CITBA Financial : Annual Report to Shareholders

2021 Annual Report

OUR MISSION

Building customer relationships to maximize shareholder value.

Annual disclosure statements, as required, but not reviewed or confirmed for accuracy or relevance by the Federal Deposit Insurance Corporation, are available upon request at any branch office or by writing Citizens Bank, 33 North Indiana Street, Mooresville, IN 46158 or calling 317-831-0110. Your first copy of the annual disclosure statements will be provided without charge.

To our Shareholders:

In looking back, it feels as though we have been dealing with the pandemic and related issues for several years, not five quarters. We find it challenging to review the past year and talk about the future without in some way referencing the pandemic. While we had never faced a pandemic, we pivoted as necessary to protect our employees, customers and community and provide the most favorable outcome for our shareholders. We are proud in how our employees stepped up to the challenge and performed above what we could reasonably ask of them. As we write this letter, we are very aware that we are not past the pandemic and the challenges it has produced. We are still facing staffing shortages and we know our customers are facing these same challenges and they will continue for some time.

In the second quarter of 2021 and during the early months of the pandemic, we made a significant decision to reconfigure the mix of the loan portfolio. Historically we have maintained a large portion of the loan portfolio in indirect consumer loans, more particularly in auto, boat, and RV loans. For several reasons including thinning margins due to competition, changing dealer conditions (mega dealer), Community Reinvestment Act challenges and technology requirements we choose to reduce our activity in the indirect consumer lending market.

The decision was to reduce the indirect balances and replace them with commercial and mortgage loans. The larger portion of the redeployed loans will move into commercial loans followed by mortgage loans. These are not new loan areas for the Bank, and we have significant industry experience already in place to allow for a smooth transition to increased balances. We completed the primary steps of this process during the fourth quarter of 2021. These steps included reducing our footprint for indirect lending, increasing the number of commercial and mortgage lenders and the staff needed to support them. During the fourth quarter of 2021 we began to see commercial and mortgage balances increase, but we also experienced consumer loan payoffs at a noticeable pace, keeping our overall loan portfolio down. We anticipate a similar experience for the early part of 2022 before the loan portfolio begins to expand.

On the retail side of the Bank, we experienced a significant increase in our deposit balances during 2021. We expected those balances to reduce in the fourth quarter of 2021, but they have not. In fact, they have continued to increase which is new territory for the Bank and the industry. We have been cautious in placing these assets to work in other areas due to the belief that they would leave the Bank. Given our experience, we started in late 2021 and will continue into 2022 to move these deposits into higher yielding opportunities.

Additionally in the retail area, we built and opened a new branch (Stones Crossing) located in Greenwood, Indiana in June of 2021. The Branch has performed above our initial projections. We continue to look for new retail opportunities in our current and

surrounding market areas, especially as regional and national banks reduce or exit markets.

We announced in 2021 a stock repurchase plan for up to 5% of the outstanding shares not to exceed $2.5 million. At year-end we had purchased 3.2% of our outstanding stock with all purchases below current book value. The repurchase program has been approved to continue for 2022 under the similar terms.

We are proud to report Citizens performed well financially during 2021 as you will see in the Annual Report.

Detailed in the financial summary below, you will see that we increased the annual dividend from 56¢ per share to 60¢ per share or 7.14%. Due to our strong profitability, our Tier I Risk Based Capital Ratio improved from 14.3% on December 31, 2020 to 14.9% at December 31, 2021. As in the past, we continue to be at the Well-Capitalized level for all ratios.

Enclosed is Citizens' Annual Report listing comparable figures for 2020 and 2021. The statements presented contain consolidated results for CITBA Financial Corporation and its wholly owned subsidiary, Citizens Bank, Mooresville.

Net income in 2021 was $4.5 million, which is a decrease of $786,000, compared to net income of $5.3 million in 2020. The decrease in income was a result of a decline in net interest income and an increase in non-interest expense. Net interest income declined $1 million, or 6% from 2020 as a result of tightened spreads and a decline in loan balances. Also, because of the decline in the overall loan portfolio, the provision for loan losses decreased $622,000, or 276.4%. Non-interest expense increased $1.1 million or 7.6% due to an increase in salaries and employee benefits, and premises and equipment expense resulting in part from the opening of the Stones Crossing location.

Total assets increased 8.2%, ending the year at $637.3 million, and total deposits increased 9.5%, ending the year at $572.8 million. Total loans, net of the allowance for loan loss, decreased 10.7% ending at $328 million.

We are excited about the changes we initiated in 2021 and what it can mean for the Company for 2022.

Keith Lindauer	Larry Heydon
CEO/President	Chairman of the Board

FINANCIAL HIGHLIGHTS

			Increase
AT YEAR END	2021	2020	(Decrease)
Total Deposits	$572,766,787	$522,996,806	9.52%
Total Assets	637,265,088	588,975,467	8.20%
Loans	332,329,814	371,772,016	(10.61%)
Total Stockholder's Equity	62,009,936	62,648,724	(1.02%)
Book Value Per Share	34.56	33.79	2.28%
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FOR THE YEAR
Net Income	$4,511,266	$5,297,660	(14.84%)
Net Income Per Share	2.47	2.86	(13.64%)
Cash Dividends Paid	1,090,340	1,038,214	5.02%
Dividends Paid Per Share	0.60	0.56	7.14%
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FINANCIAL RATIOS
Return on Average Assets	0.72%	0.97%	(25.77%)
Return on Average Stockholder's Equity	7.05%	8.84%	(20.25%)
Tier I Capital to Risk-Weighted Assets	14.86%	14.29%	3.99%