CITIZENS COMMUNITY BANCORP, INC. GENERAL
The following discussion sets forth management's discussion and analysis of our results of operations for the year endedDecember 31, 2022 andDecember 31, 2021 , and our financial position as ofDecember 31, 2022 andDecember 31, 2021 , respectively. The MD&A should be read in conjunction with our consolidated financial statements, related notes, the selected financial data and the statistical information presented elsewhere in this Annual Report on Form 10-K for a more complete understanding of the following discussion and analysis. Unless otherwise noted, years refer to the Company's fiscal years endedDecember 31, 2022 andDecember 31, 2021 .
PERFORMANCE SUMMARY
The following is a brief summary of some of the significant factors that affected our operating results for the twelve months endedDecember 31, 2022 and 2021. In 2022, net interest income was favorably impacted by the following: (1)growth in the loan portfolio and related growth in loan interest income; (2) the positive impact of higher interest rates on loan yields on new, renewing and repricing loans, which was more than offset by a reduction in the accretion of the Small Business Administration Paycheck Protection Program ("SBA PPP") loan fees of$5.9 million ; and (3) growth in the investment securities portfolio. These positive additions were offset by higher interest expense on subordinated debt due to (a) the issuance of$35 million with a coupon of 4.75%, partially offset by the call and redemption of$15 million of 6.75% subordinated debt issued in 2017 and (b) the impact of higher interest rates on FHLB advances and deposits. The Company recorded$1.5 million of provision for loan losses in 2022, largely due to loan growth and net charge-offs, partially offset by a reduction in specific reserves. No provision for loan losses was recorded in 2021 largely due to qualitative factor decreases to reflect greater certainty and improvement in current general economic conditions, offsetting the impact of organic loan growth. In 2022's higher interest rate and tight housing supply environment, the Company experienced fewer mortgage loans originated for sale, which decreased gain on sale and income recorded in loan servicing income from the capitalization of mortgage servicing rights. Non-interest expense increased modestly in 2022, largely due to the cost of closing branches. When comparing year-over-year results, changes in net interest income, provision for loan 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. We reported net income of$17.76 million for the twelve months endedDecember 31, 2022 , compared to net income of$21.27 million for the twelve months endedDecember 31, 2021 . Diluted earnings per share were$1.69 for the twelve months endedDecember 31, 2022 , compared to$1.98 for the twelve months endedDecember 31, 2021 . Return on average assets for the twelve months endedDecember 31, 2022 , was 1.00%, compared to 1.23% for the twelve months endedDecember 31, 2021 . The return on average equity was 10.70% for the twelve months endedDecember 31, 2022 , and 12.97% for the comparable period in 2021. 22
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CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements have been prepared in conformity withU.S. Generally Accepted Accounting Principles ("GAAP"). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Some of these estimates are more critical than others. Below is a discussion of our critical accounting estimates.
Allowance for Loan Losses.
We maintain an allowance for loan losses to absorb probable and inherent losses in our loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated probable incurred losses in our loan portfolio. In evaluating the level of the allowance for loan 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 the Allowance for Loan and Lease Losses," issued by theFederal Financial Institutions Examination Council (FFIEC). We believe that the Bank's Allowance for Loan Losses Policy conforms to all applicable regulatory requirements. However, based on periodic examinations by regulators, the amount of the allowance for loan losses recorded during a particular period may be adjusted. Our determination of the allowance for loan losses is based on (1) specific allowances for specifically identified and evaluated impaired loans and their corresponding estimated loss based on likelihood of default, payment history and net realizable value of underlying collateral. Specific allocations for collateral dependent loans are based on the fair value of the underlying collateral relative to the unpaid principal balance of individually impaired loans. For loans that are not collateral dependent, the specific allocation is based on the present value of expected future cash flows discounted at the loan's original effective interest rate through the repayment period; and (2) a general allowance on loans not specifically identified in (1) above, based on historical loss ratios, which are adjusted for qualitative and general economic factors. We continue to refine our allowance for loan losses methodology, with an increased emphasis on historical performance adjusted for applicable economic and qualitative factors. Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, any of which estimates may be susceptible to significant change. In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value with no carryover of related allowance for loan losses. Any allowance for loan loss on these pools reflects only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be collected).
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 ofDecember 31, 2022 , 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 23 -------------------------------------------------------------------------------- ("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. In 2022, the Company performed quarterly reviews to determine if a triggering event had occurred that would require impairment testing. These quarterly reviews determined that no triggering event occurred during 2022. The Company performed its required annual goodwill impairment test as ofDecember 31, 2022 , and determined that goodwill was not impaired.
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 ofDecember 31, 2022 , management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary. 24 --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS ANALYSIS
Twelve months ended
Net Interest Income. Net interest income represents the difference between the
dollar amount of interest earned on interest bearing assets and the dollar
amount of interest paid on interest bearing liabilities. The interest income and
expense of financial institutions are significantly affected by general economic
conditions, competition, policies of regulatory authorities and other factors.
Interest rate spread and net interest margin are used to measure and explain
changes in net interest income. Interest rate spread is the difference between
the yield on interest earning assets and the rate paid for interest bearing
liabilities that fund those assets. Net interest margin is expressed as the
percentage of net interest income to average interest earning assets. Net
interest margin exceeds interest rate spread because non-interest-bearing
sources of funds ("net free funds"), principally demand deposits and
stockholders' equity, also support interest earning assets. The narrative below
discusses net interest income, interest rate spread, and net interest margin.
Net interest income was $56.4 million for 2022 compared to $53.7 million for
2021. The increase is largely due to the positive loan volume variance due to
growth in loans outstanding. Negative loan rate variances are due to a decrease
in SBA PPP accretion of $5.9 million , which was partially offset by the impact
of higher interest rates on newly originated, renewed and repricing loans. The
positive rate variance on investment securities was largely due to the repricing
of variable rate securities and the impact of new purchases above the portfolio
rate. This positive rate variance was partially offset by higher interest
expense on subordinated debt of $35 million issued in March 2022 , with a coupon
rate of 4.75%. In August 2022 , interest expense was partially reduced by the
call and redemption of $15 million of 6.75% subordinated debt issued in 2017. In
addition, the impact of higher interest rates on liability costs reduced net
interest income.
The net interest margin for 2022 was 3.39% compared to 3.34% for 2021. The
increase in the net interest margin was due to the following factors: (1) the
impact of higher interest rates on new, maturing, and repricing loans; (2) the
impact of higher interest rates on the variable rate investment portfolio; and
(3) a reduction in the balance of low yielding cash as a percentage of total
assets. These positive impacts were partially offset by: (1) a decrease in SBA
PPP loan accretion income of $5.9 million ; (2) higher interest expense on
subordinated debt, due to the issuance of $35 million with a coupon rate of
4.75%, partially offset by the call and redemption of $15 million of 6.75%
subordinated debt issued in 2017; and (3) the impact of higher interest rates on
liability costs.
25--------------------------------------------------------------------------------
Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table shows interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates. Also presented is the weighted average yield on interest earning assets on a tax-equivalent basis, rates paid on interest bearing liabilities and the resultant spread atDecember 31, 2022 andDecember 31, 2021 . Non-accruing loans average balances are included in the table with the loans carrying a zero yield. Twelve months ended December 31, 2022 Twelve months ended December 31, 2021 Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Average interest earning assets: Cash and cash equivalents$ 19,796 $ 203 1.03 %$ 99,839 $ 122 0.12 % Loans 1,351,052 61,639 4.56 % 1,216,244 58,172 4.78 % Interest-bearing deposits 1,106 24 2.17 % 2,047 45 2.20 % Investment securities (1) 278,056 6,767 2.43 % 271,715 5,009 1.84 % Other investments 15,230 764 5.02 % 15,025 687 4.57 % Total interest earning assets (1)$ 1,665,240 $ 69,397 4.17 %$ 1,604,870 $ 64,035 3.99 % Average interest bearing liabilities: Savings accounts$ 225,204 $ 730 0.32 %$ 212,867 $ 369 0.17 % Demand deposits 403,289 1,881 0.47 % 367,103 1,047 0.29 % Money market 317,879 1,721 0.54 % 269,620 783 0.29 % CD's 153,085 1,853 1.21 % 224,708 3,200 1.42 % IRA's 35,192 244 0.69 % 39,699 451 1.14 % Total deposits$ 1,134,649 $ 6,429 0.57 %$ 1,113,997 $ 5,850 0.53 % FHLB Advances and other borrowings 189,274 6,599 3.49 % 173,029 4,518 2.61 % Total interest bearing liabilities$ 1,323,923 $ 13,028 0.98 %$ 1,287,026 $ 10,368 0.81 % Net interest income$ 56,369 $ 53,667 Interest rate spread 3.19 % 3.18 % Net interest margin (1) 3.39 % 3.34 % Average interest earning assets to average interest bearing liabilities 1.26 % 1.25 % (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 endedDecember 31, 2022 and 2021. The FTE adjustment to net interest income included in the rate calculations totaled$1 thousand and$3 thousand for the twelve month periods endedDecember 31, 2022 and 2021, respectively. 26 -------------------------------------------------------------------------------- Rate/Volume Analysis. The following table presents the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table. For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to: 1) changes in volume, which are changes in the average outstanding balances multiplied by the prior period rate (i.e., holding the initial rate constant); 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). Twelve months
ended
(decrease) due to
Total
Increase /
Volume (1) Rate (1) (Decrease)
Interest income:
Cash and cash equivalents $ (353) $ 434 $ 81
Loans 6,244 (2,777) 3,467
Interest-bearing deposits (20) (1) (21)
Investment securities 119 1,639 1,758
Other investments 9 68 77
Total interest earning assets $ 5,999 $ (637) $ 5,362
Interest expense:
Savings accounts $ 22 $ 339 $ 361
Demand deposits 111 723 834
Money market accounts 158 780 938
CD's (904) (443) (1,347)
IRA's (46) (161) (207)
Total deposits (659) 1,238 579
FHLB Advances and other borrowings 453 1,628 2,081
Total interest bearing liabilities (206) 2,866 2,660
Net interest income $ 6,205 $ (3,503) $ 2,702 (1)the change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each.
Provision for Loan Losses. We determine our provision for loan losses ("provision," or "PLL") to provide an adequate allowance for loan losses ("ALL") to reflect probable and inherent credit losses in our loan portfolio.
The provision for loan losses recorded in 2022 was$1.5 million compared to no provision for 2021. In 2022, the provision allocated for originated loan growth was approximately$1.3 million for 2022 and the provision related to charge-offs, reduced by decreases in changes in specific reserves, was approximately$0.2 million . The remaining provision in 2022 was related to qualitative factor increases to reflect uncertainty in current general economic conditions and a modest increase in unallocated ALL. In 2021, the impact of growth in the originated loan portfolio and modest charge-offs were offset by a reduction in Q-Factors related to economic qualitative factor decreases to reflect reduced uncertainty in current general economic conditions and a modest reduction in the unallocated reserve. Management believes that the provisions for the years endedDecember 31, 2022 , and 2021, are both adequate in view of the condition of the Bank's loan portfolio and the sufficiency of collateral supporting non-performing loans as of the respective year-end dates. We are continually monitoring non-performing loan relationships and will make provisions, as necessary, if the facts and circumstances change. 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 other factors could all affect the adequacy of our ALL. If there are significant charge-offs against the ALL, or we otherwise determine that the ALL is inadequate, we will need to record an additional PLL in the future. See Note 1, "Nature of Business and Summary of Significant Accounting Policies - Allowance for Loan Losses" of "Notes to Consolidated Financial Statements and Supplementary Data" to this Form 10-K, for further analysis of the provision for loan losses. 27 --------------------------------------------------------------------------------
Non-Interest Income. The following table reflects the various components of non-interest income for 2022 and 2021, respectively.
Twelve months ended December 31, Change from prior year
2022 2021 2022 over 2021
Non-interest Income:
Service charges on deposit accounts $ 2,018 $ 1,726 16.92%
Interchange income 2,343 2,354 (0.47)%
Loan servicing income 2,439 3,322 (26.58)%
Gain on sale of loans 1,474 5,399 (72.70)%
Loan fees and service charges 679 705 (3.69)%
Net gains on investment securities 541 1,224 (55.80)%
Other 936 1,094 (14.44)%
Total non-interest income $ 10,430 $ 15,824 (34.09)%
N/M means not meaningful
Service charges on deposit accounts increased
Loan servicing income decreased largely due to decreased capitalized mortgage servicing rights as a result of lower mortgage loan origination sold volumes.
The decrease in gain on sale of loans in 2022 is due to fewer mortgage loan originations and lower related sale volumes and a decrease in SBA loans sold.
Net gains on investment securities decreased in 2022 due to no realized gains on sale of AFS securities in 2022, compared to a$573 thousand net gain on sale in 2021. The sales in 2021 consisted of senior debt of large bank holding companies and lower yielding trust preferred securities. Both helped fund loan growth and decrease 100% risk weighted AFS securities. The net gains on investment securities were also impacted by smaller increases in the market value of our investment inFarmer Mac andBankers' Bank stock and the recognition of$367 thousand of net unrealized gain on investments recorded at Net Asset Value ("NAV"). Other income decreased largely due to the cash receipt of$131 thousand in 2021 related to a private mortgage-backed security claim. This cash receipt represents a supplement to the proceeds received in fiscal 2015 from the private mortgage-backed security previously owned by the Bank and sold in 2011. 28 --------------------------------------------------------------------------------
Non-Interest Expense. The following table reflects the various components of non-interest expense for 2022 and 2021.
Twelve months ended December 31, % Change From prior year
2022 2021 2022 over 2021
Non-interest Expense:
Compensation and related benefits $ 22,128 $ 22,723 (2.62)%
Occupancy 5,490 5,327 3.06%
Data processing 5,453 5,560 (1.92)%
Amortization of intangible assets 1,449 1,596 (9.21)%
Mortgage servicing rights expense, net 222 191 16.23%
Advertising, marketing and public relations 1,017 986 3.14%
FDIC premium assessment 470 551 (14.70)%
Professional services 1,707 1,542 10.70%
Gains on repossessed assets, net (395) (199) 98.49%
New market tax credit depletion 650 - N/M
Other 3,552 2,255 57.52%
Total non-interest expense $ 41,743 $ 40,532 2.99%
Non-interest expense (annualized) / Average
assets 2.32 % 2.35 %
Compensation expense decreased in 2022 primarily due to lower salaries due to lower headcount and a decrease in incentives based on performance.
Professional fees increased slightly in 2022 largely due to a modest increase in utilization of third parties in completing one-time and ongoing projects.
Gains on repossessed assets increased largely due to the sale of a former branch sold in 2022, partially offset by limited gains on sales of repossessed assets due to foreclosure compared to 2021. In the first quarter of 2022, the Bank invested$4.1 million in a New Markets Tax Credit ("NMTC"). Based on current accounting guidance, the related non-tax-deductible asset depletion will occur over a 5-year period in lockstep with the recognition of the tax credit.The Emerging Issues Task Force of theFinancial Accounting Standards Board has issued guidance that, if implemented in its current proposal, would change the depletion expense from equal to the tax credit until the asset is depleted, to being proportional with the NMTC recognized, which is seven years. Other non-interest expense increased in 2022 primarily due to branch closure costs in 2022 of$1.0 million and$0.3 million of increased origination costs and deposit product costs. Income Taxes. Income tax provision was$5.8 million in 2022 compared to$7.7 million for 2021 primarily due to the impact of lower pre-tax income and the impact of the new market tax credit purchased in 2022 discussed above. The 2022 effective tax rate was 24.7% compared to 26.6% in 2021. This difference is primarily due to the impact of the NMTC. 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. 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. 29 --------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS Total assets increased$76.8 million to$1.82 billion atDecember 31, 2022 , from$1.74 billion atDecember 31, 2021 . Strong originated loan growth was funded by the utilization of excess asset liquidity, resulting in a decrease in cash and cash equivalents, net deposit growth, and the utilization of FHLB advances. Cash and Cash Equivalents. Cash and cash equivalents decreased from$47.7 million atDecember 31, 2021 , to$35.4 million atDecember 31, 2022 . As noted above, this decrease, along with deposit growth and FHLB advances, funded loan portfolio growth.Investment Securities . We manage our securities portfolio to provide liquidity, in an effort to improve 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$166.0 million atDecember 31, 2022 , compared with$203.1 million atDecember 31, 2021 . This decrease is due to the change in unrealized losses of$24.6 million in 2022, along with principal repayments and maturities. These reductions were partially offset primarily by purchases of bank holding company issued capital instruments, which are classified as corporate debt securities. In 2021, the sale of trust preferred securities issued by bank holding companies with an amortized cost of$17.4 million and$10.6 million of non-CDFI bank holding company senior debt, reduced the portfolio of these securities to zero. The weighted average coupon of these sales was 2.2%. The sale of these 100% risk-weighted assets partially offset the impact of loan growth on risk-weighted assets and increased the overall yield of interest-earning assets. In addition, the bank sold$9.7 million of other AFS securities, largelyU.S. agency mortgage-backed securities. These 2021 sales resulted in net realized gains of$573 thousand , which is included in net gains on investment securities in the Consolidated Statements of Operations Securities held to maturity increased to$96.4 million atDecember 31, 2022 , compared to$71.1 million atDecember 31, 2021 . The increase was largely due to the purchase of agency mortgage-backed securities, net of principal repayments. The unrealized loss on the held to maturity portfolio increased by$17.6 million during the year to$19.6 million atDecember 31, 2022 .
The amortized cost and market values of our investment securities by asset categories as of the dates indicated below were as follows:
Amortized Fair
Available for sale securities Cost Value
December 31, 2022 U.S. government agency obligations$ 18,373 $
18,313
Obligations of states and political subdivisions - - Mortgage-backed securities 97,458 78,610 Corporate debt securities 44,636 40,251 Corporate asset-backed securities 29,877
28,817
Total available for sale securities$ 190,344 $
165,991
December 31, 2021 U.S. government agency obligations$ 25,826 $
26,265
Obligations of states and political subdivisions 140 140 Mortgage-backed securities 107,636 107,167 Corporate debt securities 35,342 35,588 Corporate asset-backed securities 33,902
33,908
Total available for sale securities$ 202,846 $ 203,068 30
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Amortized Fair
Held to maturity securities Cost Value
Obligations of states and political subdivisions
Mortgage-backed securities 95,779 76,233
Total held to maturity securities $ 96,379
Obligations of states and political subdivisions
Mortgage-backed securities 66,541 64,584
Total held to maturity securities $ 71,141
The amortized cost and fair values of our investment securities by maturity, as
of
Amortized Estimated
Available for sale securities Cost FairValue
Due in one year or less $ - $ - Due after one year through five years 8,525
8,184
Due after five years through ten years 45,622
41,427
Due after ten years 38,739
37,770
Total securities with contractual maturities 92,886 87,381 Mortgage-backed securities
97,458 78,610
Total available for sale securities$ 190,344 $ 165,991 Amortized Estimated
Held to maturity securities Cost FairValue
Due after one year through five years$ 450 $
415
Due after five years through ten years 150
131
Total securities with contractual maturities 600
546
Mortgage-backed securities 95,779
76,233
Total held to maturity securities$ 96,379 $
76,779
The amortized cost and fair values of our investment securities by maturity, as
of
Amortized Estimated
Available for sale securities Cost FairValue
Due in one year or less$ 140 $
140
Due after one year through five years 4,903
4,971
Due after five years through ten years 40,410
40,818
Due after ten years 49,757
49,972
Total securities with contractual maturities 95,210 95,901 Mortgage-backed securities
107,636 107,167
Total available for sale securities$ 202,846 $ 203,068 Amortized Estimated
Held to maturity securities Cost FairValue
Due after one year through five years$ 4,300 $
4,298
Due after five years through ten years 300
295
Total securities with contractual maturities 4,600
4,593
Mortgage-backed securities 66,541
64,584
Total held to maturity securities$ 71,141 $
69,177
31
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The following tables show the fair value and gross unrealized losses of
securities with unrealized losses, as of the dates indicated below, aggregated
by investment category and length of time that the individual securities have
been in a continuous unrealized loss position:
Less than 12 Months 12 Months or More Total
Fair Unrealized Fair Unrealized Fair Unrealized
Available for sale securities Value Losses Value Losses Value Losses
December 31, 2022 U.S. government agency obligations$ 3,169 $ 138 $ 1,138 $ 95 $ 4,307 $ 233 Mortgage-backed securities 9,654 896 68,907 17,952 78,561 18,848 Corporate debt securities 21,547 1,688 18,704 2,697 40,251 4,385 Corporate asset-backed securities 7,955 221 20,862 839 28,817
1,060
Total available for sale securities
24,526
December 31, 2021 U.S. government agency obligations$ 1,169 $ 1 $ - $ -$ 1,169 $ 1 Mortgage-backed securities 89,010 878 - - 89,010 878 Corporate debt securities 17,240 142 735 15 17,975 157 Corporate asset-backed securities 19,296 127 - - 19,296
127
Total available for sale securities$ 126,715 $ 1,148 $ 735 $ 15 $ 127,450 $ 1,163 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Held to maturity securities Value Losses Value Losses Value
Losses
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
19,607
December 31, 2021 Obligations of states and political subdivisions$ 593 $ 7 $ - $ -$ 593 $ 7 Mortgage-backed securities 46,969 1,346 14,716 715 61,685 2,061 Total held to maturity securities$ 47,562 $
1,353
2,068
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.
32
--------------------------------------------------------------------------------The composition of our investment securities portfolio by credit rating as of the periods indicated below was as follows:
December 31, December 31,
2022 2021
Amortized Fair Amortized Fair
Available for sale securities Cost Value Cost Value
U.S. government agency $ 112,477 $ 93,669 $ 131,115 $ 131,008
AAA 8,640 8,334 9,662 9,710
AA 24,591 23,737 26,727 26,762
A 5,700 5,133 5,700 5,720
BBB 38,936 35,118 29,642 29,868
Below investment grade - - - -
Non-rated - - - -
Total available for sale securities $ 190,344 $ 165,991 $ 202,846 $ 203,068
December 31, December 31,
2022 2021
Amortized Fair Amortized Fair
Held to maturity securities Cost Value Cost Value
U.S. government agency $ 95,779 $ 76,233 $ 66,541 $ 64,584
AAA - - - -
AA - - 4,000 4,000
A 600 546 600 593
BBB - - - -
Below investment grade - - - -
Non-rated - - - -
Total $ 96,379 $ 76,779 $ 71,141 $ 69,177
At December 31, 2022 , the Bank pledged certain of its mortgage-backed securities
with a carrying value of $5.4 million as collateral to secure a line of credit
with the Federal Reserve Bank . As of December 31, 2022 , there were no borrowings
outstanding on this Federal Reserve Bank line of credit. As of December 31,
2022 , the Bank has pledged certain of its U.S. Government Agency securities with
a carrying value of $2.6 million and mortgage-backed securities with a carrying
value of $2.2 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 .
At December 31, 2021 , the Bank has pledged certain of its mortgage-backed
securities with a carrying value of $0.9 million as collateral to secure a line
of credit with the Federal Reserve Bank . As of December 31, 2021 , there were no
borrowings outstanding on this Federal Reserve Bank line of credit. As of
December 31, 2021 , the Bank has pledged certain of its U.S. Government Agency
securities with a carrying value of $3.9 million and mortgage-backed securities
with a carrying value of $2.9 million as collateral against specific municipal
deposits. As of December 31, 2021 , the Bank also has mortgage-backed securities
with a carrying value of $0.3 million pledged as collateral to the Federal Home
Loan Bank of Des Moines .
Loans. Total loans outstanding, net of deferred loan fees and costs, increased
to
Gross loan growth consisted largely of$27.5 million in commercial real estate loans,$30.6 million of multi-family real estate loans,$23.0 of construction and land development loans, and$13.8 million of commercial and industrial loan growth. In addition, the growth in residential mortgage and agricultural real estate portfolios of$23.8 million exceeded the reduction in the remaining loan portfolios of$19.6 million . Included in the shrink numbers above is 100% of the of SBA PPP loans of$8.8 million atDecember 31, 2021 . 33 --------------------------------------------------------------------------------
The following table reflects the composition, or mix, of our loan portfolio at
December 31, 2022 December 31, 2021
Amount Percent Amount Percent
Real Estate Loans:
Commercial/Agricultural real estate:
Commercial real estate $ 725,971 51.5 % $ 698,465 53.3 %
Agricultural real estate 87,908 6.2 % 78,495 6.0 %
Multi-family real estate 208,908 14.8 % 178,349 13.6 %
Construction and land development 102,492 7.3 % 79,520 6.1 %
Residential mortgage:
Residential mortgage 105,389 7.5 % 90,990 6.9 %
Purchased HELOC loans 3,262 0.2 % 3,871 0.3 %
Total real estate loans 1,233,930 87.5 % 1,129,690 86.2 %
C&I/Agricultural operating and Consumer installment loans:
C&I/Agricultural operating:
Commercial and industrial ("C&I) 136,013 9.6 % 122,167 9.3 %
Agricultural operating 28,806 2.0 % 31,588 2.4 %
Consumer installment:
Originated indirect paper 10,236 0.7 % 15,971 1.2 %
Other consumer 7,150 0.5 % 8,874 0.7 % Total C&I/Agricultural operating and Consumer installment loans
182,205 12.8 % 178,600 13.6 %
Gross loans before SBA PPP loans 1,416,135 100.3 % 1,308,290 99.8 %
SBA PPP Loans - - % 8,755 0.7 %
Gross loans 1,416,135 100.3 % 1,317,045 100.5 %
Unearned net deferred fees and costs and loans in process (2,585) (0.2) % (2,482) (0.2) %
Unamortized discount on acquired loans (1,766) (0.1) % (3,600) (0.3) %
Total loans (net of unearned income and deferred expense) 1,411,784 100.0 % 1,310,963 100.0 %
Allowance for Loan losses (17,939) (16,913)
Total loans receivable, net $ 1,393,845 $ 1,294,050
Our loan portfolio is diversified by types of borrowers and industry groups
within the market areas that we serve. Significant loan concentrations are
considered to exist for a financial entity when the amounts of loans to multiple
borrowers engaged in similar activities cause them to be similarly impacted by
economic or other conditions. As illustrated above, at December 31, 2022 , the
largest loan concentration we identified was commercial real estate loans which
comprised 52% of our total loan portfolio. Approximately 88% of our total gross
loans are secured by real estate.
34
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The following table sets forth, as of
December 31, 2022 December 31, 2021
Amount Percent Amount Percent
Fixed rate loans:
Real estate loans:
Commercial/Agricultural real estate $ 433,988 30.8 % $ 412,797 31.5 %
Residential mortgage 51,558 3.6 % 61,964 4.7 %
Total fixed rate real estate loans 485,546 34.4 % 474,761 36.2 %
Non-real estate loans:
C&I/Agricultural Operating 128,068 9.0 % 117,770 9.0 %
Consumer installment 17,369 1.2 % 24,828 1.9 %
Total fixed rate non-real estate loans 145,437 10.2 % 142,598 10.9 %
Total fixed rate loans 630,983 44.6 % 617,359 47.1 %
Adjustable-rate loans:
Real estate loans:
Commercial/Agricultural real estate 691,290 49.0 % 622,032 47.5 %
Residential mortgage 57,094 4.1 % 32,897 2.5 %
Total adjustable-rate real estate loans 748,384 53.1 % 654,929 50.0 %
Non-real estate loans:
C&I/Agricultural operating 36,752 2.6 % 44,740 3.4 %
Consumer installment 16 - % 17 - %
Total adjustable-rate non-real estate loans 36,768 2.6 % 44,757 3.4 %
Total adjustable-rate loans 785,152 55.7 % 699,686 53.4 %
Gross loans 1,416,135 1,317,045
Unearned net deferred fees and costs and loans in
process (2,585) (0.2) % (2,482) (0.2) %
Unamortized discount on acquired loans (1,766) (0.1) % (3,600) (0.3) %
Total loans (net of unearned income) 1,411,784 100.0 % 1,310,963 100.0 %
Allowance for loan losses (17,939) (16,913)
Total loans receivable, net $ 1,393,845 $ 1,294,050
35--------------------------------------------------------------------------------
Loan amounts, their contractual maturities and weighted average interest rates
at
Real estate Non-real estate
C&I/Agricultural
Commercial/Agricultural real estate Residential mortgage operating Consumer installment Total
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
Due in one year or
less (1) $ 80,481 5.93 % $ 2,199 5.10 % $ 56,915 7.91 % $ 760 7.41 % $ 140,355 6.73 %
Due after one year
through five years 281,561 4.28 % 6,820 5.15 % 46,279 4.57 % 8,859 5.91 % 343,519 4.38 %
Due after five years 763,237 4.47 % 99,632 5.08 % 61,625 5.66 % 7,767 5.41 % 932,261 4.62 %
$ 1,125,279 4.53 % $ 108,651 5.08 % $ 164,819 6.13 % $ 17,386 5.76 % $ 1,416,135 4.77 %
(1)Includes loans having no stated maturity and overdraft loans.
Loan amounts, their contractual maturities and weighted average interest rates atDecember 31, 2021 , are shown below. SBA PPP loans at an interest rate of 1% are included in the C&I/agricultural operating segment amounts as follows: (1)$2.1 million is included in the one year or less amounts and (2)$6.7 million is included in the one year to five-year amounts. Real estate Non-real estate C&I/Agricultural Commercial/Agricultural real estate Residential mortgage operating Consumer installment Total Weighted Weighted Weighted Weighted Weighted Average Average Average Average Average Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Due in one year or less (1) $ 60,102 4.42 %$ 5,234 4.50 %$ 50,573 3.71 %$ 871 6.98 %$ 116,780 4.13 % Due after one year through five years 223,257 3.85 % 10,259 4.52 % 65,031 3.69 % 10,774 5.80 % 309,321 3.91 % Due after five years 751,470 3.88 % 79,368 4.69 % 46,906 3.93 % 13,200 5.36 % 890,944 3.98 % $ 1,034,829 3.91 %$ 94,861 4.66 %$ 162,510 3.76 %$ 24,845 5.61 %$ 1,317,045 3.98 %
(1)Includes loans having no stated maturity and overdraft loans.
We believe that the critical factors in the overall management of credit or loan
quality are sound loan underwriting and administration, systematic monitoring of
existing loans and commitments, effective loan review on an ongoing basis,
recording an adequate allowance to provide for incurred loan losses, and
reasonable non-accrual and charge-off policies.
36--------------------------------------------------------------------------------
The following table summarizes SBA PPP loans by origination year as of
2020 Originations 2021 Originations Total
Net Deferred Net Deferred Fee Net Deferred
Balance Fee Income Balance Income Balance Fee Income
SBA PPP loans, December 31, 2020 $ 123,702 $ 2,991 $ - $ - $ 123,702 $ 2,991
2021 SBA PPP loan originations - - 55,854 3,494 55,854 3,494
Less: 2021 SBA PPP loan forgiveness and fee accretion (121,574) (2,987) (49,227) (3,201) (170,801)
(6,188)
SBA PPP loans, December 31, 2021 2,128 4 6,627 293 8,755 297 Less: 2022 SBA PPP loan forgiveness and fee accretion (2,128) (4) (6,627) (293) (8,755) (297)
SBA PPP loans,
$ - $ - $ - $ -
Risk Management and the Allowance for Loan Losses. The loan portfolio is our
primary asset subject to credit risk. To address this credit risk, we maintain
an ALL for probable and inherent credit losses through periodic charges to our
earnings. These charges are shown in our accompanying Consolidated Statements of
Operations as Provision for Loan Losses. See "Statement of Operations Analysis -
Provision for Loan Losses" above. We attempt to control, monitor, and minimize
credit risk through the use of prudent lending standards, a thorough review of
potential borrowers prior to lending and ongoing and timely review of payment
performance. Asset quality administration, including early identification of
loans performing in a substandard manner, as well as timely and active
resolution of problems, further enhances management of credit risk and
minimization of loan losses. Any losses that occur and that are charged off
against the ALL are periodically reviewed with specific efforts focused on
achieving maximum recovery of both principal and interest on the affected loan.
At least quarterly, we review the adequacy of the ALL. Based on an estimate
computed pursuant to the requirements of ASC 450-10, "Accounting for
Contingencies" and ASC 310-10, "Accounting by Creditors for Impairment of a
Loan", the analysis of the ALL consists of three components: (i) specific credit
allocation established for expected losses relating to specific impaired loans
for which the recorded investment in the loan exceeds its fair value; (ii)
general portfolio allocation based on historical loan loss experience for
significant loan categories; and (iii) general portfolio allocation based on
qualitative factors such as economic conditions and other relevant factors
specific to the markets in which we operate. We currently segregate loans into
pools based on common risk characteristics for purposes of determining the ALL.
The additional segmentation of the portfolio is intended to provide a more
effective basis for the determination of qualitative factors affecting our ALL.
In addition, management continually evaluates our ALL methodology to assess
whether modifications in our methodology are appropriate in light of
underwriting practices, market conditions, identifiable trends, regulatory
pronouncements or other factors.
37
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Changes in the ALL by loan portfolio segment for the periods presented were as
follows:
Commercial/Agricultural Real C&I/Agricultural Residential Consumer
Estate Operating Mortgage Installment Unallocated Total
Year ended December 31, 2022 :
Allowance for Loan Losses:
Beginning balance, January 1, 2022 $ 12,354 $ 1,959 $ 518 $ 225 $ 774 $ 15,830
Charge-offs (157) (310) (35) (45) - (547)
Recoveries 74 35 2 50 - 161
Provision 1,280 571 89 (109) 34 1,865
Total Allowance on originated loans 13,551 2,255 574 121 808 17,309
Other acquired loans:
Beginning balance, January 1, 2022 856 69 130 28 - 1,083
Charge-offs (48) (36) (33) (3) - (120)
Recoveries 28 1 27 1 - 57
Provision (302) 29 (99) (18) - (390)
Total allowance on other acquired loans 534 63 25 8 - 630
Total allowance on acquired loans 534 63 25 8 - 630
Ending balance, December 31, 2022 $ 14,085 $ 2,318 $ 599 $ 129 $ 808 $ 17,939
Commercial/Agricultural Real C&I/Agricultural Residential Consumer
Estate operating Mortgage Installment Unallocated Total
Year ended December 31, 2021 :
Allowance for Loan Losses:
Beginning balance, January 1, 2021 $ 10,271 $ 2,112 $ 1,041 $ 489 $ 906 $ 14,819
Charge-offs (51) - - (54) - (105)
Recoveries 14 110 9 41 - 174
Provision 2,120 (263) (532) (251) (132) 942
Total Allowance on originated loans 12,354 1,959 518 225 774 15,830
Other acquired loans:
Beginning balance, January 1, 2021 $ 1,684 $ 141 $ 335 $ 64 $ - $ 2,224
Charge-offs (200) (7) - (27) - (234)
Recoveries 14 13 4 4 - 35
Provision (642) (78) (209) (13) - (942)
Total Allowance on other acquired loans 856 69 130 28 - 1,083
Total Allowance on acquired loans 856 69 130 28 - 1,083
Ending balance, December 31, 2021 $ 13,210 $ 2,028 $ 648 $ 253 $ 774 $ 16,913
The specific credit allocation for the ALL is based on a regular analysis of all
originated loans that are considered impaired. In compliance with ASC 310-10,
the fair value of the loan is determined based on either the present value of
expected cash flows discounted at the loan's effective interest rate, the market
price of the loan, or, if the loan is collateral dependent, the fair value of
the underlying collateral less the expected cost of sale for such collateral. At
December 31, 2022 , the Company had evaluated loans for impairment with a
recorded investment of $26.8 million , consisting of $7.0 million PCI loans, with
a carrying amount of $6.9 million , $7.0 million of TDR loans, net of TDR PCI
loans and $12.9 million of substandard non-TDR non-PCI loans. The $26.8 million
total of loans individually evaluated for impairment includes $5.2 million of
performing TDR loans. At December 31, 2021 , the Company had evaluated loans for
impairment with a recorded investment of $31.7 million , consisting of $11.2
million PCI loans, with a carrying amount of $10.6 million , $9.9 million of TDR
loans, net of TDR PCI loans and $11.3 million of substandard non-TDR non-PCI
loans. The $31.7 million total of loans individually evaluated for impairment
includes $8.0 million of performing TDR loans.
38
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At December 31, 2022 , the allowance for loan losses was $17.9 million or 1.27%
of total loans compared to $16.9 million or 1.29% of our total loan portfolio at
December 31, 2021 . This level was based on our analysis of the loan portfolio
risk at each of December 31, 2022 , and December 31, 2021 , as discussed above.
Allowance for Loan Losses to Loans, net of SBA PPP Loans
December 31, December 31,
2022 2021
Loans, end of period $ 1,411,784 $ 1,310,963
SBA PPP loans, net of deferred fees - (8,457)
Loans, net of SBA PPP loans and deferred fees$ 1,411,784 $ 1,302,506 Allowance for loan losses$ 17,939 $ 16,913 ALL to loans, end of period 1.27 % 1.29 % All of the nine factors identified in theFFIEC's Interagency Policy Statement on the Allowance for Loan and Lease Losses are taken into account in determining the ALL. The impact of the factors in general categories are subject to change; thus, the allocations are management's estimate of the loan loss categories in which the probable and inherent loss has occurred as of the date of our assessment. Of the nine factors, we believe the following have the greatest impact on our customers' ability to repay loans and our ability to recover potential losses through collateral sales: (1) lending policies and procedures; (2) economic and business conditions; and (3) the value of the underlying collateral. As loan balances and estimated losses in a particular loan type decrease or increase and as the factors and resulting allocations are monitored by management, changes in the risk profile of the various parts of the loan portfolio may be reflected in the allocated allowance. The general component of our ALL-covers non-impaired loans and is based on historical loss experience adjusted for these and other qualitative factors. In addition, management continues to refine the ALL estimation process as new information becomes available. These refinements could also cause increases or decreases in the ALL. The unallocated portion of the ALL is intended to account for imprecision in the estimation process or relevant current information that may not have been considered in the process. Accruing loans 30-89 days or more past due increased$7.5 million atDecember 31, 2022 , compared toDecember 31, 2021 , largely related to increases in agricultural real estate and construction and land development loans 30-59 days delinquent.
Nonaccrual loans decreased modestly to
We believe our credit and underwriting policies continue to support more effective lending decisions by the Bank, which increases the likelihood of maintaining loan quality going forward. Refer to the "Risk Management and the Allowance for Loan Losses" section below for more information related to non-performing loans.
For the year ended
Certain external factors may result in higher future losses but are not readily determinable at this time, including, but not limited to: unemployment rates, increased taxes and continuing increased regulatory expectations with respect to ALL levels. As a result, our analysis may show a need to increase our ALL as a percentage of total loans and nonperforming loans for the near future. Loans charged-off are subject to periodic review and specific efforts are taken to achieve maximum recovery of principal, accrued interest and related expenses on the loans charged-off. COVID-19 Loan Modifications. In response to COVID-19, our banking regulator issued an Interagency Statement encouraging financial institutions to work prudently with borrowers who are or may be unable to meet their contractual obligations due to COVID-19. Additionally, Section 4013 of the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginningMarch 1, 2020 , until the earlier ofDecember 31, 2020 , or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President ofthe United States under the National Emergencies Act is terminated. Section 541 of the Consolidated Appropriations Act, 2021 extends this relief to the earlier ofJanuary 1, 2022 , or 60 days after the national emergency termination date. The President ofthe United States has announced that the national emergency declaration will end onMay 11, 2023 . The Interagency Statement was subsequently revised inApril 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act. In accordance with this guidance, the Bank instituted a plan to offer modifications to impacted borrowers. The Bank continues to work with borrowers as the pandemic persists and is requiring additional support in exchange for additional modifications beyond the original term. As ofDecember 31, 2022 , the Bank has$0.1 million of remaining residential mortgage COVID-19 related modifications under Section 4013 of the CARES Act. All 39 -------------------------------------------------------------------------------- previously deferred commercial loans have exited deferral status. AtDecember 31, 2021 , COVID-19 related modifications under Section 4013 of the CARES Act totaled$6.6 million , or 0.5% of gross loans. Nonperforming Loans,Potential Problem Loans and Foreclosed Properties . We employ early identification of non-accrual and problem loans in order to minimize the risk of loss. Non-performing loans are defined as either 90 days or more past due or non-accrual. The accrual of interest income 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 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.
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 recorded as interest income. Restructuring a
loan typically involves the granting of some concession to the borrower
involving a loan modification, such as modifying the payment schedule or making
interest rate changes. Restructured loans may involve loans that have 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. Restructured loans that
comply with the restructured terms are considered performing loans.
40
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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 ALL for the periods then ended:
December 31, 2022 and December 31, 2021 and
twelve months ended twelve months ended
Nonperforming assets:
Nonaccrual loans
Commercial real estate $ 5,736 $ 5,374
Agricultural real estate 2,742 3,490
Commercial and industrial ("C&I") 552 298
Agricultural operating 890 993
Residential mortgage 1,253 1,433
Consumer installment 31 77
Total nonaccrual loans 11,204 11,665
Accruing loans past due 90 days or more 246 160
Total nonperforming loans ("NPLs") 11,450 11,825
Other real estate owned 1,265 1,406
Other collateral owned 6 2
Total nonperforming assets ("NPAs") $ 12,721 $ 13,233
Troubled Debt Restructurings ("TDRs") $ 7,788 $ 12,523
Nonaccrual TDRs $ 2,617 $ 4,539
Average outstanding loan balance $ 1,351,052 $ 1,216,244
Loans, end of period $ 1,411,784 $ 1,310,963
Total assets, end of period $ 1,816,386 $ 1,739,628
ALL, at beginning of period $ 16,913 $ 17,043
Loans charged off:
Commercial/Agricultural real estate (205) (251)
C&I/Agricultural operating (346) (7)
Residential mortgage (68) -
Consumer installment (48) (81)
Total loans charged off (667) (339)
Recoveries of loans previously charged off:
Commercial/Agricultural real estate 102 28
C&I/Agricultural operating 36 123
Residential mortgage 29 13
Consumer installment 51 45
Total recoveries of loans previously charged off: 218 209
Net loans charged off ("NCOs") (449) (130)
Additions to ALL via provision for loan losses charged
to operations 1,475 -
ALL, at end of period $ 17,939 $ 16,913
Ratios:
ALL to NCOs (annualized) 3,995.32 % 13,010.00 %
NCOs (annualized) to average loans 0.03 % 0.01 %
ALL to total loans 1.27 % 1.29 %
NPLs to total loans 0.81 % 0.90 %
NPAs to total assets 0.70 % 0.76 %
41--------------------------------------------------------------------------------
The following table shows the detail of non-performing assets by originated and acquired portfolios.
Nonperforming Originated and Acquired Assets
December 31, 2022 December 31, 2021
Nonperforming assets:
Originated nonperforming assets:
Nonaccrual loans $ 8,947 $ 6,448
Accruing loans past due 90 days or more 213 63
Total originated nonperforming loans ("NPL") 9,160 6,511
Other real estate owned ("OREO") 1,041 -
Other collateral owned 6 2
Total originated nonperforming assets ("NPAs") $ 10,207 $ 6,513
Acquired nonperforming assets:
Nonaccrual loans $ 2,257 $ 5,217
Accruing loans past due 90 days or more 33 97
Total acquired nonperforming loans ("NPL") 2,290 5,314
Other real estate owned ("OREO") 224 1,406
Other collateral owned - -
Total acquired nonperforming assets ("NPAs") $ 2,514 $ 6,720
Total nonperforming assets ("NPAs") $ 12,721 $ 13,233
Loans, end of period $ 1,411,784 $ 1,310,963
Total assets, end of period $ 1,816,386 $ 1,739,628
Ratios:
Originated NPLs to total loans 0.65 % 0.50 %
Acquired NPLs to total loans 0.16 % 0.41 %
Originated NPAs to total assets 0.56 % 0.37 %
Acquired NPAs to total assets 0.14 % 0.39 %
Non-performing assets include non-performing loans, other real estate owned, and
other collateral owned. Our non-performing assets were $12.7 million , or 0.70%
of total assets, at December 31, 2022 , compared to $13.2 million , or 0.76% of
total assets, at December 31, 2021 . The decrease was largely due to a decrease
in acquired nonaccrual loans and sale of a former branch asset transferred to
OREO in 2021, partially offset by an increase in acquired nonaccrual loans and
the transfer to OREO of two former branch assets in 2022.
Nonaccrual Loans Roll Forward
Year Ended
December 31, 2022 December 31, 2021
Balance, beginning of period $ 11,665 $ 10,747
Additions 3,934 6,580
Charge offs (493) (288)
Transfers to OREO (92) (64)
Return to accrual status (168) (1,017)
Repurchase of government guaranteed loans 517
Payments received (4,140) (4,271)
Other, net (19) (22)
Balance, end of period $ 11,204 $ 11,665
42-------------------------------------------------------------------------------- The table below shows the totals of accruing troubled debt restructurings as ofDecember 31, 2022 , andDecember 31, 2021 . The decrease in troubled debt restructurings from 2021 to 2022 in dollars was largely due to one commercial real estate loan of$3.5 million that paid in full in 2022.
Troubled Debt Restructurings in Accrual Status
December 31, 2022 December 31, 2021
Number of Recorded Number of Recorded
Modifications Investment Modifications Investment
Troubled debt restructurings: Accrual Status
Commercial/Agricultural real estate 10 $ 1,336 11 $ 4,618
C&I/Agricultural Operating 5 960 3 649
Residential mortgage 36 2,875 36 2,681
Consumer installment - - 6 36
Total loans 51 $ 5,171 56 $ 7,984
The table below shows the totals of special mention, substandard and the total
of these, known as criticized loans as of December 31, 2022 , and 2021. The
increase in criticized loans in 2022 was largely due to the addition of two
loans in the second quarter of 2022. One was a commercial real estate loan
secured by a hotel, and the other was a fully secured C&I working capital loan.
This increase was partially offset by a reduction in originated accruing TDR
loans, nonperforming and other substandard loans.
December 31, 2022 December 31, 2021
Special mention loan balances $ 12,170 $ 4,536
Substandard loan balances 17,319 22,817
Criticized loans, end of period $ 29,489 $ 27,353
Accretable difference:
The table below shows scheduled accretion by year for the accretable difference
recognized due to fair value purchase accounting on recent whole bank
acquisitions. In addition, the table below shows $1.16 million of accretable
discount from purchased impaired loans with the original non-accretable discount
transferred to accretable discount. The accretion on this balance is scheduled
to be approximately $80 in 2023; however, large balance payoffs, as seen in
2022, 2021 and 2020, would accelerate this accretion.
Fiscal years ending December 31, Purchase Accounting Accretable Discount
2023 $ 363
2024 215
2025 180
2026 84
2027 77
Thereafter 751
Total $ 1,670
43-------------------------------------------------------------------------------- Mortgage Servicing Rights. The Company continues to sell loans to investors in the secondary market and generally retains the rights to service mortgage loans sold to others. MSR assets are initially measured at fair value by a third party; assessed at least quarterly for impairment; 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 in non-interest expense in the consolidated statement of operations. The valuation of MSRs and related amortization thereon are based on numerous factors, assumptions, and judgments, such as those for: changes in the mix of loans, interest rates, prepayment speeds, and default rates. Changes in 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. The fair market value of the Company's MSR asset increased to$5.7 million atDecember 31, 2022 , compared to$4.3 million atDecember 31, 2021 . Impairment reversals of$0.6 million were recorded in 2022 on the MSR impairment which reduced the impairment to zero atDecember 31, 2022 . This was partially offset by a reduction in the gross MSR balance of$0.5 million , which was due to amortization of$0.8 million and additions from originations of$0.3 million . In 2021, amortization was$1.6 million and additions from originations were$1.1 million for a reduction in the gross asset of$0.5 million The unpaid balances of one- to four-family residential real estate loans serviced for others as ofDecember 31, 2022 , andDecember 31, 2021 , were$523.7 million and$556.1 million , respectively. The fair market value of the Company's MSR asset as a percentage of its servicing portfolio atDecember 31, 2022 , andDecember 31, 2021 was 1.08% and 0.78%, respectively. Intangible Assets. We have intangible assets of$2.4 million atDecember 31, 2022 , compared to$3.9 million atDecember 31, 2021 . The intangible assets are comprised of core deposit intangible assets arising from various acquisitions from 2016 through 2019. Amortization of these intangibles was$1.4 million in 2022. 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$1,041 and$130 , respectively, which represent their estimated fair market values less the cost to sell. In 2022, a loss of$666 was recognized on the reclassification of these properties from fixed assets to foreclosed assets.
The bank closed on the sale of the property valued at
Deposits. Deposits are our largest source of funds. Total deposits increased to$1.42 billion atDecember 31, 2022 , from$1.39 billion atDecember 31, 2021 . The increase in deposits was largely due to the addition of$39.8 million of broker certificates in the third and fourth quarter. Based on current market conditions, the brokered CD markets are available to the Bank for supplemental additions. Growth in non-interest bearing demand deposits and money market accounts was partially offset by a$25.0 million reduction in interest bearing demand deposits as customers sought higher yields and a reduction in CD's of$17.5 million before the impact of brokered CD additions. The following is a summary of deposits by type atDecember 31, 2022 andDecember 31, 2021 , respectively: December 31, 2022 December 31, 2021 Non interest bearing demand deposits $ 284,722 $
276,631
Interest bearing demand deposits 371,210 396,231 Savings accounts 220,019 222,674 Money market accounts 323,435 288,985 Certificate accounts 225,334 203,014 Total deposits$ 1,424,720 $ 1,387,535 44
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December 31, 2022 December 31, 2021
Stated Stated
Maturity Amount Range of Stated Rates Maturity Amount Range of Stated Rates
Federal Home Loan Bank
advances (1), (2), (3), (4) 2022 $ - - % - % 2022 $ 11,000 2.45 % 2.45 %
2023 117,000 1.43 % 4.31 % 2023 20,000 1.43 % 1.44 %
2024 20,530 0.00 % 1.45 % 2024 20,530 0.00 % 1.45 %
2025 5,000 1.45 % 1.45 % 2025 5,000 1.45 % 1.45 %
2029 - - % - % 2029 42,500 1.00 % 1.13 %
2030 - - % - % 2030 12,500 0.52 % 0.86 %
Subtotal 142,530 111,530
Unamortized discount on
acquired notes - (3)
Federal Home Loan Bank
advances, net $ 142,530 $ 111,527
Other borrowings:
Senior notes (5) 2034 $ 23,250 3.00 % 6.75 % 2031 $ 28,856 3.00 % 3.50 %
Subordinated notes (6) 2027 $ - - % - % 2027 $ 15,000 6.75 % 6.75 %
2030 15,000 6.00 % 6.00 % 2030 15,000 6.00 % 6.00 %
2032 35,000 4.75 % 4.75 % 2032 - - % - %
$ 50,000 $ 30,000
Unamortized debt issuance
costs (841) (430)
Total other borrowings $ 72,409 $ 58,426
Totals $ 214,939 $ 169,953
(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 pledged
balances of $984,878 and $861,900 at December 31, 2022 and 2021, respectively.
At December 31, 2022 , the Bank's available and unused portion under the FHLB
borrowing arrangement was approximately $256,773 compared to $204,271 as of
December 31, 2021 .
(2) Maximum month-end borrowed amounts outstanding under this borrowing
agreement were
(3) The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as ofDecember 31, 2022 andDecember 31, 2021 were 4.09% and 2.45%, respectively. (4) AtDecember 31, 2022 , no FHLB term notes can be called by the FHLB. AtDecember 31, 2021 , FHLB term notes totaling$55,000 could be called by the FHLB on a quarterly basis, and if not called, would mature at various dates in 2029 and 2030. These notes were called by the FHLB in 2022.
(5) Senior notes, entered into by the Company in
(a) A term note, which was subsequently refinanced inMarch 2022 , requiring quarterly interest-only payments throughMarch 2025 , and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.
(b) A
(6) Subordinated notes resulted from the following:
(a) The Company's private sale inAugust 2017 , which bore a fixed interest rate of 6.75% for five years. InAugust 2022 , they converted to a three-month LIBOR plus 4.90% rate, and the interest rate will reset quarterly thereafter. The note was 45 -------------------------------------------------------------------------------- callable by the Bank when, and anytime after, the floating rate is initially set. Interest-only payments were due quarterly. The Company sent the required redemption notice to the note holders inJune 2022 , and this subordinated note was called and repaid in full onAugust 10, 2022 . (b) The Company's Subordinated Note Purchase Agreement entered into with certain purchasers inAugust 2020 , which bears a fixed interest rate of 6.00% for five years. InSeptember 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. (c) The Company's Subordinated Note Purchase Agreement entered into with certain purchasers inMarch 2022 , which bears a fixed interest rate of 4.75% for five years. InApril 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.
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 increased$31.0 million to$142.5 million as ofDecember 31, 2022 , compared to$111.5 million as ofDecember 31, 2021 . The Bank terminated$15.0 million of advances in the quarter endedMarch 31, 2022 , incurring a$0.002 million prepayment penalty, as we modestly reduced excess liquidity.$27.5 million of FHLB advances were called by the FHLB in each of the quarters endedJune 30, 2022 , andSeptember 30, 2022 . The Bank added a$5 million advance maturing in the second quarter of 2023. The Bank had$12 million of FHLB advances maturing overnight as ofDecember 31, 2022 , and an additional$95.0 million maturing in January of 2023. The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with theFederal 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 ofDecember 31, 2022 , is approximately$256.8 million . The Bank maintains three unsecured federal funds purchased lines of credit with its banking partners which total$75.0 million . 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 ofDecember 31, 2022 , orDecember 31, 2021 . AtDecember 31, 2022 and 2021, the Bank had the ability to borrow$4.1 million and$0.8 from theFederal Reserve Bank of Minneapolis . The ability to borrow is based on mortgage-backed securities pledged with a carrying value of$5.4 million and$0.9 million as ofDecember 31, 2022 and 2021, respectively. There were noFederal Reserve borrowings outstanding as ofDecember 31, 2022 and 2021. Stockholders' Equity. Total stockholders' equity was$167.1 million atDecember 30, 2022 , compared to$170.9 million atDecember 31, 2021 . The increases in stockholders' equity included the Company's net income of$17.8 million and restricted stock amortization of$0.9 million . These increases were more than offset by: (1) the repurchase of approximately 129 thousand shares of its common stock, which reduced equity by$1.8 million ; (2) the payment of the annual cash dividend, paid inFebruary 2022 , to common stockholders at$0.26 per share or$2.7 million ; and (3) an increase in the unrealized loss on available for sale securities of$17.8 million . InNovember 2020 , the Board of Directors authorized a 5% or 557 thousand share repurchase program. The Company repurchased all remaining authorized shares of the Company's stock under theNovember 2020 share repurchase program not previously repurchased in 2020 during the year endedDecember 31, 2021 . OnJuly 23, 2021 , the Board of Directors adopted a new share repurchase program. Under this new share repurchase program, approximately 129 thousand shares were repurchased during the year endedDecember 31, 2022 . The Company is authorized to repurchase an additional 243 thousand shares under thisJuly 2021 share repurchase program. OnAugust 16, 2022 , the Inflation Reduction Act was signed into law, which includes a 1% excise tax on stock repurchases. We do not expect the 1% excise tax on stock repurchases under the Inflation Reduction Act will have a material impact to our financial statements for the fiscal years afterDecember 31, 2022 .
Liquidity and Asset / Liability Management. Liquidity management refers to our ability to ensure cash is available in a timely manner to meet loan demand, depositors' needs, and meet other financial obligations as they become due without undue
46
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cost, risk, or disruption to normal operating activities. We manage and monitor
our short-term and long-term liquidity positions and needs through a regular
review of maturity profiles, funding sources, and loan and deposit forecasts to
minimize funding risk. A key metric we monitor is our liquidity ratio,
calculated as cash and securities portfolio divided by total assets. At December
31, 2022 , our liquidity ratio decreased to 13.0% percent from 17.0% at December
31, 2021 . This was largely due to a reduction in interest-bearing cash.
Our primary sources of funds are deposits, amortization, prepayments and
maturities on the investment and loan portfolios and funds provided from
operations. We use our sources of funds primarily to meet ongoing commitments,
to pay maturing certificates of deposit and savings withdrawals, and to fund
loan commitments. While scheduled payments from the amortization of loans and
maturing short-term investments are relatively predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions and competition. Although $128.5 million of our
$225.3 million (57%) 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 2022 and may remain at lower than historical levels in 2023
based on management's current pricing strategy, which reflects the Bank's
current strong on-balance sheet liquidity ratio. 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. Based on interest rates on scheduled maturities and lower current
market interest rates, this should also improve our cost of funds.
We maintain access to additional sources of funds including FHLB borrowings and
lines of credit with the Federal Reserve Bank , and our correspondent banks. We
utilize FHLB borrowings to leverage our capital base, to provide funds for our
lending and investment activities, and to manage our interest rate risk. Our
borrowing arrangement with the FHLB calls for pledging certain qualified real
estate, commercial and industrial loans, and borrowing up to 75% of the value of
those loans, not to exceed 35% of the Bank's total assets. Currently, we have
approximately $256.8 million available to borrow under this arrangement,
supported by loan collateral as of December 31, 2022 . At December 31, 2021 , the
Bank had no borrowing capacity under the Federal Reserve SBA PPP Liquidity
Facility, as the program expired on July 30, 2021 . We also had borrowing
capacity of $4.1 million at the Federal Reserve Bank and $75 million of
uncommitted federal funds purchased lines with correspondent banks as part of
our contingency funding plan. In addition, the Company maintains 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, 2022 , we believe that the Bank could
access this market, which provides an additional potential source of liquidity
as evidenced by third and fourth quarter 2022 new brokered deposits. 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.
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. Management believes that our liquidity is
adequate, and to management's knowledge, there are no known events or
uncertainties that will result or are likely to reasonably result in a material
increase or decrease in our liquidity.
Off-Balance Sheet Arrangements. In the ordinary course of business, the Bank has
entered into off-balance sheet financial instruments, issued to meet customer
financial needs. Such financial instruments are recorded in the financial
statements when they become payable. 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, 2022 , the Company had approximately $243.0 million in unused loan
commitments, compared to approximately $271.0 million in unused commitments as
of December 31, 2021 . In addition, there are $4.7 million of commitments for
contributions of capital to an SBIC and an investment company at December 31,
2022 . These commitments totaled $5.0 million at December 31, 2021 . See Note 11,
"Commitments and Contingencies"; "Financial Instruments with Off-Balance Sheet
Risk" 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.
47
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Capital Resources. As of the dates indicated below, our Tier 1 and Risk-based
capital levels exceeded levels necessary to be considered "Well Capitalized"
under Prompt Corrective Action provisions for the Bank.
Below are the amounts and ratios for our capital levels as of the dates noted
below for the Bank.
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2022
Total capital (to risk
weighted assets) $ 221,361 14.2 % $ 124,971 > = 8.0 % $ 156,213 > = 10.0 %
Tier 1 capital (to risk
weighted assets) 203,422 13.0 % 93,728 > = 6.0 % 124,971 > = 8.0 %
Common equity tier 1
capital (to risk weighted
assets) 203,422 13.0 % 70,296 > = 4.5 % 101,539 > = 6.5 %
Tier 1 leverage ratio (to
adjusted total assets) 203,422 11.5 % 70,610 > = 4.0 % 88,262 > = 5.0 %
As of December 31, 2021
Total capital (to risk
weighted assets) $ 187,783 13.4 % $ 111,694 > = 8.0 % $ 139,618 > = 10.0 %
Tier 1 capital (to risk
weighted assets) 170,870 12.2 % 83,771 > = 6.0 % 111,694 > = 8.0 %
Common equity tier 1
capital (to risk weighted
assets) 170,870 12.2 % 62,828 > = 4.5 % 90,752 > = 6.5 %
Tier 1 leverage ratio (to
adjusted total assets) 170,870 10.0 % 68,323 > = 4.0 % 85,403 > = 5.0 %
At
Below are the amounts and ratios for our capital levels as of the dates noted
below for the Company.
For Capital Adequacy
Actual Purposes
Amount Ratio Amount Ratio
As of December 31, 2022
Total capital (to risk
weighted assets) $ 218,737 14.0 % $ 124,971 > = 8.0 %
Tier 1 capital (to risk
weighted assets) 150,798 9.7 % 93,728 > = 6.0 %
Common equity tier 1 capital
(to risk weighted assets) 150,798 9.7 % 70,296 > = 4.5 %
Tier 1 leverage ratio (to
adjusted total assets) 150,798 8.5 % 70,610 > = 4.0 %
As of December 31, 2021
Total capital (to risk
weighted assets) $ 182,242 13.1 % $ 111,694 > = 8.0 %
Tier 1 capital (to risk
weighted assets) 135,329 9.7 % 83,771 > = 6.0 %
Common equity tier 1 capital
(to risk weighted assets) 135,329 9.7 % 62,828 > = 4.5 %
Tier 1 leverage ratio (to
adjusted total assets) 135,329 7.9 % 68,323 > = 4.0 %
48--------------------------------------------------------------------------------
Selected Quarterly Financial Data
The following is selected financial data summarizing the results of operations for each quarter as of the periods indicated below:
Year endedDecember 31, 2022 : September 30, December 31, March 31, 2022 June 30, 2022 2022 2022 Interest income$ 15,376 $ 16,703 $ 17,959 $ 19,359 Interest expense 2,209 2,436 3,502 4,881 Net interest income 13,167 14,267 14,457 14,478 Provision for loan losses - 400 375 700 Net interest income after provision for loan losses 13,167 13,867 14,082 13,778 Non-interest income 2,713 2,372 2,472 2,873 Non-interest expense 9,668 10,462 11,277 10,336 Income before income tax expense 6,212 5,777 5,277 6,315 Provision for income tax 1,506 1,411 1,284 1,619 Net income $ 4,706$ 4,366 $ 3,993 $ 4,696 Basic earnings per share $ 0.45 $ 0.41$ 0.38 $ 0.45 Diluted earnings per share $ 0.45 $ 0.41$ 0.38 $ 0.45 Dividends paid $ 0.26 $ - $ - $ - Year endedDecember 31, 2021 : September 30, December 31, March 31, 2021 June 30, 2021 2021 2021 Interest income$ 15,620 $ 15,478 $ 16,175 $ 16,762 Interest expense 2,856 2,647 2,487 2,378 Net interest income 12,764 12,831 13,688 14,384 Provision for loan losses - - - - Net interest income after provision for loan losses 12,764 12,831 13,688 14,384 Non-interest income 4,176 3,793 3,448 4,407 Non-interest expense 9,489 10,198 10,320 10,525 Income before income tax expense 7,451 6,426 6,816 8,266 Provision for income tax 1,945 1,720 1,819 2,209 Net income $ 5,506$ 4,706 $ 4,997 $ 6,057 Basic earnings per share $ 0.50 $ 0.44$ 0.47 $ 0.58 Diluted earnings per share $ 0.50 $ 0.44$ 0.47 $ 0.58 Dividends paid $ 0.23 $ - $ - $ -
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