Citizens munity Bancorp(US:CZWI)2025-03-13 20:43PART I Business Citizens Community Bancorp, Inc. operates as a bank holding company through its subsidiary, Citizens Community Federal N.A., providing commercial, agricultural, and consumer banking services across 22 branches in Wisconsin and Minnesota | Metric | Value (in billions) | | :--- | :--- | | Total Assets | $1.749 | | Total Deposits | $1.488 | | Equity | $0.179 | * The company's subsidiary, Citizens Community Federal N.A., is a federally chartered National Bank serving customers in Wisconsin and Minnesota through 22 full-service branch locations20 Lending Activities The company offers diverse loan products, including commercial real estate, C&I, agricultural, residential mortgages, and consumer loans, primarily in Wisconsin and Minnesota, with $1.372 billion in gross loans as of December 31, 2024 Gross Loan Portfolio as of December 31, 2024 | Loan Category | Amount (in millions) | | :--- | :--- | | Commercial/Agricultural Real Estate | $1,081.0 | | C&I/Agricultural Operating | $146.7 | | Residential Mortgage | $135.3 | | Consumer Installment | $9.0 | | Total Gross Loans | $1,372.0 | Investment Activities The company manages an investment portfolio of mortgage-backed, asset-backed, U.S. Government agency, and corporate debt securities to balance risk, regulatory needs, and liquidity while seeking returns Deposits and Other Sources of Funds Primary funding sources include diverse deposit products, loan repayments, and operational cash flow, supplemented by borrowings like FHLB advances, with total deposits reaching $1.488 billion at year-end 2024 Deposit Composition as of December 31, 2024 | Deposit Type | Amount (in billions) | | :--- | :--- | | Interest-bearing Deposits | $1.235 | | Non-interest bearing Deposits | $0.253 | | Total Deposits | $1.488 | Regulation and Supervision Operating in a highly regulated industry, the company is supervised by the FRB, its bank by the OCC, with key regulatory areas including capital adequacy, AML, consumer compliance, and CRA * The Company is a bank holding company regulated by the FRB, and the Bank is a national bank regulated by the OCC32 * The Bank must maintain a capital conservation buffer of 2.5% Common Equity Tier 1 (CET1) capital to avoid restrictions on capital distributions, effectively increasing minimum capital ratios to 7.0% for CET1, 8.5% for Tier 1, and 10.5% for Total Capital45 * The Bank received a "Satisfactory" rating in its most recent Community Reinvestment Act (CRA) examination, though a final rule to amend CRA regulations issued in October 2023 faces delayed implementation due to a preliminary injunction697071 Human Capital The company prioritizes attracting, retaining, and developing its 232 total employees (207 full-time as of March 13, 2025), none of whom are unionized * As of March 13, 2025, the company employed 207 full-time and 232 total employees, none subject to collective bargaining agreements78 Risk Factors The company faces material risks across economic conditions, business operations, and regulatory compliance, including economic downturns, inflation, interest rate fluctuations, cybersecurity threats, and evolving banking regulations Risks Related to Economic Conditions The company's performance is highly susceptible to economic conditions in Wisconsin and Minnesota, facing risks from inflation, geopolitical tensions, and the sensitivity of its concentrated commercial and agricultural lending portfolio * The company's financial condition is significantly impacted by economic conditions in its primary markets of Wisconsin and Minnesota80 * Inflation poses a risk by increasing non-interest expenses and potentially impairing customers' ability to repay loans, with the annual inflation rate at 2.9% as of December 202481 * The company faces higher lending risks from its commercial and agricultural loan portfolio, as repayment depends on the successful operation of underlying businesses and farms, sensitive to economic and external factors83 Risks Related to Business and Operations Operational risks include cybersecurity threats, interest rate risk impacting net interest income, intense competition, disintermediation, reliance on key personnel, and dividend payment limitations due to subsidiary bank regulations * The company is subject to significant cybersecurity risks due to its reliance on information systems and sensitive customer data, facing evolving threats from organized crime, hackers, and nation-state actors8687 * Failures of other large financial institutions in 2023 could reduce customer confidence and negatively impact the banking industry, despite the company's strong liquidity and 82% insured or collateralized deposits as of December 31, 202488 * The company's ability to pay dividends primarily depends on receiving dividends from its subsidiary Bank, subject to regulatory restrictions and the Bank's financial condition115116117 Regulatory and Compliance Risks Operating in a highly regulated environment, the company faces increased costs and operational impacts from changes in laws, regulations, and policies, alongside costly public company reporting obligations that may rise with filer status changes * The banking industry is extensively regulated, and changes in regulations or oversight could materially impact operations and profitability122 * The company, currently a "smaller reporting company" and "non-accelerated filer," will likely become an "accelerated filer" in 2025, incurring more costly Section 404(b) Sarbanes-Oxley Act requirements for auditor attestation on internal controls124 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC * None128 Cybersecurity The company maintains a comprehensive cybersecurity program and governance framework, overseen by the Board's Risk Committee and led by a CISO and CTO, with no material incidents reported to date * Cybersecurity risk management is integrated into the company's enterprise risk management framework, overseen by the Board's Risk Committee130133 * The Chief Information Security Officer (CISO) implements the cybersecurity program, reporting to the Risk Committee and providing regular updates to the Board134135 * To date, the Company has not experienced a material cybersecurity incident132 Properties The company's main administrative office is leased in Eau Claire, WI, while its Bank operates 22 full-service branch offices across Wisconsin and Minnesota, with 19 owned and 3 leased facilities deemed adequate * The Bank operates 22 branch offices, of which 19 are owned and 3 are leased137 Legal Proceedings The company and its bank subsidiary are occasionally involved in routine legal proceedings, with management believing any potential liability will not materially affect financial condition Mine Safety Disclosures This item is not applicable * None139 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under "CZWI", with 532 stockholders as of March 13, 2025, and a stock repurchase program authorized in July 2024 resulted in 93,894 shares repurchased in Q4 2024 * The company's common stock is traded on the NASDAQ Global Market under the symbol "CZWI"139 Q4 2024 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2024 | — | $ — | | Nov 2024 | 93,894 | $14.55 | | Dec 2024 | — | $ — | | Total | 93,894 | $14.55 | * As of December 31, 2024, 238,000 shares remained available for repurchase under the program authorized on July 25, 2024145 Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Net income increased to $13.75 million in 2024, driven by a $3.175 million negative provision for credit losses and loan portfolio shrinkage, offsetting decreased net interest income and increased non-interest expenses, with total assets decreasing to $1.75 billion Key Performance Metrics (Year-End) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Income | $13.75 million | $13.06 million | | Diluted EPS | $1.34 | $1.25 | | Return on Average Assets (ROA) | 0.76% | 0.71% | | Return on Average Equity (ROE) | 7.84% | 7.87% | * A balance sheet optimization strategy in 2024 led to the runoff of non-strategic loans, with proceeds used to reduce more expensive borrowings and wholesale deposits153 Statement of Operations Analysis In 2024, net interest income decreased to $46.5 million and net interest margin declined to 2.73%, while a $3.175 million negative provision for credit losses was recorded, and non-interest expense increased by $2.2 million due to higher compensation Net Interest Income and Margin | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Interest Income | $46.5 million | $48.3 million | | Net Interest Margin | 2.73% | 2.81% | * A negative provision for credit losses of $3.175 million was recorded in 2024, largely due to improving economic forecasts and loan portfolio shrinkage, compared to $0.475 million in 2023171 * Non-interest expense increased by 5.39% to $42.3 million, primarily driven by a $1.6 million (7.75%) increase in compensation and related benefits150179 Balance Sheet Analysis Total assets decreased by $102.9 million to $1.75 billion at year-end 2024 due to balance sheet optimization, reducing loans to $1.37 billion and borrowings by $80.4 million, while deposits modestly declined to $1.49 billion * Total assets decreased by $102.9 million to $1.75 billion at December 31, 2024184 * Total loans decreased to $1.37 billion from $1.46 billion, resulting from a planned balance sheet optimization strategy involving the runoff of non-strategic loans194 * FHLB advances decreased by $74.5 million to $5.0 million as of December 31, 2024, as proceeds from investment and loan portfolio shrinkage were used to reduce borrowings242 * Uninsured and uncollateralized deposits totaled $265.4 million, representing 18% of total deposits, at December 31, 2024234249 Capital Resources As of December 31, 2024, both the Company and the Bank exceeded "Well Capitalized" regulatory capital requirements, with the Bank's Tier 1 leverage ratio at 11.9% and the Company's at 9.5% Bank Capital Ratios as of Dec 31, 2024 | Ratio | Actual | Well Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 | 14.4% | 6.5% | | Tier 1 Capital | 14.4% | 8.0% | | Total Capital | 15.6% | 10.0% | | Tier 1 Leverage | 11.9% | 5.0% | Company (Holding Co.) Capital Ratios as of Dec 31, 2024 | Ratio | Actual | Regulatory Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 | 11.4% | 4.5% | | Tier 1 Capital | 11.4% | 6.0% | | Total Capital | 16.1% | 8.0% | | Tier 1 Leverage | 9.5% | 4.0% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by ALCO through various strategies, with models showing a 3% decrease in net interest income for a +100 bp rate shock and a 2% increase for a -100 bp shock as of December 31, 2024 * The company's primary market risk is interest rate risk, managed by the Asset and Liability Management Committee (ALCO)262265 Net Interest Income (NII) Sensitivity Analysis (at Dec 31, 2024) | Rate Shock (Basis Points) | % Change in NII (1-Year Horizon) | | :--- | :--- | | +300 bp | (8)% | | +200 bp | (5)% | | +100 bp | (3)% | | -100 bp | 2% | | -200 bp | 3% | Economic Value of Equity (EVE) Sensitivity Analysis (at Dec 31, 2024) | Rate Shock (Basis Points) | % Change in EVE | | :--- | :--- | | +300 bp | 2% | | +200 bp | 2% | | +100 bp | 1% | | -100 bp | (1)% | | -200 bp | (4)% | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2024 and 2023, including reports from Crowe LLP and Eide Bailly LLP, along with balance sheets, income statements, and cash flow statements * The financial statements for the year ended December 31, 2024, were audited by Crowe LLP275 * The financial statements for the year ended December 31, 2023, were audited by Eide Bailly LLP287 * A critical audit matter identified by Crowe LLP for the 2024 audit was the quantitative calculation of the Allowance for Credit Losses (ACL) on collectively evaluated loans, due to the complexity and subjectivity of models and assumptions282 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure * None522 Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2024, with no material changes to internal control over financial reporting during the fiscal year * The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2024524 * No material changes to internal control over financial reporting occurred during the fiscal year ended December 31, 2024525 Other Information During Q4 2024, no directors or Section 16 officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements Disclosure Regarding Foreign Jurisdictions that Prevent Inspection This item is not applicable * None527 PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including Audit Committee members Timothy Olson (Chairman), Kristina Bourget, and Kathleen Skarvan, is incorporated by reference from the 2025 Proxy Statement Executive Compensation Information regarding director and executive compensation is incorporated by reference from the 2025 Proxy Statement Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2025 Proxy Statement, with 52,000 shares issuable from outstanding options and 34,053 shares available for future issuance under approved equity plans as of December 31, 2024 Equity Compensation Plan Information as of Dec 31, 2024 | Plan Category | Shares to Be Issued Upon Exercise | Weighted-Average Exercise Price | Shares Available for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 52,000 | $11.62 | 34,053 | | Not approved by security holders | — | — | — | | Total | 52,000 | $11.62 | 34,053 | Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2025 Proxy Statement Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2025 Proxy Statement PART IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K report, with financial statements in Item 8 and omitted schedules, providing a list of exhibits, many incorporated by reference