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Item 7. Management’s Discussion and Analysis

2025-03-13 compared with 2024-03-05 · 148 added, 219 removed, 695 unchanged (35% of the section changed)

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PERFORMANCE SUMMARY

The following is a summary of some of the significant factors that affected our operating results for the twelve months ended December 31, 2023, and 2022.

In 2023, net interest income decreased, primarily due to the impact of higher short-term interest rates on the Bank’s liability-sensitive balance sheet, i.e., higher deposit costs, and customer account shifts to higher-cost certificates, along with increased borrowing costs, partially offset by higher yields on assets.

The Company recorded $0.475 million of negative provision for credit losses in 2023, largely due to net recoveries of $0.451 million.

In 2023, the allowance for credit losses (“ACL”) impact of loan growth was offset by favorable changes in overall economic factors and a modest reduction in specific ACL.

A provision for loan losses of $1.475 million was recorded in 2022.

Fiscal 2023’s higher interest rate and tight housing supply environment, led the Company to originate fewer mortgage loans for sale, which decreased gain on sale and income recorded in loan servicing income from the capitalization of mortgage servicing rights.

Non-interest expense decreased modestly in 2023, largely due to lower compensation expense due to lower production incentives and lower net income and higher branch closing costs incurred in 2022.

The following is a summary of some of the significant factors that affected our operating results for the twelve months ended December 31, 2024, compared to the same 2023 period.

In 2024, net interest income decreased $1.9 million, primarily due to the ongoing impact of higher short-term interest rates on the Bank’s liability-sensitive balance sheet, i.e., higher deposit costs, with growth in higher-cost money market accounts and certificates, along with increased borrowing costs, partially offset by higher asset yields.

The Company recorded a $3.175 million negative provision for credit losses largely due to the impact of improving forecasted future economic conditions, as forecasted by Moody’s, who the Company utilizes for economic forecasts and the impact of balance sheet optimization, which resulted in loan portfolio shrinkage.

The $0.475 million of negative provision for credit losses in 2023 was largely due to net recoveries of $0.451 million.

Non-interest income for the twelve months ended December 31, 2024, compared to the same period in 2023 decreased approximately $150 thousand.

This decrease was largely due to losses on equity securities, largely offset by higher gain on sale of loans, due to an approximate equal increase in SBA gains and mortgage gains and an increase in loan fees and service charges primarily due to higher fees collected on loan payoffs.

Non-interest expense increased approximately 5% or $2.2 million primarily due to a $1.6 million increase in compensation due to higher incentive compensation and merit increases.

When comparing year-over-year results, changes in net interest income, provision for credit losses, non-interest income and non-interest expense are primarily due to the items discussed above.

See the remainder of this section for a more thorough discussion.

Unless otherwise stated, all monetary amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

Unless otherwise stated, all monetary amounts in the tables set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than share, per share and capital ratio amounts, are stated in thousands.

We reported net income of $13.75 million for the twelve months ended December 31, 2024, compared to net income of $13.06 million for the twelve months ended December 31, 2023.

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The return on average equity was 7.84% for the twelve months ended December 31, 2024, and 7.87% for the comparable period in 2023.

The Company utilized a balance sheet optimization strategy in 2024, which resulted in the runoff of non-strategic loan relationship with the proceeds used to reduced more expensive borrowings and wholesale deposits.

CRITICAL ACCOUNTING ESTIMATES

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See also Notes 1 and 3 to the audited consolidated financial statements for further discussion of our adoption of ASU 2016-13.

Allowance for Credit Losses – Held-to-Maturity Securities.

Currently, all of the Company’s held-to-maturity securities are backed by governments or government agencies, for which the risk of credit loss is minimal.

Accordingly, the Company does not record an allowance for credit losses on held-to-maturity securities.

Allowance for Credit Losses - Loans - We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio.

Allowance for Credit Losses - Loans.

We maintain an allowance for credit losses to absorb probable and inherent losses in our loan portfolio.

The allowance is based on ongoing, quarterly assessments of the estimated lifetime losses in our loan portfolio.

In evaluating the level of the allowance for credit losses, we consider the types of loans and the amount of loans in our loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, prevailing economic conditions and other relevant factors determined by management.

We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Federal Deposit Insurance Corporation, and National Credit Union Administration.

We follow all applicable regulatory guidance, including the “Interagency Policy Statement on Allowances for Credit losses,” issued by the Office of the Comptroller of the Currency, Department of the Treasury, Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation, and National Credit Union Administration.

We believe that the Bank’s Allowance for Credit Losses Policy conforms to all applicable regulatory requirements.

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In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio.

Allowance for Credit Losses – Unfunded Commitments.

The Company estimates expected credit losses over the contractual period for which the Company is exposed to credit risk, via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

The allowance for credit losses - unfunded commitments on off-balance sheet exposures is included in other liabilities on the consolidated balance sheet.

Goodwill and Other Intangible Assets.

We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill.

The Company amortizes acquired intangible assets with definite useful economic lives over their useful economic lives 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.

The Company does not amortize goodwill, but reviews goodwill for impairment at a reporting unit level on an annual basis, or when events or changes in circumstances indicate that the carrying amounts may be impaired.

A reporting unit is

defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management.

The Company has one reporting unit as of December 31, 2023, 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 monitored events and conditions quarterly since December 31, 2022, and has determined that no triggering event has occurred that would require goodwill to be tested for impairment at an interim date.

The Company also performed its required annual goodwill impairment testing and determined that goodwill was not impaired as of December 31, 2023.

Fair Value Measurements and Valuation Methodologies.

We apply various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for the particular items being valued.

Quoted market prices are referred to when estimating fair values for certain assets, such as most investment securities.

However, for those items for which an observable liquid market does not exist, management utilizes significant estimates and assumptions to value such items.

Examples of these items include loans, deposits, borrowings, goodwill, core deposit intangible assets, other assets and liabilities obtained or assumed in business combinations, and certain other financial instruments.

These valuations require the use of various assumptions, including, among others, discount rates, rates of return on assets, repayment rates, cash flows, default rates, and liquidation values.

The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations, financial condition, or disclosures of fair value information.

In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of operations.

Examples include but are not limited to:

loans, investment securities, goodwill, core deposit intangible assets and deferred tax assets, among others.

Specific assumptions, estimates and judgments utilized by management are discussed in detail herein in management’s discussion and analysis of financial condition and results of operations and in notes 1, 2, 3, 4, 5, 6, 13 and 14 of Notes to Consolidated Financial Statements.

Income Taxes.

Amounts provided for income tax expenses are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws.

Deferred income tax assets and liabilities, which arise principally from temporary differences between the amounts reported in the financial statements and the tax basis of certain assets and liabilities, are included in the amounts provided for income taxes.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and if necessary, tax planning strategies in making this assessment.

The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and application of specific provisions of Federal and state tax codes.

There can be no assurance that future events, such as court decisions or positions of Federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be material to our consolidated results of operations and reported earnings.

We believe that the deferred tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements.

As of December 31, 2023, a valuation allowance related to the realizability of its deferred tax assets was necessary due to the 2023 Wisconsin budget change, which resulted in the company not realizing a future deduction on its deferred assets.

In the third quarter of 2023, a valuation allowance of $1.8 million was established.

STATEMENT OF OPERATIONS ANALYSIS

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Net interest income was $46.5 million for 2024 compared to $48.3 million for 2023.

The decrease, overall, is largely due to the impact of higher short-term interest rates, which with the Company’s liability sensitive balance sheet (See Market Risk Section of the MDA) resulted in (1) higher deposit costs due to customer retention strategies;

(2) a deposit mix change, increasing deposit costs as customers moved from lower cost savings and money market products to higher cost certificates;

(3) increased borrowing costs on FHLB advances;

and (4) lower merger discount accretion of $1.2 million and lower SBA accretion of $0.3 million.

These decreases to net interest income were partially offset by (1) a positive loan volume variance due to loan growth;

and (2) increases in loan and investment yields due to contractual repricing;

and (3) higher coupons on new loans.

The decrease, overall, is largely due to the impact of higher short-term interest rates which, with the Company’s liability sensitive balance sheet (See Market Risk Section of the MD&A), resulted in higher deposit costs due to customer retention strategies and increased borrowing costs on FHLB advances These decreases to net interest income were partially offset by increases in loan yields due to contractual repricing and coupons on new loans.

The net interest margin for 2024 was 2.73% compared to 2.81% for 2023.

The decrease in the net interest margin was due to the following factors:

(1) higher deposit and borrowing costs, including the impact of a full year of interest expense on the subordinated debt issued in March 2022;

and (2) eight basis points of lower accretion on merger discount and SBA PPP accretion.

These decreases were partially offset by increases in loan and investment yields.

The decrease in the net interest margin was due to higher deposit and borrowing costs.

The decrease was partially offset by increases in loan yields.

Average Balances, Net Interest Income, Yields Earned and Rates Paid.

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Average interest earning assets to average interest bearing liabilities 1.25 1.24

(1) Fully taxable equivalent (FTE).

The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21% for the twelve months ended December 31, 2023 and 2022.

The FTE adjustment to net interest income included in the rate calculations totaled $0 thousand and $1 thousand for the twelve month periods ended December 31, 2023 and 2022, respectively.

Rate/Volume Analysis.

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and (2) changes in rate, which are changes in average interest rates multiplied by the prior period volume (i.e., holding the initial balance constant).

Rate variances were discussed previously above.

Volume variances for the twelve months ended December 31, 2024 compared to the same period in 2023 are:

( 1) lower investment securities average balances in 2024, as principal repayments on the lower yielding investment security portfolio were not being reinvested, (2) higher average balances in money market and CD’s in 2024 compared to 2023, which resulted in being able to reduce higher cost FHLB advances and borrowing in 2024 compared to 2023.

Twelve months ended December 31, 2024 v.

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Lifetime losses on these loans are estimated based on the loans’ individual characteristics.

Total benefit, i.e., negative provision, for credit losses for the twelve months ended December 31, 2023, was $0.475 million, compared to provision of $1.475 million for the twelve months ended December 31, 2022.

The current year’s negative provision is primarily the result of net recoveries of $0.425 million in the last six months of 2023 and improving forecasted future economic conditions.

Total benefit, i.e., negative provision, for credit losses for the twelve months ended December 31, 2024, was $3.175 million, compared to negative provision of $0.475 million for the twelve months ended December 31, 2023.

The Company’s $3.175 million negative provision for credit losses in 2024 was largely due to the impact of improving forecasted future economic conditions by Moody’s, who the Company utilizes for economic forecasts and the impact of balance sheet optimization, which resulted in loan portfolio shrinkage.

The $0.475 million of negative provision for credit losses in 2023 was largely due to net recoveries of $0.451 million

Continued improving economic conditions in our markets, as evidenced by unemployment rates below the national average in our two largest population centers, have resulted in good overall economic trends for businesses.

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Management believes that the provision recorded for the current year’s twelve-month period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans.

We continually

monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL.

We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ACL.

In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market areas, or otherwise, could all affect the adequacy of our ACL.

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Loan fees and service charges 996 432 130.56%

Net gains on investment securities 459 541 (15.16)%

Net realized gains on debt securities — 12 (100.00)%

Net (losses) gains on equity securities (856) 447 (291.50)%

Bank Owned Life Insurance (BOLI) death benefit 184 — N/M

Other 1,125 1,176 (4.34)%

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N/M means not meaningful

Loan servicing income decreased for the twelve-month period ended December 31, 2023, compared to the same prior year period, due to lower origination volume of loans sold resulting in lower capitalization of mortgage service rights, along with lower mortgage servicing income due to servicing a smaller portfolio.

The increase in gain on sale of loans in 2023 is due to an increase in SBA loans sold, more than offsetting lower mortgage gains.

Loan fees and services charges are lower for the twelve-month period ended December 31, 2023, compared to the same period in 2022 due to lower customer transaction activity.

The change in net gains on investment securities between the twelve months ended December 31, 2023, and the twelve months ended December 31, 2022, is primarily due to the change in valuations of equity securities and a small gain on the sale of available for sale securities in the second quarter of 2023.

Other non-interest income increased for the twelve months ended December 31, 2023, compared to the same period in 2022 due in part to higher BOLI income and certain positive one-time events.

The increase in gain on sale of loans for the twelve months ended December 31, 2024, compared to the same period in 2023 is due to an approximately equal increase in SBA loans sold and higher mortgage gains.

The increase in loan fees and services charges for the twelve months ended December 31, 2024, compared to the same period in 2023 is primarily due to higher fees collected due to loan payoffs.

The decrease in net gains on equity securities for the twelve months ended December 31, 2024, compared to the same period in 2023 is primarily due to the change in valuations of equity securities.

The increase in Bank Owned Life Insurance death benefit or the twelve months ended December 31, 2024, compared to the same period in 2023 BOLI is due to the passing of an employee in 2024.

Non-Interest Expense.

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(Losses) gains on repossessed assets, net 294 62 374.19%

New market tax credit depletion — 650 N/M

Other 2,979 3,152 (5.49)%

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Non-interest expense (annualized) / Average assets 2.34 % 2.19 %

Compensation expense decreased in 2023 largely due to lower incentive compensation due to lower production volumes and lower net income.

Amortization of intangible assets decreased for the twelve months ended December 31,2023, from the same prior year period, as intangible assets related to certain acquisitions have been fully amortized .

Mortgage servicing rights expense, net increased for the twelve months ended December 31, 2023, compared to the comparable prior year period due to the impact of a $566 thousand impairment reversal recorded in the comparable prior year period, partially offset by lower amortization due to lower forecasted prepayments and the impact of a lower balance of loans serviced for others.

Advertising, marketing and public relations expense decreased for the twelve months ended December 31, 2023, compared to the prior year period, due to management’s intentional decision to limit expenditures.

The FDIC insurance premium increased for the twelve-month period ended December 31, 2023, from the comparable prior year period due to an increase in the FDIC assessment rate.

This was partially offset by the favorable impact of increased bank capital ratios, largely due to both a $15 million capital injection following the Company’s subordinated debt issuance in March of 2022, and the impact of growth in the Bank’s retained earnings .

In the first quarter of 2022, the Bank invested $4.1 million in a New Market Tax Credit.

Based on the applicable accounting guidance at the time of investment, the related non-tax-deductible asset depletion would have occurred over a 5-year period in lockstep with the recognition of the tax credit.

In March of 2023, FASB issued ASU 2023-02, which allows for proportional amortization of tax credit investments that meet certain criteria.

We determined that our New Market Tax Credit investment met the criteria of ASU 2023-02 and chose to early adopt, using the modified retrospective approach as of January 1, 2023.

Under ASU 2023-02, the amortization of the investment is now included in income tax expense.

The decrease in other expenses during the twelve months ended December 31, 2023, from the comparable prior year period, is largely related to branch closure costs incurred in 2022 of $1.0 million compared to $0.4 million in 2023.

Compensation expense increased for the twelve months ended December 31, 2024, compared to the same period in 2023 largely due to higher incentive compensation and merit increases.

Data processing expense increased for the twelve months ended December 31, 2024, compared to the same period in 2023 largely due to several 2024 projects which will increase efficiencies of operations in future years.

Mortgage servicing rights expense, net decreased for the twelve months ended December 31, 2024, compared to the same period in 2023 due to lower amortization resulting from lower forecasted prepayments and the impact of a lower balance of loans serviced for others.

Professional fees increased for the twelve months ended December 31, 2024, compared to the same period in 2023 largely due to higher audit and consulting fees.

The decrease in other expenses for the twelve months ended December 31, 2024, compared to the same period in 2023 is primarily due to lower loan origination costs due to lower loan volumes in 2024.

Income Taxes.

Income tax provision was $3.7 million in 2024 compared to $5.9 million for 2023.

The 2023 effective tax rate was 31.0% compared to 24.7% in 2022.

The Wisconsin state budget, signed by Governor Evers on July 5, 2023, provides financial institutions a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023.

The 2024 effective tax rate was 21.2% compared to 31.0% 2023.

The Wisconsin state budget, signed by Governor Evers on July 5, 2023, provides financial institutions with a tax exemption on income earned on Wisconsin commercial and agricultural loans up to $5 million retroactive to January 1, 2023.

This change reduced the Company’s 2023 Wisconsin state income tax rate and thus, its overall effective tax rate.

However, this benefit was offset by a one-time tax expense of $1.8 million reflecting the impact of the lower

2023 Wisconsin state tax rate on the future realization of existing net deferred tax assets, with the charge creating a Wisconsin state tax valuation allowance.

However, this benefit was offset by a one-time tax expense of $1.8 million reflecting the impact of the lower 2023 Wisconsin state tax rate on the future realization of existing net deferred tax assets, with the charge creating a Wisconsin state tax valuation allowance.

In addition, the impact of the New Market Tax Credit investment depletion, now being included in income tax expense, increased the income tax rate, while lower pre-tax income reduced current period income tax expense.

In addition, lower pre-tax income reduced tax expense by approximately $0.4 million.

Income tax expense recorded in the accompanying Consolidated Statements of Operations involves interpretation and application of certain accounting pronouncements and federal and state tax codes and is, therefore, considered a critical accounting policy.

We undergo examination by various taxing authorities.

We undergo examinations by various taxing authorities.

Such taxing authorities may require that changes in the amount of tax expense or the amount of the valuation allowance be recognized when their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations.

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BALANCE SHEET ANALYSIS

Total assets increased by $35.0 million to $1.85 billion at December 31, 2023, from $1.82 billion at December 31, 2022.

Total assets decreased by $102.9 million to $1.75 billion at December 31, 2024, from $1.85 billion at December 31, 2023.

Cash and Cash Equivalents.

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Investment Securities.

We manage our securities portfolio to provide liquidity, in an effort to improve interest rate risk, and enhance income.

We manage our securities portfolio to provide liquidity, manage interest rate risk, and enhance income.

Our investment portfolio is comprised of securities available-for-sale (“AFS”) and securities held to maturity (“HTM”).

Securities AFS (recorded at fair value), which represent the majority of our investment portfolio, decreased to $142.9 million at December 31, 2024, compared with $155.7 million at December 31, 2023.

This decrease is due to principal repayments, maturities and $5 million of SBA floating-rate securities sales.

These reductions were partially offset by purchases of $8 million of SBA floating-rate securities.

This decrease is due to principal repayments and maturities, partially offset by the increase in CRA mortgage-backed securities of $2.8 million and lower unrealized losses of $1.1 million.

Securities held to maturity decreased to $85.5 million at December 31, 2024, compared to $91.2 million at December 31, 2023.

The decrease was largely due to principal repayments.

The unrealized loss on the held to maturity portfolio decreased by $1.6 million during the year to $18.0 million at December 31, 2023.

The unrealized loss on the held to maturity portfolio increased by $1.9 million during the year to $19.8 million at December 31, 2024.

The amortized cost and market values of our investment securities by asset categories as of the dates indicated below were as follows:

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Cost Estimated

Due in one year or less $ 100 $ 100

Due after one year through five years 500 465

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Total available-for-sale securities $ 10,474 $ 103 $ 133,027 $ 23,993 $ 143,501 $ 24,096

Less than 12 Months 12 Months or More Total

Held to maturity securities Fair

Value Unrealized

December 31, 2023

Obligations of states and political subdivisions $ — $ — $ 565 $ 35 $ 565 $ 35

Mortgage-backed securities — — 72,507 17,938 72,507 17,938

Total held to maturity securities $ — $ — $ 73,072 $ 17,973 $ 73,072 $ 17,973

December 31, 2022

Obligations of states and political subdivisions $ — $ — $ 546 $ 54 $ 546 $ 54

Mortgage-backed securities 16,627 2,416 59,367 17,137 75,994 19,553

Total held to maturity securities $ 16,627 $ 2,416 $ 59,913 $ 17,191 $ 76,540 $ 19,607

Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not deemed other-than-temporary.

Management has determined that more likely than not, the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur.

Unrealized losses reflected in the preceding tables have not been included in results of operations because the unrealized loss was not due to credit impairment.

Management has determined that the Company neither intends to sell, nor will it be required to sell each debt security before its anticipated recovery, and therefore recovery of cost will occur.

The composition of our investment securities portfolio by credit rating as of the periods indicated below was as follows:

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Government Agency securities with a carrying value of $0.3 million and mortgage-backed securities with a carrying value of $1.8 million as collateral against specific municipal deposits.

As of December 31, 2023, the Bank also has mortgage-backed securities with a carrying value of $0.2 million and U.S.

Government Agencies with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

As of December 31, 2024, the Bank also has mortgage-backed securities with a carrying value of $0.1 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2023, the Bank pledged certain of its mortgage-backed securities with a carrying value of $29.2 million as collateral to secure a line of credit with the Federal Reserve Bank.

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Government Agency securities with a carrying value of $0.5 million and mortgage-backed securities with a carrying value of $1.9 million as collateral against specific municipal deposits.

As of December 31, 2022, the Bank also has mortgage-backed securities with a carrying value of $0.1 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Total loans outstanding, net of deferred loan fees and costs, increased to $1.46 billion at December 31, 2023, from $1.42 billion at December 31, 2022.

Gross loan growth consisted largely of $24.6 million in commercial real estate loans, $19.2 million of multi-family real estate loans, $8.4 million in construction and land development loans and residential mortgage loan growth of $23.6 million.

The growth in these portfolios exceeded the reduction in the remaining loan portfolios of $27.1 million.

As of December 31, 2023, the Bank also has mortgage-backed securities with a carrying value of $0.2 million and U.S.

Government Agencies with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

Total loans outstanding, net of deferred loan fees and costs, decreased to $1.37 billion at December 31, 2024, from $1.46 billion at December 31, 2023.

The Company’s planned balance sheet optimization resulted in the runoff of largely non-strategic loans.

The following table reflects the composition, or mix, of our loan portfolio at December 31, 2024 and December 31, 2023:

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Total loans receivable, net $ 1,348,432 $ 1,437,884

Commercial real estate (“CRE”) 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.

The following table lists the portfolio characteristics of our major commercial real estate loan portfolio at December 31, 2024:

Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE

Loan Balance Outstanding in Millions $ 471 $ 238 $ 221 $ 78

Number of Loans 746 385 129 91

Average Loan Size in Millions $ 0.6 $ 0.6 $ 1.7 $ 0.9

Approximate Weighted Average LTV 52 % 51 % 62 % 74 %

Weighted Average Seasoning in Months 44 41 41 NA

Trailing 12 Month Net Charge-Offs 0.00 % 0.00 % 0.00 % 0.00 %

Criticized Loans in Millions $ 7.6 $ 4.2 $ 0.0 $ 0.1

Criticized Loans as a Percent of Total 1.6 % 1.7 % 0.0 % 0.1 %

The table below lists the above CRE portfolio by geographical location:

Non-Owner Occupied CRE Owner- Occupied CRE Multi-family CRE Construction and Development CRE

Wisconsin 52 % 79 % 63 % 55 %

Minnesota 20 % 17 % 33 % 7 %

Other 28 % 4 % 4 % 38 %

The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at December 31, 2024:

Campground Hotel Restaurant Office

Loan Balance Outstanding in Millions $ 139 $ 88 $ 59 $ 28

Number of Loans 68 20 78 71

Average Loan Size in Millions $ 2.0 $ 4.4 $ 0.8 $ 0.4

Approximate Weighted Average LTV 49 % 51 % 48 % 58 %

Weighted Average Seasoning in Months 38 48 38 44

Trailing 12 Month Net Charge-Offs 0.00 % (0.04) % 0.00 % 0.00 %

Criticized Loans in Millions $ 0.0 $ 4.0 $ 0.0 $ 0.5

Criticized Loans as a Percent of Total 0.0 % 4.6 % 0.1 % 1.8 %

The table below lists our CRE portfolio selected industry components by geographical location:

Campground Hotel Restaurant Office

Wisconsin 21 % 38 % 57 % 83 %

Minnesota 0 % 41 % 27 % 8 %

Other 79 % 21 % 16 % 9 %

Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2024 are shown below.

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

As the Company’s commercial lending function started after the Great Recession, the Company’s historical credit experience is insufficient to estimate expected credit loss.

The Company utilized peer information to supplement expected loss experience.

Peer selection was a review of institutions with comparable asset size, geography, and portfolio concentrations.

Management judgement is required at each point in the measurement process.

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.

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.

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

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

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and (2) repayment is expected to be provided substantially through the sale or operation of the collateral.

However, if it is probable that the Company will foreclose on the collateral, the use of the fair value of the collateral to calculate the allowance for credit loss is required.

In addition, various regulatory agencies periodically review the ACL.

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The allowance for loan losses, prior to the ASU 2016-13 transition, was $17.9 million at December 31, 2022, representing 1.27% of loans receivable.

The increase in the ACL - Loans from ACL adoption in 2023, was primarily due to net loan recoveries.

The ACL - Unfunded Commitments, established under ASU 2016-13, was $1.3 million at December 31, 2023.

Allowance for Credit Losses - Loans Roll Forward

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(in thousands, except ratios)

Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Unallocated Total

Commercial/Agricultural Real Estate C&I/Agricultural operating Residential Mortgage Consumer Installment Total

Twelve months ended December 31, 2024

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ACL - Loans, at beginning of period $ 18,784 $ 1,105 $ 2,744 $ 275 $ 22,908

Cumulative effect of ASU 2016-13 adoption 4,510 (331) 1,119 216 (808) 4,706

Charge-offs (39) (143) (4) (35) (221)

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(in thousands)

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $1.250 million at December 31, 2023 and $0 at December 31, 2022, classified in other liabilities on the consolidated balance sheets.

In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.334 million at December 31, 2024 and $1.250 million at December 31, 2023, classified in other liabilities on the consolidated balance sheets.

December 31, 2024 and Twelve Months Ended December 31, 2023 and Twelve Months Ended

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• Residential mortgage and open ended consumer installment loans past due 180 days or more.

When interest accruals are discontinued, interest credited to income is reversed.

If collection is in doubt, cash receipts on non-accrual loans are used to reduce principal rather than being recorded as interest income.

The Company adopted ASU 2022-02 on January 1, 2023, which eliminated special accounting rules for TDRs.

Prior to the elimination of the special accounting rules, TDR loans were accounted for under ASC 310-40.

A TDR is typically involved granting some concession to the borrower involving a loan modification, such as modifying the payment schedule or making interest rate changes.

TDR loans may have involved loans that had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to ASC 310-10.

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

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ACL - Loans, at end of period $ 20,549 $ 22,908

ACL to NCOs (annualized) (5,079.38) % 3,995.32 %

ACL to NCOs (annualized) N/M N/M

NCOs (annualized) to average loans (0.01) % 0.03 %

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NPAs to total assets 0.82 % 0.83 %

N/M means not meaningful

Nonaccrual Loans Roll Forward

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Balance, end of period $ 13,168 $ 15,042 $ 8,352 $ 8,413 $ 13,184

Nonaccrual loans increased by $2.0 million at December 31, 2023, from $11.2 million at December 31, 2022, largely due to adding a $5.4 million hotel loan from special mention to substandard and nonaccrual in the second quarter of 2023, partially offset by payments received, which include loan payoffs.

Nonperforming assets increased to $15.4 million or 0.83% of total assets at December 31, 2023, compared to $12.7 million, or 0.70% of total assets at December 31, 2022.

During 2023, the transfer of a closed branch to REO was offset by the reduction in 90+ delinquent and accruing residential loans.

Nonaccrual loans remained flat at approximately $13.2 million at both December 31, 2024, and December 31, 2023, with one large loan payoff in the second quarter and other payments received offsetting the addition of a $7.3 million relationship secured by collateral in the forestry services industry.

Approximately $1.4 million of the payments received in the fourth quarter are related to this relationship.

Refer to the “Allowance for Credit Losses - Loans” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections above for more information related to nonperforming loans.

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Residential mortgage $ 20 0.02 %

Other consumer $ 1 0.02 %

Other-Than-Insignificant Payment Delay

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December 31, 2024 % of Total Class of Financing Receivables

Commercial real estate $ 1,182 0.17 %

Commercial and industrial $ 822 0.71 %

Residential mortgage $ 236 0.18 %

Term Extension and Principal Forgiveness

Loan Class Amortized Cost Basis at

December 31, 2024 % of Total Class of Financing Receivables

Other consumer $ 2 0.04 %

Included in the nonaccrual loans roll forward table above, for periods prior to the January 1, 2023 adoption of ASU 2022-02 are nonaccrual TDR loans.

Nonaccrual TDR loans were $2.6 million at December 31, 2022.

December 31, 2022

Modifications Recorded

Troubled debt restructurings:

Accrual Status

Commercial/Agricultural real estate 10 $ 1,336

C&I/Agricultural operating 5 960

Residential mortgage 36 2,875

Consumer installment — —

Total loans 51 $ 5,171

The table below shows a summary of criticized loans, split by special mention and substandard balances, for the past five quarters.

Criticized loans increased by $8.5 million in the twelve months ended December 31, 2023.

Two new relationships, each $9 million, moved to special mention in the second quarter and a $5 million relationship moved from special mention to substandard in the second quarter.

Special mention loans decreased $1.7 million in the fourth quarter, largely due to loans being upgraded and principal reductions of $2.2 million.

Substandard changes from December 31, 2022, are impacted by the addition of a $5 million loan relationship in the second quarter moving from special mention and a $3.7 million loan relationship secured by single family rental homes in the Twin Cities added in the fourth quarter, partially offset by loan repayments.

In addition to our discussion of criticized, special mention, and substandard loans above, the following information provides further insights about our loans to certain industries.

As of December 31, 2023, hotel loans totaled $97 million with a weighted average LTV of 55% and average balance of $3.9 million.

Restaurant loans totaled $52 million, at December 31, 2023.

The weighted-average LTV percentage on these restaurant loans was 48% and the average loan balance was $709 thousand.

Approximately $39 million of restaurant loans are to franchise quick-service restaurants.

At December 31, 2023, we have $40 million of office loans with a weighted average LTV of 64% and average loan balance of $574 thousand.

A large percentage of the related office properties are located outside of large cities.

The table below shows a summary of criticized loans, split by special mention and substandard balances, as of the past five quarter-ends.

Criticized loans decreased by $10.6 million in the twelve months ended December 31, 2024.

Special mention loans decreased $9.9 million during 2024, primarily due to the $8.6 million reduction in a forestry services loan which paid down in the first two quarters and then movement of the remaining $7.4 million loan to substandard in the third quarter 2024.

Substandard loans decreased $0.7 million from December 31, 2023, primarily due to the payoff of a $4.4 million nonaccrual loan in the fist quarter and other reductions, partially offset by the addition of the $5.8 million forestry services loan in 2024, which is also a nonaccrual loan.

This forestry services loan was special mention at December 31, 2023, and moved to substandard in the quarter-end September 30, 2024.

(in thousands)

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At December 31, 2024, and December 31, 2023, the Company did not have an MSR impairment, or related valuation allowance.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at December 31, 2023, and December 31, 2022, was 1.13% and 1.08%, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at December 31, 2024, and December 31, 2023, were 1.09% and 1.13%, respectively.

Intangible Assets.

We have intangible assets of $1.0 million at December 31, 2024, compared to $1.7 million at December 31, 2023.

The intangible assets were comprised of core deposit intangible assets arising from various acquisitions

from 2016 through 2019.

In the fourth quarter of 2022, one of the acquisition core deposits became fully amortized, leading to a reduction in amortization in 2023.

The intangible assets at December 31, 2024, were comprised of core deposit intangible assets arising from 2017 and 2019 acquisitions.

Amortization of these intangibles was $0.7 million in 2024.

Amortization expense is scheduled to be $0.6 million in 2025 and $0.4 million in 2026.

Foreclosed and repossessed assets.

Included in foreclosed and repossessed assets, net are two closed branch locations that are being held for sale.

These properties are being held at $0.9 million and $0.7 million, respectively, which represent their estimated fair market values less the anticipated costs to sell.

Included in foreclosed and repossessed assets at December 31, 2024, is a branch location that is being held for sale.

This property is being held for $0.7 million at December 31, 2024, which represents the estimated fair market value less the anticipated costs to sell.

In 2024, a loss of $0.3 million was recognized and a former branch location was sold.

In 2023, a loss of $0.4 million was recognized on the reclassification of the $0.7 million from property and equipment to foreclosed assets, which was recorded in other expense.

Deposits have grown each quarter since December 31, 2022, with growth in brokered deposits accounting for the growth in the first and second quarters of 2023.

From March 7, 2023, to March 31, 2023, a period closely monitored for unusual withdrawal activity, balances remained stable.

Total deposits increased $94.4 million during the twelve months ended December 31, 2023, to $1.52 billion.

At December 31, 2024, deposits decreased modestly by $30.9 million compared to December 31, 2023, balances.

Some of the loan shrinkage proceeds were utilized to decrease wholesale deposits by $73.1 million in 2024.

Some of this shrinkage was funded by the net growth in retail, commercial and public deposits, totaling $42 million during 2024.

Deposit Composition

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There are no material customer or industry deposit concentrations.

Deposits decreased during January 2023 as commercial customers decreased their cash balances to support the needs of their businesses with the commercial customers balances increasing from March 31, 2023.

Deposit Portfolio Composition

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Public deposits 190,460 176,844 187,698 202,175 182,172

Brokered deposits 98,259 85,173 97,330 63,962 39,841

Wholesale deposits 33,250 92,920 114,033 97,114 106,306

Total deposits $ 1,488,148 $ 1,520,667 $ 1,519,544 $ 1,527,489 $ 1,519,092

At December 31, 2023, our deposit portfolio composition was 54% consumer, 28% commercial, 12% public and 6% brokered deposits.

At December 31, 2022, our deposit portfolio composition was 57% consumer, 28% commercial, 12% public and 3% brokered deposits.

At December 31, 2024, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits.

At December 31, 2023, our deposit portfolio composition was 54% consumer, 28% commercial, 12% public and 6% wholesale deposits.

Uninsured and uncollateralized deposits were $265.4 million, or 18% of total deposits, at December 31, 2024, and $275.8 million, or 18% of total deposits at December 31, 2023.

Uninsured deposits alone at December 31, 2023, were $427.5 million, or 28% of total deposits, and $441.2 million, or 31% of total deposits at December 31, 2022, with the difference being an increase in fully secured government deposits.

Uninsured deposits at December 31, 2024, were $428.0 million, or 29% of total deposits, and $427.5 million, or 28% of total deposits at December 31, 2023, with the difference being an increase in fully secured government deposits.

Federal Home Loan Bank (FHLB) advances and other borrowings.

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2028 10,000 3.82 % 3.82 %

2028 10,000 3.82 % 3.82 % 2028 — — % — %

Federal Home Loan Bank advances $ 5,000 $ 79,530

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(3) The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2024 and December 31, 2023 were 1.45% and 4.16%, respectively.

(4) At December 31, 2023, one FHLB term note totaling $10,000 could be called once by the FHLB on June 15, 2024, and if not called, would mature in 2028.

At December 31, 2022, no FHLB term notes could be called by the FHLB.

(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 and modified in February of 2023, requiring quarterly interest-only payments through March 2027, and quarterly principal and interest payments thereafter.

(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 in August 2024, that remains undrawn upon.

(b) A $5,000 line of credit, maturing August 1, 2025, that remains undrawn upon.

(6) Subordinated notes resulted from the following:

(a) The Company’s private sale in August 2017, which bore a fixed interest rate of 6.75% for five years.

In August 2022, they would have converted to a three-month LIBOR plus 4.90% rate, and the interest rate would have reset quarterly thereafter if not called.

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

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

Interest-only payments were due quarterly.

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

(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.

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

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

(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.

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We utilize advances and other borrowings, as necessary, to supplement core deposits to meet our funding and liquidity needs, and we evaluate all options for funding securities.

FHLB advances decreased $63.0 million to $79.5 million as of December 31, 2023, compared to $142.5 million as of December 31, 2022.

The Bank had January 2024 advance maturities of $44 million and an additional $5 million of advances maturing in the first quarter of 2024.

The bank entered into $15 million of five-year advances, callable once after six months, in the second quarter of 2023, which were called in the fourth quarter 2023.

The Bank entered into a $10 million five-year maturity advance callable one time in June 2024.

The Bank terminated $15.0 million of advances in the quarter ended March 31, 2022, incurring a $2 thousand prepayment penalty, as we reduced excess liquidity.

$27.5 million of FHLB advances were called by the FHLB in each of the quarters ended June 30, 2022, and September 30, 2022.

The Bank added a $5 million advance maturing in the second quarter of 2023.

The Bank had $107 million of FHLB advances maturing in January 2023.

FHLB advances decreased $74.5 million to $5.0 million as of December 31, 2024, compared to $79.5 million as of December 31, 2023, as proceeds from the investment security and loan portfolio shrinkage were used to reduce borrowings.

In January 2024, $44.0 million of FHLB advances matured and an additional $20.5 million of FHLB advances matured in 2024, after January.

A $10 million FHLB advance, which the FHLB could call one-time, was called in June 2024.

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 Bank’s current unused borrowing capacity, supported by loan collateral as of December 31, 2023, is approximately $370.6 million.

The Bank’s current unused borrowing capacity, supported by loan collateral, was approximately $424.7 million at December 31, 2024.

The Company refinanced its senior debt in May 2024 and reduced the balances by $6.1 million.

The Bank maintains two unsecured federal funds purchased lines of credit with its banking partners which total $70.0 million.

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There were no borrowings outstanding on these lines of credit as of December 31, 2023, or December 31, 2022.

At December 31, 2023, and 2022, the Bank had the ability to borrow $22.4 million and $4.1 million from the Federal Reserve Bank of Minneapolis.

At December 31, 2024, and 2023, the Bank had the ability to borrow $24.9 million and $22.4 million, respectively from the Federal Reserve Bank of Minneapolis.

The ability to borrow is based on mortgage-backed securities pledged with a carrying value of $33.9 million and $29.2 million as of December 31, 2024, and 2023, respectively.

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Total stockholders’ equity was $179.1 million at December 31, 2024, compared to $173.3 million at December 31, 2023.

The increase in stockholders’ equity included the Company’s net income of $13.0 million, restricted stock amortization of $0.7 million and a decrease in the unrealized loss on available for sale securities of $0.3 million, net of tax, due to lower interest rates.

These increases were offset by:

(1) the $4.4 million cumulative effect adjustment from the adoption of ASU 2016-13;

(2) the payment of the annual cash dividend paid in February to common stockholders of $0.29 per share, or $3.0 million;

and (3) the repurchase of approximately 42 thousand shares of its common stock, which reduced equity by $0.4 million.

On July 23, 2021, the Board of Directors adopted a share repurchase program.

There were 14 thousand shares repurchased in the second quarter of 2023, no shares repurchased during the first and third quarters of 2023, and 27 thousand

shares repurchased during the fourth quarter.

As of December 31, 2023, an additional 202 thousand shares remain available for repurchase.

The increase in stockholders’ equity included the Company’s net income of $13.8 million, a decrease in the unrealized loss on available-for-sale securities of $0.9 million, net of tax, due to lower interest rates and restricted stock amortization of $0.6 million.

These increases were partially offset by:

1) the repurchase of approximately 476 thousand shares of its common stock, which reduced equity by $6.1 million and 2) the payment of the annual cash dividend, paid in February to common stockholders of $0.32 per share which was a 10% increase from the prior year dividend amount of $0.29 per share, or $3.3 million.

In July 2024, the Board of Directors adopted a 5% share repurchase program.

As of December 31, 2024, an additional 238 thousand shares remain available for repurchase under this program.

2024 share repurchases included all remaining shares under a 2021 approved share repurchase program.

The remaining, roughly 50% of 2024 share repurchases, were under the repurchase program that was approved in 2024.

Liquidity and Asset / Liability Management.

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A key metric we monitor is our liquidity ratio, calculated as cash and unpledged securities portfolio divided by total assets.

At December 31, 2023, our on-balance sheet liquidity ratio decreased to 11.4% percent from 13.0% at December 31, 2022, remaining above our internal requirement of 10%.

At December 31, 2024, our on-balance sheet liquidity ratio increased to 11.75% percent from 11.4% at December 31, 2023,

remaining above our internal requirement of 10%.

This was largely due to reductions in the AFS and HTM investment portfolios.

There are no material customers or industry deposit concentrations.

At December 31, 2023, our deposit portfolio composition was 54% consumer, 28% commercial, 12% public and 6% brokered deposits.

At December 31, 2022, our deposit portfolio composition was 57% consumer, 28% commercial, 12% public and 3% brokered deposits.

At December 31, 2024, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits.

At December 31, 2023, our deposit portfolio composition was 54% consumer, 28% commercial, 12% public and 6% wholesale deposits.

Uninsured and uncollateralized deposits were $265.4 million, or 18% of total deposits, at December 31, 2024, and $275.8 million, or 18% of total deposits at December 31, 2023.

On-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability was $724.8 million, or 273% of uninsured and uncollateralized deposits at December 31, 2024.

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Although $329.6 million of our $350.4 million (94%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s.

However, due to strategic pricing decisions regarding rate matching and branch closures, our retention rate decreased in 2021 and early 2022.

Since June of 2022, we strategically increased CD pricing, which resulted in growth in certificates, as customers looked to increase duration.

Retail non-maturity interest-bearing accounts have decreased at approximately the same rate as the certificate accounts, as our customers have moved to higher-yielding certificates and spent money.

In 2024, retail non-maturity interest-bearing accounts were approximately flat with a growth in certificate accounts.

Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits.

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Currently, we have approximately $424.7 million available to borrow under this arrangement, supported by loan collateral as of December 31, 2024.

We also had borrowing capacity of $22.4 million at the Federal Reserve Bank and have been approved to access the Bank Term Funding Program (“BTFP”) if the need should arise.

We also had borrowing capacity of $24.9 million at the Federal Reserve Bank.

The Bank maintains $70 million of uncommitted federal funds purchased lines with correspondent banks as part of our contingency funding plan.

In addition, the Company has a $5.0 million revolving line of credit which is available as needed for general liquidity purposes.

While the Bank does not have formal brokered certificate lines of credit with counter parties at December 31, 2023, we believe that the Bank could access this market, which provides an additional potential source of liquidity, as evidenced by access to this market during the past four quarters.

See Note 9, “Federal Home Loan Bank and Other Borrowings” of “Notes to Consolidated Financial Statements” which are included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for further detail.

While the Bank does not have approved brokered certificate lines of credit with counter parties at December 31, 2024, we believe that the Bank could access this market, which provides an additional potential source of liquidity.

See Note 9, “Federal Home Loan Bank and Other Borrowings” of “Notes to Consolidated Financial Statements” which are included in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for further detail.

In reviewing the adequacy of our liquidity, we review and evaluate historical financial information, including information regarding general economic conditions, current ratios, management goals and the resources available to meet our anticipated liquidity needs.

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These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit.

As of December 31, 2023, the Company had approximately $210.4 million in unused loan commitments, compared to approximately $243.0 million in unused commitments as of December 31, 2022.

As of December 31, 2024, the Company has approximately $137.0 in unused loan commitments, compared to approximately $210.4 million in unused loan commitments as of December 31, 2023.

In addition, there are $2.9 million of commitments for contributions of capital to an SBIC and an investment company at December 31, 2024.

These commitments totaled $4.7 million at December 31, 2022.

These commitments totaled $3.4 million of commitments at December 31, 2023.

See Note 11, “Commitments and Contingencies”;

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

What changed 10-K

Item 7. Management’s Discussion and Analysis