Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
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CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets
June 30, 2024 (unaudited) and December 31, 2023
(derived from audited financial statements)
(in thousands, except share and per share data)
June 30, 2024 December 31, 2023
Assets
Cash and cash equivalents $ 36,886 $ 37,138
Available for sale ("AFS") securities, at fair value (amortized cost of $ 170,494 , net of allowance for credit losses of $ 0 at June 30, 2024 and amortized cost of $ 179,744 , net of allowance for credit losses of $ 0 at December 31, 2023)
146,438 155,743
Held to maturity ("HTM") securities, at amortized cost (fair value of $ 69,027 , net of allowance for credit losses of $ 0 at June 30, 2024 and fair value of $ 73,262 , net of allowance for credit losses of $ 0 at December 31, 2023)
88,605 91,229
Equity investments 5,023 3,284
Other investments 13,878 15,725
Loans receivable 1,428,588 1,460,792
Allowance for credit losses ( 21,178 ) ( 22,908 )
Loans receivable, net 1,407,410 1,437,884
Loans held for sale 275 5,773
Mortgage servicing rights, net 3,731 3,865
Office properties and equipment, net 17,774 18,373
Accrued interest receivable 6,289 5,409
Intangible assets 1,336 1,694
Goodwill 31,498 31,498
Foreclosed and repossessed assets, net 1,662 1,795
Bank owned life insurance ("BOLI") 25,708 25,647
Other assets 15,794 16,334
TOTAL ASSETS $ 1,802,307 $ 1,851,391
Liabilities and Stockholders’ Equity
Liabilities:
Deposits $ 1,519,544 $ 1,519,092
Federal Home Loan Bank (“FHLB”) advances 31,500 79,530
Other borrowings 61,498 67,465
Other liabilities 13,720 11,970
Total liabilities 1,626,262 1,678,057
Stockholders’ Equity:
Common stock—$ 0.01 par value, authorized 30,000,000 ; 10,297,341 and 10,440,591 shares issued and outstanding, respectively
103 104
Additional paid-in capital 117,838 119,441
Retained earnings 75,501 71,117
Accumulated other comprehensive loss ( 17,397 ) ( 17,328 )
Total stockholders’ equity 176,045 173,334
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,802,307 $ 1,851,391
See accompanying condensed notes to unaudited consolidated financial statements.
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CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations (unaudited)
Three and Six Months Ended June 30, 2024 and 2023
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023
Interest and dividend income:
Interest and fees on loans $ 19,921 $ 17,960 $ 40,089 $ 35,086
Interest on investments 2,542 2,817 5,053 5,364
Total interest and dividend income 22,463 20,777 45,142 40,450
Interest expense:
Interest on deposits 9,338 6,162 18,547 10,510
Interest on FHLB and FRB borrowed funds 576 1,892 1,088 3,385
Interest on other borrowed funds 973 1,037 2,026 2,074
Total interest expense 10,887 9,091 21,661 15,969
Net interest income before provision for credit losses 11,576 11,686 23,481 24,481
(Negative) provision for credit losses ( 1,525 ) 450 ( 2,325 ) 500
Net interest income after provision for credit losses 13,101 11,236 25,806 23,981
Non-interest income:
Service charges on deposit accounts 490 488 961 973
Interchange income 579 591 1,120 1,142
Loan servicing income 526 499 1,108 1,068
Gain on sale of loans 226 904 1,246 1,202
Loan fees and service charges 309 88 539 168
Net realized gains on debt securities — 12 — 12
Net losses (gains) on equity securities ( 658 ) ( 2 ) ( 491 ) 54
Bank Owned Life Insurance (BOLI) death benefit 184 — 184 —
Other 257 333 510 586
Total non-interest income 1,913 2,913 5,177 5,205
Non-interest expense:
Compensation and related benefits 5,675 5,336 11,158 10,674
Occupancy 1,333 1,359 2,700 2,782
Data processing 1,525 1,444 3,122 2,904
Amortization of intangible assets 179 193 358 397
Mortgage servicing rights expense, net 116 148 264 306
Advertising, marketing and public relations 186 151 350 287
FDIC premium assessment 200 203 405 404
Professional services 347 306 913 811
Gains on repossessed assets, net ( 18 ) ( 9 ) ( 18 ) ( 38 )
Other 756 715 1,824 1,440
Total non-interest expense 10,299 9,846 21,076 19,967
Income before provision for income taxes 4,715 4,303 9,907 9,219
Provision for income taxes 1,040 1,097 2,144 2,351
Net income attributable to common stockholders $ 3,675 $ 3,206 $ 7,763 $ 6,868
Per share information:
Basic earnings $ 0.35 $ 0.31 $ 0.75 $ 0.66
Diluted earnings $ 0.35 $ 0.31 $ 0.75 $ 0.66
Cash dividends paid $ — $ — $ 0.32 $ 0.29
See accompanying condensed notes to unaudited consolidated financial statements.
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CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
Three and Six months ended June 30, 2024 and 2023
(in thousands)
Three Months Ended Six Months Ended
June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023
Net income attributable to common stockholders $ 3,675 $ 3,206 $ 7,763 $ 6,868
Other comprehensive income (loss), net of tax:
Securities available for sale
Net unrealized gains (losses) arising during period, net of tax 503 ( 2,277 ) ( 199 ) ( 1,212 )
Reclassification adjustment for net gains included in net income, net of tax — ( 9 ) — ( 9 )
Reclassification for net loss on exchanged security, included in net income, net of tax 130 — 130 —
Other comprehensive income (loss), net of tax 633 ( 2,286 ) ( 69 ) ( 1,221 )
Comprehensive income $ 4,308 $ 920 $ 7,694 $ 5,647
See accompanying condensed notes to unaudited consolidated financial statements.
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CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statement of Changes in Stockholders’ Equity (unaudited)
Six Months Ended June 30, 2024
(in thousands, except shares and per share data)
Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (loss) Total Stockholders’ Equity
Common Stock
Shares Amount
Balance, December 31, 2023 10,440,591 $ 104 $ 119,441 $ 71,117 $ ( 17,328 ) $ 173,334
Net income — — — 4,088 — 4,088
Other comprehensive loss, net of tax — — — — ( 702 ) ( 702 )
Surrender of restricted shares of common stock ( 9,471 ) — ( 113 ) — — ( 113 )
Restricted common stock awarded under the equity incentive plan 16,955 — — — —
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
Cash dividends ($ 0.32 per share)
— — — ( 3,346 ) — ( 3,346 )
Balance at March 31, 2024 10,406,880 104 118,916 71,831 ( 18,030 ) 172,821
Net income — — — 3,675 — 3,675
Other comprehensive income, net of tax — — — — 633 633
Surrender of restricted shares of common stock ( 539 ) — ( 6 ) — — ( 6 )
Common stock repurchased ( 109,000 ) ( 1 ) ( 1,230 ) ( 5 ) — ( 1,236 )
Amortization of restricted stock — — 158 — — 158
Balance at June 30, 2024 10,297,341 $ 103 $ 117,838 $ 75,501 $ ( 17,397 ) $ 176,045
See accompanying condensed notes to unaudited consolidated financial statements.
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CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statement of Changes in Stockholders’ Equity (unaudited)
Twelve Months Ended December 31, 2023
(in thousands, except shares and per share data)
Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Common Stock
Shares Amount
Balance, December 31, 2022 10,425,119 $ 104 $ 119,240 $ 65,400 $ ( 17,656 ) $ 167,088
Net income — — — 3,662 — 3,662
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 )
Restricted common stock awarded under the equity incentive plan 50,606 1 — — — 1
Restricted stock issued upon achievement of the 2020 performance criteria 18,551 — — — — —
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)
— — — ( 3,040 ) — ( 3,040 )
Balance at March 31, 2023 10,482,821 105 119,327 61,720 ( 16,591 ) 164,561
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
Net income — — — 3,693 — 3,693
Other comprehensive loss, net of tax — — — — 4,411 4,411
Common stock repurchased ( 27,500 ) ( 1 ) ( 303 ) — — ( 304 )
Amortization of restricted stock — — 132 — — 132
Balance, December 31, 2023 10,440,591 $ 104 $ 119,441 $ 71,117 $ ( 17,328 ) $ 173,334
See accompanying condensed notes to unaudited consolidated financial statements.
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CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 2024 and 2023
(in thousands)
Six Months Ended
June 30, 2024 June 30, 2023
Cash flows from operating activities:
Net income attributable to common stockholders $ 7,763 $ 6,868
Adjustments to reconcile net income to net cash provided by operating activities:
Net accretion on debt securities ( 39 ) ( 34 )
Depreciation expense 1,113 1,203
(Negative provision) provision for credit losses ( 2,325 ) 500
Net loss (gain) on equity securities 491 ( 54 )
Net realized gain on sale of debt securities — ( 12 )
Increase in mortgage servicing rights resulting from transfers of financial assets ( 130 ) ( 52 )
Mortgage servicing rights amortization and impairment, net 264 306
Amortization of intangible assets 358 397
Amortization of restricted stock 316 382
Decrease in deferred income taxes 355 129
Increase in cash surrender value of life insurance ( 560 ) ( 336 )
Net gain from disposals of foreclosed and repossessed assets ( 18 ) ( 38 )
Gain on sale of loans held for sale, net ( 1,246 ) ( 1,202 )
Proceeds from sale of loans held for sale 28,441 23,192
Originations of loans held for sale ( 21,697 ) ( 24,384 )
Net change in:
Accrued interest receivable and other assets ( 709 ) ( 1,047 )
Other liabilities 1,750 ( 1,466 )
Total adjustments 6,364 ( 2,516 )
Net cash provided by operating activities 14,127 4,352
Cash flows from investing activities:
Proceeds from Bank Owned Life Insurance (BOLI) death benefit 499 —
Net decrease in other interest bearing deposits — 249
Purchase of available for sale securities — ( 11,007 )
Proceeds from principal payments of available for sale securities 7,045 9,128
Proceeds from sales of available for sale securities — 5,105
Proceeds from principal payments and maturities of held to maturity securities 2,618 2,571
Equity investment capital distribution 170 —
Purchase of equity investments ( 150 ) ( 450 )
Net sales (purchases) of other investments 1,847 ( 513 )
Proceeds from sales of foreclosed and repossessed assets 201 254
Proceeds from insurance claim on foreclosed and repossessed assets 27 —
Net decrease (increase) in loans 32,726 ( 13,199 )
Net capital expenditures ( 527 ) ( 547 )
Proceeds from disposal of office properties and equipment 13 10
Net cash provided by (used in) investing activities 44,469 ( 8,399 )
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Cash flows from financing activities:
Change in short term Federal Home Loan Bank advances, net ( 27,500 ) 15,000
Federal Home Loan Bank advance repayment due to FHLB call ( 10,000 ) —
Federal Home Loan Bank advance long-term maturities ( 10,530 ) ( 35,000 )
Amortization of debt issuance costs 116 115
Other borrowings principal reductions ( 6,083 ) ( 5,167 )
Net increase in deposits 448 39,962
Restricted common stock awarded under the equity incentive plan — 1
Repurchase shares of common stock ( 1,834 ) ( 117 )
Surrender of restricted shares of common stock ( 119 ) ( 129 )
Common stock options exercised — 28
Cash dividends paid ( 3,346 ) ( 3,040 )
Net cash (used in) provided by financing activities ( 58,848 ) 11,653
Net (decrease) increase in cash and cash equivalents ( 252 ) 7,606
Cash and cash equivalents at beginning of period 37,138 35,363
Cash and cash equivalents at end of period $ 36,886 $ 42,969
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposits $ 14,897 $ 10,088
Interest on borrowings $ 3,044 $ 5,363
Income taxes $ 1,487 $ 2,505
Supplemental noncash disclosure:
Transfers from loans receivable to other real estate owned ("OREO") $ 73 $ 144
See accompanying condensed notes to unaudited consolidated financial statements.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Citizens Community Federal N.A. (the “Bank”) included herein have been included by its parent company, Citizens Community Bancorp, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. As used in this quarterly report, the terms “we”, “us”, “our”, and “Citizens Community Bancorp, Inc.” mean the Company and its wholly owned subsidiary, the Bank, unless the context indicates other meaning.
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 (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 22 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. The Bank offers traditional community banking services to businesses, agricultural operators and consumers, including one-to-four family residential mortgages.
The Bank is subject to competition from other financial institutions and non-financial institutions providing financial products. 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 balance sheet date of June 30, 2024, through the date on which the consolidated financial statements were available to be issued on August 6, 2024, for items that should potentially be recognized or disclosed in these consolidated financial statements.
The accompanying consolidated interim financial statements are unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Unless otherwise stated herein, and except for shares and per share amounts, all amounts are in thousands.
Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates –Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, fair value of financial instruments, the allowance for credit losses, mortgage servicing rights, foreclosed and repossessed assets, valuation of intangible assets arising from acquisitions, useful lives for depreciation and amortization, valuation of goodwill and long-lived assets, stock based compensation, deferred tax assets, uncertain income tax positions and contingencies. Management does not anticipate any material changes to estimates made herein in the near term. 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 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 quarter ended March 31, 2024, filed with the SEC on May 8, 2024; the matters described in “Risk Factors” in Item 1A of this Form 10-Q; 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.
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Investment Securities; 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. Securities 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 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. Realized gains or losses on sales of available for sale securities are calculated with the specific identification method and are included in the consolidated statements of operations under net gains on investment securities. Interest income includes amortization of purchase premium or accretion of purchase discount. 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 – 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. First, the Company assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost. If it is determined that the Company intends or will be required to sell the security, it is written down to its fair value as net gains or losses on investment securities in our consolidated statement of operations. For agency mortgage-backed and asset-backed securities that do not meet the criteria in step one, 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 debt securities that do not meet the criteria in step one, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and the allowance for credit losses on available for sale investments is recorded for the credit loss, limited by the amount that the fair value is less that the amortized cost basis. Any impairment that has not been recorded through 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 June 30, 2024.
Equity investments - The Company is required to maintain an investment in Federal Agricultural Mortgage Corporation (“Farmer Mac”) equity securities. Farmer Mac equity securities are carried at their fair market value, which is readily determinable. Changes in fair value are recognized as net gains or losses on investment securities in our consolidated statement of operations.
Included in equity investments are preferred shares of a community development financial institution, which are carried at their fair market value. As no ready market exists for this investment, the Company utilizes significant unobservable inputs (Level 3 inputs) to determine fair value.We record the unrealized gains and losses resulting from changes in the fair value of this investment as net gains or losses on investment securities in our consolidated statements 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. The SBIC and investment fund meet the definition of investment companies, as defined in ASC 946, Financial Services - Investment Companies. These investments seek returns by investing in various small businesses and do not have redemption rights. Distributions from the investments will be received as the underlying investments, which generally have a life of 10 years, are liquidated. We elected the practical expedient available in Topic 820, Fair Value Measurements, which permits the use of net asset value ("NAV") per share or equivalent to value investments in entities that are or are similar to investment companies. 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 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.
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Other Investments - As a member of the Federal Reserve Bank (“FRB”) System and the Federal Home Loan Bank (“FHLB”) System, the Bank is required to maintain an investment in the capital stock of these entities. These securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other exchange traded equity securities. 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 statements of operations.
Also included in other investments is stock of our correspondent bank, Bankers’ Bank, without readily determinable fair value. This stock is carried at cost plus or minus changes resulting from observable price changes in orderly transactions for this stock, less other-than-temporary impairment charges, if any.
Management’s evaluation for impairment of these other investments, includes consideration of the financial condition and other available relevant information of the issuer. Based on management’s quarterly evaluation, no impairment has been recorded on these securities. Other investments totaling $ 13,878 at June 30, 2024 consisted of $ 5,447 of FHLB stock, $ 5,707 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 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. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the interest method over the contractual life of the loan with no prepayments assumed. If the loan is prepaid, any unamortized net fee is recognized at this time. Late charge fees are recognized into income when collected.
Interest income on commercial, mortgage and consumer loans is discontinued according to the following schedules:
• Commercial/agricultural real estate loans past due 90 days or more;
• Commercial and industrial/agricultural operating loans past due 90 days or more;
• Closed end consumer installment loans past due 120 days or more; and
• Residential mortgage loans and open ended consumer installment loans past due 180 days or more.
Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual status. 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.
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. Closed ended consumer installment loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 120 days or more. Commercial/agricultural real estate, commercial and industrial and agricultural operating loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 90 days or more.
Allowance for Credit Losses – Loans The allowance for credit losses (“ACL”) on loans is a valuation allowance for current expected credit losses in the Company’s loan portfolio. Prior to January 1, 2023, the valuation allowance was established for probable and inherent credit losses. Loan losses are charged against the ACL when management believes that the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the ACL. In determining the allowance, the company estimates credit losses over the loan’s entire contractual term, adjusted for expected prepayments when appropriate. The allowance estimate considers relevant available information from internal and external sources relating to historical loss experience; known and inherent risks in our portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; reasonable and supportable forecasts for future conditions; and other relevant factors determined by management. To ensure that the ACL is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance. The entire ACL balance is available for any loan that, in management’s judgment, should be charged off.
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The determination of the ACL requires significant judgement to estimate credit losses. The ACL on loans is measured collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that the loan does not share similar risk characteristics with other loans. The ACL on loans collectively evaluated is measured using the loss rate model. The Company categorizes its loan portfolio into four segments based on similar risk characteristics. Loans within each segment are pooled based on individual loan characteristics. Aggregated risk drivers are then calculated at a pool level. Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type. A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. 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. Loans can be identified for individual evaluation for a variety of reasons including delinquency, nonaccrual status, risk rating and loan modification. Accruing loans that exhibit different risk characteristics from their pool may also be within scope. On these loans, an allowance may be established so that the loan is reported, net, at the lower of (a) its amortized cost; (b) the present value of the loan’s estimated future cash flows using the loan’s existing rate; or (c) at the fair value of any loan collateral, less estimated disposal costs, if the loan is collateral dependent. Collateral dependency is determined using the practical expedient when: 1) the borrower is experiencing financial difficulty; and 2) repayment is expected to be provided substantially through the sale or operation of the collateral.
The Company has elected to not measure an ACL on accrued interest as it writes off accrued interest in a timely manner.
Allowance for Credit Losses - Unfunded Commitments - The ACL on unfunded commitments is a liability for credit losses on commitments to originate or fund loans, and standby letters of credit. It is included in “Other liabilities” on the consolidated balance sheets. Expected credit losses are estimated over the contractual period in which the Company is exposed to credit risk via a commitment that cannot be unconditionally canceled, adjusted for projected prepayments when appropriate. In addition, the estimate of the liability considers the likelihood that funding will occur. The ACL on unfunded commitments is adjusted through provision for credit losses on consolidated statements of operations. Because the business processes and risks associated with unfunded commitments are essentially the same as loans, the Company uses the same process to estimate the liability.
Loans Held for Sale — Loans held for sale are those loans the Company has the intent to sell in the foreseeable future. They are carried at the lower of aggregate cost or fair value. Gains and losses on sales of loans are recognized at settlement dates, and are determined by the difference between the sales proceeds and the carrying value of the loans after allocating costs to servicing rights retained. Such gains and losses are included as non-interest income in the consolidated statements of operations. All sales are made without recourse. Interest rate lock commitments on mortgage loans to be funded and sold are valued at fair value, and are included in other assets or liabilities, if material.
Transfers of financial assets— Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the entity, (2) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and (3) the entity does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.
Mortgage Servicing Rights— Mortgage servicing rights (“MSR”) assets result as the Company sells loans to investors in the secondary market and retains the rights to service mortgage loans sold to others. MSR assets are initially measured at fair value; assessed for impairment at least annually; 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, 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: changes in the
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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. Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.
Servicing fee income, which is reported on the consolidated statements of operations in non-interest income as loan servicing income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of outstanding principal; 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 84 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. 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 June 30, 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. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of the Company’s reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated fair value of the Company’s reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of the Company’s reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the Company’s reporting unit’s goodwill to the implied fair value of goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as of December 31, 2023. The Company has monitored events and conditions since December 31, 2023, and has determined that no triggering event has occurred that would require goodwill to be tested for impairment.
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. If the fair value declines subsequent to foreclosure or repossession, a write-down is recorded through expense. Costs incurred after acquisition are expensed and are included in non-interest expense, other in the consolidated statements of operations.
Bank Owned Life Insurance (BOLI)— The Bank invests in bank-owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Bank is the owner and beneficiary of the policies. 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. With the adoption of ASU 2023-02 on January 1, 2023 discussed in Recent Accounting Pronouncements -
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Adopted below, the investment is accounted for using the proportional amortization method, which requires amortizing the investment in the period of and in proportion to the recognition of the related tax credit. Amortization of the investment is included in provision for income taxes and the utilization of the tax credit is recorded as a reduction in provision for income taxes. 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 June 30, 2024, the carrying amount of this investment, which is included in other assets in the consolidated balance sheets, was $ 2,608 . 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 June 30, 2024, there were no known instances of noncompliance associated with the investment.
Leases - We determine if an arrangement is a lease at inception. All of our existing leases have been determined to be operating leases under ASC 842. Right-of-use (“ROU”) assets are included in other assets in our consolidated balance sheets. Operating lease liabilities are included in other liabilities in our consolidated balance sheets. Lease expense is included in non-interest expense, “Occupancy” in the consolidated statements of operations.
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. 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. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease, when it is reasonably certain that we will exercise that option. 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.
Federal Hold Loan Bank (“FHLB”) advances - The Bank holds both $ 16,500 and $ 44,000 short-term and $ 15,000 and $ 35,530 long-term FHLB advances as of June 30, 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. Forfeited restricted shares are canceled and returned to authorized and unissued shares. 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.
Income Taxes – The Company accounts for income taxes in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Under this guidance, deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
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existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.
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. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical performance, expectations of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carry forward periods, any experience with utilization of operating loss and tax credit carry forwards not expiring, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. 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 22.1 % and 25.5 % for the three months ended June 30, 2024 and June 30, 2023, and 21.6 % and 25.5 % for the six months ended June 30, 2024 and June 30, 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 lowered the Company’s income tax rates for the three and six-month periods ended June 30, 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 three and nine-month periods 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. 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. 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 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. Revenue for these monthly fees is recognized during the service period. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied at the time the service is provided. Payment for service charges on deposit accounts are primarily received immediately or in the following month through a direct charge to a customer’s account.
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. 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’s performance obligation is satisfied over time as it makes funds available, and the related income is recognized when received.
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.
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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, 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. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable during the period, consisting of stock options outstanding under the Company’s stock incentive plans that have an exercise price that is less than the Company’s stock price on the reporting date.
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 June 30, 2024, the Company had $ 4,174 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 June 30, 2024.
Common Stock Repurchased -The Company is incorporated in Maryland. Under Maryland Law, repurchased shares of the Company’s common stock must be returned. Shares repurchased are canceled and returned to authorized and unissued shares and recorded as a reduction of each of the applicable captions within stockholders’ equity on the consolidated balance sheets and consolidated statement of changes in stockholders’ equity.
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. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.
Reclassifications – Certain items previously reported were reclassified for consistency with the current presentation.
Recent Accounting Pronouncements— The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have potentially significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future.
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Recent Accounting Pronouncements—Adopted
ASU 2020-04 and ASU 2021-01, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting-- These ASUs provide optional and temporary relief, in the form of optional expedients and exceptions, for applying GAAP to modifications of contacts, hedging relationships and other transactions affected by reference rate (e.g. LIBOR) reforms. ASU 2020-04 and ASU 2021-01 was effective immediately upon issuance and will remain in effect through December 31, 2024. The Company utilizes LIBOR, among other indexes, as a reference rate for underwriting variable rate loans. 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.
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.
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.
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NOTE 2 – INVESTMENT SECURITIES
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 June 30, 2024 and December 31, 2023, respectively, were as follows:
Available for sale securities Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
June 30, 2024
U.S. government agency obligations $ 15,180 $ 72 $ 154 $ 15,098
Mortgage-backed securities 88,199 — 19,115 69,084
Corporate debt securities 44,919 1 4,788 40,132
Asset-backed securities 22,196 45 117 22,124
Total available for sale securities $ 170,494 $ 118 $ 24,174 $ 146,438
December 31, 2023
U.S. government agency obligations $ 16,655 $ 77 $ 156 $ 16,576
Mortgage-backed securities 91,091 — 17,611 73,480
Corporate debt securities 47,158 6 5,990 41,174
Asset-backed securities 24,840 12 339 24,513
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 June 30, 2024 and December 31, 2023, respectively, were as follows:
Held to maturity securities Amortized
Cost Gross
Unrecognized
Gains Gross
Unrecognized
Losses Estimated
Fair Value
June 30, 2024
Obligations of states and political subdivisions $ 500 $ — $ 31 $ 469
Mortgage-backed securities 88,105 4 19,551 68,558
Total held to maturity securities $ 88,605 $ 4 $ 19,582 $ 69,027
December 31, 2023
Obligations of states and political subdivisions $ 600 $ — $ 35 $ 565
Mortgage-backed securities 90,629 6 17,938 72,697
Total held to maturity securities $ 91,229 $ 6 $ 17,973 $ 73,262
At June 30, 2024, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $ 28,454 as collateral to secure a line of credit with the Federal Reserve Bank. As of June 30, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of June 30, 2024, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $ 383 and mortgage-backed securities with a carrying value of $ 1,802 as collateral against specific municipal deposits. As of June 30, 2024, the Bank also has mortgage-backed securities with a carrying value of $ 125 and U.S. Government Agencies with a carrying value of $ 449 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. As of December 31, 2023, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2023, the Bank had pledged certain of its U.S. 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, 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.
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For the three and six month periods ended June 30, 2024, there were no sales of available for sale securities. In June 2024, senior debt of a community development financial institution, classified as available-for-sale securities with a carrying value of $ 2,082 , was exchanged for preferred equity of the financial institution’s operating subsidiary. The exchange resulted in $ 168 of unrealized losses on available-for-sale securities, previously included in other comprehensive income, being recognized on the June 30, 2024, consolidated statement of operations as loss on investment securities. For the three and six month periods ended June 30, 2023, gross sales of available for sale securities were $ 5,105 , gross gains on the sale of available for sale securities were $ 12 , and gross loss on the sale of available for sale securities were $ 0 .
The estimated fair value of securities at June 30, 2024 and December 31, 2023, by contractual maturity, is shown below.
June 30, 2024 December 31, 2023
Available for sale securities Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value
Due in one year or less $ 2,500 $ 2,491 $ — $ —
Due after one year through five years 11,024 10,823 13,986 13,703
Due after five years through ten years 42,638 37,923 45,549 39,701
Due after ten years 26,133 26,117 29,118 28,859
Total securities with contractual maturities 82,295 77,354 88,653 82,263
Mortgage-backed securities 88,199 69,084 91,091 73,480
Total available for sale securities $ 170,494 $ 146,438 $ 179,744 $ 155,743
June 30, 2024 December 31, 2023
Held to maturity securities Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value
Due in one year or less $ 100 $ 98 $ 100 $ 100
Due after one year through five years 400 371 500 465
Due after five years through ten years — — — —
Total securities with contractual maturities 500 469 600 565
Mortgage-backed securities 88,105 68,558 90,629 72,697
Total held to maturity securities $ 88,605 $ 69,027 $ 91,229 $ 73,262
Securities with unrealized losses at June 30, 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
Available for sale securities Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
June 30, 2024
U.S. government agency obligations $ 3,429 $ 4 $ 3,491 $ 150 $ 6,920 $ 154
Mortgage-backed securities — — 69,084 19,115 69,084 19,115
Corporate debt securities — — 38,212 4,788 38,212 4,788
Asset-backed securities — — 14,291 117 14,291 117
Total $ 3,429 $ 4 $ 125,078 $ 24,170 $ 128,507 $ 24,174
December 31, 2023
U.S. government agency obligations $ 3,776 $ 5 $ 3,627 $ 151 $ 7,403 $ 156
Mortgage-backed securities — $ — $ 73,476 $ 17,611 $ 73,476 $ 17,611
Corporate debt securities 3,350 $ 76 $ 35,916 $ 5,914 $ 39,266 $ 5,990
Asset-backed securities 3,348 $ 22 $ 20,008 $ 317 $ 23,356 $ 339
Total $ 10,474 $ 103 $ 133,027 $ 23,993 $ 143,501 $ 24,096
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At June 30, 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. These securities are guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. At June 30, 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. Furthermore, the Company does not intend to sell, and it is likely that management will not be required to sell, the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The issuers continue to make timely principal and interest payments on their bonds.
All of our available for sale and held to maturity investment securities are investment grade securities.
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NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
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. Management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The level of owner-occupied property versus non-owner-occupied property are tracked and monitored on a regular basis. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 75 %.
Commercial and industrial (“C&I”) loans are primarily underwritten based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Agricultural operating loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines. Operating lines are typically written for one year and secured by the crop and other farm assets or other business assets, as considered necessary. Agricultural loans carry significant credit risks as they may involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields.
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. Under consumer home equity loan guidelines, the borrower will be approved for a loan based on a percentage of their home’s appraised value less the balance owed on the existing first mortgage. Credit risk is minimized within the residential mortgage portfolio due to relatively small loan account balances spread across many individual borrowers. Management evaluates trends in past due loans and current economic factors such as the housing price index on a regular basis.
Consumer installment loans are comprised of originated indirect paper loans secured primarily by boats and recreational vehicles and other consumer loans secured primarily by automobiles and other personal assets. Consumer loan underwriting terms often depend on the collateral type, debt to income ratio and the borrower’s creditworthiness as evidenced by their credit score. In the event of a consumer installment loan default, collateral value alone may not provide an adequate source of repayment of the outstanding loan balance. This shortage is a result of the greater likelihood of damage, loss and depreciation for consumer based collateral.
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Loans are stated at the principal amount outstanding net of unearned net deferred fees and costs and loans in process, unearned discounts on acquired loans, and allowance for credit losses (“ACL”). Unearned net deferred fees and costs includes deferred loan origination fees reduced by loan origination costs and is amortized to interest income over the life of the related loan using methods that approximated the effective interest rate method. Interest on substantially all loans is credited to income based on the principal amount outstanding. A summary of loans at June 30, 2024, and December 31, 2023, follows:
June 30, 2024
December 31, 2023
Amortized Cost % of Total Amortized Cost % of Total
Commercial/Agricultural real estate:
Commercial real estate $ 727,170 50.9 % $ 748,447 51.2 %
Agricultural real estate 77,782 5.5 % 83,157 5.7 %
Multi-family real estate 234,624 16.4 % 228,004 15.6 %
Construction and land development 87,379 6.1 % 110,218 7.5 %
C&I/Agricultural operating:
Commercial and industrial 127,308 8.9 % 121,190 8.3 %
Agricultural operating 27,422 1.9 % 25,695 1.8 %
Residential mortgage:
Residential mortgage 133,018 9.3 % 128,479 8.8 %
Purchased HELOC loans 2,915 0.2 % 2,880 0.2 %
Consumer installment:
Originated indirect paper 5,110 0.4 % 6,535 0.4 %
Other consumer 5,860 0.4 % 6,187 0.4 %
Total loans receivable $ 1,428,588 100 % $ 1,460,792 100 %
Less Allowance for credit losses ( 21,178 ) ( 22,908 )
Net loans receivable $ 1,407,410 $ 1,437,884
26
Credit Quality/Risk Ratings:
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.
Ratings range from the highest to lowest quality based on factors that include measurements of ability to pay, collateral type and value, borrower stability and management experience. The Bank’s loan portfolio ratings are presented below in accordance with the risk rating framework that has been commonly adopted by the federal banking agencies. The definitions of the various risk rating categories are as follows:
1 through 4 - Pass. A “Pass” loan means that the condition of the borrower and the performance of the loan is satisfactory or better.
5 - Watch. A “Watch” loan has clearly identifiable developing weaknesses that deserve additional attention from management. Weaknesses that are not corrected or mitigated, may jeopardize the ability of the borrower to repay the loan in the future.
6 - Special Mention. A “Special Mention” loan has one or more potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position in the future.
7 - Substandard. A “Substandard” loan is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
8 - Doubtful. A “Doubtful” loan has all the weaknesses inherent in a Substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
9 - Loss. Loans classified as “Loss” are considered uncollectible, and their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, and a partial recovery may occur in the future.
As of June 30, 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 they are classified as pass graded 1-5 and once past due or have a history of delinquencies, get assigned a grade 7.
27
Below is a summary of the amortized cost of loans summarized by class, credit quality risk rating and year of origination as of June 30, 2024, and gross charge-offs for the six months ended June 30, 2024:
Amortized Cost Basis by Origination Year
2024 2023 2022 2021 2020 Prior Revolving Revolving to Term Total
Commercial/Agricultural real estate:
Commercial real estate
Risk rating 1 to 5 $ 27,191 $ 80,282 $ 132,929 $ 216,899 $ 92,595 $ 156,775 $ 10,911 $ — $ 717,582
Risk rating 6 175 — — 41 — — — — 216
Risk rating 7 — 301 595 3,493 218 4,765 — — 9,372
Total $ 27,366 $ 80,583 $ 133,524 $ 220,433 $ 92,813 $ 161,540 $ 10,911 $ — $ 727,170
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Agricultural real estate
Risk rating 1 to 5 $ 2,673 $ 11,964 $ 17,527 $ 11,087 $ 7,539 $ 19,509 $ 1,031 $ — $ 71,330
Risk rating 6 — — 169 5,308 — 593 — — 6,070
Risk rating 7 — — 354 — — 28 — — 382
Total $ 2,673 $ 11,964 $ 18,050 $ 16,395 $ 7,539 $ 20,130 $ 1,031 $ — $ 77,782
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Multi-family real estate
Risk rating 1 to 5 $ 3,426 $ 5,119 $ 55,498 $ 103,694 $ 43,806 $ 22,986 $ 95 $ — $ 234,624
Risk rating 6 — — — — — — — — —
Risk rating 7 — — — — — — — — —
Total $ 3,426 $ 5,119 $ 55,498 $ 103,694 $ 43,806 $ 22,986 $ 95 $ — $ 234,624
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Construction and land development
Risk rating 1 to 5 $ 13,604 $ 43,138 $ 9,884 $ 5,682 $ 1,362 $ 1,213 $ 12,388 $ — $ 87,271
Risk rating 6 — — — — — 108 — — 108
Risk rating 7 — — — — — — — — —
Total $ 13,604 $ 43,138 $ 9,884 $ 5,682 $ 1,362 $ 1,321 $ 12,388 $ — $ 87,379
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Commercial/Agricultural operating:
Commercial and industrial
Risk rating 1 to 5 $ 10,098 $ 15,189 $ 31,856 $ 25,191 $ 9,250 $ 5,732 $ 27,139 $ — $ 124,455
Risk rating 6 — 449 243 14 — — 1,708 — 2,414
Risk rating 7 — 16 — 421 — 2 — — 439
Total $ 10,098 $ 15,654 $ 32,099 $ 25,626 $ 9,250 $ 5,734 $ 28,847 $ — $ 127,308
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Agricultural operating
Risk rating 1 to 5 $ 1,920 $ 3,694 $ 3,473 $ 736 $ 597 $ 2,199 $ 13,786 $ — $ 26,405
Risk rating 6 — — — — — — — — —
Risk rating 7 — — 473 544 — — — — 1,017
Total $ 1,920 $ 3,694 $ 3,946 $ 1,280 $ 597 $ 2,199 $ 13,786 $ — $ 27,422
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
28
Continued Amortized Cost Basis by Origination Year
2024 2023 2022 2021 2020 Prior Revolving Revolving to Term Total
Residential mortgage:
Residential mortgage
Risk rating 1 to 5 $ 6,739 $ 32,111 $ 32,697 $ 7,851 $ 2,284 $ 32,386 $ 16,092 $ — $ 130,160
Risk rating 7 — — 134 — — 2,724 — — 2,858
Total $ 6,739 $ 32,111 $ 32,831 $ 7,851 $ 2,284 $ 35,110 $ 16,092 $ — $ 133,018
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Purchased HELOC loans
Risk rating 1 to 5 $ — $ — $ — $ — $ — $ — $ 2,798 $ — $ 2,798
Risk rating 7 — — — — — — 117 — 117
Total $ — $ — $ — $ — $ — $ — $ 2,915 $ — $ 2,915
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Consumer installment:
Originated indirect paper
Risk rating 1 to 5 $ — $ — $ — $ — $ — $ 5,049 $ — $ — $ 5,049
Risk rating 7 — — — — — 61 — — 61
Total $ — $ — $ — $ — $ — $ 5,110 $ — $ — $ 5,110
Current period gross charge-offs $ — $ — $ — $ — $ — $ 10 $ — $ — $ 10
Other consumer
Risk rating 1 to 5 $ 1,143 $ 1,662 $ 1,151 $ 529 $ 439 $ 410 $ 518 $ — $ 5,852
Risk rating 7 — 6 — — — 1 1 — 8
Total $ 1,143 $ 1,668 $ 1,151 $ 529 $ 439 $ 411 $ 519 $ — $ 5,860
Current period gross charge-offs $ — $ — $ 3 $ 1 $ — $ — $ 3 $ — $ 7
Total loans receivable $ 66,969 $ 193,931 $ 286,983 $ 381,490 $ 158,090 $ 254,541 $ 86,584 $ — $ 1,428,588
Total current period gross charge-offs $ — $ — $ 3 $ 1 $ — $ 10 $ 3 $ — $ 17
29
Below is a summary of the amortized cost of loans summarized by class, credit quality risk rating and year of origination as of December 31, 2023, and gross charge-offs for the twelve months ended December 31, 2023:
Amortized Cost Basis by Origination Year
2023 2022 2021 2020 2019 Prior Revolving Revolving to Term Total
Commercial/Agricultural real estate:
Commercial real estate
Risk rating 1 to 5 $ 73,564 $ 133,583 $ 236,774 $ 90,881 $ 71,104 $ 107,999 $ 10,204 $ — $ 724,109
Risk rating 6 309 — 9,510 — — — — — 9,819
Risk rating 7 25 696 3,213 4,548 183 5,854 — — 14,519
Total $ 73,898 $ 134,279 $ 249,497 $ 95,429 $ 71,287 $ 113,853 $ 10,204 $ — $ 748,447
Current period gross charge-offs $ — $ — $ 10 $ — $ — $ 4 $ — $ — $ 14
Agricultural real estate
Risk rating 1 to 5 $ 16,335 $ 19,026 $ 11,582 $ 7,719 $ 5,463 $ 15,418 $ 1,009 $ — $ 76,552
Risk rating 6 — 171 5,409 — 152 482 — — 6,214
Risk rating 7 — 360 — — 31 — — — 391
Total $ 16,335 $ 19,557 $ 16,991 $ 7,719 $ 5,646 $ 15,900 $ 1,009 $ — $ 83,157
Current period gross charge-offs $ — $ — $ — $ 32 $ — $ — $ — $ — $ 32
Multi-family real estate
Risk rating 1 to 5 $ 5,016 $ 50,617 $ 95,686 $ 45,685 $ 8,591 $ 22,364 $ 45 $ — $ 228,004
Risk rating 6 — — — — — — — — —
Risk rating 7 — — — — — — — — —
Total $ 5,016 $ 50,617 $ 95,686 $ 45,685 $ 8,591 $ 22,364 $ 45 $ — $ 228,004
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Construction and land development
Risk rating 1 to 5 $ 42,639 $ 37,783 $ 18,912 $ 8,014 $ 119 $ 1,124 $ 1,314 $ — $ 109,905
Risk rating 6 — — — — — 110 — — 110
Risk rating 7 — — — — — 54 149 — 203
Total $ 42,639 $ 37,783 $ 18,912 $ 8,014 $ 119 $ 1,288 $ 1,463 $ — $ 110,218
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Commercial/Agricultural operating:
Commercial and industrial
Risk rating 1 to 5 $ 16,758 $ 31,915 $ 28,059 $ 11,406 $ 4,746 $ 2,023 $ 24,059 $ — $ 118,966
Risk rating 6 — — — — 5 — 2,200 — 2,205
Risk rating 7 — — — — — 2 — 17 19
Total $ 16,758 $ 31,915 $ 28,059 $ 11,406 $ 4,751 $ 2,025 $ 26,259 $ 17 $ 121,190
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Agricultural operating
Risk rating 1 to 5 $ 4,734 $ 3,908 $ 856 $ 746 $ 295 $ 2,144 $ 11,831 $ — $ 24,514
Risk rating 6 — — — — — — — — —
Risk rating 7 — 476 704 — — 1 — — 1,181
Total $ 4,734 $ 4,384 $ 1,560 $ 746 $ 295 $ 2,145 $ 11,831 $ — $ 25,695
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
30
Continued Amortized Cost Basis by Origination Year
2023 2022 2021 2020 2019 Prior Revolving Revolving to Term Total
Residential mortgage:
Residential mortgage
Risk rating 1 to 5 $ 28,808 $ 33,660 $ 8,743 $ 2,610 $ 2,292 $ 33,744 $ 15,544 $ — 125,401
Risk rating 7 — 141 — — 14 2,875 — 48 3,078
Total $ 28,808 $ 33,801 $ 8,743 $ 2,610 $ 2,306 $ 36,619 $ 15,544 $ 48 $ 128,479
Current period gross charge-offs $ — $ — $ 10 $ — $ — $ 68 $ — $ — $ 78
Purchased HELOC loans
Risk rating 1 to 5 $ — $ — $ — $ — $ — $ — $ 2,880 $ — $ 2,880
Risk rating 7 — — — — — — — — —
Total $ — $ — $ — $ — $ — $ — $ 2,880 $ — $ 2,880
Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Consumer installment:
Originated indirect paper
Risk rating 1 to 5 $ — $ — $ — $ — $ — $ 6,491 $ — $ — $ 6,491
Risk rating 7 — — — — — 44 — — 44
Total $ — $ — $ — $ — $ — $ 6,535 $ — $ — $ 6,535
Current period gross charge-offs $ — $ — $ — $ — $ — $ 13 $ — $ — $ 13
Other consumer
Risk rating 1 to 5 $ 2,104 $ 1,525 $ 763 $ 559 $ 402 $ 274 $ 530 $ 1 $ 6,158
Risk rating 7 9 2 — — 16 1 1 — 29
Total $ 2,113 $ 1,527 $ 763 $ 559 $ 418 $ 275 $ 531 $ 1 $ 6,187
Current period gross charge-offs $ — $ 2 $ 1 $ 11 $ 3 $ 6 $ — $ — $ 23
Total loans receivable $ 190,301 $ 313,863 $ 420,211 $ 172,168 $ 93,413 $ 201,004 $ 69,766 $ 66 $ 1,460,792
Total current period gross charge-offs $ — $ 2 $ 21 $ 43 $ 3 $ 91 $ — $ — $ 160
31
Allowance for Credit Losses - Loans- On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial instruments and transitioned to the Current Expected Credit Loss (“CECL”) model to estimate losses based on the lifetime of the loan. Under the new methodology, the ACL is comprised of collectively evaluated and individually evaluated components. The allowance for credit losses (“ACL”) represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining life of the assets. The provision for credit losses is the charge against current earnings that is determined by the Company as the amount needed to maintain an adequate allowance for credit losses. In determining the adequacy of the allowance for credit losses, and therefore the provision to be charged to current earnings, the Company relies predominantly on a disciplined credit review and approval process that extends to the full range of the Company’s credit exposure. The review process is directed by the overall lending policy and is intended to identify, at the earliest possible stage, the borrowers who might be facing financial difficulty. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and modifications, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. The Company estimates the appropriate level of allowance for credit losses by evaluating loans collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that a loan does not share similar risk characteristics with other loans.
The following tables present the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the three and six months ended June 30, 2024:
Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Total
Three months ended June 30, 2024
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period $ 18,255 $ 1,166 $ 2,765 $ 250 $ 22,436
Charge-offs — — — ( 12 ) ( 12 )
Recoveries 2 10 2 2 16
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations ( 1,224 ) ( 59 ) 17 4 ( 1,262 )
ACL - Loans, at end of period $ 17,033 $ 1,117 $ 2,784 $ 244 $ 21,178
Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Total
Six months ended June 30, 2024
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period $ 18,784 $ 1,105 $ 2,744 $ 275 $ 22,908
Charge-offs — — — ( 17 ) ( 17 )
Recoveries 41 25 3 5 74
Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations ( 1,792 ) ( 13 ) 37 ( 19 ) ( 1,787 )
ACL - Loans, at end of period $ 17,033 $ 1,117 $ 2,784 $ 244 $ 21,178
32
The following table presents the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the three and six months ended June 30, 2023:
Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total
Three months ended June 30, 2023
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period $ 18,496 $ 1,848 $ 2,000 $ 335 $ — $ 22,679
Charge-offs ( 14 ) — ( 10 ) ( 16 ) — ( 40 )
Recoveries 27 16 36 10 — 89
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations 424 ( 406 ) 426 ( 8 ) — 436
ACL - Loans, at end of period $ 18,933 $ 1,458 $ 2,452 $ 321 $ — $ 23,164
Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total
Six months ended June 30, 2023
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period $ 14,085 $ 2,318 $ 599 $ 129 $ 808 $ 17,939
Cumulative effect of ASU 2016-13 adoption 4,510 ( 331 ) 1,119 216 ( 808 ) 4,706
Charge-offs ( 46 ) — ( 24 ) ( 27 ) — ( 97 )
Recoveries 30 31 40 22 — 123
Additions/(reversals) to ACL - Loans via provision for credit losses charged to operations 354 ( 560 ) 718 ( 19 ) — 493
ACL - Loans, at end of period $ 18,933 $ 1,458 $ 2,452 $ 321 $ — $ 23,164
The following table presents the balance and activity in the allowance for credit losses (“ACL”) - loans by portfolio segment for the twelve months ended December 31, 2023:
Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total
Twelve months ended December 31, 2023
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period $ 14,085 $ 2,318 $ 599 $ 129 $ 808 $ 17,939
Cumulative effect of ASU 2016-13 adoption 4,510 ( 331 ) 1,119 216 ( 808 ) 4,706
Charge-offs ( 46 ) — ( 78 ) ( 36 ) — ( 160 )
Recoveries 489 47 42 33 — 611
(Reversals)/additions to ACL - Loans via provision for credit losses charged to operations ( 254 ) ( 929 ) 1,062 ( 67 ) — ( 188 )
ACL - Loans, at end of period $ 18,784 $ 1,105 $ 2,744 $ 275 $ — $ 22,908
33
Allowance for Credit Losses - Unfunded Commitments - In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $ 712 at June 30, 2024, and $ 1,250 at December 31, 2023, classified in other liabilities on the consolidated balance sheets. The following table presents the balance and activity in the ACL - Unfunded Commitments for the three and six months ended June 30, 2024, and the twelve months ended December 31, 2023.
June 30, 2024 and Three Months Ended June 30, 2024 and Six Months Ended December 31, 2023 and Twelve Months Ended
ACL - Unfunded Commitments - beginning of period $ 975 $ 1,250 $ —
Cumulative effect of ASU 2016-13 adoption — — 1,537
Additions to ACL - Unfunded Commitments via provision for credit losses charged to operations ( 263 ) ( 538 ) ( 287 )
ACL - Unfunded Commitments - End of period $ 712 $ 712 $ 1,250
Provision for credit losses - The provision for credit losses is determined by the Company as the amount to be added (reversed) to the ACL loss accounts for various types of financial instruments (including loans and off-balance sheet credit exposures) after net charge-offs have been deducted to bring the ACL to a level that, in managements judgement, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The following table presents the components of the negative provision for credit losses.
June 30, 2024 and Three Months Ended June 30, 2024 and Six Months Ended
(Negative) provision for credit losses on:
Loans $ ( 1,262 ) $ ( 1,787 )
Unfunded Commitments ( 263 ) ( 538 )
Total (negative) provision for credit losses $ ( 1,525 ) $ ( 2,325 )
34
An aging analysis of the Company’s commercial/agricultural real estate, C&I, agricultural operating, residential mortgage, consumer installment and purchased third party loans as of June 30, 2024, and December 31, 2023, respectively, was as follows:
(Loan balances at amortized cost) 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total
Past Due Current Total
Loans
June 30, 2024
Commercial/Agricultural real estate:
Commercial real estate $ 103 $ 111 $ 533 $ 747 $ 726,423 $ 727,170
Agricultural real estate — — 354 354 77,428 77,782
Multi-family real estate — — — — 234,624 234,624
Construction and land development — — — — 87,379 87,379
C&I/Agricultural operating:
Commercial and industrial 277 — 421 698 126,610 127,308
Agricultural operating — — 1,017 1,017 26,405 27,422
Residential mortgage:
Residential mortgage 3,025 692 814 4,531 128,487 133,018
Purchased HELOC loans — 117 — 117 2,798 2,915
Consumer installment:
Originated indirect paper 2 9 25 36 5,074 5,110
Other consumer 41 3 2 46 5,814 5,860
Total $ 3,448 $ 932 $ 3,166 $ 7,546 $ 1,421,042 $ 1,428,588
(Loan balances at amortized cost) 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total
Past Due Current Total
Loans
December 31, 2023
Commercial/Agricultural real estate:
Commercial real estate $ 50 $ 308 $ 5,579 $ 5,937 $ 742,510 $ 748,447
Agricultural real estate 30 — 361 391 82,766 83,157
Multi-family real estate — — — — 228,004 228,004
Construction and land development — — 54 54 110,164 110,218
C&I/Agricultural operating:
Commercial and industrial 248 — — 248 120,942 121,190
Agricultural operating — — 1,179 1,179 24,516 25,695
Residential mortgage:
Residential mortgage 856 583 1,023 2,462 126,017 128,479
Purchased HELOC loans 117 — — 117 2,763 2,880
Consumer installment:
Originated indirect paper 66 — 12 78 6,457 6,535
Other consumer 38 — 20 58 6,129 6,187
Total $ 1,405 $ 891 $ 8,228 $ 10,524 $ 1,450,268 $ 1,460,792
35
Nonaccrual Loans - The following tables present the amortized cost basis of loans on nonaccrual status and of nonaccrual loans individually evaluated at June 30, 2024, December 31, 2023, and June 30, 2023, with no allowance for credit losses:
June 30, 2024 Total Nonaccrual Loans Nonaccrual with no Allowance for Credit Losses
Commercial/Agricultural real estate:
Commercial real estate $ 5,350 $ 5,093
Agricultural real estate 382 382
C&I/Agricultural operating:
Commercial and industrial 422 147
Agricultural operating 1,017 1,017
Residential mortgage:
Residential mortgage 1,028 810
Purchased HELOC loans 117 117
Consumer installment:
Originated indirect paper 35 35
Other consumer 1 1
Total $ 8,352 $ 7,602
December 31, 2023 Total Nonaccrual Loans Nonaccrual with no Allowance for Credit Losses
Commercial/Agricultural real estate:
Commercial real estate $ 10,359 $ 10,347
Agricultural real estate 391 391
Construction and land development 54 54
C&I/Agricultural operating:
Agricultural operating 1,180 1,180
Residential mortgage:
Residential mortgage 1,167 934
Consumer installment:
Originated indirect paper 15 15
Other consumer 18 18
Total $ 13,184 $ 12,939
36
June 30, 2023 Total Nonaccrual Loans Nonaccrual with no Allowance for Credit Losses
Commercial/Agricultural real estate:
Commercial real estate $ 11,359 $ 11,342
Agricultural real estate 1,712 1,712
Construction and land development 94 94
C&I/Agricultural operating:
Commercial and industrial 4 4
Agricultural operating 1,436 1,436
Residential mortgage:
Residential mortgage 1,029 787
Consumer installment:
Originated indirect paper 27 27
Other consumer 2 2
Total $ 15,663 $ 15,404
The Company’s policy is to discontinue the accrual of interest income on all loans for which principal or interest is past due according to the following schedules:
• Commercial/agricultural real estate loans, past due 90 days or more;
• Commercial and industrial/agricultural operating loans past due 90 days or more;
• Closed ended consumer installment loans past due 120 days or more; and
• Residential mortgage and open ended consumer installment loans past due 180 days or more.
The accrual of interest is discontinued earlier when, in the opinion of management, there is reasonable doubt as to the timely collection of interest or principal. Once interest accruals are discontinued, accrued but uncollected interest is charged against current year income. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Interest on loans determined to be modified is recognized on an accrual basis in accordance with the restructured terms if the loan is in compliance with the modified terms. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.
37
Collateral Dependent Loans - A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The following tables present the amortized cost basis of collateral dependent loans by portfolio segment and collateral type that were individually evaluated to determine expected credit losses and the related allowance for credit losses as of June 30, 2024, and December 31, 2023.
Collateral Type
June 30, 2024 Real Estate Other Assets Total Without an Allowance With an Allowance Allowance Allocation
Commercial/Agricultural real estate:
Commercial real estate $ 9,932 $ — $ 9,932 $ 8,459 $ 1,473 $ 213
Agricultural real estate 6,452 — 6,452 6,452 — —
Construction and land development 108 — 108 108 — —
C&I/Agricultural operating:
Commercial and industrial — 2,338 2,338 2,062 276 12
Agricultural operating — 1,017 1,017 1,017 — —
Residential mortgage:
Residential mortgage 3,064 — 3,064 2,565 499 54
Consumer installment:
Originated indirect paper — 61 61 61 — —
Other consumer — 8 8 8 — —
Total $ 19,556 $ 3,424 $ 22,980 $ 20,732 $ 2,248 $ 279
Collateral Type
December 31, 2023 Real Estate Other Assets Total Without an Allowance With an Allowance Allowance Allocation
Commercial/Agricultural real estate:
Commercial real estate $ 15,086 $ — $ 15,086 $ 11,350 $ 3,736 $ 703
Agricultural real estate 6,605 — 6,605 6,605 — —
Construction and land development 313 — 313 313 — —
C&I/Agricultural operating:
Commercial and industrial — 2,219 2,219 2,219 — —
Agricultural operating — 1,181 1,181 1,181 — —
Residential mortgage:
Residential mortgage 3,145 — 3,145 2,591 554 88
Consumer installment:
Originated indirect paper — 44 44 44 — —
Other consumer — 29 29 29 — —
Total $ 25,149 $ 3,473 $ 28,622 $ 24,332 $ 4,290 $ 791
There were no outstanding commitments to borrowers experiencing financial difficulty as of June 30, 2024. There were unused lines of credit totaling $ 662 on loans with borrowers experiencing financial difficulties as of June 30, 2024.
38
The tables below detail Loan Modifications Made to Borrowers Experiencing Financial Difficulty during the three months ended June 30, 2024:
Other-Than-Insignificant Payment Delay
Loan Class Amortized Cost Basis at June 30, 2024 % of Total Class of Financing Receivables
Commercial and industrial $ 920 0.72 %
Residential mortgage $ 163 0.12 %
The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2024:
Other-Than-Insignificant Payment Delay
Loan Class Financial Effect
Commercial and industrial Payments were deferred a weighted average of 3 months
Residential mortgage Payments were deferred a weighted average of 3 months
The tables below detail Loan Modifications made to Borrowers Experiencing Financial Difficulty during the twelve months ended June 30, 2024:
Term Extension
Loan Class Amortized Cost Basis at June 30, 2024 % of Total Class of Financing Receivables
Commercial real estate $ 4,434 0.61 %
Commercial and industrial $ 1,450 1.14 %
Other-Than-Insignificant Payment Delay
Loan Class Amortized Cost Basis at June 30, 2024 % of Total Class of Financing Receivables
Commercial and industrial $ 920 0.72 %
Residential mortgage $ 245 0.18 %
The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the twelve months ended June 30, 2024:
Term Extension
Loan Class Financial Effect
Commercial real estate A weighted average of 20 months was added to the term of the loans
Commercial and industrial A weighted average of 11 months was added to the term of the loans
Other-Than-Insignificant Payment Delay
Loan Class Financial Effect
Commercial and industrial Payments were deferred a weighted average of 3 months
Residential mortgage Payments were deferred a weighted average of 3 months
39
The tables below detail Loan Modifications Made to Borrowers Experiencing Financial Difficulty during the three months ended June 30, 2023:
Term Extension
Loan Class Amortized Cost Basis at
June 30, 2023 % of Total Class of Financing Receivables
Commercial and industrial $ 8 0.01 %
Agricultural operating $ 179 0.73 %
Other-Than-Insignificant Payment Delay
Loan Class Amortized Cost Basis at
June 30, 2023 % of Total Class of Financing Receivables
Residential mortgage $ 69 0.06 %
The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2023:
Loan Class Financial Effect
Commercial and industrial A weighted average of 3 months was added to the term of the loans
Agricultural operating A weighted average of 3 months was added to the term of the loans
Other-Than-Insignificant Payment Delay
Loan Class Financial Effect
Residential Mortgage Payments were deferred a weighted average of 6 months
The tables below detail Loan Modifications Made to Borrowers Experiencing Financial Difficulty during the six months ended June 30, 2023:
Term Extension
Loan Class Amortized Cost Basis at
June 30, 2023 % of Total Class of Financing Receivables
Commercial real estate $ 5,337 0.73 %
Commercial and industrial $ 8 0.01 %
Agricultural operating $ 179 0.73 %
Residential mortgage $ 37 0.03 %
Other-Than-Insignificant Payment Delay
Loan Class Amortized Cost Basis at
June 30, 2023 % of Total Class of Financing Receivables
Residential mortgage $ 69 0.06 %
Other consumer $ 22 0.34 %
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The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2023:
Loan Class Financial Effect
Commercial real estate A weighted average of 6 months was added to the term of the loans
Commercial and industrial A weighted average of 3 months was added to the term of the loans
Agricultural operating A weighted average of 3 months was added to the term of the loans
Residential mortgage A weighted average of 17 months was added to the term of the loans
Other-Than-Insignificant Payment Delay
Loan Class Financial Effect
Residential Mortgage Payments were deferred a weighted average of 6 months
Other consumer Payments were deferred a weighted average of 3 months
The Company closely monitors the performance of loans that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.
The following table shows the performance of such loans that have been modified during the twelve months ended June 30, 2024.
Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due
Commercial real estate $ 4,434 $ — $ — $ —
Commercial and industrial 2,370 — — —
Residential mortgage 14 — 82 149
Total $ 6,818 $ — $ 82 $ 149
No loan modified during the six months ended June 30, 2023 has subsequently defaulted. The following table shows the performance of such loans that have been modified during the six months ended June 30, 2023.
Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due
Commercial real estate $ 5,337 $ — $ — $ —
Commercial and industrial 8 — — —
Agricultural operating 179
Residential mortgage 106 — — —
Other consumer 22 — — —
Total $ 5,652 $ — $ — $ —
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NOTE 4 – MORTGAGE SERVICING RIGHTS
Mortgage servicing rights-- Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balances of these loans as of June 30, 2024 and December 31, 2023 were $ 483,269 and $ 495,531 , respectively, and consisted of one to four family residential real estate loans. These loans are serviced primarily for the Federal Home Loan Mortgage Corporation, Federal Home Loan Bank and the Federal National Mortgage Association. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in deposits were $ 5,031 and $ 2,665 at June 30, 2024 and December 31, 2023, respectively.
Mortgage servicing rights activity for the three and six month periods ended June 30, 2024 and June 30, 2023, were as follows:
As of and for the Three Months Ended As of and for the Three Months Ended As of and for the Six Months Ended As of and for the Six Months Ended
June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023
Mortgage servicing rights:
Mortgage servicing rights, beginning of period $ 3,779 $ 4,120 $ 3,865 $ 4,262
Increase in mortgage servicing rights resulting from transfers of financial assets 73 36 130 52
Amortization during the period ( 121 ) ( 148 ) ( 264 ) ( 306 )
Mortgage servicing rights, end of period 3,731 4,008 3,731 4,008
Valuation allowance:
Valuation allowance, beginning of period ( 5 ) — — —
Additions — — ( 5 ) —
Recoveries 5 — 5 —
Valuation allowance, end of period — — — —
Mortgage servicing rights, net $ 3,731 $ 4,008 $ 3,731 $ 4,008
Fair value of mortgage servicing rights; end of period $ 5,425 $ 5,705 $ 5,425 $ 5,705
The current period change in valuation allowance, if applicable, is included in non-interest expense as mortgage servicing rights expense, net on the consolidated statement of operations. Servicing fees totaled $ 310 and $ 325 for the three months ended June 30, 2024 and June 30, 2023, respectively. Servicing fees totaled $ 621 and $ 655 for the six months ended June 30, 2024 and June 30, 2023, respectively. Servicing fees are included in loan servicing income on the consolidated statement of operations. Late fees and ancillary fees related to loan servicing are not material.
To estimate the fair value of the MSR asset, a valuation model is applied at the loan level to calculate the present value of the expected future cash flows. The valuation model incorporates various assumptions that would impact market participants’ estimations of future servicing income. Central to the valuation model is the discount rate. Fair value at June 30, 2024, was determined using discount rates ranging from 9.9 % to 12.9 %. Fair value at June 30, 2023, was determined using discount rates ranging from 9.5 % to 12.5 %. 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.
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NOTE 5 – LEASES
We have operating leases for 1 corporate office, 3 bank branch offices, 2 former bank branch office, and 1 ATM location. Our leases have remaining lease terms ranging from approximately 0.17 to 4.00 years. Some of the leases include an option to extend, the longest of which is for two 5 year terms. As of June 30, 2024, we have no lease commitments that have not yet commenced. The Company also leases a portion of some of its facilities and receives rental income from such lease agreements, all of which are considered operating leases.
Six Months Ended
June 30, 2024 June 30, 2023
The components of total lease cost were as follows:
Operating lease cost $ 237 $ 255
Variable lease cost 58 38
Total lease cost $ 295 $ 293
The components of total lease income were as follows:
Operating lease income $ 21 $ 20
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 274 $ 273
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ — $ 225
June 30, 2024 December 31, 2023
Supplemental balance sheet information related to leases was as follows:
Operating lease right-of-use assets (1) $ 1,041 $ 1,477
Operating lease liabilities (2) $ 1,447 $ 1,686
Weighted average remaining lease term in years; operating leases 3.49 3.94
Weighted average discount rate; operating leases 3.23 % 3.20 %
(1) Operating lease right-of-use assets are recorded as other assets in the consolidated balance sheets.
(2) Operating lease liabilities are recorded as other liabilities in the consolidated balance sheets.
Cash obligations and receipts under lease contracts are as follows:
Fiscal years ending December 31, Payments Receipts
2024 206 17
2025 534 15
2026 465 7
2027 401 —
2028 141 —
Thereafter — —
Total 1,747 $ 39
Less: effects of discounting ( 300 )
Lease liability recognized $ 1,447
43
In June of 2024, we closed our St Peter, Minnesota branch. We considered the branch closure a triggering event that required us to test the right of use asset for impairment. It was determined that the right of use asset was impaired and a $ 168 impairment loss was recorded. This impairment loss is included in other non-interest expense in the consolidated statements of operations.
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NOTE 6 – DEPOSITS
The following is a summary of deposits by type at June 30, 2024 and December 31, 2023, respectively:
June 30, 2024 December 31, 2023
Non-interest bearing demand deposits $ 255,703 $ 265,704
Interest bearing demand deposits 353,477 343,276
Savings accounts 170,946 176,548
Money market accounts 370,164 374,055
Certificate accounts 369,254 359,509
Total deposits $ 1,519,544 $ 1,519,092
At June 30, 2024, the scheduled maturities of certificate accounts were as follows for the year ended, except December 31, 2024, which is the six months ended:
December 31, 2024 $ 257,990
December 31, 2025 100,409
December 31, 2026 4,118
December 31, 2027 760
December 31, 2028 5,885
After December 31, 2028 92
Total $ 369,254
Certificate accounts of $250 or more were $ 100,293 and $ 103,802 at June 30, 2024 and December 31, 2023, respectively.
Brokered deposits were $ 96,796 at June 30, 2024 and consisted of $ 54,123 of brokered certificate accounts and $ 42,673 of brokered money market accounts. Brokered Deposits were $ 98,259 at December 31, 2023 and consisted of $ 58,209 of brokered certificate accounts and $ 40,050 of brokered money market accounts.
At June 30, 2024, the scheduled maturities of brokered certificate accounts were as follows for the year ended, except December 31, 2024, which is the six months ended:
December 31, 2024 $ 40,000
December 31, 2025 (1) 8,634
December 31, 2028 (1) 5,489
Total $ 54,123
(1) The Company can call the brokered certificate accounts maturing in the years ended December 31, 2025 and 2028, monthly beginning in March 2024.
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NOTE 7 – FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
A summary of Federal Home Loan Bank advances and other borrowings at June 30, 2024 and December 31, 2023, is as follows:
June 30, 2024
December 31, 2023
Stated Maturity Amount Range of Stated Rates Stated Maturity Amount Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3), (4) 2024 $ 26,500 1.44 % 5.45 % 2024 $ 64,530 0.00 % 5.45 %
2025 5,000 1.45 % 1.45 % 2025 5,000 1.45 % 1.45 %
2028 — 0.00 % — % 2028 10,000 3.82 % 3.82 %
Federal Home Loan Bank advances $ 31,500 $ 79,530
Senior Notes (5) 2039 $ 12,000 7.75 % 7.75 % 2034 $ 18,083 6.75 % 7.75 %
Subordinated Notes (6) 2030 $ 15,000 6.00 % 6.00 % 2030 $ 15,000 6.00 % 6.00 %
2032 35,000 4.75 % 4.75 % 2032 35,000 4.75 % 4.75 %
$ 50,000 $ 50,000
Unamortized debt issuance costs ( 502 ) ( 618 )
Total other borrowings $ 61,498 $ 67,465
Totals $ 92,998 $ 146,995
(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $ 1,099,969 and $ 1,106,267 at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $ 416,063 compared to $ 370,569 as of December 31, 2023.
(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $ 81,000 and $ 217,530 , during the six months ended June 30, 2024 and the twelve months ended December 31, 2023, respectively.
(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of June 30, 2024 and December 31, 2023 were 3.54 % and 4.16 %, respectively.
(4) In June 2024, the FHLB called the $ 10,000 , 3.82 % advance maturing in 2028.
(5) Senior notes, entered into by the Company in June 2019 consist of the following:
(a) A term note, which was subsequently refinanced in March 2022, modified in February of 2023, and refinanced in May 2024, requiring quarterly interest-only payments through January 2029, 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 August 1, 2024, that remains undrawn upon.
(6) Subordinated notes resulted from the following:
(a) 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 . In September 2025, the fixed interest rate will be reset quarterly to equal the three-month term Secured Overnight Financing Rate plus 591 basis points. The note is callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
46
(b) 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
The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank. This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest bearing deposit balances. The letters of credit balances were $ 435,250 and $ 452,280 at June 30, 2024 and December 31, 2023, respectively.
Federal Reserve Borrowings
At June 30, 2024 and December 31, 2023, the Bank had the ability to borrow $ 21,386 and $ 22,417 from the Federal Reserve Bank of Minneapolis. The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $ 28,454 and $ 29,191 as of June 30, 2024, and December 31, 2023, respectively. There were no Federal Reserve borrowings outstanding as of June 30, 2024, and December 31, 2023.
Federal Funds Purchased Lines of Credit
As of June 30, 2024, the Bank maintains two unsecured federal funds purchased lines of credit with its banking partners which total $ 70,000 . As of December 31, 2023, the Bank maintained three unsecured federal funds purchased lines of credit with its banking partners which totaled $ 70,000 . 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 June 30, 2024 or December 31, 2023.
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NOTE 8 - CAPITAL MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Although these terms are not used to represent overall financial condition, if adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At June 30, 2024, the Bank was categorized as “Well Capitalized”, under Prompt Corrective Action Provisions.
The Bank’s Tier 1 (leverage) and risk-based capital ratios at June 30, 2024, and December 31, 2023, respectively, are presented below:
Actual For Capital Adequacy
Purposes To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2024
Total capital (to risk weighted assets) $ 227,253 15.0 % $ 121,375 > = 8.0 % $ 151,719 > = 10.0 %
Tier 1 capital (to risk weighted assets) 208,555 13.7 % 91,031 > = 6.0 % 121,375 > = 8.0 %
Common equity tier 1 capital (to risk weighted assets) 208,555 13.7 % 68,273 > = 4.5 % 98,617 > = 6.5 %
Tier 1 leverage ratio (to adjusted total assets) 208,555 11.7 % 71,302 > = 4.0 % 89,128 > = 5.0 %
As of December 31, 2023
Total capital (to risk weighted assets) $ 228,092 14.6 % $ 124,883 > = 8.0 % $ 156,104 > = 10.0 %
Tier 1 capital (to risk weighted assets) 208,726 13.4 % 93,662 > = 6.0 % 124,883 > = 8.0 %
Common equity tier 1 capital (to risk weighted assets) 208,726 13.4 % 70,247 > = 4.5 % 101,468 > = 6.5 %
Tier 1 leverage ratio (to adjusted total assets) 208,726 11.5 % 72,479 > = 4.0 % 90,599 > = 5.0 %
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The Company’s Tier 1 (leverage) and risk-based capital ratios at June 30, 2024 and December 31, 2023, respectively, are presented below:
Actual For Capital Adequacy
Purposes
Amount Ratio Amount Ratio
As of June 30, 2024
Total capital (to risk weighted assets) $ 231,523 15.2 % $ 121,522 > = 8.0 %
Tier 1 capital (to risk weighted assets) 162,825 10.7 % 91,141 > = 6.0 %
Common equity tier 1 capital (to risk weighted assets) 162,825 10.7 % 68,356 > = 4.5 %
Tier 1 leverage ratio (to adjusted total assets) 162,825 9.1 % 71,302 > = 4.0 %
As of December 31, 2023
Total capital (to risk weighted assets) $ 230,160 14.7 % $ 124,883 > = 8.0 %
Tier 1 capital (to risk weighted assets) 160,794 10.3 % 93,662 > = 6.0 %
Common equity tier 1 capital (to risk weighted assets) 160,794 10.3 % 70,247 > = 4.5 %
Tier 1 leverage ratio (to adjusted total assets) 160,794 8.9 % 72,479 > = 4.0 %
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NOTE 9 – STOCK-BASED AND OTHER COMPENSATION
On March 27, 2018, the stockholders of Citizens Community Bancorp, Inc. approved the 2018 Equity Incentive Plan. The aggregate number of shares of common stock initially reserved and available for issuance under the 2018 Equity Incentive Plan was 350,000 shares. As of June 30, 2024, 315,947 restricted shares had been granted under this plan. This amount includes 8,805 shares of performance based restricted stock granted in 2021 and issued in January 2024 upon achievement of the performance criteria and completion of the three-year performance period beginning in January 2021 and ending December 31, 2023. The amount also includes 18,551 shares of performance based restricted stock granted in 2020 and issued in January 2023 upon achievement of the performance criteria and completion of the three year performance period beginning in January 2020 and ending December 31, 2022. As of June 30, 2024, no stock options had been granted under this plan.
In February 2008, the Company’s stockholders approved the Company’s 2008 Equity Incentive Plan for a term of 10 years. Due to the plan’s expiration, no new awards can be granted under this plan. As of June 30, 2024, there are no awarded unvested restricted shares, and 54,000 awarded unexercised vested options remaining from the plan. Options granted under this plan vested pro rata over a five-year period from the grant date and were fully vested as of October 2022. Unexercised incentive stock options expire within 10 years of the grant date.
Net compensation expense related to restricted stock awards from these plans was $ 158 and $ 316 for the three and six months ended June 30, 2024, compared to $ 216 and $ 382 for the three and six months ended June 30, 2023.
Restricted Common Stock Award
June 30, 2024 December 31, 2023
Number of Shares Weighted
Average
Grant Price Number of Shares Weighted
Average
Grant Price
Restricted Shares
Unvested and outstanding at beginning of year 75,601 $ 12.41 75,626 $ 12.30
Granted 16,955 11.88 50,606 12.36
Vested ( 36,430 ) 12.34 ( 45,879 ) 12.24
Forfeited — — ( 4,752 ) 11.78
Unvested and outstanding at end of period 56,126 $ 12.30 75,601 $ 12.41
June 30, 2024
Number of Shares Weighted
Average
Grant Price
Performance Based Restricted Shares
Unvested at beginning of year 41,993 $ 12.61
Granted — —
Vested and issued ( 8,805 ) 10.78
Forfeited — —
Unvested at end of period 33,188 $ 13.09
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Common Stock Option Awards
Option Shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term in Years Aggregate
Intrinsic
Value
June 30, 2024
Outstanding at beginning of year 54,000 $ 11.59
Outstanding at end of period 54,000 $ 11.59 2.34 $ 41
Exercisable at end of period 54,000 $ 11.59 2.34 $ 41
December 31, 2023
Outstanding at beginning of year 58,000 $ 11.51
Exercised ( 3,000 ) 9.21
Forfeited or expired ( 1,000 ) 13.76
Outstanding at end of year 54,000 $ 11.59 2.84 $ 46
Exercisable at end of year 54,000 $ 11.59 2.84 $ 46
Information related to the 2008 Equity Incentive Plan for the respective periods follows:
Six months ended June 30, 2024 Twelve months ended December 31, 2023
Intrinsic value of options exercised $ — $ 2
Cash received from options exercised $ — $ 28
Tax benefit realized from options exercised $ — $ —
Other Compensation
On January 25, 2024, the Company’s board of directors approved a phantom stock plan as part of the Company’s long-term incentive plan. The Plan allows certain employees to earn future cash awards linked to the company’s future common share price for time and performance based cash awards. The performance based cash awards vest based on a combination of a three-year time period and performance targets based on the Company’s return on equity. For performance based awards, the ultimate cash payout of these awards will be based on the January 25, 2027 closing share price of the Company’s common stock. The time based cash awards vest ratably over a three-year time period. For time based awards, the ultimate cash payout of these awards will be based on the closing share price of the Company’s common stock on the anniversary of the award date each year. On January 25, 2024, time based awards were based on 18,509 shares and performance based awards were based on 18,505 shares.
At the end of each reporting period, the Company estimates its potential liability related to the Plan and records any change to this liability as compensation expense in the consolidated statement of operations. At June 30, 2024, the related liability was $ 63 , which is included in other liabilities on the consolidated balance sheet. For the three and six months ended June 30, 2024, the Company recorded related expense of $ 37 and $ 63 which is included in compensation and related benefits/non-interest expense on the Company’s consolidated statement of operations.
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NOTE 10 – FAIR VALUE ACCOUNTING
ASC Topic 820-10, “ Fair Value Measurements and Disclosures ” establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:
Level 1- Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.
Level 2- Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3- Significant unobservable inputs that reflect the Company’s assumptions about the factors that market participants would use in pricing an asset or liability.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement.
The fair value of securities available for sale is determined by obtaining market price quotes from independent third parties wherever such quotes are available (Level 1 inputs); or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Where such quotes are not available, we utilize independent third party valuation analysis to support our own estimates and judgments in determining fair value (Level 3 inputs).
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Assets Measured on a Recurring Basis
The following tables present the financial instruments measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023:
Fair
Value Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
June 30, 2024
Investment securities:
U.S. government agency obligations $ 15,098 $ — $ 15,098 $ —
Mortgage-backed securities 69,084 — 69,084 —
Corporate debt securities 40,132 — 40,132 —
Asset-backed securities 22,124 — 22,124 —
Total investment securities 146,438 — 146,438 —
Equity Investments:
Farmer Mac equity securities 515 515 — —
Preferred equity 1,812 — — 1,812
Equity investments measured at NAV(1) 2,696 — — —
Total equity investments 5,023 515 — 1,812
Total $ 151,461 $ 515 $ 146,438 $ 1,812
December 31, 2023
Investment securities:
U.S. government agency obligations $ 16,576 $ — $ 16,576 $ —
Mortgage-backed securities 73,480 — 73,480 —
Corporate debt securities 41,174 — 41,174 —
Corporate asset backed securities 24,513 — 24,513 —
Total investment securities 155,743 — 155,743 —
Equity Investments:
Farmer Mac equity securities 557 557 — —
Equity investments measured at NAV(1) 2,727 — — —
Total equity investments 3,284 557 — —
Total $ 159,027 $ 557 $ 155,743 $ —
(1) Investments valued at NAV are excluded from being reported under the fair value hierarchy but are presented to permit reconciliation with the balance sheet in accordance with ASC 820-10-35-54B.
During the three months ended June 30, 2024, senior debt of a community development financial institution, classified as available-for-sale securities was exchanged for preferred equity of the financial institution’s operating subsidiary. At June 30, 2024, the Company owned $ 1,812 preferred equity investments for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value. For the twelve months ended December 31, 2023, the Company did not own any securities for which the Company utilized significant unobservable inputs (Level 3 inputs) to determine fair value.
During the three and six months ended June 30, 2024, $ 2,082 of senior debt, previously measured as a Level 1 instrument, was exchanged for preferred equity, now measured as a Level 3 instrument, resulting in a transfer out of Level 1 fair value measurement to Level 3 fair value measurement. The exchange resulted in $ 168 of unrealized losses on available-for-sale securities, previously included in other comprehensive income, being recognized on the June 30, 2024, consolidated statement of operations as loss on investment securities. There were no transfers in or out of Level 1, Level 2 or Level 3 fair value measurements relating to the available-for-sale securities above during the twelve months ended December 31, 2023. There were no losses included in earnings attributable to the change in unrealized gains or losses relating to the available-for-sale securities above with fair value measurements utilizing significant unobservable inputs for the twelve months ended December 31, 2023, respectively.
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Assets Measured on Nonrecurring Basis
The following tables present the financial instruments measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023:
Carrying Value Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
June 30, 2024
Foreclosed and repossessed assets, net $ 1,662 $ — $ — $ 1,662
Collateral dependent loans 1,969 — — 1,969
Mortgage servicing rights 3,731 — — 5,425
Total $ 7,362 $ — $ — $ 9,056
December 31, 2023
Foreclosed and repossessed assets, net $ 1,795 $ — $ — $ 1,795
Collateral dependent loans 3,499 — — 3,499
Mortgage servicing rights 3,865 — — 5,589
Total $ 9,159 $ — $ — $ 10,883
The fair value of collateral dependent loans with allowances was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.
The fair value of foreclosed and repossessed assets was determined by obtaining market price valuations from independent third parties wherever such quotes were available for other collateral owned. The Company utilized independent third party appraisals to support the Company’s estimates and judgments in determining fair value for other real estate owned.
The fair value of mortgage servicing rights was estimated using discounted cash flows based on current market rates and other factors.
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The following table represents additional quantitative information about assets measured at fair value on a
recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine their fair value at
June 30, 2024.
Fair
Value Valuation Techniques (1) Significant Unobservable Inputs (2) Range
June 30, 2024
Foreclosed and repossessed assets, net $ 1,662 Appraisal value Estimated costs to sell 10 % - 15 %
Collateral dependent loans $ 1,969 Appraisal value / Internal Collateral valuations Estimated costs to sell 10 % - 15 %
Mortgage servicing rights $ 5,425 Discounted cash flows Discounted rates 9.875 % - 12.875 %
December 31, 2023
Foreclosed and repossessed assets, net $ 1,795 Appraisal value Estimated costs to sell 10 % - 15 %
Collateral dependent loans $ 3,499 Appraisal value / Internal Collateral valuations Estimated costs to sell 10 % - 15 %
Mortgage servicing rights $ 5,589 Discounted cash flows Discounted rates 9.375 % - 12.375 %
(1) Fair value is generally determined through independent third-party appraisals of the underlying
collateral, which generally includes various level 3 inputs which are not observable.
(2) The fair value basis of collateral depended loans, and real estate owned may be adjusted to reflect management estimates of disposal costs including, but not limited to, real estate brokerage commissions, legal fees, and delinquent property taxes.
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The table below represents what we would receive to sell an asset or what we would have to pay to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount and estimated fair value of the Company’s financial instruments as of the dates indicated below were as follows:
June 30, 2024 December 31, 2023
Valuation Method Used Carrying
Amount Estimated
Fair
Value Carrying
Amount Estimated
Fair
Value
Financial assets:
Cash and cash equivalents (Level I) $ 36,886 $ 36,886 $ 37,138 $ 37,138
Other interest-bearing deposits (Level II) — — — —
Securities available for sale “AFS” (Level II) 146,438 146,438 155,743 155,743
Securities held to maturity “HTM” (Level II) 88,605 69,027 91,229 73,262
Farmer Mac equity securities (Level I) 515 515 557 557
Preferred equity (Level III) 1,812 1,812 — —
Equity investments valued at NAV(1) N/A 2,696 N/A 2,727 N/A
Other investments (Level II) 13,878 13,878 15,725 15,725
Loans receivable, net (Level III) 1,407,410 1,344,304 1,437,884 1,374,387
Loans held for sale - Residential mortgage (Level I) 275 275 1,134 1,134
Loans held for sale - SBA /FSA (Level II) — — 4,639 4,639
Mortgage servicing rights (Level III) 3,731 5,425 3,865 5,589
Accrued interest receivable (Level I) 6,289 6,289 5,409 5,409
Financial liabilities:
Deposits (Level III) $ 1,519,544 $ 1,518,379 $ 1,519,092 $ 1,517,361
FHLB advances (Level II) 31,500 31,269 79,530 79,087
Other borrowings (Level II) 61,498 57,198 67,465 59,743
Accrued interest payable (Level I) 5,984 5,984 3,175 3,175
(1) Investments valued at NAV are excluded from being reported under the fair value hierarchy but are presented to permit reconciliation with the balance sheet in accordance with ASC 820-10-35-54B.
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NOTE 11— EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares outstanding for the period. A reconciliation of the basic and diluted earnings per share is as follows:
Three Months Ended Six Months Ended
(Share count in thousands) June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023
Basic
Net income attributable to common stockholders $ 3,675 $ 3,206 $ 7,763 $ 6,868
Weighted average common shares outstanding 10,370 10,478 10,405 10,475
Basic earnings per share $ 0.35 $ 0.31 $ 0.75 $ 0.66
Diluted
Net income attributable to common stockholders $ 3,675 $ 3,206 $ 7,763 $ 6,868
Weighted average common shares outstanding 10,370 10,478 10,405 10,475
Add: Dilutive stock options outstanding 3 — 3 2
Average shares and dilutive potential common shares 10,373 10,478 10,408 10,477
Diluted earnings per share $ 0.35 $ 0.31 $ 0.75 $ 0.66
Additional common stock option shares that have not been included due to their antidilutive effect 20 40 20 40
Dilutive shares outstanding consist of exercisable stock options whose strike prices were less than the quarterly average closing price of the Company’s common stock. At June 30, 2024 and June 30, 2023, there were 20 and 40 exercisable stock options, respectively, with a potentially dilutive effect. However their strike prices were higher than the quarterly and annual average closing prices of the Company’s common stock and thus, excluded from diluted shares outstanding.
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NOTE 12 – OTHER COMPREHENSIVE INCOME (LOSS)
The following tables show the tax effects allocated to each component of other comprehensive income (loss) for the three and six months ended June 30, 2024 and 2023:
Three Months Ended
June 30, 2024 June 30, 2023
Before-Tax
Amount Tax Benefit
(Expense) Net-of-Tax
Amount Before-Tax
Amount Tax Benefit
(Expense) Net-of-Tax
Amount
Unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the period $ 669 $ ( 166 ) $ 503 $ ( 3,140 ) $ 863 $ ( 2,277 )
Reclassification adjustment for gains included in net income — — — ( 12 ) 3 ( 9 )
Reclassification for net loss on exchanged security, included in net income, net of tax 168 ( 38 ) 130 — — —
Other comprehensive income (loss) $ 837 $ ( 204 ) $ 633 $ ( 3,152 ) $ 866 $ ( 2,286 )
Six Months Ended
June 30, 2024 June 30, 2023
Before-Tax
Amount Tax Benefit
(Expense) Net-of-Tax
Amount Before-Tax
Amount Tax Benefit
(Expense) Net-of-Tax
Amount
Unrealized (losses) gains on securities:
Net unrealized losses arising during the period $ ( 223 ) $ 24 $ ( 199 ) $ ( 1,672 ) $ 460 $ ( 1,212 )
Reclassification adjustment for gains included in net income — — — ( 12 ) 3 ( 9 )
Reclassification for net loss on exchanged security, included in net income, net of tax 168 ( 38 ) 130 — — —
Other comprehensive loss $ ( 55 ) $ ( 14 ) $ ( 69 ) $ ( 1,684 ) $ 463 $ ( 1,221 )
The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax for the twelve months ended December 31, 2023 and the six months ended June 30, 2024 were as follows:
Unrealized
Gains (Losses)
on AFS
Securities Other Accumulated
Comprehensive
Income (Loss), net of tax
Beginning Balance, January 1, 2023 $ ( 24,353 ) $ ( 17,656 )
Current year-to-date other comprehensive income 352 328
Ending balance, December 31, 2023 $ ( 24,001 ) $ ( 17,328 )
Current year-to-date other comprehensive loss ( 55 ) ( 69 )
Ending balance, June 30, 2024 $ ( 24,056 ) $ ( 17,397 )
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Reclassifications out of accumulated other comprehensive income (loss) for the three and six month periods ended June 30, 2024 and June 30, 2023 were as follows:
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components Three months ended June 30, 2024 Six months ended June 30, 2024 Affected Line Item on the Statement of Operations
Unrealized gains and losses
Debt security exchanged for equity security $ ( 168 ) $ ( 168 ) Net (losses) gains on investment securities
Tax effect 38 38 Provision for income taxes
Total reclassifications for the period $ ( 130 ) $ ( 130 ) Net loss attributable to common stockholders
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components Three months ended June 30, 2023 Six months ended June 30, 2023 Affected Line Item on the Statement of Operations
Unrealized gains and losses
Sale of securities $ 12 $ 12 Net (losses) gains on investment securities
Tax effect ( 3 ) ( 3 ) Provision for income taxes
Total reclassifications for the period $ 9 $ 9 Net income attributable to common stockholders
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.