What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-07 compared with 2022-03-02 · 177 added, 122 removed, 1559 unchanged (16% of the section changed)

90 unchanged sentences

Retained earnings 65,400 50,675

Accumulated other comprehensive income 161 1,490

Accumulated other comprehensive (loss) income ( 17,656 ) 161

Total stockholders’ equity 167,088 170,866

11 unchanged sentences

Interest on deposits 6,429 5,850

Interest on FHLB and FRB borrowed funds 1,572 1,814

Interest on FHLB borrowed funds 2,303 1,572

Interest on other borrowed funds 4,296 2,946

9 unchanged sentences

Loan fees and service charges 679 705

Insurance commission income — 475

Net gains (losses) on investment securities 1,224 110

Net gain on sale of acquired business lines — 432

Settlement proceeds — 131

Net gains on investment securities 541 1,224

Other 936 1,094

10 unchanged sentences

Gain on repossessed assets, net ( 395 ) ( 199 )

New market tax credit depletion 650 —

Other 3,552 2,255

Total non-interest expense 41,743 40,532

Income before provision for income tax 28,959 17,280

Income before provision for income taxes 23,581 28,959

Provision for income taxes 5,820 7,693

6 unchanged sentences

CITIZENS COMMUNITY BANCORP, INC.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

1 unchanged sentence

Net income attributable to common stockholders $ 17,761 $ 21,266

Other comprehensive (loss) income, net of tax:

Other comprehensive loss, net of tax:

Securities available for sale

Net unrealized (losses) gains arising during period, net of tax ( 909 ) 2,074

Net unrealized losses arising during period, net of tax ( 17,817 ) ( 909 )

Reclassification adjustment for net gains included in net income, net of tax — ( 420 )

Other comprehensive (loss) income, net of tax ( 1,329 ) 1,961

Comprehensive income $ 19,937 $ 14,686

Other comprehensive loss, net of tax ( 17,817 ) ( 1,329 )

Comprehensive (loss) income $ ( 56 ) $ 19,937

See accompanying notes to audited consolidated financial statements.

7 unchanged sentences

Other comprehensive income, net of tax — — — — ( 1,329 ) ( 1,329 )

Forfeiture of unvested shares ( 1,500 ) — — — — —

Surrender of restricted shares of common stock ( 2,409 ) — ( 30 ) — — ( 30 )

Restricted common stock awarded under the equity incentive plan 64,399 — — — — —

Common stock fractional share adjustment on acquisitions ( 40 ) — — — — —

Common stock options exercised 5,800 — 52 — — 52

Common stock repurchased ( 620,197 ) ( 6 ) ( 7,056 ) ( 889 ) — ( 7,951 )

9 unchanged sentences

Restricted common stock awarded under the equity incentive plan 45,222 — — — — —

Restricted common stock issued upon achievement of the 2019 performance criteria 11,834 — — — — —

Common stock options exercised 7,900 — 71 — — 71

16 unchanged sentences

Provision for loan losses 1,475 —

Net realized (gain) loss on equity securities ( 651 ) 46

Net valuation gain on equity securities ( 541 ) ( 651 )

Net realized gain on debt securities — ( 573 )

Increase in mortgage servicing rights resulting from transfers of financial assets ( 323 ) ( 1,100 )

Mortgage servicing rights amortization and impairment, net 191 3,050

Mortgage servicing rights amortization and impairment reversal, net 222 191

Amortization of intangible assets 1,449 1,596

2 unchanged sentences

Loss on sale of office properties and equipment — 31

Decrease (increase) deferred income taxes 930 ( 2,526 )

Loss on closure of branch facilities 736 —

Decrease deferred income taxes 506 930

Increase in cash surrender value of life insurance ( 642 ) ( 628 )

1 unchanged sentence

Gain on sale of loans held for sale, net ( 1,474 ) ( 5,399 )

Net gain on sale of insurance agency — ( 252 )

New market tax credit depletion 650 —

Net change in:

13 unchanged sentences

Purchase of equity investments ( 300 ) ( 960 )

Net purchases of other investments 126 57

Equity investment capital distribution 136 —

Net (purchases) sales of other investments ( 290 ) 126

Proceeds from sales of foreclosed and repossessed assets 1,797 557

2 unchanged sentences

Proceeds from disposal of office properties and equipment 14 38

Net proceeds from sale of insurance agency — 1,128

New market tax credit investment ( 4,056 ) —

Net cash used in investing activities ( 119,187 ) ( 163,201 )

Cash flows from financing activities:

Net decrease in short-term Federal Home Loan Bank advances — ( 41,000 )

Federal Home Loan Bank advances 112,000 —

Amortization of fair value adjustments for acquired Federal Home Loan Bank advances 3 29

Long-term Federal Home Loan Bank advances — 66,500

Long-term Federal Home Loan Bank maturities ( 4,000 ) ( 33,000 )

Federal Home Loan Bank advances called ( 55,000 ) —

Federal Home Loan Bank advance termination payments ( 15,015 ) ( 8,113 )

Federal Home Loan Bank maturities ( 11,000 ) ( 4,000 )

Amortization of debt issuance costs 398 98

Proceeds from other borrowings, net of origination costs 34,191 —

Other borrowings principal reductions ( 5,606 ) —

Other borrowings called and repaid ( 15,000 ) —

Net increase in deposits 37,185 92,279

4 unchanged sentences

Net cash provided by financing activities 77,571 69,853

Net (decrease) increase in cash and cash equivalents ( 71,749 ) 63,600

Net decrease in cash and cash equivalents ( 12,328 ) ( 71,749 )

Cash and cash equivalents at beginning of period 47,691 119,440

19 unchanged sentences

The Company is a bank holding company, supervised by the Federal Reserve Bank of Minneapolis (the “FRB”), and operates under the title of Citizens Community Bancorp, Inc.

Wells Insurance Agency (“WIA”) was a wholly owned subsidiary of the Bank, providing insurance products to the Bank’s customers and was sold on June 30, 2020.

F&M Investment Corp.

of Tomah was a wholly owned subsidiary of the Bank that was formerly utilized by F&M to manage its municipal bond portfolio, and was dissolved in February 2020.

The Office of the Comptroller of the Currency (the “OCC”), is the primary federal regulator for the Bank.

14 unchanged sentences

Factors that may cause sensitivity to the aforementioned estimates include but are not limited to:

those items described under the caption “Risk Factors” in Item 1A of the accompanying transition report on Form 10-K for the year ended December 31, 2021 and external market factors such as market interest rates and unemployment rates, changes to operating policies and procedures, and changes in applicable banking regulations.

those items described under the caption “Risk Factors” in Item 1A of the accompanying annual report on Form 10-K for the year ended December 31, 2022 and external market factors such as market interest rates and unemployment rates, changes to operating policies and procedures, and changes in applicable banking regulations.

Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period.

2 unchanged sentences

The weighted average months to maturity of the interest bearing deposits is 3.00 months.

Balances over $ 250 in those institutions are not insured by the FDIC and therefore pose a potential

risk in the event the institution were to fail.

Balances over $ 250 in those institutions are not insured by the FDIC and therefore pose a potential risk in the event the institution were to fail.

As of December 31, 2022 and December 31, 2021, there were no certificate of deposit accounts with a balance greater than $ 250 .

20 unchanged sentences

Changes in fair value are recognized as net gains (losses) on investment securities in the consolidated Statement of Operations.

Also included in equity investments are the Company’s investments in a Volker Rule-compliant Small Business Investment Company ("SBIC") and an investment fund.

Also included in equity investments are the Company’s investments in a Volcker Rule-compliant Small Business Investment Company (SBIC) and an investment fund.

The SBIC and investment fund meet the definition of investment companies, as defined in ASC 946, Financial Services - Investment Companies.

4 unchanged sentences

We record the unrealized gains and losses resulting from changes in the fair value of these investments as gains or losses on equity securities in our consolidated statements of operations.

The carrying value of these investments is equal to the capital account balance per each entities' quarterly financial statements.

The carrying value of these investments is equal to the capital account balance as provided by the investee and adjusted as necessary.

Other investments - As a member of the Federal Reserve Bank System and the Federal Home Loan Bank (“FHLB”) System, the Bank is required to maintain an investment in the capital stock of these entities.

2 unchanged sentences

As no ready market exists for these stocks, and they have no quoted market value, these investments are carried at cost and periodically evaluated for impairment based on the ultimate recovery of par value.

Cash dividends are reported as other non-interest income in the consolidated statement of operations.

Cash dividends are reported as interest on investments in the consolidated statement of operations.

Also included in other investments is stock of our correspondent bank, Bankers’ Bank, without readily determinable fair value.

4 unchanged sentences

Other investments totaling $ 15,305 at December 31, 2021 consisted of $ 7,877 of FHLB stock, $ 5,200 of Federal Reserve Bank stock, and $ 2,228 of Bankers’ Bank stock.

Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, accretable yield on acquired loans, and non-accretable discount on purchased credit impaired (PCI) loans.

Loans receivable – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, accretable yield on acquired

loans, and non-accretable discount on purchased credit impaired (PCI) loans.

Interest income is accrued on the unpaid principal balance of these loans.

12 unchanged sentences

Loans are returned to accrual status when payments are made that bring the loan account current with the contractual term of the loan and a six month payment history has been established.

Interest on accruing troubled debt restructured (“TDR”), less than 90 days delinquent, is recognized as income as it accrues based on the revised terms of the loan over an established period of continued payment.

Interest on accruing troubled debt restructured (“TDR”) loans, less than 90 days delinquent, is recognized as income as it accrues based on the revised terms of the loan over an established period of continued payment.

Residential mortgage loans and open ended consumer installment loans are charged off to estimated net realizable value less estimated selling costs at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more.

28 unchanged sentences

Any allowance for loan loss on these pools reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received).

Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be

collected on the loans and discounting those cash flows at a market rate of interest.

Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

Management considers a number of factors in evaluating the acquisition-date fair value including:

the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

the remaining life of the acquired loans, delinquency status, estimated

prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if we expect to fully collect the new carrying value of the loans.

28 unchanged sentences

The valuation of MSRs and related amortization, included in mortgage servicing rights expense in the consolidated statements of operations, thereon are based on numerous factors, assumptions and judgments, such as those for:

changes in the mix of loans, interest rates, prepayment speeds, and default rates.

changes in the

mix of loans, interest rates, prepayment speeds, and default rates.

Changes in these factors, assumptions and judgments may have a material effect on the valuation and amortization of MSRs.

13 unchanged sentences

Goodwill and other intangible assets— The Company accounts 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.

The Company amortizes acquired intangible assets, primarily Core Deposit Intangibles (CDI) with definite useful economic lives over their useful economic lives ranging from 48 to 111 months utilizing the straight-line method.

The Company amortizes acquired intangible assets, primarily Core Deposit Intangibles (CDI) with definite useful economic lives over their useful economic lives originally ranging from 48 to 111 months utilizing the straight-line method.

On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amounts of the intangible assets may be impaired.

9 unchanged sentences

See Note 6 for additional information on goodwill and other intangible assets.

Foreclosed and Repossessed Assets, net – Assets acquired through foreclosure or repossession are initially recorded at fair value, less estimated costs to sell, which establishes a new cost basis.

Foreclosed and Repossessed Assets – Assets acquired through foreclosure or repossession are initially recorded at fair value, less estimated costs to sell, which establishes a new cost basis.

If the fair value declines subsequent to foreclosure or repossession, a write-down is recorded through expense.

4 unchanged sentences

Income from the increase in cash surrender value of the policies as well as the receipt of death benefits is included in non-interest income on the consolidated statements of operations.

New Markets Tax Credits - As a part of its commitment to the communities it serves, in the first quarter of 2022, the Company made an investment in an LLC that is sponsoring a community development project that has been awarded a New Markets Tax Credit (“NMTC”) through the U.S.

Department of the Treasury’s Community Development Financial Institutions Fund.

This investment is Community Reinvestment Act eligible and is designed to generate a return primarily through the realization of the tax credit.

This LLC is considered a Variable Interest Entity (“VIE”), as the Company represents the holder of the equity investment at risk.

However, the Company does not have the ability to direct the activities that most significantly affect the performance of the LLC.

As such, the Company is not the primary beneficiary of the VIE and the LLC has not been consolidated.

The investment is accounted for using the equity method of accounting and is amortized through non-interest

expense as the related tax credits are utilized.

The utilization of the tax credit is recognized as a reduction in income tax expense.

As of December 31, 2022, the carrying amount of this investment, which is included in other assets in the consolidated balance sheets, was $ 3,350 .

The risk of loss with this investment is limited to its carrying value and is tied to its ability to operate in compliance with the rules and regulations necessary for the qualification of the tax credit generated by the investment.

As of December 31, 2022, there were no known instances of noncompliance associated with the investment.

Leases - We determine if an arrangement is a lease at inception.

4 unchanged sentences

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date,

based on the present value of lease payments over the lease term.

Operating lease ROU assets and liabilities are recognized at commencement date, based on the present value of lease payments over the lease term.

As none of our existing leases provide an implicit rate, we use our incremental borrowing rate, based on information available at commencement date, in determining the present value of lease payments.

2 unchanged sentences

Lease expense is recognized based on the total contractually required lease payments, over the term of the lease, on a straight-line basis.

Some of the Bank’s leases require it to make variable payments for the Bank’s share of property taxes, insurance, common area maintenance and other costs.

These variable costs are recognized when incurred and are also included in lease expense.

Debt and equity issuance costs— Debt issuance costs, which consist primarily of fees paid to note lenders, are deferred and included in other borrowings in the consolidated balance sheets.

15 unchanged sentences

The recognition of revenues from interest earning assets is based upon formulas from underlying loan agreements, securities contracts or other similar contracts.

The company accounts for revenue from contracts with customers in accordance with ASC Topic 606, “Revenue from Contracts with Customers.” Topic 606 provides that revenue from contracts with customers be recognized when performance obligations under the terms of a contract are satisfied.

obligations under the terms of a contract are satisfied.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing service.

The company does not have any materially significant payment terms as payment is received shortly after the satisfaction of the performance obligation.

The non-interest income line items recognized under the scope of Topic 606 are as follows:

Service charges on deposit accounts - Service charges on accounts consist of monthly service fees, transaction-based fees, overdraft services and other deposit account related fees.

The statement of operations line items recognized under the scope of Topic 606 are as follows:

Service charges on deposit accounts - Service charges on accounts consist of monthly service fees, transaction-based fees, overdraft fees and other deposit account related fees.

The Company’s performance obligation for monthly services fees is generally satisfied over the period in which the service is provided.

5 unchanged sentences

Interchange fees represent a percentage of the underlying transaction value.

The Company has a continuous contract, based on customary business practices, with the card association networks to make funds

available for settlement of card transactions.

The Company has a continuous contract, based on customary business practices, with the card association networks to make funds available for settlement of card transactions.

The Company’s performance obligation is satisfied over time as it makes funds available, and the related income is recognized when received.

Insurance commission income - Commission revenue from WIA was recognized as of the effective date of the insurance policy or the date the customer was billed, whichever was later.

The Company also received contingent commissions from insurance companies which were based on the overall profitability of their relationship based primarily on the loss experience of the insurance placed by the Company.

Contingent commissions from insurance companies were recognized when determinable.

Commission revenue is included in other non-interest income in the consolidated statement of operations and has been discontinued due to the sale of WIA on June 30, 2020.

Gain (loss) on repossessed assets - The Company records a gain or loss from the sale of repossessed assets, when control of the property or asset transfers to the buyer, which generally occurs at the time of an executed deed or sales agreement.

When the company finances the sale of repossessed assets to a buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable.

Once these criteria are met, the repossessed asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer.

In determining the gain on sale or loss on the sale, the Company adjust the transaction price and related gain or loss on sale if a significant financing component is present.

Non-interest income outside of the scope of Revenue from Contracts with Customers, Topic 606 is recognized on the accrual basis of accounting as services are provided or as transactions occur.

Non-interest income outside of the scope of Topic 606 includes mortgage banking activities, loan fees and service charges, net gains (losses) on investment securities, Net gain on sale of acquired business lines, settlement proceeds, and other, which is primarily made up of BOLI related income.

Non-interest income outside of the scope of Topic 606 includes mortgage banking activities, loan fees and service charges, net gains (losses) on investment securities, and other, which is primarily made up of BOLI related income.

Earnings Per Share – Basic earnings per common share is net income or loss divided by the weighted average number of common shares outstanding during the period.

14 unchanged sentences

The fair value of each instrument will rise and fall in response to changes in market interest rates, subsequent to the dates the interest rate locks and forward sale agreements are entered into.

In the event that interest rates rise after the Company enters into an interest rate lock, the fair value of the loan commitment will decline.

In the event that interest rates rise after the Company enters into an interest rate lock, the fair value of the loan commitment will

However, the fair value of the forward loan sale agreement related to such loan commitment should increase by substantially the same amount, effectively eliminating the Company’s interest rate and price risks.

1 unchanged sentence

The net fair values of outstanding interest rate-lock commitments and forward sale agreements were considered immaterial to the Company’s consolidated financial statements as of December 31, 2022.

Other Comprehensive Income — Accumulated and other comprehensive income or loss is comprised of the unrealized and realized gains and losses on securities available for sale, net of tax, and is shown on the accompanying consolidated statements of comprehensive income.

Operating Segments— While our executive officers monitor the revenue streams of the various banking products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

10 unchanged sentences

Recently Issued, But Not Yet Effective Accounting Pronouncements

Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments-- The ASU changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology.

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments- The ASU changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology.

Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

4 unchanged sentences

Earlier adoption is permitted;

however, the Company does not currently plan to adopt the ASU early.

Management is assessing alternative loss estimation methodologies and the Company’s data and system needs in order to evaluate the impact that adoption of this standard will have on the Company’s financial condition and results of operations.

The Company anticipates recording the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU is effective, which will be January 1, 2023.

however, the Company elected not to adopt the ASU early.

The Company has selected a loss estimation methodology, utilizing a third-party model, and is refining the remaining facets of its CECL model, as well as finalizing internal controls.

Company will record the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which the ASU is effective, which will be January 1, 2023.

Management estimates the adoption of the new standard will result in an increase in the Allowance for Credit Losses (“ACL”) in the range of 25 - 30 %.

Approximately 30 % of the increase is due to the impact of the new guidance on the Company’s acquired loan portfolio.

Approximately 40 % of the increase is the result of the new requirement to estimate losses over the full remaining expected life of the loans.

This especially affected the Company’s Commercial/Agricultural real estate and Residential mortgage portfolio segments, which have longer maturities.

Approximately 30 % of this increase is due to the requirement to record an allowance on non-cancelable off-balance sheet commitments.

Post-tax retained earnings adjustment will reduce stockholders’ equity by approximately 0.2 %.

At adoption, the Company will not record an allowance with respect to HTM securities as the portfolio consists almost entirely of agency-backed securities that inherently have minimal nonpayment risk.

ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures - The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model.

The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

As the Company has not yet adopted the amendments in ASU 2016-13, ASU 2022-02 becomes effective in the first quarter of 2023.

Adoption of this amendment is not expected to have a material impact on the Company’s consolidated financial statements;

however, it will result in new disclosures.

The Company expects to adopt the guidance for our fiscal year beginning January 1, 2023.

NOTE 2 – INVESTMENT SECURITIES

15 unchanged sentences

Corporate asset-backed securities 33,902 133 127 33,908

Trust preferred securities 16,297 189 38 16,448

Total available for sale securities $ 202,846 $ 1,385 $ 1,163 $ 203,068

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As of December 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $ 267 pledged as collateral to the Federal Home Loan Bank of Des Moines.

For the twelve months ended December 31, 2021, gross sales of available for sale securities were $ 38,239 , gross gains on sale of available for sale securities were $ 646 , and gross losses on sale of available for sale securities were $ 73 .

For the twelve months ended December 31, 2022, there were no sales of available for sale securities.

38 unchanged sentences

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

Trust preferred securities 5,612 38 — — 5,612 38

Total $ 126,715 $ 1,148 $ 735 $ 15 $ 127,450 $ 1,163

9 unchanged sentences

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

12 unchanged sentences

Portfolio Segments:

Commercial and agricultural real estate loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business.

Commercial real estate loans, including multi-family, agricultural, and construction and land development loans, are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business.

Management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed.

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Borrowers can apply for forgiveness any time up to the maturity date of the loan.

All of the SBA PPP originated loan balances were forgiven and repaid at June 30, 2022.

Residential mortgage loans are collateralized by primary and secondary positions on real estate and are underwritten primarily based on borrower’s documented income, credit scores, and collateral values.

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An aging analysis of the Company’s commercial/agricultural real estate and non-real estate, consumer real estate and non-real estate and purchased third party loans as of December 31, 2022 and 2021, respectively, was as follows:

30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing Greater Than 89 Days Past Due and Accruing Total Past Due Accruing Nonaccrual Loans Current Total Loans

30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing Greater Than 89 Days Past Due and Accruing Total Past Due Accruing Nonaccrual Loans Total Past Due Accruing and Nonaccrual Loans Current Total Loans

December 31, 2022

63 unchanged sentences

Total $ 26,823 $ 26,919 $ 826 $ 31,336 $ 1,418

At December 31, 2021, the Company had two residential real estate loans, secured by residential real estate properties, for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction, with a recorded investment of $ 109 .

At December 31, 2021, the Company had five commercial real estate loans, secured by commercial and agricultural real estate properties, for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction, with a recorded investment of $ 2,096 .

At December 31, 2022, the Company had six residential real estate loans, secured by residential real estate properties, for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction, with a recorded investment of $ 258 .

At December 31, 2022, the Company had three commercial real estate loans, secured by commercial and agricultural real estate properties, for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction, with a recorded investment of $ 6,294 .

A summary of loans evaluated for impairment as of December 31, 2021 was as follows:

31 unchanged sentences

Total $ 7,788 $ 12,523

There were no TDR commitments meeting our TDR criteria as of December 31, 2021 or as of December 31, 2020.

There was one TDR commitment totaling $ 26 meeting our TDR criteria as of December 31, 2022 and there were no TDR commitments meeting our TDR criteria as of December 31, 2021.

There were unused lines of credit totaling $ 484 and $ 10 meeting our TDR criteria as of December 31, 2022 and December 31, 2021, respectively.

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The table below shows scheduled accretion by year for the accretable difference recognized due to fair value purchase accounting on recent whole bank acquisitions.

In addition, the Company has $ 1.61 million of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount.

The scheduled accretion on this balance is estimated to be $ 100 per year;

however, large balance payoffs, as seen in 2021 and 2020, would accelerate this accretion.

In addition, the table below includes $ 1,165 of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount.

The accretion on this balance is scheduled to be approximately $ 80 in 2023;

however, large balance payoffs, as seen in 2022, 2021 and 2020, would accelerate this accretion and lower future years accretion.

Fiscal years ending December 31, Purchase Accounting Accretable Discount

Thereafter 751

Total $ 1,670

The following table provides changes in non-accretable yield for all acquired loans from prior acquisitions with deteriorated credit quality:

4 unchanged sentences

Transfers from non-accretable difference to accretable discount ( 126 ) ( 329 )

Non-accretable difference used to reduce loan principal balance — ( 505 )

Non-accretable difference transferred to OREO due to loan foreclosure ( 192 ) —

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Central to the valuation model is the discount rate.

Fair value at both December 31, 2021 and December 31, 2020 was determined using discount rates ranging from 9 % to 12 %.

Fair value at December 31, 2022 was determined using discount rates ranging from 9.5 % to 12.5 %.

Fair value at December 31, 2021 was determined using discount rates ranging from 9 % to 12 %.

Other assumptions utilized in the valuation model include, but are not limited to, prepayment speed, servicing costs, delinquencies, costs of advances, foreclosure costs, ancillary income, and income earned on float and escrow.

18 unchanged sentences

There were no changes to goodwill during either period.

Intangible assets-- Intangible assets consist of core deposit intangibles arising from various bank acquisitions and the premium on the Wells Insurance Agency customer relationships, until its disposition in June 2020.

Intangible assets-- Intangible assets consist of core deposit intangibles arising from various bank acquisitions.

A summary of intangible assets and related amortization for the periods shown below follows:

4 unchanged sentences

Net book value $ 2,449 $ 3,898

Sales during the period - carrying amount (1) $ — $ 618

Sales during the period - accumulated amortization (1) $ — $ 147

Amortization during the period $ 1,449 $ 1,596

(1) Intangible asset sales during the year ended December 31, 2020, consisted of Wells Insurance Agency customer relationships included in the sale of the Wells Insurance Agency.

Accumulated amortization at disposition was $ 147 .

The remaining carrying amount at disposition was $ 618 .

At December 31, 2022, the estimated future aggregate amortization expense for the intangible assets are as follows:

2 unchanged sentences

NOTE 7— LEASES

We have operating leases for our corporate offices ( 1 ), five bank branch offices ( 5 ) and an ATM location ( 1 ).

Our leases have remaining lease terms of 1.25 years to 6.50 years, some of which include options to extend the leases for up to 5 years.

We have operating leases for 1 corporate office, 4 bank branch offices, 1 former bank branch office, and 1 ATM location.

Our leases have remaining lease terms of 0.83 years to 5.50 years.

Some of the leases include an option to extend, the longest of which is for two 5 year terms.

As of December 31, 2022, we have no additional lease commitments that have not yet commenced.

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Lease liability recognized $ 1,945

In November of 2022 we closed our leased Red Wing, Minnesota branch.

We considered the branch closure a triggering event that required us to test the right of use asset for impairment.

The carrying amount of the right of use asset was compared

to its fair value, which was determined based on an estimate of future sublease income.

It was determined that the right of use asset was impaired and a $ 180 impairment loss was recorded.

This impairment loss is included in other non-interest expense in the consolidated statements of operations.

NOTE 8— DEPOSITS

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A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at December 31, 2022 and December 31, 2021 is as follows:

Stated Maturity Amount Range of Stated Rates Amount Range of Stated Rates

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 %

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2030 — — % — % 2030 12,500 0.52 % 0.86 %

2030 12,500 0.52 % 0.86 % 12,500 0.52 % 0.86 %

Subtotal 142,530 111,530

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2032 35,000 4.75 % 4.75 % 2032 — — % — %

$ 50,000 $ 30,000

Unamortized debt issuance costs ( 841 ) ( 430 )

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(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) FHLB term notes totaling $ 55,000 , with various maturity dates in 2029 and 2030, can be called or replaced by the FHLB on a quarterly basis.

(4) At December 31, 2022, no FHLB term notes can be called by the FHLB.

At December 31, 2021, FHLB term notes totaling $ 55,000 could be called by the FHLB on a quarterly basis, and if not called, would mature at various dates in 2029 and 2030.

These notes were called by the FHLB in 2022.

(5) Senior notes, entered into by the Company in June 2019 consist of the following:

(a) A term note which was subsequently refinanced in October 2020 and modified in October 2021, requiring quarterly interest-only payments through June 2022, and quarterly principal and interest payments thereafter.

Interest is variable, based on US Prime rate with a floor rate of 3.00 %, due to the modification in October 2021.

(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 %.

(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 bears a fixed interest rate of 6.75 % for five years .

In August 2022, they convert to a three-month LIBOR plus 4.90 % rate, and the interest rate will reset quarterly thereafter.

The note is callable by the Bank when, and anytime after, the floating rate is initially set.

Interest-only payments are due quarterly.

(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.

The note was callable by the Bank when, and anytime after, the floating rate is initially set.

Interest-only payments were due quarterly.

The Company sent the required redemption notice to the note holders in June 2022, and this subordinated note was called and repaid in full on August 10, 2022.

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00 % for five years .

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Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

(c) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in March 2022, which bears a fixed interest rate of 4.75 % for five years .

In April 2027, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 329 basis points.

The note is callable by the Bank when, and anytime after, the floating rate is initially set.

Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

Federal Home Loan Bank Letters of Credit

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These balances were $ 191,650 and $ 176,150 at December 31, 2022 and 2021, respectively.

Federal Funds Purchased Lines of Credit

The Bank maintains three unsecured federal funds purchased lines of credit with its banking partners which total $ 75,000 .

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.

There were no borrowings outstanding on these lines of credit as of December 31, 2022 or December 31, 2021.

Federal Reserve Borrowings

At December 31, 2022 and 2021, the Bank had the ability to borrow $ 4,118 and $ 847 from the Federal Reserve Bank of Minneapolis.

The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $ 5,421 and $ 863 as of December 31, 2022 and 2021, respectively.

There were no Federal Reserve borrowings outstanding as of December 31, 2022 and 2021.

Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“FRB PPPLF”) Program

The Bank has originated Small Business Administration’s Paycheck Protection Program (“SBA PPP”) loans and has

complied with the requirements to pledge these loans to the FRB PPPLF program which provides 100% funding for SBA PPP

The Bank originated Small Business Administration’s Paycheck Protection Program (“SBA PPP”) loans and

complied with the requirements to pledge these loans to the FRB PPPLF program which provided 100% funding for SBA PPP

loans upon request.

This FRB PPPLF program expired on July 30, 2021.

The Bank has no outstanding loan balances under this facility at December 31, 2021 and December 31, 2020.

Maximum month-end borrowed amounts outstanding under this agreement were $ 0 and $ 25,136 , during the twelve months ended December 31, 2021 and December 31, 2020, respectively.

The Bank had no outstanding loan balances under this facility at December 31, 2021.

There were no month-end borrowed amounts outstanding under this agreement during the twelve months ended December 31, 2021.

In July 2021, the bank pledged these SBA PPP loans to the FHLB.

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Federal bank regulators are authorized to determine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice, and to prohibit payment thereof.

In particular, federal bank regulators have stated that paying dividends that deplete a banking

organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.

In particular, federal bank regulators have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.

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.

The Company’s ability to pay dividends is also subject to the terms of its Subordinated Note Purchase Agreement dated August 27, 2020 and Business Note Agreement dated August 1, 2018, which prohibits the Company from making dividend payments while an event of default has occurred and is continuing under the loan agreement or from allowing payment of a dividend which would create an event of default.

The Company’s ability to pay dividends is also subject to the terms of its Subordinated Note Purchase Agreements dated August 27, 2020 and March 11, 2022, and Business Note Agreement dated June 26, 2019, which prohibits the Company from making dividend payments while an event of default has occurred and is continuing under the loan agreement or from allowing payment of a dividend which would create an event of default.

The following table reflects the annual cash dividend paid in the years ended December 31, 2022 and 2021, respectively.

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In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan for a term of 10 years.

As of December 31, 2021, 89,183 restricted shares and 181,000 options had been granted to eligible participants.

Due to the plan’s expiration, no new awards can be granted under this plan.

Restricted shares granted under the 2008 Equity Incentive Plan were awarded at no cost to the employee and vest pro rata over a two to five-year period from the grant date.

As of December 31, 2022, there are no awarded unvested restricted shares and 58,000 awarded unexercised options remaining from the plan.

Options granted to date under this plan vest pro rata over a five-year period from the grant date.

Unexercised, nonqualified stock options expire within 15 years of the grant date and unexercised incentive stock options expire within 10 years of the grant date.

Unexercised incentive stock options expire within 10 years of the grant date.

On March 27, 2018, the stockholders of Citizens Community Bancorp, Inc.

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As of December 31, 2022, 221,030 restricted shares had been granted under this plan.

This amount includes 11,834 shares of performance based restricted stock granted in 2019 and issued in January 2022 upon achievement of the performance criteria and completion of the three year performance period beginning in January 2019 and ending December 31, 2021.

In addition, it includes 1,119 shares of performance based restricted stock granted in 2020 and 638 shares of performance based restricted stock granted in 2021 issued in August of 2022.

Both of these issuances were approved by the Compensation Committee in accordance with plan documents and were to a former employee.

As of December 31, 2022, no stock options had been granted under this plan.

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Forfeited ( 2,626 ) 11.04 ( 1,500 ) 10.78

Unvested and outstanding at end of year 75,630 $ 11.20 57,242 $ 12.23

Unvested and outstanding at end of period 75,626 $ 12.30 75,630 $ 11.20

The Company accounts for stock-based employee compensation related to the Company’s 2008 Equity Incentive Plan using the fair-value-based method.

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Price Weighted

Term Aggregate

Term in Years Aggregate

Year ended December 31, 2022

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Outstanding at beginning of year 72,300 $ 11.05

Exercised ( 5,800 ) 8.99

Forfeited or expired ( 600 ) 13.76

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Federal 355 585

Bank owned life insurance - Tax Act clarification — ( 660 )

930 ( 2,526 )

State 151 345

Total $ 5,820 $ 7,693

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State income taxes, net of federal 1,501 6.4 % 1,854 6.4 %

Tax credits ( 514 ) ( 2.2 ) % — — %

Bank owned life insurance ( 135 ) ( 0.6 ) % ( 132 ) ( 0.4 ) %

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Economic performance accruals 871 981

Other real estate — 89

Deferred revenue 41 64

Loan discounts 375 854

FHLB advances 5 55

Lease liability 535 613

Net unrealized losses on securities available for sale 6,697 —

Deferred tax assets $ 14,290 $ 7,853

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As of December 31, 2022, years open to examination by the U.S.

Internal Revenue Service include taxable years ended September 30, 2018 to present.

Internal Revenue Service include taxable years ended December 31, 2019 to present.

The years open to examination by state and local government authorities varies by jurisdiction.

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Corporate asset-backed securities 33,908 — 33,908 —

Trust preferred securities 16,448 — 16,448 —

Total Investment Securities 203,068 — 203,068 —

Equity investments:

Equity investments 368 368 — —

Equity investments measured at NAV(1)

Total equity investments 1,328 368 — —

Total $ 204,396 $ 368 $ 203,068 $ —

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Loans receivable, net (Level III) 1,393,845 1,342,838 1,294,050 1,319,293

Loans held for sale (Level II) 6,670 6,670 3,075 3,075

Loans held for sale - Residential mortgage (Level I) — — 1,224 1,250

Loans held for sale - SBA (Level II) — — 5,446 5,776

Mortgage servicing rights (Level III) 4,262 5,665 4,161 4,312

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(Expense) Net-of-Tax

Unrealized (losses) gains on securities:

Net unrealized (losses) gains arising during the period $ ( 1,261 ) 352 $ ( 909 ) $ 2,546 $ ( 472 ) $ 2,074

Unrealized losses on securities:

Net unrealized losses arising during the period $ ( 24,575 ) $ 6,758 $ ( 17,817 ) $ ( 1,261 ) $ 352 $ ( 909 )

Reclassification adjustment for gains included in net income — — — ( 573 ) 153 ( 420 )

Other comprehensive income $ ( 1,834 ) $ 505 $ ( 1,329 ) $ 2,390 $ ( 429 ) $ 1,961

Other comprehensive loss $ ( 24,575 ) $ 6,758 $ ( 17,817 ) $ ( 1,834 ) $ 505 $ ( 1,329 )

The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax for the years ended December 31, 2022 and December 31, 2021 were as follows:

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Beginning Balance, January 1, 2021 $ 2,056 $ 1,490

Current year-to-date other comprehensive income 2,705 1,961

Current year-to-date other comprehensive loss ( 1,834 ) ( 1,329 )

Ending balance, December 31, 2021 $ 222 $ 161

Current year-to-date other comprehensive income ( 1,834 ) ( 1,329 )

Current year-to-date other comprehensive loss ( 24,575 ) ( 17,817 )

Ending balance, December 31, 2022 $ ( 24,353 ) $ ( 17,656 )

Reclassifications out of accumulated other comprehensive income for the twelve months ended December 31, 2021 were as follows:

Reclassifications out of accumulated other comprehensive income (loss) for the twelve months ended December 31, 2022 were as follows:

Details about Accumulated Other Comprehensive Income (Loss) Components Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (1) Affected Line Item on the Statement of Operations

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(1) Amounts in parentheses indicate decreases to profit/loss.

Reclassifications out of accumulated other comprehensive income for the twelve months ended December 31, 2020 were as follows:

Reclassifications out of accumulated other comprehensive income (loss) for the twelve months ended December 31, 2021 were as follows:

Details about Accumulated Other Comprehensive Income (Loss) Components Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (1) Affected Line Item on the Statement of Operations

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Depreciation expense 13 12

Net valuation gain on equity securities ( 422 ) —

Stock based compensation expense 3 8

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Cash flows from investing activities:

Purchase of equity securities ( 360 ) —

Purchase of equity investments ( 300 ) ( 360 )

Equity investment capital distribution 136 —

Capital contribution to bank subsidiary ( 15,000 ) —

Net cash used in investing activities ( 15,164 ) ( 360 )

Cash flows from financing activities:

Proceeds from other borrowings, net of issuance costs — 14,677

Proceeds from other borrowings, net of origination costs 34,191 —

Amortization of debt issuance costs 398 98

Other borrowings principal reductions ( 5,606 ) —

Other borrowings called and repaid ( 15,000 ) —

Repurchase shares of common stock ( 1,764 ) ( 7,951 )

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Common stock options exercised 71 52

Dividend from bank to holding company 12,500 10,500

Dividend from bank subsidiary 6,000 12,500

Cash dividends paid ( 2,742 ) ( 2,511 )

Net cash provided by financing activities 15,398 2,158

Net (decrease) increase in cash and cash equivalents ( 868 ) 18,080

Net decrease in cash and cash equivalents ( 3,244 ) ( 868 )

Cash and cash equivalents at beginning of year 22,465 23,333

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On March 12, 2020, the Company engaged Eide Bailly LLP to replace Baker Tilly Virchow Krause, LLP as its independent registered public accounting firm.

Information regarding the change in the independent registered public accounting firm was disclosed in the Company’s Current Report on Form 8-K dated March 16, 2020.

There were no disagreements or reportable events requiring disclosure under Item 304(b) of regulation S-K relating to this change in auditors.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data