What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-03 · 433 added, 546 removed, 1051 unchanged (48% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30, 2023 (unaudited) and December 31, 2022

March 31, 2024 (unaudited) and December 31, 2023

(derived from audited financial statements)

(in thousands, except share and per share data)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 28,638 $ 37,138

Other interest bearing deposits — —

Available for sale ("AFS") securities, at fair value (amortized cost of $ 183,152 , net of allowance for credit losses of $ 0 at September 30, 2023)

Available for sale ("AFS") securities, at fair value (amortized cost of $ 176,564 , net of allowance for credit losses of $ 0 at March 31, 2024 and amortized cost of $ 179,744 , net of allowance for credit losses of $ 0 at December 31, 2023)

151,672 155,743

Held to maturity ("HTM") securities, at amortized cost, net of allowance for credit losses of $ 0 at September 30, 2023

Held to maturity ("HTM") securities, at amortized cost (fair value of $ 70,270 , net of allowance for credit losses of $ 0 at March 31, 2024 and fair value of $ 73,262 , net of allowance for credit losses of $ 0 at December 31, 2023)

89,942 91,229

16 unchanged sentences

Deposits $ 1,527,489 $ 1,519,092

Federal Home Loan Bank (“FHLB”) 114,530 142,530

Federal Home Loan Bank (“FHLB”) advances 39,500 79,530

Other borrowings 67,523 67,465

12 unchanged sentences

Consolidated Statements of Operations (unaudited)

Three and Nine Months Ended September 30, 2023 and 2022

Three Months Ended March 31, 2024 and 2023

(in thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Three Months Ended

March 31, 2024 March 31, 2023

Interest and dividend income:

16 unchanged sentences

Loan fees and service charges 230 80

Net gains (losses) on investment securities 116 ( 55 ) 182 ( 167 )

Net gains on investment and equity securities 167 56

Other 253 253

10 unchanged sentences

Losses (gains) on repossessed assets, net — ( 29 )

New market tax credit depletion — 163 — 488

Other 1,068 725

10 unchanged sentences

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Three and Nine months ended September 30, 2023 and 2022

Three months ended March 31, 2024 and 2023

(in thousands)

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Three Months Ended

March 31, 2024 March 31, 2023

Net income attributable to common stockholders $ 4,088 $ 3,662

Other comprehensive gain (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Securities available for sale

Net unrealized losses arising during period, net of tax ( 2,862 ) ( 4,980 ) ( 4,074 ) ( 17,418 )

Reclassification adjustment for net gains included in net income, net of tax — — ( 9 ) —

Other comprehensive loss, net of tax ( 2,862 ) ( 4,980 ) ( 4,083 ) ( 17,418 )

Comprehensive (loss) income $ ( 364 ) $ ( 987 ) $ 5,283 $ ( 4,353 )

Net unrealized (losses) gains arising during period, net of tax ( 702 ) 1,065

Other comprehensive (loss) income, net of tax ( 702 ) 1,065

Comprehensive income $ 3,386 $ 4,727

See accompanying condensed notes to unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

(in thousands, except shares and per share data)

1 unchanged sentence

Shares Amount

Balance, January 1, 2023 10,425,119 $ 104 $ 119,240 $ 65,400 $ ( 17,656 ) $ 167,088

Balance, December 31, 2023 10,440,591 $ 104 $ 119,441 $ 71,117 $ ( 17,328 ) $ 173,334

Net income — — — 4,088 — 4,088

Other comprehensive income, net of tax — — — — ( 702 ) ( 702 )

Forfeiture of unvested shares ( 1,168 ) — — — — —

Surrender of restricted shares of common stock ( 9,471 ) — ( 113 ) — — ( 113 )

1 unchanged sentence

Restricted common stock issued upon achievement of the 2021 performance criteria 8,805 — — — — —

Common stock repurchased ( 50,000 ) — ( 570 ) ( 28 ) — ( 598 )

Amortization of restricted stock — — 158 — — 158

Cumulative change in accounting principle for adoption of ASU 2016-13 — — — ( 4,432 ) — ( 4,432 )

Cumulative change in accounting principle for adoption of ASU 2023-02 — — — 130 — 130

Cash dividends ($ 0.32 per share)

1 unchanged sentence

Balance at March 31, 2024 10,406,880 $ 104 $ 118,916 $ 71,831 $ ( 18,030 ) $ 172,821

Net income — — — 3,206 — 3,206

Other comprehensive loss, net of tax — — — — ( 2,286 ) ( 2,286 )

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

Common stock options exercised 3,000 — 28 — — 28

Common stock repurchased ( 14,146 ) — ( 117 ) — — ( 117 )

Amortization of restricted stock — — 166 — — 166

Balance at June 30, 2023 10,470,175 105 119,404 64,926 ( 18,877 ) 165,558

Net income — — — 2,498 — 2,498

Other comprehensive loss, net of tax — — — — ( 2,862 ) ( 2,862 )

Forfeiture of unvested shares ( 2,084 ) — — — — —

Amortization of restricted stock — — 208 — — 208

Balance, September 30, 2023 10,468,091 $ 105 $ 119,612 $ 67,424 $ ( 21,739 ) $ 165,402

See accompanying condensed notes to unaudited consolidated financial statements.

8 unchanged sentences

Other comprehensive loss, net of tax — — — — 1,065 1,065

Forfeiture of unvested shares ( 1,168 ) — — — — —

Surrender of restricted shares of common stock ( 10,287 ) — ( 129 ) — — ( 129 )

1 unchanged sentence

Restricted stock issued upon achievement of the 2020 performance criteria 18,551 — — — — —

Common stock options exercised 2,500 — 20 — — 20

Common stock repurchased ( 18,462 ) — ( 211 ) ( 77 ) — ( 288 )

Stock option expense — — 1 — — 1

Amortization of restricted stock — — 216 — — 216

Cumulative change in accounting principle for adoption of ASU 2016-13 — — — ( 4,432 ) — ( 4,432 )

Cumulative change in accounting principle for adoption of ASU 2023-02 — — — 130 — 130

Cash dividends ($ 0.29 per share)

4 unchanged sentences

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

Common stock awarded under the equity incentive plan 4,500 — — — — —

Stock option expense — — 1 — — 1

Common stock options exercised 3,000 — 28 — — 28

Common stock repurchased ( 14,146 ) — ( 117 ) — — ( 117 )

Amortization of restricted stock — — 166 — — 166

3 unchanged sentences

Forfeiture of unvested shares ( 2,084 ) — — — — —

Surrender of restricted shares of common stock ( 120 ) — ( 2 ) — — ( 2 )

Restricted common stock awarded under the equity incentive plan 2,136 — — — — —

Common stock repurchased ( 52,961 ) — ( 603 ) ( 88 ) — ( 691 )

Stock option expense — — 1 — — 1

Amortization of restricted stock — — 208 — — 208

2 unchanged sentences

Other comprehensive loss, net of tax — — — — 4,411 4,411

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

Surrender of restricted shares of common stock ( 491 ) — ( 7 ) — — ( 7 )

Common stock options exercised 5,400 — 51 — — 51

Common stock repurchased ( 27,500 ) ( 1 ) ( 303 ) — — ( 304 )

4 unchanged sentences

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30, 2023 and 2022

Three Months Ended March 31, 2024 and 2023

(in thousands)

Nine Months Ended

September 30, 2023 September 30, 2022

Three Months Ended

March 31, 2024 March 31, 2023

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Investment securities net (discount accretion) premium amortization ( 46 ) 59

Investment securities net discount accretion ( 19 ) ( 30 )

Depreciation expense 561 606

Provision for credit losses 175 775

Net realized (gain) loss on equity securities ( 170 ) 167

Net realized gain on debt securities ( 12 ) —

Deferred tax asset valuation allowance 1,828 —

(Negative provision) provision for credit losses ( 800 ) 50

Net realized gain on equity securities ( 167 ) ( 56 )

Increase in mortgage servicing rights resulting from transfers of financial assets ( 57 ) ( 16 )

2 unchanged sentences

Amortization of restricted stock 158 216

Net stock based compensation expense — 3

Loss on sale of office properties and equipment ( 13 ) —

3 unchanged sentences

Gain on sale of loans held for sale, net ( 1,020 ) ( 298 )

New market tax credit depletion expense — 488

Proceeds from sale of loans held for sale 18,543 4,563

Originations of loans held for sale ( 11,750 ) ( 5,026 )

Proceeds from insurance claim on foreclosed and repossessed assets 27 —

Net change in:

Loans held for sale ( 1,236 ) 7,334

Accrued interest receivable and other assets ( 966 ) ( 837 )

3 unchanged sentences

Cash flows from investing activities:

Net decrease in other interest bearing deposits 249 1,143

Purchase of available for sale securities — ( 11,007 )

Proceeds from principal payments of available for sale securities 3,202 5,077

Proceeds from sales of available for sale securities 5,105 —

Purchase of held to maturity securities — ( 35,342 )

Proceeds from principal payments and maturities of held to maturity securities 1,284 1,075

3 unchanged sentences

Proceeds from sales of foreclosed and repossessed assets — 212

Net increase in loans ( 35,606 ) ( 65,476 )

Net decrease (increase) in loans 10,888 ( 9,082 )

Net capital expenditures ( 214 ) ( 313 )

Proceeds from disposal of office properties and equipment 13 3

New market tax credit investment — ( 4,056 )

Net cash used in investing activities ( 24,259 ) ( 86,915 )

Net cash provided by (used in) investing activities 18,046 ( 15,929 )

Cash flows from financing activities:

Federal Home Loan Bank advances 15,000 72,000

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

Federal Home Loan Bank advance call payments — ( 55,000 )

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

Federal Home Loan Bank maturities ( 43,000 ) ( 11,000 )

Change in short term Federal Home Loan Bank advances, net ( 34,500 ) 70,000

Federal Home Loan Bank advance long-term maturities ( 5,530 ) ( 30,000 )

Amortization of debt issuance costs 58 58

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

Other borrowings principal reductions — ( 5,167 )

3 unchanged sentences

Surrender of restricted shares of common stock ( 113 ) ( 129 )

Common stock options exercised 28 20

Cash dividends paid ( 3,346 ) ( 3,040 )

Net cash provided by financing activities 12,256 47,902

Net decrease in cash and cash equivalents ( 2,831 ) ( 18,280 )

Net cash (used in) provided by financing activities ( 35,636 ) 43,796

Net (decrease) increase in cash and cash equivalents ( 8,500 ) 29,687

Cash and cash equivalents at beginning of period 37,138 35,363

7 unchanged sentences

Transfers from loans receivable to other real estate owned ("OREO") $ 73 $ 25

Transfers from office properties and equipment to foreclosed and repossessed assets $ — $ 130

See accompanying condensed notes to unaudited consolidated financial statements.

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The Bank is a national banking association (a “National Bank”) and operates under the title of Citizens Community Federal National Association (“Citizens Community Federal N.A.” or “Bank” or “CCFBank”).

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

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

The consolidated income of the Company is principally derived from the income of the Bank, the Company’s wholly owned subsidiary, serving customers in Wisconsin and Minnesota through 23 branch locations.

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.

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

The consolidated income of the Company is principally derived from the income of the Bank, the Company’s wholly owned subsidiary, serving customers primarily in Wisconsin and Minnesota through 23 branch locations.

Its primary markets include the Chippewa Valley Region in Wisconsin, the Mankato and Twin Cities markets in Minnesota, and various rural communities around these areas.

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Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the September 30, 2023, balance sheet date and through the date the financial statements were available to be issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

In preparing these consolidated financial statements, we evaluated the events and transactions that occurred subsequent to the balance sheet date of March 31, 2024, through the date on which the consolidated financial statements were available to be issued on May 8, 2024, for items that should potentially be recognized or disclosed in these consolidated financial statements.

The accompanying consolidated interim financial statements are unaudited.

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those items described under the caption “Risk Factors” in Item 1A of the annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 5, 2024;

the matters described in “Risk Factors” in Item 1A of the quarterly reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023, filed with the SEC on May 4, 2023 and August 3, 2023, respectively;

the matters described in “Risk Factors” in Item 1A of this Form 10-Q;

external market factors such as market interest rates and unemployment rates;

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.

Cash and Cash Equivalents— For purposes of reporting cash flows in the consolidated financial statements, cash and cash equivalents include cash, due from banks, and interest bearing deposits with original maturities of three months or less.

Investment Securities;

Held to Maturity and Available for Sale – Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of the date of each balance sheet.

Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity.

Available for Sale and Held to Maturity – Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of the date of each balance sheet.

are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity.

Held to maturity securities are stated at amortized cost.

Investment securities not classified as held to maturity are classified as available

Investment securities not classified as held to maturity are classified as available for sale.

Available for sale securities are stated at fair value, with unrealized holding gains and losses being reported in other comprehensive income (loss), net of tax.

2 unchanged sentences

Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the securities.

Allowance for Credit Losses – Held to Maturity Securities - The Company measures expected credit losses on held to maturity debt securities on a collective basis by major security type.

For agency mortgage-backed securities there are no expected credit losses as they are guaranteed by the U.S.

government, are highly rated by major rating agencies, and have a long history of no credit losses.

For other securities, the estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Allowance for Credit Losses – Available for Sale Securities - The Company measures the allowance for credit losses on available for sale debt securities by evaluating securities in an unrealized loss position using a two-step process.

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Any impairment that has not been recorded though an allowance for credit losses is recognized in other comprehensive income.

Allowance for Credit Losses – Held to Maturity Securities - The Company measures expected credit losses on held to maturity debt securities on a collective basis by major security type.

For agency mortgage-backed securities there are no expected credit losses as they are guaranteed by the U.S.

government, are highly rated by major rating agencies, and have a long history of no credit losses.

For other securities, the estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Company has elected to not measure an ACL on accrued interest on available for sale and held to maturity securities, as it would write off accrued interest in a timely manner if the related security was determined to have a credit loss.

The Company has no available for sale securities or held to maturity securities which it deems to have a credit loss at March 31, 2024.

Equity investments - The Company is required to maintain an investment in Federal Agricultural Mortgage Corporation (“Farmer Mac”) equity securities.

7 unchanged sentences

SBICs and investment funds report their investments at estimated fair value.

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

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

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

3 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 income in our consolidated statement of operations.

Cash dividends are reported as other income in our consolidated statements of operations.

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

2 unchanged sentences

Based on management’s quarterly evaluation, no impairment has been recorded on these securities.

Other investments totaling $ 15,109 at September 30, 2023 consisted of $ 6,909 of FHLB stock,

$ 5,692 of Federal Reserve Bank stock and $ 2,508 of Bankers’ Bank stock.

Other investments totaling $ 13,022 at March 31, 2024 consisted of $ 4,595 of FHLB stock, $ 5,703 of Federal Reserve Bank stock and $ 2,724 of Bankers’ Bank stock.

Other investments totaling $ 15,725 at December 31, 2023 consisted of $ 7,302 of FHLB stock and $ 5,699 of Federal Reserve Bank stock and $ 2,724 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 noncredit discount on purchased credit deteriorated (PCD) 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 deteriorated (PCD) loans.

Interest income is accrued on the unpaid principal balance of these loans and is presented as a separate line item on the consolidated balance sheets.

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Aggregated risk drivers are then calculated at a pool level.

Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type.

Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan

segment and type.

A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses.

The loss rate is then combined with the loans balance and contractual maturity, adjusted for expected prepayments, to determine expected future losses.

For commercial/agricultural real estate loans, the loss rate is then combined with the loans balance and contractual maturity, adjusted for expected prepayments, to determine expected future losses.

Future and supportable economic forecasts are based on national economic conditions and their reversion to the mean is implicit in the model and generally occurs over a period of two years.

For commercial and industrial/agricultural operating, residential, and consumer loans, the loss rate is then combined with the loans balance and contractual maturity, to determine expected future losses.

Qualitative adjustments are made to the allowance calculated on collectively evaluated loans to incorporate factors not included in the model.

Qualitative factors include but are not limited to, lending policies and procedures, the experience and ability of lending and other staff, the volume and severity of problem credits, quality of the loan review system, and other external factors.

Loans that exhibit different risk characteristics from the pool are individually evaluated for impairment.

Loans that exhibit different risk characteristics from the pool are individually evaluated.

Loans can be identified for individual evaluation for a variety of reasons including delinquency, nonaccrual status, risk rating and loan modification.

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and carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value.

MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded as “mortgage servicing rights expense” in non-interest expense in the consolidated statement of operations.

MSR assets are amortized in proportion to and over the period of estimated net servicing income, with the amortization recorded as “Mortgage servicing rights expense, net” in non-interest expense in the consolidated statements of operations.

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:

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or a fixed amount per loan and are recorded as income when earned.

Office Properties and Equipment— Premises and equipment are stated at cost less accumulated depreciation.

Land is carried at cost.

Maintenance and repair costs are charged to expense as incurred.

Gains or losses on disposition of office properties and equipment are reflected in income.

Buildings and related components are depreciated using the straight-line method with useful lives ranging from 10 to 40 years.

Furniture, fixtures and equipment are depreciated using the straight-line (or accelerated) method with useful lives ranging from 3 to 10 years.

Leasehold improvements are depreciated using the straight-line (or accelerated) method with useful lives based on the lesser of (a) the estimated life of the lease, or (b) the estimated useful life of the leasehold improvement.

Depreciation expense is included in non-interest expense on the consolidated statements of operations.

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 originally ranging from 72 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.

Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more

frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

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 September 30, 2023, which is related to its banking activities.

The Company has one reporting unit as of March 31, 2024, which is related to its banking activities.

The impairment testing process is conducted by assigning net assets and goodwill to the Company’s reporting unit.

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

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.

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Prior to the adoption of ASU 2023-02 the investment was accounted for using the equity method of accounting and was amortized through non-interest expense

As of September 30, 2023, the carrying amount of this investment, which is included in other assets in the consolidated balance sheets, was $ 3,044 .

Prior to the adoption of ASU 2023-02, the carrying value of the investment as of December 31, 2022 was $ 3,350 .

As of March 31, 2024, the carrying amount of this investment, which is included in other assets in the consolidated balance sheets, was $ 2,753 .

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 September 30, 2023, there were no known instances of noncompliance associated with the investment.

As of March 31, 2024, there were no known instances of noncompliance associated with the investment.

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

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

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.

Debt issuance costs with a Company call option that originated prior to 2020 and senior note debt issuance costs, are amortized over the contractual term of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations.

Debt issuance costs that originated in 2020 and thereafter, are amortized through the first Company call option date of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations.

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.

Federal Hold Loan Bank (“FHLB”) advances - The Bank holds both $ 9,500 and $ 44,000 short-term and $ 30,000 and $ 35,530 long-term FHLB advances as of March 31, 2024 and December 31, 2023, respectively.

For cash flow purposes the short-term FHLB advances are disclosed net with original maturities of three months or less.

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.Debt issuance costs that originated in 2020 and thereafter, are amortized through the first Company call option date of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations.

Senior note debt issuance costs, are amortized over the contractual term of the corresponding debt, as a component of interest expense on other borrowed funds in the consolidated statements of operations.

Specific costs associated with the issuance of shares of the Company’s common or preferred stock are netted against proceeds and recorded in stockholders’ equity, as additional paid in capital, on the consolidated balance sheets, in the period of the share issuance.

Share-Based Compensation— The Company may grant restricted stock awards and other stock-based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement.

The Company accounts for forfeitures as they occur.

While time based restricted shares are subject to forfeiture, time based restricted stock award participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares.

The time based restricted shares granted under the 2018 Equity Incentive Plan (the “Plan”) are subject to a three-year vesting period.

Compensation expense for time based restricted stock is recognized over the requisite service period of three years for the entire award on a straight-line basis.

Performance based restricted shares are earned over a three-year period based on Board approved performance metrics and expense is recorded based on expected shares vesting.

The performance based restricted stock award participants do not have voting rights and do not receive dividends or other distributions paid with respect to the performance based restricted shares.

Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the Consolidated Statements of Operations.

Advertising, Marketing and Public Relations Expense— The Company expenses all advertising, marketing and public relations costs as they are incurred.

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The Company regularly reviews the carrying amount of its net deferred tax assets to determine if the establishment of a valuation allowance is necessary.

If based on the available evidence, it is more likely than not that all or a portion of the Company’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established.

If based on the available evidence, it is more likely than not that all or a portion of the

Company’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established.

Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets.

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Accordingly, the Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.

The Company’s effective tax rates were 50.5 % and 34.3 % for the three and nine months ended September 30, 2023, and 24.3 % for both the three and nine months ended September 30, 2022.

The Company’s effective tax rates were 21.3 % for the three months ended March 31, 2024, and 25.5 % for the three months ended March 31, 2023.

The Wisconsin state budget, signed July 5, 2023, effective January 1, 2023, made originated loans in Wisconsin for business purposes up to $5,000 non-taxable.

This change lowers the Company’s income tax rates for the three and nine-month periods ended September 30, 2023.

The current period income tax expense was lower due to the retroactive, i.e.

nine-month effect of this change by $ 553 .

This reduction of income tax expense was offset by a one-time tax expense of $ 1,828 in the current period, as the impact of the resulting lower incremental tax rate decreased the estimated future realization of an existing deferred tax asset resulting in a valuation allowance.

This change lowers the Company’s income tax rate for the three-months ended March 31, 2024, and lowered the Company’s income tax rate for the twelve-month period ended December 31, 2023, before related valuation allowance.

Income tax expense in 2023, was lower due to the retroactive, effect of this change.

This reduction of income tax expense was offset by a one-time tax expense of $ 1,828 in the period ended September 30, 2023, as the impact of the resulting lower incremental tax rate decreased the estimated future realization of an existing deferred tax asset resulting in a valuation allowance.

Revenue Recognition - The Company’s primary source of revenue is interest income from interest earning assets, which is recognized on the accrual basis of accounting using the effective interest method.

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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.

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.

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Interchange income - The Company earns interchange fees when cardholder debit card transaction are processed through card association networks.

The interchange rates are generally set by the card association based upon purchase

volumes and other factors.

The interchange rates are generally set by the card association based upon purchase volumes and other factors.

Interchange fees represent a percentage of the underlying transaction value.

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Loss Contingencies— Loss contingencies, including claims and legal actions arising in the normal course of business, are recorded as liabilities when the likelihood of loss is probable and an amount of loss can be reasonably estimated.

Off-Balance-Sheet Financial Instruments— In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and commitments under lines of credit arrangements, issued to meet customer financial needs.

Such financial instruments are recorded in the financial statements when they become payable.

Derivatives--Rate-lock Commitments and Forward Sale Agreements — The Company enters into commitments to originate loans, whereby the interest rate on the loan is determined prior to funding (rate-lock commitment).

Rate-lock commitments on mortgage loans held for sale are derivative instruments.

If material, derivative instruments are carried on the consolidated balance sheets at fair value, and changes in the fair value thereof are recognized in the consolidated statements of operations.

The Company originates single-family residential loans for sale, pursuant to programs primarily with the Federal Home Loan Mortgage Corporation (“FHLMC”) and other similar third parties.

In connection with these programs, at the time the Company initially issues a loan commitment, it does not lock in a specific interest rate.

At the time the interest rate is locked in by the borrower, the Company concurrently enters into a forward loan sale agreement with the prospective loan purchaser, at a specific price, in order to manage the interest rate risk inherent to the rate-lock commitment.

The forward sale agreement also meets the definition of a derivative instrument.

Any change in the fair value of the loan commitment after the borrower locks in the interest rate is substantially offset by the corresponding change in the fair value of the forward loan sale agreement related to such loan.

The period from the time the borrower locks in the interest rate, to the time the Company funds the loan and sells the loan to a third party varies, and could be up to 90 days.

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.

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.

At March 31, 2024, the Company had $ 2,437 of loan commitments outstanding related to loans being originated for sale, all of which were subject to interest rate lock commitments and corresponding forward loan sale agreements, as described above.

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 March 31, 2024.

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.

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Reference rate reform has not had, nor does the Company expect it to have, a material effect on the Company’s consolidated balance sheet, operations or cash flows.

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.

Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses.

In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration.

In November, 2019, the FASB issued ASU 2019-10, which delayed the effective date for ASU 2016-13 for smaller reporting companies, resulting in ASU 2016-13

becoming effective in the first quarter of 2023 for the Company.

Earlier adoption was permitted;

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

The Company formed a cross-functional team to implement ASU 2016-13.

Key objectives of the team included selecting a loss estimation methodology, establishing processes and controls, data validation, creation of supporting analytics, documentation of policies and procedures, and developing disclosures.

As previously disclosed, the Company is utilizing a third-party model to assist in loss estimation including pooling loans with similar risk characteristics and modeling methodologies.

The Company adopted ASU 2016-13 using the modified retrospective approach effective January 1, 2023.

Results for the periods beginning on and after January 1, 2023 are presented under ASU 2016-13 while prior period amounts are reported in accordance with previously applicable accounting standards.

The company recorded a reduction to retained earnings of $ 4,432 upon the adoption of ASU 2016-13, primarily due to the requirement to estimate credit losses over the life of the loan and the duration of the Company’s portfolio.

The Company also recorded an increase to the ACL of $ 4,706 .

This increase was made up of two components, $ 4,576 for non-purchased credit deteriorated (“PCD”) loans and $ 130 for PCD loans.

An ACL on unfunded commitments of $ 1,537 was also established.

The Company elected not to record an allowance on HTM securities as the portfolio consists almost entirely of agency-backed securities that inherently have minimal nonpayment risk.

The transition adjustment included corresponding increases in deferred tax assets.

The Company adopted ASU 2016-13 using the prospective transition approach for financial assets considered PCD.

These assets were previously classified as purchase credit impaired ("PCI") and accounted for under ASC 310-30 prior to January 1, 2023.

In accordance with the standard, the Company did not reassess whether the PCI assets met the criteria of PCD assets as of the adoption date.

The amortized cost of the PCD assets were adjusted to reflect the addition of $ 130 to the allowance for credit losses.

This adjustment is included in the discussion of the transition adjustment above.

The remaining noncredit discount, based on the adjusted amortized cost, will be accreted into interest income at the effective interest rate over the remaining life of the assets.

The following table illustrates the impact of ASU 2016-13 adoption in thousands

Pre-ASU 2016-13 Adoption

December 31, 2022 Impact of

ASU 2016-13 Adoption As Reported under ASU 2016-13

January 1, 2023

Allowance for credit losses:

Commercial/Agricultural Real Estate $ 14,085 $ 4,510 $ 18,595

C&I/Agricultural operating 2,318 ( 331 ) 1,987

Residential Mortgage 599 1,119 1,718

Consumer Installment 129 216 345

Unallocated 808 ( 808 ) —

Total allowance for credit losses on loans 17,939 4,706 22,645

Allowance for credit losses on unfunded commitments — 1,537 1,537

Total allowance for credit losses $ 17,939 $ 6,243 $ 24,182

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.

The company adopted ASU 2022-02 in conjunction with ASU 2016-13 on January 1, 2023 using the prospective approach.

ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method - This ASU expands the use of the proportional amortization method in accounting for tax credit investments to all tax credit investments that meet certain criteria.

The Company has determined that its New Markets Tax Credit investment qualifies for use of the proportional amortization method under this ASU and has elected to early adopt the update as of January 1, 2023 using the modified retrospective approach.

The transition adjustment resulted in an increase to retained earnings of $ 130 .

Amortization of the investment will now be recognized in the period of and

proportional to recognition of the related tax credit and included in provision for income taxes in the consolidated statements of operations.

Prior to adoption of this amendment, the amortization was included in other non-interest expense as a separate line item.

The Company chose to adopt ASU 2023-02 because it felt that the proportional amortization method more accurately reflects the economic substance of its tax credit investment.

Proportional amortization better matches the cost of the investment with the benefits received, and including the amortization of the investment in provision for income taxes better reflects the benefit the Company receives from the transaction.

For the three and nine months ended September 30, 2023, adopting ASU 2023-02 increased net income $ 33 and $ 98 , respectively.

Recently Issued, But Not Yet Effective Accounting Pronouncements

ASU 2023-07, Segment Reporting (Topic 820):

Improvements to Reportable Segment Disclosures —This ASU, issued in November 2023, is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

This update is effective for fiscal years beginning after December 15, 2023, and interim

periods with fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impact and applicability of these new disclosure requirements.

As all new requirements are disclosure-related only, adoption will have no material impact on the Company’s financial condition or results of operations.

ASU 2023-09, Income Taxes – Improvements to Income Tax Disclosures – This ASU, issued in December 2023, is effective for fiscal years beginning after December 15, 2024 and interim periods therein, with early adoption permitted.

This ASU requires expanded income tax-related note disclosures.

The Company is currently evaluating the impact of these new disclosure requirements.

As all requirements are disclosure-related only, adoption will have no material impact on the Company’s financial condition or results of operations.

NOTE 2 – INVESTMENT SECURITIES

The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of September 30, 2023 and December 31, 2022, respectively, were as follows:

The amortized cost and fair value of securities available for sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income as of March 31, 2024 and December 31, 2023, respectively, were as follows:

Available for sale securities Amortized

Losses Estimated

September 30, 2023

March 31, 2024

government agency obligations $ 15,835 $ 62 $ 169 $ 15,728

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Total available for sale securities $ 179,744 $ 95 $ 24,096 $ 155,743

The amortized cost and fair value of securities held to maturity and the corresponding amounts of gross unrecognized gains and losses as of March 31, 2024 and December 31, 2023, respectively, were as follows:

Held to maturity securities Amortized

Losses Estimated

September 30, 2023

March 31, 2024

Obligations of states and political subdivisions $ 500 $ — $ 34 $ 466

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Total held to maturity securities $ 91,229 $ 6 $ 17,973 $ 73,262

At September 30, 2023, the Bank has pledged mortgage-backed securities with a carrying value of $ 29,542 as collateral against a borrowing line of credit with the Federal Reserve Bank.

As of September 30, 2023, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of September 30, 2023, the Bank has pledged U.S.

At March 31, 2024, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $ 28,865 as collateral to secure a line of credit with the Federal Reserve Bank.

As of March 31, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of March 31, 2024, the Bank has pledged certain of its U.S.

Government Agency securities with a carrying value of $ 442 and mortgage-backed securities with a carrying value of $ 1,863 as collateral against specific municipal deposits.

As of September 30, 2023, the Bank also has mortgage-backed securities with a carrying value of $ 688 pledged as collateral to the Federal Home Loan Bank of Des Moines.

As of March 31, 2024, the Bank also has mortgage-backed securities with a carrying value of $ 151 and U.S.

Government Agencies with a carrying value of $ 396 pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2023, the Bank had pledged certain of its mortgage-backed securities with a carrying value of $ 29,191 as collateral to secure a line of credit with the Federal Reserve Bank.

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Government Agency securities with a carrying value of $ 516 and mortgage-backed securities with a carrying value of $ 1,928 as collateral against specific municipal deposits.

As of December 31, 2022, the Bank also had mortgage-backed securities with a carrying value of $ 142 pledged as collateral to the Federal Home Loan Bank of Des Moines.

For the three and nine month periods ended September 30, 2023 gross sales of available securities were $ 0 and $ 5,105 , respectively, gross gains on the sale of available for sale securities were $ 0 and $ 12 , respectively, and gross losses on the sale of available for sale securities were $ 0 for both periods.

For the three and nine month periods ended September 30, 2022, there were no sales of available for sale securities.

The estimated fair value of securities at September 30, 2023 and December 31, 2022, by contractual maturity, is shown below.

As of December 31, 2023, the Bank also had mortgage-backed securities with a carrying value of $ 179 and U.S.

Government Agencies with a carrying value of $ 415 pledged as collateral to the Federal Home Loan Bank of Des Moines.

For the three month periods ended March 31, 2024, and March 31, 2023, there were no sales of available for sale securities.

The estimated fair value of securities at March 31, 2024 and December 31, 2023, by contractual maturity, is shown below.

Expected maturities will differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Expected maturities may differ from contractual maturities on certain agency and municipal securities due to the call feature.

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Available for sale securities Amortized

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Total available for sale securities $ 176,564 $ 151,672 $ 179,744 $ 155,743

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Held to maturity securities Amortized

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Total held to maturity securities $ 89,942 $ 70,270 $ 91,229 $ 73,262

Securities with unrealized losses at September 30, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

Securities with unrealized losses at March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

Less than 12 Months 12 Months or More Total

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Value Unrealized

September 30, 2023

March 31, 2024

government agency obligations $ 3,592 $ 9 $ 3,511 $ 160 $ 7,103 $ 169

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Total $ 10,474 $ 103 $ 133,027 $ 23,993 $ 143,501 $ 24,096

Less than 12 Months 12 Months or More Total

Held to maturity securities Fair

Value Unrealized

September 30, 2023

Obligations of states and political subdivisions $ — $ — $ 552 $ 48 $ 552 $ 48

Mortgage-backed securities — — 68,001 23,539 68,001 23,539

Total $ — $ — $ 68,553 $ 23,587 $ 68,553 $ 23,587

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 $ 16,627 $ 2,416 $ 59,913 $ 17,191 $ 76,540 $ 19,607

At September 30, 2023 no ACL was established for available for sale or held to maturity securities.

At March 31, 2024 no ACL was established for available for sale or held to maturity securities.

Substantially all the held to maturity portfolio is made up of agency backed mortgage securities.

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government, are highly rated by major rating agencies, and have a long history of no credit losses.

Accordingly, the Company does not expect to incur credit losses on these securities.

At March 31, 2024, there were no past due held to maturity securities.Accordingly, the Company does not expect to incur credit losses on these securities.

Unrealized losses on available-for-sale investment securities have not been recognized into income because the issuers’ bonds are agency backed securities or other securities that all principal and interest is expected to be received on a timely basis.

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The issuers continue to make timely principal and interest payments on their bonds.

The composition of our available for sale portfolios by credit rating as of the dates indicated below was as follows:

March 31, 2024 December 31, 2023

Available for sale securities Amortized

Value Amortized

government agency $ 97,305 $ 78,026 $ 98,977 $ 81,351

AAA 12,386 12,256 9,695 9,508

AA 19,709 19,613 23,913 23,709

A 8,200 7,465 8,200 7,292

BBB 38,964 34,312 38,959 33,883

Non-rated — — — —

Total available for sale securities $ 176,564 $ 151,672 $ 179,744 $ 155,743

The composition of our held to maturity portfolio by credit rating as of the dates indicated was as follows:

March 31, 2024 December 31, 2023

Held to maturity securities Amortized

Value Amortized

government agency $ 89,442 $ 69,804 $ 90,629 $ 72,697

A 500 466 600 565

Total $ 89,942 $ 70,270 $ 91,229 $ 73,262

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

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Interest on substantially all loans is credited to income based on the principal amount outstanding.

A summary of loans at September 30, 2023 follows:

September 30, 2023

Amortized Cost % of Total

A summary of loans at March 31, 2024, and December 31, 2023, follows:

March 31, 2024

December 31, 2023

Amortized Cost % of Total Amortized Cost % of Total

Commercial/Agricultural real estate:

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Net loans receivable $ 1,427,723 $ 1,437,884

Loans are stated at the unpaid principal balance outstanding at December 31, 2022.

December 31, 2022

Loan Principal Balance % of Total

Commercial/Agricultural real estate:

Commercial real estate $ 725,971 51.5 %

Agricultural real estate 87,908 6.2 %

Multi-family real estate 208,908 14.8 %

Construction and land development 102,492 7.3 %

C&I/Agricultural operating:

Commercial and industrial 136,013 9.6 %

Agricultural operating 28,806 2.0 %

Residential mortgage:

Residential mortgage 105,389 7.5 %

Purchased HELOC loans 3,262 0.2 %

Consumer installment:

Originated indirect paper 10,236 0.7 %

Other consumer 7,150 0.5 %

Gross Loans $ 1,416,135 100.3 %

Unearned net deferred fees and costs and loans in process ( 2,585 ) ( 0.2 ) %

Unamortized discount on acquired loans ( 1,766 ) ( 0.1 ) %

Total loans receivable $ 1,411,784 100.0 %

Less Allowance for loan losses ( 17,939 )

Net loans $ 1,393,845

Credit Quality/Risk Ratings:

Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its loan portfolio.

Management utilizes a numeric risk rating system to identify and quantify the Bank’s risk of loss within its commercial/agricultural real estate and commercial and industrial/agricultural operating loan portfolios.

Ratings are initially assigned prior to funding the loan, and may be changed at any time as circumstances warrant.

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This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future.

Below is a summary of the amortized cost of loans summarized by class, credit quality risk rating and year of origination as of September 30, 2023 and gross charge-offs for the nine months ended September 30, 2023:

As of March 31, 2024, and December 31, 2023, there were no loans classified as doubtful with a risk rating of 8 and no loans classified as loss with a risk rating of 9.

Residential and consumer loans are typically not rated until they are past due 90 days at month-end which is why thy are classified as pass graded 1-5 and once past due or have a history of delinquencies, get assigned a grade 7.

Below is a summary of the amortized cost of loans summarized by class, credit quality risk rating and year of origination as of March 31, 2024, and gross charge-offs for the three months ended March 31, 2024:

Amortized Cost Basis by Origination Year

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Risk rating 7 — 308 696 3,403 220 4,853 — — 9,480