EAU CLAIRE, Wis., April 27, 2018 — Citizens Community Bancorp, Inc. (the “Company”) (Nasdaq:CZWI), the parent company of Citizens Community Federal N.A. (the “Bank”), today reported earnings increased 44% to $1.34 million, or $0.23 per diluted share in Q2 fiscal 2018, compared to $934,000, or $0.17 per diluted share one year earlier. The Q2 fiscal 2018 operations reflect continued investment in our commercial lending platform, including the addition of four commercial bankers offset by seasonally lower gain on sale income from mortgage originations in the quarter. The investment in commercial bankers resulted in approximately $210,000 recorded in both the compensation and benefits and other non-interest expense line items on the Consolidated Statement of Operations during the quarter and we expect this investment to increase net income in future periods. For the six months ended March 31, 2018, earnings increased 43% to $2.68 million, or $0.45 per diluted share from $1.87 million, or $0.35 per diluted share for the six months ended March 31, 2017.
Core earnings (non-GAAP) matched reported GAAP earnings, on a per share basis, as there were no material revenues or expenses for Q2 fiscal 2018 that would affect core earnings. Historically, core earnings (non-GAAP) have excluded merger and branch closure expenditures and the net impact of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) which are itemized on the accompanying financial table “Reconciliation of GAAP Earnings (loss) and Core Earnings (non-GAAP)”.Core earnings is a non-GAAP measure that management believes enhances investors' ability to better understand the underlying business performance and trends related to core business activities. For a detailed reconciliation of GAAP to non-GAAP results, see the accompanying financial table “Reconciliation of GAAP Earnings (loss) and Core Earnings (non-GAAP)”.“Our second fiscal quarter financial results were somewhat below our expectations, as prolonged winter conditions and somewhat higher interest rates impacted our mortgage business. We continue to make progress in growing our commercial loan portfolio and invested in additional commercial bankers to support our organic growth and M&A strategy. Community Banking loans excludes the legacy loan portfolio consisting of indirect paper and one to four family portfolio loans. This together with the planned runoff of our legacy portfolio, have reduced our exposure to these transactional loans from 57% to 42% of total loans from the prior year period. We added four commercial bankers to our team and expect continued loan growth in our core lending portfolio which focuses on C&I, commercial real estate, agricultural and multi-family lending,” said Stephen Bianchi, President and Chief Executive Officer. “Our commercial banking platform has been substantially updated over the past two years through technology and personnel, and we remain committed to enhancing the value of our franchise to our shareholders.”Q2 Fiscal 2018 Financial Highlights: (at or for the periods ended March 31, 2018, compared to March 31, 2017 and /or December 31, 2017)Net income reflected earnings of $1.34 million in Q2 fiscal 2018, compared to $934,000 a year ago, and $1.34 million in Q1 fiscal 2018.Net interest margin (NIM) remained stable at 3.40% for the current quarter, compared to 3.42% for Q1 fiscal 2018 and improved 9 basis point from 3.31% a year earlier.Loan loss provision was $100,000 in Q2 fiscal 2018 relative to $100,000 the previous quarter as the core loan portfolio continues to expand.Total non-interest income declined to $1.68 million in Q2 fiscal 2018, compared to $1.94 million in Q1 fiscal 2018 and increased from $1.13 million one year earlier. The current quarter reflects lower loan fees and gains on the sale of mortgage loans relative to the prior quarter due in part to seasonally slower mortgage loan activity during the winter months.Total non-interest expense for Q2 fiscal 2018 of $7.10 million compared similarly to Q1 fiscal 2018 at $7.14 million.Net loans were $715.2 million at March 31, 2018, compared to $725.1 million at December 31, 2017, reflecting a decline in one-to-four family loans and indirect lending.Total deposits were $748.6 million at March 31, 2018, compared to $741.1 million at December 31, 2017 and $530.9 million at March 31, 2017.The allowance for loan and lease losses (“ALLL”) was 0.82% of total loans at March 31, 2018, compared to 0.80% one quarter earlier.Nonperforming assets (“NPA”) were $14.0 million, or 1.49% of total assets at March 31, 2018, compared to $14.2 million, or 1.50% of total assets at December 31, 2017.Bank capital ratios exceeded regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2018:Balance Sheet and Asset Quality ReviewTotal assets were $940.4 million at March 31, 2018, compared to $943.0 million at December 31, 2017, and $668.5 million at March 31, 2017. The increase in total assets from a year ago was primarily due to the acquisition of Wells Financial completed in August 2017.Loan balances decreased 1% from the linked quarter due to the reduction of the legacy loans portfolio. At March 31, 2018, commercial, agricultural, multi-family and construction real estate loans totaled 42% of the total loan portfolio, versus 39% for the prior quarter and 31% one year earlier. One-to-four family residential and home equity real estate loans represented 31% of the total loan portfolio versus 32% for the preceding quarter, while consumer related non-real estate loans totaled 16% of the total loan portfolio versus 17% the preceding quarter.The allowance for loan and lease losses was largely unchanged at March 31, 2018 and totaled $5.9 million, representing 0.82% of total loans, compared to $5.9 million and 0.80% of total loans at December 31, 2017. Net charged off loans totaled $72,000 for the second quarter ended March 31, 2018 compared to $183,000 for the quarter ended December 31, 2017.Nonperforming assets were $14.0 million, or 1.49% of total assets at March 31, 2018 compared to $14.2 million, or 1.50% of total assets at December 31, 2017. Included in nonperforming assets are approximately $6.3 million of REO properties acquired from the Wells Financial acquisition. The Bank is actively working to resolve non-performing loans as well as selling owned real estate properties.Deposits totaled $748.6 million at March 31, 2018, compared to $741.1 million at December 31, 2017, and $530.9 million at March 31, 2017. Noninterest-bearing deposits increased to $79.9 million at March 31, 2018, compared to $78.7 million at December 31, 2017, and $45.7 million at March 31, 2017.Federal Home Loan Bank (“FHLB”) advances decreased to $85.0 million at March 31, 2018, compared to $94.0 million at December 31, 2017. Other borrowings decreased slightly to $29.5 million at March 31, 2018, compared to $29.9 million at December 31, 2017. The Bank has used borrowings and equity capital to fund acquisitions of other financial institutions, branch closings and FHLB advances to support organic loan growth.Tangible book value per share (non-GAAP) was $9.82 at March 31, 2018, compared to $9.98 at December 31, 2017. The slight decrease in tangible book value per share was due to the payment of dividends, additional unearned deferred compensation and accumulated other comprehensive losses on available for sale securities due to the higher interest rate environment.As noted above, capital ratios for the Bank continued to remain well above regulatory requirements.Review of OperationsNet interest income was $7.4 million for Q2 fiscal 2018, compared to $7.5 million for Q1 fiscal 2018 and $5.2 million one year earlier. For the six months ended March 31, 2018, net interest income was $14.9 million compared to $10.8 million for the six months ended March 31, 2017. The net interest margin (“NIM”) was 3.40% for Q2 fiscal 2018, compared to 3.42% one quarter earlier and 3.31% for the like quarter one year earlier. The increase in the NIM relative to the prior year was supported by higher yields on loans and lower cost of funds.Loan yields increased to 4.77% for Q2 fiscal 2018 compared to 4.72% one quarter earlier and 4.57% for Q2 fiscal 2017. Meanwhile, deposit costs increased slightly to 0.76% for Q2 fiscal 2018 from 0.72% one quarter earlier and declined from 0.88% for Q2 fiscal 2017. Costs on the FHLB and other borrowings increased to 2.57% for Q2 fiscal 2018 from 2.33% one quarter earlier and 1.34% for the quarter ended Q2 2017. For the six months ended March 31, 2018, the NIM increased to 3.42% from 3.34% for the six months ended March 31, 2017.For Q2 fiscal 2018, provision for loan losses totaling $100,000 was recorded equal to the provision taken in Q1 fiscal 2018, both of which are responsive to organic loan growth. Net charge offs were down to $72,000 for Q2 fiscal 2018, compared to $183,000 for Q1 fiscal 2018. Allowance for loan and lease losses to total loans was 0.82%, at March 31, 2018, compared to 0.80% at December 31, 2017.Total non-interest income was $1.68 million for Q2 fiscal 2018 compared to $1.94 million for Q1 fiscal 2018 and $1.13 million for Q2 fiscal 2017. The lower level of non-interest income primarily relates to lower gains on the sale of mortgage loans originated and lower loan fees and service charges. The lower level of mortgage origination relates to the seasonality of home sales with fewer sales during the winter months and the slight increase in mortgage lending rates due to the higher interest rate environment. For the six months ended March 31, 2018, non-interest income totaled $3.61 million compared to $2.37 million for the six months ended March 31, 2017.Total non-interest expense was $7.1 million for Q2 fiscal 2018 compared to $7.1 million for Q1 fiscal 2018 and $5.0 million for Q2 fiscal 2017. Total non-interest expense for the second quarter includes increased compensation and benefit expenses and other expenses resulting from the addition of new commercial bankers partially offset by lower professional fees. For the six months ended March 31, 2018, total non-interest expenses totaled $14.2 million compared to $10.4 million for the six months ended March 31, 2017. The higher expenses for the six-month period primarily relate to increased costs associated with the acquisition of Wells Financial Corp.Provisions for income taxes were $487,000 for Q2 fiscal 2018 compared to $883,000 for Q1 fiscal 2018 and $459,000 for Q2 fiscal 2017. The effective tax rate for Q2 fiscal 2018 was 26.6% compared to 39.7% one quarter earlier and 33.0% for Q2 fiscal 2017. For the six months ended March 31, 2018, the effective tax rate was 33.8% compared to 33.1% for the six months ended March 31, 2017. The six-month period ended March 31, 2018 was impacted by the revaluation of its net deferred tax assets. The Tax Cuts and Jobs Act of 2017 (“the Tax Act”), enacted on December 22, 2017, reduces the corporate Federal income tax rate for the Company from 34% to 24.5% in fiscal 2018 and 21% in fiscal 2019. Additionally, the Tax Act made other changes to U.S. corporate income tax laws.These financial results are preliminary until the Form 10-Q is filed in May 2018.About the CompanyCitizens Community Bancorp, Inc. (NASDAQ:CZWI) is the holding company of Citizens Community Federal N.A., a national bank based in Altoona, Wisconsin, serving customers in Wisconsin, Minnesota and Michigan through 21 branch locations. Its primary markets include the Chippewa Valley Region in Wisconsin, the Twin Cities and Mankato, MN, and various rural communities around these areas. The company offers traditional community banking services to businesses, Ag operators and consumers, including one-to-four family mortgages. The company’s recently completed merger with Wells Federal Bank of Wells, MN expands its market share in Mankato and southern Minnesota and added seven branch locations along with expanded services through Wells Insurance Agency.Cautionary Statement Regarding Forward-Looking StatementsCertain statements contained in this release are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would” or the negative of those terms or other words of similar meaning. Such forward-looking statements in this release are inherently subject to many uncertainties arising in the operations and business environment of Citizens Community Federal N.A. (“CCFBank”). These uncertainties include conditions in the financial markets and economic conditions generally; the possibility of a deterioration in the residential real estate markets; interest rate risk; lending risk; the sufficiency of loan allowances; changes in the fair value or ratings downgrades of our securities; competitive pressures among depository and other financial institutions; our ability to realize the benefits of net deferred tax assets; our ability to maintain or increase our market share; acts of terrorism and political or military actions by the United States or other governments; legislative or regulatory changes or actions, or significant litigation, adversely affecting the CCFBank; increases in FDIC insurance premiums or special assessments by the FDIC; disintermediation risk; our inability to obtain needed liquidity; our ability to raise capital needed to fund growth or meet regulatory requirements; the possibility that our internal controls and procedures could fail or be circumvented; our ability to attract and retain key personnel; our ability to keep pace with technological change; cybersecurity risks; risks posed by acquisitions and other expansion opportunities; changes in accounting principles, policies or guidelines and their impact on financial performance; restrictions on our ability to pay dividends; and the potential volatility of our stock price. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Such uncertainties and other risks that may affect the Company’s performance are discussed further in Part I, Item 1A, “Risk Factors,” in the Company’s Form 10-K, for the year ended September 30, 2017 filed with the Securities and Exchange Commission (“SEC”) on December 13, 2017 and the Company's subsequent filings with the SEC. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this news release or to update them to reflect events or circumstances occurring after the date of this release.Non-GAAP Financial MeasuresThis press release contains non-GAAP financial measures, which management believes may be helpful in understanding the Company's results of operations or financial position and comparing results over different periods. Non-GAAP measures eliminate the impact of certain one-time expenses such as acquisition and branch closure costs and related data processing termination fees, legal costs, severance pay, accelerated depreciation expense and lease termination fees and the net impact of the Tax Cuts and Jobs Act of 2017. Merger related charges represent expenses to either satisfy contractual obligations of acquired entities without any useful benefit to the Company or to convert and consolidate customer records onto the Company platforms. These costs are unique to each transaction based on the contracts in existence at the merger date. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other banks and financial institutions.Steve Bianchi, CEO
(715)-836-9994CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets (unaudited)
(in thousands)Note: Certain items previously reported were reclassified for consistency with the current presentation.CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)Note: Certain items previously reported were reclassified for consistency with the current presentation.Reconciliation of GAAP Earnings (loss) and Core Earnings (non-GAAP):(1) Costs incurred are included as data processing, advertising, marketing and public relations, professional fees and other non-interest expense in the consolidated statement of operations.
(2) Branch closure costs include severance pay recorded in compensation and benefits, accelerated depreciation expense and lease termination fees included in occupancy and other costs included in other non-interest expense in the consolidated statement of operations. In addition, other non-interest expense includes costs related to the valuation reduction of the Ridgeland branch office in the fourth quarter of fiscal 2017.
(3) Core earnings is a non-GAAP measure that management believes enhances investors' ability to better understand the underlying business performance and trends related to core business activities.
(4) Provision for income tax on core earnings is calculated at 24.5% for all quarters in fiscal 2018 and at 34% for all quarters in the prior fiscal year, which represents our federal statutory tax rate for each respective period presented.
(5) As a result of the Tax Cuts and Jobs Act of 2017, we recorded a one-time net tax provision of $275 in December 2017, which is included in provision for income taxes expense in the consolidated statement of operations.
(6) Reconciliation of tangible book value:Nonperforming Assets:Nonaccrual Loans Rollforward:Other Real Estate Owned Rollforward:Troubled Debt Restructurings in Accrual StatusLoan Composition – DetailTo better help understand the Bank's loan trends, we have added the below table. The loan categories and amounts shown are the same as on the following page and are presented in a different format. The Community Banking loan portfolios reflect the Bank's strategy to grow its commercial banking business and consumer lending. The Legacy loan portfolios reflect the Bank's strategy to sell substantially all newly originated one to four family loans in the secondary market and the discontinuation of originated and purchased indirect paper loans, effective in the first quarter of fiscal 2017.Loan Composition:Deposit Composition:Average balances, Interest Yields and Rates:(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 24.5% for the quarters ended March 31, 2018 and December 31, 2017. The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 34% for the quarter ended March 31, 2017. The FTE adjustment to net interest income included in the rate calculations totaled $52, $53 and $72 for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017, respectively.(1) Fully taxable equivalent (FTE). The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 24.5% and 34% for the six months ended March 31, 2018 and March 31, 2017, respectively. The FTE adjustment to net interest income included in the rate calculations totaled $105 and $144 for the six months ended March 31, 2018 and March 31, 2017, respectively.CITIZENS COMMUNITY FEDERAL N.A.
Selected Capital Composition Highlights (unaudited)
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