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YoY shift: Lean +
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.17pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.30pp
Lean +
Net-tone change vs last year's 10-K.
MD&A
+0.04pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+2
adverse+2
litigation+2
failures+1
negatively+1
Positive rising
advances+3
innovation+3
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
terminated+1
Positive rising
positive+1
MD&A (Item 7)
11,248 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion sets forth management’s discussion and analysis of our results of operations for the year ended December 31, 2025 and December 31, 2024, and our financial position as of December 31, 2025 and December 31, 2024, 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 ended December 31, 2025 and December 31, 2024.
The risks described below are not the only risks we face. Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our future business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In such cases, the trading price of our common stock could decline.
RISKS RELATED TO ECONOMIC CONDITIONS
Our business may be adversely affected by conditions in the financial markets and economic conditions generally. We operate primarily in the Wisconsin and Minnesota markets. As a result, our financial condition, results of operations and cash flows are significantly impacted by changes in the economic conditions in those areas. In addition, our business is susceptible to broader economic trends within the United States economy. Economic conditions have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans, the value of the collateral securing loans and the stability of our deposit funding sources. A significant decline in general economic conditions caused by inflation, recession, trade policies, tariffs, unemployment, changes in securities markets, rate cuts by the Federal Reserve, changes in housing market prices, geopolitical uncertainties, natural disasters, pandemics and election outcomes or other factors could impact economic conditions and, in turn, could have a material adverse effect on our financial condition and results of operations.
Inflation may have an adverse impact on our business and on our customers. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. The annual inflation rate as of December 2025 was 2.7% measured by consumer price index. Inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us or the willingness of businesses to take loans with us.
Geopolitical tensions, including current or anticipated impact of military conflicts , could adversely affect general economic industry conditions. Geopolitical tensions may affect our earnings. Adverse economic conditions may result from a variety of factors including domestic and global economic and political developments, including civil unrest, terrorism, foreign investment restrictions, various political or military action, such as the armed conflict between Ukraine and Russia and corresponding sanctions imposed by the United States and other countries or the conflict in the Middle East and the surrounding areas, geopolitical events (including China-Taiwan and U.S.-China relations), and new or evolving legal and regulatory requirements on business investment, hiring, migration, labor supply and global supply chains.
We are subject to higher lending risks with respect to our commercial and agricultural banking activities which could adversely affect our financial condition and results of operations. Our loans include commercial and agricultural loans, which include loans secured by real estate as well as loans secured by personal property. Commercial real estate lending, including agricultural loans, 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. Agricultural operating loans carry significant risks as they may involve larger balances concentrated with a single borrower or group of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan for which an operating loan is utilized. Farming operations may be affected by factors outside of the borrower’s control, including adverse weather conditions, such as drought, hail or floods that can severely limit crop yields and in market prices for agricultural products. Furthermore, weather events such as fire, tornado, or
other events could impact the markets that we serve and adversely impact our customers, such as hindering our borrowers’ ability to timely repay their loans and diminish the value of the collateral held by us. Although the Bank manages lending risks through its underwriting and credit administration policies, no assurance can be given that such risks will not materialize, in which event, our financial condition, results of operations, cash flows and business prospects could be materially adversely affected.
Future pandemics could materially affect our results of operations, financial position and/or liquidity . Future pandemics could present, the following risks, among others: inflation; increased unemployment levels; disruptions in global supply chains and financial markets; adverse legislative or regulatory actions; operational disruptions; increased general and administrative expenses; financial market disruption; and an economic downturn. These risks could materially and adversely impact our results of operations, financial position and/or liquidity.
RISKS RELATED TO OUR BUSINESS AND OPERATIONS
We rely on network and information systems and other technologies, and, as a result, we are subject to various cybersecurity risks. Cybersecurity refers to the combination of technologies, processes and procedures established to protect information technology systems and data from unauthorized access, attack, or damage. Our business involves the storage and transmission of customers’ personal information. While we have internal policies and procedures designed to prevent or limit the effect of a failure, interruption or security breach of our information systems, as well as contracts and service agreements with applicable outside vendors, we cannot be assured that any such failures, interruptions or security breaches will not occur or, if they do, that they will be addressed adequately. Any failure or interruption of these systems could result in or in our loan, deposit, general ledger and other systems. We rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks. disclosure of sensitive or confidential client or customer information, whether through a of our computer systems or otherwise, could our business. Although we have implemented measures to prevent security , cyber and other security , our facilities and systems, and those of third party service providers, may be to security , acts of , computer viruses, or data, programming and/or human , or other similar events that could have a material effect on our business. Additionally, emerging technologies, including the use of automation, artificial intelligence and robotics, introduces new information security risks and exposure for us and for our third-party service providers, and, additionally, such technologies may be used to identify . Such technologies have also resulted in a substantial increase in the volume and sophistication of financial and other institutions, including the use of generative artificial intelligence to conduct more sophisticated social engineering attacks.
Although, to date, we have not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of some of our business operations, the continued uncertain global economic environment, the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, nation-state supported actors, activists and other external parties. Additionally, the techniques used by cyber criminals change frequently, may not be recognized until launched (or may evade detection for considerable time), can be initiated from a variety of sources. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security . Our ability to maintain, timely update and replace systems can become more as the speed, frequency, volume, interconnectivity and complexity of the information on these systems increases. Furthermore, the storage and transmission of such data is regulated at the federal and state level. Increasing privacy information security laws and regulation changes, and compliance therewith, may result in cost increases due to system changes and the development of new administrative processes. If we to comply with applicable laws and regulations or experience a data security involving the , or other disclosure of confidential information, whether by us or our vendors, our reputation could be , possibly resulting in future business, and we could be subject to , , administrative orders and other legal risks as a result of a or non-compliance. Additionally risks could arise in connection with any , or perceived , to timely or sufficiently update or expand our privacy notices and policies to be fully compliant with quickly evolving state privacy requirements, and any to sufficiently respond to, or respond in a sufficiently timely manner to, consumer rights and other requests exercised under such state privacy laws, in each case to the extent they are applicable to us.
The impact of larger or similar-sized financial institutions encountering financial difficulties may adversely affect the Company's business, earnings and financial condition.
The Company is exposed to the risk that when a peer financial institution experiences financial difficulties, there could be an adverse impact on the regional banking industry and the business environment in which it operates. The bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California during the first and second quarters of 2023 have caused a degree of concern and uncertainty in the investor community and among bank customers generally. Uncertainty may be compounded by the reach and depth of media attention and its ability to disseminate concerns about these types of events. In addition, institutions larger than the Company may have the advantage of being perceived by the
public as more secure in times of financial uncertainty as evidenced by the migration of deposits to large banks in response to such banks’ failures. This public uncertainty and concern could potentially affect the Bank despite its relatively high percentage of deposits (79% as of December 31, 2025) that are either insured or collateralized and its balance sheet liquidity and collateralized borrowing capacity being well in excess of the uninsured deposit balances. While the Company does not believe that the circumstances of these three banks' failures are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the banking industry, including the Company. The Company will continue to monitor any future potential bank failures and volatility within the banking industry generally, together with any responsive measures taken by the banking regulators to mitigate or manage potential in the banking industry.
We are subject to interest rate risk. Through our banking subsidiary, the Bank, our profitability depends in large part on our net interest income, which is the difference between interest earned from interest earning assets, such as loans and mortgage-backed securities, and interest paid on interest bearing liabilities, such as deposits and borrowings. Our net interest income has been, and will continue to be, adversely affected if market interest rates change such that the interest we pay on deposits and borrowings increase faster than the interest earned on loans and investments. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time due to many factors that are beyond our control, including but not limited to: general economic conditions and government policy decisions, especially policies of the Federal Reserve Bank. Accordingly, our results of operations, like those of other financial institutions, are, and have been, impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk. In particular, reduced interest rates negatively impact our results of operations.
We are subject to lending risk. There are inherent risks associated with our lending activities. These risks include the impact of changes in interest rates and changes in the economic conditions in the markets we serve, as well as those across the United States. Our exposure to lending risk is managed through the use of consistent underwriting standards, and we avoid highly leveraged transactions as well as excessive industry and other concentrations, but there can be no assurance that our risk mitigation measures will be effective in avoiding undue credit risk. An increase in interest rates or weakening economic conditions (such as high levels of unemployment) could further adversely impact the ability of borrowers to repay outstanding loans, or could substantially weaken the value of collateral securing those loans. Downward pressure on real estate values could increase the potential for problem loans and thus have a direct impact on our consolidated results of operations. In addition, we may purchase real estate, or we may on and take title to real estate. Although we exercise prudent due diligence when making loans, we could be subject to environmental liabilities with respect to these properties.
Changes in the fair value or ratings downgrades of our securities may reduce our stockholders’ equity, net earnings, or regulatory capital ratios. At December 31, 2025, $134.1 million of our securities, were classified as available-for-sale (AFS) and $80.2 million were classified as held to maturity (“HTM”). The estimated fair value of our AFS securities portfolio may increase or decrease depending on market conditions. Our AFS securities portfolio is comprised of fixed-rate, and to a lesser extent, floating rate securities. We increase or decrease stockholders’ equity by the amount of the change in unrealized gain or loss (the difference between the estimated fair value and amortized cost) of our AFS securities portfolio, net of the related tax benefit or provision, under the category of accumulated other comprehensive income/loss. Therefore, a decline in the estimated fair value of this portfolio due to interest rate changes will result in a decline in our reported stockholders’ equity, as well as our book value per common share and tangible book value per common share. This decrease will occur even though the securities are not sold. In the case of debt securities, if these securities are never sold, the decrease will be recovered over the life of the securities.
We conduct a periodic review and evaluation of our securities portfolio to determine if the decline in the fair value of any security below its cost basis is due to credit impairment. Factors which we consider in our analysis include, but are not limited to, the severity and duration of the decline in fair value of the security, the financial condition and near-term prospects of the issuer, whether the decline appears to be related to issuer conditions or general market or industry conditions, our intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery in fair value and the likelihood of any near-term fair value recovery. We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience. If we deem such decline to be due to credit impairment, an allowance for credit losses(“ACL”) will be established.
The capital that we are required to maintain for regulatory purposes is impacted by, among other factors, the securities ratings on our portfolio. Therefore, ratings downgrades on our securities may also have a material adverse effect on our risk-based regulatory capital levels.
Our allowance for credit losses - loans may be insufficient. To address risks inherent in our loan portfolio, we maintain an allowance for credit losses that represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining life of the assets. Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and
modifications, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates. The Company estimates the appropriate level of allowance for credit losses by evaluating loans collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that a loan does not share similar risk characteristics with other loans. In evaluating our impaired loans, we assess repayment expectations and determine collateral values based on all information that is available to us. However, we must often make subjective decisions based on our assumption about the creditworthiness of the borrowers and the values of collateral securing these loans.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of our control, may require an increase in our allowance for credit losses. In addition, bank regulatory agencies periodically examine our allowance for credit losses and may require an increase in the allowance or the recognition of further loan charge-offs, based on judgments different from those of our management.
If charge-offs in future periods exceed our allowance for credit losses, we will need to take additional credit loss provisions to increase our allowance for credit losses. Any additional provision for credit losses will reduce our net income or increase our net loss, which could have a direct material adverse effect on our financial condition and results of operations.
Competitive pressure from others in the financial services industry, including non-depository institutions, may affect our results. Competition in the banking and financial services industry is intense. Our profitability depends upon our continued ability to compete in our primary market area. We face strong competition in originating loans, in seeking deposits and in offering other banking services. We compete with commercial banks, trust companies, mortgage banking firms, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms. Our market area is also served by commercial banks and savings associations that are substantially larger than us in terms of deposits and loans, have greater human and financial resources, and may offer certain services that we do not or cannot provide. This competitive climate can make it difficult to establish, maintain and retain relationships with new and existing customers and can lower the rate we are able to charge on loans, increase the rates we must offer on deposits, and affect our charges for other services. Those factors can, in turn, adversely affect our results of operations and profitability. Credit union competitors from competitive , including the credit union exemption from paying federal income tax and can, therefore, more aggressively price many products and services. The impact of the existing regulatory framework and any future changes to it could affect our ability to compete with these institutions, which could have a material effect on our results of operations. We expect that competition in the financial services industry will remain intense, with new competitors in the financial services industry continuing to emerge. For example, technological and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products. Actions by competitors could put pressure on the pricing of our products and services. In addition, advocacy by non-banking competitors for exemptions from regulatory requirements could significantly traditional financial institutions. The rise in technological in the financial services industry has led to simpler for consumers to shop for higher deposit interest rates at banks across the country, which may offer higher rates because they have few or no physical branches and open deposit accounts electronically. Further, in 2025, the United States passed the Guiding and Establishing National for U.S. Stablecoins Act (the “GENIUS Act”), which provides a regulatory framework for the issuance and adoption of stablecoins in the United States. The passage of the GENIUS Act may result in increased competition from issuers of stablecoins and providers of related technology, as well as non-bank competitors and financial institutions that offer to hold stablecoin reserve assets or custody stablecoins.
Customers may decide to use emerging financial technologies such as cryptocurrencies rather than banks to complete their financial transactions, which could result in a loss of income to us. Technology and other changes are allowing customers to complete financial transactions that historically have involved banks at one or both ends of the transaction. For example, customers can now pay bills and transfer funds directly without going through a bank. These advances have also allowed financial institutions and other companies to provide electronic and internet-based financial solutions. The process of eliminating banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits. Additionally, customers may decide to remove money from accounts with us in favor of other banks or other types of cash management products, such as emerging financial technologies, including digital wallets, non-fungible tokens and digital currencies and cryptocurrencies. Competition from payment and exchange services in ways that were not previously possible may adversely affect our results of operations.
We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance. We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being
an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and, therefore, our operating results may be materially adversely affected. Additionally, we are subject to reputational risk associated with environmental, social and governance issues – including different perspectives on the meaning of these issues. Such differing perspectives may expose us to increased scrutiny and criticism. In response to ESG developments (including, in particular DEI initiatives), there are increasing instances of “anti-ESG” legislation and anti-DEI executive orders, adverse media coverage, regulation, and litigation that could have unintended impacts on ordinary banking operations and increase litigation or reputational risk related to actions we choose to take and impact the results of our operations.
Maintaining or increasing our market share may depend on lowering prices and market acceptance of new products and services. Our success depends, in part, on our ability to adapt our products and services to evolving industry standards and customer demands. We face increasing pressure to provide products and services at lower prices, which can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet and mobile banking services, could require us to make substantial expenditures to modify or adapt our existing products and services. Also, these and other capital investments in our business may not produce expected growth in earnings anticipated at the time of the expenditure. We may not be successful in introducing new products and services, achieving market acceptance of our products and services, or developing and maintaining loyal customers, which in turn, could adversely affect our results of operations and profitability.
We could experience an unexpectedinability to obtain needed liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. We seek to ensure our funding needs are met by maintaining an appropriate level of liquidity through asset/liability management. If we become unable to obtain funds when needed, it could have a material adverse effect on our business and, in turn, our consolidated financial condition and results of operations. Moreover, it could limit our ability to take advantage of what we believe to be good market opportunities for expanding our loan portfolio.
Future growth, operating results or regulatory requirements may require us to raise additional capital but that capital may not be available. We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. To the extent our future operating results erode capital or we elect to expand through loan growth, we may be required to raise additional capital.
Furthermore, our strategy includes growth through acquisition. Such expansion may also require us to raise additional capital which will depend on conditions in the capital markets, which are outside of our control, and on our financial performance. Accordingly, we cannot be assured of our ability to raise capital when needed or on favorable terms. If we cannot raise additional capital when needed or if we are subject to material unfavorable terms for such capital, we may be subject to increased regulatory supervision and the imposition of restrictions on our growth and business. These actions could negatively impact our ability to operate or further expand our operations and may result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our consolidated financial condition and results of operations.
We may not be able to attract or retain key people. Our success depends, in part, on our ability to attract and retain key people. We depend on the talents and leadership of our executive team, including Stephen M. Bianchi, our Chief Executive Officer, and James S. Broucek, our Chief Financial Officer. Competition for the best people in most activities engaged in by us can be intense, and we may not be able to hire people or retain them. The unexpectedloss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our local markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel.
We continually encounter technological change. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven innovations (such as the use of artificial intelligence and machine learning), products and services as well as evolving industry standards. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Our success in the competitive environment in which we operate requires investment of capital and human resources in innovation, particularly in light of the current “FinTech” environment, in which the financial services industry is undergoing rapid technological changes and financial institutions are investing significantly in evaluating new technologies, such as artificial intelligence, machine learning, blockchain and other distributed ledger technologies, and developing potentially industry-changing new products, services and industry standards. Our investment is directed at generating new products and services, and adapting existing products and services to the evolving standards and demands of the marketplace. Among other things, investing in helps us maintain a mix of products and services that keeps pace with our competitors and acceptable margins. However, many
of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes. As a bank, we are susceptible to fraudulent activity that may be committed against us or our customers which may result in financial losses or increased costs to us or our customers, disclosure or misuse of our information or our customers' information, misappropriation of assets, privacy breachesagainst our customers, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other acts. Consistent with industry trends, we have also experienced an increase in attempted electronic activity in recent periods. Given such increase in electronic activity and the growing level of use of electronic, internet-based and networked systems to conduct business directly or indirectly with our clients, certain may not be avoidable regardless of the preventative and detection systems in place. Nationally, reported of and other financial have increased. While we have policies and procedures designed to prevent such , there can be no assurance that such will not occur.
Our internal controls and procedures may fail or be circumvented. Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable assurances that the objectives of the system are met. Management believes that our internal controls over financial reporting are currently effective. While management will continue to assess our controls and procedures and take action to remediate any future issues, there can be no guarantee of the effectiveness of these controls and procedures on an ongoing basis. Any (a) failure or circumvention of our controls and procedures, (b) failure to adequately address any internal control deficiencies, or (c) failure to comply with regulations related to controls and procedures could have a material effect on our business, consolidated financial condition and results of operations. See Item 9A “Controls and Procedures” for further discussion of our internal controls.
Our growth strategy includes selectively acquiring businesses through acquisitions of other banks, and our ability to consummate these acquisitions on economically advantageous terms acceptable to us in the future is unknown. Our growth strategy includes acquisitions of other banks that serve customers or markets we find desirable. The market for acquisitions remains highly competitive, and we may be unable to find satisfactory acquisition candidates in the future that fit our acquisition and growth strategy. This competition could increase prices for potential acquisitions that we believe are attractive. Any such acquisitions could be funded through cash from operations, the issuance of equity and/or the incurrence of additional indebtedness, which amount may be material, or a combination thereof. Any acquisition could be dilutive to our earnings and stockholders’ equity per share of our common stock. Also, acquisitions are subject to various regulatory approvals. Regulatory approval is required for acquisitions we seek to consummate. Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill and intangibles when considering acquisition and expansion proposals. Additionally, as the Company grows through acquisitions and pursues new initiatives that our operations and cost structure, the Company is also expanding and its information technologies, resulting in a larger technological presence, utilization of “cloud” computing services, and corresponding exposure to cybersecurity risk. Certain new technologies, such as use of artificial intelligence, present new and significant cybersecurity safety risks that must be analyzed and addressed before implementation. If we to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly to such risks. If we are to find suitable acquisition candidates, this component of our growth strategy may be .
Acquisition and expansion activities may disrupt our business, dilute existing stockholders and adversely affect our operating results. We seek to expand through acquisition and are evaluating potential acquisitions and expansion opportunities in the normal course of our business. We cannot assure you that we will be able to adequately or profitably manage the ongoing integration of any future acquisitions. Acquiring other banks or financial service companies, as well as other geographic and product expansion activities, involve various risks including:
• risks of unknown or contingent liabilities;
• unanticipated costs and delays;
• risks that acquired new businesses do not perform consistent with our growth and profitability expectations;
• risks of entering new markets or product areas where we have limited experience;
• risks that growth will strain our infrastructure, staff, internal controls and management, which may require additional personnel, time and expenditures;
• exposure to potential asset quality issues with acquired institutions;
• difficulties, expenses and delays of integrating the operations and personnel of acquired institutions, and start-up delays and costs of other expansion activities;
• potential disruptions to our business;
• possible loss of key employees and customers of acquired institutions;
• potential short-term decreases in profitability; and
• diversion of our management’s time and attention from our existing operations and business.
Our failure to execute our acquisition growth strategy could adversely affect our business, results of operations, financial condition and future prospects.
Our ability to pay dividends depends primarily on dividends from our banking subsidiary, the Bank, which is subject to regulatory and other limitations. We are a bank holding company and our operations are conducted primarily by our banking subsidiary, the Bank. Since we receive substantially all of our revenue from dividends from the Bank, our ability to pay dividends on our common stock depends on our receipt of dividends from the Bank.
The Company is a legal entity separate and distinct from the Bank. As a bank holding company, the Company is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations. Federal bank regulators are authorized to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In particular, federal bank regulators have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.
The ability of the Bank to pay dividends to us is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. The Bank may not be able to generate adequate cash flow to pay us dividends in the future. The Company’s ability to pay dividends is also subject to the terms of its Subordinated Note Purchase Agreement dated March 11, 2022 and Business Note Agreements dated June 26, 2019 and October 30, 2025, each of which prohibits the Company from declaring or paying dividends while an event of default has occurred and is continuing under each respective agreement. The Company has pledged 100% of the Bank’s stock as collateral for the loan and credit facilities provided for by the Business Note Agreements. The inability to receive dividends from the Bank could have an adverse effect on our business and financial condition.
Furthermore, holders of our common stock are only entitled to receive the dividends as our Board of Directors may declare out of funds legally available for such payments. Although we have historically paid cash dividends on our common stock, we are not required to do so and our Board of Directors could reduce or eliminate our common stock dividend in the future. This could adversely affect the market price of our common stock.
Our shares of common stock are thinly traded and our stock price may be more volatile. Because our common stock is thinly traded, its market price may fluctuate significantly more than the stock market in general or the stock prices of similar companies, which are exchanged, listed or quoted on the NASDAQ Stock Market. There are approximately 9.2 million shares of our common stock held by nonaffiliates as of March 5, 2026. Thus, our common stock will be less liquid than the stock of companies with broader public ownership, and as a result, the trading prices for our shares of common stock may be more volatile, which may make it difficult for investors to resell shares at the volume, prices and times desired. Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price of our stock than would be the case if our public float were larger. In addition, on June 29, 2025, the FTSE selected Citizens Community Bancorp, Inc. for inclusion in the Russell 3000® Index as part of the 2025 annual reconstitution. If our common stock does not continue to remain on the Russell 3000® Index and is removed because it does not meet the criteria for continued inclusion in such index, index funds, institutional investors, or other holders attempting to track the composition of that index may be required to sell our common stock, which would impact the price and the frequency at which it trades.
Climate change manifesting as physical or transition risks could adversely affect our operations, businesses, and customers. There is an increasing concern over the risks of climate change and related environmental sustainability matters. The physical risks of climate change include discrete events, such as flooding and wildfires, and longer-term shifts in climate patterns, such as extreme heat, and more frequent and prolongeddrought. Under medium or longer-term scenarios, such events, if uninterrupted or unaddressed, could disrupt our operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility. Additionally, transitioning to a low-carbon economy may entail extensive policy, legal, technology and market initiatives. Transition risks, including changes in consumer preferences and additional regulatory requirements or supervisory expectations or taxes, could increase our expenses and undermine our strategies. In addition, our reputation and client relationships may be as a result of our practices related to climate change, including our involvement, or our customers’ involvement, in certain industries
or projects, in the absence of mitigation and/or transition measures, associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.
REGULATORY AND COMPLIANCE RISKS
We operate in a highly regulated environment, and are subject to changes, which could increase our cost structure or have other negative impacts on our operations. The banking industry is extensively regulated at the federal and state levels. Insured depository institutions and their holding companies are subject to comprehensive regulation and supervision by financial regulatory authorities covering all aspects of their organization, management and operations. We are also subject to regulation by the SEC. Our compliance with these regulations, including compliance with regulatory commitments, is costly. Regulation includes, among other things, capital and reserve requirements, the level of deposit insurance premiums assessed, permissible investments and lines of business, mergers and acquisitions, restrictions on transactions with insiders and affiliates, anti-money laundering regulations, dividend limitations, community reinvestment requirements, limitations on products and services offered, loan limits, geographical limits, and consumer credit regulations. The system of supervision and regulation applicable to us establishes a comprehensive framework for our operations and is intended primarily for the protection of the DIF, our depositors and the public, rather than our stockholders. The current U.S. Presidential administration together with the membership of Congress, will likely lead to changes in the laws or policies applicable to us and the agencies that regulate us. Further, some of the laws and regulations finalized in the prior administration that are applicable to financial institutions are subject to ongoing creating further uncertainty. Additionally, different approaches to regulation by different jurisdictions, including potentially state-level regulation, could increase compliance costs or risks of non-compliance. Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation, or additional deposit insurance premiums could have a material impact on our operations. to comply with applicable laws, regulations or policies could result in sanction by regulatory agencies, civil monetary , and/or to our reputation, which could have a material effect on our business, consolidated financial condition and results of operations. In addition, any change in government regulation could have a material effect on our business or our ability to pay dividends.
Federal law restricts the amount of voting stock of a bank holding company or a bank, that a person or group may acquire, without the prior approval of banking regulators. Under the federal Change in Bank Control Act and the regulations thereunder, a person or group must give advance notice to the Federal Reserve before acquiring control of any bank holding company, such as the Company, and the OCC before acquiring control of any national bank, such as the Bank. Under the BHCA and Federal Reserve guidance thereunder, a person or group will be presumed to control a bank holding company if they acquire a certain percentage of the bank holding company or if one or more other control factors are present. The Board of Governors of the Federal Reserve clarified and codified the Federal Reserve’s standards for determining whether one company has control over another. The rule established four categories of tiered presumptions of non-control that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of non-control. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily being deemed to have a controlling influence. The overall effect of the BHCA is to make it more to acquire a bank holding company and a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, stockholders of the Company may be less likely to from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other non-bank companies. Investors should be aware of these requirements when acquiring shares of our stock.
Our reporting obligations as a public company are costly. Reporting requirements of a public company change depending on the reporting classification in which the Company falls as of the end of its second quarter of each fiscal year. The Company is currently a “smaller reporting company” which allows us to provide certain simplified and scaled disclosures in our filings. We will remain a smaller reporting company for so long as the market value of the Company’s common stock held by non-affiliates as of the end of its most recently completed second fiscal quarter is less than $250 million, or as of the same period the Company’s annual revenues are less than $100 million and its public float is less than $700 million. As an “accelerated filer,” we are subject to the provisions of Section 404(b) of the Sarbanes-Oxley Act. Section 404(b) requires that an independent registered public accounting firm provide an attestation report on the Company’s internal control over financial reporting and the operating effectiveness of these controls, making the public reporting process more costly.
Changes in federal or state tax laws could adversely affect our business, financial condition and results of operations. Our business, financial condition and results of operations are impacted by tax policy implemented at the federal and state level. We cannot predict whether any other tax legislation will be enacted in the future or whether any such changes to existing federal or state tax law would have a material adverse effect on our business, financial condition and results of operations.
We are subject to changes in accounting principles, policies or guidelines. Our financial performance is impacted by accounting principles, policies and guidelines. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.
From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our financial statements. These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations. Changes in these standards are continuously occurring, and given recent economic conditions, more drastic changes may occur. The implementation of such changes could have a material adverse effect on our financial condition and results of operations.
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, 2025, compared to the same 2024 period. In 2025, net interest income increased $4.7 million, due to: (1) the ongoing impact of lower short-term interest rates on the Bank’s liability-sensitive balance sheet which lowered liability costs; (2) higher asset yields; partially offset by (3) the impact of lower interest income due to a smaller sized balance sheet. The Company recorded a $1.950 million provision for credit losses largely due to the impact of changes in credit quality, largely due to an increase in reserves on individually evaluated loans. The $3.175 million of negative provision for credit losses in 2024 was 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. Non-interest income for the twelve months ended December 31, 2025, compared to the same period in 2024 increased approximately $1.0 million. This increase was largely due to: (1) higher gains on equity securities; (2) higher gain on sale of loans, due to an increase in SBA gains and mortgage gains, with SBA being about two thirds of the increase; partially offset by (3) lower fee income on deposit activity, due to lower activity; and (4) a decrease in loan fees and service charges primarily due to lower fees collected on loan payoffs. Non-interest expense increased approximately 1.5% or $0.6 million primarily due to a $1.1 million increase in compensation due to higher incentive compensation and merit increases, partially offset by a decrease in other expense due to lower SBA recourse expense.
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 the tables (but not the narrative) 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 $14.42 million for the twelve months ended December 31, 2025, compared to net income of $13.75 million for the twelve months ended December 31, 2024. Diluted earnings per share were $1.46 for the twelve months ended December 31, 2025, compared to $1.34 for the twelve months ended December 31, 2024. Return on average assets for the twelve months ended December 31, 2025, was 0.82%, compared to 0.76% for the twelve months ended December 31, 2024. The return on average equity was 7.89% for the twelve months ended December 31, 2025, and 7.84% for the comparable period in 2024.
The Company utilized a balance sheet optimization strategy in 2025, which resulted in the runoff of non-strategic loan relationships with the proceeds used to reduce all borrowings at the Bank and reductions in wholesale deposits.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements have been prepared in conformity with U.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 Credit Losses
We utilize a loss estimation methodology and third-party model to determine our allowance for credit losses, under the guidance of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments”. 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 - 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, 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. However, based on periodic examinations by regulators, the amount of the allowance for credit losses recorded during a particular period may be adjusted.
Our determination of the allowance for credit losses - loans is based on: (1) an individual allowance for specifically identified and evaluated loans that management has determined have unique risk characteristics. For these loans, the estimated loss is 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 amortized cost of the 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 collective allowance for loans not specifically identified in (1) above. The allowance for these loans is estimated by pooling loans with a similar risk profile and calculating a collective loss rate using the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to project lifetime losses. This collectively estimated loss is adjusted for qualitative factors.
Assessing the allowance for credit losses - loans 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.
STATEMENT OF OPERATIONS ANALYSIS
Twelve months ended December 31, 2025 vs. Twelve months ended December 31, 2024
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 $51.2 million for 2025 compared to $46.5 million for 2024. The increase was largely due to the impact of lower short-term interest rates which, with the Company’s liability sensitive balance sheet (See Market Risk Section of the MD&A), resulted in lower deposit costs, a decrease in other borrowing expense due to lower balances and modestly higher net yield on assets. These increases to net interest income were partially offset by $61 million lower asset balances, including an $84 million decrease in average loan balances, partially offset by higher balances in lower yielding cash and cash equivalents.
The net interest margin for 2025 was 3.12% compared to 2.73% for 2024. The increase in the net interest margin was largely due to lower liability costs of 0.36%.
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, rates paid on interest bearing liabilities and the resultant spread at December 31, 2025 and December 31, 2024. Non-accruing loans average balances are included in the table with the loans carrying a zero yield.
Twelve months ended December 31, 2025
Twelve months ended December 31, 2024
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average interest earning assets:
Cash and cash equivalents
Loans receivable
Investment securities
Other investments
Total interest earning assets
Average interest bearing liabilities:
Savings accounts
Demand deposits
Money market accounts
Total deposits
FHLB advances and other borrowings
Total interest bearing liabilities
Net interest income
Interest rate spread
Net interest margin
Average interest earning assets to average interest bearing liabilities
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). Rate variances were discussed previously above. Volume variances for the twelve months ended December 31, 2025, compared to the same period in 2024 were: (1) lower average total loan balances in 2025, due to the full year impact of 2024 loan shrinkage and additional 2025 loan shrinkage; partially offset by (2) higher average balances of interest-bearing cash, (3) lower average balances in certificates due to lower brokered deposit balances, and (4) lower borrowing balances due to reductions in FHLB advances and subordinated debt.
Twelve months ended December 31, 2025 v. 2024 increase (decrease) due to
Volume (1)
Rate (1)
Total
Increase /
(Decrease)
Interest income:
Cash and cash equivalents
Loans receivable
Interest bearing deposits
Investment securities
Other investments
Total interest earning assets
Interest expense:
Savings accounts
Demand deposits
Money market accounts
Total deposits
FHLB advances and other borrowings
Total interest bearing liabilities
Net interest income
(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 Credit Losses. We determine our provision for credit losses (“provision”) based on our desire to provide an adequate Allowance for Credit Losses (“ACL”) - Loans to reflect estimated lifetime losses in our loan portfolio and ACL - Unfunded Commitments to reflect estimated losses on our unfunded commitments to lend. We use a third-party model to collectively evaluate and estimate the ACL on loans and unfunded commitments on a pooled basis. The model pools loans and commitments with similar characteristics and calculates an estimated loss rate for the pool based on identified risk drivers. These risk drivers vary with loan type. Projections about future economic conditions and the effect they could have on future losses are inherent in the model. Loans with uniquely identified circumstances and risks are individually evaluated. Lifetime losses on these loans are estimated based on the loans’ individual characteristics.
Total provision for credit losses for the twelve months ended December 31, 2025, was $1.950 million, compared to negative provision of $3.175 million for the twelve months ended December 31, 2024. The Company’s $1.950 million provision for credit losses in 2025 was largely due to the impact of changes in credit quality, largely due to an increase in reserves on individually evaluated loans. The $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.
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 positive overall economic trends for businesses.
Note that in discussing ACL allocations, the entire ACL balance is available for any loan that, in management’s judgment, should be charged off.
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. 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. If there are significant charge-offs against the ACL, or we otherwise determine that the ACL is inadequate, we will need to record an additional provision in the future.
Non-Interest Income . The following table reflects the various components of non-interest income for 2025 and 2024, respectively.
Twelve months ended December 31,
Change from prior year
2025 over 2024
Non-interest Income:
Service charges on deposit accounts
Interchange income
Loan servicing income
Gain on sale of loans
Loan fees and service charges
Net gains (losses) on equity securities
Bank Owned Life Insurance (BOLI) death benefit
Other
Total non-interest income
N/M means not meaningful
The increase in gain on sale of loans for the twelve months ended December 31, 2025, compared to the same period in 2024 was split between an increase in SBA loans sold and higher mortgage gains, with about two-thirds of the increase due to higher SBA loans sold.
The decrease in loan fees and service charges for the twelve months ended December 31, 2025, compared to the same period in 2024, was primarily due to lower fees collected due to loan payoffs.
The increase in net gains on equity securities for the twelve months ended December 31, 2025, compared to the same period in 2024, was primarily due to the income recognized on the change in valuations of equity securities.
The decrease in Bank Owned Life Insurance death benefit for the twelve months ended December 31, 2025, compared to the same period in 2024 BOLI, was due to the passing of an employee in 2024.
Non-Interest Expense. The following table reflects the various components of non-interest expense for 2025 and 2024.
Twelve months ended December 31,
% Change From prior year
2025 over 2024
Non-interest Expense:
Compensation and related benefits
Occupancy
Data processing
Amortization of intangible assets
Mortgage servicing rights expense, net
Advertising, marketing and public relations
FDIC premium assessment
Professional services
Losses on repossessed assets, net
Other
Total non-interest expense
Non-interest expense (annualized) / Average assets
Compensation expense increased for the twelve months ended December 31, 2025, compared to the same period in 2024 largely due to higher incentive compensation and merit increases.
Amortization of intangible assets decreased as the core deposit intangible from the 2019 acquisition became fully amortized in 2025.
Mortgage servicing rights expense, net increased for the twelve months ended December 31, 2025, compared to the same period in 2024 due to higher amortization primarily resulting from higher forecasted prepayments.
Losses on sale of repossessed assets decreased for the twelve months ended December 31, 2025, compared to the same period in 2024 largely due to the 2024 write-down of one large real estate owned property.
The decrease in other expenses for the twelve months ended December 31, 2025, compared to the same period in 2024 was primarily due to lower SBA recourse expense.
Income Taxes. Income tax provision was $3.0 million in 2025 compared to $3.7 million for 2024. The 2025 effective tax rate was 17.3% compared to 21.2% for 2024. The reduction in tax rate was larger due to an increase in tax credits, partially due to a 2025 purchased tax credit investment.
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. 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.
BALANCE SHEET ANALYSIS
Total assets increased by $33.2 million to $1.78 billion at December 31, 2025, from $1.75 billion at December 31, 2024.
Cash and Cash Equivalents. Cash and cash equivalents increased from $50.2 million at December 31, 2024, to $118.9 million at December 31, 2025, largely due to an increase in interest-bearing balances.
Investment Securities. 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 $134.1 million at December 31, 2025, compared with $142.9 million at December 31, 2024. This decrease was due to principal repayments and maturities on amortizing securities of $15 million, and calls of corporate debt securities of $9 million, partially offset by purchases of $10 million and lower unrealized losses of $5.2 million.
Securities held to maturity decreased to $80.2 million at December 31, 2025, compared to $85.5 million at December 31, 2024. The decrease was largely due to principal repayments. The unrecognized loss on the held to maturity portfolio decreased by $3.8 million during the year to $16.1 million at December 31, 2025.
The amortized cost and market values of our investment securities by asset categories as of the dates indicated below were as follows:
Available-for-sale securities
Amortized
Cost
Estimated
Fair Value
December 31, 2025
U.S. government agency obligations
Mortgage-backed securities
Corporate debt securities
Student loan asset-backed securities
Total available-for-sale securities
December 31, 2024
U.S. government agency obligations
Mortgage-backed securities
Corporate debt securities
Student loan asset-backed securities
Total available-for-sale securities
Held-to-maturity securities
Amortized
Cost
Estimated
Fair Value
December 31, 2025
Obligations of states and political subdivisions
Mortgage-backed securities
Total held-to-maturity securities
December 31, 2024
Obligations of states and political subdivisions
Mortgage-backed securities
Total held-to-maturity securities
The amortized cost and fair values of our investment securities by maturity, as of December 31, 2025 were as follows:
Available-for-sale securities
Amortized
Cost
Estimated
Fair Value
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total securities with contractual maturities
Mortgage-backed securities
Total available-for-sale securities
Held-to-maturity securities
Amortized
Cost
Estimated
Fair Value
Due in one year or less
Due after one year through five years
Due after five years through ten years
Total securities with contractual maturities
Mortgage-backed securities
Total held-to-maturity securities
The amortized cost and fair values of our investment securities by maturity, as of December 31, 2024 were as follows:
Available-for-sale securities
Amortized
Cost
Estimated
Fair Value
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total securities with contractual maturities
Mortgage-backed securities
Total available-for-sale securities
Held-to-maturity securities
Amortized
Cost
Estimated
Fair Value
Due in one year or less
Due after one year through five years
Due after five years through ten years
Total securities with contractual maturities
Mortgage-backed securities
Total held-to-maturity securities
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
Available-for-sale securities
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
December 31, 2025
U.S. government agency obligations
Mortgage-backed securities
Corporate debt securities
Student loan asset-backed securities
Total available-for-sale securities
December 31, 2024
U.S. government agency obligations
Mortgage-backed securities
Corporate debt securities
Student loan asset-backed securities
Total available-for-sale securities
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:
December 31,
December 31,
Available-for-sale securities
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
U.S. government agency
AAA
BBB
Total available-for-sale securities
December 31,
December 31,
Held-to-maturity securities
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
U.S. government agency
Total held-to-maturity securities
At December 31, 2025, the Bank pledged certain of its mortgage-backed securities with a carrying value of $32.1 million as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2025, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2025, the Bank has pledged certain of its U.S. Government Agency securities with a carrying value of $0.2 million and mortgage-backed securities with a carrying value of $1.8 million as collateral against specific municipal deposits. As of December 31, 2025, the Bank also has mortgage-backed securities with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.
At December 31, 2024, the Bank pledged certain of its mortgage-backed securities with a carrying value of $34.0 million as collateral to secure a line of credit with the Federal Reserve Bank. As of December 31, 2024, there were no borrowings outstanding on this Federal Reserve Bank line of credit. As of December 31, 2024, the Bank has pledged certain of its U.S. 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, 2024, the Bank also has mortgage-backed securities with a carrying value of $0.5 million pledged as collateral to the Federal Home Loan Bank of Des Moines.
Loans. Total loans outstanding, net of deferred loan fees and costs, decreased to $1.34 billion at December 31, 2025, from $1.37 billion at December 31, 2024.
In 2025 and 2024, the Company’s planned balance sheet optimization resulted in a reduction in loan balances which focused on the runoff of non-strategic loan relationships.
The following table reflects the composition, or mix, of our loan portfolio at December 31, 2025 and December 31, 2024:
December 31, 2025
December 31, 2024
Amount
Percent
Amount
Percent
Real Estate Loans:
Commercial/Agricultural real estate:
Commercial real estate
Agricultural real estate
Multi-family real estate
Construction and land development
Residential mortgage:
Residential mortgage
Purchased HELOC loans
Total real estate loans
C&I/Agricultural operating and Consumer installment loans:
C&I/Agricultural operating:
Commercial and industrial ("C&I")
Agricultural operating
Consumer installment:
Originated indirect paper
Other consumer
Total C&I/Agricultural operating and Consumer installment loans
Gross loans
Unearned net deferred fees and costs and loans in process
Unamortized discount on acquired loans
Total loans (net of unearned income and deferred expense)
Allowance for credit losses
Total loans receivable, net
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, 2025, the largest loan concentration we identified was commercial real estate loans which comprised 51% of our total loan portfolio. Approximately 89% of our total gross loans are secured by real estate.
The following table sets forth, as of December 31, 2025 and December 31, 2024, respectively, the fixed and adjustable-rate loans in our loan portfolio:
December 31, 2025
December 31, 2024
Amount
Percent
Amount
Percent
Fixed rate loans:
Real estate loans:
Commercial/Agricultural real estate
Residential mortgage
Total fixed rate real estate loans
Non-real estate loans:
C&I/Agricultural Operating
Consumer installment
Total fixed rate non-real estate loans
Total fixed rate loans
Adjustable-rate loans:
Real estate loans:
Commercial/Agricultural real estate
Residential mortgage
Total adjustable-rate real estate loans
Non-real estate loans:
C&I/Agricultural operating
Total adjustable-rate non-real estate loans
Total adjustable-rate loans
Gross loans
Unearned net deferred fees and costs and loans in process
Unamortized discount on acquired loans
Total loans (net of unearned income)
Allowance for credit losses
Total loans receivable, net
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, 2025:
Non-Owner Occupied CRE
Owner- Occupied CRE
Multi-family CRE
Construction and Development CRE
Loan Balance Outstanding in Millions
Number of Loans
Average Loan Size in Millions
Approximate Weighted Average LTV
Weighted Average Seasoning in Months
Trailing 12 Month Net Charge-Offs
Criticized Loans in Millions
Criticized Loans as a Percent of Total
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
Minnesota
Other
The following table further disaggregates the composition of our commercial real estate loan portfolio by selected industry components at December 31, 2025:
Campground
Hotel
Restaurant
Office
Loan Balance Outstanding in Millions
Number of Loans
Average Loan Size in Millions
Approximate Weighted Average LTV
Weighted Average Seasoning in Months
Trailing 12 Month Net Charge-Offs
Criticized Loans in Millions
Criticized Loans as a Percent of Total
The table below lists our CRE portfolio selected industry components by geographical location:
Campground
Hotel
Restaurant
Office
Wisconsin
Minnesota
Other
Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2025, are shown below.
Real estate
Non-real estate
Commercial/Agricultural real estate
Residential mortgage
C&I/Agricultural operating
Consumer installment
Total
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Due in one year or less (1)
Due after one year through five years
Due after five years
(1) Includes loans having no stated maturity and overdraft loans.
Loan amounts, their contractual maturities and weighted average interest rates at December 31, 2024, are shown below.
Real estate
Non-real estate
Commercial/Agricultural real estate
Residential mortgage
C&I/Agricultural operating
Consumer installment
Total
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Due in one year or less (1)
Due after one year through five years
Due after five years
(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.
Risk Management and the Allowance for Credit Losses - Loans. The Allowance for Credit Losses - Loans (“ACL”) is a valuation allowance for expected future credit losses in the Company’s loan portfolio as of the balance sheet date. In determining the allowance, the Company estimates credit losses over the loan’s entire contractual term, adjusted for expected prepayments when appropriate. The allowance estimate considers qualitative and quantitative relevant information from internal and external sources relating to historical loss experience; known and inherent risks in our portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; reasonable and supportable forecasts for future conditions; and other relevant factors determined by management. To ensure that the ACL is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance. The entire ACL balance is available for any loan that, in management’s judgment, should be charged off.
The determination of the ACL requires significant judgment to estimate credit losses. The ACL is measured collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that the loan does not share similar risk characteristics with other loans. The ACL on loans collectively evaluated is measured using the loss rate model. The Company categorizes its loan portfolio into four segments based on similar risk characteristics. Loans within each segment are pooled based on individual loan characteristics. Aggregated risk drivers are then calculated at a pool level. Risk drivers are identified attributes that have proven to be predictive of loan loss rates and vary based on loan segment and type. A loss rate is calculated and applied to the pool utilizing a model that combines the pool’s risk drivers, historical loss experience, and reasonable and supportable future economic forecasts to projected lifetime losses. 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 GreatRecession, 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 judgment 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.
Loans that exhibit different risk characteristics from the pool are individually evaluated for impairment. Loans can be identified for individual evaluation for a variety of reasons including delinquency, nonaccrual status, risk rating and loan modification. Accruing loans that exhibit different risk characteristics from their pool may also be within scope. On these loans, an allowance may be established so that the loan is reported, net, at the lower of: (a) its amortized cost; (b) the present value of the loan’s estimated future cash flows using the loan’s existing rate; or (c) at the fair value of any loan collateral, less estimated disposal costs, if the loan is collateral dependent. Collateral dependency is determined using the practical expedient when: (1) the borrower is experiencing financial difficulty; and (2) repayment is expected to be provided substantially through the sale or operation of the collateral. 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. These agencies may require the Company to make additions to the ACL or may require that certain loan balances be charged off or downgraded into classified loan categories when the agencies’ evaluation differs from management’s evaluation based on their judgments of collectability from the information available to them at the time of examination.
The Allowance for Credit Losses - Unfunded Commitments is a liability for expected future credit losses on the Company’s commitments to lend. 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.
Allowance for Credit Losses - Loans
(in thousands, except ratios)
Twelve Months Ended
December 31,
December 31,
Allowance for Credit Losses (“ACL”)
ACL - Loans, at beginning of period
Loans charged off:
Commercial/Agricultural real estate
C&I/Agricultural operating
Residential mortgage
Consumer installment
Total loans charged off
Recoveries of loans previously charged off:
Commercial/Agricultural real estate
C&I/Agricultural operating
Residential mortgage
Consumer installment
Total recoveries of loans previously charged off:
Net loan recoveries/(charge-offs) (“NCOs”)
Additions (reversals) to ACL - Loans via provision for credit losses charged to operations
ACL - Loans, at end of period
Average outstanding loan balance
Ratios:
NCOs (annualized) to average loans
Allowance for Credit Losses - Loans Activity by Segment
(in thousands, except ratios)
Commercial/Agricultural Real Estate
C&I/Agricultural operating
Residential Mortgage
Consumer Installment
Total
Twelve months ended December 31, 2025
Allowance for Credit Losses - Loans:
ACL - Loans, at beginning of period
Charge-offs
Recoveries
Additions (reversals) to ACL - Loans via provision for credit losses charged to operations
ACL - Loans, at end of period
Allowance for Credit Losses - Loans Percentage
(in thousands, except ratios)
December 31,
December 31,
Loans, end of period
ACL - Loans
ACL - Loans as a percentage of loans, end of period
Allowance for Credit Losses - Unfunded Commitments:
(in thousands)
In addition to the ACL - Loans, the Company has established an ACL - Unfunded Commitments of $0.490 million at December 31, 2025, and $0.334 million at December 31, 2024, classified in other liabilities on the consolidated balance sheets.
December 31, 2025 and Twelve Months Ended
December 31, 2024 and Twelve Months Ended
ACL - Unfunded Commitments - beginning of period
Additions (reversals) to ACL - Unfunded Commitments via provision for credit losses charged to operations
ACL - Unfunded Commitments - end of period
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.
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:
December 31, 2025 and twelve months ended
December 31, 2024 and twelve months ended
Nonperforming assets:
Nonaccrual loans
Commercial real estate
Agricultural real estate
Multi-family real estate
Construction and land development
Commercial and industrial (“C&I”)
Agricultural operating
Residential mortgage
Consumer installment
Total nonaccrual loans
Accruing loans past due 90 days or more
Total nonperforming loans (“NPLs”)
Other real estate owned
Other collateral owned
Total nonperforming assets (“NPAs”)
Average outstanding loan balance
Loans, end of period
Total assets, end of period
ACL - Loans, at beginning of period
Loans charged off:
Commercial/Agricultural real estate
C&I/Agricultural operating
Residential mortgage
Consumer installment
Total loans charged off
Recoveries of loans previously charged off:
Commercial/Agricultural real estate
C&I/Agricultural operating
Residential mortgage
Consumer installment
Total recoveries of loans previously charged off:
Net loan recoveries/(charge-offs) (“NCOs”)
Additions (reversals) to ACL - Loans via provision for credit losses charged to operations
ACL - Loans, at end of period
Ratios:
ACL to NCOs (annualized)
NCOs (annualized) to average loans
ACL to total loans
NPLs to total loans
NPAs to total assets
N/M means not meaningful
Nonaccrual Loans Roll Forward
Quarter Ended
December 31,
September 30,
June 30,
March 31, 2025
December 31,
Balance, beginning of period
Additions
Charge offs
Transfers to OREO
Payments received
Other, net
Balance, end of period
Nonaccrual loans increased by $2.7 million to $15.9 million at December 31, 2025, from $13.2 million at December 31, 2024, with a third quarter 2025 multi-family loan addition, partially offset by the payoff of a relationship secured by collateral in the forestry services industry.
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.
Below is a summary of loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2025.
Term Extension
Loan Class
Amortized Cost Basis at
December 31, 2025
% of Total Class of Financing Receivables
Commercial and industrial
Other-Than-Insignificant Payment Delay
Loan Class
Amortized Cost Basis at
December 31, 2025
% of Total Class of Financing Receivables
Commercial real estate
Agricultural real estate
Residential mortgage
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 increased by $18.5 million in the twelve months ended December 31, 2025. Special mention loans increased $16.0 million during 2025, largely due to additions of a $6.0 million owner occupied CRE loan relationship and a $5 million owner occupied CRE loan relationship. Substandard loans increased $2.5 million from December 31, 2024, primarily due to the addition of a $9 million multi-family loan partially offset by the payoff of a $5 million forestry services loan relationship.
(in thousands)
(Loan balance at unpaid principal balance)
December 31,
September 30,
June 30,
March 31,
December 31,
Special mention loan balances
Substandard loan balances
Criticized loans, end of period
Mortgage Servicing Rights . Mortgage servicing rights (“MSR”) assets are initially measured at fair value; 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 amortized cost of MSR assets decreased as amortization exceeded additions due to loan sales, resulting in the unpaid balances of one-to-four family residential real estate loans serviced for others to decrease as of December 31, 2025, to $474.0 million from $479.6 million at December 31, 2024.
The fair market value of the Company’s MSR asset was $4.7 million at December 31, 2025, and $5.2 million at December 31, 2024. At December 31, 2025, and December 31, 2024, 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, 2025, and December 31, 2024, was 0.98% and 1.09%, respectively.
Intangible Assets. We had intangible assets of $0.4 million at December 31, 2025, compared to $1.0 million at December 31, 2024. The intangible assets at December 31, 2025, consisted of core deposit intangible assets arising from a 2017 acquisition. Intangible assets associated with a 2019 acquisition became fully amortized during 2025. Amortization of these intangibles was $0.6 million in 2025, and $0.7 million in 2024. Amortization expense is scheduled to be $0.4 million in 2026.
Deposits. At December 31, 2025, deposits increased by $36.0 million compared to December 31, 2024, balances. The growth in money market accounts was largely due to growth in retail accounts, and to a lesser extent, commercial accounts.
Deposit Composition by Type
(in thousands)
December 31,
September 30,
June 30,
March 31,
December 31,
Non-interest-bearing demand deposits
Interest-bearing demand deposits
Savings accounts
Money market accounts
Certificate accounts
Total deposits
Consumer, commercial and government deposits have been stable over the periods reported. There are no material customer or industry deposit concentrations.
Deposit Portfolio Composition
(in thousands)
December 31,
September 30,
June 30,
March 31,
December 31,
Consumer deposits
Commercial deposits
Public deposits
Wholesale deposits
Total deposits
At December 31, 2025, the deposit portfolio composition was 58% consumer, 28% commercial, 12% public, and 2% wholesale deposits. At December 31, 2024, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits.
Uninsured and uncollateralized deposits were $323.5 million, or 21% of total deposits at December 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024. Uninsured deposits at December 31, 2025, were $478.4 million, or 31% of total deposits, and $428.0 million, or 29% of total deposits at December 31, 2024, with the difference being an increase in fully secured government deposits.
Federal Home Loan Bank (FHLB) advances and other borrowings. A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at December 31, 2025, and December 31, 2024, is as follows:
December 31, 2025
December 31, 2024
Stated Maturity
Amount
Range of Stated Rates
Stated Maturity
Amount
Range of Stated Rates
Federal Home Loan Bank advances (1), (2), (3)
Federal Home Loan Bank advances
Other borrowings:
Senior notes (4)
Subordinated notes (5)
Unamortized debt issuance costs
Total other borrowings
Totals
(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 $1.018 billion and $1.075 billion at December 31, 2025 and 2024, respectively. At December 31, 2025, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $434 million compared to $425 million as of December 31, 2024.
(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $5.0 million and $81.0 million, during the twelve months ended December 31, 2025 and December 31, 2024, respectively.
(3) There were no FHLB borrowings outstanding as of December 31, 2025. The weighted-average interest rates on FHLB borrowings, with maturities less than twelve months, outstanding as of December 31, 2024 was 1.45%.
(4) Senior notes, entered into by the Company consist of the following:
(a) A term note, which was originally entered into in June 2019 and 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 $5.0 million term note entered into in October 2025, requiring quarterly interest-only payments through October 2028, and quarterly principal and interest payments thereafter. Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 4.00%.
(c) The $5.0 million line of credit was terminated by the Company in October 2025.
(5) Subordinated notes resulted from the following:
(a) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bore a fixed interest rate of 6.00% for five years. On July 7, 2025, the Board of Directors approved the redemption of the entire $15.0 million balance of the 6% subordinated debentures due September 1, 2030, which were scheduled to reprice on September 1, 2025, to the Secured Overnight Financing Rate (“SOFR”) plus 591 basis points. The redemption occurred on September 1, 2025.
(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 SOFR plus 329 basis points. The note is callable by the Bank when, and any time after, the floating rate is initially set. Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.
Federal Home Loan Bank (FHLB) advances and other borrowings
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 from $5.0 million at December 31, 2024 to $0 as of December 31, 2025, as proceeds from investment security and loan portfolio shrinkage were used to reduce borrowings. In 2024, $64.5 million of FHLB advances matured. 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, was approximately $433.7 million at December 31, 2025, and $424.7 million at December 31, 2024. The Company refinanced its senior debt in May 2024 and reduced the balance by $6.1 million.
The Bank maintains two unsecured federal funds purchased lines of credit with its banking partners which total $70.0 million. These lines bear interest at the lender banks’ announced daily federal funds rate, mature daily and are revocable at the discretion of the lending institution. There were no borrowings outstanding on these lines of credit as of December 31, 2025, or December 31, 2024.
At December 31, 2025, and 2024, the Bank had the ability to borrow $24.5 million and $24.9 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 $32.1 million and $34.0 million as of December 31, 2025, and 2024, respectively. There were no Federal Reserve borrowings outstanding as of December 31, 2025, and 2024.
Stockholders’ Equity. Total stockholders’ equity was $187.9 million at December 31, 2025, compared to $179.1 million at December 31, 2024. The increase in stockholders’ equity included the Company’s net income of $14.4 million and a decrease in the unrealized loss on available-for-sale securities of $3.9 million, net of tax, due to lower interest rates. These increases were partially offset by: (1) the repurchase of approximately 385 thousand shares of the Company’s 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 $0.36 per share which was a 12.5% increase from the prior year dividend amount of $0.32 per share, or $3.3 million.
In 2021, the Board of Directors adopted a 5% share repurchase program, which ended in 2024 as the 5% authorization was completed by the 202 thousand shares repurchased in 2024. In July 2024, the Board of Directors adopted a 5% share repurchase program. Approximately 274 thousand shares were repurchased under this program, before the authorization expired in June of 2025. In July 2025, the Board of Directors adopted a 5% share repurchase program. Approximately 385 thousand shares were repurchased under this program and as of December 31, 2025, 113 thousand shares remain available for repurchase under this program.
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 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 unpledged securities portfolio divided by total assets. At December 31, 2025, our on-balance sheet liquidity ratio increased to 14.8% percent from 11.75% at December 31, 2024,
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, 2025, the deposit portfolio composition was largely unchanged from the prior quarter at 58% consumer, 28% commercial, 12% public, and 2% wholesale deposits. At December 31, 2024, the deposit portfolio composition was 57% consumer, 28% commercial, 13% public, and 2% wholesale deposits.
Uninsured and uncollateralized deposits were $323.5 million, or 21% of total deposits at December 31, 2025, and $265.4 million, or 18% of total deposits, at December 31, 2024. Uninsured deposits at December 31, 2025, were $478.4 million, or 31% of total deposits, and $428.0 million, or 29% of total deposits at December 31, 2024, with the difference being an increase in fully secured government deposits.
On-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability was $792 million, or 245% of uninsured and uncollateralized deposits at December 31, 2025. At December 31, 2024, on-balance sheet liquidity, collateralized borrowing and uncommitted federal funds availability was $724.8 million, or 273% of uninsured and uncollateralized deposits.
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 $330.2 million of our $347.3 million (95%) CD portfolio will mature within the next 12 months, we have historically retained a majority of our maturing CD’s. In 2024, retail non-maturity interest-bearing accounts were approximately flat with 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. However, this is challenging in the current competitive environment.
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 $433.7 million available to borrow under this arrangement, supported by loan collateral as of December 31, 2025. We also had borrowing capacity of $24.5 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. While the Bank does not have approved brokered certificate lines of credit with counter parties at December 31, 2025, 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. 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, 2025, the Company had approximately $198.8 in unused loan commitments, compared to approximately $137.0 million in unused loan commitments as of December 31, 2024. In addition, there were $3.2 million of commitments for contributions of capital to an SBIC and an investment company at December 31, 2025. These commitments totaled $2.9 million of commitments at December 31, 2024. 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.
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.
Actual
For Capital Adequacy
Purposes
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2025
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Common equity tier 1 capital (to risk weighted assets)
Tier 1 leverage ratio (to adjusted total assets)
As of December 31, 2024
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Common equity tier 1 capital (to risk weighted assets)
Tier 1 leverage ratio (to adjusted total assets)
At December 31, 2025, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.
Below are the amounts and ratios for our capital levels as of the dates noted below for the Company.
Actual
For Capital Adequacy
Purposes
Amount
Ratio
Amount
Ratio
As of December 31, 2025
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Common equity tier 1 capital (to risk weighted assets)
Tier 1 leverage ratio (to adjusted total assets)
As of December 31, 2024
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Common equity tier 1 capital (to risk weighted assets)
Tier 1 leverage ratio (to adjusted total assets)
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 ended December 31, 2025:
March 31, 2025
June 30, 2025
September 30, 2025
December 31, 2025
Interest and dividend income
Interest expense
Net interest income before provision for credit losses
(Provision reversal) provision for credit losses
Net interest income after provision for credit losses
Non-interest income
Non-interest expense
Income before provision for income taxes
Provision for income taxes
Net income attributable to common stockholders
Basic earnings per share
Diluted earnings per share
Cash dividends paid
Year ended December 31, 2024:
March 31, 2024
June 30, 2024
September 30, 2024
December 31, 2024
Interest and dividend income
Interest expense
Net interest income before provision for credit losses
Provision reversal for credit losses
Net interest income after provision for credit losses
