Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 001-39182
FFBW, INC.
(Exact name of registrant as specified in its charter)
Maryland
37-1962248
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
1360 South Moorland Road
53005
Brookfield, Wisconsin
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (262) 542-4448
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
FFBW
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained,
to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and an attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
As of March 23, 2022, there were 6,254,201 issued and outstanding shares of the Registrant’s Common Stock. The aggregate market value of the voting and non-voting
common equity held by non-affiliates of the Registrant, computed by reference to the closing price of the common stock on June 30, 2021, was approximately $66.2 million.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for the 2022 Annual Meeting of Stockholders of the Registrant (Part III).
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2
TABLE OF CONTENTS
ITEM 1.
BUSINESS
3
ITEM 1A. RISK FACTORS
30
ITEM 1B. UNRESOLVED STAFF COMMENTS
30
ITEM 2.
PROPERTIES
31
ITEM 3.
LEGAL PROCEEDINGS
31
ITEM 4.
MINE SAFETY DISCLOSURES
31
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
31
ITEM 6.
RESERVED
32
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
33
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
42
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
42
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
42
ITEM 9A. CONTROLS AND PROCEDURES
42
ITEM 9B. OTHER INFORMATION
43
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
43
ITEM 11.
EXECUTIVE COMPENSATION
43
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
44
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
44
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
44
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
45
ITEM 16.
FORM 10 K SUMMARY
46
CONSOLIDATED FINANCIAL STATEMENTS
F-2
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3
PART I
ITEM 1. Business
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements, which can be identified by the use of words such as
“estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,”
“would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements
include, but are not limited to:
●
Statements of our goals, intentions and expectations;
●
Statements regarding our business plans, prospects, growth and operating strategies;
●
Statements regarding the asset quality of our loan and investment portfolios; and
●
Estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to
significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In
addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions
that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements
after the date of this Annual Report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements:
●
General economic conditions, either nationally or in our market areas, that are worse than expected;
●
Changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy
of the allowance for loan losses;
●
Economic and/or policy changes related to the COVID-19 pandemic;
●
Our ability to access cost-effective funding;
●
Fluctuations in real estate values and both residential and commercial real estate market conditions;
●
Demand for loans and deposits in our market area;
●
Our ability to implement and change our business strategies;
●
Competition among depository and other financial institutions;
●
Inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking
revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults,
losses and prepayments on loans we have made and make;
●
Adverse changes in the securities or secondary mortgage markets;
●
Changes in laws or government regulations or policies affecting financial institutions, including changes in
regulatory fees and capital requirements, including as a result of Basel III;
●
Changes in the quality or composition of our loan or investment portfolios;
●
Technological changes that may be more difficult or expensive than expected;
●
The inability of third-party providers to perform as expected;
●
Our ability to manage market risk, credit risk and operational risk in the current economic environment;
●
Our ability to enter new markets successfully and capitalize on growth opportunities;
●
Our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management
personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected
time frames, and any goodwill charges related thereto;
●
Changes in consumer spending, borrowing and savings habits;
●
Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial
Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting
Oversight Board;
●
Our ability to retain key employees;
●
Our compensation expense associated with equity allocated or awarded to our employees; and
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4
●
Changes in the financial condition, results of operations or future prospects of issuers of securities that we own.
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the
results indicated by these forward-looking statements.
BUSINESS OF FFBW, INC.
FFBW, Inc. (the “Company”) is a Maryland corporation that was incorporated in September 2019 to become the stock
holding company for First Federal Bank of Wisconsin in connection with the conversion of the former FFBW, MHC from a
mutual holding company to a stock holding company. The Company is the successor to FFBW, Inc. a federal corporation, (“Old
FFBW”), the former stock holding company of First Federal Bank of Wisconsin and majority-owned subsidiary of the former
FFBW, MHC. The conversion was completed effective January 16, 2020. In the conversion, the Company sold 4,268,570
shares of common stock at $10.00 per share, for net proceeds of approximately $41.5 million, and issued 3,436,430 shares of
common stock in exchange for the shares of common stock of Old FFBW owned by stockholders of Old FFBW, other than
FFBW, MHC, as of the effective date of the conversion. As a result of the conversion, FFBW, MHC and Old FFBW have
ceased to exist.
The Company conducts its business principally through its wholly owned subsidiary, First Federal Bank of Wisconsin.
The Company’s executive offices are located at 1360 South Moorland Road, Brookfield, Wisconsin 53005 and its
telephone number is (262) 542-4448. Our website address is www.firstfederalwisconsin.com. Information on this website is not
and should not be considered a part of this Annual Report on Form 10-K.
The Company is subject to comprehensive regulation and examination by the Board of Governors of the Federal
Reserve System. At December 31, 2021, we had total assets of $357.1 million, total deposits of $255.3 million and total equity
of $94.0 million. We recorded net income of $2.0 million for the year ended December 31, 2021.
The Company is authorized to pursue business activities permitted by applicable laws and regulations, which may
include the acquisition of banking and financial services companies. We currently have no understandings or agreements to
acquire other financial institutions, although we may determine to do so in the future. We may also borrow funds including for
reinvestment in First Federal Bank of Wisconsin. See “Supervision and Regulation – Holding Company Regulation” for a
discussion of the activities that are permitted for savings and loan holding companies.
We neither own nor lease any property, but pay a fee to First Federal Bank of Wisconsin for the use of its premises,
equipment and furniture. At the present time, we employ only persons who are officers of First Federal Bank of Wisconsin who
also serve as officers of the Company. We use the support staff of First Federal Bank of Wisconsin from time to time and pay a
fee to First Federal Bank of Wisconsin for the time devoted to the Company by employees of First Federal Bank of Wisconsin.
However, these persons are not separately compensated by the Company. The Company may hire additional employees, as
appropriate, to the extent it expands its business in the future.
BUSINESS OF FIRST FEDERAL BANK OF WISCONSIN
General
First Federal Bank of Wisconsin (hereinafter, sometimes referred to as, the “Bank”) is a federally chartered stock
savings bank, with its home office in Waukesha, Wisconsin, which is in Waukesha County, located in southeastern Wisconsin
approximately 18 miles west of Milwaukee. First Federal Bank of Wisconsin was originally organized in 1922, and has operated
continuously in the Milwaukee metropolitan area since that time. In May 2014, we merged with Bay View Federal Savings and
Loan Association (“Bay View Federal”), a federal mutual saving association located in Milwaukee, Wisconsin, with
approximately $135 million in assets as of the May 17, 2014 closing date of the merger. In the merger, Bay View Federal’s sole
office located in the Bay View neighborhood of Milwaukee became a branch office of First Federal Bank of Wisconsin, thereby
expanding our presence into Milwaukee County.
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5
From our founding in 1922 until 2006, we operated as a traditional thrift institution, offering primarily residential
mortgage loans and savings accounts. Beginning in 2006, we expanded our loan operations and began offering commercial
products. Our commercial loan offerings have increased significantly in the last decade, including through our merger in 2014
with Bay View Federal.
In July 2016, we hired our current president and chief executive officer, Edward H. Schaefer, and since this time we
have conducted an extensive review of our credit, underwriting, information technology and compliance operations. Under the
leadership of Mr. Schaefer, we believe that we have significantly upgraded our loan operations, policies, procedures and
controls. Among other areas, we have enhanced our commercial real estate and commercial and industrial lending infrastructure.
Additionally, consistent with our strategy to grow our commercial loan operations, we have enhanced our suite of deposit
products in order to accommodate business customers, and thereby grow our core deposits.
Subject to market conditions, we expect to continue to increase our focus on originating commercial real estate and
commercial and industrial loans to continue to diversify our overall loan portfolio, increase the overall yield earned on our loans
and assist in managing interest rate risk. We also invest in securities, which have historically consisted of mortgage-backed
securities issued by U.S. government sponsored enterprises, municipal securities, corporate debt securities and U.S. government
and agency securities. We offer a variety of deposit accounts, including checking accounts, savings accounts, health savings
accounts and certificate of deposit accounts. Additionally, we have used advances from the Federal Home Loan Bank of
Chicago and brokered certificates of deposit to fund our operations.
In October 2017, we consummated our reorganization to a mutual holding company structure whereby First Federal
Bank of Wisconsin became a stock bank and the wholly owned subsidiary of Old FFBW. Concurrently with this reorganization,
Old FFBW sold 44.6% of its stock to the general public, including First Federal Bank of Wisconsin’s employee stock ownership
plan, and issued 55.0% of its stock to FFBW, MHC, our former top tier mutual holding company. Additionally, as part of the
reorganization, we established a charitable foundation called FFBW Community Foundation and funded it with $250,000 in
cash and 25,000 shares. The purpose of this foundation is to make contributions to support various charitable organizations
operating in our community now and in the future.
In January 2020, we consummated the mutual to stock conversion of FFBW, MHC. At the effective time of the second-
step conversion, FFBW, MHC and Old FFBW ceased to exist and First Federal Bank of Wisconsin became the wholly owned
subsidiary of the Company.
In December 2020, the Bank completed the acquisition of substantially all the assets and substantially all the liabilities
of Mitchell Bank, a Wisconsin-chartered commercial bank headquartered in Milwaukee, Wisconsin. The purchase price, paid in
cash, was $5.0 million for $61.7 million in assets and $56.7 million in liabilities, including $45.6 million in cash and
investments, $14.3 million in loans and $56.6 million in deposits. As a result of the transaction, the Bank recorded a bargain
purchase gain of $7,000.
Our website address is www.firstfederalwisconsin.com. The Company makes available, through links on our website,
its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed
or furnished pursuant to Section 13(a) of 15(d) of the Exchange Act, and statements of ownership on Forms 3, 4, 5, and 8.
Investors are encouraged to access these reports and other information about our business on our website. The information found
on the Company’s website is not incorporated by reference to this or any other report the Company files or furnishes to the SEC.
Impact of COVID-19 Outbreak
During 2020 and 2021, the extraordinary impact of the COVID-19 pandemic created an unprecedented environment for
consumer’s and businesses alike. To protect our employees and customers from potential exposure to the virus, First Federal
Bank of Wisconsin adopted and observed protocols to limit exposure and /or spread of the virus.
To assist our loan customers, we offered loan payment deferral to borrowers unable to make their contractual payments
due to COVID-19. Deferral requests were considered on a case-by-case basis and were generally approved for up to a six-
month period for principal and interest payment deferrals.
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6
We participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) created by the
Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) that was signed into law during March 2020 to provide
liquidity using the SBA platform to small businesses and self-employed individuals to maintain their staff and operations
through the COVID-19 pandemic. This liquidity was in the form of a loan, 100% guaranteed by the SBA, that was forgivable
provided the funds were used on qualifying payroll costs, and to a lesser extent, rent, utilities and interest on qualifying
mortgage payments. The loans bore a fixed rate of 1.0% and loan payments were deferred for the first 10 months following the
covered period, which was eight to twenty-four weeks following the date the loan was made. We expect most of these loans to
be approved for full forgiveness by the SBA.
The health of the banking industry is highly correlated with that of the economy. The temporary and/or partial closures
of non-essential businesses in our local and national economies increases the likelihood of recession, which typically results in
an increased level of credit losses. Accordingly, we will closely monitor our provision for loan losses. In addition to utilizing
quantitative loss factors, we consider qualitative factors, such as changes in underwriting policies, current economic conditions,
delinquency statistics, the adequacy of the underlying collateral and the financial strength of the borrower. The impact of the
COVID-19 pandemic on the performance of our loan portfolio in future quarters is unknown, however all of these factors are
likely to be affected.
Market Area
We conduct our operations from our three full-service banking offices in Waukesha County, Wisconsin, which is
located immediately west of Milwaukee, our office in the Bay View neighborhood of Milwaukee and our newest branch on
Historic Mitchell Street on Milwaukee’s south side. We consider our primary lending market area to be southeastern Wisconsin,
however, we occasionally make loans secured by properties located outside of our primary lending market, usually to borrowers
with whom we have an existing relationship and who have a presence within our primary market.
Waukesha County contains a diverse cross section of employment sectors, with a mix of services, manufacturing,
wholesale/retail trade, federal and local government, health care facilities and finance-related employment. Waukesha County
had an estimated population of 407,000 as of April 2020. The Bay View and Mitchell Street neighborhoods of Milwaukee are
more urban communities located in the southern portion of the city of Milwaukee.
Competition
We face significant competition within our market both in making loans and attracting deposits. Our market area has a
high concentration of financial institutions, including large money center and regional banks, community banks and credit
unions. Some of our competitors offer products and services that we currently do not offer, such as trust services and private
banking. Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage
banking firms, consumer finance companies and credit unions. We face additional competition for deposits from short-term
money market funds, brokerage firms, mutual funds and insurance companies.
According to S&P Market Intelligence, as of December 31, 2021, our market share was 1.06% of total deposits in
Waukesha County, Wisconsin, making us the 20th largest out of 35 banks with branches in Waukesha County. Our market share
was 0.14% of total deposits in Milwaukee County, Wisconsin, making us the 21st largest out of 25 banks with branches in
Milwaukee County.
Lending Activities
Historically, we focused on originating one-to-four family owner-occupied residential real estate loans, one-to-four
family investor-owned residential real estate loans, commercial real estate loans and multifamily loans. In recent years and
going-forward, subject to market conditions and our asset-liability analysis, we expect to continue to increase our focus on
originating commercial real estate and commercial and industrial loans, in an ongoing effort to diversify our overall loan
portfolio and increase the overall yield earned on our loans.
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7
Since 2016, we have hired a new president and chief executive officer who has extensive commercial lending
experience, as well as a new senior vice president of lending and five new loan officers, including three commercial loan
officers. We anticipate hiring additional loan officers, including experienced commercial and industrial lenders, as we grow the
Company. Additionally, we continually enhance our underwriting policies and procedures. We believe that these enhanced
policies and procedures will further our business strategy of growing our commercial real estate and commercial and industrial
loan portfolios while maintaining a strong credit and underwriting culture.
We sell the majority of the fixed-rate conforming and eligible jumbo one-to-four family owner-occupied residential real
estate loans that we originate, generally on a servicing-released basis, with limited or no recourse, while retaining non-eligible
jumbo fixed-rate and adjustable-rate one-to-four family owner-occupied residential real estate loans in order to manage the
duration and time to repricing of our loan portfolio.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, by type of loan at the
dates indicated, excluding loans held for sale of $500,000 and $1,708,000 at December 31, 2021 and 2020, respectively.
At December 31,
2021
2020
Amount
Percent
Amount
Percent
(Dollars in thousands)
Commercial:
Development
$
21,396
9.5 % $ 14,090
6.5 %
Real estate
94,830
42.2
87,605
40.2
Commercial and industrial
18,387
8.2
20,758
9.5
Residential real estate and consumer:
One-to-four family owner-occupied
18,158
8.1
30,548
14.0
One-to-four family investor-owned
26,234
11.7
32,638
15.0
Multifamily
42,511
18.9
29,303
13.4
Consumer
3,312
1.4
3,016
1.4
Total loans
224,828
100.0 %
217,958
100.0 %
Deferred loan costs (fees)
(294)
(424)
Allowance for loan losses
(2,430)
(2,811)
Total loans, net
$ 222,104
$ 214,723
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8
Loan Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio at
December 31, 2021. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as
being due in the year ending December 31, 2022. Maturities are based on the final contractual payment date and do not reflect
the impact of prepayments and scheduled principal amortization.
One-to-four
One-to-four
Commercial
family
family
Commercial
Commercial
and
owner-
investor-
development
real estate
industrial
occupied
owned
Multifamily
Consumer
Total
(In thousands)
Due During the Years Ending
December 31,
2022
$
1,995
$
7,783
$
2,620
$
312
$
2,525
$
1,278
$
226 $ 16,739
2023 to 2026
15,921
75,956
12,720
1,952
16,488
22,751
874 146,662
2027 to 2031
3,480
6,259
3,047
1,606
1,949
17,252
1,711
35,304
2032 and beyond
—
4,832
—
14,288
5,272
1,230
501
26,123
Total
$
21,396
$ 94,830
$ 18,387
$ 18,158
$ 26,234
$ 42,511
$ 3,312 $ 224,828
The following table sets forth the fixed- and adjustable-rate loans at December 31, 2021 that are contractually due after
December 31, 2022.
Due After December 31, 2022
Fixed
Adjustable
Total
(In thousands)
Commercial:
Development
$
14,637
$
4,764
$
19,401
Real estate
86,343
704
87,047
Commercial and industrial
11,220
4,547
15,767
Residential real estate and consumer:
One-to-four family owner-occupied
7,784
10,062
17,846
One-to-four family investor-owned
17,911
5,798
23,709
Multifamily
40,004
1,229
41,233
Consumer
613
2,473
3,086
Total
$ 178,512
$
29,577
$ 208,089
One-to-Four Family Owner-Occupied Residential Real Estate Lending. At December 31, 2021, we had $18.2 million
of loans secured by one-to-four family owner-occupied residential real estate, representing 8.1% of our total loan portfolio. In
addition, at December 31, 2021, we had $500,000 of residential mortgages held for sale. We originate both fixed-rate and
adjustable-rate one-to-four family residential real estate loans. At December 31, 2021, 50.3% of our one-to-four family owner-
occupied residential real estate loans were fixed-rate loans and 49.7% of such loans were adjustable-rate loans.
Our fixed-rate one-to-four family residential real estate loans typically have terms of 10 to 30 years and are generally
underwritten according to conventional loan underwriting guidelines when the loan balance meets such guidelines, and we refer
to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate mortgage
loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which was
$548,250 during 2021 for single-family homes in our market area. We typically sell, servicing-released, our conforming and
eligible jumbo fixed-rate one-to-four family owner-occupied residential real estate loans. We also originate loans above the
lending limit for conforming loans, which are referred to as “jumbo loans” that we retain in our portfolio. Jumbo loans that we
originate typically have 15 to 30 year terms and maximum loan-to-value ratios of 80%. At December 31, 2021, we had $2.8
million in jumbo loans, which represented
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9
15.4% of our one-to-four family owner-occupied residential real estate loans. Our average loan size for jumbo loans was
$696,000 at December 31, 2021. Virtually all of our one-to-four family residential real estate loans are secured by properties
located in Waukesha County or Milwaukee County, Wisconsin.
We generally limit the loan-to-value ratios of our mortgage loans without private mortgage insurance to 80% of the
sales price or appraised value, whichever is lower. Loans where the borrower obtains private mortgage insurance may be made
with loan-to-value ratios up to 95%.
Our adjustable-rate one-to-four family residential real estate loans carry terms to maturity ranging from 15 to 30 years
and generally have fixed rates for initial terms of five years, although we also offer terms of three or seven years, and adjust
annually thereafter at a margin, which in recent years has been tied to a margin above the 12-month Treasury rate. The
maximum amount by which the interest rate may be increased or decreased is generally 2% per adjustment period, with a
lifetime interest rate cap of generally 6% over the initial interest rate of the loan and a rate floor. We typically hold in our loan
portfolio our adjustable-rate one-to-four family residential real estate loans.
Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates
because they periodically re-price, as interest rates increase the required payments due from the borrower also increase (subject
to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan
and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the
contractual interest rate are also limited by our maximum periodic and lifetime rate adjustments. Moreover, the interest rates on
most of our adjustable-rate loans do not adjust for up to five years after origination. As a result, the effectiveness of adjustable-
rate mortgage loans in compensating for changes in general interest rates may be limited during periods of rapidly rising interest
rates.
We do not offer “interest only” mortgage loans on permanent one-to-four family residential real estate loans (where the
borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans
that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the
interest owed on the loan, resulting in an increased principal balance during the life of the loan. We do not have a “subprime
lending” program for one-to-four family residential real estate loans (i.e., loans that generally target borrowers with weakened
credit histories).
Generally, residential mortgage loans that we originate include “due-on-sale” clauses, which give us the right to declare
a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real
property subject to the mortgage and the loan is not repaid. All borrowers are required to obtain title insurance for the benefit of
First Federal Bank of Wisconsin. We also require homeowner’s insurance and fire and casualty insurance and, where
circumstances warrant, flood insurance on properties securing real estate loans.
One-to-Four Family Investor-Owned Residential Real Estate Lending. At December 31, 2021, we had $26.2 million
of loans secured by one-to-four family investor-owned residential real estate, representing 11.7% of our total loan portfolio.
One-to-four family investor-owned residential real estate loans are underwritten pursuant to our commercial lending
underwriting criteria. Generally, we require personal guarantees from the borrowers on these properties, and we will not make
loans in excess of 80% loan to value on non-owner-occupied properties.
We believe that there is a greater credit risk inherent in investor-owned residential properties than in owner-occupied
one-to-four family residential real estate loans since, similar to commercial real estate and multifamily loans, the repayment of
these loans may depend, in part, on the successful management of the property and/or the borrower’s ability to lease the units of
the property. In addition, the physical condition of investor-owned properties is often below that of owner-occupied properties
due to lax property maintenance standards, which has a negative impact on the value of the collateral properties.
Multifamily Residential Real Estate Loans. At December 31, 2021, multifamily residential real estate loans were
$42.5 million, or 18.9%, of our total loan portfolio. Our multifamily residential real estate loans are generally secured by
properties consisting of five or more rental units in our market area. In addition to originating these loans, we also purchase and
participate in multifamily residential real estate loans from other financial institutions. Such loans are independently
underwritten according to our policies and require satisfactory documentation review by our legal counsel
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10
before we will purchase or participate in such loans. We believe our enhanced credit underwriting and loan administration
policies and procedures should address these risks.
We originate a variety of adjustable-rate multifamily residential real estate loans with terms and amortization periods
generally up to 20 years, which may include balloon loans. Interest rates and payments on our adjustable-rate multifamily
residential real estate loans generally are indexed to the prime rate plus a margin. We generally include pre-payment penalties on
multi-family residential real estate loans we originate.
In underwriting multifamily residential real estate loans, we consider a number of factors, which include the projected
net cash flow to the loan’s debt service requirement (generally requiring a minimum of 115%), the age and condition of the
collateral, the financial resources and income level of the borrower and the borrower’s experience in owning or managing
similar properties. Multifamily residential real estate loans are generally originated in amounts up to 75% of the appraised value
or the purchase price of the property securing the loan, whichever is lower. When circumstances warrant, guarantees are
obtained from multifamily residential real estate customers. In addition, the borrower’s and guarantor’s financial information on
such loans is monitored on an ongoing basis by requiring periodic financial statement updates.
If we foreclose on a multifamily residential real estate loan, the marketing and liquidation period to convert the real
estate asset to cash can be a lengthy process with substantial holding costs. In addition, vacancies, deferred maintenance, repairs
and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic
losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-
offs and subsequent losses on commercial real estate loans can be unpredictable and substantial.
At December 31, 2021, our largest multifamily residential real estate loan had an outstanding balance of $5.4 million
and was secured by an apartment complex. At December 31, 2021, this loan was performing in accordance with its repayment
terms.
Commercial Real Estate Lending. Consistent with our strategy to diversify our loan portfolio and increase our yield,
we are focused on increasing our origination of commercial real estate loans. At December 31, 2021, we had $94.8 million in
commercial real estate loans, representing 42.2% of our total loan portfolio. Our commercial real estate loans are generally
secured by office and industrial buildings, warehouses, small retail facilities and restaurants and other special purpose
commercial properties, primarily in southeastern Wisconsin.
Our commercial real estate loans generally have initial terms of 5 years and amortization terms of 5 to 20 years, with a
balloon payment at the end of the initial term, and may be fixed-rate or adjustable-rate loans. Our adjustable-rate commercial
real estate loans are generally tied to a margin above the prime rate. The maximum loan-to-value ratio of our commercial real
estate loans is generally 80% of the lower of cost or appraised value of the property securing the loan.
At December 31, 2021, the average loan size of our outstanding commercial real estate loans was $597,000, and the
largest of such loans was a $6.4 million loan secured by senior housing. This loan was performing in accordance with its
repayment terms at December 31, 2021.
We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and
financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as
well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we
consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the
borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we
consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan
amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to
debt service). We generally require a debt service ratio of at least 1.15x. All commercial real estate loans of $250,000 or more
are appraised by outside independent appraisers.
Personal guarantees are generally obtained from the principals of commercial real estate loans. We require property and
casualty insurance and flood insurance if the property is determined to be in a flood zone area.
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11
Commercial real estate loans entail greater credit risks compared to one-to-four family owner-occupied residential real
estate loans because they typically involve larger loan balances concentrated with single borrowers or groups of related
borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful
operation of the property, as repayment of the loan generally is dependent, in large part, on sufficient income from the property
to cover operating expenses and debt service. Changes in economic conditions that are not in the control of the borrower or
lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real
estate values may be more pronounced for commercial real estate than residential properties.
Commercial and Industrial Lending. At December 31, 2021, we had $18.4 million of commercial and industrial loans,
representing 8.2% of our total loan portfolio. We originate commercial and industrial loans and lines of credit secured by non-
real estate business assets. These loans are generally originated to small businesses in our primary market area. Our commercial
and industrial loans are generally used by the borrowers for working capital purposes or for acquiring equipment, inventory or
furniture, and are primarily secured by business assets other than real estate, such as business equipment, inventory and accounts
receivable. Our commercial and industrial loans are generally term loans with terms of three to seven years and lines of credit
with terms of one to two years, with a target loan size of $500,000 to $5.0 million. Our commercial and industrial lines of credit
are generally priced on an adjustable-rate basis tied to the prime rate. Term loans are generally priced at a spread over the
comparable term Federal Home Loan Bank of Chicago rate. We generally obtain personal guarantees with commercial and
industrial loans.
At December 31, 2021, the average loan size of our outstanding commercial and industrial loans was $275,000 and our
largest outstanding commercial and industrial loan balance was a $4.3 million loan to a manufacturing company. This loan was
performing in accordance with its repayment terms at December 31, 2021.
We typically originate commercial and industrial loans on the basis of the borrower’s ability to make repayment from
the cash flow of the borrower’s business, the experience and stability of the borrower’s management team, earnings projections
and their underlying assumptions, and the value and marketability of any collateral securing the loan. As a result, the availability
of funds for the repayment of commercial and industrial loans may be substantially dependent on the success of the business
itself and the general economic environment in our market area. Therefore, commercial and industrial loans that we originate
have greater credit risk than one-to-four family residential real estate loans. In addition, commercial and industrial loans often
result in larger outstanding balances to single borrowers, or related groups of borrowers, and also generally require substantially
greater evaluation and oversight efforts.
As commercial and industrial loans typically help to drive deposit growth, we are increasing our focus on growing this
segment of the loan portfolio. This will also improve diversification and increase loan portfolio yield.
Commercial Development Loans. At December 31, 2021, we had $21.4 million, or 9.5% of our total loan portfolio, in
commercial development loans. Our commercial development loans may be made for the construction and development of both
one-to-four family residential real estate and commercial real estate projects. Our commercial development loans generally have
initial terms of up to 12 months, during which the borrower pays interest only. Upon completion of construction, these loans
convert to permanent loans. Our commercial development loans are generally underwritten pursuant to the same guidelines used
for originating permanent commercial real estate loans, and have rates and terms comparable to commercial real estate loans that
we originate. The maximum loan-to-value of our commercial construction loans is 65% of the lesser of the appraised value of
the completed property or the contract price for the land plus the value of the improvements. Before making a commitment to
fund a construction loan, we require detailed cost estimates to complete the project and an appraisal of the property by an
independent licensed appraiser. Each property is inspected before disbursement of funds during the term of the construction
loan. Loan proceeds are disbursed after inspection based on the percentage of completion method. All borrowers are required to
obtain title insurance, property and casualty insurance, and, if the property is determined to be located in a flood zone area, flood
insurance. At December 31, 2021, the un-advanced portion of total commercial development loans totaled $8.7 million. At
December 31, 2021, our largest commercial development loan had a balance of $4.1 million and was secured by a residential
development project and was performing in accordance with its repayment terms.
Commercial development financing generally involves greater credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a commercial development loan depends largely upon the accuracy of the initial
estimate of the value of the property at completion of construction compared to the estimated cost
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12
(including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required
to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if
the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to
assure full repayment of the construction loan upon the sale of the property. Commercial development loans also expose us to
the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the
ultimate sale or rental of the property may not occur as anticipated.
Consumer Lending. To a much lesser extent, we offer a variety of consumer loans to individuals who reside or work in
our market area, including home equity lines of credit, new and used automobile loans, boat loans, recreational vehicle loans and
loans secured by certificates of deposit. At December 31, 2021, our consumer loan portfolio totaled $3.3 million, or 1.5% of our
total loan portfolio. At December 31, 2021, we had $11,000 in unsecured consumer loans.
Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In
addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing
customer base by increasing the number of customer relationships and providing cross-marketing opportunities.
Originations, Sales and Purchases of Loans
Most of our loan originations are generated by our loan personnel operating at our banking office locations. While we
originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower
demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking
companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the
volume of our real estate loan originations can vary from period to period.
We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to
hold loans we originate for investment or to sell such loans to investors, choosing the strategy that is most advantageous to us
from a profitability and risk management standpoint. For the years ended December 31, 2021 and 2020, we sold $12.5 million
and $22.2 million of one-to-four family owner-occupied residential real estate loans. Subject to market and economic
conditions, we intend to continue this sales activity in future periods to generate gain on sale income.
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13
From time to time, we may purchase loan participations secured by properties within and outside of our primary
lending market area in which we are not the lead lender. In these circumstances, we follow our customary loan underwriting and
approval policies. At December 31, 2021, we had 17 loans with an aggregate balance of $41.6 million in which we were not the
lead lender, all of which were performing in accordance with their original repayment terms. We also have participated out
portions of loans that exceeded our loans-to-one borrower legal lending limit and for risk diversification. At December 31, 2021,
we had participated out portions of two loans with an aggregate amount of $4.4 million.
The following table sets forth our loan origination, purchase, sale and principal repayment activity during the periods
indicated.
Years Ended December 31,
2021
2020
(In thousands)
Total loans, including loans held for sale, at beginning of period
$
219,666
$
191,942
Loans originated:
Commercial development
8,368
3,313
Commercial real estate
19,324
17,604
Commercial and industrial
8,510
10,375
Residential one-to-four family owner-occupied
16,536
18,579
Residential one-to-four family investor-owned
2,775
537
Multifamily
17,411
5,732
Consumer
1,079
337
Total loans originated
74,003
56,477
Loans purchased:
Commercial development
—
414
Commercial real estate
3,000
13,649
Commercial and industrial
4,218
3,065
Residential one-to-four family owner-occupied
—
3,144
Residential one-to-four family investor-owned
—
2,227
Multifamily
11,130
—
Consumer
—
76
Total loans purchased
18,348
22,575
Loans sold:
Commercial real estate
—
—
Residential one-to-four family owner-occupied
(12,456)
(22,263)
Total loans sold
(12,456)
(22,263)
Other:
Principal repayments
(74,233)
(29,065)
Net loan activity
5,662
27,724
Total loans, including loans held for sale, at end of period
$
225,328
$
219,666
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14
Loan Approval Procedures and Authority
Pursuant to federal law, the aggregate amount of loans that First Federal Bank of Wisconsin is permitted to make to any
one borrower or a group of related borrowers is generally limited to 15% of First Federal Bank of Wisconsin’s unimpaired
capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain
residential development loans). At December 31, 2021, based on the 15% limitation, First Federal Bank of Wisconsin’s loans-to-
one-borrower limit was approximately $11.7 million. On the same date, First Federal Bank of Wisconsin had no borrowers with
outstanding balances in excess of this amount. At December 31, 2021, our largest loan relationship with one borrower was for
$7.5 million, which was secured by multifamily real estate, and the underlying loans were performing in accordance with their
repayment terms on that date.
Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are
made on the basis of detailed applications submitted by the prospective borrower, credit histories that we obtain, and property
valuations (consistent with our appraisal policy) prepared by outside independent licensed appraisers approved by our board of
directors. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the
more significant items on the application are verified through use of credit reports, bank statements and tax returns.
All loan approval amounts are based on the aggregate loans, including total balances of outstanding loans and the
proposed loan to the individual borrower and any related entity. Our president and chief executive officer has individual
authorization to approve loans up to $2.0 million. Our senior vice president of commercial lending has individual authorization
to approve loans up to $1.0 million. Our Officers Loan Committee, which consists of our president and chief executive officer,
senior vice president of commercial lending, and all loan officers, can approve loans up to $3.0 million in the aggregate. Our
Board Credit Committee, which consists of our president and chief executive officer and three outside directors can approve
loans up to $5.0 million. Loans in excess of $5.0 million require the approval of our full board of directors.
Generally, we require title insurance or abstracts on our mortgage loans as well as fire and extended coverage casualty
insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending
on the type of loan.
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a loan payment becomes 15 days past due, we contact the customer by mailing a late
notice, and loan officers may contact their customers. If a loan payment becomes 30 days past due, we mail an additional late
notice and a loan-specific letter written by a collection representative, and we also place telephone calls to the borrower. These
loan collection efforts continue until a loan becomes 90 days past due, at which point we would refer the loan for foreclosure
proceedings unless management determines that it is in the best interest of First Federal Bank of Wisconsin to work further with
the borrower to arrange a workout plan. The foreclosure process would begin when a loan becomes 120 days delinquent. From
time to time we may accept deeds in lieu of foreclosure.
Loans Past Due and Nonperforming Assets. Loans are reviewed on a regular basis. Management determines that a
loan is impaired or nonperforming when it is probable at least a portion of the loan will not be collected in accordance with the
original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan
is collateral dependent. When a loan is determined to be impaired, the measurement of the loan in the allowance for loan losses
is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore,
interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are
placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-
accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash
basis or cost recovery method.
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15
When we acquire real estate as a result of foreclosure, the real estate is classified as foreclosed assets. Foreclosed assets
are recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new
appraisal to determine the current market value of the property. Any excess of the recorded value of the loan satisfied over the
market value of the property is charged against the allowance for loan losses, or, if the existing allowance is inadequate, charged
to expense, in either case during the applicable period of such determination. After acquisition, all costs incurred in maintaining
the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the
extent of estimated fair value less estimated costs to sell.
Delinquent Loans. The following table sets forth our loan delinquencies by type, by number and by amount of type at
the dates indicated.
Loans Delinquent For
30-89 Days
90 Days and Over
Total
Number Amount Number Amount Number Amount
(Dollars in thousands)
At December 31, 2021
Commercial:
Development
—
$
—
—
$
—
—
$
—
Real estate
—
—
—
—
—
—
Commercial and industrial
—
—
—
—
—
—
Residential real estate and consumer:
—
One-to-four family owner-occupied
1
114
—
—
1
114
One-to-four family investor-owned
—
—
—
—
—
—
Multifamily
—
—
—
—
—
—
Consumer
—
—
—
—
—
—
Total
1
$
114
—
$
—
1
$
114
At December 31, 2020
Commercial:
Development
—
$
—
—
$
—
—
$
—
Real estate
1
565
—
—
1
565
Commercial and industrial
—
—
2
704
2
704
Residential real estate and consumer:
—
One-to-four family owner-occupied
2
201
—
—
2
201
One-to-four family investor-owned
—
—
—
—
—
—
Multifamily
—
—
—
—
—
—
Consumer
—
—
—
—
—
—
Total
3
$
766
2
$
704
5
$ 1,470
Nonperforming Loans. We generally cease accruing interest on our loans when contractual payments of principal or
interest have become 90 days past due or management has serious doubts about further collectability of principal or interest,
even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is
either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed.
Interest received on nonaccrual loans generally is applied against principal or interest and is recognized on a cash basis.
Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the
contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is
no longer in doubt.
Nonperforming loans were $284,000, or 0.13% of total loans, at December 31, 2021 compared to $1.1 million, or
0.49% of total loans, at December 31, 2020.
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16
Troubled Debt Restructurings. Loans are accounted for as troubled debt restructurings when a borrower is
experiencing financial difficulties that lead to a restructuring of the loan, and First Federal Bank of Wisconsin grants a
concession to the borrower that it would not otherwise consider. These concessions include a modification of terms, such as a
reduction of the stated interest rate or loan balance, a reduction of accrued interest, an extension of the maturity date at an
interest rate lower than current market rate for a new loan with similar risk, or some combination thereof to facilitate payment.
Troubled debt restructurings are considered impaired loans. There were three loans totaling $269,000 added to impaired loans
during 2021 and no additional loans were added in 2020.
Loans on non-accrual status at the date of modification are initially classified as non-accrual troubled debt
restructurings. At December 31, 2021, we had $269,000 in non-accrual troubled debt restructurings. Our policy provides that
troubled debt restructured loans are returned to accrual status after a period of satisfactory and reasonable future payment
performance under the terms of the restructuring. Satisfactory payment performance is generally no less than six
consecutive months of timely payments. At December 31, 2021, we had $262,000 in accruing troubled debt restructurings.
Nonperforming Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates
indicated.
At December 31,
2021
2020
(In thousands)
Non-accrual loans:
Commercial:
Development
$
—
$
—
Real estate
112
—
Commercial and industrial
—
792
Residential real estate and consumer:
One-to-four family owner-occupied
172
69
One-to-four family investor-owned
—
206
Multifamily
—
—
Consumer
—
—
Total non-performing loans
284
1,067
Foreclosed assets
—
125
Other non-performing assets
—
—
Total non-performing assets
$
284
$
1,192
Troubled debt restructurings:
Commercial:
Development
$
—
$
—
Real estate
112
—
Commercial and industrial
—
824
Residential real estate and consumer:
One-to-four family owner-occupied
—
384
One-to-four family investor-owned
419
206
Multifamily
—
—
Consumer
—
—
Total
$
531
$
1,414
Ratios:
Total non-performing loans to total loans
0.13 %
0.49 %
Total non-performing loans to total assets
0.08 %
0.31 %
Total non-performing assets to total assets
0.08 %
0.35 %
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17
Foreclosed Assets. Foreclosed assets consist of property acquired through formal foreclosure, in-substance foreclosure
or by deed in lieu of foreclosure, and are recorded at the lower of recorded investment or fair value less estimated costs to sell.
Write-downs from recorded investment to fair value, which are required at the time of foreclosure, are charged to the allowance
for loan losses. After transfer, adjustments to the carrying value of the properties that result from subsequent declines in value
are charged to operations in the period in which the declines occur. During the year ended December 31, 2021, no loans were
transferred into foreclosed assets. We had $0 and $125,000 of foreclosed assets at December 31, 2021 and 2020, respectively.
Other Loans of Concern. There were no other loans at December 31, 2021 that are not already disclosed where there is
information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the
borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.
Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity
securities considered by the OCC to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered
“substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will
sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in
those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,”
on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss”
are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our
management.
When an insured institution classifies problem assets as either substandard or doubtful, it may establish general
allowances in an amount deemed prudent by management to cover probable accrued losses in the loan portfolio. General
allowances represent loss allowances which have been established to cover probable accrued losses associated with lending
activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured
institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of
that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the
establishment of additional general or specific loss allowances.
In accordance with our loan policy, we regularly review the problem loans in our portfolio to determine whether any
loans require classification in accordance with applicable regulations. Loans are listed on the “watch list” initially because of
emerging financial weaknesses even though the loan is currently performing as agreed, or if the loan possesses weaknesses
although currently performing. If a loan deteriorates in asset quality, the classification is changed to “special mention,”
“substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past
due are placed on nonaccrual status and classified “substandard.” Management reviews the status of each impaired loan on our
watch list on a quarterly basis.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb
probable credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the
collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic
conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of
probable credit losses inherent in the loan portfolio and the related allowance may change materially in the near-term. The
allowance is increased by a provision for loan losses, which is charged to expense and reduced by full and partial charge-offs,
net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses.
Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including, but not limited to,
management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and
delinquency experience, trends in past due and non-accrual loans,
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18
existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions
and other qualitative and quantitative factors which could affect potential credit losses.
As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review
our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses. However,
regulatory agencies are not directly involved in the process for establishing the allowance for loan losses as the process is our
responsibility and any increase or decrease in the allowance is the responsibility of management.
Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the periods
indicated.
At or For the Years Ended December 31,
2021
2020
(Dollars in thousands)
Balance at beginning of year
$
2,811
$
2,264
Charge-offs:
Commercial:
Development
—
—
Real estate
—
—
Commercial and industrial
393
—
Residential real estate and consumer:
One-to-four family owner-occupied
—
—
One-to-four family investor-owned
—
—
Multifamily
—
—
Consumer
—
—
Total charge-offs
393
—
Recoveries:
Residential real estate and consumer:
One-to-four family owner-occupied
2
7
One-to-four family investor-owned
10
20
Total recoveries
12
27
Net charge-offs
381
(27)
Provision for loan losses
—
520
Balance at end of year
$
2,430
$
2,811
Ratios:
Net charge-offs to average loans outstanding
0.18 %
(0.01)%
Non-accrual loans to total loans
0.13 %
0.49 %
Allowance for loan losses to non-performing loans at end of year
855.34 %
269.00 %
Allowance for loan losses to total loans at end of year
1.08 %
1.29 %
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19
Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by
loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated.
The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category
and does not restrict the use of the allowance to absorb losses in other categories. At the dates indicated, we had no unallocated
allowance for loan losses.
At December 31,
2021
2020
Percent
Percent
of Loans
of Loans
Percent of
in
Percent of
in
Allowance
Category
Allowance
Category
to
to
to
to
Total
Total
Total
Total
Amount
Allowance
Loans
Amount
Allowance
Loans
(Dollars in thousands)
Commercial:
Development
$
273
11.2 %
9.5 %$
181
6.4 %
6.5 %
Real estate
942
38.8
42.2
833
29.6
40.2
Commercial and industrial
301
12.4
8.2
820
29.2
9.5
Residential real estate and consumer:
—
One-to-four family owner-occupied
191
7.9
8.1
347
12.3
14.0
One-to-four family investor-owned
279
11.5
11.7
352
12.5
15.0
Multifamily
436
17.9
18.9
273
9.7
13.4
Consumer
8
0.3
1.4
5
0.3
1.4
Total allowance for loan losses
$ 2,430
100.0 % 100.0 %$ 2,811
100.0 % 100.0 %
At December 31, 2021, our allowance for loan losses represented 1.08% of total loans and 855.34% of non-performing
loans, and at December 31, 2020, our allowance for loan losses represented 1.29% of total loans and 269.00% of non-
performing loans. There were $381,000 in net charge-offs during the year ended December 31, 2021 and no net charge-offs
during the year ended December 31, 2020.
Although we believe that we use the best information available to establish the allowance for loan losses, future
adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if
circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting
borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be adequate and
management may determine that increases in the allowance are necessary if the quality of any portion of our loan portfolio
deteriorates as a result. Any material increase in the allowance for loan losses may adversely affect our financial condition and
results of operations.
Investment Activities
General. The goals of our investment policy are to provide and maintain liquidity to meet deposit withdrawal and loan
funding needs, to help mitigate interest rate and market risk, to diversify our assets, and to generate a reasonable rate of return
on funds within the context of our interest rate and credit risk objectives. Our board of directors is responsible for adopting our
investment policy. The investment policy is reviewed annually by the board of directors. Authority to make investments under
the approved investment policy guidelines is delegated to our president and chief executive officer and our chief financial
officer. All investment transactions are reviewed at the next regularly scheduled meeting of the board of directors. Since 2014,
we have classified all of our investment securities as available-for-sale.
We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of
various government-sponsored enterprises and municipal governments, deposits at the Federal Home Loan Bank of Chicago,
certificates of deposit of federally insured institutions, investment grade corporate bonds and investment grade marketable
equity securities. We also are required to maintain an investment in Federal Home Loan Bank of Chicago stock. While we have
the authority under applicable law to invest in derivative securities, we had no investments in derivative securities at
December 31, 2021.
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20
Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31,
2021 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the
impact of prepayments or early redemptions that may occur. No tax-equivalent yield adjustments were made, as the effect
thereof was not material. All of our investment securities at this date were held as available-for-sale.
More than One Year
More than Five Years
One Year or Less
through Five Years
through Ten Years
More than Ten Years
Total Securities
Weighted
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Fair
Average
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Value
Yield
(Dollars in thousands)
U.S. government and
agency securities
$
—
— % $
87
3.35 % $
853
2.04 % $
88
2.70 % $
1,028
$ 1,040
2.21 %
State and political
subdivision securities
—
—
2,201
2.40
7,433
2.06
4,655
2.13
14,289
14,624
2.14
Mortgage-backed
securities
—
—
4,606
2.35
7,590
2.38
13,256
2.03
25,452
26,056
2.19
Certificates of deposits
250
2.35
500
2.60
—
—
—
—
750
772
2.52
Corporate debt
securities
—
—
3,518
1.64
2,303
4.84
—
—
5,821
5,906
2.91
Total securities
available for sale
$
250
2.35 % $
10,912
2.15 % $
18,179
2.54 % $
17,999
2.06 % $
47,340
$ 48,398
2.22 %
U.S. Government and Agency Obligations. At December 31, 2021, we had U.S. government and agency securities
totaling $1.0 million, which constituted 2.1% of our securities portfolio. While these securities generally provide lower yields
than other investments in our securities investment portfolio, we maintain these investments, to the extent we deem appropriate,
for liquidity purposes, as collateral for borrowings and for prepayment protection.
Corporate Debt Securities. At December 31, 2021, we had corporate debt securities totaling $5.9 million, which
constituted 12.2% of our securities portfolio. All of our corporate debt securities are investment grade. These securities generally
provide slightly higher yields than U.S. government and agency securities and mortgage-backed securities.
State and Political Subdivision (“Municipal”) Securities. At December 31, 2021, we had municipal securities totaling
$14.6 million, which constituted 30.2% of our securities portfolio. Our current municipal securities have a weighted average
maturity of 9.0 years. These securities often provide slightly higher after-tax yields than U.S. government and agency securities
and mortgage-backed securities, but are not as liquid as other investments, so we typically maintain investments in municipal
securities, to the extent appropriate, for generating returns in our investment portfolio.
Mortgage-Backed Securities. At December 31, 2021, we had mortgage-backed securities totaling $26.1 million, which
constituted 53.8% of our securities portfolio, including $7.8 million of agency collateralized mortgage obligations (CMOs). Of
the $26.1 million of mortgage-backed securities, $7.8 million were commercial and $18.2 million were residential mortgage-
backed securities. Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools of
mortgages. Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because the
principal and interest of the underlying loans is “passed through” to investors, net of certain costs, including servicing and
guarantee fees. Residential mortgage-backed securities typically are collateralized by pools of one-to-four family or multi-
family mortgages, although we invest primarily in mortgage-backed securities backed by one-to-four family mortgages.
Commercial mortgage-backed securities typically are collateralized by pools of commercial mortgage loans. The issuers of such
securities pool and resell the participation interests in the form of securities to investors such as First Federal Bank of Wisconsin.
The interest rate of the security is lower than the interest rates of the underlying loans to allow for payment of servicing and
guaranty fees. All of our mortgage-backed securities are either backed by Ginnie Mae, a U.S. government agency, the Small
Business Administration or government-sponsored enterprises, such as Fannie Mae and Freddie Mac.
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21
Residential and commercial mortgage-backed securities issued by U.S. government agencies and government-
sponsored enterprises are more liquid than individual mortgage loans because there is an active trading market for such
securities. In addition, residential and commercial mortgage-backed securities may be used to collateralize our borrowings.
Investments in residential and commercial mortgage-backed securities involve a risk that actual payments will be greater or less
than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium
or accretion of any discount relating to such interests, thereby affecting the net yield on our securities. Current prepayment
speeds determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.
Other Equity Securities. We held common stock of the Federal Home Loan Bank of Chicago in connection with our
borrowing activities totaling $850,700 at December 31, 2021. The Federal Home Loan Bank of Chicago common stock is
carried at cost. We may be required to purchase additional Federal Home Loan Bank of Chicago stock if we increase borrowings
in the future. In addition, we held Bankers’ Bank stock totaling $502,600 at December 31, 2021.
Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for certain
of our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. At
December 31, 2021, our balance in bank-owned life insurance totaled $10.0 million and was issued by two insurance
companies, both of which were rated AA+ by Standard & Poors.
Sources of Funds
General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We
also use borrowings, primarily Federal Home Loan Bank of Chicago advances, to supplement cash flow needs, lengthen the
maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from
scheduled loan payments, loan and mortgage-backed securities prepayments, maturities and calls of available-for-sale securities,
retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively
stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market
conditions and levels of competition.
Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of
deposit accounts, including noninterest-bearing checking accounts, interest-bearing checking accounts, money market accounts,
statement savings, health savings and certificates of deposit. Deposit account terms vary, with the principal differences being the
minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We may, from time to
time, utilize brokered certificates of deposit and online sources as alternative funding. At December 31, 2021, we had $1.5
million of brokered certificates of deposit and online sources. At December 31, 2021, our core deposits, which are deposits other
than certificates of deposit, were $199.3 million, representing 78.1% of total deposits. As part of our business strategy, we intend
to continue our effort to increase our core deposits through our commercial product offerings.
Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates
and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors
and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and
competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with
flexibility to changes in our customers’ demands. Our ability to gather deposits is impacted by the competitive market in which
we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that
deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market
conditions, including competition and prevailing interest rates.
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22
The following tables set forth the distribution of total deposit accounts, by account type, for the periods indicated.
For the Years Ended December 31,
2021
2020
Average
Weighted
Average
Weighted
Balance Percent Average Rate
Balance Percent Average Rate
(Dollars in thousands)
Deposit type:
Noninterest- bearing checking
$
57,900
23.54 %
— % $
51,802
22.87 %
— %
Interest-bearing checking
10,924
4.44
0.31
10,899
4.81
0.40
Money market
77,949
31.70
0.36
70,455
31.11
0.68
Statement savings
34,267
13.93
0.10
31,977
14.12
0.12
Health savings
10,848
4.41
0.15
10,854
4.79
0.20
Certificates of deposit
54,040
21.97
0.84
50,511
22.30
1.77
Total deposits
$ 245,928
99.99 %
0.33 % $ 226,498
100.00 %
0.65 %
At December 31, 2021 and 2020, the aggregate amount of all uninsured deposits (deposits in excess of the Federal
Deposit Insurance (FDIC) limit of $250,000 per account) was $63.5 million and $32.7 million, respectively. Certificates of
deposit in the amount of $250,000 and over was approximately $10.8 million and $9.5 million, respectively. At December 31,
2021 and 2020, we had no deposits that were uninsured for any reason other than being in excess of the FDIC limit.
The following table sets forth, by time remaining until maturity, the large-denomination certificates of deposit of
$250,000 and over as of December 31, 2021.
At
December 31,
2021
(In thousands)
Three months or less
$
784
Over three months through six months
3,579
Over six months through one year
4,957
Over one year
1,525
Total
$
10,845
Borrowed Funds. We may obtain advances from the Federal Home Loan Bank of Chicago upon the security of our
capital stock in the Federal Home Loan Bank of Chicago and certain of our mortgage loans. Such advances may be made
pursuant to several different credit programs, each of which has its own interest rate and range of maturities. To the extent such
borrowings have different terms to repricing than our deposits, they can change our interest rate risk profile. At December 31,
2021, we had $6.5 million in advances from the Federal Home Loan Bank of Chicago. At December 31, 2021, our available and
unused portion of this borrowing agreement based on the amount of FHLB stock owned was $16.0 million.
Additionally, at December 31, 2021 we had a $7.0 million federal funds rate line of credit with the Bankers’ Bank of
Wisconsin, of which $0 was drawn at December 31, 2021. We also have the authority to borrow through the Federal Reserve’s
Discount Window.
Expense and Tax Allocation
First Federal Bank of Wisconsin has entered into an agreement with FFBW, Inc. to provide it with certain
administrative support services for compensation not less than the fair market value of the services provided. In addition, First
Federal Bank of Wisconsin and FFBW, Inc. have entered into an agreement to establish a method for allocating and for
reimbursing the payment of their consolidated tax liability.
Personnel
As of December 31, 2021, we had 53 full-time equivalent employees. Our employees are not represented by any
collective bargaining group. Management believes that we have a good working relationship with our employees.
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23
TAXATION
FFBW, Inc. and First Federal Bank of Wisconsin are subject to federal and state income taxation in the same general
manner as other corporations, with some exceptions discussed below. The following discussion of federal and state taxation is
intended only to summarize material income tax matters and is not a comprehensive description of the tax rules applicable to
FFBW, Inc. and First Federal Bank of Wisconsin.
Our federal and state tax returns have not been audited for the past six years.
Federal Taxation
Method of Accounting. For federal income tax purposes, First Federal Bank of Wisconsin currently reports its income
and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax
returns. FFBW, Inc. and First Federal Bank of Wisconsin file a consolidated federal income tax return. The Small Business
Protection Act of 1996 eliminated the use of the reserve method of accounting for income taxes on bad debt reserves by savings
institutions. For taxable years beginning after 1995, First Federal Bank of Wisconsin has been subject to the same bad debt
reserve rules as commercial banks. It currently utilizes the specific charge-off method under Section 582(a) of the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”).
Corporate Dividends. FFBW, Inc. may generally exclude from its income 100% of dividends received from First
Federal Bank of Wisconsin as a member of the same affiliated group of corporations.
State Taxation
FFBW, Inc. is subject to the Wisconsin corporate franchise (income) tax. Wisconsin imposes a corporate franchise tax
of 7.9% on the combined taxable incomes of the members of FFBW, Inc.’s consolidated income tax group, which will include
First Federal Bank of Wisconsin.
REGULATION AND SUPERVISION
General
As a federal savings association, First Federal Bank of Wisconsin is subject to examination, supervision and regulation,
primarily by the Office of the Comptroller of the Currency, and, secondarily, by the Federal Deposit Insurance Corporation
(“FDIC”) as deposits insurer. The federal system of regulation and supervision establishes a comprehensive framework of
activities in which First Federal Bank of Wisconsin may engage and is intended primarily for the protection of depositors and
the FDIC’s Deposit Insurance Fund.
First Federal Bank of Wisconsin is also regulated to a lesser extent by the Board of Governors of the Federal Reserve
System, or the “Federal Reserve Board,” which governs the reserves to be maintained against deposits and other matters. In
addition, First Federal Bank of Wisconsin is a member of and owns stock in the Federal Home Loan Bank of Chicago, which is
one of the 11 regional banks in the Federal Home Loan Bank System. First Federal Bank of Wisconsin’s relationship with its
depositors and borrowers also is regulated to a great extent by federal law and, to a lesser extent, state law, including in matters
concerning the ownership of deposit accounts and the form and content of First Federal Bank of Wisconsin’s loan documents.
As a savings and loan holding company, FFBW, Inc. is subject to examination and supervision by, and is required to
file certain reports with, the Federal Reserve Board. FFBW, Inc. is also subject to the rules and regulations of the Securities and
Exchange Commission under the federal securities laws.
Set forth below are certain material regulatory requirements that are applicable to First Federal Bank of Wisconsin and
FFBW, Inc. This description of statutes and regulations is not intended to be a complete description of such statutes and
regulations and their effects on First Federal Bank of Wisconsin and FFBW, Inc. Any change in these laws or regulations,
whether by Congress or the applicable regulatory agencies, could have a material adverse impact on FFBW, Inc., First Federal
Bank of Wisconsin and their operations.
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24
Federal Banking Regulation
Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’
Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, First Federal Bank of Wisconsin
may invest in mortgage loans secured by residential and commercial real estate, commercial and industrial and consumer loans,
certain types of debt securities and certain other assets, subject to applicable limits. The Dodd-Frank Act authorized, for the first
time, the payment of interest on commercial checking accounts. First Federal Bank of Wisconsin may also establish, subject to
specified investment limits, service corporation subsidiaries that may engage in certain activities not otherwise permissible for
First Federal Bank of Wisconsin, including real estate investment and securities and insurance brokerage.
Capital Requirements. Federal regulations require federally insured depository institutions to meet several minimum
capital standards: a Common Equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a Tier 1 capital to risk-weighted assets
ratio of 6.0%, a total capital to risk-weighted assets of 8.0%, and a 4.0% Tier 1 capital to adjusted average total assets leverage
ratio.
Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital
is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain
noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated
subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital.
Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include
cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred
stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of
1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of
Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities
with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into
common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). First Federal Bank of
Wisconsin exercised its AOCI opt-out election. Calculation of all types of regulatory capital is subject to deductions and
adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, an institution’s
assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests), are
multiplied by a risk weight factor assigned by the regulations based on the risk deemed inherent in the type of asset. Higher
levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to
cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one-to-four
family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is
assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests,
depending on certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and
certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of
2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based
capital requirements.
The federal banking agencies have developed a “Community Bank Leverage Ratio (CBLR)” (the ratio of Tier 1 capital
to average total consolidated assets) for financial institutions with assets of less than $10 billion that meet certain qualifying
criteria. A “qualifying community bank” that exceeds this ratio will be deemed compliant with all other capital requirements,
including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal
banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank
for purposes of the capital ratio requirement. The federal banking agencies must set the minimum Community Bank Leverage
Ratio at not less than 8% and not more than 10%, and as of January 1, 2022, it is set at 9%.
Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be
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25
lent, equal to 10% of unimpaired capital and surplus, if secured by “readily marketable collateral,” which generally includes
certain financial instruments (but not real estate). As of December 31, 2021, First Federal Bank of Wisconsin was in compliance
with the loans-to-one borrower limitations.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards
for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other
operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital
becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed
by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with
the standard. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and
desist order or the imposition of civil money penalties.
Prompt Corrective Action. Under the federal Prompt Corrective Action statute, the Office of the Comptroller of the
Currency is required to take supervisory actions against undercapitalized institutions under its jurisdiction, the severity of which
depends upon the institution’s level of capital. An institution that has a total risk-based capital ratio of less than 8.0%, a Tier 1
risk-based capital ratio of less than 6.0%, a common equity Tier 1 ratio of less than 4.5% or a leverage ratio of less than 4.0% is
considered to be “undercapitalized.” A savings institution that has total risk-based capital of less than 6.0%, a Tier 1 risk-based
capital ratio of less than 4.0%, a common equity Tier 1 ratio of less than 3.0% or a leverage ratio that is less than 3.0% is
considered to be “significantly undercapitalized.” A savings institution that has a tangible capital to assets ratio equal to or less
than 2.0% is deemed to be “critically undercapitalized.”
Generally, the Office of the Comptroller of the Currency is required to appoint a receiver or conservator for a federal
savings association that becomes “critically undercapitalized” within specific time frames. The regulations also provide that a
capital restoration plan must be filed with the Office of the Comptroller of the Currency within 45 days of the date that a federal
savings association is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically
undercapitalized.” Any holding company of a federal savings association that is required to submit a capital restoration plan
must guarantee performance under the plan in an amount of up to the lesser of 5.0% of the savings association’s assets at the
time it was deemed to be undercapitalized by the Office of the Comptroller of the Currency or the amount necessary to restore
the savings association to adequately capitalized status. This guarantee remains in place until the Office of the Comptroller of
the Currency notifies the savings association that it has maintained adequately capitalized status for each of four consecutive
calendar quarters. Institutions that are undercapitalized become subject to certain mandatory measures such as restrictions on
capital distributions and asset growth. The Office of the Comptroller of the Currency may also take any one of a number of
discretionary supervisory actions against undercapitalized federal savings associations, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
At December 31, 2021, First Federal Bank of Wisconsin met the criteria for being considered “well capitalized,” which
means that its total risk-based capital ratio exceeded 10.0%, its Tier 1 risk-based ratio exceeded 8.0%, its common equity Tier 1
ratio exceeded 6.5% and its leverage ratio exceeded 5.0%.
Qualified Thrift Lender Test. As a federal savings association, First Federal Bank of Wisconsin must satisfy the
qualified thrift lender, or “QTL,” test. Under the QTL test, First Federal Bank of Wisconsin must maintain at least 65% of its
“portfolio assets” in “qualified thrift investments” (primarily residential mortgages and related investments, including mortgage-
backed securities) in at least nine months of every 12-month period. “Portfolio assets” generally means total assets of a savings
association, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value
of property used in the conduct of the savings association’s business.
Alternatively, First Federal Bank of Wisconsin may satisfy the QTL test by qualifying as a “domestic building and loan
association” as defined in the Internal Revenue Code.
A savings association that fails the QTL test must operate under specified restrictions set forth in the Home Owners’
Loan Act. The Dodd-Frank Act made noncompliance with the QTL test subject to agency enforcement action for a violation of
law. At December 31, 2021, First Federal Bank of Wisconsin satisfied the QTL test.
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26
Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include
cash dividends, stock repurchases and other transactions charged to the savings association’s capital account. A federal savings
association must file an application with the Office of the Comptroller of the Currency for approval of a capital distribution if:
●
the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net
income for that year to date plus the savings association’s retained net income for the preceding two years;
●
the savings association would not be at least adequately capitalized following the distribution;
●
the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or
●
the savings association is not eligible for expedited treatment of its filings.
Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan
holding company, such as First Federal Bank of Wisconsin, must file a notice with the Federal Reserve Board at least 30 days
before the board of directors declares a dividend.
An application or notice related to a capital distribution may be disapproved if:
●
the federal savings association would be undercapitalized following the distribution;
●
the proposed capital distribution raises safety and soundness concerns; or
●
the capital distribution would violate a prohibition contained in any statute, regulation or agreement.
In addition, the Federal Deposit Insurance Act provides that an insured depository institution shall not make any capital
distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement.
Community Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the
Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and
moderate-income borrowers. In connection with its examination of a federal savings association, the Office of the Comptroller
of the Currency is required to assess the federal savings association’s record of compliance with the Community Reinvestment
Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum,
result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the
Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the
basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair
Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal
regulatory agencies and the Department of Justice.
The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. First
Federal Bank of Wisconsin received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.
Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates
is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that
controls, or is under common control with an insured depository institution such as First Federal Bank of Wisconsin. FFBW, Inc.
is an affiliate of First Federal Bank of Wisconsin because of its control of First Federal Bank of Wisconsin. In general,
transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral
requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged
in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a
subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the
purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-
affiliates.
First Federal Bank of Wisconsin’s authority to extend credit to its directors, executive officers and 10% stockholders, as
well as to entities controlled by such persons, is currently governed by the requirements of Sections
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27
22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these
provisions generally require that extensions of credit to insiders:
●
be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less
stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more
than the normal risk of repayment or present other unfavorable features; and
●
not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate,
which limits are based, in part, on the amount of First Federal Bank of Wisconsin’s capital.
In addition, extensions of credit in excess of certain limits must be approved by First Federal Bank of Wisconsin’s
board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension
involved.
Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal
savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors,
officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to
have an adverse effect on a federal savings association. Formal enforcement action by the Office of the Comptroller of the
Currency may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of
the institution to the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and
range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1.0
million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the Office of the Comptroller
of the Currency that enforcement action be taken with respect to a particular savings association. If such action is not taken, the
FDIC has authority to take the action under specified circumstances.
Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial
institutions such as First Federal Bank of Wisconsin. Deposit accounts in First Federal Bank of Wisconsin are insured by the
FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-
directed retirement accounts.
Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments.
Assessments for institutions of less than $10 billion in assets are based on financial measures and supervisory ratings derived
from statistical modeling estimating the probability of an institution’s failure within three years.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on
the operating expenses and results of operations of First Federal Bank of Wisconsin. First Federal Bank of Wisconsin cannot
predict what assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to
termination of our deposit insurance.
Federal Home Loan Bank System. First Federal Bank of Wisconsin is a member of the Federal Home Loan Bank
System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central
credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the
Federal Home Loan Bank of Chicago, First Federal Bank of Wisconsin is required to acquire and hold shares of capital stock in
the Federal Home Loan Bank. As of December 31, 2021, First Federal Bank of Wisconsin was in compliance with this
requirement.
Final Federal Regulation. Effective July 1, 2019, the Office of the Comptroller of the Currency issued a final rule
implementing a section of the Economic Growth, Relief and Consumer Protection Act that permits an eligible federal savings
association with total consolidated assets of $20 billion or less as of December 31, 2017, to elect to operate with national bank
powers without converting to a national bank charter. An eligible savings association is a
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federal savings association that: (1) is well capitalized; (2) has a CAMELs composite rating of 1 or 2; (3) has a consumer
compliance rating of 1 or 2; (4) has a Community Reinvestment Act rating of “outstanding” or “satisfactory,” if applicable; and
(5) is not subject to an enforcement action. At December 31, 2021, First Federal Bank of Wisconsin had not made such an
election.
Other Regulations
Interest and other charges collected or contracted for by First Federal Bank of Wisconsin are subject to state usury laws
and federal laws concerning interest rates. First Federal Bank of Wisconsin’s operations are also subject to federal laws
applicable to credit transactions, such as the:
●
Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
●
Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing
needs of the community it serves;
●
Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in
extending credit;
●
Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
●
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;
●
Truth in Savings Act; and
●
rules and regulations of the various federal agencies charged with the responsibility of implementing such federal
laws.
The operations of First Federal Bank of Wisconsin also are subject to the:
●
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of financial records;
●
Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and
withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller
machines and other electronic banking services;
●
Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as
digital check images and copies made from that image, the same legal standing as the original paper check;
●
The USA PATRIOT Act, which requires savings associations to, among other things, establish broadened anti-
money laundering compliance programs, and due diligence policies and controls to ensure the detection and
reporting of money laundering. Such required compliance programs are intended to supplement existing
compliance requirements that also apply to financial institutions under the Bank Secrecy Act and the Office of
Foreign Assets Control regulations; and
●
The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by
financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial
institutions offering financial products or services to retail customers to provide such customers with the financial
institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain
personal financial information with unaffiliated third parties.
Holding Company Regulation
FFBW, Inc. is a unitary savings and loan holding company subject to regulation and supervision by the Federal Reserve
Board. The Federal Reserve Board has enforcement authority over FFBW, Inc. and its non-savings institution subsidiaries.
Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a
risk to First Federal Bank of Wisconsin.
As a savings and loan holding company, FFBW, Inc.’s activities are limited to those activities permissible by law for
financial holding companies (if FFBW, Inc. makes an election to be treated as a financial holding company and meets the other
requirements to be a financial holding company) or multiple savings and loan holding companies. A
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financial holding company may engage in activities that are financial in nature, incidental to financial activities or
complementary to a financial activity. Such activities include lending and other activities permitted for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act, insurance and underwriting equity securities. Multiple savings and
loan holding companies are authorized to engage in activities specified by federal regulation, including activities permitted for
bank holding companies under Section 4(c)(8) of the Bank Holding Company Act.
Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries,
from acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval
of the Federal Reserve Board, and from acquiring or retaining control of any depository institution not insured by the Federal
Deposit Insurance Corporation. In evaluating applications by holding companies to acquire savings institutions, the Federal
Reserve Board must consider such things as the financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on and the risk to the federal deposit insurance fund, the convenience and needs
of the community and competitive factors. A savings and loan holding company may not acquire a savings institution in another
state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition or the law of the state in which
the target is located authorizes such acquisitions by out-of-state companies.
Savings and loan holding companies of under $3 billion in consolidated assets remain exempt from consolidated
regulatory capital requirements, unless the Federal Reserve determines otherwise in particular cases.
The Federal Reserve Board has promulgated regulations implementing the “source of strength” doctrine that require
holding companies to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and
other support in times of financial stress.
The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of
shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides
that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding
company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Federal Reserve
Board guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as
where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is
insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s
capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary
bank becomes undercapitalized. Federal Reserve Board guidance also states that a holding company should inform the Federal
Reserve Board supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the holding
company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, as of the end
of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the
redemption or repurchase occurred. These regulatory policies may affect the ability of FFBW, Inc. to pay dividends, repurchase
shares of common stock or otherwise engage in capital distributions.
Federal Securities Laws
FFBW, Inc.’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange
Act of 1934. FFBW, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements
under the Securities Exchange Act of 1934.
The registration under the Securities Act of 1933 of shares of common stock issued in FFBW, Inc.’s public offering
does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of FFBW, Inc.
may be resold without registration. Shares purchased by an affiliate of FFBW, Inc. are subject to the resale restrictions of Rule
144 under the Securities Act of 1933. If FFBW, Inc. meets the current public information requirements of Rule 144 under the
Securities Act of 1933, each affiliate of FFBW, Inc. that complies with the other conditions of Rule 144, including those that
require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of FFBW,
Inc., or the average weekly volume of trading in the shares
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during the preceding four calendar weeks. In the future, FFBW, Inc. may permit affiliates to have their shares registered for sale
under the Securities Act of 1933.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and
reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply
with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with
these regulations.
Change in Control Regulations
Under the Change in Bank Control Act, no person may acquire control of a savings and loan holding company, such as
FFBW, Inc., unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice
disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources
of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of
or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of
a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly,
to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the
acquisition of 10% or more of a class of voting stock under certain circumstances, such as where the holding company involved
has its shares registered under the Securities Exchange Act of 1934.
Emerging Growth Company Status
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”) until December 31, 2022, which is the end of the fiscal year following the fifth anniversary of Old FFBW’s sale of
common stock in its 2017 initial stock offering. For as long as we are an emerging growth company, we may choose to take
advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth
companies.
An emerging growth company may elect to use the extended transition period to delay adoption of new or revised
accounting pronouncements applicable to public companies until such pronouncements are made applicable to private
companies but must make such election when the company is first required to file a registration statement. Such an election is
irrevocable during the period a company is an emerging growth company. Old FFBW elected to use the extended transition
period to delay adoption of new or revised accounting pronouncements applicable to public companies until such
pronouncements are made applicable to private companies and this decision is binding on New FFBW. Accordingly, our
financial statements may not be comparable to the financial statements of public companies that comply with such new or
revised accounting standards.
Availability of Annual Report on Form 10-K
This Annual Report on Form 10-K is available on our website at www.firstfederalwisconsin.com. Information on the
website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K.
ITEM 1A. Risk Factors
The presentation of Risk Factors is not required for smaller reporting companies like FFBW, Inc.
ITEM 1B. Unresolved Staff Comments
None.
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ITEM 2. Properties
As of December 31, 2021, the net book value of our real properties, including land, was $4.5 million. The following is
a list of our offices:
Year
Net Book Value of
Acquired
Real
Location
Leased or Owned
or Leased
Property
(In thousands)
Home Banking Office
1617 East Racine Avenue
Leased
2017
—
Waukesha, Wisconsin 53186
Branch Offices:
Brookfield Office
Owned
2015
3,782
1360 South Moorland Road
Brookfield, Wisconsin 53005
West Office
Owned
1984
150
1801 Summit Avenue
Waukesha, Wisconsin 53188
Bay View Office
Leased
2017
—
3974 South Howell Avenue
Milwaukee, Wisconsin 53207
Historic Mitchell Street Office
Owned
2020
613
1039 West Mitchell Street
Milwaukee, Wisconsin 53204
ITEM 3. Legal Proceedings
We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings
occurring in the ordinary course of business, and at December 31, 2021, we were not involved in any legal proceedings, the
outcome of which would be material to our financial condition or results of operations.
ITEM 4. Mine Safety Disclosures
Not applicable.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market, Holder and Dividend Information. The Company’s common stock is listed on the NASDAQ Capital Market
under the symbol “FFBW.” The approximate number of holders of record of FFBW common stock as of March 18, 2021,
was 606. Certain shares of FFBW, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners
of such shares is not known or included in the foregoing number.
FFBW, Inc. does not currently pay cash dividends on its common stock. Dividend payments by FFBW, Inc. are
dependent, in part, on dividends it receives from First Federal Bank of Wisconsin, because FFBW, Inc. has no source of income
other than dividends from First Federal Bank of Wisconsin, earnings from the investment of proceeds from the sale of shares of
common stock in the stock offering which closed in January 2020 retained by FFBW, Inc. and interest
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payments with respect to our loan to the Employee Stock Ownership Plan. See “Item 1. Business—Supervision and Regulation
—Federal Banking Regulation—Capital Distributions.”
The Federal Reserve Board has issued supervisory policies providing that dividends should be paid only out of current
earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall
financial condition. Federal Reserve Board guidance also provides for prior regulatory consultation with respect to capital
distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of
dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate or
earnings retention is inconsistent with its capital needs and overall financial condition. In addition, First Federal Bank of
Wisconsin’s ability to pay dividends will be limited if it does not have the capital conservation buffer required by the new capital
rules, which may limit our ability to pay dividends to stockholders. No assurances can be given that any dividends will be paid
or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to
the extent permitted by regulations and policies of the Federal Reserve Board and the Office of the Comptroller of the Currency,
may be paid in addition to, or in lieu of, regular cash dividends.
(b) Report of Offering of Securities and Use of Proceeds Therefrom. Not applicable.
(c) Securities Authorized for Issuance Under Equity Compensation Plans. At December 31, 2021, there were no
compensation plans under which equity securities of FFBW, Inc. were authorized for issuance other than the
Equity Incentive Plans. See Part III, Item 12.
ITEM 6. [Reserved.]
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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to
enhance your understanding of our financial condition and results of operations. The information in this section has been derived
from the audited and unaudited financial statements, which appear beginning on page F-2 of this Annual Report on Form 10-K.
Business Strategy
Our goal is to provide long-term value to our stockholders, customers and employees and the communities we serve by
executing a safe and sound business strategy that produces increasing earnings. We believe there is a significant opportunity for
a community-focused bank to provide a full range of financial services to commercial and retail customers in our market area.
Our current business strategy consists of the following:
●
Grow organically while managing operating expense and risk. As a result of our executive management
team and infrastructure, increased loan personnel and enhanced loan policies and procedures and credit
administration processes, and given our attractive market area, we believe we are well-positioned to increase
the size of our balance sheet without a proportional increase in overhead expense or operating risk.
●
Grow through opportunistic bank or branch acquisitions or de novo branching. In addition to our expected
organic growth, we intend to pursue a business strategy to grow through whole bank and/or branch
acquisitions, in each case where we believe the acquisition would enhance over a relatively short period of
time the value of our franchise and yield potential financial benefits for our stockholders. Although we believe
opportunities exist to increase our market share in our historical markets, we expect to continue to expand into
nearby markets in southeastern and south central Wisconsin. We will consider expanding our branch network
by establishing new (“de novo”) branches and/or adding loan production offices. We believe that the capital
raised in the 2020 offering provides us the opportunity to make additional acquisitions of other financial
institutions or branches thereof, and will help fund improvements in our operating facilities, credit reporting
and customer delivery services in order to enhance our competitiveness. Our board of directors has a Mergers
& Acquisitions Committee in order to enhance our ability to review and assess future merger and acquisition
opportunities. Additionally, we believe that our experienced management team, led by our president and chief
executive officer Edward H. Schaefer, will enable us to seek and review these opportunities in an efficient and
prudent manner.
●
Grow our loan portfolio prudently with a focus on diversifying the portfolio, particularly in commercial
real estate and commercial and industrial lending. Our principal business activity historically has been the
origination of residential mortgage loans for retention in our loan portfolio, and we intend to retain our
presence as a mortgage lender in our market area. In recent years, we believe that we have implemented a
stronger sales culture in our institution and we intend to continue to increase our emphasis on the origination
of commercial real estate and commercial and industrial loans. Since 2016 we have added five new loan
officers, including three commercial loan officers, and a senior vice president of lending and we intend to add
additional lenders as we grow the Company. Additionally, in recent years we have conducted an extensive
review of, and have enhanced, our credit, underwriting, information technology and compliance operations.
We believe all of these actions have properly positioned our institution to achieve prudent, organic and
consistent growth in the future. The capital we raised in our stock offering which closed in January 2020 will
continue to support an increase in our lending limits, which will enable us to originate larger loans to new and
existing customers.
●
Continue to increase core deposits, with an emphasis on low cost commercial demand deposits. We seek
core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our
net interest rate spread and margin. Core deposits also help us maintain loan-to-deposit
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ratios at levels consistent with regulatory expectations. We consider our core deposits to include checking
accounts, money market accounts, statement savings and health savings accounts. As part of our focus on
commercial loan growth, our lenders are expected to source business checking accounts from our borrowers.
In addition to these core relationships, we expect to continue to utilize non-core funding sources, such as
brokered deposits and borrowings, as needed, to fund future loan growth and our operations.
●
Manage credit risk to maintain a low level of non-performing assets. We believe strong asset quality is a key
to our long-term financial success. Our strategy for credit risk management focuses on having an experienced
team of credit professionals, well-defined policies and procedures, appropriate loan underwriting criteria and
active credit monitoring. In recent years we have conducted an extensive review of, and have enhanced, our
credit, underwriting and loan processing policies and procedures. Our nonperforming assets to total assets
ratio was 0.08% at December 31, 2021, compared to 0.35% at December 31, 2020. We will continue to
increase our investment in our credit review function, both in personnel as well as ancillary systems, as
necessary, in order to be able to evaluate more complex loans and better manage credit risk, which will also
support our intended loan growth.
Critical Accounting Policies
The discussion and analysis of the financial condition and results of operations are based on our financial statements,
which are prepared in conformity with generally accepted accounting principles used in the United States of America. The
preparation of these financial statements requires management to make estimates and assumptions affecting the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and
expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions
that we use are based on historical experience and various other factors and are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change
that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public
companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable
to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the
benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that
comply with such new or revised accounting standards.
The following represent our critical accounting policies:
Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover
inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the
provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes
significant estimates and has identified this policy as one of our most critical accounting policies.
Management performs a quarterly evaluation of the allowance for loan losses. Consideration is given to a variety of
factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic
and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal
loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be
susceptible to significant change.
The analysis has two components, specific and general allowances. The specific allowance is for unconfirmed losses
related to loans that are determined to be impaired. Impairment is measured by determining the present value of expected future
cash flows or, for collateral-dependent loans, the fair value of the collateral, adjusted for market conditions and selling expenses.
If the fair value of the loan is less than the loan’s carrying value, a charge is recorded for the difference. The general allowance,
which is for loans reviewed collectively, is determined by segregating the remaining loans by type of loan, risk weighting (if
applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions
and geographic and industry concentrations. This analysis
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establishes historical loss percentages and qualitative factors that are applied to the loan groups to determine the amount of the
allowance for loan losses necessary for loans that are reviewed collectively. The qualitative component is critical in determining
the allowance for loan losses as certain trends may indicate the need for changes to the allowance for loan losses based on
factors beyond the historical loss history. Not incorporating a qualitative component could misstate the allowance for loan
losses. Actual loan losses may be significantly more than the allowances we have established which could result in a material
negative effect on our financial results.
Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that
some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing
of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable
income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are
reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may
require us to record a valuation allowance against our deferred tax assets.
Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. First Federal Bank
of Wisconsin estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation
methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair
value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities
with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we
estimate fair value. These estimates are subjective in nature and any imprecision in estimating these factors can impact the
amount of gain or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy
and the methodology utilized by the Bank can be found in Note 15 of the Financial Statements “ – Fair Value.”
Comparison of Financial Condition at December 31, 2021 and December 31, 2020
Total Assets. Total assets increased $18.1 million, or 5.3%, to $357.1 million at December 31, 2021 from $339.0
million at December 31, 2020. The increase was primarily a result of increases in net loans of $7.4 million and an increase in
cash and cash equivalents of $25.5 million offset, in part, by a decrease in available for sale securities of $15.8 million.
Cash and cash equivalents. Cash and cash equivalents increased $25.5 million, or 61.5%, to $67.0 million at
December 31, 2021 from $41.5 million at December 31, 2020. The increase was a result of deposit growth.
Net Loans. Net loans increased $7.4 million, or 3.4%, to $222.1 million at December 31, 2021 from $214.7 million at
December 31, 2020. The increase resulted from net of increase in commercial real estate loans of $7.2 million, or 8.2%,
commercial development loans of $7.3 million, or 51.9%, multifamily loans of $13.2 million, or 45.1% and consumer loans of
$296,000, or 9.8% offset by decreases of $2.4 million, or 11.4% in commercial and industrial loans, $12.4 million, or 40.6% in
one-to-four family owner-occupied and $6.4 million, or 19.6% in one-to-four family investor-owned loans.
During the years ended December 31, 2021 and 2020, we sold $12.5 million and $22.3 million, respectively, of one-to-
four family owner-occupied residential real estate loans, on a servicing-released basis. Subject to market and economic
conditions, management intends to continue this sales activity in future periods to generate gain on sale of loans income.
Available for sale securities. Available for sale securities decreased $15.8 million, or 24.7%, to $48.4 million at
December 31, 2021 from $64.2 million at December 31, 2020 as maturing funds were not reinvested in these types of securities.
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Premises and equipment. Premises and equipment decreased $88,000, or 1.6%, to $5.5 million at December 31, 2021
from $5.6 million at December 31, 2020 as a result of ordinary depreciation.
Other equity investments. Other equity investments increased $74,000, or 5.8%, to $1.4 million at December 31, 2021
from $1.3 million at December 31, 2020. The increase was a result of an increase in the market value of Bankers’ Bank stock.
Deposits. Deposits increased $28.8 million, or 12.7%, to $255.3 million at December 31, 2021 from $226.5 million at
December 31, 2020. Non-interest-bearing checking accounts increased $2.4 million, or 4.7%, to $54.2 million from $51.8
million at December 31, 2020, interest-bearing checking accounts increased $2.0 million, or 18.0%, to $12.9 million at
December 31, 2021 from $10.9 million at December 31, 2020, money market accounts increased $17.1 million, or 24.3%, to
$87.6 million at December 31, 2021, compared to $70.5 million at December 31, 2020, statement savings accounts increased
$2.0 million, or 6.2% to $34.0 million from $32.0 million at December 31, 2020 and certificates of deposit increased $5.5
million, or 10.8% to $56.0 million at December 31, 2021 from $50.5 million at December 31, 2020. Partially offsetting these
increases, health savings accounts decreased $246,000, or 2.3%, to $10.6 million as of December 31, 2021 from $50.5 million as
of December 31, 2020. Included in the certificates of deposit were brokered deposits of $1 million as of December 31, 2021 and
December 31, 2020. The percentage increase in deposits during 2021 was larger than normal due to several factors, primarily as
a result of excessive amounts of liquidity in the market provided through government stimulus in response to COVID-19.
Borrowings. Borrowings, consisting entirely of FHLB advances, totaled $6.5 million at December 31, 2021 compared
to $7.5 million at December 31, 2020. The aggregate cost of outstanding advances from the FHLB was 0.7% at December 31,
2021.
Other liabilities. Other liabilities decreased $319,000, or 20.4%, to $1.2 million at December 31, 2021 from $1.6
million at December 31, 2020.
Total Equity. Total equity decreased $9.3 million, or 9.0%, to $94.0 million at December 31, 2021 from $103.3 million
at December 31, 2020. The decrease resulted primarily from stock repurchases of $11.3 million offset in part by net income of
$2.0 million.
Comparison of Operating Results for the Years Ended December 31, 2021 and December 31, 2020
General. We had net income of $2.0 million for the year ended December 31, 2021, compared to net income of $1.8
million for the year ended December 31, 2020, an increase of $152,000, or 8.3%. The increase in net income was the net effect
of an increase in net interest income after provision for loan losses of $1.4 million, or 15.4%, and an increase in noninterest
income of $94,000, or 8.2%, offset in part by an increase in noninterest expense of $1.3 million, or 16.2%.
Interest and dividend income. Interest and dividend income increased $239,000, or 2.1%, to $11.4 million for the year
ended December 31, 2021 from $11.1 million for the year ended December 31, 2020. The increase was primarily attributable to
a $498,000 increase in interest and fees on loans, partially offset by a decrease in interest on available for sale securities of
$201,000.
Interest Expense. Interest expense decreased $629,000, or 38.9%, to $989,000 for the year ended December 31, 2021,
from $1.6 million for the year ended December 31, 2020. Interest expense on interest-bearing deposits decreased $496,000, or
34.6%, year to year. The average cost of our interest-bearing deposits decreased 51 basis points to 0.50% from 1.01%, while the
average balance of interest-bearing deposits increased by $45.6 million, or 32.0%, during the same period. Interest expense on
borrowings, consisting entirely of FHLB advances, decreased $133,000, or 72.7%, to $50,000 during the year ended
December 31, 2021 from $183,000 during the year ended December 31, 2020, as the average balance of borrowings decreased
$6.8 million to $7.0 million for the 2021 period from $13.8 million for 2020, and the cost of borrowings decreased 61 basis
points to 0.72% for 2021 from 1.3% for 2020.
Provision for Loan Losses. We recorded no provision for loan losses for the year ended December 31, 2021, compared
to a $520,000 provision for the year ended December 31, 2020. The allowance for loan losses was $2.4
Table of Contents
37
million, or 1.08% of total loans at December 31, 2021, compared to $2.8 million, or 1.29% of total loans, at December 31, 2020.
Classified (substandard, doubtful and loss) loans decreased to $334,000 at December 31, 2021 from $992,000 at December 31,
2020. Total nonperforming loans were $284,000 at December 31, 2021 and $1.1 million at December 31, 2020. There were
$381,000 of net charge-offs for the year ended December 31, 2021, compared to net recoveries of $27,000 for the prior year
period. At December 31, 2021, $170,000, or 59.7%, of the nonperforming loans were contractually current.
Noninterest Income. Noninterest income increased $94,000, or 8.2%, to $1.2 million for the year ended December 31,
2021 from $1.1 million for the year ended December 31, 2020. The increase was primarily due to an increase in service charges
on deposit accounts of $219,000, an increase in cash surrender value of bank owned life insurance of $52,000 and recognition of
a CDFI grant of $86,000 originally awarded to Mitchell Bank, offset, in part, by a decrease in gains on sale of mortgage loans of
$258,000.
Noninterest Expense. Noninterest expense increased $1.3 million, or 16.2%, to $9.0 million for the year ended
December 31, 2021 from $7.7 million for the year ended December 31, 2020. The increase was due primarily to increases in
salary and benefit expense of $856,000, occupancy and equipment expense of $142,000, data processing and technology
expense of $142,000 for the year ended December 31, 2021 over the year ended December 31, 2020. The increases resulted
primarily from the acquisition and conversion of Mitchell Bank.
Income Tax Expense. We recorded an income tax expense of $646,000 for the year ended December 31, 2021
compared to $566,000 for the year ended December 31, 2020, an increase of $80,000, or 14.1%, due to an increase in income
before income taxes of $232,000.
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38
Average balances and yields. The following table sets forth average balance sheets, average yields and costs, and
certain other information at and for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof
was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of
average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect
of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.
For the Year Ended December 31,
2021
2020
Average
Average
Outstanding
Outstanding
Yield/
Balance
Interest Yield/ Rate
Balance
Interest
Rate
(in thousands)
(in thousands)
Interest-earning assets:
Loans(1)
$
209,175
$
10,268
4.91 % $
205,351
$
9,770
4.76 %
Available for sale securities
53,453
1,001
1.87 %
58,387
1,202
2.06 %
Interest-bearing deposits
58,795
72
0.12 %
8,097
109
1.35 %
Other equity investments
1,316
23
1.75 %
1,039
44
4.23 %
Total interest-earning assets
322,739
11,364
3.52 %
272,874
11,125
4.08 %
Noninterest-earning assets
27,741
17,964
Allowance for loan losses
(2,621)
(2,762)
Total assets
$
347,859
$
288,076
Interest-bearing liabilities:
Demand accounts
$
10,924
34
0.31 % $
7,781
31
0.40 %
Money market accounts
77,949
284
0.36 %
52,367
354
0.68 %
Savings accounts
34,267
36
0.11 %
14,437
18
0.12 %
Health savings accounts
10,848
16
0.15 %
10,926
22
0.20 %
Certificates of deposit
54,040
569
1.05 %
56,954
1,010
1.77 %
Total interest-bearing deposits
188,028
939
0.50 %
142,465
1,435
1.01 %
Borrowings
6,968
50
0.72 %
13,806
183
1.33 %
Total interest-bearing liabilities
194,996
989
0.51 %
156,271
1,618
1.04 %
Noninterest-bearing deposits
73,193
30,091
Other non-interest bearing liabilities
2,697
28,679
Total liabilities
270,886
215,041
Equity
76,973
73,035
Total liabilities and equity
$
347,859
$
288,076
Net interest income
10,375
9,507
Net interest rate spread(2)
3.01 %
3.04 %
Net interest-earning assets(3)
127,743
116,603
Net interest margin(4)
3.21 %
3.48 %
Average of interest-earning assets to interest-bearing liabilities
165.51 %
174.62 %
(1)
Commercial loan fees represented $997 and $779 of total loan interest income at December 31, 2021 and 2020, respectively.
(2) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing
liabilities.
(3)
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest margin represents net interest income divided by total interest-earning assets.
Table of Contents
39
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods
indicated. The rate column shows the effects attributable to changes in rate (changes in average rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior period average
rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due
to volume.
For Year Ended December 31,
2021 vs. 2020
Increase (Decrease) Due to
Total Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
182
$
316
$
498
Available for sale securities
(102)
(99)
(201)
Interest-bearing deposits
682
(719)
(37)
Other equity investments
12
(33)
(21)
Total interest-earning assets
$
774
$
(535)
$
239
Interest-bearing liabilities:
Demand accounts
$
13
$
(10)
$
3
Money market accounts
173
(243)
(70)
Savings accounts
25
(7)
18
Health savings accounts
—
(6)
(6)
Certificates of deposit
(52)
(389)
(441)
Total deposits
$
159
$
(655)
$
(496)
Borrowings
(91)
(42)
(133)
Total interest-bearing liabilities
68
(697)
(629)
Change in net interest income
$
706
$
162
$
868
Management of Market Risk
General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of
our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage
interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates.
Our Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for
determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.
Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest
income, our primary source of earnings. Among the techniques we use to manage interest rate risk are:
●
originating commercial real estate, multifamily and commercial and industrial loans, all of which tend to have
shorter terms and higher interest rates than one-to-four family owner-occupied residential real estate loans, and
which generate customer relationships that can result in larger noninterest-bearing checking accounts;
●
selling substantially all of our conforming and eligible jumbo, longer-term, fixed-rate one-to-four owner-occupied
residential real estate loans and retaining the non-conforming and shorter-term, fixed-rate and adjustable-rate one-
to-four family residential real estate loans that we originate, subject to market conditions and periodic review of
our asset/liability management needs; and
●
reducing our dependence on certificates of deposit to support lending and investment activities and increasing our
reliance on core deposits, including checking accounts and savings accounts, which are less interest rate sensitive
than certificates of deposit.
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40
Our board of directors is responsible for the review and oversight of our executive management team and other
essential operational staff which are responsible for our asset/liability analysis. These officers act as an asset/liability committee
and are charged with developing and implementing an asset/liability management plan, and they meet at least quarterly to
review pricing and liquidity needs and assess our interest rate risk. We currently utilize a third-party modeling program,
prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating
environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved
by the board of directors.
We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-
risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit
residual interests or stripped mortgage-backed securities.
Net Portfolio Value. The Office of the Comptroller of Currency requires the computation of amounts by which the net
present value of an institution’s cash flow from assets, liabilities and off-balance sheet items (the institution’s net portfolio value
or “NPV”) would change in the event of a range of assumed changes in market interest rates.
The tables below set forth, as of December 31, 2021, the estimated changes in our NPV that would result from the
designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit
decay, and should not be relied upon as indicative of actual results.
Estimated Increase
NPV as a Percentage of Present
Change in
(Decrease) in NPV
Value of Assets (3)
Interest
Increase
Rates (basis
Estimated
NPV
(Decrease)
points) (1)
NPV (2)
Amount
Percent
Ratio (4)
(basis points)
(Dollars in thousands)
300
$
84,117
$
(1,058)
(1.24)%
24.91 %
1.05 %
200
85,324
149
0.17 %
24.77 %
0.91
100
85,629
454
0.53 %
24.40 %
0.54
—
85,175
—
— %
23.86 %
—
-100
81,809
(3,366)
(3.95)%
22.66 %
(1.20)
(1) Assumes an immediate uniform change in interest rates at all maturities.
(2) NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4) NPV Ratio represents NPV divided by the present value of assets.
The tables above indicate that at December 31, 2021, in the event of a 100 basis point decrease in interest rates, we
would have experienced a 3.95% decrease in NPV. In the event of a 200 basis point increase in interest rates at December 31,
2021, we would have experienced a 0.17% increase in NPV.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling
changes in NPV requires making certain assumptions that may or may not reflect the manner in which actual yields and costs
respond to changes in market interest rates. In this regard, the NPV table presented assumes that the composition of our interest-
sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes
that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of
specific assets and liabilities. Accordingly, although the NPV table provides an indication of our interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in
market interest rates on NPV and will differ from actual results.
NPV calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest
rates can increase the fair values of our loans, deposits and borrowings.
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41
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is
primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned
expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from
the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB-Chicago. At
December 31, 2021, we had $6.5 million outstanding in advances from the FHLB-Chicago. At December 31, 2021 we had $16.0
million available additional FHLB-Chicago advances based on the FHLB stock owned.
Additionally, at December 31, 2021 we had a $7 million federal funds rate line of credit with the Bankers’ Bank of
Wisconsin, of which $0 was drawn at December 31, 2021.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and
loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets
are cash and cash equivalents and available-for-sale investment securities. The levels of these assets are dependent on our
operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities,
and financing activities. Net cash provided by operating activities was $4.7 million and $1.8 million for the years ended
December 31, 2021 and 2020, respectively. Net cash provided by investing activities, which consists primarily of disbursements
for loan originations and the purchase of investment securities, offset by principal collections on loans, the sale of securities and
proceeds from maturing securities, pay downs on securities and cash received from acquisitions, was $4.6 million and $13.9
million for the years ended December 31, 2021 and 2020, respectively. Net cash provided by (used in) financing activities,
consisting of activity in deposit accounts and FHLB advances, was $16.5 million and ($13.6 million) for the years ended
December 31, 2021 and 2020, respectively.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We
anticipate that we will have sufficient funds to meet our current funding commitments. Based on our current strategy to change
our mix of deposits to become less reliant on certificates of deposit, we anticipate that we will continue to allow a significant
portion of higher-costing certificates of deposit to run off at maturity. We also anticipate continued use of FHLB-Chicago
advances as well as continuing to utilize brokered certificates of deposit and online sources, as needed, to fund future loan
growth and our operations.
At December 31, 2021, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of
$75.6 million, or 21.4% of adjusted total assets, which is above the well-capitalized required level of $17.7 million, or 5.0%; and
total risk-based capital of $78.0 million, or 30.6% of risk-weighted assets, which is above the well-capitalized required level of
$25.5 million, or 10.0%. Management is not aware of any conditions or events since December 31, 2021, that would change our
category.
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-
balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations
represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being
drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. For
additional information, see Note 11 - "Commitments and Contingencies" of the Notes to the Financial Statements beginning on
page F-2 of this Annual Report on Form 10-K.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such
obligations include operating leases for premises and equipment, agreements with respect to borrowings and deposits, and
agreements with respect to securities.
Capital Expenditures. In the ordinary course of our operations, we incur capital expenditures related to the
maintenance of our facilities.
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42
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1- "Summary of Significant Accounting
Policies" of the notes to our financial statements beginning on page F-2 of this this Annual Report on Form 10-K.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in accordance with generally accepted
accounting principles in the United States of America which require the measurement of financial position and operating results
in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.
The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have
a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods and services.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
ITEM 8. Financial Statements and Supplementary Data
The Company’s Consolidated Financial Statements are presented in this Annual Report on Form 10-K beginning at
page F-2.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
(a) An evaluation was performed under the supervision and with the participation of the Company’s management,
including the President and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities
and Exchange Act of 1934, as amended) as of December 31, 2021. Based on that evaluation, the Company’s management,
including the President and Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure
controls and procedures were effective.
(b) Management’s annual report on internal control over financial reporting.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting. The Company’s system of internal control over financial reporting is designed under the supervision of management,
including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of
our financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles(“GAAP”) and necessarily include some amounts based on
management’s best estimates and judgments. Our internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of
assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of
management and the Board of Directors; and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our consolidated
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections
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43
on any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions or that the degree of compliance with policies and procedures may deteriorate.
As of December 31, 2021, management assessed the effectiveness of the Company’s internal control over financial
reporting based upon the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control-Integrated Framework of 2013. Based upon its assessment, management believes that the
Company’s internal control over financial reporting as of December 31, 2021 is effective using these criteria.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public
accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company (as a smaller reporting
company or an emerging growth company) to provide only management’s report in this annual report.
During the year ended December 31, 2021, there were no changes made in our internal controls over financial reporting
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
ITEM 9B. Other Information
None.
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
FFBW, Inc. has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer and
principal accounting officer or controller or persons performing similar functions. A copy of the Code is available on
FFBW, Inc.’s website at www.firstfederalwisconsin.com under “About Us – Investor Relations – Governance – Governance
Documents.”
The information contained under the sections captioned “Proposal I – Election of Directors” in the Company’s
definitive Proxy Statement for the 2021 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by
reference.
ITEM 11. Executive Compensation
The information contained under the section captioned “Proposal I – Election of Directors – Executive Compensation”
in the definitive Proxy Statement is incorporated herein by reference.
Table of Contents
44
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) Securities Authorized for issuance under Stock-Based Compensation Plans
The following table sets forth information as of December 31, 2021 with respect to compensation plans under which
shares of our common stock may be issued:
Number of Shares
Remaining
Available
for Future
Issuance
Number of Shares to
Under Equity
be Issued upon
Weighted
Compensation
Exercise of
Average Exercise
Plans
Outstanding
Price of
(Excluding Shares
Options,
Outstanding
Reflected in the
warrants and
Options, warrants
first
Plan Category
rights
and rights
column)(1)
Equity compensation plans approved by stockholders
316,875
10.73
675,650
Equity compensation plans not approved by stockholders
N/A
N/A
N/A
Total
316,875
10.73
675,650
(1) Includes unexercised options and unissued restricted shares.
(b) Security Ownership of Certain Beneficial Owners
The information required by this item is incorporated herein by reference to the section captioned “Voting Securities
and Principal Holders” in the Proxy Statement.
(c) Security Ownership of Management
The information required by this item is incorporated herein by reference to the section captioned “Voting Securities
and Principal Holders” in the Proxy Statement.
(d) Changes in Control
Management of the Company knows of no arrangements, including any pledge by any person of securities of the
Company, the operation of which may at a subsequent date result in a change in control of the registrant
ITEM 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated herein by reference to the sections captioned “Proposal I –
Election of Directors – Transactions with Certain Related Persons,” “– Board Independence” and “– Meetings and Committees
of the Board of Directors” of the Proxy Statement.
ITEM 14. Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to the section captioned “Proposal II –
Ratification of Appointment of Independent Registered Public Accounting Firm” of the Proxy Statement.
Table of Contents
45
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
The documents filed as a part of this Form 10-K are:
(A)
Report of Independent Registered Public Accounting Firm
(B)
Consolidated balance Sheets as of December 31, 2021 and 2020
(C)
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020
(D)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020
(E)
Consolidated Statements of Changes in Equity for the years ended December 31, 2021 and 2020
(F)
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
(G)
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted as the required information is inapplicable or has been included in
the Notes to Consolidated Financial Statements.
(a)(3) Exhibits
3.1
Amended and Restated Articles of Incorporation of FFBW(1)
3.2
Bylaws of FFBW(2)
4.1
Form of Common Stock Certificate of FFBW(2)
4.2
Description of FFBW’s Securities(3)
10.1 Amended and Restated Employment Agreement with Edward H. Schaefer(4)
10.2 Deferred Compensation Agreement with Edward H. Schaefer(5)
10.3 Amended and Restated Deferred Compensation Agreement with Gary Riley(5)
10.4 Split-Dollar Life Agreement with Edward H. Schaefer(6)
10.6 FFBW, Inc. 2018 Equity Incentive Plan(8)
10.7 FFBW, Inc. 2021 Equity Incentive Plan(9)
10.8 Employment Agreement with Steven L. Wierschem(10)
21
Subsidiaries(3)
23
Consent of Wipfli LLP (U.S. PCAOB Auditor Firm ID 344)
31.1 Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover page Interactive Data File (embedded within the Inline XBRL document)
Table of Contents
46
(1) Incorporated by reference to pre-effective amendment No. 1 to the Registration Statement on Form S-1 (file no. 333-
233740), filed on November 1, 2019.
(2) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed
on March 26, 2020.
(3) Incorporated by reference to the footnote on Form 10-K for the year ended December 31, 2019, filed on March 26,
2020.
(4) Incorporated by reference to the Registration Statement on Form S-1 (file no. 333-233740), filed on September 13,
2019.
(5) Incorporated by reference to the Current Report on Form 8-K filed on January 16, 2020.
(6) Incorporated by reference to Exhibit 10.4 the Registration Statement on Form S-1 (file no. 333-218736), filed by
FFBW, Inc., a federal corporation, on June 14, 2017.
(7) Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by FFBW, Inc., a federal
corporation, on October 17, 2018.
(8) Incorporated by reference to Appendix A of the Proxy Statement of FFBW, Inc., a federal corporation, filed on
October 17, 2018
(9) Incorporated by reference to the Proxy Statement of FFBW, Inc., filed on April 23, 2021.
(10)Incorporated by reference to the Current Report on Form 8-K filed September 30, 2021.
ITEM16. Form 10-K Summary
None.
Table of Contents
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of FFBW, Inc. Brookfield,
Wisconsin
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of FFBW, Inc. (the "Company") as of December 31, 2021 and
2020, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for
each of the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Wipfli LLP
Wipfli LLP
We have served as the Company's auditor since 2015.
Milwaukee, Wisconsin
March 24, 2022
Table of Contents
F-2
FFBW, Inc.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31,
December 31,
2021
2020
Assets
Cash and due from banks
$
52,483
$
41,454
Fed funds sold
14,519
25
Cash and cash equivalents
67,002
41,479
Available for sale securities, stated at fair value
48,398
64,243
Loans held for sale
500
1,708
Loans, net of allowance for loan and lease losses of $2,430 and $2,811, respectively
222,104
214,723
Premises and equipment, net
5,506
5,594
Foreclosed assets
—
125
Other equity investments
1,353
1,279
Accrued interest receivable
813
995
Cash value of life insurance
10,029
7,272
Other assets
1,372
1,554
TOTAL ASSETS
$
357,077
$
338,972
Liabilities and Equity
Deposits
$
255,250
$
226,498
Advance payments by borrowers for taxes and insurance
102
127
FHLB advances
6,500
7,500
Accrued interest payable
7
17
Other liabilities
1,246
1,565
Total liabilities
$
263,105
$
235,707
Preferred stock ($0.01 par value, 50,000,000 authorized, no shares issued or outstanding as of
December 31, 2021 and December 31, 2020, respectively)
$
—
$
—
Common stock ($0.01 par value, 100,000,000 authorized, 6,734,970 and 7,695,214 issued
and outstanding as of December 31, 2021 and December 31, 2020, respectively)
67
77
Additional paid in capital
58,273
69,090
Unallocated common stock of Employee Stock Ownership Plan ("ESOP") (550,509 and
581,093 shares at December 31, 2021 and December 31, 2020, respectively)
(5,506)
(5,811)
Retained earnings
40,365
38,382
Accumulated other comprehensive income, net of income taxes
773
1,527
Total equity
$
93,972
$
103,265
TOTAL LIABILITIES AND EQUITY
$
357,077
$
338,972
See accompanying notes to financial statements.
Table of Contents
F-3
FFBW, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Years ended December 31,
2021
2020
Interest and dividend income:
Loans, including fees
$
10,268
$
9,770
Securities
Taxable
814
1,058
Tax-exempt
187
144
Other
95
153
Total interest and dividend income
11,364
11,125
Interest expense:
Interest-bearing deposits
939
1,435
Borrowed funds
50
183
Total interest expense
989
1,618
Net interest income
10,375
9,507
Provision for loan losses
—
520
Net interest income after provision for loan losses
10,375
8,987
Noninterest income:
Service charges and other fees
473
254
Net gain on sale of loans
237
495
Net gain on sale of securities
—
15
Increase in cash surrender value of insurance
257
205
Other noninterest income
269
173
Total noninterest income
1,236
1,142
Noninterest expense:
Salaries and employee benefits
5,207
4,351
Occupancy and equipment
1,045
903
Data processing
1,067
991
Technology
277
211
Foreclosed assets
—
4
Professional fees
444
526
Other noninterest expense
942
746
Total noninterest expense
8,982
7,732
Income before income taxes
2,629
2,397
Provision for income taxes
646
566
Net income
$
1,983
$
1,831
Earnings per share
Basic
$
0.31
$
0.26
Diluted
$
0.31
$
0.26
See accompanying notes to financial statements.
Table of Contents
F-4
FFBW, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Years ended December 31,
2021
2020
Net income
$
1,983
$
1,831
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period
(1,050)
1,652
Reclassification adjustment for (gains) losses realized in net income
—
(15)
Other comprehensive income (loss) before tax effect
(1,050)
1,637
Tax effect of other comprehensive income (loss) items
296
(454)
Other comprehensive income (loss), net of tax
(754)
1,183
Comprehensive income
$
1,229
$
3,014
See accompanying notes to financial statements.
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F-5
FFBW, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Dollars in thousands, except share data)
Unallocated
Accumulated
Number
Additional
Common
Other
of
Common
Paid-In
Stock of
Retained
Comprehensive
Treasury
Shares
Stock
Capital
ESOP
Earnings
Income (Loss)
Stock
Total
Balance at
December 31, 2019
7,702,478
$
67
$
28,672
$
(2,303)
$
36,551
$
344
$
(1,461)
$
61,870
Corporate
Reorganization:
Conversion of
FFBW, Inc. (net of
costs of $1.2 million)
2,397
10
41,490
—
—
—
—
41,500
Purchase of 341,485
shares of ESOP
—
—
—
(3,814)
—
—
—
(3,814)
Treasury stock retired
—
—
(1,461)
—
—
—
1,461
—
Contribution of
FFBW, MHC
—
—
99
—
—
—
—
99
2020 Activity:
—
Net income
—
—
—
—
1,831
—
—
1,831
ESOP shares
committed to be
released (30,584
shares)
—
—
316
—
—
—
—
316
Stock based
compensation
expense
(9,661)
—
(26)
306
—
—
—
280
Other comprehensive
income
—
—
—
—
—
1,183
—
1,183
Balance at
December 31, 2020
7,695,214
$
77
$
69,090
$
(5,811)
$
38,382
$
1,527
$
—
$
103,265
Balance at
December 31, 2020
7,695,214
$
77
$
69,090
$
(5,811)
$
38,382
$
1,527
$
—
$
103,265
Net income
—
—
—
—
1,983
—
—
1,983
ESOP shares
committed to be
released (30,584
shares)
—
—
42
305
—
—
—
347
Stock based
compensation
expense
17,231
—
379
—
—
—
—
379
Stock options
exercised
1,027
—
20
—
—
—
20
Repurchase of
common stock
(978,502)
(10)
(11,258)
—
—
—
—
(11,268)
Other comprehensive
loss
—
—
—
—
—
(754)
—
(754)
Balance at
December 31, 2021
6,734,970
$
67
$
58,273
$
(5,506)
$
40,365
$
773
$
—
$
93,972
See accompanying notes to financial statements.
Table of Contents
F-6
FFBW, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year ended
December 31,
2021
2020
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income
$
1,983
$
1,831
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
—
520
Depreciation
293
298
Net accretion of loan portfolio discount and deposit premium
(232)
(47)
Net amortization on securities available for sale
507
389
(Gain) loss on sales and impairments of foreclosed assets
3
(11)
(Gain) loss on sale of available for sale securities
—
(15)
Increase in cash surrender value of life insurance
(257)
(205)
Increase in value of Bankers Bank stock
(74)
(19)
ESOP compensation
347
279
Stock based compensation
393
316
Changes in operating assets and liabilities:
Accrued interest receivable
182
(186)
Loans held for sale
1,208
(1,508)
Other assets
343
(19)
Accrued interest payable
(10)
(72)
Other liabilities
(319)
274
Net cash provided by operating activities
$
4,367
$
1,825
Cash flows from investing activities:
Proceeds from sales of available for sale securities
$
3
$
1,017
Maturities, calls, paydowns on available for sale securities
18,580
15,630
Purchases of available for sale securities
(4,280)
(24,314)
Net change in loans
(7,041)
(11,941)
Purchases of premises and equipment
(207)
(56)
Purchase of FHLB stock
—
(251)
Purchase of life insurance
(2,500)
—
Cash acquired from acquisitions
—
33,280
Proceeds from sale of foreclosed assets
122
442
Cash received in MHC merger
—
99
Net cash provided by (used in) investing activities
$
4,677
$
13,906
Cash flows from financing activities:
Net change in deposits and advance payments
$
28,727
$
(47,315)
Repayments of FHLB advances
(6,000)
(21,000)
Proceeds from FHLB advances
5,000
17,000
Repurchase of common stock
(11,268)
—
Exercise of stock options
20
—
Purchase of shares of ESOP
—
(3,814)
Net proceeds from issuance of common stock
—
41,500
Net cash (used in) provided by financing activities
$
16,479
$
(13,629)
Net change in cash and cash equivalents
$
25,523
$
2,102
Cash and cash equivalents at beginning
41,479
39,377
Cash and cash equivalents at end
$
67,002
$
41,479
Supplemental Cash Flow Disclosures:
Cash paid for interest
$
990
$
1,560
Cash paid for income taxes
400
1,471
Loans transferred to foreclosed assets
—
347
Net equity from business combination (see Note 21)
—
4,985
See accompanying notes to financial statements
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-7
NOTE 1 - Summary of Significant Accounting Policies
Organization
From October 2017 until January 2020, as discussed below, we operated in a two-tier mutual holding company structure. FFBW,
Inc. (the “Company”) was a federal corporation that was the publicly traded stock holding company of First Federal Bank of
Wisconsin (the “Bank”). At December 31, 2019, the Company had 6,566,478 shares of common stock outstanding, of which
2,929,603 shares, or 44.6%, were owned by the public, including 25,000 shares owned by FFBW Community Foundation, and
the remaining 3,636,875 shares were held by FFBW, MHC (the “MHC”), a federally chartered mutual holding company and
former parent company of the Company.
At December 31, 2019, the significant assets of the Company consisted of the capital stock of the Bank. The liabilities of the
Company were insignificant. The Company was subject to the financial reporting requirements of the Securities Exchange Act
of 1934, as amended. The Company was subject to regulation and examination by the Board of Governors of the Federal
Reserve System (“the Federal Reserve Board”).
First Federal Bank of Wisconsin is a community bank headquartered in Waukesha, Wisconsin that provides financial services to
individuals and businesses from our offices in Waukesha, Brookfield, and the Bay View and Historic Mitchell Street
neighborhoods of Milwaukee.
FFBW, Inc. (“New FFBW”), a Maryland corporation that was organized in September 2019, is a savings and loan holding
headquartered in Waukesha, Wisconsin. New FFBW was formed to be the successor to the Company upon completion of the
second step mutual-to-stock conversion (the “Conversion”) of the MHC. Prior to completion of the Conversion, approximately
55.4% of the shares of common stock of the Company were owned by the MHC. In conjunction with the Conversion, the MHC
and the Company merged into New FFBW. The Conversion was completed on January 16, 2020. In the Conversion, New
FFBW sold 4,268,570 shares of common stock at $10.00 per share, for net proceeds of approximately $41.5 million, and issued
3,436,430 shares of common stock in exchange for the shares of common stock of Old FFBW owned by stockholders of Old
FFBW, other than the MHC, as of the effective date of the conversion. As a result of the conversion, the MHC and Old FFBW
have ceased to exist.
The Conversion was conducted pursuant to the MHC’s Plan of Conversion. The Plan of Conversion provided for the
establishment, upon the completion of the Conversion, of special “liquidation accounts” for the benefit of certain depositors of
the Bank in an amount equal to the MHC’s ownership interest in the stockholders’ equity of the Company as of the date of the
latest balance sheet contained in the prospectus plus the MHC’s net assets (excluding its ownership of the Company). According
to the plan of Conversion, the Company and the Bank will not be permitted to pay dividends on their capital stock if the
shareholders' equity of New FFBW, or the shareholder's equity of the Bank, would be reduced below the amount of the
liquidation accounts. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced
their qualifying deposits. Subsequent increases will not restore an eligible account holder's interest in the liquidation accounts.
Direct costs of the Conversion and public offering totaling $1,152 were recorded directly to equity as a reduction of the proceeds
from the shares sold in the public offering.
On December 31, 2020, we completed the acquisition of substantially all the assets and substantially all the liabilities of
Mitchell Bank, a Wisconsin-chartered commercial bank headquartered in Milwaukee, Wisconsin. For additional information on
the impact of the acquisition, refer to Note 21 – Business Combinations.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-8
Jumpstart Our Business Startups Act
The Jumpstart Our Business Startups Act (the JOBS Act), which was signed into law on April 5, 2012, has made numerous
changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual
gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth
company.” The Company qualifies as an “emerging growth company” and believes that it will continue to qualify as an
“emerging growth company” until five years from the completion of the stock offering.
As an “emerging growth company,” the Company has elected to use the extended transition period to delay adoption of new or
revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private
companies. Accordingly, the financial statements may not be comparable to the financial statements of companies that comply
with such new or revised accounting standards.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the fair values of securities, fair value of financial instruments, fair value
adjustments related to the business acquisition, the valuation of other real estate owned and the valuation of deferred income tax
assets.
Revenue Recognition
Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles
for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's
contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the
transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in
exchange for those goods or services recognized as performance obligations are satisfied.
The majority of the Company's revenue-generating transactions are not subject to ASC 606, including revenue all interest and
dividend income generated from financial instruments. Certain noninterest income items, including loan servicing income, gain
on sales of loans, gain on sales of securities, and other noninterest income have been evaluated to not fall with the scope of ASC
606. Elements of noninterest income that is within the scope of ASC 606, are as follows:
Service charges and other fees - The Company earns fees from its deposit customers for transaction-based, account maintenance,
and overdraft services. Management reviewed the deposit account agreements, and determined that the agreements can be
terminated at any time by either the Company or the account holder. Transaction fees, such as balance transfers, wires and
overdraft charges are settled the day the performance obligation is satisfied. The Company's monthly service charges and
maintenance fees are for services provided to the customer on a monthly basis and are considered a series of services that have
the same pattern of transfer each month. The review of service charges assessed on deposit accounts included the amount of
variable consideration that is a part of the monthly charges.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-9
Interchange fees - Customers use a Bank-issued debit card to purchase goods and services, and the Company earns interchange
fees on those transactions, typically a percentage of the sale amount of the transaction. The Company records the amount due
when it receives the settlement from the payment network. Payments from the payment network are received and recorded into
income on a daily basis. These fees are included in “service charges and other fees” on the Consolidated Statements of
Operations. There are no contingent debit card interchange fees recorded by the Company that could be subject to a clawback in
future periods.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and balances due from banks, non-maturity
deposits in the Federal Home Loan Bank of Chicago (FHLB), and fed funds sold. The Company has not experienced any losses
in such accounts.
Available for Sale Securities
Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time,
but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity
needs, regulatory capital requirements, and other similar factors. Securities classified as available for sale are carried at fair
value. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the
estimated life of the securities. Unrealized gains or losses are reported as increases or decreases in other comprehensive income,
net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are
included in earnings. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-
identification method.
Declines in fair value of securities that are deemed to be other than temporary, if applicable, are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which
fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the
Company to retain its investment in the issuer for a period of time sufficient enough to allow for any anticipated recovery in fair
value.
Loans Acquired in a Transfer
The Company acquires loans (including debt securities) individually and in groups or portfolios. These loans are initially
measured at fair value with no allowance for loan losses. The Company’s allowance for loan losses on all acquired loans reflect
only those losses incurred subsequent to acquisition.
Certain acquired loans may have experienced deterioration of credit quality between origination and the Company’s acquisition
of the loans. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration of credit
quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s
contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually
or whether such loans will be assembled into pools of loans based on common risk characteristics (for example, credit score,
loan type, and date of origination). The Company considers expected prepayments and estimates the amount and timing of
undiscounted principal, interest, and other cash flows expected at acquisition for each loan and aggregated pool of loans. The
excess of the loan’s or pool’s scheduled contractual principal and interest payments over all cash flows expected at acquisition is
calculated as the nonaccretable difference. The excess of cash flows expected to be collected over the fair value of each loan or
pool (accretable yield) is accreted into interest income over the remaining life of the loan or pool.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-10
At each reporting date, the Company continues to estimate cash flows expected to be collected for each loan or pool. If expected
cash flows have decreased from the acquisition date estimate, the Company recognizes an allowance for loan losses. If expected
cash flows have increased from the acquisition date estimate, the Company increases the amount of accretable yield to be
recognized as interest income over the remaining life of the loan or pool.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Mortgage loans
held for sale are sold with the mortgage servicing rights released by the Company. Gains or losses on sales of mortgage loans are
recognized based on the difference between the selling price and the carrying value of the related mortgage loan sold.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are
reported at their outstanding unpaid principal balances adjusted for deferred loan fees and costs, charge-offs, and an allowance
for loan losses. Interest on loans is accrued and credited to income based on the unpaid principal balance. Loan-origination fees,
net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest
method.
The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower
may be unable to make payments as they become due. When loans are placed on nonaccrual status or charged off, all unpaid
accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash-basis
or cost-recovery method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is maintained at the level considered adequate by management to provide for losses that are
probable as of the balance sheet date. The allowance for loan losses is established through a provision for loan losses charged to
expense as losses are estimated to have occurred. Loan losses are charged against the allowance when management believes that
the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. In determining the
adequacy of the allowance balance, the Company makes evaluations of the loan portfolio and related off-balance sheet
commitments, considers current economic conditions and historical loss experience, and reviews specific problem loans and
other factors.
When establishing the allowance for loan losses, management categorizes loans into risk categories generally based on the
nature of the collateral and the basis of repayment. These risk categories and their relevant risk characteristics are as follows:
Commercial development: These loans are secured by vacant land and/or property that are in the process of improvement.
Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the
improvements by the builder for the end user. Construction loans include not only construction of new structures, but loans
originated to finance additions to or alterations of existing structures. Until a permanent loan originates, or payoff occurs, all
commercial construction loans secured by real estate are reported in this loan pool. Development loans also have the risk that
improvements will not be completed on time, or in accordance with specifications and projected costs.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-11
Commercial real estate: These loans are primarily secured by office and industrial buildings, warehouses, small retail shopping
facilities, and various special purpose properties, including restaurants. These loans are subject to underwriting standards and
processes similar to commercial and industrial loans. Loans to closely held businesses are generally guaranteed in full by the
owners of the business. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely
dependent on the successful operation of the property. The cash flows of the borrowers, however, may not behave as forecasted
and collateral securing loans may fluctuate in value due to the general economic factors or conditions specific to the real estate
market, such as geographic location and/or purpose type.
Commercial and industrial: Commercial and industrial loans are extended primarily to small and middle market customers.
Such credits typically comprise working capital loans, asset acquisition loans, and loans for other business purposes. Loans to
closely held businesses are generally guaranteed in full by the owners of the business. Commercial and industrial loans are made
based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided
by the borrower. The cash flows of the borrowers, however, may not behave as forecasted and collateral securing loans may
fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have
been established for commercial and industrial loans.
One-to-four family owner-occupied: These loans are generally to individuals and are underwritten by evaluating the credit
history of the borrower, the ability of the borrower to meet the debt service requirements of the loan and total debt obligations,
the underlying collateral, and the loan to collateral value. Also included in this category are junior liens on one-to-four family
residential properties. Underwriting standards for one-to-four family owner-occupied loans are heavily influenced by statutory
requirements, which include, but are not limited to, loan-to-value and affordability ratios, risk-based pricing strategies, and
documentation requirements.
One-to-four family investor-owned: These loans may be to individuals or businesses and are subject to underwriting standards
and processes similar to commercial and industrial loans. These loans are viewed primarily as cash flow loans and the
repayment of these loans is largely dependent on the successful operation of the property(ies). The cash flows of the borrowers,
however, may not behave as forecasted and collateral securing loans may fluctuate in value due to the general economic factors
or conditions specific to the real estate market, such as geographic location and/or purpose type.
Multifamily real estate: These loans include loans to finance non-farm properties with five or more units in structures primarily
to accommodate households. Such credits are typically originated to finance the acquisition or refinancing of an apartment
building. These loans are subject to underwriting standards and processes similar to commercial and industrial loans. Loans to
closely held businesses are generally guaranteed in full by the owners of the business. These loans are viewed primarily as cash
flow loans and the repayment of these loans is largely dependent on the successful operation of the subject multifamily property,
with assumptions made for vacancy rates. Cash flows of the borrowers rely on the receipt of rental income from the tenants of
the property who are themselves subject to fluctuations in national and local economic conditions and unemployment trends.
Consumer: These loans may take the form of installment loans, demand loans, or single payment loans, and are extended to
individuals for household, family, and other personal expenditures. These loans generally include direct consumer automobile
loans and credit card loans. These loans are generally smaller in size and are underwritten by evaluating the credit history of the
borrower, the ability of the borrower to meet the debt service requirements of the loan and total debt obligations.
Management regularly evaluates the allowance for loan losses using the Company’s past loan loss experience, known and
inherent risks in the loan portfolio, composition of the loan portfolio, adverse situations that may affect the borrower’s ability to
repay, estimated value of any underlying collateral, current economic conditions, and other relevant factors. This evaluation is
inherently subjective since it requires material estimates that may be susceptible to significant change.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-12
A loan is impaired when, based on current information, it is probable that the Company will not collect all amounts due in
accordance with the contractual terms of the loan agreement. Management determines whether a loan is impaired on a case-by-
case basis, taking into consideration the payment status, collateral value, length and reason of any payment delays, the
borrower’s prior payment record, and any other relevant factors. Large groups of smaller-balance homogeneous loans, such as
residential mortgage and consumer loans, are collectively evaluated in the allowance for loan losses analysis and are not subject
to impairment analysis unless such loans have been subject to a restructuring agreement. Specific allowances for impaired loans
are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of
the collateral if the loan is collateral dependent.
In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the
Company to make additions to the allowance for loan losses based on their judgments of collectability based on information
available to them at the time of their examination.
Troubled Debt Restructurings
Loans are accounted for as troubled debt restructurings when a borrower is experiencing financial difficulties that lead to a
restructuring of the loan, and the Company grants a “concession” to the borrower that they would not otherwise consider. These
concessions include a modification of terms such as a reduction of the stated interest rate or loan balance, a reduction of accrued
interest, an extension of the maturity date at an interest rate lower than a current market rate for a new loan with similar risk, or
some combination thereof to facilitate repayment. Troubled debt restructurings are considered impaired loans.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, less costs to sell,
at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by
management, and the assets are carried at the lower of carrying amount or fair value less costs to sell. Revenue and expenses
from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Provisions for depreciation are computed on straight-line and
accelerated methods over the estimated useful lives of the assets.
Other Equity Investments
Other Equity Investments consist of Federal Home Loan Bank (“FHLB”) stock and Bankers’ Bank stock. The Company's
investment in the FHLB stock is carried at cost, which approximates fair value. The Company is required to hold the stock as a
member of the FHLB, and transfer of the stock is substantially restricted. The stock is evaluated for impairment on an annual
basis. The Company is required to adjust through income its reported value of Bankers’ Bank stock, which is considered an
equity security without a readily determinable market value, if a comparable transaction is observed.
Income Taxes
Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily
represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and income tax basis of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to
affect taxable income.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-13
As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision for
income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized.
The tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely
than not to be sustained on audit, based on the technical merits of the position. The Company recognizes the financial statement
benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the
relevant tax authority. Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions
requiring recognition in its financial statements.
The Company’s policy is to recognize interest and penalties related to income tax issues as components of income tax expense.
During the periods shown, the Company did not recognize any interest or penalties related to income tax expense in its
statements of operations.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee
obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred
assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity.
Advertising
Advertising costs are expensed as incurred.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) is shown on the statements of comprehensive income. The Company’s accumulated other
comprehensive income (loss) is comprised of the unrealized gains (losses) on securities available for sale, net of tax and is
shown on the statements of changes in equity. Reclassification adjustments out of other comprehensive income (loss) for losses
realized on sales of securities available for sale comprise the entire balance of “net gain (loss) on sale of securities” on the
statements of operations.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit, unfunded commitments under lines of credit, and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.
Life Insurance
The Company owns life insurance policies on certain key executives. Life insurance is measured at the amount that could be
realized under the insurance contract as of the balance sheet date, which is generally the cash surrender value of the policy.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-14
Reclassifications
Certain reclassifications have been made to the 2020 consolidated financial statements to conform to the 2021 classifications.
Recent Accounting Pronouncements
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”). For as long as the Company is an emerging growth company, it may choose to take advantage of exemptions from
various reporting requirements applicable to other public companies. An emerging growth company may elect to use the
extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until
such pronouncements are made applicable to private companies, but must make such election when the Company is first
required to file a registration statement. The Company has elected to use the extended transition period described above and
intends to maintain its emerging growth company status as allowed under the JOBS Act.
The following Accounting Standards Updates (ASUs) have been issued by the Financial Accounting and Standards Board
(FASB) and may impact the Company's financial statements in future reporting periods:
ASU No. 2016-13, “Credit Losses (Topic 326).”
ASU No. 2019-04, “Codification Improvements to Topic 326.”
ASU No. 2019-05, “Financial Instruments-Credit Losses.”
ASU 2016-13 requires organizations to measure all expected credit losses for financial instruments held at the reporting date
based on historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption will be permitted for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently
assessing the impact of adopting ASU 2016-13 on its financial statements.
ASU No. 2016-02, “Leases (Topic 842): Amendments to the Leases Analysis.”
ASU No. 2018-10, “Codification Improvements to Topic 842.”
ASU No. 2018-11, “Targeted Improvements”
For lessees, Topic 842 requires leases to be recognized on the balance sheet, along with disclosure of key information about
leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, 2018-10 and 2018-11. The new standard
establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet
for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting
the pattern and classification expense recognition in the income statement.
For lessors, Topic 842 requires lessors to classify leases as sales-type, direct financing or operating leases. A lease is a sales-type
lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset
to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating the lessor has transferred
substantially all the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease.
All leases that are not sales-type or direct financing leases are operating leases.
The new standard is effective for the Company on January 1, 2022, with early adoption permitted. A modified retrospective
transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may
choose to use either (1) the new standard's effective date or (2) the beginning of the earliest comparative period presented in the
financial statements as its date of initial application. The Company expects to adopt
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-15
the new standard on January 1, 2022 using the effective date as its date of initial application. The Company will record a right of
use asset and corresponding lease obligation at January 1, 2022.
NOTE 2 – Earnings Per Share
Basic earnings per common share is computed by dividing net income by the weighted average number of common shares
outstanding, adjusted for weighted average unallocated ESOP shares, during the applicable period, excluding outstanding
participating securities. Participating securities include non-vested restricted stock awards and restricted stock units, though no
actual shares of common stock related to restricted stock units are issued until the settlement of such units, to the extent holders
of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company’s
common stock. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic
earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.
Antidilutive options are disregarded in earnings per share calculations.
The following table presents the earnings per share calculations for the years ended December 31:
Years ended December 31,
2021
2020
Net income
$
1,983
$
1,831
Basic potential common shares
Weighted average shares outstanding
7,015,476
7,614,517
Weighted average unallocated Employee Stock Ownership Plan Shares
(565,865)
(596,453)
Basic weighted average shares outstanding
6,449,611
7,018,064
Dilutive potential common shares
2,551
223
Dilutive weighted average shares outstanding
6,452,162
7,018,287
Basic earnings per share
$
0.31
$
0.26
Diluted earnings per share
$
0.31
$
0.26
NOTE 3 - Cash and Due from Banks
Effective March 12, 2021, the Federal Reserve’s board of directors approved the final rule reducing the required reserve rations
to zero percent, effectively eliminating the requirement to maintain reserve balances in cash or on deposit with the Federal
Reserve Bank. This reduction in the required reserves does not have a defined timeframe and may be revised by the Federal
Reserve’s board in the future. The Company’s total required reserve was $0 as of December 31, 2021 and 2020.
The Company is required to maintain reserve balances, in cash or on deposit with the Federal Reserve Bank, based on a
percentage of deposits. Per Federal Reserve Board announcement on March 15, 2020, the Board reduced reserve requirements
ratios to 0% effective March 26, 2020. As such, the total required reserve balance as of December 31, 2021 was $0. The
required reserve balance as of December 31, 2020 was $0.
In the normal course of business, the Company maintains cash and due from bank balances with correspondent banks. Balances
in these accounts may exceed the Federal Deposit Insurance Corporation’s insured limit of $250. Management believes these
financial institutions have strong credit ratings and that the credit risk related to these deposits is minimal.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-16
NOTE 4 – Available for Sale Securities
Amortized costs and fair values of available for sale securities are summarized as follows:
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
December 31, 2021
Obligations of the US government and US government
sponsored agencies
$
1,028
$
19
$
(7)
$
1,040
Obligations of states and political subdivisions
14,289
376
(41)
14,624
Mortgage-backed securities
25,452
658
(54)
26,056
Certificates of deposit
750
22
-
772
Corporate debt securities
5,821
111
(26)
5,906
Total available for sale securities
$
47,340
$
1,186
$
(128)
$
48,398
December 31, 2020
Obligations of the US government and US government
sponsored agencies
$
717
$
37
$
—
$
754
Obligations of states and political subdivisions
15,012
612
(19)
15,605
Mortgage-backed securities
36,347
1,361
(28)
37,680
Certificates of deposit
7,880
57
—
7,937
Corporate debt securities
2,179
92
(4)
2,267
Total available for sale securities
$
62,135
$
2,159
$
(51)
$
64,243
Fair values of securities are estimated based on financial models or prices paid for similar securities. It is possible interest rates
could change considerably, resulting in a material change in estimated fair value.
The following table presents the portion of the Company’s portfolio which has gross unrealized losses, reflecting the length of
time that individual securities have been in a continuous unrealized loss position:
Less Than 12 Months
12 Months or More
Total
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
December 31, 2021
Obligations of the US government and US
government sponsored agencies
$
497
$
(7)
$
—
$
—
$
497
$
(7)
Obligations of states and political
subdivisions
3,129
(10)
937
(31)
4,066
(41)
Mortgage-backed securities
4,116
(24)
1,881
(30)
5,997
(54)
Corporate debt securities
2,874
(26)
—
—
2,874
(26)
Total
$
10,616
$
(67)
$
2,818
$
(61)
$
13,434
$
(128)
December 31, 2020
Obligations of states and political
subdivisions
$
1,543
$
(19)
$
—
$
—
$
1,543
$
(19)
Mortgage-backed securities
4,140
(21)
736
(7)
4,876
(28)
Corporate debt securities
849
(4)
—
—
849
(4)
Total
$
6,532
$
(44)
$
736
$
(7)
$
7,268
$
(51)
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-17
At December 31, 2021, the investment portfolio included 4 securities available for sale, which had been in an unrealized loss
position for greater than twelve months, and 23 securities available for sale, which had been in an unrealized loss position for
less than twelve months. At December 31, 2020, the investment portfolio included 4 securities available for sale, which had been
in an unrealized loss position for greater than twelve months, and 13 securities available for sale, which had been in an
unrealized loss position for less than twelve months. Because these securities have a fixed interest rate, their fair value is
sensitive to movements in market interest rates. These unrealized losses are considered temporary because the Company does
not currently have the intent to sell the securities before recovery of the losses; therefore we expect to collect all contractually
due amounts from these securities. Accordingly, these investments were reduced to their fair values through accumulated other
comprehensive income, not through earnings.
We regularly assess our securities portfolio for other-than-temporary impairment. These assessments are based on the nature of
the securities, the underlying collateral, the financial condition of the issuer, the extent and duration of the loss, our intent related
to the individual securities, and the likelihood that we will have to sell securities prior to expected recovery. We did not have any
impairment losses recognized in earnings for the years ended December 31, 2021 or December 31, 2020.
The amortized cost and fair value of available for sale securities by contractual maturity are shown below. Expected maturities
will differ from contractual maturities in mortgage-backed securities since the anticipated maturities are not readily
determinable. Therefore, these securities are not included in the maturity categories in the following maturity summary listed
below:
December 31, 2021
Amortized Cost
Fair Value
Due in one year or less
$
250
$
252
Due after one year through 5 years
6,305
6,424
Due after 5 years through 10 years
10,589
10,820
Due after 10 years
4,744
4,846
Subtotal
$
21,888
$
22,342
Mortgage-backed securities
25,452
26,056
Total
$
47,340
$
48,398
The following is a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses:
Years ended December 31,
2021
2020
Proceeds from sale of securities
$
3
$
1,034
Gross gains
—
17
Gross losses
—
(2)
Available for sale securities with a carrying value of $989 and $1,038 were pledged at December 31, 2021 and 2020,
respectively.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-18
NOTE 5 - Loans
Major classifications of loans are as follows:
December 31,
December 31,
2021
2020
Commercial
Development
$
21,396
$
14,090
Real estate
94,830
87,605
Commercial and industrial
18,387
20,758
Residential real estate and consumer
One-to-four family owner-occupied
18,158
30,548
One-to-four family investor-owned
26,234
32,638
Multifamily
42,511
29,303
Consumer
3,312
3,016
Subtotal
$
224,828
$
217,958
Deferred loan fees
(294)
(424)
Allowance for loan losses
(2,430)
(2,811)
Net loans
$
222,104
$
214,723
Deposit accounts in an overdraft position and reclassified as loans approximated $23 and $5 at December 31, 2021 and 2020,
respectively.
Included in the commercial and industrial loans at December 31, 2021 and 2020, are $262,000 and $7.6 million of loans granted
under the Paycheck Protection Program. These loans are fully guaranteed by the Small Business Administration.
A summary of the activity in the allowance for loan losses by portfolio segment is as follows:
Residential real
estate
Year Ended
Commercial
and consumer
Total
December 31, 2021
Balance at December 31, 2020
$
1,834
$
977
$
2,811
Provision for loan losses
73
(73)
—
Loans charged off
(393)
—
(393)
Recoveries of loans previously charged off
2
10
12
Total ending allowance balance
$
1,516
$
914
$
2,430
December 31, 2020
Balance at December 31, 2019
$
1,251
$
1,013
$
2,264
Provision for loan losses
563
(43)
520
Loans charged off
—
—
—
Recoveries of loans previously charged off
20
7
27
Total ending allowance balance
$
1,834
$
977
$
2,811
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-19
Information about how loans were evaluated for impairment and the related allowance for loan losses follows:
Residential Real
Estate and
December 31, 2021
Commercial
Consumer
Total
Loans:
Individually evaluated for impairment
$
112
$
817
$
929
Collectively evaluated for impairment
134,501
89,398
223,899
Total loans
$
134,613
$
90,215
$
224,828
Allowance for loan losses:
Individually evaluated for impairment
$
—
$
—
$
—
Collectively evaluated for impairment
1,516
914
2,430
Total allowance for loan losses
$
1,516
$
914
$
2,430
Residential Real
Estate and
December 31, 2020
Commercial
Consumer
Total
Loans:
Individually evaluated for impairment
$
792
$
1,228
$
2,020
Collectively evaluated for impairment
121,661
94,277
215,938
Total loans
$
122,453
$
95,505
$
217,958
Allowance for loan losses:
Individually evaluated for impairment
$
450
$
—
$
450
Collectively evaluated for impairment
1,384
977
2,361
Total allowance for loan losses
$
1,834
$
977
$
2,811
Information regarding impaired loans follows:
Principal Recorded
Related
Average
Interest
As of December 31, 2021
Balance
Investment
Allowance
Investment
Recognized
Loans with no related allowance for loan losses:
Commercial
Real estate
116
112
—
77
—
Residential real estate and consumer
One-to-four family owner-occupied
819
770
—
831
7
Consumer
47
47
—
49
—
Total loans with no related allowance for loan losses
982
929
—
957
7
Total impaired loans
$
982
$
929
$
—
$
957
$
7
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-20
Principal Recorded
Related
Average
Interest
As of December 31, 2020
Balance
Investment
Allowance
Investment
Recognized
Loans with related allowance for loan losses:
Commercial
Commercial and industrial
$
713
$
704
$
450
$
713
$
19
Total loans with related allowance for loan losses
713
704
450
713
19
Loans with no related allowance for loan losses:
Commercial
Commercial and industrial
108
88
—
109
5
Residential real estate and consumer
One-to-four family owner-occupied
1,017
971
—
979
9
One-to-four family investor-owned
242
206
—
242
—
Consumer
52
51
—
54
—
Total loans with no related allowance for loan losses
1,419
1,316
—
1,384
14
Total impaired loans
$
2,132
$
2,020
$
450
$
2,097
$
33
Additional funds of $0 and $215,000 were committed to impaired loans as of December 31, 2021 and 2020, respectively.
The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for loan losses.
The credit quality indicators monitored differ depending on the class of loan.
Commercial loans and one-to-four family investor-owned and multifamily loans are generally evaluated using the following
internally prepared ratings:
“Pass” ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual
loan payments is highly probable.
“Special mention” ratings are assigned to loans where management has some concern that the collateral or debt service ability
may not be adequate, though the collectability of the contractual loan payments is still probable.
“Substandard” ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that
collectability of the contractual loan payments is no longer probable.
“Doubtful” ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectability of the
contractual loan payments is unlikely.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-21
Information regarding the credit quality indicators most closely monitored for commercial loans by class follows:
Special
Pass
Mention
Substandard
Doubtful
Totals
December 31, 2021
Development
$
21,396
$
—
$
—
$
—
$
21,396
Real estate
93,653
843
334
—
94,830
Commercial and industrial
18,387
—
—
—
18,387
One-to-four family investor-owned
26,234
—
—
—
26,234
Multifamily
42,511
—
—
—
42,511
Totals
$
202,181
$
843
$
334
$
—
$
203,358
December 31, 2020
Development
$
14,090
$
—
$
—
$
—
$
14,090
Real estate
87,605
—
—
—
87,605
Commercial and industrial
20,046
—
8
704
20,758
One-to-four family investor-owned
32,358
—
280
—
32,638
Multifamily
29,303
—
—
—
29,303
Totals
$
183,402
$
—
$
288
$
704
$
184,394
Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing according to
the contractual terms of the loan.
Information regarding the credit quality indicators most closely monitored for residential real estate and consumer loans by class
follows:
Performing
Non-performing
Totals
December 31, 2021
One-to-four family owner-occupied
$
17,986
$
172
$
18,158
Consumer
3,312
—
3,312
$
21,298
$
172
$
21,470
December 31, 2020
One-to-four family owner-occupied
$
30,479
$
69
$
30,548
Consumer
3,016
—
3,016
$
33,495
$
69
$
33,564
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-22
Loan aging information follows:
Loans Past Due
Loans Past Due
Nonaccrual
Current Loans
30-89 Days
90+ Days
Total Loans
Loans
December 31, 2021
Commercial
Development
$
21,396
$
—
$
—
$
21,396
$
—
Real estate
94,830
—
—
94,830
112
Commercial and industrial
18,387
—
—
18,387
—
Residential real estate and consumer
One-to-four family owner-occupied
18,044
114
—
18,158
172
One-to-four family investor-owned
26,234
—
—
26,234
—
Multifamily
42,511
—
—
42,511
—
Consumer
3,312
—
—
3,312
—
Total
$
224,714
$
114
$
—
$
224,828
$
284
Loans Past Due
Loans Past Due
Nonaccrual
Current Loans
30-89 Days
90+ Days
Total Loans
Loans
December 31, 2020
Commercial
Development
$
14,090
$
—
$
—
$
14,090
$
—
Real estate
87,040
565
—
87,605
—
Commercial and industrial
20,054
—
704
20,758
792
Residential real estate and consumer
One-to-four family owner-occupied
30,347
201
—
30,548
69
One-to-four family investor-owned
32,638
—
—
32,638
206
Multifamily
29,303
—
—
29,303
—
Consumer
3,016
—
—
3,016
—
Total
$
216,488
$
766
$
704
$
217,958
$
1,067
There are no loans 90 or more days past due and accruing interest as of December 31, 2021 or 2020.
Management regularly monitors impaired loan relationships. In the event facts and circumstances change, an additional
provision for loan losses may be necessary.
Nonaccrual loans are as follows:
As of December 31
2021
2020
Nonaccrual loans, other than troubled debt restructurings
$
15
$
77
Nonaccrual loans, troubled debt restructurings
269
990
Total nonaccrual loans
284
1,067
Restructured loans, accruing
$
262
$
425
When, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the
borrower that the Company would not otherwise consider, the modified loan is classified as a troubled debt-restructuring. Loan
modifications may consist of forgiveness of interest and/or principal, a reduction of the interest rate, allowing interest-only
payments for a period of time, and/or extending amortization terms.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-23
The following presents information regarding new modifications of loans classified as troubled debt restructurings during
the year ending December 31, 2021. There were no new loans classified as troubled debt restructurings during the year ended
December 31, 2020. All troubled debt restructurings are classified as impaired loans. The recorded investment presented in the
following tables does not include specific reserves for loan losses recognized for these loans, which totaled $0 at December 31,
2021 and $450 at December 31, 2020.
Post-
Number of
Pre-Modification
Modification
Modifications
Investment
Investment
December 31, 2021
Commercial:
Real estate
1
$
112
$
112
Residential real estate and consumer:
One-to-four family owner occupied
2
157
157
Total loan modifications
3
$
269
$
269
No troubled debt restructurings defaulted within 12 months of their modification date during the year ended December 31, 2021
and 2020. The Company considers a troubled debt restructuring in default if it becomes past due more than 90 days.
During April 2020, the Coronavirus Aid, Relief and Economic Security Act was signed into law which provides optional,
temporary relief from accounting for certain pandemic-related loan modifications as a TDR. During 2020, the Bank offered
payment deferrals to loan customers that were excluded from TDR classification based on this Act. One loan totaling $183,000
remains on a modified status as of December 31, 2021.
The Company continues to evaluate purchased loans for impairment. The purchased loans were considered impaired at the
acquisition date if there was evidence of deterioration since origination and if it was probable that not all contractually required
principal and interest payments would be collected under the loans. As of December 31, 2021 and 2020, there were no loans that
were classified as purchased credit impaired. The following table reflects the carrying value of all purchased loans:
Contractually Required
Principal Receivable
Carrying Value
Non-Credit
of
As of December 31, 2021
Credit Impaired
Impaired
Purchased Loans
Commercial
Development
$
—
$
104
$
103
Real estate
—
2,030
2,022
Commercial and industrial
—
1,677
1,643
Residential real estate and consumer
One-to-four family owner-occupied
—
1,702
1,708
One-to-four family investor-owned
—
1,136
1,095
Multifamily
—
67
68
Consumer
—
43
40
Totals
$
—
$
6,759
$
6,679
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-24
Contractually Required
Principal Receivable
Carrying Value
Non-Credit
of
As of December 31, 2020
Credit Impaired
Impaired
Purchased Loans
Commercial
Development
$
—
$
118
$
113
Real estate
—
5,665
5,532
Commercial and industrial
—
3,471
3,368
Residential real estate and consumer
One-to-four family owner-occupied
—
5,218
5,206
One-to-four family investor-owned
—
6,447
6,294
Multifamily
—
—
—
Consumer
—
76
63
Totals
$
—
$
20,995
$
20,576
At December 31, 2021 and 2020, the Company had a discount on purchased loans totaling $80 and $419, respectively. The
amount of discount accreted into income totaled $339 and $64 for the years ended December 31, 2021 and 2020, respectively.
NOTE 6 - Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and are summarized as follows:
December 31,
2021
2020
Land
$
844
$
844
Buildings
5,562
5,562
Leasehold improvements
205
191
Furniture and equipment
1,478
1,394
Automobile
66
44
In-progress improvements
87
—
Totals
8,242
8,035
Less: Accumulated depreciation
2,736
2,441
Premises and equipment, net
$
5,506
$
5,594
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-25
Depreciation expense was $293 and $298 for the years ended December 31, 2021 and 2020, respectively.
During 2017, the Company sold and leased back two of its office buildings. In conjunction with the sales, the Company entered
into ten-year leases, with options to renew for two additional five-year terms. Rent expense for all operating leases was $216
and $181 in 2021 and 2020, respectively.
Rent commitments, before considering renewal options that are present, are as follows as of December 31, 2021:
2022
$
197
2023
169
2024
150
2025
152
2026
155
2027
117
Total
$
940
The Company also entered into a lease with a tenant for a portion of the Brookfield branch, commencing June 1, 2018 through
May 31, 2024. As of December 31, 2021, minimum future rents receivable are as follows:
2022
$
103
2023
106
2024
44
Total
$
253
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-26
NOTE 7 - Deposits
The composition of deposits are as follows:
December 31,
December 31,
2021
2020
Non interest-bearing checking
$
54,243
$
51,802
Interest-bearing checking
12,864
10,899
Money market
87,585
70,455
Statement savings accounts
33,968
31,977
Health savings accounts
10,608
10,854
Certificates of deposit
55,982
50,511
Total
$
255,250
$
226,498
Certificates of deposit that meet or exceed the FDIC insurance limit of $250 totaled $10,845 and $9,485 at December 31, 2021
and 2020, respectively.
The scheduled maturities of certificates of deposit are as follows as of December 31, 2021:
2022
$
43,879
2023
9,861
2024
1,448
2025
323
2026
471
Total
$
55,982
NOTE 8 – FHLB Advances
FHLB advances consist of the following as of December 31:
December 31, 2021
December 31, 2020
Rates
Amount
Rates
Amount
Fixed rate, fixed term advances
0.0%-1.71%
$
6,500
0.0%-1.71%
$
5,500
Fixed term advances with floating spread
N/A
—
2.10%
2,000
$
6,500
$
7,500
The following is a summary of scheduled maturities of fixed term FHLB advances as of December 31, 2021:
Fixed Rate Advances
Adjustable Rate Advances
Weighted
Weighted
Total
Average Rate
Amount
Average Rate
Amount
Amount
2022
0.39 % $
6,500
—
—
$
6,500
Total
0.39 % $
6,500
— % $
—
$
6,500
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-27
Actual maturities may differ from the scheduled principal maturities due to call options on the various advances.
The Company has a master contract agreement with the FHLB that provides for a borrowing up to the lesser of a determined
multiple of FHLB stock owned or a determined percentage of the book value of the Company’s qualifying one-to-four family,
multifamily, commercial real estate, and commercial and industrial loans. The Company pledged $154,649 and $149,308 of one-
to-four family, multifamily, commercial real estate, and commercial and industrial loans to secure FHLB advances at
December 31, 2021 and 2020, respectively. FHLB provides both fixed and floating rate advances. Floating rates are tied to
short-term market rates of interest, such as Federal funds, FHLB discount note or prime rates. Fixed rate advances are priced in
reference to market rates of interest at the time of the advance, namely the rates that FHLB pays to borrowers at various
maturities. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. FHLB advances are also
secured by $851 of FHLB stock owned by the Company at both December 31, 2021 and 2020.
At December 31, 2021 the Company’s available and unused portion of this borrowing agreement based on the amount of FHLB
stock was $16,014.
In addition, the Company has a $7,000 federal funds line of credit through Bankers’ Bank of Wisconsin, which was not drawn
on as of December 31, 2021. The Company also has the authority to borrow through the Federal Reserve’s Discount Window.
NOTE 9 – 401(k) Plan
The Company sponsors a 401(k) plan that covers substantially all employees. To be eligible to participate, an employee must
have completed 90 days of service and be 21 years of age or older. The Company matches 100% of employee contributions up
to 4% of their annual compensation. The Company may also make non-elective contributions to the plan at the discretion of the
Board of Directors. Expense charged to operations for this plan was $216 and $149 for the years ended December 31, 2021 and
2020, respectively.
NOTE 10 - Income Taxes
The provision for income taxes included in the accompanying financial statements consists of the following components:
Years ended December 31,
2021
2020
Current Taxes (Benefit)
Federal
$
309
$
535
State
163
229
Total Current Taxes
472
764
Deferred Income Taxes (Benefit)
Federal
136
(150)
State
38
(48)
Total Deferred Income Taxes
174
(198)
Total Provision for Income Taxes
$
646
$
566
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-28
The net deferred tax asset in the accompanying balance sheet includes the following amounts of deferred tax assets and
liabilities:
As of December 31,
2021
2020
Deferred Tax Assets
Allowance for loan losses
$
668
$
765
Deferred compensation
116
124
Non-accrual interest
3
20
Purchase accounting
3
7
Equity compensation
78
40
Deferred loan fees
78
112
Charitable contribution carryforward
—
60
Other
38
—
Deferred Tax Assets
$
984
$
1,128
Deferred Tax Liabilities
Depreciation and amortization
(30)
(23)
FHLB stock
(23)
(25)
Unrealized gain on available for sale securities
(285)
(581)
Other
(29)
(4)
Deferred Tax Liabilities
$
(367)
$
(633)
Net Deferred Tax Asset
$
617
$
495
A summary of the sources of differences between income taxes at the federal statutory rate and the provision for income taxes
follows:
Years ended December 31,
2021
2020
% of Pretax
% of Pretax
Amount
Income
Amount
Income
Reconciliation of statutory to effective rates
Federal income taxes at statutory rate
$
552
21.0 % $
503
21.0 %
Adjustments for
Tax exempt interest on municipal obligations
(36)
(1.4)%
(26)
(1.1)%
State income taxes, net of federal income tax benefit
157
6.0 %
146
6.1 %
Increase in CSV of life insurance
(54)
(2.1)%
(43)
(1.8)%
Equity Compensation
12
0.5 %
14
0.6 %
Other
15
0.6 %
(28)
(1.2)%
Provision for income taxes
$
646
24.6 % $
566
23.6 %
With few exceptions, the Company is no longer subject to federal or state examinations by taxing authorities for years before
2017.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-29
NOTE 11 - Commitments and Contingencies
In the normal course of business, the Company may be involved in various legal proceedings. In the opinion of management,
any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial statements.
No legal proceedings existed at December 31, 2021.
The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized
in the balance sheets.
The Company’s exposure to credit loss is represented by the contractual, or notional, amount of these commitments. The
Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments. Since some of
the commitments are expected to expire without being drawn upon, and some of the commitments may not be drawn upon to the
total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash
requirements of the Company.
The contract amounts of credit-related financial instruments at December 31, 2021 and 2020 are summarized below:
Notional Amount
2021
2020
Unused lines of credit
Fixed
19,197
14,902
Variable
6,732
3,770
Undisbursed portion of loan proceeds
453
2,194
Standby letters of credit, variable
1,003
993
Unused commitments under lines of credit are commitments for possible future extensions of credit to existing customers. These
lines of credit may or may not require collateral and may or may not contain a specific maturity date.
The undisbursed portion of loan proceeds represents undrawn amounts under construction loans. These loans are generally
secured by real estate and generally have a specific maturity date.
Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a
customer to a third party. Generally, all standby letters of credit issued have expiration dates within one year. The credit risk
involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The
Company generally holds collateral supporting these commitments. Standby letters of credit are not reflected in the financial
statements, since recording the fair value of these guarantees would not have a significant impact on the financial statements.
The Company sells loans to investors and does not retain servicing responsibilities. Upon sale, the risk of credit loss is passed to
the investor, unless the loan is sold with recourse. For loans sold without recourse, the Company does not retain the risk of loss
should a loan, previously sold, go into default, unless it is determined that such loan was not within the agreed-upon
underwriting guidelines due to negligence on the part of the Company or fraud on the part of the borrower. Such risk retention is
standard within the mortgage banking industry. The Company’s exposure relating to the fair value of the representations and
warranties and other recourse obligations is not material. The Company is contingently liable in the amount of $1,357 relating to
loans sold with recourse at December 31, 2021 and $14,186 as of December 31, 2020. All recourse provisions expire within four
months from when the loan is sold.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-30
NOTE 12 - Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents,
investments, and loans. The Company’s cash and cash equivalents are held in demand accounts with various institutions. The
Company’s investments are held in a variety of interest bearing investments including obligations from the U.S. government and
government sponsored agencies and certificates of deposit. Such deposits are generally in excess of insured limits. The
Company has not experienced any historical losses on its deposits of cash and cash equivalents. Practically all of the Company’s
loans and commitments have been granted to customers in the Company’s market area. Although the Company has a diversified
loan portfolio, the ability of their debtors to honor their contracts is dependent on the economic conditions of the counties
surrounding the Company. The concentration of credit by type of loan is set forth in Note 5.
NOTE 13 – Related-Party Transactions
A summary of loans to directors, executive officers, and their affiliates follows:
Years ended December 31,
2021
2020
Beginning balance
$
10,113
$
3,615
Adjustments for changes in directors and executive officers
—
45
New loans
501
6,462
Repayments
(972)
(9)
Ending balance
$
9,642
$
10,113
Deposits from directors, executive officers, and their affiliates totaled $1,440 and $1,258 at December 31, 2021 and 2020,
respectively.
The Company utilizes the services of a law firm in which one of the Company’s directors was a partner thru May 31, 2021. Fees
paid to the firm were $0 and $4 during the years ended 2021 and 2020, respectively. The Company also has an operating lease
with the law firm for office space through 2023. Rent paid in 2021 and 2020 pertaining to this lease was $50 and $40,
respectively.
NOTE 14 – Foreclosed Assets
There were no foreclosed assets as December 31, 2021. Foreclosed assets consisted of one owner-occupied one-to-four family
property for $104 and one residential lot for $21 at December 31, 2020. There were no residential real estate loans that are in the
process of foreclosure at December 31, 2021 or 2020.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-31
NOTE 15 – Fair Value
Accounting standards describe three levels of inputs that may be used to measure fair value (the fair value hierarchy). The level
of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value
measurement of that asset or liability.
Following is a brief description of each level of the fair value hierarchy:
Level 1 - Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.
Level 2 - Fair value measurement is based on: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted
prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for
which all significant assumptions are or can be corroborated by observable market data.
Level 3 - Fair value measurement is based on valuation models and methodologies that incorporate at least one significant
assumption that cannot be corroborated by observable market data. Level 3 measurements reflect the Company’s estimates about
assumptions market participants would use in measuring fair value of the asset or liability.
Some assets and liabilities, such as securities available for sale, are measured at fair value on a recurring basis under accounting
principles generally accepted in the United States. Other assets and liabilities, such as impaired loans, may be measured at fair
value on a nonrecurring basis.
Following is a description of the Company’s valuation methodology and significant inputs used for each asset and liability
measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset or liability within the fair
value hierarchy.
Available for sale securities - Available for sale securities may be classified as Level 1 or Level 2 measurements within the fair
value hierarchy. Level 1 securities include equity securities traded on a national exchange. The fair value measurement of a
Level 1 security is based on the quoted price of the security. Level 2 securities include U.S. government and agency securities,
obligations of states and political subdivisions, corporate debt securities, and mortgage related securities. The fair value
measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar
securities and other observable market data.
Loans - Loans are not measured at fair value on a recurring basis. However, loans considered to be impaired may be measured at
fair value on a nonrecurring basis. The fair value measurement of an impaired loan that is collateral dependent is based on the
fair value of the underlying collateral. Independent appraisals are obtained that utilize one or more valuation methodologies -
typically they will incorporate a comparable sales approach and an income approach. Management routinely evaluates the fair
value measurements of independent appraisers and adjusts those valuations based on differences noted between actual selling
prices of collateral and the most recent appraised value. Such adjustments are usually significant, which results in a Level 3
classification. All other impaired loan measurements are based on the present value of expected future cash flows discounted at
the applicable effective interest rate and, thus, are not fair value measurements.
Other equity investment – Certain equity investments are measured at fair value on a non-recurring basis using observable
transactions and are classified as Level 2.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-32
Foreclosed assets- Real estate acquired through or in lieu of loan foreclosure are not measured at fair value on a recurring basis.
However, foreclosed assets are initially measured at fair value (less estimated costs to sell) when they are acquired and may also
be measured at fair value (less estimated costs to sell) if they become subsequently impaired. The fair value measurement for
each asset may be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from
independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach.
Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value
measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management
determines significant adjustments should be made to the independent appraisals based on these evaluations, these
measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management’s
comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3
measurements.
Assets measured at fair value on a recurring basis are summarized below:
Recurring Fair Value Measurements Using
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Instruments
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
As of December 31, 2021
Assets:
Available for sale securities:
Obligations of the US government and US government sponsored
agencies
$
—
$
1,040
$
—
$
1,040
Obligations of states and political subdivisions
—
14,624
—
14,624
Mortgage-backed securities
—
26,056
—
26,056
Certificates of deposit
—
772
—
772
Corporate debt securities
—
5,906
—
5,906
Total available for sale securities
$
—
$
48,398
$
—
$
48,398
As of December 31, 2020
Assets:
Available for sale securities:
Obligations of the US government and US government sponsored
agencies
$
—
$
754
$
—
$
754
Obligations of states and political subdivisions
—
15,605
—
15,605
Mortgage-backed securities
—
37,680
—
37,680
Certificates of deposit
—
7,937
—
7,937
Corporate debt securities
—
2,267
—
2,267
Total available for sale securities
$
—
$
64,243
$
—
$
64,243
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-33
Information regarding assets measured at fair value on a nonrecurring basis follows:
Nonrecurring Fair Value Measurements Using
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Assets
Identical
Observable
Unobservable
Measured at
Instruments
Inputs
Inputs
Fair Value
(Level 1)
(Level 2)
(Level 3)
As of December 31, 2021
Assets:
Other equity investments
$
503
$
—
$
503
$
—
As of December 31, 2020
Assets:
Loans
$
254
$
—
$
—
$
254
Foreclosed assets
125
—
—
125
Other equity investments
225
—
225
—
As of December 2021, there were no loans considered impaired and written down to their estimated fair value. Loans with a
carrying amount of $704 were considered impaired and were written down to their estimated fair value of $254 as of
December 31, 2020. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling
$450 as of December 31, 2020.
Foreclosed assets with a carrying amount of $0 and $125 were determined to be at their fair value as of December 31, 2021 and
December 31, 2020, respectively.
The following presents quantitative information about nonrecurring Level 3 fair value measurements:
Range/Weighted
Fair Value
Valuation Technique
Unobservable Input(s)
Average
As of December 31, 2021
Loans
$
0
Market and/or income approach
Management discount on appraised values
10 %
-
20 %
Foreclosed assets
$
0
Market and/or income approach
Management discount on appraised values
10 %
-
20 %
As of December 31, 2020
Loans
$
254
Market and/or income approach
Management discount on appraised values
10 %
-
20 %
Foreclosed assets
$
125
Market and/or income approach
Management discount on appraised values
10 %
-
20 %
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-34
The carrying value and estimated fair value of financial instruments as of December 31, 2021 and 2020 follow:
December 31, 2021
Carrying
Fair Value
Value
Level 1
Level 2
Level 3
Financial assets:
Cash and cash equivalents
$
67,002
$
67,002
$
—
$
—
Available for sale securities
48,398
—
48,398
—
Loans held for sale
500
—
500
—
Loans
222,104
—
—
224,612
Accrued interest receivable
813
813
—
—
Cash value of life insurance
10,029
10,029
—
—
Other equity investments
1,353
—
503
850
Financial liabilities:
Deposits
255,250
199,238
—
55,970
Advance payments by borrowers for taxes and insurance
102
102
—
—
FHLB advances
6,500
—
—
6,489
Accrued interest payable
7
7
—
—
December 31, 2020
Carrying
Fair Value
Value
Level 1
Level 2
Level 3
Financial assets:
Cash and cash equivalents
$
41,479
$
41,479
$
—
$
—
Available for sale securities
64,243
—
64,243
—
Loans held for sale
1,708
—
1,708
—
Loans
214,723
—
—
217,893
Accrued interest receivable
995
995
—
—
Cash value of life insurance
7,272
7,272
—
—
Other equity investments
1,279
—
225
1,054
Financial liabilities:
Deposits
226,498
175,987
—
50,732
Advance payments by borrowers for taxes and insurance
127
127
—
—
FHLB advances
7,500
—
—
7,544
Accrued interest payable
17
17
—
—
Limitations - The fair value of a financial instrument is the current amount that would be exchanged between market
participants, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many
instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market
prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly,
the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value
amounts presented may not necessarily represent the underlying fair value of the Company.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-35
Fair value estimates are made at a specific point in time based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time
the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s
financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on- and off-balance-
sheet financial instruments without attempting to estimate the value of anticipated future business. Deposits with no stated
maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value
derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit
base intangible, is neither considered in the above amounts, nor is it recorded as an intangible asset on the consolidated balance
sheets. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in the estimates.
NOTE 16 – Equity and Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and
ratios (set forth in the table below) of Common Equity Tier 1, Tier 1, and Total capital to risk-weighted assets and of Tier 1
capital to average assets. It is management’s opinion, as of December 31, 2021, that the Bank met all applicable capital
adequacy requirements.
As of December 31, 2021, the Bank is categorized as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum regulatory capital ratios as set forth in the table.
There are no conditions or events since December 31, 2021 that management believes have changed the category.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-36
The Bank’s actual capital amounts and ratios are presented in the following tables:
To Be Well
Capitalized
Under Prompt
For Capital Adequacy
Corrective
Actual
Purposes
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2021
Common Equity Tier 1 capital (to
risk‑weighted assets)
$
75,554
29.6 % $ ≥
11,467 ≥
4.5 % $ ≥
16,564 ≥
6.5 %
Tier 1 capital (to risk‑weighted assets)
75,554
29.6
≥
15,290 ≥
6.0
≥
20,386 ≥
8.0
Total capital (to risk‑weighted assets)
77,984
30.6
≥
20,386 ≥
8.0
≥
25,483 ≥
10.0
Tier 1 capital (to average assets)
75,554
21.4
≥
14,137 ≥
4.0
≥
17,671 ≥
5.0
December 31, 2020
Common Equity Tier 1 capital (to
risk‑weighted assets)
$
73,665
33.1 % $ ≥
10,018 ≥
4.5 % $ ≥
14,471 ≥
6.5 %
Tier 1 capital (to risk‑weighted assets)
73,665
33.1
≥
13,358 ≥
6.0
≥
17,810 ≥
8.0
Total capital (to risk‑weighted assets)
76,448
34.3
≥
17,810 ≥
8.0
≥
22,263 ≥
10.0
Tier 1 capital (to average assets)
73,665
25.2
≥
11,700 ≥
4.0
≥
14,625 ≥
5.0
NOTE 17 – Intangible Assets
The core deposit premium intangible asset had a gross carrying amount of $530 and accumulated amortization of $214 at
December 31, 2021. The core deposit premium intangible asset had a gross carrying amount of $530 and accumulated
amortization of $106 at December 31, 2020. Aggregate amortization expense for the years ended December 31, 2021 and 2020
was $108 and $16, respectively.
The following table shows the estimated future amortization of the core deposit premium intangible asset for the next five years.
The projections of amortization expense are based on existing asset balances:
As of December
31, 2021
2022
95
2023
82
2024
60
2025
40
2026
26
NOTE 18 – Deferred Compensation
The Company has entered into various deferred compensation agreements with key officers. The liability outstanding under the
agreements was $422 at December 31, 2021 and $450 at December 31, 2020. The amount charged to operations was $23 and
$55 for the twelve months ended December 31, 2021 and 2020, respectively.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-37
NOTE 19 – Employee Stock Ownership Plan
The Company maintains a leveraged employee stock ownership plan (“ESOP”) that covers substantially all employees. The
ESOP was established in conjunction with the Company’s stock offering completed in October 2017 and operates on a plan year
ending December 31. The loan to fund the acquisition of stock by the ESOP was made by the Company. An additional loan to
the ESOP was made by the Company in conjunction with the Plan of Conversion in 2020. The Bank makes annual contributions
to the ESOP equal to the ESOP’s debt service. The ESOP shares initially were pledged as collateral for this debt. As the debt is
repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in
the year. Because the debt is intercompany, it is eliminated in consolidation for presentation in these financial statements. The
shares pledged as collateral are reported as unearned ESOP shares in the balance sheet.
As shares are committed to be released from collateral and allocated to active participants, the Company reports compensation
expense equal to the current market price of the shares and the shares will become outstanding for earnings-per-shares (EPS)
computations. During the years ended December 31, 2021 and 2020, 30,584 and 30,584 shares were committed to be released,
respectively. During the year ended December 31, 2021 the average fair value per share of stock was $11.38 resulting in total
ESOP compensation expense of $347 for the year ended December 31, 2021. During the year ended December 31, 2020 the
average fair value per share of stock was $9.30 resulting in total ESOP compensation expense of $279 for the year ended
December 31, 2020. The ESOP shares as of December 31 were as follows:
December 31, 2021 December 31, 2020
Shares allocated to active participants
62,305
33,861
Shares committed to be released and allocated to participants
30,584
30,584
Shares distributed
—
(2,140)
Total unallocated shares
550,509
581,093
Total ESOP shares
643,398
643,398
Fair value of unallocated shares (based on $11.80 and $10.02 share price at December 31,
2021 and December 31, 2020, respectively)
$
6,496
$
5,823
NOTE 20 - Share-based Compensation Plans
ASC Topic 718 requires that the grant date fair value of equity awards to employees be recognized as compensation expense
over the period during which an employee is required to provide service in exchange for such awards.
The following table summarizes the impact of the Company’s share-based payment plans in the financial statements for the
period shown:
Year Ended
December 31,
2021
2020
Total cost of stock grant plan during the year
$
227
$
177
Total cost of stock option plan during the year
152
139
Total cost of share-based payment plans during the year
$
379
$
316
Amount of related income tax benefit recognized in income
$
94
$
85
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-38
The Company adopted the FFBW, Inc. 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”) in 2018. In
November 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan which authorized the issuance of up to
152,027 restricted stock awards and up to 380,066 stock options. As of December 31, 2021 there were 41,257 restricted stock
awards and 81,294 options available for future grants under this plan. In May 2021, the Company’s stockholders approved the
FFBW, Inc. 2021 Equity Incentive Plan which authorized the issuance of up to 170,742 restricted stock awards and up to
426,857 stock options. As of December 31, 2021 there were 161,242 restricted awards and 391,857 options available for future
grants under this plan.
Shares granted under these Equity Incentive Plans may be authorized but unissued, currently held or, to the extent permitted by
applicable law, subsequently acquired by the Company as treasury shares, including shares purchased in the open market or in
private transactions. Forfeited or canceled shares shall not be deemed to have been delivered for purposes of determining the
maximum number of shares of stock available for delivery under the Plan.
Options are granted with an exercise price equal to no less than the market price of the Company’s shares at the date of grant
and generally vest pro-rata over five years of service and have 10-year contractual terms. Restricted shares typically vest pro-
rata over a five year period, 20% per year beginning one year from the issuance date. Under the FFBW, Inc. 2021 Equity
Incentive Plan, certain restricted shares to Board of Director members vest in one year.
The following table summarizes stock options activity for the years ended December 31, 2021 and 2020:
Outstanding
Weighted
Weighted
Average
Average
Remaining
Aggregate
Stock Option
Exercise
Contractual
Intrinsic
Awards
Price
Term (years)
Value
Options outstanding as of December 31, 2020
269,220
$
10.51
Granted
76,000
11.27
Exercised
(6,942)
10.14
Expired or cancelled
(2,346)
10.64
Forfeited
(19,057)
10.01
Options outstanding as of December 31, 2021
316,875
$
10.73
7.51
$ 342,758
Options exercisable as of December 31, 2021
126,520
$
10.72
7.05
$ 137,049
Weighted
Average
Weighted
Remaining
Aggregate
Average
Contractual
Intrinsic
Number of
Exercise
Term (in
Value (in
Options
Price
years)
thousands)
Options outstanding as of December 31, 2019
260,510
$
10.79
Granted
46,716
9.10
Exercised
—
—
Expired or canceled
—
—
Forfeited
(38,006)
10.73
Options outstanding as of December 31, 2020
269,220
$
10.51
8.26
$
—
Options exercisable as of December 31, 2020
81,959
$
10.81
7.98
$
—
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-39
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on
certain assumptions. Since the Company does not have sufficient historical fair value estimates of its stock, the Company
calculates expected volatility using the historical volatility of the Dow Jones U.S. Financial Services Index. The risk-free interest
rate for periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the time of the
grant. The expected life of options is estimated based on the assumption that options will be exercised evenly throughout their
life after vesting and represents the period of time that options granted are expected to remain outstanding.
Weighted
Average
Number of
Grant Date Fair
Options
Value
Nonvested options outstanding as of December 31, 2020
187,256
3.06
Granted
76,000
3.29
Vested
(53,844)
3.16
Forfeited
(19,057)
2.69
Options outstanding as of December 31, 2021
190,355
$
3.16
The following assumptions were used for options granted during the years ended December 31:
2021
2020
Risk-free interest rate
1.26 %
0.52 %
Expected volatility
23.86 %
22.91 %
Expected dividend yield
0 %
0 %
Expected life of options (years)
7.5
7.5
Weighted average fair value per option of options granted during the year
$
3.29
$
2.38
The following is a summary of changes in restricted shares for the years ended December 31, 2021 and 2020:
Weighted
Average
Number of
Grant Date Fair
Shares
Value
Nonvested stock awards as of December 31, 2020
62,067
$
10.73
Granted
22,750
11.35
Vested
(19,561)
10.77
Forfeited
(5,519)
10.08
Nonvested stock awards as of December 31, 2021
59,737
$
11.02
Nonvested stock awards as of December 31, 2019
90,790
$
10.79
Granted
2,500
9.10
Vested
(19,064)
10.81
Forfeited
(12,159)
10.73
Nonvested stock awards as of December 31, 2020
62,067
$
10.73
As of December 31, 2021, there was $1.0 million of total unrecognized compensation cost related to non-vested share-based
compensation arrangements (including share option and non-vested share awards) granted under both Equity Incentive Plans. At
December 31, 2021, the weighted-average period over which the unrecognized compensation expense is expected to be
recognized was approximately 3.0 years.
Table of Contents
FFBW, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
(Dollars in thousands, except share data)
F-40
NOTE 21 – BUSINESS COMBINATION
On December 31, 2020, the Company acquired substantially all of the assets and assumed substantially all of the liabilities of
Mitchell Bank pursuant to the Purchase and Acquisition Agreement dated July 24, 2020. The assets acquired and the liabilities
assumed from Mitchell Bank were recorded at their fair value as of the closing date of the acquisition. Fair values are
preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information
regarding fair values becomes available. A bargain purchase gain of $7,000 was recorded at the time of the acquisition. The
following table summarizes the consideration paid by the Company in the acquisition of Mitchell Bank and amounts of the
assets acquired and liabilities assumed recognized at the acquisition date:
As Recorded
Fair Value and Other
As Recorded
by Mitchell Bank Merger Related Adjustments by the Company
Consideration Paid
Cash
$
4,978
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and due from banks
$
38,266 $
- $
38,266
Securities
7,133
16
7,149
Other equity securities
51
177
228
Loans, net of allowance
14,512
(217)
14,295
Premises and equipment
529
499
1,028
Core deposit intangibles
-
369
369
Accrued interest receivable
83
-
83
Foreclosed assets
185
(60)
125
Deferred tax asset
228
(228)
-
Other assets
209
(88)
121
Total assets acquired
$
61,196 $
468 $
61,664
Deposits
$
56,641 $
- $
56,641
Other liabilities
38
-
38
Total liabilities assumed
$
56,679 $
- $
56,679
Total identifiable assets
$
4,517 $
468 $
4,985
Bargain purchase gain resulting from acquisition
$
(7)
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FFBW, Inc.
Date: March 24, 2022
By: /s/ Edward H. Schaefer
Edward H. Schaefer
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Edward H. Schaefer
President, Chief Executive Officer and
Director (Principal Executive Officer)
March 24, 2022
Edward H. Schaefer
/s/ Steven L. Wierschem
Chief Financial Officer (Principal
Financial Officer)
March 24, 2022
Steven L. Wierschem
/s/ Leann Eddingsaas
Principal Accounting Officer
March 24, 2022
Leann Eddingsaas
/s/ James A. Tarantino
Chairman of the Board
March 24, 2022
James A. Tarantino
/s/ Kathryn Gutenkunst
Director
March 24, 2022
Kathryn Gutenkunst
/s/ JoAnne Anton
Director
March 24, 2022
JoAnne Anton
/s/ James P. Lenahan
Director
March 24, 2022
James P. Lenahan
/s/ DeVona Wright Cottrell
Director
March 24, 2022
DeVona Wright Cottrell
/s/ Michael J. Pjevach
Director
March 24, 2022
Michael J. Pjevach
/s/ Jose A. Olivieri
Director
March 24, 2022
Jose A. Olivieri
/s/ Christine A. Specht
Director
March 24, 2022
Christine A. Specht
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (No. 333-22897) on Form S-8 of FFBW, Inc. of our
report dated March 24, 2022, relating to the consolidated financial statements of FFBW, Inc., appearing in this Annual Report on
Form 10-K of FFBW, Inc. for the year ended December 31, 2021.
Wipfli LLP
Milwaukee, Wisconsin
March 24, 2022
EXHIBITS 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Edward H. Schaefer, certify that:
1. I have reviewed this annual report on Form 10-K of FFBW, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
March 24, 2022
/s/ Edward H. Schaefer
Edward H. Schaefer
President and Chief Executive Officer
EXHIBITS 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Steven L. Wierschem, certify that:
1. I have reviewed this annual report on Form 10-K of FFBW, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
March 24, 2022
/s/ Steven L Wierschem
Steven L. Wierschem
Chief Financial Officer and Principal Financial Officer
EXHIBIT 32
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Edward H. Schaefer, President and Chief Executive Officer and Steven L. Wierschem, Chief Financial Officer and Principal Financial Officer
of FFBW, Inc. (the “Company”) each certify in their capacity as officers of the Company that they have reviewed the Annual Report of the
Company on Form 10-K for the year ended December 31, 2021 and that to the best of their knowledge:
(1) the Report fully complies with the requirements of Sections 13(a) of the Securities Exchange Act of 1934; and
(2) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
March 24, 2022
/s/ Edward H. Schaefer
Date
Edward H. Schaefer
President and Chief Executive Officer
March 24, 2022
/s/ Steven L. Wierschem
Date
Steven L. Wierschem
Chief Financial Officer and Principal Financial Officer