loan portfolio.
To address risks inherent in our loan portfolio, we maintain an allowance for credit losses that represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining life of the assets.
Our ability to raise capital will depend on conditions in the capital markets, which are outside of our control, and on our financial performance. Accordingly, we cannot be assured of our ability to raise capital when needed or on favorable terms.
To the extent our future operating results erode capital or we elect to expand through loan growth or acquisition, we may be required to raise additional capital. Our ability to raise capital will depend on conditions in the capital markets, which are outside of our control, and on our financial performance.
As inflation increases, the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.
Inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.
Therefore, ratings downgrades on our securities may also have a material adverse effect on our risk-based regulatory capital levels. Deterioration in the markets for residential real estate, including secondary residential mortgage loan markets, could reduce our net income and profitability.
Therefore, ratings downgrades on our securities may also have a material adverse effect on our risk-based regulatory capital levels. Our allowance for credit losses - loans may be insufficient.
While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur. We rely on network and information systems and other technologies, and, as a result, we are subject to various Cybersecurity risks.
While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur. Our internal controls and procedures may fail or be circumvented. Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures.
We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience.
We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience. If we deem such decline to be other-than-temporary related to credit losses, an allowance for credit losses(“ACL”) will be established. At December 31, 2023, no ACL was established for available for sale securities or held to maturity securities.
Future OTTI charges would cause decreases to both Tier 1 and Risk-based capital levels which may expose the Company and/or the Bank to additional regulatory restrictions. The capital that we are required to maintain for regulatory purposes is impacted by, among other factors, the securities ratings on our portfolio.
At December 31, 2023, U.S. government issued or U.S. agency issued securities were carried at $181.3 million or 73.4% of the combined AFS and HTM portfolio. The capital that we are required to maintain for regulatory purposes is impacted by, among other factors, the securities ratings on our portfolio.
Removed
The annual inflation rate in the United States increased during most of 2022, and, as of December 2022, was 6.5% measured by consumer price index. As a result, the Federal Reserve has continued to increase the target federal funds rate, and has indicated its intention to continue to increase interest rates in an effort to combat inflation.
Added
Adverse economic conditions may result from a variety of factors including domestic and global economic and political developments, including civil unrest, terrorism, foreign investment restrictions, or military action, such as the armed conflict between Ukraine and Russia and corresponding sanctions imposed by the United States and other countries or the conflict in Israel and the surrounding areas, and new or evolving legal and regulatory requirements on business investment, hiring, migration, labor supply and global supply chains.
Removed
Geopolitical conditions may affect our earnings. Acts or threats of terrorism and political actions taken by the United States or other governments in response to terrorism, or similar activity, could adversely affect general or industry conditions and, as a result, our consolidated financial condition and results of operations.
Added
Future pandemics (including new variants of COVID-19), could materially affect our results of operations, financial position and/or liquidity .
Removed
The COVID-19 pandemic may continue to impact economic conditions and affect our financial condition, our results of operations and other aspects of our business. The COVID-19 pandemic caused significant economic dislocation in the United States and internationally, resulting in a slow-down in economic activity, increased unemployment levels, and disruptions in global supply chains and financial markets.
Added
COVID-19 presented, and any future pandemics (including new variants of COVID-19) could present, the following risks, among others: inflation; increased unemployment levels; disruptions in global supply chains and financial markets; adverse legislative or regulatory actions; operational disruptions; increased general and administrative expenses; financial market disruption; and an economic downturn.
Removed
The pandemic and related government actions to curb its spread also resulted in closures of many organizations and the institution of social distancing requirements in many states and communities. In response to the pandemic, various state governments and federal agencies required lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).
Added
These risks could materially and adversely impact our results of operations, financial position and/or liquidity.
Removed
Federal banking agencies encouraged financial institutions to prudently work with affected borrowers and legislation provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. The spread of the coronavirus also caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.
Added
For a further discussion of risks that can impact us as a result of financial market disruption or an economic downturn, see “ Our business may be adversely affected by conditions in the financial markets and economic conditions generally .” RISKS RELATED TO OUR BUSINESS AND OPERATIONS We rely on network and information systems and other technologies, and, as a result, we are subject to various Cybersecurity risks.
Removed
Given the ongoing dynamic nature of variants of COVID-19, it is difficult to predict the full impact of the COVID-19 pandemic outbreak on our business.
Added
The impact of larger or similar-sized financial institutions encountering financial difficulties may adversely affect the Company's business, earnings and financial condition. The Company is exposed to the risk that when a peer financial institution experiences financial difficulties, there could be an adverse impact on the regional banking industry and the business environment in which it operates.
Removed
As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to a number of risks, any of which could have an adverse effect on our business, financial condition, liquidity, results of operations, ability to execute our growth strategy, and ability to pay dividends.
Added
The bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California during the first and second quarters of 2023 have caused a degree of concern and uncertainty in the investor community and among bank customers generally.
Removed
These risks include, but are not limited to: changes in demand for our products and services; increased loan losses or other impairments in our loan portfolios and increases in our allowance for loan losses; a decline in collateral for our loans, especially real estate; unanticipated unavailability of employees; increased cyber security risks as employees work remotely; a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could necessitate a valuation allowance against our current outstanding deferred tax assets; a triggering event leading to impairment testing on our goodwill or core deposit and customer relationships intangibles, which could result in an impairment charge; and increased costs as the Company and our regulators, customers and vendors adapt to evolving pandemic-related conditions.
Added
Uncertainty may be compounded by the reach and depth of media attention and its ability to disseminate concerns about these types of events.
Removed
If we deem such decline to be other-than-temporary related to credit losses, the security is written down to a new cost basis and the resulting loss is charged to earnings as a component of non-interest income in the period in which the decline in value occurs.
Added
This public uncertainty and concern could potentially affect the Bank despite its relatively high percentage of deposits (82% as of December 31, 2023) that are either insured or collateralized and its balance sheet liquidity and collateralized borrowing capacity being well in excess of the uninsured deposit balances.
Removed
At December 31, 2022, U.S. government issued or U.S. agency issued securities were carried at $192.7 million or 73.4% of the combined AFS and HTM portfolio. We have, in the past, recorded other than temporary impairment (“OTTI”) charges, principally arising from investments in non-agency mortgage-backed securities. We do not currently hold any non-agency mortgage-backed securities.
Added
While the Company does not believe that the circumstances of these three banks' failures are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the banking industry, including the Company.
Removed
We continue to monitor our securities portfolio as part of our ongoing OTTI evaluation process. No assurance can be given that we will not need to recognize OTTI charges related to securities in the future.
Added
The Company will continue to monitor the ongoing events concerning these three banks as well as any future potential bank failures and volatility within the banking industry generally, together with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the banking industry. We are subject to interest rate risk.
Removed
During the severe recession that lasted from 2007 to 2009, softened residential housing markets, increased delinquency and default rates, and volatile and constrained secondary credit markets negatively impacted the mortgage industry. Our financial results were adversely affected by these effects including changes in real estate values, primarily in Wisconsin and Minnesota, and our net income declined as a result.
Added
Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and modifications, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates.
Removed
Decreases in real estate values adversely affected the value of property used as collateral for loans as well as investments in our portfolio. Continued slow growth in the economy since 2009 resulted in increased competition and lower rates, which has negatively impacted our net income and profits.
Added
The Company estimates the appropriate level of allowance for credit losses by evaluating loans collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that a loan does not share similar risk characteristics with other loans.
Removed
The foregoing changes could affect our ability to originate loans and deposits, the fair value of our financial assets and liabilities and the average maturity of our securities portfolio. An increase in the level of interest rates may also adversely affect the ability of certain of our borrowers to repay their obligations.
Added
Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers.
Removed
If interest rates paid on deposits or other borrowings were to increase at a faster rate than the interest rates earned on loans and investments, our net income would be adversely affected. Our allowance for loan losses may be insufficient.
Removed
The level of the allowance reflects management’s continuing evaluation of various factors, including specific credit risks, historical loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions, and unidentified losses inherent in the current loan portfolio.
Removed
Moreover, it could limit our ability to take advantage of what we believe to be good market opportunities for expanding our loan portfolio. 15 Future growth, operating results or regulatory requirements may require us to raise additional capital but that capital may not be available.
Removed
Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
Removed
We are a bank holding company and our operations are conducted primarily by our banking subsidiary, the Bank.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAt December 31, 2022, the Bank had a total of 23 full-service branch offices located in the Wisconsin cities of Altoona, Barron, Eau Claire, Ellsworth, Ettrick, La Crosse, Ladysmith, Lake Hallie, Mondovi, Osseo, Rice Lake, Spooner, Strum and Tomah (2); and the Minnesota cities of Albert Lea, Blue Earth, Fairmont, Faribault, Mankato, Oakdale, St. Peter and Wells.
Biggest changeAt December 31, 2023, the Bank had a total of 23 full-service branch offices located in the Wisconsin cities of Altoona, Barron, Eau Claire, Ellsworth, Ettrick, La Crosse, Ladysmith, Lake Hallie, Mondovi, Osseo, Rice Lake, Spooner, Strum and Tomah (2); and the Minnesota cities of Albert Lea, Blue Earth, Fairmont, Faribault, Mankato, Oakdale, St. Peter and Wells.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. MINE SAFETY DISCLOSURES 20 PART II 20 ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 20 ITEM 6. RESERVED 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 49 ITEM 8.
Biggest changeITEM 4. MINE SAFETY DISCLOSURES 21 PART II 21 ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 21 ITEM 6. RESERVED 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 51 ITEM 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2022 - October 31, 2022 — $ — — 301,305 November 1, 2022 - November 30, 2022 57,500 $ 13.59 57,500 243,805 December 1, 2022 - December 31, 2022 — $ — — 243,805 Total 57,500 $ 13.59 57,500
Biggest changePeriod Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 - October 31, 2023 — $ — — 229,659 November 1, 2023 - November 30, 2023 27,500 $ 11.00 27,500 202,159 December 1, 2023 - December 31, 2023 — $ — — 202,159 Total 27,500 $ 11.00 27,500
Securities Authorized for Issuance Under Equity Compensation Plans For information relating to securities authorized for issuance under equity compensation plans, see Part III, Item 12. 20 Purchases of Equity Securities by the Issuer On July 23, 2021, the Board of Directors adopted a new share repurchase program.
Securities Authorized for Issuance Under Equity Compensation Plans For information relating to securities authorized for issuance under equity compensation plans, see Part III, Item 12. 21 Purchases of Equity Securities by the Issuer On July 23, 2021, the Board of Directors adopted a new share repurchase program.
Under this new share repurchase program, the Company may repurchase up to approximately 5% of the outstanding shares of its common stock as of July 23, 2021, or 532,962 shares, from time to time. During the quarter ended December 31, 2022, approximately 58 thousand shares were repurchased under this authorization.
Under this new share repurchase program, the Company may repurchase up to approximately 5% of the outstanding shares of its common stock as of July 23, 2021, or 532,962 shares, from time to time. During the quarter ended December 31, 2023, approximately 27 thousand shares were repurchased under this authorization.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Historically, trading in shares of our common stock has been limited. Citizens Community Bancorp, Inc. common stock is traded on the NASDAQ Global Market under the symbol “CZWI”. We had approximately 584 stockholders of record at March 7, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Historically, trading in shares of our common stock has been limited. Citizens Community Bancorp, Inc. common stock is traded on the NASDAQ Global Market under the symbol “CZWI”. We had approximately 564 stockholders of record at March 5, 2024.
The table below shows information about our repurchases of our common stock during the three months ended December 31, 2022.
The table below shows information about our repurchases of our common stock during the three months ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

101 edited+76 added−80 removed32 unchanged
Biggest changeRestructured loans that comply with the restructured terms are considered performing loans. 40 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 ALL for the periods then ended: December 31, 2022 and twelve months ended December 31, 2021 and twelve months ended Nonperforming assets: Nonaccrual loans Commercial real estate $ 5,736 $ 5,374 Agricultural real estate 2,742 3,490 Commercial and industrial (“C&I”) 552 298 Agricultural operating 890 993 Residential mortgage 1,253 1,433 Consumer installment 31 77 Total nonaccrual loans 11,204 11,665 Accruing loans past due 90 days or more 246 160 Total nonperforming loans (“NPLs”) 11,450 11,825 Other real estate owned 1,265 1,406 Other collateral owned 6 2 Total nonperforming assets (“NPAs”) $ 12,721 $ 13,233 Troubled Debt Restructurings (“TDRs”) $ 7,788 $ 12,523 Nonaccrual TDRs $ 2,617 $ 4,539 Average outstanding loan balance $ 1,351,052 $ 1,216,244 Loans, end of period $ 1,411,784 $ 1,310,963 Total assets, end of period $ 1,816,386 $ 1,739,628 ALL, at beginning of period $ 16,913 $ 17,043 Loans charged off: Commercial/Agricultural real estate (205) (251) C&I/Agricultural operating (346) (7) Residential mortgage (68) — Consumer installment (48) (81) Total loans charged off (667) (339) Recoveries of loans previously charged off: Commercial/Agricultural real estate 102 28 C&I/Agricultural operating 36 123 Residential mortgage 29 13 Consumer installment 51 45 Total recoveries of loans previously charged off: 218 209 Net loans charged off (“NCOs”) (449) (130) Additions to ALL via provision for loan losses charged to operations 1,475 — ALL, at end of period $ 17,939 $ 16,913 Ratios: ALL to NCOs (annualized) 3,995.32 % 13,010.00 % NCOs (annualized) to average loans 0.03 % 0.01 % ALL to total loans 1.27 % 1.29 % NPLs to total loans 0.81 % 0.90 % NPAs to total assets 0.70 % 0.76 % 41 The following table shows the detail of non-performing assets by originated and acquired portfolios.
Biggest changeTDR loans may have involved loans that 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. 41 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 ACL for the periods then ended: December 31, 2023 and twelve months ended December 31, 2022 and twelve months ended Nonperforming assets: Nonaccrual loans Commercial real estate $ 10,359 $ 5,736 Agricultural real estate 391 2,742 Construction and land development 54 — Commercial and industrial (“C&I”) — 552 Agricultural operating 1,180 890 Residential mortgage 1,167 1,253 Consumer installment 33 31 Total nonaccrual loans 13,184 11,204 Accruing loans past due 90 days or more 389 246 Total nonperforming loans (“NPLs”) 13,573 11,450 Other real estate owned 1,795 1,265 Other collateral owned — 6 Total nonperforming assets (“NPAs”) $ 15,368 $ 12,721 Average outstanding loan balance $ 1,430,035 $ 1,351,052 Loans, end of period $ 1,460,792 $ 1,411,784 Total assets, end of period $ 1,851,391 $ 1,816,386 ACL - Loans, at beginning of period $ 17,939 $ 16,913 Cumulative effect of ASU 2016-13 adoption 4,706 — Loans charged off: Commercial/Agricultural real estate (46) (205) C&I/Agricultural operating — (346) Residential mortgage (78) (68) Consumer installment (36) (48) Total loans charged off (160) (667) Recoveries of loans previously charged off: Commercial/Agricultural real estate 489 102 C&I/Agricultural operating 47 36 Residential mortgage 42 29 Consumer installment 33 51 Total recoveries of loans previously charged off: 611 218 Net loan recoveries/(charge-offs) (“NCOs”) 451 (449) (Reversals)/additions to ACL - Loans via provision for credit losses charged to operations (188) 1,475 ACL - Loans, at end of period $ 22,908 $ 17,939 Ratios: ACL to NCOs (annualized) (5,079.38) % 3,995.32 % NCOs (annualized) to average loans 0.03 % (0.03) % ACL to total loans 1.57 % 1.27 % NPLs to total loans 0.93 % 0.81 % NPAs to total assets 0.83 % 0.70 % 42 Nonaccrual Loans Roll Forward Quarter Ended December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Balance, beginning of period $ 13,456 $ 15,663 $ 10,410 $ 11,204 $ 10,772 Additions 538 33 7,826 154 1,039 Charge offs — (53) (23) (49) (37) Transfers to OREO (23) — (110) (25) — Return to accrual status — (190) — (252) — Payments received (781) (1,994) (2,429) (527) (561) Other, net (6) (3) (11) (95) (9) Balance, end of period $ 13,184 $ 13,456 $ 15,663 $ 10,410 $ 11,204 Nonaccrual loans increased by $2.0 million at December 31, 2023, from $11.2 million at December 31, 2022, largely due to adding a $5.4 million hotel loan from special mention to substandard and nonaccrual in the second quarter of 2023, partially offset by payments received, which include loan payoffs.
We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill.
Goodwill and Other Intangible Assets. We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill.
In evaluating the level of the allowance for loan losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions and other relevant factors determined by management.
In evaluating the level of the allowance for credit losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions and other relevant factors determined by management.
We manage and monitor our short-term and long-term liquidity positions and needs through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk. A key metric we monitor is our liquidity ratio, calculated as cash and securities portfolio divided by total assets.
We manage and monitor our short-term and long-term liquidity positions and needs through a regular review of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk. A key metric we monitor is our liquidity ratio, calculated as cash and unpledged securities portfolio divided by total assets.
Management believes that our liquidity is adequate, and to management’s knowledge, there are no known events or uncertainties that will result or are likely to reasonably result in a material increase or decrease in our liquidity. Off-Balance Sheet Arrangements .
Management believes that our liquidity is adequate, and to management’s knowledge, there are no known events or uncertainties that will result or are likely to reasonably result in a material increase or decrease in our liquidity. 48 Off-Balance Sheet Arrangements .
If the carrying value of the company’s reporting unit exceeds its calculated fair value, the impairment test continues 23 (“step two”) by comparing the carrying value of the Company’s reporting unit’s goodwill to the implied fair value of goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill.
If the carrying value of the company’s reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the Company’s reporting unit’s goodwill to the implied fair value of goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill.
The MD&A should be read in conjunction with our consolidated financial statements, related notes, the selected financial data and the statistical information presented elsewhere in this Annual Report on Form 10-K for a more complete understanding of the following discussion and analysis. Unless otherwise noted, years refer to the Company’s fiscal years ended December 31, 2022 and December 31, 2021.
The MD&A should be read in conjunction with our consolidated financial statements, related notes, the selected financial data and the statistical information presented elsewhere in this Annual Report on Form 10-K for a more complete understanding of the following discussion and analysis. Unless otherwise noted, years refer to the Company’s fiscal years ended December 31, 2023 and December 31, 2022.
We apply various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities.
Fair Value Measurements and Valuation Methodologies. We apply various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued. Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities.
See Note 11, “Commitments and Contingencies”; “Financial Instruments with Off-Balance Sheet Risk” of “Notes to Consolidated Financial Statements” which are included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for further detail. 47 Capital Resources.
See Note 11, “Commitments and Contingencies”; “Financial Instruments with Off-Balance Sheet Risk” of “Notes to Consolidated Financial Statements” which are included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for further detail. 49 Capital Resources.
Also presented is the weighted average yield on interest earning assets on a tax-equivalent basis, rates paid on interest bearing liabilities and the resultant spread at December 31, 2022 and December 31, 2021. Non-accruing loans average balances are included in the table with the loans carrying a zero yield.
Also presented is the weighted average yield on interest earning assets on a tax-equivalent basis, rates paid on interest bearing liabilities and the resultant spread at December 31, 2023 and December 31, 2022. Non-accruing loans average balances are included in the table with the loans carrying a zero yield.
Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change.
Assessing the allowance for credit losses - loans is inherently subjective as it requires making material estimates, including the amount, and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion sets forth management’s discussion and analysis of our results of operations for the year ended December 31, 2022 and December 31, 2021, and our financial position as of December 31, 2022 and December 31, 2021, respectively.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion sets forth management’s discussion and analysis of our results of operations for the year ended December 31, 2023 and December 31, 2022, and our financial position as of December 31, 2023 and December 31, 2022, respectively.
A reporting unit is defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has one reporting unit as of December 31, 2022, which is related to its banking activities.
A reporting unit is 24 defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management. The Company has one reporting unit as of December 31, 2023, which is related to its banking activities.
Significant loan concentrations are considered to exist for a financial entity when the amounts of loans to multiple borrowers engaged in similar activities cause them to be similarly impacted by economic or other conditions. As illustrated above, at December 31, 2022, the largest loan concentration we identified was commercial real estate loans which comprised 52% of our total loan portfolio.
Significant loan concentrations are considered to exist for a financial entity when the amounts of loans to multiple borrowers engaged in similar activities cause them to be similarly impacted by economic or other conditions. As illustrated above, at December 31, 2023, the largest loan concentration we identified was commercial real estate loans which comprised 51% of our total loan portfolio.
The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21% for the twelve months ended December 31, 2022 and 2021.
The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21% for the twelve months ended December 31, 2023 and 2022.
Liquidity management refers to our ability to ensure cash is available in a timely manner to meet loan demand, depositors’ needs, and meet other financial obligations as they become due without undue 46 cost, risk, or disruption to normal operating activities.
Liquidity and Asset / Liability Management. Liquidity management refers to our ability to ensure cash is available in a timely manner to meet loan demand, depositors’ needs, and meet other financial obligations as they become due without undue cost, risk, or disruption to normal operating activities.
In addition, the Company maintains a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.
In addition, the Company has a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.
We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. Below is a discussion of our critical accounting estimates. Allowance for Loan Losses.
We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. Below is a discussion of our critical accounting estimates.
The Bank terminated $15.0 million of advances in the quarter ended March 31, 2022, incurring a $0.002 million prepayment penalty, as we modestly reduced excess liquidity. $27.5 million of FHLB advances were called by the FHLB in each of the quarters ended June 30, 2022, and September 30, 2022.
The Bank terminated $15.0 million of advances in the quarter ended March 31, 2022, incurring a $2 thousand prepayment penalty, as we reduced excess liquidity. $27.5 million of FHLB advances were called by the FHLB in each of the quarters ended June 30, 2022, and September 30, 2022.
In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or other factors could all affect the adequacy of our ALL.
In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ACL.
Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2021, are shown below.
Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2022 are shown below.
PERFORMANCE SUMMARY The following is a brief summary of some of the significant factors that affected our operating results for the twelve months ended December 31, 2022 and 2021.
PERFORMANCE SUMMARY The following is a summary of some of the significant factors that affected our operating results for the twelve months ended December 31, 2023, and 2022.
Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate, commercial and industrial loans, and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. Currently, we have approximately $256.8 million available to borrow under this arrangement, supported by loan collateral as of December 31, 2022.
Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate, commercial and industrial loans, and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets. Currently, we have approximately $370.6 million available to borrow under this arrangement, supported by loan collateral as of December 31, 2023.
This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances. The Bank’s current unused borrowing capacity, supported by loan collateral as of December 31, 2022, is approximately $256.8 million.
This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances. The Bank’s current unused borrowing capacity, supported by loan collateral as of December 31, 2023, is approximately $370.6 million.
As of December 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.3 million pledged as collateral to the Federal Home Loan Bank of Des Moines. Loans. Total loans outstanding, net of deferred loan fees and costs, increased to $1.41 billion at December 31, 2022, from $1.31 billion at December 31, 2021.
As of December 31, 2022, the Bank also has mortgage-backed securities with a carrying value of $0.1 million pledged as collateral to the Federal Home Loan Bank of Des Moines. Loans. Total loans outstanding, net of deferred loan fees and costs, increased to $1.46 billion at December 31, 2023, from $1.42 billion at December 31, 2022.
Net interest margin exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin. Net interest income was $56.4 million for 2022 compared to $53.7 million for 2021.
Net interest margin exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets. The narrative below discusses net interest income, interest rate spread, and net interest margin. Net interest income was $48.3 million for 2023 compared to $56.4 million for 2022.
These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of December 31, 2022, the Company had approximately $243.0 million in unused loan commitments, compared to approximately $271.0 million in unused commitments as of December 31, 2021.
These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit. As of December 31, 2023, the Company had approximately $210.4 million in unused loan commitments, compared to approximately $243.0 million in unused commitments as of December 31, 2022.
We maintain an allowance for loan losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated probable incurred losses in our loan portfolio.
Allowance for Credit Losses - Loans - We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated lifetime losses in our loan portfolio.
There were no borrowings outstanding on these lines of credit as of December 31, 2022, or December 31, 2021. At December 31, 2022 and 2021, the Bank had the ability to borrow $4.1 million and $0.8 from the Federal Reserve Bank of Minneapolis.
There were no borrowings outstanding on these lines of credit as of December 31, 2023, or December 31, 2022. At December 31, 2023, and 2022, the Bank had the ability to borrow $22.4 million and $4.1 million from the Federal Reserve Bank of Minneapolis.
As of December 31, 2021, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $3.9 million and mortgage-backed securities with a carrying value of $2.9 million as collateral against specific municipal deposits.
As of December 31, 2022, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $2.6 million and mortgage-backed securities with a carrying value of $2.2 million as collateral against specific municipal deposits.
The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $5.4 million and $0.9 million as of December 31, 2022 and 2021, respectively. There were no Federal Reserve borrowings outstanding as of December 31, 2022 and 2021. Stockholders’ Equity.
The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $29.2 million and $5.4 million as of December 31, 2023, and 2022, respectively. There were no Federal Reserve borrowings outstanding as of December 31, 2023, and 2022. Stockholders’ Equity.
Twelve months ended December 31, 2021 Net Interest Income. Net interest income represents the difference between the dollar amount of interest earned on interest bearing assets and the dollar amount of interest paid on interest bearing liabilities. The interest income and expense of financial institutions are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors.
Net interest income represents the difference between the dollar amount of interest earned on interest bearing assets and the dollar amount of interest paid on interest bearing liabilities. The interest income and expense of financial institutions are significantly affected by general economic conditions, competition, policies of regulatory authorities and other factors.
The Bank maintains three unsecured federal funds purchased lines of credit with its banking partners which total $75.0 million. These lines bear interest at the lender bank’s announced daily federal funds rate, mature daily and are revocable at the discretion of the lending institution.
The Bank maintains two unsecured federal funds purchased lines of credit with its banking partners which total $70.0 million. These lines bear interest at the lender banks announced daily federal funds rate, mature daily and are revocable at the discretion of the lending institution.
Federal Home Loan Bank (FHLB) advances and other borrowings We utilize advances and other borrowings, as necessary, to supplement core deposits to meet our funding and liquidity needs and we evaluate all options for funding securities. FHLB advances increased $31.0 million to $142.5 million as of December 31, 2022, compared to $111.5 million as of December 31, 2021.
Federal Home Loan Bank (FHLB) advances and other borrowings We utilize advances and other borrowings, as necessary, to supplement core deposits to meet our funding and liquidity needs and we evaluate all options for funding securities. FHLB advances decreased $63.0 million to $79.5 million as of December 31, 2023, compared to $142.5 million as of December 31, 2022.
As of December 31, 2022, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2022, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $2.6 million and mortgage-backed securities with a carrying value of $2.2 million as collateral against specific municipal deposits.
As of December 31, 2023, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2023, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.5 million and mortgage-backed securities with a carrying value of $1.9 million as collateral against specific municipal deposits.
At December 31, 2022, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $256,773 compared to $204,271 as of December 31, 2021. (2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $157,530 and $123,530, during the twelve months ended December 31, 2022 and December 31, 2021, respectively.
At December 31, 2023, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $370,569 compared to $256,773 as of December 31, 2022. (2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $217,530 and $157,530, during the twelve months ended December 31, 2023 and December 31, 2022, respectively.
In addition, there are $4.7 million of commitments for contributions of capital to an SBIC and an investment company at December 31, 2022. These commitments totaled $5.0 million at December 31, 2021.
In addition, there are $3.4 million of commitments for contributions of capital to an SBIC and an investment company at December 31, 2023. These commitments totaled $4.7 million at December 31, 2022.
The return on average equity was 10.70% for the twelve months ended December 31, 2022, and 12.97% for the comparable period in 2021. 22 CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”).
The return on average equity was 7.87% for the twelve months ended December 31, 2023, and 10.70% for the comparable period in 2022. 23 CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”).
At December 31, 2021, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $0.9 million as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit.
At December 31, 2022, the Bank pledged certain of its mortgage-backed securities with a carrying value of $5.4 million as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2022, there were no borrowings outstanding on this Federal Reserve Bank line of credit.
The FTE adjustment to net interest income included in the rate calculations totaled $1 thousand and $3 thousand for the twelve month periods ended December 31, 2022 and 2021, respectively. 26 Rate/Volume Analysis.
The FTE adjustment to net interest income included in the rate calculations totaled $0 thousand and $1 thousand for the twelve month periods ended December 31, 2023 and 2022, respectively. 27 Rate/Volume Analysis.
The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at December 31, 2022, and December 31, 2021 was 1.08% and 0.78%, respectively. Intangible Assets. We have intangible assets of $2.4 million at December 31, 2022, compared to $3.9 million at December 31, 2021.
The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at December 31, 2023, and December 31, 2022, was 1.13% and 1.08%, respectively. Intangible Assets. We have intangible assets of $1.7 million at December 31, 2023, compared to $2.4 million at December 31, 2022.
For loans that are not collateral dependent, the specific allocation is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a general allowance on loans not specifically identified in (1) above, based on historical loss ratios, which are adjusted for qualitative and general economic factors.
For loans that are not collateral dependent, the specific allocation is based on the present value of expected future cash flows discounted at the loan’s original effective interest rate through the repayment period; and (2) a collective allowance for loans not specifically identified in (1) above.
Return on average assets for the twelve months ended December 31, 2022, was 1.00%, compared to 1.23% for the twelve months ended December 31, 2021.
Return on average assets for the twelve months ended December 31, 2023, was 0.71%, compared to 1.00% for the twelve months ended December 31, 2022.
Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.
See the remainder of this section for a more thorough discussion. Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.
We reported net income of $17.76 million for the twelve months ended December 31, 2022, compared to net income of $21.27 million for the twelve months ended December 31, 2021. Diluted earnings per share were $1.69 for the twelve months ended December 31, 2022, compared to $1.98 for the twelve months ended December 31, 2021.
We reported net income of $13.06 million for the twelve months ended December 31, 2023, compared to net income of $17.76 million for the twelve months ended December 31, 2022. Diluted earnings per share were $1.25 for the twelve months ended December 31, 2023, compared to $1.69 for the twelve months ended December 31, 2022.
The Bank added a $5 million advance maturing in the second quarter of 2023. The Bank had $12 million of FHLB advances maturing overnight as of December 31, 2022, and an additional $95.0 million maturing in January of 2023. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank.
The Bank added a $5 million advance maturing in the second quarter of 2023. The Bank had $107 million of FHLB advances maturing in January 2023. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank.
While the Bank does not have formal brokered certificate lines of credit with counter parties at December 31, 2022, we believe that the Bank could access this market, which provides an additional potential source of liquidity as evidenced by third and fourth quarter 2022 new brokered deposits.
While the Bank does not have formal brokered certificate lines of credit with counter parties at December 31, 2023, we believe that the Bank could access this market, which provides an additional potential source of liquidity, as evidenced by access to this market during the past four quarters.
MSR assets are initially measured at fair value by a third party; assessed at least quarterly for impairment; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value.
Mortgage servicing rights (“MSR”) assets are initially measured at fair value; assessed at least quarterly for impairment; carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value.
As of December 31, 2022, the Bank also has mortgage-backed securities with a carrying value of $0.1 million pledged as collateral to the Federal Home Loan Bank of Des Moines.
As of December 31, 2023, the Bank also has mortgage-backed securities with a carrying value of $0.2 million and U.S. Government Agencies with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.
We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, and to fund loan commitments. While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.
While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.
Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 2022 Total capital (to risk weighted assets) $ 221,361 14.2 % $ 124,971 > = 8.0 % $ 156,213 > = 10.0 % Tier 1 capital (to risk weighted assets) 203,422 13.0 % 93,728 > = 6.0 % 124,971 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 203,422 13.0 % 70,296 > = 4.5 % 101,539 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 203,422 11.5 % 70,610 > = 4.0 % 88,262 > = 5.0 % As of December 31, 2021 Total capital (to risk weighted assets) $ 187,783 13.4 % $ 111,694 > = 8.0 % $ 139,618 > = 10.0 % Tier 1 capital (to risk weighted assets) 170,870 12.2 % 83,771 > = 6.0 % 111,694 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 170,870 12.2 % 62,828 > = 4.5 % 90,752 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 170,870 10.0 % 68,323 > = 4.0 % 85,403 > = 5.0 % At December 31, 2022, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.
Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 2023 Total capital (to risk weighted assets) $ 228,092 14.6 % $ 124,883 > = 8.0 % $ 156,104 > = 10.0 % Tier 1 capital (to risk weighted assets) 208,726 13.4 % 93,662 > = 6.0 % 124,883 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 208,726 13.4 % 70,247 > = 4.5 % 101,468 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 208,726 11.5 % 72,479 > = 4.0 % 90,599 > = 5.0 % As of December 31, 2022 Total capital (to risk weighted assets) $ 221,361 14.2 % $ 124,971 > = 8.0 % $ 156,213 > = 10.0 % Tier 1 capital (to risk weighted assets) 203,422 13.0 % 93,728 > = 6.0 % 124,971 > = 8.0 % Common equity tier 1 capital (to risk weighted assets) 203,422 13.0 % 70,296 > = 4.5 % 101,539 > = 6.5 % Tier 1 leverage ratio (to adjusted total assets) 203,422 11.5 % 70,610 > = 4.0 % 88,262 > = 5.0 % At December 31, 2023, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.
A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at December 31, 2022 and December 31, 2021 is as follows: December 31, 2022 December 31, 2021 Stated Maturity Amount Range of Stated Rates Stated Maturity Amount Range of Stated Rates Federal Home Loan Bank advances (1), (2), (3), (4) 2022 $ — — % — % 2022 $ 11,000 2.45 % 2.45 % 2023 117,000 1.43 % 4.31 % 2023 20,000 1.43 % 1.44 % 2024 20,530 0.00 % 1.45 % 2024 20,530 0.00 % 1.45 % 2025 5,000 1.45 % 1.45 % 2025 5,000 1.45 % 1.45 % 2029 — — % — % 2029 42,500 1.00 % 1.13 % 2030 — — % — % 2030 12,500 0.52 % 0.86 % Subtotal 142,530 111,530 Unamortized discount on acquired notes — (3) Federal Home Loan Bank advances, net $ 142,530 $ 111,527 Other borrowings: Senior notes (5) 2034 $ 23,250 3.00 % 6.75 % 2031 $ 28,856 3.00 % 3.50 % Subordinated notes (6) 2027 $ — — % — % 2027 $ 15,000 6.75 % 6.75 % 2030 15,000 6.00 % 6.00 % 2030 15,000 6.00 % 6.00 % 2032 35,000 4.75 % 4.75 % 2032 — — % — % $ 50,000 $ 30,000 Unamortized debt issuance costs (841) (430) Total other borrowings $ 72,409 $ 58,426 Totals $ 214,939 $ 169,953 (1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had pledged balances of $984,878 and $861,900 at December 31, 2022 and 2021, respectively.
A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at December 31, 2023 and December 31, 2022 is as follows: December 31, 2023 December 31, 2022 Stated Maturity Amount Range of Stated Rates Stated Maturity Amount Range of Stated Rates Federal Home Loan Bank advances (1), (2), (3), (4) 2023 $ — — % — % 2023 $ 117,000 1.43 % 4.31 % 2024 64,530 0.00 % 5.45 % 2024 20,530 0.00 % 1.45 % 2025 5,000 1.45 % 1.45 % 2025 5,000 1.45 % 1.45 % 2028 10,000 3.82 % 3.82 % 2028 — — % — % Federal Home Loan Bank advances $ 79,530 $ 142,530 Other borrowings: Senior notes (5) 2034 $ 18,083 6.75 % 7.75 % 2034 $ 23,250 3.00 % 6.75 % Subordinated notes (6) 2030 $ 15,000 6.00 % 6.00 % 2030 $ 15,000 6.00 % 6.00 % 2032 35,000 4.75 % 4.75 % 2032 35,000 4.75 % 4.75 % $ 50,000 $ 50,000 Unamortized debt issuance costs (618) (841) Total other borrowings $ 67,465 $ 72,409 Totals $ 146,995 $ 214,939 (1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had pledged balances of $1,106,267 and $984,878 at December 31, 2023 and 2022, respectively.
Such taxing authorities may require that changes in the amount of tax expense or the amount of the valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. 29 BALANCE SHEET ANALYSIS Total assets increased $76.8 million to $1.82 billion at December 31, 2022, from $1.74 billion at December 31, 2021.
Such taxing authorities may require that changes in the amount of tax expense or the amount of the valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations.
Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur. 32 The composition of our investment securities portfolio by credit rating as of the periods indicated below was as follows: December 31, December 31, 2022 2021 Available for sale securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 112,477 $ 93,669 $ 131,115 $ 131,008 AAA 8,640 8,334 9,662 9,710 AA 24,591 23,737 26,727 26,762 A 5,700 5,133 5,700 5,720 BBB 38,936 35,118 29,642 29,868 Below investment grade — — — — Non-rated — — — — Total available for sale securities $ 190,344 $ 165,991 $ 202,846 $ 203,068 December 31, December 31, 2022 2021 Held to maturity securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 95,779 $ 76,233 $ 66,541 $ 64,584 AAA — — — — AA — — 4,000 4,000 A 600 546 600 593 BBB — — — — Below investment grade — — — — Non-rated — — — — Total $ 96,379 $ 76,779 $ 71,141 $ 69,177 At December 31, 2022, the Bank pledged certain of its mortgage-backed securities with a carrying value of $5.4 million as collateral to secure a line of credit with the Federal Reserve Bank.
Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur. 34 The composition of our investment securities portfolio by credit rating as of the periods indicated below was as follows: December 31, December 31, 2023 2022 Available for sale securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 98,977 $ 81,351 $ 112,477 $ 93,669 AAA 9,695 9,508 8,640 8,334 AA 23,913 23,709 24,591 23,737 A 8,200 7,292 5,700 5,133 BBB 38,959 33,883 38,936 35,118 Non-rated — — — — Total available for sale securities $ 179,744 $ 155,743 $ 190,344 $ 165,991 December 31, December 31, 2023 2022 Held to maturity securities Amortized Cost Fair Value Amortized Cost Fair Value U.S. government agency $ 90,629 $ 72,697 $ 95,779 $ 76,233 AAA — — — — AA — — — — A 600 565 600 546 Total $ 91,229 $ 73,262 $ 96,379 $ 76,779 At December 31, 2023, the Bank pledged certain of its mortgage-backed securities with a carrying value of $29.2 million as collateral to secure a line of credit with the Federal Reserve Bank.
Gross loan growth consisted largely of $27.5 million in commercial real estate loans, $30.6 million of multi-family real estate loans, $23.0 of construction and land development loans, and $13.8 million of commercial and industrial loan growth.
Gross loan growth consisted largely of $24.6 million in commercial real estate loans, $19.2 million of multi-family real estate loans, $8.4 million in construction and land development loans and residential mortgage loan growth of $23.6 million.
Approximately 88% of our total gross loans are secured by real estate. 34 The following table sets forth, as of December 31, 2022 and December 31, 2021 respectively the fixed and adjustable-rate loans in our loan portfolio: December 31, 2022 December 31, 2021 Amount Percent Amount Percent Fixed rate loans: Real estate loans: Commercial/Agricultural real estate $ 433,988 30.8 % $ 412,797 31.5 % Residential mortgage 51,558 3.6 % 61,964 4.7 % Total fixed rate real estate loans 485,546 34.4 % 474,761 36.2 % Non-real estate loans: C&I/Agricultural Operating 128,068 9.0 % 117,770 9.0 % Consumer installment 17,369 1.2 % 24,828 1.9 % Total fixed rate non-real estate loans 145,437 10.2 % 142,598 10.9 % Total fixed rate loans 630,983 44.6 % 617,359 47.1 % Adjustable-rate loans: Real estate loans: Commercial/Agricultural real estate 691,290 49.0 % 622,032 47.5 % Residential mortgage 57,094 4.1 % 32,897 2.5 % Total adjustable-rate real estate loans 748,384 53.1 % 654,929 50.0 % Non-real estate loans: C&I/Agricultural operating 36,752 2.6 % 44,740 3.4 % Consumer installment 16 — % 17 — % Total adjustable-rate non-real estate loans 36,768 2.6 % 44,757 3.4 % Total adjustable-rate loans 785,152 55.7 % 699,686 53.4 % Gross loans 1,416,135 1,317,045 Unearned net deferred fees and costs and loans in process (2,585) (0.2) % (2,482) (0.2) % Unamortized discount on acquired loans (1,766) (0.1) % (3,600) (0.3) % Total loans (net of unearned income) 1,411,784 100.0 % 1,310,963 100.0 % Allowance for loan losses (17,939) (16,913) Total loans receivable, net $ 1,393,845 $ 1,294,050 35 Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2022 are shown below.
Approximately 89% of our total gross loans are secured by real estate. 36 The following table sets forth, as of December 31, 2023 and December 31, 2022 respectively the fixed and adjustable-rate loans in our loan portfolio: December 31, 2023 December 31, 2022 Amount Percent Amount Percent Fixed rate loans: Real estate loans: Commercial/Agricultural real estate $ 457,931 31.3 % $ 433,988 30.8 % Residential mortgage 44,740 3.1 % 51,558 3.6 % Total fixed rate real estate loans 502,671 34.4 % 485,546 34.4 % Non-real estate loans: C&I/Agricultural Operating 116,193 7.9 % 128,068 9.0 % Consumer installment 12,722 0.9 % 17,369 1.2 % Total fixed rate non-real estate loans 128,915 8.8 % 145,437 10.2 % Total fixed rate loans 631,586 43.2 % 630,983 44.6 % Adjustable-rate loans: Real estate loans: Commercial/Agricultural real estate 714,986 49.0 % 691,290 49.0 % Residential mortgage 87,160 6.0 % 57,094 4.1 % Total adjustable-rate real estate loans 802,146 55.0 % 748,384 53.1 % Non-real estate loans: C&I/Agricultural operating 31,164 2.1 % 36,752 2.6 % Consumer installment 1 — % 16 — % Total adjustable-rate non-real estate loans 31,165 2.1 % 36,768 2.6 % Total adjustable-rate loans 833,311 57.1 % 785,152 55.7 % Gross loans 1,464,897 1,416,135 Unearned net deferred fees and costs and loans in process (2,900) (0.2) % (2,585) (0.2) % Unamortized discount on acquired loans (1,205) (0.1) % (1,766) (0.1) % Total loans (net of unearned income) 1,460,792 100.0 % 1,411,784 100.0 % Allowance for credit losses (22,908) (17,939) Total loans receivable, net $ 1,437,884 $ 1,393,845 37 Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2023 are shown below.
Troubled Debt Restructurings in Accrual Status December 31, 2022 December 31, 2021 Number of Modifications Recorded Investment Number of Modifications Recorded Investment Troubled debt restructurings: Accrual Status Commercial/Agricultural real estate 10 $ 1,336 11 $ 4,618 C&I/Agricultural Operating 5 960 3 649 Residential mortgage 36 2,875 36 2,681 Consumer installment — — 6 36 Total loans 51 $ 5,171 56 $ 7,984 The table below shows the totals of special mention, substandard and the total of these, known as criticized loans as of December 31, 2022, and 2021.
Nonaccrual TDR loans were $2.6 million at December 31, 2022. 43 December 31, 2022 Number of Modifications Recorded Investment Troubled debt restructurings: Accrual Status Commercial/Agricultural real estate 10 $ 1,336 C&I/Agricultural operating 5 960 Residential mortgage 36 2,875 Consumer installment — — Total loans 51 $ 5,171 The table below shows a summary of criticized loans, split by special mention and substandard balances, for the past five quarters.
The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
Included in the shrink numbers above is 100% of the of SBA PPP loans of $8.8 million at December 31, 2021. 33 The following table reflects the composition, or mix, of our loan portfolio at December 31, 2022 and December 31, 2021: December 31, 2022 December 31, 2021 Amount Percent Amount Percent Real Estate Loans: Commercial/Agricultural real estate: Commercial real estate $ 725,971 51.5 % $ 698,465 53.3 % Agricultural real estate 87,908 6.2 % 78,495 6.0 % Multi-family real estate 208,908 14.8 % 178,349 13.6 % Construction and land development 102,492 7.3 % 79,520 6.1 % Residential mortgage: Residential mortgage 105,389 7.5 % 90,990 6.9 % Purchased HELOC loans 3,262 0.2 % 3,871 0.3 % Total real estate loans 1,233,930 87.5 % 1,129,690 86.2 % C&I/Agricultural operating and Consumer installment loans: C&I/Agricultural operating: Commercial and industrial ("C&I) 136,013 9.6 % 122,167 9.3 % Agricultural operating 28,806 2.0 % 31,588 2.4 % Consumer installment: Originated indirect paper 10,236 0.7 % 15,971 1.2 % Other consumer 7,150 0.5 % 8,874 0.7 % Total C&I/Agricultural operating and Consumer installment loans 182,205 12.8 % 178,600 13.6 % Gross loans before SBA PPP loans 1,416,135 100.3 % 1,308,290 99.8 % SBA PPP Loans — — % 8,755 0.7 % Gross loans 1,416,135 100.3 % 1,317,045 100.5 % Unearned net deferred fees and costs and loans in process (2,585) (0.2) % (2,482) (0.2) % Unamortized discount on acquired loans (1,766) (0.1) % (3,600) (0.3) % Total loans (net of unearned income and deferred expense) 1,411,784 100.0 % 1,310,963 100.0 % Allowance for Loan losses (17,939) (16,913) Total loans receivable, net $ 1,393,845 $ 1,294,050 Our loan portfolio is diversified by types of borrowers and industry groups within the market areas that we serve.
The growth in these portfolios exceeded the reduction in the remaining loan portfolios of $27.1 million. 35 The following table reflects the composition, or mix, of our loan portfolio at December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 Amount Percent Amount Percent Real Estate Loans: Commercial/Agricultural real estate: Commercial real estate $ 750,531 51.4 % $ 725,971 51.5 % Agricultural real estate 83,350 5.7 % 87,908 6.2 % Multi-family real estate 228,095 15.6 % 208,908 14.8 % Construction and land development 110,941 7.6 % 102,492 7.3 % Residential mortgage: Residential mortgage 129,021 8.8 % 105,389 7.5 % Purchased HELOC loans 2,880 0.2 % 3,262 0.2 % Total real estate loans 1,304,818 89.3 % 1,233,930 87.5 % C&I/Agricultural operating and Consumer installment loans: C&I/Agricultural operating: Commercial and industrial ("C&I") 121,666 8.3 % 136,013 9.6 % Agricultural operating 25,691 1.8 % 28,806 2.0 % Consumer installment: Originated indirect paper 6,535 0.5 % 10,236 0.7 % Other consumer 6,187 0.4 % 7,150 0.5 % Total C&I/Agricultural operating and Consumer installment loans 160,079 11.0 % 182,205 12.8 % Gross loans 1,464,897 100.3 % 1,416,135 100.3 % Unearned net deferred fees and costs and loans in process (2,900) (0.2) % (2,585) (0.2) % Unamortized discount on acquired loans (1,205) (0.1) % (1,766) (0.1) % Total loans (net of unearned income and deferred expense) 1,460,792 100.0 % 1,411,784 100.0 % Allowance for credit losses (22,908) (17,939) Total loans receivable, net $ 1,437,884 $ 1,393,845 Our loan portfolio is diversified by types of borrowers and industry groups within the market areas that we serve.
The amortized cost and market values of our investment securities by asset categories as of the dates indicated below were as follows: Available for sale securities Amortized Cost Fair Value December 31, 2022 U.S. government agency obligations $ 18,373 $ 18,313 Obligations of states and political subdivisions — — Mortgage-backed securities 97,458 78,610 Corporate debt securities 44,636 40,251 Corporate asset-backed securities 29,877 28,817 Total available for sale securities $ 190,344 $ 165,991 December 31, 2021 U.S. government agency obligations $ 25,826 $ 26,265 Obligations of states and political subdivisions 140 140 Mortgage-backed securities 107,636 107,167 Corporate debt securities 35,342 35,588 Corporate asset-backed securities 33,902 33,908 Total available for sale securities $ 202,846 $ 203,068 30 Held to maturity securities Amortized Cost Fair Value December 31, 2022 Obligations of states and political subdivisions $ 600 $ 546 Mortgage-backed securities 95,779 76,233 Total held to maturity securities $ 96,379 $ 76,779 December 31, 2021 Obligations of states and political subdivisions $ 4,600 $ 4,593 Mortgage-backed securities 66,541 64,584 Total held to maturity securities $ 71,141 $ 69,177 The amortized cost and fair values of our investment securities by maturity, as of December 31, 2022 were as follows: Available for sale securities Amortized Cost Estimated Fair Value Due in one year or less $ — $ — Due after one year through five years 8,525 8,184 Due after five years through ten years 45,622 41,427 Due after ten years 38,739 37,770 Total securities with contractual maturities 92,886 87,381 Mortgage-backed securities 97,458 78,610 Total available for sale securities $ 190,344 $ 165,991 Held to maturity securities Amortized Cost Estimated Fair Value Due after one year through five years $ 450 $ 415 Due after five years through ten years 150 131 Total securities with contractual maturities 600 546 Mortgage-backed securities 95,779 76,233 Total held to maturity securities $ 96,379 $ 76,779 The amortized cost and fair values of our investment securities by maturity, as of December 31, 2021 were as follows: Available for sale securities Amortized Cost Estimated Fair Value Due in one year or less $ 140 $ 140 Due after one year through five years 4,903 4,971 Due after five years through ten years 40,410 40,818 Due after ten years 49,757 49,972 Total securities with contractual maturities 95,210 95,901 Mortgage-backed securities 107,636 107,167 Total available for sale securities $ 202,846 $ 203,068 Held to maturity securities Amortized Cost Estimated Fair Value Due after one year through five years $ 4,300 $ 4,298 Due after five years through ten years 300 295 Total securities with contractual maturities 4,600 4,593 Mortgage-backed securities 66,541 64,584 Total held to maturity securities $ 71,141 $ 69,177 31 The following tables show the fair value and gross unrealized losses of securities with unrealized losses, as of the dates indicated below, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position: Less than 12 Months 12 Months or More Total Available for sale securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2022 U.S. government agency obligations $ 3,169 $ 138 $ 1,138 $ 95 $ 4,307 $ 233 Mortgage-backed securities 9,654 896 68,907 17,952 78,561 18,848 Corporate debt securities 21,547 1,688 18,704 2,697 40,251 4,385 Corporate asset-backed securities 7,955 221 20,862 839 28,817 1,060 Total available for sale securities $ 42,325 $ 2,943 $ 109,611 $ 21,583 $ 151,936 $ 24,526 December 31, 2021 U.S. government agency obligations $ 1,169 $ 1 $ — $ — $ 1,169 $ 1 Mortgage-backed securities 89,010 878 — — 89,010 878 Corporate debt securities 17,240 142 735 15 17,975 157 Corporate asset-backed securities 19,296 127 — — 19,296 127 Total available for sale securities $ 126,715 $ 1,148 $ 735 $ 15 $ 127,450 $ 1,163 Less than 12 Months 12 Months or More Total Held to maturity securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2022 Obligations of states and political subdivisions $ — $ — $ 546 $ 54 $ 546 $ 54 Mortgage-backed securities 16,627 2,416 59,367 17,137 75,994 19,553 Total held to maturity securities $ 16,627 $ 2,416 $ 59,913 $ 17,191 $ 76,540 $ 19,607 December 31, 2021 Obligations of states and political subdivisions $ 593 $ 7 $ — $ — $ 593 $ 7 Mortgage-backed securities 46,969 1,346 14,716 715 61,685 2,061 Total held to maturity securities $ 47,562 $ 1,353 $ 14,716 $ 715 $ 62,278 $ 2,068 Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not deemed other-than-temporary.
The amortized cost and market values of our investment securities by asset categories as of the dates indicated below were as follows: Available for sale securities Amortized Cost Fair Value December 31, 2023 U.S. government agency obligations $ 16,655 $ 16,576 Mortgage-backed securities 91,091 73,480 Corporate debt securities 47,158 41,174 Asset-backed securities 24,840 24,513 Total available for sale securities $ 179,744 $ 155,743 December 31, 2022 U.S. government agency obligations $ 18,373 $ 18,313 Mortgage-backed securities 97,458 78,610 Corporate debt securities 44,636 40,251 Asset-backed securities 29,877 28,817 Total available for sale securities $ 190,344 $ 165,991 Held to maturity securities Amortized Cost Fair Value December 31, 2023 Obligations of states and political subdivisions $ 600 $ 565 Mortgage-backed securities 90,629 72,697 Total held to maturity securities $ 91,229 $ 73,262 December 31, 2022 Obligations of states and political subdivisions $ 600 $ 546 Mortgage-backed securities 95,779 76,233 Total held to maturity securities $ 96,379 $ 76,779 The amortized cost and fair values of our investment securities by maturity, as of December 31, 2023 were as follows: 32 Available for sale securities Amortized Cost Estimated Fair Value Due in one year or less $ — $ — Due after one year through five years 13,986 13,703 Due after five years through ten years 45,549 39,701 Due after ten years 29,118 28,859 Total securities with contractual maturities 88,653 82,263 Mortgage-backed securities 91,091 73,480 Total available for sale securities $ 179,744 $ 155,743 Held to maturity securities Amortized Cost Estimated Fair Value Due in one year or less $ 100 $ 100 Due after one year through five years 500 465 Due after five years through ten years — — Total securities with contractual maturities 600 565 Mortgage-backed securities 90,629 72,697 Total held to maturity securities $ 91,229 $ 73,262 The amortized cost and fair values of our investment securities by maturity, as of December 31, 2022 were as follows: Available for sale securities Amortized Cost Estimated Fair Value Due in one year or less $ — $ — Due after one year through five years 8,525 8,184 Due after five years through ten years 45,622 41,427 Due after ten years 38,739 37,770 Total securities with contractual maturities 92,886 87,381 Mortgage-backed securities 97,458 78,610 Total available for sale securities $ 190,344 $ 165,991 Held to maturity securities Amortized Cost Estimated Fair Value Due after one year through five years $ 450 $ 415 Due after five years through ten years 150 131 Total securities with contractual maturities 600 546 Mortgage-backed securities 95,779 76,233 Total held to maturity securities $ 96,379 $ 76,779 33 The following tables show the fair value and gross unrealized losses of securities with unrealized losses, as of the dates indicated below, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position: Less than 12 Months 12 Months or More Total Available for sale securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2023 U.S. government agency obligations $ 3,776 $ 5 $ 3,627 $ 151 $ 7,403 $ 156 Mortgage-backed securities — — 73,476 17,611 73,476 17,611 Corporate debt securities 3,350 76 35,916 5,914 39,266 5,990 Asset-backed securities 3,348 22 20,008 317 23,356 339 Total available for sale securities $ 10,474 $ 103 $ 133,027 $ 23,993 $ 143,501 $ 24,096 December 31, 2022 U.S. government agency obligations $ 3,169 $ 138 $ 1,138 $ 95 $ 4,307 $ 233 Mortgage-backed securities 9,654 896 68,907 17,952 78,561 18,848 Corporate debt securities 21,547 1,688 18,704 2,697 40,251 4,385 Asset-backed securities 7,955 221 20,862 839 28,817 1,060 Total available for sale securities $ 42,325 $ 2,943 $ 109,611 $ 21,583 $ 151,936 $ 24,526 Less than 12 Months 12 Months or More Total Held to maturity securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2023 Obligations of states and political subdivisions $ — $ — $ 565 $ 35 $ 565 $ 35 Mortgage-backed securities — — 72,507 17,938 72,507 17,938 Total held to maturity securities $ — $ — $ 73,072 $ 17,973 $ 73,072 $ 17,973 December 31, 2022 Obligations of states and political subdivisions $ — $ — $ 546 $ 54 $ 546 $ 54 Mortgage-backed securities 16,627 2,416 59,367 17,137 75,994 19,553 Total held to maturity securities $ 16,627 $ 2,416 $ 59,913 $ 17,191 $ 76,540 $ 19,607 Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not deemed other-than-temporary.
The following table shows interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates.
These decreases were partially offset by increases in loan and investment yields. 26 Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table shows interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest bearing liabilities, expressed in dollars and rates.
We maintain access to additional sources of funds including FHLB borrowings and lines of credit with the Federal Reserve Bank, and our correspondent banks. We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk.
We utilize FHLB borrowings to leverage our capital base, to provide funds for our lending and investment activities, and to manage our interest rate risk.
In 2022’s higher interest rate and tight housing supply environment, the Company experienced fewer mortgage loans originated for sale, which decreased gain on sale and income recorded in loan servicing income from the capitalization of mortgage servicing rights. Non-interest expense increased modestly in 2022, largely due to the cost of closing branches.
A provision for loan losses of $1.475 million was recorded in 2022. Fiscal 2023’s higher interest rate and tight housing supply environment, led the Company to originate fewer mortgage loans for sale, which decreased gain on sale and income recorded in loan servicing income from the capitalization of mortgage servicing rights.
(3) The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2022 and December 31, 2021 were 4.09% and 2.45%, respectively. (4) At December 31, 2022, no FHLB term notes can be called by the FHLB.
(3) The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2023 and December 31, 2022 were 4.16% and 4.09%, respectively. (4) At December 31, 2023, one FHLB term note totaling $10,000 could be called once by the FHLB on June 15, 2024, and if not called, would mature in 2028.
Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio As of December 31, 2022 Total capital (to risk weighted assets) $ 218,737 14.0 % $ 124,971 > = 8.0 % Tier 1 capital (to risk weighted assets) 150,798 9.7 % 93,728 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 150,798 9.7 % 70,296 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 150,798 8.5 % 70,610 > = 4.0 % As of December 31, 2021 Total capital (to risk weighted assets) $ 182,242 13.1 % $ 111,694 > = 8.0 % Tier 1 capital (to risk weighted assets) 135,329 9.7 % 83,771 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 135,329 9.7 % 62,828 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 135,329 7.9 % 68,323 > = 4.0 % 48 Selected Quarterly Financial Data The following is selected financial data summarizing the results of operations for each quarter as of the periods indicated below: Year ended December 31, 2022: March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Interest income $ 15,376 $ 16,703 $ 17,959 $ 19,359 Interest expense 2,209 2,436 3,502 4,881 Net interest income 13,167 14,267 14,457 14,478 Provision for loan losses — 400 375 700 Net interest income after provision for loan losses 13,167 13,867 14,082 13,778 Non-interest income 2,713 2,372 2,472 2,873 Non-interest expense 9,668 10,462 11,277 10,336 Income before income tax expense 6,212 5,777 5,277 6,315 Provision for income tax 1,506 1,411 1,284 1,619 Net income $ 4,706 $ 4,366 $ 3,993 $ 4,696 Basic earnings per share $ 0.45 $ 0.41 $ 0.38 $ 0.45 Diluted earnings per share $ 0.45 $ 0.41 $ 0.38 $ 0.45 Dividends paid $ 0.26 $ — $ — $ — Year ended December 31, 2021: March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 Interest income $ 15,620 $ 15,478 $ 16,175 $ 16,762 Interest expense 2,856 2,647 2,487 2,378 Net interest income 12,764 12,831 13,688 14,384 Provision for loan losses — — — — Net interest income after provision for loan losses 12,764 12,831 13,688 14,384 Non-interest income 4,176 3,793 3,448 4,407 Non-interest expense 9,489 10,198 10,320 10,525 Income before income tax expense 7,451 6,426 6,816 8,266 Provision for income tax 1,945 1,720 1,819 2,209 Net income $ 5,506 $ 4,706 $ 4,997 $ 6,057 Basic earnings per share $ 0.50 $ 0.44 $ 0.47 $ 0.58 Diluted earnings per share $ 0.50 $ 0.44 $ 0.47 $ 0.58 Dividends paid $ 0.23 $ — $ — $ —
Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio As of December 31, 2023 Total capital (to risk weighted assets) $ 230,160 14.7 % $ 124,883 > = 8.0 % Tier 1 capital (to risk weighted assets) 160,794 10.3 % 93,662 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 160,794 10.3 % 70,247 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 160,794 8.9 % 72,479 > = 4.0 % As of December 31, 2022 Total capital (to risk weighted assets) $ 218,737 14.0 % $ 124,971 > = 8.0 % Tier 1 capital (to risk weighted assets) 150,798 9.7 % 93,728 > = 6.0 % Common equity tier 1 capital (to risk weighted assets) 150,798 9.7 % 70,296 > = 4.5 % Tier 1 leverage ratio (to adjusted total assets) 150,798 8.5 % 70,610 > = 4.0 % 50 Selected Quarterly Financial Data The following is selected financial data summarizing the results of operations for each quarter as of the periods indicated below: Year ended December 31, 2023: March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 Interest dividend income $ 19,673 $ 20,777 $ 21,772 $ 22,026 Interest expense 6,878 9,091 9,651 10,279 Net interest income before provision for credit losses 12,795 11,686 12,121 11,747 Provision for credit losses 50 450 (325) (650) Net interest income after provision for credit losses 12,745 11,236 12,446 12,397 Non-interest income 2,292 2,913 2,565 2,480 Non-interest expense 10,121 9,846 9,969 10,206 Income before provision for income taxes 4,916 4,303 5,042 4,671 Provision for income taxes 1,254 1,097 2,544 978 Net income attributable to common stockholders $ 3,662 $ 3,206 $ 2,498 $ 3,693 Basic earnings per share $ 0.35 $ 0.31 $ 0.24 $ 0.35 Diluted earnings per share $ 0.35 $ 0.31 $ 0.24 $ 0.35 Cash dividends paid $ 0.29 $ — $ — $ — Year ended December 31, 2022: March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Interest dividend income $ 15,376 $ 16,703 $ 17,959 $ 19,359 Interest expense 2,209 2,436 3,502 4,881 Net interest income before provision for loan losses 13,167 14,267 14,457 14,478 Provision for loan losses — 400 375 700 Net interest income after provision for loan losses 13,167 13,867 14,082 13,778 Non-interest income 2,713 2,372 2,472 2,873 Non-interest expense 9,668 10,462 11,277 10,336 Income before provision for income taxes 6,212 5,777 5,277 6,315 Provision for income taxes 1,506 1,411 1,284 1,619 Net income $ 4,706 $ 4,366 $ 3,993 $ 4,696 Basic earnings per share $ 0.45 $ 0.41 $ 0.38 $ 0.45 Diluted earnings per share $ 0.45 $ 0.41 $ 0.38 $ 0.45 Cash dividends paid $ 0.26 $ — $ — $ —
Twelve months ended December 31, % Change From prior year 2022 2021 2022 over 2021 Non-interest Expense: Compensation and related benefits $ 22,128 $ 22,723 (2.62)% Occupancy 5,490 5,327 3.06% Data processing 5,453 5,560 (1.92)% Amortization of intangible assets 1,449 1,596 (9.21)% Mortgage servicing rights expense, net 222 191 16.23% Advertising, marketing and public relations 1,017 986 3.14% FDIC premium assessment 470 551 (14.70)% Professional services 1,707 1,542 10.70% Gains on repossessed assets, net (395) (199) 98.49% New market tax credit depletion 650 — N/M Other 3,552 2,255 57.52% Total non-interest expense $ 41,743 $ 40,532 2.99% Non-interest expense (annualized) / Average assets 2.32 % 2.35 % Compensation expense decreased in 2022 primarily due to lower salaries due to lower headcount and a decrease in incentives based on performance.
Twelve months ended December 31, % Change From prior year 2023 2022 2023 over 2022 Non-interest Expense: Compensation and related benefits $ 21,106 $ 22,128 (4.62)% Occupancy 5,431 5,490 (1.07)% Data processing 5,951 5,453 9.13% Amortization of intangible assets 755 1,449 (47.90)% Mortgage servicing rights expense, net 615 222 177.03% Advertising, marketing and public relations 734 1,017 (27.83)% FDIC premium assessment 812 470 72.77% Professional services 1,524 1,707 (10.72)% (Losses) gains on repossessed assets, net 62 (395) (115.70)% New market tax credit depletion — 650 N/M Other 3,152 3,552 (11.26)% Total non-interest expense $ 40,142 $ 41,743 (3.84)% Non-interest expense (annualized) / Average assets 2.19 % 2.32 % Compensation expense decreased in 2023 largely due to lower incentive compensation due to lower production volumes and lower net income.
If there are significant charge-offs against the ALL, or we otherwise determine that the ALL is inadequate, we will need to record an additional PLL in the future.
If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future. Non-Interest Income . The following table reflects the various components of non-interest income for 2023 and 2022, respectively.
We believe that the deferred tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements. As of December 31, 2022, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary. 24 STATEMENT OF OPERATIONS ANALYSIS Twelve months ended December 31, 2022 vs.
We believe that the deferred tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements. As of December 31, 2023, a valuation allowance related to the realizability of its deferred tax assets was necessary due to the 2023 Wisconsin budget change, which resulted in the company not realizing a future deduction on its deferred assets.
We follow all applicable regulatory guidance, including the “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued by the Federal Financial Institutions Examination Council (FFIEC). We believe that the Bank’s Allowance for Loan Losses Policy conforms to all applicable regulatory requirements.
We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration. We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory requirements.
These increases were more than offset by: (1) the repurchase of approximately 129 thousand shares of its common stock, which reduced equity by $1.8 million; (2) the payment of the annual cash dividend, paid in February 2022, to common stockholders at $0.26 per share or $2.7 million; and (3) an increase in the unrealized loss on available for sale securities of $17.8 million.
These increases were offset by: (1) the $4.4 million cumulative effect adjustment from the adoption of ASU 2016-13; (2) the payment of the annual cash dividend paid in February to common stockholders of $0.29 per share, or $3.0 million; and (3) the repurchase of approximately 42 thousand shares of its common stock, which reduced equity by $0.4 million.
(5) Senior notes, entered into by the Company in June 2019 consist of the following: (a) A term note, which was subsequently refinanced in March 2022, requiring quarterly interest-only payments through March 2025, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.
At December 31, 2022, no FHLB term notes could be called by the FHLB. (5) Senior notes, entered into by the Company in June 2019 consist of the following: (a) A term note, which was subsequently refinanced in March 2022 and modified in February of 2023, requiring quarterly interest-only payments through March 2027, and quarterly principal and interest payments thereafter.
(b) A $5,000 line of credit, maturing in August 2023, that remains undrawn upon. (6) Subordinated notes resulted from the following: (a) The Company’s private sale in August 2017, which bore a fixed interest rate of 6.75% for five years. In August 2022, they converted to a three-month LIBOR plus 4.90% rate, and the interest rate will reset quarterly thereafter.
Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%. (b) A $5,000 line of credit, maturing in August 2024, that remains undrawn upon. 46 (6) Subordinated notes resulted from the following: (a) The Company’s private sale in August 2017, which bore a fixed interest rate of 6.75% for five years.
Twelve months ended December 31, 2022 Twelve months ended December 31, 2021 Average Balance Interest Income/ Expense Average Yield/ Rate Average Balance Interest Income/ Expense Average Yield/ Rate Average interest earning assets: Cash and cash equivalents $ 19,796 $ 203 1.03 % $ 99,839 $ 122 0.12 % Loans 1,351,052 61,639 4.56 % 1,216,244 58,172 4.78 % Interest-bearing deposits 1,106 24 2.17 % 2,047 45 2.20 % Investment securities (1) 278,056 6,767 2.43 % 271,715 5,009 1.84 % Other investments 15,230 764 5.02 % 15,025 687 4.57 % Total interest earning assets (1) $ 1,665,240 $ 69,397 4.17 % $ 1,604,870 $ 64,035 3.99 % Average interest bearing liabilities: Savings accounts $ 225,204 $ 730 0.32 % $ 212,867 $ 369 0.17 % Demand deposits 403,289 1,881 0.47 % 367,103 1,047 0.29 % Money market 317,879 1,721 0.54 % 269,620 783 0.29 % CD’s 153,085 1,853 1.21 % 224,708 3,200 1.42 % IRA’s 35,192 244 0.69 % 39,699 451 1.14 % Total deposits $ 1,134,649 $ 6,429 0.57 % $ 1,113,997 $ 5,850 0.53 % FHLB Advances and other borrowings 189,274 6,599 3.49 % 173,029 4,518 2.61 % Total interest bearing liabilities $ 1,323,923 $ 13,028 0.98 % $ 1,287,026 $ 10,368 0.81 % Net interest income $ 56,369 $ 53,667 Interest rate spread 3.19 % 3.18 % Net interest margin (1) 3.39 % 3.34 % Average interest earning assets to average interest bearing liabilities 1.26 % 1.25 % (1) Fully taxable equivalent (FTE).
Twelve months ended December 31, 2023 Twelve months ended December 31, 2022 Average Balance Interest Income/ Expense Average Yield/ Rate Average Balance Interest Income/ Expense Average Yield/ Rate Average interest earning assets: Cash and cash equivalents $ 18,469 $ 1,010 5.47 % $ 19,796 $ 203 1.03 % Loans receivable 1,430,035 73,577 5.15 % 1,351,052 61,639 4.56 % Interest bearing deposits 63 1 1.59 % 1,106 24 2.17 % Investment securities (1) 257,020 8,606 3.35 % 278,056 6,767 2.43 % Other investments 16,274 1,054 6.48 % 15,230 764 5.02 % Total interest earning assets (1) $ 1,721,861 $ 84,248 4.89 % $ 1,665,240 $ 69,397 4.17 % Average interest bearing liabilities: Savings accounts $ 200,087 $ 1,427 0.71 % $ 234,755 $ 753 0.32 % Demand deposits 359,866 6,727 1.87 % 403,289 1,881 0.47 % Money market accounts 306,020 6,976 2.28 % 317,879 1,721 0.54 % CD’s 317,376 10,619 3.35 % 178,726 2,074 1.16 % Total deposits $ 1,183,349 $ 25,749 2.18 % $ 1,134,649 $ 6,429 0.57 % FHLB advances and other borrowings 208,373 10,150 4.87 % 189,274 6,599 3.49 % Total interest bearing liabilities $ 1,391,722 $ 35,899 2.58 % $ 1,323,923 $ 13,028 0.98 % Net interest income $ 48,349 $ 56,369 Interest rate spread 2.31 % 3.19 % Net interest margin (1) 2.81 % 3.39 % Average interest earning assets to average interest bearing liabilities 1.24 % 1.26 % (1) Fully taxable equivalent (FTE).
However, based on periodic examinations by regulators, the amount of the allowance for loan losses recorded during a particular period may be adjusted.
However, based on periodic examinations by regulators, the amount of the allowance for credit losses recorded during a particular period may be adjusted. Our determination of the allowance for credit losses - loans is based on (1) an individual allowance for specifically identified and evaluated loans that management has determined have unique risk characteristics.
In 2022, the Company performed quarterly reviews to determine if a triggering event had occurred that would require impairment testing. These quarterly reviews determined that no triggering event occurred during 2022. The Company performed its required annual goodwill impairment test as of December 31, 2022, and determined that goodwill was not impaired. Fair Value Measurements and Valuation Methodologies.
The Company has monitored events and conditions quarterly since December 31, 2022, and has determined that no triggering event has occurred that would require goodwill to be tested for impairment at an interim date. The Company also performed its required annual goodwill impairment testing and determined that goodwill was not impaired as of December 31, 2023.
Non-performing loans are defined as either 90 days or more past due or non-accrual.
We employ early identification of non-accrual and problem loans in order to minimize the risk of loss. Non-performing loans are defined as either 90 days or more past due or non-accrual.
At December 31, 2021, the Bank had no borrowing capacity under the Federal Reserve SBA PPP Liquidity Facility, as the program expired on July 30, 2021. We also had borrowing capacity of $4.1 million at the Federal Reserve Bank and $75 million of uncommitted federal funds purchased lines with correspondent banks as part of our contingency funding plan.
We also had borrowing capacity of $22.4 million at the Federal Reserve Bank and have been approved to access the Bank Term Funding Program (“BTFP”) if the need should arise. The Bank maintains $70 million of uncommitted federal funds purchased lines with correspondent banks as part of our contingency funding plan.
In 2021, amortization was $1.6 million and additions from originations were $1.1 million for a reduction in the gross asset of $0.5 million The unpaid balances of one- to four-family residential real estate loans serviced for others as of December 31, 2022, and December 31, 2021, were $523.7 million and $556.1 million, respectively.
The amortized cost of MSR assets decreased as amortization exceeded additions due to loan sales, resulting in the unpaid balances of one-to-four family residential real estate loans serviced for others to decrease as of December 31, 2023, to $495.5 million from $523.7 million at December 31, 2022.
Securities AFS (recorded at fair value), which represent the majority of our investment portfolio, decreased to $166.0 million at December 31, 2022, compared with $203.1 million at December 31, 2021. This decrease is due to the change in unrealized losses of $24.6 million in 2022, along with principal repayments and maturities.
Our investment portfolio is comprised of securities available for sale (“AFS”) and securities held to maturity (“HTM”). Securities AFS (recorded at fair value), which represent the majority of our investment portfolio, decreased to $155.7 million at December 31, 2023, compared with $166.0 million at December 31, 2022.
When comparing year-over-year results, changes in net interest income, provision for loan losses, non-interest income and non-interest expense are primarily due to the items discussed above. See the remainder of this section for a more thorough discussion.
Non-interest expense decreased modestly in 2023, largely due to lower compensation expense due to lower production incentives and lower net income and higher branch closing costs incurred in 2022. When comparing year-over-year results, changes in net interest income, provision for credit losses, non-interest income and non-interest expense are primarily due to the items discussed above.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+3 added−3 removed6 unchanged
Biggest changeIn order to manage our assets and liabilities and achieve desired levels of liquidity, credit quality, cash flow, interest rate risk, profitability and capital targets, we have focused our strategies on: • originating shorter-term secured commercial, agricultural and consumer loan maturities; • originating variable rate commercial and agricultural loans; • the sale of a vast majority of longer-term fixed-rate residential loans in the secondary market with retained servicing; • managing our funding needs by growing core deposits; • utilizing brokered certificate of deposits and borrowings as appropriate, which may have fixed rates with varying maturities; • purchasing investment securities to modify our interest rate risk profile At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCO may determine to increase the Bank’s interest rate risk position somewhat in order to maintain or improve its net interest margin. 50 The following table sets forth, at December 31, 2022 and December 31, 2021, an analysis of our interest rate risk as measured by the estimated changes in Economic Value of Equity (EVE) resulting from an immediate and permanent shift in the yield curve with the results of the scenarios shown in the table below.
Biggest changeIn managing our assets and liabilities to achieve desired levels of interest rate risk, we have focused our strategies on: • originating shorter-term secured commercial, agricultural and consumer loan maturities; • originating variable rate commercial and agricultural loans; • the sale of a vast majority of longer-term fixed-rate residential loans in the secondary market with retained servicing; • managing our funding needs growing core deposits; • utilize brokered certificate of deposits and borrowings as appropriate, which may have fixed rates with varying maturities; • purchasing investment securities to modify our interest rate risk profile.
In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates. 49 In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and re-pricing terms of our interest earning assets and interest-bearing liabilities.
In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates. 51 In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and re-pricing terms of our interest earning assets and interest bearing liabilities.
Percent Change in Economic Value of Equity (EVE) Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1) At December 31, 2022 At December 31, 2021 +300 bp 0% (5)% +200 bp 0% (3)% +100 bp 0% (1)% -100 bp (1)% (1)% -200 bp (4)% N/M (1) Assumes an immediate and parallel shift in the yield curve at all maturities.
Percent Change in Economic Value of Equity (EVE) Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1) At December 31, 2023 At December 31, 2022 +300 bp 0% 0% +200 bp 0% 0% +100 bp 0% 0% -100 bp 0% (1)% -200 bp (2)% (4)% (1) Assumes an immediate and parallel shift in the yield curve at all maturities.
Percent Change in Net Interest Income Over One Year Horizon Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1) At December 31, 2022 At December 31, 2021 +300 bp (3)% (11)% +200 bp (2)% (7)% +100 bp (1)% (4)% -100 bp 1% 0% -200 bp 2% N/M (1) Assumes an immediate and parallel shift in the yield curve at all maturities.
Percent Change in Net Interest Income Over One Year Horizon Change in Interest Rates in Basis Points (“bp”) Rate Shock in Rates (1) At December 31, 2023 At December 31, 2022 +300 bp (13)% (3)% +200 bp (8)% (2)% +100 bp (4)% (1)% -100 bp 4% 1% -200 bp 7% 2% (1) Assumes an immediate and parallel shift in the yield curve at all maturities.
This analysis assesses the risk of change in our net interest income over the next 12 months in the event of an immediate and parallel shift in the yield curve and the results of the scenarios are shown in the table below.
This analysis assesses the risk of change in our net interest income over the next 12 months in the event of an immediate and parallel shift in the yield curve (up 300 basis points and down 200 basis points).
Our overall interest rate sensitivity is demonstrated by net interest income shock analysis which measures the change in net interest income in the event of an immediate and permanent shift in the yield curve.
Our overall interest rate sensitivity is demonstrated by net interest income shock analysis, which measures the change in net interest income in the event of hypothetical changes in interest rates.
The ALCO establishes guidelines for and monitors the volume and mix of our assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The Committee’s objectives are to manage assets and funding sources to produce results that are consistent with liquidity, cash flow, capital adequacy, growth, risk and profitability goals for the Bank.
The Committee’s objectives are to manage assets and funding sources to produce results that are consistent with liquidity, cash flow, capital adequacy, growth, risk, and profitability goals for the Bank.
Note: The table above may not be indicative of future results. The assumptions used to measure and assess interest rate risk include interest rates, loan prepayment rates, deposit decay (runoff) rates, and the market values of certain assets under differing interest rate scenarios.
The assumptions used to measure and assess interest rate risk include interest rates, loan prepayment rates, deposit decay (runoff) rates, and the market values of certain assets under differing interest rate scenarios. Actual values may differ from those projections set forth above should market conditions vary from the assumptions used in preparing the analysis.
These policies are implemented by our Asset and Liability Management Committee (ALCO). The ALCO is comprised of members of the Bank’s senior management and a member from the Board of Directors.
These policies are implemented by our Asset and Liability Management Committee (ALCO). The ALCO is comprised of members of the Bank’s senior management and Board of Directors. The ALCO establishes guidelines for and monitors the volume and mix of our assets and funding sources, taking into account relative costs and spreads, interest rate sensitivity and liquidity needs.
Actual values may differ from those projections set forth above should market conditions vary from the assumptions used in preparing the analysis. Further, the computations do not contemplate any actions we may undertake in response to changes in interest rates. 51
Further, the computations do not contemplate any actions we may undertake in response to changes in interest rates. 53
Removed
As of December 31, 2021, due to the level of interest rates, EVE estimates for decreases in interest rates greater than 100 basis points were not meaningful. The reduction in risk in the up-interest rate shocks from December 31, 2021 in the percentage of change in economic value of equity is largely due to the increased value of non-maturity deposits.
Added
At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCO may determine to increase the Bank’s interest rate risk position somewhat in order to maintain or improve its net interest margin. 52 The following table sets forth, at December 31, 2023 and December 31, 2022 an analysis of our interest rate risk as measured by the estimated changes in Economic Value of Equity (“EVE”) resulting from an immediate and permanent shift in the yield curve (up 300 basis points and down 200 basis points).
Removed
As of December 31, 2021, due to the level of interest rates, projected changes in net interest income for rate shock level decreases greater than 100 basis points were not meaningful.
Added
The table below presents our projected change in net interest income for the various rate shock levels at December 31, 2023, and December 31, 2022.
Removed
The decrease in the reduction of the percent change in net interest income rate shocks in the up-interest scenarios is largely due to the impact of the actual results and changes in the balance sheet compared to a flat balance sheet used in the simulation.
Added
Note: The table above may not be indicative of future results. The projected changes in net interest income in the rate shock scenarios is largely due to the impact of growth in short-term certificates of deposits, which reprice faster and at a higher rate than other deposit products.

Other CZWI 10-K year-over-year comparisons